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spk01: Greetings and welcome to the ARIES Technology Fiscal Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And with that, we'll begin today's conference call.
spk05: Good afternoon, and welcome to ARIES Technologies' second fiscal quarter 2024 earnings call. Joining us from the company is Chief Executive Officer and Co-Founder of ARIES, Sudhir Panikasri, Chief Financial Officer, Rajiv Nair, and Chief Investment Officer, Daniel Webb. Today's call will begin with scripted remarks, and it will open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings. Areas undertake no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures from the meeting of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated per sentence in accordance with GAAP can be found on the company's website. And with that, I would like to turn the call over to Sudhir. Sudhir?
spk03: Thank you, operator. My name is Sudhir Panikashyadi, and I'm the CEO and co-founder of Aries Technology. I would like to thank everyone for joining us here today on our first earnings call as the company began trading on NASDAQ under the symbol AERT on November 8, 2023. We are addressing what we believe is a greater than $420 billion PAM with an incredible LTV to CAC of approximately 15.9x for calendar year 2022. Today, we employ over 1600 professionals around the world and are adding to our already impressive talent pool. Rajiv Nair is an experienced public company executive who joined the Aries team as CFO this month. as well as Daniel Webb, former CEO of World Wide Web Acquisition Corp, who joins us as chief investments officer and brings with him deep M&A and capital raising experience. You'll hear from them both on this call shortly. For those who may be new to the story, Aries Technologies is a global professional services and consulting partner for businesses and stakeholders seeking a partner during transformative periods of operation, including private equity sponsors, and their portfolio companies. ARIES deploys distinctive, custom-tailored engagement models that are designed to provide the right mix of deep, vertical knowledge, functional expertise, and the right software and systems to help clients scale and optimize the tangible results that can be felt in the organization and seen on the bottom line. The end result is a flexible bespoke engagement that can potentially produce up to 65% labor savings versus hiring talent locally while bringing in tailored emerging technology solutions to the businesses. As a reminder, ARIES is profitable today and has been operating cash flow positive since 2013, our second year of operation. To our understanding, before the founding of ARIES, There were two main ways to outsource tech enabled services, neither of which were ideal for our target markets. The first was to use a legacy outsourcing vendor, which provides the flexibility and labor cost savings that private equity firms and their portfolio companies are looking for, but have a number of disadvantages. These include a minimal ability to innovate due to a lack of strategic alignment and visibility into internal operations, an outside mentality, among those assigned to the account, and the implementation time of strategic decisions, which can be a major roadblock to a successful deployment of new solutions. The second approach is to create a subsidiary overseas and in-house the process, which largely solves many of the issues mentioned by outsourcing, but presents a new set of very complicated challenges. While this approach succeeds in creating a team that is aligned with the goals and culture of the company, it is very costly to start and to scale. It creates a litany of facts and regulatory requirements, and it eliminates the unique viewpoint that outside contractors working with multiple companies can bring. ARIES solves these problems with our innovative approach in which our operations are fully integrated into the business of clients. Our customers use our services to get top talent in India and across the world into all areas of their organization, including software development, IT, cybersecurity, finance, HR, customer service, and operations. Our customers will interview and hire candidates we source, set the pay and bonus structures for the candidates in active guidance and collaboration with us, and treat them as if they are their own employees once they are hired. Our talent becomes an extension of our clients' team with the opportunity for promotion, recognition, and career path progression, resulting in higher employee satisfaction and lower attrition. We manage the regulatory, PACs, recruiting, compliances, administrative, IT, and legal for the outsourced talent. We believe this disruptive business model delivers overall cost and operational efficiencies with the ability to deliver digital transformation solutions tailor-made for our customers' growth strategies. Coupled with the inherent flexibility the arrangement offers our customers in evolving and implementing these strategies effectively. The purpose-built model is crafted to create a more flexible, more specialized, and less expensive labor pool for our customers and a better work environment with more opportunities for the employees. We believe it creates significant innovation through strategic alignment and increased visibility at senior levels. It insulates our clients from regulatory and tax issues, and it provides the flexibility to scale up or down as the business needs change. By utilizing proven business and implementation plans tried and true software and automation support, and the highest level of data integrity and compliance policies, we aim to ensure consistent quality results across our deployments and deliver significant value to leadership teams. Our solution is designed to deliver all the benefits of alignment with our client goals with the visibility into winning playbooks from multiple companies that only ARIES can deliver. We are committed to our medium to long-term strategies on organic and inorganic growth with the clear objective of seeing us as a significant player in the emerging tech-driven outsourcing industry with differentiated solution matrices that are geared towards meeting the challenges our customers face in today's ever-shortening business cycles. We believe we have today a strong, validated, and referenceable foundation in terms of business model, differentiated service offerings, and customer base. With a strong team, we are committed to our growth path and being a trusted partner to our customers. Now, I'd like to hand the call over to Daniel Webb, Chief Investment Officer of Aries Technology. Daniel?
spk08: Thanks, Sudhir. My name is Daniel Webb, and as Sudhir mentioned, I joined Aries in November after being the CEO of World Wide Web Acquisition Corp. the publicly traded company which took ARIES public. After over 10 years of investment banking at both Bank of America and Citi and three more as founder and CEO of WWAC, I'm thrilled to come on board as Chief Investment Officer of ARIES. After having spent time evaluating many businesses in both my investment banking career and as potential targets to take public, ARIES has stood out as differentiated possible growth business. A large part of this differentiation is our distinctive purpose-built client engagement model. When we first engage with the client, our team gathers requirements, assesses existing infrastructure, processes, and workflows, and determines overall scope to recommend the best options to the client. This paves the way for us to start identifying and hiring the right area team members to handle the initial deployment. From the start of the engagement, we begin implementing the solutions to fit the needs identified with our clients. Since, in many cases, our clients are newly acquired portfolio companies or private equity firms, There are multiple areas to build out, such as software development, IT, finance, and operations. The immediate effect of quickly scaling up these teams can have a positive impact on both the bottom line and top line for our clients. As our clients move through the lifecycle of their deployment with us, we layer in additional solutions, such as AI, analytics, cybersecurity, or other digital solutions, based on the needs of our clients. Many of our clients come as references from private equity sponsors of our current clients, which helps accelerate our growth while keeping sales and marketing costs low. Our goal is to become integral and essential to our clients' operations. And with an average contract value of slightly over $2 million, we have seen success in reaching our goal. We attribute our growth to our purpose-built model and the positive outcomes it delivers for our clients, which builds trust and confidence in leadership teams and leads to very high rates of referral over time. With an NPS of 93, we believe we are able to create a network effect within the executive leadership and DE community that results in new client wins. We believe this network effect contributes to incredible results for our business. Our business, as Didier mentioned, has been operating cash flow since 2013. For the second fiscal quarter, our revenues were up 38% year over year, and our adjusted EBITDA was up 107% over the same period. Now I want to hand the call over to Rajiv Naira. CFO of Aries Technologies, for a detailed rundown of our second fiscal quarter and first fiscal half numbers.
spk04: Thank you, Daniel, and thanks again for joining the call with us today on our first earnings call. I will now walk through our second quarter and first half numbers in more detail. Our total revenues for the second quarter were $17.6 million, which was an increase of 38% year over year. On a first half basis, we generated $33.9 million for the six months ended on September 30th, 2023, which was an increase of 34% versus the year prior period. Our gross profit for the second quarter was $4.8 million, which was an increase of 44% year over year and resulted in gross margin of approximately 27% versus 26% in the year prior period. On a first half basis, gross profit increased by 32% to 9.3 million for the six months ended September 30th, 2023, which resulted in a gross margin of approximately 27% versus 28% in the year prior period. Our SG&A for the second quarter was $3.3 million, which was a decrease of 11% year-over-year from $3.8 million. On a first-half basis, the SG&A was $7 million, which was an increase of 19%. from 5.9 million in the year prior period. We generated operating income of 1.5 million in the second quarter, which was an increase compared to an operating loss of $420,000 in the prior year period. On a six-month basis, operating income was 2.3 million, which was a 92% increase year over year. On the bottom line, our net income for the second quarter was $926,000, which was an increase from a net loss of $222,000. On a six-month basis, the net income was $1.4 million for the period ending September 30, 2023, versus a net income of $1.1 million in the year prior period. This resulted in adjusted EBITDA for the second quarter of 2024 of 2.9 million, an increase of 107% year-over-the-year from 1.4 million. On a first-half basis, we generated adjusted EBITDA of 5.8 million for the six months ended September 30th, 2023. an increase of 71% compared to 3.4 million in the year prior period. Finally, I wanted to give our financial outlook for the calendar year 2024. As we mentioned in our press release on Monday, we are currently expecting a total revenue of between 95 to 105 million for the year and an adjusted EBITDA of between $16 and $20 million. Thank you all for joining the call. And with that, I would like to ask the operator to open the line for questions. Operator?
spk01: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Jeff Martin from Roth MKM. Please proceed.
spk06: Thanks. Good morning. I wanted to get a sense of some of the assumptions embedded in your 2024 guidance. First of all, I want to clarify that's a calendar year projection. And two, are you planning to move to a calendar year reporting period? So, you know, starting off with some of the assumptions, you know, what are the new logo assumptions? for 2024 and what sort of revenue do you expect contribution from those new logos versus growth from existing logos?
spk02: Rajiv, do you want to take that question? Thanks for the question.
spk07: I think, Rajiv, do you want to take the first track there? Yes.
spk04: Sure. The first part I can answer that, yes, this is for the calendar year, 2024 guidance, and For now, we still plan to continue with the fiscal year end we have, which is the March 31st. But in the future, we may move to a calendar, the U.S.
spk02: calendar year, but that is not immediately planned. And your guidance is for calendar 24 guidance, is that correct?
spk06: That's correct, yes.
spk04: 95 to 105 and 16 to 20 is for the calendar, yes.
spk06: Right, right. And what are some of the new logo assumptions embedded in that guidance?
spk02: Sudhir, do you want to take that or shall I go ahead?
spk03: Yeah, you can go to the detailing, but very broadly... I would say that the bulk of the revenue will come from the carrier from the logos that we have acquired in the past one one to one and a half years those are expanding and As you know we are set up a Sales marketing team unlike earlier when You know, these were largely through referrals and contacts and networks and the private equity and through the management connections, et cetera. We have a very focused sales marketing team that's in place now. And we expect that the new logos should contribute between 15 to 20 percent of the revenues and then we'll accelerate as we move ahead.
spk06: Thank you, and then acquisitions are a part of your strategy going forward. I was just curious if you could kind of outline the strategy and what kind of timing and then sources of capital to execute that strategy.
spk03: Yeah, so as far as the sales marketing team is concerned, it's already in place. So we will not need any additional significant capital outplays for that aspect. that will carry on with the momentum that we have now. The teams are working hard with very focused approach towards our traditional focus area of private equity. That's a very focused approach towards private equity relationships and accelerating the connections over there and networks. The second is we are also actively mining the significant private equity relationships we have currently and with the intent to expand within their existing portfolio companies. So these two are ongoing process and I would say that the next three to five years will be growth phase for us and That is our strategy. We will be a growth company and will continue to be that until we reach a size that we are satisfied with respect to stabilizing. And then from then onwards, it will be driven by innovation and active dynamic client mining and so on and so forth. So to be a significant player.
spk07: And then, Sudhir, do you want me to take the M&A question?
spk03: Sure.
spk07: So on the M&A front, we're actively always looking at targets, and that's a key part of our go-forward strategy is to find profitable, strong targets where we think there are significant synergies, where we see the real ability to get companies at great multiples and give them included into our platform very quickly. And we think that the financing strategy will be, depending on the size of the companies, the business is profitable, essentially has no debt today, and so we have significant ability to go out and finance with debt. And now that we're a public company, obviously, there's the opportunity to do equity raises or convertible. And so really, depending on the size of the target and kind of where we are in the stage of our company, then any of those options could be there for financing.
spk06: And then one more, if I could, in terms of client progression. maybe help characterize when a new client comes on, what type of services you do, and as they progress, how that service set expands into more complex technologies and more productivity-oriented technologies.
spk03: Yeah, so typically our contract in a fully mature condition goes through four phases, four stages. Stage one is where we initiate the arrangement with the client, and typically we evaluate the entire organization, every function, without exception, and then slot them into basically three categories. Those functions which I am enabled to outsourcing, second, those functions which I am enabled to workflow improvements, process improvements, and lastly, those functions which I am enabled to adoption of new age technology solutions, automations, and so on and so forth. Typically, what we observed last decade or so of our operations is that it usually starts with the low hanging fruit, so to speak, which is cost efficiency and outsourcing. So transition from high cost to low cost geography, that is always the starting point we are seeing. And then in stage two, as we ramp up the operations in the low cost geography, the company sees savings coming in, efficiencies coming in, process improvements flowing in. It then moves into the second phase of expansion within multiple other functions within the organization, which I am enabled to offshoring, outsourcing. And then based on the learnings, we then move to stage three, which is identifying very clearly potential solutions for automation, process improvements, business systems improvements, cloud migration, and so on and so forth, adoption of new age technology solutions. So it eventually matures into a combination of outsourcing under the differentiated engagement model, coupled with digital transformation activities that actually help the client upgrade themselves on a technology front so this is how typically a contract in its maturity full maturity cycle moves in four phases hey thanks for taking my questions just if I can add to what Sudhir said we are seeing significant network effect in terms of the new customer acquisitions for example in 2023
spk04: we signed up 10 new customers, which is a significant increase from an average number of customers, which used to be like four to five in a year. So we are seeing significant traction from our existing client referrals and testimonials. And being a public company, we think this will really accelerate the further journey with new logo acquisitions. And we are also seeing a trend from our existing customers because we have been working with them for the last couple of years with a strong relationship. We are also seeing a trend in terms of more value-added services like digital transformation and more consulting work, which will improve our margins in the next calendar year.
spk02: That's helpful. Thank you.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. If you need any assistance with asking a question, please press star 0 to route to an operator.
spk02: This concludes today's teleconference.
spk01: You may disconnect your lines at this time. Thank you for your participation.
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