Kaleyra, Inc. (NYSE:KLR) Q1 2023 Earnings Call Transcript

Kaleyra, Inc. (NYSE:KLR) Q1 2023 Earnings Call Transcript May 10, 2023

Kaleyra, Inc. beats earnings expectations. Reported EPS is $-0.76, expectations were $-1.15.

Operator: Good afternoon. Welcome to Kaleyra’s First Quarter 2023 Earnings Conference Call. After the market closed, Kaleyra released unaudited results for the first quarter ended on March 31, 2023. The press release as well as a replay of today’s call can be found on the company’s Investor Relations website at investors.kaleyra.com. Please view the release for additional information on what will be discussed today. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Joining us today are Kaleyra’s Founder and Chief Executive Officer, Dario Calogero; and Chief Financial Officer, Giacomo Dall’Aglio. Following their remarks, we will open the call for your questions. I would now like to turn the call over to Investor Relations, Shannon Devine. Please go ahead.

Shannon Devine: Thank you. Before we begin, we’d like to remind everyone that during today’s call management will be making forward-looking statements. Please refer to the company’s SEC filings, including the company’s quarterly report on Form 10-Q for a summary of the forward-looking statements, the risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Kaleyra cautions investors not to place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise the statements to reflect new circumstances or unanticipated events that occur except as required by law. Throughout today’s press release and on the call, we’ll refer to adjusted gross profit, adjusted gross margin, adjusted EBITDA and adjusted earnings per share.

These metrics are not determined in accordance with GAAP. A definition, calculation and reconciliation to the financial statements of these non-GAAP measures can be found in the tables included in our press release. We believe these non-GAAP measures of Kaleyra’s financial results provide useful information regarding certain financial and business trends and the results of operations. Now I’d like to turn the call over to Dario for an overview of Kaleyra’s first quarter. Dario?

Dario Calogero: Thank you, Shannon and thank you to everyone for joining us here today. Before we get into the quarterly results, I want to take a minute and update our investment community with some very unfortunate news. You likely noticed our Vice President of Investor Relations is not with us on this call today. Unfortunately, a few weeks ago we lost Colin Gillis who joined us last June as our Head of Investor Relations. He died after a brief illness and we ask that you keep his family in your thoughts and prayers. While only with the company for a brief period Colin was an impactful contributor to Kaleyra and we will miss him deeply. The first quarter which has historically been softer due to seasonality produced growth of 4% resulting in revenue of $83.6 million exceeding the upper end of our previously stated guidance range of $81 million.

On a constant currency basis, Q1 2023 revenue was $85.7 million, an increase of 6% over Q1 2022. We continue to show resilience consistently growing our top-line year-over-year with a focus on our higher-margin businesses and importantly generating positive EBITDA and adjusted EBITDA. As I stated during our fourth quarter earnings call, we are very focused on improving gross margin through reducing costs, driving efficiency and balancing our product mix toward higher-margin delivery channels. As a result, gross margin grew 19% in the first quarter to a record 25.2%. As we have emphasized in the past, we are a communication platform as a service. As our customers’ needs change, we change with them in the most cost-effective manner given our ability to be agile.

This is very much a fragmented market with only a few global players which is why our partnership with over 1,600 operators and direct connectivity in over 100 countries is an advantage to our enterprise customers that can use Kaleyra as a single source to leverage their global needs. To this point and notably during the quarter, we launched our global messaging service on Oracle Cloud Infrastructure OCI. This launch accelerates innovation in our space and further capitalize on our strong partnership with Oracle driving the future of business communications and customer engagement. Together, we have powered billions of interactions serving thousands of customers, serving a critical function of timely customer engagement. We continue to grow and solidify our leadership role in the CPaaS ecosystem, extending beyond traditional SMS messaging, enhancing our engagement with our customer base across various industry verticals, creating value for all of our constituents.

For the first quarter, we delivered 11.7 billion billable messages, connected over 2.2 billion voice calls and the dollar-based net expansion rate was 99%. But looking at the Kaleyra top 30 customers, who contribute almost 70% of our total revenue, the dollar-based net expansion rate was 138% in the quarter. At Kaleyra, we are committed to providing high-quality trusted and transparent service, with a focus on customer satisfaction. This is evident in our low customer churn, a long average tenure of our customer base. To finish this portion of the call, I’m very proud of our first quarter performance. Our value creation project efforts are producing solid results, as reflected in the gross margin and the EBITDA improvement in the quarter, and we continue to grow our revenue in line with expectations.

Customer satisfaction remains high, and we are proud of the trust and confidence our many existing and new customers place in us, for their communication needs. I will now turn the call over to Giacomo, to detail our financial results.

Giacomo Dall’Aglio: Thank you, Dario. I will now run through our financial results in greater detail. As Dario noted, our total revenue in the first quarter was $83.6 million, an increase of $3.1 million versus $80.5 million in the comparable year ago period, and again above the previous provided guidance. We have a global revenue footprint and a well-balanced portfolio across geographies and in the industry sectors. Our customer base remains strong, with returning zero churn with our top 10 customers, which accounted for approximately 45% of revenues during the first quarter. Gross profit for the first quarter of 2023 was $21.1 million, a 19% increase when compared to $ 17.7 million for the first quarter of 2022 mainly driven by the improved product and geographic mix.

Gross margin for the first quarter of 2020 was 25.2% compared to 22% over the first quarter of 2022, an increase of 19% and up 23.9% on a sequential quarterly basis. Q1 net loss totaled $10 million or $0.76 per share based on 13 million weighted average share outstanding compared to a net loss of 13.2 million or $1.09 per share based on 12.1 million weighted average shares outstanding, in the comparable year ago period. The decrease in net loss period over period is mainly driven by higher gross margins, and cost of savings generated through our value creation projects initiatives, outlined in last quarter. Adjusted gross profit and non-GAAP measure of operating performance increased $2.4 million in the first quarter to $21.8 million, when compared to $19.3 million in the first quarter the prior year.

Adjusted gross margin in the fourth quarter of 2023 was 26% compared to 24% in the comparable year ago period, and compared to 20.3% in the first quarter of 2022. Notably the most importantly, the first quarter of 2023, produced the first quarter of positive EBITDA since first quarter of 2021, a clear testimonial of the company’s successful deployment of the cost reduction we launched in the fourth quarter of 2022. And finally adjusted EBITDA, a non-GAAP measure of operating performance was $5.3 million in the first quarter compared to $6.2 million in the first quarter of 2022, and compared $2.5 million in the fourth quarter of 2022. Turning to the balance sheet. At the end of the first quarter, cash and cash equivalents and resulted cash short-term investment were $75.5 million compared to $78.6 million as of December 31, 2022.

Now turning to our previous announced restructuring and cost reduction program. The value creation program execution continued during the first quarter of 2023. And as we have previously stated is designed to position Kaleyra to serve the demand from global businesses to interact with their customer base, using existing and emerging communication channels while driving labor and cost efficiency by leveraging our global scale. The program seeks to achieve the following goals: one, adjusted EBITDA to exceed the 20% growth in fiscal year 2023 compared to fiscal year 2022 with additional growth in fiscal year 2024; two, organizations streamlined and to reduce monthly cash payroll cost by more than 15% in fiscal year 2023; three, increase in net cash provided by operating activities by fiscal year 2023 year-end compared to fiscal year 2022; fourth, continue to focus on R&D investment to always provide a quality service standards and offer new products to our customers.

Now, turning to our second quarter expectations. We remain focused on delivering on our promises with our value creation initiatives throughout the year. We expect the company to continue to grow revenue in 2023 when compared to 2022. We remain committed to provide specific guidance one quarter a time for the near future. With that we expect second quarter revenue to be in the range of $80 million to $84 million compared to $81.1 million in the second quarter of 2022 and in line with the seasonality trend. This completes my financial summary. I’d now like to turn the call back over to Dario to closing remarks.

Dario Calogero: Thank you, Giacomo. In summary we had a very good quarter and we are pleased with our top line results, our record margins and adjusted gross profit. As we continue to focus on investing in ways to layer in our high-growth channels to existing customers, maintaining success winning new customers and consistently expanding our operating footprint, we can expect to keep our new momentum. And with that, we are ready to open the call for your questions. Operator, please provide the appropriate instructions.

Q&A Session

Operator: Yes. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from George Sutton with Craig-Hallum. Please go ahead.

Operator: Next question comes from Vivek Palani with Northland Capital. Please go ahead.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Calogero for any closing remarks. Please go ahead.

Dario Calogero: Thank you, operator. Thank you for joining us on today’s call. And as always, we would like to thank our extensive worldwide network of partners and investors as well as our employees for their continued support. Operator?

Operator: I would like to remind everyone that a recording of today’s call would be available for replay via a link available in the Investors section of the company’s website. Thank you for joining us today for Kaleyra’s first quarter 2023 earnings conference call. You may disconnect your lines. Have a great day.