Urgent.ly Q3 2024 Earnings Call Transcript

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November 12, 2024

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to UrgentMe's Third Quarter 2024 Conference Call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. With that, I'd like to turn the call over to Jenny Mitchell, Vice President of Finance Strategy and Investor Relations.

Operator

You may proceed.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Urgentle's financial results conference call for the Q3 ended September 30, 2024. On the call today, we have Urgentle's CEO, Matt Booth and CFO, Tim Huffmyer. Following Matt and Tim's prepared remarks, we will take your questions. Before we begin, I'd like to remind you that some of our comments today may contain forward looking statements that are subject to risks, uncertainties and assumptions, which could change.

Speaker 1

Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent annual report on Form 10 ks for the year ended December 31, 2023, our quarterly reports on Form 10 Q and other filings that we may file from time to time with the SEC. Except as required by law, we do not undertake any responsibility to update these forward looking statements. During today's call, we will also discuss certain non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in our earnings materials and press release, which are available on our website at investors.

Speaker 1

Geturgently.com. A replay of today's call will also be posted on the website. With that, I'll now turn the call over to Matt.

Speaker 2

Thanks, Jenny. Good afternoon, everyone, and thank you for joining us today for our Q3 2024 earnings call. I am pleased with our performance during the Q3, where we delivered revenue of $36,200,000 which was in line with our expectations while making improvements in both non GAAP operating expense and non GAAP operating loss. Notably, this is our 4th consecutive quarter where we delivered on our revenue guidance commitment. As we close out the year, we remain focused on the continued execution of our strategic initiatives, which are aligned with accelerating profitable growth, delivering exceptional customer service, achieving operational efficiencies and improving our capital structure.

Speaker 2

We were active across all areas of the business during the Q3 and we have again made progress on renewing several significant customer partner contracts. Let me spend a few minutes to provide some highlights. As previously mentioned, we secured a 3 year contract renewal with a global automotive fleet management company. The renewal extends our long term customer partner relationship to 9 years. Under this renewed contract, our customer partner will leverage urgently comprehensive technology stack capabilities in the U.

Speaker 2

S. And Canada to provide capabilities encompassing vehicle classes 1 through 6, which is light duty passenger cars, vans, small pickup trucks through medium duty and commercial vehicles. We will also leverage our AI driven yield based pricing technology with predictive location aware capabilities to drive network pricing and actionable insights with the goal of minimizing vehicle downtime. Also as previously released, we secured a 2 year contract renewal with 1 of our largest worldwide vehicle rental companies. With this renewal, our relationship which began in 2022 will extend through 2026.

Speaker 2

Urgently's connected assistance platform will continue to provide their roadside assistance program enabling exceptional mobility assistance services, including knowledgeable support for electric vehicles in the U. S. And Canada. Our recent contract renewals reflect urgently stability to foster growth, stability and collaboration across our existing client base. Each renewal underscores our client satisfaction and trust in our mobility assistance platform.

Speaker 2

We look forward to deepening our relationship with each of our customer partners and remain dedicated to supporting their long term success. Looking back at our progress over the 1st 9 months of 2024, we successfully renewed and expanded 8 existing customer partners and acquired 3 new customer partners. I'm proud of the hard work across the organization which have led to these successful outcomes. Despite this positive momentum, our business is not immune to some of the challenging market conditions facing our partners. In October 2024, we were that a customer partner, which is our top 5 global OEM has shifted their internal strategy.

Speaker 2

As a result, this customer partner has decided to close its mobile technical support trucks and eliminate dealer technicians providing remote services, which is the program that we're specifically selected to integrate and support. The strategy to change includes a contract wind down. This global OEM will be rolling this brand back under the vendor currently serving its other suite of brands. This customer partner currently represents less than 5% of our revenue for the 1st 9 months of 2024. We remain focused on winning new business and renewing expanding relationships with our customer partners an ongoing priority remains improving our margin profile to deliver profitable growth.

Speaker 2

As such, we are constantly looking at the business to find opportunities to drive operational improvements and efficiencies. On September 19, we completed our divestiture of Autonomous Business Unit The Flow. This action is part of our strategic effort to divest non core assets and dedicate our resources to advancing our core business. Under this divestiture, we returned 51% of the ownership to the business units management and retained 49% equity ownership. In addition, urgently retained a perpetual royalty free license to integrate the Flow software into the platform, which includes driver behavior, driver scoring, crash detection and analytics platform.

Speaker 2

The divestiture and license will also enable us to continue to leverage the Flow software to advance our connected vehicle offerings, while enabling the Flow management team to focus on its own growth opportunities and seek outside capital to grow independently without continued investment from Virginly. We would also expect to opportunistically partner with the Flow in the future. Separately, we believe the product innovation that leverages our technology platform and data insights will not only drive further optimization of our margin profile, but also will enable our customer partners to build roadside assistance programs that best fit their goals. On this front, I'm very pleased that urgently was recently recognized in October by Auto Tech Breakthrough Award for the overall Transportation Tech of the Year. Our next generation yield based pricing technology, which was introduced this year.

Speaker 2

This AI driven pricing technology makes it possible to reliably predict and optimize job prices for roadside assistance services leading to higher quality customer experiences. Real time yield based pricing allows urgently to better manage surges and roadside assistance demand similar to surge pricing used by ride hail services. This award is the result of our hard work data engineering teams who developed our yield based pricing technology and who continually look for ways to apply technology to advance the roadside experience. Our location aggregation system has been tested nationwide for RS-eighty four dispatches, which include 4 roadside service events of fuel, jump start, auto lockout and flat tire. We were successful in increasing the digital engagement with our service providers and reducing our cost to provide this service within this test segment.

Speaker 2

On the customer service side, we saw improvements in our time to assign and reduction in wait times for stranded drivers. As testing validated our assumptions, we've recently rolled out our location aggregation system to 15% of our network for all RSA for dispatches. In closing, the team had a productive third quarter and I'm pleased with our progress, which included securing customer contract renewals, continuing our focus on breakeven through operational initiatives and improving our gross margin for the quarter year to date over the prior year. We continue to take significant steps forward in our path to breakeven during the Q3 as evidenced by the 16% year over year improvement in our quarterly non GAAP operating expenses and 17% year over year improvement in our quarterly non GAAP operating loss. We believe this progress positions us well for capturing new and long term growth opportunities ahead.

Speaker 2

As we look ahead, our core priorities remain expanding our existing B2B incident business through securing renewals, expanding relationships with existing partners and developing new customer partner opportunities, achieving non GAAP operating breakeven for our operational improvements, margin expansion and managed growth and continuing to provide innovative and differentiated services to our partners. Thank you for your time and continued support. I'll now turn the call over to Tim to discuss our financial results.

Speaker 3

Thank you, Matt, and good afternoon, everyone. Today, I will discuss our results for the Q3 ended September 30, 2024. Let me start by providing more information on the strategic transaction to divest the flow in the Etonomo business unit. As Matt highlighted, in September, we announced our decision to divest this business unit, which we believe will enable greater focus in capital resource allocation to advancing Urgentlea's core business. As part of the transaction, we returned 51% ownership to the business units management and retained 49% equity investment ownership.

Speaker 3

This transaction resulted in an immediate deconsolidation of the business unit from urgently, including the removal of all related assets and liabilities and a new non current equity investment asset on our balance sheet valued at approximately 1,400,000 Separately, we retained a perpetual royalty free license to all divested IP, allowing urgently to utilize the desired functionality to enhance the urgently platform. This license was independently valued at approximately $1,400,000 and is classified under property, equipment and software on the balance sheet. The write off of all the divested assets and liabilities and the write off of both the equity investment asset and the IP software license resulted in a reported book loss within the Q3 of $3,300,000 Now let's move on to the financial results. For the Q3, revenues were $36,200,000 which was within our guidance range of $35,000,000 to $38,000,000 and a decline of 21% or $9,800,000 from the same quarter last year. The year over year revenue decline was in line with our expectations and was primarily driven by the reduction in dispatch volume from the customer partner non renewal that we had previously announced in January of 2024.

Speaker 3

This was partially offset by net volume and rate increases from new and existing customer partners. For the Q3, gross profit was $7,800,000 compared to $9,200,000 in the prior year period. Again, the decline was driven primarily by the customer partner non renewal from January 2024. Gross margin for the 3rd quarter was 21% compared to 20% in the prior year period. This is the 6th consecutive quarter of gross margin exceeding 20%, and we remain focused on executing against our strategic initiatives to drive profitable growth and achieve our long term gross margin target of 25% to 30%.

Speaker 3

Now let's move to operating expenses. Operating expense for the Q3 was $13,700,000 an improvement of 9% from $15,000,000 in the prior year period. The prior year included transaction costs and was part of the pre merger urgently financial results. We remain focused on driving operational efficiencies, which includes changes in business processes, such as eliminating redundancies within the organization and reducing operating expenses. As previously discussed, most of our operating expenses are headcount related, so we will focus on this initially.

Speaker 3

At the end of Q3 of this year, we had 188 total employees, a reduction of 160 employees or 46 percent when compared to the Q4 of last year, just after we completed the merger with year were $3,000,000 compared to $5,400,000 during the same period last year, a decrease of $2,400,000 or 45%. We also reduced our reliance on customer support representatives who are employed through our BPO partners. In the Q3 of this year, we had 223 full time customer support representatives compared to 404 during the same period last year, which is a reduction of 181 customer support representatives or 45%. These reductions are in part due to the hard work from the operational and technology teams to modify business processes and implement new technologies over the last several quarters, resulting in reduced operating expenses and the elimination of personnel. We also review non GAAP operating expenses, which is defined as GAAP operating expenses, plus depreciation and amortization expense, stock based compensation expense, non recurring transaction costs and restructuring costs.

Speaker 3

Non GAAP operating expense for the Q3 was $10,700,000 an improvement of 16% from $12,700,000 in the prior year period. This improvement is in line with our discussions throughout 2024 and more clearly shows the results of the operational efficiencies and leverage we've achieved along with the integration efforts with the Autonomous merger. Overall, we remain focused on optimizing our operating structure to drive further improvement in this metric. GAAP operating loss for the Q3 was $5,900,000 relatively flat as compared to the prior year. We also review non GAAP operating loss, which is defined as GAAP operating loss plus depreciation and amortization, stock based compensation expense, non recurring transactions and restructuring costs.

Speaker 3

Non GAAP operating loss for the Q3 was $2,900,000 an improvement of 17% from $3,500,000 from the prior year period. We continue to drive operational improvement initiatives as we realign our corporate structure with our current market opportunities. Our efforts are most notably reflected in the significant improvement of 70% in our Q3 non GAAP operating loss when compared to the Q3 of 2023 combined company non GAAP operating loss, including both Urgentle and Autonimo, which was 9,900,000 dollars Also an improvement of 63% when compared to the Q4 of 2023 non GAAP operating loss, which was 7,900,000 dollars Now a few comments on our balance sheet. As of September 30, 2024, urgently had cash and cash equivalents of $17,400,000 and a net principal debt balance of $54,300,000 with a maturity in January of 2025. We continue to take important steps to address our capital structure, enhance our liquidity position and provide the company with additional financial flexibility.

Speaker 3

We are in discussions with lenders regarding a senior secured working capital line of credit solution, which would allow the company to meet its scheduled debt maturity on January 1, 2025. We are also considering a plan for this maturity, which could involve partial or full pay down of this obligation prior to maturity. Further, the company continues to work with its 2nd secured lender to modify the January 31, 2025 maturity to align terms with the new senior secured working capital line of credit solution. The complexity of our secured debt structure requires negotiation and collaboration amongst the various stakeholders. This would also contemplate a solution for the unsecured notes that matured on June 30, 2024.

Speaker 3

We look forward to providing further updates on our capital structure. During the Q3, we capitalized approximately $1,400,000 mostly to make enhancements to our platform by adding features and functionalities, which benefit all of our customer partners. We expect this practice to continue with approximately $1,400,000 to be capitalized in the Q4 of 2024. As of September 30, 2024, we had 13,400,000 shares of common stock outstanding. Turning now to our outlook.

Speaker 3

We expect revenue in the range of $30,000,000 $33,000,000 during the Q4 of 2024 and revenue in the range of $141,000,000 $144,000,000 for the full year of 2024. In addition, we are targeting our non GAAP operating loss during the Q4 of 2024 to be approximately $2,000,000 with the continued target of non GAAP operating breakeven during the Q1 of 2025. Our expected common stock shares outstanding at the end of the Q4 is 13,500,000. Dollars With that, we will open the call for questions. Operator, please open the line for questions and answers.

Operator

We will now begin the question and answer session. Our first question will come from Chris Pierce with Needham. You may now go ahead.

Speaker 4

Hey, good afternoon, guys. How are you doing?

Speaker 3

Hey, Chris.

Speaker 1

Can you just give us a

Speaker 4

little breakdown? I know you talked about the renewals and then 3 new partners and then the loss of a partner. Like what's the right way to think of the 3 new partner

Speaker 2

as potentially replacing or replacing at

Speaker 4

a higher level that the partner that unfortunately is kind of pulling back on what they're doing?

Speaker 2

So the renewals, Chris, as we went through this year, we've been pretty successful on the renewals. I think we've renewed on a run rate basis about 50% or so. Tim, keep me honest on that, 50% of the revenue, which is great. The 3 new partners, as they're modeled out now, will more than make up for the one that is discontinuing with us in terms of top line revenue. They're larger in scale and equal to or exceeding the margin contribution.

Speaker 4

Are they global OEMs or fleet managers? Like what's the right bucket that they fall into?

Speaker 2

It's a combination of fleets and it's a combination of insurance and

Speaker 4

B2B2C. Okay. And these were competitive processes that you guys won? Yes. Okay.

Speaker 4

And then so if I think about the revenue that you guided to in the Q4, can you remind me is the Q1 of 2025 still sort of a messy comp because you had the larger customer that didn't renew as part of revenue in the Q1 and then the comps get more organic in the Q2? Is that the right way to think about it?

Speaker 3

It is, Chris. That's right.

Speaker 4

Okay. And then just lastly for me, gross margins. I know there was a sort of a headwind last quarter on lower margin jobs, which is sort of outside of your control. But from our kind of looking at things historically, we actually thought Q3 was the weakest quarter for gross margins because summer travel and people traveling further and away from jobs, like providers have to travel further to get the jobs. But gross margins were up sequentially.

Speaker 4

So just kind of can you just tie those 2 together for me?

Speaker 3

Yes, it does turn into a I think your theory is right, Chris. I mean, that's where all our conversations have been. It does come down to a bit of mix in how all the jobs come in and depending on the margin profile of each of those jobs. So it is mix driving a little bit of that.

Speaker 4

Okay. Okay. But should and how should we think about gross margins in the well, I guess okay, we can leave it there. That's plenty. Thank

Operator

you. This concludes our question and answer session. I would like to turn the conference back over to Matt Boothe for any closing remarks.

Speaker 2

Great. Thanks, everyone. In closing, we're proud of the significant progress we've made to position the company for profitable growth, and we look forward to providing you with further updates on our progress on future calls. As a reminder, we'll be attending the Sidoti Virtual Microcap Investor Conference on August 14th 15th. We're also scheduled to host a fireside chat at 10 am Eastern on August 15th, which you can access live or as a replay via our Investor Relations website.

Speaker 2

If you're attending and you'd like to have a 1 on 1 meeting with us, please contact your Sidoti representative. If you're not attending and would like to meet with management, please reach out to us at investorrelationsgeturgently.com. Again, investorrelationsgeturgently.com, and we can schedule a call. Thank you for interested in Urgently and for joining our call today.

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Urgent.ly Q3 2024
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