Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kore Group Holdings Inc reported a 15.2% year-over-year increase in first quarter revenue, reaching $76 million.
- IoT connectivity revenue grew by 33% year-over-year, driven by the Trulia IoT acquisition, and now represents 76% of total revenue.
- Adjusted EBITDA for Q1 2024 increased by approximately 11% compared to last year, totaling $14.8 million.
- The company successfully closed an incremental $52 million of TCV in Q1, building upon five years of TCV growth.
- Kore Group Holdings Inc has been named a leader by Gartner in the Magic Quadrant for Managed IoT connectivity services worldwide for the fifth consecutive time.
Negative Points
- IoT Solutions revenue declined by 19% year-over-year due to reduced volumes from a major customer and the decision to turn away low margin hardware deals.
- Total connections decreased by 200,000 from the previous quarter, reflecting deactivations of low RPU connections from a European customer.
- Operating expenses in Q1 2024 increased by $4.8 million or 10.8% compared to Q1 2023, primarily due to headcount related costs from the Twilio IoT acquisition.
- Interest expenses increased year-over-year to $12.9 million due to higher borrowing costs on refinanced debt and preferred stock placement.
- The Dollar Base Net Expansion Rate (DBNER) for the 12 months ended March 31, 2024, was 94%, down from 107% in the prior year, indicating a slowdown in growth from existing customers.
Q & A Highlights
Q: Could you talk about the trends in the pipeline that you saw in the quarter and are seeing today halfway through the second quarter?
A: Paul Holtz, EVP, CFO & Treasurer, noted a decline in total contract value from $28 million to $26 million, excluding a significant win. However, he mentioned that the pipeline fluctuates quarterly and is conservative in recognizing closed deals. For Q2, they are already seeing around $19 million, indicating good traction and expected growth throughout the year.
Q: Is the projected growth in connectivity revenue for 2024 organic or reported? What's driving this acceleration?
A: Paul Holtz explained that the mid to upper 10s growth includes the Trillium acquisition. Organic growth is in the double digits, around 10-11%. He highlighted that timing of deal closures will influence the organic growth rate, but they have good visibility and confidence in achieving these numbers.
Q: How much of the reduction in IoT solutions volumes from your largest customers was a surprise?
A: Ron Totton, Interim President & CEO, clarified that the reduction was anticipated and factored into their budget and forecasts. The decline was linked to a large LTE transition project that had been ongoing.
Q: Can you provide insights into the sustainability of the product gross margins and the outlook for OpEx?
A: Paul Holtz affirmed that Q1's connectivity margins are expected to be normal going forward, forecasting between 60% and 61%. He also mentioned that Q1 typically has higher OpEx due to one-time factors like payroll taxes and audit fees, but they anticipate a decrease starting in Q2.
Q: Could you discuss the differentiation of KORE's services and the focus on free cash flow?
A: Ron Totton emphasized the differentiation in offering comprehensive solutions and connectivity that align closely with customer business growth. Regarding free cash flow, he highlighted the importance of operational efficiency and cost management as key priorities.
Q: What are the key verticals in your bookings and pipeline, and what is the expected cash flow from operations as a percentage of EBITDA this year?
A: Paul Holtz reiterated that healthcare and fleets remain the top verticals, with high-bandwidth use cases rising. He projected the cash flow from operations could be around $10 million against an EBITDA midpoint guidance of $60-65 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
