Q3 2022 Rubicon Technology Inc Earnings Call
Speaker 1: investors. Certain limitations of using these measures and reconciliation to the most directly comparable GAAP measures can be found in our earnings release and our filings with the
Speaker 1: To begin, I am pleased to announce that, effective November 4, 2022, Rubicon's Board of Directors has appointed Kevin Schubert as President of the company.
Speaker 1: Kevin has served as Rubicon's Chief Development Officer and Head of Investor Relations since August 2022, and he brings a wealth of finance, legal, and corporate development experience to his new role as President.
Speaker 1: Prior to Rubicon, Kevin has held senior executive and advisory roles with multiple public companies, including Red Rock Resorts, Inc., the Las Vegas Sands Corp., and he recently held the role of Chief Financial Officer for Ocean Park Group, an early-stage company focused on experiential hospitality.
Speaker 1: In addition to Kevin, joining me on the call today, we have Phil Rudoni, Rubicon CEO and Director, and Jeven Anderson, the company's CFO , and myself.
Speaker 1: Joe Rudoni, Rubicon CEO , will begin the call today.
Speaker 1: For those new to our story, before becoming CEO last month, Phil has served for seven years as Rubicon's Chief Technology Officer, leading all technology innovation, product development, business intelligence, and research and development efforts for the company.
Speaker 1: With over two decades of experience in technology innovation and product development, Phil is a natural fit to leave Rubicon in its next stage of success and growth.
Speaker 1: The appointments by Rubicon's board of Phil to CEO and Kevin to president are key parts of our long-term strategic plan as a technology platform and hub for helping to eliminate global waste.
Speaker 1: With that, I will turn the call over to Phil.
Speaker 1: Thank you, Chris, and thank you everyone on the line for joining us today for our first earnings call as a public company.
Speaker 1: For those who are new to our story, I will begin by taking a few minutes to describe Rubicon and the work we do with our customers and partners.
Speaker 2: Rubicon was founded over a decade ago.
Speaker 2: and today has become a global leader in providing cloud-based waste and recycling solutions to businesses and governments.
Speaker 2: We manage waste and recycling services for a network of waste generators such as companies and cities.
Speaker 2: fleets of waste haulers, and waste and recycling processors.
Speaker 2: Our network comprises more than 8 million unique service locations and 8,000 haulers and waste and recycling processors.
Speaker 2: Rubicon not only enables the elimination of waste through removal and recycling, but also helps eliminate wasted time and money for waste generators through service rightsizing and commodity extraction.
Speaker 2: Rubicon also helps eliminate waste for haulers by reducing mileage, wear and tear, and fuel usage through optimized routing.
Speaker 2: and we help reduce the number of contaminated loads delivered to waste and recycling processes.
Speaker 2: Rubicon is working to deliver these benefits through a suite of products and services available on our platform.
Speaker 2: So instead of investing capital in hard assets like trucks and landfills, we've built and scaled a software platform that we licensed to our key constituents, including waste generators, fleet and processors.
Speaker 2: We believe this asset-like, software-based approach provides a fundamental advantage to Rubicon, allowing us the ability to efficiently and dynamically scale our core business, while simultaneously monetizing our established networks of customers and haulers.
Speaker 2: Rubicon's platform saves our waste generator customers time and money.
Speaker 2: Instead of handling individual invoices for each of their service locations, we provide a single point of contact, a consolidated bill, and a procurement mechanism.
Speaker 2: Instead of our customers manually compiling load, material, and location data.
Speaker 2: Rubicon helps provide consolidated and verifiable ESG reporting.
Speaker 2: Also, since we're not encumbered by a need to maximize shipping fees, we work with our customers to optimize pickup frequency, thereby helping reduce waste spend and fleet emissions.
Speaker 2: Beyond time and cost savings, the platform can help reduce our customers' environmental liability.
Speaker 2: We strive to unlock the value of the waste stream itself by employing proprietary artificial intelligence and machine learning to identify recycling opportunities.
Speaker 2: For our fleet customers, Rubicon's platform can provide new business opportunities, many of which are exclusive to our platform. Our technology also provides fleet management and route optimization services.
Speaker 2: In addition, our fleet customers have access to a buying consortium where they can purchase things such as fuel, parts, tires, and insurance at discount.
Speaker 2: These benefits can help fleet customers save money, which for our smaller, independent haulers can be meaningful, and for our city and municipal fleet customers could result in taxpayer savings.
Speaker 2: Lastly, our platform tracks hauler routes, material types, environmental conditions, and identifies contamination in the waste stream at the point of entry.
Speaker 2: We believe the ability to provide end-to-end traceability is a key to improving efficiency, regulatory compliance, and the quality of materials delivered to processing facilities. All these services are provided through our Intuitive Software product experience.
Speaker 2: With this understanding of Rubicon services and platforms, I want to take a moment to walk you through how Rubicon makes money.
Speaker 2: Our platform primarily generates revenue from the network via three sources.
Speaker 3: first
Speaker 2: Our service revenues are reflective of all the waste and recycling services that transact over our platform.
Speaker 2: We make a margin based on the difference between the price at which we sell our services to our waste generator customers.
Speaker 2: and the price for which we're able to procure those services from within our hauler network.
Speaker 2: Secondly, Rubicon monetizes the commodities pulled from the waste and recycling streams for our customers, which otherwise may have ended up in the landfill.
Speaker 2: Through this process, we are able to earn higher margins derived from the unique value we add by turning previous costs into revenue and by adding predictability and quality of supplies through processor volumes.
Speaker 2: We structure our agreements with waste generators and processors such that we do not assume exposure to commodity price risk at the gross profit level.
Speaker 2: Further, our contracts typically feature incentives for achieving certain environmental outcomes to align our interests with our customers.
Speaker 2: So that as we drive positive environmental outcomes, our margins improve.
Speaker 2: Finally, whether a customer is a waste generator or fleet, Rubicon charges platform constituents a monthly software subscription fee for access to the platform.
Speaker 2: Before discussing Rubicon's strategy and plan for long-term growth, I will turn the call over to Jevon Anderson, our CFO , to provide some commercial highlights and a review of third quarter results. Jevon Anderson, CFO , CEO , Rubicon, is the CEO of Rubicon.
Speaker 4: Thank you, Phil.
Speaker 5: I will begin by highlighting a few recent commercial announcements.
Speaker 5: Last week, Rubicon was proud to announce that we have signed a two-year contract extension and expansion with Walmart.
Speaker 5: which has been a flagship customer since 2013.
Speaker 5: Through this relationship, Rubicon plans to continue to help Walmart increase waste diversion from landfills and consolidate services across their portfolio of 70 distribution centers and more than 3,500 retail stores.
Speaker 5: In September , Rubicon was recognized by Amazon Web Services.
Speaker 5: or AWS, as having achieved smart city competency.
Speaker 5: AWS is working to enable flexible, scalable, and cost effective smart city solutions and establish the competency program to help customers identify service providers with deep industry experience and expertise.
Speaker 5: This designation recognizes Rubicon as an AWS partner that helps its customers and the partner community
Speaker 5: Build and deploy innovative smart city solutions.
Speaker 5: We are very honored to have been recognized by AWS for this distinction.
Speaker 5: and we are already approaching market opportunities together.
Speaker 5: As announced earlier this year, Rubicon entered into a strategic data and technology partnership with Palantir Technologies.
Speaker 5: a software company that empowers organizations to integrate their data to enhance business decisions and improve operations.
Speaker 5: The partnership includes the development of new data collection and analysis tools, and the development of new data collection and analysis tools. This is a test for the partnership.
Speaker 5: delivery of greater insights into waste, recycling, and sustainability performance for our corporate customers, Smart City Partners, and Hauler Network.
Speaker 5: and a joint go-to-market effort to commercialize new advanced analytics capabilities.
Speaker 6: Also,
Speaker 5: Earlier this year, we were proud to announce that we expanded our Rubicon Smart City Products Week
Speaker 5: to include enhanced technology.
Speaker 5: that helps optimize snow removal for cities across the country.
Speaker 5: Using Rubicon's intuitive in-cab interface and desktop portal.
Speaker 5: City of consent, priority streets, do all snow removal vehicles.
Speaker 5: Provide digital turn-by-turn directions to drivers.
Speaker 5: and track route progress and completion.
Speaker 5: The software also delivers powerful high density route creation and optimization.
Speaker 5: These features help cities and municipalities clear streets efficiently and effectively during snowstorms.
Speaker 5: Turning now to our recent financial results.
Speaker 5: in the third quarter of 2022.
Speaker 5: Rubicon generated approximately $185 million of revenue.
Speaker 5: This was an increase of 36 million, or 24%, compared to the third quarter of 2021.
Speaker 5: as an increase of approximately 20 million or 12% compared sequentially to the second quarter of 2022.
Speaker 5: This strong result reflects continued revenue expansion.
Speaker 5: within the company's existing customer base, as well as the addition of new customers.
Speaker 5: Accordingly, our revenue net retention
Speaker 5: for the third quarter was 118%.
Speaker 5: Adjusted gross profit in the third quarter was approximately $14 million, which was 19% higher compared to the third quarter of 2021.
Speaker 5: and 11% higher sequentially versus last quarter.
Speaker 5: This growth was primarily driven by an increase in services provided to both new and existing customers across business lines.
Speaker 5: Adjusted EBITDA for the third quarter was negative 21 million.
Speaker 5: impacts from a software expense increase related to our license and strategic partnership agreement with Palantir.
Speaker 5: and additional operating expenses as we prepare to operate as a public company weighed on the result.
Speaker 5: to address cash needs and increase working capital.
Speaker 5: We are currently in discussions with financing sources to potentially raise new equity.
Speaker 5: and to recapitalize our debt prior to its maturity.
Speaker 5: In parallel, we are implementing additional measures to further reduce spending and extend cash availability. In parallel, we are implementing additional measures to further reduce spending and extend
Speaker 5: So there is no guarantee.
Speaker 5: We will be able to successfully implement any or all of our current plans.
Speaker 5: These initiatives are expected to increase financial flexibility.
Speaker 5: and push out debt maturities with the ultimate goal of realizing greater shareholder value.
Speaker 5: by improving our financial position and future liquidity.
Speaker 5: With that, I will turn the call back over to Phil.
Speaker 7: Thank you, Jevin.
Speaker 2: We at Rubicon are very proud of our achievements to date and we are excited to begin our journey as a publicly traded company.
Speaker 2: with a network of over 8 million unique service locations and 8,000 haulers and processors.
Speaker 2: We believe we have built the necessary scale to be an effective competitor within the industry.
Speaker 2: The scale and reach of our network enables us to provide a differentiated service within our market.
Speaker 2: We have historically sought to grow and scale the business through different strategies, including offering lower margin-based products to clients with large nationwide footprints.
Speaker 2: We also pursued strategies within business lines which have not always yielded the highest returns. We believe these decisions were important in building and scaling the company to get it where it is now.
Speaker 2: As we move forward, our strategic priorities include a focus on accelerating the company's progress to profitability.
Speaker 2: investing in our leading digital marketplace and suite of products, and further developing the Strategic Vision and Execution Plan for Rubicon's next phase of growth.
Speaker 2: We will share additional details on our Bridge to Profitability plan in the coming quarters. In the meantime, I will share the following.
Speaker 2: First, we are working thoughtfully and diligently to improve margins across our portfolio, including offering adjacent services with higher margin potential.
Speaker 2: For example, offering commodity opportunities such as pallets, cardboard, organics, and scrap metal to existing clients.
Speaker 2: with the goal of increasing our share of wallets and tailoring our new offers towards more lucrative segments.
Speaker 2: Second, we will continue to carefully examine and evaluate our portfolio and rationalize less profitable accounts to ensure we are deploying resources efficiently.
Speaker 2: Third, as part of Rubicon's regular cost evaluation process, the company plans to increase the focus on operational efficiencies and cost reduction measures across the organization.
Speaker 2: In addition, we plan to work toward rationalizing redundancies across the organization.
Speaker 2: We believe these redundancies have been the natural byproducts of our growth and expansion phase the past few years.
Speaker 2: We will continue to exercise strict capital discipline for future investments, requiring investments to meet minimum hurdle rates.
Speaker 2: and be competitive across the high-graded portfolio as we strive to increase profit margins
Speaker 2: Lastly, we plan to implement additional measures to establish profitability as the core tenant of our strategy and corporate culture going forward at all levels of the organization.
Speaker 2: Put a finer point on this. Going forward, we will raise the bar for new investments in growth, technology, and sustainable solutions, and curtail certain lower ROI investments.
Speaker 2: Accordingly, given our focus on achieving profitability, we anticipate decreasing annualized operating costs substantially during the next year as we focus on core operations within our three key product verticals.
Speaker 2: In doing so, we believe we will meaningfully accelerate our progress to profitability.
Speaker 2: We believe Rubicon's industry leading service experience for waste generators, fleets and processors has positioned the company as a definitive platform for eliminating waste for years and years to come.
Speaker 2: We believe the steps we just outlined will help to increase shareholder value and attain more profitable growth over time.
Speaker 2: We look forward to providing additional details about the steps we are taking to achieve these goals.
Speaker 2: and we will provide updates on our progress in the coming quarters.
Speaker 2: With that, I will turn the call over to the operator who can open the line for questions.
Speaker 8: At this time, I would like to remind everyone if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from the line of Maria Rips with Canaccord Genuity. Your line is open. Your line is open.
Speaker 9: Great, thanks so much for taking my questions and congrats on your first quarter as a public company. First, can you maybe just talk about how correlated would you say your business is to the strength of the consumer and sort of weakening macro environment? And during the times of tightening economic conditions, do you notice a material pullback in waste generation?
Speaker 2: Thank you, Maria, for the question. So in terms of the current economic climate, let me kind of speak to a few things. So again, if folks are out there that are concerned about our ability to kind of protect our margins via inflation, I would kind of point to a couple things. One is, you know, landfill fees are typically kind of regulated and we have ability to pass those through as non-controllable kind of price increases to our customers. And there are other similar kind of alignments like that, like fuel surcharges and taxes and the like.
Speaker 2: We also have contractual kind of escalators kind of built into our contractors, into our contracts. We can erase prices based on CPI or PPI and things like that. So I think we can adequately control prices though there may be a little bit of a lag relative to kind of how quickly we can kind of impose those price increases. But again, there's no kind of recent risk that we actually have found on relative to kind of the carbon microclimate. Now, the second part of your question, I think in terms of have we seen any kind of meaningful kind of drop off in the last couple of months or so.
Speaker 2: in volumes or anything like within our customer base, and no, we haven't seen anything on that side. So I think we're certainly doing well on that front.
Speaker 10: Thank you.
Speaker 11: Got it.
Speaker 9: Got it. Thank you. That's very helpful. And could you maybe talk a little bit about your M&A pipeline and how has that progressed relative to your expectations? And have you seen any sort of elongation of deal cycle or decreased propensity from independent holders to sell, given maybe lower variations?
Speaker 2: Again, thank you for the question. In terms of, let me speak first. Our current management focus is certainly on strengthening our margins in our organic business. That's first and foremost in our minds and accelerating that path to profitability. That said, we will continue to pursue a balanced approach with our growth, whether that be opportunistic if you will, as it comes to M&A activity. If there's a deal that's available to us that we like, we'll certainly pursue it. Thank you.
Speaker 2: But again, I think our focus is going to be on probability in the near term. We have seen, we have a robust pipeline from an M&A perspective. And we continue to evaluate deals as they come across our desk.
Speaker 12: Thank you..
Speaker 9: Great. Thanks so much for the call.
Speaker 8: Our next question comes from the line of Stephanie Moore with Jefferies. Your line is open.
Speaker 13: Hi, good afternoon.
Speaker 14: I'd like to touch on just an adjusted EBITDA performance for the quarter. I wanted to dig in a little bit on what were kind of one-time quarter-specific kind of events and the impact there and what we should kind of expect going forward just on the software license increase, any other additional operating expenses. And then, you know, as a follow-up to that, you know, I'd love to get your thoughts on, you know, the...
Speaker 14: kind of approach to profitability and kind of making that the new priority right now and what are the key drivers near term that we should be looking for. Thanks.
Speaker 15: Yeah, no problem. This is Kevin. I'll take the first part and then I'll let Phil take the second part. With respect to EBITDA, yeah, there was obviously some product development expenses and then most of the other stuff is really transaction related, related to becoming a public company and some of the overhang there. But I will say, yeah, I mean, the focus and frankly this ties into the second part of your question is the focus really is on profitability and we've frankly, we're not putting this in place. We've already started doing this. We're already pushing
Speaker 15: number of initiatives forward across the organization that are going to meaning meaningfully increase our you know our profitability increase our EBITDA. So yeah, we would expect that to to change significantly as we go forward and I'll let Phil speak more about the plan. No, thank you. I think and we outlined some of this in our spoken kind of comments but again, I think our approach to profitability is kind of wide-ranging, but you know specifically kind of targeted towards certain areas.
Speaker 2: And we've already, again, as Kevin mentioned, we're already kind of well underway on some of them. But as certain categories, I would say, certainly making sure that we expand our margins. And that has, there's two parts of that. One is certainly making sure that we have price increases to our customers where appropriate. And the second part of that is making sure that we control all our costs, right? So think of that as margin improvement. The second part of that is about kind of another category is kind of controlling the kind of the broad employee kind of related expenses and things like that. And the redundancies that we may have, and we'll certainly be kind of focusing our attention there on.
Speaker 14: on kind of just the focus on profitability, but in parallel looking to invest in your current product suite. So maybe you can talk about how you're balancing the two and as what we should expect forward in terms of product investments.
Speaker 2: No, that's a great question. So I think a couple things. One, that's not typically the area we're going to be taking any significant decreases on the product development expense. What we do there typically is we actually want to invest in our products and our tools because that allows us to be that much more efficient. A lot of the automation that we've built in, a lot of the software and services that we give to our clients improve the margins, number one, because they pay for those additional features and capabilities. And the operational efficiencies that we get by releasing some of the features that we actually have from a back-end.
Speaker 2: and we talked about kind of our SaaS-based products, and those are really the ones that have a significantly higher margin. So as we continue to kind of roll out features, continue to kind of have success in selling those products and services, you'll see that reflected in the bottom line.
Speaker 16: Great, thank you so much.
Speaker 8: Our next question comes from the line of Brett Novlauch with Cantor Fitzgerald. Your line is open.
Speaker 15: Hi guys, thanks for taking my questions. A couple on my end. Maybe if we could start with kind of net revenue margin or I guess adjusted gross profit margin which –
Speaker 2: was down year over year. I know you guys kind of originally targeted that to kind of reach close to double digits in fiscal year 22. Could you maybe just speak to why we haven't been able to drive that margin expansion on the adjusted gross profit level yet? And then also on recyclable commodity that was kind of flat year over year and kind of your higher margin.
Speaker 17: business, what are you doing to accelerate growth there.
Speaker 5: Sure, this is Jeven. Just the gross profit margins, we had a very significant launch with a new customer that required a lot of onboarding. And obviously...
Speaker 5: It requires us to put a fair amount of working capital into the system, if you will, and some one-time expenses from launching that particular client. We'll recoup some of that down the line, but it does require a fair amount of investment up front, and that's just the nature of launching a significant new customer. That'new customer note is still being shown because and join is our coffee maker and offer
Speaker 5: From an inflationary standpoint, as Phil referenced earlier, we can pass on a lot of the one-time costs. We can pass on a lot of the one-time costs.
Speaker 5: fuel surcharge and things of that sort, but there's usually a lag. So, we felt a little bit of that in the inflationary environment. Again, we'll catch up with that down the line.
Speaker 5: And also that we've put some investments in technology that will also remove a fair amount of our onboarding expenses down the road. So there were some upfront investment in that, but we'll, again, recoup that longer term.
Speaker 15: And then I would just add, obviously, given what we've talked about, we do expect to see margin enhancement as we go forward with the profit enhancement plan and everything we're doing on that front. So I think given what Jevon just explained, that expansion that you were describing that we were expecting to see is slightly delayed, but we still do expect it to come.
Speaker 18: Got it. And then maybe an update on…...
Speaker 17: So maybe just an update on your guys, I guess, cash position and total liquidity.