Rubicon Technologies, Inc.
Q2 2023 Earnings Call Transcript

Published: 12 Aug 2023

[Operator:]

Good afternoon, and welcome to Rubicon Technology's Second Quarter 2023 Earnings Call, my name is Lisa, and I'll be your operator for today's call. As a reminder, this conference is being recorded. And at this time all participants are in a listen-only mode. After the speakers remarks' there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Chris Bonner, Executive Vice President of Finance. Please go ahead.

[Chris Spooner:]

Thank you. Hello, everyone, and welcome to Rubicon's second quarter 2023 earnings call. A few quick reminders before we begin. This call is being webcast and can be accessed on the Investors section of our website, which can be found at investor.rubicon.com. Today, we will present Rubicon's financial results for the second quarter of 2023, which will be followed by a question-and-answer session. During the call, management will be making forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties as discussed in greater detail in our earnings release and our SEC filings. We assume no obligation to update forward-looking statements, except as required by law. Additionally, we will refer to non-GAAP financial measures during our call today, including adjusted gross profit and adjusted EBITDA. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and reconciliations to the most directly comparable GAAP measure can be found in our earnings release and our filings with the SEC. Joining me on the call today are Phil Rodoni, Rubicon's Chief Executive Officer; and Kevin Schubert, President and Chief Financial Officer. With that, I would like to turn the call over to Phil.

[Phil Rodoni:]

Thank you, Chris, and thank you to everyone for joining us today. To begin today's call, I am very proud to say that since our last call, we have achieved a second consecutive quarter of record adjusted gross profit of approximately $18 million, which represents an impressive 41% increase over the second quarter of 2022. Further, we have completed all the highest priority tasks from our bridge to profitability plan and continue to make significant progress against the goals we announced at the end of 2022. Our focus since the fourth quarter of last year has been to improve our liquidity position and accelerate our progress to profitability through key initiatives designed to improve margins, reduce operating costs and increase the Company's financial strain and flexibility. The Rubicon team continues to successfully execute our plan, and we are just beginning to see the impact of these efforts on the financials, which is reflected in the double-digit margins in certain segments of the business. We are confident this impact will gain significant momentum in the third quarter and result in positive adjusted EBITDA for the fourth quarter. We will provide more details of our progress later in the call. But for those of you who are new to the Rubicon story, I will take a few minutes to describe our company and the work we do with our customers and partners. Rubicon was founded in 2008 and today is the leading global provider of cloud-based waste and recycling solutions. We serve three key constituents

[Kevin Schubert:]

Thanks, Phil. I will now take a few minutes to review our second quarter results. Rubicon generated approximately $175 million of revenue in the second quarter. This was an increase of $10 million or 6% compared to the second quarter of 2022. The adjusted gross profit in the second quarter was approximately $18 million, an increase of $5 million or 41% compared to the second quarter of 2022, and we are very proud to say that Q2 2023 was our second consecutive quarter of record adjusted gross profit. Adjusted EBITDA for the second quarter was negative $9.7 million, which is an improvement of $9.2 million and an approximately 50% improvement versus the $19 million loss for the second quarter of 2022. It is worth noting that the adjusted EBITDA figure still includes an additional $1 million of nonrecurring items, which have not been adjusted for. These items relate to expenses mostly resulting from our recent financing transaction. As of the end of the second quarter, the Company had $27 million of cash and undrawn availability under our credit facility. We are proud of the steady improvements that are making a material impact on our results. Looking forward to the remaining two quarters of 2023, we expect to be in line with the guidance we gave on our previous calls and remain confident in our ability to generate positive adjusted EBITDA for the fourth quarter of this year as well as for the full year 2024. Phil will now give an update on the key strategies we're implementing to achieve these projections...

[Phil Rodoni:]

Thank you, Kevin. We believe Rubicon's industry-leading service experience for waste generators, fleets and processors is strategically well positioned as the definitive platform to enable the elimination of waste in years to come. As I mentioned earlier, we have completed all the highest priority tasks within our bridge to profitability plan, which lays the foundation for the Company to achieve profitability and positions us for profitable growth moving forward. For example, in the near term, we plan to achieve profitable growth through customer wallet share expansion, new product offerings and improved operational efficiency. We currently estimate that we have about 30% of our customers' wallet share. We see this as a considerable opportunity to increase sales within our current customer base, whether that is through additional service locations, material streams or products. In addition to capturing additional wallet share, we are able to focus on selling higher-margin products and will improve the overall margin profile. For prospective customers, we will offer flexible and tailored experiences. In the past, our Rubicon Connect products were offered only as a package with service, procurement, solutions, consulting and commodities handling bundled together. But we will now offer those products a la carte. For some smaller prospects, the expense and vast functionality of the package as a whole could be a barrier to winning their business. Now we can earn their business through custom product selection and build these relationships over time. We also plan to improve efficiency across the board with the strategic use of artificial intelligence-based systems in our operations. As mentioned on the last call, we are deploying a chat GPT like large language model to automatically process inbound work order requests, thereby reducing the need for employees to do repetitive data entry and freeing up their time to provide value-added services. Using similar technology, we are digitizing, processing and matching holler invoices against customer work orders to automatically audit invoices and reduce processing costs. We will also have new products to offer our customers. As a software company, we are able to be flexible and solve our customers' problems as they arise. As mentioned earlier, our most recent product enhancement is a billing feature integrated into our fleet management solution, Rubicon Pro. This new feature unifies and simplifies interactions between the operational side of fleet management and the back-office billing functions to ensure that the bill is generated are accurate and reflective of all the services provided to customers. Another example is our Snowplow fleet management software, which was born out of Kansas City, Missouri request to implement the same efficiency gained in their waste program into their snow program. We will shortly be rolling out the newest version of that software with more features to improve our customers' experience. Our progress to date strengthens our confidence in achieving positive adjusted EBITDA in Q4, expanding our adjusted gross profit margins to the low double-digit range and attaining operating cash flow positivity by the end of the year. We've invested in scaling our business by building a network of over 8,000 hours, serving 13 million unique service locations and analyzing 1 million images daily for insights on the waste streams and infrastructure. With our broad service portfolio, growth opportunities and improved profitability and product leadership, we will continue to expand that network we serve and expand the range of services we offer. Thank you for continuing this journey with us. We look forward to updating you on our progress in the coming quarters. With that, I will turn the call over to the operator, who can open the line for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. As a reminder, if you would [Operator Instructions]. We'll take our first question from Maria Ripps with Canaccord.

[Maria Ripps:]

First, could you maybe provide us with an update on your efforts to onboard new logos? Have you seen brands and hole sort of exhibit greater adoption of your solutions given the main value proposition and efficiency gains? And how would you characterize how sales cycle length has been trending here more recently?

[Phil Rodoni:]

Thank you for the question. So in terms of onboarding new haulers, I think it's important to note that we have over 8,000 haulers and processors on our platform today, and effectively, we curate that list to make sure that we have the best available haulers and the exact locations that we actually need them. So our efforts in terms of -- we're always constantly kind of looking for new haulers that can provide unique and specific services, whether that be new material types that we want to be able to handle for our customers. But in terms of the software side I think is what the orientation to our question is in terms of how we're bringing kind of haulers and cities onto our Smart City and/or Rubicon products. Those sales cycles, typically, there's multiple ways we sell. First and foremost, we'll typically kind of go through our traditional kind of RFPs, which have a longer cycle but we also kind of sell via kind of partnership networks. So we have hardware providers that we actually sell through that actually -- those are very kind of valuable partnership -- partnerships that we have. So if a fleet already has a hardware provider that they're working with, they can get our solution kind of on top of that. So those are kind of our more expedited sales, and then we also have buying consortiums that we're actually part of. HDAC buy is an example of that, and so if we're effectively kind of pre-vetted for certain categories. So we'd say our ability to kind of onboard kind of customers or onboard fleets onto our platform has been very robust, and I think we noted in the last quarter, we have surpassed our 100th city on the platform itself.

[Maria Ripps:]

Great, that's very helpful, and maybe just to follow up on your SaaS segment. Could you maybe refresh us on when you -- we might see you sort of break that business out? And how are you thinking about potential long-term mix of SaaS versus marketplace revenue?

[Phil Rodoni:]

Yes. I think our position has always been maybe towards the end of the year when we have significant kind of volume on the platform that we'd start kind of breaking it out. That's not a guarantee, but I think probably in that time frame, it would make sense. But yes, we'll see as things going to go on.

[Maria Ripps:]

And the mix of revenue?

[Phil Rodoni:]

Mix of revenue, I think what you would see kind of -- if we break it out, you'd see it there as well.

[Maria Ripps:]

Got it. That's very helpful.

[Operator:]

We'll take our next question from Brett Knoblauch with Cantor Fitzgerald.

[Brett Knoblauch:]

Congrats on the quarter. Maybe if we can dive into your relationship with Palantir, I know there was some news in the quarter other than kind of an increase in our ownership. Can you just remind us of what that relationship is, what product that you guys are building, when we should expect that to be deployed and maybe the potential revenue opportunity from that product that you guys see?

[Phil Rodoni:]

Sure. I appreciate the question, Brent. So as you know, kind of Palantir was an investor during our kind of our pipe process during this back, and they have since kind of invested further in the Company, which we're very thankful as well, and the reason being we have a great relationship with them, they are helping us certainly kind of build out many of the kind of the AI functionality that we have that helps us with the optimizations and whether that be kind of optimizations on pickup frequency optimization and material characteristic type of optimizations. That's where kind of some of the artificial intelligence kind of comes in on the image recognition side as well, and then lastly, we're really looking for them, and it's probably more back of the house. You don't necessarily kind of see it as they kind of name product out in the market, but behind the scenes, what we're doing in terms of kind of recognizing kind of invoice is much faster and much quicker on our side. There's a lot of kind of artificial intel that goes on that when you're reading an invoice automatically extracting the kind of the pertinent data points along the way, and that really helps us speed the processing of those invoices helps us build faster to our customers that actually helps us on a working capital perspective and certainly actually helps us kind of reduce the overall operational expense of the Company. So sometimes you don't necessarily see it as a kind of as a forefront kind of product out in the marketplace. But suffice it to say, they've been instrumental in actually helping us on our optimization front.

[Brett Knoblauch:]

Perfect. Understood, and then the kind of performance on net revenue margin in the quarter was very good. I know you guys were kind of expecting to exit the year above 10% and you guys did it this quarter. Can you maybe break out what are the moving pieces in there that allowed you kind of reach in maybe a couple of quarters earlier and how we should be thinking about additional expansion for the rest of the year.

[Kevin Schubert:]

Sorry about that. Yes. No, and really, it was really just the focus of the team like optimizing expenses as we went through and really driving sort of that high-grading of our portfolio that we've been looking really mindful of looking at every piece of our portfolio and driving sort of price action where we can and we were thinking about our portfolio mindful we really had to achieve tremendous scale. So now it was really the opportunity to go in line that and really think about it smart rate and how we can optimize it, and we just found a number of opportunities to really sort of drive that growth. I would say, I think we're going to probably continue to see margin expand further, but at a slower rate, I think you're not going to see substantial jumps from here, but sort of small incremental increases as you move forward as we were able to drive obviously significant expansion through most recent effort.

[Brett Knoblauch:]

Got it, and then I guess if I could just ask one more on the recyclable commodities segment continues to kind of be weak recyclable commodity prices. Bottom, any expectations for that segment as we kind of think about the rest of the year and into next year.

[Phil Rodoni:]

Brett, yes, we did see about an $11 million decrease in our revenues year-over-year related to the declines in commodity pricing for the quarter. We have seen that modestly rebound starting off of this quarter, but we would expect revenues to remain roughly flat from commodities, absent some underlying volume growth going forward. We're not taking a bias on improvements in commodity prices, especially given, as you can probably recall, were effectively insulated at the adjusted gross profit level from swings in commodity price movements.

[Brett Knoblauch:]

Got it. Appreciate it.

[Operator:]

We'll take our next question from Stephanie Moore with Jefferies.

[Stephanie Moore:]

Thank you. I think congrats again on the second quarter of record gross profit and the improvement in the first half of the year. Could you maybe talk a little bit on the path to continued improvement and what it's going to take to kind of see that accelerated growth kind of going forward?

[Phil Rodoni:]

Sure, and I think our plan overall has been always kind of somewhat ranging in terms of kind of path to profitability, but we certainly look to kind of expand our sales and expand our inroads into our existing customer base, and as I mentioned earlier that we still think we only have about 30% of our customers kind of wallet share, so kind of getting further deeply ingrained with our existing customers is certainly core to our strategy. Certainly, we always are looking to kind of being in kind of new customers on the platform at the same time and then pairing that with our smart city and we got kind of pro sales and we have new products coming out in the marketplace, whether that be the billing feature that we talked about or kind of directly selling temporary kind of open top services, which you'll actually see us do in the near term. So we have more products coming out in the marketplace. So I think from an overall kind of revenue-generating perspective, where we expect going to have further growth, which puts us further down along the way on our path to profitability. We still have some savings to go on that plan, and we've not stopped to kind of optimize whatever expenses we actually have on that side. So there are still some big chunks of savings that are within the Company that as we further optimize our operations on the back office side as we further employ some of these artificial intelligence-based solutions that we've talked about on the optimization front, those are all things that actually help us operate much more efficiently. So you'll see that kind of improve our bottom line numbers as well.

[Kevin Schubert:]

And Stephanie, I'd also add that there are several new service lines that we're looking at new areas of growth that we're going into that really sort of part that we've sort of expanded on rebuilding technology. Bill mentioned the building piece that's just coming online, which is really going to allow us to sell the remain process sort of in earnest, and we're also looking at several other business lines that we think we'll be able to monetize as we move forward.

[Stephanie Moore:]

Got it, that's really helpful, and then I think on this path to profitability, kind of looked at optimizing some of your accounts and your customers. How long do we think we should expect to see this kind of going forward, this kind of customer optimization? And then maybe on the flip side, ink, also and the path of profitability have focused on kind of raising price and enhancing our profitability with certain customers, too. So maybe you can talk a little bit on how retention rates have been trending Thank you.

[Kevin Schubert:]

Stephanie. Yes, from an optimization standpoint, I would expect it to kind of continue on sort of at least three years quarter potentially in the fourth quarter as we are continuing to work through and there is some real a lot of these rigs, we don't take time to fully sort of work the system. So I would expect it to sort of be primarily done by the end of this year of course, the -- you'll see sort of the results of it as we're continuing to work through the end of the year. But it is going to be an ongoing process revenue. We have the conscious effort that we are going to be a profitability-focused company so as we come across other opportunities to do that we're going to is obviously take that, and I apologize, what was the second part of your question?

[Stephanie Moore:]

Just wanted to get a little bit of color on just how retention rates are trending with your current customers kind of following after the price increases and some of the actions you've taken to optimize...

[Phil Rodoni:]

Yes. Stephanie, it's still strong. We'll post 105% revenue net retention for the quarter, so consistent with our triple-digit net revenue retention that we've averaged going back over the last few years.

[Operator:]

We have no further questions at this time. I'll turn the call back over to Mr. Rodoni for final remarks.

[Phil Rodoni:]

Okay. Well, again, well, thank you, everyone, for spending -- spending a little bit of time with us today, and we appreciate your continued interest in the Company, and we look forward to kind of reporting to you out in the quarters to come. Thank you all very much.

[Operator:]

Thank you, and that does conclude today's presentation. Thank you for your participation, and you may now disconnect.