Q2 2024 Earnings: Mixed Results and Growth Strategies Across Various Sectors

Sylogist Ltd. (SYZLF) Q2 2024 Earnings Call Transcript

Amr Ezzat - Ventum Capital Markets Gavin Fairweather - Cormark Securities Suthan Sukumar - Stifel Daniel Rosenberg - Paradigm Thank you for standing by. This is the conference operator. Welcome to the Sylogist Ltd. Second Quarter 2024 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Jennifer Smith with LodeRock Advisors. Please go ahead. Jennifer Smith Thank you, Gayleen, and good morning. Joining me to discuss Sylogist's Q2 fiscal 2024 results are Bill Wood, Sylogist's President and Chief Executive Officer; and Sujeet Kini, Chief Financial Officer. This call is being recorded live at 08:30 a.m. Eastern Time on August 8, 2024. Our Q2 press release, MD&A, financial statements and accompanying notes have been issued and are available for download on SEDAR+. Please note that some of the statements made on this call may be forward-looking. Actual events or results may differ materially from those expressed or implied, and Sylogist disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The complete safe harbor statement is available in both our MD&A and press release as well as in sylogist.com. We encourage our investors to read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. Before, we will also discuss our non-GAAP performance measures, which should be reviewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed in this call are in Canadian, unless otherwise noted. I'll turn it over to Bill first with opening remarks, then Sujeet will review our Q2 financial performance, after which Bill will conclude scripted remarks and we will open it up for questions. Thank you, Jenn. Good morning and good afternoon to those of you joining us overseas. Building on a strong Q1, we're very pleased with an even better performance in Q2. We saw increasing momentum across the business, driven by strong customer advocacy and our investments over the last 24 months to position Sylogist as a leader in the markets we serve. Our team is executing really well, setting us up for further SaaS ARR growth in the back half of the year and beyond. That confidence is underpinned by our performance across a range of key leading indicators. We achieved record bookings of $12.9 million in the quarter, growing 112% year-over-year and 42% quarter-over-quarter, reflecting increasing success with new logos and cross-sells alike. Also over $3 million, or nearly 25% of our record Q2 bookings came from our SylogistEd sector, confirming the acceleration I've been signaling we were on the verge of in North Carolina. To that end, we're seeing increasing momentum across all 3 strategic markets, SylogistMission, Ed and Gov, and we're highly competitive when we're at the table, with our overall win rate moving even higher to over 60% in Q2, largely due to our increasing success in displacing targeted competitors, as we expected. We continue to make investments to build out and empower our partner community and is bearing fruit. Partner-attached bookings represented 21% of total bookings in the quarter. However, recall that we don't yet engage partners in our SylogistEd sector. And as I just quantified, it was truly a breakout bookings quarter in our Ed segment. In our SylogistMission and SylogistGov sectors, so net of SylogistEd, partner-attached bookings came in at 27% of total bookings. As we execute our channel strategy, we're handing off lower margin project service revenue to our partners and replacing it with higher margin SaaS ARR. That handoff is occurring at a faster rate than we anticipated. In response, we correspondingly added to our internal project service team to train and empower the quickly expanding partner community, and in parallel deliver SylogistMission and Gov project services to customers directly. As the community of high-quality partners expands, it's creating increased sales and project service handoff capacity for Sylogist in 2025 and beyond. New logo wins and cross-selling success are driving continued strength in our SaaS ARR and our SaaS net revenue retention. Our SaaS ARR increased by 17% year-over-year to just shy of $30 million. And SaaS ARR bookings as a percentage of total bookings grew from 50% in Q1 to 68% in Q2. That's exactly the value creation trajectory we want to see. Expanded platform functionality, cross-selling success and our continued focus on customer wellness pushed our overall SaaS NRR up to 109% from 106% last quarter. I want to highlight that we saw our SaaS NRR in the SylogistMission to grow to 125% in Q2. This is a clear example of our land and expand strategy in action, made possible by our modern, integrated SaaS platforms and happy customers. In fact, our largest TCV booking in the quarter was a SylogistMission CRM cross-sell to an existing SylogistMission ERP customer. And I want to call out that it was also a targeted competitor displacement, confirming that our integrated platforms are changing the competitive landscape as we envision they would. Going forward, we expect an increasing balance of bookings contribution from all 3 strategic markets. I also want to highlight that in Q2 our revenue per employee grew 7% year-over-year to $338,000 due to increased operating efficiency. I'll pause here and let Sujeet take you through our financial performance for the quarter in a little bit more detail. Sujeet? Sujeet Kini Thank you, Bill, and good morning and good afternoon, everybody. Our Q2 results demonstrate the momentum we are building in transforming Sylogist into a SaaS leader in the public sector, while staying focused on the successful execution of our profitable growth plan. Total revenue for the quarter was $17.4 million and as Bill highlighted, our results were led by 17% growth in our SaaS subscription revenue. This growth was partially offset by an anticipated decrease in project services revenue related to our strategic shift to a partner-led delivery model. We also note that SaaS subscription revenue came in at 67% of total revenue -- total recurring revenue for Q2 2024, compared to 64% of total recurring revenue for the same period last year. From a market segment perspective, overall revenue growth was driven primarily by the growth in our SylogistMission segment that grew at 20% year-over-year, followed by our SylogistEd segment that grew by 7% year-over-year. SaaS NRR, as Bill pointed out, was 109%, up from 106% at the end of the first quarter of 2024. Our gross profit margin for Q2 2024 was relatively consistent at 60% compared to 61% for Q2 2023. Total operating expenses for Q2 '24 were relatively consistent at 34% of revenue compared with 35% during the same period last year. G&A expenses at $3.2 million in Q2 2024 decreased by $0.3 million compared with the corresponding period last year, coming in at 18% of revenues compared to 21% of revenues in Q2 2023. This decrease in G&A is a result of lower recruitment expenses due to the hiring of an internal recruiter and other miscellaneous savings in the current quarter. Sales and marketing expenses for Q2 2024 were $1.7 million, or 10% of revenue compared to $1.5 million or 9% of revenue in the same period last year. This increase in sales and marketing expense was due to anticipated strategic investments made in additional sales quota-bearing headcount and increased programmatic spend -- spending that we are already seeing results from. Our sales and marketing full-time employee headcount has increased from -- increased to 24 people at the end of Q2 2024, up from 21 people at the end of Q2 2023. Net R&D expenses for Q2 2024 were consistent at $0.9 million for both Q2 2024 and Q2 2023. Gross R&D expenses were $2.5 million compared to $2.1 million for the same period last year, a 19% increase which was driven by higher levels of capitalized development relating to continued innovation, primarily associated with reading our SylogistEd and SylogistGov platforms for market. Adjusted EBITDA for Q2 2024 was $4.5 million, and adjusted EBITDA margin was up slightly at 26.0% in the current quarter compared to 25.8% in Q2 2023. At the end of Q1 2024, we had $5 million in cash. This level of cash is in line with the seasonality of our operations and our customer renewal cycles. And finally, I will bring your attention to our previously announced divestiture of our non-strategic managed IT services division. In addition, we completed at the very end of the current quarter, the sale of a physical asset, a building owned by us that came to us via the Municipal Accounting Systems acquisition in 2021 for $0.8 million. It is important to note that the cash related to the sale was received on July 1, 2024. Thanks, Sujeet. Over the past several quarters, we've outlined our plan to shift to a partner-driven model with a focus on growing highly repeatable and scalable operating motions and SaaS revenue recognition capacity. Our Q2 results demonstrate that we're making real progress against our plan, and we're just beginning to see the compounding effect we expect it will have on shareholder value creation over time. To the credit of the hard work and determination of Sylogist team members, we're well along with our transformation from a siloed software company to a highly aligned leading software provider to our target markets. And as we step on the go-to-market gas, our strategy and investments are already paying dividends, and we see an incredible value creation opportunity in ahead. [Operator Instructions] Our first question is from Amr Ezzat with Ventum Capital Markets. Amr Ezzat Bill, Sujeet, congrats on a strong quarter. If we could start with the bookings, you're going from record to record. Can you speak to the strong pace during the quarter? How much of it was displacement versus growing wallet share within existing clients? Bill Wood Yes. Amr, thanks for joining us. We're not going to get in specific to the numbers, but I did highlight that the acceleration in the Ed sector really was a major contributor. It was a material lift from where we had been in terms of bookings in the past. And we did highlight the cross-sell for a reason. It was the largest TCV booking, but it's happening more and more as we're purposely reaching out to customers and making the case as to why our integrated platforms offer them new benefits. So we feel very good about the acceleration on both fronts, new bookings as well as cross-sell, both are -- we feel are real contributors for us going forward. Amr Ezzat Fantastic. Then just back on the Ed side, that 25% number you gave, is that 25% of the growth or 25% of the total dollar bookings? I missed that. Okay. And are we -- is that like specific to North Carolina? Are there other states that we should be thinking about? Any color you can give us there? Bill Wood Currently, only North Carolina are contributing to that breakout pace that we talked about and other states to come, as I've signaled in the past. Amr Ezzat Fantastic. Then the execution, I guess, of these new bookings are a summer of 2024 event, correct? Bill Wood Meaning new bookings, I'm unclear. Amr, maybe say it again. Amr Ezzat Sorry, I meant, these new bookings you guys are executing on these projects currently in 2024? Bill Wood We are. We are, and we have both activities going on in terms of now delivering on those bookings as well as continuing to gain pipeline activity within that sector as well and elsewhere. Amr Ezzat Fantastic. Appreciate your comments on your channel strategy. Do you have channel partners working on implementations like independently yet? Or do you still have your PS professionals like mirroring them? I'm just trying to understand your pace, I guess, of handing off the implementations. Bill Wood Yes, it's a good question. We have now transitioned with a number of them from us leading and them shadowing to the other way around them leading and us shadowing. And I think that's a very good transition and a natural transition that we had said was our plan. So that's happening now within the original cohort that joined us in the past quarters. And now we are adding more partners where we're still at the front and they're shadowing. So that overall momentum, as I mentioned in my comments, really gives us confidence overall in our capacity, not just in implementation, but in sales activity, broader sales activity in '25. Amr Ezzat Then your PS professionals would all be focused, or mostly be focused on Ed, I guess, like going forward. Is that a fair statement? Bill Wood No, I don't think so. No. We see a continued role, certainly through '25 and beyond, where our professional services teams, given nuances or particular needs within the market where we'll be delivering directly, but for the foreseeable future in Ed, we see it nearly 100% direct without partners at this time. Amr Ezzat Fantastic. Just one last one. Any updates you can share with us on SylogistPay? Next question is from Gavin Fairweather with Cormark Securities. Please go ahead. Gavin Fairweather Congrats on the strong numbers. Maybe just to start out on, from a vertical perspective, Mission keeps putting up the numbers. Strong growth this quarter, 20%. Curious, when you look into the pipe and see what's going on in the competitor landscape and think about that cross sell opportunity, how confident are you that this level of performance can be maintained? Bill Wood Gavin, we feel good. Again, we feel that our targeted competitor displacement campaign is broadening, and we feel that the word is getting out within targeted communities of what we provide, and the outcomes are now becoming more where we can stand on the success that we're having with those customers who tell 2 friends and they tell 4 friends and so on. So that's a powerful accelerator for us as we think about it, and not only selling to the pain point of either ERP or fundraising in that sector, ultimately, how that we can then pull in other IP over time. And so we feel confident in our ability to continue to drive the Mission segment forward. Gavin Fairweather I feel like we've been seeing that cross-sell between Navigator and Mission CRM has really been quite a strong growth engine for a number of years. How much runway do you have or how do you size up kind of the opportunity to execute on that integrated system going forward? Bill Wood Yes, I just want to parse it out a little bit, and I don't mean to mince words there, but really only within the last 12 months, what I would say there has been any earnest positioning of both CRM on top of ERP. That was through the acquisition that we made. There was work to do in terms of making sure that it wasn't just talked about as 2 systems that could work together, but really how we push that forward in terms of integration that brought new features to customers in the competitive landscape. So I feel very good about not only within the base, but new logos where we can cross-sell those, maybe not right out of the chute. Usually an organization is going to not try to eat the elephant all at the same time, but start with where their primary pain point is and then pull in the other major mission critical system. And in the non-profit sector, the 2 mission critical systems are their fundraising and their ERP. So we feel very good that once we get there, they're heavily moated for the future. Gavin Fairweather And then just looking at the bookings overall this quarter, I mean, clearly you're seeing good returns on your increased spend. So I think you said 24 people in sales and marketing, and you've also kind of ramped up events and marketing spend as well. And I think you referenced kind of stepping on the gas. So what are you thinking from a go-to-market investment perspective? Where are the buckets where perhaps you could turn up the dial a little bit and keep the bookings momentum going? Bill Wood It's really about awareness. We feel very good about where we are on the ERP landscape, the idea of where we are in the CRM landscape, within targeted competitor communities and elsewhere, that is a relatively -- in the context of years of awareness, that's a relatively new offering that is growing in popularity. So we need to continue to raise the flag on that flagpole in terms of dual offering within the Mission and non-profit community. On the Gov and Ed, we wanted to make sure that our motions were relating to results and that is now being proved out. The marketing efforts and sales efforts continue to be refined in our messaging. We feel really, really positive about what we're seeing on the Ed side, the bookings clearly, but the activity we're also seeing on the Gov side is really, really encouraging in terms of our pipeline build. And we see the opportunity for those deals matriculating not with some of the seasonality of Ed, but really throughout the year as we think about 2025 and even the back half of this year. Gavin Fairweather And then just lastly from me, I mean, now that you're seeing good momentum in all of your verticals and in the pipeline, like is M&A becoming a greater focus of the management team and curious what the dual landscape looks like there right now? Bill Wood Yes. It continues to be a focus for us. We kind of -- it isn't an or, it's an and for us, and we've continued to be really diligent on that front. I would say that the landscape there's certainly plenty of visibility and talk of deals that are going on in the space. We continue to look for the right opportunities, not just trying to find a way to add revenue that doesn't make sense and could be a distraction that doesn't really synergistic with our other efforts. We do see strategic M&A as an accelerator for us going forward. But the key there is that strategic as we've said quarter-over-quarter-over-quarter. But we do see that with more of the core, more of the base, where can we add complementary IP, where can we add talent, where can we add customer density, all of those things are attractive to us and we continue to be -- have a pretty high appetite on the acquisition front. It's just got to be the right -- right result. The next question is from Suthan Sukumar with Stifel. Suthan Sukumar Congrats on a strong quarter. For my first question I wanted to touch on some of the early encouraging progress you're seeing in Ed and government on back of the new product rollouts. Can you share some more color on some of the success proof points you were seeing to date on the go-to-market front with these product rollouts verticals and what do you anticipate next steps to be to help drive sustained growth here? Bill Wood Suthan, thanks for joining. Yes, the success really -- there's one thing to be seeing a building pipeline, there's one thing to then close those deals, have them sign on, commit to that kind of 5-year horizon that we have earned the right to ask them for in terms of our contracting motions. So that is a very positive. But in the end, standing them up successfully and then standing on their shoulders relative to how we use them and -- as ambassadors with colleagues and peers and proof examples of not only the software doing all and more than they imagined they could with their prior system, but ultimately how well can they exercise it and use it to gain that advantages. So we're now through -- successfully through those gates with our early adopters and now with the deal flow activity going on and activating more partners on the Gov side. We feel very positive about what we're seeing flowing into the pipeline. They are within our ICP, and that is very good in terms of our marketing motions, creating awareness and bringing in the right kind of organizations that we feel we can be successful with. And to that end, it's just we're farther down the path now in not only the early stage of early adopters to now them using the systems and being able to point to those as we look to expand our marketing efforts in both segments. Suthan Sukumar Great. That's helpful color. I also wanted to touch on some of that land and expand commentary that you discussed earlier, particularly in Mission. Can we expand on where you're seeing kind of the typical, or rather could you kind of help me understand what the typical land and expand motion is within mission? Is it just really the cross-sell of CRP -- CRM to ERP or vice versa, or are there other product capabilities and functionality that really drive what the expansion motion could look like longer term? Bill Wood Yes, that's a great question. Obviously the CRM to the ERP or vice versa, but we do have a modular architecture in the platform where we have additional IP modules that maybe doesn't mean that they take all of the solution, either one or both solutions. And over time, we can add incremental IP to that to expand the wallet. But what we're seeing additionally is more users. So the lift that we're getting from existing customers upgrade as well as a displacement of competitors, our platforms offer more. And to that end, more usability, and to that end, the idea that more users can be activated or want to be activated so that they can exercise the system themselves. So that's a very good uptick for us. So additional IP and additional users creates, we think, compounding growth opportunity in terms of the wallet share over time. Suthan Sukumar Yes. No, agree, that's good validation. How do you -- when you look -- when you look forward out over the kind of the medium to long term, and when you look at the mix of bookings from net new and expansions, how do you expect that mix to shift as you look out here? Bill Wood Net new, I think will continue to expand as a percentage of where we are now because the 2 new platforms are now in market. And so, ultimately, the idea of simply the upgrades, which is a material community, don't get me wrong, that is a very interesting portion of our RPO. But overall, new bookings we see accelerating and that is a really good signal and telltale for us as both awareness and desirability for the platforms continues to expand. Mission, again, as I said, a little more mature on the ERP side, we have kind of the new kid that we can introduce on the CRM side, which is really exciting. I mean, that asset acquisition was a home run relative to what it's done to add innovation and differentiation on the landscape for the not-for-profit space. I said it was really something that I've been chasing for years about how the idea of not just a fundraising system and an ERP system from the same vendor, but ultimately how could that offer a new value proposition and kind of the new way of thinking about engaging with a donor and then being able to make sure that they can be kept abreast of what's going on about their dollars and the impact it's having. We've changed that landscape and that's why I think we are garnering the kind of attention not only in terms of the cross-sell, but in new logos. We just have a better mousetrap now on that front on 2 fronts. So I feel the long-term is very sustainable and I think there's abilities for us to continue to dial that up. And on the Ed and the Gov, that is all new grass for us to mow. And we feel very, very good about the early signals and successes we're having, and our pipeline is really strengthening on both sides. Suthan Sukumar That's great. And then, Bill, maybe one last one for me, just on the competitive environment, it sounds like displacement momentum is sustaining. Curious to what you're seeing in the landscape. Is it still the same players that you're going up against or other new kind of solution providers coming into the mix as the market evolves here? Bill Wood I will say it's largely the same, and that's a very good thing for us. There is some kind of rebranding, repositioning. Some assets have been acquired and they kind of freshened up and changed the curtains, but the window still doesn't open that well or still has cracks in the panes. I truly believe that right now, from a competitive landscape standpoint, there isn't any that from an innovation or usability within our ICP that offers a better solution. And there's -- as I said, these are mission critical systems. So newcomers into this space, it's a heavy lift. There's a high risk for any organization that would kind of bet the farm on somebody that says we're going to build you a new ERP or something to run your school district or something to run your city or town. And so to that end, I think some of the unwillingness of our competitors to really go through the discomfort to really bring their systems forward, both into a full SaaS posture, but also from a utilization usability standpoint, not to mention where we think we're ahead of the curve on the AI side. We feel good about where we sit, and we've made the investments and leaned in to make it possible. And now we've kind of earned a little higher [indiscernible] to stand on to talk about it. I don't see that changing anytime soon, and that's a good thing too. Suthan Sukumar Okay. Great. Maybe just one more for me, just on the outlook for continued investment here. What are your priorities here in terms of the investments that you are going to continue making on the OpEx front? And any change in view on sort of the capital being committed on the product and R&D side of things, just given some of the traction that you're seeing and opportunities that are emerging in the near term? Bill Wood Yes. I think our investments as I see them right now will remain unchanged from a throttling back and actually will be leaning in. We needed to make sure the customer community understood what we were doing and valued us as a partner. That's where it all started. That's if we go back to the early calls. I said we needed to earn our customer confidence back. I feel generally we have done that in a really admirable way, not just in talking, but ultimately delivering and engaging with them at a whole different level. And that was the foundation that we could then earn the right to introduce the idea of new technology and our SaaS migration. And the team really delivered on that with the customer's voice throughout, making sure that we weren't just building in a vacuum, but delivering something that fit within our ICP. So we need to continue. I do not have any less appetite to continue to innovate and separate and add more innovation and modules to our platform to expand wallet share and distance us from a competitive landscape. The go-to-market side will continue to lean in and probably increase that in terms of the 3 markets collectively, now that we have proven out and continue to refine the motions that are leaning to success. And from an internal standpoint, we are right now most heavily burdened in terms of our project services team that is doing dual roles in helping to stand up and empower our partner community, but also being at the ready to continue to work through the increased bookings and deliver it on time into the customer's delight. So those things are -- I don't see changing until the early part of '25 when, as I said earlier, more of the true handoff to partner autonomously on the implementation side starts to lessen that load for us in a dual role. [Operator Instructions] The next question is from Daniel Rosenberg with Paradigm. Daniel Rosenberg Bill and Sujeet, my first question was just around the customer. I was wondering if there's any -- if you just speak to the demand profile that you see out there from your end users, it's nice to see retention spending going up, but just trying to understand the dynamics on the front lines in terms of budgets, just trends in that areas from your end customers, please? Bill Wood Yes. Daniel, thanks for joining. We're not seeing any budget compression or slowdown whatsoever. We keep our eyes open, especially on the Ed side, when the rest of dollars, and that's what's been heavily written about in terms of some of those dollars from the Feds in the U.S. starts to dry up in terms of the stimulus package that was there before. But what they're doing is looking to maintain the classroom capabilities that they have come to now rely on and are still digging out from the COVID effect on the learning gap. But what they're doing is making sure that the mission critical systems they have behind the curtain are very much the ones that serve them well and they are fairly priced and feeling good about that. And so new customers that we thought may kind of go along with the system they had as some of this transition of federal dollars they are working through that. We're actually seeing them lean in and some of the competitors that we thought would be a little more difficult to displace. They are saying I need to come off that price point. That solution was providing or charging me to something that is a better fit for what I need and presents the capabilities that I need. So that's happening on the Gov exactly the same way in terms of coming off of legacy systems and they need to get to a modern platform. The security realities in our sectors is not going away anytime soon. It's only going to get worse. So some of these and most of these folks that are coming off of legacy systems and trying to get to a full SaaS posture for the security benefits it provides. And if there are Microsoft-oriented institution or organization, we're very much at the front of the pack on that. So I feel good about the demand profile overall, Daniel, I don't see any slowdown right now in our markets whatsoever, if anything, are dialing up. Daniel Rosenberg Okay. Just one quick financial question. So in the quarter, there were some working capital movements that kind of were unfavorable this quarter. Just can you help me understand what that looks like going forward just for modeling purposes, and how we should be thinking about working capital swings? Bill Wood Yes, I can -- I can take that. Yes. Sorry. Yes. Good morning, Dan. Yes. So from a working capital perspective, this ties into the overall seasonality comment that we made in our prepared remarks. Essentially, what happens at this time of the year, from a working capital perspective, Sylogist is really a story of 2 halves. The first half of the year has a very different profile from a working capital cash ARR deferred revenue perspective compared to the second half. Essentially what happens in the second half is we have a large volume of invoices, especially on the education side, that go up. And it has kind of a combined effect of positive impacts from cash, cash perspective, free cash flow perspective, accounts receivable perspective, and essentially also that the positive trend on the working capital side. So nothing sort of underlying here other than the fact that essentially what you're seeing in the results is the seasonality in terms of our customer invoicing cycles. This concludes the question-and-answer session. I'd like to turn the conference back over to Bill Wood for closing remarks. Bill Wood Yes. I want to thank our long-time investors, as well as welcome and thank the many new investors, both individual and institutional, that are now supporting our efforts. We've accomplished a great deal in a relatively short period of time, and now we have the opportunity to accelerate value creation, not only in the near term, but for years to come. Again, thank you for joining our Q2 earnings call. Have a great day. This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Earnings call: Marchex reports mixed Q2 2024 results, optimistic outlook By Investing.com

Marchex , Inc. (NASDAQ:MCHX), a leading prescriptive analytics SaaS company, held its second-quarter earnings call for the year 2024, reporting mixed financial results but expressing a positive outlook for the future. The company, which specializes in leveraging generative AI to analyze conversational data, announced a slight year-over-year decline in revenue but showcased improvements in adjusted EBITDA and a reduction in net loss. Marchex's leadership emphasized strategic advancements, particularly in the development of their OneStack platform, and highlighted growth in their sales pipeline and key customer verticals. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights In conclusion, Marchex's second-quarter earnings call showcased the company's strategic evolution and execution, with a focus on leveraging AI to deliver value to Fortune 500 companies. While facing some challenges, the company remains optimistic about its growth trajectory and its ability to deliver improved financial performance in the coming quarters. Full transcript - Marchex Inc (MCHX) Q2 2024: Operator: Hello, everyone. Thank you for attending today's Marchex Second Quarter 2024 Earnings Call. My name is Sierra, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Trevor Caldwell, Senior Vice President of Strategic Initiatives and Investor Relations. Please proceed. Trevor Caldwell: Thanks, Sierra. Good afternoon, everyone, and welcome to Marchex's business update and second quarter 2024 conference call. Joining us today are Edwin Miller, our CEO; and Holly Aglio, our Chief Financial Officer. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and in our most recent annual and quarterly report filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we will undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. Earnings press release is available in the Investor Relations section of our website. At this time, I'd like to turn the call over to Edwin. Edwin Miller: Thank you, Trevor, and good afternoon, everyone, and thank you for joining us today. Today, I will provide you an update on our progress in the second quarter, and on the initiatives that are forming the foundation for the future of Marchex. Marchex is transforming into a market-leading prescriptive analytics SaaS company, that harnesses the power of generative AI. We are focused on enabling our customers to achieve operational excellence by using our AI-powered products, to analyze and make business decisions leveraging their direct first-party conversational data. We aid multiple functions within a business, navigate risk and uncertainty, understand the performance of their distributed retail networks and demonstrate how to drive revenue. We are able to solve these complex problems for businesses by leveraging the vast amount of data we analyze on their behalf every day. This is achieved by our emerging SaaS data analytics platform. We have deep relationships with some of the largest Fortune 500 companies in our current vertical markets. These companies rely on Marchex to deliver critical, rich data analytic insights to drive positive business outcomes for their respective retail outlets. We believe the best is still to come as we accelerate product innovation, continue deepening our relationships and expand market opportunity. This includes continued expansion of our sales pipeline and positive execution of our gross margin and profitability goals. Our strategic vision is clear. We aim to be at the forefront of prescriptive analytics to drive operational excellence for Fortune 500 businesses, as a SaaS platform. This is why we have been transforming the company's technical foundation. One of the key pillars of our strategy is uniting our product platform and AI signals into OneStack. OneStack is fundamental to our innovation, and is a key step in allowing us to bring all of our conversational data into the cloud, and one centralized platform. This accelerates our leveraging generative AI to unlock powerful insights and develop new growth opportunities from our expanding data sets. We are on track with OneStack goals we laid out for 2024. I would like to take a minute to highlight our exceptional team. Their commitment to customer excellence and innovation, recently earned us the AI Breakthrough Award for Best Text Generative AI Solution, for our Call Summaries and Sentiment Suite. This award is a testament to our team's dedication with developing AI-powered solutions. I would also like to lift up our go-to-market teams, both for new business and the team supporting our current clients. We have tremendous leadership in these areas. Thank you to one Marchex for constantly improving our talent, as this has a direct impact on our client success, which then benefits our shareholders. As you can hopefully see, we are clearly both in strategic evolution and execution modes, and this is being reflected in our expanding sales pipeline. We continue to make progress adding new OEM and auto service customers during the quarter. In addition, the home services vertical is a bright spot for Marchex and is another area where we're expanding key relationships. There is significant untapped potential in our vertical markets and within our existing customer base. Additionally, we are winning more new customers. The combination of these factors is accelerating our business and growth opportunity. With that, I'll hand the call to Holly. Holly Aglio: Thank you, Edwin. For the second quarter of 2024, revenue was $12.1 million versus $12.5 million for the same quarter last year, and up from first quarter 2024 revenue of $11.6 million. Revenue in the second quarter was up from the first quarter, in part, due to slightly improved conversation volumes and in part, from a developing pipeline of opportunities. We are seeing traction in the auto, auto services and home services verticals so far this year. On a year-over-year basis, we saw continued headwinds from certain customer segments like our small business resellers, though that seems a bit improved on a sequential basis. Turning to the P&L for the second quarter. Excluding stock-based compensation, amortization of intangible assets and acquisition and disposition-related costs, total operating costs for the second quarter of 2024 were $12.2 million compared to $14 million for the second quarter of 2023. Service costs were $4.2 million for the second quarter. We've seen significant progress on our service costs as a percentage of revenue so far this year. As we continue to make progress on our infrastructure initiatives and see increased sales of our conversational intelligence products and features, we believe we are well positioned for the second half of 2024 and beyond. Sales and marketing costs were approximately $2.7 million for the second quarter. This was up slightly from the second quarter of 2023. Product development costs were $3.2 million for the second quarter, as we continue to invest in leveraging AI to expand our product suite with new conversational intelligence capabilities. Moving to profitability measures. Adjusted EBITDA was approximately $300,000 for the second quarter of 2024, which is a significant improvement over the adjusted EBITDA loss of $1 million for the second quarter of 2023. GAAP net loss was $800,000 for the second quarter of 2024 or $0.02 per diluted share. This compares to a loss of $2.7 million or $0.06 per share - per diluted share for the second quarter of 2023. Adjusted non-GAAP loss was $0.01 per share for the second quarter of 2024 compared to a loss of $0.03 per share for the second quarter of 2023. Additionally, we ended the second quarter with approximately $12 million in cash on hand. Now turning to our outlook for the third quarter of 2024. First, let's discuss revenue. We anticipate third quarter 2024 revenue will increase to be in the range of $12.6 million or more. For adjusted EBITDA, in the third quarter, we anticipate adjusted EBITDA will be in the range of - or better than, our second quarter 2024 results. Two fundamental factors are driving our expectations for sequential growth. First, there is some improvement in overall conversation volume trends. Our verticals remain in a relatively steady state, and that is reflected in a more normalized seasonal pattern for verticals like home services. Second, we are pleased to see a developing pipeline of opportunities. As we onboard some of our recent new wins, we expect that to contribute to sequential growth, although most of the growth from those wins will happen in future months, as those customers ramp up. This progress, along with our progress on our infrastructure initiatives, I believe, puts us in a strong position to meet or exceed our original target for gross margin improvement and our profitability profile for 2024. With that, I'll hand the call back to Edwin. Edwin Miller: Thank you, Holly. We are making meaningful progress in the business. To summarize and wrap things up, we are achieving many of this year's goals. We are on track with OneStack and progress with technical innovation. We are seeing growth with existing and new customers, and validation of our vertical market strategy. We continue to see sequential revenue growth with acceleration. We are delivering meaningful gross margin expansion. Adjusted EBITDA continues to trend positively. The commitment and talent level of our team continues to grow. I want to thank our employees for their continued dedication, and also our clients for their engagement and partnership with Marchex. We look forward to updating you again in the coming months. Operator, we are ready for questions. Operator: We will now begin the Q&A session. [Operator Instructions] Our first question today comes from Darren Aftahi with Roth Capital Partners. Your line is now open. Dillon Heslin: Hey, this is Dillon for Darren. Thanks for taking my questions. If I could start with OneStack. Like when you roll that out, like is there any adjustments you need to make, as you look across different customers? And then how do you sort of modulate that into some of the adjacent verticals you're talking about expanding to, beyond some of the core three years in now? Edwin Miller: Okay. So I'll do adjustments first. Dillon, thanks for the question. I know we've met in person, but good to hear your voice. I think the adjustments we have to make, obviously, would be, we're moving clients into a single cloud instance, that's much more scalable with all of our signals, and a single sign-on and a single interface, et cetera, which is going to be awesome. And in that progress, the clients are excited about it. They get to consume more of their data, prescriptive analytics. They get to see things in a single place. So we've had nothing but really good conversations with clients. Now is there a change management that has to happen in terms of that with clients that need to move from different stacks? Yes. But we're partnering well with them. We've got a great customer success team that's lined up with our clients. Again, I probably - I don't know how many times I've been with our top 25 clients, a lot. And so I think we're a good fit there. Your second part of the question was, will it help us enter new verticals? It's kind of how I took that question, Dillon. The answer is, yes. It would be simpler for us to go into verticals. The signals and the business problems and the operational problems are the same, and a few other verticals, and we've got a few of those targeted. Dillon Heslin: Got it. Thank you. Could you sort of comment at all on the feedback you're getting from customers sort of on a macro trend basis, as to sort of, what they're seeing in terms of call volumes and maybe why there's still a bit of a headwind in certain industries compared to others? Edwin Miller: The large clients, I've got great feedback from. They're positive. Their companies are growing. We're exposing data that - out of our platform in a new way, they hadn't seen before, which is fantastic. They're excited about that. The - and that's where I spent the bulk of my time is on those top 25. So I don't see any headwinds from them. And I will say, it's about enabling the conversation, it's not just about the call. It could be data off the web. It could be data from an e-mail. It could be data from a text on a number. And everyone that I'm talking to is trying to bring that omni-channel approach, that conversational data together. So I'm enjoying being with their clients. Dillon Heslin: Got it. If I could ask one more, just you're seeing the positive trends in adjusted EBITDA with sort of the rollout of OneStack? Is there anything in particular you need to invest in, or you think you have sort of the right mix of sales in R&D at the rate to go after those markets? Edwin Miller: Well, we talked about gross margin lift. So as we move to OneStack, there will be more opportunity for more investment innovation and sales and marketing without having to use our cash, which is exciting for me, to kind of turn that corner. I'm going to go back and say, one of the things you asked and the last one is, because we get OneStack, we get to add more signals, we get deeper and deeper and deeper with our clients, which is awesome. So we are a prescriptive data analytics SaaS platform. They are seeing us that way. It's not just about the number, which is awesome. Because that's really sticky and it's powerful to control that conversation and how - and deliver value on top of that. But what they can see in their data is going to make the difference for them and their business outcomes, which will make the difference for my shareholders. Dillon Heslin: Perfect. I'll pass it on. Thank you. Operator: Thank you for your questions. There are no longer questions in queue. So I would like to turn the call back to the management team for any further or closing remarks. Edwin Miller: Okay. Thank you, everyone, for dialing in. We're excited about the future of the company, and we look forward to the next check-in. Thank you. Operator: That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

Earnings call: Heritage Global reports strong Q2 with sights on M&A growth By Investing.com

Heritage Global Inc. (NASDAQ:HGBL) has declared a robust performance for the second quarter of 2024, with a consolidated operating income of $3.5 million and $4 million in EBITDA. Despite a default in the Financial Assets division that is anticipated to impact the company's operating income by $1.6 million, Heritage Global has maintained profitability, with a strong cash flow and a solid balance sheet. The company has cleared its debt under the 2023 credit facility and is looking forward to organic growth and potential mergers and acquisitions to drive future expansion. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Heritage Global Inc. has demonstrated resilience in its Q2 2024 performance, navigating challenges with a defaulting borrower while leveraging its strong auction business and potential in the financial assets sector. The company's proactive approach to debt management and strategic focus on growth through mergers and acquisitions, along with its early adoption of emerging asset markets, positions it favorably for the future. Heritage Global's commitment to improving collections and capitalizing on the increasing consumer debt and business downsizing trends underlines its readiness to meet the upcoming opportunities head-on. InvestingPro Insights Heritage Global Inc. (HGBL) has shown a commendable performance in Q2 2024, despite facing headwinds. With a focus on organic growth and strategic acquisitions, the company's future prospects appear promising. The InvestingPro Tips and real-time metrics provide a deeper insight into the company's current standing and future outlook. InvestingPro Tips for Heritage Global Inc. reveal that the stock is currently in oversold territory, suggesting potential for a rebound. Additionally, the stock has been trading at a low earnings multiple, indicating it may be undervalued compared to its earnings potential. This could attract value investors looking for bargains in the market. For more comprehensive insights, there are 13 additional InvestingPro Tips available at: https://www.investing.com/pro/HGBL. The InvestingPro Data metrics further enrich our understanding of Heritage Global's financial health. The company has a market capitalization of $70.93 million and boasts a price-to-earnings (P/E) ratio of 6.35, reflecting its earnings relative to share price. Despite a slight decrease in revenue growth over the last twelve months, with a -2.1% change, the company maintains a strong gross profit margin of 67.42%. These metrics, coupled with a solid return on assets of 13.14%, underscore the company's ability to generate profits from its assets efficiently. Heritage Global's commitment to improving its financial position and exploring growth avenues, as detailed in the article, is supported by these InvestingPro insights, which highlight both the challenges and opportunities the company faces. Full transcript - Heritage Global Inc (HGBL) Q2 2024: Operator: Good day, everyone, and welcome to the Heritage Global Inc. Second Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, today's call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to John Nesbett, President, IMS Investor Relations. Please go ahead. John Nesbett: Thank you, and good afternoon, everyone. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on our current expectations and projections about future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Mr. Ross Dove. Ross, please go ahead. Ross Dove: Well, thank you, John. Good afternoon, everyone, and welcome to our call. Before I give the call over to Brian to go into all of the details of the call, I thought I'd just give you a couple of quick observations. Q2 was a really solid performance for us, primarily because it was across both Financial and Industrial, $3.5 million in consolidated operating income and $4 million in EBITDA was a big improvement over Q1 and bodes well for looking into where we're seeing ourselves going in Q3 and Q4, where we've had some accelerated client retention and the market is really strong. What I kind of leave you with before Brian is really just one thought. Sometimes you have a really solid quarter. And at the end of that quarter, you're left without a lot of prospects for the second quarter. That did not happen at all this time. We ended the quarter very strong with a robust pipeline. We've actually added new forward flow clients on both sides of the business, and we're rolling into Q3 with really a very, very solid, very bullish view on Q3 and Q4. So with that, I'll give it over to Brian to go through this quarter, to walk you through all of the businesses, to walk you through what we're doing to create some improvements in Heritage Global Capital, which has been the one part of our business that we need to get on a better track. Everything else is on the exact right track, and Brian will walk through what we're doing there along with everything else. So, Brian, go ahead and take it away. Brian Cobb: Thank you, Ross. I'll begin by going over our divisional highlights before moving into our Financial results. Our Industrial Assets division continued to execute in the second quarter of 2024, reporting total divisional operating income of $2.1 million, an increase from $1.5 million in the prior year period. Our Auction business, in particular, had a strong quarter. Increased economic pressures continued to cause downsizing and office closures in a variety of businesses across the country, resulting in the sale of surplus industrial machinery and equipment. As previously disclosed, in conjunction with our partners, the division completed a transaction that involved the sale of equipment and a 10-year building lease on the recently acquired pharmaceutical plant in Fenton, Missouri. The lease was determined to be a sales type lease. And together with the sale of equipment, the company recorded a total of $1.3 million in earnings for its respective share in the second quarter. As we look to the back half of 2024, we have a strong auction pipeline in place and expect to see continued activity in the second half of the year. Our Financial Assets division performed consistently in the second quarter of 2024 compared to the prior year quarter with operating income of $2.7 million. Our brokerage business continues to perform well. We continue to see steady volumes of charge-off credit cards and nonperforming loans and are optimistic about the growth of this business moving forward. As of June 30, 2024, our total amortized cost basis of loans to buyers of charged off and nonperforming receivable portfolios was $35.2 million, classified on our balance sheet as both notes receivable and equity method investments. As previously noted, we are in an economic environment where consumers have less capacity to pay their debts, which results in lower collection rates industry-wide. As a result, the company's largest borrower has had continued difficulties meeting their obligations. This borrower continues to collect on the underlying portfolios and remit these collections to the company net of servicing fees. However, these net collections are currently not sufficient to satisfy all minimum required payments. Beginning in June 2024, after this borrower's June remittance fell short of the minimum amount due, the company placed the loans on nonaccrual status. The company's share of payments received on loans and nonaccrual status, including interest, will be applied against the outstanding balance. As of June 30, 2024, the amortized cost basis of loans and nonaccrual status was $24.6 million compared to no loans and nonaccrual status as of December 31, 2023, primarily due to the loss of interest income from the cost recovery accounting treatment. The default is currently expected to reduce the company's total 2024 operating income by approximately $1.6 million. It is important to reiterate that Heritage Global is a profitable, diversified business with multiple growth avenues going forward. Reflecting the strength of our cash flow and balance sheet, the company completely paid off the remaining principal balance outstanding under its 2023 credit facility with C3Bank, which was executed subsequent to the quarter and in advance of the loan's maturity date in 2028. Now turning to the Financial results. Consolidated operating income was $3.5 million in the second quarter of 2024 compared to $3.1 million in the second quarter of 2023. For the quarter, we reported adjusted EBITDA of $4 million compared to $3.5 million in the prior year period. Net income was $2.5 million or $0.07 per diluted share compared to net income of $2.8 million or $0.07 per diluted share in the second quarter of 2023. Our balance sheet remains strong with stockholders' equity of $65.8 million as of June 30, 2024, up from $61.1 million at December 31, 2023, and net working capital of $17.9 million. As we move through the second half of 2024, our core auction and brokerage segments are expected to produce continued strong operating results with an attractive pipeline of opportunities in the marketplace. We are steadfast in our mission to continue driving organic growth and profitability, while positioning the company to take advantage of M&A opportunities when they arise. And with that, I will turn the call back over to Ross. Ross Dove: Thank you, Brian. So let me take a few minutes to tell you why we're actually very excited about both our organic growth and increased opportunities we're seeing in M&A across both sides of our business, the Financial Assets and the Industrial Assets. So let me kind of start with the Financial Assets. It's pretty clear right now that everyone can see that our pipeline is solid because of the macro economy and also all the efforts we're doing to garner new clients and win business and execute. But on the macro side, we're looking at consumer debt has been rising since 2021. Our revenue is rising along with it. We've now got household debt at $17.5 trillion, if you can imagine that, and up $200 billion in just one quarter. We're looking at credit card balances now of over $1 trillion, adding $50 billion this quarter. All of that just shows you that the volume is continuing to grow and grow. With that volume, the amount of charge-offs has to grow with it. And we think our business has solid growth for years organically. We're now looking on the credit cards at 49% of all credit cards basically going month-to-month on payments rather than paying them off at the end of the month, which is the first tell-tale sign into more growth in charge-offs. And we're now looking at 6% of credit card accounts being past due. Just two, three years ago, it was 4%. So is our business growing? Yes. Will our business continue to grow. If you say our business grows because supply grows, then there is clearly no argument our business won't grow. What that does is it gives us more and more cash flow and more and more strength in a position where we're stronger in the market to do M&A. There are now companies available in M&A that basically we're doing okay during a pandemic and have struggled afterwards, which is the opposite of NLEX, which is growing afterwards. So we see opportunities there for bolt-ons that we're aggressively looking at, and hopefully we can get something done, and within the next year, 1.5 years, that will be highly accretive. So we're solid there, we believe, in M&A opportunities, and we're solid there in we believe continued organic growth. Now I'll move on over to Industrial. If you're looking at Industrial right now, you are seeing that a lot of companies are doing well, but simultaneously, many companies are experiencing sluggish manufacturing right now. And you don't have to look too far to basically see every day, if you look at a Google (NASDAQ:GOOGL) announcement, you see another headcount reductions. As I said over and over again, these headcount reductions produce surplus assets and produce industrial auctions. They don't happen the day you notice that the headcount reduction has been announced. There's a period of three, four, five months where they have to basically execute on the headcount reduction, do the layoffs, and discover the surplus. That's happening now from the layoffs four, five and six months ago, but what bodes well for the future is there are still sectors of the economy where the manufacturing is sluggish and there's also sectors of the economy where the manufacturing is at heightened growth. But this heightened growth is adding AI in a lot of instances, which frees up surplus machinery. It's focusing on lean manufacturing, which also frees up surplus machinery. So the Institute of Supply Management is saying that there will be an increase in secondhand equipment on the market over the next one to two to three years. So we see organically our Industrial business being very bullish and prices holding up. The fact that we've had several years of inflation now has actually increased the value of used assets to let our auctions, we're actually getting very high prices for the equipment, and we think that will continue even if the economy and inflation softens. So we think organically, we're very, very solid there. There is the beginning of talks about roll-ups in the industry where we think will be a significant player in the fact that basically more and more of these sectors are coming together to where the guys that do pharma also have a great database for medical, et cetera, kind of across all the sectors. So we see that there will be a consolidation of industrial auctioneers that we believe we'll be one of the significant leaders in. That M&A should happen over the next two, three years. So we stand ready to grow both organically and through M&A. We're working through multiple issues with Heritage Global Capital. We've hired a special adviser to work with us. And I'm very excited because we see prospects there to really get that thing humming once again. There's been some difficulty in collections, but we think overall, Heritage Global is in a very solid position. So thank you all for sticking with us. Thank you all for hearing us out. We're open to any questions at any time and appreciate your interest very much. Thanks again. Operator: [Operator Instructions] We'll take our first question from Mark Argento with Lake Street. Please go ahead. Your line is open. Mark Argento: Hey, Brian. Hey, Ross. Just a few quick ones here. The impairment or the change in status in terms of the part of the loan book, what happens going forward? What should we be looking for in terms of seeing any improvement in the situation? It sounds like you've got something you're working with? Do you guys look to sell the book off? Maybe just walk us through at a high level what next steps are there? Ross Dove: So I'll take it first, Brian. So we've hired an adviser to work with. There is, at this time, no announcement of selling a book, no announcement of any kind of change right now other than working very, very hard to enhance the collection efforts and to recover -- trying to recover 100% of the money. We don't anticipate at this time taking any further efforts than what we've announced. So we hope to get back as much, if not all of the money as we can. We took $1.5 million charge a while ago. We're not changing that at this point in time. We're getting collections on a monthly basis. We continue to get collections, albeit they've been a little bit short of the minimum payment, but they're coming in very steady, and we're going to continue monitoring them and working with them to try to do the best we can. There will be announcements in the future if we make any change. But at this time, we don't have one. I'll let Brian add to that. Brian, if you like. Brian Cobb: Yeah. So the main thing that we've been working on in the finance group is really trying to figure out with our senior lenders how the structure of these specific loans can be changed in a way that can improve the collections. And really one way is to help the servicer of those collections or the manager or borrower collect in legal methods. And so we think that there might be some improvement there. But on the accounting side, the way I look at this is that we're taking a conservative position right now to allocate all of the collections or net collections to the principal balance. Until we see a lot of positive data or changes that could allow us to collect all principal and interest, I think that the nonaccrual status will remain in the short term. Mark Argento: Got it. Then have you guys -- have you stopped any additional lending, putting any additional capital out with other customers at this point? Or what's the general... Ross Dove: We're obviously not funding that customer at this point in time. And we have no plans to fund that customer until this is 100% accretive and straightened out and paying, and then we would make a decision there. There are some customers that we have funded that are highly performing customers. We're being very prudent, and we're being very careful only to fund the best of the best, but we are still looking at deals, albeit less aggressively, Mark -- or I should say, more aggressively. We're very, very particular about what we would fund. But we have a lot of free cash flow right now, and a lot of that free cash flow, maybe we're holding back as we're looking at M&A, et cetera, but we're in a very strong financial position. So if somebody came to us with a great loan, we're well capitalized to do it. Mark Argento: Great. Just pivoting over to -- you had mentioned forward flows on both the Financial Asset and Industrial Asset businesses are robust. I know historically, we've talked a little bit about the Financial Asset forward flows. But on the Industrial Asset side, it's a little bit of newer concept. Maybe just walk us through what is the forward flow... Ross Dove: Our largest forward flow is an existing client, which is Pfizer. So they do auctions with us every month. We're having our best year with them now, because they've been doing a lot of worldwide planning, recalibrating and restructuring, which has freed up more assets than last year. So the auctions are very good right now, the assets are very good, and we're getting very large crowds. We've added some other more regional clients on that end. And some of the clients that we've done past auctions for are now becoming repeat clients. So we're getting more repeat business. So it's not all brand-new one-offs, which is the most expensive business, as you know, to get, where you're making the presentations versus receiving the call in. So we're getting more repeat business on the Industrial side, and we're looking at a very strong Q3, Q4 with ongoing business there. On the Financial Assets side, there have been some new companies, both fintech companies and banks. And also, we've added more companies that have nonperforming real estate right now, which is a growing nonperforming sector, as you know. So we've added some forward flow clients on that side, too. And we're looking at a really solid -- Q3 and Q4 we think will beat the first half of the year on the Financial side at the Brokerage segment. Operator: We'll take our next question from George Sutton with Craig-Hallum. Please go ahead. Your line is open. Logan Lillehaug: Hey, good afternoon, guys. This is actually Logan on for George today. Ross Dove: Hi, Logan. Logan Lillehaug: I'm wondering if I could just ask one on the borrower. Can you just walk us through kind of the underlying assumptions now you guys got to the determination that you didn't need to increase the credit loss reserve? And then maybe, do you guys have any insight into kind of the underlying portfolios, like where the weakness is coming through? I think there's like... Ross Dove: Yeah. So we went out -- basically, it was a multiple tiered approach to decide if we needed to do anything further, and we're pretty convinced we don't need anything further after a real thorough amount of work that included advice from an independent adviser, who looked at it. It included talking with both senior lenders and getting their take in it, talking with the borrower, looking at the past collection rates and what's actually being collected, and looking at the accounts going forward, and looking at third-party advice. And all of that together led us to believe that we were comfortable that we were in the right position right now. We also have the collections going forward. And the collections going forward, although yes, they are short of the minimum payment, they're still substantial, and they're still coming in very regular, and there's still tens of thousands of accounts to collect on. So we feel comfortable with the position we've taken. I'll let Brian add to that if I missed anything. Brian Cobb: The only thing I'll add real quick is from a numbers perspective, I look at it as, yes, the inherent risk is perceived to go up if a borrower has defaulted on the loan, so you would initially think that the reserve should go up along with that. But we're placing heavy reliance on the underlying collections on those portfolio assets. And also, all of the cash flows now are being applied to principal in that analysis. And that's all been taken into consideration. So the method of accounting is really more than offsetting the inherent risk. Logan Lillehaug: Okay. Got it. And maybe just one other on the brokerage side. I mean, certainly, it seems like commentary from the big purchasers would indicate charge-offs kind of going up through the back half of this year and into next year. I think you guys have said that, too. If I can just double-click on that maybe. I think, Ross, in the past, you've talked about buy-now, pay-later. Anything you guys are seeing kind of from a competitive standpoint there kind of to be positioned? I think we've seen a few reports recently and volume seems to be up there. Ross Dove: The volume is up there, and we were an early entry into selling the buy-now pay-later assets. Dave Ludwig and Tom Ludwig and the guys that run NLEX really kind of saw that kind of cutting edge in the very beginning, even before some of the companies were ready to sell assets. They were there early, explaining our process, explaining how we work, who we are, and what we've been able to do with very similar assets, whether it be credit cards or auto loans, et cetera, or other kinds of consumer loans. So we got in early, and we basically have built not just a cadre of sellers, but we built a list of people that buy the buy-now pay-later product. So as that grows, we should stay at the forefront as an industry leader. What's happening right now is overall, all of nonperforming loans seem to be a growth business right now. I mean, credit cards are part of it. The fintech stuff, the buy-now pay-later is part of it. Real estate loans are part of it. Across the board, there's a growing amount of product right now on the consumer end. So, we feel kind of bullish on the business over the next multiple years across all sectors. Operator: This does conclude the Q&A session. I will turn the program to Ross Dove for any closing or additional remarks. Ross Dove: Thank you all very much for sticking with us. Thank you for listening. Thank you for paying attention. We're available for follow-ons at any time. Anybody is looking for any further information. The company is in a very strong position across the board. We have some work to do to get Heritage Global capital to exactly where we want. But keep in mind, what we're looking at there is equity. We didn't default on anybody, somebody defaulted on us. We're prepared for it. We're going to make the best of it. We're going to collect as much of the money as we can. As we move forward, we think we're looking at record years over the next two, three, four years, and we think this is a very, very strong dynamic growth company that we're proud to be a part of. And we're open to any question at any time and any kind of further discussion with any of you. And thank you all for your interest. Everybody, have a great day. Bye-bye. Operator: This does conclude today's program. Thank you for your participation, and you may now disconnect.

Earnings call: DarioHealth sees strong growth, aims for profitability by next year By Investing.com

DarioHealth Corp. (NASDAQ: NASDAQ:DRIO), a leader in the digital health space, has reported its financial results for the second quarter of 2024, with significant growth in its B2B2C business and a strategic focus on achieving profitability by the end of 2025. The company's revenue growth is bolstered by the acquisition of Twill and a substantial reduction in non-GAAP operating expenses is anticipated. DarioHealth's comprehensive platform, which now covers six different conditions, and its AI integration are central to its strategy for growth and value delivery to stakeholders. DarioHealth Corp. (NASDAQ: DRIO) has made notable strides in its business operations, as evidenced by its recent financial report for Q2 2024. The company's focus on growth and efficiency is complemented by a detailed examination of its financial health and market performance through real-time data and insights from InvestingPro. Here's a closer look at some key metrics and tips that shed light on DarioHealth's current situation and future prospects. It's worth noting that these insights represent just a fraction of the comprehensive analysis available on DarioHealth. For those interested in a deeper dive, there are 12 additional InvestingPro Tips that can be explored at https://www.investing.com/pro/DRIO, offering a more nuanced understanding of the company's performance and future outlook. Operator: Good morning, ladies and gentlemen, and welcome to the DarioHealth Second Quarter 2024 Results Conference Call. At this time, all lines are in a listen-only mode. After the presentation we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, August 8, 2024. I would now like to turn the conference over to Kat Parrella, Investor Relations Manager at Dario. Please go ahead. Kat Parrella: Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of DarioHealth's second quarter 2024 financial results. Leading the call today will be Erez Raphael, CEO of DarioHealth. He'll be joined by Steven Nelson, Chief Commercial Officer. An audio recording and webcast replay for today's call will also be available online as detailed in the press release invite for this call. For the benefit of those who may be listening to the replay or archived webcast, this call is being held on Thursday, August 8, 2024. This morning, we issued a press release announcing our financial results for the second quarter of 2024. A copy of the release can be found on the Investor Relations page of DarioHealth's website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand or the competitive nature of DarioHealth's industry. Such forward-looking statements and their implications may involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company's second quarter 2024 quarterly report on Form 10-K. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued this morning and in the company's other filings with the SEC. In addition, certain non-GAAP financial measures may be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company's current performance. Management believes the presentation of these non-GAAP financial measures is useful for investors' understanding and assessment of the company's ongoing core operations and prospects for the future. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in this morning's press release. With that, I'd like to introduce Erez Raphael, Chief Executive Officer at DarioHealth. Erez Raphael: Thank you, Kat, and thanks to all of you for joining our call this morning. Q2 2024 marked another step forward in our journey to profitability. Our core B2B2C business, the engine driving our recurring revenue from health plans and employers, has demonstrated continued growth with 60% sequential growth between Q1 to Q2. This represents 28% organic growth before factoring in the positive impact of the Twill acquisition. This channel remains our primary revenue driver, contributing approximately 75% of our total revenue with an annual run rate of $21.6 million. This high-margin business with SaaS-like characteristics is gaining traction demonstrated 82% non-GAAP gross margins in this quarter. Coupled with the aggressive cost reduction initiatives implemented post Twill merger, we are confident in our ability to achieve substantial 40% reduction in non-GAAP operating expenses from Q1 2024 to Q1 2025. On a pro forma base, we have already seen a reduction in OpEx from Q1 to Q2 of this year of approximately 10%. This financial discipline will be evident in our results over the next three quarters in a more intensive way. Our gross margins continued its upward trajectory toward 80% target by early next year. As mentioned, our B2B2C has already reached 82% non-GAAP gross margin. In addition, we anticipate a large reduction of over 70% in non-GAAP operating losses between Q1 of 2024 and Q1 of 2025. This progress aligns perfectly with our road map to profitability by the end of 2025. In the last few quarters, we made a series of strategic decisions in a very challenging market environment. We believe that those decisions positioned us as one of the strongest players in the digital health space with a stronger financial profile. We have built one of the most comprehensive platforms in the market covering 6 different conditions from diabetes to hypertension, prediabetes, musculoskeletal, well-being and behavioral health. Billions of data points collected through years of direct-to-consumer engagement have created substantial competitive advantage. This data-centric approach has produced a best-in-class solution, validated by real world evidence of improved health outcomes and reduced costs for employers and health plans. Beyond the financial results, we see a compelling evidence of our growth trajectory. Our combined product offering following the Twill acquisition is driving cross-selling success already, with a ton of Dario clients already adopting the Twill platform. Our GLP-1 product has seen a rapid adoption with 9 clients already on board. While GLP-1 is proven weight-loss medication, its potential is maximized when coupled with the behavioral support. By integrating Dario-Twill behavioral health capability, we have created a comprehensive solution to support GLP-1 adoption among employers and health plans. Our offering provides a streamlined approach to delivering GLP-1 therapy and driving optimized patient outcome. On the pharma channel side, we see that the pharmaceutical industry is undergoing a significant transformation. With many leading companies seeking direct-to-consumer member engagement solutions, we see a substantial opportunity to leverage our integrated offering to meet this growing demand. While past partnerships with Dario and Twill clients like Novartis (LON:0QLR) (SIX:NOVN), [Indiscernible], Merck and Sanofi (EPA:SASY) (NASDAQ:SNY) generated mainly milestone-based revenues. We are focused on redefining our integrated offering to leverage on this market opportunity for direct patient engagement and transition our pharma business to a more stable and more recurring revenue base. To accelerate the shift, we made a strategic decision to issue a $1.1 million price concession impacting our top line for this quarter only, but position us for a long-term growth. We anticipate return to normal revenue pattern on the pharma channel toward the end of this year. While our product offering are strong and we boast to classic client base, including top S&P 500 companies, our revenue growth has not fully materialized to our expectations. To address this, we have undergone a strategic organizational transformation, including flattening our structure and appointing a seasoned Chief Commercial Officer. Our goal is to create a commercial organization focused on two key areas: first, keep focusing on acquiring new clients; and second, maximizing the growth of our existing customer base, where we see an opportunity to do much better. We believe this dual approach will accelerate revenue generation and better leverage our strong market position. I'm pleased to introduce Steven Nelson, our new Chief Commercial Officer. Steven will provide more details on our commercial strategy and steps we are taking to drive top line growth. I'll turn the call now to Steven. Steven Nelson: Thank you, Erez. Good morning, everyone. I'm Steven Nelson. As many of you are aware, I started in June 2024 as Chief Commercial Officer at Dario. I have had the privilege of spending over 20 years in the payer industry with [Indiscernible] and Highmark Blue Cross Blue Shield and most recently led a direct employer company for 5 years named Contigo Health. Early in my career, I honed my B2C skills through experiences in packaged goods and retail. Today, I'm excited to share some context around my four key focus areas since my arrival and discuss some details on our Q2 2024 financial results. First, refining our strategy and operational processes. Our roots in B2C companies as well as the comprehensive multi-chronic condition product offering have built a solid and unique value proposition that most of our competitors lack, especially in this market environment where we see a consolidation of vendors. Dario has an impressive client base that is very unique in the market, and it is my belief that with a refined strategy and well-designed commercial operation, we can accelerate revenue growth. We have recently completed a detailed product market-fit strategy, providing us with focused insights to drive more credible revenue across all segments. With these insights, I have collaborated closely with our commercial team as well as others in key cross-functional roles throughout the company to implement a focused, scalable operating model within the commercial department. This model is meticulously designed to enhance operational efficiencies, streamline processes, and to Erez's point, strengthen both our pipeline for new clients, but even more important, ensure we accelerate revenues from existing clients. By understanding and anticipating our customers' needs and their mode of operation, we can focus on what we do best, enroll and engage with more members for every account that we serve. Second, we have and will continue to accelerate B2B2C growth. Our B2B2C channel is a powerhouse of potential, and we are determined to unlock its full value. While we have established a solid foundation, we recognize that there is much more to achieve, especially on how to extract revenues from our client base on a faster and larger scale. My goal is to accelerate growth in this channel by having specific focus and accountable resources allocated to existing clients as well as deepening existing strategic partnerships with the right strategy, leading to higher utilization of existing contracts in terms of member enrollment as well as expansion of our customer contracts with both expanded offering as well as access to a larger population. This will help us solidify a robust reoccurring revenue base that is crucial for long-term sustainability. We are leveraging our existing relationships and assets to drive more value from our B2B2C channel. This includes actively pursuing cross-selling and upselling opportunities with our current partnerships, targeting both employers and large health plan channels. Our GLP-1 product, for example, is gaining significant traction already implemented by 9 clients with several more in the pipeline. This product represents a rapidly growing segment that we are prioritizing in our client contracts. In the second quarter, our B2B2C channel was the primary driver of growth with a 315% year-over-year increase and a 60% sequential rise from Q1. Looking forward, we see a sizable opportunity among specific client segments, and I am confident in our ability to expand these relationships. For instance, health plans like Aetna are making timely progress. And with our focused approach to product set, they are poised for much higher growth given the potential size of business. We are initiating collaborative strategies for them to use our newly combined behavioral health platform to compete in a differentiated way with the market. Our large employers, including Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) and others have been very supportive in our current products and are open to exploring how our assets can further solve health problems. We must lead health plans through effective activation, engagement and reducing their cost to deliver health care with our SaaS-based digital health technologies and expert experience journeys. Worth noting, our cross-selling efforts are gaining momentum with at least 10 initial clients targeted for Twill platform or vice versa. Third, enhanced pharma collaborations. The pharma market is undergoing a significant transformation with companies increasingly seeking ways to engage consumers directly. This shift presents a huge opportunity for DarioHealth, one that is currently underutilized. Our integrated Dario-Twill top of funnel and navigation capabilities offer exactly what pharma companies need as demonstrated by successful projects with clients like Sanofi, Novartis, Merck and others. To capitalize on this opportunity, we are driving an innovative change in our business model, moving away from milestone-driven revenues to a more sustainable reoccurring revenue model. Our commercial pharma channel is a critical pillar of our growth strategy, but we believe this redesign is integral to maximizing its potential. This shift will lead to a temporary slowdown in revenues for this channel this year as we transition to a more stable and predictable revenue stream, an adjustment that is essential for creating long-term value and ensuring that we remain aligned with the pharma industry trends and positioned as a premier partner for companies considering or already executing direct-to-consumer models. The recent integration of Dario-Twill platform significantly enhances our offering, making it more attractive to pharma clients. We are engaged in promising discussions with key clients like Merck and Sanofi who are interested in how our SaaS-based consumer engagement capabilities can bolster their efforts. This technology, which has historically supported our pharma channels can now go further with our newly formed consumer hub model. Our decision to grant a onetime price concession of $1.1 million to a strategic partner underscores our commitment to balancing short-term adjustments with long-term growth prospects. This price concession accelerates the time line of this shift to a higher quality revenue supporting our highest objective of reaching profitability by the end of 2025. The future of our pharma collaborations is bright, and we are excited about the potential for growth in this area. Fourth, our comprehensive integrated product offering. We believe the combination of Twill's behavioral health expertise and Dario's cardiometabolic foundation creates a powerful platform that delivers exceptional value to employers and health plans. By integrating AI-driven navigation tools, we enable clients to optimize care delivery, improve member outcomes and achieve significant return on investment. Our platform's ability to match numbers with the right programs at the right time sets us apart. Behavioral health is a foundational component of managing any chronic condition, including metabolic disorders. Our platform seamlessly integrates behavioral health interventions with other therapeutic areas, providing a comprehensive and holistic approach to care. Finally, leverage our AI capabilities. We believe AI will be a meaningful change for DarioHealth as we proceed with our focused product and technology road map, integrating and updating aspects of AI that have already been deployed in the past and accelerating generative AI and micro services in a targeted way within product and/or technology can further revolutionize our industry-leading content, activation, engagement and personalization capabilities. Our proprietary data sets, especially within the B2C segment provide us with a unique advantage enabling both internal and external monetization in this rapidly evolving market. The future of AI in health care is incredibly promising, and we are at the forefront of this exciting transformation. Our AI capabilities will enable us to offer unparalleled value to our clients and drive our growth in new and innovative ways. In conclusion, DarioHealth is on a transformative journey, and I am incredibly optimistic about our future. The strategy we have developed underscores our commitment to sustainable growth and innovation. We are well positioned to continue our momentum with greater stride and deliver exceptional value to our stakeholders. Thank you for your trust and support as we embark on this exciting journey together. Erez, back to you. Erez Raphael: Thank you, Steven. We have identified three key strategic areas that will help us accelerate growth and drive business to profitability. First, we will optimize our operations to increase revenue generation from existing employer and health plan clients. Expanding the adoption of GLP-1 offering is also a priority for us. Second, we will capitalize on the pharmaceutical industry shift toward direct-to-consumer models by leveraging our unique Twill-Dario solution. Our focus is transitioning from a milestone based to a recurring revenue stream in this specific sector. Lastly, we remain committed to regularize cost management. By aggressively controlling operating expenses, we expect to deliver tangible results in the coming quarters. As mentioned, we see our operating loss reducing by at least 70% by Q1 of 2025 on our way to profitability by the end of 2025. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Charles Rhyee from TD Cowen. Your line is now open. Please ask your question. Lucas Romanski: Hey. This is Lucas on for Charles. Thanks for taking questions. I was wondering if I could ask about how your cross-selling efforts are progressing since the Twill acquisition as well as obviously some restructuring and you guys' commercial operations. And how that's trend -- just early reads on how it's translating into bookings. It appears that maybe X12 B2B2C growth was up mid-single digits in 2Q. Can you remind us what the target for B2B2C growth is for 2024 and kind of what your expectations are now for the second half? Erez Raphael: Yeah, absolutely. So far just to answer your specific question about the cross-sell, as Steven and I mentioned on the call, we already have a ton of Dario clients that are -- that we cross-sell, and we sold them the Twill platform. This is relatively small clients, and we have a specific -- a few other specific opportunities for larger clients that are looking either Twill clients that are looking into Dario or Dario clients that are looking into Twill. As we mentioned on the call, the sequential growth, the organic part of the B2B2C between Q1 to Q2, just the organic was approximately 30% between Q1 to Q2. On an integrated base, for Twill it was 60%. That's the numbers that we have at the moment. We are anticipating that the overall growth of our revenues for B2B2C for the entire year is going to be larger year-over-year. It's going to be larger than 30%. It should be in the ranges of above 50%. That's the expectation. The other area where we see a cross-selling opportunity is the pharma. On the pharma side, both Dario and Twill had a business model that was very milestone driven, which created a lot of issues in the revenue recognition, some of it we saw now in the quarter when we had to provide a concession, and we did some changes. So we are trying to streamline this revenue stream in a way that it's going to be a recurring revenue also. We can do that because there is a specific opportunity in the market now when pharma is transforming to be much more direct to consumer, and we have the platform to help them go directly to patients. These capabilities is a result of the combination of the Twill platform, the Twill Care, which is the top of funnel capabilities with what Dario have. And this is why we see an opportunity also to do a transformation there. On the Twill side, the B2B2C, the employers and health plans was not going between Q4 to Q1 to Q2. This is due to the financial situation that will experience before we acquired them, and we anticipate that this is something that will be changed in the next two quarters and Twill are going to go back to growth once we are stabilizing the situation there. So that's on the revenue side. On the OpEx side and the operations side, as we mentioned on the script, we had two large risks: One at the beginning of May; the other one at the beginning of August where overall, we reduced the headcount and we reduced expenses that are also related to non-headcount. In this quarter, we have seen 10% reduction in the OpEx pro forma between Q1 to Q2, and we're going to see in Q3, 4 and 1, a significant reduction in the OpEx. So overall, the companies are managing much faster than what we anticipated in day one when we made the acquisition. We were thinking about 30% of the eight quarters. It's going to be something that is more like 40%, even more than 40% over three to four quarters. So that's from a merge standpoint. From an operation, we see a lot of synergies between the companies that are more synergies than what we anticipated from the first place, and this is the good news because we think that we can retain revenue, grow revenue. And in parallel, take the OpEx down. And this is why we are positive about our ability to reach cash flow positive by the end of next year. Lucas Romanski: Got you. Thank you for color. I guess I want to dig in on the price concession that you provide to your preferred partner. In your 10-K, it says maybe related to suit. I guess, in terms of, one, I guess, what brought about this price concession, if I can ask. And then does it have any impact on the expected $6 million to $8 million in expected payments that we were expecting from this partner? I understand that you're talking about just converting maybe to more recurring revenue stream. Can you kind of give us more details on what kind of came about at this price concession? Erez Raphael: Yeah. I'll start from the end. We're not going to see this kind of concession or something like that in the future. So this is onetime that appears in this quarter. It's related to recognition that we had in previous quarters. So it's a onetime. It's something don't going to repeat again. That's number one. Number two, I don't want to mention the name of the client, but we had a discussion with them about the transformation from one business model to another business model. One of the things that we are trying to do is to transform from Dario only or Twill only to something that is more combined. That's number one. And number two, we are trying to move into a recognition that is more recurring or revenue that is more recurring. As part of the conversations, we made a change to and work that -- or milestones that were already delivered. And eventually, we negotiated something in order to be able to look into the future and giving up something small in order to get something big in the future. So that's the way that we're thinking about it. It's more like balancing future growth versus the presence of the revenues that we have. I hope that I gave you enough color on that one. Lucas Romanski: Yes, that's helpful. Erez Raphael: Lucas? Lucas, I lost you. Okay. I think that we lost Lucas. I had to give it another 30 seconds to see if he is calling back. Lucas? Operator: Thank you. We don't have any questions right now. This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Kelly Services, Inc. (KELYB) Q2 2024 Earnings Call Transcript

Peter Quigley - President and Chief Executive Officer Olivier Thirot - Chief Financial Officer Conference Call Participants Kartik Mehta - Northcoast Research Kevin Steinke - Barrington Research Associates, Inc. Josh Zoepfel - Noble Capital Markets, Inc. Marc Riddick - Sidoti & Company, LLC Good morning and welcome to Kelley Services' Second Quarter Earnings Conference Call. All parties will be on a listen-only mode until the question and answer portion of the presentation. Today's call is being recorded at the request of Kelley Services. [Operator Instructions] A second quarter webcast presentation is also available on Kelley's website for this morning's call. I would now like to turn the meeting over to your host, Mr. Peter Quigley, President and CEO. Please go ahead. Peter Quigley Thank you, Greg. Hello, everyone, and welcome to Kelly's second quarter conference call. Before we begin, I'll walk you through our Safe Harbor language. As a reminder, any comments made during this call, including the Q&A, may include forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments, and we have no obligation to update the statements made on this call. Please refer to our SEC filings for a description of the risk factors that could influence the company's actual future performance. In addition, during the call, certain data will be discussed on a reported and on an adjusted basis. Discussion of items on an adjusted basis, are non-GAAP financial measures designed to give insight into certain trends in our operations. Finally, a presentation with information about Kelly's financial results in the quarter is available on our website. With that, I'll begin with remarks on Kelly's financial results. In the second quarter, we remained focused on what we can control as we continue to navigate uncertain market conditions. Large enterprises maintained a cautious approach to hiring, though demand began to stabilize with positive signs emerging, in particular among our Technology and Life Sciences customers. In our P&I business, revenues leveled off on a sequential basis. This trend reflects stabilizing demand and the benefits of our enhanced localized delivery model. The combined strength of our network of physical branch locations and the Kelly Now mobile app continue to generate positive momentum in the quarter with both clients and talent helping grow our pipeline of new industrial and commercial staffing business and drive a meaningful improvement to our fill rate and time to GP. At the enterprise level, our strategy to deliver the full suite of Kelly offerings to our largest customers also gained traction. Within the initial focus accounts where we have operationalized this approach, we've improved both the efficiency and effectiveness with which we serve our largest customers. This progress is beginning to drive gains in share of wallet with our large enterprise customers. Our growth initiatives are helping capture market share and build upon Kelly's position as one of the largest staffing firms in the U.S. According to staffing industry analysts' latest rankings, Kelly increased its position by the widest margin among the top 20 firms from 2022 to 2023. This is a testament to our team's resilience in deftly navigating through uncertain market conditions. Amid encouraging developments with growth, we remain laser focused on improving our ability to convert a greater share of top line growth to bottom line growth. This month marks one year since we shared with you the anticipated impact of the transformation initiatives we undertook to drive structural efficiencies across Kelly and significantly improve the company's profitability. Our message at that time was clear. Kelly would achieve a normalized adjusted EBITDA margin in the range of 3.3% to 3.5% as soon as the first half of 2024. Notwithstanding the challenging market conditions, we delivered a steady cadence of net margin expansion driven by sustained reductions to SG&A. One year later, I'm pleased to share that we have achieved our initial expectations. In the first half of this year, Kelly attained an adjusted EBITDA margin of 3.4%, excluding the benefit of our acquisition of MRP. For more details on this and our results in the second quarter, I'll turn the call over to our Chief Financial Officer, Olivier Thirot. Olivier Thirot Thank you, Peter, and good morning, everybody. As a reminder, Kelly's 2023 results include the European staffing business that was sold on January 2, 2024, and we are now including the results of Motion Recruitment Partners since the date of the acquisition, so just for the month of June 2024 this quarter. To provide greater visibility to trends in our operating results, I will also discuss year-over-year changes on a reported and also on an organic basis. References to organic information exclude the results of our European staffing business in 2023 and the impact of the acquisition of MRP in 2024. Revenue for the second quarter of 2024 totaled $1.06 billion, compared to $1.22 billion in 2023, down 13.1%, resulting primarily from the sale of our European staffing business, partially offset by the acquisition of MRP. On an organic basis, year-over-year revenue improved 0.6% in the quarter, reflecting strong growth in Education, a sequential stabilization of demand from Q1 to Q2 across much of our other businesses, despite of market uncertainty in several specialties. Reviewing results by segment, Education continued to grow revenue by double-digit, up 22% year-over-year in the quarter. This strong and sustained growth reflects net new customer wins, increased demand from existing customers and an improving fill rate. In the SET segment, revenue was up 10% on a reported basis, which includes the impact of the MRP acquisition. Revenue was down 3% on an organic basis and organic revenue trends were stable sequentially. Year-over-year organic revenue growth reflects lower staffing market demand with revenue down 4% in our staffing specialties and down 1% in our outcome-based business, permanent placement fees also declined by 20%. In our OCG segment, revenue improved 3%. The increase in revenues was driven by our PPO specialty, where demand growth has continued. Year-over-year declines in RPO are due to slower hiring in certain market sectors and MSP revenues declined in line with customers' contingent labor demands. But revenue in both MSP and RPO products were stable sequentially and with our MSP product positioned to benefit from positive momentum going forward. Revenue in our Professional & Industrial segment declined 9% year-over-year in the quarter but also stabilized sequentially, including in the P&I staffing specialty. Revenue from our staffing product declined 9%. The segment's contact center outcome-based specialty revenue also declined year-over-year as did perm fees in this segment. Partially offsetting these declines, other higher-margin outcome-based specialty revenue continued to grow. Overall gross profit was an 11.2% as reported or 4.3% on an organic basis. Our gross profit rate was 20.2%, compared to 19.8% in the second quarter of the prior year. Our GP rate reflects a 100-basis-point improvement from the sale of our European staffing operations and an additional 40 basis points from the inclusion of the June results of MRP. On an organic basis, the GP rate declined 100 basis points in Q2, 110 basis points due to unfavorable business mix and 20 basis points due to lower PERM fees, partially offset by 30 basis points of favorable employee-related costs. The business mix impact reflects continued growth in specialties with lower GP rates, including Education and PPO. SG&A expenses were down 17% year-over-year on a reported basis. Expenses for the second quarter of 2024 include $4.3 million of restructuring charges related to our ongoing transformation efforts, as well as $1.6 million of expenses primarily related to the sale of our European staffing operations, including transaction and also transition expenses. SG&A expenses in 2023 include $5.6 million of restructuring charges. So expenses declined by 18% on an adjusted basis or 10% on an adjusted organic basis. So like-for-like, expenses were lower in Q2 of 2024 due to the positive impacts of our structural transformation efforts, as well as lower performance incentive conversation expenses, reflecting current top line trends. As a reminder, beginning in the first quarter of 2024, we are reporting the operating results of our reportable segments utilizing revised business unit profit measures. We also are allocating a greater share of the costs we have previously reported as corporate costs to our business units. In addition, we are no longer including deposition and amortization in our business unit profit measures. We believe this provides greater visibility into the financial performance of each business unit and how they contribute to Kelly's overall performance. On a consolidated basis, our reported earnings from operations in the second quarter were $12.2 million, compared to $6.2 million in Q2 of 2023. On an adjusted basis, Q2 2024 earnings from operations were $28.1 million, nearly doubled from a year ago. The $15.9 million increase from reported earnings includes a loss on the sale of our European staffing operations, charges related transformation actions and the sale of our European staffing operations, an impairment charge related to excess lease property and a gain on the sale of assets related to the Ayers Group. The acquisition of MRP added $1.5 million of earnings from operations in the second quarter of 2024. Adjusted earnings in the second quarter of 2023 were $14.2 million. The $8 million increase from reported earnings included transformation related charges and an asset impairment charge. The European staffing operations produced $1 million of earnings from operations on an adjusted basis in the second quarter of 2023. Adjusted EBITDA margin also improved 180 basis points to 3.8%, reflecting 40 basis points of improvement from the sale of our European staffing operations, 10 basis points from the inclusion of the month of June result of MRP and 130 basis points of improvement from our ongoing transformation efforts. Income tax expense for the second quarter was $1.1 million, compared to a benefit of $1.9 million in 2023. Our effective income tax rate was 19.4% in Q2 2024. And finally, reported earnings per share for the second quarter was $0.12 per share, compared to $0.20 in 2023. Earnings per share in 2024 include a loss related to the sale of our European staffing operations and a gain on the sale of the Ayers Group transaction, as well as transaction costs related to the acquisition of MRP, restructuring charges related to our transformation and an asset impairment charge. Earnings per share in 2023 include a restructuring and an asset impairment charge. So on an adjusted basis, Q2 2024 EPS was $0.71 per share, compared to $0.36 per share in Q2 2023, nearly doubling year-over-year. Now reflecting on the balance sheet. Following the acquisition of MRP at quarter end, cash totaled $38 million and we had $210 million of debt outstanding. Our debt to capital ratio is 14.1% as of quarter end, as we leverage our balance sheet to acquire MRP. And as we disclosed at the time of the acquisition, we have amended our credit facilities to maintain the financial flexibility for additional organic and inorganic investment, and to navigate an ongoing uncertain market environment. At quarter end, accounts receivable totaled $1.2 billion, including the receivables of MRP. Global DSO was 57 days, down two days from year end 2023, and down four days from the second quarter of 2023. In the quarter, we generated $55 million of free cash flow, compared to $32 million in the comparable prior year period. Looking ahead to operating results for the second half of the year, our results will be impacted by several factors. First, we believe that staffing market conditions will remain relatively consistent with what we have experienced in the first half of the year and modest sequential revenue improvement in our P&I, SET and OCG segments will continue in the second half of 2024. Our Education segment revenue will be impacted by summer school holiday period in Q3, but will continue to produce double-digit revenues. And finally, the acquisition of MRP will deliver further improvement in both our growth and also value metrics. For the second half of 2024, on an organic basis, we expect revenue to be up 2.5% to 3.5%, with no significant FX impact, resulting in a midpoint revenue expectation of about $2 billion. In addition, we expect MRP to add an additional $260 million to $270 million of revenue in the second half of the year. We expect our organic GP rate to be between 20% to 20.2% in the second half. On a like-for-like basis, this is a 90 basis point decline at the midpoint of our range, reflecting the change in our business mix, primarily because of Education. Our Education business is expected to continue to deliver significant revenue growth. MRP, with its higher margin specialty profile, is expected to add an additional 100 basis points to our gross margin rate in the second half of the year. So, our all-in GP rate in the second half of 2024 is expected to be between 21% to 21.2%. Reflecting on SG&A, we expect to sustain the efficiency improvements that we gained from our transformation-related actions over the past year. The impact on year-over-year trends will moderate, as we anniversary, the execution of most of those actions. We expect that adjusted SG&A, excluding D&A, will be 3.5% to 4.5% lower than a year ago on an organic basis and MRP will add about $60 million of expenses in the second half. All-in, we expect approximately $28 million of deposition and amortization in H2 of 2024. We expect an adjusted organic EBITDA margin of 3.2% to 3.3%, up 30 basis points to 40 basis points year-over-year. And we believe that MRP will add an additional 30 basis points of net margin in the second half of 2024. And back to my earlier points regarding Education seasonality, we expect that our adjusted EBITDA margin will be closer to 3% or 2.6% organic in the third quarter during the school summer holiday period and then improve as in Q4 as Education's working days increase. And finally, we expect our effective tax rate to be in the low-teens. And now back to you, Peter. Peter Quigley Thanks for those insights, Olivier. In May, I shared with you that 2024 would mark an inflection point on our strategic journey. That the actions and results we deliver this year will propel Kelly into a new era of growth. Reflecting on the significant progress we achieved in the second quarter, I'm confident that we're on track to realize those ambitions. Our transformational acquisition of Motion Recruitment Partners has strengthened the scale and capabilities of Kelly's staffing, consulting and RPO solutions in attractive customer end markets, including technology, financial services and healthcare. The highly complementary nature of MRP and Kelly's SET and OCG businesses, MRP's attractive financial profile and its leadership team of recruiting industry veterans will contribute in a significant way to enhancing Kelly's revenue growth potential and driving continued EBITDA margin expansion. The sale of Ayers Group further sharpened Kelly OCG's focus on global RPO and MSP solutions while unlocking incremental capital to redeploy towards Kelly's specialty strategy. And we achieved our initial expectation for EBITDA margin expansion, which we established one year ago, demonstrating the capacity of our growth and efficiency initiatives to significantly improve Kelly's profitability over the long-term. Of course, it's difficult to know the precise timeline of a recovery for our industry. And as Olivier noted, we expect the results in the second half of the year will continue to reflect uncertain market conditions. Notwithstanding these dynamics, I'm optimistic about the sequential stabilization we saw across our business and I'm confident that our achievements in the second quarter, together with the progress we've delivered since we embarked on our specialty growth journey, position Kelly to capitalize when sequential stabilization gives way to a sustained increase in demand. I'm immensely proud of the work of each and every member of Team Kelly, including our newest colleagues at MRP that has brought us to this point in our journey. Their urgency, agility and unwavering commitment to our clients and talent are the driving forces that continue to propel us to new heights. With our team moving forward together, united by our noble purpose, I'm confident that the opportunities before us are limitless. [Operator Instructions] Your first question comes from the line of Kartik Mehta from Northcoast Research. Please go ahead. Olivier, first of all, it's been a pleasure working with you and I wish you the best. You have some big shoes to fill, so thank you for everything. You're welcome. I'm wondering if we could focus on the MRP business for a second. And just as you look at the fundamentals for that business, maybe so far in the second quarter, and you do look at your outlook in the second half, and you compare it to a year ago or maybe a quarter ago, what's been the trend for that business? Olivier Thirot Yeah. I will comment on a few numbers, and Peter can add more color on business trends and so on. You might have seen, Kartik, that we have issued the so-called 8-K/A, and of course, the outlook of today, and you are going to see further information in our 10-Q on what we call pro forma. If you use this information, you will see that H1 of 2024, the revenue was about $260 million, and if you take the mid-range of our guidance today, you are going to be at $265 million. So we expect, similar to what we have said for Kelly organic, basically a slight improvement, basically, in the second half of the year. When you look at how does it compare versus a year ago, H1 at $260 million is about minus 8% versus a prior year, which is consistent with the trends we have shared in June when we are talking specifically about MRP and we expect based on the change in comparables and a little bit of sequential improvement to turn H2 into flat to minus 1%, minus 1.5% versus a year ago. Peter Quigley And Kartik, longer term, I mean, we continue to be very bullish on MRP in particular, but also the space that they are in, both on the staffing and solution side, as well as on the RPO side. We have been very pleased with the partnership we have had with the MRP leadership to-date and the significant complementary nature of our businesses, the lack of significant customer overlap, complementary delivery models. So longer term, we are still very optimistic about the investment thesis in making the acquisition of MRP. Kartik Mehta And then as you just look at the overall business, maybe in each of the segments, I am wondering what you are witnessing in terms of pricing. Have pricing trends or competition increased in any of the segments or are they kind of where they were last quarter? Peter Quigley Well, I think, on a -- in this kind of uncertain environment, market conditions, you are always going to find outlier suppliers that are going to try to buy share, but it is not across the board. It is not an industry dynamic that we are seeing. In fact, we have been relatively pleased with our ability to maintain pricing discipline during these market conditions. Olivier Thirot Yeah. Just when you look at the so-called spread, in P&I it is completely stable. In SET, flat to up, slightly. In Education, a little bit down, but it is more the customer mix than real pricing conversation. So far, and it is not an isolated quarter, Q2 of this year, we have not seen any change or any pressure on spreads. We continue to see that we are capable of keeping our spread, thus keeping our overall margin. Kartik Mehta And then just one last question, as you go down this transformation journey, and obviously, MRP will help, as you look for the next acquisition, is it not that you would like to integrate MRP, so you would wait or if an opportunity turned up, you are at a point where you could do another acquisition? Peter Quigley Well, I think, as we have said, MRP is going to continue to deliver its services and solutions through its operating companies and under its current brand. We will, of course, be working with the MRP leadership on where it makes sense integration. I think our focus right now is on that as a priority, but we are not going to stand on the sidelines in terms of developing a pipeline for future acquisitions. The cycle time is, as you know, Kartik, quite long. So we are preparing for the time when it would make sense for us to deploy additional capital in pursuit of high-margin, high-growth businesses, as I have said before, primarily in the Science, Engineering, Technology and Telecom space, or in our Education practice. Your next question comes from the line of Kevin Steinke from Barrington Research. Please go ahead. Good morning. I want to start off by asking about generating some modest organic growth in the second quarter. It sounded like you were pleased with the progress of the organic growth initiatives that are part of the transformation effort. Would you attribute the return to organic growth as really being driven by those transformation-related organic growth initiatives? Peter Quigley Yeah. I think so, Kevin. It is hard to pin it down precisely, but relative to what we are seeing from our competitors, we believe we are taking share across our businesses and we spent a good portion of 2023 focused on efficiency. But, as I said at the beginning of the year, we were pivoting and turning our attention to growth. I think the progress we have made in our omnichannel strategy and Professional & Industrial is beginning to show results and our focus on taking share within our large enterprise customers is also showing traction. I think the combination of those two, plus obviously the continued growth in Education and a focus on high margin and areas that are a little bit more stable, and we are pleased with the organic growth in the quarter. Kevin Steinke Okay. Good. And it is related to that question, when we think about your forecast for organic revenue growth of 2.5% to 3.5% in the second half of 2024, you talked about assuming kind of a similar demand environment in the second half relative to what you have been seeing recently, but also you mentioned some stabilization and demand, some improvement in Technology and Life Sciences. I am just trying to unpack how you get to that higher rate of organic growth in the second half if it is driven by the organic growth initiatives or assuming some sort of continued improvement or stabilization in just the overall demand environment to get to that growth and also the sequential improvements you mentioned you expect in P&I, SET and OCG? Olivier Thirot Yeah. I mean, I am going to start and then Peter will add some color on the business side and so on. If you think about it, first of all, we did confirm today that we see Education continuing to grow at double-digit rate. Of course, Q3 is low seasonality, but we see the dynamic we have seen for a long, long time continuing, so that is one point. Second point is, when you put on the side Education sequentially from Q1 to Q2, excluding Education, the rest of the business sequentially went up by about 1.5%. We expect similar modest improvements sequentially over the second half of the year. That is basically based on what we have seen sequentially from Q1 to Q2. Some areas it is more stabilization like, for instance, P&I staffing. Others it is really sequential growth and I am thinking about OCG and to some extent SET. We start to see some positive dynamics, as Peter was saying, in our legacy IT business and also Science that are moving up. And on top of that, of course, the growth initiatives that Peter was mentioning, that are part of this sequential improvement of 1.5% I was mentioning from Q1 to Q2 when you exclude Education. And there is also the base impact, right? I mean, the 2.5% to 3.5% is also basically reflecting on the fact that our comparables are basically lower in H2 of 2023 than they were in the first half of this year. Peter Quigley And Kevin, as I mentioned in my prepared remarks, we don't know when there will be a return to a more normalized demand, but we are much better positioned to take advantage of that. And we are prepared to take advantage of it when it happens than we were a couple of years ago just because of all the steps we have taken to structurally improve the cost base and to be able to leverage when demand returns in a meaningful way. But we are not waiting for that, which is why I focused on the growth initiatives that I mentioned. We turned to in earnest at the beginning of the year and we will continue to lean into those growth initiatives, notwithstanding the external market conditions. Kevin Steinke Okay, great. I also want to ask about the trend in adjusted SG&A expenses. You mentioned you expect them to be down organically 3.5% to 4.5% year-over-year. Just trying to think about, on a sequential basis as we move into the second half of the year, how those will trend organically. If we should think about those kind of being flattish sequentially, excluding MRP or if they come down a little bit more. Olivier Thirot I would really continue to look at organic, meaning excluding our European staffing business and MRP. I think we gave today some specific around MRP expectation for SG&A, excluding D&A by the way, for the second half of the year. So if you think about a Q2 trend, if you go really on the adjusted organic, we are at about minus 10% like-for-like in Q2 versus a year ago. In Q1 we are at minus 11%, so very similar trend in the second quarter than in the first quarter. When we move to our guidance that you are mentioning for the second half, of course, the comparables are becoming more challenging, right? Because a good portion of our efficiency initiative was already visible in the second half of the year. So this is why we go for this adjusted guidance. But if you think about it more sequentially, you will see that it's basically flat sequentially from first half to second half or if you look at Q2 to Q3 and Q4. Yes, that's our expectation and this is where we are trending now. Kevin Steinke Okay. Thank you, Olivier. That was very helpful. And I also wanted to add my congratulations and best wishes for your upcoming retirement. Certainly -- So you're going to hear from me for the next two quarters with pleasure. Kevin Steinke Oh, right. Okay. Well, I look forward to talking to you then. Your next question comes from the line of Joe Gomes from Noble Capital Markets. Please go ahead. So now we're kind of a couple of months just into the completion of MRP. Can you describe to me how the integration of it is actually kind of coming along and some key takeaways so far into it? Has the company really picked up any new business ones from it so far? Peter Quigley Well, as we explained, Josh, for the foreseeable future, we're going to continue to operate the businesses as they've been operating under their current delivery models and brands. That doesn't mean we're not spending a lot of time with the Motion Recruitment Partners' leadership team working on ideas and plans for integration when it makes sense. We have been encouraged by the collaboration between the teams on both the staffing and solution side of the Motion Recruitment Partners business, as well as within the Sevenstep business. And there have been opportunities that we've taken advantage of that the combined forces of Kelly and MRP has proven to be an advantage. It's still early, but we're encouraged by what we think is the market and customer reaction to the combination and partnership. And more to come on that as we further refine what the ideal or optimized operating model will be going forward. Josh Zoepfel Okay. That's helpful. Thank you. And you kind of touched on the M&A side a little bit, but you guys talked about in the previous quarter how there's kind of more discussion happening. Is that really still true now? Is there kind of more properties in the market that you're seeing or is it still roughly about the same? Peter Quigley I'd say it's roughly about the same, Josh. There is -- it's still not what it was two years or three years ago. I think companies are still a little bit cautious about coming off the sidelines, so the flow is not what it was at its height. But as you know, in our business in particular, not everything comes to market, and so we continue to explore high-quality, high-growth, high-margin businesses and develop relationships that we think could potentially at some point in the future result in an acquisition similar to how we accomplished MRP. Josh Zoepfel Okay. Yeah. Thank you for the color. And then last one from me, it's been probably a couple quarters you guys commented on the Kelly Arc. Can you guys kind of provide us with an update on that and kind of what's been the interest been like in that program? Peter Quigley Well, the interest is high. The fact is that it's a platform solution that has both the talent and customer side in an area of great demand in terms of AI and automation talent. As with any platform-driven solution, adoption on both the talent side and the customer side takes time. But we have a dozen-plus customers on the platform and hundreds of AI automation professionals that are also partaking in the solution. And it's one of those solutions, again, a platform solution. As individuals and customers begin to join and register, it has a network effect as people hear about it and learn about it and refer other people to the platform. So we're still optimistic about the solution and the value it brings for both talent and customers and we'll continue to invest our time and technology into it. Your next question comes from the line of Marc Riddick from Sidoti. Please go ahead. Good morning. Good morning. And Olivier, I'm glad you're with us today. So we certainly appreciate that. I wanted to touch a little bit on sort of maybe piggybacking on the acquisition pipeline and opportunities that you see there. I was wondering if you thought maybe shifting a little bit sort of comfort levels with that and leverage and sort of how that plays into the thought process of the future acquisition pipeline? Olivier Thirot Yeah. I mean, if you remember at the time of the MRP acquisition, our debt level was $263 million to be very precise. We are already now at $210 million. If you use what I like to use amongst many other metrics, multiple of EBITDA and I'm using the last 12 months EBITDA, that is the calculation we use in our bond governance. We are now at about 1.7 debt-to-EBITDA. So we are making progress. You have seen that our free cash flow for the quarter was over $50 million. So I feel comfortable that over time, not this year, but I think we are going to continue to basically deleverage as much as we can and as quickly as possible. It's going to take, of course, more than the next 12 months, but I feel that we are on the right track. When you see our working capital, glad to confirm that our DSO now is at 57 days, which is, I would say, a big progress versus where we are before and we are in a business where the best way to manage your capital is basically to manage your DSO. So I feel comfortable that what we see in terms of metrics, balance sheet leverage, we are comfortable that we can continue to deleverage and comfortable to basically go for an acquisition whenever we are ready to do it and whenever we have attractive properties. Marc Riddick Okay. Great. And then I guess one quick little follow-up. Is there sort of a general ballpark range we are looking at for any potential technology investments, maybe CapEx for this year? Are there any sort of investments that you see coming, whether it was in conjunction with MRP, but just maybe enterprise-wide would be great? Olivier Thirot I mean, of course, you can assess our CapEx at least on the cash flow by looking at our cash flow statement. Most of our CapEx over time have been on Technology and it will continue to be the case. You need to think about something in the region of $20 million, $25 million on a recurring basis. Of course, that does not take into account technology integration of MRP that, as Peter was mentioning, is going to happen as soon as we have the earn-out behind us. So after Q1 of next year, we are planning for it now, and it will possibly move the $20 million to $25 million up for a temporary period. But that's something that knowing our free cash flow generation, I feel comfortable that we can absorb higher capital expenses and the $20 million, $25 million at least for a limited period of time, which may happen through this integration of technology for MRP. [Operator Instructions] And at this time, there are no further questions. Peter Quigley Okay, Greg, I think we can end the call. Thank you very much. Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.

u-blox Holding AG (UBLXF) Q2 2024 Earnings Call Transcript

Harry Blaiklock - UBS Michael Inauen - ZKB Torsten Sauter - Kepler Cheuvreux Jürgen Wagner - Stifel Hi, everyone. I'm Rafael Duarte, Head of IR at u-blox, here together with our CEO, Stephan Zizala; and our recently joined CFO, Camila Japur. Happy to have you on board, Camila. Our agenda for today, we will present the main aspects of these results, provide you an outlook to the business and close it with a Q&A session. As always, in order to make a question, please follow the instructions in the webcast platform. Welcome, everybody, and thank you, Rafael. Welcome from our headquarters at Lake Zurich in Switzerland. Let's move directly to Page 5 for the highlights of the period. We reported half year results, which came in at the higher end of our guidance. It turns out that we were right in our predictions last year during the Capital Market Day in November. We reached the lowest point of the cycle in the first quarter and saw a slight improvement in the second quarter. EBIT was quite negative as a consequence of the lower revenue. Our cost optimization program started at the beginning of the year and already generated CHF 5 million in savings. Despite the negative EBIT, we managed to maintain a resilient positive free cash flow, mainly from our efforts in reducing working capital. At this stage, if you follow other semiconductor companies, you will not be surprised to hear that we now expect a more gradual improvement in the third quarter. And because of that, we take action and expand the scope of our cost optimization plan. This new broader plan target savings of over CHF 20 million. After this summary, I would like to go through some of the business achievements of the first half. Slide 6. First, on the robotic lawnmower market. We have won businesses that will sum up to over CHF 100 million in revenue from 2024 onwards. I must be honest on this one, when the team came with this number, my first thought was, is this market that big? How many lawnmower's are we talking about here? Then I learned that over 2.5 million lawnmower's are expected to be sold just this year with an estimated growth of close to 20% per year. high-precision technology is expected to be more and more present in those lawnmower's. To me, this is a good example of applications that will emerge in the next year using precise, reliable and affordable positioning technology provided by u-blox. Precision agriculture, automotive construction machines, autonomous cars and many more applications, one did not even consider as possible a few years ago, need to know their exact position. And this is exactly what makes us and foremost me so excited about the future of u-blox and especially positioning. The future holds in numerous applications for our technologies, which will continue to evolve and shape our lives. On Slide number 7, I want to speak about a very important partnership with NVIDIA. NVIDIA is the leader in artificial intelligence technologies, providing solutions that power a wide array of our industries. Their AI platforms are crucial for advancing innovations, particularly in areas requiring real-time processing and decision-making. Artificial intelligence relies heavily on accurate and timely data inputs, including GNSS. Our high-precision GNSS solutions ensure that AI systems receive the reliable and precise position information they need to operate effectively in diverse environments. This collaboration will help to make it simpler for engineers to develop autonomous vehicles and mobile robots based on u-blox, positioning solutions. On one hand, u-blox has joined NVIDIA -- NVIDIA Jetson Partner Ecosystem, which delivers the power of modern AI for industrial, autonomous machines and other edge AI applications across all industrial markets. On the other hand, u-blox is listed as a reference for positioning sensors in NVIDIA's developer kit for autonomous cars. Engineers in the ecosystem can quickly develop and deploy leading-edge AI-powered devices for a wide variety of use cases. Now back to our results on Slide number 8, where we look into our revenue for the first half, which dropped to CHF 121 million at the higher end of our guidance. The negative performance is mainly associated with the inventories held by our customers. In Q2, revenue grew by 16% versus the previous quarter, which confirms our prediction of bottoming out in Q1. On the next slide, you will see the breakdown of this revenue development. Slide number 9. A few important messages here as we look into those details. First, the performance was weak across the board. There are some differences here and there, but the general picture is similar, mainly due to the common effect of overstocking. Second, the only difference I would point out here is the better performance in positioning compared to connectivity. Third, a common question from investor, and in my opinion, a very important one is about market share. I can confirm that we win in our target applications. If I take automotive, for example, we have achieved more design wins in this half year than 1 year ago, a double-digit increase. Now I would like to welcome Camila Japur, our new CFO. She will guide you through the financials. Camila? Camila Japur Thank you, Stephan. Before I start, let me say a few words. I promise not to be long here. I'm very happy to be here today. I joined at u-blox in June and took over the CFO position in July. There are many reasons that make me excited to be here. Let me mention three. The first one is that u-blox addresses key mega trends that create a positive impact in the world. Second, u-blox has a solid financial model in a high-growth industry with high gross margins in a light asset model, which leads to a high cash generation. And the third one is that I believe there are many opportunities to accelerate value creation, some of which I could read confirm during these two months. I look forward to adding value to the company and to collaborating with capital market. Now to the financials on Slide 10. So if we start from the left side, we see adjusted gross profit reached EUR 53 million in the first half this year compared with CHF 156 million last year. The corresponding gross profit margin declined from 46.8% to 43.7% in the current year. As Stephan mentioned before, Locate performed better than Connect in this first half, which generates a positive mix in the gross margin as Locate has a higher contribution margin than Connect. However, this positive effect was offset by a flattish fixed cost of operations in logistics with a lower revenue base. Looking forward, with the same product mix and higher sales, we expect a higher gross margin. Let's move now to OpEx and EBIT on Page 11. Starting with cash R&D expenses on the left side. R&D is CHF 64 million in the first half of '24 compared with CHF 65 million in the first half of 2023. The cost optimization program initiated this year delivered CHF 2.7 million savings in R&D. This was partially offset by new hires made in 2023 that happened before the cost optimization program is started. We are talking about cash R&D in this is slide, just to be clear. As a reminder, our IFRS-based P&L includes the impact of R&D capitalization. R&D capitalization is a topic that I want to dive deeper in the near future. If you go to SG&A, we see a decline by 8%, reaching CHF 31 million. From the CHF 3 million reduction year-over-year, CHF 2.2 million are attributed to the cost optimization program mentioned before. As you can see, OpEx as a percentage of having increased despite our cost optimization program due to a lower revenue base. As a result, adjusted EBIT reached minus CHF 36 million in the first half of 2024 versus CHF 62 million last year. The respective adjusted EBIT margin declined from minus from '19 in the first half of 2023. We are taking actions and expanding the scope of our cost optimization plan with incremental target savings of over CHF 20 million, with first savings expected to be visible in the second half of 2024. This is a necessary adjustment for our cost base to improve profitability. I stop here with the P&L review. For completeness, we have included the full P&L in the appendix. Now we move to our cash flow on Slide 12. We had a strong free cash flow in the first half of CHF 15.7 million despite the negative EBIT. The improvement was mainly due to working capital, which added CHF 39 million to our cash generation. This was driven by a reduction in trade receivables. More details on working capital in the next slide, Page number 13. Here, you can see on the left-hand side, we see the evolution of our working capital in absolute value and as a percentage of revenue. Working capital as a percentage of revenue remains at similar levels compared to December last year despite a significant drop in the top line. This improvement was mainly due to a reduction in trade receivables down by CHF 57 million. Working capital improvement is a top priority and something I will continue to focus in the second half, especially inventory management. Then to conclude, on the right side is our net cash position, which remains very solid at approximated CHF 100 million despite a dividend payment early this year. And it's relevant to highlight that we had no gross debt. Thank you, Camila. Now to our outlook on Page 15. At this point, you have already seen the outlook of other companies that operate in our space. The significant recovery expected towards the middle of the year seems to happen more gradually. Let's talk about some facts. Based on the orders already placed by our customers, we expect a sequential improvement in the second half of the year. As a matter of fact, orders for our positioning business in the third quarter 2024 are higher than in the third quarter of 2023. Additionally, our assessment, based on our knowledge of the industry and relationship with our customers is that the digestion of the overstock is taking slightly longer than expected, also driven by a slower demand in end markets, namely industrial. Let's go to Slide number 16. For the third quarter, we are expecting improved revenue in the range of CHF 75 million to CHF 85 million, which translates into a quarter-on-quarter growth between 15% and 30%. As for EBIT, we expect an adjusted EBIT margin ranging from minus 10% to minus 5%. This does not include the one-offs from the cost optimization program that are expected in the P&L starting in the third quarter. Slide number 17. Due to the more gradual recovery expected for the next quarters, we are increasing the scope of existing cost optimization plans that already started at the beginning of the year. The implementation of this broader plan will start now, and we expect annual savings of over CHF 20 million with its first results already in the second half of 2024. Of course, we will continue to protect our activities, which are core to our strategy. The one-off costs related to the plan are expected to be below EUR 20 million. Slide 18. Before we finish, let me give you an update on the turnaround of our connectivity business. In our Capital Market Day last year, we announced the turnaround with three assumptions: number one, stop this future cellular chip development. This is implemented already. Number two, win market share, leveraging our trustworthiness as a Swiss supplier in a multipolar [ph] world; number three, use scale to become western cost leader. Last year, I made it very clear that we will see if we are successful with this in a matter of quarters, not years. Many of you ask me for a concrete date for an assessment and decision. We will continue to track the execution of this plan closely, and we will review strategic options for the business by end of the year 2024. To conclude on Slide 19, I'm convinced that we go after the right growth markets like automated driving. Yes, the current business situation is challenging, but we are taking action, and we will manage it through. We are the undisputed market leader in positioning based on our unique IP and we will further expand this. And we have the potential to create sustainable value with our focused, innovate and execute strategy. There's a lot to improve and gain. We are a great and committed team, and we are on it. Thank you. Rafael Duarte So thank you both for the presentation. Operator, we are now ready for the Q&A session. Do we have any questions? [Operator Instructions] The first question comes from Harry Blaiklock from UBS. Please go ahead. Harry Blaiklock Good afternoon. Thanks for taking my questions. The first is on automotive. And it seems like it's down quite a bit more than what peers are reporting. And I know the GNSS market and the inventory dynamics there are slightly different from other product categories. But in your mind, what are the drivers of that weakness? And have you seen any loss of market share at all that you're aware of? Stephan Zizala Hi, Harry. So let me come back on this point. Indeed, it's a very important question. So first of all, we suffer heavily from overstocking. That's the main effect of this heavy revenue drop. In terms of market share, I only can repeat in the first half of 2024, we won more projects in automotive than the year before. The dollar value was double-digit percentage higher than the same time frame the year before. So again, to answer your question, overstocking is the main effect. Harry Blaiklock Right. That makes sense. Thank you, Stephan. And then maybe a follow-up to that. You mentioned in the release that the automotive, you see it getting better. But then that, again, seems to be kind of the offset of what we're seeing at peers and industry data as well. I mean we've seen auto production numbers and forecasts get adjusted down for 2024. So I was wondering whether you can provide some color on those comments as well? Stephan Zizala So actually, it's two topics. First of all, again, the effect of overstocking might be much stronger for us than some of the peers you are looking at. And second, of course, we also see a content growth in autonomous driving, which has a higher take rate. And this might explain the difference here. Harry Blaiklock Okay. Makes sense. And then in terms of the cost optimization plan, it would be great to get a bit more color on kind of where that's going to be focused within the business. And then in particular, what are the incremental areas that you're focusing on beyond what was announced last year? And then maybe a follow-up, are you comfortable that those cutbacks aren't going to affect future growth plans? Stephan Zizala So first of all, we will protect our core focus growth areas. That's of utmost importance, and you can be 100% sure that we are acting according to this. But of course, a lower revenue base, a lower business also has some implications what we manage for this business to give you whatever, what resources we need to manage a lower business. And there's a certain way, a natural way to reduce costs and complexity at this point in time, and this we are going after. And second, of course, we look even more closely where we can optimize and which functions we can optimize to broaden this. And just coming back to what we announced at the beginning of the year. At the beginning of the year, we announced let's say, soft cost-cutting measures because we had the assumption, there is a more significant recovery in the second half. As we don't see this, we act and expand the program to other activities across the function while for sure, protecting our core activities. Harry Blaiklock Got it. And then a quick follow-up. The CHF 20 million of savings, are you expecting that full effect in next calendar year. So total CHF 20 million of savings in 2025? Or is it going to take longer to ramp? Camila Japur I can take that one, Stephan. So yes, we should see the first savings already in the second half. Of course, we want to timely execute in a way that we can see the full effect already in 2025. This is in our plan. But this, of course, depends -- we are talking about several markets depends also in the local legislation, so. Harry Blaiklock Okay. Perfect. Thank you, Camila. Would it be okay to squeeze one last question then? Sorry, I'm hogging slightly. If not, I can jump back to queue. On the lawnmower example that you mentioned in the presentation, are you able to provide a rough kind of average selling price figure for u-blox content in a product like that? Stephan Zizala So the range is pretty wide here, I must say, because they are, again, a lot of different scenarios. But to give you the order of magnitude, lower double digit is a good magnitude. Harry Blaiklock Okay. Great. All right. Thank you so much, Stephan and Camila. The next question comes from Michael Inauen, ZKB. Please go ahead. Michael Inauen Thanks. Hi, everyone. Thanks for taking the questions and also a couple of questions. First of all, also on the cost savings program, maybe you can give a little bit more detail what -- or maybe I just forgot, sorry for that, but what was your initial plan actually on the cost savings program? And how much cost do you have planned for that before you now increased it basically? So what was your base assumption before today? Stephan Zizala So originally, we targeted double-digit cost savings. And we achieved around CHF 5 million already in the first half of the year. So we are executing on this one. And now in looking at the situation in the market, where we see is expected a significant improvement in the second half will come more gradually. It's still coming, but not as quickly as we expected. Therefore, we introduced a wider cost saving program. Michael Inauen Thanks, Stephan. But is it fair to say that if Q3 is recovering gradually in Q4 again versus Q3 that what you could do on the EBIT line potentially is eaten up by the cost for your cost savings program or risk, let's call it, restructuring costs? Is that fair to say? Camila Japur Maybe I can start, Stephan here. So we guide for Q3, right? And then we already position [ph] for Q3. We will come in October with a better view about Q4. What we can tell you is that we have a detailed plan behind this CHF 20 million additional savings that we communicated. And we are fully committed to deliver that on a timely basis to make sure that we see this first savings already in the second half of the year. It's very hard to be very precise when exactly it to start, but we see a benefit to do this quicker as possible to see the impact in the P&L. Michael Inauen Okay. Perfect. Okay. Thanks for that. Maybe just two more, if I may, on the cash flow. So you have had a pretty positive free cash flow, thanks to net working capital improvements. But of course, net working capital compared to sales is still pretty high. I mean, that's due to the situation, I understand that. But can we expect to get back to the levels we have seen in the past is 14%, 15%? Or what would be a target there that we could kind of plan with for the next couple of years or, let's say, next 2 years? Camila Japur Yes. So the next item that we are targeting is inventory, right? And as I mentioned, this is top of my agenda for now the coming months, right? So we have, as you mentioned, first half was quite strong in working capital, and this was mainly driven by accounts receivable. We will not guide for the second half. We'll come back to that. But I'm giving you some colors. We need to have in mind that we have the impact of a one-off impact restructuring costs. Our first estimation is something below CHF 20 million, impacting the second half cash. But we also see a gradual improvement we have in the second half. That should lead to a low negative cash flow from the business in Q3, that we should be able to partially offset by working capital actions like inventory reduction. I think this is the main lever for us to improve working capital, yeah. The good news is that with a lower cost base also, we accelerate profitability. Michael Inauen Yes. Thanks. That makes sense. And maybe just the last one on strategic question, particularly for Stephan. We've discussed it before, also the optionality that you have, you call it the bipolar world, which I think is pretty well said. But can you see there already positive effects for u-blox coming from that, let's say, political, geopolitical uncertainties. I mean, are you winning business, for example, in the U.S. against your biggest Chinese competitor? How do we have to think about that? Stephan Zizala I mean, we addressed these topics and in our turnaround assumptions for our connectivity business. And it's not just possible to say one trick will do everything. So for sure, we see more opportunities in this area. And for sure, we also see that we are winning in this area. So it's not something theoretical out there, but it's something we absolutely see to draw a line and say this will be the key part for a successful turnaround. We always indicated it will be a matter of a few quarters. And today, I committed that we will come to a clear assessment by the end of the year. And there, we are very well on track. Michael Inauen Okay. Perfect. Thank you for that. And I wish you a great day and see you soon. The next question comes from Torsten Sauter, Kepler Cheuvreux. Please go ahead. Torsten Sauter Hi. Yes, good afternoon. Actually, I have a couple of questions, if I may. First one would be on the cost section and the -- yes, basically cost cuts. I may have overlooked the figure. Can you disclose the number of full-time employees at the end of Q2? And maybe how should we feel about the development of headcount going forward? Stephan Zizala So, first of all, that the rough number of employees is slightly below 1,400. And we did not put out a concrete number there. So what we target for is this above CHF 20 million savings, and it's also clear that reduction of personnel cost is an included measure to achieve this. Torsten Sauter Okay. Understood. I think it would be helpful to have that number on a recurring basis, if I may say. Then if I may, on Slide 15, where you provide an illustrative quarterly revenue development. Now I put basically a ruler on, and have the feel that you may want to imply an exit rate of Q4 revenues in the tune of say, CHF 100 million or something. Would that quarterly level of a run rate, I assume a restocking effect after destocking? Or is that something that could also help us as a first assessment of where the business could go next year? Stephan Zizala Well -- so first of all, the chart is illustrative. So we didn't want to provide a guidance for the fourth quarter. We are guiding for the third quarter. If we do our forecast, of course, we try to extrapolate the real demand, we don't focus on restocking topics. So if - I don't have -- it's already difficult enough right now to predict how the overstock really is consumed. So predicting now a restocking, which we will see here or there, I'm also absolutely convinced that's impossible. This I don't do. Torsten Sauter Very clear. Thank you. I actually have a couple more questions. Maybe if I may... Just a clarification question. When you talk about these US$100 million in expected revenue in the lawnmower market, is it correctly understood that this would come on top of orders that were disclosed in automotive business in the similar magnitude earlier in 2014? Stephan Zizala Yes, it has basically even two different market segments. Lawnmower's would be rather the industrial market segment and automotive is obviously automotive. So no overlap or no double accounting in there. Torsten Sauter Perfect. Thank you. And then allow me maybe one final question, strategic question maybe. Unfortunately, we are witnessing the advent of drone warfare in the Ukraine battlefield. And now I know that u-blox is deliberately not active in defense applications. However, do you see a risk that resource for new competition is entering the market for unmanned aerial vehicles now? Stephan Zizala Well, first of all, we are not in the market of unmanned autonomous vehicles. So we are delivering positioning components, which are used in commercial or consumer drones. And I think, and I'm convinced based also on our track record in positioning, it's not so easy that with a lot of money, you just can copy two decades of expert knowledge to achieve positioning accuracy and reliability. And there's another factor you need to keep in mind. Already 20 years ago, it was possible to have a pretty accurate position. The problem just was, it was very bulky and very, very expensive. So we talk about thousands of dollars. Our strength in addition to the accuracy and the reliability is that we make it affordable for a wide range of applications. So I'm not -- I'm not concerned at all of potential government-backed companies who try to enter this market. They will stay in their niche. The next question comes from Jürgen Wagner from Stifel. Please go ahead. Jürgen Wagner Yeah. Good afternoon. Thank you. You now give us the revenue split between your businesses, so positioning and connectivity. What would it look like on EBIT level? And yes, the capitalization you did in the first half, also how was that split between positioning and connectivity. And my last question would be amortization was still high when it will go down more significantly as we rolled down a lot, I think, last year. Thank you. Camila Japur So we don't disclose profitability for those business, connect and allocate. What -- if I can give a bit of color is, our expectation is that Locate is slightly positive EBIT in the second half of the year. So this is what I could share at this point. And talking about amortization and capitalization. So this is a topic that is top of my agenda. It's one of my top three priority, and it's something that will work now with the team in Q3 and come back. So most probably can give a better answer next time we have with this call. Okay. Perfect. So thank you very much for everybody that joined the call. And if you have any further questions, you can get back to us. Thank you.