KORE Group Holdings, Inc. Q3 FY2024 earnings call

• Stabilized financial performance in a year of transition, completed restructuring. - Growth in recurring IoT connectivity revenue. - Strong TCV growth in Q3 driven by IoT connectivity wins, including new logos and upsells. - Growth in IoT connections, with over 300,000 sequential quarter-over-quarter growth. - Completed restructuring plan to streamline operations, enhance efficiency, and improve financial performance with no operational impact on customers and improved operational metrics. - Key customer wins in various industries including global IoT connectivity for industrial equipment, healthcare IoT connectivity, smart agriculture solutions, and remote patient monitoring.

Total revenue for the third quarter increased 0.4% year-over-year to $68.9 million. IoT Connectivity revenue was $56.7 million, up 3% year-over-year, representing 82% of third quarter revenue. IoT Solutions revenue declined 9% year-over-year to $12.2 million, or 18% of third quarter revenue. Non-GAAP margin percentage in Q3 2024 was 56.7%, an increase of 190 basis points compared to the prior year. Non-GAAP IoT Connectivity margin percentage was down 80 basis points year-over-year to 60.9%, while Non-GAAP IoT Solutions margin percentage was up 940 basis points year-over-year to 37%. Total connections at the end of the third quarter were 18.8 million, increasing 300,000 from the previous quarter, and ARPU was $1.01 compared to $0.98 in Q3 2023.

• Reaffirmed and tightened previous guidance. - Narrowed revenue outlook to $280 million to $285 million. - Narrowed adjusted EBITDA outlook to $54 million to $55 million. - Continues to see strong demand across IoT Connectivity offerings and strategic initiatives delivering as expected.

Q: Ron, my impression is that relative to a year ago, the Solutions business has been significantly deemphasized relative to Connectivity. Could you talk about how the strategy has changed and this pivot away from Solutions, why that's important, and what that suggests for the growth outlook going forward?

A: Sure. Thanks, Lance. I guess the way to look at it is, I think the -- I wouldn't say Solutions is deemphasized. I think prior commitments around low-margin hardware was certainly -- we've certainly moved away from. And I also think pricing and margin is a priority for us. So I would say that outside of moving away from some lower margin hardware or where there was minimal Connectivity contribution, we are still very focused on solutions. As I commented earlier, to me, Solutions can drive Connectivity revenue for those that, that's a part of the solution. So I wouldn't say that we're deemphasizing on it but maybe deemphasizing from low-margin hardware that didn't really contribute much to Connectivity.

Q: For Paul on the balance sheet. I'm not seeing the Q out yet or any balance sheet info in the release, but I'm guessing you have about $18 million of cash on hand. Could you talk a little bit about liquidity, the $25 million revolver? Do you have full access to that? Are there any borrowing base or covenant restrictions that could come into play? And just more generally, do you -- how do you feel about the liquidity picture over the next 12 months? And then on the debt load itself, you have about -- my model is $470 million, including the preferreds which are [PIK-ing] (ph) at around 13%. And it just feels out of proportion for a company with $55 million of EBITDA. So I'm wondering if there are any conversations with stakeholders around a restructuring of the debt or the preferreds? Or is it just sort of like hey, no, we think that we can reposition the company for accelerating growth and we're going to grow into this balance sheet. And just any sort of thoughts that you have on those topics, please.

A: Hi, thanks, Lance. So first, in particular as we had talked about or mentioned on here that cash flow is going to improve significantly. So going into next year, we will see a nice improvement in the free cash flow, which will help lead into the balance sheet as you indicate. I'm not going to lie to say that we don't have a lot of debt on the balance sheet. As you know, we are and we're continuing to look at options, if there is refinancing available, especially now with rates starting to come down and those sort of things. The Q should be out so hopefully, you'll get a chance to see it. But we have $18.6 million on the balance sheet right now, and we are expecting positive free cash flow for next year, which will give us the option whether or not we use that to pay down the PIK as part of the preferred shares or use it for acquisitions or so forth. But the comfort level is much higher now with where we see things going to 2025.

Q: Hi, this is Mary on for Meta. I just had a question on the macro trends that you're seeing. What have you seen in terms of like purchasing trends from customers? And what did trends like look like throughout the quarter? And is there any difference between verticals or types of customers that you are seeing?

A: Yes. Thanks Mary. In terms of macro trends, I mean I think for us, what we're finding is we're having -- we're seeing customers on a large-scale probably more RFP type situations for newer opportunities. I think that's probably one. I would say, I think, two, is people are also looking to optimize wherever they can, so with what they're spending, getting good value. And in terms of your question around verticals, I'm happy to tell you that the verticals that we're focusing on, we are seeing strong demand, which is obviously referenced in the TCV numbers. I think the growth in connections, I'd point you towards. That's definitely showing that where there's more connected devices on our network, the growth of those are increasing. So I know the macro landscape is a little cautious. For us, we're seeing healthy growth with new business and I would say strong growth with existing customers buying more. That's probably what I would say. But Paul, maybe if you have anything to add?

A: No, no. I think that the environment is -- it seems like it is improving to us. We are seeing customers come to think about transferring some of their business to us, consolidation and that sort of stuff. So the opportunities are there. It is just, again, the lead time to close them and so forth. But we're definitely seeing a robust opportunity pipeline.