Okay, so welcome to the Sidoti August Virtual MicroCap Conference. As I mentioned, next up we'll have Urgently, ticker ULY. I'm Anja Soderstrom, an equity analyst here at Sidoti, and it's my pleasure to have the management team back with us. We have Matthew Booth, the President and CEO, Tim Huffmyer, the CFO, and Jenny Mitchell, the VP of Finance and Strategy and Investor Relations. This will be conducted as a fireside chat, and we encourage the audience to participate. If you want to submit your question, you can do so in the Q&A function at the bottom of your screen, and we'll incorporate those into the questions I have for the management team. I believe there will be some disclosures by Jenny before we kick it off. So Jenny, did you wanna go on with that?
Yeah, sure. Thank you. So good morning, and thank you for taking the time to learn more about Urgently. Before we begin, I'd like to remind everyone that our remarks today may include forward-looking statements. Actual results may differ from those projected in any forward-looking statements we make, and I'd like to refer you to our safe harbor statement included in our investor presentation, and to the risk factors section in our most recent 10-Q filed with the SEC, both of which are available on our investor relations website. With that, I'm gonna turn the call over to Matt Booth, Urgently's CEO.
Okay, thank you, Jenny. And I'm just gonna squeeze in here to welcome you, Matt, and start kicking it off with my first question here. For those who are new to the story, can you just give a high-level overview of Urgently and your background?
Yeah, of course, and thanks for having us. Jenny, if you don't mind, why don't we flip through a couple of slides? Why don't we go to slide 4 in the deck, and then we can give some context. So for those that are new to the story, Urgently is focused on the service side of mobility. So what that means in like, in a simple way is we provide mechanical services, roadside assistance for fleets and auto manufacturers, and their vehicles that are under warranty. The model's really pretty simple. We get paid when your car breaks down, has a flat, a battery issue, or an accident. So any kind of disablement that's under warranty, we get the signal from the OEM or the partner.
The OEM or the fleet pays Urgently, and we pay the service providers. Like, a roadside assistance event and kind of how we got into this service is a brand-defining touch point. So we're known for delivering exceptional quality, and it's one of... strangely, it's one of the biggest touch points that fleets and OEMs have with their customers, their motorists, after the cars leave the showroom. So it has to be a really exceptional experience. Exceptional experience is really the cornerstone of Urgently. It's something we're known for. We've completed about 5 million or so rescues, and motorists, the end users, rate us at about 4.5 out of 5 stars on average across all those jobs. So we're pretty pleased by that.
As you can imagine, no one aspires to be in a breakdown event, but the fact that we can take someone from being broken down and unhappy to actually happy with the service and happy with the brand is something that we pride ourselves on. Because we've always been technology and quality-focused, we have amassed some pretty amazing investors and partners along the way, so one, BMW, Porsche, Jaguar, Land Rover, American Tire Distributors, and Enterprise. Almost all of those are customers and investors, so we're pretty happy about that. And our retention rate has been pretty exceptional over time, and we'll talk more about that as we get into more kind of Q1 or Q2 numbers when, during Tim's section.
Just in terms of scale, like we're at a scale point in the business now where we continue to grow and add more business on top of it, and this is important, and we'll go through kind of how the business works on a more fundamental level. But last year we did about $185 million of revenue, and I think the important piece is that we maintained service quality at the same time. So Jenny, if you don't mind, can you go to slide nine? Great. So this, what you're looking at now is, this is a live snapshot of the technology platform, if you will. So what you're seeing is every job that Urgently sees at this particular moment in time is a real-time job.
So if you were to click on any of these events, you'd see the vehicle, you'd see the disablement reason, you'd see the service provider coming to the motorist. And some of our customer partners have a version of this in their offices, in their command centers, where they can click on their brand, they can see what's wrong with the car, they can intervene in real time. So it's kind of this end-to-end transparency that we're known for and that we brought to the market, where there really hadn't been any technical innovation before we arrived. Hopefully, that's a good overview for you.
Yes, thank you. Can you just, maybe, give us a little bit of your background and how you came to join Urgently?
Yeah, sure. So, I started off with a company that eventually became InterActiveCorp, so a company called Citysearch, and we was a big acquisition play before the first internet bubble in 2000. So we rolled up Match.com, and Citysearch, and Ticketmaster, and Expedia, and LendingTree, and HomeAdvisor, and a whole bunch of others. And we really were about how do we build the best, defining the best brands on the internet, and how do we build subscription businesses around it? So when I was asked to come to Urgently, one of the things that really attracted me to it, two things. One, it's dominated by incumbents that really hadn't spent any time on technology, which is always an opportunity to build something disruptive.
The second piece is, if you look at where the money's spent between insurance companies, OEMs, and fleets, they're all gonna try to move to subscription businesses. I thought that played well into my background to say, "You know what?... eventually, we're gonna be able to support our OEM and fleet partners and others building subscription services around this business. We've started to do that a little bit, and we'll talk more about it in the coming quarters and into next year, but it's an important part of the growth story going forward.
So I think, like, this has all the hallmarks of everything that I've ever been involved in. It's a big market, lots of money, some big incumbents, and there's a good opportunity to build disruptive technology. And we've seen that in our growth rate and our retention rate and our quality scores, that if you build a good technology mousetrap, you can continue to acquire more customers.
Okay, thank you. And can you just talk about your technology and how it sets you apart from other players?
Yeah, sure. Jenny, can we go to slide, why don't we go to slide 10 for this one? So we spend a lot of time and effort and, and, and money on our technology. It's probably one of- it's one of the most important things that we do because it touches all aspects of the service experience. So we use technology to create what we believe is a competitive moat around the business. So a few examples, that, that hopefully bring it to life. We're, we're solving what, what is fundamentally a complex geospatial search challenge. It's a bit like searching for a local product or service on Google. Y- you might wanna know what stores are great, you want- might wanna know what stores carry the product.
In our case, the motorist, the service provider, or, you know, the store, they're all moving in real time, and we match their location and their inventory with the service they need, and send someone an offer. But the complexity here is it's all done in real time, with real-time inventory, real-time weather, traffic, and other inputs. And we use a lot of machine learning, or what people typically call, you know, artificial intelligence, to predict the outcome. So we pre-score all the jobs, we pre-score all the providers, we pre-score the desired margin, and we rank providers that have provided exceptional service, and we cut the pool of possible people to pick up the job down to the ones that we believe are gonna provide exceptional service within the margin characteristics that we desire for this business.
If you look at our financials, what you'll see is that we have a, you know, a good 10-15-point margin improvement. I joke around with Tim, like, basically, the day he showed up is the reason the margin started to tick up over time. You can see, like, we spent a lot of time and effort driving technology to improve the fundamental business economics of this. We've been, you know, pretty successful over the last 24 months or so.
Okay, and also, can you talk about then the competitive environment and how do you compete against. Who do you compete against, and, how do you win in the marketplace?
Yeah, so there's two big markets for, let's call it roadside assistance. And the market is expanding into connected car and subscription and some other places, but why don't we just focus just for a second on the kind of legacy business? One competitor is providing service by directly selling to motorists. You know, AAA started in, you know, 1902. And the other is a company that provides white label B2B services for OEMs and fleets and insurance companies, mainly the latter, so mainly insurance companies. It's a private business outside of Boston.
So the strange thing about this market, and one of the things that's attractive to it for market entry for a technology provider like us, is AAA. They sell insurance, so the insurance side of the market, the Progressives, the USAA, the State Farms, are not gonna work with AAA 'cause they're fundamentally competitors on the insurance side of the market. So that side of the market, it's about $1.5 billion a year in B2B business. It almost exclusively goes to a large B2B family-owned business that's outside of Boston.
So we believe going forward, like, once we've achieved scale, since we believe we've achieved scale, the next tier of accounts, these really large accounts that aren't gonna work with you until you can prove that you have enough scale and enough technology to handle the volume, we believe that those are gonna start to attrit off, at least pieces of it, for the simple reason that people are gonna wanna load balance their traffic and not have, you know, the proverbial all their eggs in one basket with one provider. So they're gonna wanna work with multiple people to make sure if someone goes down, there's someone else that can pick it up. So we're pretty happy about where we sit in the market in terms of our size and scale.
Okay, thank you. You mentioned BMW. How penetrated are you with them today, and are there any other large customers you have? You've also been talking about landing and expanding with customers. Can you talk about how you grow your share with customers?
Yeah, so, BMW was, is, is both a customer and an investor through the, through their Silicon Valley office. Been partners for about, you know, about five years or so. We recently announced two renewals in Q2. One of these may or may not have been this particular brand. And one of the renewals that we have on this one, we actually expanded the business into Canada. So that added about 10% of volume for it, and I think, like, this is a real testament to, you know, people can sell anything once, but if you can't deliver great service and you can't renew customers, you can't kind of land and expand. So one of the things that we do is we move into different pieces of the business with them over time and figure out how we can support them.
So this, the roadside assistance mechanical piece is really critical, but it's also a wedge product to get in and start to expand the relationship over time to other things. We believe we've been pretty successful at that, adding subscription businesses, and adding collision, and adding call center features, and adding machine learning, and some VIP programs. We're pretty pleased with how we've been able to land accounts and then add new incremental revenue streams. Although small today, we'll continue to grow over time.
How long are those contracts normally?
So typically, contracts run about three years. In Q2, we announced two renewals that were two years. But I think on average, a good way to think about this market is about every three years or so, about a third of the business or so comes up for renewal, so there's always an opportunity to expand. So the market is $25 billion globally, about half of it is in the US. You can kind of back out the math and figure out how much business there is there. We're focused on a segment of it, on the B2B white label side, but we'll start to move into other segments—you know, late this calendar year and into next calendar year.
Okay, and how has the EV evolution affected your business?
It's a great question. So, lots of promise with EVs and lots of complexity. And also I'd also throw autonomous vehicles into this, too. There's a funny article that I read, that there's an apartment complex around where Waymo has their autonomous vehicles, and when they start up in the morning and they come in at night, they beep at each other, which I think it's hilarious. So all these different things that are happening with these new kind of... with AVs, autonomous vehicles, and then also, electric vehicles, are things that people really hadn't thought about before. So they're simpler from a mechanical perspective, not the AV piece, but the EV piece, but they still require local mechanical repair and maintenance service centers, and the supply chains just aren't built out.
We've read stories about rental companies that start to go down the path of EVs, and then they realize it's really difficult when there's a collision or something needs to be fixed. And all this is gonna be a really big growth opportunity. It's a tremendous opportunity for Urgently. While EVs are probably gonna take a little while to take off in terms of long-haul trucking, what we call milk runs, or these, like, local Amazon deliveries, tremendous opportunity for EVs. And if you think about what goes along with that, it's all the service and support that you have to provide in order to keep a local fleet of electrically charged vehicles up and operating, and it's a big part of our growth story going forward.
The last thing I'd mention about EVs, it's just something that most people aren't aware of, is EVs typically have more torque, so they tend to burn through tires at a more rapid rate. So we see a large amount of tire and tire-related issues with EVs just because of how much they weigh and the torque on the vehicles.
Hmm, interesting. And can you also talk us through your revenue model?
Yeah, sure. About 95% of our revenue is what we call incident revenue. So you used BMW as an example. If someone has a problem with a car or a mechanical breakdown with a car under warranty, you press the button, you call on the phone. We accept any kind of input, however the customer wants to initiate the service. That comes from the motorist, the car owner, through BMW, in this example, to us. We have a fleet of about 70,000-ish drivers, 12,000 or so companies, that we send the jobs out to. So BMW pays us on an incident basis, we pay the service provider, and we make the money in between.
The pricing and the service is pretty complex, 'cause you're dealing with a litany of different service-related challenges, and you're also dealing with what's historically a fragmented market. So this idea of tow trucks and mechanical and mobile repair, it's a lot of companies, probably 20,000 or so in North America, that each have, you know, four or five trucks. So you're really dealing with mom-and-pop shops, and they go from everywhere from, like, zero technical sophistication to very technically sophisticated. So you have to build something that kind of works for everybody. But we've seen, over time, the technology that we've built and the machine learning has really helped us enable some of these really extraordinary mom-and-pops that are starting to crop up that wanna start to grow their business, so it's pretty, it's pretty exciting.
What kind of visibility do you have on the revenue, then?
We have a lot of visibility. I think we can look at historical breakdowns for cars based on, you know, based on the breakdown rate. So typically, when we launch a new customer, we get 2 or 3 years' worth of breakdowns by zip code or by service area, so we can figure out, like, what the volume is gonna be and where it's gonna be. It doesn't match up perfectly, but on a, you know, on an aggregate basis, it's pretty close. And because the contract's for 3 years, we generally see pretty forecastable revenue. Some exceptions to that, there's some seasonality in the summer. In July, people travel more. There's a mix to... a change to tow mix.
And then the other thing that we, that we saw a couple of years ago that we've never seen before is COVID. So when people stop driving, obviously, that changes the revenue outlook, but I don't think, I don't think we're gonna see that again, probably hopefully in our, in our lifetime. But other than those kind of outlier events, it's a very forecastable, predictable revenue. It's also lumpy, so we get a lot of revenue growth when we sign new contracts. When we sign new contracts and we launch the partner, there's a lot of new revenue that comes in.
Okay, so when the gas prices are low, you see more activity and revenue, or?
No, I mean, the gas price thing, we see, when people drive more in the summer months, we see more activity, and we see more activity when there's bad weather. Gas prices really haven't had an effect on us other than the inflationary pressures over time, as oil prices went up, or there was the threat of some conflict, say, in Russia or Ukraine, or the, or the Pacific Rim. But gas prices don't really affect our business. We have inflationary, clauses in our contracts that allow us to, to increase prices if there's, if there's inflation. So it's mostly just driving, normal driving behavior.
Okay. And you made a meaningful margin improvement, and what, what inning are you in with that effort? And can you also walk us through your initiatives to drive towards your midterm outlook for a gross margin of 25%-30%?
Yeah, so we have a list of margin-related technology initiatives that we look at, and we score them by return on investment, and then we rank them by, you know, what's it gonna take and how long is it gonna take? And we plan those out quarter-over-quarter using, you know, OKRs, which is a planning process. And we have really good visibility into what these projects bring. We're usually pretty good at predicting if we, well, if we green-light a project, what we're gonna get out of it in the end, and we have a range.
I think Tim has mentioned in the past that our margin initiatives are driving us to a gross margin of 25%-30% in the incident business that we're in today. Subscription and SaaS would be outside of this. So 25%-30%, if you look at our quarterly earnings, we're getting close to the lower end of that, so we feel pretty good with some margin initiatives we have on deck that we can get into the 25% or 30% zone. So we feel pretty good that we're in a position to ladder up to that over the next couple of quarters.
Now when you're more focused on the profitability, can you still grow as fast, or?
Yeah, well, I think there's always a trade-off between how much money you spend and the amount of money that you need to take. This, you know, this market was a lot like 2000 before interest rates started to go up, where you could get. You could raise substantial equity capital for very little dilution. That changed as the Federal Reserve raised interest rates, as we all know. Some rumor that they're gonna lower interest rates before the election, you know, we'll see. But interest rates, of course, drive investors' internal rate of return, so they're very sensitive to that. We have been focused since our merger, that we closed Otonomo on October 19th of last year, that we're focused on getting the business to non-GAAP breakeven, which we said we'd do in Q1.
The Q4 will probably be, you know, below $1 million or so in Q4, so we're pretty close to get to non-GAAP breakeven. I think in the next year, as we look at the opportunity set and how it's gonna change, we can decide whether or not we're gonna decide to spend more in certain areas or less in certain areas. But our long-term growth that we've set over the next couple of years is we can expect to grow 25%-30% after we close the internal acquisition pieces of that. Tim, I'll let you weigh in if I missed anything on that.
No, I think you got the highlights, sir.
Perfect.
Okay, thank you. Also, how easy can you scale, and how meaningful can that be to margins?
Yeah, so, we have the platform that's built. Every company says they're not gonna have scale problems, but every company does. It's just the nature of technology, so you always need to go back every couple of years or every three or four years and look at improving the service. We are not gonna have a problem in the foreseeable future with any scale that we've had. We haven't had an outage in, you know, knock on wood, you know, a long, long time. Many, many, many, many quarters. The platform is very stable, and it's really just simply adding more volume from partners to the platform. Some of the new business that we're seeing come in, really interesting around connected car and telematics and things like that.
So this involves some API work on our side, but for the most part, it's really about adding big accounts. And just to give you kind of a, you know, point on that, so when we started off the business, we worked in the premium OEM segment with European OEMs. They might sell, you know, a little over 100,000 cars a year versus, say, a large Detroit OEM that might sell 2 million vehicles a year. So the magnitude of difference between the business that you're chasing has changed. So we like to talk about it in terms of a step function. So we've gone through the premium OEM segment. We've serviced that well. Now we're moving on to the mass market segment, and we have a few wins there, and then we'll start to look at the U.S. insurance segment, which is, you know, very large as well in the fleet business.
Are you planning on any international expansion?
So we actually operated a SaaS model with a partner in four markets globally: the UK, Germany, India, and Australia. We have discussions with partners about whether we should deploy a SaaS version of Urgently in Europe and in other places. Those conversations are, you know, have been going on for a long time. I think we would be farther along if it wasn't for COVID, which slowed down some of the technical implementation globally. But we have the platform already set up and ready to go, so it's just a matter of when the next kind of pan-European RFP comes out.
We'll try to plug ourselves into that and work with our existing partners about using our technology kind of on a go-forward SaaS basis. But there's nothing... We don't have we don't have anything signed yet. This is more, you know, we've done it before, and we've proven we can do it, and it's something we're particularly interested in in terms of global expansion.
Okay, and we have a question here from the audience in regards to that. They're asking about you expanding into Latin America, especially Brazil.
Yeah, so interestingly, three of our OEM partners have expressed interest in using a technology platform like ours that provides transparency in South America. I think what people see is they see, on a global basis, they see what the U.S. has done, and they look at our platform, the transparency, and they're like, "You know what? That's what we want. We wanna be able to- We want a platform like this everywhere that we sell vehicles." So you can imagine that could take on a bunch of different kind of flavors. Might be SaaS in one market, it might be a SaaS and service in others, but there's definitely,
I'd say, interest in South America, definitely interest in the U.K., and the large countries in Europe, and definitely interest in the Pacific Rim. So we look at these as, like, future opportunities. We wanna get the core right, and we wanna get to improve the unit economics here, and then we'll talk about how to, you know, how to move out over there. But we're pretty excited about what this platform could do on a global basis, for sure.
Okay, and can you also touch on your balance sheet and cash burn? Now you're gonna need to raise some additional capital.
Yeah, Tim, do you wanna take that one?
Yeah. So, at the end of the quarter, we had about $30 million, $29 million worth of cash and securities. We are predicting to significantly drop in our non-GAAP and our cash burn in the next two quarters, getting to a non-GAAP breakeven in the first quarter of 2025. So look for the cash burn to significantly reduce from roughly $9 million in the second quarter, and it'll start to ratchet down there, as our non-GAAP and our profitability increases here. As far as getting into next year, we are looking at our debt renewals. So we're looking at opportunity there. We have two pieces of debt that we look at.
One is, you know, really we think it's pretty easy and a no-brainer, but we're looking at a working capital line of credit. We have, as Matt's mentioned, we have very, very high-quality customers, good AR for security, so we're looking at a scalable, AR, you know, line of credit, if you will. And then the second piece will be a term piece. So we're working with the current lenders right now, and we're also looking at possibilities of other opportunities to get the best thing for the company as we enter 2025.
Okay, thank you. Another question here from the audience is, are you able to monetize any of the data that you see within your network?
So there's a lot of opportunities to do to improve the data monetization. It's a really good point. So I think if you look at companies like Instacart, they've been pretty successful at adding data analytics and ad tech and other things around the revenue to bolster it up. I think it's pretty... So a particularly interesting segment that we look at. For us, where we are today, is we look at data as a way to enhance the customer experience of the business and expand the service offering. So I'll give you a couple of examples on that. Number one, if your car breaks down, there's really no reason for you to sit on the side of the road for an hour and wait for someone.
You can give us permission to remote unlock the vehicle, and the service provider shows up, and we can get you an Uber, or a rideshare and get you to kinda where you're going, and then take the vehicle out and send you messages when it's delivered back to the dealer. So that's one thing that we're looking at. The other one is this kind of like proactive, predictive maintenance, especially around tires and battery. You mentioned EVs earlier, so that's pretty important to figure out battery health and to build. We're running pilots now to do with some of our partners to detect when someone hits a pothole and if the tire is gonna be flat, so we can actually, you know, hot shot out a tire from the dealer and meet them. The service event is taken care of kinda before they break down.
Another question here is, are there any type of vehicle problem that is more profitable for you than any other?
Yeah, so you can imagine if you roll a big, expensive tow truck, like those are, they take a lot of gas, they take a lot of time, and they're usually in particularly dangerous situations. The segment of the business on a, you know, per margin basis is, you know, that we wanna continue to grow, is they call it the soft serve or the mechanical piece. So if someone doesn't need to have a tow, we can actually take them out, and we can help do work with the dealer to do a tire replacement, or we can do battery or those kind of things with the vehicle.
Like, we like that business a lot, and we try to steer mobile repair and mobile technicians to deal with what would normally be a tow. We try to turn it into, call it a, you know, a soft serve, if you will, a tire replacement. But, we're focused on expanding both sides of the business. You can't have one without the other. But we love the, in partnership with dealers, we love the expanding their mobile footprint to do mobile service and repair.
Okay, just one final question here. You recently renewed contracts with your existing OEMs in July and August. Can you just talk about them in greater detail?
Yeah, so there were two. They've been longtime partners. We renewed both of them for two-year contracts. One of them we expanded into Canada as well, so that's probably another 10% of business in total. You know, on the renewals, you know, as I mentioned earlier, you can sell something once, but if you don't deliver on the customer service promise, you're not gonna get the renewal. And we've had, you know, knock on wood, except for one customer, one large customer, we've been pretty successful on the renewal side of the business. Renewals are typically pretty competitive because it gives an opportunity for our large competitors to come in that have, you know, more scale and a better balance sheet than us to try and underprice us.
But I think, you know, we win in the end because we do what we say we're gonna do, and we say we're gonna deliver exceptional quality, and we are measured on that every single day, and we're super transparent when we do well, and we're super transparent when we don't, because every job is a learning opportunity. So we like to say that, you know, we earn the business with every kinda roadside event. And we're, you know, we continue to win because of our quality, not because of our pricing or not because of, you know, something else.
Okay, sounds good. We're gonna have to conclude here. I know you have a pretty full one-on-one schedule. There are a lot of questions in the queue here. To the extent you still want your question answered, maybe you can reach out to the management team directly, or you can reach out to us at Sidoti. We can also put you in touch with them and schedule some meeting. And with that, I wanna thank you, Matt and Tim and Jenny, and the Urgently team. I wanna hand it over to you, Matt, for some concluding remarks before we close it down.
Yeah, perfect. Thanks, thanks again for having us. It's always a pleasure to see you, and we appreciate your questions and letting us tell the Urgently story. So I think, you know, you asked earlier kind of what inning are we in on the, on the margin piece. I'll expand that to the business in general. I'd say we're in the early innings of this. We're gonna see more technological disruption in the coming kinda couple of years. The market's shifting pretty rapidly with electric vehicles and last mile logistics. It's shifting rapidly, as incumbents try to rebuild their legacy IT stacks. We believe that we have a head start in that, and our machine learning and data science is a competitive moat that continues on the business.
So I think, you know, where we are is we're probably in inning two or inning three. It's a long game. Think about it as a double header. So there's a lot of opportunity in front of us, including expansion opportunities. So any questions you have, like, we're super transparent, like, let us know, we can answer. We appreciate everyone's time and, you know, have a great day. We'll hopefully talk to you all soon.
Thank you, and thank you everyone who participated.