Release Date: April 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KORE fourth quarter revenue of $72.4 million increased 16% year-over-year, driven by an acceleration in high-margin IoT connectivity.
- KORE launched a pioneering eSIM powered medical alert device, showcasing innovation and addressing societal challenges with IoT.
- Recognition from industry analysts, including Gartner, for managed IoT connectivity services, reinforcing KORE's market leadership.
- A significant win with a $26 million TCV for a connected health telemetry solution, demonstrating KORE's ability to manage complex medical device deployments.
- KORE's sales pipeline includes over 1,600 opportunities with an estimated potential TCV of approximately $545 million, indicating strong future growth potential.
Negative Points
- A decline in low margin IoT Solutions revenue partially offset the growth in IoT connectivity.
- Unexpected customer order deferrals in Q4, including from KORE's largest customers, impacted financial results.
- The company decided to reduce exposure to low margin hardware revenue, resulting in a reduction in TCV pipeline and lower projection of IoT Solutions revenue in 2024.
- Total gross margin in Q4 2023 was 52.6%, a decline of 150 basis points compared to the fourth quarter of 2024.
- Net loss in the fourth quarter was $33.7 million compared to $69.6 million in the prior year, although the decline was mainly due to a non-cash goodwill impairment charge in Q4 2022.
Q & A Highlights
Q: Good morning. Thanks for taking the questions. Rommel, maybe just to dive in on the 2024 outlook on looks like it sounds like you're looking for double digit growth on the connectivity side of the equation. I'm wondering if you could give us a little bit of color on as well is connected units and how you're thinking about our Boost. If we were bottoming out, it seems like there's some low end end of life, our connections that are now gone.
A: Romil Bahl, President & CEO of KORE Group Holdings, responded by affirming that the 2G and 3G sunsets are behind them, and with the stabilization of ARPU, they expect a reacceleration in their high-margin IoT connectivity business. He mentioned that they have seen stabilization to slight increase in ARPU from $0.95 to about $0.98 or $0.99, and Q1 is coming in at a buck and a half. Bahl expressed confidence in the company's positioning and the growth of the IoT market, expecting 2024 to be a great year for organic connectivity growth.
Q: Yes, that was perfect. Nice to hear the increase in the ARPU, but the just to translate the TCVs and into what an ARR. opportunity looks like. So the annual recurring revenue gap opening up yet.
A: Bahl explained that their sales pipeline now includes over 1,600 opportunities with an estimated potential TCV of approximately $545 million. He noted that the majority of closed TCV is recognized as revenue over four years and that the close TCV figure is aggregated across all of their services, which have different durations of revenue recognition. He also mentioned that their recurring revenue starts with a base of 70% to 80%, and with the additional private sector they get from their solutions customers, the 87% should be stable or maybe even increasing.
Q: And one last one if I could. On the respiratory telemetry which is very interesting. You guys have historically been very strong, I think, in cardiac telemetry. How big is the respiratory telemetry market? And are there some bigger opportunities behind this as we look into the current year and beyond that?
A: Bahl highlighted the significance of their win in the respiratory telemetry market, which is growing faster than cardiac rhythm monitoring. He mentioned that they are looking at about 50 opportunities in the Connected Health clinical trial space in Europe, with about 20% focused on respiratory areas. He believes that respiratory therapies are an exciting segment of Connected Health, not total, and growing fast.
Q: Great. Good morning. Thanks very much, um. Yes, we're well on the on this decision to focus more on higher end hardware, reduce the lower margin hardware business can you just elaborate on that a little bit?
A: Bahl explained that they are not a hardware manufacturer and have only resold other parties' devices to simplify complexity for the customer. However, they found that hardware revenue was introducing volatility and lumpiness into their business, which is largely recurring in nature. They decided to reduce reliance on low-margin hardware revenue, which was about 25% to 30% of their funnel. They will continue to provide hardware if essential to winning a customer contract but will not let it be a drag on overall margins. Paul Holtz, CFO, added that they are forecasting a decline in IoT Solutions revenue due to the reduction of lower-margin hardware business.
Q: And I guess just on the some of the macro here, you know, can you talk just you guys have a pretty diverse view and wide and diversity into the IoT market? And what's your thought on the IoT market just kind of broadly this year? Is it accelerating stable, declining a little bit? And any kind of big-picture stuff that would be helpful.
A: Bahl expressed bullishness on the IoT market, citing trends such as the world wanting more connected devices, edge compute movement, higher bandwidth with 5G, and the convergence with satellite. He emphasized the significant opportunity with eSIMs, expecting billions to be shipped by the end of the decade, and believes KORE has a leading proposition in this area.
Q: And then just real quick one. Should we assume that first quarter is sort of low point of the year and you get some sequential growth from there? Or how should we think about the split pattern throughout the year?
A: Bahl confirmed that the first quarter is typically the low point of the year for KORE, and they expect it to be the largest quarter they've had in the last five or six. They anticipate growth on the top line and a decrease in OpEx as the year progresses, leading to an increase in profitability.
Q: This is Mary on for Meta. Thanks for taking our question. I want to ask you about the deferrals and do you have a sense of when those projects resume? And then what have been some of the hang ups to some of those?
A: Bahl explained that deferrals are largely due to industry-wide inventory levels that need to be used up, which will come back over the next few quarters as customers return to business as usual. He also mentioned that in the healthcare space, resources were reallocated due to pandemics, which delayed some clinical trials. He expects these issues to balance out over time and for Connected Health to be one of the best bets they've made.
