KORE Group Holdings, Inc. ("KORE" or the "Company"), the global pure-play Internet of Things ("IoT") hyperscaler, and provider of IoT Connectivity, Solutions and Analytics, today reported financial and operational results for the quarter ended September 30, 2023.
KORE: Company Highlights
- KORE announced a definitive agreement to refinance its approximately $300 million term loan, resulting in substantially lower first lien leverage. The new $185 million term loan from Whitehorse Capital will carry an interest rate of SOFR plus 650 basis points and represents a reduction in first lien leverage to 3.2x trailing twelve-month (TTM) Adjusted EBITDA, a non-GAAP metric1, down from 5.2x. The credit agreement for the new term loan allows for an interest rate reduction of 25 basis points for each 0.5x improvement in the first lien leverage ratio up to a maximum reduction of 50 basis points. Importantly, after repaying our existing term loan, the Company will not have any material debt maturities until 2028. Whitehorse Capital will also make available to the Company a $25 million revolving credit facility, which will be undrawn at closing.
- As part of the refinancing, the Company also signed a definitive agreement for a $150 million strategic investment from an affiliate of Searchlight Capital Partners, two designees of which will be joining the Company's Board of Directors upon closing of the investment, which is expected to occur on or before December 1, 2023, subject to the satisfaction of closing conditions. This investment, in the form of a preferred stock issuance having a ten-year maturity and a 13% per annum dividend rate with a payment-in-kind (PIK) feature, will allow for greater cash flow flexibility. When combined with proceeds from the new term loan, this will add approximately $15 million of cash to the balance sheet, net of transaction expenses. This strategic investment will reduce the Company's total leverage from 7.3x TTM Adjusted EBITDA to 5.3x. Upon the closing of these two transactions, the company's total debt will be comprised of a $185 million term loan and $120 million in 5.5% fixed interest convertible notes. The Company also issued ten-year penny warrants to purchase 11.8 million shares of common stock to an affiliate of Searchlight Capital Partners as part of the transaction.
- KORE returned to year-over-year growth in the third quarter of 2023, with total revenue of $68.6 million versus $66.1 million in the third quarter of 2022, driven by strong growth in our high margin IoT Connectivity business, which increased 27%. On an organic basis, IoT Connectivity revenue grew in the high single digits, and excluding the 2G/3G sunset forced churn of non-core customers at the end of 2022, grew in the mid-teens.
- Third quarter estimated Total Contract Value (TCV) in new business bookings was $27 million. KORE's sales funnel, which the Company defines as opportunities for new business the KORE sales team is actively pursuing, now includes almost 1,700 opportunities with an estimated potential TCV of over $740 million, an approximately 12% sequential increase from second quarter 2023's estimated potential TCV of $660 million.
- KORE added over 300,000 connections in the third quarter, bringing Total Connections to almost 18.9 million as of September 30, 2023. This is a significant step up in connections from approximately 15.3 million connections on September 30, 2022.
"I am delighted to announce a successful refinancing of our senior debt, which upon closing in the next couple of weeks, will reduce our overall debt level by approximately $120 million. Our improved balance sheet results in greater cash efficiency to service debt and extends our debt maturity by five years, giving the Company plenty of time to delever, especially in light of our Adjusted EBITDA growth prospects. We are particularly pleased by a significant reduction in required annual cash interest payments from approximately $42 million in 2023 to approximately $28 million in 2024. With this important refinancing behind us, we are singularly refocused on the tremendous opportunity ahead of us through the Decade of IoT. Our best-in-class eSIM-powered IoT connectivity value proposition represents an exciting opportunity for profitable growth," said Romil Bahl, President and CEO of KORE.
Financial Performance for Third Quarter 2023, Compared to the Same Period of 2022:
- Total revenue increased by 4% to $68.6 million, compared to $66.1 million in the third quarter of 2022.
- IoT Connectivity revenue of $55.2 million increased by 27%, compared to $43.4 million in the third quarter of 2022. On an organic basis, revenue growth was in the high single-digits and in the mid-teens, excluding the forced churn of non-core customers due to the 2G/3G sunsets at the end of 2022.
- IoT Solutions revenue declined by 41% to $13.4 million, compared to $22.7 million one year ago, as this segment was impacted by customer order deferrals, which does not reflect a change in the long-term outlook of this segment.
- Net Loss increased to $95.4 million, or $1.10 per share, compared to $14.3 million, or $0.19 per share, one year ago. Excluding the $78.3 million non-cash goodwill impairment charge related to the decline in the Company's share price, Net Loss in the third quarter of 2023 would have been $17.1 million, or $0.20 per share. The year-over-year increase in Net Loss was primarily due to increased interest expense owing to the rise in interest rates.
- Adjusted EBITDA declined 6% year-over-year to $14.2 million from $15.1 million in the third quarter of 2022. The decline was mainly due to increased operating expenses from the inclusion of the acquired Twilio IoT business.
Financial Performance for Nine Months Ending September 30, 2023, Compared to the Same Period of 2022:
- Total revenue decreased by 1% to $204.1 million, compared to $206.0 million.
- IoT Connectivity revenue increased 10% to $147.0 million, compared to $133.5 million.
- IoT Solutions revenue decreased by 21% to $57.1 million, compared to $72.5 million. The revenue decline in the nine-month period was primarily due to the large LTE transition project at our largest customer that was completed in the second quarter of 2022.
- Net Loss increased to $133.4 million, or $1.65 per share, compared to $36.6 million, or $0.49 per share. Excluding the $78.3 million non-cash goodwill impairment charge related to the decline in the Company's share price, Net Loss for the nine months would have been $55.1 million, or $0.68 per share. The increase in Net Loss was primarily due to the increase in interest expense and increased amortization.
- Adjusted EBITDA declined by 12% to $41.7 million, compared to $47.2 million. The decline was due to increases in headcount related costs, including those from the acquired Twilio IoT business.
Third Quarter 2023 Key Metrics and Business Successes
- KORE's Total Connections were almost 18.9 million as of September 30, 2023, an increase of over 300,000 from the second quarter of 2023 and, notably, an increase of 3.6 million from the same period in 2022. We have a robust IoT Connectivity sales pipeline, including many customers with whom we are positioned to consolidate wallet share with our industry-leading multi–multi–multi value proposition and global eSIM product.
- DBNER2 was 96% for the twelve-month period ending September 30, 2023, compared to 100% for the twelve months ending September 30, 2022. Excluding our largest customer, DBNER was 104% vs. 106%.
- KORE added $27 million of new business TCV in the third quarter, bringing the year-to-date TCV to $87 million. The Company's new business sales funnel now includes almost 1,700 opportunities with an estimated potential TCV of approximately $740 million as of September 30, 2023, compared to $660 million and $407 million as of June 30, 2023, and September 30, 2022, respectively. The sales funnel includes almost 100 opportunities with estimated potential TCVs ranging from $1 million to nearly $5 million, 16 opportunities in the $5 million to $9.9 million range, and an additional 16 opportunities with estimated potential TCVs greater than $10 million each.
- KORE continued to increase its presence in its target distributed enterprises market segment with the announcement of KORE's enabling a national retailer's digital transformation with 5G connectivity. This collaboration signals a turning point for retail as 5G connectivity is driving a nationwide shift towards digital-first retail, from security systems to customer experiences. KORE's 5G solutions and services, including failover options, provide the link for these retailers to reimagine inventory management, business operations, and customer service.
- Building on its "IoT for Good" initiative, KORE announced an alliance with GrandPad to support their mission to help seniors age in place with IoT. Powered by KORE's robust IoT Connectivity solutions, GrandPad provides an easy-to-use communication device that allows seniors to connect to vital caregivers and family members by making video calls, sending voice messages, and viewing media.
- KORE had several notable new business wins in the third quarter, including:
- Increasing Share of Wallet: A Remote Patient Monitoring (RPM) customer selected KORE as the sole provider of eSIM connectivity across the US, UK, and Europe. The customer will be transferring lines from a competitor. This engagement has a TCV of $4.4 million, and we see potential additional opportunities with this customer.
- Cross-Selling IoT Solutions with the KORE One-Stop-Shop: KORE won a $6.2 million TCV contract with a national retail chain to migrate from LTE to 5G. KORE is providing Full Lifecycle Managed Services, including connectivity, installation services, and ongoing management of the customer's devices.
- Upsell / Land-and-Expand: An existing rent-to-own store franchiser customer awarded KORE a $2.5 million TCV contract to provide connectivity across multiple carriers based on the quality of service they received on their initial engagement with KORE. KORE is also working on upgrading lines from LTE to 5G.
- International Opportunities / Global Deployments: An Australia-based GPS tracking and fleet management software provider selected KORE as its connectivity provider utilizing KORE OmniSIM™. The initial contract has a TCV of $435,000.
Revising 2023 Financial Outlook
For the twelve months ending December 31, 2023, the Company now expects the following:
- Revenue in the range of $280 million to $290 million; and
- Adjusted EBITDA in the range of $60 million to $62 million, and an Adjusted EBITDA margin of approximately 21.4% at the midpoint of revenue and Adjusted EBITDA guidance.
This compares to prior guidance of revenue in the range of $300 million to $310 million and Adjusted EBITDA in the range of $60 million to $62 million.
Bahl concluded, "We have reduced revenue guidance to reflect several customers' order deferrals in IoT Solutions. Despite the macroeconomic environment causing this pushout of IoT Solutions revenue, we are pleased with how the year has progressed, especially in our core IoT Connectivity business, which experienced strong organic growth in the third quarter and throughout the year. We have successfully integrated the Twilio IoT team and plan to launch our new combined next-generation eSIM product in 2024. We have streamlined operating costs to align with revenue shifts and have increased gross margins of the acquired Twilio IoT connections. Despite reduced revenue expectations due to delayed ordering primarily from IoT Solutions customers, the actions we have taken enable us to maintain our 2023 Adjusted EBITDA guidance and put us in a strong position entering 2024. As we look forward, we are bullish about the Company's ability to grow revenues while also optimizing operating expenses to add approximately $10 million of savings in 2024."
Conference Call Details
KORE management will hold a conference call today (November 9, 2023) at 5:00 p.m. Eastern time (2:00 p.m. Pacific time) to discuss its financial results, business highlights, and outlook. President and CEO Romil Bahl and CFO Paul Holtz will host the call, followed by a question-and-answer session.
Webcast: Link
U.S. dial-in: (877) 407-3039
International dial-in: (215) 268-9922
Conference ID: 13742022
The conference call and a supplemental slide presentation to accompany management's prepared remarks will be available via the webcast link and for download via the investor relations section of the Company's website, ir.korewireless.com.
For the conference call, please dial in 5-10 minutes prior to the start time, and an operator will register your name and organization, or you may register here. If you have difficulty with the conference call, please contact KORE investor relations at (678) 392-2386. A replay of the conference call will be available approximately three hours after the conference call ends and will remain on the investor relations section of the Company's website for 90 days. An audio replay of the conference call may be accessed by calling (877) 660-6853 or (201) 612-7415 using access code 13742022.
