Rubicon Technologies (ticker not provided) reported its first quarter 2024 financial results, announcing a year-over-year adjusted gross profit increase of 5.9% and a margin expansion of 138 basis points. The company also highlighted the completion of a $94.2 million transaction with Rodina Capital, involving the sale of its Fleet Technology business units.
This strategic move aims to bolster the balance sheet by reducing debt and enhancing liquidity, propelling Rubicon towards profitability and growth in its core business. Despite revenue decline due to strategic pruning of less profitable relationships, adjusted EBITDA improved, reflecting ongoing efforts to drive profitability.
Key Takeaways
- Adjusted gross profit grew by 5.9% year-over-year, with a margin expansion of 138 basis points.
- Revenue decreased by 8.3% to $166.1 million, influenced by ending less profitable relationships.
- Sale of Fleet Technology business to Rodina Capital for $94.2 million, aimed at reducing debt and increasing liquidity.
- Adjusted EBITDA saw a 20.9% improvement, despite being negative $11 million.
- Rubicon secured a significant contract with a new customer in the grocery sector, servicing over 500 stores in the US and Canada.
Company Outlook
- Expectation to continue adjusted gross profit and cash flow positive trajectory through the year.
- Focus on the RUBICONConnect product and sustainability services for commercial customers.
- Commitment to enhancing services and relationships with vendor and hauler partners.
Bearish Highlights
- Revenue dropped due to strategic decisions to end less profitable customer relationships.
Bullish Highlights
- Successful transaction with Rodina Capital considered transformational for the company's financial health.
- New significant contract in the grocery sector indicates potential for growth and customer acquisition.
Misses
- No specific misses were discussed in the provided context.
Q&A Highlights
- Proceeds from the Rodina Capital transaction will primarily pay down high-interest debt and support working capital.
- Revenue trends expected to follow previous cadences, with divestiture not significantly impacting revenue or AGP.
- Company targets to achieve adjusted EBITDA positivity within the year.
- Post-transaction, Rubicon maintains over $30 million in liquidity for operational purposes.
Rubicon Technologies has positioned itself for a strategic pivot back to its core business principles, aiming to enhance profitability and reinforce its commitment to sustainability and technology-driven waste management solutions. The company's recent financial moves and customer acquisition set the stage for anticipated growth and progress towards its financial targets in the upcoming quarters.
InvestingPro Insights
Rubicon Technologies' recent financial results indicate a strategic shift towards profitability and operational efficiency. To further understand the company's financial health and market position, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data highlights that Rubicon Technologies holds a market capitalization of $18.64 million, suggesting a relatively small player in its sector. The company's revenue for the last twelve months as of Q4 2023 stood at $697.58 million, with a modest year-over-year growth of 3.29%. Despite this growth, Rubicon operates with a significant debt burden, as reflected in its negative operating income margin of -7.1% and a concerning return on assets of -36.31%.
An InvestingPro Tip worth noting is that Rubicon's stock price has experienced significant volatility, with a dramatic 54.55% return over the last week. This could be indicative of market reactions to recent strategic moves or other external factors. However, the company's stock price movements over the longer term have been less favorable, with a steep 94.01% decline over the past year.
Investors should also be aware that Rubicon has been quickly burning through cash, which is a critical factor to consider when assessing the company's future sustainability. Additionally, the company's short-term obligations exceeding its liquid assets may pose a risk to its operational flexibility.
For those interested in a deeper analysis, InvestingPro offers additional insights and tips that could shed light on Rubicon Technologies' financial nuances and investment potential. There are 16 more InvestingPro Tips available that could provide valuable context for investors. To explore these tips and make more informed decisions, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro.
Rubicon's recent sale of its Fleet Technology business and the new contract in the grocery sector are pivotal developments that may influence its trajectory. As the company navigates through its challenges, these InvestingPro insights can help investors keep a pulse on its performance and potential.
Full transcript - Rubicon Tech Class A (RBT) Q1 2024:
Operator: Good afternoon and welcome to Rubicon Technologies First Quarter 2024 Earnings Call. My name is John and I will be your operator for today's call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to introduce Chris Spooner, Executive Vice President of Finance. You may begin.
Chris Spooner: Thank you. Hello, everyone, and welcome to Rubicon's First Quarter 2024 Earnings Call. A few quick reminders before we begin. This call is being webcast and can be accessed on the Investors section of our website, which can be found at investors.rubicon.com. Today, we will present Rubicon's financial results for the first quarter of 2024, which will be followed by a question-and-answer 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, but not limited to, 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 in our filings with the SEC. For the purposes of this call, please note that all financials discussed are inclusive of discontinued operations as defined by the recently announced transaction. Please refer to our 10-Q filings for more information and disclosures regarding transaction and its implications on the financials. Joining me on the call today are Phil Rodoni, Rubicon's Chief Executive Officer; and Kevin Schubert, Rubicon's President and Chief Financial Officer. With that, I would now like to turn the call over to Phil.
Phil Rodoni: Thank you, Chris, and thank you to everyone for joining us today. We kicked off the year with an eventful first quarter. Despite headwinds, we had another quarter of year-over-year adjusted gross profit growth with an increase of 5.9% and adjusted gross profit margin expansion of 138 basis points. We continue to push forward with the efforts to reduce expenses, which drove a decrease in SG&A of 9.3% in the first quarter compared to prior year. As many of you may have seen, we announced that the company completed a $94.2 million transaction with Rodina Capital that included the sale of Rubicon's Fleet Technology business units. This sale is happening at an opportune time with both the Fleet Technology business and the ongoing RUBICONConnect business at inflection points of growth and this transaction provides the resources for each unit to accelerate their growth. This transaction is transformational for Rubicon, improving its balance sheet by reducing debt and providing additional liquidity to enable the company to quickly achieve its objectives, accelerate its journey to profitability and continue growing its core business. Importantly, it marks a return to Rubicon's core principles, a business centered on a customer-focused approach that has been instrumental in the company's growth from the outset. This strategic move underscores Rubicon's dedication to the RUBICONConnect product, which serves commercial waste generators from small to medium sized businesses to Fortune 500 companies. Many of the company's commercial customers are looking to Rubicon to help them achieve sustainability goals with tailored zero waste and circular economy solutions, including through the company's recently launched Technical Advisory Services. This new capital will be dedicated to improving services and strengthening Rubicon's long-standing relationship with more than 8,000 vendor and hauler partners, 90% of which are small independent businesses. I'd like to take a moment to highlight a recent customer win in Rubicon's pursuit of delivering efficiency and sustainability solutions to our customers while prioritizing innovative technology. Rubicon participated in a competitive evaluation and won a significant contract with a new customer in the grocery sector at the beginning of the second quarter. Providing waste and recycling services to over 500 stores across the United States and Canada, this is a valuable contract for Rubicon with strong potential for incremental growth opportunities along the way. This customer is already experiencing the full benefits of Rubicon's platform for scalable waste and recycling services which supports their efforts to reduce environmental impacts while providing exceptional value and service to their own customers. As a leader in sustainability with multiple waste streams, this customer's needs and values align with what Rubicon does best, reducing costs and increasing diversion rates. Rubicon has achieved both with other grocery customers, and we look forward to driving similar results with this new relationship. This new customer is just a glimpse into what the future holds for this new phase of Rubicon. We look forward to adding more large customers and continuing to strengthen and expand relationships with our current customers. I will now turn the call over to Kevin to provide a review of the first quarter 2024 financials.
Kevin Schubert: Thanks, Phil. I will now take a few minutes to review our first quarter 2024 results. Revenue was $166.1 million, a decrease of $15 million or 8.3% compared to $181.1 million in the first quarter of 2023. This decrease is a result of our efforts last year to drive profitability by ending relationships that were not as profitable, which negatively impacted top line revenue, but benefits profitability overall. Adjusted gross profit was $17.1 million, an increase of $1 million or 5.9% compared to $16.1 million in the first quarter of 2023, and AGP margin expanded 138 basis points to 10.3% from 8.9%. Adjusted EBITDA was negative $11 million, an improvement of $2.9 million or 20.9% compared to the negative $14 million in the first quarter of 2023. Please note, this includes $3.9 million of noncash operating expenses. I would now like to take a minute to provide further details on the economics of our recent transaction. As Phil mentioned, the transaction has a total value of $94.2 million. This includes $61.7 million of cash for the sale, along with an earn-out consideration of $12.5 million that would be payable by the end of 2024 and an additional $20 million in cash for the issuance of convertible preferred stock. The proceeds from this transaction will be used to pay down high interest debt as well as for working capital and general corporate purposes. I will now turn the call back over to Phil before we take questions.
Phil Rodoni: Thank you for continuing this journey with us. We look forward to updating you 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: Thank you. We will now begin our question-and-answer session. [Operator Instructions] The first question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Please go ahead.
Brett Knoblauch: Hi, guys. Thanks for taking my question. On, I guess, the money that you guys received from the transaction, could you maybe help illustrate what the plans are for that? How much are you expecting to put that towards paying down debt? And then more broadly speaking on maybe just revenue trends throughout the year, how should we be thinking about that, especially given the divestiture? Thank you.
Kevin Schubert: Hey, Brett. How are you doing? This is Kevin. I appreciate the question. And, yes, I mean the money that we took in, I think, sort of you can think of that as we paid down sort of in the $50 million range of high interest debt, and at closing, we had north of $30 million for working capital and operating purposes. So obviously, we feel good about our liquidity position going forward and our ability to fund the business as we move towards profitability. Yes. I mean and then as we look at revenue going forward, obviously, the SmartCity business was fast growing, but wasn't significant from a revenue or AGP perspective compared to the rest of the business. So we expect to kind of be on a similar cadence as you saw before and sort of returning to that path to profitability and getting to adjusted gross profit and cash flow positive as we progress through the year.
Brett Knoblauch: And are those targets to be adjusted EBITDA positive? Is that for this year? Am I hearing you correctly?
Kevin Schubert: Correct.
Brett Knoblauch: Awesome. And then maybe just an update on current liquidity. I noticed in the press release, there was a kind of balance sheet or cash balance in that. I'm just wondering if you could give us that update? Thank you.
Kevin Schubert: Yes. No, as is the close of, like I said, more I mean, obviously, as the close of the transaction, like you said, we had about a little over north of $30 million that remained on the balance sheet to about $33 million.
Brett Knoblauch: Thank you.
Operator: As there are no further questions at this time. This concludes our Q&A session. I would like to turn the call over back to Phil Rodoni for closing remarks.
Phil Rodoni: Again, thank you, everyone, for joining us today, and we look forward to providing you updates in the future. Thanks again.
Operator: Ladies and gentlemen, this now concludes today's conference call. Thank you for your participation. You may now disconnect.
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