Q2 2021 Advanced Energy Industries Inc Earnings Call
2021 financial results conference call, all participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be and opportunity to ask questions to ask a question. You May Press Star then 1 on your Touchtone phone and to withdraw your question. Please press Star then 2.
Please note that this event is being recorded I would now like to turn the conference over to Brian Alger Senior Vice President Investor Relations and capital markets. Please go ahead Sir.
Good afternoon, and welcome to Marathon and second quarter, 2021 conference call and Brian Alger Senior Vice President Investor Relations and capital markets. After the market closer day Marathon and issued a press release announcing results for the second quarter ended June 32021, the press release and other supplemental information is available and the investors section of our website.
Joining me for today's call are very Jones, Chairman and CEO, Chad Shelburne, President line, stubborn and CFO, Mike the Metro.
Following their remarks, we will open up the call for questions.
Please note that certain information discussed on the call. Today will include forward looking statements about future events, and virtual and business strategy and future financial and operating performance, including and its expected net revenues and non-GAAP net loss for the third quarter and full year of 2021. These forward looking statements are subject to risks uncertainties and assumptions that may cause the actual results to differ materially.
From those stated or implied by those statements certain of these risks and assumptions are discussed and bearish on SEC filings, including its annual report on form 10-K.
These forward looking statements are based on assumptions as of today August 3.2021, and baritone non undertakes no obligation to revise or update them.
This call the actual and forecasted financial measures, we will be discussing other than revenue will be presented on a non-GAAP basis unless noted otherwise reconciliations of these measures to the corresponding GAAP measures are included in the press release, we issued today. These non-GAAP measures include a breakout of our results between core operations and corporate.
Core operations consists of our AI, we're operating platform of software SaaS and related services or content licensing and advertising services and their supporting operations, including direct cost of sales as well as the operating expenses for our sales marketing and product development and to a lesser extent certain general and administrative costs corporate cash.
This principally of general and administrative functions, such as executive finance legal people entity and other areas that support the entire company, including any public company driven initiatives and supporting functions.
And finally, I would like to remind everyone that this call is being recorded and will be made available for replay via a link and the investors section I think company's web site at Www Dot baritone dot com now I would like to turn the call over to our chairman and CEO Ken Silver.
Chad.
Thank you, Brian and thanks to everyone for joining us on today's call Q2 was once again, another exceptional quarter severe tone from a financial perspective, we delivered 45% year over year revenue growth. This continued our performance as we achieved our fifth consecutive record quarter confidence and visibility.
And our continued growth are also improving and as a result today, we are raising our full year guidance from $81 million to $100 million and consolidated revenue at the midpoint of this updated guidance represents a 73% increase in revenue and 66% improvement and our bottom line over 2020.
On the technology front, we delivered <unk>, 3 data, which significantly expanded our core value proposition of accelerating and simplifying the adoption of artificial intelligence and AI operating system and Thats, both infrastructure and AI model agnostic.
This proprietary technology is foundational to our diversified and differentiated products and services that continue to lead the AI Revolution.
Our go to market strategy is also maturing and we continue to land new accounts and are rapidly expanding our product penetration within existing customers, which is a direct result of having immature AI platform with strong go to market partners. This organic land and expand strategy has been implemented across our 3 vertical business units.
Media Entertainment government and energy.
Our SaaS growth and net revenue retention rates remained over 90% and 120% respectively. So clearly our strategy is working.
Ryan will provide more detail on the success of each of our verticals and I'd like to highlight that we have successfully deployed our energy forecaster and controller solution to our lead energy utility customer in July. This important milestone is a precursor to what we continue to view as an unparalleled and disruptive force and the energy market.
And and obvious accelerant to baritones expansion.
Regarding continued expansion.
2 weeks ago, we signed a definitive agreement to acquire <unk> logic and AI enabled talent acquisition platform as a leading human capital management tool handle logic solution can be applied universally and has the potential to transform talent acquisition and extend the adoption of AI where across nearly every industry.
We expect this deal to close in late September of 2021 and be instantly accretive.
Ideally after closing, we expect to have over $70 million and cash no debt and a P&L at scale.
With this strong foundation, we intend to drive further adoption and explosive growth going into 2022.
Whether it be through organic development or inorganic combination. We believe we have inherent advantages driven by the power of AI, where debt lower customer acquisition costs and increase the total lifetime value of the customer and strength in both the depth and breadth of our customer relationships through artificial intelligence.
So when we announce acquisitions like Panda logic, the value creation extends well beyond the obvious financials, because we are expanding the integrated reach and penetration of both <unk> and the <unk> platform and consequently, exponentially growing our serviceable market across all verticals with that.
I would like to now to hand, the call over to Ryan, our President and co founder to discuss our operational achievements in greater detail.
Ryan.
Thank you Chad and good afternoon, everyone.
We achieved record results and Q2 and and our first half of 2021, reflecting a maturing platform and a business strategy that is gaining significant traction.
Our advertising and SaaS solutions revenues continued to post exceptionally strong growth and our content licensing revenues are recovering from pandemic constrained conditions.
For the 6 months to date total revenues are up 49% with SaaS solution revenues up 68% advertising revenues up 56% and our content licensing up 15%.
Solid growth across the board.
And Q2, our SaaS revenue grew by 86% year over year, and many contributed significantly as both renewals and new customer activity accelerated in the quarter and GLC quarterly revenues were up solid triple digits.
And yet the real story for SaaS was the bookings, which reached our largest bookings quarter ever 42% higher than our previously best quarter way back in Q4.2019.
Our first half advertising revenue growth at 56% continues to vastly outpaced peers.
Part of this is driven by gaining market share and signing new accounts. However, it's worth noting that on a year over year basis. We have also increased our average gross billings per active client by more than 16%.
Our AD network very ads is increasing its contribution and since it was launched at the end of 2019 has rapidly grown to more than $8 million annualized.
And finally content licensing also posted year over year growth.
Although it is still not quite back to pre pandemic levels content production around the globe continues to come back online.
We expect double digit growth as we leveraged the improving landscape and the market share gains secured over the past 18 months.
Looking forward into the second half of the year, we expect to build on the strong momentum already established in the first 6 months.
Through international expansion, new innovative offerings like Marvell dot AI deeper penetration and federal government agencies regulatory driven engagement at the stake and state and local level or through M&A like Panda logic, there John is accelerating both our tactical and strategic growth.
And now I will hand, it over to Mike for Metro our CFO to detail the financial results of the second quarter and outline our financial guidance for the third quarter and full year 2021, Mike.
Great. Thank you Ryan.
We are so excited about the recent progress at Verifone.
For the fifth consecutive quarter, we posted record results and Kpis.
We continue to make excellent progress and more nascent markets, such as GLC and energy and.
And in July we signed a definitive agreement for the accretive and strategic acquisition of Pandora logic.
During my prepared remarks, I will discuss our year over year performance in Q2 of 2021, compared with Q2 and 2020 as well as some commentary on our sequential performance versus Q1.2021.
The financial impact from the anticipated closing of Panda logic and 2021.
And annual 2000, and 'twenty, 1 guidance, which we raised significantly.
Turning to Q2.2021 performance.
Revenue was $19.2 million up 45% from Q2 of 2020.
Year over year, AI, where SaaS solutions revenue grew and astonishing 86%.
And $5.6 million and revenue compared with 3 point million revenue in Q2.2020.
Media and entertainment and government legal and compliance services drove this improvement.
Our revenue pipeline has never been stronger.
Our partner driven channel strategy continues to deliver results with new bookings of $3.6 million and Q2.2021.
Seeding the entirety of the past 2 quarters combined.
And the later delivery stages for energy, we continue to remain incredibly bullish on our pipeline and growth prospects and this multibillion dollar market opportunity and.
And we expect to announce material developments and new bookings and the upcoming months.
In addition, our AI, we're enabled advertising services grew by 42% year over year driven by both the ramp of our very adds network and growth from our agency services Lastly content licensing revenue grew to $3.7 million, a 13% improvement over Q2.2021.
Due in part to the growth and overall users of our content Library services and also by COVID-19 guidance.
We reported solid <unk> results and Q2 as mentioned our Q2.2021 bookings were $3.6 million up 92% sequentially and over 50% from Q2.2020.
Moreover, we continue to see better than industry Kpis, most notably Q2.2021 gross retention continues to exceed 90%.
And our net retention and exceeded 120% when compared to Q2.2020 year over year.
During Q2.2021, we also grew advertising agency gross billings per client too.
715000.
Up 16% over Q2.2020.
As we mentioned during our Q1 and 2021 call. We expected Q2, 2021 agency revenue and gross bookings to continue to outpace prior year.
Although expected slightly lower agency advertising sequentially from Q1, and 2020 line due to the timing of certain 1 time nonrecurring campaigns from a customer and Q1.
Our AI or SaaS solutions grew total accounts on the platform by 4% and Q2.2021 versus Q2 of 2020.
Q2, 2021, gross profit reached $14 million and.
Trailing $4.5 million or 47% from Q2 and 2020.
This increase was driven largely by the expansion of our <unk> SaaS solutions gross margins to 73, 8%.
And improvement of over 27% versus Q2.2020.
Sequentially AI, our SaaS margins continued to improve each quarter driven largely by the higher revenue level with a blended incremental margin of over 80% on new accounts.
And this reflects both customer growth across the platform and dramatically lower unit processing costs from efficiencies realized and our eyewear operating system.
Overall Q2 gross margins increased to 72, 8% and Q2.2021, compared with 71, 6% and Q2 of 2020.
As we continue to scale over the next 12 months to 24 months, including the planned addition, and Panda logic and late Q3.2021, we expect <unk> gross margins to exceed 80% as early as Q4.2021.
Excluding the impact from noncash and nonrecurring charges of $8.8 million Q2, non-GAAP net loss was $3.9 million, a $1.8 million or 32% improvement from Q2 and 2020. This was driven by increased core operations net income offset by relatively.
That corporate year over year.
And Q2 cooperations posted record non-GAAP net income of $1.4 million.
Compared with a non-GAAP net loss of <unk> 5 million and Q2.2020.
This $1.9 million year over year improvement was.
It was principally driven by the $4.5 million gross profit increase offset by greater investments across engineering product sales and marketing to drive current year plan results.
And Q2, corporate and non-GAAP net loss of $5.3 million was relatively flat when compared with $5.2 million and Q2.2020.
Turning to our balance sheet.
We ended Q2.2020 line with cash and restricted cash of $121.5 million.
Up $5.8 million from $115.7 million at December 31, 2020.
This increase was driven largely by net cash provided by financing activities of $7.1 million.
Offset by net cash used by operations of $1.1 million.
Net cash outflows from operating activities were $1 million during the first half of 2021 day.
Due principally to net positive changes and our working capital of $8.6 million principally associated with the growth and timing of payments and our advertising services. During the first half of 2021 offs.
Offset by net cash usage, driven primarily by our $7.8 million non-GAAP net loss during the period.
As a reminder, approximately 40% of our reported cash is essentially held for payment of third parties from our advertising agency services and.
And our working capital will continue to fluctuate depending on the timing and do day to payments and any given period.
And our unencumbered cash at the end of Q2.2021 was over $70 million consistent with Q4 of 2020.
We also ended June 32021, with $32.9 million shares outstanding.
Turning to pander logic and.
In July we signed a definitive merger agreement to acquire <unk> logic, and Israeli based technology platform focused on intelligent hiring at scale for large global enterprises.
The deal is subject to customary closing conditions and is expected to close by late September 2021.
In terms of the deal were $150 million acquisition price payable as follows $50 million and cash and $35 million and stock or 1.7 million shares on closing and the remaining 65 million payable in cash and stock based upon pandal logic meeting financial targets and 2021 and 2022.
Yes.
Immediately after the closing and on a pro forma basis, we project and Q3.2021 with over $70 million and cash and no debt.
And the entire $150 million is paid out the impact would be an approximate 7.8% dilution to shareholders.
Turning to <unk> financial profile.
The acquisition will be immediately accretive to vary channel more specifically.
For fiscal 2021 handle logic is projected to generate over $50 million and revenue and over $25 million of EBITDA.
This values the transaction at roughly 3 times revenue.
Gross margins are over 90%.
And our logic has approximately 140 employees of which about half are based in Israel and half and the U S and more than a third are engineers.
On a pro forma basis for fiscal 2021, and assuming we are combined with <unk> at the beginning of 2021 we.
And we would generate over $130 million and revenue and approximately $10 million and non-GAAP net income.
Improvements of over 225% versus <unk>, 2020 revenue and over $30 million and non-GAAP net income as compared to <unk> 2020.
<unk> does have seasonality and its business with Q2, and Q4, having greater concentrations of revenue and consistent with hiring patterns of its customers.
It is important to note that the Panda logic transaction is subject to customary closing conditions and Israel is non.
<unk> scheduled to close until late September 2021.
Which is reflected and our updated Q3 and full year 2021 guidance.
Turning to financial guidance.
Given our continued high visibility and confidence and our revenue pipeline and including the projected closing and Panda logic and late Q3.2021.
We expect Q3 revenue to be between 21, 5 and $22.5 million, representing a 40% increase year over year at the midpoint and sequentially up from our strongest quarter ever in Q2.2021.
And Q3, non-GAAP net loss to be between $4.5 million and $3.5 million, representing a 9% improvement year over year at the midpoint.
We plan to continue to invest responsibly and resources in key areas to help accelerate our growth throughout 2021.
With this we are forecasting our cooperations to once again be profitable in Q3, 2021, and our corporate overhead and non-GAAP net loss to be relatively consistent with Q2.2021.
For full year 2020 line, including the impact of <unk>.
We expect consolidated revenue to be between $96, 5 and $103.5 million.
Representing a year over year increase of over 73% at the midpoint and.
And expect our SaaS solutions revenue growth to be over 200% year over year.
And we expect non-GAAP net loss to be between $8, $5 and $5.5 million, representing over 65% improvement year over year at the midpoint.
Before I close I'd like to note that we will be speaking at the following investor conferences.
The da Davidson by some select virtual conference Tomorrow.
And the Oppenheimer, 24th annual Technology, Internet and Communications Conference next week on August 11th.
That concludes my prepared remarks, I will now hand, it off to Chad.
Yes.
Thanks, Mike we are very pleased with our quarterly results and excited about our <unk> acquisition. We view this as a transformative combination that delivers unquestionable financial benefit.
<unk> and the operating profile of baritone overnight as well as expanding our serviceable market and the human capital management, our first horizontal business unit that will no doubt unlock further growth opportunities.
As we wrap up today's call I'd like to provide a few closing and strategic observations that I believe are fundamental to understanding very tone and my confidence and our continued financial and operational success.
And where is now battle proven and has successfully performed and scores of use cases across a thousand plus clients and a variety of configuration and industries.
And where is the alpha and Omega of our strategy for it has the capacity to help organizations with every AI opportunity and I mean every without hyperbole by accelerating and improving the development deployment and management of AI powered solutions within the enterprise and.
In Q2, we launched Marvel Dot AI, our synthetic voice platform and <unk>.
Tire solution was built on AI, and automate studio and less and 45 day, including both organic and third party AI engine <unk>.
The solution went live at our virtual Tech Expo Investor day on a Friday and had over 1000 trials over the weekend proving both the demand and the technology as well as the scalability of the AI operating system <unk>.
<unk> AI has tremendous momentum and we expect to see its impact and the market and subsequent quarters.
This proven AI acceleration is the cornerstone of our plan to logic acquisition.
<unk> zone and <unk> shared the same at those about using artificial intelligence to make the world a better place by delivering better outcomes for people and <unk>.
<unk> has been focusing its AI capability on human capital management, specifically on talent recruiting for a number of years now delivering vastly superior results for some of the most successful companies and the world together Barrington and candle logic will make talent acquisition more predictable and efficient and we believe.
And this marriage will help remove hidden bias and prejudice, thus, helping build more diverse organization and a stronger society.
And we'll continue to make strategic investments, where we believe our financial and mission objectives are aligned and the odds of success are high we believe now more than ever the humanities best future is intrinsically dependent on artificial intelligence delivering better outcomes for people.
Now we would like to open up the call for questions operator.
Thank you we will now begin the question and answer session.
Ask a question you May press Star then 1 on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2 at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Darren <unk> with Roth Capital Partners. Please go ahead.
Hi, guys.
And then and thanks for taking my questions.
First on the SaaS bookings number really strong could you just give us a.
Glimpse.
And so what is the buildup.
Is it M&A and the DLC and energy as all of the above just energy.
Net.
Granularity would be helpful.
Yes, that's right Mike.
And Mike Mike Why don't you take that Orion and pick up.
Yes, I mean, we've had.
Strong bookings kind of across the board. So we absolutely represented some material growth in M&A and GLC and both of those had strong bookings and so we're seeing both strong bookings in terms of expanded renewals and net new logos.
Great and then.
And then.
If my math is correct your I guess the mid point.
Q4 implied revenue is like $40.
And can you maybe.
The sales better sense of kind of <unk>.
And whats.
And our logic versus core baritone appreciating that the.
And <unk> business rule seasonally stronger and <unk>.
Yes, I might want to take that.
Yes.
Yes, so I mean, we do.
Don't really give.
That level of detail on our guidance.
But what I can tell you is I think you can infer debt.
Obviously, we have strong momentum.
And absent Panda, we would've been.
Raising our guidance on an annualized basis.
And then obviously the addition of <unk> will add some more incremental revenue and Q4.
That's helpful. Thanks, and just last 1 from me.
On your.
Utility customer and the East coast I assume that's the 1 we kind of and speaking about and the path and then.
<unk> got debt.
There was some kind of data readouts youre waiting on so I guess my question really is.
Our next steps is that data readout. There are there milestones are waiting on and and how.
And the dominoes fall for maybe other potential.
Potential customers net vertical.
Yes, I'll take that 1 so it's kind of a 3 phased approach first is really about forecasting and controlling the inverters that are connected to the solar rays, we delivered that software in July and successfully to the customer and that's been again implemented and collecting data. So we're very excited to see.
The first major milestone achieved in July and second major is and working on the battery infrastructure.
And which obviously provides solar smoothing to start to create that holistic system of controlling both euro PV array as well as your solar batteries in conjunction with the overall energy mix of traditional sources and so we expect that to start to hit delivery dates and Q3 and possibly even early Q4, but it's <unk>.
And all very positive still no no definitive and day insight, but this is kind of our sole focus at this point in time with a massive backlog of energy companies are paying very close attention to what's happening here.
Great. Thank you.
Sure.
The next question will come from Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much I know when you announced the <unk> deal recently, you talked about the opportunity for cross sell what's been the feedback from your existing customers thus far.
Yes, Brian why don't you take that.
Yes, I think at this stage, obviously since we haven't closed and we've been operating.
What about the book and so we haven't really entangled too much of a proactive co marketing and co sell effort.
That being said and we've obviously been contacted.
Inbound by a multitude of different customers.
Who we're very excited about and think that theres, great applicability and immediate demand for <unk> functionality.
But again, we're sort of gearing up and we expect to be hitting the ground running on a fully integrated co sell coal marketing effort. When we successfully closed the transaction.
Great. Thanks very much.
And the next question will come from Pat Wall Ravens with JMP. Please go ahead.
Oh, great. Thank you and congratulations to you guys.
So number 1.
Is there in your Q3 guidance does that include any handle logic revenue.
Yes, I'll take that 1 so.
What we've said pad is we expect and close Panda logic late in Q3.
And Thats really late in September and so you can infer that there is a little bit and there, but not a whole lot.
Okay, and how much risk is there a debt.
Or is it really coming from on that Michael.
Yes.
There's always risk with timing.
And this 1 is really customary and Israel, there's a mandatory 50 day to day.
And so.
Does that have risk and we've been told small risk that it could move out.
But if it does move out and it shouldnt have a big impact again on the quarter.
It's more impactful and Q4.
Okay, and you May have said this and I'm, sorry, and I missed it and I'm sorry, but so.
Does it where does the panda and logic revenue go.
Will it go and and SaaS average that we had with the.
S SaaS revenue, okay and.
Why why just at a very high level why is it going fast and instead of and advertising.
Yes, I mean, we're the way that the.
This is sold and marketed as a SaaS product, it's not sold and market and as and advertising product. So we're including it.
Such.
And if I go 1 level deeper for us.
What's the key difference there.
So in line.
And the clients are paying for the use of the software.
2 as their primary platform as compared to <unk>.
Agency representation revenues.
Okay. So it's not a service based business with humans theyre paying for access to the platform and the use of the platform to manage their acquisition.
It's 100%.
And the SaaS product and the execution of that is the programmatic placement of.
Job listings, but it's actually does and the budgets don't even come from the same department.
As well so it was kind of to clear differentiation and why it fits squarely in SaaS.
Okay, perfect and then and so this goes back to your question other Investor asked me and it's not my space, but I'm sure you guys will know this call. So.
Is this more like the trade debt than the old rocket fuel.
There is definitely some parallels to some of the more established DSP out there yes.
We do think it's going to be a little different where we've already going be doing I'd say more further integrations into the HR systems other respective clients.
But yes, there's a lot of similarities from a from a.
Functional perspective.
Okay, Great Alright, and then last 1 and I'm not sure who.
And Mike maybe for you, but when people ask me when investors ask and what sort of debt.
Long term durable organic growth rate for this business.
How would you guys answer that.
Yes, I mean on our analyst day, we kind of use to 44% CAGR.
To get and the next 5 years to get us to that $500 million.
Growth rate.
I think thats, probably a good proxy I mean, obviously.
And that will likely be accelerated over the next 18 months with the acquisition of candle logic.
And I think Thats, a good long term growth rate.
Alright, perfect. Thank you.
Yes.
The next question will come from Nick <unk> with Craig Hallum. Please go ahead.
Hi, This is Nick on for Chad Bennett and thanks for taking our questions. Just on advertising revenue I think this is the first quarter, we've seen those sequential decline.
The decline in quite some time and that business just.
And all color, what's going on there and then how should we think about that advertising revenue into Q3 and the back half.
Yes, I think I think Tammy.
And so yes, so with respect to Q1 and what we mentioned Nick is we had 1 customer it was.
Draft loans that had an exceptional quarter.
And the reason they had an exceptional quarter was largely due to.
States opening up some of their gambling et cetera.
And that didn't repeat in Q2.
And most likely won't repeat in Q3, but we feel really good that there is a possibility it does expand again in Q4.
So year over year that advertising was solid in terms of growth, but sequentially. We forecasted it was going to be down a little bit.
Got it and then just 1 housekeeping item, where does <unk> and the quarter.
$4.7 million.
Got it thank you.
Okay.
The next question will come from Mike Latimore with Northland Capital markets. Please go ahead.
Hi, guys.
And then so on and I think more thanks for taking my question.
Could you give me and.
Dave on the prospect for reaching 3 O.
Adequate and made the dean and volume would be the timing of debt.
I think there was an update.
3 of the Air Force contract.
Yes.
Yes.
And I don't think we have and update on timing. So I'd say, we're still active everything looks full speed ahead, and as we progress through phase III, but no. We don't have any updated guidance on <unk>.
Moving into Q3, I mean phase III at this time.
Okay.
And what has been the biggest driver of.
And after 100 advertising growth building, but active customer growth.
Well I think part of it is we've been.
Leveraging AI, where and kind of our data insights to continue to improve results and therefore that has afforded us the ability to increase spend on behalf of our larger customers.
So our ability to maintain and grow larger brands with increased budgets and is obviously very accretive and and those those net returns usually dropped to the bottom line. So it's been sort of a combination of technology enhancements and AI driven results coupled with a hyper focus on.
And on larger and bigger brands, who have greater propensity to spend.
Thank you.
Yes.
Again, if you have a question. Please press Star then 1.
And this will conclude our question and answer session I would like.
To turn the conference back over to Chad Stillbirth, Chairman and CEO for any closing remarks. Please go ahead Sir.
Thank you operator, and thank you all for joining us on today's call once again, our entire team executed exceptionally well and delivered record results varied zone.
<unk> strength continues to build and their customers volume increasing value and our AI solutions. Moreover, as the understanding and awareness of the benefits of having an AI platform growth, we see our sales cycles and new market penetration accelerating.
I want to personally thank each of our team members for their tireless effort and for their unwavering belief and pursuit of our mission of building the world's most valuable AI company.
Our teams are well positioned to capitalize on our market and technology advantages as we pursue unprecedented opportunities and all areas of our business Goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.