Rubicon Technologies Inc (RBT) 2022 Q3 法說會逐字稿

Good afternoon and welcome to Rubicon Technologies' third-quarter 2022 earnings call. My name is Josh and I'll be your operator for today's call. As a reminder, this conference is being recorded. (Operator instructions) It is now my pleasure to introduce Chris Spooner, Senior Vice President of Finance. You may begin your conference.

Thank you. Hello, everyone, and welcome to Rubicon's third-quarter 2022 earnings call. A few quick reminders before we start. Today's call is being webcast and can be accessed from the Investors section of our website, which can be found at www.rubicon.com. Today, we will be presenting Rubicon's financial results for the third quarter of 2022. This presentation will be followed by a Q&A 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 measures, can be found in our earnings release and our filings with the SEC.

To begin, I'm pleased to announce that effective November 4, 2022, Rubicon's Board of Directors has appointed Kevin Schubert as President of the company. Kevin has served as Rubicon's Chief Development Officer and Head of Investor Relations since August 2022. And he brings a wealth of finance, legal, and corporate development experience to his new role as President. Prior to Rubicon, Kevin has held senior executive and advisory roles with multiple public companies, including Red Rock Resorts, Inc.; the Las Vegas Sands Corp.; and he recently held the role of Chief Financial Officer for Ocean Park Group, an early-stage company focused on experiential hospitality.

In addition to Kevin, joining me on the call today, we have Phil Rodoni, Rubicon's CEO and Director; Jevan Anderson, the company's CFO; and myself. Phil Rodoni, Rubicon CEO, will begin the call today. For those new to our story, before becoming CEO last month, Phil has served for seven years as Rubicon's Chief Technology Officer, leading our technology innovation, product development, business intelligence, and research and development efforts for the company. With over two decades of experience in technology innovation and product development, Phil's a natural fit to lead Rubicon in its next stage of success and growth.

The appointments by Rubicon's Board of Phil to CEO and Kevin to President are key parts of our long-term strategic plan as a technology platform and hub for helping to eliminate global waste. With that, I will turn the call over to Phil.

Thank you, Chris. And thank you, everyone on the line, for joining us today for our first earnings call as a public company. For those who are new to our story, I will begin by taking a few minutes to describe Rubicon and the work we do with our customers and partners.

Rubicon was founded over a decade ago. And today, has become a global leader in providing cloud-based waste and recycling solutions to businesses and governments. We manage waste and recycling services for a network of waste generators, such as companies and cities, fleets of waste haulers, and waste and recycling processors. Our network comprises more than 8 million unique service locations and 8,000 haulers and waste and recycling processors. Rubicon not only enables the elimination of waste through removal and recycling, but also helps eliminate wasted time and money for waste generators through service rightsizing and commodity extraction.

Rubicon also helps eliminate waste for haulage by reducing mileage, wear and tear, and fuel usage through optimized routing. And we help reduce the number of contaminated loads delivered to waste and recycling processes. Rubicon is working to deliver these benefits through a suite of products and services available on our platform. So instead of investing capital in hard assets like trucks and landfills, we built and scaled a software platform that we license to our key constituents, including waste generators, fleets, and processors.

We believe that asset-light, software-based approach provides a fundamental advantage to Rubicon, allowing us the ability to efficiently and dynamically scale our core business while simultaneously monetizing our established network of customers and haulers. Rubicon's platform saves our waste generator customers time and money, instead of handling individual invoices for each of their service locations, we provide a single point of contact, a consolidated bill, and a procurement mechanism.

Instead of our customers manually compiling load, material, and location data, Rubicon helps provide consolidated and verifiable ESG reporting. Also, since we're not encumbered by a need to maximize tipping fees, we work with our customers to optimize pickup frequency, thereby helping reduce weight spend and fleet emissions. Beyond time and cost savings, the platform can help reduce our customers' environmental liability. We strive to unlock the value of the waste stream itself by employing proprietary artificial intelligence and machine learning to identify recycling opportunities.

For our fleet customers, Rubicon's platform can provide new business opportunities, many of which are exclusive to our platform. Our technology also provides fleet management and route optimization services. In addition, our fleet customers have access to a buying consortium where they can purchase things such as fuel, parts, tires, and insurance at discounts. These benefits can help fleet customers save money, which for our smaller independent haulers, can be meaningful. And for our city and municipal fleet customers, could result in taxpayer savings.

Lastly, our platform tracks hauler routes, material types, environmental conditions, and identifies contamination in the waste stream at the point of entry. We believe the ability to provide end-to-end traceability is a key to improving efficiencies, regulatory compliance, and the quality of materials delivered to processing facilities. All these services are provided through our intuitive software product experiences.

With this understanding of Rubicon services and platform, I want to take a moment to walk you through how Rubicon makes money. Our platform primarily generates revenue from the network via three sources: first, our service revenues are reflective of all the waste and recycling services that transact over our platform. We make a margin based on the difference between the price at which we sell our services to our waste generator customers, and the price for which we're able to procure those services from within our hauler network.

Secondly, Rubicon monetizes the commodities pulled from the waste and recycling streams for our customers, which otherwise may have ended up in a landfill. Through this process, we are able to earn higher margin derived from the unique value we add by turning previous costs into revenue and by adding predictability and quality of supply to processor volumes. We structure our agreements with waste generators and processors, such that we do not assume exposure to commodity price risks at the gross profit level. Further, our contracts typically feature incentives for achieving certain environmental outcomes to align our interests with our customers, so that as we drive positive environmental outcomes, our margins improve.

Finally, whether a customer is a waste generator or a fleet, Rubicon charges platform constituents a monthly software subscription fee for access to the platform. Before discussing Rubicon's strategy and plan for long-term growth, I will turn the call over to Jevan Anderson, our CFO, to provide some commercial highlights and a review of third-quarter results.

Thank you, Phil. I will begin by highlighting a few recent commercial announcements. Last week, Rubicon was proud to announce that we have signed a two-year contract extension and expansion with Walmart, which has been a flagship customer since 2013. Through this relationship, Rubicon plans to continue to help Walmart increase waste diversion from landfills and consolidate services across their portfolio of 70 distribution centers and more than 3,500 retail stores.

In September, Rubicon was recognized by Amazon Web Services or AWS, as having achieved a smart city competency. AWS is working to enable flexible, scalable, and cost-effective smart city solutions and establish the Competency Program to help customers identify service providers with deep industry experience and expertise. This designation recognizes Rubicon as an AWS Partner that helps its customers and the partner community build and deploy innovative smart city solutions. We are very honored to have been recognized by AWS for this distinction, and we are already approaching market opportunities together.

As announced earlier this year, Rubicon entered into a strategic data and technology partnership with Palantir Technologies, a software company that empowers organizations to integrate their data to enhance business decisions and improve operations. The partnership includes the development of new data collection and analysis tools, delivery of greater insights into waste recycling and sustainability performance for our corporate customers, smart city partners, and hauler network, and a joint go-to-market effort to commercialize new, advanced analytics capabilities.

Also, earlier this year, we were proud to announce that we expanded our RUBICONSmartCity product suite, to include enhanced technology that helps optimize snow removal for cities across the country. Using Rubicon's intuitive in-cab interface and desktop portal, cities can set priority streets, view all snow removal vehicles, provide digital turn-by-turn directions to drivers, and track route progress and completion. The software also delivers powerful, high density route creation and optimization. These features help cities and municipalities clear streets efficiently and effectively during snowstorms.

Turning now to our recent financial results. From the third quarter of 2022, Rubicon generated approximately $185 million of revenue. This was an increase of $36 million or 24%, compared to the third quarter of 2021, and an increase of approximately $20 million or 12%, compared sequentially to the second quarter of 2022. This strong result reflects continued revenue expansion within the company's existing customer base as well as the addition of new customers. Accordingly, our revenue net retention for the third quarter was 118%.

Adjusted gross profit in the third quarter was approximately $14 million, which was 19% higher compared to the third quarter of 2021 and 11% higher sequentially versus last quarter. This growth was primarily driven by an increase in services provided for both new and existing customers across business lines. Adjusted EBITDA for the third quarter was negative $21 million. Impacts from a software expense increase related to our license and strategic partnership agreement with Palantir, and additional operating expenses as we prepare to operate as a public company weighed on the results.

To address cash needs and increased working capital, we are currently in discussions with financing sources to potentially raise new equity and to recapitalize our debt prior to its maturity. In parallel, we are implementing additional measures to further reduce spending and extend cash availability, so there is no guarantee we will be able to successfully implement any or all of our current plans, these initiatives are expected to increase financial flexibility and push out debt maturities with the ultimate goal of realizing greater shareholder value by improving our financial position and future liquidity.

With that, I will turn the call back over to Phil.

Thank you, Jevan. We at Rubicon are very proud of our achievements to date, and we are excited to begin our journey as a publicly traded company. With a network of over 8 million unique service locations and 8,000 haulers and processors, we believe we have built the necessary scale to be an effective competitor within the industry. The scale and reach of our network enables us to provide a differentiated service within our markets. We have historically sought to grow and scale the business through different strategies, including offering lower margin-based products to clients with large nationwide footprints.

We also pursued strategies within business lines, which have not always yielded the highest returns. We believe these decisions were important in building and scaling the company to get it where it is now. As we move forward, our strategic priorities include a focus on accelerating the company's progress to profitability, investing in our leading digital marketplace and suite of products, and further developing the strategic vision and execution plan for Rubicon's next phase of growth. We will share additional details on our bridge to profitability plan in the coming quarters.

In the meantime, I will share the following: first, we are working thoughtfully and diligently to improve margins across our portfolio, including offering adjacent services with higher margin potential. For example, offering commodity opportunities such as pallets, hardboard, organics, and scrap metal to existing clients for the goal of increasing our share of wallet and tailoring our new offers towards more lucrative segments.

Second, we will continue to carefully examine and evaluate our portfolio and rationalize less profitable accounts to ensure we are deploying resources efficiently.

Third, as part of Rubicon's regular cost evaluation process, the company plans to increase focus on operational efficiencies and cost reduction measures across the organization. In addition, we plan to work toward rationalizing redundancies across the organization. We believe these redundancies have been the natural byproduct of our growth and expansion phase the past few years. We will continue to exercise strict capital discipline for future investments, requiring investments to meet minimum hurdle rates and be competitive across the high-graded portfolio as we strive to increase profit margins.

Lastly, we plan to implement additional measures to establish profitability at the core tenet of our strategy and corporate culture going forward at all levels of the organization. To put a finer point on this, going forward, we will raise the bar for new investments in growth, technology, and sustainable solutions, and curtail certain lower ROI investments. Accordingly, given our focus on achieving profitability, we anticipate decreasing annualized operating costs, substantially during the next year, as we focus on core operations within our three key product verticals.

In doing so, we believe we will meaningfully accelerate our progress to profitability. We believe Rubicon's industry-leading service experience for waste generators, fleets, and processors can position the company as a definitive platform for eliminating waste for years and years to come. We believe the steps we just outlined will help to increase shareholder value and attain more profitable growth over time. We look forward to providing additional details about the steps we are taking to achieve these goals, and we will provide updates 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 Instructions) Maria Ripps, Canaccord Genuity.

Great. Thanks so much for taking my questions and congrats on your first quarter as a public company. First, can you maybe just talk about how correlated would you say your business is to the strength of the consumer and sort of weakening macro environment? And during the times of tightening economic conditions, do you notice a material pullback in waste generation?

Thank you, Maria, for the question. So in terms of the current economic climate -- let me speak to a few things. So again, if folks are out there get concerned about our ability to protect our margins via inflation, I would point to a couple of things. One is -- landfill fees are typically regulated and we have ability to pass those through as non-controllable price increases to our customers. And -- there are other similar line items like that, like fuel surcharges and taxes and the like.

We also have contractual escalators built into our contracts, which we can erase prices based on CPI or PPI and things like that. So I think we can adequately control prices though there may be a little bit of a lag relative to how quickly we can impose those price increases. But again, there's no recent risk that we actually have found on relative to the current microclimate.

Now the second part of your question, I think in terms of have we seen any meaningful drop-off in volumes, or anything like within our -- customer base, and no, we haven't seen anything on that side. So I think we're certainly doing a lot on that front.

Got it. Thank you. That's very helpful. And could you maybe talk a little bit about your M&A pipeline and how has that progressed relative to your expectations? And have you seen any elongation of deal cycle or decreased propensity from independent holders to sell, given maybe a lower valuation?

And again, thank you for the question on. So in terms of -- let me speak first. Our current management focus is certainly on strengthening our margins in our organic business, and that's first and foremost on our minds and it can accelerate that path to profitability. That said, we will continue -- we'll certainly continue to pursue a balanced approach with our growth, whether that be opportunistic, if you will, as it comes to M&A activity. If there's a deal that's available to us that we like, we'll certainly going to pursue it -- we'll certainly pursue it.

But again, I think our focus is going to be on profitability in the near term. We have seen -- we have a robust pipeline from an M&A perspective and -- we continue to evaluate deals as they come across our desk.

Great. Thanks so much for the color.

Stephanie Moore, Jefferies.

Hi, good afternoon. (technical difficulty) to touch on just the adjusted EBITDA performance for the quarter, I'm wanting to dig in a little bit on what were the one-time quarter specific events and the impact there and what we should expect going forward? Just on the software license increase, any other additional operating expenses? And then as a follow-up to that, would love to get your thoughts on this approach to profitability and making up a new priority right now. What are going to be the key drivers, near-term, that we should be looking for? Thanks.

Yeah, no problem. This is Kevin. I'll take the first part and then I'll let Phil take the second part. With respect to EBITDA, yeah, there was obviously some product development expenses. And then most of the other stuff was really transactional related, related to becoming a public company, and some of the overhang there. But I will say, yeah, the focus, and frankly, this ties into the second part of your question, is the focus really is on profitability. And frankly, we're not putting it in place. We've already started doing this. We're already pushing a number of initiatives forward across the organization that are going to meaningfully increase our profitability, increase our EBITDA. So yeah, we would expect that to change significantly as we go forward. And I'll let Phil speak more about the plan.

Yeah. No, thank you. And we outlined some of this in our spoken comments. But again, I think our approach to profitability is wide-ranging, but specifically targeted towards certain areas. And -- again, as Kevin mentioned, we're already well underway on some of them. But certain categories, I would say, certainly making sure that we expand our margins and that has -- there's two parts of that. One is certainly making sure that we have price increases to our customers where appropriate. And the second part of that is making sure that we control all our costs, right? So think of that as margin improvement.

The second part of that is about another category of controlling the broad employee-related expenses and things of that and the redundancies that we may have. And we'll certainly be focusing our attention there and to make sure we are as efficient as we can be.

The third part is actually really just taking a line-item view of every single expense that comes across the board and making sure that we can knock those expenses down as appropriate. And then again, we've made significant headway on those already today. So I think generally speaking, those are -- any company is going to look at those three broad areas and we're certainly making good headway on all three.

Absolutely. And then continuing on just the focus on profitability, but in parallel, looking to invest in your current product suite. So maybe you can talk about how you're balancing the two and what we should expect forward in terms of product investments.

No, that's a great question. So I think, a couple of things: one, that's not typically the area we're going to be taking any significant decreases on the product development expense. What we do there, typically, is we actually want to invest in our products and our tools because that allows us to be that much more efficient. Okay? A lot of the automation that we've built in, a lot of the software and services that we give to our clients, improve the margins.

Number one, because they pay for those additional features and capabilities. And the operational efficiencies that we get by releasing some of the features that we actually have. And from a back-office standpoint as well as a front-office standpoint, really allows us to be a very efficient player in the marketplace. So that's not something we're going to shy away from. We'll continue to make the investments there. And again, I think that is part of our strategy overall to make those investments so that we can become more profitable going forward.

Yeah, I would just add that the nice thing is we've made a lot of those investments already. So I think the majority of that is now reaping the benefits of those investments that we've already made.

And I would say the other thing too when we talk -- we -- certainly if you talk about our SaaS-based products, those are really the ones that have a significantly higher margin. So as we continue to roll out features, continue to have success in selling those products and services, you'll see that reflect in the bottom-line.

Great. Thank you so much.

Brett Knoblauch, Cantor Fitzgerald.

Hi, guys. Thanks for taking my questions; a couple on my end. Maybe if we could start with net revenue margin or I guess adjusted gross profit margin, which was down year over year. I know you guys originally targeted that to reach close to double digits in fiscal year '22. Could you maybe just speak to why we haven't been able to drive that margin expansion on the adjusted gross profit lever yet? And then also, on recyclable commodity, that was flat year over year, and I think your higher margin business. What are you doing to accelerate growth there?

Sure. This is Jevan. On the adjusted gross profit margins, we had some -- very significant launch with a new customer that required a lot of onboarding. And obviously, that required us to put a fair amount of working capital into the system, if you will. And there were some one-time expenses from launching that particular client. We'll recoup some of that down the line, but it does require a fair amount of investment upfront and that's just the nature of launching a significant new customer.

From an inflationary standpoint, as Phil referenced earlier, we could pass on a lot of -- the one-time costs, fuel surcharges, and things of that sort. But there's usually a lag, so we felt a little bit of that from the inflationary environment. Again, we'll catch up with that down the line. And also, we've put some investments in technology that will also remove a fair amount of our onboarding expenses down the road. So there were some upfront investment in that. But we'll, again, recoup that longer term.

And then I would just add. Obviously, given what we've talked about, we do expect to see margin enhancement as we go forward with the profit enhancement plan and everything we're doing on that front. So I think given what Jevan just explained, that expansion that you were describing that we were expecting to see is slightly delayed, but we still do expect it to come.

Got it. And then maybe (multiple speakers) an update on -- maybe just an update on your guys. I guess, cash position and total liquidity. You guys ended the quarters $4.5 million of cash. I guess on the liability side, accrued expenses almost doubled. But I guess -- what is your available liquidity? I know you guys have a line of credit that you can draw more down of, but how should we think about your liquidity position going forward?

Yeah. Obviously, we have a lot of credit that we're able to tap into. We aren't able to provide specifics of availability of that, but we have sufficient [debt] availability there to get us through a bit -- right now, we're short on the cash front, but we have a little flexibility there. Additionally, we're -- as we talked about on the call, on the prepared remarks, we're in the midst of talking to folks, financing sources on the equity, and on the debt side to restructure the debt as well as bring in some additional equity to provide us some additional liquidity here.

So -- I'm sorry, I guess in terms of maybe total liquidity or capacity, do you guys have a number there that I feel like would be a bit helpful?

Yeah. We got -- we had a line that's about $60 million. And I'd say on just a little more than half of that is drawn. So we've got a fair amount of availability left in that line of credit.

Perfect. Understood. And then maybe just one more broad question. I guess in response to the snowplow, I guess, addition and the smart city solution, what are you seeing from a demand front for that product in particular?

Yeah. So actually, last quarter was our best quarter ever. We're certainly accelerating the pace of new deals coming in. So again, what we're seeing is that business is dramatically expanding, and we expect that to continue on. So we're very excited about that. And again, strategically, that's exactly where we anticipated, and that's exactly where we want to be going forward. So it's been a very positive surprise for us. Or not a surprise but it's a very positive outcome for us.

Got it. Understood. Thanks, guys, really appreciate it.

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

Well, appreciate everybody's time today and thank you for listening to us. And again, we're very much looking forward to speaking with you again next quarter. Thanks all.

This concludes today's conference call. You may now disconnect.