Greetings and welcome to the KORE Group Holdings, Inc. Third Quarter 2024 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Vik Vijayvergiya, Vice President of Investor Relations and Corporate Development. Vik, please go ahead.

Thank you, operator. On today's call, we will refer to the third 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 third quarter 2024 results. Both of these can be found on our Investor Relations page at ir.korewireless.com. Finally, a recording of the call will be available in the investor 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 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 to publicly 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 US 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 President and Chief Executive Officer.

Thank you, Vik, and good afternoon, everyone. Thank you for joining us for our third quarter 2024 earnings call. With me today is Paul Holtz, KORE’s Chief Financial Officer. The overall takeaway is in this year of transition, we have stabilized our financial performance, completed our restructuring, and are showing growth in recurring IoT connectivity revenue. Based on our third quarter results and fourth quarter outlook, we are reaffirming and tightening our previous issued guidance. Looking at our third quarter results, our revenue was $68.9 million, which was slightly higher than the same period last year, showing growth in IoT connectivity while there were planned reductions in our less profitable IoT solutions business. Adjusted EBITDA was $13 million, which was down from $14.2 million in the same quarter last year, largely the result of a $1.5 million reversal of performance-based compensation in the third quarter of 2023. I will go into more detail on our IoT connectivity performance later in the business update, but we are focused on generating cash flow in our business, and while free cash flow was flat in Q3 year-over-year, year-to-date free cash flow improved $6 million from the same period last year. This included one-time severance payments of $1.5 million in Q3 of this year as part of our restructuring plan which has since been completed. This improvement is a result of our fiscal discipline and improvement in cash management. Cash flow generation remains a key priority for me and the rest of the leadership team. On Slide 4, as we look at the big picture, I can confidently say that we are on the right track with our strategic focus on IoT connectivity. Our focus is yielding positive results as demonstrated by growth in revenue, margin, and total contract value, otherwise known as TCV,…

Thanks, Ron, and thanks to those joining us this evening for our third quarter results. Unfortunately, we found a calculation error in our goodwill impairment calculation from the prior quarter, so we decided to restate our second quarter results. It is important to emphasize revenue, adjusted EBITDA, and cash flows for all periods were unaffected by this restatement. Now let's have a look at our third quarter financial results on Slide 9. Total revenue for the third quarter increased 0.4% year-over-year to $68.9 million. Breaking that down by business lines, IoT Connectivity revenue of $56.7 million increased 3% year-over-year and represented 82% of third quarter revenue, up from 80% in the prior year. IoT Solutions revenue declined 9% year-over-year to $12.2 million or 18% of third quarter revenue. The decline year-over-year was due to the previously disclosed decision to turn away low-profit hardware deals to improve both margins and working capital. Hardware revenue was down over $1 million in the third quarter year-over-year. Overall, non-GAAP margin percentage in Q3 2024 was 56.7%, an increase of 190 basis points compared to the third quarter in the prior year. By business line, non-GAAP IoT Connectivity margin percentage was down 80 basis points year-over-year to 60.9%. Non-GAAP IoT Solutions margin percentage was up 940 basis points year-over-year to 37%. The increase is primarily attributed to the increase in more profitable IoT Solutions revenue. Total connections at the end of the third quarter were 18.8 million, an increase of 100,000 year-over-year, but more importantly, increased 300,000 from last quarter. Average revenue per user per month, or ARPU, for the current quarter was $1.01 compared to $0.98 in Q3 2023. The increase in ARPU year-over-year is driven by higher data consumption from high-bandwidth use cases and the deactivations of our low ARPU CaaS subscribers as…

Thank you, Paul. On Slide 11, as we wrap up, I want to share our near-term priorities and the outlook for 2024. Our strategy remains centered around three key long-term value creation pillars: customer intimacy, profitable growth, and operational excellence. First, customer intimacy. We are committed to deepening our relationship with our customers by understanding their needs and delivering tailored solutions that drive value. This intimate approach will help us retain existing customers and attract new ones. I'm very pleased with the tangible improvements we are already experiencing. Next, profitable growth. We aim to achieve sustainable and profitable growth by focusing on high-margin opportunities and optimizing our cost structure. This includes not only pricing discipline and leveraging our strengths in IoT Connectivity but expanding our global market presence across a range of use cases. Lastly, operational excellence. We are dedicated to enhancing our operational efficiency and effectiveness. This involves streamlining processes, investing in technology, and fostering a culture of continuous improvement. By prioritizing these areas we are confident in our ability to deliver strong performance and create long-term value for all our stakeholders in 2024 and beyond. As we look at our performance and the market conditions, we remain on track with our prior commitments. I am pleased to share that we tightened our revenue and profitability guidance for the full year. We continue to see strong demand across our IoT Connectivity offerings, and our strategic initiatives are delivering as expected. We are narrowing the range on our revenue outlook to $280 million to $285 million, and we are narrowing our range for adjusted EBITDA outlook to $54 million to $55 million. So far, I feel good about how Q4 is playing out. In summary, Q3 came in as expected and shows that we are doing what we said we would do. And the future looks bright as we continue to see solid growth in the IoT Connectivity business and an IoT market that remains very large with plenty of room for growth over both the near and longer-term. We have great customers, are attracting new ones, and have a differentiated product offering that operates at scale. So I like where we are. Before we open the call to Q&A, I also want to thank the KORE team around the globe for the hard work and commitment they have shown through this year of transition. We have been working hard and it is good to see the engagement and traction we are gaining together. Thank you, and I look forward to your questions.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Lance Vitanza from TD Cowen. Your line is now live.

Thank you gentlemen. Ron, my impression is that relative to, let's say, a year ago, the Solutions business has been significantly deemphasized relative to Connectivity. Could you talk about how the strategy has changed and this pivot away from Solutions, why that's important, and what that suggests for the growth outlook going forward? And then I have a follow-up, please.

Sure. Thanks, Lance. I guess the way to look at it is, I think the -- I wouldn't say Solutions is deemphasized. I think prior commitments around low-margin hardware was certainly -- we've certainly moved away from. And I also think pricing and margin is a priority for us. So I would say that outside of moving away from some lower margin hardware or where there was minimal Connectivity contribution, we are still very focused on solutions. As I commented earlier, to me, Solutions can drive Connectivity revenue for those that, that's a part of the solution. So I wouldn't say that we're deemphasizing on it but maybe deemphasizing from low-margin hardware that didn't really contribute much to Connectivity.

Fair enough. And then maybe for Paul on the balance sheet. I'm not seeing the Q out yet or any balance sheet info in the release, but I'm guessing you have about $18 million of cash on hand. Could you talk a little bit about liquidity, the $25 million revolver? Do you have full access to that? Are there any borrowing base or covenant restrictions that could come into play? And just more generally, do you -- how do you feel about the liquidity picture over the next 12 months? And then on the debt load itself, you have about -- my model is $470 million, including the preferreds which are [PIK-ing] (ph) at around 13%. And it just feels out of proportion for a company with $55 million of EBITDA. So I'm wondering if there are any conversations with stakeholders around a restructuring of the debt or the preferreds? Or is it just sort of like hey, no, we think that we can reposition the company for accelerating growth and we're going to grow into this balance sheet. And just any sort of thoughts that you have on those topics, please.

Hi, thanks, Lance. So first, in particular as we had talked about or mentioned on here that cash flow is going to improve significantly. So going into next year, we will see a nice improvement in the free cash flow, which will help lead into the balance sheet as you indicate. I'm not going to lie to say that we don't have a lot of debt on the balance sheet. As you know, we are and we're continuing to look at options, if there is refinancing available, especially now with rates starting to come down and those sort of things. The Q should be out so hopefully, you'll get a chance to see it. But we have $18.6 million on the balance sheet right now, and we are expecting positive free cash flow for next year, which will give us the option whether or not we use that to pay down the PIK as part of the preferred shares or use it for acquisitions or so forth. But the comfort level is much higher now with where we see things going to 2025.

Great. Thanks for taking the questions.

Thanks Lance.

[Operator Instructions] Our next question is coming from Meta Marshall from Morgan Stanley. Your line is now live.

Hi, this is Mary on for Meta. I just had a question on the macro trends that you're seeing. What have you seen in terms of like purchasing trends from customers? And what did trends like look like throughout the quarter? And is there any difference between verticals or types of customers that you are seeing?

Yes. Thanks Mary. In terms of macro trends, I mean I think for us, what we're finding is we're having -- we're seeing customers on a large-scale probably more RFP type situations for newer opportunities. I think that's probably one. I would say, I think, two, is people are also looking to optimize wherever they can, so with what they're spending, getting good value. And in terms of your question around verticals, I'm happy to tell you that the verticals that we're focusing on, we are seeing strong demand, which is obviously referenced in the TCV numbers. I think the growth in connections, I'd point you towards. That's definitely showing that where there's more connected devices on our network, the growth of those are increasing. So I know the macro landscape is a little cautious. For us, we're seeing healthy growth with new business and I would say strong growth with existing customers buying more. That's probably what I would say. But Paul, maybe if you have anything to add?

No, no. I think that the environment is -- it seems like it is improving to us. We are seeing customers come to think about transferring some of their business to us, consolidation and that sort of stuff. So the opportunities are there. It is just, again, the lead time to close them and so forth. But we're definitely seeing a robust opportunity pipeline.

Awesome. Thank you.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, everyone for joining today’s earnings call. We look forward to updating you on our progress with our year-end results in early 2025, and appreciate your time. And thank you, and have a good day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.