Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NowVertical Group Inc (NOWVF, Financial) reported a 12% growth in adjusted EBITDA year-over-year, indicating improved profitability.
- The company achieved a 191% increase in operating income compared to the previous year.
- Liabilities have been reduced by 14% year-over-year, improving the company's balance sheet.
- NowVertical Group Inc (NOWVF) secured 71% of its 2023 revenue by the end of Q2 2024, excluding Allegient Defense revenue.
- The company successfully renewed 100% of its contracts up for renewal in Q2 2024, reflecting strong client trust and retention.
Negative Points
- Revenue for Q2 2024 was $12.3 million, a 10% decrease from $14 million in Q2 2023, primarily due to divestments.
- Organic revenue growth was only 2% year-over-year, indicating slower growth in core business operations.
- The company faces challenges in scaling operations without proportionally increasing headcount, which could impact future growth.
- There is a significant reliance on strategic accounts, which contribute approximately 70% of total revenue, posing a risk if any major account is lost.
- The company has deferred acquisition liabilities spread across 2024, 2025, and 2026, which could impact future cash flow and financial stability.
Q & A Highlights
Highlights from NowVertical Group Inc (NOWVF) Q2 2024 Earnings Call
Q: Can you provide an update on the growth in strategic accounts and cross-sell revenue?
A: Strategic accounts contribute approximately 70% of our revenue. We currently have 66 strategic accounts in the LatAm market and 35 in North America and EMEA. Our focus is on increasing revenue from these accounts through cross-selling solutions and services. We have added five new strategic accounts in Q2 in the LatAm market.
Q: How is the 2% organic revenue growth trending in the context of the AI boom?
A: The focus on new deals and reshaping our solutions and services positioning is bringing about a positive change. We are now offering end-to-end solutions, which include AI products, to provide higher value to our clients.
Q: Can you discuss the sources of strength and outlook for CoreBI?
A: CoreBI has strong service delivery capabilities enabled by technologies like Google, Microsoft Azure, and AWS. Argentina, which contributes significantly to our revenue, is being developed as a powerhouse delivery center along with India. This will help us serve North American and UK clients more efficiently.
Q: What is the expected organic growth on the top line? Is 10% to 15% a realistic goal?
A: Given the rapidly growing market, double-digit growth on the top line is achievable. We are restructuring the business to prepare for this growth and have a solid go-to-market strategy with our solutions and services catalog.
Q: Are there any challenges to revenue growth outside of LatAm?
A: North America and EMEA, especially the US and UK, are growth markets with high demand for innovative solutions. We are preparing NowVertical to handle explosive growth in these regions.
Q: Are you working to defer any liabilities for 2026 onwards? Is Affinio's collection of $2.2 million secure?
A: We are committed to fulfilling our liabilities related to past acquisitions. We may look at restructuring debt to reduce stress on the business. The $2.2 million collection from Affinio is secured with a deferred payment schedule.
Q: What percentage of the revenue today is AI software related?
A: AI software itself is not a major revenue stream. Our revenue comes from AI-related solutions and services, which include embedded AI products. We focus on delivering comprehensive solutions that include data preparation, transformation, and AI integration.
Q: How do you incentivize talent acquisition and retention?
A: NowVertical has robust processes for talent acquisition and retention, including incentive structures tailored to different parts of the business. We also work with delivery partners, giving us access to over 1,500 consultants in the data and AI space.
Q: What is the current number of consultants?
A: We have more than 500 consultants across our markets.
Q: Why is your gross margin percentage higher than competitors, and can it continue to improve?
A: Our gross margins can peak due to software reselling revenue streams. We aim to maintain gross margins around 50% to 60% and continuously improve our EBITDA margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
