IBEX and MIND Technology Report Strong Earnings, Streamline Health Solutions Faces Challenges

Earnings call: IBEX reports record metrics, optimistic for FY 2025 growth By Investing.com

IBEX has concluded its Fourth Quarter and Full-Year 2024 Earnings Conference Call with CEO Bob Dechant reporting a transformative year for the company. Despite a slight annual revenue decrease to $509 million, IBEX saw a record increase in EPS to $2.10 and a rise in free cash flow to $27 million. The company's Q4 revenue indicated a year-over-year increase, suggesting a potential return to growth. IBEX is entering fiscal year 2025 with a positive outlook, expecting revenue between $510 million and $525 million and adjusted EBITDA of $67 million to $69 million. In summary, IBEX has demonstrated resilience and adaptability in FY 2024, achieving notable financial metrics despite a slight dip in annual revenue. With a strategic focus on AI and digital-first services, as well as an expanding client base, IBEX is positioning itself for a promising fiscal year 2025. The company's emphasis on share repurchases and potential strategic acquisitions further underscores its commitment to growth and shareholder value. As IBEX wraps up a transformative year, InvestingPro data and insights offer a deeper look into the company's financial health and market performance. With a market capitalization of $288 million and an adjusted P/E ratio of 8.56 for the last twelve months as of Q4 2024, IBEX appears to be trading at a low earnings multiple, which might appeal to value investors. InvestingPro Tips indicate that management's aggressive share buyback strategy is a sign of confidence in the company's future, and the company's high shareholder yield is worth noting for those interested in shareholder returns. It's also reassuring that IBEX operates with a moderate level of debt and that its liquid assets exceed short-term obligations, providing financial stability. On the performance side, while annual revenue saw a slight decline of 2.78%, the company's gross profit margin remained strong at 29.89%. This suggests that IBEX is maintaining its profitability even in challenging times. Additionally, analysts predict the company will be profitable this year, supported by a profitable track record over the last twelve months. For those seeking more in-depth analysis, InvestingPro offers several additional tips (https://www.investing.com/pro/IBEX) that could further inform investment decisions. Operator: Welcome to the IBEX Fourth Quarter Full-Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions] To note, there is an accompanying earnings deck presentation available on the IBEX investor relations website at investors.ibex.co. I will now turn this conference over to Mr. Michael Darwal, Head of Investor Relations for IBEX. Michael Darwal: Good afternoon and thank you for joining us today. Before we begin, I want to remind you that matters discussed on today's call may include forward looking statements related to our operating performance, financial goals, and business outlook. Which are based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which may occur. Forward looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on form 10-K filed with the US Securities and Exchange Commission on September 12, 2024. With that, I will now turn the call over to IBEX CEO, Bob Dechant. Robert Dechant: Thanks, Mike. Good afternoon everyone, and thank you all for joining us today as we share our fourth quarter and fiscal year 2024 results. FY '24 was another transformative year for IBEX, where we achieved all time bests across a number of key financial metrics including EPS, net income, EBITDA Margin and free cash flow. We accomplished this in the face of evolving changes across the BPO market. With continued macroeconomic pressure and the excitement of Generative AI, we continue to demonstrate a unique ability to successfully compete and win against our much larger competitors. Our competitive advantage remains built around an unparalleled agent-first culture, with tremendous employee engagement. Paired with our Wave iX technology stack, where we are marrying cutting edge AI solutions and deep analytics. These attributes enable us to consistently outperform our competitors and provide compelling differentiators as we expand our sales pipeline and win new business. We have branded this as taking the IBEX challenge. Let me take a moment to highlight some of the key results we delivered in FY '24. We won 18 new client relationships in the fiscal year, primarily with leading retail, e-commerce, healthcare and gaming clients, up from 10 in the prior year. We achieved record EPS of $2.10, up from $1.96 last year. We continued the growth of our more profitable digital first services that operates primarily in our offshore and nearshore locations, delivering 77% of revenue in the fourth quarter, up from 74% a year ago in these regions. We delivered record free cash flow of $27 million versus $22.9 million in the prior year, and we ended the year with $61.2 million in net cash. We deployed our capital to repurchase 1.3 million shares at a cost of $21.7 million, reducing our shares outstanding by 8%. Although revenue was down slightly at 2.8% year-over-year to $509 million we were up slightly in Q4 year-over-year, which we view as an inflection point heading into fiscal year 2025. Looking back several years ago, we undertook a strategic journey of transforming IBEX into differentiated digital first company. We call this BPO 2.0 and in August of 2020 we IPO'd the company built around this strategy. Since then we have made tremendous progress as a company. In FY '20, IBEX had revenues of $405 million while adjusted EBITDA margins were below 10%. In the four years since, we have organically grown revenue more than $100 million or over 25% expanded adjusted EBITDA more than $25 million or 65% improved adjusted EBITDA margins 310 basis points retired virtually all of our debt on our balance sheet, continued to build an envious net cash position, built one of the finest rosters of clients in the industry and transformed our business to nearly 80% integrated omnichannel digital first from 65%. And in FY '24 we continued the evolution and further strengthening of our business by launching our suite of AI services, which we believe will continue to set our trajectory up in to the right. This momentum carried right in to our fourth quarter and into FY '25. Our Q4 was another strong quarter. Our BPO 2.0 clients grew at 3% and now represent 81% of our overall revenue, up from 79% in Q4 FY '23. Revenues in our highly profitable offshore and nearshore regions grew at 4% and now represent 77% of our overall business. As a result, EBITDA grew a healthy 16% versus prior year quarter to $17.9 million with a margin of 14.4%, up 200 basis points. We believe we hit an inflection point to returning to top line growth with revenue slightly ahead of prior year. I am excited to report that we ended the quarter winning our first significant customer facing AI deal, which will provide a new revenue stream for IBEX. At the core of IBEX remains our powerful new logo engine, where we continue to win high profile deals against strong competition. As indicated, we won 18 new client deals, nearly double that of the prior year Our ability to win spans across strategic verticals and geographies. As an example, in the gaming industry, a stronghold for several of our competitors, we had our first major win in Q4, winning and launching with one of the world's largest video game companies, providing technical support and account services from one of our nearshore markets with a fast follow expected in a new geography in early FY '25. This win presents an exciting opportunity for IBEX to grow and take share from legacy competitors in this vertical, much as we have done in recent years in the healthcare space. Additionally, our sales engine was able to win a very large deal servicing the Australia, New Zealand and Singapore regions. For a Fortune 500, displacing a large Australian competitor while beating out a multibillion dollar competitor, that has a large presence in the ANZA market. In June, we won our first significant customer facing AI opportunity with a major mobile carrier. We are delivering our AI automate, call automation solution where we are providing chat and voice bots for high volume, low complexity call types that will complement our live agent support and provide us an additional stream of revenue. These examples are great proof points in our ability to win on the big stage with great clients against our bigger competition. It is these types of solutions that give us tremendous momentum entering FY '25. Our ability to consistently drive optional excellence starts with our agents and their passion for working for IBEX and supporting our great client brands. We are extremely proud of the culture we have built, especially for our incredible agents who are the fabric of IBEX. I am excited to report that that our employee net promoter score reached a new high of 77, up 9 points from the prior year. We believe this is one of the highest in the industry. It is a testament to our commitment we all have at IBEX to create the best employee engagement in the industry. This in turn positions us incredibly well to outperform our competition and execute our land and expand strategy where we grow our market share. A great example of this is a highly strategic win with one of our top five clients whom we already service in five geographies to expand into a sixth geography. This represents a brand new offshore market for them, and a huge opportunity for IBEX in the coming years. Our track record of excellent performance, employee engagement, and the clients trust in IBEX all contributed greatly to what we believe will be a highly impactful long term win. Our award winning Wave iX customer facing solutions, AI automate, AI translate and AI authenticate are positioning us as a first mover. Where we are front and center with our clients, developing chat and voice bots to automate contacts. In addition to our recent win, we now have a pipeline of over 40 AI opportunities where we are continuing to get tremendous feedback from our clients that we are further along than any of our competitors in developing and taking to market these types of solutions. Being first to market also strengthens our relationship as a trusted partner. The traction we have and our speed to aggressively market these services provides exciting near term and midterm opportunities to create meaningful new revenue streams and growth opportunities for IBEX. We continue to make important investments into our long term strength and capabilities of the company beyond our AI initiatives. As an example, last summer we began the upgrade of our legacy ERP and HCM systems to an integrated workday solution and we are now nearing the completion, a testament to the talent of our leadership. We believe that this investment will strengthen our ability to run this business even more efficiently and at even larger scale. From a capital allocation standpoint, our strong financial position and balance sheet enabled us to execute on our share repurchase program while still achieving record year for cash flows and make the aforementioned investments. Further, it is enabling us to selectively evaluate M&A opportunities as a way to enhance both our solutions and our competitive moat, as well as accelerate our growth. Additionally, we will continue to selectively deploy capital expenditures in support of market growth in our off and nearshore regions as we have utilized much of the expanded capacity built out over the Covid-19 pandemic period. In summary, we are excited with the trajectory as we enter FY '25. We believe the business is positioned for a return to growth, continued strong EPS and free cash flow and one where we were ahead of the competition from an AI perspective. Our ability to win big with high profile brands is the staple of IBEX. We expect this to continue into FY '25 and beyond. With that, I will now turn the call over to Taylor to go in more detail on our '24 financials and guidance for FY '25. Taylor? Taylor Greenwald: Thank you, Bob and good afternoon everyone. Thank you for joining the call today. In my discussions of our fourth quarter and fiscal year 2024 financial results references to revenue, net income and net cash generated from operations are on a U.S. GAAP basis, while adjusted net income, adjusted earnings per share, adjusted EBITDA and free cash flow or on a non-GAAP basis. Reconciliations of our U.S. GAAP to non-GAAP measures are included in the table attached to our earnings press release. Turning to our results, our fourth quarter results are among the strongest in our history. Fourth quarter revenue increased slightly from prior year to $124.5 million and we achieved record fourth quarter adjusted EBITDA, net income and EPS results. Revenue growth driven by our higher margin regions offset by lower onshore revenue as we successfully grew several of our strategic verticals. Our focused efforts to grow our higher margin nearshore and offshore delivery locations are having a favorable impact on bottom line results. Offshore, nearshore revenues now comprise 77% of total revenue versus 74% in the prior year quarter. Our lower margin onshore region decreased to 23% of total revenue versus 26% in the prior year quarter. Revenue mix continued to grow in our higher margin digital and omnichannel services as well. Digital and omnichannel delivery now represent 77% of our total revenue versus 75% in the fourth quarter a year ago. We expect that we will continue to be successful driving growth in these higher margin services. As Bob mentioned, we are seeing our pipeline, particularly in the higher margin services, strengthen, leading to an acceleration of new client wins. Fourth quarter net income increased to $9.8 million, up $4.5 million in the prior year quarter. The increase was primarily driven by the site and cost optimization efforts completed over the past year. The continued growth of work in higher margin offshore locations during the fiscal year 2024 and lower income tax expense. Fully diluted EPS was $0.56, up over 100% from $0.24 in the prior year quarter. Contributing to the EPS growth was the impact from fewer diluted shares outstanding as a result of our ongoing share repurchase program. diluted shares for the quarter were $17.6 million versus $19 million one year ago. Moving to non-GAAP measures, adjusted EBITDA increased to $17.9 million, or 14.4% of revenue from $15.4 million, or 12.4% of revenue, for the same period last year. The 200 basis point improvement in adjusted EBITDA margin was primarily driven by the site and cost optimization efforts completed over the past year and the growth of work in our higher margin offshore locations during fiscal year 2024. Adjusted net income increased to $10.2 million from $6.2 million in the prior year quarter. Non-GAAP fully diluted adjusted earnings per share increased to $0.58 from $0.33 in the prior year quarter. The increases were driven by the higher EBITDA as well as lower taxes and fewer diluted shares outstanding due to our ongoing share repurchase program. As a company, we're pleased with the client diversification we've established over the last several years. For the fourth quarter of fiscal year 2024, our largest client accounted for 12% of revenue and our top 5, top 10 and top 25 client concentrations declined slightly compared to the prior year to 36%, 52% and 78% respectively of overall revenue. Representative of a well-diversified client portfolio. In addition, we ended the fiscal year with 55 clients billing at over $1 million per annum and 27 clients billing at over $5 million per annum, both consistent with prior year, exemplifying the success of our ability to service large material clients across vertical industries and geographies. We service these top clients on average across 2.3 geographies while having significant opportunities to further expand our footprint and lines of business with clients. Switching to our verticals, retail and e-commerce increased to 24% of fourth quarter revenue versus 22.3% in the prior year quarter, driven by continued growth in multiple offshore geographies and our continued ability to win significant new clients in this vertical. HealthTech increased to 13.9% from 13.5% and travel, transportation and logistics increased to 14.8% of fourth quarter revenue versus 12.4% in the prior year quarter. Conversely, our exposure to telecommunications vertical decreased to 14.5% of quarterly revenue versus 15.1% in the prior year quarter. Additionally, fintech decreased to 13.7% of revenue for the quarter versus 16.5% in the prior year quarter, impacted by the changing landscape for some client payment support models and geographic shifts from onshore to offshore delivery. Moving on to our fiscal year 2024 results, revenue decreased 2.8% to $508.6 million compared to $523.1 million in the prior year, largely due to the year-over-year migration of delivery from onshore to higher margin offshore regions. Macroeconomic conditions providing headwinds, particularly in the first-half of the year, and external factors impacting the fintech and telecommunication verticals partially offset by growth in the retail and e-commerce, HealthTech and travel, transportation and logistics verticals. The strength of our 18 new client wins across all our key verticals partially offset the above headwinds and position us for a return to growth in fiscal year 2025. Similar to the fourth quarter, the growth of delivery in our higher margin nearshore and offshore regions throughout the year had a meaningful impact on revenue, as onshore revenues, which comprised 24% of our total revenues during the fiscal year, declined 16% and nearshore and offshore revenues, which comprised 76% of our total revenues, increased 2.5% versus the prior year, with the growth coming particularly in our offshore region. The macroeconomic headwind, which I mentioned earlier, contributed to longer client sales cycles and impacted near term revenue growth and had a more prominent impact during the first half of the fiscal year. Fiscal year 2024, net income increased to $33.7 million versus $31.6 million in prior year. The increase was driven by higher gross margins, higher interest income, and lower taxes. The increase in interest income is due to higher income from invested funds. The decrease in tax expense was due to a lower effective tax rate in the current year compared to prior year, which was primarily attributable to changes in the revenue mix across our taxable jurisdictions and discrete items recorded in the prior year. Our tax rate for fiscal year 2024 was 18% compared to 22%. As we move into fiscal year 2025, we expect our tax rate to be slightly over 20%. Moving to non-GAAP measures for the full year, adjusted EBITDA decreased to $65.2 million or 12.8% of revenue compared to $66.6 million, or 12.7% of revenue for the prior year. Despite the aforementioned factors impacting our historical growth trends, adjusted EBITDA margin increased slightly, primarily due to the site optimization efforts completed over the past year and the migration of clients to higher margin offshore locations. Adjusted net income increased 4% to $38.4 million compared to $36.9 million in the prior year. Non-GAAP fully diluted adjusted earnings per share increased 7.1% to $2.10 compared to $1.96. The increase in adjusted net income and non-GAAP fully diluted adjusted earnings per share was driven by improved gross margins, increased interest income, and lower income tax expense. EPS also benefited from the lower share count due to our repurchase program. Net cash generated from operating activities was $35.9 million for fiscal year 2024, compared to $41.9 million for fiscal year 2023. The decrease in net cash inflow from operating activities was primarily due to a higher use of working capital. Our DSOs were 72 days, up from 63 days at the end of last year and in line with industry, average. DSOs increased this year as an early pay discount was ended with one of our larger clients early in the fiscal year, and the fourth quarter end for the full-year ended on a Sunday. We expect our DSO to remain stable on a go forward basis. Capital expenditures were $8.9 million, or 1.7% of revenue for fiscal year 2024, versus $19 million, or 3.6% of revenue in the prior year. As we continue to utilize our available capacity from build outs completed in previous years, free cash flow improved to a record $27 million in the current year, up from $22.9 million in the prior year. The increase is due to decreased capital expenditures during the fiscal year ended June 30, 2024 as we utilize capacity built out over the last two years, partially offset by a decrease in net cash inflow from operating activities due to the higher DSO. We ended the fourth quarter with $62.7 million in cash, up from $57.4 million as of June 2023. Net cash was $61.2 million, up from $56.4 million as of June 2023. The increases in cash and net cash were due to our record free cash flow, partially offset by a significant increase in share repurchase activity. For fiscal year 2024, we repurchased over 1.3 million shares, or roughly 8% of our outstanding shares for $21.7 million, of which 197,000 shares were purchased in the fourth quarter for $3.1 million. We have $27 million remaining to repurchase under our current share repurchase program, which was approved on May 1, 2024. To summarize our 2024 fiscal year, our intentional pivot toward digital first services several years ago continues to drive record financial results enabled by the ongoing growth of these high margin services and geographies, we're seeing operating performance improvement across all our regions. In the last half of fiscal year 2024, we delivered an adjusted EBITDA margin of 14.8%, placing IBEX among the top performers in our industry. Our record year of generating free cash flow has put us into an ideal position to continue to invest in our infrastructure, advanced AI capabilities, and our sales and marketing to accelerate future revenue growth. Importantly, it has also enabled us to execute meaningful share repurchases, representing approximately 8% of our shares outstanding to return value to our shareholders. We view this most recent quarter as an inflection point for return to top line growth, we remain confident in the trajectory of our business. Looking ahead to fiscal year 2025, revenue is expected to be in the range of $510 million to $525 million. Adjusted EBITDA is expected to be in the range of $67 million to $69 million. For the first quarter fiscal year 2025, revenue is expected to be in the range of $124 million to $126 million. Adjusted EBITDA is expected to be in the range of $14.5 million to $15.5 million. Capital expenditures for the year are expected to be in the range of $15 million to $20 million. Our business is well positioned for today in the years ahead, and we're excited about the future of IBEX as we head into fiscal year 2025 and beyond. With that, Bob and I will now take questions. Operator, please open the line. Operator: Thank you. [Operator Instructions] Our first question comes from David Koning with Baird. You may proceed. David Koning: Yes. Hey, guys, nice job getting back to what seems like more normalized sequential patterns to revenue and really good margins. Robert Dechant: Yes, thanks, Dave. We were really proud of the -- what the team did this back half of the year, and in particular Q4. David Koning: Yes, yes, well, and I guess, when we put in perspective, like guidance, guidance is still a little below kind of normal trends. You know, I assume that's mostly macro driven, I'm kind of wondering like if we think of three buckets, you kind of have the macro environment, like how are you looking at that relative to kind of normal market share? How are you seeing yourself in terms of market share? And then how do you see Gen AI and you put those three together to drive kind of your forecast, I assume. But can you kind of just go through each of those buckets and how that's affecting your forecast? Robert Dechant: Sure, Dave. And in addition, I think you nailed it. But there's probably one other variable, that variable would be the new logo engine, which is a key driver for us. But when I think of the macro in the second-half of the year, I think we started seeing volumes starting to move a little bit up into the right, which was encouraging for us. Now, if you recall, we built in this big part of our business, 80% of our BPO 2.0 clients, digital first, et cetera. When we did the analysis first those -- that part of our business is continuing to grow and has been growing, and it's been offset by still some shrinking with some of the legacy clients, that's now a small part of our business, but that's where the shrinkage has really come. As we looked at the year, and so as we look at '25, we feel that telco element will flatten out a bit. This past year, one of our key clients lost a big NFL contract. And so that caused some subscriber churn and some volumes down. So we think that we have a good handle of the kind of the base and the macro, and we feel relatively -- conservatively confident that we have good visibility and that will have a little bit of growth to that. So we're excited about that, the second element, as you touched on, is market share. The performance that we have inside our base is outstanding, which is giving our team a hunting license to go leverage that. I shared that big win we had with one of our largest clients into a completely new geography that they've never been in. And that was driven by the confidence they have in our ability to go execute for them in new markets. And that's one example of what we're seeing. So I feel, I feel really good about that. And then that new logo engine to me is one of those areas that has always been a strength of IBEX, we saw really, throughout the course of the whole fiscal year, our ability to win, execute and win really strong brands. And the win I wanted highlighted that we had in Q4 of a major gaming client. Look, we went, there are several of our competitors that that's their core of their business, we went head, you know, head to head against them and won. And that's something that you're just really proud of, you're able to go into their backyard and beat them. And so you put all of that together. You know, we feel pretty good about that general trend. And then the last piece, Dave, you touched on AI, and we see AI as an opportunity, and we're winning deals and we have a huge pipeline where it'll be a new source of revenue while we're leveraging our chat bots, voice bots that will go and automate and take what we think is market share away from our competitors, that it's their voice calls and they're, you know, that, that will come over to us and so we're, we're really excited about all of those elements and putting that together for, you know, hopefully a great FY '25. David Koning: No, that's a -- that's great to hear. And then I guess my follow-up question, one of the key highlights, I mean, I guess a couple of the key highlights. One is margins keep going up and, you know, maybe how sustainable is that, is there anything, maybe one off this year and both in 2024 and 2025 or is that just scale, et cetera? And then I guess buybacks are the other kind of thing, that's a big highlight. Is that going to continue? I think you're a 3 times EBITDA, I've almost never seen that in my career, especially for a company growing margin. So maybe those two things too? Robert Dechant: Yes. Hey, Taylor, do you want to -- why don't you take the margin discussion? Taylor Greenwald: Yes, no, absolutely. And David, we do have the ability and we will continue to improve margins. I think next year, if you look at our guidance, you'll see some improvement over fiscal year '24. I think we're what 12 -- 7, 12, 8 in fiscal year '24 and we should be in the low 13s in fiscal year '25 and we see that margin improvement continuing a few trends are going to help us continue this over the next few years. I think the first big lever is the fact that we continue to grow our most profitable, you know, geographies and services and AI will contribute to that as well, where the services and agreements that we're signing are going to come with higher margins. So that's going to help drive us forward, economies of scale and operating leverage, we're still a relatively small player with, you know, a significant infrastructure for a public company that doesn't need to scale at the same rate as our revenue. So I think we'll see leverage with growth that's going to drive our margin. And then in terms of some items that maybe put a little pressure on the margin going forward. Yes, this business always has wage pressure, we do a very good job with Colas in our contracts and negotiating price increases, but that's something we always did keep our eye on. And also we are going to continue to invest in business. We want to continue to grow. So, you saw that in fiscal year '24 where we're investing our infrastructure and a new ERP system, financial system, technology resources and sales resources, and we're going to continue to balance those investments as well, so that we'll get -- set, we manage our business with ongoing margin improvement while we're still making investments in the business. If that answers the question. Ultimately, I think in the next few years, our goal would be to get to 15% EBITDA margin for the full-year and not just the back half of the year. Robert Dechant: And David, did we answer your -- you had a Part B of that question, I think was on the share buyback. But maybe if you could just restate that question if you want. David Koning: Yes, just if you're going to continue, I mean, you have a lot of net cash. Is the plan to kind of study buybacks continuing? Robert Dechant: Yes, it is. You know, we look, we have, I think, $27 million still to go on our latest, you know, announcement. You know, a total of $30 million have a long way to go. And so I think as we think about our capital allocations, that's one use we have done a really good job of filling up a lot of that capacity we built out over the COVID years when we were doubling our CapEx because of social distancing, if you recall. I think we'll see ourselves continue to do build outs this year, kind of, let's say restart build outs in our offshore regions that will spend a little bit of CapEx dollars on that. And then lastly, I'll just say we intentionally in this past year, put our focus not on M&A, but on AI. And we really wanted to make sure we were pushing and being first mover in the world of driving AI solutions. And we didn't want to get distracted by going down and spending a lot of time in M&A and then a lot of time in integration. And if you look at that, we're further ahead than anybody in AI. So we're really, we think that was a smart thing. But now that we have that in this real strong free cash flow generation, I think we're now at the point where we can look at and say, what are the things, what are the geographies, what are the areas that we can invest in that we can look to be acquisitive in to help us, you know, strengthen our business and accelerate growth. And so, you know, again, that's kind of how we're looking at '25. Operator: Thank you. This now concludes our call for today. I would now like to turn it over to Bob Dechant for any closing remarks. Robert Dechant: Hey, Josh, thank you and appreciate everybody's time and listening to this. As you can tell, we're really excited about the business, the quarter mostly, and just want to highlight, so proud of the team that delivered this and will continue to deliver for you guys as we move into FY '25. So thank you all and we'll talk to you next quarter. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

IBEX Limited (IBEX) Q4 2024 Earnings Call Transcript

Michael Darwal - Head of Investor Relations Robert Dechant - Chief Executive Officer Taylor Greenwald - Chief Financial Officer Welcome to the IBEX Fourth Quarter Full-Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions] To note, there is an accompanying earnings deck presentation available on the IBEX investor relations website at investors.ibex.co. I will now turn this conference over to Mr. Michael Darwal, Head of Investor Relations for IBEX. Michael Darwal Good afternoon and thank you for joining us today. Before we begin, I want to remind you that matters discussed on today's call may include forward looking statements related to our operating performance, financial goals, and business outlook. Which are based on management's current beliefs and assumptions. Please note that these forward looking statements reflect our opinion as of the date of this call, and we undertake no obligation to revise this information as a result of new developments which may occur. Forward looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our annual report on form 10-K filed with the US Securities and Exchange Commission on September 12, 2024. With that, I will now turn the call over to IBEX CEO, Bob Dechant. Robert Dechant Thanks, Mike. Good afternoon everyone, and thank you all for joining us today as we share our fourth quarter and fiscal year 2024 results. FY '24 was another transformative year for IBEX, where we achieved all time bests across a number of key financial metrics including EPS, net income, EBITDA Margin and free cash flow. We accomplished this in the face of evolving changes across the BPO market. With continued macroeconomic pressure and the excitement of Generative AI, we continue to demonstrate a unique ability to successfully compete and win against our much larger competitors. Our competitive advantage remains built around an unparalleled agent-first culture, with tremendous employee engagement. Paired with our Wave iX technology stack, where we are marrying cutting edge AI solutions and deep analytics. These attributes enable us to consistently outperform our competitors and provide compelling differentiators as we expand our sales pipeline and win new business. We have branded this as taking the IBEX challenge. Let me take a moment to highlight some of the key results we delivered in FY '24. We won 18 new client relationships in the fiscal year, primarily with leading retail, e-commerce, healthcare and gaming clients, up from 10 in the prior year. We achieved record EPS of $2.10, up from $1.96 last year. We continued the growth of our more profitable digital first services that operates primarily in our offshore and nearshore locations, delivering 77% of revenue in the fourth quarter, up from 74% a year ago in these regions. We delivered record free cash flow of $27 million versus $22.9 million in the prior year, and we ended the year with $61.2 million in net cash. We deployed our capital to repurchase 1.3 million shares at a cost of $21.7 million, reducing our shares outstanding by 8%. Although revenue was down slightly at 2.8% year-over-year to $509 million we were up slightly in Q4 year-over-year, which we view as an inflection point heading into fiscal year 2025. Looking back several years ago, we undertook a strategic journey of transforming IBEX into differentiated digital first company. We call this BPO 2.0 and in August of 2020 we IPO'd the company built around this strategy. Since then we have made tremendous progress as a company. In FY '20, IBEX had revenues of $405 million while adjusted EBITDA margins were below 10%. In the four years since, we have organically grown revenue more than $100 million or over 25% expanded adjusted EBITDA more than $25 million or 65% improved adjusted EBITDA margins 310 basis points retired virtually all of our debt on our balance sheet, continued to build an envious net cash position, built one of the finest rosters of clients in the industry and transformed our business to nearly 80% integrated omnichannel digital first from 65%. And in FY '24 we continued the evolution and further strengthening of our business by launching our suite of AI services, which we believe will continue to set our trajectory up in to the right. This momentum carried right in to our fourth quarter and into FY '25. Our Q4 was another strong quarter. Our BPO 2.0 clients grew at 3% and now represent 81% of our overall revenue, up from 79% in Q4 FY '23. Revenues in our highly profitable offshore and nearshore regions grew at 4% and now represent 77% of our overall business. As a result, EBITDA grew a healthy 16% versus prior year quarter to $17.9 million with a margin of 14.4%, up 200 basis points. We believe we hit an inflection point to returning to top line growth with revenue slightly ahead of prior year. I am excited to report that we ended the quarter winning our first significant customer facing AI deal, which will provide a new revenue stream for IBEX. At the core of IBEX remains our powerful new logo engine, where we continue to win high profile deals against strong competition. As indicated, we won 18 new client deals, nearly double that of the prior year Our ability to win spans across strategic verticals and geographies. As an example, in the gaming industry, a stronghold for several of our competitors, we had our first major win in Q4, winning and launching with one of the world's largest video game companies, providing technical support and account services from one of our nearshore markets with a fast follow expected in a new geography in early FY '25. This win presents an exciting opportunity for IBEX to grow and take share from legacy competitors in this vertical, much as we have done in recent years in the healthcare space. Additionally, our sales engine was able to win a very large deal servicing the Australia, New Zealand and Singapore regions. For a Fortune 500, displacing a large Australian competitor while beating out a multibillion dollar competitor, that has a large presence in the ANZA market. In June, we won our first significant customer facing AI opportunity with a major mobile carrier. We are delivering our AI automate, call automation solution where we are providing chat and voice bots for high volume, low complexity call types that will complement our live agent support and provide us an additional stream of revenue. These examples are great proof points in our ability to win on the big stage with great clients against our bigger competition. It is these types of solutions that give us tremendous momentum entering FY '25. Our ability to consistently drive optional excellence starts with our agents and their passion for working for IBEX and supporting our great client brands. We are extremely proud of the culture we have built, especially for our incredible agents who are the fabric of IBEX. I am excited to report that that our employee net promoter score reached a new high of 77, up 9 points from the prior year. We believe this is one of the highest in the industry. It is a testament to our commitment we all have at IBEX to create the best employee engagement in the industry. This in turn positions us incredibly well to outperform our competition and execute our land and expand strategy where we grow our market share. A great example of this is a highly strategic win with one of our top five clients whom we already service in five geographies to expand into a sixth geography. This represents a brand new offshore market for them, and a huge opportunity for IBEX in the coming years. Our track record of excellent performance, employee engagement, and the clients trust in IBEX all contributed greatly to what we believe will be a highly impactful long term win. Our award winning Wave iX customer facing solutions, AI automate, AI translate and AI authenticate are positioning us as a first mover. Where we are front and center with our clients, developing chat and voice bots to automate contacts. In addition to our recent win, we now have a pipeline of over 40 AI opportunities where we are continuing to get tremendous feedback from our clients that we are further along than any of our competitors in developing and taking to market these types of solutions. Being first to market also strengthens our relationship as a trusted partner. The traction we have and our speed to aggressively market these services provides exciting near term and midterm opportunities to create meaningful new revenue streams and growth opportunities for IBEX. We continue to make important investments into our long term strength and capabilities of the company beyond our AI initiatives. As an example, last summer we began the upgrade of our legacy ERP and HCM systems to an integrated workday solution and we are now nearing the completion, a testament to the talent of our leadership. We believe that this investment will strengthen our ability to run this business even more efficiently and at even larger scale. From a capital allocation standpoint, our strong financial position and balance sheet enabled us to execute on our share repurchase program while still achieving record year for cash flows and make the aforementioned investments. Further, it is enabling us to selectively evaluate M&A opportunities as a way to enhance both our solutions and our competitive moat, as well as accelerate our growth. Additionally, we will continue to selectively deploy capital expenditures in support of market growth in our off and nearshore regions as we have utilized much of the expanded capacity built out over the Covid-19 pandemic period. In summary, we are excited with the trajectory as we enter FY '25. We believe the business is positioned for a return to growth, continued strong EPS and free cash flow and one where we were ahead of the competition from an AI perspective. Our ability to win big with high profile brands is the staple of IBEX. We expect this to continue into FY '25 and beyond. With that, I will now turn the call over to Taylor to go in more detail on our '24 financials and guidance for FY '25. Taylor? Taylor Greenwald Thank you, Bob and good afternoon everyone. Thank you for joining the call today. In my discussions of our fourth quarter and fiscal year 2024 financial results references to revenue, net income and net cash generated from operations are on a U.S. GAAP basis, while adjusted net income, adjusted earnings per share, adjusted EBITDA and free cash flow or on a non-GAAP basis. Reconciliations of our U.S. GAAP to non-GAAP measures are included in the table attached to our earnings press release. Turning to our results, our fourth quarter results are among the strongest in our history. Fourth quarter revenue increased slightly from prior year to $124.5 million and we achieved record fourth quarter adjusted EBITDA, net income and EPS results. Revenue growth driven by our higher margin regions offset by lower onshore revenue as we successfully grew several of our strategic verticals. Our focused efforts to grow our higher margin nearshore and offshore delivery locations are having a favorable impact on bottom line results. Offshore, nearshore revenues now comprise 77% of total revenue versus 74% in the prior year quarter. Our lower margin onshore region decreased to 23% of total revenue versus 26% in the prior year quarter. Revenue mix continued to grow in our higher margin digital and omnichannel services as well. Digital and omnichannel delivery now represent 77% of our total revenue versus 75% in the fourth quarter a year ago. We expect that we will continue to be successful driving growth in these higher margin services. As Bob mentioned, we are seeing our pipeline, particularly in the higher margin services, strengthen, leading to an acceleration of new client wins. Fourth quarter net income increased to $9.8 million, up $4.5 million in the prior year quarter. The increase was primarily driven by the site and cost optimization efforts completed over the past year. The continued growth of work in higher margin offshore locations during the fiscal year 2024 and lower income tax expense. Fully diluted EPS was $0.56, up over 100% from $0.24 in the prior year quarter. Contributing to the EPS growth was the impact from fewer diluted shares outstanding as a result of our ongoing share repurchase program. diluted shares for the quarter were $17.6 million versus $19 million one year ago. Moving to non-GAAP measures, adjusted EBITDA increased to $17.9 million, or 14.4% of revenue from $15.4 million, or 12.4% of revenue, for the same period last year. The 200 basis point improvement in adjusted EBITDA margin was primarily driven by the site and cost optimization efforts completed over the past year and the growth of work in our higher margin offshore locations during fiscal year 2024. Adjusted net income increased to $10.2 million from $6.2 million in the prior year quarter. Non-GAAP fully diluted adjusted earnings per share increased to $0.58 from $0.33 in the prior year quarter. The increases were driven by the higher EBITDA as well as lower taxes and fewer diluted shares outstanding due to our ongoing share repurchase program. As a company, we're pleased with the client diversification we've established over the last several years. For the fourth quarter of fiscal year 2024, our largest client accounted for 12% of revenue and our top 5, top 10 and top 25 client concentrations declined slightly compared to the prior year to 36%, 52% and 78% respectively of overall revenue. Representative of a well-diversified client portfolio. In addition, we ended the fiscal year with 55 clients billing at over $1 million per annum and 27 clients billing at over $5 million per annum, both consistent with prior year, exemplifying the success of our ability to service large material clients across vertical industries and geographies. We service these top clients on average across 2.3 geographies while having significant opportunities to further expand our footprint and lines of business with clients. Switching to our verticals, retail and e-commerce increased to 24% of fourth quarter revenue versus 22.3% in the prior year quarter, driven by continued growth in multiple offshore geographies and our continued ability to win significant new clients in this vertical. HealthTech increased to 13.9% from 13.5% and travel, transportation and logistics increased to 14.8% of fourth quarter revenue versus 12.4% in the prior year quarter. Conversely, our exposure to telecommunications vertical decreased to 14.5% of quarterly revenue versus 15.1% in the prior year quarter. Additionally, fintech decreased to 13.7% of revenue for the quarter versus 16.5% in the prior year quarter, impacted by the changing landscape for some client payment support models and geographic shifts from onshore to offshore delivery. Moving on to our fiscal year 2024 results, revenue decreased 2.8% to $508.6 million compared to $523.1 million in the prior year, largely due to the year-over-year migration of delivery from onshore to higher margin offshore regions. Macroeconomic conditions providing headwinds, particularly in the first-half of the year, and external factors impacting the fintech and telecommunication verticals partially offset by growth in the retail and e-commerce, HealthTech and travel, transportation and logistics verticals. The strength of our 18 new client wins across all our key verticals partially offset the above headwinds and position us for a return to growth in fiscal year 2025. Similar to the fourth quarter, the growth of delivery in our higher margin nearshore and offshore regions throughout the year had a meaningful impact on revenue, as onshore revenues, which comprised 24% of our total revenues during the fiscal year, declined 16% and nearshore and offshore revenues, which comprised 76% of our total revenues, increased 2.5% versus the prior year, with the growth coming particularly in our offshore region. The macroeconomic headwind, which I mentioned earlier, contributed to longer client sales cycles and impacted near term revenue growth and had a more prominent impact during the first half of the fiscal year. Fiscal year 2024, net income increased to $33.7 million versus $31.6 million in prior year. The increase was driven by higher gross margins, higher interest income, and lower taxes. The increase in interest income is due to higher income from invested funds. The decrease in tax expense was due to a lower effective tax rate in the current year compared to prior year, which was primarily attributable to changes in the revenue mix across our taxable jurisdictions and discrete items recorded in the prior year. Our tax rate for fiscal year 2024 was 18% compared to 22%. As we move into fiscal year 2025, we expect our tax rate to be slightly over 20%. Moving to non-GAAP measures for the full year, adjusted EBITDA decreased to $65.2 million or 12.8% of revenue compared to $66.6 million, or 12.7% of revenue for the prior year. Despite the aforementioned factors impacting our historical growth trends, adjusted EBITDA margin increased slightly, primarily due to the site optimization efforts completed over the past year and the migration of clients to higher margin offshore locations. Adjusted net income increased 4% to $38.4 million compared to $36.9 million in the prior year. Non-GAAP fully diluted adjusted earnings per share increased 7.1% to $2.10 compared to $1.96. The increase in adjusted net income and non-GAAP fully diluted adjusted earnings per share was driven by improved gross margins, increased interest income, and lower income tax expense. EPS also benefited from the lower share count due to our repurchase program. Net cash generated from operating activities was $35.9 million for fiscal year 2024, compared to $41.9 million for fiscal year 2023. The decrease in net cash inflow from operating activities was primarily due to a higher use of working capital. Our DSOs were 72 days, up from 63 days at the end of last year and in line with industry, average. DSOs increased this year as an early pay discount was ended with one of our larger clients early in the fiscal year, and the fourth quarter end for the full-year ended on a Sunday. We expect our DSO to remain stable on a go forward basis. Capital expenditures were $8.9 million, or 1.7% of revenue for fiscal year 2024, versus $19 million, or 3.6% of revenue in the prior year. As we continue to utilize our available capacity from build outs completed in previous years, free cash flow improved to a record $27 million in the current year, up from $22.9 million in the prior year. The increase is due to decreased capital expenditures during the fiscal year ended June 30, 2024 as we utilize capacity built out over the last two years, partially offset by a decrease in net cash inflow from operating activities due to the higher DSO. We ended the fourth quarter with $62.7 million in cash, up from $57.4 million as of June 2023. Net cash was $61.2 million, up from $56.4 million as of June 2023. The increases in cash and net cash were due to our record free cash flow, partially offset by a significant increase in share repurchase activity. For fiscal year 2024, we repurchased over 1.3 million shares, or roughly 8% of our outstanding shares for $21.7 million, of which 197,000 shares were purchased in the fourth quarter for $3.1 million. We have $27 million remaining to repurchase under our current share repurchase program, which was approved on May 1, 2024. To summarize our 2024 fiscal year, our intentional pivot toward digital first services several years ago continues to drive record financial results enabled by the ongoing growth of these high margin services and geographies, we're seeing operating performance improvement across all our regions. In the last half of fiscal year 2024, we delivered an adjusted EBITDA margin of 14.8%, placing IBEX among the top performers in our industry. Our record year of generating free cash flow has put us into an ideal position to continue to invest in our infrastructure, advanced AI capabilities, and our sales and marketing to accelerate future revenue growth. Importantly, it has also enabled us to execute meaningful share repurchases, representing approximately 8% of our shares outstanding to return value to our shareholders. We view this most recent quarter as an inflection point for return to top line growth, we remain confident in the trajectory of our business. Looking ahead to fiscal year 2025, revenue is expected to be in the range of $510 million to $525 million. Adjusted EBITDA is expected to be in the range of $67 million to $69 million. For the first quarter fiscal year 2025, revenue is expected to be in the range of $124 million to $126 million. Adjusted EBITDA is expected to be in the range of $14.5 million to $15.5 million. Capital expenditures for the year are expected to be in the range of $15 million to $20 million. Our business is well positioned for today in the years ahead, and we're excited about the future of IBEX as we head into fiscal year 2025 and beyond. With that, Bob and I will now take questions. Operator, please open the line. Thank you. [Operator Instructions] Our first question comes from David Koning with Baird. You may proceed. David Koning Yes. Hey, guys, nice job getting back to what seems like more normalized sequential patterns to revenue and really good margins. Robert Dechant Yes, thanks, Dave. We were really proud of the -- what the team did this back half of the year, and in particular Q4. David Koning Yes, yes, well, and I guess, when we put in perspective, like guidance, guidance is still a little below kind of normal trends. You know, I assume that's mostly macro driven, I'm kind of wondering like if we think of three buckets, you kind of have the macro environment, like how are you looking at that relative to kind of normal market share? How are you seeing yourself in terms of market share? And then how do you see Gen AI and you put those three together to drive kind of your forecast, I assume. But can you kind of just go through each of those buckets and how that's affecting your forecast? Robert Dechant Sure, Dave. And in addition, I think you nailed it. But there's probably one other variable, that variable would be the new logo engine, which is a key driver for us. But when I think of the macro in the second-half of the year, I think we started seeing volumes starting to move a little bit up into the right, which was encouraging for us. Now, if you recall, we built in this big part of our business, 80% of our BPO 2.0 clients, digital first, et cetera. When we did the analysis first those -- that part of our business is continuing to grow and has been growing, and it's been offset by still some shrinking with some of the legacy clients, that's now a small part of our business, but that's where the shrinkage has really come. As we looked at the year, and so as we look at '25, we feel that telco element will flatten out a bit. This past year, one of our key clients lost a big NFL contract. And so that caused some subscriber churn and some volumes down. So we think that we have a good handle of the kind of the base and the macro, and we feel relatively -- conservatively confident that we have good visibility and that will have a little bit of growth to that. So we're excited about that, the second element, as you touched on, is market share. The performance that we have inside our base is outstanding, which is giving our team a hunting license to go leverage that. I shared that big win we had with one of our largest clients into a completely new geography that they've never been in. And that was driven by the confidence they have in our ability to go execute for them in new markets. And that's one example of what we're seeing. So I feel, I feel really good about that. And then that new logo engine to me is one of those areas that has always been a strength of IBEX, we saw really, throughout the course of the whole fiscal year, our ability to win, execute and win really strong brands. And the win I wanted highlighted that we had in Q4 of a major gaming client. Look, we went, there are several of our competitors that that's their core of their business, we went head, you know, head to head against them and won. And that's something that you're just really proud of, you're able to go into their backyard and beat them. And so you put all of that together. You know, we feel pretty good about that general trend. And then the last piece, Dave, you touched on AI, and we see AI as an opportunity, and we're winning deals and we have a huge pipeline where it'll be a new source of revenue while we're leveraging our chat bots, voice bots that will go and automate and take what we think is market share away from our competitors, that it's their voice calls and they're, you know, that, that will come over to us and so we're, we're really excited about all of those elements and putting that together for, you know, hopefully a great FY '25. David Koning No, that's a -- that's great to hear. And then I guess my follow-up question, one of the key highlights, I mean, I guess a couple of the key highlights. One is margins keep going up and, you know, maybe how sustainable is that, is there anything, maybe one off this year and both in 2024 and 2025 or is that just scale, et cetera? And then I guess buybacks are the other kind of thing, that's a big highlight. Is that going to continue? I think you're a 3 times EBITDA, I've almost never seen that in my career, especially for a company growing margin. So maybe those two things too? Robert Dechant Yes. Hey, Taylor, do you want to -- why don't you take the margin discussion? Taylor Greenwald Yes, no, absolutely. And David, we do have the ability and we will continue to improve margins. I think next year, if you look at our guidance, you'll see some improvement over fiscal year '24. I think we're what 12 -- 7, 12, 8 in fiscal year '24 and we should be in the low 13s in fiscal year '25 and we see that margin improvement continuing a few trends are going to help us continue this over the next few years. I think the first big lever is the fact that we continue to grow our most profitable, you know, geographies and services and AI will contribute to that as well, where the services and agreements that we're signing are going to come with higher margins. So that's going to help drive us forward, economies of scale and operating leverage, we're still a relatively small player with, you know, a significant infrastructure for a public company that doesn't need to scale at the same rate as our revenue. So I think we'll see leverage with growth that's going to drive our margin. And then in terms of some items that maybe put a little pressure on the margin going forward. Yes, this business always has wage pressure, we do a very good job with Colas in our contracts and negotiating price increases, but that's something we always did keep our eye on. And also we are going to continue to invest in business. We want to continue to grow. So, you saw that in fiscal year '24 where we're investing our infrastructure and a new ERP system, financial system, technology resources and sales resources, and we're going to continue to balance those investments as well, so that we'll get -- set, we manage our business with ongoing margin improvement while we're still making investments in the business. If that answers the question. Ultimately, I think in the next few years, our goal would be to get to 15% EBITDA margin for the full-year and not just the back half of the year. And David, did we answer your -- you had a Part B of that question, I think was on the share buyback. But maybe if you could just restate that question if you want. Yes, just if you're going to continue, I mean, you have a lot of net cash. Is the plan to kind of study buybacks continuing? Robert Dechant Yes, it is. You know, we look, we have, I think, $27 million still to go on our latest, you know, announcement. You know, a total of $30 million have a long way to go. And so I think as we think about our capital allocations, that's one use we have done a really good job of filling up a lot of that capacity we built out over the COVID years when we were doubling our CapEx because of social distancing, if you recall. I think we'll see ourselves continue to do build outs this year, kind of, let's say restart build outs in our offshore regions that will spend a little bit of CapEx dollars on that. And then lastly, I'll just say we intentionally in this past year, put our focus not on M&A, but on AI. And we really wanted to make sure we were pushing and being first mover in the world of driving AI solutions. And we didn't want to get distracted by going down and spending a lot of time in M&A and then a lot of time in integration. And if you look at that, we're further ahead than anybody in AI. So we're really, we think that was a smart thing. But now that we have that in this real strong free cash flow generation, I think we're now at the point where we can look at and say, what are the things, what are the geographies, what are the areas that we can invest in that we can look to be acquisitive in to help us, you know, strengthen our business and accelerate growth. And so, you know, again, that's kind of how we're looking at '25. Thank you. This now concludes our call for today. I would now like to turn it over to Bob Dechant for any closing remarks. Robert Dechant Hey, Josh, thank you and appreciate everybody's time and listening to this. As you can tell, we're really excited about the business, the quarter mostly, and just want to highlight, so proud of the team that delivered this and will continue to deliver for you guys as we move into FY '25. So thank you all and we'll talk to you next quarter. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

MIND Technology, Inc. (MIND) Q2 2025 Earnings Call Transcript

Zach Vaughan - Investor Relations Robert P. Capps - President and Chief Executive Officer Mark Cox - Vice President and Chief Financial Officer Greetings. Welcome to MIND Technology's Fiscal 2025 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Zach Vaughan. Thank you. You may begin. Zach Vaughan Thank you, operator. Good morning, and welcome to the MIND Technology's fiscal 2025 second quarter earnings conference call. We appreciate all of you joining us today. With me are Rob Capps, President and Chief Executive Officer; and Mark Cox, Vice President and Chief Financial Officer. Before I turn the call over to Rob, I have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the Company's website at mind-technology.com or via a recorded instant replay until September 19. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Thursday, September 12, 2024, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual or future results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the Company from time-to-time in its filings with the SEC, including in its annual report on Form 10-K for the year ended January 31, 2024. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. Okay. Thanks, Zach, and thanks for all of you joining us today. First of all, I want to welcome all of our new common stockholders. For the conversion of our preferred stock into common stock last week, MIND now has a substantial new group of common stockholders. For me, if not most of you, MIND is a new Company. This new capital structure and our encouraging business environment provide MIND with important opportunities. Today, I'll discuss some highlights from the quarter, Mark will then provide a more detailed update on our financials, and I'll return to wrap things up with some remarks about our outlook. MIND delivered positive results in the second quarter that were in-line with our expectations and further demonstrated the progress we've made on several fronts. We continue to operate efficiently and actively manage cost. We generated positive cash flow from operations in the quarter, which helped further improve liquidity. Our ability to build on the momentum we've generated in recent periods and execute has enabled MIND to deliver another quarter of positive adjusted EBITDA and profitability. We remain well-positioned to achieve profitability and favorable results in future periods. We maintain our belief that MIND is strategically positioned for both near and long-term growth. Now, while it did not directly impact second quarter results, the approval of our preferred stock proposal and resulting conversion of all preferred stock into common stock was a very important development. On the conversion, we issued approximately 6.6 million shares of common stock, now have about 8 million shares outstanding. All outstanding preferred stock along with associated accrued but undeclared dividends have been retired. Mark will touch on the accounting for this conversion, which we'll see in the third quarter. We entered the third quarter with a strong backlog of approximately $26 million. I know that some of you have been concerned that there have not been more announcements of new orders recently. Although the order flow is often sporadic, it's not uncommon to see positives in order activity throughout the year, especially during the summer. The backlog at the end of quarter was down sequentially, however, it was more than 50% higher than at the same time last year, which is quite high by historical standards. We don't announce each and every order we receive. Currently, there are more than $6 million in orders that have been received subsequent to July 31 or that we believe are imminent and those are not included in the reported backlog. Beyond that, we have an active pipeline of pending orders and prospects that is well in excess of our backlog received orders. We believe this robust backlog and many of the opportunities we are pursuing bode well for favorable future financial results. As is always the case, timing of certain orders is subject to durability due to any number of challenges, unforeseen circumstances or customer delivery requirements. Our GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems are all contributing to our strong backlog, and we currently have a number of pending orders across these product lines. And, I'm confident that the type of macro environment, our narrowed focus, strong customer relationships, ever increasing capabilities and value partnerships will continue to cement MIND as a partner of choice for companies looking to acquire high-quality and versatile marine technology products. Our marine technology products revenues for the second quarter of fiscal 2025 were $10 million. Our ability to grow revenue both sequentially and year-over-year demonstrates the strength in customer engagement and order flow, favorable macro tailwinds and the emphasis we put on execution and efficiency. We also continue to take steps to improve our cost structure, which has enhanced our profitability in recent quarters. Now, it's always important to mention that while supply chain issues are much improved, they're still with us to varying degrees and could impact results in future periods. These challenges are simply component of new business and we will almost certainly encounter them again in the future. To combat some of these challenges, we've built inventory in recent months to accommodate pending and upcoming orders. Additionally, as we've noted, the magnitude of our backlog and expected orders does give us better visibility and therefore better ability to manage our procurement processes and improve margins. We continue to believe that the current market environment is an advantageous reminder. Our key markets remain loaded with opportunity. We're seeing an uptick in customer inquiries and RFQs as we come out of the summer months. In addition to now operating a more streamlined and focused suite of products, it continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers. Recent sales and inquiries regarding our ultra-high resolution SeaLink streamer systems are a good example of this. I'm confident that our differentiated approach and best-in-class suite of products will continue to give us the competitive advantage to address the growing demand we're seeing within the marine technology industry. Our repair activities, both for our own products as well as third-party products, continue to develop and look promising for the future. We continue to see traction for our Spectral Ai Software Suite through our collaboration agreement with General Oceans. We believe there are a number of promising prospects. Recent customer feedback for the software has been positive, and we hope to find further applications for this technology in the future. Now, I'll let Mark walk you through the second quarter financial results in a bit more detail. Consistent with the past several calls, I would like to remind everyone that with the sale of Klein, those operations have been treated as discontinued operations and prior period results have been restated to reflect that. Accordingly, the results from continuing operations that we reported yesterday and are discussing here today, including prior period comparative data, do not include amounts related to Klein. They include only our ongoing business. As Rob mentioned earlier, revenues from marine technology product sales totaled $10 million in the quarter, which was up about 32% from approximately $7.6 million in the same period a year ago. We continue to believe the underlying strength we're seeing in all our key markets and the significant customer demand driving our robust backlog positions us well for sustained high-level revenue in the coming quarters. Second quarter gross profit was approximately $4.8 million which was up approximately 62% when compared to the second quarter of last year. Gross profit margin, which was approximately 48% for the quarter also increased approximately 22% when compared to the same quarter a year ago. This margin improvement stemmed from increased manufacturing activity that resulted in greater overhead absorption. Margins also benefited from the price increases that were implemented in 2024 as well as greater production efficiencies throughout the business. Our general and administrative expenses were $2.8 million for the second quarter of fiscal 2025, which was flat sequentially and down slightly from $2.9 million in the second quarter of last year. We also expect additional reductions in general and administrative expenses in the third quarter as we continue to streamline overhead costs following the sale of Klein. As we've mentioned on previous calls, the sale of Klein has allowed us to streamline our operations and thereby reduce some costs, most notably related to corporate expenses attributable to the support of Klein. I should note that our general and administrative costs do not include incremental third-party costs related to the preferred stock proposal and result in conversion of preferred stock into common stock. I'll touch on the accounting for that in a moment. Our research and development expense for the second quarter was $328,000. This was down both sequentially and compared to the prior year period. These costs are largely directed toward the development of our next generation streamer system and continued development of our Spectral Ai Software Suite. Operating income for the second quarter was approximately $1.4 million compared to an operating loss of $767,000 in the second quarter of fiscal 2024. Our second quarter adjusted EBITDA was approximately $1.8 million compared to an adjusted EBITDA loss of $120,000 in the second quarter a year ago. Net income for the second quarter was $798,000 which was an improvement of approximately $1.6 million from the net loss of $758,000 in the second quarter of fiscal 2024. As Rob mentioned, we're pleased to have achieved another quarter of profitability and we hope to continue building on this momentum in the future period. As of July 31, 2024, we had working capital of approximately $20.3 million and $1.9 million of cash on hand. As expected during the quarter, liquidity continued to be impacted by MIND's operational requirements related to acquiring inventory and executing on a backlog of orders. However, we did generate approximately $1 million of cash flow from operations in the second quarter. The balance sheet remains strong and as of today MIND remains debt free. Additionally, after the preferred stock conversion earlier this month, MIND now maintains a clean capital structure and has good flexibility from which to enhance stockholder value. As Rob mentioned, the conversion of the preferred stock is not reflected in our second quarter results. In the third quarter financials, we will reflect this transaction. We expect to record the issuance of approximately 6.6 million new shares of common stock at the then current market value of the common stock, less associated transaction costs such as legal fees and solicitation costs. The carrying value of the preferred stock will be eliminated. The excess of the carrying value of the preferred stock over the recorded value of the new common stock, which we currently estimate to be approximately $15 million will be credited directly to retained earnings. This treatment was described in the proxy statement provided to preferred stockholders associated with the approval of the proposal. I'll now pass it back over to Rob for some concluding comments. MIND continues to benefit from the positive momentum we've generated in recent periods and our sustained higher level revenue reflects that. We're seeing strong customer interest and demand across our Seamap product lines and our focused approach and streamlined operations continue to positively impact our results. We maintain a lean operating structure and continue to manage cost to improve margins and enhance our bottom line. We fully expect to achieve positive adjusted EBITDA and profitability throughout fiscal 2025. We remain encouraged by the notable tailwinds and significant opportunities for our Seamap unit, and our other initiatives in this market. We've developed valuable partnerships and customer relationships that have enabled us to build a strong backlog that continue to drive new orders. Our marine technology products continue to penetrate a variety of industries and markets. I believe this is a direct correlation to the work that our team has done to develop and continually adapt our technology to meet the evolving needs of our customers. We believe our pipeline of receipt and pending orders and other prospects are reflective of the significant demand and market adoption of our product lines. While we're pleased with the results from the second quarter, we believe MIND is poised to capitalize on additional opportunities and deliver improved results in the coming quarters. As usual, I'd like to remind everyone that fluctuations in our revenue from quarter-to-quarter are bound to occur at some point in the future as they have at times in the past. And, this revenue variation could result from any number of different challenges in unforeseen circumstances or simple customer delivery requirements. We continue to maintain our belief that the general trend will be one of sustainably higher level revenue throughout the remainder of fiscal 2025 and beyond. The conversion of preferred stock to common stock is another important element that in my opinion provides a great deal of flexibility in pursuing these opportunities. Looking forward and barring any unexpected challenges around the same circumstances, we expect our results for the second half of fiscal 2025 to be somewhat improved compared to the first half of the year. Our current visibility, healthy customer engagement, strong backlog and favorable macro tailwinds continue to give us confidence. We will see higher revenue and continued positive adjusted EBITDA in the coming quarters, which we anticipate culminating in another profitable year for MIND. We have a differentiated and market leading suite of products, a favorable market environment and now a very clean debt free capital structure. We look forward to capitalize on these positive factors to increase stockholder value as we move forward. With that, operator, we can now open the call for questions. Thank you. [Operator Instructions] Our first question is from Tyson Bauer with KC Capital. Please proceed. A lot less stressful for all involved now that cap structure. Obviously, backlog will be somewhat of a focus, but I think your comments on the outlook kind of soften that. We go from 38 to [31.26] (ph) add another six, so you're about 32. So, you're maintaining your backlog. You mentioned sustained revenue as we go forth in the next couple of quarters with an improvement in second half results. Do you look at that as kind of now we've hit that benchmark level where other than maybe some unique timing issues, we should be at that $10 million plus going forward? Robert P. Capps Okay. I'm always hesitant, excuse me, to be specific about that. But I think normally you're correct. Just understanding that when a particular order falls, from one week to the next could have an impact on given quarter. So, if we're waking up one day and have a $8 million quarter, I would not be panicking. This is no, don't be shocked if there's a $12 million quarter. Tyson Bauer Right. I think one of the more impressive financial metrics that you posted in the quarter was your gross margin 47.6%. I think I had you at about 45.5%. That's 200 basis points ahead of schedule, which I'll take that over the little lighter on the revenue any day. Is that mainly from that operating leverage or is that just that pricing that's coming through or kind of a combination? Robert P. Capps It's a combination. Yes, certainly the operating leverage helps a lot and they were able to buy more rationally. Product mix has an impact, so there are all sorts of things that go into that calculus. But, we are very pleased about that. That's something we've really been trying to focus on and hope we can continue that going forward. Tyson Bauer So, you see that being sustainable also or widening as we continue? Robert P. Capps I would say more sustainable. And again, if we solve a quarter just a couple of hundred points that wouldn't be a positive concern at all. Again, just given what products are in the quarter, what discount structures happen, that sort of thing can impact quarter-to-quarter. But I think, again, we've done a good job of improving margins at the gross level. Tyson Bauer I think another impressive financial metric here is cash flow from operations being up $1 million in the quarter. Given you had a $3 million increase in your inventory, it's been a while that we've had a positive numbers on that line item. Are we expected then to work down a little bit of that inventory or is that going to be kind of sustained? And, what is your net working capital outlook in the second half? Robert P. Capps Yes. I would hope and expect that we'd be able to work that down a bit. And therefore, we're starting to see the cash flow turn a bit, collecting receivables from things we shipped. Again, we pre-bought inventory in some cases, trying to work some of that down, and maybe we don't have to do be quite as aggressive in the future with that. Having said that, you get a big order next week that we need to, buy today to deliver in six months, that can have an impact. But in general, I would expect us to work that down a bit. Diluted share count, now that we should be reporting positive EPS as far as GAAP purposes with the conversion, which is roughly 8 million shares, would have gave you a quarter around $0.10, I wouldn't think you have very much options or anything else in the money. So, is that $8 million a fairly good diluted number to work with? Robert P. Capps Yes, it is. Yes, there's nothing in the money at this point. And, I was trying to quickly go on the back of my notes. What are you looking at your book value post conversion? I know you talked about $15 million retained earnings and the preferred getting rid of. And that now, what does your book value look like per share? Robert P. Capps Oh, gosh. Tyson, I don't have the number in front of me, so I'd hate to just do something off the cuff. 10-Q will be out this evening. I think everybody can do their own math off of that. And get pretty close. I just I don't have in front of me, so I don't want to misstate on that. Tyson Bauer I know I'm talking about a lot of things outside of your actual business products and services. One of the key things, you're getting a market value of $29 million and you just got rid of a liquidation value preference of $48 million. Which included getting rid of all those accumulated dividends, which go away and will not continue to accumulate, in addition to what the preferred value was in the marketplace before you did the conversion. Are you a little surprised that we haven't seen an adjustment to your market valuation just based on those numbers alone? Robert P. Capps Frankly, not really in that you kind of think about the natural arbitrage that's been in place. There's not been demand to buy the common recently. People will be buying the preferred instead. Obviously, there's some people who bought the preferred who intended to unload immediately. So, I think we're seeing some of that selling pressure right now. So, I would expect that to work itself off in the coming days and maybe weeks. And, as we continue to work tomorrow, I think it will stockpile should take care of itself. So, I'm not concerned about that. Tyson Bauer Okay. Yes, as we work through those non votes on the preferred and no votes, they're converted shares. I would assume given what you're giving us an outlook and what you posted on a pro forma basis, we should see some positive traction all other things being equal. All right. I'm sure somebody else will have some business questions for you, but thanks a lot and great job guys. [Operator Instructions]. Our next question is from Ross Taylor with ARS Investment Partners. Please proceed. Ross Taylor Thank you. And I'll echo Tyson's congratulations and also thank you for your perseverance. It was not an easy thing to get done. I had some people telling me it wouldn't get done and it got done. So, I think this is setting the stage for a lot of value creation going forward. And I'm confident as a preferred holder, I'll be better off the year from now than I was would have been under the old structure. Couple of questions. What were inventory levels at quarter end? Second is, you talked about pulling down the G&A as you're rightsizing the business. What kind of run rate G&A should we expect to see going forward either annually or on a quarter basis? Robert P. Capps So, we're at $2.8 million this quarter. I would like to see that down a little bit, 100,000 or so, not drastically, but then we're just at a point where we're starting to tweak things a bit, just headcounts in some places. So, it's kind of like that level, analyze the $2.8 million and take maybe a $0.5 million off of that maybe makes some sense, but those are rough numbers obviously. Ross Taylor Okay. And that's a number that you should -- that $2.80 0,000 annualized down works out to something around $10 million annually and you're confident that if as you grow your revenues that number should be able to hold towards that $10 million range? Robert P. Capps Yes, I think so. Yes, for a while at least. Obviously, it does get to a point where we have to expand a bit for the time being. Ross Taylor Yes, within reason. Yes, obviously. What are your public company costs? Obviously, it's pretty expensive to be a small public company. It's not uncommon to cost over $1 million. What kind of costs do you guys incur just -- Robert P. Capps Yes, that's a great question. So, I think it's well in excess of the $1 million like your audit costs are more, you got public reporting cost, you've got shareholder cost. So, I think well in excess of $1 million and probably approaching $2 million is not hard to get to. Ross Taylor So, it could be something as high as like $0.15, $0.16 a share in earnings impact. Yes, under the 8 million shares. Okay. That's actually pretty meaningful. In the past, you had to subtract the preferred dividends like the number and Tyson touched on this. It always drives me crazy because I think Tyson reports his numbers on adjusted and the street picked it up as GAAP. And so they reported as an earnings miss when in fact I actually think you were probably in line with Tyson's number. He can come back on and confirm that if I'm right or wrong. If I'm wrong, he can call me up and laugh at me. But when we're looking at that, that's what about almost $0.12 a quarter, roughly $0.47, $0.48 a year. Going forward, when you get this, are you going to restate past earnings or is this all going to come out in that make whole adjustment? Robert P. Capps Yes. So don't hold me to this. It's and we're still researching as to the proper way to do it because there's not clear guidance on some of this. I suspect EPS will be restated. And there will be I think, a really strange looking adjustment in EPS in the first quarter. This $15 million charge to return earnings, or approximate $15 million actually will get reflected in EPS in that quarter, which was kind of meaningless. But we think that's what GAAP says to do. Ross Taylor Yes. And all I would say is break out whatever that number is, so that even Bloomberg can pick it up and be right with it. You've talked about -- in the comments you made, you talked about the fact that you saw the second half being slightly better than the first half. Can you tell us what number you're working on for the first half? When I'm looking at reported GAAP numbers, I have you earning about $0.58. When I adjust for the preferred dividends, I add that back, I get $0.24 added to that. So, I'm talking about something that's in the $0.81 range. What do you see as the second half? I mean, what should I be benchmarking slightly better against? Is it $0.57? Is it a different number? When I'm going to compare apples-to-apples, what should I be using as my first apple? Robert P. Capps So Ross, to be quite frank, what I was alluding to a revenue level. And so, roughly $20 million revenue, I mean, just below that in the first half. So, that's what I was comparing to and then do the math off of that as to what the EPS looks like. So, I wasn't trying to do it from an EPS standpoint or from a net earnings standpoint. Ross Taylor Is there anything in the first half of the year that was uniquely one time that we should be backing out to get that base level before we add back the preferred dividend? Mark Cox I don't think anything. Nothing really unusual. Again, there's some seasonality in some of our costs, G&A costs, but we've talked about that in the past. So, nothing out of the ordinary. Ross Taylor Okay, cool. So, that's a really nice setup for the second half of this year. Also your press release, the last line in it was interesting to me. You made a comment is a little sentence is, this is an important step for MIND. It simplifies our capital structure. It's actually the last two sentences. I went to public school, forgive me. And in my opinion, sets the stage for creating meaningful stockholder value. Will you go into some more color on how you see that value being realized? Is this setting up a situation where obviously we're going to have much better earnings, a clean balance sheet that creates one level of value? But does this also create a situation where strategically you think that it will be easier for people to look at MIND and value it appropriately and come up with a number that will be found acceptable to all shareholders in the past. The problem we had is the first roughly $50 million was going to the preferred holders, which left very little for the common holders, but now we're all in the same boat. So, I'd love to get more insight into what your thinking is behind those two sentences. Robert P. Capps Sure. There's a couple of aspects to that, Ross. Certainly, there's just the math of it or the corporate finance aspects of it that you alluded to. And that I think, this is my opinion, I think that people did really understand how to value or how to -- what calculus to use in determining what's the impact of the deferred on the common. So, I think taking that uncertainty away clarifies things. I also think it gives us some great work, little more flexibility in growing the company. As tech, we're a small very small company. We need to be bigger. And there's different ways to get bigger. And I think, having this uncertainty out of the way and this confusion, perhaps, out of the way makes it easier for us to do other things via raise other capital to grow or maybe, you know, look for other partners to do things with. So, just gives us a lot more flexibility to do lots of different things. Ross Taylor Well, thank you. And I would agree, I mean, if you just look at if you put a 10 multiple on the preferred dividend, you have a stock that should be closer to 5 not 4 or 3.5. So that alone creates and then we talked about the public company costs. I mean, there's a huge amount of value here. This company is clearly worth a lot more than $3.5 or $4 a share. And I want to leave you with, I want to thank you. I know as I said, you worked very hard on getting this done. There was you and I didn't always support or agree with how you were handling this, but in the end I think you created something that should unlock a tremendous amount of value. And you and your board, your leadership team are to be commended for quite honestly sticking to something that most people would have walked away from. Our next question is from Sam Schwartz with Kaliber Management. Please proceed. Sam Schwartz Hi, good morning. Excellent report. So good to read and congratulations on the turnaround and looking forward. I have one particular question you don't seem to focus on and that is, MIND Technologies involvement in artificial intelligence and your Spectral software. I wonder if you could give us a little color on what's going on there? Robert P. Capps Sure. That's something we developed in connection with our client operation initially. Of course, we've sold that, but we retained that IP in the transaction, but then had sublicense that back to Klein and General Oceans, the buyer, as it relates to certain applications, specifically side scan sonar. So right now, we are promoting that in connection with our agreement, our collaboration agreement with General Oceans. It's early days. The revenue from it has been de minimis. I mean, just a few tens of thousands of dollars so far. But I think it's something that's pretty interesting and that companies who have looked at it, and it's in the hands of a couple of significant customers around the world right now. The feedback is very positive that there are some unique things about this Software Suite. There's lots of APR automatic target recognition software out there, lots of AI models out there. But there's some things about this as it relates to data handling and ability to develop new models, which we think is unique. So, we think there's an interesting opportunity there, but it is very early days, and we're still exploring the best way to exploit that. It's not going to be a $50 million a year business, but it doesn't need to be. If it can be, something much smaller than that, I think it could add some pretty meaningful value to it. So, it's one of those things that, we can't bet the bank on it right now, but I think it's some interesting upside for us that we're trying to pursue. We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Robert P. Capps Okay. Thanks very much. I'd like to thank everybody for joining us this morning and taking time to learn about kind of where we stand today and where we're going forward. We look forward to visiting you at the end of our third quarter a few weeks. Thanks very much. Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Earnings call: MIND Technology sees growth in Q2, positive outlook for 2025 By Investing.com

MIND Technology (NASDAQ: MIND), a leader in marine technology products, reported a robust fiscal 2025 second quarter with significant year-over-year growth. On September 12, 2024, CEO Rob Capps and CFO Mark Cox delivered a positive earnings call, announcing a 32% increase in product revenues to $10 million and a substantial rise in gross profit to $4.8 million. The company's gross profit margin climbed to 48%, operating income reached $1.4 million, and net income improved to $798,000 from a net loss the previous year. MIND also highlighted a solid backlog of about $26 million and over $6 million in new orders since July 31, 2024. The conversion of preferred stock to common stock, resulting in 6.6 million new shares, is seen as a strategic initiative to solidify the capital structure. The company is optimistic about maintaining profitability and positive adjusted EBITDA throughout fiscal 2025, supported by strong demand and a favorable market. MIND Technology's earnings call painted a picture of a company on the rise, with a clear strategy to leverage its strong market position and innovative product lines for continued growth. The management's focus on operational efficiency and capital structure optimization, along with their exploration of new technological frontiers, demonstrates their commitment to driving shareholder value. As the company looks ahead to the rest of fiscal 2025, investors and stakeholders will be watching closely for the continued execution of MIND's strategic initiatives and market expansion. MIND Technology's recent earnings call reflects a promising trajectory for the company, backed by substantial revenue growth and a solid order backlog. To further understand the financial health and market position of MIND, let's consider some key metrics and tips from InvestingPro. InvestingPro Data highlights that MIND Technology has a market capitalization of $30.5 million. The company has seen impressive revenue growth of 34.19% in the last twelve months as of Q1 2023, indicating a strong upward trend in sales. Despite this growth, the company's P/E ratio stands at -14.98, suggesting that investors are anticipating future earnings to justify the current share price valuation. An InvestingPro Tip notes that MIND has been "quickly burning through cash," which is a critical point to monitor, especially for a company investing in innovation and technology development. Additionally, analysts on InvestingPro predict the company "will be profitable this year," aligning with the optimistic outlook presented in the earnings call. For those considering an investment in MIND Technology, it's worth noting that the company does not pay a dividend to shareholders, which may influence the investment decisions of income-focused investors. However, the company's focus on growth and potential profitability could appeal to those with a longer-term investment horizon. InvestingPro offers additional insights and tips for MIND Technology, which can be found at https://www.investing.com/pro/MIND. These tips provide valuable information for investors looking to make informed decisions based on the latest market data and analysis. Operator: Greetings. Welcome to MIND Technology's Fiscal 2025 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Zach Vaughan. Thank you. You may begin. Zach Vaughan: Thank you, operator. Good morning, and welcome to the MIND Technology's fiscal 2025 second quarter earnings conference call. We appreciate all of you joining us today. With me are Rob Capps, President and Chief Executive Officer; and Mark Cox, Vice President and Chief Financial Officer. Before I turn the call over to Rob, I have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the Company's website at mind-technology.com or via a recorded instant replay until September 19. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Thursday, September 12, 2024, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual or future results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the Company from time-to-time in its filings with the SEC, including in its annual report on Form 10-K for the year ended January 31, 2024. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. Now, I would like to turn the call over to Rob Capps. Robert P. Capps: Okay. Thanks, Zach, and thanks for all of you joining us today. First of all, I want to welcome all of our new common stockholders. For the conversion of our preferred stock into common stock last week, MIND now has a substantial new group of common stockholders. For me, if not most of you, MIND is a new Company. This new capital structure and our encouraging business environment provide MIND with important opportunities. Today, I'll discuss some highlights from the quarter, Mark will then provide a more detailed update on our financials, and I'll return to wrap things up with some remarks about our outlook. MIND delivered positive results in the second quarter that were in-line with our expectations and further demonstrated the progress we've made on several fronts. We continue to operate efficiently and actively manage cost. We generated positive cash flow from operations in the quarter, which helped further improve liquidity. Our ability to build on the momentum we've generated in recent periods and execute has enabled MIND to deliver another quarter of positive adjusted EBITDA and profitability. We remain well-positioned to achieve profitability and favorable results in future periods. We maintain our belief that MIND is strategically positioned for both near and long-term growth. Now, while it did not directly impact second quarter results, the approval of our preferred stock proposal and resulting conversion of all preferred stock into common stock was a very important development. On the conversion, we issued approximately 6.6 million shares of common stock, now have about 8 million shares outstanding. All outstanding preferred stock along with associated accrued but undeclared dividends have been retired. Mark will touch on the accounting for this conversion, which we'll see in the third quarter. We entered the third quarter with a strong backlog of approximately $26 million. I know that some of you have been concerned that there have not been more announcements of new orders recently. Although the order flow is often sporadic, it's not uncommon to see positives in order activity throughout the year, especially during the summer. The backlog at the end of quarter was down sequentially, however, it was more than 50% higher than at the same time last year, which is quite high by historical standards. We don't announce each and every order we receive. Currently, there are more than $6 million in orders that have been received subsequent to July 31 or that we believe are imminent and those are not included in the reported backlog. Beyond that, we have an active pipeline of pending orders and prospects that is well in excess of our backlog received orders. We believe this robust backlog and many of the opportunities we are pursuing bode well for favorable future financial results. As is always the case, timing of certain orders is subject to durability due to any number of challenges, unforeseen circumstances or customer delivery requirements. Our GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems are all contributing to our strong backlog, and we currently have a number of pending orders across these product lines. And, I'm confident that the type of macro environment, our narrowed focus, strong customer relationships, ever increasing capabilities and value partnerships will continue to cement MIND as a partner of choice for companies looking to acquire high-quality and versatile marine technology products. Our marine technology products revenues for the second quarter of fiscal 2025 were $10 million. Our ability to grow revenue both sequentially and year-over-year demonstrates the strength in customer engagement and order flow, favorable macro tailwinds and the emphasis we put on execution and efficiency. We also continue to take steps to improve our cost structure, which has enhanced our profitability in recent quarters. Now, it's always important to mention that while supply chain issues are much improved, they're still with us to varying degrees and could impact results in future periods. These challenges are simply component of new business and we will almost certainly encounter them again in the future. To combat some of these challenges, we've built inventory in recent months to accommodate pending and upcoming orders. Additionally, as we've noted, the magnitude of our backlog and expected orders does give us better visibility and therefore better ability to manage our procurement processes and improve margins. We continue to believe that the current market environment is an advantageous reminder. Our key markets remain loaded with opportunity. We're seeing an uptick in customer inquiries and RFQs as we come out of the summer months. In addition to now operating a more streamlined and focused suite of products, it continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers. Recent sales and inquiries regarding our ultra-high resolution SeaLink streamer systems are a good example of this. I'm confident that our differentiated approach and best-in-class suite of products will continue to give us the competitive advantage to address the growing demand we're seeing within the marine technology industry. Our repair activities, both for our own products as well as third-party products, continue to develop and look promising for the future. We continue to see traction for our Spectral Ai Software Suite through our collaboration agreement with General Oceans. We believe there are a number of promising prospects. Recent customer feedback for the software has been positive, and we hope to find further applications for this technology in the future. Now, I'll let Mark walk you through the second quarter financial results in a bit more detail. Mark Cox: Thanks, Rob, and good morning, everyone. Consistent with the past several calls, I would like to remind everyone that with the sale of Klein, those operations have been treated as discontinued operations and prior period results have been restated to reflect that. Accordingly, the results from continuing operations that we reported yesterday and are discussing here today, including prior period comparative data, do not include amounts related to Klein. They include only our ongoing business. As Rob mentioned earlier, revenues from marine technology product sales totaled $10 million in the quarter, which was up about 32% from approximately $7.6 million in the same period a year ago. We continue to believe the underlying strength we're seeing in all our key markets and the significant customer demand driving our robust backlog positions us well for sustained high-level revenue in the coming quarters. Second quarter gross profit was approximately $4.8 million which was up approximately 62% when compared to the second quarter of last year. Gross profit margin, which was approximately 48% for the quarter also increased approximately 22% when compared to the same quarter a year ago. This margin improvement stemmed from increased manufacturing activity that resulted in greater overhead absorption. Margins also benefited from the price increases that were implemented in 2024 as well as greater production efficiencies throughout the business. Our general and administrative expenses were $2.8 million for the second quarter of fiscal 2025, which was flat sequentially and down slightly from $2.9 million in the second quarter of last year. We also expect additional reductions in general and administrative expenses in the third quarter as we continue to streamline overhead costs following the sale of Klein. As we've mentioned on previous calls, the sale of Klein has allowed us to streamline our operations and thereby reduce some costs, most notably related to corporate expenses attributable to the support of Klein. I should note that our general and administrative costs do not include incremental third-party costs related to the preferred stock proposal and result in conversion of preferred stock into common stock. I'll touch on the accounting for that in a moment. Our research and development expense for the second quarter was $328,000. This was down both sequentially and compared to the prior year period. These costs are largely directed toward the development of our next generation streamer system and continued development of our Spectral Ai Software Suite. Operating income for the second quarter was approximately $1.4 million compared to an operating loss of $767,000 in the second quarter of fiscal 2024. Our second quarter adjusted EBITDA was approximately $1.8 million compared to an adjusted EBITDA loss of $120,000 in the second quarter a year ago. Net income for the second quarter was $798,000 which was an improvement of approximately $1.6 million from the net loss of $758,000 in the second quarter of fiscal 2024. As Rob mentioned, we're pleased to have achieved another quarter of profitability and we hope to continue building on this momentum in the future period. As of July 31, 2024, we had working capital of approximately $20.3 million and $1.9 million of cash on hand. As expected during the quarter, liquidity continued to be impacted by MIND's operational requirements related to acquiring inventory and executing on a backlog of orders. However, we did generate approximately $1 million of cash flow from operations in the second quarter. The balance sheet remains strong and as of today MIND remains debt free. Additionally, after the preferred stock conversion earlier this month, MIND now maintains a clean capital structure and has good flexibility from which to enhance stockholder value. As Rob mentioned, the conversion of the preferred stock is not reflected in our second quarter results. In the third quarter financials, we will reflect this transaction. We expect to record the issuance of approximately 6.6 million new shares of common stock at the then current market value of the common stock, less associated transaction costs such as legal fees and solicitation costs. The carrying value of the preferred stock will be eliminated. The excess of the carrying value of the preferred stock over the recorded value of the new common stock, which we currently estimate to be approximately $15 million will be credited directly to retained earnings. This treatment was described in the proxy statement provided to preferred stockholders associated with the approval of the proposal. I'll now pass it back over to Rob for some concluding comments. Robert P. Capps: Okay. Thanks, Mark. MIND continues to benefit from the positive momentum we've generated in recent periods and our sustained higher level revenue reflects that. We're seeing strong customer interest and demand across our Seamap product lines and our focused approach and streamlined operations continue to positively impact our results. We maintain a lean operating structure and continue to manage cost to improve margins and enhance our bottom line. We fully expect to achieve positive adjusted EBITDA and profitability throughout fiscal 2025. We remain encouraged by the notable tailwinds and significant opportunities for our Seamap unit, and our other initiatives in this market. We've developed valuable partnerships and customer relationships that have enabled us to build a strong backlog that continue to drive new orders. Our marine technology products continue to penetrate a variety of industries and markets. I believe this is a direct correlation to the work that our team has done to develop and continually adapt our technology to meet the evolving needs of our customers. We believe our pipeline of receipt and pending orders and other prospects are reflective of the significant demand and market adoption of our product lines. While we're pleased with the results from the second quarter, we believe MIND is poised to capitalize on additional opportunities and deliver improved results in the coming quarters. As usual, I'd like to remind everyone that fluctuations in our revenue from quarter-to-quarter are bound to occur at some point in the future as they have at times in the past. And, this revenue variation could result from any number of different challenges in unforeseen circumstances or simple customer delivery requirements. We continue to maintain our belief that the general trend will be one of sustainably higher level revenue throughout the remainder of fiscal 2025 and beyond. The conversion of preferred stock to common stock is another important element that in my opinion provides a great deal of flexibility in pursuing these opportunities. Looking forward and barring any unexpected challenges around the same circumstances, we expect our results for the second half of fiscal 2025 to be somewhat improved compared to the first half of the year. Our current visibility, healthy customer engagement, strong backlog and favorable macro tailwinds continue to give us confidence. We will see higher revenue and continued positive adjusted EBITDA in the coming quarters, which we anticipate culminating in another profitable year for MIND. We have a differentiated and market leading suite of products, a favorable market environment and now a very clean debt free capital structure. We look forward to capitalize on these positive factors to increase stockholder value as we move forward. With that, operator, we can now open the call for questions. Operator: Thank you. [Operator Instructions] Our first question is from Tyson Bauer with KC Capital. Please proceed. Tyson Bauer: A lot less stressful for all involved now that cap structure. Obviously, backlog will be somewhat of a focus, but I think your comments on the outlook kind of soften that. We go from 38 to [31.26] (ph) add another six, so you're about 32. So, you're maintaining your backlog. You mentioned sustained revenue as we go forth in the next couple of quarters with an improvement in second half results. Do you look at that as kind of now we've hit that benchmark level where other than maybe some unique timing issues, we should be at that $10 million plus going forward? Robert P. Capps: Okay. I'm always hesitant, excuse me, to be specific about that. But I think normally you're correct. Just understanding that when a particular order falls, from one week to the next could have an impact on given quarter. So, if we're waking up one day and have a $8 million quarter, I would not be panicking. This is no, don't be shocked if there's a $12 million quarter. Tyson Bauer: Right. I think one of the more impressive financial metrics that you posted in the quarter was your gross margin 47.6%. I think I had you at about 45.5%. That's 200 basis points ahead of schedule, which I'll take that over the little lighter on the revenue any day. Is that mainly from that operating leverage or is that just that pricing that's coming through or kind of a combination? Robert P. Capps: It's a combination. Yes, certainly the operating leverage helps a lot and they were able to buy more rationally. Product mix has an impact, so there are all sorts of things that go into that calculus. But, we are very pleased about that. That's something we've really been trying to focus on and hope we can continue that going forward. Tyson Bauer: So, you see that being sustainable also or widening as we continue? Robert P. Capps: I would say more sustainable. And again, if we solve a quarter just a couple of hundred points that wouldn't be a positive concern at all. Again, just given what products are in the quarter, what discount structures happen, that sort of thing can impact quarter-to-quarter. But I think, again, we've done a good job of improving margins at the gross level. Tyson Bauer: I think another impressive financial metric here is cash flow from operations being up $1 million in the quarter. Given you had a $3 million increase in your inventory, it's been a while that we've had a positive numbers on that line item. Are we expected then to work down a little bit of that inventory or is that going to be kind of sustained? And, what is your net working capital outlook in the second half? Robert P. Capps: Yes. I would hope and expect that we'd be able to work that down a bit. And therefore, we're starting to see the cash flow turn a bit, collecting receivables from things we shipped. Again, we pre-bought inventory in some cases, trying to work some of that down, and maybe we don't have to do be quite as aggressive in the future with that. Having said that, you get a big order next week that we need to, buy today to deliver in six months, that can have an impact. But in general, I would expect us to work that down a bit. Tyson Bauer: Diluted share count, now that we should be reporting positive EPS as far as GAAP purposes with the conversion, which is roughly 8 million shares, would have gave you a quarter around $0.10, I wouldn't think you have very much options or anything else in the money. So, is that $8 million a fairly good diluted number to work with? Tyson Bauer: And, I was trying to quickly go on the back of my notes. What are you looking at your book value post conversion? I know you talked about $15 million retained earnings and the preferred getting rid of. And that now, what does your book value look like per share? Robert P. Capps: Oh, gosh. Tyson, I don't have the number in front of me, so I'd hate to just do something off the cuff. 10-Q will be out this evening. I think everybody can do their own math off of that. And get pretty close. I just I don't have in front of me, so I don't want to misstate on that. Tyson Bauer: I know I'm talking about a lot of things outside of your actual business products and services. One of the key things, you're getting a market value of $29 million and you just got rid of a liquidation value preference of $48 million. Tyson Bauer: Which included getting rid of all those accumulated dividends, which go away and will not continue to accumulate, in addition to what the preferred value was in the marketplace before you did the conversion. Are you a little surprised that we haven't seen an adjustment to your market valuation just based on those numbers alone? Robert P. Capps: Frankly, not really in that you kind of think about the natural arbitrage that's been in place. There's not been demand to buy the common recently. People will be buying the preferred instead. Obviously, there's some people who bought the preferred who intended to unload immediately. So, I think we're seeing some of that selling pressure right now. So, I would expect that to work itself off in the coming days and maybe weeks. And, as we continue to work tomorrow, I think it will stockpile should take care of itself. So, I'm not concerned about that. Tyson Bauer: Okay. Yes, as we work through those non votes on the preferred and no votes, they're converted shares. I would assume given what you're giving us an outlook and what you posted on a pro forma basis, we should see some positive traction all other things being equal. Tyson Bauer: All right. I'm sure somebody else will have some business questions for you, but thanks a lot and great job guys. Operator: [Operator Instructions]. Our next question is from Ross Taylor with ARS Investment Partners. Please proceed. Ross Taylor: Thank you. And I'll echo Tyson's congratulations and also thank you for your perseverance. It was not an easy thing to get done. I had some people telling me it wouldn't get done and it got done. So, I think this is setting the stage for a lot of value creation going forward. And I'm confident as a preferred holder, I'll be better off the year from now than I was would have been under the old structure. Ross Taylor: Couple of questions. What were inventory levels at quarter end? Ross Taylor: Second is, you talked about pulling down the G&A as you're rightsizing the business. What kind of run rate G&A should we expect to see going forward either annually or on a quarter basis? Robert P. Capps: So, we're at $2.8 million this quarter. I would like to see that down a little bit, 100,000 or so, not drastically, but then we're just at a point where we're starting to tweak things a bit, just headcounts in some places. So, it's kind of like that level, analyze the $2.8 million and take maybe a $0.5 million off of that maybe makes some sense, but those are rough numbers obviously. Ross Taylor: Okay. And that's a number that you should -- that $2.80 0,000 annualized down works out to something around $10 million annually and you're confident that if as you grow your revenues that number should be able to hold towards that $10 million range? Robert P. Capps: Yes, I think so. Yes, for a while at least. Obviously, it does get to a point where we have to expand a bit for the time being. Ross Taylor: Yes, within reason. Yes, obviously. What are your public company costs? Obviously, it's pretty expensive to be a small public company. It's not uncommon to cost over $1 million. What kind of costs do you guys incur just -- Robert P. Capps: Yes, that's a great question. So, I think it's well in excess of the $1 million like your audit costs are more, you got public reporting cost, you've got shareholder cost. So, I think well in excess of $1 million and probably approaching $2 million is not hard to get to. Ross Taylor: So, it could be something as high as like $0.15, $0.16 a share in earnings impact. Ross Taylor: Yes, under the 8 million shares. Okay. That's actually pretty meaningful. In the past, you had to subtract the preferred dividends like the number and Tyson touched on this. It always drives me crazy because I think Tyson reports his numbers on adjusted and the street picked it up as GAAP. And so they reported as an earnings miss when in fact I actually think you were probably in line with Tyson's number. He can come back on and confirm that if I'm right or wrong. If I'm wrong, he can call me up and laugh at me. But when we're looking at that, that's what about almost $0.12 a quarter, roughly $0.47, $0.48 a year. Going forward, when you get this, are you going to restate past earnings or is this all going to come out in that make whole adjustment? Robert P. Capps: Yes. So don't hold me to this. It's and we're still researching as to the proper way to do it because there's not clear guidance on some of this. I suspect EPS will be restated. And there will be I think, a really strange looking adjustment in EPS in the first quarter. This $15 million charge to return earnings, or approximate $15 million actually will get reflected in EPS in that quarter, which was kind of meaningless. But we think that's what GAAP says to do. Ross Taylor: Yes. And all I would say is break out whatever that number is, so that even Bloomberg can pick it up and be right with it. You've talked about -- in the comments you made, you talked about the fact that you saw the second half being slightly better than the first half. Can you tell us what number you're working on for the first half? When I'm looking at reported GAAP numbers, I have you earning about $0.58. When I adjust for the preferred dividends, I add that back, I get $0.24 added to that. So, I'm talking about something that's in the $0.81 range. What do you see as the second half? I mean, what should I be benchmarking slightly better against? Is it $0.57? Is it a different number? When I'm going to compare apples-to-apples, what should I be using as my first apple? Robert P. Capps: So Ross, to be quite frank, what I was alluding to a revenue level. And so, roughly $20 million revenue, I mean, just below that in the first half. So, that's what I was comparing to and then do the math off of that as to what the EPS looks like. So, I wasn't trying to do it from an EPS standpoint or from a net earnings standpoint. Ross Taylor: Is there anything in the first half of the year that was uniquely one time that we should be backing out to get that base level before we add back the preferred dividend? Mark Cox: I don't think anything. Nothing really unusual. Again, there's some seasonality in some of our costs, G&A costs, but we've talked about that in the past. So, nothing out of the ordinary. Ross Taylor: Okay, cool. So, that's a really nice setup for the second half of this year. Also your press release, the last line in it was interesting to me. You made a comment is a little sentence is, this is an important step for MIND. It simplifies our capital structure. It's actually the last two sentences. I went to public school, forgive me. And in my opinion, sets the stage for creating meaningful stockholder value. Will you go into some more color on how you see that value being realized? Is this setting up a situation where obviously we're going to have much better earnings, a clean balance sheet that creates one level of value? But does this also create a situation where strategically you think that it will be easier for people to look at MIND and value it appropriately and come up with a number that will be found acceptable to all shareholders in the past. The problem we had is the first roughly $50 million was going to the preferred holders, which left very little for the common holders, but now we're all in the same boat. So, I'd love to get more insight into what your thinking is behind those two sentences. Robert P. Capps: Sure. There's a couple of aspects to that, Ross. Certainly, there's just the math of it or the corporate finance aspects of it that you alluded to. And that I think, this is my opinion, I think that people did really understand how to value or how to -- what calculus to use in determining what's the impact of the deferred on the common. So, I think taking that uncertainty away clarifies things. I also think it gives us some great work, little more flexibility in growing the company. As tech, we're a small very small company. We need to be bigger. And there's different ways to get bigger. And I think, having this uncertainty out of the way and this confusion, perhaps, out of the way makes it easier for us to do other things via raise other capital to grow or maybe, you know, look for other partners to do things with. So, just gives us a lot more flexibility to do lots of different things. Ross Taylor: Well, thank you. And I would agree, I mean, if you just look at if you put a 10 multiple on the preferred dividend, you have a stock that should be closer to 5 not 4 or 3.5. So that alone creates and then we talked about the public company costs. I mean, there's a huge amount of value here. This company is clearly worth a lot more than $3.5 or $4 a share. And I want to leave you with, I want to thank you. I know as I said, you worked very hard on getting this done. There was you and I didn't always support or agree with how you were handling this, but in the end I think you created something that should unlock a tremendous amount of value. And you and your board, your leadership team are to be commended for quite honestly sticking to something that most people would have walked away from. Operator: Our next question is from Sam Schwartz with Kaliber Management. Please proceed. Sam Schwartz: Hi, good morning. Excellent report. So good to read and congratulations on the turnaround and looking forward. I have one particular question you don't seem to focus on and that is, MIND Technologies involvement in artificial intelligence and your Spectral software. I wonder if you could give us a little color on what's going on there? Robert P. Capps: Sure. That's something we developed in connection with our client operation initially. Of course, we've sold that, but we retained that IP in the transaction, but then had sublicense that back to Klein and General Oceans, the buyer, as it relates to certain applications, specifically side scan sonar. So right now, we are promoting that in connection with our agreement, our collaboration agreement with General Oceans. It's early days. The revenue from it has been de minimis. I mean, just a few tens of thousands of dollars so far. But I think it's something that's pretty interesting and that companies who have looked at it, and it's in the hands of a couple of significant customers around the world right now. The feedback is very positive that there are some unique things about this Software Suite. There's lots of APR automatic target recognition software out there, lots of AI models out there. But there's some things about this as it relates to data handling and ability to develop new models, which we think is unique. So, we think there's an interesting opportunity there, but it is very early days, and we're still exploring the best way to exploit that. It's not going to be a $50 million a year business, but it doesn't need to be. If it can be, something much smaller than that, I think it could add some pretty meaningful value to it. So, it's one of those things that, we can't bet the bank on it right now, but I think it's some interesting upside for us that we're trying to pursue. Operator: We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Robert P. Capps: Okay. Thanks very much. I'd like to thank everybody for joining us this morning and taking time to learn about kind of where we stand today and where we're going forward. We look forward to visiting you at the end of our third quarter a few weeks. Thanks very much. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Earnings call: Streamline Health Solutions reported a total revenue of $4.5 million By Investing.com

Streamline Health Solutions (NASDAQ: STRM), a provider of solutions for healthcare revenue cycle management, reported its second quarter financial results for the period ending July 31, 2024, during an earnings call on August 8, 2024. The company cited a 21% growth in pro forma SaaS revenue for the first half of fiscal 2024, despite a churn that led to non-renewals totaling $2.8 million in SaaS Annual Contract Value (ACV). The booked SaaS ACV stood at $13.6 million, with $10.7 million already implemented. Total revenue for the quarter was $4.5 million, a decrease from $5.8 million in the same quarter the previous year. The company's net loss for Q2 2024 was $2.8 million, and it holds $3.5 million in cash and $12.5 million in total debt. Streamline Health Solutions' management, including President and CEO Ben Stilwill and CFO B.J. Reeves, outlined the company's strategic initiatives and financial status during the call. Despite the challenges faced in the first half of fiscal 2024, the company is positioning itself for growth and anticipates a stronger performance in the latter part of the year and into fiscal 2025. Streamline Health Solutions (NASDAQ: STRM) has demonstrated resilience in its SaaS revenue despite facing a challenging period. The company's focus on strategic initiatives and partnerships is poised to potentially bolster its performance in the coming quarters. Here are some key insights from InvestingPro that investors might find valuable: InvestingPro Data highlights that Streamline Health Solutions has a market capitalization of $14.26 million, indicating its size within the healthcare revenue cycle management sector. Despite a challenging environment, the company's gross profit margin remains robust at 51.17% for the last twelve months as of Q1 2023, underscoring its ability to maintain profitability on its services. However, the revenue growth has seen a decline of 11.08% over the last twelve months, which aligns with the company's report of a decrease in total revenue for Q2 2024. InvestingPro Tips provide further context to the company's financial health and stock performance. Analysts have raised concerns about a potential sales decline in the current year and do not anticipate the company will be profitable this year. The stock's price movements have been quite volatile, and it is currently trading near its 52-week low. Additionally, Streamline Health Solutions does not pay a dividend to shareholders, which may influence investment decisions for those seeking regular income. It is noteworthy that Streamline Health Solutions has experienced a strong return over the last month, despite the overall negative year-to-date price total return. This could suggest a market reaction to the company's strategic plans or other factors that investors may want to explore further. For a comprehensive analysis, there are additional InvestingPro Tips available for Streamline Health Solutions at https://www.investing.com/pro/STRM, which could provide deeper insights into the company's financials and market position. Operator: Greetings. Welcome to Streamline Health Solutions Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Jacob Goldberger, Vice President of Finance. Thank you. You may begin. Jacob Goldberger: Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the second quarter of fiscal 2024, which was the three-month period that ended July 31, 2024. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Ben Stilwill, President and Chief Executive Officer; and B.J. Reeves, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of our press release announcing these results, you can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites. Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information which may be provided today as with all of our earnings calls should be viewed. We, therefore, submit for the record the following statement. Statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss. Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K annual report, which is on file with the SEC, for more information about these risks, uncertainties and assumptions and other factors. As always, we are presenting management's current analysis of these items as of today. Participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today. On today's call, we will discuss non-GAAP financial measures such as adjusted EBITDA and booked SaaS ACV. Management uses these measures to help provide better insight into our financial performance, however, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may utilize in calculating their own non-GAAP measures. To help you compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. I would now like to turn the call over to Ben Stilwill, President and CEO. Ben Stilwill: Thank you, Jacob, and good morning, everyone. So far this year, we've significantly expanded the value we provide to the revenue cycle in healthcare. Expansion comes from product enhancements for workforce automation, identifying financial opportunities, both from the clients we have brought online or expanded our impact with, and identifying the next set of clients to partner with us to get paid for the care they provide. As a result, our pro forma SaaS revenue grew 21% during the first six months of fiscal 2024 after excluding the revenues from the client non-renewal we discussed at the end of fiscal '23. During the second quarter, we successfully closed contracts with an aggregate SaaS ACV of $800,000. However, we received notifications of non-renewals and renewals at lower rates for contracts with aggregate value of $2.8 million of SaaS ACV. So, as a result, booked SaaS ACV, which is the annualized contract value for all agreements currently being recognized, as well as bookings that have not been implemented as of July 31, totaled $13.6 million, with $10.7 million already implemented. Due to the reduction in booked SaaS ACV, we now estimate that we will achieve our adjusted EBITDA breakeven run rate of $15.5 million during the second half of fiscal 2025. So, with the significant churn we experienced during the quarter, it's worth visiting how well our service model is working. The clients who terminated or reduced their contracts with us mostly made their decisions due to the lack of resources available to them. In some cases, that is leading them to outsource large parts of their revenue cycle at a higher cost, and others, it leads them to under-staffing these functions and subsequently failing to see potential return. It's an unfortunate dynamic in our market, but also emphasizes the reason our products and service model needs to exist. Our best clients frequently remark how deeply their Streamline counterparts understand their needs and provide them with hands-on education, optimization and insight. Compared to the outsourced model, this helps leaders take back their revenue cycle and keep the crucial knowledge of their system in-house. When a health system chooses to outsource, the vendors they work with are incentivized to not improve the systemic challenges the health system faces. So, we need to continue to invest in the high-quality insights from the data we collect from clients, so that leaders are increasingly aware of the value of owning these outcomes in-house. One specific example, means -- mining client remittance data from 835 reports to help solidify the relationship between the ROI dollars estimated before setting the bill to payers with the actual cash receipts post payer underpayments and denials, which is one of the industry's largest challenges. [This link] (ph), in addition to denials trends, demonstrated coding improvements and collaboration with our CDI departments, create the touchpoints that resonate with higher-level executives as well as the users and managers. In today's budgetary environment, more than ever, health systems have pushed the decisions higher and approval thresholds lower. Our client base contains some of the best health systems in the country and they fully embrace our services model, while continuing to ask for more of these insights. Our client success team would classify them as either blessed for having all the resources they need to succeed or motivated in the sense that they need -- they know they can use our insights to make the improvements that they need. Our challenge and ironically the area for most opportunity is with those health systems who are resource drained or unmotivated by the challenges they face in today's environment. The clients who opted not to renew this quarter are represented here. The clients who did not renew were largely related to outsourcing all or part of their revenue cycle. This outcome is what we're trying to help our clients avoid, because when a health system is forced to outsource their revenue cycle, they lose control of their financial health. The one who did not outsource was due to the [sell of] (ph) facilities, but each of these examples is primarily resource drained. While they may have had the foresight to acquire our solutions, they have to make unfortunate decisions to reduce expense despite positive ROI. So, to help our clients combat the resource drain, we are improving our ability to maintain these relationships long term. We are creating stronger ties with client management, leveraging our results and providing actionable high-level insights to ensure our counterparts and their executives clearly understand our impact and what they stand to lose by not engaging with their Streamline solutions. We're developing formalized best practice manuals for charge reconciliation, building an audit program based on the experience of our successful clients, so that new clients have a great roadmap to success with RevID and eValuator. With eValuator, specifically, we're making our in-house auditing resources available when necessary, generating enough upside that clients can prove their value and maintain control of their HIM departments. We continue to drive tremendous value for our clients. RevID helped a recently go-live identify $0.5 million of mischarges from a single department in just one month of utilization. Not only do we uncover lost revenue, but we help them identify a broken process that would have resulted in significant ongoing leakage. So, in summary, our client success model continues to receive accolades from our clients, and we're confident that we are taking the right steps to ensure retention in a challenging environment. On product innovation, we're working to deliver impactful solutions focused on identifying financial opportunities and providing automated workflows to resolve them. The impact of our AI model, that we talked about at the beginning of the year, continues to create and enhance rules for our eValuator clients exceeding $4 million recently and continues to grow with more rules being deployed and further refined. The model observed coding changes that occurred unrelated to our existing rules. The work started out based on observations within eValuator and is now expanding to coding changes that occurred outside eValuator from other processes or applications both up and downstream from us. We've also successfully developed the powerful risk scoring engine within eValuator and we are looking to bring that to market as an upsell in the near term. Our go-forward eValuator roadmap is focused on identifying additional opportunities for impacts and operational insights, as I highlighted. We are exploring how we can more directly address payer denials, which have increased significantly in the last two years and are a top priority for hospitals. We anticipate having material upgrades to the system for the identification of the denials before the end of fiscal '24. For RevID, the benefits come mostly from our investments in automation. Thousands of charges occur in a hospital daily, so identifying only those that need attention and quickly allowing users to resolve them is paramount. Our recent development remains focused on usability and back-end implementation, while our roadmap includes pattern recognition to automatically assign tasks and improvements to usability. On the growth side of things, during the quarter, I elected to take full ownership of our growth division. While I'm extremely passionate about our clients and products, as hopefully you just heard, nothing is more critical today than us accelerating the rate, which we are bringing in new clients and, therefore, as the leader of this business, I need to live and breathe sales. Over the past decade with the company, I've witnessed a significant shift in the way health systems purchase new revenue cycle solutions. Historically, one-to-one rep and buyer relationships won the day. Today, health systems decisions are made by committees who expect significant data and references. Our relationship may get you in the door, but it cannot close a deal. As a result, we have shifted tactics. Today, the Streamline growth team takes a very analytical approach to our discovery activities, pipeline management and identification of likely buyers. We have motivated hardworking RVPs who are going deep with prospects, helping them understand the significant results their peers have seen within our solutions through historical data and smart projections. We are also hiring more in the regions that we have not covered that fit that persona of the ones that are successful. We've begun to invest more deeply in targeted high-value marketing, expanding on the success we saw with our bootstrap social media strategy, I think many of you saw across sites such as LinkedIn. I expect that together this combination of powerful analytics, sales talent and a renewed focus on marketing will attract more healthcare systems to our client community. But our priorities remain: the first, a displacement campaign related to an existing offering in eValuator space where we believe our tool delivers better results at a lower cost; two, a continued emphasis on our Oracle partnership, which continues to aggressively push RevID; and three, the development of a new and effective channel partner; four, and the last one, beyond new client sales, we can more than double our existing ARR through upsells and cross-sells within our existing client base. We've seen success in each of these areas. We've had a number of positive discovery activities as a result of our displacement campaign, and with the right pricing strategy, I'm confident we will see a win from that channel in this fiscal year. We've had several successful Oracle go-lives already in fiscal '24 with more in our backlog and Oracle has been instrumental in a portion of our new bookings and our marketing efforts. We've been presenting jointly with our sales team to additional prospects and at trade shows and continue to see an uptick in the number of prospects Oracle is introducing us to. We've also had successful upsells during the quarter and are working to expand our upsell potential with additional eValuator functionality. Our first enterprise clients, one who added RevID, another who added eValuator, will both go live with their respective new Streamline solutions during the second half of this year. We'll be excited to share success stories obviously once we've had some time to work with these clients after their go-lives. From a sales operation standpoint, we're arming our sales force with enhanced messaging to match with industry priorities and better explain the overall financial impact of our solutions for all prospects to align with the priorities of the C-suite leadership and with VP and Director level counterparts. In some cases, clients have brought up our solutions at peer roundtables and we're looking to encourage more peer-to-peer activities in our user base. So, healthcare systems need to be able to succeed in the revenue cycle so that they can get paid for the care they provide. We believe it is our duty to develop the products and provide the insights so that they can succeed. And so, with that, I'd like to turn the call over to our CFO, B.J. Reeves. B.J. Reeves: Thank you, Ben, and good morning, everybody. As Ben mentioned, our booked SaaS ACV as of July 31, 2024, totaled $13.6 million, and we continue to expect that we can generate persistent positive adjusted EBITDA above $15.5 million SaaS ARR run rate. Currently, $10.7 million of our booked SaaS ACV is implemented and we anticipate we will successfully implement and achieve that $15.5 million ARR run rate during the second half of fiscal 2025. As Ben noted, this adjusted breakeven timing expectation is the result of unexpected churn during this fiscal quarter. We expect to continue to recognize revenue from more than half of the $2.8 million of non-renewal contracts through November of 2024. Total revenue for the second quarter of fiscal 2024 was $4.5 million as compared to $5.8 million during the second quarter of fiscal 2023. Revenue for the first six months of fiscal 2024 was $8.8 million as compared to $11.1 million for the same period of fiscal 2023. The change in total revenue for both the three- and six-month periods was attributable to previously announced client non-renewals, offset by the successful implementations of new SaaS contracts. SaaS revenue totaled $3 million and $3.5 million, representing 67% and 60% of total revenues during the second quarters of fiscal 2024 and 2023, respectively. For the first six months of fiscal 2024, SaaS revenue totaled $5.8 million, 66% of total revenue, compared to $6.7 million or 60% of total revenue during that same period of fiscal 2023. As previously reported, the company had a SaaS contract which did not renew toward the end of its fiscal -- its 2023 fiscal year. On a pro forma basis, excluding the revenue recognized from that client, SaaS revenue grew 19% in the second quarter of fiscal 2024 and 21% in the first six months of fiscal 2024 versus the same respective periods for fiscal 2023. As a result of the client non-renewals and reductions Ben mentioned, we currently anticipate that third quarter fiscal 2024 total revenue will decline sequentially by approximately $300,000, but will return to approximately $4.5 million of total revenue in the fourth quarter of fiscal 2024 as we successfully implement the existing contracts, and expect revenue to grow sequentially in fiscal 2025. Total operating expense during the most recent quarter was $6.7 million compared to $8.4 million for the second quarter of fiscal 2023. During the first six months of 2024, operating expense totaled $13.3 million as compared to $16.7 million during the first half of 2023. The lower overall operating expense for the three and six months period was the result of the company's previously announced strategic restructuring and was primarily reported in SG&A and R&D. We also saw lower costs associated with our professional fees and software licenses in line with lower overall revenue from that portion of our business. We do not anticipate significant increases in operating expenses for the duration of the fiscal year or in fiscal 2025. We continue to make investments to improve our technology, including the development of enhancements such as the My eValuator update, continuing development and expansion of applications for the AI technology that we have leveraged to generate additional content and improvements related to automation and usability for the RevID solution. Second quarter fiscal 2024 net loss totaled $2.8 million or a loss of $0.05 per share, compared to a loss of $2.5 million or a loss of $0.04 per share in the second quarter of fiscal 2023. The more significant net loss during the recent quarter, despite improved operating costs, was primarily the result of higher non-cash interest expense associated with the private placement notes issued during the first quarter of this fiscal year, as well as an approximate $100,000 valuation adjustment expense in this recent second quarter of fiscal 2024, as compared to $359,000 of valuation adjustment income during our second quarter of fiscal 2023. For the six months ended July 31, 2024, total net loss was $5.5 million, or a loss of $0.09 per share, as compared to $5.4 million or a loss of $0.10 per share for the same six-month period of fiscal 2023. The relatively static net loss despite lower revenue was the result of the significant cost savings that I previously mentioned, offset by the same non-cash interest and valuation expenses that impacted the three-month period. Adjusted EBITDA for the second quarter of fiscal 2024 was a loss of $300,000, compared to a loss of $900,000 during the second quarter of fiscal 2023. For the six months ended July 31, 2024, our adjusted EBITDA was a loss of $1 million, compared to a loss of $2.2 million for the same period of fiscal 2023. The significant improvement of adjusted EBITDA for the three- and six-month period is the result of the company's focus on the growth of its SaaS revenue solutions, as well as significant cost savings achieved through the previously announced strategic restructuring. Moving to the balance sheet. As of July 31, 2024, we had $3.5 million of cash on hand compared to $3.2 million at January 31, 2024. As a reminder, during the first quarter, we executed private placements for gross proceeds of $4.5 million. Our total debt, including senior debt loan and notes resulting from that private placement, was $12.5 million, and we had no balance outstanding on our $2 million revolving credit facility as of July 31, 2024. Looking forward, as we continue to execute new bookings in fiscal 2024, we anticipate significant revenue growth in fiscal '25 and the achievement of persistent adjusted EBITDA profitability and significant improvement in our use of cash for operations throughout 2025. That concludes our review. Operator, please begin the question-and-answer session. Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Matt Hewitt with Craig-Hallum. Please proceed with your questions. Matt Hewitt: Good morning, and thanks for taking the questions. Maybe digging in a little bit on the market itself, what are you hearing from customers? I know that procedure volumes seem to be improving a little bit, but it's not to say that it's broad based or that all hospitals or health systems are in recovery mode yet. So, any details on what you're hearing from customers would be helpful? Ben Stilwill: Yeah. Thanks for the question, Matt. So, what we've heard is that they are making material investments into whether it's expanding their physical footprints or new service lines to accommodate the patient volumes that they're seeing. But they're still struggling with the -- what I'll say is that the revenue cycle side of things and sort of the payer dynamics, you've heard a lot about managed care, et cetera. And so, they're still trying to navigate those payer dynamics and use tools to do that. Matt Hewitt: Got it. And then, shifting gears a little bit. So, over the past couple of years, you've kind of created or added a number of enhancements to your software. What gives you confidence now that you're kind of turning the corner here in that? As we look to '25, you mentioned sequential growth next year. What gives you the confidence that you can see those types of returns? Ben Stilwill: Yeah. I think our products are definitely better than the competition as far as a standalone technology and then pair that with our service model. We do have opportunities to add additional modules to our existing software as well. And people are very ecstatic about some of those opportunities, the current clients that we have. So, if we extrapolate that to the broader market, we do think that we have a lot of opportunity there. Operator: Thank you. Our next questions come from the line of Michael Potter with Monarch Capital. Please proceed with your questions. Michael Potter: Hey, Ben. I was hoping that you can give us a little bit more detail around the pipeline that we currently see. And how late is that pipeline in regards to, are we expecting significant movement in that pipeline being converted into contracts over the next quarter or two? Ben Stilwill: Sure. So, we were not happy with the first half bookings number, for sure. I think when I stepped into the role and I looked at the opportunities that we have had out there, the ones that we're currently using our reps to close, we should see a good uptick in the second half of the year just from the opportunities that are out there, not including some of the initiatives that I kind of mentioned during my remarks. Michael Potter: Okay. So, you're expecting some significant closings before the end of the fiscal year? Ben Stilwill: That's correct. Yeah, we have a good line of sight on some deals that will actually close before the end of the fiscal year. Ben Stilwill: We're not currently giving guidance on the total value of the pipeline, but I would say that if you look at the first half bookings, we're looking at more than double that in the second half. As far as the total overall pipeline, it is pretty heavily weighted in the middle of it. So, we expect to still get back on track to have a couple of deals a quarter closing at that $0.5 million ACV. Michael Potter: Okay. And then, can we touch upon a little bit on the value proposition to our customers? Obviously, we hit a bump in the road for extenuating circumstances, it seems, but what are you hearing from our existing customer base? Are we exceeding their expectations? Are they seeing the cost savings? Are they seeing reduction in compliance costs? What kind of feedback are you getting from our current customer base? Ben Stilwill: Yeah. So, from our current client base, they're very -- by and large, like I said, they are motivated to turn around their revenue cycle. Our best clients are very resource positive, so they can use the most of our solutions. I would refer to some of our prospect conversations as being very interesting right now because they, during COVID or shortly after, outsourced some of these to other vendors, and they're now disenfranchised by that outcome. They've realized how much they lost by doing that. And so, one of our marketing pushes in the near future is going to be take back the revenue cycle, because people realize, hey, I need to bring this back in-house and I need to enable my troops to be able to find the financial impact. Michael Potter: Okay. And just one other question, the Cerner-Oracle relationship, you said we have several implementations on the platform at this point and several more in our pipeline. How is that progressing? And how is that different? I know that's the RevID offering. How is that different than how our go-to-market with eValuator? Ben Stilwill: Yeah. So, we had a couple that went live at the beginning of the year who have now seen significant impact. They've been referenceable clients, which is obviously a huge thing in this selling process. As of late, they are signing up to do a webinar very soon. So, they're very positive. And then, we have a couple in the pipeline who are -- sorry, in the implementation backlog, who are well on their way. Some of it is tied to Oracle's upgrade of their accounting system, but some of it is just going through the project process. As we get more of those, it's a very connected community. And so, we anticipate that they'll be very vocal with their counterparts. But Oracle themselves has committed to the relationship. They are making active introductions and working with us. How that compares to eValuator? It is a little bit more complex sale, sometimes viewed as a -- it can be more impactful at an enterprise level, so you have to bring in more departments versus eValuator's, can sometimes be viewed as something that helps a specific department. And so, maybe you can have less people involved in the process. Michael Potter: Okay, great. All right. Thanks, Ben, for the color. Good luck in the second half of the year. Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to management for closing remarks. Jacob Goldberger: Thank you all for joining us today, and thank you for your continued support of Streamline Health Solutions. We look forward to speaking with you again when we will discuss our third quarter financial results. Thank you, and good day. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Streamline Health Solutions, Inc. (STRM) Q2 2024 Earnings Call Transcript

Jacob Goldberger - Vice President, Finance Ben Stilwill - President & Chief Executive Officer B.J. Reeves - Chief Financial Officer Greetings. Welcome to Streamline Health Solutions Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Jacob Goldberger, Vice President of Finance. Thank you. You may begin. Jacob Goldberger Thank you for joining us for the corporate update and financial results review of Streamline Health Solutions for the second quarter of fiscal 2024, which was the three-month period that ended July 31, 2024. As the conference call operator indicated, my name is Jacob Goldberger. Joining me on the call today are Ben Stilwill, President and Chief Executive Officer; and B.J. Reeves, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of our press release announcing these results, you can retrieve it from the company's website at www.streamlinehealth.net or from numerous financial websites. Before we begin with prepared remarks, we want to be sure we are clear for everyone on the record how certain information which may be provided today as with all of our earnings calls should be viewed. We, therefore, submit for the record the following statement. Statements made on this conference call that are not historical facts are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These are subject to risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those we may discuss. Please refer to the company's press releases and filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K annual report, which is on file with the SEC, for more information about these risks, uncertainties and assumptions and other factors. As always, we are presenting management's current analysis of these items as of today. Participants on this call should take into account these risks when evaluating the topics we will discuss. Please note, Streamline is not undertaking any commitment or obligation to publicly revise any such forward-looking statements made today. On today's call, we will discuss non-GAAP financial measures such as adjusted EBITDA and booked SaaS ACV. Management uses these measures to help provide better insight into our financial performance, however, certain items of income and expense are not included in these measures, so these calculations may differ from those which another entity may utilize in calculating their own non-GAAP measures. To help you compare these amounts on consistent terms, please refer to our website at www.streamlinehealth.net and our earnings release for a reconciliation of such non-GAAP measures to the most comparable GAAP measures. I would now like to turn the call over to Ben Stilwill, President and CEO. So far this year, we've significantly expanded the value we provide to the revenue cycle in healthcare. Expansion comes from product enhancements for workforce automation, identifying financial opportunities, both from the clients we have brought online or expanded our impact with, and identifying the next set of clients to partner with us to get paid for the care they provide. As a result, our pro forma SaaS revenue grew 21% during the first six months of fiscal 2024 after excluding the revenues from the client non-renewal we discussed at the end of fiscal '23. During the second quarter, we successfully closed contracts with an aggregate SaaS ACV of $800,000. However, we received notifications of non-renewals and renewals at lower rates for contracts with aggregate value of $2.8 million of SaaS ACV. So, as a result, booked SaaS ACV, which is the annualized contract value for all agreements currently being recognized, as well as bookings that have not been implemented as of July 31, totaled $13.6 million, with $10.7 million already implemented. Due to the reduction in booked SaaS ACV, we now estimate that we will achieve our adjusted EBITDA breakeven run rate of $15.5 million during the second half of fiscal 2025. So, with the significant churn we experienced during the quarter, it's worth visiting how well our service model is working. The clients who terminated or reduced their contracts with us mostly made their decisions due to the lack of resources available to them. In some cases, that is leading them to outsource large parts of their revenue cycle at a higher cost, and others, it leads them to under-staffing these functions and subsequently failing to see potential return. It's an unfortunate dynamic in our market, but also emphasizes the reason our products and service model needs to exist. Our best clients frequently remark how deeply their Streamline counterparts understand their needs and provide them with hands-on education, optimization and insight. Compared to the outsourced model, this helps leaders take back their revenue cycle and keep the crucial knowledge of their system in-house. When a health system chooses to outsource, the vendors they work with are incentivized to not improve the systemic challenges the health system faces. So, we need to continue to invest in the high-quality insights from the data we collect from clients, so that leaders are increasingly aware of the value of owning these outcomes in-house. One specific example, means -- mining client remittance data from 835 reports to help solidify the relationship between the ROI dollars estimated before setting the bill to payers with the actual cash receipts post payer underpayments and denials, which is one of the industry's largest challenges. [This link] (ph), in addition to denials trends, demonstrated coding improvements and collaboration with our CDI departments, create the touchpoints that resonate with higher-level executives as well as the users and managers. In today's budgetary environment, more than ever, health systems have pushed the decisions higher and approval thresholds lower. Our client base contains some of the best health systems in the country and they fully embrace our services model, while continuing to ask for more of these insights. Our client success team would classify them as either blessed for having all the resources they need to succeed or motivated in the sense that they need -- they know they can use our insights to make the improvements that they need. Our challenge and ironically the area for most opportunity is with those health systems who are resource drained or unmotivated by the challenges they face in today's environment. The clients who opted not to renew this quarter are represented here. The clients who did not renew were largely related to outsourcing all or part of their revenue cycle. This outcome is what we're trying to help our clients avoid, because when a health system is forced to outsource their revenue cycle, they lose control of their financial health. The one who did not outsource was due to the [sell of] (ph) facilities, but each of these examples is primarily resource drained. While they may have had the foresight to acquire our solutions, they have to make unfortunate decisions to reduce expense despite positive ROI. So, to help our clients combat the resource drain, we are improving our ability to maintain these relationships long term. We are creating stronger ties with client management, leveraging our results and providing actionable high-level insights to ensure our counterparts and their executives clearly understand our impact and what they stand to lose by not engaging with their Streamline solutions. We're developing formalized best practice manuals for charge reconciliation, building an audit program based on the experience of our successful clients, so that new clients have a great roadmap to success with RevID and eValuator. With eValuator, specifically, we're making our in-house auditing resources available when necessary, generating enough upside that clients can prove their value and maintain control of their HIM departments. We continue to drive tremendous value for our clients. RevID helped a recently go-live identify $0.5 million of mischarges from a single department in just one month of utilization. Not only do we uncover lost revenue, but we help them identify a broken process that would have resulted in significant ongoing leakage. So, in summary, our client success model continues to receive accolades from our clients, and we're confident that we are taking the right steps to ensure retention in a challenging environment. On product innovation, we're working to deliver impactful solutions focused on identifying financial opportunities and providing automated workflows to resolve them. The impact of our AI model, that we talked about at the beginning of the year, continues to create and enhance rules for our eValuator clients exceeding $4 million recently and continues to grow with more rules being deployed and further refined. The model observed coding changes that occurred unrelated to our existing rules. The work started out based on observations within eValuator and is now expanding to coding changes that occurred outside eValuator from other processes or applications both up and downstream from us. We've also successfully developed the powerful risk scoring engine within eValuator and we are looking to bring that to market as an upsell in the near term. Our go-forward eValuator roadmap is focused on identifying additional opportunities for impacts and operational insights, as I highlighted. We are exploring how we can more directly address payer denials, which have increased significantly in the last two years and are a top priority for hospitals. We anticipate having material upgrades to the system for the identification of the denials before the end of fiscal '24. For RevID, the benefits come mostly from our investments in automation. Thousands of charges occur in a hospital daily, so identifying only those that need attention and quickly allowing users to resolve them is paramount. Our recent development remains focused on usability and back-end implementation, while our roadmap includes pattern recognition to automatically assign tasks and improvements to usability. On the growth side of things, during the quarter, I elected to take full ownership of our growth division. While I'm extremely passionate about our clients and products, as hopefully you just heard, nothing is more critical today than us accelerating the rate, which we are bringing in new clients and, therefore, as the leader of this business, I need to live and breathe sales. Over the past decade with the company, I've witnessed a significant shift in the way health systems purchase new revenue cycle solutions. Historically, one-to-one rep and buyer relationships won the day. Today, health systems decisions are made by committees who expect significant data and references. Our relationship may get you in the door, but it cannot close a deal. As a result, we have shifted tactics. Today, the Streamline growth team takes a very analytical approach to our discovery activities, pipeline management and identification of likely buyers. We have motivated hardworking RVPs who are going deep with prospects, helping them understand the significant results their peers have seen within our solutions through historical data and smart projections. We are also hiring more in the regions that we have not covered that fit that persona of the ones that are successful. We've begun to invest more deeply in targeted high-value marketing, expanding on the success we saw with our bootstrap social media strategy, I think many of you saw across sites such as LinkedIn. I expect that together this combination of powerful analytics, sales talent and a renewed focus on marketing will attract more healthcare systems to our client community. But our priorities remain: the first, a displacement campaign related to an existing offering in eValuator space where we believe our tool delivers better results at a lower cost; two, a continued emphasis on our Oracle partnership, which continues to aggressively push RevID; and three, the development of a new and effective channel partner; four, and the last one, beyond new client sales, we can more than double our existing ARR through upsells and cross-sells within our existing client base. We've seen success in each of these areas. We've had a number of positive discovery activities as a result of our displacement campaign, and with the right pricing strategy, I'm confident we will see a win from that channel in this fiscal year. We've had several successful Oracle go-lives already in fiscal '24 with more in our backlog and Oracle has been instrumental in a portion of our new bookings and our marketing efforts. We've been presenting jointly with our sales team to additional prospects and at trade shows and continue to see an uptick in the number of prospects Oracle is introducing us to. We've also had successful upsells during the quarter and are working to expand our upsell potential with additional eValuator functionality. Our first enterprise clients, one who added RevID, another who added eValuator, will both go live with their respective new Streamline solutions during the second half of this year. We'll be excited to share success stories obviously once we've had some time to work with these clients after their go-lives. From a sales operation standpoint, we're arming our sales force with enhanced messaging to match with industry priorities and better explain the overall financial impact of our solutions for all prospects to align with the priorities of the C-suite leadership and with VP and Director level counterparts. In some cases, clients have brought up our solutions at peer roundtables and we're looking to encourage more peer-to-peer activities in our user base. So, healthcare systems need to be able to succeed in the revenue cycle so that they can get paid for the care they provide. We believe it is our duty to develop the products and provide the insights so that they can succeed. And so, with that, I'd like to turn the call over to our CFO, B.J. Reeves. As Ben mentioned, our booked SaaS ACV as of July 31, 2024, totaled $13.6 million, and we continue to expect that we can generate persistent positive adjusted EBITDA above $15.5 million SaaS ARR run rate. Currently, $10.7 million of our booked SaaS ACV is implemented and we anticipate we will successfully implement and achieve that $15.5 million ARR run rate during the second half of fiscal 2025. As Ben noted, this adjusted breakeven timing expectation is the result of unexpected churn during this fiscal quarter. We expect to continue to recognize revenue from more than half of the $2.8 million of non-renewal contracts through November of 2024. Total revenue for the second quarter of fiscal 2024 was $4.5 million as compared to $5.8 million during the second quarter of fiscal 2023. Revenue for the first six months of fiscal 2024 was $8.8 million as compared to $11.1 million for the same period of fiscal 2023. The change in total revenue for both the three- and six-month periods was attributable to previously announced client non-renewals, offset by the successful implementations of new SaaS contracts. SaaS revenue totaled $3 million and $3.5 million, representing 67% and 60% of total revenues during the second quarters of fiscal 2024 and 2023, respectively. For the first six months of fiscal 2024, SaaS revenue totaled $5.8 million, 66% of total revenue, compared to $6.7 million or 60% of total revenue during that same period of fiscal 2023. As previously reported, the company had a SaaS contract which did not renew toward the end of its fiscal -- its 2023 fiscal year. On a pro forma basis, excluding the revenue recognized from that client, SaaS revenue grew 19% in the second quarter of fiscal 2024 and 21% in the first six months of fiscal 2024 versus the same respective periods for fiscal 2023. As a result of the client non-renewals and reductions Ben mentioned, we currently anticipate that third quarter fiscal 2024 total revenue will decline sequentially by approximately $300,000, but will return to approximately $4.5 million of total revenue in the fourth quarter of fiscal 2024 as we successfully implement the existing contracts, and expect revenue to grow sequentially in fiscal 2025. Total operating expense during the most recent quarter was $6.7 million compared to $8.4 million for the second quarter of fiscal 2023. During the first six months of 2024, operating expense totaled $13.3 million as compared to $16.7 million during the first half of 2023. The lower overall operating expense for the three and six months period was the result of the company's previously announced strategic restructuring and was primarily reported in SG&A and R&D. We also saw lower costs associated with our professional fees and software licenses in line with lower overall revenue from that portion of our business. We do not anticipate significant increases in operating expenses for the duration of the fiscal year or in fiscal 2025. We continue to make investments to improve our technology, including the development of enhancements such as the My eValuator update, continuing development and expansion of applications for the AI technology that we have leveraged to generate additional content and improvements related to automation and usability for the RevID solution. Second quarter fiscal 2024 net loss totaled $2.8 million or a loss of $0.05 per share, compared to a loss of $2.5 million or a loss of $0.04 per share in the second quarter of fiscal 2023. The more significant net loss during the recent quarter, despite improved operating costs, was primarily the result of higher non-cash interest expense associated with the private placement notes issued during the first quarter of this fiscal year, as well as an approximate $100,000 valuation adjustment expense in this recent second quarter of fiscal 2024, as compared to $359,000 of valuation adjustment income during our second quarter of fiscal 2023. For the six months ended July 31, 2024, total net loss was $5.5 million, or a loss of $0.09 per share, as compared to $5.4 million or a loss of $0.10 per share for the same six-month period of fiscal 2023. The relatively static net loss despite lower revenue was the result of the significant cost savings that I previously mentioned, offset by the same non-cash interest and valuation expenses that impacted the three-month period. Adjusted EBITDA for the second quarter of fiscal 2024 was a loss of $300,000, compared to a loss of $900,000 during the second quarter of fiscal 2023. For the six months ended July 31, 2024, our adjusted EBITDA was a loss of $1 million, compared to a loss of $2.2 million for the same period of fiscal 2023. The significant improvement of adjusted EBITDA for the three- and six-month period is the result of the company's focus on the growth of its SaaS revenue solutions, as well as significant cost savings achieved through the previously announced strategic restructuring. Moving to the balance sheet. As of July 31, 2024, we had $3.5 million of cash on hand compared to $3.2 million at January 31, 2024. As a reminder, during the first quarter, we executed private placements for gross proceeds of $4.5 million. Our total debt, including senior debt loan and notes resulting from that private placement, was $12.5 million, and we had no balance outstanding on our $2 million revolving credit facility as of July 31, 2024. Looking forward, as we continue to execute new bookings in fiscal 2024, we anticipate significant revenue growth in fiscal '25 and the achievement of persistent adjusted EBITDA profitability and significant improvement in our use of cash for operations throughout 2025. That concludes our review. Operator, please begin the question-and-answer session. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Matt Hewitt with Craig-Hallum. Please proceed with your questions. Matt Hewitt Good morning, and thanks for taking the questions. Maybe digging in a little bit on the market itself, what are you hearing from customers? I know that procedure volumes seem to be improving a little bit, but it's not to say that it's broad based or that all hospitals or health systems are in recovery mode yet. So, any details on what you're hearing from customers would be helpful? Ben Stilwill Yeah. Thanks for the question, Matt. So, what we've heard is that they are making material investments into whether it's expanding their physical footprints or new service lines to accommodate the patient volumes that they're seeing. But they're still struggling with the -- what I'll say is that the revenue cycle side of things and sort of the payer dynamics, you've heard a lot about managed care, et cetera. And so, they're still trying to navigate those payer dynamics and use tools to do that. Matt Hewitt Got it. And then, shifting gears a little bit. So, over the past couple of years, you've kind of created or added a number of enhancements to your software. What gives you confidence now that you're kind of turning the corner here in that? As we look to '25, you mentioned sequential growth next year. What gives you the confidence that you can see those types of returns? Ben Stilwill Yeah. I think our products are definitely better than the competition as far as a standalone technology and then pair that with our service model. We do have opportunities to add additional modules to our existing software as well. And people are very ecstatic about some of those opportunities, the current clients that we have. So, if we extrapolate that to the broader market, we do think that we have a lot of opportunity there. Thank you. Our next questions come from the line of Michael Potter with Monarch Capital. Please proceed with your questions. Michael Potter Hey, Ben. I was hoping that you can give us a little bit more detail around the pipeline that we currently see. And how late is that pipeline in regards to, are we expecting significant movement in that pipeline being converted into contracts over the next quarter or two? Ben Stilwill Sure. So, we were not happy with the first half bookings number, for sure. I think when I stepped into the role and I looked at the opportunities that we have had out there, the ones that we're currently using our reps to close, we should see a good uptick in the second half of the year just from the opportunities that are out there, not including some of the initiatives that I kind of mentioned during my remarks. Michael Potter Okay. So, you're expecting some significant closings before the end of the fiscal year? Ben Stilwill That's correct. Yeah, we have a good line of sight on some deals that will actually close before the end of the fiscal year. Michael Potter Can you give us a dollar value of the current pipeline? Ben Stilwill We're not currently giving guidance on the total value of the pipeline, but I would say that if you look at the first half bookings, we're looking at more than double that in the second half. As far as the total overall pipeline, it is pretty heavily weighted in the middle of it. So, we expect to still get back on track to have a couple of deals a quarter closing at that $0.5 million ACV. Michael Potter Okay. And then, can we touch upon a little bit on the value proposition to our customers? Obviously, we hit a bump in the road for extenuating circumstances, it seems, but what are you hearing from our existing customer base? Are we exceeding their expectations? Are they seeing the cost savings? Are they seeing reduction in compliance costs? What kind of feedback are you getting from our current customer base? Ben Stilwill Yeah. So, from our current client base, they're very -- by and large, like I said, they are motivated to turn around their revenue cycle. Our best clients are very resource positive, so they can use the most of our solutions. I would refer to some of our prospect conversations as being very interesting right now because they, during COVID or shortly after, outsourced some of these to other vendors, and they're now disenfranchised by that outcome. They've realized how much they lost by doing that. And so, one of our marketing pushes in the near future is going to be take back the revenue cycle, because people realize, hey, I need to bring this back in-house and I need to enable my troops to be able to find the financial impact. Michael Potter Okay. And just one other question, the Cerner-Oracle relationship, you said we have several implementations on the platform at this point and several more in our pipeline. How is that progressing? And how is that different? I know that's the RevID offering. How is that different than how our go-to-market with eValuator? Ben Stilwill Yeah. So, we had a couple that went live at the beginning of the year who have now seen significant impact. They've been referenceable clients, which is obviously a huge thing in this selling process. As of late, they are signing up to do a webinar very soon. So, they're very positive. And then, we have a couple in the pipeline who are -- sorry, in the implementation backlog, who are well on their way. Some of it is tied to Oracle's upgrade of their accounting system, but some of it is just going through the project process. As we get more of those, it's a very connected community. And so, we anticipate that they'll be very vocal with their counterparts. But Oracle themselves has committed to the relationship. They are making active introductions and working with us. How that compares to eValuator? It is a little bit more complex sale, sometimes viewed as a -- it can be more impactful at an enterprise level, so you have to bring in more departments versus eValuator's, can sometimes be viewed as something that helps a specific department. And so, maybe you can have less people involved in the process. Michael Potter Okay, great. All right. Thanks, Ben, for the color. Good luck in the second half of the year. Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to management for closing remarks. Jacob Goldberger Thank you all for joining us today, and thank you for your continued support of Streamline Health Solutions. We look forward to speaking with you again when we will discuss our third quarter financial results. Thank you, and good day. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.