Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Improving performance in the extended warranty segment with strong cash sales and moderating claims experience.
- Sequential and year-over-year improvement in EBITDA for the KSX segment.
- Positive deal-related activity with promising high-quality prospects that could significantly contribute to future growth.
- Revenue growth in the SPI and DDI segments, with SPI increasing annual recurring revenue by 12% since acquisition and DDI showing a 14.6% revenue increase over the prior year.
- Successful cost management and operational improvements, such as the opening of a new operation center for DDI in Salt Lake City.
Negative Points
- Consolidated revenue growth was modest at 1% compared to the prior year quarter.
- Revenue and adjusted EBITDA for the C-suite segment were lower in the second quarter compared to the prior year period.
- Persistently challenging market conditions affecting the C-suite segment.
- Increased net debt to $37.7 million as of June 30, 2024, compared to $35.3 million at the end of 2023.
- Continued uncertainty in the broader market, impacting business optimism and hiring decisions in the C-suite segment.
Q & A Highlights
Q: Can you provide more color on the cost inflation in the warranty business and how you expect rates and costs to trend going forward?
A: Warranty claims were up 2.9% in the quarter, driven mostly by severity rather than frequency. We started taking rate increases in the back half of last year and into this year, with aggregate price increases in the high single digits. We expect year-over-year inflation to be much lower in the second half of the year, with rate increases continuing to come through.
Q: Can you talk about why you still like the two most recent acquisitions and when their performance will start to show up in the financials?
A: SPI has grown ARR by roughly 12% since acquisition and is expected to grow by 20% by year-end. DDII's revenue increased by 15% over the prior year, with EBITDA improving even more dramatically. Both businesses are showing strong growth and are expected to continue performing well.
Q: Are you seeing any signs of a turnaround in the C-suite or nursing business?
A: In the nursing business, we exited the quarter with more travelers on assignment than at the same point last year, and TOA shifts increased by 35% over the first quarter. For C-suite, the challenges are persistent, but the backlog of retained searches and interim CFO work is strong, and we are hopeful for improvement in the second half of the year.
Q: What are the key factors contributing to the improved performance in the extended warranty segment?
A: The pricing adjustments implemented in the second half of 2023 are having a positive impact, helping to offset claims expenses. Cash sales increased by 4.6% over the prior year, and sequentially, adjusted EBITDA increased by 12% from the first quarter of 2024.
Q: How is the KSX segment performing, and what are the expectations for the second half of the year?
A: KSX segment revenues increased by 2% over the prior year, driven by acquisitions of SPI and DDI. Ravix is performing ahead of expectations, with a focus on increasing utilization rates and optimizing pricing. The pipeline of qualified new business opportunities looks strong, and we expect to accelerate revenue in the second half of 2024.
Q: Can you provide an update on the financial position and cash flows?
A: At the end of the second quarter of 2024, we had cash and cash equivalents of $9.6 million. Cash provided by operating activities from continuing operations was $500,000 for the first six months of 2024. We amended our extended warranty loan to pay off all current debt and replace it with new financing, extending the maturity date to May 2029.
Q: What is the status of the securities repurchase program and recent acquisitions?
A: The securities repurchase program was extended through March 2025, and we have repurchased 141,550 shares of common stock for approximately $1.1 million. In July 2024, we completed the purchase of the minority 10% interest in IWS, making it a wholly owned subsidiary.
Q: What are the strategic objectives for growth through acquisitions?
A: Growth through acquisitions remains central to our strategy, targeting opportunities that deliver predictably high returns on tangible capital in large and growing end markets. We aim to complete two to three deals each year, each generating $1 to $3 million in annualized adjusted EBITDA. We currently have four highly talented operators in residence actively searching for opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
