Q3 2024 Urgent.ly Inc Earnings Call

Speaker Change: Good afternoon and welcome to Urgent Me's third quarter 2024 conference call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. With that, I'd like to turn the call over to Jenny Mitchell, Vice President of Finance Strategy and Investor Relations. You may proceed.

Jenny Mitchell: Thank you, Operator. Good afternoon, everyone, and thank you for joining us for Urgently's Financial Results Conference Call for the third quarter ended September 30, 2024. On the call today, we have Urgently's CEO, Matt Booth, and CFO, Tim Huffmyer. Following Matt and Tim's prepared remarks, we will take your questions.

Speaker Change: Before we begin, I'd like to remind you that some of our comments today may contain forward-looking statements that are subject to risks, uncertainties, and assumptions which could change.

Speaker Change: Should any of these risks materialize, or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.

Speaker Change: A description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results, is included in our SEC filings.

Speaker Change: including our most recent annual report on Form 10-K for the year ended December 31st, 2023, our quarterly reports on Form 10-Q, and other filings that we need to file from time to time with the SEC.

Speaker Change: Acceptance required by law, you do not undertake any responsibility to update these forward-looking statements.

Speaker Change: During today's call, we will also discuss certain non-GAAP financial measures.

Matt Booth: A Reconciliation of Gap to Non-Gap Measures is included in our earnings materials and press release, which are available on our website at investors.geturgently.com. Replay of today's call will also be posted on the website. With that, I'll now turn the call over to Matt.

Matt Booth: Thanks, Jenny. Good afternoon, everyone, and thank you for joining us today for our third quarter 2024 earnings call.

Matt Booth: I am pleased with our performance during the third quarter where we delivered revenue of $36.2 million, which was in line with our expectations while making improvements in both non-GAAP operating expense,

Matt Booth: and non-GAAP operating loss. Notably, this is our fourth consecutive quarter where we delivered on our revenue guidance commitment.

Matt Booth: As we close out the year, we remain focused on the continued execution of our strategic initiatives, which are aligned with accelerating profitable growth, delivering exceptional customer service, achieving operational efficiencies, and improving our capital structure.

Matt Booth: We were active across all areas of the business during the third quarter, and we have again made progress on renewing several significant customer partner contracts. Let me spend a few minutes to provide some highlights.

Matt Booth: As previously mentioned, we secured a three-year contract renewal with a global automotive fleet management company.

The renewal extends our long-term customer-partner relationship to nine years.

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Matt Booth: Under this renewed contract, our customer partner will leverage Urgently's comprehensive technology stack capabilities in the U.S. and Canada.

Matt Booth: to provide capabilities encompassing vehicle classes one through six, which is light-duty passenger cars, vans, small pickup trucks, through medium-duty and commercial vehicles.

Matt Booth: They will also leverage our AI-driven, yield-based pricing technology with predictive location-aware capabilities to drive network pricing and actionable insights with the goal of minimizing vehicle downtime.

Matt Booth: Also, as previously released, we secured a two-year contract renewal with one of our largest worldwide vehicle rental companies.

Matt Booth: With this renewal, our relationship which began in 2022 will extend through 2026.

Matt Booth: Urgently's connected assistance platform will continue to provide their roadside assistance program enabling exceptional mobility assistance services including knowledgeable support for electric vehicles in the US and Canada.

Matt Booth: Our recent contract renewals reflect Urgently's ability to foster growth, stability, and collaboration across our existing client base.

Matt Booth: Each renewal underscores our client's satisfaction and trust in our mobility assistance platform. We look forward to deepening our relationship with each of our customer partners and remain dedicated to supporting their long-term success.

Matt Booth: Looking back on our progress over the first nine months of 2024, we successfully renewed and expanded eight existing customer partners and acquired three new customer partners. I'm proud of the hard work across the organization which have led to these successful outcomes.

Matt Booth: In October 2024, we were informed that a customer partner, which is our top five global OEM, has shifted their internal strategy. As a result, this customer partner has decided to close its mobile technical support trucks and eliminate dealer technicians providing remote services.

Matt Booth: which is the program that we're specifically selected to integrate and support. The strategy change includes a contract wind down. This global OEM will be rolling this brand back under the vendor currently serving its other suite of brands.

Matt Booth: This customer partner currently represents less than 5% of our revenue for the first nine months of 2024.

Matt Booth: We remain focused on winning new business and renewing and expanding relationships with our customer partners. An ongoing priority remains improving our margin profile to deliver profitable growth. As such, we are constantly looking at the business to find opportunities to drive operation and improvements and efficiencies.

Matt Booth: Under this divestiture we return 51% of the ownership to the business units management and retain 49% equity ownership.

Matt Booth: In addition, urgently retain the perpetual royalty free license to integrate the flow software into the platform, which includes driver behavior, driver scoring, crash detection, and analytics platform.

Matt Booth: The divestiture and license will also enable us to continue to leverage the flow software to advance our connected vehicle offerings, while enabling the flow management team to focus on its own growth opportunities and seek outside capital to grow independently without continued investment from VirginLink.

Matt Booth: We would also expect to opportunistically partner with the flow in the future.

Matt Booth: Separately, we believe the product innovation that leverages our technology, platform, and data insights will not only drive further optimization of our margin profile, but also will enable our customer partners to build

Matt Booth: On this front, I'm very pleased that Urgently was recently recognized in October by Auto Tech Breakthrough Award for the overall transportation tech of the year.

Matt Booth: Our next-generation yield-based pricing technology, which was introduced this year. This AI-driven pricing technology makes it possible to reliably predict and optimize job prices for roadside assistance services, leading to higher-quality customer experiences.

Matt Booth: Real-time, yield-based pricing allows Urgently to better manage surges in roadside assistance demand, similar to surge pricing used by Ridehill Services.

Matt Booth: This award is a result of our hard work data engineering teams who developed our yield-based pricing technology and who continually look for ways to apply technology to advance the roadside experience.

Matt Booth: Our location aggregation system has been tested nationwide for RSA4 dispatches, which include four roadside service events of fuel, jumpstart, auto lockout, and flat tire.

Matt Booth: We were successful in increasing the digital engagement with our service providers and reducing our cost to provide this service within this test segment. On the customer service side we saw improvements in our time to assign and reduction in wait times for stranded drivers.

Matt Booth: As testing validated our assumptions, we recently rolled out our location aggregation system to 15% of our network for all RSA-4 dispatches.

Matt Booth: In closing, the team had a productive third quarter and I'm pleased with our progress, which included securing customer contract renewals, continuing our focus on break-even through operational initiatives and improving our gross margin for the quarter and year-to-date over the prior year.

Matt Booth: We continue to take significant steps forward in our path to break even during the third quarter, as evident by the 16% year-over-year improvement in our quarterly non-GAAP operating expenses, and 17% year-over-year improvement in our quarterly non-GAAP operating loss.

Matt Booth: We believe this progress positions us well for capturing new and long-term growth opportunities ahead.

Matt Booth: As we look ahead, our core priorities remain expanding our existing B2B incident business through securing renewals, expanding relationships with existing partners, and developing new customer partner opportunities.

Speaker Change: Achieving non-gap operating break-even for our operational improvements, margin expansion, and managed growth, and continuing to provide innovative and differentiated services to our partners. Thank you for your time and continued support. I'll now turn the call over to Tim to discuss our financial results.

Tim Huffmyer: Thank you, Matt. And good afternoon, everyone. Today, I will discuss our results for the third quarter, and it's September 30, 2024. Let me start by providing more information on the strategic transaction to divest the flow in eponymous business unit.

Tim Huffmyer: As Matt highlighted, in September, we announced our decision to divest this business unit, which we believe will enable greater focus in capital resource allocation to advancing Urgently's core business.

Tim Huffmyer: As part of the transaction, we returned 51% ownership to the business units management and retained 49% equity investment ownership.

Tim Huffmyer: This transaction resulted in an immediate deconsolidation of the business unit from urgently including the removal of all related assets and liabilities.

Tim Huffmyer: and a new non-current equity investment asset on our balance sheet valued at approximately $1.4 million.

Tim Huffmyer: This license was independently valued at approximately 1.4 million and is classified under property equipment and software on the balance sheet.

Tim Huffmyer: The write-up of all the divested assets and liabilities and the write-up of both the equity investment asset and the IP software license resulted in a reported book loss within the third quarter of $3.3 million.

Now let's move on to the financial results.

Tim Huffmyer: For the third quarter, revenues were $36.2 million, which was within our guidance range of $35 to $38 million.

Tim Huffmyer: and a decline of 21% or 9.8 million from the same quarter last year.

Tim Huffmyer: The year-over-year revenue decline was in line with our expectations and was primarily driven by the reduction in dispatch volume from the customer partner non-renewal that we had previously announced in January of 2024.

Tim Huffmyer: This was partially offset by net volume and rate increases from new and existing customer partners.

Tim Huffmyer: For the third quarter, gross profit was $7.8 million, compared to $9.2 million in the prior year period. Again, the decline was driven primarily by the customer partner non-renewal from January 2024.

Tim Huffmyer: Gross margin for the third quarter was 21% compared to 20% in the prior year period.

Tim Huffmyer: This is the sixth consecutive quarter of gross margin exceeding 20%, and we remain focused on executing against our strategic initiatives to drive profitable growth and achieve our long-term gross margin target of 25 to 30%.

Now let's move to operating expenses.

Tim Huffmyer: Operating expense for the third quarter was $13.7 million, an improvement of 9% from $15 million in the prior year period.

Tim Huffmyer: The prior year included transaction costs and was part of the pre-merger urgently financial results.

Tim Huffmyer: We remain focused on driving operational efficiencies which includes changes in business processes such as eliminating redundancies within the organization and reducing operating expenses.

Tim Huffmyer: As previously discussed, most of our operating expenses are headcount related, so we will focus on this initially.

Tim Huffmyer: At the end of the third quarter of this year, we had 188 total employees, a reduction of 160 employees or 46% when compared to the fourth quarter of last year, just after we completed the merger with Autonomo.

Tim Huffmyer: This number also includes the divestiture of 64 employees as previously referenced.

Tim Huffmyer: In further support of driving operational efficiencies, operational and support costs during the third quarter of this year were $3 million compared to $5.4 million during the same period last year, a decrease of $2.4 million or 45%.

Tim Huffmyer: We also reduced our reliance on customer support representatives who are employed through our BPO partners.

Tim Huffmyer: In the third quarter of this year, we had 223 full-time customer support representatives compared to 404 during the same period last year, which is a reduction of 181 customer support representatives, or 45%.

Tim Huffmyer: These reductions are in part due to the hard work from the operational and technology teams to modify business processes and implement new technologies over the last several quarters, resulting in reduced operating expenses and the elimination of personnel.

Tim Huffmyer: We also review non-GAAP operating expenses, which is defined as GAAP operating expenses plus depreciation and amortization expense, stock-based compensation expense, non-recurring transaction costs, and restructuring costs.

Tim Huffmyer: Non-GAAP operating expense for the third quarter was $10.7 million, an improvement of 16% from $12.7 million in the prior year period.

Tim Huffmyer: This improvement is in line with our discussions throughout 2024 and more clearly shows the results of the operational efficiencies and leverage we've achieved along with the integration efforts with the Autonomo merger.

Tim Huffmyer: Overall, we remain focused on optimizing our operating structure to drive further improvement in this metric.

Tim Huffmyer: Gap operating loss for the third quarter was $5.9 million, relatively flat as compared to the prior year.

Tim Huffmyer: We also review non-GAAP operating loss, which is defined as GAAP operating loss plus depreciation and amortization, stock-based compensation expense, non-recurring transactions, and restructuring costs.

Tim Huffmyer: Non-GAAP operating loss for the third quarter was $2.9 million, an improvement of 17% from $3.5 million from the prior year period.

Tim Huffmyer: We continue to drive operational improvement initiatives as we realign our corporate structure with our current market opportunities.

Tim Huffmyer: Our efforts are most notably reflected in the significant improvement of 70% in our third quarter non-GAAP operating loss when compared to the third quarter of 2023.

Tim Huffmyer: combined company non-GAAP operating loss, including both urgently and autonomo, which was $9.9 million.

Tim Huffmyer: Also an improvement of 63% when compared to the fourth quarter of 2023 non-gap operating loss, which was $7.9 million.

Now a few comments on our balance sheet.

Tim Huffmyer: As of September 30th, 2024, Urgently had cash and cash equivalents of $17.4 million and a net principal debt balance of $54.3 million.

with a maturity in January of 2025.

Tim Huffmyer: We continue to take important steps to address our capital structure, enhance our liquidity position, and provide the company with additional financial flexibility.

Tim Huffmyer: We are in discussions with lenders regarding a senior secured working capital line of credit solution, which would allow the company to meet its scheduled debt maturity on January 1st, 2025.

Tim Huffmyer: We are also considering a plan for this maturity, which could involve partial or full pay down of this obligation prior to maturity.

Tim Huffmyer: Further, the company continues to work with its second secured lender to modify the January 31st, 2025 maturity to align terms with the new senior secured working capital line of credit solution.

Tim Huffmyer: The complexity of our secured debt structure requires negotiation and collaboration amongst the various stakeholders.

Tim Huffmyer: This would also contemplate a solution for the unsecured notes that matured on June 30th, 2024.

Tim Huffmyer: We look forward to providing further updates on our capital structure.

Tim Huffmyer: by adding features and functionalities which benefit all of our customer partners. We expect this practice to continue with approximately $1.4 million to be capitalized in the fourth quarter of 2024.

Tim Huffmyer: As of September 30th, 2024, we had 13.4 million shares of common stock outstanding.

Turning now to our Outlook.

Tim Huffmyer: We expect revenue in the range of $30 and $33 million during the fourth quarter of 2024 and revenue in the range of $141 and $144 million for the full year of 2024.

Tim Huffmyer: In addition, we are targeting our non-GAAP operating loss during the fourth quarter of 2024 to be approximately $2 million, with the continued target of non-GAAP operating break-even during the first quarter of 2025.

Tim Huffmyer: Our expected common stock shares outstanding at the end of the fourth quarter is $13.5 million.

With that, we will open the call for questions.

Operator, please open the line for questions and answers.

We will now begin the question and answer session.

To withdraw your question, please press star then 2.

At this time, we'll pause momentarily to assemble our roster.

Speaker Change: Our first question will come from Chris Pierce with Needham. You may now go ahead.

Hey, good afternoon guys, how are you doing?

Hey, Chris. Hey.

Speaker Change: Can you just give us a little breakdown? I know you talked about the renewals, and then three new partners, and then the loss of a partner. Like, what's the right way to think of those three new partners potentially replacing or replacing at a higher level than the partner that, unfortunately, is kind of pulling back on what they're doing?

Speaker Change: Unknown Speaker 0 0 0 0 0 0 0 0 0

Speaker Change: So the renewals, Chris, as we went through this year, we've been pretty successful on the renewals. I think we've renewed on a run rate basis about 50% or so. Tim, keep me honest on that, 50% of the revenue, which is great. The three new partners as they're modeled out now will more than make up for the one that is discontinuing with us in terms of top line revenue. They're larger in scale and at equal to or exceeding the margin contribution.

Beep

Speaker Change: Are they global OEMs or fleet managers? Like what's the right bucket that they fall into? It's a combination of fleets and it's a combination of insurance and B2B2C.

Yep.

[inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry [inaudible]

Speaker Change: Okay, and then so if I think about the revenue that you got it to the fourth quarter, can you remind me is the first quarter of 2025 still sort of a messy comp because you had the larger customer that didn't renew as part of revenue in the first quarter, and then the comps get more organic in the second quarter. Is that the right way to think about it?

It is, Chris. That's right.

Okay and then just lastly for me

Speaker Change: gross margins. I know there was a sort of a headwind last quarter on lower margin jobs, which is sort of outside of your control. But from our kind of looking at things historically, we actually thought third quarter was the weakest quarter for gross margins, because of summer travel and people traveling further and away from no jobs, like providers have to travel further to get the jobs.

Speaker Change: But gross margins were up sequentially, so I just kind of can you just tie those two together for me?

Speaker Change: Yeah, it does turn into a, I think your theory is right, Chris. I mean, that's where all our conversations have been. It does come down to a bit of mix and how all the jobs come in and depending on the margin profile of each of those jobs. So it is mixed driving a little bit of that.

Speaker Change: Okay. Okay. But how should we think about gross margins? Well, I guess, okay, we can leave it there. That's funny. Thank you.

Speaker Change: This concludes our question and answer session. I would like to turn the comments back over to Matt Booth for any closing remarks.

Matt Booth: If you're attending and you'd like to have a one-on-one meeting with us, please contact your Sudoti representative. If you're not attending and would like to meet with management, please reach out to us at InvestorRelations at GetUrgently.com. Again, InvestorRelations at GetUrgently.com, and we can schedule a call. Thank you for interested in Urgently and for joining our call today.