Rubicon Technologies, Inc. (NYSE:RBT) Q3 2023 Earnings Call Transcript
Rubicon Technologies, Inc. (NYSE:RBT) Q3 2023 Earnings Call Transcript November 11, 2023
Operator: Good afternoon and welcome to the Rubicon Technologies Third Quarter 2023 Earnings Call. My name is Kayla 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. And 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 third quarter 2023 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 third quarter of 2023, 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 and 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 reconciliation 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, 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. To start, I am very proud to announce for the third quarter in a row, we have achieved record adjusted gross profit, our key operating metric, with an increase of 41% year-over-year and 11% from the prior quarter. We also expanded AGP margin by 395 basis points year-over-year, despite slightly softer revenue due to commodity headwinds in the ongoing process of optimizing our portfolio. Adjusted EBITDA also improved by $12 million to a loss of $8.9 million year-over-year, an improvement of 8% from the prior quarter. In addition, it is worth noting that the adjusted EBITDA figure includes approximately $5 million of non-cash operating expenses, including technology expenses strategically shifted earlier to accelerate growth initiatives.
The macro and capital market environments in which we operate remain challenging, but waste and recycling is a mission-critical business service that is stable, growing, and finding new ways to create customer value. Rubicon is helping to drive our industry forward, and I'm very pleased with the progress the team has made in the last 12 months. Our core business is stronger than ever, and we remain focused on our drive to profitability. Kevin will provide additional detail on our quarterly results, but before he does, I wanted to briefly remind everyone of who Rubicon is and how our products are helping to modernize our industry with an environmental proposition that improves our customers' bottom line. Rubicon is a global technology company that provides cloud-based waste and recycling solutions to three key customer constituents: waste generators, waste haulers, and waste processors.
For our waste-generator customers, including businesses and local governments, the Rubicon software platform is a single solution to streamline the procurement and management of their waste and recycling services. Our platform helps to improve the performance of these services and provides much-needed data and analytics, for ESG reporting purposes. For waste haulers, including both city, and private fleets, our platform provides easy-to-use fleet management and route optimization tools to help our customers improve service delivery, streamline internal operations and processes, and save time and money. In addition, we provide AI-powered camera and computer vision technologies that can detect contamination in recycling streams. For our city and municipal fleet customers, these tools have helped to deliver significant taxpayer savings.
Our final customer segment is Waste Processors, who rely on our technology and relationships with waste-generator customers to receive high-quality and consistent volumes of valuable commodities. We enable our customers to increase diversion rates and send greater volumes of materials to recycling processors. We also design programs for our customers that incorporate best practices for material handling and logistics that allow them to command premium commodity rates. Today, Rubicon has achieved significant scale, surpassing 13 million unique service locations and 8,000 haulers and recycling partners with the ability to manage more than 160 types of waste streams. As our network continues to grow, our customers benefit from better pricing, a broader service offering, increased diversion capabilities, and improved insights into waste operations, allowing for more data-driven decisions to enhance efficiency.
In the third quarter of 2022, we outlined our strategic plan and committed to materially improving our operational performance and strengthening our financial position. We recognized the challenges ahead and laid out steps we would take to get the company to profitability and growth. We said we were going to push out debt maturities, and we pushed them out to 2025 from 2023. We said we were going to improve liquidity, and we closed a $75 million term loan and expanded our revolver capacity by $15 million. We said we were going to reduce expenses, and we reduced expenses by $55 million on an annualized basis. We said we were going to expand adjusted gross profit margin to double-digits by the end of 2023. We surpassed 10% in the second quarter ahead of our goal.
We secured an additional $24 million of equity financing from new and existing investors in Q2. To underscore our exceptional performance during an extremely turbulent time, while completing all this, we were able to drive 35% growth in adjusted gross profit year-to-date in 2023. All of this was accomplished while continuing to deliver for our customers and diverting over 800,000 tons from landfill equating to approximately 1.6 million metric tons of CO2 emissions avoided for the first half of 2023. Accomplishing all this in less than a year was not an easy task, but our team worked tirelessly and successfully completed these strategic objectives, positioning the company for profitability and future growth. We're excited for what's to come for Rubicon, and moving forward, we're looking forward to focusing our efforts on growing the business.
Turning to the current quarter, I'd like to take a moment to highlight some key business wins across the company. Starting with our RUBICONSmartCity business, in September, we announced a new five-year partnership with the City of Phoenix, Arizona, the fifth largest city in the United States. The agreement will put Rubicon's Smart City software at the heart of the city's public works department, providing waste and recycling collection to more than 418,000 locations weekly. Rubicon will help the city digitize its solid waste collection operation, transitioning from largely manual and paper-based processes to running our software in their solid waste and recycling fleet of more than 300 vehicles. On top of this, today, we announced a new five-year partnership with the City of Austin, Texas.
Rubicon will help the city continue its process of digitizing its solid waste and recycling collection operations across its fleet of 290 vehicles, which service more than 210,000 locations every week. Austin will use our technology to streamline its collection, track material and tonnage on its bulky trash routes, and reduce missed pickups and unnecessary go-backs. The city will be able to closely monitor route performance, identify areas where waste and recycling services can be improved, and make data-driven decisions to enhance route efficiency and better serve its residents. On the RUBICONConnect side, we recently welcomed Neiman Marcus and Atlantis Management Group to the platform, and we completed a two-year extension of our existing agreement with Americold.
RUBICONConnect has been deployed at more than 150 Americold locations since 2020, where we have managed Americold's trash, mixed recycling, baled cardboard, baled plastic and food waste. The new agreement extends this relationship through the end of 2025 and includes a go-forward plan to onboard more locations within the Americold portfolio. We are proud of these achievements and look forward to sharing more of them with you on future calls. I will now turn the call over to Kevin to provide a review of the third quarter financials.
Kevin Schubert: Thanks, Phil. I will now take a few minutes to review our third quarter results. Rubicon generated approximately $171 million of revenue in the third quarter. This was a decrease of $14 million or 7%, compared to the third quarter of 2022. The decline was mainly driven by softness in commodities, in particular, OCC prices. The remaining decrease was mainly a result of our ongoing portfolio optimization activities. Adjusted gross profit in the third quarter was approximately $20 million, an increase of $6 million or 41%, compared to the third quarter of 2022 and we are very proud to say that Q3 2023 was our third consecutive quarter of record adjusted gross profit. The increase in adjusted gross profit was primarily driven by an increase in the RUBICONConnect business due to optimizing our portfolio and margin improvement activities.
Adjusted EBITDA for the third quarter was negative $8.9 million, which is an improvement of $12 million, compared to the third quarter of 2022. And as Phil previously mentioned, the adjusted EBITDA figure includes approximately $5 million of non-cash operating expenses including technology expenses strategically shifted earlier to accelerate growth initiatives. As of the end of the third quarter, the company had $15 million of cash and undrawn availability under our credit facility. Now that we are through our key corporate financing initiatives and making significant progress towards positive adjusted EBITDA, we have also begun to look to the future and to find opportunities to accelerate growth. For example, we have prioritized certain initiatives to streamline back-office procedures such as using AI to improve invoice auditing, which we believe should allow us to grow more profitably next year.
In addition, we have expanded the SmartCity sales team to accommodate the substantial growth in interest in our high margin smart city product. These accelerated investments will put us in a strong position to deliver positive adjusted EBITDA for the full year 2024. In addition, after adjusting for the effect of certain non-cash technology expenses, we still expect to begin earning positive adjusted EBITDA in the fourth quarter of this year. I will now turn it 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.
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