Kaleyra, Inc. (NYSE:KLR) Q4 2022 Results Conference Call February 15, 2023 4:30 PM ET
Company Participants
Dario Calogero – Founder and CEO
Giacomo Dall’Aglio – CFO
Colin Gillis – VP, IR
Conference Call Participants
Mike Latimore – Northland Capital Markets
George Sutton – Craig-Hallum
Operator
Good afternoon. Welcome to Kaleyra’s Fourth Quarter and Full Year 2022 Earnings Conference Call.
After the market close, Kaleyra released unaudited results for the fourth quarter and full year ended on December 31, 2022. 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. [Operator Instructions]
Joining us today are Kaleyra’s Founder and Chief Executive Officer, Dario Calogero, Chief Financial Officer, Giacomo Dall’Aglio and VP of Investor Relations, Colin Gillis. Following their remarks, we will open the call for your questions.
I would now like to turn the call over to Kaleyra’s Vice President and Investor Relations, Colin Gillis. Sir, please proceed.
Colin Gillis
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 annual report on the Form 10-K for a summary of the forward-looking statements and 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 generally accepted accounting principles. 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 fourth quarter. Dario?
Dario Calogero
Thank you, Colin, and thank you to everyone for joining us here today.
Our fourth quarter started the next phase of forward momentum for Kaleyra, with revenue exceeding the upper end of our guidance range as we build on our existing customer base, developing new valuable enterprise partners and gain success [layer in] higher-margin communication channels.
The fourth quarter was highlighted by record revenue of $93.7 million, an increase compared to the $90 million in the year ago period. When adjusted for fourth quarter 2021 foreign exchange, the quarterly revenue would have been $97.7 million. Fourth quarter revenue showed a healthy seasonality with over a 10% sequential increase when compared to the third quarter of 2022. Results for the fourth quarter also exceeded the stated guidance range of $86 million to $90 million.
Full year 2022 revenue marked a record year, increasing 26.7% to $339.2 million from $267.7 million in the comparable year ago period or 32% to $353.3 million when using fiscal year 2021 foreign exchange rates. Full year and quarterly record revenue was driven by growth with existing customers, ramping volume with new customers and the cost and focus on the enterprise businesses that deliver a large amount of volume of communication.
As we discussed previously, at Kaleyra, part of the way we measure success is with the following key operating metrics: one, billable messages; two, voice calls; and third, dollar-based net expansion. For the fourth quarter, we delivered 12 billion billable messages connected over 2.2 billion voice calls and the dollar-based net expansion rate was 98.1%. But looking at Kaleyra’s top 30 customers, our dollar-based net expansion rate was 139% in the quarter.
In 2022, our technology managed 51.5 billion messages and 8.1 billion voice calls, utilizing our relationship with over 1,600 telecom operators including all Tier 1 U.S. carriers directly connected. When we discussed that Kaleyra is a global business with scale, the 51.5 billion messages delivered in 2022 is over 5 million messages delivered per hour for every single hour of the year.
As it relates to margin expansion in order to change sales mix with products with higher profitability, we identified 3 different strategic initiatives to help our customers in delivering safe, effective and efficient communication, focus on global enterprises, focus on global connectivity and focus on intelligent CPaaS new products.
During the fourth quarter, we managed to make significant progress on all the 3 initiatives. We announced a strategic partnerships with global enterprises like Amazon and Oracle and with telecom operators in key markets like PLDT in the Philippines and Claro in Central America. We’ve also achieved significant growth in our Registry business with the Campaign Registry and we acquired new customers for Kaleyra Video, like Flowe in Italy, and we launched new products such as Chatbot that will help our customers in developing conversational capabilities across all the communication channels.
While we are positive on the quarterly results, we are also aware of the uncertain economic environment facing global companies in 2023, including Kaleyra. The management team has created a value creation program that started in January and is focused on reducing cost to invest in the 3 strategic programs that could drive business a tighter margin. Our Chief Financial Officer, will have more comments on the program shortly.
To finish this portion of the call, it has been 2 decades since Kaleyra has been section, and I’m very proud of how far we as a company have come. From a start-up to our current status as a global leader. I look forward to continuing to be part of the bright future I know is ahead.
With that, I will now turn the call back over to Colin.
Colin Gillis
Thank you, Dario. Brands want to communicate with their customers and are going to use multiple channels to do so. We are a Communication Platform as a Service. As our customers’ needs change, we change with them in the most cost-effective manner, giving our unique 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.
Regardless of the economic environment, this industry is expected to grow but it’s hard to judge the long-term growth curve as we take into consideration economics across the globe. Giacomo is going to run through the financials in detail. But before he does, I’m going to address our first quarter expectations.
We remain focused on delivering on our promises throughout the year. We expect the company to grow revenue in 2023 when compare it to 2022 but the exact rate for the full year is difficult to forecast at this time. Therefore, we’re giving specific guidance one quarter at a time for the near future. With that, we expect first quarter revenue to be in the range of $77 million to $81 million compared to $80.5 million in the first quarter of 2022.
Before I turn the call over to Giacomo, I also wanted to touch on the December ’22 Board enhancements. As previously announced, the company added 2 new independent Board members: Kathy Miller and Karin-Joyce Tjon. Both Kathy and KJ bring extensive experience in previous leadership roles, including CFO, Chief Operating Officers; as well as skills and corporate finance, accounting, financial planning and analysis, treasury, regulatory filings, tax, procurement and investor relations. We are very fortunate to have their experience and we welcome both to the Kaleyra Board.
I’ll now turn the call over to Giacomo to detail our financial results.
Giacomo Dall’Aglio
Thank you, Colin. I will now run through our financial results in greater detail.
As Dario noted, our total revenue in the fourth quarter was $93.7 million, an increase of $3.7 million versus $90 million in the comparable year ago period and again, above the previous provided projections. The fourth quarter and the full year were both record for revenue. We have a global revenue footprint and a well-balanced portfolio across geographies and sectors. Further supporting this revenue or the customer base with virtually zero churn within our top 10 customers, which account 43.3% of revenues during the fourth quarter.
Gross profit for the full year was $70.1 million at 21.9% increase when we compare to $57.5 million for 2021. For the fourth quarter, gross profit was $17 million compared to $21.1 million in the comparable year ago period. Gross margin for the fourth quarter of 2022 was 18.2% compared to 23.5% of the fourth quarter of 2021. Q4 net losses totaled $57.8 million or $1.28 per share based on 45.2 million weighted average shares outstanding compared to a net loss of $7.3 million or $0.17 per share based on 41.9 million weighted average shares outstanding in the comparable year ago period.
Net loss includes an impairment loss of intangible assets of $49.4 million. For the full year, net loss totaled $98.5 million or $2.25 per share based on 43.9 million weighted average shares outstanding compared to a net loss of $34 million or $0.92 per share based on 37 million weighted average shares outstanding in the comparable year ago period.
Adjusted gross profit, a non-GAAP measure of operating performance reported $90 million in the fourth quarter compared to $22.8 million in the fourth quarter prior year and increasing $1 million from the third quarter 2022. Adjusted gross margin for the fourth quarter of 2022 was 20.3% compared to 25.3% in the comparable year ago period.
For the full year, adjusted gross profit increased 24.9% to $76.6 million from $61.4 million for the full year 2021. Adjusted gross margin was 22.6% versus 2021 adjusted gross margin of 22.9%. Adjusted net income and non-GAAP measure of operating performance in the fourth quarter was a loss of $4.4 million or $0.10 per basic and diluted share based on 45.2 million weighted average shares outstanding compared to $3.9 million or $0.09 and $0.08 per basic and diluted share based on 41.9 million and 51.9 million weighted average share outstanding, respectively, in the comparable year-ago period.
For the full year, adjusted net loss was $1.2 million or $0.03 per basic and diluted share based on 43.9 million weighted average shares outstanding compared to a net income of $6.1 million or $0.16 per basic and $0.13 per diluted shares based on 37 million and 48.1 million weighted average shares outstanding, respectively, in the comparable year-ago period.
Lastly, adjusted EBITDA a measurement of operating performance was $2.5 million compared to $9.6 million in the fourth quarter of 2021. For the year, adjusted EBITDA was $18.7 million versus $18.6 million in the full year 2021. At the end of the fourth quarter, cash, cash equivalents, restricted cash and short-term investment were $78.6 million compared to $97.9 million as of December 31, 2021 or $82.2 million when using 2021 year and foreign exchange rates.
The company has also announced the beginning of its 2023 restructuring and cost reduction program. The program is designed to position in 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 that are available to Kaleyra from its geographical scale.
The program seeks to achieve the following goals: one, adjusted EBITDA to exceed 20% growth in 2023 compared to 2022, with additional growth in 2024; two, organization streamline aim to reduce monthly cash payroll cost by more than 15% in 2023; three, increasing net cash provided by operating activities by 2023 year-end compared to 2022; fourth, continued focus on R&D investment to always provide high-quality service standards and offer new products to our customers.
This completes my financial summary. I’d now like to turn the call back over to Dario for his closing remarks.
Dario Calogero
Thank you, Giacomo. In summary, we are pleased with the record top line results we achieved during the fourth quarter and full year. To the broader global economic landscape continues to provoke uncertainty, Kaleyra provides the needed suite of products to its customers, by focusing and 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.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from Mike Latimore with Northland Capital Markets.
Mike Latimore
Great. Thank you. Yes. Congrats on the strong revenue growth from the cost controls look very logical there. I guess on the top 30 customer net dollar base expansion rate of 139%, can you give a little bit more color on that? Are these customers seeing growth in their current applications? Or are they launching new ones? Or is it more channels coming on board? What’s driving kind of the top 30 in [D&E]?
Dario Calogero
Mike, this is Dario. I’ll take this question. Well, the key driver for the next dollar expansion rate is the increase in volume and revenues per customer for existing incumbent customers. We are still experiencing a very significant growth in most of our customers and that’s the key driver. Obviously, also upselling new channels is part of this, but it’s not really much affecting the top line. It’s more affecting the mix of product is not affecting the — the gross profit, I would say.
Mike Latimore
Okay. And Dario, last quarter, you talked about sales cycles elongating a little bit. Any notable change this quarter? Did they elongate more or improve? Or what’s the general view on that?
Dario Calogero
Well, frankly speaking, the demand seems to be still a little bit waiting on decision-making processes because of the uncertainty mainly. We experienced, overall, I would say, a slowdown in the demand, which is not very much related to the lack of being for these kind of services for the enterprises but more for the assets to those enterprises is flowing now investment in innovation in their digital transformation processes. So nothing has really changed.
And even though I feel pressure, on the business, and they feel that there is still a significant space for growth going forward, depending on the overall macro scenario that we are experiencing in this weird period.
Mike Latimore
Yes. I guess just last one. The R&D cost was down sequentially quite a bit. Is that — was there a onetime benefit there? Or how should we think about that?
Dario Calogero
Well, I’m not sure at the question.
Mike Latimore
Just the R&D cost, I think it was $2.8 million versus $5.2 million in the prior quarter. Is there a onetime benefit in there or something?
Dario Calogero
I’ll leave this question to Giacomo. Giacomo?
Giacomo Dall’Aglio
Sorry, sorry. I was talking on mute. One is the onetime benefit. And the second is the capitalization. So you have to see R&D not only in the line on expenses, but also consider the capitalization that we have improved this year compared to last year.
Operator
[Operator Instructions] The next question comes from George Sutton with Craig-Hallum.
George Sutton
So I wanted to clarify the 2 numbers that you gave for dollar-based net expansion. You mentioned your top customers were 139%. Your overall customer base was 98%. My assumption is you’re taking the Brazil customer out of the base. That’s what gets you that higher number indicative of strength across the rest of the top customer base? Is that why you gave those 2 numbers the way you did?
Dario Calogero
Well, clearly into top 30 customers, not the top 50. This is important. And then I’ll leave to Giacomo to answer because there is some.
Giacomo Dall’Aglio
You’re correct. In the top 30 customer, Brazil is not any more present. And also, there is an effect of FX in some customers that we have in Europe in particular compared to last year.
George Sutton
Got you. Okay. One other thing Colin mentioned that you have — you’re really working off of a global macro challenge. You want to be the single source for global needs from customers. Can you just help us how that message is resonating? Are you finding customers coming to you as a single source, sizable companies coming to you as a single source? Are they still very aggressively looking at each market opportunity distinctly.
Dario Calogero
Well, I’ll take this one. In general, large accounts, all of them are going through a vendor consolidation process because since the messaging space is extremely fragmented on different geographies, in last year, you had maybe 15 to 25 vendors to sell the same service, but we show the geographies, if you are a global service provider like most of the U.S. large companies, especially digital bank or the software established one.
Single sourcing is typically in some specific industries, especially in banking and financial services because it is a very significant piece of integration of software, middleware. So switching vendor implies also to run a very significant migration project that is somehow cumbersome.
But I would say, as long as the sector, the market is getting into the maturity phase, there’s more rationalization of the partnership entangled with. So many customers that were using 15 or 20 providers in the last years. Now they are consolidating on 3 to 5. And we obviously ran to be one of these 3 to 5 because we tend to provide high-quality services, especially towards the route where we have zero one-off interconnection and we are best of breed in terms of quality.
Operator
At this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Calogero for his closing remarks.
Dario Calogero
So thank you very much, operator. Thank you, you all for joining us on today’s call. 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 will 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 Fourth Quarter and Full Year 2022 Earnings Conference Call. You may now disconnect.
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