Urgent.ly Q4 2023 Earnings Call Transcript

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March 14, 2024

Key Takeaways

  • During Q4, gross margin increased to 22.6% (up 650 bps YoY) and full-year gross margin improved to 20.5% (up 980 bps YoY), supporting the goal of 25–30% long-term margin targets.
  • Full-year non-GAAP operating loss was reduced by 57% with a path to achieve non-GAAP operating breakeven by Q3 2024.
  • Balance sheet strengthened via conversion of $70.4 million of debt into equity at listing and a subsequent $17.5 million debt paydown, leaving $54.3 million net debt maturing in January 2025.
  • Revenue declined 13% in Q4 to $45.1 million and 2% for full-year 2023 to $184.7 million as Urgentle shifted away from less profitable revenue streams, including losing one insurance partner.
  • Secured a top-5 global OEM partnership set to launch in Q2 2024, expanded services with existing partners, and added programs with a luxury EV OEM and a major logistics firm, underlining momentum in customer acquisitions.
AI Generated. May Contain Errors.
Earnings Conference Call
Urgent.ly Q4 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to Urgentle's 4th Quarter and Full Year 2023 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 would like to turn the call over to Jenny Mitchell, Vice President of Finance Strategy and Investor Relations.

Operator

Jenny, 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 Q4 full year ended December 31, 2023. On the call today, we have 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 report on Form 10 Q and any other SEC filings. Additional information will also be set forth in our Annual Report on Form 10 ks for the year ended December 31, 2023. 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.

Speaker 1

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. 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

Thank you, Jenny, and good afternoon, everyone, and thank you for joining us us today for our Q4 and full year 2023 earnings call. We're pleased with the results for the year, which were in line with expectations that we outlined during our Q3 earnings call. As we had previously discussed, our key priority last year was to execute against our operational improvements to position urgently for sustainable and profitable growth over the long term. Our second priority, as Tim will discuss, was to improve our balance sheet by paying down part of our debt and beginning to restructure our longer term liabilities. Our Q4 and full year results reflect the significant progress we've achieved towards these goals as well as towards our target gross margin of 25 percent to 30 percent over the longer term.

Speaker 2

During the Q4, we delivered gross margin of 22.6%, a 6.50 basis point improvement over the prior year. And for the full year 2023, we delivered gross margin of 20.5 percent, a 9 80 basis point improvement over the prior year. In addition, we reduced our full year non GAAP operating loss by 57%, and our target remains to achieve non GAAP operating breakeven beginning in the Q3 of 2024. We debuted as a public company with $142,200,000 in debt. We're very pleased that during our listing, our investors converted $70,400,000 into equity.

Speaker 2

And in the Q1, we paid down another 17,500,000 dollars to pave the way for proper working capital line of credit. Tim will talk more about our thinking here in his section. During the year, we embarked on several key initiatives to drive gross margin improvement. 1st, with an eye towards driving profitable growth, we rationalized our partner relationships to shift away from less profitable revenue and pursue more profitable revenue accounts, which also included a fresh look at pricing with existing partners. We also conducted a technology platform upgrade to enable more optimal pricing, efficient matching of service providers to service events.

Speaker 2

On the cost side, we moved away from partnerships that required first call support as a primary way to access our service, which carried higher incremental costs and instead focused on partnerships that support digital first interactions. We believe the future of roadside service will primarily be reliant on telematics integrations and digital interactions for which our technology platform has been purpose built. Consequently, have transformed our customer service operations by balancing nearshore business process organizations and telematics integrations with a focus on keeping the most critical and complex functions in house. Finally, we've also taken significant steps to right size our organization to align with our current market opportunity and protect our improving margin profile, particularly in light of the decision in late January of an OEM partner not to renew its contract with us. While we are disappointed with the outcome, we believe their decision was not a reflection of our technology platform.

Speaker 2

We continue to believe that our proprietary digitally native software platform is a key differentiator for Urgently in the marketplace. Our mobility assistance and dealer platforms dynamically match vehicle owners and service professionals enabled by proprietary technology, algorithms and data ecosystems. The key capabilities include real time tracking, connecting the customer partner, consumer, service provider and repair facility via a digital and analog communication channel from dispatch to final disposition integrated dealer technology that allows dealers to extend their service technician footprint outside of the dealership to help dealers capture more service revenue by receiving and managing service requests for customers at home, at work or on the road. Live job management and actionable data from dispatch to completion, both on a per job basis and in the aggregate multichannel consumer and service provider accessibility, including a fully digitized experience via a mobile application, live customer service representatives and a software as a service layer And finally, broad mobility assistance capabilities, including towing solutions, mobile repair services, collision and impound related towing and onward mobility services that enable a customer to continue their journey following a roadside event. We believe Urgently continues to be best positioned among our competitors to be a brand extension for OEM and fleet companies by delivering exceptional service to all of our customers.

Speaker 2

Our value proposition is resonating in the marketplace as evidenced by some of our key customer wins we garnered last year. As I have previously mentioned, we signed a top 5 global OEM, which we expect to launch in Q2 'twenty four. This one is significant because we believe it reflects penetration into the next tier of partners within the market, which we are well positioned to expand within. We also believe that this first win represents a proof point that the market perceives urgently as a top competitor in the space with a platform that is scaled for volume. Delivering on our land and expand strategy, we increased our product offering with an existing partner, which will take business away from a competitor.

Speaker 2

This expansion is expected to also launch in 2024. We executed a 1 year renewal with a leading fleet management company. Renewals are yet another proof point demonstrating that partners are pleased with the functionality and quality of the service that we provide. We launched a program with a luxury U. S.

Speaker 2

EV OEM, demonstrating our ability to support the next generation of hybrid and all electric vehicles. We launched a program with a leading global delivery and logistics company solving for complex and costly delivery downtime. Uptime is critical to our fleet partners, and we're proud to play an important role on that for them. Overall, I am pleased with our significant accomplishments in 2023, which included the acquisition of Otonomo and our public listing on NASDAQ and our financial results that were in line with our expectation. Our team made tremendous progress in executing against our strategic initiatives to drive profits, operational efficiencies and disciplined expense management during the year.

Speaker 2

The significant actions we have taken to right size our organization and enhance our capital structure have built a strong foundation positioning us to capitalize on near and long term growth opportunities ahead. As we look to the balance of this year, we remain focused on expanding our existing B2B incident business by winning new clients and expanding our relationships within existing partnerships improving operational efficiencies, driving margin expansion and achieving non GAAP operating breakeven and continuing to integrate assets from Otonomo to accelerate connected vehicle integrations and expand into proactive and preventative services. Thank you for your time and continued support. I'll now turn the call over to Tim to discuss our financial results in greater detail.

Speaker 3

Thank you, Matt, and good afternoon, everyone. Today, I will discuss our 4th quarter and full year 2023 results. Before I do that though, let's review a few details from the Otonomo Technologies merger completed during the Q4 and a few other recent events. On October 19, we completed the merger with Autonimo, which coincided with our NASDAQ direct listing on the same day. The merger with Otonomo included the acquisition of the Otonomo business, 111 employees located mostly in Israel and the United Kingdom, revenue contracts, technology and the net assets.

Speaker 3

Following the merger, Autonomo was delisted and became a wholly owned subsidiary of Urgently Inc. The acquisition accounting was completed in the 4th quarter, resulting in a bargain purchase gain of $73,400,000 which was recorded on our consolidated statement of operations. The reason for the gain was attributable to the net asset value acquired exceeding the consideration value. As previously reported on our Q3 earnings conference call and our Form 10 Q, we had a net principal debt balance of $142,200,000 However, at the time of the merger and direct listing, based on the existing convertible debt terms and other voluntary conversions, we converted approximately $70,400,000 of net principal debt to common stock. This transaction resulted in a $42,000,000 gain on debt extinguishment, which was recorded on our consolidated statement of operations.

Speaker 3

This gain was primarily related to the net carrying value of the notes compared to the fair value of the shares issued. Additionally, as previously announced in January of 2024, we used cash on hand to pay down an additional $17,500,000 of net principal debt, resulting in $54,300,000 of net principal debt as of today. This debt matures at various times in January of 2025. At the time of the merger, nearly all urgently outstanding warrants were net exercised for common stock of the combined company. This transaction along with the debt extinguishment previously mentioned resulted in a $38,200,000 fair value of derivative and warrant liabilities, which was recorded on our consolidated statement of operations.

Speaker 3

The gain was primarily related to the elimination of the derivative liability due to the debt conversion and the net exercise of the warrants, essentially eliminating the warrant liability. And finally, as previously reported on our Q3 earnings conference call and Form 10Q, at the time of the merger, the former Otonomo shareholders owned approximately 40% of the new combined company and the former urgently shareholders owned approximately 60% of the new combined company. These ownership percentages encapsulated the entire autonomous and Urgent Lee capitalization tables, including the Autonimo warrant exchange, conversion of urgent lease convertible notes and the net exercise of nearly all of urgent lease outstanding warrants, all resulting in an October 2019 common stock share count of approximately 13,100,000. Now let's focus on the 4th quarter and full year 2023 results. The following results include urgently activity for 2023 and Autonomous Technology activity from October 19, 2023 through December 31, 2023.

Speaker 3

For the Q4, revenues were $45,100,000 down 13% or $6,900,000 from the same quarter last year. The year over year revenue decline is primarily to our decision to move away from less profitable revenue, including the loss of 1 insurance partner due to our change in strategy, partially offset by volume and rate increases from existing business. Despite this decision to move away from less profitable revenue, we are excited about profit quality of the existing revenue growth. Autonomy revenue for the 4th quarter was approximately 1,400,000 dollars For the year, revenue was $184,700,000 down 2% or $2,900,000 from the same period last year. The decrease in revenue was primarily driven by lower customer partner dispatch volume from 1 OEM partner based on lower vehicle sales and our decision to move away from less profitable revenue, including the loss of 1 insurance partner, partially offset by an increase in volume and rates with existing partners, specifically with our fleet management and OEM partners.

Speaker 3

For the Q4, gross profit was $10,200,000 up $1,800,000 compared to the same period last year. Gross profit grew 21% compared to a revenue decline of 13% when comparing the Q4 of 20 23 to the same period last year. Autonomous gross profit for the 4th quarter was 645,000 dollars For the year, gross profit was $37,900,000 up $17,700,000 compared to the previous year. Gross profit grew 88% compared to a decline in revenue of 2% compared to the previous year. Over the last year, we have been focused on transforming our operating model, including a focus on gross profit.

Speaker 3

Most of the realized gross profit benefit is a result of contract optimization, including adjusting partner rates and a focus on increasing efficiencies, technology led optimization initiatives and reducing costs associated with First Call by focusing on digital path entry to our services. Gross margin for the Q4 was 23% compared to 16% for the same period last year. Gross margin for the year was 21% compared to 11% for the previous year. Now let's move on to operating expenses. Operating expenses for the 4th quarter was $34,000,000 an increase of $17,200,000 or 102 percent from the same period last year.

Speaker 3

Operating expenses for the year was $84,000,000 dollars an increase of $10,300,000 or 14% from the previous year. Autonomous operating expenses for the Q4 were 3,400,000 dollars Most notably within our operations and support line item and as part of the business and operational model changes we made in 2023, we migrated a portion of customer support resources from the United States to business process organizations located in Central and South America. This change lowered impacted labor charges by approximately 60%, which is contributing to the 29 percent 33% reduction in operations and support operating expenses for both the Q4 and full year 2023, respectively. During the Q4 and full year of 2023, merger transaction expenses were $12,900,000 and $21,300,000 respectively. Additionally, during the same period, stock based compensation expense was $2,300,000 $2,500,000 respectively.

Speaker 3

At the beginning of Q4 last year, we had 286 employees. Compared to the end of Q4 this year, we had 3.49 employees. This included 108 employees related to the Autonomous merger. Removing the Autonomous employees urgently had a reduction of 45 employees or 16%. This reduction impacted all areas of our business and was a direct result of the operational model changes.

Speaker 3

GAAP operating loss for the Q4 was $23,800,000 an increase of $15,400,000 or 182 percent from the same period last year. GAAP operating loss for the year was $46,100,000 a reduction of $7,400,000 or 14% from the previous year. We also reviewed non GAAP operating loss, which is defined as GAAP operating loss plus depreciation and amortization expense, stock based compensation expense, non recurring transaction costs and restructuring costs. Non GAAP operating loss for the 4th quarter was $7,900,000 an increase of $1,300,000 or 21% from the previous year. During our Q3 earnings conference call and in the Q3 earnings press release, we discussed the combined company results.

Speaker 3

This included urgently an Autonomous combined company non GAAP operating loss for the Q3 of 2023 of $9,900,000 Our 4th quarter non GAAP operating loss was $7,900,000 which was a reduction of $2,000,000 or 21 percent quarter over quarter. This reduction was consistent with our expectations. Additionally, our non GAAP operating loss in 2023 was significantly reduced when compared to our non GAAP operating loss in same period last year. Non GAAP operating loss for 2023 was $21,000,000 a reduction of 27,700,000 dollars or 57 percent from the previous year. Now a few comments on our capital structure.

Speaker 3

As previously reported on our Q3 earnings conference call, the combined company cash and cash equivalents and short term investments balance at the time of the merger was approximately $88,700,000 This balance was net of all related transaction expenses. Urgently had cash, cash equivalents and short term investments of $69,600,000 as of December 31, 2023. As mentioned earlier in my comments, in January of 2024, we took steps to enhance our capital structure by using cash on hand to repay $17,500,000 in net principal debt and $6,000,000 of banking fees under the structural loan agreement, while also extending the maturity date to January of 2025. Therefore, following the repayment, Urgently had a pro form a cash, cash equivalents and short term investment balance of $45,600,000 and a net principal debt balance of $54,300,000 with a maturity in January of 2025. We continue to take important proactive steps to address our capital structure, enhance our liquidity position and provide the company with additional financial flexibility.

Speaker 3

We intend to take further actions with respect to maturities of our debt within the next two quarters, including setting up a proper working line of credit. As of December 31, 2023, we had 13,300,000 common stock shares outstanding. Turning now to our outlook. For the Q1 of 2024, we expect revenue to be between $35,000,000 to $38,000,000 Additionally, we are on track to achieve non GAAP operating breakeven by the beginning of Q3 of 2024. Our expected common stock shares outstanding at the end of the Q1 is 13,500,000.

Speaker 3

Dollars With that, we're now happy to open up the call for questions. Operator, will you please open the line for Q and A?

Operator

Thank you very much. We will now begin the question and answer session. Today's first question comes from Chris Pierce with Needham. Please go ahead.

Speaker 4

Hey, good afternoon, everyone. Could you guys just go into a little more detail about the 25% customer that kind of chose to walk away, kind of what went into the relationship, how long you had the relationship, kind of why they decided to leave? And then can you kind of cross reference that with the pipeline you have at this point in time to replace that customer, just kind of from the negative and positive side of things?

Speaker 2

Sure. Hey, Chris, it's Matt. Thanks for joining the call. I'll go ahead and I'll start it off and then I'll turn it over to Tim if he has anything to add. So, it is unfortunate it was a long customer.

Speaker 2

It was one of the earlier customers that we had. The margin profile of that particular customer was slightly lower than some of our other newer customers just given that they came on the urgently platform way, way early. We believe that they left because they consolidated vendors and were able to leverage cost. We don't think it was a reflection on our technology or anything like that. In terms of the future pipeline, we did announce the top 5 global OEM that is expected to launch at the end of this month as we mentioned on this call.

Speaker 2

And I think the rest of the pipeline would Kim has given kind of forward guidance and I'll let him talk about that specifically.

Speaker 3

Yes. Hey, Chris. So the new partner that we're launching here late this quarter, early next quarter will help replace some of that revenue, roughly 20% to 30% of the revenue that we lost, not of the entire revenue, but of the revenue we lost. So we'll start organically growing from this new point of that. And then in the back half of the year, we continue to have renewals that we feel confident about, some of which Matt spoke about and then some new opportunities as well we expect to come on the scene.

Speaker 3

So we feel pretty good about the rest of the year. The longer term guidance, which is sitting in our I have it listed in the investor presentation that got posted here a few minutes ago. We are sticking with the 20% to 30%. We'll have to build back up to that obviously with this customer loss. So it's probably closer to the end of 2025 will be at that run rate rather than the end of 2024 now.

Speaker 3

But we are sticking with the 20% to 30% revenue guidance, which again, historically the company has grown about on average 25% a year. So hope that filled in some gaps for you, Chris.

Speaker 4

Perfect. Thanks. And then you guys spoke of a conquest as an existing customer. Can you kind of go into some detail on that and sort of what are the opportunities for further conquest that along those same lines?

Speaker 2

So Chris, it's Matt. Are you talking about the reference that we made earlier about winning a customer from a competitor? Yes.

Speaker 4

Yes.

Speaker 2

Look, I think there's a lot of opportunity that we see in front of us to do more kind of consolidation around our platform. So we're in a lot of conversations with a lot of different possible partners as you can imagine. That's one of the early ones that we got this year. We think that there will be others. We think that the renewal pipeline, as Tim mentioned, looks pretty strong.

Speaker 2

And just and overall, we finally as we mentioned on this call, we finally kind of gone through the kind of glass ceiling, if you will, of this top 5 global OEM, which is something that the company has been working on for years years. And we believe that once we launch that partner and once we can announce the brand, that will entice other companies of that magnitude to come work with us as well. So feel pretty positive about that. And Tim, if you have anything you want to

Speaker 3

add? No, nothing further.

Speaker 4

Okay. And then just lastly, when we think about that top OEM and that brand within their umbrella, does it sort of fall within kind of the luxury category that you guys have done well in or is this something that's a little more mass market and that's kind of what you're referring to about puncturing the glass ceiling?

Speaker 2

Yes, it is a mass market OEM. We have one brand out of the portfolio, but you just can imagine out of the magnitude of new vehicles that are sold from say a premium OEM that we work with previously versus the new cars that are sold from a mass market OEM. It's a magnitude step change. So while it is one brand within that portfolio, we believe that it's a stepping stone to increase the business with that partner and then also work with additional partners of that caliber.

Speaker 4

Okay, perfect. I appreciate it. And that's it for me tonight.

Speaker 2

Thanks, Chris.

Operator

Thank you. The next question comes from Brian Dobson with Chardan Capital Markets. Please go ahead.

Speaker 5

Hey, thanks very much for taking my question. So just to revisit your guidance again, as you're considering that 2024 revenue outlook, what percentage of that range comes from new client wins and how much organic growth is within that figure?

Speaker 3

Yes. Hi, Brian. So the Q1 guidance is straightforward. When we think about 2024, we're basically haven't provided that guidance yet for the rest of the year. There's probably out of what we expect for the rest of the year, probably about roughly 5% to 10% is going to be organic growth there.

Speaker 3

And that'll be working back towards our 20% to 30% that I referenced earlier, right? So it's a step function is how it should be thought about. And we do expect to work our way back to that 20% to 30% growth. This year will be a step back just because we had to I'm sorry, we had to take a step back. So we're going to take a step forward that and roughly 5% to 10% will be in that organic growth range.

Speaker 5

Thanks. I misspoke. I actually meant to refer to that 1Q. And then I guess from a broader perspective, as you look to scale the business through relationships with enterprise partners, can you speak a little bit about your penetration rates at existing customers and perhaps provide a little bit of color about some conversations you may be having with potential clients and the type of feedback that you're receiving in the market place?

Speaker 2

Yes. It's probably a little bit too early for us to go into specific 1 on 1 client conversations given where we are. But in terms of where we sit with clients, generally most of our OEM relationships we have between 80% 100%. Many relationships that the company has started off with over time started with say 20% 15% or 20% of the business and then grew to the level I mentioned previously. So it is an important part of what we how we think about operating the business going forward, which is we call land and expand, which is getting with a partner, prove that we can deliver quality service and then start to expand across the portfolio of other brands that they have.

Speaker 2

Tim, you want to add anything?

Speaker 3

No, nothing further.

Speaker 5

All right. Thanks for the color.

Operator

Thank you. Seeing no further questions, I would now like to turn the conference back over. Please excuse me.

Speaker 2

Great. Thanks, everybody.

Operator

Please go ahead.

Speaker 2

As a quick reminder, we're going to be attending the ROTH Conference in Southern California on March 17 through 19. This month, if you're attending and you'd like to have a 1 on 1 meeting with us, please contact the conference desk. If you're not attending and you'd like to meet with management, please reach out to us at investorrelations@geturgently.cominvestorrelations@geturgently.com. We're happy to schedule a call at your convenience. Thanks again for your interest in Urgentle and for joining the call today.

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