Q3 2024 Aeries Technology Inc Earnings Call
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Speaker Change: I would now like to turn the conference over to Ryan Gardella.
Ryan Gardella: Please go ahead.
Ryan Gardella: Good afternoon, and welcome to <unk> Technologies' third fiscal quarter 2024 earnings call.
Joining us from the company's Chief Executive Officer, and co founder of Aries suture pattern classroom, Chief Financial Officer, Rajeev I'm there.
Ryan Gardella: And Chief Investment Officer, Daniel what today's call will begin with scripted remarks, and well then open the participants for questions.
Ryan Gardella: During this conference call contains statements about future events and expectations, which are forward looking in nature statements on this call may be deemed as forward looking and actual results may differ materially words, such as believe estimate expect as well as similar expressions are intended to identify forward looking statements for a full list of risks inherent to the business of the company. Please refer to the company.
Ryan Gardella: <unk> SEC filings and earnings press releases.
<unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after the call.
This call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G. non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from GAAP measures when required reconciliations of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in.
Ryan Gardella: The earnings release or other materials available on the company's website.
Speaker Change: I'd like to turn the call over to suit here.
Speaker Change: Thank you operator, and thank you everyone for joining us here again.
Speaker Change: As many of you already know my name is submitted by negotiating and I'm, the CEO and cofounder of <unk>.
Speaker Change: Today, I would like to walk you through some financial highlights and high level commentary before passing it off to Daniel Boone Chief investment officer for details on some of our new customer deployments in the quarter.
Speaker Change: I am pleased with our end to the calendar year and happy to report that this quarter's revenue of $18 9 million exited our outlook right.
Speaker Change: Finally, our adjusted EBITDA result of $2 4 million was in line with our outlook.
Speaker Change: For our third fiscal quarter revenues were $18 9 million, representing 49% growth year over year.
All of which was driven by new clients entering the AI platform for the.
Speaker Change: First three quarters of fiscal year revenue was $52 8 million, representing a 39% increase over the first three quarters of our prior fiscal years.
Speaker Change: Fiscal year to date growth was driven by a combination of new clients on the Aries platform.
As well as additional spend from existing clients.
Speaker Change: Clearly we are executing our growth strategy exactly as intended and are seeing strong momentum in new client acquisition and in fact, we have already exceeded our internal bookings forecast for the current quarter.
Speaker Change: Our months left to go.
Speaker Change: North America remains our strongest in target market, representing approximately 77% of our revenue in the quarter and fiscal year to date.
Speaker Change: I'm also pleased to announce that we have opened a new center of excellence in Mexico during the quarter, which will allow us to better service, our north American customers with Adt's professionally.
Speaker Change: Professional smoking within the same time zones.
Speaker Change: With over 180 professionals currently in Mexico, and growing we view building out.
Speaker Change: Our presence in Mexico as a high priority initiative to support the strategy that is of increasing importance and popularity among private equity sponsors and their portfolio companies.
Speaker Change: Duo is showing through.
Speaker Change: Shutting the first drug combination of near shoring in locations such as Mexico.
Speaker Change: Retaining centers of excellence in India in order to maintain 31 by seven coverage.
Speaker Change: While significantly reducing cost.
Speaker Change: We will continue to build out our nearshoring capabilities for clients and believe this trend will continue to be a driver of business in the future.
Speaker Change: I'm also pleased to announce that we opened two centers of excellence for to support clients in bank group during the quarter.
Speaker Change: Representing additional <unk> professionals, primarily integration transformation and business process optimization spaces.
Speaker Change: As <unk> mentioned the mix of our new customers have been trending towards digital transformation.
Speaker Change: AI and analytics, which has a positive effect on our gross margins and speaks to the cutting edge transformative nature of the work that <unk> professionals are performing for our clients.
And with that I would like to turn the call over to Daniel Webb Chief Investment Officer.
Daniel Webb: Just some details of new client deployments venue.
Daniel Webb: Thanks to their end.
Daniel Webb: Thanks, again to everyone for being on the call I wanted to talk about some of our recently announced customer wins and deployments and Bangalore, we partnered with a leading provider of investment management solutions to leverage areas World class talent in the digital transformation and process optimization spaces.
Daniel Webb: This is a large long term collaborations that will leverage the world class talent of areas professionals and bring leading edge innovation and best in market practices that can only come from a variety of <unk> with a cross industry insight that we bring the scale flexibility and cost efficiencies that we are providing to this client.
Daniel Webb: Simplifying the tax and local talent acquisition.
Daniel Webb: The key selling point and we look forward to working with its new client for years to come and.
Daniel Webb: In Mexico, we partnered with a global technology company to bring Nearshoring scale improved efficiency and streamline operations.
Speaker Change: As Hubert mentioned Nearshoring as part of a combined dual assuring strategy being employed by our prospects and clients to fill in the times on gas across critical business functions.
Speaker Change: Our differentiated digital transformation and tech enabled service offerings have resulted in industry, leading growth in calendar year 2023, we grew revenue 35% in calendar year 2023 versus approximately 5% for our public comparable peer set our revenue growth continues to accelerate and we expect to grow between 40% and <unk>.
Speaker Change: 54% in the calendar year 2024 compared to calendar year 2023.
Speaker Change: The highest growth comparable company in our peer set is expected to grow approximately 17% in calendar year 2024.
Speaker Change: Expect word of mouth and expansion within our current private equity customers to continue to be our biggest driver of growth in calendar year 2024 Lastly.
Speaker Change: Lastly in terms of inorganic growth areas continues to Opportunistically evaluate acquisition targets and believe this will be a significant driver of accelerated growth going forward.
Speaker Change: And now I'd like to turn it over to Rajiv and I, our CFO for more detailed view.
Speaker Change: <unk> <unk>.
Thank you Danielle.
Speaker Change: I will now walk through our third quarter numbers in more detail.
Our product revenue.
Speaker Change: The third quarter were $18 $9 million.
Speaker Change: Which was an increase of 49% year over year.
Speaker Change: The increase was due to <unk>.
Speaker Change: 6.8 million increase in new client revenue with.
Speaker Change: A number of new logos.
Speaker Change: Its platform.
Speaker Change: Slightly offsetting this was a <unk> 5 million decrease from existing client ramp down I wanted to be clear about this.
Speaker Change: Due to the normal ebbs and flows of urban projects.
Speaker Change: We did not move in claims in the period and what the remaining with terms that small fluctuations with existing clients can be considered normal from quarter to quarter.
Speaker Change: Okay.
Speaker Change: For the nine months ended December 31st.
Speaker Change: Revenue.
Speaker Change: $52 $8 million.
Speaker Change: That puts ending 39% growth year over year.
Speaker Change: This was due to a mix of new clients coming to the AOS platform.
Speaker Change: Additional spend with existing clients.
Speaker Change: Our gross profit for the third quarter was $6 million.
Speaker Change: Which was an increase of.
Speaker Change: 61% year over year.
Speaker Change: And resulted in a gross margin of approximately.
Speaker Change: Nearly 32%.
Speaker Change: Worst of 18% in the same period, some 20 community.
Speaker Change: This was largely the result of a shift in revenue mix.
Speaker Change: Towards more digital and transformation AI analytic services.
Speaker Change: Generally higher gross margin services.
We believe we are seeing a secular shift towards these solutions.
And we expect that mix to continue to shift.
Speaker Change: More towards digital transformation.
Speaker Change: Analytics.
Speaker Change: Our SG&A expenses in the third quarter were pipeline $3 million.
Speaker Change: Which was an increase of 162% year over year from $2 2 million.
Okay.
Speaker Change: This was largely due to a $1 9 million increase.
Speaker Change: In legal and professional services.
Speaker Change: In connection with our successful transition to a public company.
Speaker Change: That's one.
Speaker Change: One 1 million Talbot and later to an allowance for a customer receivable.
Speaker Change: Taken together.
Speaker Change: Operating in Gabon.
Speaker Change: $733000 in the third quarter.
Speaker Change: Which was an increase of 150%.
Number two.
Speaker Change: $293000 in the same period of 2023.
Speaker Change: For the nine months ended on December 31, we generated an operating income of $3 million.
Speaker Change: Which was up 107%.
Speaker Change: Approximately one 4 million in the same period for 2023.
Speaker Change: As we mentioned in our press release.
Speaker Change: There was a $16 $4 million noncash.
Speaker Change: Non cash charges.
Speaker Change: Related to change in fair value of the forward points is agreement.
Speaker Change: We ensured upon closing of the business combination.
Speaker Change: Yes.
Speaker Change: GAAP.
Speaker Change: Net loss for the third quarter.
Speaker Change: Of $16 4 million.
Speaker Change: Moisture.
Speaker Change: Net loss of 270000 in the same period.
Ill turn the Trinity.
Adjusted EBITDA for the third quarter of 2024 was $2 4 million.
Speaker Change: <unk> of less than 1% year.
Speaker Change: Year over year.
Speaker Change: In line with our expectation as we have noted.
Speaker Change: On the balance sheet.
Speaker Change: We had $6 5 million in cash for the period ending December 31 2023.
Speaker Change: The total long term debt was $1 1 million.
Speaker Change: Finally.
Speaker Change: As mentioned in our press release I wanted to reiterate our outlook for the calendar year 2024.
Speaker Change: We are expecting total revenue of between 95 and $105 million.
Speaker Change: And then just real EBITDA between <unk>.
Speaker Change: 16 and $20 million.
Speaker Change: Thank you all for joining and with that I would like to ask the operator to open the lines for questions operator.
Speaker Change: Certainly.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
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<unk> would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily.
Speaker Change: To assemble our roster.
Speaker Change: We have a question from Jeff Martin with Roth Capital. Please go ahead.
Jeff Martin: Thanks, Good morning, and good evening guys.
Speaker Change: Wanted to touch on client additions during calendar 2023, Helen clients as you bring on.
Speaker Change: How many private equity firms now doing business with that you aren't doing 12 months ago and then also.
Speaker Change: The next us.
Speaker Change: Revenue of these clients brought on sounds like Youre expecting a continued shift towards more digital and consulting.
Speaker Change: And the next several quarters here.
Speaker Change: So to give you a broad overview.
Speaker Change: Of this before I hand, it over to Daniel.
Daniel Webb: Okay are described in detail.
Daniel Webb: The transformation.
Daniel Webb: Services engagement.
Daniel Webb: <unk> is moving quite according to plan in terms of.
Daniel Webb: Additional transformation, our fundamental base of <unk>.
Daniel Webb: Services offering.
Daniel Webb: Another unique engagement model that rehab. So that is one the second is the private equity.
Daniel Webb:
Daniel Webb: <unk>.
Daniel Webb: Our stakeholders that we are working with that.
Daniel Webb: 10 of them.
Daniel Webb: All of them marquee names.
Each of them have started.
Daniel Webb: Expanding us into their existing portfolio companies, which are much larger in size as compared to the ones. We have been working with in the past.
And that gives us a good deal of confidence with respect to the velocity and acceleration.
Daniel over to you to explain this further.
Daniel Webb: Yes, so for calendar 2023.
Daniel Webb: There are about 10, new clients, which was our best year as far as new clients.
Daniel Webb: And going into 2024, we're seeing that continuing to accelerate so we expect this year.
Daniel Webb: If we stay on track, we'll have more than that.
Daniel Webb: So.
Daniel Webb: Those are still within the private equity firms.
Daniel Webb: The strategy will be to continue to add on additional private equity firms as well as growth in the private equity firms that are already there.
Daniel Webb: And so I'll stop there and see if theres anything else that.
Speaker Change: That was asked.
Speaker Change: Yes, so I don't know if you can hear me.
Speaker Change: Mix.
Speaker Change: Business in the third quarter or maybe in calendar 'twenty three digital nurses BPM and how much you anticipate that shifting.
In calendar 'twenty four.
Speaker Change: So I think maintaining that.
Speaker Change: Go ahead, yes go ahead, yes.
Speaker Change: So I was going to say that.
Speaker Change: Yes, we don't typically provide a breakdown of the exact amounts, but we are clearly seeing a shift towards the digital transformation offerings, which we are.
Speaker Change: Offering to our existing clients to give you a flavor there are four customers existing customers, where we have data supporting them on their own did interactive AI and natural language processing, which is an AI and robotic process automation efforts.
Speaker Change: We are clearly seeing that shift in derivatives also.
Speaker Change: As reflected in the higher gross margins, which are reported in.
Speaker Change: Q3.
Speaker Change: Okay, and then along those lines, but what do you view.
Speaker Change: AI is an opportunity short term near term.
Speaker Change: Intermediate Simon maybe a threat longer time and honestly I'm curious if you think AI ultimately displaces yes.
Some of the processes that maybe youre doing today.
Speaker Change: And with clients.
Broadly.
Speaker Change: Hi, Jeff.
Speaker Change: We view AI.
Speaker Change: Internally.
Speaker Change: As from a customer perspective.
Speaker Change: As a productivity tool and also SaaS business enhancement tool.
Speaker Change: Uh huh.
Speaker Change: Bill.
Speaker Change: We do believe that.
Speaker Change: At the end of the day.
Speaker Change: It will.
Speaker Change: In certain functions reduce.
Speaker Change: The need for resources, but on the higher end being.
Speaker Change: Areas like technology.
Speaker Change: Thanks.
Speaker Change: The AI engine evolution.
Speaker Change: Evolving practical solutions around AI.
The.
Speaker Change: The opportunities keep on expanding and that is the direction. We are very clearly taking.
Speaker Change: With respect to each and every of the customers all of them.
Speaker Change: Partnering with us in this.
Speaker Change: Very clear.
Speaker Change: Our strategy is with.
Speaker Change: With respect to <unk>.
Speaker Change: Adoption of AI.
This system.
Speaker Change: And we believe that.
Speaker Change: We'll accelerate our own.
Speaker Change: Menu mix.
Transformation.
Speaker Change: Alrighty.
Future quarters.
Speaker Change: Rajiv.
Speaker Change: Elaborate anything more on this.
Speaker Change: Yes. Thank you.
Speaker Change: So.
Speaker Change: In addition to awards to be had mentioned.
Speaker Change: So.
We have the clear longstanding customer relationships.
Speaker Change: And now when our customers are.
Speaker Change: Yes.
Speaker Change: Embarking on their own AI strategy say for example, one of our customer.
They wanted to build a large language model specific to their industry and their business.
Speaker Change: And immediately they turn to us for all the support services and later to building the model.
Speaker Change: And Thats the process this weekend undertake.
Currently and we can scale up the team very well in Bangalore, Mumbai, rather than doing that.
In the U S now.
Speaker Change: And when you are building allows language, Florida, there is a lot of ethanol theater.
Speaker Change: Activity like for example, <unk>.
Speaker Change: Letting the data ingesting the data cleaning data and these are all things which are.
Speaker Change: E value.
Speaker Change: Engineered based in the U S doesn't want to do and immediate and also needs a lot of manual do this book. So we have our engineers sitting in bank group efficiently and cost effectively doing this kind of work for example, using Python.
Speaker Change: Great.
Speaker Change: The FCC website and collect some information which goes into the into the language model our client is building.
Speaker Change: With that kind of a shift we have seen clearly in our customer. The primary driver is that we have a longstanding relationship we have a we have proven our capabilities and the customer cluster.
Speaker Change: That will be converting that into the AI related services and also analytics.
Speaker Change: Okay, and then I wanted to dive in on the availability of talent.
What's the labor market like today versus maybe a year or two years ago are you seeing wage inflation will come down.
Speaker Change: And then.
Speaker Change: Retention has been trending.
Speaker Change: Daniel you undertake that.
Speaker Change: So retention has been trending positively.
Speaker Change: I think overall, we had in our investor presentation about 8%.
Speaker Change: Now.
Speaker Change: Now down to about 4% and so we're seeing that.
Speaker Change: That on its own is well ahead of kind of where the industry is and so we're seeing our differentiated model play through on there and where also the thing.
Speaker Change: Trends in the industry that overall the market is getting easier for talent. We think there is a significant kind of.
Speaker Change: Need for talent when there is a lot of venture capital and venture dollars going into <unk>.
New startups with.
Speaker Change: That became a time where that was.
Speaker Change: More difficult to get.
Speaker Change: Very good software development talent, but now we've seen that kind of that go away and a lot more talent in the pool and so we've been able to scale up quickly for a handful of our customers building out centers of excellence building out large teams and a quick amount of time and so we think that that.
Speaker Change: <unk>.
Speaker Change: We're going to pick.
Speaker Change: Period, right now, where it's relative to two years ago much easier to get the talent and to get them at the right price and to retain them.
Speaker Change: Okay, and then last one for me is on the sales investment side.
Speaker Change: Believe you made some investments in the recent past.
Speaker Change: What's your plan for this year in terms of.
Speaker Change: Adding additional sales resources and.
Speaker Change: But what's the longer term strategy I know there are some other things I'll give you a broad overview I'll hand, it over to <unk>.
Speaker Change: So so far.
Speaker Change: Yes.
We have publicly put across.
Speaker Change: Multiple presentations.
Speaker Change: Discussions.
The period of time.
Speaker Change: Sure.
Speaker Change: Past decade also grown with very little sales effort through what we call us net folk effect that's basically it.
Speaker Change: Relationships connections plus flows and so on and so forth of people.
Speaker Change: We have worked with us from the from the customer side and from the private equity side.
Speaker Change: Reap the benefits of working with us in this unique engagement model.
Speaker Change: That has led us to this fast clip of growth for the years.
Speaker Change: But as of today, we have.
Speaker Change: Everybody.
Speaker Change: A very good base of reference able clients.
Speaker Change: And leveraging that.
As we speak today, we are set up.
Speaker Change: Pretty strong sales and marketing team with focus on two streams.
One which is focusing on accelerating our private equity relationships and.
Speaker Change: And getting into another portfolio company.
Speaker Change: Ecosystem and the second is.
Speaker Change: Leveraging.
Speaker Change: Our unique engagement model and the benefits that is brought to multiple businesses, who have worked with us.
Speaker Change: Ill take that as a disruptive force to midsize U S companies.
Speaker Change:
Speaker Change: And.
Speaker Change: Two elements that have been put in place in terms of sales and marketing team organically.
Speaker Change: That's the strategy.
Speaker Change: I'd hoped it to accelerate.
Speaker Change: Our growth.
Speaker Change: In terms of progress and the path forward.
Speaker Change: Neil.
Speaker Change: I hand, it over to you.
Speaker Change: And sorry.
I guess.
Speaker Change: Go back in.
Speaker Change: Whatever is left with the question that you didn't cover now I'll fill in the blanks.
Speaker Change: On the CMC expenses I can give some numbers Jeff.
Speaker Change: SG&A expense for last quarter with $5 3 million.
Speaker Change: Which is an increase from there.
Speaker Change: The September quarter imager that aren't.
Speaker Change: A $1 6 million. So we are clearly investing in our sales team.
Speaker Change: And we have added more people in the U S.
Speaker Change: Our Mexico operations are growing very rapidly.
Speaker Change: We will also look at Oh.
Speaker Change:
Speaker Change: Increasing our sales effort in the.
Speaker Change: Asia Pacific region as well so there are a lot of first given the investment we're making in terms of the.
Speaker Change: The sales team and our sales strategy, which will which we expect to result in a significant growth that we're seeing in the past, 30% to 40% or even more.
Speaker Change: Great I think that answers your questions well. Thank you guys.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Alright, thank you.
Speaker Change: You.
Speaker Change: Thank you everyone.
Speaker Change: Oh.
Speaker Change: Okay. We appreciate everybody joining and I think we can end the call there. Thank you.
Speaker Change: Thank you thanks Sharon.
Speaker Change: Thank you Nicole.
Speaker Change: The conference is now connected.
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