Greetings, and welcome to the KORE Group Holdings, Inc. First Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vik Vijay, Vice President, Investor Relations. Thank you, Vik. You may begin.

Thank you, John. On today's call, we will refer to the first quarter 2024 earnings presentation, which will be helpful to follow along with, as well as the press release filed this afternoon that details the company's first quarter 2024 results. Both of these can be found on our Investor Relations page at ir.korewireless.com. A recording of the call will be available on the Investors section of the company's website later today. The company encourages you to review the safe harbor statements, risk factors, and other disclaimers contained on this slide and today's press release as well as in the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to differ materially from those described in our forward-looking statements. The company does not undertake publicly to update or revise any forward-looking statements after this webcast. The company also notes that it will be discussing non-GAAP financial information on this call. The company is providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States or GAAP. You can find a reconciliation of these metrics to the company's reported GAAP results in the reconciliation tables provided in today's earnings release and presentation. I'll now turn the call over to Ron Totton, the company's Interim President and Chief Executive Officer.

Thank you, Vik. Good afternoon, everyone. Thank you for joining us for our first quarter 2024 earnings call. With me today is Paul Holtz, KORE's Chief Financial Officer. On the call today, we'll review our financial and business performance for the first quarter, our outlook for 2024, and then we'll host a Q&A session. Before turning the call over to Paul to review our solid financial performance in the first quarter, and since this is my first interaction with many of you, I want to take a few moments to introduce myself, talk about why I'm excited to join the KORE team, share some of my initial observations, and outline my priorities for the next 90 days. As an experienced technology, media, and telecommunications sector executive, I have held leadership roles with organizations ranging in size from small-cap private firms to large-cap public companies, including British Telecommunications and Descartes Systems Group. Over this time, I've lived and worked around the world and led teams responsible for markets spanning Europe, Asia, and the Americas, with significant time spent in the U.S. In my most recent role, I led ST Telemedia Cloud, a portfolio company of Temasek Holdings, developing a cloud strategy that saw us acquire several cloud-managed service providers, now referred to as cloud modernization companies, and invested in leading U.S.-based SaaS companies. Prior to that, I was the CEO for Switzerland, the Nordics, Central Eastern Europe, and Russia for BT Global Services, with responsibility for a P&L double the size of KORE's. I joined KORE as a people-oriented leader with a positive mindset that understands how to drive both growth and efficiencies that support better margins, increase profitability, and generate positive free cash flow. My 25-plus years of working with customers in the field helps me understand their broader needs and pains, which is essential for creating high-value solutions. In my first two weeks, I've been doing a lot of listening and have been focused on these four areas: spending time with key customers and working to understand their experience with us and their specific current and future needs; working closely with the senior leadership team to learn from their experience built over their multi-year tenures at KORE; sitting alongside employees across all functions of the company, from sales and marketing and technology to finance and HR, to better understand the path and the roadblocks to success; and lastly, interacting with the Board at both the individual member and committee levels to understand the framework for the vision and our strategic priorities. So what have I observed to date? We operate in a large and growing IoT addressable market that sits at the intersection of real-time data, cloud, and AI, helping to support new revenue streams and enable real productivity gains for our customers. We are viewed best-in-class, being named a leader by Gartner in the Magic Quadrant for managed IoT connectivity services worldwide for the fifth consecutive time, and our customers highly value what we do. We also know they want even more from us, and therefore, there are significant opportunities to grow share of wallet with existing customers while targeting new ones. What attracted me to KORE is not only the markets we serve but also the impact we have based on the problems we solve. Our connected health solutions, for example, help our customers not only improve the quality of life for patients but also literally save lives. Likewise, our fleet and vehicle solution support monitoring and maintenance of large volumes of capital equipment, maximizing asset life and ensuring efficient customer operations while also safeguarding employees. In short, we support mission-critical use cases that make a real difference to organizations, communities, and individuals. I've also been deeply impressed with the commitment and expertise of our teams. Many of our employees have worked in the IoT space since its inception, and that type and longevity of experience are difficult to replace. With their depth of knowledge, they continue to suggest ways that we can improve our performance by operating more efficiently and with higher velocity. I'm committed to working with the team to find more efficient ways of working and ensuring we have a culture that recognizes great ideas can come from anywhere in the organization. I believe in a disciplined approach, ensuring the organization is doing the right things, not everything, in other words, being optimistic and realistic. Combining our high-quality solutions with greater operational rigor will help us drive towards profitable growth that will ultimately yield improved financial performance, strengthen the balance sheet, and create greater value for our shareholders. On that basis, my priorities over the next 90 days are as follows: continuing to speak to our largest customers but also to prospective customers in key verticals and geographies; evaluating immediate near-term opportunities to operate more effectively, including the implementation of stronger processes and controls that help drive efficiency; working to begin unleashing the potential of people in the organization by focusing on a unified strategy that will allow us to scale cost-effectively; and lastly, reviewing the KPIs we and various stakeholder groups use to measure our performance and progress and determining if new and different ones are required as we move ahead. From a strategy perspective, it's still early days, so I don't expect any major changes in the near term. We have two solid business units, and we'll continue to execute on our plan, focused on profitable growth while making minor modifications here and there to enhance our effectiveness and efficiency. In closing, I'm passionate about building strong unified teams and growing and optimizing businesses, and that is what gets me up in the morning. I look forward to reporting on our initial progress on our next quarterly call. With that, I'm now going to turn it over to Paul to review the results from the first quarter.

Thank you, Ron, and good afternoon, everyone. Now let's look at our first quarter financial results on Slide 5. KORE's first quarter revenue of $76 million increased 15.2% year-over-year. Breaking that down by segment, IoT connectivity revenue up $57.9 million, which includes the Twilio IoT acquisition, increased 33% year-over-year and represented 76% of first quarter revenue. This is up from 70% in the prior year. Organically, IoT connectivity grew approximately 11% year-over-year. IoT Solutions revenue declined 19% year-over-year to $18.1 million or 24% of first quarter revenue. The decline year-over-year was due to the reduction in volumes from one of our current largest customers as well as the previously disclosed decision to turn away low-margin hardware deals to help improve working capital. Total margin, which excludes depreciation and amortization in Q1 2024 was 55%, an increase of 100 basis points compared to the first quarter of 2023. By segment, IoT connectivities margin, also excluding depreciation and amortization, was down 450 basis points year-over-year to 60.8%, reflecting a full quarter inclusion of the lower-margin Twilio IoT revenue. However, IoT connectivity margin is up 220 basis points sequentially from 58.6% in the fourth quarter of 2023 and is forecasted to remain stable in the 60% to 61% range for the rest of fiscal year 2024. IoT Solutions margins, excluding depreciation and amortization, was up 430 basis points year-over-year to 36.3% and up 310 basis points sequentially from the fourth quarter of 2023. IoT Solutions margins are more difficult to predict on a quarterly basis due to the uneven nature and fluctuations in the revenue and mix of hardware but are forecasted to remain in the mid-30% range for the rest of 2024. Total connections at the end of the first quarter were 18.3 million, a decline of 200,000 from the fourth quarter of 2023 and an increase of 3.2 million year-over-year. The decline in the quarter-over-quarter SIM count reflects the continued deactivation of low ARPU connections from a single customer in Europe that was previously mentioned in our last call to be transitioning its space to be managed in-house. This migration was completed in February, and we returned to growth in total connections between the end of February and the end of the quarter. During the last earnings call, we also mentioned that these deactivations wouldn't have a material effect on our IoT connectivity revenue in 2024. This is evident with our Q1 results and also contributed to an increase in ARPU. IoT connectivity ARPU had stabilized in 2023, and this quarter has shown an increase year-over-year and sequentially quarter-over-quarter. Our quarterly IoT connectivity ARPU was $0.96 in Q1 of 2023, $0.99 in Q4 2023, and this quarter increased to $1.05. The dollar-based net expansion rate or DBNER for the 12 months ended March 31, 2024, was 94% compared to 107% in the prior year. As a reminder, DBNER is similar to same-store sales as it measures the growth of existing customers in the trailing 12 months compared to the same customer cohort in the year-ago period. This means that customers gained from the Twilio IoT acquisition in June 2023 are excluded from the calculation. Our current DBNER calculation continues to be impacted by declines in IoT Solutions revenue from one of our largest customers as well as the planned declines in other IoT solutions customers. Adjusting DBNER for our largest customer due to their LTE transition project in previous years would result in this metric being 99%. Turning to Slide 6. Operating expenses, including depreciation and amortization in the first quarter were $49.1 million, an increase of $4.8 million or 10.8% compared to Q1 2023. The increase in operating expenses is mainly due to headcount-related costs, including incremental headcount inherited from the Twilio IoT acquisition. These increases were offset by declines in legal and accounting professional service fees. First quarter interest expenses, including amortization of deferred financing fees, increased year-over-year to $12.9 million versus $10.3 million in the first quarter of 2023. This increase is due to the higher borrowing costs on our refinanced debt and preferred stock placement completed in Q4 2023. Net loss in the first quarter was $17.6 million compared to $18.5 million in the prior year. The improvement in our net loss year-over-year is attributable to improved operational results, a noncash benefit from the change in our fair value of our warrant liabilities, less depreciation and amortization, and this was partially offset by the increase in interest expense. Adjusted EBITDA in the first quarter was $14.8 million, an increase of $1.4 million or approximately 11% compared to last year. Our adjusted EBITDA margin in the current quarter was 19.4%, down 80 basis points compared to the same period in the prior year. The adjusted EBITDA margin decline is mainly due to the majority of the incremental revenue year-over-year coming from the Twilio IoT acquisition, which is now positively contributing to adjusted EBITDA but at a lower adjusted EBITDA margin percentage. Finally, moving to cash flow. Cash provided by operations for the three months ended March 31, 2024, was approximately $1.9 million, substantially the same amount from Q1 of 2023. As of March 31, 2024, cash and cash equivalents were $23 million compared to $30.6 million as of March 31, 2023, and $27.1 million as of December 31, 2023. And with that, I'll pass it back to you, Ron.

Thanks, Paul. Slide 7 presents a snapshot of our global sales pipeline as of March 31, 2024. As we mentioned, we have decided to reduce our reliance on low-margin hardware revenue. While this decision reduces the total size of our funnel, as have the relatively large number of deals that were closed in Q1, it's important to note that the quality of our pipeline has improved. Our sales pipeline now includes nearly 1,200 opportunities with an estimated potential total contract value (TCV) of $422 million. In the first quarter, we generated an incremental $52 million of closed one TCV, building upon our five previous years of TCV growth. For those who may be new to our story, the majority of sold TCV is recognized as revenue over four years, and it's important to note that the closed TCV figure is aggregated across all services which recognize revenue on different schedules. As we did on our last earnings call, Slide 8 highlights some key customer wins from the first quarter. These wins include: first, capturing 100% wallet share of one of the world's leading telematics providers through our growing channel partner business. This agreement represents approximately $9 million of incremental TCV, and KORE's ability to deliver a seamless global solution was crucial in securing this agreement; secondly, continuing to progress in the launch preparation of the Connected Health opportunity mentioned in the last earnings call. Project launch is anticipated later this calendar year. This cross-sell win in Connected Health represents approximately $26 million of incremental TCV; third, a marquee win in a new market and use case is the agreement we signed with GoRout to provide communications between coaches and players through wearables for an in-game and practice environment. This solution leverages our Super SIM offering, and this agreement is worth an estimated $1.6 million of incremental TCV; lastly, securing a win with a global IoT product and development company specializing in the design of custom embedded systems. This includes OmniSIM Reach for the deployment of KORE's global connectivity. Overall, our value proposition of an independent multi-offering is resonating with the market, and our connectivity position has never been stronger.

On Slide 9, we summarize the key points of our prepared remarks. First, we expect that revenue growth in 2024 will be driven by IoT connectivity, which will be supported by stable ARPUs and connected device growth from our existing customers. We continue to carefully plan for IoT Solutions to decline year-over-year based upon our decision to deemphasize lower-margin revenue. Secondly, we started the year very strong with a record closed one TCV of $52 million. While this number can fluctuate, we're encouraged by the strong sales traction across our connectivity portfolio. We continue to enhance our direct and indirect sales efforts, which we expect to bear fruit this year. Beyond our investment in growth, we'll continue to take a disciplined approach to cost management, which will continue to drive improvement in 2024 and supports our confidence in our forecast for double-digit adjusted EBITDA growth. We're happy to revisit any of these key points during the Q&A.

Before turning the call over to the operator, I want to thank our team around the world for their tremendous support in welcoming me as I join them on this journey. I'm excited about where we're going this year and in the future. With that, let's start the Q&A.

And the first question comes from Lance Vitanza with TD Cowen.

Welcome Ron, and congratulations on the quarter. Let’s start by discussing the pipeline. You shared the Connected Health contract last quarter, and I know there are many projects and wins happening. However, if we temporarily exclude the Connected Health contract, it appears that the total contract value has decreased by $2 million sequentially. Could you elaborate on the trends you observed in the pipeline this quarter and what you are seeing now that we are halfway through the second quarter? Additionally, considering the $422 million in the funnel, it seems that each of the 1,190 opportunities would average about $350,000 each. However, I assume there are larger contracts similar to the Connected Health deal within that funnel. How concentrated is the funnel? Does it adhere to the 80-20 rule or a different ratio? It would be useful if you could provide insight into the top 10 opportunities and how much revenue they account for.

Thanks for the call, Paul. There's a lot to consider here. You are correct that we declined from 28 to 26 in terms of pipeline, excluding one significant win. As Ron pointed out, this figure does vary from quarter to quarter and is largely dependent on the timing of when we close deals. Ronald mentioned earlier that we aim to consider something as closed not just when the contract is signed but when we actually begin production and start generating revenue. Therefore, we take a cautious approach to closing these opportunities. As we move into Q2, we are already about halfway through and have reached around $19 million in revenue so far this quarter, showing promising progress. We anticipate this growth will continue throughout the year, but timing will remain a crucial factor in what the quarterly figures will look like. Regarding the pipeline, it is not simply an average of $350,000; there is a mix of deal sizes ranging from significant projects like the Connected Health deal at $26 million down to smaller ones around $350,000 or even $100,000. The mix does include several larger deals that could enhance our pipeline, while we still have many smaller opportunities to consider. I don’t have the exact details regarding our top 10 deals at this moment, but I can provide that information later. We are hopeful about closing several of the larger opportunities we are currently pursuing later this year. Does that address your question?

Absolutely. That's very helpful. If I could ask one more question regarding the projected growth in connectivity revenue, I noticed in the press release that it is expected to grow in the high teens in 2024. Is that growth organic or reported? Additionally, what factors are driving this acceleration? How much visibility do you have on this? Are there any indicators we should be aware of that might cause this growth to either slow down or possibly speed up?

The total gross growth is in the mid- to upper teens, which includes the impact of the Twilio acquisition. We had seven months of contribution last year and a full year this time. Organically, we're experiencing double-digit growth in the 10% to 11% range for Q1. This could fluctuate based on the timing of when our major deals close. We have a strong pipeline, and the timing of these larger deals can influence organic growth. However, we have good visibility and I'm confident about our performance in Q1. While there may be some variability, we did see an increase in usage in Q1 compared to Q4. It’s uncertain if this trend will continue throughout the year, but many new opportunities we are pursuing have a higher average revenue per user, which is contributing to our top-line growth.

And the next question comes from the line of Meta Marshall with Morgan Stanley.

This is Karan Juvekar on for Morgan Stanley. Just a quick question on the IoT Solutions side. I know you mentioned a reduction in volumes from your largest customers. How much of this was a surprise to you? And any detail or nature of those reductions would be helpful.

Yes. It wasn't a surprise, and we have forecasted for this year in our budget, so a decline in IoT solutions. Remember, we've been talking about the largest customer for a while and their large LTE transition project that they had during the second half of 2021 and went all the way into the beginning of 2023, not as much in '23. But the largest customer did come back to regular volumes that they had slowed down in Q3 and Q4 of last year, as we had mentioned, because of all the inventory they had taken as part of that project, but they got back here in Q1.

And the next question comes from the line of Scott Searle with Roth MKM.

Ron, congratulations and welcome aboard. I apologize I got on the call a little bit late. Again I hope this isn't too redundant, but Paul, just a couple of quick clarifications. Product gross margins looked like they were pretty healthy. Is that a sustainable number? Is there anything from a one-time basis going on there? Also, OpEx, even when you adjust for some of the integration-related costs, still seems a little bit high. Are there any other sort of one-time items in there? And in terms of how you're seeing ARPUs trend over the course of this year? I know there were some bigger opportunities in the pipeline that were more bandwidth-driven opportunities that would have higher ARPUs. Is that what we should continue to think about and project for the remainder of the year? And then I had a couple of follow-ups for Ron.

First, regarding margins, Q4 was impacted by year-end activities which included topping up provisions and delays in customer payments. This led to some unusual hits in that quarter. I expect Q1 to be more normal, with our forecast indicating margins between 60% and 61% for the year. There are no one-time effects in Q1 regarding connectivity. We've consolidated most of our contracts with Twilio, and we will continue to see benefits from that throughout the year. In terms of IoT solutions, we are stepping away from low-margin hardware deals, and with our largest customer returning, we expect to maintain or even improve margins as we work on closing a significant CHTS deal with healthy margins. Q1 tends to be our highest operating expense quarter due to payroll tax resets and year-end audit fees. Even with merit increases beginning in Q2, we anticipate a decline in OpEx as we identify efficiencies. The $10 million savings from our restructuring is now reflected in our financials moving forward. Q1 usually appears high due to these one-time factors.

Device count: So as mentioned, we had a very large customer in Europe that's part of the CaaS business that we're transitioning out of. They basically completed their migration here in Q1. They started it in Q4. These all were $0.10 ARPU and $0.15 ARPU devices that have migrated out and are gone. Those obviously did affect the overall ARPU. But to your point of what you said going forward, we are more focused on the higher bandwidth a lot of these transfers. Now there's not to say there aren't some other lower ones that could happen and so forth. But our focus to grow top line will be on the higher bandwidth ones, which will be well north of the $1.05 that we reported this quarter.

Okay. Very helpful. And Ron, if I could, and I know this is an unfair question given that I think you're not even 2 weeks in the role yet. But when you look at KORE, how do you think about how differentiated the services are and why customers are using you guys? Certainly, you have strength in key verticals like healthcare and connected fleet. But I'm wondering where you see the ability to differentiate either from a technology standpoint or global platform standpoint. And the other question is around free cash flow. I think you mentioned that in your opening remarks. Clearly, you're focused on that. I'm just kind of wondering where that fits into priorities and how you're going to focus and maximize that in the current year?

Okay. So the first question about differentiation. I have been meeting with customers, and what I've found is that our ability to offer comprehensive solutions and connectivity is a key differentiator. They appreciate how this connects to their business and supports their growth. For instance, in the clinical trials field, the industry is shifting from centralized to decentralized trials. Our capability to assist them in quickly transitioning to a decentralized model sets us apart. This is beneficial for us because it influences how quickly we can generate connectivity revenue. That's a specific example from some of the customers I've talked to. I hope that addresses your question. Regarding the second question about free cash flow and priorities, as Paul mentioned, enhancing efficiency and managing operating expenses is important to us. I would be hesitant to rank it so soon into my tenure, but it is a consideration I am taking very seriously as I evaluate the business from all angles.

And Scott, if you want me to add to that. We are monitoring that. We had a target to be free cash flow positive by the end of the year. Now that's all going to depend on what interest rates do. Right now, it doesn't seem like there's much movement that's going to be happening this year, so that will affect it a little bit. But again, as connectivity being the main driver of our top line growth coming at the higher margins, it's going to bring in much more operational cash flow. If our CapEx and everything is basically going to stay stable at that $4 million a quarter or even a little bit less, we have a good chance of getting there.

And the next question comes from the line of Mike Latimore with Northland Capital Markets.

This is Aditya on behalf of Michael Latimore. Could you give some color on what are the key verticals and use cases in your bookings and pipeline?

As we stated earlier, there hasn't been much change over time. Healthcare and fleet remain our top two sectors in terms of revenue and pipeline. Additionally, we are beginning to see the emergence of high-bandwidth use cases, which are expected to generate higher revenue from a connectivity standpoint. The composition of our pipeline has not changed; it remains focused on connected health, fleet, and now high-bandwidth as an emerging area.

Got it. And what do you expect your cash flow from operations to be this year as a percentage of EBITDA?

As a percentage, if EBITDA is in, we've kept our guidance the same. If you look at the midpoint, $65 million this quarter, we were at 2, and I expect it to continue around that or improve. So if we get to $10 million for the year from an operations perspective, I think that's conservative. It will all depend on timing.

There are no further questions at this time. I now would like to turn the floor back over to Ron for any closing comments.

Thank you, everyone, for joining today's earnings call. We look forward to updating you with our second quarter results. Have a good evening.

Thanks, everyone.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.