Tech Companies Report Mixed Q2 2024 Earnings Results

Quantum Corporation (QMCO) Q1 2025 Earnings Call Transcript

Brian Cabrera - Chief Administrative Officer Jamie Lerner - Chairman and Chief Executive Officer Ken Gianella - Chief Financial Officer Conference Call Participants Neal Chokshi - Northland Capital Markets Max Michaelis - Lake Street Capital Markets Greetings, welcome to Quantum Corporation's First Quarter Fiscal Year 2025 Financial Results. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Brian Cabrera, Quantum's Chief Administrative Officer. Thank you. You may begin. Brian Cabrera Good afternoon and thank you for joining today's conference call to discuss Quantum's first quarter fiscal 2025 financial results. I'm Brian Cabrera, Quantum's Chief Administrative Officer. Speaking first today is Jamie Lerner, our Chairman and CEO; followed by Ken Gianella, our CFO. We'll then open the call to questions from analysts. Some of our comments during the call today may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenues, margins, expenses, adjusted EBITDA, adjusted net income, cash flows, or other financial operational or performance topics. These statements involve known and unknown risks and uncertainties we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information, please refer to the detailed description we provide about these and additional risk factors under the Risk Factors section in our 10-Qs and 10-K filed with the Securities and Exchange Commission. We do not intend to update or alter our forward-looking statements once they are issued, whether as a result of new information, future events, or otherwise, except, of course, as we are required by applicable law. Please note that our press release and the management statements we make during today's call will include certain financial information in GAAP and non-GAAP measures. We include definitions and reconciliations of GAAP to non-GAAP items in our press release. Now I would like to turn the call over to our Chairman and CEO, Jamie Lerner. Jamie? Jamie Lerner Thank you, Brian, and thank you all for joining us today. Earlier today, we announced our results for our first quarter fiscal 2025. Turning to Slide 3, here are some brief highlights from the quarter. We finished Q1 2025 with $71.3 million in revenue, non-GAAP gross margin of 36.9%, and adjusted EBITDA of negative $3.1 million. These results were largely in line with our expectations, reflecting further rotation of our business toward our long-term initiatives. We continue to take steps to improve the company's capital structure and operational performance, as well as accelerating the growth of profitable revenue streams, which we will discuss further in today's call. First, as part of our ongoing strategic and financial initiatives, we have reached an agreement with our current lenders that significantly increases our liquidity, allows us to take action on improving our operational initiatives and focus on driving Myriad, ActiveScale and the rest of our business to the next level. We added access to over $25 million. This injection of growth capital, combined with the restructuring of our existing debt, allows the company not only to improve its overall capital structure and balance sheet, but positions us well for continued innovation and growth in our target markets. Let me talk more about the company's continued transformation and driving the business to the next level. Quantum has proven experience managing unstructured data with deep roots in video and media and entertainment. The ongoing exponential growth in unstructured data, particularly driven by AI use cases, is creating continued traction for our Myriad and ActiveScale platforms that are uniquely positioned to address these workflows end to end. Our engineering team is delivering the committed Myriad roadmap on time and on plan. With our customers successfully adopting these new features as they are released, giving us confidence in their robustness for commercial rollout. As I mentioned on the last call, while deal cycles can be long for this category of product, we currently have several proof of concept engagements underway and moving forward. These are concentrated primarily in visual effects and post production where we have extensive experience to accelerate adoption along with life sciences, high performance computing, industrial research and manufacturing. We have added to this global pipeline during the quarter with additional AI use cases, with one of note being a multibillion dollar enterprise with the potential for a scaled engagement. Beyond Myriad, we are seeing momentum since deploying all-flash options across our full portfolio. In fact, our DXi T10 had multiple closed deals within days of its formal launch announcement. We plan on aggressively targeting the enterprise backup market with our superior technology, delivering an all-flash format, DXi immutability and the 1U form factor at one of the best total cost of ownership in the market. We solve some of the most complex and important data center and storage problems for the world's largest organizations. While we have had headwinds in the near-term, we believe our solutions provide unique value that no other company can offer. This motivates us to come to work every day and drive these solutions forward. For example, we saw several notable ActiveScale wins in the quarter, including an NBA team that was an existing StorNext customer with content archival needs leading to the purchase of more than 10 petabytes of active and cold storage. The deal included a net new ActiveScale deployment with cold storage, CatDV and StorNext expansion, demonstrating a seven figure deal size when we sell the full product portfolio end to end. In addition to new ActiveScale deployments into existing StorNext and tape install based accounts, we saw ActiveScale expansion deals as unstructured data continues to grow exponentially and we expect these footprints to continue to scale as well as net new customer accounts in both media and entertainment and healthcare. Finally, we remain committed to strong cost and discretionary spending controls through this transformation while continuing to evaluate and consider all possible alternatives. As we execute on our business initiatives that include achieving our operating performance driven by tangible proof points, accelerating growth of new products, and divesting non-core product and assets, our organization will become more focused and operationally efficient. With that, I would now like to turn it over to Ken to walk through our financial results and our updated financing in more detail. Ken? Ken Gianella Thank you, Jamie. Please turn to Slide 6 and I'll provide an overview of the GAAP financial results for our fiscal first quarter. Revenue was $71.3 million, a decrease of approximately 23% year-over-year and essentially flat to the fourth quarter of 2024. The revenue year-over-year decrease was primarily driven by the loss of our largest hyperscaler while the full quarter results do not fully reflect the continued rotation of our business toward our long-term initiatives. We are pleased with the progress. For example, our gross margin for the period was 36.6% compared to 38.5% in the year ago quarter and 38.2% in the prior quarter. This lower margin was due to a very large scale strategic video surveillance sale to the world's largest packing shipping company for all of their ground shipping locations. Also impacting the quarter's profitability was supply constraints that prevented us from shipping higher volumes of higher margin products during the quarter. These supply headwinds resulted in an increase of the quarter end order backlog to approximately $15.5 million, substantially above our normal run rate of $8 million to $10 million. While we anticipate gross margin returning to the low 40% next quarter, we expect higher supply lead times to persist through the end of the calendar year. GAAP net loss in the quarter was 28 - $20.8 million or a loss of share $0.22 per share, compared with a loss of $9.1 million, or $0.10 per share, in the same quarter last year, and compared to a loss of $18.9 million, or $0.20 per share, in the prior quarter. This higher loss in Q1 '25 was predominantly driven by one-time expenses of over $10.7 million. The gain or fair value of warrants was $1.7 million in the quarter compared to a $0.7 million gain in the same quarter in the prior year and a $2.2 million loss in the prior quarter. We anticipate elevated levels of one time spending to persist into Q2 '25 as we complete restructuring activities. However, they will significantly subside as we head into the back half of the fiscal year. Now turning to Slide 7 for non-GAAP metrics, non-GAAP gross margin for the quarter was 36.9% compared to 38.8% in the prior year and 38.5% in the prior quarter. Non-GAAP operating expenses were $30.8 million in the first quarter, a significant decrease from $35.5 million year-over-year and in the prior quarter. This decrease in operational expenses was the result of our proactive actions to improve process and productivity, and we anticipate operating at or below these levels as continued cost actions begin to take hold into the back half of our fiscal year. Non-GAAP adjusted net loss in the first quarter was $8.4 million or $0.09 loss per share, compared to a $4.1 million or $0.04 loss per share in the prior year quarter and a loss of $10.9 million or $0.11 loss per share in the prior quarter. Adjusted EBITDA in the first quarter was a negative $3.1 million compared with a positive $1.5 million in the prior year first quarter and a negative $6.2 million in the prior quarter. This quarter's EBITDA reflects lower margin revenue mix and higher manufacturing costs due to supply chain constraints. We anticipate operational cost controls and improving revenue mix to drive higher EBITDA throughout the rest of the year. We remain focused on improving EBITDA and total profitability, which will continue to be driven by our global restructuring. Combined with our sales team's effort toward a more end-to-end, higher margin subscription based solutions. We continue to anticipate our efforts will deliver sequential year-over-year improvements in profitability, even on a lower revenue base in fiscal year 2025. Moving to Slide 8, I want to provide an update on our annual recurring revenue and subscription metrics. Total annual recurring revenue, or ARR, for the trailing 12 months was approximately 49% of our total revenue at $141 million, with a gross margin on the combined business being approximately 65%. As a company, we continue to focus on total ARR by maximizing our quantum service opportunities to both our partners and customers globally. The best way to demonstrate our progress is through our subscription ARR. The growth in subscriptions continues to demonstrate the progress we are making in our business transformation efforts. In Q1 '25, the subscription portion of our total ARR increased approximately 29% year-over-year and approximately 5% sequentially to $18.8 million. Over 92% of new unit sales were subscription based. Now please turn to Slide 9 for an overview of debt and liquidity at the end of the quarter. Cash, cash equivalents and restricted cash at the end of the first quarter were approximately $17.5 million. Outstanding debt split between term and our revolver was $75.8 million and $35.8 million, respectively. At quarter end, the company's net debt position was $94.3 million. As Jamie discussed at the top of the call, subsequent to the quarter end and as mentioned in our press release today, we added the ability to draw over $25 million to give us more operational flexibility going forward combined with reaching an agreement with our current lenders in which we restructured over $110 million of existing debt that significantly improves our overall liquidity and operational flexibility. The agreement was executed giving Quantum an elevated blended interest rate of approximately 300 basis points in addition to warrants and other considerations. There is an anticipated dilution related to the new warrants of approximately 7% on a fully diluted basis. The agreement has provisions that can reduce the issued warrants significantly in conjunction with pay down of the term loan at the Company's discretion over the next couple of quarters. This agreement allows the Company to focus on driving myriad, active scale and the rest of our business to the next level while becoming more profitable through our restructuring initiatives. Additionally, this amendment underscores our partner's commitment to the Company's strategy and the long-term potential of Myriad and ActiveScale, including the company's commitment to getting back to profitability as we drive towards cash flow positive in the second half of fiscal year 2025. With the new and restructured financing in place, combined with being back on file, the Company can now fully focus on executing our business and expanding our value to our customers. With that, let's close out by turning to Slide 10. And I'll now review the company's guidance for the second quarter of fiscal 2025. First, we anticipate total revenue in the second quarter to be approximately $73 million plus or minus $2 million. This is factoring all potential impact for elongated lien times for all storage media. We expect non-GAAP operating expenses to be approximately $30 million plus or minus $2 million, reflecting the aggressive cost reductions actions taken through fiscal year 2024 and in process actions in FY'25. As a result, non-GAAP adjusted net loss per share for the second quarter is expected to be a negative $0.06 plus or minus $0.02 per share. Based on an estimated approximately 96 million shares outstanding. Adjusted EBITDA for the second quarter is expected to be approximately breakeven. This improvement is driven by anticipated gross margin improvements at the low 40% and continued non-GAAP operating expenses to be on par with Q1 '25 results. In summary, we appreciate all our stakeholders' support through our transformation efforts. Quantum remains committed to improving our customers' experience, driving new and innovative products to market, and leveraging our global footprint to improve Quantum's overall operating model. All of this, combined with continuing our strategic initiatives are actively underway and we are making solid progress. With that, I now hand the call back to Jamie for closing remarks. Jamie Lerner Thanks, Ken. As we discussed today, Quantum will continue to prioritize certain initiatives to improve our operating model and our customers' experience. This includes continuing to prioritize new products and services that help customers maximize their value. Operationally, we will execute our transition to subscription ARR, focused on improved operational efficiencies and work to strengthen our model while also evaluating all possible alternatives to improve shareholder value. Thank you. [Operator Instructions] Our first question is from Neal Chokshi with Northland Capital Markets. Please proceed. Neal Chokshi All right, thank you. I would like to start with the subscription transition. That particular slide, slide page on the subscription transition. Overall, it looks pretty good, except for that the subscription bookings was down to $3.2 million from $4.5 million a year ago. Is there a narrative behind that? Ken Gianella I think mostly it was a little bit of delayed. We were hoping to bump that up this quarter, but we had delays, as we mentioned, with some of the supply chain elements getting out there that we couldn't add that into the number. We were anticipating higher shipments this quarter than what we gave in the results. Neal Chokshi Okay, but can't you take in a booking without shipping? No, we relied for that one it has to be in place for that. Jamie Lerner Yes, you can't RevRec the software unless you've shipped the hardware to run it on because without the hardware, it doesn't have any value. Unless we sell it separately, but these deals weren't separate. Neal Chokshi Got it. Understood. Okay. On the gross margin, the three components of product, service and royalty, it looks like, product actually did quite well, on a Q-over-Q basis, I'm sorry, on a - yes, on a Q-over-Q basis it did quite well. But the service gross margin went down 600 basis points, both Q-over-Q and year-over-year. Why is that? Ken Gianella Part of this is just when we get to scale; it's trying to clean up some of the regions where we were operating in. We had a little bit staffing that we were working through and higher operating costs in some of our regions, predominantly North America and Europe. And we're looking to find ways to operate a little bit more effectively than we were in the past. Neal Chokshi Okay. It has nothing to do with selling the receivables on the services business, right? Ken Gianella No, that was purely an operational element that would follow through it or didn't - the overall COGS of the business, but that was not an impact to it. This was more just operational efficiencies that we saw in the regions in Q1. Neal Chokshi Okay. And then Jamie, can you comment on what is the Q-o-Q bookings trend for Myriad and ActiveScale? Jamie Lerner Yes, I mean, we don't put those numbers out, but we're pretty encouraged right now. I mean, ActiveScale, it's really starting to stand apart from its competitors, really, based on two things. One is its tremendous ease of install and ease of use, particularly at scale, and the fact that it's one of the only, but pretty much the only object store that has erasure coded tape integration. So the ability to support flash, disk and tape simultaneously, there's just no other object store that does that. So we're seeing good adoption of ActiveScale. I think our partners are well trained to sell it. I think our sales team is well trained to sell it. With Myriad, we're at an earlier part in the growth curve. We've been getting a lot of independent testing, validation that shows the product is outperforming, even what are viewed today as the world's fastest file systems. We're outperforming those in some cases by 250%, just 2.5 times faster than our next closest competitor. So I really like how it's doing in trials. A lot of those trials are actually right now converting into sales. Myriad has a little bit of a more unique network configuration, but once configured, what it can do and its ease of use are incredible. So I think this quarter, the current quarter, were in subsequent quarters, we're seeing the Myriad trials that we were in last quarter converting. So I feel really good about that. I think we're getting a very high success rate and conversion rate on the trials and where we have more work to do there is training our broader sales force, training the partner community on selling what is a new product and a very new architecture. So that's where a lot of our energy is going, is not just having our best people be able to sell it, but having our top integrators, our top resellers, our top distributors really starting to build that knowledge base as well. So we're putting a lot more energy into training and education around the Myriad product. Neal Chokshi Okay, awesome. That's great, color. I appreciate that. I'll get back into the queue. Thank you. [Operator Instructions] Our next question is from Max Michaelis with Lake Street Capital Markets. Please proceed. Max Michaelis Hey, guys. Thanks for taking my questions. First question here, just related to really no mention of the fiscal year 2025 guide you guys provided last quarter. Just kind of want to get a comment from you guys on maybe what went into stepping away from that or not reaffirming that. Was it mainly just these supply chain constraints here, or I guess, comment on what you guys are thinking for the full year guide? Ken Gianella Well, first we gave the first the full year outlook at the beginning of the fiscal year, and traditionally we give that at the beginning of the year and we don't reiterate it. So I wouldn't read anything into it. I mean, Q1 was slightly down, but that went into backlog than what we anticipated. Q2 is kind of the same thing and we do see some headwinds, but we are looking for elements to try to catch up here as that loosens up towards the back half of the year. So I wouldn't read into that in any way other than traditionally how we approach it. Max Michaelis Okay, I think I forgot. So that previous adjusted EBITDA guide for $10 million to $20 million still sort of stands is what you're saying. Ken Gianella Yes, I mean, we said on the prior call when we put that out there, it was going to be back half weighted. You might have heard in my prepared remarks where we were very clear about $10.7 million of GAAP expenses that were hitting the company, that transition. Because if you guys remember, we were just getting back on file. Getting back on file coupled with active restructuring of the organization, coupled with several new MPI launches that we're doing in the back half of the year as well as now, as you heard Jamie mention, when I'm really proud of is the DXi launch that went out and it was a couple days out in Public GA, and we won two big deals away from one of our key competitors. So we've invested a lot of capital dollars here in the back half of the year, and this first half of the year that once we get through this one time spend, we see the profitability really starting to take hold into Q3, into Q4 to make us up to that number. Max Michaelis Okay, perfect. Thanks, guys. And then last one for me, I think the number was $16 million of operational efficiencies. I kind of want to get an idea where we're at. I mean, how much have we recognized? I guess in Q1 out of that $16 million going forward throughout the year and if we're on track there. Ken Gianella I don't give that specific number. I don't want to get into a thing of every quarter announcing kind of where we're at for a lot of reasons. But I will say that we are on track and our goal is to have that number at least fully in hand by the end of the calendar year. Jamie Lerner But, I mean, Ken, to give you a little more credit, I mean, we did have OpEx last quarter of over $35 million. So that's over $5 million annualized. That's pretty good. We have more we can do, but I don't. Other than one quarter where we had some anomalies, we've never had OpEx at $30.8 million. And I think we see a pretty clear path to getting under $30 million, which is just, we've never been at levels of that kind of efficiency before, even before we made our acquisitions. So it's pretty good. I'm pretty pleased with it. Now, the gross margin, not so much, but we'll resolve that. With no further questions at this time, I would now like to turn the call back over to Jamie Lerner for closing remarks. Jamie Lerner Yes. Look thanks, everyone. Thanks for sticking with us. I do think there's better days ahead. I'm really encouraged that our lenders supported us with the $25 million that we brought in. I feel really excited in what we can achieve in the explosion in AI and just how much our media and entertainment experience translates to AI success and how our products, particularly Myriad and ActiveScale, are just turning out to be so unique in that space. And now that we have the runway to really play that out completely with our lender support, I really am encouraged for what's going to happen in the future for us. And I'm excited to talk more over the coming quarters of how we're going to expand in these new markets. So thanks, everyone, and thanks for today's call. Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

CuriosityStream Inc. (CURI) Q2 2024 Earnings Call Transcript

Laura Martin - Needham & Company James Goss - Barrington Research David Marsh - Singular Research Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I'd like to welcome everyone to the CuriosityStream Second Quarter 2024 Earnings Conference Call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Tia Cudahy, Chief Operating Officer and General Counsel. You may begin your conference. Tia Cudahy Welcome to CuriosityStream's discussion of its second quarter 2024 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream's Chief Executive Officer; and Brady Hayden, CuriosityStream's Chief Financial Officer. Following management's prepared remarks, we'll be happy to take your questions. But first, I'll review the safe harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management's current views only, and the company undertakes no obligation to revise or update these statements or to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today's press release. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended June 30, 2024, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Unless otherwise stated, all comparisons will be against our results for the comparable 2023 period. Thank you, Tia, and good afternoon, everyone. In addition to Tia, our COO and General Counsel, our CFO, Brady Hayden, is on our call today. I appreciate everyone joining us today for this milestone quarterly report. In light of well-directed hard and efficient work by a tight talent dense team of people. We generated our highest ever quarterly adjusted free cash flow. Specifically, we generated $2.5 million in adjusted free cash flow in the second quarter, a year-over-year improvement of about $7 million, and an over 100% improvement from Q1 2024. This marks our seventh consecutive quarter of adjusted free cash flow improvement. We also increased our top line revenue sequentially. I'm happy to say, and I would like to make it abundantly clear that Curiosity is generating cash. I know that sometimes accounting terms like EBITDA, adjusted EBITDA can be confusing, which is why I'm using this very concrete language about generating cash. Even as we paid a significant dividend, our cash position from Q1 to Q2 increased. We believe we're well positioned to grow top line revenue to generate meaningful adjusted free cash flow and to continue to pay our dividend from surplus cash. In Q2, we increased our direct subscription revenue sequentially and year-over-year. At approximately $10 million in direct revenue for the quarter, our annualized direct revenue alone now exceeds our current annualized operating expenses, including our more variable categories like content and marketing. As we have considerable flexibility around our marketing and content investments, we do have the ability to lever up our marketing and acquisition spend based on seasonality, key promotables and other relevant company and industry dynamics. While our overall licensing and bundled revenue was up slightly sequentially, I would like to note that we did expand into some new categories of licensing partners in Q2 and granted some rights that we had never explicitly granted. As licensing can be lumpy, these new categories will not necessarily reduce spikes, but they will certainly help to increase our floor. We are achieving new heights and critical milestones while continuing to thoughtfully rationalize our cost base. Simple way for companies to cut costs is to just slash marketing. Now that's the easy way out and that can have a damaging long-term impact on growth. We've not done that. We believe our cash marketing spend in 2024 will be roughly equivalent to what it was in 2023. We've done the harder work in reducing annualized overall operational costs by more than 30%. We've renegotiated vendor relationships, consolidated vendors, leverage certain emerging productivity tools and like other profitable companies, properly incentivized cost containment across the organization. On the content front, we launched several new programming initiatives, including Earth Month, anchored by the premier of our landmark original series, The Sun. The Jaws & Claws Week, anchored by the premier of our three-part original series Tracker's Diary: Tigers of Nepal, and our extensive new Summer Doc-busters campaign, with a premier of groundbreaking original series Fateful Planet. Throughout the quarter, we continued to premiere many other original series and specials across the full spectrum of factual, including original series like Taste: The Flavor of Life, a great look at the evolutionary role of deliciousness, and Wings: World War Two in the Skies, a two-part special chronicling the air-wars in Europe and the pacific released for the 80th Anniversary of D-Day. In closing, I'm delighted to again reinforce that for the quarter, we generated $2.5 million in adjusted free cash flow, and we ended the period with nearly $40 million in cash and equivalents and zero debt. We believe our strong balance sheet and projected 2024 positive cash flow make us stand out in the current environment. Moreover, we continue to believe that our global appeal, our direct subscriber base and direct platforms, our broad and deep content library of tens of thousands of licensable audio and video programs and raw footage, as well as monetizable data sets like images, transcripts, code and text, our multi-year third-party agreements, our public company currency and our rationalized cost structure are uniquely favorable attributes that provide us with sustainable long-term strength and exceptional flexibility. I'd now like to pass the baton to my friend and colleague, Brady Hayden. Brady Hayden Thank you, Clint, and good afternoon, everyone. First of all, let me just say that I'm grateful to be taking the reins of the finance organization at such a pivotal time in the company's history. Having successfully reinforced the financial foundation of the company, we are now squarely focused on creating shareholder value through profitable growth and prudent capital allocation. We have already demonstrated clear progress on this journey. In each of the past two quarters, we have increased our cash balances even after returning cash to shareholders through our dividend and share repurchases. And thanks to our strong balance sheet and positive cash flow profile, we see a wealth of possibilities moving forward. As Clint said, we achieved another milestone in the second quarter as adjusted free cash flow of $2.5 million came in at the high end of our guidance range. This also represented the highest quarterly adjusted free cash flow in the company's history, and our seventh straight quarter of sequential improvement in this metric. Revenue for the second quarter was $12.4 million compared to $14.1 million a year ago and near the midpoint of our guidance range. Adjusted EBITDA improved by $5.5 million, and our adjusted free cash flow improved by $6.8 million as we continued our intense focus on the bottom line. Second quarter gross margin of 52% increased from 30% a year ago, driven by lower content amortization as well as significant reductions in our cash based cost of revenues. Our gross margin, excluding content amortization, which really gets at the cash cost of delivering services was 89% in the quarter compared to 75% a year ago. Our largest revenue category in the quarter was our direct business, which generated $9.8 million, up 70% (ph) from a year ago and 3% from the first quarter, as we continued to benefit from the price increase we began rolling out last year. Our additional revenue categories, content licensing, bundled distribution, and other generated $2.6 million in the quarter compared to $5.7 million a year ago. This change was driven mostly by the timing of content licensing deals as this continues to be an inherently lumpy part of the business. Turning back to second quarter expenses. G&A was $6 million, down 25% from a year ago as we continue to realize the benefits of our planned spending reductions as well as our finance transformation and workforce optimization efforts. Second quarter advertising and marketing expense of $3 million declined 29% from $4.2 million a year ago, as we increased our efficiency in deploying our customer acquisition dollars. Adjusted EBITDA loss was $1 million in the quarter compared to a loss of $6.5 million a year ago. While we don't provide guidance with regard to this metric, we believe that breakeven adjusted EBITDA is within our reach as we expect margins to continue to improve in the coming quarters. And as we mentioned earlier, adjusted free cash flow was $2.5 million in the quarter compared with a negative $4.3 million a year ago. We, of course, paid our first dividend of $1.3 million in April, and we ended June with total cash and equivalents of $39.6 million and no outstanding debt. We believe our balance sheet remained in great shape with $91 million of assets, $26 million of liabilities and book value of $65 million or approximately $1.21 per share. One final note on the second quarter. On June 11, we announced that our Board had approved a share repurchase plan for up to $4 million. And through the end of June, we had repurchased 22,000 shares of our common stock and we will continue to strategically buy back shares going forward. Moving to third quarter guidance. We expect revenue in the range of $12 million to $14 million and adjusted free cash flow in the range of $1.5 million to $3 million. With that, operator, we can open the call to questions. Thank you. We will now open the line for questions. [Operator Instructions] Our first question comes from the line of Laura Martin with Needham & Company. Please go ahead. Laura Martin Thanks. Okay. So just you gave a long list of the assets you own. Have you thought about doing anything in trying to license the rights that you own to generative AI large language model by chance? Clint Stinchcomb Thank you for that question, Laura. And we have, I think, we started reading about a lot of the publishing agreements that have been entered to over the last three to five months with -- between companies like Google and Reddit and Runway and Getty Images and Microsoft and Informa and OpenAI and Shutterstock. And clearly, there is an interest from many of the generative AI companies in licensing various data sets to train their models. And I would say that we feel really good about the position that we're in as it relates to that. When we consider the scope of assets that we have, we -- well over 100,000 hours of raw footage. We have over 10,000 finished programs. We have 7,000 plus audio programs. We have a lot of code. We have a lot of -- hundreds and hundreds of thousands of images, review questions, test, and a lot of content that we understand is rather appealing. So I think just as we try to negotiate fair and good value exchange with the traditional licensing partners, and we're well aware of the opportunity that exists in licensing for training purposes and I think even down the road for derivative exchanges and other exchanges. So yes, it's certainly something that is -- that we're focused on right now, obviously, not at the exclusion of continuing to grow our direct business, but we really do see that as a meaningful opportunity. And we'll likely talk much more about that on our next call. Laura Martin Okay. That's super helpful. And then really great cost control. Are you offshoring any of your FTEs? Clint Stinchcomb Well, we are offshoring some of our engineering activity. They're not FTEs. But yeah, we had -- I think we've done -- our Head of Engineering has done a terrific job over the last nine months and really reimagining what that organization should look like, and leveraging just some really talented people around the world. Laura Martin Okay. So they don't show up at the full time headcount, they're like contractors basically. Is that the idea? Clint Stinchcomb That's right. I mean, we did -- obviously, as part of sort of optimizing the workforce. There were some people who were FTEs whose functions are now replaced by offshore engineers and the like. Our next question comes from the line of Jim Goss with Barrington Research. Please go ahead. James Goss All right. Thanks. The first couple of quarters, your revenue comps were down at least a little bit from a year ago and third quarter guidance looks to be the same. Could you talk a little about what's driving that? Obviously, you've made up for with the cost controls. What is behind the revenue declines? Clint Stinchcomb I think if you look actually, Jim, at our cash revenue for 2024, we think that will be -- we think that will actually exceed our cash revenue from 2023 with non-cash revenue in 2023, as do all companies. And I think that -- the good news is, really, we've put some roots in the ground. We put some real, I think, helpful guardrails around various parts of our spending. And we're confident that we're going to continue to grow our direct revenue and continue to grow our licensing revenue. We're trying to be relatively conservative in how we project that today. James Goss Okay. And if you look at -- well, maybe you might update a little on the VIZIO FAST channel, how that is working out and to the extent that JVs are becoming more commonplace, is that one of the areas you're focusing on getting other partnerships that you think could work for you? Clint Stinchcomb Yeah. Thank you for asking that, Jim. It's a great question. And yes, we launched with VIZIO in the U.S. in late June. And I will tell you that just in the last few weeks, we've rolled out our AVOD content with Tubi in the U.K., with Pluto in the U.S. and even with Samsung in several countries in Europe. So as you know, those deals take a long time to do, and then it can take a long time to get your content published or your channel launched even after an agreement is in place. So there's a bit of a lag there. But we're excited about what's happening there and what's possible over time. We even turned on PayTV advertising recently with our PayTV channel in Australia with our partner, Fetch there. So that advertising revenue will continue to grow and will be durable and certainly more predictable than it's been in the past. There's just a pretty healthy lag from getting a deal done with companies and then getting all of the content to them and then having them actually publish it on their platforms. In regard to JVs, I mean, well, I would characterize it necessarily as a JV. We did work with -- and we are working with Estrella, excuse me, top Hispanic media organizations in the U.S. and the world, quite frankly. And Samsung is launching three of our channels that we've developed with them, Curiosity Espanol, Curiosity Motores and Curiosity Animales. So we're excited about that. And we will - we work with partners where it makes sense. We have various partners that, whose content we incorporate into our broader structure for exploitation on AVOD for exploitation on FAST and even in various licensing agreements. So I think we've been quietly doing a lot of work in that area. We're quite optimistic that, that will bear fruit here over time. James Goss Okay. One last one, the theatrical exhibitors have focused a bit more on alternative content than has been -- historically been the case. So that might be getting pushed back as fresh content starts to come in to a greater extent. But I was curious if you think any of the content that you have might lend itself to either an alternative content series or edited to fit like one or two, theatrical films? And what is the video or audio quality of the content you have? Would it be applicable to a theatrical setting? Clint Stinchcomb Yeah. I think that as far as the quality of content that we have, I don't think anybody can take issue with that is -- it's I think, by any objective standard of measurement, extremely high quality. And sort of going back to a question that Laura asked, when you talk to the large generative AI companies, what they will tell you is, what they are looking for is really kind of three things, and that is quality of the video, meaning, is it 4K HD, or in our case, we have content in 5K. We have content that's in 8K. They're also looking for volume, which we have and they're also looking for diversity of imagery, which is something that, obviously, we're blessed to have, having built a library that we do. In regard to doing some sort of theatrical release, we've looked at a few opportunities to do that. It's been hard to figure out a way to make the money work based on the amount of time that we would have to put in. But what I will say is, like, we're constantly looking at new areas to license our content into. And one example from the last quarter is we did two licensing deals with in the confinement space where I think our content is well suited. And we also licensed a new asset class of content to a partner in Q2, that being raw footage, which was interesting. So we're looking at all those. And I guess I'll just -- the last thing I'll say there, Jim, is that we did licensing deals with six companies with whom we never worked with last quarter, confinement, public broadcaster, tech category, we'll talk more about a couple of partners in Asia. So always looking at the best ways to display and license our content. And if we can figure out the right economic exchange there, it's something that we would take a hard look at. Our next question comes from the line of David Marsh with Singular Research. Please go ahead. David Marsh Hey, guys. Thank you for taking the questions. With regards to your revenue guidance for the next quarter, can you just talk about what the puts and takes are that would allow you to get towards the top end of the range? And can you give us a sense of your feeling in terms of how much recurring revenue might help support kind of the bottom end of the range, please? Clint Stinchcomb Yeah. I think that that's a great question. Thank you, and I'll let Brady fill in here. But as I mentioned at the beginning of my remarks, our direct revenue continues to grow, and we believe that it will continue to grow next quarter as well. And that in and of itself today on an annualized basis, is at a stage where it covers our -- that alone on an annualized basis covers our annualized operating cost. And so you say, okay, everything above that is margin. And in our case, we have a robust content licensing business is no surprise to anybody. We're in a number of conversations with great partners around the world, and there is just a there's a broad range of outcomes there. Like, we're really enthusiastic about the ultimate outcomes of many of these, but what's a little harder to predict is, okay, or -- which of those will close by September 30, like, that's the calculus. And so if some come in a little bit earlier, then we're at the top end and even potentially above. If they come in later, then we're maybe not at the top end, I guess, it's a good way to say it. What would you say, Brady? Brady Hayden Yeah. No. I think, Dave, you're spot on with the question. It's -- if you take just our direct business, including both DTC and partner direct, bundled distribution is pretty easy or easier to predict. And even in the other categories, some of the advertising revenue, I would certainly say has become recurring, that probably gets you near the bottom of the range, it's the content licensing and the timing of those transactions that would push it to the top of the range or perhaps even above it. David Marsh Okay. That is really super helpful. I appreciate that. And then the other question, I mean, I guess, just to echo Laura's comments, the cost control is amazing, and just looking at gross margin, I mean, this is like a super, super gross margin quarter relative to as we look back the last couple of years. Is this gross margin rate sustainable going forward and what would be types of things that might cause it to retrench kind of back into the mid-40s? Clint Stinchcomb Yeah. I'll -- just having been here a little bit longer than Brady, I'll take that, Dave. But -- and then hand over to Brady for any additional color. But without a doubt, we continue to do work on the cost side. And we have a handful of vendor agreements coming up over the next six months that could help us improve there relatively significantly. And just as we see a really interesting revenue opportunities as it relates to the emergence of AI, we're already seeing efficiency tools that are available there, in editing, in marketing, in some other areas that can help to -- that can help enhance our margin as well. And whereas we tend to focus really hard on cash accounting internally, because we think that yields ultimately the best results. I think that you'll see, based on our content amortization levels, like, you'll see our profile even from a an EBITDA standpoint just continue to improve over the next many quarters. Brady Hayden Yeah. I would just say we would anticipate that our content amortization would continue to decline over the next few months. Obviously, it -- we will acquire and publish new content, which essentially would keep that number flat at some level, there's a floor there at some point. But yeah, certainly, both on the content and [indiscernible] side and on our cash-based cost of sales, we've seen some improvements there. David Marsh Great job there, guys. Keep up the good work, and we'll talk to you again. This will conclude our question-and-answer session. And with that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.

KULR Technology Group, Inc. (KULR) Q2 2024 Earnings Call Transcript

Welcome, everyone, to the KULR Technology Group Second Quarter 2024 Earnings Call. KULR Technology Group is traded on the New York Stock Exchange under the ticker symbol KULR. In just a moment, I'll be joined by the CEO of the company, Michael Mo, as well as by the CFO of the company, Shawn Canter. As usual, like the calls in the past, today's call will cover opening comments from both Michael Mo and Shawn Canter, and then it will be followed by a Q&A session where the company representatives will answer questions that were e-mailed in to the company for this call. Now before we get started on the call, we do need to cover the Safe Harbor statements. This call does not constitute an offer to sell or solicitation of offers to buy any securities of any entity. This call contains certain forward-looking statements based on the company's current expectations, forecasts and assumptions that involve risks and uncertainties. Forward-looking statements made on this call are based on information available to the company as of the date hereof. The actual results may differ materially from those stated or implied in such forward-looking statements due to risks and uncertainties associated with their business, which include risk factors disclosed in their Form 10-K filed with the Securities and Exchange Commission on April 12, 2024, as may be amended or supplemented by other reports the company files with the Securities and Exchange Commission from time to time. Forward-looking statements include statements regarding their expectations, beliefs, intentions or strategies regarding the future, and can be identified by forward-looking statements such as anticipate, believe, could, estimate, expect, intend, may, should and would, or similar words. All forecasts provided by management made on this call are based on the information available to them at this time, and management expects that internal projections and expectations may change over time. In addition, the forecasts are entirely on management's best estimate of their future financial performance, given their current contracts, current backlog of opportunities with conversations -- and conversations with new and existing customers about their products and services. The company assumes no obligation to update the information included on this call, whether as a result of new information, future events or otherwise. With that, I will turn over the call to Michael Mo. Michael, the call is yours. Michael Mo Thank you Stuart. This is Michael Mo. Thanks to everyone for joining us today. I'd like to go over some of the financial and operational highlights here. In Q2 2024, we achieved revenue of $2.43 million, up 39% sequentially from Q1. Engineering service revenue increased 76% year-over-year to approximately $1.3 million a record for KULR. Total paying customer number increased 42% year-over-year to 27%. Service revenue customer increased 100% year-over-year to 14%, and product revenue customer increased 25% year-over-year to 15%. In Q2, KULR made significant investments to enhance the capabilities and talent within our Battery Center of Excellence located in Webster, Texas. These investments are critical to our goal of driving revenue growth by providing comprehensive in-house product and service solutions that span the entire life cycle of battery design, testing, prototyping and volume production, all under one roof. I believe we are well positioned to resume year-over-year revenue growth in the second half of 2024 with our new customer wins. During this quarter, we moved into our new state-of-art 17,500 square foot facility. This expanded space was designed specifically to meet the growing demands of our battery design and testing contracts, supporting key industries such as aerospace, defense, electric mobility and space exploration. This space is approximately 2.1 miles from NASA Johnson Space Center and is next to companies like Axiom Space, Leidos, Blue Origin and many others. It is an ideal location to provide the one-stop shop for rapid turnaround design, testing, and production service to the surrounding ecosystem of aerospace customers. We now have a vast majority of our battery engineering team in Webster, Texas to perform three key functions, battery cell and pack-level testing, battery design and analysis, and battery production and engineering services. Our battery design testing capabilities are a key factor in establishing our credibility in understanding and mitigating thermal runaway in lithium-ion batteries. We have accumulated extensive data on various cell chemistries, formats and their reaction to different triggers. This growing data set directly informs ongoing improvements to the KULR ONE architecture. The impact of this work is already evident in this quarter, as we secured a contract from a top Japanese automaker for testing analysis of high-energy battery cells for the next generation electric vehicles. Once we complete our KULR Texas facility built out by the end of Q3, we estimate our testing service capacity at approximately $2 million per quarter. These services include the NASA's award-winning FGRC test, as well as various stealth impact-level abuse thermal runaway tests. These are high-margin services that leads us to design better and safer batteries for our customers. Our battery design and analysis capabilities are a key differentiator. We assembled a team of seasoned design experts complemented by advanced computer modeling and analysis tools allows to deliver cutting-edge solutions in this critical area. In addition to our proprietary products and components such as Thermal Runaway Shield and ISC trigger cells, we continue to provide and develop new technologies for thermal runaway cell body heating protection and ejecta mitigation. At the system level, we have developed KULR's own radiation-tolerant battery management system for our space exploration customers. We're incorporating all these capabilities into design analysis process to build a more robust KULR ONE Space, KULR ONE Guardian, and KULR ONE Air batteries. In Q2, we also expanded our battery production capabilities. Being a one-stop shop for our KULR ONE Space and KULR ONE Guardian customers is a big competitive advantage for us as these customers require speed and quality. We enhanced our infrastructure by integrating our expert fabrication and assembling teams with on-site precision machining, which allows us to scale production quickly and efficiently. As you know, our service revenue is an early indication of potential product revenue. As we achieved record engineering service revenue for Q2, we're preparing for these service customers to go into prototype and production build in the near future. This is why we have been carefully and strategically investing in our production capabilities, to bring one-stop shop service to our customers. A big driver for our service revenue and our motivation to invest in these capabilities is the KULR ONE Space market opportunity. The space economy is going to be $1.8 trillion dollars by 2035, according to McKinsey. This is driven by commoditization of the space industry. The space battery market is estimated to grow to 6.35 billion by 2030. We expect our KULR ONE Space platform to play an important role in this market. Some of the key players in driving this tremendous growth in the space economy include the rapidly growing private companies, such as SpaceX and Blue Origin, continued growth of the traditional government flying contractors, such as Boeing and Northrop Grumman, and new and upcoming companies like Voyager Space, Axiom, and Vast. Many of these are already KULR customers. During Q2, we made significant investments in the technology readiness level of our KULR ONE Space battery architecture, which is already been utilized by Voyager Space and other partners for their upcoming missions. The KULR ONE Space architecture is a scalable safety-first battery design developed with the goal of achieving NASA JSC-20793 certification for human spaceflight applications. Our efforts in Q2 also focus on commercialization of the KULR ONE Space architecture to meet the specific mission requirements of the CubeSat and SmallSat industries. The first off-the-shelf commercial version of the KULR ONE Space is a 200 watt hour version that will be available in fall of 2024. This off-the-shelf solution is engineered to deliver an optimum balance of performance, quality, safety and cost advantage positioning as the industry leader. These developments underscore our commitment to provide advanced battery solutions to meet the rigorous demand of the space of exploration market and beyond. Next to KULR Vibe, in addition to the traditional helicopter and drone delivery markets, we see good opportunity to apply KULR Vibe to computer server fans, and industrial fan applications. As AI demand exponentially more computing power and energy consumption, so does the need for cooling with both air and liquid thermal systems. For air cooling, fan performance is critical to drive enough airflow to cool the latest AI GPUs. Fan performance is limited by the vibration and rotor speed. By removing vibration, KULR Vibe can make bandwidth at higher speed with less energy, less noise, and generate more airflow, therefore providing more cooling to the AI chips. According to Morgan Stanley, the liquid cooling system for NVIDIA's GB200 Blackwell high-end rack costs more than $80,000, about 15 to 20 times the cost of an air-cooling system for an existing rack of NVIDIA H100 chips. More than 95% of the current data centers use air cooling because of its maturity and reliability. There lies our opportunity. We are working on fans used by Facebook's Open Compute Project servers. We are also working on higher-speed fans that can be used to cool the highest performance AI servers. We expect to report performance results and new customers in second half of 2024. Next, Shawn Canter will go over financial highlights. Shawn? Shawn Canter Thanks, Mike. Our Form 10-Q for the second quarter of 2024 is now available online. Please refer to it for more details. I'd like to highlight three themes that we are focused on. One, growing revenue and relevant KPIs. Two, spending less cash, and three, stronger balance sheet. This slide shows key KULR full year annual growth trends from 2021 to 2023. Total revenue up over 300%. Product revenue up over 360%. Service revenue up almost 220%. Paying customers up 165%. Revenue per customer up 54%. KULR is a growing business. Here's the trailing 12 month revenue chart starting from the first quarter of 2021. As you can see, growth doesn't always happen in a straight-line. When you get a perspective, you can see the growth trend. Trailing 12 months revenue since the first quarter of 2021 is up almost 900% through the second quarter of 2024. Going from a broader perspective, now let us zoom in. Second quarter versus the first quarter of 2024 revenue was up 39%. KULR's using less cash. Comparing the six months ending June 2023 and 2024, cash used from operating activities is down 7%. Cash used in investing activities is down 82% for a combined cash use reduction of 13%. KULR's balance sheet, comparing the end of 2023 to the end of June 2024, cash plus accounts receivable up 40%. Liabilities down 42%. KULR's balance sheet is getting stronger. All right, thank you for that. Now let's move on to the question-and-answer portion of the call. Here is the first question submitted by one of your shareholders, regarding bills H.R. 1797 and S.1008 Setting Consumer Standards for Lithium-Ion Batteries Act and with Representative Ritchie Torres as the sponsor, it seems like KULR fits perfectly to be the leading candidate for this bill. Can you give us any information regarding this bill and whether KULR is a top candidate? Also, is KULR building the new cathode for Tesla in the Cybertruck? So, a detailed question right there. I will put it to both of you and see who wants to answer it. Michael Mo All right, Stuart, I'll take that. Yeah, this is Michael Mo. We have engaged with various stakeholders in this area, including our departments, HazMat teams, local officials and national organizations, offering our expertise on thermal runaway mitigation. So our response to the challenge has been multifaceted. We provide three key packs, battery packs with built-in thermal runaway protection, assist other battery design teams ensuring their designs are safe from propagation for SafeCase as a solution for safely storing and transportation of batteries, so regardless of their starting point. So, it's crucial for first responders, as well as customers in automotive, aviation, defense and aerospace sectors who prioritize safety. We hope this legislation continues its efforts which specific details have not been fully released yet as far as we know, and also can't comment on the new cathode development for the Tesla Cybertruck application. Stuart Smith Okay, I just want to clarify that last part. There was just a little bit of interference, and you said you cannot, or you can comment on the new cathode. Understood, understood. Okay, great. Let's move on to the next question then. Over the last year we haven't heard much about KULR Vibe. As this is a software-based solution, it would seem like a low-cost way for companies to save money and KULR to generate revenue. Why hasn't KULR found more success here, and can you demonstrate actual cost savings to present to potential clients? Thinking in terms of energy saved to run a data center fan or fuel saved to fly a helicopter, as a couple of examples, if I can spend $5 to save $10, I am probably going to do that running a business. The use cases here seem very large. Michael Mo So, I'll take that as well. So, we see a good opportunity to apply KULR Vibe to server fans and industrial applications. So, by removing vibration, the fan can run at higher speed with less energy, less noise, and generate more airflow, therefore providing more cooling to the chips. We're now working on fans used by Facebook's OCP, which stands for Open Compute Project servers, but we are also working on higher speed fans that are used to cool high-performance AI servers. So, we hope to report results on the testing, also new customers in the second half of 2024. Stuart Smith Okay, great. Thank you for that, Michael. All right, so KULR is a small company and thus expanding manufacturing capacity of its product seems like a costly way to grow its business. Licensing your technology to OEMs seems like the best way to grow revenue. How does this fit into your strategy going forward? Michael Mo So being a one-stop shop for our KULR ONE Space and KULR ONE Guardian customer is a big competitive advantage for us. That's why we're investing in all of the technical capabilities in our Texas facility, especially for large and important customers, being fast and agile is very important to them. So KULR frequently collaborating with these companies and common groups that have their own design battery design capabilities. In these cases, KULR become the trusted partner for them for rapid testing and prototype, which introduce KULR's expertise to new departments and also their next-generation designs. So, it's an entryway for groups to explore additional KULR offerings that complement their current design and also help them to accelerate their time to market. So, it's very important for us. Stuart Smith All right, next question can we expect KULR to announce its automotive partnership soon? If not, why and what happened? If so, then when? Michael Mo Yeah, EV, I think we've stated for the EV market is not this area for us for KULR ONE batteries because of its long lead time and also low margin. However, we are serving many of the automotive units with our battery testing and SafeCase technology. So these are good business for us with high margins and good growth. We'll continue to serve the automotive market with these products and services. Stuart Smith All right, next question then, what are the plans to reverse the decline in stock value that started over three years ago when the stock price reached $3.60 per share? Shawn Canter I'll take that one, Stuart. It's Shawn. It's an interesting question and maybe to answer it I'll start with a little bit of history. KULR first traded on the New York Stock Exchange American in June 2021, a little over three years ago. Since then, the high closing price for KULR stock was $3.53, and that was in November of 2021. In calendar year 2021 KULR generated about $2.5 million of revenue. In 2022, about $4 million of revenue, and in 2023, about $10 million of revenue. So, from 2021 to 2023, that is about a 300% growth in annual revenue. The markets KULR serves have only grown since 2021. The demands for more energy intense batteries have only grown across the various segments that KULR serves like space, military, industrial, electric vehicles, electric planes, electric drones. From an operational point of view, I think KULR is in the best position it is ever been in. Look, stocks go up and down for any number of reasons. I won't pretend to be able to predict the future. Management thinks KULR is in the best operational performance and customer satisfaction position it's ever been in. When does the stock price reflect that? I don't know. I would guess though that when it does, it will reflect a similar trend. Stuart Smith All right, very good. Thank you for that, Shawn. So next question, will KULR management use cash via equity, funding or borrowing from the bank to fund ongoing operations of the company until the end of the year? Shawn Canter Why don't I take this one, Mike. As I highlighted in my prepared remarks, KULR's balance sheet is getting stronger. We evaluate funding needs and opportunities through the lens of what serves KULR's operating requirements and keeps KULR on this trend of a stronger balance sheet. That's good for operations. It balances risk and ultimately those things are good for shareholders. Stuart Smith All right, so here's the next question, can the company speak to its outreach to vehicle manufacturers? If the products are so great, why are they not the industry standard? Michael Mo Yes, Stuart being an industry standard takes a long time and it's hard. We are serving automotive customers with our battery testing and SafeCase technology, which we hope it will become de facto standards over time, and these engagements allow KULR to sell more products and services to our tier-one automotive customers. Stuart Smith Next question, how does KULR expect the future mass production of solid-state batteries to impact the business? Michael Mo Yes, we are testing batteries of all chemistries and sizes for customers. So as more solid-state batteries come to the market, we expect to do the same and also design them into a KULR ONE battery platform, so it should be a positive impact to our future growth. Stuart Smith Okay. Next question, in the Q1 earnings report, KULR listed 34 customers. Understanding the constraints of NDAs, non-disclosure agreements, can you share any customer names that we might not already know about additionally? Please expand on any new customer engagements that might interest investors. Michael Mo Yeah, also as we shared in our prepared remark that we continue to grow our customer base, which is up 50% a year-over-year this quarter. Many of them are some of the largest OEMs in the world, and we are working with them on the next-generation product platforms. So, it is important that we keep their confidentiality, and then also do our best to speed up their product development. And these developments are across space application, common applications, energy storage applications, so it's a very exciting time right now. Stuart Smith Okay, thank you for that. Next question, how does the war in Europe and the Middle East impact the revenue of KULR? Shawn Canter I'll take this one, Mike. So far we haven't seen any negative impacts to our pipeline or supply chain, that I'm aware of. We'll certainly continue to monitor what's going on and adapt accordingly. Our work with drone manufacturers regarding both batteries and vibration control may be implicated by what's going on in the world, of course. As drones and artificial intelligence based mobile systems become more commonplace, the need for high-powered safer batteries and vibration control would seem to be growing. In fact, you might remember, Stuart, that this was referenced in a KULR press release, I think it was back in April about the Ukraine. Stuart Smith Yeah, I do remember, and thanks for pointing that out, Shawn. And here comes the next question then, in the Q1 earnings call, KULR had a slide that listed private space stations in relation to the KULR ONE Space product. Could you provide any details or is there anything that you can share on current or future space station projects? Michael Mo Yes, Stuart. We have customer designing private space stations with our battery technology. As a matter of fact, I think that different governments now are trying to do their own space stations and subcontract out to private companies to do this. So, we see many more applications actually in the space economy ecosystem to use KULR ONE Space, which is the space economy ecosystem is forecast to be $1.8 trillion. This is definitely a new market and it's growing very, very quickly, so we see huge opportunity in this. Stuart Smith All right, you guys will have to forgive my naivete here on this. That's from the shareholder, they wanted to preface their question with that, and they say, but I can see after reviewing the website that KULR products can be used in storage and transportation of batteries, but can the company's products be used on batteries that are operating such as in cars that are in use? If so, can this help prevent car fires? Michael Mo I think this question from this shareholder is about the SafeCase application for battery storage and transportation. Yes, they are used to store batteries during production, during the storage, the shipping and the recycling life cycle of the battery. We are expanding the SafeCase application with fire departments and hazmat professionals around the country, so you'll see more and more of these adoptions of the technology across multiple battery applications. Stuart Smith Let's see. We have about two more questions here, so here is the second to last question. While investors have come to understand in general that you cannot disclose the company and contract values for most EV companies under NDA, there has been a lot of news about EV news released in the last couple of years. This has led to speculation among retail investors about who KULR is working with. Can you give us the tiniest taste of excitement by telling us the number of automakers you are working with? Michael Mo So let me recap some of these customer engagements. I think we talked about the top automotive OEM in the world, so that will be Japanese and German automotive OEMs. So, I talked about the number one automaker in the US, and we talked about the number one electric SUV maker in the US. So, I think that recap should give our shareholders some idea about who we're working with. Stuart Smith So here is our final question. It has to do with something Shawn Canter mentioned. Here is the question Shawn Canter mentioned in a November 2023 YouTube interview that the service business can be seen as foreshadowing future product sales opportunities. Can you share any specific examples from Q2 where service business engagements have led to or are expected to lead to future product sales? Shawn Canter I think this one already has my name on it. We are starting to ship sample KULR ONE's Space batteries and cells to customers. These are the results of our design service engagements with customers throughout 2023 and through the first part of 2024. We expect to see more of that in the second half of 2024 and to ramp up in 2025, since these programs usually take about 12 months to 18 months of lead time to get to production. Thanks. Stuart Smith Well, excellent. That was the final question. I know I speak on behalf of both my guests today, Michael Mo and Shawn Canter, in expressing our gratitude for the shareholders and interested parties for sending in their questions. I will now turn the call back over to our operator to close out the call. Thank you. This does conclude today's conference call and webcast. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

Intrusion Inc. (INTZ) Q2 2024 Earnings Call Transcript

Josh Carroll - Investor Relations Tony Scott - Chief Executive Officer Kimberly Pinson - Chief Financial Officer Welcome to Intrusion Inc.'s Second Quarter 2024 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note, this conference is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relations. Josh Carroll Thank you, and welcome. Joining me today are Tony Scott, Chief Executive Officer; and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined on the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe is useful to investors or if we believe it will help investors better understand our performance or business trends. Thank you, Josh, and good afternoon, and thank you all for joining us today. Our second quarter results reflect a positive improvement from a revenue standpoint as both our suite of Shield technologies and our consulting business regained momentum and with the previous challenges that we've been facing over the past two years behind us, we have now been able to focus solely on positioning Intrusion for growth, and we believe that we are beginning to see the early stages of those efforts materialize. Now as many of you know, I've personally invested over $1.5 million into Intrusion, and like many of our investors, I invested a significant portion of this when our share price was trading at a higher level and is now at a loss compared to today's share price. And I understand how frustrating this is. And while we still have a lot of work ahead of us, I believe that we are on the right path forward toward creating sustainable growth and a share price that's commensurate with improved results. Now transitioning to some of our recent sales activity, since we last spoke, we signed an additional five new logos, bringing our total new logo count year-to-date to 14. We see positive momentum for our suite of Shield technology among a wide range of customers in different industries as our pipeline continues to grow. And over the next few quarters, as we continue to deploy our technology to these new logos, we will begin to see additional improvements in our financial results, which we believe will help drive revenue growth in 2024 and beyond. As we mentioned during our first quarter earnings call, we've been awarded two new orders for Intrusion Shield from our traditional government customer base, which marked an important milestone for Intrusion, as these are the first large-scale adoption of our Shield technology with government customers. We began servicing one of these awards during the second quarter that included both Shield services and consulting work, which helped improve both our Shield and consulting revenue during the quarter. The second contract will begin contributing to revenues for both Shield and consulting throughout the remainder of the year and beyond. I'd like to give you an update on our recent partnership activity. We've been seeing strong momentum in the Philippines with the signing of multiple contracts in the region, including the iOne Resources contract to help protect the cybersecurity and integrity of national elections in the Philippines. And our recent partnership with TIM to provide our advanced threat detection and prevention solutions to Orca Cold Chain Solutions and multiple other agreements with customers spanning across different sectors of the Philippines' economy. As a result of this momentum and our strong pipeline in the region, I personally traveled to the Philippines earlier this month to speak with both current and potential customers to discuss our unique technology. These meetings were very positive, and the enthusiasm for our Shield technology is quite high given the nature of the cyber threats in that region of the world. We plan to announce additional agreements and expansions of current deployments in the region in the near future and also to help meet this growing demand in the Philippines and to better serve our expanding customer base in the region, we've officially opened a wholly-owned subsidiary in the Philippines. As for our go-to-market strategy, we've been selling our products through managed service providers and managed security service providers as well as more traditional reseller channels. I'm pleased to report that in each of these cases, we're beginning to see growth and increased pipeline as these organizations develop confidence in our products and services. And additionally, our renewals remained strong with near zero churn for the quarter. With respect to our product development efforts, we've continued to focus on adding new capabilities to increase the efficacy of our products. The work we do with our government customers often leads to useful insights into some of the most difficult challenges in the cybersecurity space, and we leverage those insights into new and novel approaches to advancing the cause of better cybersecurity in our products. We are always mindful that the cybersecurity space is very fluid and yet many of the breaches and incidents that occur are the result of the failure of basic principles and practices. The recent CrowdStrike incident, which crippled systems all over the world is a testimony to the degree to which we've become dependent on widely used software to run our businesses, government and critical infrastructure and that the fragility of these ecosystems when a key component fails is paramount. Since our products are often the last line of defense against the most sophisticated acts and actors in the cyber world, we take our responsibility seriously and invest in our product development efforts to ensure that we can live up to our customers' expectations. On the leadership front, we recently announced that we appointed Dion Hinchcliffe to our Board of Directors. And I'd like to add a little more color to that announcement. Dion brings extensive experience in information technology, business strategy, next-generation enterprises and AI and having consulted Fortune 1000 companies, the federal government and the Internet start-up community, his expertise will help us further our go-to-market strategy, our partnerships with strategic players in the industry and aid in our mission to provide our customers with highly effective cybersecurity solutions for their enterprise. Dion is widely known in the technology community for his insights into emerging trends in the technology space, and we look forward to his contributions to our mission. Now briefly on to our financials. As you will hear from Kim later in greater detail, total revenue for the second quarter was $1.5 million, representing an increase of 29% sequentially. This increase in revenue during the second quarter was driven largely by the addition of a government contract for our Shield and consulting services as well as the several new logos that we've signed over the past few quarters. As I mentioned earlier, our churn for the quarter was near zero, and these new contracts have for all practical purposes filled the gaps that were created by churn in prior quarters. We believe that these government contracts are recently added new logos and the deals we currently have in our pipeline will continue to drive growth and further diversify our customer base. Now before I turn the call over to Kim, I'd like to discuss our efforts to improve our balance sheet and ensure that we have the funds needed to propel our growth and support our customers' needs. As we previously discussed in our last earnings call, we successfully closed on a private offering in April, which resulted in net proceeds to Intrusion of $2.6 million. This private offering is a key final step towards helping us achieve compliance with NASDAQ's minimum equity standard. In addition to the private offering, we also secured $0.6 million during the second quarter through a warrant inducement program. The funds from both of these financing efforts are being used for working capital and general corporate purposes. And finally, on July 3, we entered into a Standby Equity Purchase Agreement, or SEPA, with Streeterville Capital to sell the firm $10 million of our common stock. In order to have full access to the $10 million facility pursuant to applicable NASDAQ rules, we are seeking shareholder approval at our annual meeting on August 27 to allow for the sale, issuance or potential issuance of common stock in excess of 20% of the common shares outstanding. We believe that the SEPA will allow us to be more strategic with how we access and deploy capital to support our future growth as our solutions continue to gain traction. With that, I would now like to turn the call over to Kim for a more detailed review of our second quarter financials. Kim? Kimberly Pinson Thanks, Tony. In the second quarter of 2024, revenues were $1.5 million, a $0.3 million increase sequentially and in line with our results for the second quarter of last year. Consulting revenue in the second quarter totaled $1.2 million, an increase of $0.5 million sequentially, and $0.1 million on a year-over-year basis. This increase in consulting revenue was driven by the approval of the federal budget in late March, allowing for the issuance of new contract awards and for current task awards on existing contracts with government customers to move forward. Shield revenue for the second quarter was $0.3 million, which was down $0.1 million on a sequential and year-over-year basis as a result of the loss of a large early Intrusion Shield customer that had implemented a highly customized and non-standard configuration of the product. The loss of revenues from this customer was partially offset by revenues from new customers signed in recent quarters. However, as Tony mentioned earlier on the call, we do anticipate that we will see our Shield revenues continue to grow, driven by the recent government order, the iOne Resources award, other new logos and the expansion of current deployment. Gross profit margin was 76% for the second quarter of 2024 compared to 80% in the March quarter and 78% in the second quarter of 2023. Our gross profit decreased slightly during the quarter as a result of product mix with lower-margin consulting revenue representing a greater percentage of total revenue in the second quarter. With that said, Shield revenues represented 20% of our revenues in the second quarter of 2024. Operating expenses in the second quarter of 2024 totaled $3.1 million, a decrease of $0.2 million sequentially and $0.9 million when compared to the second quarter of 2023. The decrease in operating expenses during the quarter was driven by lower share-based compensation and the timing of professional services. As we have noted on our past few earnings calls, there is the possibility that we could see an increase in our operating expense if we choose to accelerate our product development in future periods or marketing spend to increase our brand awareness. As we move forward, we will continue to remain diligent with not only our spending decisions, but also our investments that will ensure future growth. The net loss from operating activities for the second quarter of 2024 was $2 million, representing a $0.4 million or 18% improvement over the first quarter and a $0.9 million or 30% improvement on a year-over-year basis. The improvement over the first quarter was driven by both gross profit on higher revenues and a decrease in operating expenses. The net loss for the second quarter of 2024 was $2.1 million compared to a net loss of $1.7 million in the first quarter of this year. The increase in net loss on a sequential basis was principally a result of a $1 million credit to interest expense recorded in the first quarter resulting from the exchange of the Streeterville debt to preferred stock and the reversal of the interest accretion and debt amortization costs associated with the ability to stop settled principal redemptions. On a year-over-year basis, net loss improved by $1.1 million from $3.1 million in the 2023 quarter. Turning to the balance sheet. On June 30, we had cash and cash equivalents of $1.5 million. Our principal sources of cash for funding operations in 2024 have been proceeds received from the issuance of common stock in a series of transactions, which include $3.3 million from ATM sales, $2.6 million from a private placement and $0.6 million from the warrant inducement program. Our cash burn during the second quarter was higher than what we have experienced in recent quarters, principally resulting from changes in working capital with working capital consuming $1.4 million in the second quarter compared to working capital providing $0.7 million in the first quarter. The timing of customer prepayments can and does have a significant impact on our cash flows and contributed $0.5 million to our cash burn in the second quarter. Also during the second quarter, our customer accounts receivable increased $0.5 million, primarily resulting from payment processing and regularities on one of our long-standing government contracts. As Tony mentioned earlier, we did enter into a SEPA agreement with Streeterville Capital to sell $10 million of our common stock. However, in order to have full access to the $10 million facility pursuant to applicable Nasdaq rules, we are seeking stockholder approval at our annual meeting to allow for the sale, issuance or potential issuance of common stock in excess of 20% of the common shares outstanding. We believe this transaction will provide Intrusion with the future flexibility it needs in order to enhance its liquidity in an opportunistic and efficient manner. I'd like to now turn the call back over to Tony for a few closing comments. Tony? Tony Scott Thanks, Kim. The second quarter was an important step in the right direction for Intrusion and included tangible signs that our strategy to drive growth through our compelling products and innovative strategies are coming to fruition through improved revenue results. Our pipeline for both new logos and current contract expansions remain strong and we're confident that we are on the right path forward to grow our business and improve our share price. As always, I'd like to thank our investors and financial partners for their continued support as we execute our strategy and our employees for all their hard work during this past transition period. This is an exciting time for Intrusion, and we look forward to providing additional updates on our progress during the second half of the year. This concludes our prepared remarks. And I'll now turn the call over to the operator for Q&A. [Operator Instructions] And the first question today is coming from Scott Buck from H.C. Wainwright. Scott, your line is live. Please go ahead. Scott Buck Hi, good afternoon, guys. Thanks for taking my questions. Tony, I was hoping you might be able to give us a little more color on where you're seeing strength in the pipeline. And then on the government side, is there any additional low-hanging fruit there for Shield? Tony Scott Great question, Scott. Yes, we think there is. As I kind of hit it on the call, we've been continually investing in new capabilities based on emerging trends and those kinds of things and baking them into Shield. And so even just this last week, we've identified some new opportunities and new customers that can take advantage of some of these new capabilities that we've just developed. So the excitement level remains pretty high for those new capabilities, and I think will lead to additional customers in both the government sector and elsewhere as well. So pretty jazzed about all of that. And we'll continue to invest in our product. As I said on the call, the cyber criminals and actors don't sleep and neither are we. We're doing our best to keep up with all the new developments. In terms of the contracts, we'll selectively announce them. I think the nature of what we're seeing on a lot of these is quite a few started small, maybe with one or two Shields and their teams get some experience with it, begin to really fully realize the efficacy of the product and then want to go big. So as an example, I was in the Philippines with one customer, and they started with two or three appliances and the team got well trained on the products and they saw what Shield could do. And I talked to the CEO, and he said, I want to go big and put these everywhere in our organization. And similarly, with some of our managed service providers, a couple of which have been with us for quite a while, based on their customer feedback, they're now saying, hey, we want to go bigger and put this in more customers' environment. So I'm encouraged by all of those signs. Scott Buck Great. That's helpful. And then on the potential Streeterville capital raise, I'm sorry, do you guys have a date for your annual meeting? Okay, a couple of weeks out. And then if this should pass, how do you think about the capital coming in? And where will those proceeds be utilized within the business? Tony Scott Well, it's - the beauty of the SEPA is it kind of acts like a credit line versus the ATM or us having to go out and do a capital raise until we can control the timing of that a lot more on the one hand. So it's kind of there as an insurance policy, but we're not going to use any of it if we don't need to. But because it's kind of an on-demand facility, we could use it when we need to versus being at the whim of market conditions on any given day or any given week and so on. So it's - I think it affords us more flexibility. Scott Buck Okay. So it sounds like you don't have funds earmarked for something in particular? Tony Scott No, no. And we'll use it for general corporate purposes, product development, the traditional things that we've been investing in. Scott Buck Okay. That's helpful. And then last one, Kim, on operating expenses, I mean, you mentioned you may want to ramp marketing a little bit and maybe some R&D. In terms of fixed costs or just kind of general cost infrastructure outside of those items, are you pretty comfortable with where you are? And as Shield starts to scale here beginning in the second half we'll start to see some better operating leverage in the business? Kimberly Pinson I believe that I am comfortable with where things are. I think that we've scaled things back in the right places. And as we begin to grow the top line, we may make those choices to accelerate some product development or greater marketing efforts to get our brand name out there. But I'm very comfortable with where our operating expenses are now, and I think we can really leverage them and not have to increase expenses as we see growth in the top line. Scott Buck Perfect. Thank you for that. I appreciate the time, guys. Thank you. [Operator Instructions]. Our next question today is coming from Walter Schenker from MAZ Partners. Walter, your line is live. Please go ahead. Walter Schenker Hi, Tony, Kim, you announced or said you have 14 logos now. How many of them are in the Philippines the new logos, approximately? Tony Scott Maybe Kim can answer that. I don't have the data right in front of me, but I would suspect that it's slightly more than half, I would guess off the top of my head. And you've announced three contracts, specifically in the Philippines, the original, which I think was a telecom company, the election and the cold storage, if I have it right, when - or how are we beginning to see a ramp in revenues from those contracts? Tony Scott We - on the commission, on elections and in Orca and some of the others, we're in a different situation when it comes with the telecom company. And I don't have any announcement to make on that at the moment, but I'll only say it's been a little more disappointing than we originally projected. Walter Schenker Okay. But the election starts generating revenues already or... Okay. It will in Q3. Okay. And when you talked about your - the government contracts and use of Shield, is there some metric, I mean, once we talk about seats or appliances or something, how you look at a significant or big or whatever, I forget the adjective you used on the new contract, is it six figures? Is it seven figures? Because you've had seven-figure government contract. Just you're identifying who it is. So I'm just trying to get some idea of how big the bread box is. Tony Scott Well, remember that for Shield, we - our metric is recurring revenue because it's a subscription model. And so that's our measure. It's just increases in recurring revenue. Our consulting contracts tend to be task orders on a yearly or on a monthly basis, contracts are typically three years with some option years behind that. So the weird thing is it kind of acts like recurring revenue, but nobody actually measures it that way. So - but for Shield, it's clear subscription revenue. And we will - I hope in the next quarter to start reporting that on an annualized basis. We're still working through some of the metrics and measures to make sure we report it correctly and accurately. Walter Schenker And for Shield, which is a recurring revenue, you get paid monthly, quarterly, it varies by contract? Just trying to understand - the cash... Tony Scott It depends on the customer - it depends on the customer. Yes, it depends on the customer. So, we prefer to get paid quarterly or annually upfront. But we have some customers that are monthly and some that pay in different increments. So that's all part of the mechanics of measuring recurring revenue accurately and reporting it regularly. We also are working on just standardizing that so that we have fewer variations from a contracting basis. I'm not turning down any business because the customer wants to pay us in a different increment, but we do hope to standardize in a more consistent fashion. Walter Schenker And finally, - if we look at the quarter just ended, you were operating at a $6 million annual rate, all of which is not recurring revenue, you have a number of contracts kicking in, in the second half, the government contract the election, some of the other logos, you would expect to be at a multiple on an annualized basis of your current run rate by the end of the year? Yes, we see a ramp in the second half of the year as some of these contracts and so on begin to get implemented. Your next question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live. Please go ahead. Ed Woo Yes, thanks for taking my question. My question is on the sales cycle. Have you noticed any lengthening of the sales cycles, either because of competition or the economy? Thank you. Tony Scott We have seen sales cycles take a lot longer than we expected. But I, in this case, wouldn't blame it on either competition or the economy. I would chalk it up really to the complexity of the cybersecurity space. And I think as I've mentioned on prior calls, initially, our customers want to confuse us with a firewall or some other technology that they're more familiar with. And it just takes a little while in a few more conversations to help them understand what the differences are and the role that Intrusion technology can play in that in a more modern environment. And that just takes some time. The good news is that when we convince them to do a POC or a trial, and they see what we can actually do, then typically they want to hurry up and get the implementation stage. And that's what we were seeing with the CEO, I was talking about earlier in the call. Once they really understood what it was and the efficacy of the product in their current environment, the efficacy of Shield, then it was hurry up, let's get this going. But the lead up to that took a lot longer than I would have liked. And I think that's a pattern that we've seen on a fairly regular basis. Ed Woo Great. Thanks for answering my questions. And I wish you guys good luck. Thank you. Thank you. At this time, there are no other questions in queue. I'll turn the call back over to our host, Mr. Tony Scott. Tony Scott Well, thanks, everybody, for joining the call. I really appreciate your support - continue to appreciate your support as we work on executing our strategy. I'm convinced that we have all of the tools that we need in place. We have the right team. We've got momentum now, and I'm really looking forward to the second half of this year, and I look forward to updating everyone on our progress during the third quarter and the fourth quarter of this year. I know that you'll be interested in the results as I am and as excited about it as I am as well. So thanks, everybody, and I appreciate your support. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Duos Technologies Group, Inc. (DUOT) Q2 2024 Earnings Call Transcript

Michael Latimore - Northland Capital Markets Richard Jackson - True North Financial Edward Woo - Ascendiant Capital Markets Good afternoon. Welcome to Duos Technologies' Second Quarter 2024 Earnings Conference Call. Joining us for today's call are Duos' CEO, Chuck Ferry; and CFO, Adrian Goldfarb. Following their remarks, we will open the call for your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. Now I would like to turn the call over to Duos CEO, Chuck Ferry. Sir, please go ahead. Charles Ferry Welcome, everyone, and thank you for joining us. We've just released our press release as well as our 10-Q announcing our financial results for the second quarter of 2024 and other operational highlights. Copies of both are available in the Investor Relations section of our website. I encourage all listeners to review that release and 10-Q filing with the SEC to better understand some of the details we'll be discussing during today's call. In the last few earnings calls, I have articulated our strategy to diversify our growing technology business into areas where we have expertise and synergies, with the intent to more rapidly increase our value and return on investment to our shareholders. On our call today, I'm going to report on those diversification efforts and what they will mean for us going forward. We are making steady progress with our Railcar Inspection Portal business to include ongoing installation projects with Amtrak and the planning for a new RIP installation at a large chemical manufacturer. As I reported earlier, we now have an important agreement and partnership in place with one of our long-term Class 1 railroad customers, currently the largest user of our wayside technology. The new agreement allows us to add subscribers to seven of our 13 portals, along with an eighth portal owned by a different customer. We'll talk more about the subscription offering later in the call. Our Edge Data Center business, called Duos Edge AI, has made fast progress commercially given the high demand for Edge computing infrastructure. Our plans to have four Edge Data Centers installed in various locations in Texas this year are on schedule, and we expect recurring revenue from those data centers to begin in Q4. I just returned from a TD Cowen data center investor conference being held in Boulder, Colorado, and I can tell you that there is excitement in this industry about our business when I'm discussing it with potential customers, investors and analysts. Our pipeline of new orders is growing and I expect to install at least 15 more Edge Data Centers in FY 2025. I have previously spoken about the power industry experience that the Duos team and I have from our time at APR Energy. With our entry into the data center space, we are now getting requests to participate and, in some cases, lead opportunities to install power in support of data centers here in the United States. Based on this rapidly growing demand, we have incorporated Duos Energy Corporation as a third subsidiary to Duos Technologies Group and already have a small pipeline of projects that could further accelerate our growth -- our goal for more recurring revenue and profitability. We'll discuss each line of business in more detail after the financial review. So at this time, I'll turn it over to Adrian to cover our financial results. Adrian Goldfarb Thanks, Chuck. Following on from Chuck's introductory remarks, I would like to give a brief commentary on the recent operational highlights and my expectations as to how and when these will translate into revenue growth and, most importantly, profitability. As Chuck mentioned, the company is in the process of expanding into three distinct lines of business: complex visualization with AI, as manifested in our legacy Duos Tech business; the recently announced business of providing Edge Data Centers and related operational services; and the brand-new subsidiary, which will focus on power provision for data centers, both Edge and traditional. While these three divisions may on the face of it look as if they are not related, in fact, Duos and its management team, and staff, have extensive experience in all three domains. Chuck will address the 3-year strategic plan for the company in his commentary following my discussion of the financials. But from my perspective, the transition plan is expected to be complete by the end of 2024 with an expected markedly improved financial position and guidance at the conclusion of the transition period. During the last call, I stated that I believe that we are on the threshold of steadily improving results, and I believe we are seeing the first signs of this in our most recent quarterly results. As such, we will detail out our plans for the remainder of 2024, and indications are that a $70-plus million investment in building a talented organization, intellectual property with highly defendable patents, and now access to new markets with key assets that the company owns or plans to own will provide a solid foundation for the expected increase in recurring revenues. With that in mind, let us now look at the results for the second quarter and first half of 2024. During the second quarter, total revenue for the quarter decreased 15% to $1.51 million compared to $1.77 million in the second quarter of 2023. Total revenue for Q2 2024 represents an aggregate of approximately $265,000 of technology systems revenue, but more than $1.25 million in recurring services and consulting revenue, representing a 38% increase in this important metric. For the six months ended 2024, total revenue decreased 42% to $2.58 million from $4.41 million in the same period last year. Total revenue for the six months of 2024 represents an aggregate of approximately $0.5 million of technology systems revenue and approximately $2.05 million in recurring services and consulting revenue, which is also an increase in recurring revenues of 19%. Growth of the services portion of revenues was driven by the successful completion and implementation of artificial intelligence detections, which represents services and support for those detections, as well as increases in service contract revenue due to higher service contract prices. For both periods, the small revenues in the technology systems area reflects the ongoing delays in revenue recognition for the Amtrak installation, who, as discussed previously, postponed delivery last year into Q4 of this year. I'm pleased to report that although revenue was expected to be booked in Q4, the company has accelerated delivery of part of the system, and we expect to report an increase in these revenues in Q3. I should caution, however, that due to the complex nature of this project at the site, further delays may be encountered such that the project might not be complete until mid-2025. Cost of revenues for the second quarter increased 13% to $1.73 million compared to $1.53 million for Q2 2023. And for the six months ended 2024, cost of revenue decreased 26% to $2.7 million from $3.64 million in the second period last year. Both periods reflect certain cost increases related to project delivery where we expect to record higher revenues in Q3 and to the effect of the new Class 1 subscription business startup costs. Gross margin for Q2 2024 decreased 189% to negative $215,000 compared to $241,000 for the Q2 2023. And for the six months ended 2024, gross margin decreased 115% to negative $120,000 from $779,000 in the same period last year. Per my previous comment, when comparing the results between the two periods, the stage of completion for production and installation should be factored into these comparisons and taken into account when analyzing the two periods. Specifically, the decrease in gross margin was driven by the timing of business activity in Q2 2024 related to the manufacturing of two high-speed transit-focused RIPs for Amtrak. As previously mentioned, the temporary decline in technology revenues was not completely offset by related ongoing costs to support that revenue segment. Operating expenses for Q2 2024 decreased by 11% to $3 million compared to $3.39 million for Q2 2023. And for the six months ended 2024, operating expenses decreased 4% to $5.86 million from $6.07 million in the same period last year. The company implemented a number of expense reduction measures in late 2023, and the results of these measures are now being seen in the overall financial results. The decreases being recorded are related to targeted costs in some development and, more specifically, administrative costs, that are offset with continued investment in sales resources as the company continues to build the commercial resources necessary to address the expansion into new markets. The expense cuts have been precise to reduce investments in certain areas where certain activities are now complete, but we continue to invest in the technology that has delivered the wide-ranging patent for the RIP and associated AI. We continue to anticipate that operating expenses will remain stable throughout the remainder of 2024, but we have taken additional actions in Q3 to further improve efficiency and align our staffing to address both the new and existing business areas so as not to impact the expected growth in revenue. Net operating loss for Q2 2024 totaled $3.22 million compared to a net operating loss of $3.15 million for Q2 2023. And for the six months ended 2024, net operating loss totaled $5.98 million compared to a net operating loss of $5.30 million in the same period last year. Although operating losses were higher than the comparative quarter a year ago, the increase was proportionally less than the relative decrease in revenues and gross margin. The increase in loss from operations was primarily the result of lower revenues recorded in the first and second quarters as a consequence of the delays previously noted, offset by continued increases in services and consulting revenue. Net loss for the second quarter was $3.2 million or negative $0.43 a share, compared to net loss of $2.9 million or negative $0.42 a share for Q2 2023, with the 7% increase being lower proportionately than might have been expected with the decrease in overall revenue. For the six months ended 2024, net loss totaled $5.96 million or negative $0.81 per share, compared to a net loss of $5.13 million or negative $0.72 per share in the same period last year. The increase in net loss was attributable to the decrease in revenues, as previously noted above, partially offset by the increase in services and consulting revenue and a decrease in operating expenses. With regard to the balance sheet, at June 30, 2024, cash and cash equivalents was approximately $0.5 million compared to $2.44 million at December 31, 2023. In addition, the company had over $1.27 million in receivables and contract assets, for a total of approximately $1.77 million in cash and expected short-term liquidity. Duos also has more than $1 million in inventory as of June 30, 2024, consisting primarily of long-lead items for future RIP installation that are expected to be deployed this year and 2025. There has been a large increase in other assets, notably the recording of a $10.7 million intangible asset, which represents the estimated fair value for five years of data to support the recently signed long-term services and data sharing agreement executed with the previously mentioned Class 1 customer for the provision of subscription services. Total current liabilities are $5.81 million versus $3.25 million as of December 31, 2023. $2.2 million of this increase is noncash and related to the data services agreement. Long-term contract liabilities have increased by $8.5 million, reflecting the noncurrent portion of this agreement. My overall comment on the balance sheet is that it remains stable in anticipation of the expected growth in the business in the second half of the year. Turning to backlog. At the end of the second quarter, the company's contracts and backlog and near-term renewals and extensions are now more than $19.6 million, of which approximately $6.9 million is expected to be recognized as revenue during the remainder of 2024. The balance of contract backlog comprises multiyear service and software agreements, as well as project revenues. It should be noted that $10.7 million of the revenue backlog is for data access to support the new subscription business and is accounted for as a nonmonetary exchange that resulted from an amendment to a massive material and service purchase agreement with a Class 1 railroad. Before turning the call back to Chuck, I would like to address the subject of guidance. As we have discussed previously, we have experienced some difficulty in giving accurate guidance within the time frame of a fiscal year due to the delays and uncertainties in our current market space. However, we believe the current analyst expectations for annual revenue this year represent a reasonable estimate at this time. Chuck will be addressing the transition into new markets, including our growing recurring revenue initiatives such as AI and subscriptions, for which we have already announced some success this year. As we transition another few months, my expectation is that we will be able to formally reintroduce guidance. This concludes my financial commentary, and I will now pass the call back to Chuck. Charles Ferry Thank you, Adrian. I'll start first about our Railcar Inspection Portal business, and more specifically about the subscription offering. On May 17, 2024, Duos and our largest Class 1 customer executed a 5-year machine vision AI subscription partnership agreement. Much of the expansion on our balance sheet that Adrian discussed is a result of this agreement. This is the first machine vision and AI rail safety partnership agreement in North America. The agreement authorizes Duos to offer shippers and railcar owners transiting their Class 1 network the opportunity to subscribe to wayside machine vision AI safety technology. While Duos is the inventor of the Railcar Inspection Portal and holder of 10 active U.S. patents for this innovative wayside defect detection solution, our Class 1 customer is leading the rail industry in the deployment of machine vision AI wayside detection technology with seven portals in the United States and Canada. More importantly, our Class 1 customer has fully integrated the portals into their mechanical inspection operations. Mechanical Carmen from the Class 1s that I have talked to say that they are getting great results using the tool and have provided good feedback that we've used to improve the system over time. Going forward, Duos and our Class 1 customer will emphasize standardizing machine vision AI safety technology so the data can be easily exchanged through a subscription service with other Class 1s, regional carriers, passenger railroads and first responders. Our Railcar Inspection Portal technology can be integrated into railroad, public safety and asset management data systems, with the ability to identify FRA and critical safety appliance defects and communicate alerts to train crews, train dispatchers, railroad operation centers and first responders in real time. Visual documentation of the train, railcar location within the train, car initial and number, placard and defects are all presented within 60 seconds of image capture. Currently, we have two subscribers that have been using the system effectively for many months now, Amtrak and another large railcar fleet operator. We are in discussions with another 20 potential subscribers, which includes car owners, shippers, short lines, passenger rail and other Class 1s. We'll continue our efforts to expand and prove out the subscription offering and keep you updated. Our Edge Data Center business, led by data center industry veteran, Doug Recker, is completing contract discussions that have effectively sold out our first three Edge Data Centers destined for Texas. A fourth Edge Data Center is close to being sold out as well. Land leases are in the process of being secured and our in-house project management team has begun the site survey work, permit requests and logistical planning to execute installations beginning this September, with the expectation of revenue starting this October. These Edge Data Centers will allow for high-speed connectivity, low data latency and high reliability that has not ordinarily been available in smaller and rural markets. Those who will greatly benefit are schools, hospitals, first responders, along with large farms and oil and gas operators in that region. Local leaders we are planning with for the installations are very excited and removing all obstacles to gain access to better connectivity for their communities. Our pipeline of new orders is growing, and I expect to install at least 15 more Edge Data Centers in FY 2025 and accelerate that if possible to meet the demand. We have launched a new website specific to this business where you can learn more about how this all works at duosedge.ai. Let's talk about our new power business and what is driving it. The demand for more computing with 5G and AI has created a data center boom, and that has also created a power shortage to meet that demand. Accelerating data center load growth is driving long lead times of three to seven years to procure sufficient utility power for new hyperscale data centers across the U.S. according to analysts from TD Cowen. I have previously spoken about the power industry experience that the Duos team and I have from our time at APR Energy. From 2016 to 2020, about 15 members of my current Duos team and I installed more than 1-gigawatt of power. During one period of intense demand in the fall of 2017, our team installed two power plants in South Australia, two power plants in Puerto Rico following Hurricane Maria, and one more power plant in Mexico following an earthquake. All five plants were installed near simultaneous in less than 120 days. With our entry into the data center space, we are now receiving requests to participate and, in some cases, lead opportunities to install power in support of data centers here in the United States. Based on this growing demand, we have incorporated Duos Energy Corporation as a third subsidiary to our Duos Technologies family and already have a small pipeline of projects in support of data centers that could further accelerate our plan for more recurring revenue and profitability. With all the excitement around our new divisions, I want to reiterate our commitment to progressing our Railcar Inspection Portal subscription business. Our company has invested nearly $70 million over the past seven years to perfect this technology and patent. There is strong evidence from across the rail industry that this technology will eventually be deployed in high numbers, benefiting everyone. However, to ensure we can deliver the value and return our shareholders -- and return our shareholders and what they expect, I am strongly committed to diversifying our business into other synergistic areas where we have expertise and market conditions expect fast growth. Our team is exceptionally talented and very capable in advancing this strategy. In closing, I want to thank my Board of Directors and long-term shareholders for their advice, counsel and support as we advance this strategy. Thank you for listening, and we'll now open the call for your questions. Operator, would you please provide the appropriate instructions? [Operator Instructions] First question comes from Michael Latimore with Northland Capital Markets. Please go ahead. Mike Latimore Great. Yes. Thanks very much. So I guess, as you think about the second half of this year, I know you're not giving specific guidance, but maybe can you sort of highlight the top two or three driver -- incremental revenue drivers second half versus first half? Charles Ferry Yes, I'll start, and I'll let -- this is Chuck. I'll start and I'll let Adrian clean up behind me here. At a high level, key revenues that we're expecting to come in, first of all, will come in from Amtrak, which is an ongoing installation project. Adrian mentioned we've already accelerated some of that revenue, and that was because we've installed now the very large Edge Data Center which is a part of that installation, and that occurred here about a month or so ago. We've got another large contract that we're expecting to close with a large chemical producer. And then we do expect to start seeing revenues coming in with our new Edge Data Centers that will be deployed out into the field. No. That pretty much describes it, Mike. I think what you'll see is you'll see a marked improvement, obviously, over the past two quarters for Q3 related to the fact that we are now starting to push forward with the Amtrak installation. There are still some challenges around that, which I've mentioned and then just waiting to start the other RIP installation at the chemical manufacturer. Outside of that, we are currently in discussions with about 20 different potential clients on the subscription side, and with the Edge Data Centers, all of that will start probably -- will start to kick off probably in about Q4. I think what will happen is that we will in the next call, the Q3 call, we'll have a much better visibility on that. But I'm expecting much better results going forward. Mike Latimore Great. And then I think in the press release you talked about winning customers already for Edge Data Center and that amounts to, I think, $1 million of ARR starting in the fourth quarter. Does that assume kind of full capacity of those three Edge Data Centers, that $1 million of ARR? Charles Ferry Yes. So it does. So we expect those to be filled to capacity. Again, these Edge Data Centers are effectively small-scale co-location data centers, which is why they're pretty in high demand. And we expect them to have filled out. So the way that kind of the operational cadence works, you get it installed, you bring the power and fiber up in the Edge Data Center. And in general, we expect about a 30-day period where customers start to come in, fill out that data center. So about 30 days after we commercially turn it on, it's effectively filled with those long-term and recurring customers inside those data centers. Mike Latimore Okay. And then, Chuck, did you say you had 15 people on staff that are kind of experienced in the energy world? Charles Ferry Yes, we do. So we have a staff of about 70 folks total. Of that, at least 15 are prior APR Energy employees. I'm very fortunate that employees that used to work for me will come back and work for me a second time, which is very helpful. In those 15, they go across all of the skill sets that you need to commercially develop, financially plan for, engineer, procure, install, and then operate and maintain power plants. In this case, again, it's kind of a convergence of what we're doing inside the Edge Data Center space and the data center industry at large. When some of the customers and some of the data center analysts found out that we have all this power experience, all of a sudden, a lot of these power opportunities against data centers have become -- have been presented to us. And so I think we're going to take advantage of the talent we have on staff and our know-how in that space and participate in that. Next question comes from Richard Jackson with True North Financial. Please go ahead. Richard Jackson Yes. Congratulations on moving most of the business to a subscription model. I always thought that was the place to be long term. Can you give us a range of what gross margins and operating margins you're targeting for that subscription business? Is it vastly different between the power and the data and your railcar monitoring? Charles Ferry Yes. I'll let Adrian cover the subscription part and I can talk to the data center and the power plant. Adrian Goldfarb Yes. So from a subscription standpoint, the margins are very high. And that's because the marginal cost of putting in a subscription is not that much. So typically, you're looking for margin -- gross margins at minimum range of 70%. And then typically, we expect that to increase over time and get up into closer to the 90% range, as is typical with that type of business. And that's kind of been our aim with all of the businesses now that we're currently looking at. Charles Ferry So on the Edge Data Centers again, there's -- obviously, there's a cost, again, because we own and operate these Edge Data Centers, so obviously there's costs going in. But those costs are effectively capitalized over the life of a 5-year recurring contracts. And so once that thing is up and operational, we expect gross margins to be at least in the 60% to 70% or higher area. On a power plant project, ones that are against these data centers right now, we would expect, again, there's going-in costs. The good news in this sector is that the data center operators and developers have shown a high willingness to pay up milestone payments to offset the costs of going into a power project. Once you're in there, again, good recurring revenue, typically five years or more. And we would expect our gross margin to be probably in the 50 to 60 percentile range with that particular business. Again, we're pushing a lot of the costs from an overhead perspective above the line, and then try to really bifurcate that G&A cost below to show a true -- what we're truly running at. Adrian Goldfarb Yes. One other comment on that, Richard, is that as compared to some subscription businesses, although the level -- the number of customers is typically on the lower end just because of the industries they're in, the churn rate is extremely low. All of the contracts we look at are typically minimum multiyear contracts and can go on for a long time. So that's one of the beauties, it's not only a high margin but it's also a low churn business. Richard Jackson So will you need capital? You got an idea of how much yet? Charles Ferry Yes. Right now, we're not sizing out any capital right now. The Edge Data Center business, like we said, we've effectively funded the first four. The intention is to get those first four up and prove out the economics of that. And then we'll see what that looks like from there. That business could readily be funded from asset-backed debt financing. I'm not saying it's how we'll do that, but it can be. So there are ways to do that without diluting current shareholders. On the power side, there's a lot of different options there with the, I'll call it, the data center nuclear arms race. There are data center developers and operators that are willing to fund a lot of that as part of a power deal. So we'll see what that looks like and keep everybody updated. Next question, Ed Woo with Ascendiant Capital Markets. Please go ahead. Edward Woo Yes, hi. I just had a question about your pipeline. Has there been any change in the sales cycles as you try to get these new contracts? Is there different sales cycles with your railroad business and with the data center business? Charles Ferry Ed, that's a great question. And yes, there is a big difference in the sales cycle time line between the rail and the Edge Data Center, and I'll talk to the power side of this in a moment. So again, the rail -- the cycle for closing rail CapEx deals is typically, as we've seen, taken sometimes 12 to 24 months. It can be a bit painstaking, but that really hasn't changed that much. On the subscription side, we're seeing it's probably taking about four to six, maybe even eight months to close a large subscription customer. Again, we're on the very front end of this. We've only been able to really truly offer a subscription of these portals for about the last 60 days. So we got a lot of interested customers. And so I think we'll have to come back to you in a couple of months to really give you an accurate metric for how long it's taking to close those customers. On the Edge Data Center side, what we're seeing is that once we find a customer who, in our case, has actually been funded by federal and state infrastructure dollars and being granted that money, we get into a conversation with them, the closure rate with them is about 60 to 90 days. And sometimes it's even faster. Now once we actually get interest from them and we start discussing the -- getting into contracts, now there's a pipeline of about, let's call it, about 90 days to actually manufacture the Edge Data Center. Month number four, you're actually installing the data center; by month number five, you're filling it up. So we're probably talking about, from interest to Edge Data Center in the ground and producing recurring revenue, let's call it about six months for that. On the power side, I don't have any specific data points right now for putting power up against data centers. But right now, it appears that -- both Adrian and I were out on a TD Cowen investor conference where the best and brightest of that industry were there, to include data center builders and hyperscalers. There are data center locations that need power now. So now it's a matter of how fast we can bring it to them. Again, I think on our next call, we'll be able to tell you with a little bit more clarity about what the interest to closure cycle looks like on that. At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Ferry for his closing. Charles Ferry Again, I'd like to thank the audience for joining us today. And as always, I want to double-thank all my Board members and most especially our shareholders and our -- especially, our long-term shareholders, for your support. I think our strategy is one that is going to be very lucrative for us going forward, like Adrian said. And we look forward to keeping you updated. I'll turn the call back over to our operator. Thank you. Before we conclude today's call, I would like to provide Duos' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. This earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminologies such as believes, expects, may, will, should, anticipates, plans and their opposites or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based and could cause Duos Technologies Group, Inc.'s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Item 1A in Duos' annual report on Form 10-K, which is expressly incorporated herein by reference and other factors as may periodically be described in Duos' filings with the SEC. Thank you for joining us today for Duos Technologies Group's Second Quarter 2024 Earnings Call. You may now disconnect.

Ouster, Inc. (OUST) Q2 2024 Earnings Call Transcript

Chen Geng - Vice President, Strategic Finance and Treasurer Angus Pacala - Chief Executive Officer Mark Weinswig - Chief Financial Officer Hello and welcome to Ouster's Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. [Operator Instructions] The call today is being recorded and a replay of the call will be available on the Ouster's Investors Relations website an hour after the completion of this call. I'd now like to turn the conference over to Chen Geng, VP of Strategic Finance and Treasurer. Chen Geng Good afternoon, everyone. Thank you for joining us for our second quarter 2024 earnings call. I am joined today by Ouster's Chief Executive Officer, Angus Pacala and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks, we would like to remind you that earlier today, Ouster issued a press release announcing its second quarter 2024 results. An investor presentation was published and is available on the investor relations section of Ouster's website. Today's earnings call and press release reflects management's views as of today only and will include statements related to our business and financial outlook that are forward-looking statements under the federal securities laws. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. For a discussion of the material risks and other important factors that could impact our actual results, please refer to the company's SEC filings and today's press release, both of which can be found on our investor relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and other than as may be required by law, we undertake no obligation to update these statements as a result of new information or future events. Information discussed on this call concerning Ouster's industry, competitive position, and the markets in which it operates is based on information from independent industries and research organizations, other third-party sources, and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from Ouster's internal research, and are based on reasonable assumptions and computations made upon reviewing such data and its experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risk, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures. Please refer to today's press release. Hello everyone and thank you for joining us today. I'll start with a brief recap of the quarter, overview of the market, and update on our strategic priorities. Mark will cover our financial results in more detail before I close with some final thoughts. Our second quarter results showcase solid execution as our GAAP gross margin increased to 34%, setting a new operating record for Ouster. We reported revenues of $27 million, representing the sixth straight quarter we have met or exceeded our guidance. We are also making our business more efficient. Since the first quarter of 2023, we have reduced our inventory levels by over 30% and improved our annualized inventory turns to over 3.5 times from under 2.5 times. Alongside the continued improvement in our operating results, we have built 1 of the industry's most resilient balance sheets and diversified business models. Subsequent to the end of the quarter, we repaid all outstanding balance on our revolving credit line with cash on hand. During the second quarter, we saw a strength in our robotics vertical, which accounted for many of our largest deals. We secured and expanded our relationship with Serve Robotics, a leading developer of advanced AI-powered delivery robots. Ouster's REV7 sensors are designed to support a Level 4 capable fleet that makes on-demand delivery more affordable and accessible. We look forward to supporting Serve's planned fleet expansion across multiple U.S. markets by the end of 2025. Also within robotics, we won deals with two of the world's leading mapping companies to improve how their billions of users explore the world. These customers are expanding their REV7 deployments to refresh and upgrade their mapping fleets with increased range, accuracy, and precision. REV7 took mapping to a whole new level at the Paris Olympics, where fans engaged in new immersive experiences that brought them closer to the games. Reflecting our focus on software solutions, software attached sales were a highlight in the quarter as we won deals to power perimeter security, intelligent transportation systems, and crowd analytics. With Ouster Gemini, our customers are able to detect and classify objects, conduct real-time tracking, protect secure zones, and automate alerts for security threats. Compared to traditional security solutions, Gemini can significantly decrease false alarms, reduce labor constraints, and enhance intrusion detection capabilities in a wide range of environmental conditions. I am excited about the additional software opportunities we have in the pipeline for the second-half of 2024. Touching on the current demand environment more broadly, we are encouraged to see expanding deployments with existing customers, as well as evaluation projects with new customers. Consistent with broader macroeconomic and industry trends, we have also seen some customer schedules pushed to the right. Despite these schedule changes, which may soften near-term growth, we expect our strong margin and operating expense performance to keep us on track to deliver on our path to profitability. Turning to our strategic business priorities for 2024. Our first priority is to expand software sales and grow our installed base. In the second quarter, we secure deals to supply Ouster Gemini, our smart infrastructure software solution to one of the world's largest consumer technology companies, as well as a global telecommunications company. During the quarter, our software team also improved movement detection for security customers, optimized software processing requirements, and enhanced our deep learning perception model to support new use cases, which is identifying unauthorized individuals tailgating into restricted areas. The second quarter also marked one of our best quarters for software attached sales. We increased our deployments at distribution yards as Gemini and REV7 are helping drive the immediate ROI for our customers, in addition to providing safety and operational optimization. We signed Gemini deals for multiple other use cases such as material handling, crowd analytics, and perimeter security applications. Turning to our digital lidar hardware roadmap, we have tapped out our automotive grade custom silicon Chronos chip and expect to integrate Chronos into our solid state digital flash DS sensors in the next year. Concurrently, we advance the development of our next generation custom silicon for our OS sensors, the L4 chip. The L4 silicon is back from FAB, and validation testing is underway. Both Chronos and L4 are expected to open up new verticals and bring significant improvements in performance, reliability, and manufacturability to the Ouster product family. Finally, our second quarter results demonstrate solid execution and progress on our path to profitability. Our gross margins are now approaching the range provided in our long-term financial framework, and we have maintained a low-cost structure, while achieving significant year-over-year revenue growth. We remain on track to deliver the financial metrics necessary to reach profitability. In summary, the second quarter showcased our execution and progress on all three of our strategic business objectives. I'll now turn the call over to our CFO Mark Weinswig to provide more context on our financial results for the second quarter. Mark Weinswig Thank you Angus and good afternoon everyone. In the second quarter, we recognized a record $27 million in revenue, shipping over 4,000 sensors. Revenue increased 39% over the second quarter of 2023 and 4% over the first quarter of 2024. The Smart Infrastructure vertical was the largest contributor to revenue followed closely by robotics. Since launching our software solutions in the first quarter of 2023, Smart Infrastructure has been our fastest growing vertical and this quarter comprised roughly one-third of total revenues. Our gross margin improvement over the past 18 months is a key highlight for Ouster. Second quarter gross margin set record levels both on a GAAP and non-GAAP basis. GAAP gross margin was 34% in the second quarter of 2024, compared to negative 2% in the first quarter of 2023 and is nearing the range provided in our long-term framework of 35% to 40%. Non-GAAP gross margin improved to 40% in the second quarter. Gross margin benefited from further adoption of our high-performing REV7 sensors, favorable product mix, and lower manufacturing costs. We see a slight normalization of these factors and expect our margins to be relatively flat sequentially. I am proud of our progress in expanding gross margins since the merger. The strong performance illustrates our ability to drive revenue growth, while at the same time significantly reducing overhead costs and streamlining our manufacturing operations. In addition, we have simultaneously reduced our inventory levels by almost $10 million, increasing our working capital efficiency. GAAP operating expenses of $34 million were lower by 72% year-over-year and up 3% sequentially. The sequential increase was driven by higher stock-based compensation and increased litigation expenses. We expect operating expenses to fluctuate on a quarterly basis, largely due to the timing of R&D project spending and litigation activities, and should remain at or below third quarter 2023 levels. Moving to the balance sheet. Our balance sheet is industry leading with cash, cash equivalents, restricted cash, and short-term investments of $186 million at June 30. During the second quarter, we received approximately $16 million from ATM sales. In August, consistent with our strategy to improve our capital structure, we utilized $44 million of cash to fully repay the outstanding balance on our revolving credit line. This action further strengthens our financial position and provides Ouster with a resilient balance sheet. Now moving to guidance. For the third quarter, we expect to achieve between $27 million and $29 million of revenue. We anticipate steady sequential revenue growth for the remainder of the year. I'll now turn the call back to Angus for his closing remarks. Angus Pacala Thanks, Mark. The Ouster team delivered solid execution in the second quarter. This is now the fifth straight quarter of expanding margins and increasing revenue. Non-GAAP gross margins reached 40% for the first time in our history. We had one of the best quarters for software attached sales, added new features to our software product portfolio, and both of our next generation custom silicon chips are progressing. Ouster stands out as a fundamentally differentiated lidar company that is shaped by our exceptional employees, customers, and technology. We are relentlessly focused on building the highest quality products and providing best-in-class support to help solve our customers' cutting-edge challenges. I'm excited to see the use cases for lidar expand as the world is automating to solve an ever increasing number of modern challenges. Whether it's industrial companies delivering more efficiency or cities deploying technology for safer roads, Ouster's digital lidar is increasingly the center of choice. With lidar adoption still in its infancy, we are just beginning to tap into our growth and I see a tremendous opportunity still in front of us. [Operator Instructions] Your first question comes from Kevin Cassidy with Rosenblatt Securities. Your line is open. Kevin Cassidy Hi. Yes, thanks for taking my question. And congratulations on the great results. Yes, moving up to 40% gross margin is quite an accomplishment. And I just want to understand some of the moving parts in doing that? Is it the unit volumes that are up and costs may be coming down with that, or is it because you're selling more software and maybe you can give a ranking of which one affected the gross margins the most? Angus Pacala Yes, thanks for the question, Kevin. We're very proud of the gross margins. Definitely one of the highlights of really the past year. But over the past 18 months, we took significant actions. We moved more product to our contract manufacturer. We took costs out of the business. We shut down facilities. And those actions and the revenue growth and the product mix shift have allowed us to really see a significant increase in our overall gross margins. You know, we provided the long-term framework of between 35% and 40% in terms of a growth margin target, and we're right now knocking at the door of being able to hit those levels. Kevin Cassidy Great. And maybe to understand the software strategy a little more. You're selling it as an attached feature now and getting an extra price, I would think. And other maintenance contracts along with that, do you have a long-term where you continually update the software for your customers? Angus Pacala Yes, that's a great following question on the -- and it really relates to the gross margins as well. The software strategy that we put in place, basically driving software-attached sales through our solutions business, is really starting to pay off. We had a record revenue quarter for software attached sales. That's a customer that's buying a combination of hardware and software from Ouster. And this is not an overnight success. We've been investing in Gemini and Blue City now for over two years and made major investments last year and integrating those two products after the merger and a unified software stack. And we're seeing customers respond. So, you know, Blue City, we see customers now expanding from pilot phase into real deployments into municipalities that could impact the safety and improve congestion of the towns and cities that you and I live in. So we're really excited about that, that adoption starting to show legs and drives actual revenue, significant revenue and expanding gross margins. About a third of our revenue this quarter came from the smart infrastructure vertical. And again, we sell software solutions into that vertical specifically. And that's all just creating this great flywheel of success in that vertical and for our gross margin expansion. Your next question comes from the line of Kevin Garrigan with WestPark Capital. Your line is open. Kevin Garrigan Yes, hey Angus, hey Mark. Let me echo my congrats on the progress. Hey Angus, you know some contracts that were pushed to the right at some of your customers. Kind of a two-part question. Do you guys have agreements with customers that are non-cancellable? And then what end markets do you see the pushouts in? Angus Pacala Yes, so just to answer that. So we absolutely have contracts that are non-cancellable with customers. That's the bookings. The definition of a booking is a non-cancellable PO or contract that we have in hand. And in last year, we had a great bookings year, book-to-bill ratio of 1.7 times. So significant customers, significant number of customers are under contract with Ouster, which gives us a lot of confidence in the long-term kind of view of the top customers of Ouster. And so overall, I mean to the question of where are we're seeing slowdown or expansion, I really want to step back and stress how positive the outlook is for Ouster's business across each one of our verticals. All we see is growth in the future for Ouster. We have created a flywheel across four key industries and each one of those industries is adopting more automation, more digital lidar sensors from Ouster and building stronger ties and more mature business models. To give some examples, you know, Serve Robotics we mentioned in the call, that's a customer we've been working with for over five years. They've been at smaller pilot stage for a long time and now they've made the leap to a 2,000 unit expansion of their business. That's a novel business model. Last mile delivery starting in LA and 2,000 units is nothing to sniff at. That's bigger than Waymo's deployment in any city in the U.S. So we're seeing customers like that in novel domains like robotics expanding, but we're also seeing customers moving out of pilot stage or development stage with some of our software solutions. So Blue City, I mentioned municipalities now talking about tens or hundreds of intersections being deployed with the technology where we've been in the pilot stage across you know hundreds of different sites in the last couple years. Same thing true for Gemini solution. We now have customers that are using Gemini as a core part of their business, driving cost savings for logistics players, security, providing security at sites. So yes, I really want to stress overall, Ouster, what we see is growth in our future, obviously, we're guiding up for next quarter. And we're committed to the long-term model that we provided with 30% to 50% growth annually on a path to profitability. Kevin Garrigan Okay, perfect. I appreciate that color. And then, you know, as a follow-up, kind of going off of Kevin's software question. I mean, it looks like this quarter, you know, you mentioned you had signed much larger customers. Kind of looking at your pipeline, do you have for our -- or any other large companies, you know, in a pipeline and are any on the edge and what can you kind of do to get them over the finish line? Angus Pacala Yes, so the software attached sale is a key part of Ouster's strategy. We outlined that at the beginning of the year. And it's really focused on the smart infrastructure vertical. And we have two products there, Blue City for traffic management and then Gemini as a crowd analytics, a more generalized solution for crowd analytics, logistics and security. And this is the first year that we really had a significant go to market strategy with a mature product. And already, you know, we're at a point where a third of our revenue this quarter with software attached sales, or excuse me, was from the Smart Infrastructure Vertical, and we had a record quarter for software attached sales in the quarter. And this is just the beginning. I think that there's potential for us to have the majority of our sales within the smart infrastructure vertical be software attached. Again, these products have been out for, you know, in many cases under a year. And we're adding to these products all the time. So the difference with hardware and software is we're able to incorporate new features, address customer demand, and drive value at a faster cadence with this customer base, because it's software we can deliver over the air versus shipping new hardware and developing new hardware on a longer time frame. So I think there's big things to come here and we're going to continue to give insights into how customers are adopting this as the year goes on. Your next question comes from the line of Richard Shannon with Craig-Hallum. Your line is open. Richard Shannon Well, hi, Angus and Mark. Thanks for taking my questions. I'm going to follow-up on one that was asked earlier. I think it was different perspectives, the response. I just want to be more specific here. And Angus, you talked about some delays and push outs you're seeing here, which is not a surprise. And we've heard from other companies that reporting so far this season here. Maybe you can characterize where you're seeing that by industry, by geography, and then maybe as a corollary or a follow on to that, Mark, comments about what this might be for the fourth quarter. I didn't catch the specific language, but it made it sound like you're expecting kind of a flattish revenue in the fourth quarter versus the third? Just want to verify what that means? Mark Weinswig Yes. So Richard, I'll go first just because I want to make sure that I don't, that any words I said are not mischaracterized at all. So what my comments were is that we do anticipate steady sequential revenue growth for the remainder of the year. And as Angus mentioned, we are going to grow. We are continuing to grow. It's our focus to grow. We've got a very strong book of business. And you should expect that we are going to grow within the framework that we put together, which is the 35% to 50% annual revenue growth. Angus Pacala Yes. And then on the question on push out by industry, you know, the nature of having hundreds of customers and being a diversified business is there really isn't a single industry where there's a trend of push-ups. We have a certain fraction of customers that always delay. That's the nature of adopting new complex technology. And there's nothing wrong with that if you've built a business that incorporates that reality and is resilient to it. And actually, I view that delay, when you go and look at the customer survey, the customers that are delaying, and again, it really is broad based across our industries. The common thread is that the delay is coming from technical development of their total solution. And that means software. That means software integration, validation. And so it really is an opportunity for Ouster to go and build more of those solutions across our verticals. And so we started in the smart infrastructure vertical, building total solutions. And as a result, we don't have delays of that nature for our software attached sales for the customers in that domain. And so I think that there's an immense capacity to start building out solutions that address these challenging technical problems, software and hardware working in concert, complex AI technology that's safety critical and industrial or robotics or automotive and building that software and expanding our revenue base as a result and also speeding time to market for the tail of customers that's struggling with that kind of technology. So hopefully that gives you some color. This is really not an industry by industry trend at all. It's a nature of having hundreds of customers and having a diversified business. Richard Shannon Okay, and I apologize. I may have misinterpreted your initial comments, which you're not interpreting this push-out anyway to any macroeconomic activity, but delays in complex technical developments. Is that accurate, Angus? Angus Pacala There will always be some level of macroeconomics that plays with some of our customers, but Ouster is expecting to grow. We got it up, we're expecting to have growth through the end of the year and continue to grow in line with our long-term model. So I don't want you to have the wrong takeaway here. We see nothing, but up and to the right for the revenue at Ouster. Richard Shannon Okay, great. Thanks for correcting my misinterpretation there. My second question here, I guess I'll pull up on the software topic in response to the last question you were talking about. Within the smart infrastructure space, seeing a majority of your hardware sales being software attached. It sounded like a forward-looking comment, as opposed to something you're seeing here now or expecting in the near future, but maybe you can expand on this. And help us maybe think about, you know, maybe with just within the smart infrastructure space, is there visibility into 10%, 25% of that vertical being software driven at some point? Angus Pacala Yes, I fumbled my words on that answer. So just to clarify, we did about a third of our revenue from the Smart Infrastructure Vertical this quarter, and we had a record quarter for software-attached revenue. Now the fact is we really only sell smart infrastructure software. So we had a strong quarter in smart infrastructure from a software-attached sales basis and just from an overall basis as a mix of the industry. And if you go back and reread some of my comments from late last year, early this year. I -- software-attached sales were under 20% of the revenue for a couple quarters there, but really set the expectation that we -- there's the capacity for us to outgrow, or yes, outgrow, grow faster in the smart infrastructure vertical than others. Why? It's for two reasons: one, is because we're building these total solutions in-house. And like I said, that allows you to side step some of the tricky issues with customer integrations. The second is because these verticals are immense. The IPS traffic solutions industry is billions of dollars globally. 150,000 signalized intersections in the United States alone. Likewise, the security industry, security solutions, the hardware, video management solutions, tens of billions of dollars, hundreds of millions of cameras are sold every year into that vertical. So we're entering major markets with turnkey software hardware solutions. So I think that smart infrastructure as a vertical still has the capacity to outgrow our other verticals or become a larger share over time. And I do think that at least an internal goal is for the majority of those sales to be software attached just because of the nature of the products that we're -- the software products that we have. Gemini and Blue City, I see as encompassing the vast or a majority of use cases in the smart infrastructure vertical. Richard Shannon Got it. Okay, great perspective there at the Angus. That's all from me. I'll jump in line. Thanks. Your next question comes from the line of Itay Michaeli with Citi. Your line is open. Itay Michaeli Great. Thanks. Hi, everybody. Just two questions. First, on gross margin, with 40% non-GAAP this quarter, and I think Angus, you mentioning the opportunity ahead, the increase of software-attached sales, it won't prevent upside over time to the 35% to 40% range you provided and if you do see some upside, could there be an opportunity for the company to even invest some of that back into price to drive volume? And just secondly, maybe for Mark, I was hoping you could expand a bit more on the decision to pay down the revolver in Q3 and kind of what went behind that decision? Thank you. Mark Weinswig Thanks for the questions, Itay. Great to hear from you. So just moving first to the gross margin side, we're very, very happy by the performance this quarter. We did have a couple of tailwinds that impacted us. We saw strong revenue growth. We had a favorable product mix. We saw lower cost. We've guided or we've noted that we have this long-term framework of 35% to 40%. You know, we've not made any changes to that. As we see more of the business move to potentially higher margin verticals, we may update that in the future at this point. We're sticking with kind of that framework that we've laid out. And going back to your other point, which is that there might be opportunities to look at opportunities from the fact that we may have higher margins in certain verticals than other verticals. So it's something that we have discussed and it's something that we are looking at. Angus Pacala Yes, the question being kind of on investing some of that margin back into volume with certain customers. You know I think that that's an apt observation in question. There's certainly a set of customers that we could invest in per se if we see a major volume opportunity. And I think that, that's built into, to some degree, our long-term model. I do want to make it clear we're committed to the 35% to 40% margins. Now where we end up in that regime could be determined by how much we are investing in a particular vertical that might need a different type of pricing in order to reach an order of magnitude more scale. We're certainly in a position with the balance sheet we have and the progress we've made to move aggressively in a couple of directions if that makes sense for the business and for the long-term profitability of the business. Mark Weinswig And then moving over to the balance sheet and the decision to pay down the debt that we had outstanding, the $45 million of debt. Part of the business, which might not be as flashy, but which I really enjoy, is looking at the balance sheet, focusing on efficiency and working capital management. Over the last year, year and a half, we've lowered our DSOs by 60%. We've reduced our inventory by $10 million, increasing our inventory turns to X, significantly reduced the cash conversion cycle. So every one of our working capital metrics just looking very, very positive. That along with the fact that we had a very strong ending cash amount of about $186 million as of the end of June, it gave us the confidence to be able to pay down that debt, so that we have what we believe is the most resilient balance sheet of anybody in the industry. We think that's a competitive advantage. And your next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Kevin Cassidy Yes, thanks for letting me ask a follow-up question. You know, the L4 coming out, when you came out with REV7, it was a real game changer and you're still benefiting from that? What do you think with L4? Are you addressing higher end markets or different markets with that? Or do you expect this to be more or less a cannibalization of the current product? Angus Pacala Yes, thanks for the question. I was waiting for a product question. [Technical Difficulty] silicon chips. So and really, the promise here is that outsource products are going to continue to become, to be exponentially better based on the Moore's law improvements in the underlying semiconductor technologies. And we've seen that across multiple generations of chip, most recently with the L3 chip doubling the range of all of our products, just by swapping out that silicon. So our customers can expect to benefit from continued exponential improvement in our products. L4 is going to deliver on that promise again. And but it's not just about producing higher-end products. We can also simultaneously reduce costs in the system by absorbing even more complexity of the system onto the silicon chips. And that applies to the L4, but also to the Chronos chip which you know notably is taped out and will be coming back for incorporation into the DF sensors. So the promise of digital lidar and the silicon-based roadmap that Ouster has is continuing with both the L4 and the Chronos, and customers will benefit immensely from improvements in performance features and affordability as a result of that investment. There are no further questions at this time, so I will hand it back over to Mr. Pacala for closing remarks. Angus Pacala Great. Well, I want to thank the Ouster team for another great quarter, and thank everyone for joining the call, and hope everyone has a great evening. Cheers. Thank you. This does conclude today's conference call. You may now disconnect.

Getaround, Inc. (GETR) Q2 2024 Earnings Call Transcript

Barry Hutton - Managing Director of The Blueshirt Group Eduardo Iniguez - CEO Patricia Huerta - Chief Accounting Officer and Interim Chief Financial Officer Good afternoon. And welcome to Getaround's Second Quarter 2024 Earnings Conference Call. Today's webcast includes management's prepared remarks along with a hosted Q&A session. As a reminder, this event is being recorded. I would now like to turn the conference over to Barry Hutton, Managing Director of The Blueshirt Group. Please go ahead. Barry Hutton Thank you, operator. And thank you, everyone, for joining us today. Hosting the call with me are Getaround's Chief Executive Officer, Eduardo and Getaround's Chief Accounting Officer and Interim Chief Financial Officer, Patricia. On this call, management will be making projections or other forward-looking statements within the meaning of federal securities laws, which are based on our current expectations and assumptions and are subject to risk and uncertainty. Forward-looking statements generally relate to future events or our future financial and operating performance. Our assumptions, expectations and beliefs regarding these matters may not materialize and our actual results in future periods are subject to risks and uncertainties that could cause those actual results to differ materially from those projected. These risks, which include those set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this announcement are based on information available to us as of the date hereof and we disclaim any obligation to update any forward-looking statements except as required by law. Please note that other than revenue, or as otherwise specifically stated, the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release that is available on our website. Thank you, Barry. And good afternoon, everyone. As you know, I rejoined Getaround as CEO in late February. Since then, I have been working with our team on multiple initiatives to lay the foundation for growth and profitability. I believe Getaround has several advantages that uniquely position us to continue improving our competitive position within the car sharing space. These include our proprietary Connect technology, which enables fully remote management of bookings, our growing global presence that allows customers to book in the US. and in Europe and our incredibly loyal and talented team that continues to focus on executing our mission. To date, we have completed the following: reviewing and streamlining our operations across every function to lower our cost structure; focusing heavily on improving margins, which include making the difficult decision to suspend operation in markets where profitability is challenging due to regulatory requirements, such as New York; enhancing our governance and leadership team by appointing industry experts to new board member seats and senior executive positions; and obtaining a commitment of $50 million in additional financing with $40 million of this already secured to execute our business plan. There are other initiatives in flight, including pursuing ISO certification as part of a renewed focus on strategic partnerships with OEM automakers and their connected cars; aggressive expansion of our gig business, including both our [HyreCar] by Getaround and Drive with Uber operations; new ways to get into a car in addition to our seamless connect experience, including delivery to a driver's location or point of interest and iterating on our AI based TrustScore model to better assess and price risk. I am pleased to report that these efforts are beginning to translate into financial performance, particularly with respect to margin improvement. On a year-over-year, our Q2 trip contribution margin improved from 43% to 53%. This reflects a new aggressive focus on controlling our trip support costs, including claims and customer support expenses. We have also completed extensive restructuring of people, teams, processes and systems, which have and are expected to continue to improve our bottom line. As a result, second quarter year-over-year adjusted EBITDA loss improved 49% to $11.4 million. Total net revenue was consistent with the same period in 2023 at $18.6 million while gross booking value fell by 1% to $53 million. It is important to note that we achieved similar year-over-year total revenues in the second quarter despite facing several headwinds. These include suspending all operations in New York, one of our largest markets, as well as legacy challenges from 2023 that impacted supply operations and acquisitions, and reduced global marketing investment that impacted demand. Revenue benefited from the acquisition of HyreCar assets completed in May 2023 and we continue to invest in our gig operations, which makes Getaround now the country's largest peer to peer car sharing marketplace for gig drivers. In Q2, synergies from the HyreCar acquisition expanded our Drive with Uber program, integrated skilled operational leadership to other business areas and provided insights into managing a healthy margin business while focusing on high vehicle utilization, longer duration rentals and high velocity product development. Our gig and global technology platform updates completed in the first quarter have been encouraging. With the launch of new features, such as key exchange, which allows owners and drivers to connect in person, providing owners more agency and drivers with more choice in order to improve liquidity. I anticipate our 2025 global platform implementation across all business operations to further drive significant top line growth. During the first half of 2024, we executed on opportunity to increase efficiency and rightsize fixed costs. For the remainder of 2024, the team is laser focused on maintaining our positive momentum on improving margins and growing in markets and segments with profitable unit economics. Now, I'll turn it over to Patricia Huerta, our Chief Accounting Officer and Interim Chief Financial Officer, to review our financial results. Patricia Huerta Thank you, Eduardo. And good afternoon. As Eduardo mentioned, we've seen revenue consistent with the same period year-over-year with an uptick in profitability, signaling positive momentum from our ongoing efforts to enhance performance. Top line revenue was flat relative to Q2 2023 at $18.6 million while gross margin from service revenue continued its upward trend reaching 88% in Q2 2024. Trips for the second quarter were 235,000, down from 257,000 in Q2 2023. The reduction in trips is largely attributed to the suspension of operations in New York State. Year-over-year, net revenue was consistent with Q2 2023 despite headwinds from exiting the New York market effective April 1, 2024 and our exit from certain other unprofitable geographic markets. That impact was partially offset by the revenue contributed by our acquisition of HyreCar assets in May 2023. On the cost side, we have improved gross margin from service revenues to 88% in Q2 of 2024, an improvement of 300 basis points year-over-year. Trip contribution profit was $9.7 million, up 23% year-over-year, driven by reductions in support costs. This improvement in our unit economic reflects the meaningful impact of many operational and cost actions we've taken this year and we believe there's further room for margin improvement while sustaining healthy top line momentum. Operating expenses totaled $40.7 million in the second quarter, a decrease of $6.6 million compared to Q2 of last year due to reducing and optimizing marketing spend, operations, support expenses, as well as general and administrative costs. Our adjusted EBITDA ended the quarter at $11.4 million loss, favorable to the $22.4 million loss during the same period last year, mostly tied to optimizing our marketing, operations and support expenses. Our cash position was $30.9 million at the end of Q2 2024 and we are in the process of improving that position. Finally, we have used the existing Mudrick Capital debt facility to add $20 million of cash in July 2024. As Eduardo outlined, we're taking significant steps to reset our company's leadership, business direction and operations. These changes are now in place and the benefits are beginning to be reflected in our financial results. As our efforts continue, we look forward to providing ongoing business updates. At this time, I'll return the call to Barry Hutton to host our Q&A session. Great. Thank you, Eduardo. Thank you, Patricia. We've asked -- we've received a number of questions from investors over the course of the quarter, especially in the last day or two. As we've fielded those questions, we've recognized that many of the questions are similar and really concentrate around a few key topics. And so we wanted management to take a few moments to address those primary topics right now publicly for the entire audience. So I will ask these topics to Eduardo to get his comments. First question is related to the stock exchange listing. Effectively, Eduardo, can you explain the company's decision to withdraw the appeal to the New York Stock Exchange and what is likely to happen next? Eduardo Iniguez Look, I understand the move from the NYC may appear to be high profile change. But if you've been following Getaround's journey as a public company, you'll be familiar with the fact that the company hasn't been compliant with the NYSE's listings requirements for some time. It seems since going public in late 2022, the company has had several operational and financial challenges that have impacted our finances and ultimately our status with the NYSE. But however, we are today and we will continue to be a public company. We fully plan to follow the expected SEC public company requirements. As outlined during the call, we have installed new executive team, several new board members along with making operational changes and successfully securing financing. Our immediate near-term focus is to transform the company into sustainable operational model to better serve our drivers, car owners and investors. I believe and the team believes that when the time is right, we will reevaluate our exchange listing options. Barry Hutton The next question, in addition to your efforts to streamline the business operations, what are the near term and midterm opportunities to improve your key growth metrics? Eduardo Iniguez I think As Patricia and I shared on the call, we're pleased with cutting our quarterly net loss by more than half year-over-year but we will not sacrifice growth to continue optimizing our cost structure. It is important to remember that we have a proven business model and we know that car sharing can be profitable. So we firmly focus on balancing cost optimization with profitable growth. As you recall and if you've followed Getaround, like I mentioned before, previously and I was here during that time, the company was focused on growth at all costs, but now the management team is aggressively pursuing market segments that are aligned with our business model. For some context, the company's estimate of total serviceable market is over $100 billion and there is only a handful of global players. So the question is how we grow profitably and that's what my team and I are here to do. To give you some growth examples, we continue building on our technology and support infrastructure to drive loyalty. increasing repeat Getaround customers, our proprietary technology with Connect is key here, making it incredibly convenient to rent; focusing on aggressive geographic expansion and profitable North American European country this quarter; and pursuing longer distance rental by attracting a new customer segment of renters. Barry Hutton Looking bigger picture, how does Getaround differentiate itself from competitors in the car sharing market and what are the key challenges and opportunities that you foresee for the industry? Eduardo Iniguez At the top of my head, I could think of four and I'll review them as I continue, but I want to start with, first we align all of our functions around creating a cohesive driver and owner experience that's seamless, intuitive and adds value to community we're part of. To us, customer experience is what differentiates us from the competition whether in car sharing or compared to traditional rental agencies. We see four areas that we differentiate ourselves. One is our Connect technology, which is targeted to our drivers. We want to continue making it incredibly easy for them to search, book and drive. For example, our drivers do not have to wait in long lines and physical location to get into a car and they could just use the app, connect to the vehicle and pick up the car without having anyone there. Second place is our TrustScore technology which is AI machine learning technology, which focuses on owners. The way TrustScore works is we want to ensure that drivers take good care of the cars, because it's important to our owners. So we continue to iterate our risk underwriting to make it more rewarding to rent Getaround than any other marketplace. The third piece is our global platform. I believe for both North America and Europe, we are now a single global technology platform that we believe is best in class, unlocking efficiency at scales as we continue to release new features to our customers. And the last piece is our internal talent. We've done a really good job internally over the past few months to attract industry experts who are passionate about changing the car sharing world. They are the ones who are really leading the implementation of changes to better serve our customers. As far as the challenge goes, we continue to face -- we have faced state legislation that makes certain markets challenging to operate for car sharing, suspending our operations in New York as a result of legislation is one example. This takes away from the opportunity for our communities to drive, earn and reduce congestion. Barry Hutton And lastly, some of the audience has recognized that given Getaround's business model, the company must have a significant amount of data from its drivers and its car owners. Has the company tried to leverage any AI capabilities or features through your technology or your platform? Eduardo Iniguez It's true. Getaround has significant amount of data from over a decade of operating in the car sharing space. But it's not just connect data, it's also general marketplace dynamics and there are always opportunities to better leverage data. One way we are doing business is by exploring how AI can help improve the customer experience. For example, how we generate AI will help liquidity. We can use data for personalization, improving the research experience for drivers so they can better navigate the marketplace experience. For risk management is another area where we can deploy specifically by incorporating our data sets, how we price risk with our TrustScore model, as well as how we base price with more accurate dynamic pricing. Another one I could think of is we can incorporate AI in how we interact with our customers. Another example of that would be we can -- with the chat experience to assist bookings and have instant customer support. As we all know AI, the new way for it to compete and differentiate ourselves and AI presents a new frontier for our business. And honestly, I'm really excited to share more about it and how we are using it and particularly the impact of the business, but more of this will come in future calls. Barry Hutton Our audience recognizes that it's been very busy and dynamic few months with the company. We appreciate management, given this business update today and addressing several of the key topics that most of our investors have been asking about. So at this point, we want to thank the audience and our investors and other stakeholders for your interest in the company and listening in today. And we look forward to updating all of our stakeholders with future development as appropriate through various communications channels, including not limited to our next quarterly report at the end of the third quarter. So again, thank you for your interest. And at this time, we can disconnect and end the call.

CaliberCos Inc. (CWD) Q2 2024 Earnings Call Transcript

Lisa Fortuna - Investor Relations Chris Loeffler - Co-Founder & Chief Executive Officer Jade Leung - Chief Financial Officer Ladies and gentlemen, welcome to Caliber's Second Quarter 2024 Earnings Call. As a reminder, today's call is being recorded for replay purposes. At this time, all participants are now a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference call over to Lisa Fortuna, Investor Relations for Caliber. Please go ahead. Lisa Fortuna Good afternoon, everyone. Welcome to Caliber second quarter 2024 financial results conference call. With me today are Chris Loeffler, Chief Executive Officer and Co-Founder; and Jade Leung, Chief Financial Officer of Caliber. Please note that we have a quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on the Investor Relations section of our website at www.caliberco.com. After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect and anticipate refer to our best estimates as of this call, and there can be no assurances that these will actually take place. So our actual figures could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Chris. Please go ahead. Chris Loeffler Thank you, Lisa, and thank you to everyone joining us on the call today. I'd like to begin our discussion by first thanking our employees, vendors and partners for their dedication to Caliber. In May, Caliber initiated some cost reduction measures that are a key component of our plan to return our business to operating profitably. These measures have required many members of our team, vendors and partners to take on additional responsibilities sometimes with less resources. The entire team has risen to the challenge and I'm grateful for their tremendous efforts. Their dedication has helped us to just adjust our cost basis to a level that combined with our planned revenue growth. We expect we'll return caliber to positive EBITDA in Q4 of 2024 and positive net operating income in 2025. As we continue to sharpen our focus on increasing revenue, Caliber has set three priorities for revenue growth. The first priority is to acquire more income generating real estate investments. The real estate market has seen a significant drop in value from its most recent valuation peak and we believe now is the time to acquire attractively priced assets. Prior to this change in real estate values, we did not see the same opportunities we are seeing in income generating assets. Now to begin, we intend to close on our first 1 billion of assets in our planned rollup of the Caliber Hospitality Trust or CHT. So far we have seven hotels in CHT with a total estimated AUM of $234 million. We expect to close the next eight hotels by the end of 2024, bringing the AUM of CHT to $410 million. We are pleased to announce that we have signed a definitive term sheet with an institutional investor that we expect will bring $35 million to $65 million of preferred equity to CHT, which will provide the funds necessary to acquire these eight assets. The agreement is subject is customary closing conditions and diligence requirements, and we look forward to updating you on our progress. The roll up of CHT will mark a significant change in the composition of caliber's AUM for the sizable portion of the portfolio being income producing hotels. To further bolster our income generating AUM, Caliber has taken action on a program to provide an elevated experience for 1,031 exchange investors seeking quality income generating assets. We believe Caliber provides a solution for a persistent challenge for investors seeking a quality partner to complete their exchange, and we look forward to sharing more as this program develops. Our second priority to accelerate revenue growth is to provide more single asset investment offerings. We believe we'll be able to attract more investment capital in this format and we have a series of projects ready to present to investors seeking to build their wealth with real estate. Additionally, our discretionary multi-asset funds can act as a lead investor in the single asset offerings, providing the multi-asset funds with a first look at each caliber project invest in. After seeding our new funds with more assets, we expect the multi-asset funds will be better positioned to attract capital from our wholesale channel. Our third priority is what we call build what we own, while this priority may sound obvious for a real estate investment company, it is not always the case. Caliber along with what we would estimate to be most companies investing in land and development was impacted by a very disruptive cycle of events between COVID, inflation, ongoing challenges in the banking system and the rapid rise in interest rates. With this drastic change in market conditions, we took a hard look at our projects to reevaluate whether any changes to our plans were warranted. A step we believe is prudent for all real estate investors. In completing our review, we found the path that we expect will lead to the most potential value creation for our clients and for Caliber to be that of a continued course to complete our developments according to our revised plans and build what we currently own. An important consideration in our analysis is that many of these development projects sit with little to no secured debt, offering traditional financing as the best potential path to capitalize their completion. In many cases, all or the majority of the equity required for the projects has already been raised. Our developments are also located in strong markets with resilient demand giving us confidence in leasing. Financing is critical to achieve Caliber's revenue generating priorities and because of that I would like to make some observations about the current financing environment. As a real estate asset manager, financing comes to Caliber in several forms.The first form of financing is what we call fundraising, which is equity capital, preferred equity and convertible debt raised from Caliber's clients and partners for our funds and for our real estate projects. Today, the ongoing market conditions around fund raising remain challenging. We are focusing on things within our control to enhance our fund raising capabilities and expand into new target areas despite these conditions.Caliber's Target market for fundraising includes over $13 million [Technical Difficulty] Chief Operating Officer responsible for leading all operational aspects of Caliber, including people, operations, project management, information technology and security, regulatory compliance, legal customer service and fund-raising operations. He is taking a leadership role in many strategic projects within the company, including Caliber's focus on cost reduction. In addition, last month we announced that Steve Drew joined Caliber as a Senior Vice President of Marketing Strategy and Technology. You already heard me mention Steve's name as it relates to fund raising. Since joining, Steve has immediately identified actionable steps to optimize our go-to-market strategy and technology platform. With these appointments, we are confident that Caliber has assembled the right team and capabilities to take informational technologies like AI and utilize them to achieve our goal of consistent profitable growth. Turning to a few high-level comments about the quarter. In Q2 2024, we continue to see positive year-over-year improvement in asset management revenues a key focus of our team, this is an important source of stable recurring revenues. With our singular focus on achieving consistent profitable growth, we implemented necessary expense saving actions during the quarter and since executing these actions in mid-May, we are on track to see the initial $6.5 million of annualized savings starting in the second half of 2024, and we expect to generate positive adjusted EBITDA in Q4 2024 with a full realization of cost improvements anticipated in 2025.Moreover, we remain confident in Caliber's medium and long-term growth prospects and are acting to ensure we can achieve our previously announced three-year goals. Before I turn over the call to Jade, I want to provide an update on our corporate debt. As I discussed in the prior call, we are seeking to refinance our unsecured debt. Through the end of the second quarter, we've paid off approximately $4.2 million in debt and have extended approximately $27.4 million in debt at various future maturities. With the overarching objective of improving our balance sheet over time. We continue to make progress and we will keep you apprised of our progress as it occurs. I will now turn over the call to Jade, who will take you through our second quarter financials in greater detail. Jade Leung Thank you, Chris. Good afternoon, everyone. We appreciate you joining us today. As we have previously discussed, beginning in Q1, we are no longer required to consolidate Caliber Hospitality LP and the underlying six Caliber hotels. Additionally, as of Q2 2024, we are no longer required to consolidate the assets associated with our Elliot 10 partnership. Further advancing our goal to consolidate all assets managed by Caliber. In simple terms, when we consolidate an asset, we manage all of the corresponding fees and revenues we earn, get removed from our results. We then have to replace those fees with the revenues and expenses of that consolidated asset, of which the majority of those amounts do not benefit caliber or its shareholders. As a simple example, if we earn, say $10 of asset management fees and $6 of that fee is generated from one of our consolidated assets that itself generated say, $50 of hotel revenue, we would reflect $54 of total consolidated revenue, $50 of which is largely not a benefit of Caliber, the public company. We believe these changes simplify our financial statements by removing most of the asset performance that has historically been included in our consolidated results. As a result, our comparative financial information is less meaningful since the prior year's results continue to include the historical performance of these assets. It's for these reasons that we continue to include unconsolidated platform performance information in these updates to provide a more clear understanding about the performance and growth of the company. With that background, I'll now turn to our results for the second quarter of 2024. Second quarter total consolidated revenue was $8.2 million, a decrease of 60% versus the same period a year ago due to a decrease in consolidated fund revenues, which was primarily due to the deconsolidation of Caliber Hospitality, LP and Elliot 10 and the underlying assets. Partially offset by a corresponding 70.3% increase in consolidated asset management revenues. Consolidated expenses for the first quarter declined by 59.7% to $12.7 million. The decrease was also due to the deconsolidation previously mentioned. For the second quarter of 2024, net loss attributed to Caliber, which excludes net loss attributable to non-controlling interest was $4.7 million or $0.22 per diluted share. This compares to net loss attributed to Caliber of $5.7 million or $0.29 per diluted share in the same period a year ago. Caliber adjusted EBITDA loss for the second quarter was $2.4 million compared to adjusted EBITDA loss of $2.3 million during the same period a year ago, due to an increase in G&A expenses largely related to professional services offset by an increase in total revenue of about $800,000. Total unconsolidated or platform revenue increased 24.9% to $4.2 million, mainly due to higher asset management revenue. Breaking down our platform revenue a bit further, fund set up fees increased to $665,000 from $9,000 in the prior year due to the recognition of revenue earned related to two new fund offerings open during the quarter. Fund management fees increased by 12.5% to $2.7 million due to an increase in managed capital and fees earned from the Caliber Hospitality Trust, which added one third party hotel property in Q1. During the three months ended June 30, 2024, the company earned a fund management fee of 0.7% of the Caliber Hospitality Trusts enterprise value. Development and construction fees decreased by 50.1% due to higher activities in each of Mesa Commons, Jordan Loss and Ridge 2 in Colorado in the prior year, offset by an increase in construction activities related to J25 in the current year. Performance allocations during the quarter were nominal. Total unconsolidated or platform expenses in Q2 were $8.2 million, a decrease of 4.1% compared to Q2 last year, primarily due to a decrease in operating costs stemming from a decrease in stock compensation expense and a decrease in accrued bonus. This was partially offset by an increase in general and administrative expenses associated with increased legal and accounting fees. Interest expense in the second quarter was $1.3 million, essentially flat compared to the year ago. Total managed capital increased by $32.2 million or 7.4% from $438 million to $470 million from December 31, 2023 to June 30, 2024. I'll now turn it back to Chris for his final remarks before we take your questions. Chris? Chris Loeffler Thank you, Jade. Before turning to the Q&A session, I just want to reiterate our commitment to delivering consistent, profitable growth to our shareholders. Caliber has been working to both adjust our cost basis and grow our revenues, and we see significant opportunities in our business to continue to improve and capture a large market opportunity today. Thank you to all the call participants. I appreciate you joining today and engaging with Caliber and look forward to any questions. [Operator Instructions] Your first question comes from the line of Brendan McCarthy from Sidoti. Brendan McCarthy Chris, I just wanted to start off with fund raising. I know you mentioned the environment remains challenging. I'm just wondering if you can discuss how fund raising trended in the second quarter across the three different distribution channels. Chris Loeffler Sure. Thank you. In our first quarter we raised a little less than $10 million. In our second quarter, we raised approximately $20 million, so we saw it about double, primarily driven by our fund raising in CHT and our retail group. We actually saw our first checks come in from wholesale. It was not a meaningful amount of money, but it was the first investment starting to come in from the wholesale channel. So that continues to be an area of focus as well, building into the selling agreements we've already signed and continuing to grow that base. So that's the progress we've made so far. And then the announcement we made today at the top of the earnings call would be incremental in new capital compared to the numbers I just quoted you. So the $35 million to $65 million of institutional capital for CHT is additional capital we expect to close. Brendan McCarthy Then on the flip side, I know it seems like redemption just redemptions have trended somewhat favorably over the past couple quarters. Can you talk about any trends you're seeing at the redemption level they seem, I guess they seem pretty low relative to just some of the industry pressure that's making headlines. Chris Loeffler So certainly, see the same kinds of or similar kinds of redemption activity and requests from our clientele. I think a lot of investors have positions that have been in real estate funds that are illiquid. Our funds are illiquid as well, but unlike some of the funds that have liquidity gates where we're forced to liquidate assets, typically at the wrong time. Caliber is not forced to sell an asset based on a redemption request. So, we have been prudent in terms of looking at the underlying assets and the investments we have in our funds and making sure that we're not just seeking to sell an asset at what I would call the last 12 months being a terrible time to sell. And that we're looking at the properties that we own to maximize the profit and the return for all investors, not just for an investor that's seeking a redemption. So we've certainly seen redemption requests increase over time as interest rates went up in our underlying funds. But we've been managing that effectively so far. Brendan McCarthy And looking at the -- just looking at the prepared remarks, you mentioned there's a goal to provide more single asset investment offerings, that's just an initiative that's more appealing to target investors or I guess, and then as a follow-up, how does that impact the 2026 financial targets? Chris Loeffler If you think about single asset offerings, they have two significant benefits. One is they're just easier for an investor to understand. And since our strongest fund raising has been in our direct to high net worth channel, which is we call the retail channel that's the right matchup between the type of offering that those investors typically like to invest in something they can get their hands around on a single project and our -- the strength of our fund raising. At the same time, what we have seen in the current environment with investors being uncertain about the future and with interest rates and with fears of a recession and everything else that I'm sure you and the rest of the market are experiencing. Investors want to know I'm going to invest in this specific project with this specific planned outcome.So I think that there's a lot of certainty in single asset offerings. And then the second thing we have found that ties into the business plan from last year rolling into this year. Last year, we spent a lot of time launching our larger multi-asset funds. We needed to do that so that we had a product that fit with the wholesale channel for fund raising. And as we've gone out there and started selling those funds, we found feedback from a lot of the broker dealers and investment advisors we've been working with that they liked the funds, they liked the structure but they want to see more assets in the funds so that they can show those funds to their clients with I would say like a, essentially a seated group of assets inside the funds. So the best way for us to do that, and the fastest way for us to do that is to spin up our single asset in investment offerings, go out and acquire projects that are attractive for both our retail investors and our wholesale investors, get them purchased and then provide an allocation to our multi-asset funds that they can take it a piece of each deal and start to build the track record of the funds, so to speak. So that's the strategy. It does not impact our goals. We just think that this is the best possible strategy for Caliber in the near-term, to both raise capital and achieve those goals. Brendan McCarthy One more question for me, just looking at the financial targets, the $3 billion targeted AUM by 2026, I guess, has that target or has your confidence in achieving that target changed at all throughout the first six months of the year? Chris Loeffler We have not changed the targets and we don't intend to, we feel pretty confident about what we put out there because we -- when we built those targets in the first place, we accounted for some of the environment we're in. So I think that our acknowledgement of the fact that it's a difficult environment and that interest rates are up and such was all part of the original plan. I think, if you were to tie out that $3 billion target as an example, presuming we execute on our minimum goal for CHT, then we will be bringing the portfolio AUM up to close to $2 billion with that transaction, which leaves the remaining $1 billion to be additional assets going into CHT or other investments we make over the next, essentially two and a half years. So I think we feel pretty comfortable with the targets. There are no further questions at this time. I will now turn the call back to Chris for closing comments. Chris Loeffler Great, thank you. And thank you Brendan, appreciate the engagement. In closing, I'd like to reiterate to our employees, first and foremost, our gratitude for your ongoing dedication and commitment. I know how hard you guys have been working and I really appreciate it. I'd also like to thank our loyal investors and partners for your continued interest in Caliber and your investment and your faith and trust in our leadership and our management team. Thank you again for your time today. For everyone on the call, we look forward to speaking and meeting with many of you in the near future. And if you have any questions, we encourage you to reach out to our investor relations team at financial profiles, and especially if you can go to our website and sign up for the investor relations newsletter. So, thank you very much and have a good day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

BuzzFeed, Inc. (BZFD) Q2 2024 Earnings Call Transcript

Good day, and thank you for standing by, and welcome to BuzzFeed, Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amita Tomkoria, Senior Vice President of Investor Relations. Please go ahead. Amita Tomkoria Hi, everyone. Welcome to BuzzFeed, Inc.'s second quarter 2024 earnings conference call. I'm Amita Tomkoria, Senior Vice President of Investor Relations. Joining me today are CEO, Jonah Peretti, and CFO, Matt Omer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release, our 2023 annual report on Form 10-K, our Q1 2024 quarterly report on Form 10-Q, and our Q2 2024 quarterly report on Form 10-Q to be filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call we present both GAAP and non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA margin. The use of non-GAAP financial measures allows us to measure the operational strength and performance of our business, to establish budgets, and to develop operational goals for managing our business. We believe adjusted EBITDA and adjusted EBITDA margin are relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by our management. A reconciliation of these GAAP to non-GAAP measures is included in today's earnings press release. Please refer to our investor relations website to find today's press release along with our investor letter. Thank you, Amita. Good afternoon, everyone, and thank you for joining us today. Before I get into the specifics about the quarter, I want to provide a bit of context. As I mentioned on our past calls, we take a long-term approach to managing our business. This is why we've kept our world-class tech team and product teams intact, despite a tough market where many of our competitors shed those costs to provide short-term savings. We have a strong conviction that continuously experimenting and innovating with technology sets us up to thrive in the next era of the internet. We've always lived at the intersection of content and technology, and we're increasingly leaning into new technologies for beginning to transform the media industry. I'm pleased to share that we are beginning to see the fruits of our experimentation and innovation. In particular, Generative AI, interactive content formats, enhanced personalization are starting to drive improvements in key metrics across our business. These improvements include more audience loyalty, more user logins, higher conversion on our commerce content, better targeting and growth in our advertising inventory, revenue growth in our most scalable lines of business, and improved profitability. By leaning into new technologies, we have also accelerated the pace of new product development, made our content creators more efficient and creative, and invited our audience to participate directly in AI-assisted content creation. We've already done much of the hard work that will enable us to do more of the fun consumer-facing work moving forward. Since the start of the year, we've built foundational capacities with the help of AI that now power internal content development tools like our AI copilots as well, as consumer-facing experiences like our AI-assisted content generators. By leveraging a range of embedding techniques to represent our content, in conjunction with vector data stores and model fine-tuning capabilities, we have the right building blocks in place to recommend, remix, personalize, and generate new forms of media for our audiences. Our teams are very excited about the capabilities we've built so far, and even more excited about all the new things we'll be able to launch in the coming months and years. We'll share more with you in future earnings calls so you can track our progress. These changes have also allowed us to complete the shift away from platform-dependent model of content distribution and monetization. In Q2, our teams were focused on deploying many of the tools to drive deeper audience engagement on our owned and operated websites and apps. And our Q2 results demonstrate the progress we've made in that regard, along with stabilizing our business more generally. As compared to Q1, audience time spent with our content in Q2 grew 5% according to Comscore. And as the only digital media company among our competitors set to grow over this period, we believe this highlights the strength of our differentiated business model in contrast with peers whose traffic is highly dependent on search and other external referral sources. We also grew time spent among our core demographic, Millennials and Gen Z, by 11% versus Q1. In terms of revenue, on a year-over-year basis, we grew Q2 revenues in two of our largest and highest margin lines of business, programmatic advertising and affiliate commerce. And we exceeded our May profit outlook, delivering $2.7 million in Q2 adjusted EBITDA for a $5 million improvement year-over-year. With the vast majority of audience engagement happening on our owned and operated properties, we are well positioned to control our own destiny in terms of enhancing personalization, enhancing and personalizing the audience experience and driving long-term monetization. In Q2, 90% of audience time spent with our content was on our own websites and apps. And direct traffic continues to be our largest source of audience traffic, far surpassing referrals from third-party platforms, including Facebook. Direct traffic continued to show stability in Q2 across our two largest owned and operated properties, BuzzFeed and HuffPost. More importantly, we saw strong evidence of deepening loyalty among our audience. Logged in users grew versus Q1, better positioning us to mitigate potential risk of cookie deprecation. As we've introduced more interactive content, we have also seen that the number of loyal users, or the number of users that visit us more than once a week, has grown by a double-digit percentage since Q4 2023. And, we are also seeing momentum in terms of repeat visits to our site. Page views per unique site visitor grew quarter-over-quarter for the third consecutive quarter. Loyalty continues to be particularly strong across our suite of BuzzFeed Games, and the vast majority of Q2 games users on the app return within a week. One of our biggest learnings in Q2 was that when creativity is in the hands of the audience, engagement is deeper. Whether it's our Sims AI Generator, Make Your Own Emoji, or Turn Your Favorite Celeb Into Shrek, our AI-powered content generators have demonstrated higher audience engagement and participation relative to other formats. We also launched the new BuzzFeed homepage in June, offering more engagement opportunities for the audience directly on the page, from polls to quizzes to widgets that make it easier for the audience to learn more about themselves and each other. Although it is still early, following the new site launch, we have seen measurable increases in audience engagement and monetization with more actions per visit and a double-digit percentage increase in programmatic revenue per homepage view. Looking ahead, we expect to build on these audience engagement and monetization trends with a new landing page that features all of BuzzFeed's Games, a social leaderboard feature, and a newly designed BuzzFeed app that builds on all the learnings from our web homepage. We see a future where our app provides a mix of trusted content, games and interactive features, creating a hybrid between a content publisher and a social media destination. I'm excited to build -- I'm excited to be building a platform that aligns with the future of digital media. Turning to our revenue performance, I am pleased to share that we grew Q2 programmatic advertising by 3% year-over-year. This is the first quarter of year-over-year growth in overall programmatic revenues since Q1 2022, a signal that our strategic and organizational changes we have made to stabilize our business are beginning to pay off. And importantly, these changes are also helping us to offset the impact of declines on third-party platforms and validating our focus on our owned and operated properties. Although our overall revenue performance continues to be pressured by headwinds in the direct sales channel, we are optimistic about the progress we are seeing on the programmatic side, which represents approximately two-thirds of our overall Advertising revenue. As part of our larger, company-wide transformation, we continue to focus on our most scalable, high margin revenue lines. And we expect this momentum to continue into Q3, as strength in our high margin revenue lines drives further year-over-year improvements in adjusted EBITDA. Our affiliate commerce business also had a strong Q2, growing revenues by 9% year-over-year. As I've discussed in past calls, retail partnerships are an important part of our business. With coverage like editorially-driven product roundups, we drive hundreds of millions of dollars in commerce transactions on behalf of the largest retailers in the world. But our retailer partnerships extend far beyond our editorial shopping content. Our relationship with Target is a great example of how we put our diverse product catalog to work to drive actionable results. Target leverages our high-quality onsite real estate to promote general brand ads and supplier-funded campaigns secured through Roundel, its retail media business, which drives advertising revenue for BuzzFeed. They also purchase branded sponsored content, like homepage takeovers, to spotlight their big tentpole moments like Target Circle Week or the holiday gifting season. And more recently, Target partnered with us on AI during this past holiday shopping season as we introduced Shoppy, our AI-powered shopping assistant that helped our readers find the perfect gift for everyone on their list. Our expertise in serving our retail partners continued to shine in Q3. Off the back of Amazon's largest Prime Day yet, BuzzFeed also had its biggest Prime Day ever, growing revenues over the two-day period by a strong double-digit percentage year-over-year, surpassing even Amazon's overall Prime growth and demonstrating the value-add we are able to deliver on behalf of the world's largest retailers. I am so proud of our teams whose expertise and dedication contributed to such an impressive result for the company. As we continue to make progress in growing our programmatic and affiliate revenue lines, this quarter we are introducing more transparency into our revenue reporting. I encourage you to flip through our Q2 investor letter available on our IR website for a closer look at our revenue performance. Matt will also share more on this shortly. Although legacy digital media continues to face challenges, we are charting a path to a better future and redefining the industry for this next era of technology. I want to emphasize the progress we have made in stabilizing the business in a relatively short period of time. Since the start of the year we have, built the leading platform for AI-powered content, accelerated the launch tons of new content, from AI-powered formats to games to a new homepage experience, reduced our debt, reduced our cost structure, improved our cash position, returned two of our largest and highest margin revenue lines to growth, and have driven year-over-year improvements in profitability I am grateful to work alongside such a talented and dedicated team, and excited to showcase what's next for BuzzFeed as we continue to build the defining media company for the AI era. I'll now hand the call off to Matt to discuss our financial performance and outlook. Matt Omer Thank you, Jonah. As Jonah just touched on, we closed the second quarter with great momentum. Before I discuss our Q2 financial performance in more detail, I'll recap some highlights from across the business. In terms of audience time spent, we were the only digital media company in our competitive set to grow time spent quarter-over-quarter, up 5% versus Q1, according to Comscore. And importantly, we grew time spent among our core demographic, Millennials and Gen Z by 11% versus Q1. We delivered overall Q2 revenues in line with our May outlook, with year-over-year growth in two of our largest and highest margin revenue lines of business, programmatic advertising and affiliate commerce. We've exceeded our May outlook for adjusted EBITDA, generating $2.7 million in Q2 profits, a $5 million improvement year-over-year. This momentum has continued into Q3 with our biggest Prime Day ever, generating double-digit year-over-year growth in both audience traffic and commerce revenue and outpacing Amazon's overall Prime Day growth. As we work to return the overall business to growth, we are introducing more transparency in our revenue performance. In this quarter's investor letter, available on our investor relations website, you will find details on the year-over-year revenue performance of our areas of focus, programmatic advertising and affiliate commerce. With that, let me share some more on our second quarter financial results. As a reminder, all financials and comparables presented here are on a continuing operations basis, which excludes Complex. Overall revenues for Q2 2024 declined 24% year-over-year to $46.9 million, in line with our May outlook. Performance by revenue line was as follows. Advertising revenues declined 19% year-over-year to $23.8 million, driven by ongoing pressure on our direct sales channel and a shift in our strategy to prioritize our most scalable high margin revenue lines. This offset growth in our programmatic advertising business across both our owned and operated properties and third party platforms. Advertising revenues are driven in large part by audience time spent with our content across platforms. In conjunction with advertising revenues, we continue to report US time spent across our owned and operated properties and third-party platforms according to ComScore. And as I mentioned earlier, we led the industry in Q2 in terms of overall audience time spent growing versus Q1. On a year-over-year basis, time spent trends continue to reflect the ongoing declines in referral traffic from third-party platforms. Q2 time spent, as reported by Comscore, declined 5% year-over-year to 71 million hours. Content revenues declined 48% year-over-year to $11.4 million, again driven by ongoing pressure in the direct sales channel. The vast majority of our content revenue is made up of branding content campaigns for clients. Now, as we double down on our higher margin, more scalable revenue lines like programmatic advertising and affiliate commerce, we have put less emphasis on this lower margin branded content business. Commerce and other revenues of $11.7 million, grew 7% year-over-year, driven by better performance of our shopping content across multiple metrics, which drove higher affiliate commissions from our retail partners. And we delivered second quarter adjusted EBITDA of $2.7 million, ahead of our May outlook and $5 million better than a year-ago quarter. This reflects the cumulative impact of our cost savings plan announced in February, which more than offset the revenue headwinds in the quarter. We ended the second quarter with cash and cash equivalents of roughly $45 million, a net increase of approximately $10 million year-to-date. And before I share our financial outlook for the third quarter, let me provide some context. Starting with revenues, as we continue to prioritize our more scalable revenue lines, we once again expect year-over-year growth in programmatic advertising and affiliate commerce revenues in Q3. In terms of content revenues, we do expect to see an improvement in the year-of-year revenue trends versus what we saw in Q2. It's also worth noting that although historically we have seen a lift in direct sold revenues ahead of the US Presidential election, the majority of this spend typically occurs in the fourth quarter. As such, our Q3 guidance does not assume any material lift from political sales. From a commerce perspective, as I discussed, we have continued to see strong momentum in the affiliate business into Q3, particularly with Prime Day. And in terms of adjusted EBITDA, off the back of expected improvement in revenue trends from Q2 to Q3 in our cumulative cost savings, we expect it to drive operating leverage quarter-over-quarter and year-over-year, reflected an improvement to adjusted EBITDA and adjusted EBITDA margin. With that, I'll turn to our financial outlook. Again, all figures and comparables presented on a continuing operations basis. For Q3 2024, we expect overall revenues in the range of $58 million to $63 million, or 3% lower to 5% higher than the year-ago quarter. And we expect adjusted EBITDA in the range of $6 million to $11 million in profits, approximately $8 million higher year-over-year at the midpoint. Our Q2 results have demonstrated that our efforts to refocus the business are driving real financial results. And we see this momentum continuing into Q3. And as we return two of our most scalable and highest margin revenue lines to growth, we continue to execute with a lean cost structure and strong cash management and we see an opportunity to further stabilize the balance sheet and return the overall business to top line growth and drive additional margin expansion over the upcoming quarters. Thank you. I'll hand the call back to Amita, so we can take questions. Great. Thanks, Matt. Hi, everyone. We've gathered a bunch of questions that have come in over the course of the call and in advance. So we'll get right into it. Jonah, starting with you, on the topic of AI and some of the upcoming launches that you mentioned. Can you share a bit more about how AI is helping move some of these content launches forward? And if there's a way to quantify the cost benefit of rolling out content that utilizes some of the new AI capabilities that you talked about? Jonah Peretti Yeah. So, I'll start just by saying that there's a fair amount of upfront work that we've done really over the last 1.5 years, to build a platform to enable us to accelerate our work in AI and to be able to launch more products and more content. So if you take an example like the Bridgerton dress generator or the Celeb Shrek post, it really represents a very different way of thinking about and making content. Someone on our team will instead of making a single post or article will create a generator. And then our audience will come and use that generator to create hundreds of pieces of content or thousands of pieces of content. And so you basically shift from a model where your team and your editors and your writers are making one piece of content that is consumed to them making a machine that generates lots of content with the audience and allows the audience to participate in that content creation. I mean, that's just one example of the ways that it increases the content output and the audience and the interactivity. We're also driving more personalization on our site. We're building tools to streamline our business operations. We're using AI to detect trends and surface ideas that then our writers can turn into stories and post. So there's a huge wide range of things that we're able to do. But all of it is really enabled by the fact that we have spent the time investing in building a platform. And so now instead of it taking many weeks to launch a new interactive format, we can launch things as quickly and easily as other forms of content in the past, but the content is more personalized, more interactive and is more generative of additional content. And I think it really starts to feel like a collaboration between our team, our audience and the AI, and it's something that is pointing to a lot of really exciting opportunities for the future. Amita Tomkoria Thank you. And then just as the election approaches, maybe just to quickly touch on Jonah, and maybe also for you, Matt, what are the expectations for the impact on both traffic and advertising revenue for the business? Jonah Peretti I mean, just to quickly start with traffic, I think we're already seeing tremendous interest in the election on both BuzzFeed and HuffPost. BuzzFeed is more of an entertainment property, but there's so many memes and stories and entertainment related to the way that the election is driving culture. And HuffPost is really the best place to go and find out what's going on in this election, especially as social media platforms have gotten more fragmented and there's more misinformation spreading across social platforms. The front page of HuffPost is a great place for an audience to know what's going on, what are the latest developments, what's real, what's not. And we see a lot of strength in HuffPost with the election. I think in terms of ad spend, we usually see that ad spend come later in the cycle as campaigns spend really rapidly in the run-up to the election to drive turnout, registration and other things. Matt Omer Yeah. I'll just echo that. We really expect the direct sold revenues to come in Q4 as opposed to Q3. Amita Tomkoria So, Matt, that's a good segue maybe into the Q3 guide. The Q3 guidance that you shared shows a pretty significant step-up in revenue versus Q2. Can you share a bit about what's driving that lift? Matt Omer Yeah, sure. I mean, we expect the positive trends to continue in both programmatic and affiliate, as we double down on owned and operated properties. As you heard from Jonah, the new content launches plus the revamped home page are certainly driving deeper audience engagement, which is translating into improvements in programmatic revenue. And we just had our best Prime Day ever as I touched on. So double-digit top-line growth, it drives significant momentum for every -- of approaching the kind of began Q3. We're also seeing the stabilization in direct sold, particularly in direct sold content in Q3, and expect a significant improvement in the year-over-year trend in Q3 versus what we saw in Q2. So that's part of the step up. And then following the cash saving action that we touched on last quarter, more of our costs are just fixed in nature. And so as we see the seasonal lift in our revenue and some of the stabilization, we're going to see improvements to our operating leverage, and that's certainly amplified, particularly when we see two of our highest margin lines of business return to growth. And as a reminder, we showed $5 million of improvement in adjusted EBITDA in Q2, and based on the midpoint of guidance, we expect an $8 million improvement into Q3. So we're extremely excited that we have some momentum and we're going to continue to focus as a management team, keep our head down, and continue to focus on execution. Amita Tomkoria And maybe then just to jump over to the balance sheet. You guys obviously still have a fair amount of debt outstanding. Can you share your latest thinking around that? And particularly, how you guys are thinking about the impending option that becomes available to the lenders in December, I believe? Matt Omer Yeah. I guess just coming off the last question. And what we're really focused on is executing on the strategy that Jonah and I have laid out in previous earnings call and in this one, and we're starting to see some material improvements to our fundamentals in the financials. And we have -- we believe we have a pretty collaborative relationship with our noteholders as demonstrated by -- they gave us consent when we provided the complex transaction. As we previously discussed in our 10-Q, the company is -- we're always evaluating strategic changes to our operations or capital structures, including divestitures, of which the proceeds will be used to pay down debt. We all consider restructuring or refinancing of existing debt and the discontinuing -- discontinuance, I should say, of any unprofitable lines of business to ensure the long-term health of the business. It's also worth noting that the larger public float, we have been able to increase the size of our ATM program to $150 million. So we have that as well at our disposal for additional liquidity should the market circumstances support it. But overall, again, we're focused on keeping our head to the ground and operating and executing on the plans laid out earlier this year, and we'll continue to move forward. Amita Tomkoria Okay. That's very helpful. So, maybe, Jonah, turning back to you, I'd be remiss not to ask about some of the headlines around new activist shareholders entering the stock. And I'm curious if there's anything that you can share with us in terms of whether BuzzFeed's engaged with them up to this point or really any light that you can shed on that would be great. Jonah Peretti Sure. So, obviously, BuzzFeed is a very well-known brand that means a lot to many people. And I agree that there's a lot of future potential for BuzzFeed and we're working really hard to unlock that potential. In terms of activists, I'm always very open to hearing from our shareholders to hearing new ideas to hearing ways that we might be able to unlock even more value in the future. And I think there are a lot of tremendous possibilities ahead of us, and we're working very hard on our long-term strategy to unlock as much value as possible. but engaging with voices and shareholders and beyond shareholders, getting ideas for how to do the best we possibly can at creating the designing media company for the AI age over the next few years is something that we're very excited about. Amita Tomkoria Thank you. We've got a couple of minutes left. So, Matt, I'd like to close out with you just on the topic of cash. If I look from Q1 to Q2, it looks like the company burned about $16 million in cash quarter-to-quarter. Is that indicative of your expected cash burn rate going forward? Matt Omer Thanks, Amita. The Q2 cash burn is absolutely not indicative of the go-forward expected run rate. We had a few expenditures in Q2 that are not expected to repeat in Q3, the most material of which were the severance and onetime compensation charges related to expenses from the Complex transaction and the cost savings actions we announced in February. Secondly, as we previously had noted, we used some proceeds in the Complex sale towards optimizing our working capital. And lastly, we had a biannual interest payment that was due in June. None of those are going to be repeated in Q3. And so if we remove those expenditures, the cash burn would have been dramatically reduced. And so with the large onetime charges behind us, we do expect much more stability in our cash balance going forward. I'm pretty excited about where we're at as a business. Amita Tomkoria Thank you. Thanks, Matt. And thanks, Jonah. That concludes our Q&A session for today. So I'll hand it back to the operator to close out our call. This concludes today's conference call. Thank you for participating. 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LogicMark, Inc. (LGMK) Q2 2024 Earnings Call Transcript

Chia-Lin Simmons - Chief Executive Officer Mark Archer - Chief Financial Officer Good afternoon, and thank you for participating in today's Second Quarter 2024 Conference Call. Joining me from LogicMark today are Chia-Lin Simmons, Chief Executive Officer; and Mark Archer, Chief Financial Officer. During this call, management will be making forward-looking statements, including statements that address LogicMark's expectations for future performance or operational results and anticipated product launches. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information of these risks, please refer to the risk factors described in LogicMark's most recent filed annual report on Form 10-K and subsequent periodic reports filed with the SEC and LogicMark's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today August 13, 2024. Except as required by law, LogicMark disclaims any option to publicly update or revise any information to reflect events or circumstances that could occur after this call. It is now my pleasure to turn the call over to Chia-Lin Simmons. I'd like to start by congratulating the team for the progress that we've made thus far in transforming ourselves to a personal safety company, a solutions provider that meets the needs of a much broader audience of people at various stages and with various needs in their lives. When I first joined as CEO, we were hardware company generating one-time revenue from sale of our personal emergency response systems to the government's Veterans Administration. What we had and still do have a long-standing relationship, meeting the needs of our valued veterans, I knew there was a greater potential. So as the team came together, we laid out our vision for Care Village, a connected care ecosystem that is both reactive and predictive. For those of you familiar with the technology space, you know that it takes time to upgrade a technology stack. When I arrived, the company's focus was very narrow, and innovation has stagnated with nothing new introduced since 2015. Today, we are very different. We had our heads down since mid-2021, focusing on paving the right path to expand our footprint in a much larger personal safety and elder care market. As a result, we have modernized existing products and developed new solutions. We now offer five PERS solutions that include features such as advanced fall detection, geofencing for memory care, connect the cloud and caretaker app support. This also includes the use of big data, sensors, artificial intelligence and machine learning. We've also introduced -- apologies, we've also introduced a personal safety solution with the Aster safety app, which comes with a Bluetooth button. With our new technology stack, there are now opportunities to expand and add on features that could be tied to a partner's technology or services, and it also allows us to accommodate white labeling and other opportunities for partnerships. We've also been building a strategic intellectual property fence around our Care Village. Since I arrived at the company in mid-2021, we filed 14 patents. Our newest patent filed this week relates to risk and safety metrics calculation and assessment using sensors and algorithms, which integrate with our PERS and personal safety products and services. Other patents cover areas such as artificial intelligence, game theory, digital twins, environmental sensing, personalized behavior monitoring and more. So, we built a robust IP portfolio, which is remarkable for a team of our size and in such a short period of time, and this asset will serve as another catalyst to grow sales through potential licensing agreements. In the months ahead, we'll be focusing on expanding sales and marketing efforts across all our customer channels, including government, B2C and B2B. I'm proud of the fact that we have been both -- we have both at home and on-the-go solutions at varying price points. And with both reactive and predictive solutions, we now have opportunities for both one-time and recurring revenue solutions with higher margins. I encourage everyone to visit our logicmark.com website and take the product quiz to see which solutions fits your needs. One of our latest products is the Freedom Alert Mini. It's sleek, convenient and less than 2 ounces and packed with innovative features, so it's the perfect on-the-go safety device. It uses patented fall detection, GPS location services, water resistance and free caregiver companion app. The device also supports geofencing, allowing caretakers to establish a predefined area for their loved ones' safety. This is especially crucial for those with Alzheimer's or early -- or other forms of dementia who may tend to wander. The Freedom Alert Mini is a monitored device that is iOS or Android compatible and runs on any 4G LTE cellular network and is supported by a 24/7 US-based care team. Another one of our products is this Aster safety app, which is a real game changer for personal safety. This turns your smartphone into a personal safety device with 24/7 monitoring where you can select which friends and family members can follow your jogging route or track your attendance at an event for additional safety support. Whether you're a college student on-campus, a loan worker, a real estate agent hosting an open house by yourself, an adventurous senior exploring nature or a caregiver in a sandwich generation, Aster's innovative features offer unparalleled peace of mind. These are great examples of the work that we have done to expand our product offerings in personal safety and elder care. At this point, I'll hand over the call to Mark to summarize our financial results, including the recent capital raise that we completed. Revenue for the second quarter ended June 30, 2024 was $2.3 million, up slightly compared with the same period last year. A higher average selling price more than offset softness in unit sales. The gross margin was a more normalized 67% for the three months ended June 30, 2024, down from the 69% for the three months ended in June of 2023. Gross profit in the second quarter of this year was relatively unchanged at $1.6 million compared with $1.6 million in the same period last year. Total operating expenses for the second quarter were $3.6 million versus $3.9 million last year, a decrease of 6%. Reduced operating expenses were driven by lower spending in product development and technical engineering, partially offset by higher spending in sales, marketing and advertising as the company pivots from developing new products to putting those products in the hands of our customers. General and administrative costs also fell due to lower recruiting, professional and legal fees. The net loss attributable to common shareholders for the second quarter was $2.1 million compared with a net loss of $2.3 million in the same period last year. On a fully diluted basis, the net loss per share was $0.96 compared with a net loss of $1.83 per share in the prior period. As of June 30, 2024, our cash balance was $3.0 million. As Chia-Lin referenced, on August 5, we closed on a registered secondary offering priced at the market. Gross proceeds before deducting placement agent fees and estimated offering expenses were approximately $4.5 million. We intend to use the net proceeds from the offering for working capital and general corporate purposes. We also plan on holding a special meeting of stockholders on October 1, which, among other things, will seek approval for: first, a reverse split of the company's shares of common and Series C preferred stock, allowing us to regain compliance with NASDAQ's minimum bid price requirement; as well as, two, approval for the issuance of 20% or more of our shares of common stock in connection with the just completed secondary offering. Shareholders of record as of August 5, 2024, will be entitled to vote. With that, I'd like to open the call up to any questions. Thank you. [Operator Instructions] We have a question coming from the line of M. Marin with Zacks. Your line is open. Marla Marin, your line is open. Marla Marin Yes. Thank you very much. Sorry. So, I think that you've said in the past that the DTC channel is viewed as an important new channel going forward. Can you give us any color on how you see that channel gaining traction? And what your plans are to try to promote sales through DTC? Chia-Lin Simmons Yes. Thank you for the question, Marla. Hope you're well. So, yes, DTC, I think, is a very important channel for us. And when we talk about D2C, we're really talking about not just sales from our website or even app store downloads and sales for our Aster product, but we're also talking about the work that we're doing on Amazon. And for anybody who has ever worked with Amazon, they are a behemoth, and they are not an easy organization to work with often as a corporate entity. And so, we continue to make strides there, reducing our cost, participating in the Amazon programs for shipping to ensure that we actually get products into the hands of the customers as quickly as possible. And we have now launched our Mini product as well as regarding the 911 product, which is one of our key heritage sort of products on that particular platform as well. So, we will continue to basically promote and look for ways to increase those opportunities. We also are very focused on working with a number of different sort of D2C ad opportunities, always constantly looking at, of course, increasing the lifetime value, LTV, of the customer and basically doing acquisition as well as possible. We are a team of start-up people with corporate background, but in our hearts, we're sort of startup people, and so our interest has always been to basically deal with acquisition to be nimble, because that's the size of our company, and to basically acquire customer with as much low cost as we can in a very competitive market. I think we have to note here that our competitors, Medical Guardian, which is a privately held company, and some of these folks have been in the market D2C for more than 10 years, right? And so, D2C is extremely very, very new for us. And so, we continue to make very good strides along those lines. Marla Marin Okay. Thank you. And then, one last question, which is about Aster, now you've had not a very long timeline, but some time on your belt. Aster represents a new target market, I believe, a new demographic. So, in terms of addressing that demographic going forward, are you thinking that there will be other opportunities to provide services and/or new products for that particular demographic or for the demographics, I should say, that fall outside of your traditional core demographic? Chia-Lin Simmons Yes. It's -- to be candid, the Aster launch is an exciting one for us. I mean, we have been and continue to love the silver tsunami that comes along with our PERS marketplace, right? There's nothing -- it's nothing to see that when one-fourth is -- when your customers make up one-fourth of the US demographic and that's nothing compared to a global sort of like look in terms of how many people are turning 65 and over, and of that 65, one in four falling. So, we continue to be very bullish on the aging silver tsunami market. But the Aster market really opens us up to a completely new TAM for the company. It really also allows us to do a lot of things that I think are very different in terms of the type of partnerships that we can participate in. The reality is that 66% of Americans are afraid to do outdoor activities. I mean, I'm saddened. I have friends who actually had tickets to go see Taylor Swift in Austria of all places and it was canceled. And so, I think that for a lot of people, personal safety is really top of mind for a lot of them from big events like that to going to a festival. People don't feel safe anymore. And so, the Aster product actually opens up -- us up to a marketplace of people -- I mean, 66% of Americans not feeling good about doing outdoor activities like concerts, events, going jogging, that's really rather shocking. And so, we think that, that marketplace represents a very solid opportunity for us to grow our pie. But also that -- this is a market and the Aster product allows us to also partner in a B2B2C side. And so, you will see us actually talking about partnerships in this category a heck of a lot more in terms of who we could work with to make these products available to sort of business partnerships and distribution partnerships. So, it's a very exciting spot to be in. Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Chia-Lin for any closing remarks. In summary, I'd like to say that I'm more encouraged than ever about our future prospects. Studies show that the elderly population is living longer and prefer to age in place, and personal safety concerns are all-time high. We've made great strides in transforming LogicMark into a supplier of innovative, reactive as well as predictive solutions to improve personal safety and quality of life. This is the right time for us to continue investing in the personal safety and elder care markets. We appreciate the support that all of our stock -- stakeholders have provided thus far, and we look forward to keeping you updated on our developments. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.