Q4 2024 KORE Group Holdings Inc Earnings Call
Speaker Change: Greetings and welcome to the Kore Group Holdings 4th quarter 2024 earnings call.
Speaker Change: At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If you require operator assistance during the conference,
Speaker Change: Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Vik Vijaya, Vice President of Investor Relations. Thank you, Vik. You may begin.
Vik Vijayvergiya: Thank you, operator. On today's call, we will refer to the 4th quarter and full year 2024 earnings presentation, which will be helpful to follow along with, as well as the press release by this afternoon, the details the company's 4th quarter and full year 2024 results.
Vik Vijayvergiya: Finally, a recording of the call will be available in the Investor section of the company's website later today.
Vik Vijayvergiya: The company encourages you to review the safe harbor statements, risk factors, and other disclaimers contained on the slides and today's press release, as well as in the company's violins with the Securities and Exchange Commission.
Vik Vijayvergiya: which identifies 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.
Vik Vijayvergiya: The company also notes that it will be discussing non-GAAP financial information on this call. The company is providing that information.
Vik Vijayvergiya: As a supplement, information prepared in accordance with accounting principles generally accepted in the United States or US gap.
Vik Vijayvergiya: You can find a reconciliation of these metrics in the company's reported gap results in the reconciliation tables provided in today's earnings release and presentation. I'll now turn the call over to Ron Totton, the company's president and chief executive officer.
Ron Totton: Thank you, Vik, and good afternoon everyone. Thank you for joining us for our fourth quarter and full year, 2024 earnings call. With me today is Paul Holtz, of course, Chief Financial Officer.
Ron Totton: On today's call, I will provide an update on the company's business highlights for the fourth quarter and the full year, and then we'll turn over the call to Paul to go through the financial results, after which I will share our financial guidance for 2025 before turning the call over to the operator for Q&A.
Ron Totton: As we look back on 2024, we have greatly improved the fundamentals of the business, which have had a positive impact on our financial performance.
Ron Totton: We have transformed the company and returned to growth in connections, revenue, EBITDA and free cash flow while putting customer intimacy in the center of our operating model. Everyone at core should feel proud of what we have done together.
Ron Totton: Our Q4 results show that we continue to execute on what we said we would do.
Ron Totton: We generated 1.6 million in free cash flow and also closed the year on a strong note. Total connections at the end of the fourth quarter were 19.7 million, an increase of 1.2 million year over year. This connection growth was driven by winds with new and existing customers.
Ron Totton: Demonstrating our focus on customer intimacy and expanding our connectivity portfolio is paying off.
Ron Totton: A key driver of our success has been our strategic focus on profitable growth and recurring connectivity revenue, which ended the year up 24.5 million or 12%.
Ron Totton: We also drove a significant improvement in the non-GAAP margin of IoT solutions by increasing it by 900 basis points to 40%. These efforts are strengthening our financial position and setting us up for long-term, sustainable
Ron Totton: As previously communicated, one of our key priorities is operational excellence, and in the second half of 2024, we have been swift to launch several projects using AI tools across the organization to drive efficiency and support profitable growth.
Ron Totton: We have implemented now assist in AI offering from service now as part of our focus on customer intimacy.
Speaker Change: Thank you very much. Thank you. I'll see you in the next session. Bye-bye.
Ron Totton: Product Engineering are using Codocyst, a leading AI tool by GitHub, which improves the speed and quality of software engineering output and launched Microsoft Co-Pilot for Sales to drive performance improvement within the CRO organization.
Speaker Change: In 2025, we will invest more energy in this area based on the results we are realizing.
Speaker Change: On Slide 7 as we look at the headlines, our 2024 revenue was 286 million and our Adjusted EBITDA was 53.1 million. We invested heavily in the business prioritizing our connectivity offering, which realized 12% revenue growth in 2024. We did this while driving a 23.1 million improvement in free cash flow from 2023.
Speaker Change: Our fourth quarter revenue increased by approximately 1 million to 73.3 million, and Adjusted EBITDA improved 0.2 million to 14 million, representing 19% of revenue flat from the same period last year.
Speaker Change: As highlighted earlier, we generated 1.6 million of free cash flow in the fourth quarter of 2024, a significant improvement from the negative 50.5 million last year. Cash flow generation remains a key priority for me and the rest of the leadership team.
Speaker Change: Moving to slide 8, let's dive into our IoT connectivity highlights for the fourth quarter of 2024.
Speaker Change: Our IoT Connections number is approaching $20 million, and in an ARPU of approximately $1, this represents the solid foundation of recurring earnings power.
Speaker Change: IOT revenue grew 12% for the full year, which now includes a full year revenue from the Twilio IOT acquisition.
Speaker Change: For the fourth quarter, connections were 19.7 million, up 1.2 million from 18.5 million for the same period in the prior year.
Speaker Change: On Slide 9, let's move on to our sales momentum in the fourth quarter which is largely occurring in IoT connectivity.
Speaker Change: We closed 29 million in TCV in Q4 2024 with 68% related to IoT connectivity.
Speaker Change: This quarter's performance builds on the prior quarters showing year-to-date close TCV of $158 million up from $150 million in the same period in the prior year with $111 million of that coming from IoT connectivity.
Speaker Change: Starting next quarter, we are revising our sales metrics to better align our recurring revenue business model.
Speaker Change: We will be shifting from total contract value or TCV to estimated annual recurring revenue
Speaker Change: E-A-R-R better illustrates our recurring revenue business model because it shows steady recurring revenue unlike TCV that can overemphasize one-time income streams such as hardware sales.
Speaker Change: This change is part of our ongoing effort to simplify and improve our reporting metrics.
Speaker Change: We are confident EARR will be more effective for predicting future earnings and demonstrating steady free cash flow. IoT solutions revenue will continue to be reported as it is today.
Speaker Change: Going to slide 10, as we've done in previous calls, I want to highlight key wins that continue to demonstrate the strength of our solutions and the value we bring to customers.
Speaker Change: First, in the healthcare space, we secured a significant win powering decentralized clinical trials with seamless global connectivity.
Speaker Change: by ensuring secure and reliable cellular access remote patient monitoring and real-time data collection we're helping improve trial efficiency compliance and ultimately patient outcomes.
Speaker Change: In the Electronics Manufacturing sector, we helped optimize data usage for a major customer by enabling multi-carrier pooled connectivity plans.
Speaker Change: Through Intelligent Rules and Proactive Triggers and Connectivity Pro, we're reducing costs, eliminating overrages and providing better operational control.
Speaker Change: Physical Security is another area where core is making an impact. This client became the first provider to introduce Omnism and their properties across Puerto Rico, setting a new standard for smart security. With always on connectivity, they're empowering businesses and property owners with reliable alarm systems and uninterrupted protection.
Speaker Change: Lastly, we expanded our footprint in GPS tracking, a leading GPS tracker brand shows core to support its market expansion with a cost-effective tracking solution.
Speaker Change: With seamless device activation, real-time tracking and global coverage, we're enhancing the user experience in helping accelerate time to market.
Speaker Change: These winds reflect the trust our customers place in core and the strength of our transformation. As we move into 2025, we remain committed to delivering innovative, high-value solutions that drive growth and success for our customers.
Speaker Change: We are excited by the growth in the IoT connectivity pipeline as we're seeing significant activity.
Speaker Change: In our core use cases, such as connected health, fleet and logistics, and high value asset monitoring, in addition to security and various other use cases involving point of sale
Speaker Change: Now, it only are customers recognizing the value of core connectivity solutions, but also our offerings are being recognized for innovation and excellence by industry leaders.
Speaker Change: This slide highlights a few of our recent accolades and recognitions during 2024, which underscore our leadership in the IOT space.
Speaker Change: These awards not only validate our innovative solutions, but also enhance our brand reputation positioning us favorably in a competitive market.
Speaker Change: As we look at the broader industry landscape, it's clear that the demand for connectivity is accelerating at an unprecedented pace.
Speaker Change: Let's take a closer look at some of the key market trends shaping the future of IoT and the opportunities they present.
Speaker Change: The IoT market continues to expand rapidly with the number of connected devices expected to surpass 96 billion by 2030, growing at a cager of over 20 percent.
Speaker Change: Dallular IoT is a key driver of this growth projected to increase from 3.8 billion connections today to 6.6 billion by 2030 fueled by advancements in cellular technology.
Speaker Change: E-Sim adoption is also accelerating with the market set to grow from 368 million units in 2024 to 1.6 billion by 2030 and IOT specifically E-Sim's market share is expected to more than double reaching 24% by the end of the decade.
Speaker Change: Building on this momentum, the GSMA's new SGP.32 E-SIM standard introduces the E-SIM IOT remote manager, or EIM, a powerful cloud-based solution enabling enterprises to remotely activate change or optimize operator profiles across their entire device fleet, with the need for physical interaction.
Speaker Change: This advances the evolution and maturation of cellular connectivity standards by drastically reducing the cost of manual change, previously constraining customer flexibility.
Speaker Change: SGP.32 empowers enterprises to dramatically adapt their connectivity strategies based on fault tolerance requirements, cost efficiency, coverage quality, and regulatory compliance.
Speaker Change: Core is actively working with our carrier partners and major eSIM service providers to deliver a fully integrated SGP.32 solution operated by Core that can be seamlessly integrated into the customer and third party environment.
Speaker Change: This also fully enables our customers to access the full core catalog of local and global compliance Sim profiles.
Speaker Change: R-S-G-P dot 32 support is expanding upon the foundation of our Connectivity Management Platform Expertise, and current EU-ICC portfolio, and we're positioned to lead customer
Speaker Change: These advancements reinforce the growing demand for scalable, flexible, and intelligent connectivity solutions. An opportunity we are strongly positioned to capitalize on as we continue executing our growth strategy.
Paul Holtz: And now let me turn the call over to Paul to go through our financial performance in more detail.
Paul Holtz: Thanks Ron, and thanks for those joining us this evening for our fourth quarter and full year results.
Paul Holtz: Looking at these results on slide 14, total revenue for the fourth quarter increased 0.8 million or 1% year-over-year to 73.3 million.
Paul Holtz: Breaking that down by business lines, IOT connectivity revenue of 56.5 million increased 2% year over year and represented 77% of fourth quarter revenue up from 76% in the prior year.
Paul Holtz: IOT Solutions Revenue Declined 2% u over year to 16.8 million or 23% of fourth quarter revenue.
Paul Holtz: Overall non-GAAP margin in Q4 2024 was 56.8%, an increase of 580 basis points compared to the fourth quarter in the prior year.
Paul Holtz: By business line, nine GOT IoT connectivity margin was up 300 basis points year over year to 59.3%.
Paul Holtz: non-GAAP IoT Solutions margins was up 1,500 basis points year over year to 48.1%.
Paul Holtz: This increase was primary to the increase of more profitable IoT solutions revenue.
Paul Holtz: Turning to our full-year results on slide 14, total revenue for the year increased 9.5 million or 3% to 286.1 million.
Paul Holtz: Breaking this down by business lines, IOT connectivity revenue of 226.9 million
Paul Holtz: which included a full year of the Twilio IoT acquisition increased 12% year-over-year and represented 79% of total revenue up from 70% in the prior year.
Paul Holtz: IOT Solutions revenue declined 20% year-over-year to 59.2 million or 21% of total revenue.
Paul Holtz: The IoT solutions revenue decline was primarily a trivial to manage the decision to forgo lower margin hardware sales and to focus on more profitable IoT solutions revenue.
Paul Holtz: Overall non-GAAP margin for 2024 was 56.3% in increase of 275 basis points compared to 2023.
Paul Holtz: By business line, non-GAAP , IoT Connectivity Margin for the 2024 declined 130 basis points compared to the prior year.
Paul Holtz: This decline was anticipated as the IOT connectivity revenue from the Twilio IOT acquisition came with slightly lower margins that improved during 2024 but had a full year impact when compared to the prior year.
Paul Holtz: non-GAAP IOT Solutions margins on the other hand was up 920 basis points for the year to 40.2 percent.
Paul Holtz: I've mentioned the increase with due to management's focus on more profitable sales.
Paul Holtz: Total connections at the end of the fourth quarter were 19.7 million, an increase of 1.2 million Euro of year, but more importantly increase 800,000 from the last quarter.
Paul Holtz: I would revenue for a user per month or RPU for the current quarter was 97 cents compared to 99 cents in Q4 2023. The decrease in RPU year-over-year was driven by the higher percentage of the recent growth in connections coming from lower RPU use cases.
Paul Holtz: DBNR for the 12 months ended December 31, 2024 was 95% compared with 96% in the prior year.
Paul Holtz: As a reminder, DBAR is similar to same store sales as it measures the growth of existing customers in the trailing 12 months compared to the same customer core in the year ago period.
Paul Holtz: Our current DB&R calculation continues to be impacted by declines and revenue from some of our IoT solutions customers over the past 12 months.
Paul Holtz: Turning to slide 15, operating expenses in the fourth quarter were 54.4 million, an increase of 4.8 million or 9.7% compared to Q4 2023.
Paul Holtz: The primary reason for the increase in operating expenses year-over-year was due to unrealized foreign exchange losses of approximately $5 million due to the weakening of the U.S. dollar in Q4 2024. This compared to the U.S. dollar strengthening in Q4 2023.
Paul Holtz: This non-cash increase in operating expense in Q4 2024 was offset by declines in professional service fees and less salaries and benefit costs from the restructuring activities taken by the company in Q3 2024.
Paul Holtz: Fourth quarter interest expense, including amortization of deferred financing fees, increased your year to 13.3 million versus 12.1 million.
in the fourth quarter of 2023.
Paul Holtz: This increases due to higher boron costs on our refinanced debt and preferred stock placement completed in Q4 2023.
Paul Holtz: Net loss in the fourth quarter was 25.4 million compared to 33.6 million in the prior year. The decrease in our net loss of 8.1 million year over year is primary tribunal to benefits from the following expenses.
change in the fair value of warrant liabilities to affiliates.
Paul Holtz: Income tax benefit, no loss on the extinguishing of debt in the current comparative quarter and less depreciation and amortization.
Paul Holtz: Adjusted even at the fourth quarter with 14 million in the increase of 0.2 million or approximately 1.1% compared to the prior year.
Paul Holtz: Adjusted EBITDA was basically flat-year-over-year as op-hack savings from the previous quarters restructuring activities were offset by less capitalization of internal development costs.
Paul Holtz: For the full year, operating expenses were 262.7 million at a client of 4.1 million compared to the prior year.
Paul Holtz: Decreases in non-cash items like goodwill impairment and appreciation and amortization were offset by increases in variable compensation, severance costs, channel partner commissions due to increased revenue from this channel and less capitalization of internal development
Paul Holtz: In dress expense, including amortization of deferred financing fees increased 9.3 million year-over-year to 52.5 million.
Paul Holtz: The reason for this increase, same as it was for Q4, was due to the higher borrowing costs on our refinance debt and preferred stock placent completed in Q4 2023.
Paul Holtz: NetLots for the full year was 146.1 million a 20.9 million improvement compared to the net loss in 2023.
Paul Holtz: Non-cash items including goodwill impairment, fair value of warrant liability adjustments, amortization and depreciation, unrealized foreign exchange expense, and stock compensation expense, reduced net loss year by approximately 25 million.
Paul Holtz: Less professional service fees also resulted in savings of approximately $6.5 million.
Paul Holtz: Offsetting these savings was the increased and interest expense of approximately 9 million.
Microsoft Office Word 97-2003 Document MSWordDoc Word.Document.8
Paul Holtz: Adjusted EBITET for the full year was 53.1 million, a decrease of 2.5 million when compared to the prior year. The decrease was primarily comes from the reduction in the amount of capitalization of internal development costs.
Paul Holtz: It should be noted that this is a trend that we expect to see continue going into 2025.
Paul Holtz: The company will have less capitalization of an internal development cost under U.S. gap, but we'll see a justity but a grow, but more importantly, a justity but a will have more free casual attributable to it.
Paul Holtz: Speaking of cash flows, cash provided by operations in the fourth quarter was approximately $2.8 million This compared to cash used by operations of $10.9 million in Q4 2023
Paul Holtz: Cash provided by operations for the 12 months and in December 31, 2024 was approximately 9.9 million.
Paul Holtz: This was a $16.3 million improvement compared to the $6.4 million used by operations in the prior year period.
Paul Holtz: Free Cash Low, measured by cash provided by operations, less cash used in investing activities was positive 1.6 million in Q4 2024 compared to negative 15.5 million in the prior year quarter.
Paul Holtz: This was the first positive free cash flow quarter of the company has had since fiscal year 2022.
Paul Holtz: Three cash flow was negative 3.5 million for the 12 months ended December 31, 2024, improving approximately 23 million compared to the prior year period.
Paul Holtz: As of December 31st, 2024, Cash was 19.4 million compared to 27.1 million as of December 31st, 2023. As Ron mentioned, Cash will abandon the key priority for all of us, even as we invest in profitable growth.
Paul Holtz: Stepping back, I feel very good about the progress we have made in both our operational and a financial metrics. More importantly, we are laying the ground for improved recurring revenue margin and casual performance going forward, and with that, I'll pass it back to you, Ron.
Ron Totton: Thank you, Paul. On slide 17, as we wrap up, I want to share our outlook for 2025.
Ron Totton: Looking ahead, we are entering the year with the Strong Foundation for long-term profitable growth. Our transformation efforts have positioned us to drive meaningful improvements across our business, and we remain committed to disciplined execution and a relentless focus on our customers.
Ron Totton: We have exciting developments in several profitable revenue growth initiatives and we are optimistic about the year ahead.
Ron Totton: For 2025, we expect revenue driven by growth in IoT connections and accelerating in both our Adjusted EBITDA and Free Cash Low.
Ron Totton: While our primary focus is on possible revenue growth, we will continue prioritizing gross margin expansion and driving efficiency and automation across the business.
Ron Totton: We are mindful that evolving tariff policies could create uncertainty for our customers, potentially impacting order volumes and investment timing.
Ron Totton: However our connectivity business, which is largely based on recurring revenue, provides a meaningful level of insulation against these external pressures
Ron Totton: This foundation, combined with our continued focus on operational excellence and margin expansion, positions us well to navigate potential challenges and deliver strong, profitably maximizing the value we create for our shareholders.
Ron Totton: With this discipline approach, we are providing the following guidance for 2025.
Ron Totton: Revenue in the range from 288 million to 298 million, reflecting 2% year-over-year growth, which factors in the exit of unprofitable contracts and product lines, and positively contribute to overall profitability.
Ron Totton: Adjusted EBITDA on the range of 62 to 67 million, representing a 20% increase year over year, and free cash flow in the range from 10 million to 14 million, a significant 443% year over year improvement.
Ron Totton: These targets reflect our expectation of profitable growth, operational efficiency, and discipline financial management. As we move forward, we remain focused on delivering value for our customers and our shareholders.
Ron Totton: Before we open the call to Q&A, I also want to thank the core team around the globe for their hard work and commitment that they have shown through this year of transition. We have been working hard and is great to see the engagement and traction we are gaining together.
Thank you and I look forward to your questions.
and many more. Thank you. Thank you.
Ron Totton: Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Ron Totton: You may press the R2 if you would like to remove your question from the Q4 participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. By moment, please follow Paul for questions.
and many more. Thank you. Thank you.
Thank you.
Speaker Change: Our first question comes from the line of Lance Vitanza with TD Cowan. Please proceed.
Thanks, guys, for taking the questions.
Speaker Change: So, let's see. So, you beat on connections, at least relative to my expectations, and yet are poo.
Speaker Change: was quite a bit lower than we had anticipated and it was down 5% quarter on quarter or 2.5% year-on-year.
Speaker Change: I was wondering if you could spend a few minutes on what were the drivers of each of those, the connections and the ARPU, and what should we model for the first quarter, which of course is now a month behind us, and then how should we think about the rest of the year? And then I've got some other questions as well, but just start there.
Hey Lance, it's Paul.
Speaker Change: Yeah, we have a big jumping connections that came, as we mentioned here, from low R2 cases at the end of the year, and they weren't here for the full quarter. So when you look at the number for Q4, obviously we're reporting a number at the very end, but those happen more so in the last two months of the quarter, if not a lot in the last month.
Speaker Change: As I mentioned, a lot of these came from lower use cases, lower use cases so that the garb on these were under 50 cents, so well under our dollar average that we've had before.
Speaker Change: Thank you, I understand. And so is that sort of indicative of how you see the market developing and where the incremental demand is or was this just sort of a one-off?
Speaker Change: Yeah, thanks Lance, it's Ron here. It'd be hard to say it's a one-off, I wouldn't say it's really where the only growth is coming from. You know, those are typically kind of like fleed in logistics use cases.
Speaker Change: We are seeing growth coming from other areas as I kind of highlighted in terms of some of our priority verticals, connected health.
Speaker Change: You know, anything that sort of retail looking like point of sale systems like EV chargers and vending machines and other types of use cases so I wouldn't say that it is. And.
Speaker Change: It's what we're expecting into the future. You know, that being said, you know, I draw your attention to to our margins So, you know, just because it's a maybe a lower RPU use case doesn't mean that it doesn't contribute positively, positively to growth.
Not...
Speaker Change: and terribly exciting at 2% year-on-year. So is that because there are just still a lot of impediments that are keeping enterprise customers in general from being able to implement these systems despite?
Speaker Change: The demand that you're sort of sensing or is it the case that this is indicative perhaps of sort of a lower kind of pricing dynamic going forward where you have perhaps a huge increase in volume but maybe it's coming in at a very low price. I'm just trying, I guess I'm just trying to reconcile the full year revenue guide with the sort of the brisk amount of demand that we're perceiving. [inaudible]
Speaker Change: Yeah, sure, let me, let me try to get, there's a lot in there, let me try to get there. One is, I think I've made the statement that, I mean, I, again, consistent from prior calls.
Speaker Change: You know, with this focus on profitable growth and we also talked about rationalization
Speaker Change: So part of what's factored into that revenue number is that we have and will continue to look at.
Speaker Change: Unprofitable or Low Profit, you know, customers or product lines, if you will.
Speaker Change: and so again if you know I draw your attention you know you your question was on revenue but I'd I'd encourage you to look at our guidance on Adjusted Eva
Speaker Change: So, one that drives the revenue, right? Where so if you're walking away from a customer that's a slower margin or a product line that's just not delivering?
Speaker Change: Relative to what others are, where you could invest and get a better return. You're going to see that impact in revenue.
Speaker Change: and we serve thousands of customers, so I wouldn't want to say that...
Speaker Change: on sort of the assumptions that you were referring to. So, I'll pause there. I don't know. Did I get all the Paul you have anything to add? I know, I just thought so, but those 10 to 12 lower customers, they do have a lot of volume. And when they add, they add them in chunks.
Speaker Change: So again, you have what we saw here in 2024, but we're by no means seeing that everything is going to the bottom of the barrel here from a price perspective. We still have our existing customer base.
that is growing and they're using more data, so they-
Speaker Change: You'll, like you said, they'll be depending on what happens in any particular one order from a large deployment of those, but then any of these low arpeggiants.
Yeah.
Speaker Change: Just lastly on that one, Lance, and again, appreciate the question is again inside of that low RPU cohort we were talking about Actually RPUs in the top 150 customers if anything you're trending slightly up and well north of the dollar so again it's
It's hard for us to-
Speaker Change: predict exactly which customers and use cases are going to grow. I think then the other thing I would add around you know the revenue guidance is you know we don't see direct impact of tariffs but of course I'm talking to customers. Thank you very much.
Speaker Change: you know, demand, maybe delays, etc. So we've, you know, we've
Speaker Change: We've been, I would say, somewhat conservative, kind of as we look ahead and, you know, we also...
Speaker Change: I want to make sure that we're able to put guidance out there that we can stand behind and feel very strong about.
Speaker Change: That's great. Now I appreciate that. Maybe just sort of on the more on the technical side, you know, the delay in the 10k filing and so forth. What could you discuss what the genesis or the cause of that was and whether or not that's been remedied, should we expect the company to get back on to more of a, you know, timely disclosures going forward from here on out or is there more work that needs to be done? Can you talk about that at all?
Speaker Change: Yeah, no, so we're planning on for Q1 coming up to be on time. This was more just a specific year end.
Speaker Change: further documentation for our auditors to get through and they have to have everything signed off and they're filed before we compress the button and file the gay and we obviously were waiting for that to happen and when we got there so going forward we're not anticipating any of the further delays.
Speaker Change: Okay, and then my last question is just on the balance sheet. I do take the point that the company is...
Speaker Change: There's generating free cash flow. It has some runway. And so from that standpoint, there isn't necessarily any pressing need to do anything today, especially if we think that the business is going to look a lot better, you know, one, two, three years from now. That being said, just the sheer magnitude of the debt plus the preferred relative to the equity market cap, you know, it does have to suggest that a balance sheet sort of restructuring, you know, could occur.
Speaker Change: Are you firm and steadfast in the idea that no, we're going to just sort of let the business continue to grow and then we'll see what we look like two, three years from now.
Speaker Change: Copyright © 2018 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent.
Yeah, thanks Lance.
Speaker Change: I mean, here's what I'd say, right? No one has a crystal wall, but we're really focused on making the business better every day. That's our primary focus, and it's hard not to see the improvement in the results that we've shared in the comparison from the prior year.
Speaker Change: But, you know, to sort of use an analogy as a coach maybe on a sports team, you know, you always look at ways to make your team better.
Speaker Change: So, you know, we wouldn't be doing our job if we weren't open to...
Annnnnnn
I, you know, ideas that would make sense for all shareholders.
Speaker Change: You know, that being said, you know, we're just really focused on...
Speaker Change: and continuing to build some nice momentum here and my job also is to keep the team focused.
Speaker Change: So never say never, but at the same time we also want to make sure we're focused. So sure the answer is we're open, but we've put in a lot of hard work here the last eight months.
Speaker Change: and we've got something going and we really want to make sure we don't take our eye off the ball there.
and many more. Thank you. Thank you.
Great, thanks for taking my questions, appreciate it.
Great Thank You!
Speaker Change: Thank you. Our next question comes from the line of Scott Searle with Roth Capital. Please proceed with your question.
Scott Serley: Okay, good afternoon. Hi, Ron Hydeball. Thank you for taking the questions.
Thank you very much.
Thank you. Bye. Bye.
Speaker Change: Ron, maybe just to dive in on guidance, I'm wondering if you could clarify for us on 2025, how much you're attributing to hardware within that guidance number? I'm also wondering.
Speaker Change: IoT solutions looks like they had a nice non-GAAP gross margin number. Is that the normal to be modeling going forward?
Speaker Change: and Paul from an op-ex standpoint and know there are a lot of moving parts and you guys have been taking costs out but could you help us understand on a quarterly basis what the normalized op-ex is going to look like and then I have a couple of follow ups.
Okay.
Speaker Change: from ISD Solutions for Spective in our number or not, expecting any significant growth.
Speaker Change: Mordeklaid in there, so it's pretty flat year over year within the number. Again, we could have some lumpiness within the quarters and so forth as we always see, but we're not anticipating a major growth or spurt or anything there. More so, just to your point on the hardware side of things.
Speaker Change: We are looking away at any of those lower margin deals, which is improving that gross margin. We do see that continuing above the 40% mark that we ended the year at the year into 2025 throughout all quarters of 2025.
from an off-ex perspective, yes to your point.
Speaker Change: Q3, so we did see some benefits from that in Q4, but we are also looking to reinvest in the business in the more profitable areas. So, from an off-ex perspective, next year.
Speaker Change: from a net perspective, you're going to see around a 27 to 30 million. Again, it will go up and down depending on variable commissions and all that sort of stuff, but that would be the range of you looking at Scott.
Scott Serley: Okay, very, very helpful, thanks. And Ron, it sounds like you guys are moving away from TCV to ARR or EARR. I'm wondering if you could calibrate us in terms of what ARR actually looked like then in 24 and 23.
Speaker Change: and then kind of projecting that going forward, they're, you know,
Speaker Change: The market is starting to grow at a pretty good clip in terms of IoT connection starting to re-accelerate on that front.
What type?
of Conactivity Device Unigrow should we expect for you guys.
Speaker Change: in 2025. It looks like at a first cut it's probably north of 10%. So you're starting to get back up in that market growth kind of range, but I'm wondering if you could kind of calibrate us in terms of how you're thinking about the market in terms of connections in 2025. [inaudible]
So, from my connectivity perspective, again, we...
Speaker Change: We look at the customers, and obviously the connections part of it will depend on which.
Speaker Change: which of those customers are growing. So, again, those low ARP who may cause the connection number to jump up, but the revenue associated with those are not very large. But from a connectivity perspective, there are going to be some give and takes in there. So, we're talking mid-to-bow single digits.
Speaker Change: within our guidance, and hopefully we'll be at the back end of that, but that's what we're seeing. Like you said, slowly getting up to the market trend of 10 percent, but...
Speaker Change: There's just so much uncertainty out there right now from our customers that we're hearing that it's hard to put a pin on on how much we'll grow because I think there will be some delays and
Speaker Change: just from the tariff issues and they may have started to buy and build some inventory up now and so forth but if the tariffs come into play I think we built in some conservative in there that the man will be impacted. [inaudible]
Speaker Change: Paul, maybe just to quickly follow up on that deployment commentary, so are you actually seeing customers slow down at the current time and just in terms of your modeling, right? And the guidance, what, how did you approach that in terms of your assumptions around...
Deployment Timelines, macroeconomic headlands [inaudible]
Speaker Change: Yeah, so I'll take that. Maybe we'll tag team that one. So we're not, I would say as of yet, we're not seeing any change in customer demand, and, and, and keep in mind that the terror situation is, is pretty fluid. And, you know, I think on our side, we're just, you know, looking ahead and you know, being, being a little bit cautious.
Speaker Change: You know, certainly there are customers like if you think in the connected health area.
Speaker Change: It's hard to see when you think of the use cases, you know, the the terrorists.
Speaker Change: Slowing down that demand because the overall solution they're offering, I think the hardware and the connectivity is meaningful but it's not a significant portion of the overall cost.
Speaker Change: So I guess that's what I would say. I wouldn't say that we've seen any customers slow down. We haven't seen, you know, customers come back.
Speaker Change: and say, you know, we overbought and we, you know, you know, any kind of conversations like that. Demand still feels, I mean, relatively strong. I mean, as per my comments in the pipeline and the growth of the pipeline.
Speaker Change: maybe Paul, you want to take this? Yeah, it was more, I remember Scott, most of our customers don't buy.
Paul Holtz: Hardware from us and so forth. So like we don't know exactly what they bought and what's out there but it's to Ron's point we're just being cautious that.
Paul Holtz: Again, the second half of the year, who knows what's going to happen with the terrorists and so forth, so we've built in a more cautious outlook in our numbers.
Speaker Change: Fair enough, and two more if I could and I'll get back in the queue. In terms of the product evolution, it seems like ECM is becoming very prominent right now, but I'm wondering where
A.I. Feature Sets [inaudible]
Speaker Change: kind of fitting for the customer base. I know historically that's sort of been on the longer-term horizon for the company's road map. I'm just kind of wondering where that factors into. Thank you.
Speaker Change: the product evolution and platform evolution and what customers are expecting from you. And lastly, going back to the balance sheet again, I'm wondering if you could just help us out in terms of debt coverage targets, you know, where you guys would like to be and kind of like over what timeline, thanks.
Speaker Change: Yeah, sure. I'll take the product one and then maybe Paul can take the balance sheet one and I'm going to map it to as well.
Speaker Change: Yeah, I think the eSIM growth is, you know, the research is telling us and when we're talking to customers is telling us that, you know, between now and 2030, they'll definitely be...
Speaker Change: Be a, you know, they'll be growth. I think also we're seeing is, you know, growth with either multi-carrier or certainly backup.
Speaker Change: are, you know, first many of our customers are what I call mission critical or fundamental to their business.
Speaker Change: But then there's those that maybe were that wasn't the case that's now increasingly becoming the case.
Speaker Change: and so I think that multi-carrier or backup or different types of solutions, I think all of those drives demand for us which are good.
Speaker Change: Good problems to have or opportunities to have in terms of AI future sets I mean yeah there's we're having active conversations with customers around using AI specifically with the data. Yeah.
Speaker Change: We also have some really interesting customers that are looking at, I would say, quite drastically
Speaker Change: You know, expanding their use case and leveraging AI, so taking that information.
Speaker Change: and putting that into an AI engine.
Speaker Change: and, you know, drawing out more intelligence, driving decision making. In some cases, even, you know, new revenue streams or...
Speaker Change: and yeah, so that's factoring into our product direction and, you know, as we kind of, you know, look ahead.
Speaker Change: also just draw your attention to us using AI tools ourselves and building up that expertise and building up that kind of culture inside the organization, so I see that
Speaker Change: The AI and I've been pretty cautious with using the AI in prior calls, you know, for us we're really kind of just focused with the customers. Thank you very much.
Speaker Change: As I said using the data and taking AI engines and helping them make better decisions or driving their business further.
Speaker Change: Choi, Sir Decision, are we going to do any types of acquisitions or are we just going to pay down the debt we have no? No.
Speaker Change: No plan or expectation to take on anymore. So again, it's more now than we were seeing the significant cash flow improvements you'll rear it.
Speaker Change: just using, depending on what's happening in the time period, but the plan would be to obviously start to pay down the debt as quick as possible.
Scott Serley: Yeah, if I could, maybe just to add on to that one, like this, maybe some prior questions around, you know.
Strategic Options. I mean, our credit-
Profile has changed [inaudible]
Scott Serley: and we also have, within our agreements, based on performance, bringing down our costs.
Scott Serley: Thresholds were able to drive that price down and or, you know, they explore other options but, yeah, I mean the big focus for us would be, you know, paying down that debt to whatever extent we could. Thank you.
Scott Serley: with, of course, the free cash that we're generating, and if more favorable credit scoring and different options become available, we'll explore those.
Scott Serley: as a, you know, maybe just to reiterate whether it's, you know, revenue or just the EBITDA on cash, we've been somewhat conservative based on what we see today in the business and more of a run rate, there's a massive growth factor into that guidance we've given you.
Okay, great. Thanks so much, guys.
Ron Totton: Thank you. There are no further questions at this time. I'd like to pass the call back over to Ron for closing remarks.
Speaker Change: Thank you for watching. Please subscribe to our channel. See you in the next video.
Ron Totton: Thanks again for the questions and thank you everyone for joining us on today's earnings call. We look forward to updating you very soon on our progress for the first quarter, 2025, and have a great evening. Thank you.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: The film is a work of fiction. Any resemblance to anyone, living or dead, is coincidental and unintentional.