Rubicon Technologies Inc (RBT) 2022 Q4 法說會逐字稿

Good afternoon and welcome to Rubicon Technology's fourth-quarter and full-year 2022 earnings call. My name is Emma and I'll be your operator for today's call. As a reminder, this conference call is being recorded. (Operator Instructions)

It is now my pleasure to introduce Chris Spooner, Senior Vice President of Finance. You may begin.

Thank you. Hello, everyone, and welcome to Rubicon's fourth-quarter and full-year 2022 earnings call. A few quick reminders before we start. Today's call is being webcast and can be accessed from the Investor section of our website, which can be found at www.rubicon.com. Today, we will present Rubicon's financial results for the fourth quarter and full year of 2022. This 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 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 now like to turn the call over to Phil.

Thank you, Chris, and thank you to everyone for joining us today. 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 has grown today to be 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. Rubicon provides innovative solutions that deliver greater transparency, efficiency, and customer engagement within the waste management industry.

Prior to Rubicon, businesses had to coordinate with multiple vendors, most of which focused on the use of landfills and had little to no reporting capabilities. This made it virtually impossible to have a unified corporate diversion program or unified commodities management processes.

Furthermore, there was no way to track or report landfill diversion environmental, social, and governance metrics. Today, Rubicon solutions address these problems through a suite of transformative artificial intelligence and computer vision technology products which deliver better service management, data, analytics, and reporting.

Through their partnership with Rubicon, customers can easily procure services, optimize their service schedule, and easily monitor and report their ESG performance. This approach has allowed Rubicon to achieve significant scale, today surpassing over 10 million unique service locations and 8,000 hauler and recycler partners, with the ability to manage over 160 types of waste streams. As our network continues to grow, our customers benefit from better pricing, broader offering and diversion capabilities, and improved service performance.

For businesses that generate waste, we properly align incentives and provide an expanding array of solutions that enable businesses to divert more material from landfill, and in some cases, turn what was a cost line into a revenue-generating opportunity through commodity extractions. Our fleet customers can use the Rubicon platform to find new business opportunities, many of which are exclusive to our proprietary platform.

Our technology also provides easy-to-use fleet management and route optimization services, as well as a buying consortium where fleets can purchase products and services such as fuel, parts, tires, and insurance at discounts. These benefits can help fleet customers save time and money, and for our city and municipal fleet customers, have resulted in taxpayer savings.

In fact, our solution for municipal fleets, RUBICONSmartCity, is one of our fastest-growing products. Our proprietary technology helps cities run faster, smarter, and more effective waste recycling and heavy-duty municipal fleet operations. Our software not only helps drivers become more time efficient with their routes, it also captures and sends information back to city employees, which can improve response times for issues like block bins, missed pickups, recycling contamination, and illegal dumping.

All of this can lead to increased citizen satisfaction, lower carbon operations, improved driver safety and morale, and substantial cost savings for municipal operators. With this understanding of Rubicon's 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 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. As we drive hauler density within markets, and as we leverage our technology to optimize service levels for waste generators, Rubicon's marketplace margins improve.

Secondly, Rubicon monetizes the commodities pulled from the waste and recycling streams for our customers, which otherwise may have ended up in the landfill. Through this process, we are able to earn higher margins derived from providing unique value to our customers by turning previous costs into revenue, and by adding predictability and quality of supply to processor volumes.

It is worth noting that we structure our agreements with waste generators and processors such that we do not assume exposure to commodity price risk at the adjusted 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 fleet, Rubicon charges constituents a monthly software subscription fee for access to our proprietary platform. We at Rubicon are very proud of our achievements to date, so I would now like to take a few minutes to review a few of our accomplishments and commercial milestones from the fourth quarter.

The first of these was the extension of a multi-year agreement with Walmart, enabling Rubicon to continue to increase the retail corporation's waste diversion from landfills, as well as the consolidation of its waste and recycling services, and the enhancement of account management for Walmart's distribution centers and retail stores. Amidst this renewal, Rubicon was able to improve its adjusted gross profit margins, add new recycled material streams to its program, and subsequently expanded its wallet share by adding five new states.

In addition, Rubicon secured a three-year extension with Sweetgreen, the mission-driven restaurant brand, which seeks to serve healthy food at scale. Our partnership is enabling Rubicon to continue to expand the company's waste diversion efforts and provide enhanced account management as Sweetgreen's lead partner for waste, recycling, and composting services. We also continue to see increased momentum for within our higher-margin SaaS product lines.

Specifically, we are proud to announce that RUBICONSmartCity experienced a record quarter with the addition of 11 new customers in Q4, with new contracts that included the cities of Rochester, New York, Manchester, New Hampshire, Surprise, Arizona, and Rockville, Maryland. These cities chose RUBICONSmartCity to help them save money and run more efficient solid waste collection operations.

In addition, we are proud to report that 2023 is off to a strong start as well. In February, Rubicon was pleased to announce the formation of a multi-year channel sales partnership agreement with Bartec, a leading supplier of environmental and service management software in the United Kingdom.

Under this non-exclusive retailer agreement, Bartec is able to license Rubicon's suite of innovative software-based products to cities and counties across the United Kingdom, with a focus on Rubicon's market-leading route optimization and sequencing technology. Through partnerships with regional channel leaders such as Bartec, Rubicon is continuing to build on its existing footprint in new markets around the world, achieving further progress in the company's global expansion strategy.

Before turning the call over to Kevin to provide a review of the fourth-quarter and full-year results, I would like to take a moment to acknowledge our recent management changes. The Rubicon Board and I were pleased to announce in February that our President, Kevin Schubert, will also now serve as Chief Financial Officer.

Kevin took over for Jevan Anderson, who joined Rubicon in late 2021. Jevan was instrumental in leading Rubicon through the process of going public and in preparing the necessary financial framework and functions to support the company during the transition period. Jevan will be missed as he moves on to pursue other opportunities.

Kevin has already assumed responsibility for the company's financial operations and management and is making great strides in helping Rubicon accelerate the achievement of the strategic goals we laid out during our last earnings call, and in helping direct the course of our future targets. Rubicon has a strong leadership team and is well-positioned for success in its next phase of public life.

I will now turn the call over to Kevin to provide a review of the fourth-quarter and full-year results, as well as a financial update and 2023 outlook.

Thanks, Phil. I continue to be excited to serve as part of Rubicon's management team at such a dynamic time in the company's history, and I truly appreciate the warm introduction. I'll now take a few minutes to review our fourth-quarter and full-year 2022 results, beginning with the fourth quarter.

Rubicon generated approximately $166 million of revenue in the fourth quarter. This was an increase of $3 million, or 2%, compared to the fourth quarter of 2021. Revenue for the fourth quarter of 2022 was negatively impacted by approximately $14 million as a result of commodity price headway. Adjusted gross profit in the fourth quarter was approximately $13 million, which was 1% lower compared to the fourth quarter of 2021.

Adjusted gross profit for the quarter was negatively impacted by approximately $2.1 million of one-time customer expenses, which in part helped enable negotiate price increases and margin optimization initiatives that have collectively resulted in over $16 million of annualized adjusted gross profit improvement already for 2023.

Adjusted EBITDA for the fourth quarter was negative $18 million. Adjusted EBITDA still includes expenses associated with the company's business combination and strategic shift, including advisory fees, employee severance, and executive transition expenses. We expect the negative impact of these expenses to be complete in the coming quarters.

Turning now to our full-year results. The company generated approximately $675 million of revenue in 2022. This was an increase of $92 million, or 16% higher compared to the full year of 2021, evidencing our substantial core volume growth despite a sharp decline in recyclable commodity prices. Adjusted gross profit for the full year of 2022 was approximately $53 million, which was $6 million, or 14% higher compared to the full year of 2021.

This increase was primarily driven by increases in our commodities and SaaS businesses. We continue to see momentum and strength in our SaaS products and expect growth in this part of our business to continue to outpace that of our core marketplace business in the coming quarters.

Adjusted EBITDA for the full year of 2022 was negative $74 million. Full-year adjusted EBITDA was impacted by expenses resulting from the business combination and strategic shift, as well as a software expense increase related to our license and strategic partnership agreement with Palantir. As you may recall from last quarter's earnings call, we have been working diligently to drive profitability, increase liquidity, and ensure financial flexibility for the company, as well as to extend out the maturities of our current debt.

We are pleased to announce that we have made significant headway for each of these items. Since our last call, we have raised over $39 million of net funded capital and successfully extended out a number of our debt maturities, with the earliest maturities now not due until the end of this year. As part of this process, we are also able to fully refinance and upsize our revolver, which now does not mature until 2025.

As a result, we had approximately $32 million of available liquidity on our balance sheet as of the end of February. The remaining tasks we seek to accomplish is the recapitalization of our term loan, which matures at the end of this year. While there is no guarantee we will be able to successfully close refinancing, we are in the middle of discussions to obtain this goal and expect to have an update for you on our next call.

Finally, we wanted to be able to provide some guidance for 2023, which underlines our confidence in the progress we have made to date and our belief in the strength of the business. We expect full-year revenue to be within the $700 million to $750 million range and adjusted gross profit to be approximately $70 million to $80 million. As a result of this, we expect to drive our adjusted gross profit margin above 10% by year-end.

Furthermore, we expect to generate positive adjusted EBITDA for the fourth quarter of this year, as well as for the full year of 2024. I would also note that these forecasts exclude the impact of any potential future M&A activities. We will now give you an update on the key strategies we are implementing to achieve these projections.

Thank you, Kevin. We continue to believe Rubicon's industry-leading service experience for waste generators, fleets, and processors is strategically well-positioned as the definitive platform for eliminating waste in years to come. We have been thoughtfully and diligently executing our Bridge to Profitability plan, seeking to increase financial flexibility, curtail lower ROI investments, achieve cost reductions, and increase profitability.

I am pleased to report that we have made substantial progress and are already observing margin expansion across the portfolio due to these efforts. We have achieved this early success through a number of focus actions. The first of these has been to improve our margins, where we have already observed early success. This is being achieved through the implementation of actions such as increased sales of our higher-margin SaaS products, such as RUBICONSmartCity.

In addition, where appropriate, we are increasing the prices of select services in line with the broader waste industry, while still driving superior economic outcomes for our waste generator customers through service optimization and revenue-generating recycling programs. We have been successful in securing volume-based rebates amongst key haulers, and we have also been thoughtfully high-grading our portfolio to remove underperforming accounts, which previously compressed margins and hurt our bottom line.

As I mentioned, we have already observed success through these measures, and I look forward to sharing additional progress in the future. The second focus action we have been working on to improve profitability has been to streamline the costs associated with servicing our accounts by standardizing our service model and increasing the level of automation and integration with our customers and their work order systems. This, coupled with outsourcing of select back office functions, has enabled us to increase efficiencies and reduce overall service headcount.

And third, Rubicon has made material progress in reducing our non-service-related SG&A expenses across the company, which has resulted in annualized cost reduction of over $12 million. The actions we have taken to achieve this have included efficiency improvements and select payroll expense and non-payroll expense reductions, such as cutting excess software and third-party services, rationalizing legal expenses post-transaction, and centralizing licensing and procurement processes.

We will continue implementing these efficiency improvements as well as additional ones. Since implementing our Bridge to Profitability plan, these efforts have significantly reduced our capital intensity, and we forecast our March adjusted EBITDA loss to be approximately $3 million to $3.5 million, a reduction of around 50% compared to the approximate $7.25 million observed in the third quarter. To put a finer point on this progress, in just the six months since we introduced our Bridge to Profitability Plan in October, Rubicon has improved its profitability by approximately $50 million on an annualized adjusted EBITDA basis, while continuing to scale quickly in attractive verticals.

Supported by the progress we have made to date, we are confident in our ability to say that we fully expect to achieve positive adjusted EBITDA for the fourth quarter of this year, while expanding our adjusted gross profit margins to within the low double-digit range. Building on this progress to date, we remain intently focused on executing our goals and are confident in our ability to be cashflow positive this year, ahead of current analyst expectations.

However, our work doesn't stop once we become profitable. What continues to excite me about the business and our future prospects are the opportunities that lie ahead. We've invested in scaling our business, and today we work with over 8,000 haulers, service over 10 million unique service locations, and by the end of March, we will be analyzing over 1 million images per day for insights related to municipal waste streams and infrastructure.

As a result of this, we are well-positioned to begin taking advantage of our platform scale. Think of this scale as a built-in book of business with established relationships of partners and customers, which we can utilize to sell additional products and services.

We expect to be able to increase our share of wallet amongst our current waste generator customers and increase margins by offering solutions for the more than 160 different material types handled on the platform already today, the vast majority of which have a better margin profile than municipal solid waste service. The investment in our platform provides additional opportunities to expand our SaaS-based solutions.

As mentioned, our high-margin SmartCity business has doubled year over year, and we expect that growth to continue. As a reminder, this growth has been achieved by selling primarily within the US market to municipalities that manage their own fleets. In the past, we have purposely constrained ourselves while we focused on building sales channels, building international support capabilities, and developing functionality for commercial fleets, including billing and invoicing.

Even with these constraints, last year we were able to double our SaaS-based business while maintaining margins in excess of 70%. And this year, we look forward to growing our SaaS business beyond municipalities, both internationally and domestically. Strategically, each part of the business, the marketplace, and our SaaS lines support the other. The larger the digital marketplace, the more material solutions we can offer customers. More customers and solutions on the marketplace attracts more haulers. With more haulers and fleets on the platform, the more opportunities we have to sell our SaaS-based solutions.

The more fleets we have on the platform, internationally and commercially, the broader the territories where we can offer marketplace solutions to customers. Extending this into the future, the larger the marketplace, the larger the number of solutions. The larger and the more varied the number of fleets we have on the platform, and the more data we collect, will in turn allow us to offer new and innovative products and services. This flywheel is already turning today. We have used and will continue to use this wealth of data to inform the development and release of advanced solutions.

As an example, in our SmartCity product today, we use image data to develop artificial intelligence and computer vision models that can identify when contamination enters a waste stream, where there is illegal dumping, when bins are overfilled, and can confirm when service has actually occurred. This feedback loop has been so successful that our customers have asked us to support other fleet types, like snowplows and street sweepers, confirming when routes are actually being swept or plowed. From my perspective, future growth and product opportunities are simply a limitation of our imaginations.

Thank you for continuing this journey with us. We look forward to updating you on our progress along the way 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.

Great. Thanks so much for taking my questions. First, can you maybe just talk about what kind of conversations you're having with some of your clients, including with some of the municipalities and your corporate clients? And are you seeing any sort of pullback in spending or elongated sales cycles?

Yeah. Hi, this is Phil. So thank you for the question. So actually, no. So we actually aren't seeing any pullback from either municipalities and/or our corporate customers. In fact, again, as we mentioned, our SaaS-based business has doubled, and we expect that to double again this year. So we're actually seeing great momentum on those channels.

Got it. And that's very helpful. And then I understand that there is a little bit less visibility on the recyclable commodity segment. But at what point do you expect that segment to maybe normalize or return to growth? And then I have a quick follow-up.

Hey, Maria, this is Chris Spooner. With commodities, of course, at the top-line gross revenue level, there's always going to be a price and a volume component, right? Commodity pricing saw pressure throughout the course of 2022 that resulted individually in about 13% reduction year over year in our commodities revenue driven by price.

That said, there was underlying growth in the commodities volumes related to expansion with some of our existing customers. And we expect that to continue going forward into 2023 as we look to deploy those higher-margin commodity products and transition our customers away from landfill waste.

And I would just add, Maria -- this is Kevin. I would just add that the forecast that we put out that we gave you is assuming that commodity prices stay depressed throughout the course of this year. That is our assumption is that they will stay at these levels. Obviously, to the extent they were to go back up, that would be that would be a tailwind.

Got it. That's very helpful. And maybe one more, if I could. I appreciate all the color on the upgraded expenses and all the efforts there. But maybe could you give us a little bit more color around cost of revenue and what should drive adjusted gross margin expansion this year, especially as your higher margin commodity business remains under pressure or is going to be under pressure in the near term.

Could you -- sorry, Maria, could you just repeat that question one more time? I apologize.

Yeah. I was just looking for a little bit more color around cost of revenue and what should drive adjusted gross margin expansion this year.

Sure. No, I'll start. And then, Chris, obviously, feel free to chime in if you have anything extra. But for us, I mean, as we're going through, we've been able to selectively on target higher margin areas so. So it's really about optimizing the portfolio, right?

We've been -- we've gone through, and we've been very mindful in increasing and pushing optimization where we can and we've actually been very successful already to date, which gives us a lot of comfort in putting out those targets for adjusted gross profit margin at the end of the year.

So it's two things, right? It's -- were the SaaS business, which is obviously very high margin is continuing to grow like a weed. It's optimizing our current Connect business, right, which we've already been very successful with so far this year. So we feel very, very strongly about being able to drive incremental margin there.

And then it's also about going after and really prioritizing new business for Connect and really prioritizing higher margin areas, more unique commodities that are higher margins and also going down market a bit for new business, which tends to be much higher margin as well. So it's really a combination of all those three.

And just to underscore what Kevin said, just with the margin optimizations within the existing RUBICONConnect business, we've already added an annualized $16 million of adjusted gross profit this year within the existing portfolio. So additional growth through these higher margin commodity products over the course of the year, of course, has the higher margin SaaS business scales that will continue to accelerate the margin expansion on a blend.

Got it. That's very helpful. Thank you very much.

Stephanie Moore, Jefferies.

Hi, good afternoon. Thank you.

Hey, Stephanie. How are you?

Hi, Stephanie.

Maybe just a follow-up on Maria's question here on the commodity business. And partly, maybe I'm just not fully understanding. I think when we all spoke in the third quarter, it was discussed that your exposure to commodity prices was a little bit different since you take a spread on the underlying commodity, which helps with some of the impact.

So can you maybe talk through what happened between 3Q and 4Q? So I believe commodity prices were pretty weak even in the third quarter and certainly didn't get better in the fourth quarter. So is it a timing effect or just how does that pan out?

Yeah, thanks for the question, Stephanie. At the gross revenue level, Rubicon does have exposure to commodity price fluctuation, right? It's a P times Q equation. That said, at the adjusted gross profit line, essentially Rubicon's net revenues, we're contractually hedged on both sides of the marketplace. And so you can think of the revenues that we generate from the commodities business as more of a tolling fee.

Our spreads on the commodity transactions are effectively locked in over the life of a customer relationship and we don't bear exposure at the adjusted gross profit level. So despite a pretty meaningful decrease in overall commodity prices over the course of 2022, Rubicon's adjusted gross profit remained insulated.

So I know you don't break it out, so would you say that the adjusted gross profit for your recycled commodity business would have been similar 3Q, 4Q, despite what we're seeing on the top line?

Yes, that's right, for the adjusted gross profit line.

Got it. Okay, no, that's helpful. Thank you. Okay, so maybe taking it, you made a comment about growing your SaaS businesses beyond municipalities. Maybe you could talk a little bit about what you're hearing from these non-municipality customers, what they're looking at in terms of partnering with you guys, and also what their -- what the contracts might be for them versus municipalities and what the opportunity is.

Great. Thanks for the question, Stephanie. So a couple of things there. So from -- as you know, we actually have a fleet and telematic package that we offer municipal fleets that are out there to help them run their business much more efficiently. But that same platform can be used to help commercial operators run their fleets more efficiently as well.

The key difference between, I would say, a municipal client versus a commercial client is the need for an additional modular service typically around billing and invoicing. They need to be able to bill and invoice their customers. And in the past, as I mentioned, we specifically chose not to go into that in that area. And this year we'll be rolling out that capability so that will allow us to sell directly into those commercial fleets that are out there as well.

And so I think that's the key thing you'll see is do that. We're already piloting that with a few customers already. The reception has been great. And in fact, we have quite a few clients out there that really love our routing and sequencing capabilities that are really looking for that one-time, all-in-one solution, and now we'll be able to offer that to them. So we're very excited about being able to increase the additional sales on that side.

The second component as well from an expansion standpoint is also taking that capability both now commercially and extending our sales capabilities internationally as well. So I think you'll see this expand really across domestically as well as internationally with yet another product line that's out there. And we call that RUBICONPro when we actually sell to the commercial customer.

Okay, understood. And then lastly for me, you made a comment about just potentially tapping into the M&A market again, which is not included in your target for the year but has always been part of your strategy. I believe there was a bit of a pause on that last quarter, given liquidity needs. So maybe walk through an updated stance on your M&A strategy more near term and particularly how it relates to your current liquidity.

Yeah, for sure. And so I think, again, so from our primary focus right now is to continue strengthening our margins and our organic growth in businesses. And again, really accelerating as fast as possible our path to profitability and getting to be adjusted EBITDA positive, as we talked about for the fourth quarter. And so that's really been our concentration.

Now, that being said, we will certainly take -- we will certainly look for any potential acquisition opportunities along the way. We can't predict the exact timing of those transactions, but again, it will be opportunistic as they present themselves and we'll pursue them as we get there and as we get the necessary capital to do so.

Yeah, Stephanie, this is Kevin. I would just add that from a growth perspective, I mean, as we look around the business, we can still highlight it. The current SaaS business is growing like a weed. We have the new SaaS offering going to commercial haulers that we're rolling out. We actually have another SaaS offering that we're going to be rolling out shortly, too, that's stratifying the current Connect that allows us to sell to additional customers who -- for whom maybe the full Connect suite isn't applicable.

Maybe they just want a piece of it, the reporting or the ESG metrics or maybe the sourcing. So we're actually rolling out another piece of the SaaS roadmap this year on that piece as well. So we've got a ton of growth on that side and obviously, we've outlined all the things we're doing on the Connect side. So there is a lot of organic growth that we have that we feel really confident in as we move forward. So any M&A we do would just be jet fuel to that, and that obviously would be capital dependent.

And if we bring in incremental capital, we definitely still have a pipeline. We definitely still have some interesting targets out there, a high margin that would get us into some really interesting niche areas that can drive real incremental margin growth. But even without the M&A, we feel very, very strongly about where we have from a growth profile on the organic business.

Okay, thank you so much.

Brett Knoblauch, Cantor Fitzgerald.

Hi, guys. Thanks for taking my question. Two for me. First, I guess, did you guys disclose the net revenue retention rate for this quarter and has your action maybe pruning the customer base of the lower margin customers impacted that? And how should we think of that going forward?

And then second, if you had to just put a ballpark number of percentage on what percentage of that adjusted gross profit is that SaaS revenue to help just give us a little, I guess, more insight into how big that segment is.

Hey, Brett, this is Chris Spooner. Appreciate the call. Appreciate the question. In terms of the SaaS business, this is a business that effectively accounts at 100% adjusted gross profit margin, right? It accounts for on a net basis. But even on a gap gross margin basis, we're seeing margins in excess of 70% today.

Do you mind repeating your first question once more?

Yeah, it was about the net revenue retention rate and your actions pruning the customer base. How has that impacted it and what should we expect for that metric going forward?

Yeah, excuse me. So even amidst these portfolio high grading and margin optimization initiatives, we posted 93% revenue net retention for Q4. And as Kevin mentioned, we incurred about $2.1 million of one-time customer expenses in Q4 related to these ongoing margin optimization initiatives.

As Rubicon, as we discussed with our model, we'll oftentimes reduce customer service levels. We'll transition customers to new equipment or to new providers to improve our gross margins. And that's helped enable this roughly $16 million of adjusted gross profit improvements already this year in 2023.

And I just want to make sure this compares to the 118% retention number you guys posted last quarter.

That's correct. With very targeted actions taken to high grade the portfolio actively and improve our overall profitability.

Got it. And would you say you're close to finish that process? Or is there more work to be done there? I guess maybe or should we expect this metric to trend sideways for a little or trend up or?

No, I don't believe so. I think you're going to continue to be roughly 100% to 105% revenue net retention, which has been the company's historical average. As we continue to expand our share of wallet with existing customers and continue to see very de minimis 5% or less gross customer churn.

But obviously, the margin improvement initiatives are going to continue throughout the course of 2023. And it's never -- it's going to be a never-ending journey for us as we continue to push higher margins within the RUBICONConnect and within the business as a blend.

Perfect. Thanks so much. Really appreciate it, guys. Congrats on the quarter. Thank you.

Thanks, Brett.

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

Well, thank you all for joining us today. And we look forward to showing you our continued progress in the quarters to come and stay tuned. So, again, thank you all very much and we'll talk soon.

This concludes today's conference call. Thank you for attending. You may now disconnect.