Urgent.ly Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to Urgentlea's Second 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 a 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

You may proceed.

Speaker 1

Thank you, operator. Good afternoon, everyone, and you for joining us for Urgentle's financial results conference call for the Q2 ended June 30, 2024. On the call today, we have Urgentle CEO, Matt Booth and CFO, Tim Huffmyer. Following Matt and Tim's prepared remarks, we will take your questions. Before we begin, I would 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 and reports 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

Urgently.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. Good afternoon, everyone, and thank you for joining us today for our Q2 2024 earnings call. Overall, we are pleased with our 2nd quarter results which were in line with our revenue expectations. We remain focused on executing against our strategic initiatives to drive financial and operational improvements, specifically in the areas of providing exceptional customer experience and eliminating the post merger operating loss. In addition, and as we have highlighted in the last quarter, we have also shifted our focus to accelerating profitable growth.

Speaker 2

As a reminder, our growth has historically been lumpy driven by large enterprise contracts that drive additional revenue and growth once they are launched. To that end, I am proud of the effort across the entire team to deliver renewals of all three customer partner contracts that were set to conclude and which collectively generated more than 1 third of our revenue for the 2nd quarter, which today we reported at $34,500,000 for the quarter. In addition, we secured new customer partners as well as a contract expansion with our existing customer partner portfolio and we did not intentionally terminate any contracts. We believe these renewals, expansions and new customer wins are a further validation of the significant value we deliver to our customer partners through the strength of our service and leading technology. Now let me spend a few minutes discussing our growth and business expansion efforts more broadly, as well as providing details on our customer partner renewals and expansions.

Speaker 2

As we have previously stated, the average length of a customer partner contract is about 3 years. So approximately 1 third of our customer contracts come up for renewal each year. Renewals not only shore up our revenue forecast but we believe they also demonstrate our commitment to long term customer partner relationships and serve as proof points for our strength in the marketplace as an innovator in the roadside industry. During the Q2, among our customer partner renewals, we renewed contracts with 2 of our global OEM customer partners, which we announced via press releases. The first, a global automotive OEM known for its focus on safety, quality and innovation has extended our relationship for another 2 years.

Speaker 2

Under the contract renewal, we will continue to power their warranty based roadside assistance program as well as their post technical and mechanical breakdowns as well as accident related towing services. The OEM partner will continue to leverage our comprehensive technology stack which includes full roadside assistance customer relationship management to support its outsourced call center operations and API based integration into its customer facing products. With a global OEM known for its precision engineering and commitment to delivering an unparalleled driving experience. Under the renewed contract, we will continue to power their warranty based roadside assistance program as well as its post warranty roadside assistance membership plans in the United States. In addition to the 2 year renewal, we also signed a new 2 year agreement with this global OEM to expand geographically into Canada.

Speaker 2

This expansion recently launched on August 1. In addition to our customer partner expansions and renewals this quarter, we have also signed a new customer partner agreement with a direct to consumer subscription and insurance aggregator which will launch later this year. All in all, it's been an extremely successful quarter in terms of renewals, expansion contracts and new business. I'm very appreciative of the efforts of the team to deliver these results. We're always excited to talk about our initiatives to reaccelerate growth post merger integration As we see with our Q2 customer partner retention and expansions, we believe that delivering the best in class customer experience historically been a primary differentiator for Urgentle.

Speaker 2

This quarter we remain focused on quality and delivering exceptional service at scale which is reflected in the 4.5 customer satisfaction scores achieved during the Q2 and 4.6 satisfaction scores out of 5 for the year. Our data and engineering teams continue to look for ways to apply technology to advance the Motor X experience. To further differentiate our customer experience we recently announced the launch of the next generation yield based pricing as a product across our service provider network. Much like other industries we believe the data and analytics around pricing and performance are a competitive advantage to deliver higher quality customer outcomes and margin improvements. As a key feature of this product, Urgentle now leverages micro targeting which are much smaller geographic areas than either a zip code or a rural service area together with relevant historical data make, model, time of day, population density, service quality, weather and other location based data.

Speaker 2

And our AI driven dynamic pricing technology reliably predicts and optimizes job prices for roadside assistance. We use this technology to better manage surges and roadside assistance demand which we believe leads to faster job acceptance by service providers resulting in shorter wait times for the stranded driver and a higher quality outcome for our customer partners. This all results in lower agent handle time which we expect to continue to be reflected in our improved operational expenses which Tim will review shortly. For our customer partners these insights and predictive pricing also help empower them to develop roadside assistance programs that best fit their business goals. One example from a luxury OEM partner is to increase performance by market for specific makes and models to build a differentiated premium VIP program offering.

Speaker 2

More generally it allows us to maximize service performance while maintaining a stable cost structure for our customer partners. We expect that future products will include the ability for customer partners to tailor the experience based on how they segment their customers. Finally, in furthering our commitment to exceptional customer service, we reorganized the product and operations team under a single leadership structure into the customer experience team which now reports into Gay Puerta, Hercules Chief Product and Technology Officer. Our goal is to continue differentiating ourselves based on the customer journey regardless of how motorists access the service. We believe that integrating our product and operations team will promote a singular vision and ownership in providing an unparalleled experience across all channels both digital and human.

Speaker 2

Turning now to an update on gross margin, improving margin continues to be an ongoing priority for us. In near term we have maximized the margin improvements related to pricing changes and partner mix that we have outlined on previous calls. We expect additional margin improvement to be driven by creating further efficiencies in the marketplace. 1st, geographic area is one of the primary drivers of service network costs. We believe the next generation yield based pricing as a product initiative we recently launched will positively impact our margins in the market that was once constrained by geographic or zip code boundaries.

Speaker 2

We have observed the successful implementation of similarly predictive optimized pricing in other industries as well. Our initiatives so far have performed very well. Our 21% gross margin for Q2, 'twenty four is consistent with that of Q2, 2023 and more notably our June 2024 year to date margin of 22% is a 200 basis point increase over our June 2023 year to date margin of 20%. While our OEM customer partner non renewal which we announced this past January has impacted revenue, we are continuing to bolster our potential future revenues through demonstrated wins, renewals and expansions. Improving our gross margin and reducing our operational expenses is critical in achieving non GAAP operating breakeven and we remain focused on this important milestone.

Speaker 2

However, during the Q2, we encountered several factors which have caused us to revise our outlook for targeting non GAAP operating breakeven to the Q1 of 2025 versus our earlier expectation for the bidding of Q3 4. Having said that, we expect to be below $1,000,000 of non GAAP operating loss in the Q4 of 2024, which is down from $7,900,000 in the Q4 of 2023. Let me walk through these factors in greater detail. The first factor is a return to managed growth. Given the length of contract cycles on the RFP process, we wanted to prioritize our ability to capitalize on Q2 opportunities around renewals, expansions and new business.

Speaker 2

This deliberate decision required us to move technology resources to focus on new launches, integration and expansion instead of longer term operating and margin expense projects that we have planned. These large margin projects are wide in scope and we expect to see improvements in 1 or 2 quarters after deployment after ABA testing is completed. We still intend to pursue these margin improvement projects but given the importance of renewals and expansion contracts it made sense for us to push the expense reduction efforts back a quarter. The second factor is related to post merger integration including some international complexity while the team swiftly acted to reduce redundant functions across the combined Autonomous and Urgently teams, the last phase is still under review as we look to continue strategic alternatives of certain Atento assets. And finally given the nature of our transaction based business, volume is dependent on several external factors.

Speaker 2

When we met our revenue guidance, we saw a change in service mix from our customer partners which impacted our margins. External factors can be events ranging from fewer new vehicles produced by an OEM, changes in coverage policies by our fleet providers, new routing schemas or customer behavior trends related to miles traveled just to name a few. And while no singular event contributed to the service mix changes, the collection of events this past quarter reduced our expected per job revenue and margin. We saw higher volume from lower margin jobs and lower volume from higher margin jobs on a service mix basis. Again, I'm very proud of our accomplishments during the Q2 which included continued execution against our strategic priorities to optimize our business and financial operations while reaccelerating sustainable growth and profitable growth as evidenced by our exciting contract wins, renewals and expansions.

Speaker 2

The team is focused on achieving non GAAP operating breakeven and we look forward to capturing the near and long term growth opportunities ahead. In closing, we remain focused on expanding our B2B incident business through securing renewals, expanding relationships with existing partners, developing new customer partner opportunities, achieving non GAAP operating breakeven through our operational improvement, 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 Q2 ended June 30, 30, 2024. For the Q2, revenues were $34,500,000 which was towards the upper end of our guidance range of 30 $2,000,000 to $35,000,000 and a decline of 21 percent or $9,400,000 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. This was partially offset by volume and rate increases from new and existing customer partners.

Speaker 3

For the Q2, gross profit was $7,300,000 compared to $9,300,000 in the prior year period, again driven primarily by the customer partner non renewal. Gross margin for the 2nd quarter was 21%, consistent with the prior year period. This is the 5th consecutive quarter of gross margins exceeding 20%, and we remain focused on executing against our strategic initiatives to drive profitable growth and achieve our long term gross margin targets of 25% to 30%. Now let's move on to operating expenses. Operating expenses for the 2nd quarter was 15,700,000 dollars which was similar to the prior year period.

Speaker 3

Prior year included transaction costs and was part of the pre merger urgently results. As Matt indicated, we continue to focus on operational improvements, which include changes in the business process to drive operational efficiencies. As part of these improvements, we expect to continue eliminating redundancies within the organization and reduce operating expenses. As previously discussed, most of our operating expenses are headcount related, so we will focus on this initially. At the end of the Q2 of this year, we had 282 total employees, a reduction of 38% from the Q4 of last year when we completed our merger with Autonimo.

Speaker 3

In further support of driving operational efficiencies, operational and support costs during the Q2 of this year were $3,600,000 compared to $6,000,000 during the same period last year, resulting in a decrease of $2,500,000 or 41 We also reduced our reliance on customer support representatives who are employed through our BPO partners. In the Q2 of this year, we had 220 full time customer support representatives compared to 457 during the same period last year, which is a reduction of 237 customer support representatives or 52%. These reductions are 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. Also during the Q2 of this year within our general and administrative expenses, we recorded bad debt expense of approximately 600,000 due to an EV customer partner that recently filed for bankruptcy, bringing our total bad debt expense related to this customer partner to $735,000 during this year. Overall, we continue to focus on our operating structure and doing more with less.

Speaker 3

We expect to further reduce our operating expense run rate in the back half of twenty twenty four. GAAP operating loss for the Q2 was $8,300,000 an increase of $2,200,000 during the prior year period. This increase is mostly due to the Autonomous post merger combined reporting this year compared to urgently standalone last year. We also reviewed non GAAP operating loss, which is defined as GAAP operating loss plus depreciation and amortization expense, stock based compensation expense, nonrecurring transaction costs and restructuring costs. Non GAAP operating loss for the Q2 was $6,200,000 an increase of $2,000,000 from the prior year period.

Speaker 3

This increase is also primarily due to the combined reporting of Otonomo this year compared to urgently standalone last year. We continue to drive operational improvement initiatives as we integrate Otonomo and realign our corporate structure with our current market opportunities. Our efforts are reflected in the significant improvement of 38% in our 2nd quarter non GAAP operating loss when compared to the Q3 of 2023 combined company non GAAP operating loss, including both Urgentle and Autonomous, which was $9,900,000 and improvement of 22% when compared to the Q4 of 2023 non GAAP operating loss, which was $7,900,000 Now a few comments on our balance sheet. As of June 30, 2024, urgently had cash, cash equivalents and short term investment balance of $29,300,000 and then net principal debt balance of $54,300,000 with the maturities in January of 2020 5. During the Q2, we capitalized approximately $1,500,000 of internally developed software activities in support of launching the previously mentioned top 5 global OEM and to make enhancements to our platform by adding features and functionalities which benefit all our customer partners.

Speaker 3

We expect this practice to continue during 2024, including approximately $1,400,000 in the Q3 of 2024. We continue to take important proactive steps to address our capital structure, enhance our liquidity position and provide the company with additional financial flexibility. We are taking further action with respect to maturities of our debt and expect measured results before our next earnings conference call. As of June 30, 2024, we had 13,400,000 common stock shares outstanding. Turning now to our outlook for the Q3 of 2024.

Speaker 3

We expect revenue in the range of $35,000,000 to $38,000,000 In addition, we expect to continue to make progress towards targeting non GAAP operating breakeven during the Q1 of 2025, as Matt has previously highlighted. Our expected common stock shares outstanding at the end of the 3rd quarter is 13,400,000. Dollars With that, we will open the call for questions. Operator, please open the line for Q and A.

Operator

We will now begin the question and answer The first question is from Chris Pierce with Needham. Please go

Speaker 4

ahead. Hey, good afternoon, everyone. How are you doing today?

Speaker 3

Good morning, Chris.

Speaker 4

Hey, Matt. Hey, Tim. Is there a way to think about when you guided Q2, you came in at the high end, but you cited higher revenue from low margin jobs and lower revenues from high margin jobs. Is that something that fluctuates on a quarterly basis and is largely out of your control? Or is there some seasonality to that?

Speaker 4

I'm just kind of want to think about how to think about that going forward.

Speaker 2

You want to take that one, Tim, or you want me to take it?

Speaker 3

Yes. I'll start, Matt. Chris, there it does fluctuate. And as Matt highlighted in some of his prepared remarks, some of it's or all of it's out of our control. It just depends on how the jobs are rolling and the activity that's out there.

Speaker 3

So it's difficult to be able to predict that as a factor. We do our best to guide on the revenue side and directionally on the margin side, but largely it's out of our control. Matt, you can add anything there.

Speaker 2

Yes. I was going to say that that's right. The mix shift is it's not below historical trends, but it's not something that we can control.

Speaker 4

Okay. And then I think usually correct me if I'm wrong, but we see lower sequential gross margins in the Q3 because of summer travel. Is that something we should expect this year or does the unique factors in the Q2 kind of offset that?

Speaker 3

I mean that's been the trend, Chris. So, one could expect that trend to continue just based on that activity and also based on our discussion around the push off of some of the margin projects. Certainly, the team is constantly working on improving margins and making that better metric for us. But from a modeling perspective, that isn't a bad way to look at it.

Speaker 4

Okay. And then you talked about positive non GAAP operating income in the Q1 of 'twenty five. Is the right assumption that you would if all goes according to plan, you would see that throughout the year? Or could there be some lumpiness based on seasonality and that type of thing and you might see fluctuation in non GAAP operating income between positive and negative or I just want to think about the right way to think about that as well?

Speaker 3

Yes. Good question. Once we achieve that, Chris, we feel pretty confident we'll be able to hold the line and improve on it from there. So it could everything is not linear, right? So it could revert back to a loss here or there, but not our expectation is that wouldn't materially happen.

Speaker 4

Okay. And then just last one for me. You talked about kind of lining up the debt maturity in Jan 'twenty five and the cash in the balance sheet and messaging you'll have ahead of potentially on the next earnings call. What's something we should think about? I know some of your debt partners, the debt holders are equity investors or like what's the right way to think about or I guess should we just expect a resolution within 3 months here and then things sort of there'll be a longer dated debt or like how what's the right way to think about the cash versus the debt right now?

Speaker 3

Well, as far as resolution goes, that's certainly our goal is to provide that resolution. If we can do that before the next earnings call, that's certainly what we hope to accomplish. The way we're I would definitely look at longer maturities. And we've talked we didn't talk about it in these prepared remarks, but in the past, we've talked about maybe 2 tiers of debt activity, one related to more of a working capital line of credit, which allows us to kind of flex with some of the growth that we've talked about and then maybe some terming out the rest. But thinking of it in those two pieces is something that we've consistently talked about previously and we're consistently still thinking about today.

Speaker 4

Okay, perfect. I appreciate the time. Thank you.

Speaker 3

Thanks, Chris. Thanks, Chris.

Operator

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

Speaker 2

Thanks everyone for joining in closing. We're very proud of the significant progress that 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 August 15th, and we're also scheduled to host a fireside chat at 10 a. M. Eastern on August 15th, which you can have access to live or as a replay via our Investor Relations website.

Speaker 2

If you're planning on attending and like to have a 1 on 1 meeting with us, please contact your Sidoti representative. If you're not planning on attending and you'd like to meet with management, please reach out to us at investorrelationsgeturgently.com and we're happy to schedule a follow-up call. Thanks again for your interest in Urgently, and thanks for joining the call today.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Urgent.ly Q2 2024
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