Q3 2023 KORE Group Holdings Inc Earnings Call
[music].
Hello, and welcome to the core group Holdings third quarter 2023 earnings call and webcast.
And once you require operator assistance. Please press star zero on your telephone keypad.
Yes short answer session will follow the formal presentation.
You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Charlie Brady Vice President of Investor Relations. Please go ahead Charlie.
Thank you operator.
On today's call, we'll be referring to the third quarter 2023 earnings presentation.
That will be helpful to follow along with as well as the press release filed this afternoon that details the company's third quarter 2023 results both of which can be found on our investor Relations page at IR Dot core wireless dot com.
Finally, a recording of the call will be available on the investors section of the company's website later today.
Please note that this webcast includes forward looking statements statements about the company's beliefs and expectations containing words, such as May will could believe expect anticipate and similar expressions are forward looking statements.
Based on assumptions and beliefs as of today.
The company encourages you to review the Safe Harbor statements risk factors and other disclaimers contained in this slide.
In today's press release as well as in the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to differ materially from those described in our forward looking statements.
The company does not undertake to publicly update or revise any forward looking statements. After this webcast.
The company also notes that they will be discussing non-GAAP financial information on this call.
The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP you can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation.
Now I'll turn the call over to Rosebel, the company's President and Chief Executive Officer.
Thank you Charlie good afternoon, everyone and thank you for joining us today for our third quarter 2023 earnings call.
With me is Paul hold scores Chief Financial Officer.
As always I'll start with a brief overview of the key events and announcements for the third quarter and I will be followed by Paul who will discuss our financial results.
We will then look at our sales results and finish as always with a Q&A session.
First and by far the most important of our key announcements today.
I'm very pleased to announce that we have signed agreements to refinance approximately $300 million term loan with the issuance of a new $185 million term loan and a strategic investment of $150 million I'll start 10% preferred stock.
<unk>.
The final closing of these transactions is expected to occur in the next week or two.
<unk> four provides an overview.
Okay.
After transactions, which Paul will detail later in the call.
But make no mistake about it this refinancing is a very important milestone for corn.
With these transactions, we have reduced our overall debt levels and lowered our first lien leverage ratio from roughly five times. So roughly three times, our 2023 estimated adjusted EBITDA.
We have extended the term loan maturity to 'twenty 'twenty eight matching the maturity of our $120 million convertible note.
And added approximately $15 million in cash to our balance sheet.
Importantly, we have also increased cash flow flexibility as the preferred stock dividend has a payment in kind or pik feature, allowing the company to the option to defer cash dividend payments.
This payment Optionality allows quarter increased our free cash flow as we accelerate revenue and EBITDA growth over the next few years and further de lever our balance sheet.
We believe this near term debt overhang has been the single overriding concern of public company investors and we are happy to remove this obstacle to shareholder value creation. We can now direct all of our attention to driving organic top line and adjusted EBITDA growth.
Turning to slide five we present, some additional key announcements from the third quarter.
Expanding our presence with distributed enterprise customers.
Core announced that we would collaborate with a national U S retailer to enable its digital transformation with five G connectivity.
This marks a turning point for the industry as five G connectivity is driving our nationwide shift towards digital first retail.
Core is well positioned to support retailers transitioning to five G connectivity by providing critical <unk> services and solutions complete with backup options, thereby enabling retailers to innovate in areas like inventory control daily operations and consumer engagement.
In September core was honored to receive a 2023 Iot evolution L. P. W. A N Excellence award from Iot evolution World for core L. P hub.
Which is core's innovative Laura one solution.
Core L. P hub is a SaaS based service delivery platform or SDP, which deploys manages and connects Lora devices over a cost effective low power wide area or L. PWA network, ensuring device longevity and supporting expansion into the massive Iot Mark.
<unk> segment.
This award is a testament to <unk> ability to bring new products to market and remain an Iot innovation leader, which in turn drives top line growth.
Finally building on Core's Iot for good initiatives, we announced an alliance with Grand pad to support their mission of helping seniors age in place with Iot.
Powered by Core's robust Iot connectivity solutions Grand pad provides an easy to use communication device that allows seniors to connect to vital caregivers and family members by making video calls sending voice messages and viewing media.
Over the next three decades, the number of adults over 60 years of age who will require long term care is expected to more than triple.
Partnerships such as this position core with an early presence in long term secular growth markets enhancing <unk> ability to capture market share.
Now, let's turn to our third quarter financial results and updated 2023 guidance on slide six.
Our third quarter results came in at $68 $6 million of revenue increasing year over year from the third quarter of 2022 by approximately 4% driven by strong growth in our high margin Iot connectivity business, which increased 27% year over year and in the high.
Single digits organically.
Excluding the forced churn of noncore customers due to the <unk> sunsets Iot connectivity grew in the mid teens organically.
<unk> clearly how Iot connectivity can be a strong topline growth business at high gross margins.
This growth in Iot connectivity was partially offset by the expected decline in Iot solutions due to the customer order deferrals, we discussed on our last quarterly earnings call.
Despite experiencing additional delays in Iot solutions orders from a few customers, we expect to generate year over year quarterly revenue growth again in the fourth quarter of 2023.
Gross margin increased 257 basis points year over year to 54, 8%, a new quarterly record and benefited from continuing carrier cost optimization, and a lower mix of Iot solutions revenue.
Third quarter 2023, adjusted EBITDA of $14 $2 million declined approximately 6% year over year due to increased operating expenses, including Sox compliance.
Adjusted EBITDA margin declined approximately 220 basis points to 26% from 22, 8%, but did experience a slight improvement from the second quarter of this year.
The Iot solutions order delays, we experienced in the third quarter have extended in the fourth quarter pushing additional revenue into 2024.
To be clear this is not lost revenue, but it is primarily a function of certain Iot solutions customers managing year end inventory levels and delays in remote patient monitoring deployments and clinical drug trials that use Iot devices.
We fully expect to recognize these orders in 2024 and continue to serve these customers as they grow back to normal business volumes.
Given all of this our full year 2023 revenue is expected to be lower than our previously guided range of $300 million to $310 million as such we are revising our 2023 revenue guidance to a range of $280 million to $290 million.
On a positive note. This does this does give us a slight tailwind for 2020 for revenue and we will provide more guidance for next year on our fourth quarter earnings call.
Despite the reduced revenue outlook, we are maintaining our 2023 adjusted EBITDA guidance of 60% to $62 million.
Due to improved profitability on the acquired Twilio Iot business and reduced operating expenses as we flexed to reflect current Iot solutions revenue levels, both of which helped to offset the reduced profitability from deferred revenue.
The restructuring activity, we began in the fourth quarter is expected to result in approximately $10 million in cost savings in 2024, reducing potential margin impacts from ongoing macroeconomic events and with that I will now hand, the call over to Paul to cover the financials in more.
Detail Paul Thank.
Thank you Ramon and good evening everyone.
Turning to our results on slide seven third quarter revenue increased 4% year over year to $68 6 million compared to $66 1 million in the third quarter of 2022.
By segment Iot connectivity revenue of $55 2 million, which included our first full quarter of revenue from the Twilio Iot acquisition increased 27% year over year.
Organically Iot connectivity grew in the high single digits year over year.
If we exclude the revenue from the noncore customers that were forced to churn at the end of 2022 due to the network sunsets in the United States and Iot connectivity revenue grew organically in the mid teens year over year. This growth is despite some delays in deployment or plant upgrades at some customers that we were expecting in 2020.
Three but have now been pushed to early 2024.
Iot solutions revenue declined 41% year over year to $13 4 million as I mentioned on the previous earnings call. We saw some requests from our largest connected health customers to defer orders through the third and fourth quarter, which increased the risk that these orders could slip further into 2024.
This risk has materialized as seen in our lower than anticipated third quarter Iot solutions revenue.
We are forecasting to increase Iot solutions in the fourth quarter, but with customers continuing to ask for deferrals to manage costs and yearend inventories and the limited capacity to the various holidays within the quarter, we are being more conservative on how much revenue, we will recognize before the end of the fiscal year and Iot solutions.
Total gross margin in Q3, 2023 was 54, 8% an increase of 257 basis points year over year.
The increase in gross margin year over year is mainly due to the mix of Iot connectivity revenue in the current quarter, which was 80% of overall revenue this quarter.
Iot connectivity gross margin of 61, 7% was down approximately 300 basis points year over year.
This decline was expected due to the inclusion of the lower margin revenue from the Twilio Iot acquisition. However.
The Iot margins have continued to be higher than we originally forecasted which will result in the twilio business being breakeven by the end of this year.
Iot solutions gross margin declined 174 basis points year over year to 26, 9% as typical the change in Iot solutions gross margin was due to the hardware to services mix in the quarter.
Total connections at the end of the third quarter were $18 9 million an increase of over 300000 from the end of the second quarter of 2023, and approximately $3 6 million from the end of the third quarter of 2022.
Dollar based net expansion rate or <unk> for the 12 months ended September 32023 was 96% compared to a 100% in the prior year.
As a reminder, <unk> measures the growth from existing customers in the trailing 12 months compared to the same customer cohort in the year ago period, much like same store sales growth rate.
As a reminder, our customers acquire from the BMP Simon acquisition in the first quarter of 2022 are included in the calculation. However customers gained from the Twilio Iot acquisition are not included.
The D var calculation continues to be negatively impacted by the significant revenue received in 2022 from our largest LTE trends from our largest customers LTE transition project that began in June 2021 and ended in June 2022.
During this period revenue from our largest customer more than doubled.
If we exclude total revenue from our largest customer because of this significant nonrecurring event D. M. D. B N here at the end of the quarter would have been 104% compared to 106% at the end of the third quarter of 2022.
Operating expenses, including depreciation and amortization in the third quarter.
Including a $78 3 million noncash goodwill impairment charge were $125 5 million, an increase of $82 9 million compared to the same period last year.
In addition to the noncash goodwill impairment charge. The increase is mainly attributed to the increase in head count related costs, which includes a full quarter of these costs from the Twilio Iot business.
Third quarter interest expense, including amortization of deferred financing fees increased year over year to $10 6 million versus $8 2 million in Q3 2022 due to the increase borrowing costs on our existing senior secured term loan.
Net loss in the third quarter was $95 4 million compared to $14 3 million in the same period in the prior year.
The year over year increase in net loss was primarily due to the noncash goodwill impairment charge of $78 3 million due to the decline in the company's share price and also the increase in interest expense.
Adjusted EBITDA in the third quarter was $14 2 million, a decrease of approximately $1 million or 6% compared to the same period last year.
Our adjusted EBITDA margin in the current quarter was 26% down approximately 220 basis points compared to the same period in the prior year the.
The year over year decline in adjusted EBITDA and adjusted EBITDA margin were impacted by increased cost for head count, including the additional head count associated with Twilio Iot business.
Moving to cash flow.
Cash provided by operations for the nine months ended September 32023 was approximately $4 5 million compared to cash provided by operations of $20 5 million for the same period in the prior year the.
The change year over year included increased collections in the prior year from the LTE transition project from our largest customer versus the current year, which had additional outflows of cash from interest and the operating activities from the Twilio Iot acquisition.
At the end of the third quarter cash excluding restricted cash was $19 8 million compared to $34 7 million as of December 31, 2022.
Turning to our debt refinancing as Rami mentioned, we are excited to be working with two new strategic partners with deep experience in the telecom space that will help strengthen our balance sheet and give the company more flexibility to invest in growth opportunities going forward.
We are replacing our previous 300 million term loan with a new 185 million term loan, which will decrease our total leverage ratio at the end of the third quarter from seven three turns to five three turns of last 12 month adjusted EBITDA.
The new term loan carries an interest rate of sofa, plus 650 basis points compared to the prior loan which was at sofa, plus 550 basis points.
The new term loan credit agreement allows for interest rate reductions of 25 basis points for each half turn reduction in our first lien leverage ratio up to a maximum reduction of 50 basis points.
In conjunction with the new term loan we issued $150 million of 13% preferred stock with 11 8 million 10 year Penny warrants importantly, the preferred stock dividend has a pick feature.
Teacher, which allows for greater cash flexibility.
After the transaction expenses, we expect to add approximately $15 million of cash to our balance sheet.
I'm not just speaking for myself, but the entire company is thrilled to have this debt refinancing overhang behind us.
And before passing it back to <unk> I would like to make a couple of comments on our updated 2023 annual guidance. We have revised our 2023 revenue guidance downward to 280 million to $290 million versus our previous guidance range of 300 million to $310 million to reflect order deferrals by some of our.
Connected health customers in our Iot solutions business.
As mentioned earlier these risks materialize or larger than we originally estimated and will push revenue into 2024.
To be clear most of these are not order cancellations or lost orders and based on discussion.
Those order deferrals in 'twenty.
We will be deferred to 2024 are expected to be recognized in early 2024.
At this point, we don't expect to see the recognition of these deferred orders to significantly cannibalize. The orders we are forecasting to receive for the rest of 2024.
Despite the reduction in our revenue guidance, we are maintaining our 2023 adjusted EBITDA guidance of 60 million to $62 million.
It's able to do this for a number of reasons firstly the majority of the reduction of revenue in 2023 is coming from the lower margin Iot solution ready Secondly, we will have less variable compensation due to the lower revenue number and lastly, we are reallocating cost based on our current priorities, which will result in approximate.
$2 million in savings in Q4, but more importantly will benefit 2024 more significantly likely in the $10 million range.
Additional information on this plan will be given on our Q4 earnings call as part of our 2024 annual guidance and with that I'll pass it back to you Rommel.
Thanks, Paul as we finished 2022.
2024.
We do so with lower leverage a.
Our strong balance sheet and greatly improved cash flow.
Further we are confident that with the transitory effects of the <unk> sunsets and LTE transition project at our largest customer now behind US we will deliver on our top line growth promise.
In fact, we are on track to achieve double digit revenue growth in 2024, as evidenced by our increasing global sales pipeline.
Slide 10 presents a snapshot of our global sales pipeline as of September 32023.
Our sales pipeline now includes over 1700 opportunities with an estimated potential total contract value or <unk> of approximately $740 million.
In the third quarter, we generated an incremental $27 million of closed one PCV, bringing the year to date total to $87 million.
We continue to progress towards exceeding.
Million closed one TCE in 2022.
And delivering a fifth consecutive year of TCE growth.
As a reminder, the majority are sold TCE is recognized as revenue over four years and it is important to note that the closed two CB figure is aggregated across all of our business lines, which have different durations of revenue recognition.
Slide 11 showcases a few examples of our wins in the third quarter, which contributed to the closed one PCV of $27 million.
These recent contract wins highlight the success of our growth strategy and demonstrates the expansion of new use cases for our products.
We continue to win a greater share of our customers' wallets as evidenced by a $4 $4 million TCE contract win with a remote patient monitoring customer.
Or will now become the sole provider of E. Sim connectivity across the U S UK and Europe for this customer who will also be transferring lines to core from a competitor.
We are very excited to win 100% wallet share with this customer because of its high growth prospects.
<unk> ability to act as a one stop shop to provide a full suite of Iot deployment services for customers continues to be a competitive advantage.
In the third quarter and National retail chain selected core to provide full lifecycle managed services for our planned migration from <unk> to <unk> with a contract value of $6 2 million.
Core will provide connectivity installation services and ongoing management of the customers' devices.
Expanding on existing customer relationships built on excellent delivery of our initial scope.
Large corporate expand its services with existing customers.
A great example is the $2 5 million TCE contract and existing rent to own store franchisor customer awarded core to provide connectivity across multiple carriers.
Core is also working on upgrading lines from <unk> to <unk> to expand its footprint further with this customer.
Core continues to win internationally and in the third quarter of GPS tracking and fleet management software provider based in Australia selected core is it's connectivity provider utilizing core omni suite for an initial contract TCE of $435000.
Although we chose these four wins to highlight in the press release and slide deck. This is by no means a complete list as we had several other important wins in the third quarter in each of the four somatic areas represented on this slide.
Despite its parent company utilizing an MMO for connectivity a provider of smart outlet switches thermostats door locks and sensors awarded a several hundred thousand dollars TCE contracts for core to be their connectivity provider based on the capabilities of cores omni <unk>.
Core also won $185000 TCE contract from a tracking and computer printing technology manufacturer to support a global deployment in partnership with a hardware provider by supplying omnicell for in store and warehouse inventory management.
A leading provider of a proprietary decentralized platform and suite of supporting services used by life Sciences organizations for remote capture of patient data was looking for a one stop technology enablement partner to help them reduce hardware lead times and the use of multiple multiple hardware and <unk>.
Connectivity vendors globally.
Core was selected for this $860000 TCE contract due to <unk> ability to provide a one stop shop for hardware or software device management and connectivity on a global scale and.
And finally, an existing core connected health international customer awarded additional contracts with a combined <unk> of $236000 to provide connectivity to multiple global clinical trials.
These wins span a broad array of end markets and use cases from commercial building smart sensors and switches to warehouse inventory management and logistics to global clinical trials and remote patient monitoring and hundreds of countries worldwide.
Core's ability to support this breadth of use cases globally is foundational to the unique value we bring to our customers every day.
Our final slide slide 12 summarizes the key messages, we have talked about today.
We continued to add organic connections in the third quarter and of course total connections were approximately $18 9 million as of September 32023.
Let me just take a moment to put this in perspective at the end of 2017 core had about $6 4 million connections that's about when I was joining the company.
So in less than six years, we have added approximately $12 5 million connections almost tripling, our Iot connectivity volumes, which represents by the way recurring revenue and a compound annual growth rate of approximately 21%.
And this was net of the connections that churn due to the shutdown of the <unk> networks.
Our global sales pipeline has never been more robust and today, our funnel represents larger opportunities at significantly higher bandwidth and hence higher ARPA.
On top of this momentum the company has now de Levered strengthened its balance sheet and increased cash flow flexibility.
As I briefly mentioned earlier the company initiated a restructuring in the fourth quarter that is expected to generate as Paul said approximately $10 million in operating expense savings next year.
This action serves to focus on our top priorities and reduce the risk to our profitability in light of ongoing macroeconomic factors potentially impacting future topline growth.
All of this is to say the cores and are better positioned today from both a financial and growth perspective than at any time since the company came public.
Creating shareholder value remains a top priority and against the backdrop of what we have discussed today. We believe we are in a great position to deliver against this priority.
In closing thank you to all core employees worldwide, our Idaho tiers for continuing to work together with a growth mindset to serve and support each other and our customers everyday.
With that let's start the Q&A. Please.
Thank you we'll now take your question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question is coming from Michael Latimore from Northland Capital markets. Your line is now live.
Great. Thanks, good afternoon.
Well congrats on the refinancing I'm sure.
Nice to get off the plate and you can cover COVID-19 more on growing the business here.
Yeah, absolutely thanks, Mike.
Good.
So just wanted to clean things up it seems like.
From a macro perspective.
Sort of a macro environment maybe.
Slowing some deployment.
It seems to be slowing your kind of new business.
Bookings there so is that kind of seems like a little bit of a.
Two sides of a coin there, but what's your thought of that as.
The macro doesn't seem to be really fully good business there.
Yes, really good really good observation actually.
I personally suspect the macroeconomic factors our are impacting also.
TCE, but where we're getting so much better AD sales at marketing at the quality of leads that we're putting into our pipeline and the brand is starting to become a little bit better known as <unk> been public for a couple of years.
And so I personally think if the macroeconomic factors werent impacting us Mike PCB might even might even have been more.
Sort of Excitingly growing this year and I do think we will grow over the one or two from last year.
But to your point is still valid right, it's a sort of a dichotomous view.
Most of the push backs were getting.
Are you know from from sort of larger.
Mostly connected health type focused customers for different reasons, and then Theres just a macroeconomic impact across the board, which is cross industry and that actually were feeling that in productivity as well our connectivity. While we this is one of our lower organic volume growth years.
People are very conscious of.
Unused or zero usage Sims.
Right. They are turning those off proactively either optimizing their their data spend and expenses more tightly than we've ever seen.
Almost six years now that I've been here. So there is some macroeconomic impact across the board. It just is much more visible in these.
Iot solutions large customers, where obviously as a few of them will start pushing back we feel that given the what is it eight of our top 10 customers are in connected health.
So.
Okay I got it.
Yes.
And then on the last call you talked about maybe I think it was $10 million of CAD solution that could get pushed out it looks like it's more like 20 million can you just elaborating a little bit on are these the same customers or that expanded into some other customers or is there more connectivity change here from our color would be great.
Yeah, no, it's a mix, but for the most part.
The same customers like Ron mentioned.
The larger connected health customers that are continuing to push out whether that's because the clinical trial that they thought was going to start.
Won't start till the new year, because there's not enough nurses available out there to actually do them. So it is some of the.
Same customers on the connectivity side, it's a lot less but that we are seeing some that will.
Delayed deployments into next year or if they were going to do some plant upgrades or firmware updates, which would give us some more overage revenues. They are pushing that out into 2024 to obviously manage results for 'twenty three.
Okay, great. Thanks, a lot congrats on the refinancing.
Thanks, so much Mike.
Thank you next question is coming from Lance Vitanza from TD calendar line is now live.
Hey, guys. Thanks for taking the questions I, just had to drop off and dialed back in so I apologize I am guessing it sounded like that Michael had asked about the delays.
In the business from third and fourth quarter into the first and perhaps second quarter. So.
I'll try not to repeat that but.
Maybe it would just jump into the refinancing congratulations I know you haven't closed it yet.
But it's great that you feel confident in announcing it I know you've been working on it for a while.
How would you could you how would you describe the status is the funding fully committed on both sides of the preferred and the bank debt sides and what if any hurdles remain <unk> are there any you know like if the Dow sells off tomorrow or do we have to worry about.
People pulling the commitment what kind of what contingencies are still in place at this point. Thanks.
Yes, no thanks allowance yes.
I did it look it's really really exciting I mean.
From the time, we started on the first lien side on the debt side.
When we started that process right.
Whitehorse capital is just then.
Sort of an outstanding forward leaning kind of I'll say management and company friendly kind of.
Partner and certainly put together the most compelling of what were several alternative firstly and offers and obviously there are sort of speaking for the whole thing themselves. We did have.
A more clubby sort of syndicate alternative as well so the first thing I'll tell you is what was very.
Good to see was that and what.
Is likely one of the tougher.
Refinancing markets the company I think stood out in the process and had multiple sort of partners.
But they are fully committed and frankly could have funded.
Bye bye bye yesterday or today, when we signed.
The really the only reason to delay and by the way we are.
Delighted that we are the first investment I believe in in Searchlight Capitals, New fund and just between the timing of them closing that fund in cash becoming available and so forth.
We said, okay, let's just separate out.
Sort of definitive agreements to signing from the closing I suspect it won't take long.
But a few days for that to happen there are no conditions anticipated and just look just a couple of words.
On the search side, if I could.
Again just.
Fabulous sort of forward leading stance they've had since we first met.
Don't know how much people know about them.
Got about $12 billion in assets under management and well over half of that is in the telcos are the telecommunications media space. So they are very knowledgeable in the space.
Their vote of confidence means.
Not much more than sort of generic money. If you will right. Because this is very strategic very savvy money in the telco space and we're looking forward to welcoming two of their members to our board I've gotten to know both of those members reasonably well here over the last few weeks and months and we couldnt be.
More excited about you know how.
How much difference I think theyre going to make to a growth mindset around here.
Yeah, No that's great I'm I'm very familiar with with search late in particular and so congratulations.
Congratulations again, maybe just to turn if we could to the global sales pipeline on slide 10.
And my question. There is you know you've got the 740 million of of opportunities. It seems as though it's spread out amongst a good number of opportunities, but I am wondering if we think that just sort of like does the 80 20 rule apply there I mean is it the case that you have.
And maybe it's not 80 20, but or is there a lot of concentration.
Within the you know the size of those opportunities that still remain to potentially close or is it really is it just a lot of more two to 4 million contracts in and so.
So that's I guess one question and then the other question related to the funnel is would it be possible to talk a little bit about you have the arrows there from the qualification and evaluation stage sort of at the beginning of the process all the way down to the beta site stage, which is pretty close to when you're actually going to win the business.
How would you sort of describe where the bulk of the 740 million sits isn't really evenly spread throughout those four categories or is it you know more at the beginning of the process more at the end of the process I'm just trying to get a sense for how we should think about what youre going to be able to announce closing on over the next call. It two to four quarters.
Thanks.
Yes.
Fantastic question.
I actually sort of.
Appreciate the question because it's starting to become such a big set of numbers right.
Well, it's 17 100 opportunities in three quarters of $1 billion of sort of potential.
<unk> estimated TCE that breaking it out a little bit I think makes it more meaningful more digestible and so on.
First thing I would tell you is let's just talk sites.
Right.
Not that size inside of those everyday glass right, but I mean is is kind of important for us because again like six years ago. When I arrived at the company, we had really relatively small deals.
Small.
Customers in general I mean, obviously, we're about a third of the size or or so of what we are today anyway.
But today, we have over 230 of these deals so call it less than 2500 under a $5 million and the rest are over half minute right.
About 100 between 5 million and a million another 100 between $1 million and $5 million and then about 16 that are above five and below 10, and another 16 above 10.
I think I've ever seen 16 deals above $10 million in the funnel I don't I have a feeling that the first four years of my being in this company. We Didnt have 16 total right that we're above $10 million you know what I'm, saying, that's the that's what's exciting about the kind of enterprise readiness the mature.
The of our solutions the kinds of conversations we're now having the kinds of problems. We're not solving an Iot has disappointed because it started in this very regional right, let's start with a pilot here lets start with this there now it's starting to go global and when you start to go global you start to talk big dollars.
And we're basically we would argue the top player of helping our customers solve the global problem with our multimode multi on the one hand with our ECM offer on another.
Another a couple of ways to slice and dice the funnel that I find helpful. I Hope you do.
We have done remarkably well, it's staying pretty stable around the sort of 60 40 mix of new customers versus existing customers remember this funnel is new business.
It's obviously, if I have an existing piece of business and the sales that goes in.
No.
We signs of that business, we've made fleet that every bit as a deal with that kind of discipline, but it's existing revenue right. So it's not really new so we don't we don't.
Report out externally to you guys, what I call existing existing but new business at existing customers and then of course, new customers by definition no matter, what you sell them.
As new revenue and it's been consistently at about 60 40, new to existing that is good to see because that tells you there's new customer dollars coming in.
Another interesting thing of course as you know we've made no bones about the fact over the last year actually almost two years now we have been singularly more focused on the Iot connectivity business right.
We like the managed services business is not not saying anything bad about my team that are dedicated fantastic team, but.
We treat it as I think we should which is when it helps differentiate us when it gives us a one stop shop service to a customer when it helps us win a deal or a customer.
Absolutely use it otherwise we're far more interested in putting a proactive efforts obviously into our 65% gross margin connectivity business and that shows up in our funnel in the space more than two thirds of our funnel right now is Iot connectivity.
And about a third is the managed services analytics stuff that goes into Iot managed services and look I could go on and on because as you know I'm passionate about sales and deals and so forth but.
Yes, that's kind of how that funnel has evolved.
That's really great color I appreciate that if I could just ask one more question. This one on the competitive landscape if you've seen any changes there since we last checked in.
Is there.
When you're going in and competing for this business is it really just sort of trying to convince them that they use cases make sense or are you having to sort of fend off other would be providers or is it you're trying to keep them from from in sourcing or like how has that changed at all recently.
Yeah. Another great question around the competitive dynamics I'll tell you what's <unk>.
Probably most striking about 2023 to date and I think we're still building momentum and there is more of this to come but it's it's how pervasive ihsan ICC.
ICC not the form factor, but that one Sam update able in the field put it anywhere right it'll figure out it will call home, but we'll figure out where it is you can download a profile to it or indeed, a multi NZ based single single SKU solution like Super Center, which is what twilio brought to us right.
The.
It has gotten to the point, where there is not a conversation we are having.
There's obviously slight exaggeration in there, but the exceptions will prove my oil.
Hi.
Exceptions will prove the rule which is.
Every conversation with a customer has an eastern component, even if they're not ready to buy today, we're still positioning is right and they are interested in learning about it and making sure that our next device generation can utilize that it's such a massive simplify all of their supply chains and so forth.
So you say, okay. So if if the world is going to ship between three and 5 billion <unk>.
Over the next three to five years.
And if you were to pick two.
Certainly of the top three unbiased I'll say two of the top two.
<unk> providers in the world where are they today, they're all under the same roof right because twilio super some product in.
And Coors Omnicell product are absolutely leading products and so if every customer wants and he said we've got that best product.
We think we're pretty darn well position and the differentiation to your point is starting to become more clear and what's even more exciting is the nextgen after best to bleed of these right, which let's just say we're launching about a year from now.
And if we get that product right.
Sort of look out world right.
So that's one aspect of competitive dynamics, but it spawns off a couple of other points by definition. We are global there are certainly other.
<unk> is out there with respect.
Some of them some of them have done little roll ups kind of like core did early in the <unk> era, but theyre more regional or paneuropean in nature and that sort of thing, but as the leading independent and as we are actually deepening and widening our competitive moat with our ECM offer.
Platform and tech.
I've actually never felt better than not.
Not to put too fine a point on it but the one company that used to scare me a little bit is here now so.
Alright, great. Thanks, guys I appreciate the the discussion.
Excellent.
Thank you next question is coming from Jamie Rollo from Morgan Stanley. Your line is now live.
Hey, everyone you've got Jamie on for me to I. Appreciate you taking the question I guess first horse power.
Iot business performing to expectations and have you guys been able to retain the engineering resources and then I guess just as a more broad follow up are you seeing any customers renegotiate pricing given the macro conditions.
Okay.
Yes, so two two.
Our questions. There let me just let me take the two new Iot team.
Integration question first or actually the status of the business and you asked.
And I don't think it's any secret because we said this already.
On the last earnings call, but.
The year or so the past between when we first saw the management presentations and projections from.
The twilio team and when they started the first here internally from their management that they were not strategic to the future.
Has it been detriment either.
It was it was it was more than just a distraction to the team.
Quite a bit of attrition happen on the sales force and there is no company that connect Cavalier with its talent.
And maintain its momentum right and so.
The Twilio Iot era that we took on was significantly smaller than what their projections were and.
Perhaps.
More concerning lead and just pure size.
The sort of momentum the rate growth.
They were supposed to be accretive to our growth rates, there actually dilutive right.
The core growth rates right and got activity.
Now.
Yes.
It doesn't pan out at all because.
I think their team sort of come into core and kind of.
Unleashed.
New life right. There like this is all about Iot. This is what we do as opposed to being that other small little unit part of a much larger corporation that was focused on other things.
We've replenished.
The sales team.
The momentum is significantly different already it's.
It's not a switch you flip and suddenly growth rates are back to 20%, 30%. Unlike.
The pipeline you can see the early signs so you can see customers renewing with core.
Sure.
He's I'll say, almost with which the customer transfers have been done to core.
We haven't lost any significant customers to any concerns about Oh, my God, we used to be twilio in our core.
So I can I can confidently tell you that.
Given that talent base given their customer base.
These guys will become accretive to our growth again actually.
At some point, Paul it's not going to able to tell what Australia had whatsapp right and it shouldnt be able to because it's one team, but I think they will be helpful and we'll get back there and I'm very confident in that.
On the talent retention side in general again, very very pleased it's not something we take lightly it is not something we sit back on our laurels and say integration is done but we're pleased.
And while we've taken some medicine here in the fourth quarter.
And I have talked about we've largely left that team alone in fact, one of the reasons to take the restructuring type actions was that we got all this talent in.
And we want to leave it largely intact, because it's more relevant to the future of the next generation product and then and so generally speaking very good before I move on to your second question anything more on Twilio or did I get that.
Really appreciate the detail.
Sure.
And then your second question was just are customers asking for lower price because of <unk> first of all customers are always asking for lower price you know as a macro or not.
But yes, you could argue that intensity of.
Pricing conversation is up significantly.
<unk>.
Yes.
Our carrier partners sometimes.
Don't quite understand why we keep coming back to them for more aggression.
And those <unk> partners that don't get more aggressive won't get our Sims I won't get into growth because that's just the reality of what it takes right now but.
But equally look at it.
Let's say.
It's good.
A good thing to get disciplined and get focused on your asks of Iot providers because.
What's happening right now is going to force.
The separation of the wheat from the shaft in terms of the providers, but more people are asking questions about quality and esim than ever.
Ever before and yes short price as a part of it but.
It's sort of secondary to the main value proposition yourselves.
And the only thing I would add to that when yes, when customers are coming to.
As for price decrease a little bit more but as part of that we're seeing more and more customers, where we don't have 100% of their wallet share they are coming to us to say well if I move all of my share to you guys what price can I get and obviously the more volume that they bring to us.
We will give them that because we're going to double our revenue with them or our base with them. So we're seeing a lot more customers looking to consolidate because they know they can save costs.
That's all set about.
Thank you.
Okay.
Thank you next question today is coming from Edward Lazaro with a private investor.
All right.
Hi, guys and thank you for taking my question.
You continue to say that creating value for shareholders is a top priority and core is well positioned to achieve this goal that's been going on for a number of quarters. Unfortunately core has lost over 95% of its value in a little over two years.
Glad you were able to refinance although it appears to be very expensive, 10% dilution to shareholders high interest rates and dividends on preferred equity how's.
However, the real issue is management's ability to manage the business.
Cost cutting is long overdue and I look forward to learning more about your reorganization plan in Q4.
One of the things I don't really understand is why you do not have pricing leverage you have great products a great company.
Growing market that.
He spells out to me that you should have pricing leverage and should you should be able to increase your your prices I remember back I think it was in the fourth quarter of 2022, when you were talking about increased cost relative to.
The inability to get products to customers and.
Other people were raising prices, but you didn't want to do that to your customers.
I don't understand why if you could explain that to me.
Okay.
I think after.
Quite a few comments there was really only one question. So I'll answer that question right. The question at the end was about a conversation in the fourth quarter of 'twenty, two about not increasing pricing on products.
It was not that was that was not the question. The question that had been asked of me at the time.
Was.
By one of our.
I'll say sort of analysts who cover us.
When when hardware prices are up so much.
Are you just passing along those cost to your customers or are you further marking those up right. So let's say a widget is.
$100, it became a $140 because of inflation.
Are you just passing that through or not because the comment with the question really came from a place where Paul and I have talked about gross margins were down because we were merely passing that through and my response, which by the way I would consistently respond.
Always behave this way and this is why the fruits are there because we haven't lost any customers in this business in three plus years.
Gouging the customer when it's.
Let's say on the $100 product that was getting whatever on the hardware alone let's call. It a 10% margin just for simplicity. If on 140 I would then also say 115% margin right that customer will never forget that set of actions, okay, and so being opportunistic.
In that moment.
Is what I said, we were not interested in doing we certainly we're passing along the cost of course, that's just real costs.
Okay that helps.
SG&A costs are increasing.
We're in an environment, where your margins are decreasing overall at the bottom line and.
You cant just not increased prices that you have to at least address that issue I have some other questions regarding your global sales pipeline.
One of the other callers asked a question about.
How the opportunity revenue was distributed amongst the various stages and I don't believe I heard the answer to that and my specific question is what percent of the overall pipeline is qualification and technical evaluation stage.
Yeah, Okay. So one of the reasons I didn't go there when Lance asked the question.
Was <unk>.
At any moment in time. This is a snapshot there are deals that go through these things with velocity because they are relatively quick decision timeframes theres other things that will sit in a contract signed stage or a beta site stage for many months because that's how long it takes for a customer to really get through a beta test so.
Just sort of I would say.
Looking at a number in our phase is by no stretch of imagination, a direct line to Hey, what will your TCE BB in the next quarter and that said I'm happy to answer the question right. So there's that.
After 740 billion.
Obviously as one would expect the vast majority of it is in the qualification and technical evaluation stage, it's about call it $450 million in that stage, it's closer to 200 in the proposal stage and then combined between what is signed and then what is in beta Youre talking about.
Another $80 odd million dollars.
Our stuff that customers have literally said, yes youre right.
Why.
Our supplier.
We're going to do beta tests, and so forth before we start accounted because we've found we've learned from experience that sometimes the time between a contract signing and production revenue growing can be very long and Thats why we introduced that new beta site stage, but anyway. So that's the breakout is call. It 450 call it too.
<unk> hundred call it 55 ish in 'twenty five.
Alright, Thank you very much for the questions I think.
Pretty much.
Ex us to the end.
Our call I want to thank everyone for taking the time to listen to our earnings call and we look forward to updating you with our fourth quarter results in March thanks, very much.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.