KORE(KORE) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) KORE reported a $133.4 million net loss for the nine months ended September 30, 2023, primarily due to a $78.3 million goodwill impairment, impacting assets and operating cash flow Condensed Consolidated Balance Sheets Total assets decreased to $586.2 million as of September 30, 2023, primarily due to reduced goodwill, while stockholders' equity sharply declined to $71.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $19,767 | $34,645 | | Goodwill | $294,600 | $369,706 | | Total assets | $586,176 | $688,736 | | Liabilities & Equity | | | | Total current liabilities | $62,838 | $48,808 | | Long-term debt and other borrowings, net | $412,633 | $413,910 | | Total liabilities | $515,070 | $508,064 | | Total stockholders' equity | $71,106 | $180,672 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 2023 revenue slightly increased to $68.6 million, but a $78.3 million goodwill impairment led to a $95.4 million net loss, widening the nine-month net loss to $133.4 million Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $68,633 | $66,137 | $204,144 | $206,036 | | Operating loss | $(87,853) | $(7,996) | $(106,104) | $(21,050) | | Goodwill impairment | $78,255 | $— | $78,255 | $— | | Net loss | $(95,361) | $(14,277) | $(133,350) | $(36,639) | | Basic and diluted EPS | $(1.10) | $(0.19) | $(1.65) | $(0.49) | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $4.5 million for the nine months ended September 30, 2023, leading to a $14.9 million reduction in cash and restricted cash Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,493 | $20,527 | | Net cash used in investing activities | $(15,596) | $(57,974) | | Net cash used in financing activities | $(3,759) | $(3,599) | | Change in cash and restricted cash | $(14,944) | $(43,060) | Notes to the Condensed Consolidated Financial Statements Key notes include the June 2023 Twilio IoT acquisition, a $78.3 million goodwill impairment in Q3 2023, and a major post-quarter refinancing with a new $185 million term loan and $150 million preferred stock investment Disaggregated Revenue (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | IoT Connectivity | $54,217 | $42,949 | $145,161 | $129,816 | | Hardware Sales | $9,541 | $16,266 | $42,484 | $56,747 | | Total | $68,633 | $66,137 | $204,144 | $206,036 | - On June 1, 2023, the company acquired certain assets of Twilio Inc.'s IoT Business, funded by issuing 10,000,000 shares of KORE common stock valued at $14.7 million[36][37][40] - In Q3 2023, the company recorded a goodwill impairment loss of approximately $78.3 million, triggered by a sustained decline in its share price indicating the carrying value exceeded fair value[81][83] - Subsequent to the quarter end, on November 9, 2023, the company executed a major refinancing, replacing its existing credit facility with a new $185.0 million term loan and a $25.0 million revolving facility, and agreeing to issue $150.0 million of Series A-1 Preferred Stock and warrants[84][86][88] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 revenue growth driven by the Twilio IoT acquisition, a 96% DBNER, and a post-quarter refinancing that significantly altered the capital structure Key Metrics Total connections grew to 18.9 million, boosted by the Twilio IoT acquisition, while DBNER decreased to 96%, and sales funnel TCV significantly increased to $740.0 million Total Number of Connections | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Number of Connections at Period End | 18.9 million | 15.0 million | - The increase in connections includes approximately 3.1 million added from the acquisition of Twilio's IoT Business[124] - DBNER was 96% for the twelve months ended September 30, 2023, compared to 100% for the prior year period, mainly due to a revenue decline from the largest customer after its LTE transition project concluded[130] - The sales funnel TCV grew to approximately $740.0 million as of September 30, 2023, from $434.0 million at the end of 2022[133] Results of Operations Q3 2023 total revenue increased 4% to $68.6 million, driven by Services revenue growth offsetting Product declines, with total gross margin improving to 55% and SG&A expenses rising 13% Revenue by Type (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Services | $57,046 | $46,448 | $10,598 | 23% | | Products | $11,587 | $19,689 | $(8,102) | (41)% | | Total Revenue | $68,633 | $66,137 | $2,496 | 4% | Gross Margin Rate | Category | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Services | 60% | 64% | 63% | 64% | | Products | 29% | 24% | 27% | 23% | | Total gross margin | 55% | 52% | 54% | 51% | - SG&A expenses increased by $3.9 million (13%) in Q3 2023 compared to Q3 2022, primarily driven by increased headcount-related costs from the Twilio IoT acquisition[150][151] Non-GAAP Financial Measures Adjusted EBITDA for Q3 2023 decreased to $14.2 million, with the nine-month period showing $41.7 million, reflecting adjustments for goodwill impairment and other non-cash items Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(95,361) | $(14,277) | $(133,350) | $(36,639) | | EBITDA | $(73,382) | $5,812 | $(62,996) | $19,819 | | Goodwill impairment | $78,255 | $— | $78,255 | $— | | Adjusted EBITDA | $14,159 | $15,112 | $41,726 | $47,178 | Liquidity and Capital Resources Total debt stood at $416.9 million as of September 30, 2023, with cash decreasing, followed by a major post-quarter refinancing on November 9, 2023, significantly altering the capital structure - As of September 30, 2023, the company's financing arrangements included a Senior Secured UBS Term Loan with a drawn amount of $298.0 million and Backstop Notes of $117.8 million[162] - On June 1, 2023, the company issued 10,000,000 shares of common stock to Twilio, Inc. as purchase consideration for its IoT Business[177] - Net cash provided by operating activities for the nine months ended September 30, 2023, was $4.5 million, a significant decrease from $20.5 million in the same period of 2022, partly due to a $9.1 million increase in interest expense[179][181] Quantitative and Qualitative Disclosures About Market Risk KORE, as a smaller reporting company, is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide the information for this item[186] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to previously reported material weaknesses in internal control over financial reporting - The company's CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to previously reported material weaknesses in internal control over financial reporting[187] - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, its internal control[188] PART II - OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings beyond routine litigation incidental to its business - As of the reporting date, the company is not involved in any material legal proceedings outside the ordinary course of business[191] Risk Factors Key risk factors include potential stock dilution from new financing, future goodwill impairment charges, interest rate risk on variable debt, and the risk of NYSE delisting due to minimum share price non-compliance - Future issuances of common stock, including from the new Series A-1 Preferred Stock financing and outstanding warrants, could cause market value to decline and result in dilution[193][195] - The company may incur significant impairment charges for goodwill and/or long-lived assets in the future if macroeconomic or market conditions deteriorate, which would adversely affect operating results[196] - The company is subject to interest rate risk from its variable rate indebtedness, which could significantly increase debt service obligations[197] - The company is not in compliance with NYSE's minimum average share price requirement as of August 30, 2023, and its common stock may be delisted if compliance is not regained[198] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities, use of proceeds from registered securities, or issuer purchases of equity securities were reported during Q3 2023 - There were no unregistered sales of equity securities during the quarter ended September 30, 2023[200] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2023 - During the quarter ended September 30, 2023, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement[205] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files