Follow-up discussion with Romil Bahl, CEO of KORE

In this podcast, Tom Rebbeck, Partner, and Ibraheem Kasujee, Senior Analyst for IoT Services and Private Networks, talk to Romil Bahl, president and CEO of KORE Wireless.

Romil last appeared on the podcast in August 2021.

Today’s podcast looks at how things have progressed at KORE. Tom, Ibraheem and Romil discuss KORE’s recent acquisition of Twilio’s IoT unit, how the economy and 2G/3G shutdowns have affected KORE and KORE’s share price since the public listing.

You can find the previous podcast with KORE here. You can also find a recent investor presentation outlining KORE’s recent results and strategy in further detail here.

Podcast transcript

Tom Rebbeck 

(00:09) Hello, and welcome to the Analysys Mason podcast. My name is Tom Rebbeck, and I’m here with our IoT [Services] and Private Networks analyst, Ibraheem Kasujee. For this edition of the podcast, we’re going to be talking to Romil Bahl, president and CEO of IoT company, KORE. We last spoke to Romil about 2 years ago, and we thought it’d be good to catch up. So, Romil, thanks for joining the podcast again.

Romil Bahl 

(00:28) Thanks for having me.

Tom Rebbeck 

(00:29) We last spoke just before your public listing in August 2021. So, before we get on to talking about KORE, I’d just be interested in your impressions of how the market for IoT and IoT connectivity, how has it developed since then?

Romil Bahl 

(00:43) Well, it’s been an amazingly bullish couple of years for IoT. I mean, by no stretch of the imagination am I saying the promise has now been met. But the market for IoT and, specifically, for IoT connectivity is in higher demand than it ever has been. A number of the customers that spent some amount of time over the last decade or so with pilots, POCs, deploying in one country – maybe the country where they’re headquartered – are now getting ready to deploy globally. Obviously, [with] 5G, there’s a race to be the best and strongest with 5G standalone, [which] is helping fuel some of that.

(01:22) The greater proliferation of low-power wide-area networks, in general, the NB-IoTs, the LTMs, and the unlicensed seller, like LoRa, are providing more and more options for customers. And so, while on the one hand it increases the complexity when they can work with someone like us, that simplifies all that, manages all that for them, the demand has never been stronger. And, look, I mean, all of these edge and edge compute trends, the AI trends and where AI meets AIoT, all of that fundamentally doesn’t work without the connectivity to bring the data back or to apply the artificial intelligence to. So, we’re certainly very comfortable with how things have developed over the last 2 years, and still believe it's the decade of IoT ahead.

Tom Rebbeck 

(02:11) I think it’s a good point you make about demand because, I think, we’ll talk about the share price and investor sentiment maybe a bit later on in the podcast. It’s perhaps not what it was in 2021, but we see, I think, from your numbers and also from the other companies that report connectivity numbers and so on, that demand does keep on growing. Also, let’s turn now to KORE. Now, you’ve been clearly very busy since that listing in late 2021 with a number of acquisitions. The latest being the Twilio deal that, I think, was closed a couple of weeks ago, or maybe not even that long ago. So, what are the key changes that KORE made since that listing?

Romil Bahl 

(02:52) So, certainly, this is our second acquisition since the listing. The first was BMP, Business Mobility Partners, and their small connectivity, Simon IoT sister company. Really, we think of that as one small tuck-in type deal. About this time last year – maybe it was February of last year. It was around the same time that we announced the signing of Twilio IoT. We just closed it, as you say, last week [with] Twilio. So, this is our second tuck-in into the IoT space, but it’s exciting. It’s funny, when we were [becoming] public, some of the bankers and investors that were coming into our pipe had labeled us as the Twilio of IoT. And so, it’s funny and coincidental that we’re buying Twilio’s IoT unit now a couple of years after that happened. But we’re excited about the talent, we’re excited about the digital front-end experience that Twilio brings us.

(03:55) This was our next step. We’ve spent a ton of time and money building out our IoT connectivity platform and services, our eSIM IP and orchestration services, and our next big step was to build the digital console and front end anyway. And now, we get a team of people that were born digital or born knowing how to do that in the context of Twilio, and they’ve got some interesting early investments into the build part, helping a customer online digitally configure, build a device and then go deploy it. And so, we think we [added] build-to-deploy, managed-scale global value proposition, and it’s very exciting where we’re poised.

Tom Rebbeck 

(04:39) And just one more question on the Twilio deal, then I’ll hand over to Ibraheem. But I think Twilio, they’ve become your largest shareholder? Or they’ve become a big shareholder? Is that correct?

Romil Bahl 

(04:47) Yeah, they’re not our largest, but they are, certainly, a large shareholder and they have 12% or 14% of our shares now, which was an interesting part of this deal, for sure.

Tom Rebbeck 

(05:01) Okay. And so, you’ll continue to collaborate with Twilio on projects going forward?

Romil Bahl 

(05:05) We certainly hope so. And I know they’ve communicated to their sales team, on no uncertain terms, that IoT remains important to them, that it’s just not core to what they need to focus on. Because talking to share price, I mean, they’ve had their pressures as we’ve had ours. Everybody’s got to go do what they’re really good at. But for IoT, their sales force will continue to send the customers in our direction. And so, we look forward to that collaboration.

Ibraheem Kasujee 

(05:34) So, Romil, something else that’s changed fairly recently is, I saw in the Twilio announcement [that] KORE has been marketing itself as an IoT hyperscaler, which I think is a somewhat new term I haven’t come across. So, can you explain to us – what exactly is an IoT hyperscaler? How did KORE become one? And who are the other IoT hyperscalers out there, if any?

Romil Bahl 

(05:58) Yeah. So, we don’t believe there are any, Ibraheem, and we believe we’re pioneering the path there. I’m not saying there won’t be others [in the future] because the sincerest form of flattery and all that, right? But with the IoT hyperscaler terminology, we are really just formalising what we’ve been doing anyway. We’ve spent the last 5 years transforming ourselves within connectivity and with our new platform, with eSIM, etc., but more broadly than that, with our managed services, some of our analytics tools, to making it really easy to adopt IoT. As we say, to simplify the complexities that have held IoT back, right?

(06:39) And so, we think of [being an] IoT hyperscaler as the journey to doing the same thing to IoT as AWS pioneered for storage and compute. Make it really easy to use, centralise as much as possible, world-class security and other features and functions that every company in the world doesn’t have to build now because they can just buy it, and they can buy it [with] the click of a button, and trying to get IoT to that place. By the way, in partnership with those same cloud hyperscalers, being at the front end of that, removing the friction from getting tens of thousands and hundreds of thousands of devices using storage and compute on them, is how we view the journey to being an IoT hyperscaler.

Ibraheem Kasujee 

(07:21) And I guess the Twilio acquisition fits in well there. Because you go back to the simplicity of their offer and to build capabilities – presumably that was part of the attraction of reaching a different type of customer who can easily start with IoT from the bottom up.

Romil Bahl 

(07:41) That’s exactly right. And it ties back exactly to the answer I gave Tom on his question about, ‘Why Twilio?’. You’re getting a team, again, that was born digital. The best digital consumption engine in IoT is Twilio IoT. When people asked me, up until 6 months ago, who was I worried about competitively. It [wasn’t] some of these traditional connectivity providers. We’ve leapfrogged them in terms of connectivity capabilities and so forth, and we’ve added services and analytics. And so, there’s nobody challenging our one-stop shop type positioning. But you want to stay paranoid. You want to be looking at what’s out there that scares you, and certainly Twilio IoT was one of those that I had my eye on. And so, to combine these efforts, these initiatives, these world-class teams is a truly seminal moment that I think people will know for the next 3 to 5 years, but it’s going to change KORE for good.

Ibraheem Kasujee 

(08:44) So, if you look a bit further ahead, since you’ve listed publicly, there’s been a lot of changes in the macroeconomic environment, and high inflation, lower growth interest rates have risen. So, from your point of view, what sort of effect has that had on KORE? Has it had any impact in terms of what you see as the outlook for revenue, growth and profitability compared to what the plan was when you listed publicly? Are there specific challenges to the IoT market from these external factors?

Romil Bahl 

(09:14) So, first of all, I’ll just say that, on a revenue basis, we have exceeded the plan we put out there coming public in 2021. And sure, that’s been helped with the BMP Simon acquisition, that kind of thing. But, equally, we are most certainly one of the babies that has been thrown out with the SPAC bathwater in that we’re not one of these rocket ship stories. Give me a few hundred million and, maybe, 5 years from now, I’ll have the next best EV or whatever the promise was. We’re actually a real company with real revenue, etc., and we’ve exceeded the plans we put out there.

(09:57) In terms of the macroenvironment and interest rate environment, it has had an effect on us in an indirect way because my capital structure doesn’t look that great, right? My cap table doesn’t look that great because of the debt we have. It has not impacted us on the demand side. Our customers might be looking at different initiatives. They may be saying, ‘Hey, instead of going after a revenue generating initiative, let’s go, maybe, for efficiencies. Let’s drive profitability. Let’s drive automation [or] productivity.’ But the need for connected products, connected devices and, if you will, generically, IoT to solve those problems, to make their business processes better, has not changed. Again, it may be just the underlying demand signal on whether it’s a revenue generating thing or a cost thing, but we haven’t seen really any slowdowns.

Ibraheem Kasujee 

(10:50) That’s good to see. It’s encouraging to see that the demand side hasn’t been affected so much. So, on the demand side, one more thing. So, [in] the last couple of reports from KORE, 2G/3G shutdowns have been mentioned. And I think not just for KORE, but generally operators across the US. That’s been a major challenge. Can you talk about what the effect of the shutdowns have been, and how have you helped your customers navigate that process?

Romil Bahl 

(11:16) So, first of all, we’re thrilled and delighted to help customers. We experienced the AT&T 2G sunset early, earlier than really anywhere in the world. We learned from that experience. We’ve applied it in the context of our customers to build real migration plans into LTE. And with our broader services, we’ve been able to help many of our customers with the deployment of the 4G replacements, if you will, of the 2G/3G devices that were out there. So, that’s been fantastic, and we look forward to applying that knowledge to the 2G/3G migrations as they now come [to] Europe [in] the next few years. And we’re certainly the right parties for customers to count on [for] help, given the deep expertise we have now in that area. Now, that said, of course, it has impacted our business, which is why I talk a lot on it on these earnings calls you mentioned, Ibraheem.

(12:11) We started last year with about a million and a quarter 2G/3G devices in the US alone. And obviously, while a few of those trickled into January [of] this year, they’re basically gone. So, that’s a whole bunch of forced churn almost inevitably. And we’ve been dealing with this now for 3 or 4 years. That forced churn comes with ARPU declines because the old ARPUs in 2G/3G land were so much greater than they are in 4G that you have to grow volume sometimes two or three times to get back the same revenue with the same customer. So, that’s been affecting our numbers and making us look like a low growth story for the last 4 or 5 years. Again, the great news is North America, where 80% of our SIMs are anyway, the problem’s now behind us. We’ve got one last set of holes to fill this year, and starting next year, we’re going to be the exciting growth company that most people that look at us know we are.

Tom Rebbeck 

(13:17) Can we just turn to the share price? And we’ve touched on this, and I guess it’s related also to the 2G/3G shutdowns, as well, maybe a bit. But the share price, it looks lower. It was lower than the time of the listing. I’m sure it’s lower than you’d like it to be. How do you explain that low share price?

Romil Bahl 

(13:37) Yeah. Look, so, it’s a combination of things. Of course, there’s a little bit of that SPAC overhang that has to wear off, and people have to realise that we’re not a SPAC. And most portfolio managers have told their investors, their individual analysts that make the buy decisions that, ‘Hey, wait six quarters, eight quarters, ten quarters before you buy any SPAC, and let’s make sure it’s a real public company,’ and those things. So, some of that will just wear off with time and with consistent performance and saying what we do and doing what we say, which we’re certainly off to a good start on that. So, now you look at us, right? So, Twilio was USD440 a share, or something like that, when we were [going] public. And obviously, we became public at a SPAC value of ten. We’re sitting where we are at 15%–16% of that, and they’re sitting at where they are.

(14:28) I haven’t looked recently, but somewhere in the USD60 range down from USD440. Their challenges was profitability. And we have some of those challenges, but that’s why they’re shedding some of the businesses that they think are not necessarily absolutely critical and core to them. And I think they have a really bright future. And our issue is not as much profitability. It’s the debt, right?

(14:51) So, because of the SPAC go-to market, by the way, we were going to use every SPAC dollar that we were going to get to cut down our debt to get it down to 4x or less of the ePPA because we knew, to be a public company, you had to have low numbers. Well, unfortunately the SPAC redemptions were so high, we didn’t get enough cash. So, we’ve ended up becoming public with more debt than one would like, especially in a risk-off environment that we now find ourselves in the markets. And people are going, ‘Okay, I’m going to wait for them to fix their debt issue or at least amend and extend their debt out another few years so we know they can grow into it before I make the buy decision.’ And I think we’re weeks, maybe months, from addressing some of these questions and unlocking, unleashing shareholder value creation.

Tom Rebbeck 

(15:42) So, I guess, hopefully, some of these issues, the issues of the 2G shutdowns, will be behind you, investors have a bit more clarity on debt. Because I think you talked about that in the last, or maybe not last, but one investor call, about the cost of debt. Obviously, interest rates are much higher than they were when you originally got these loans, and so, they’re going to be much more expensive. The SPAC overhang should, hopefully, go away and that should give you a bit of a clearer pathway forward.

Romil Bahl 

(16:11) Right. Exactly.

Tom Rebbeck 

(16:12) Finally, just to end on a question about what’s coming next. More acquisitions planned? Acquisition into new products or geographies? What can we expect?

Romil Bahl 

(16:22) So, we remain, obviously, acquisitive. I think we’ve proven through the acquisitions [that] we’ve done, certainly under the watch of this leadership team that has largely come in with me over the last 5 plus years, that we are the choice, the best aggregator in the IoT ecosystem, be it with a spider and getting our own cellular core network early on, be it with Integron when we not only matured overnight our IoT managed services capabilities because they had been building theirs for 30 years, but we also made a big bet into connected health or healthcare and life sciences, which, by the way, now is 40% of our revenue. It was about 5% of our revenue when I arrived. And [with] both [the] Integron and the BMP Simon acquisitions – BMP Simon was actually even higher – almost 90% of their revenue came from life sciences and healthcare. And so, we’ve proven, and now with Twilio IoT, a real shot in the arm from a connectivity perspective. So, we remain acquisitive, especially when they are furthering our capabilities to be that pure play IoT hyperscaler, to be the one stop shop.

(17:36) I suspect, though, that we’re going to turn our attention to solving our, I say solving, but reducing our debt, extending the debt timeline, getting some of these big things done to get shareholder value, as I said, cracking before, and then really get our stock back to ten, hopefully, quicker than it took to get down to where we are today, and then use it as a currency to do set acquisitions. Right?

(18:04) And by the way, that’s sensible, anyway. I mean, it takes x months to get an integration done properly, to get all the people comfortable, situated correctly. So, we’re perfectly happy to, on the one hand, do a world-class job of integrating Twilio IoT, continue to build our M&A pipeline and then unleash the stock as part of the acquisition strategy going forward.

Tom Rebbeck 

(18:26) Okay, great. That’s very clear. Romil, it’s been very good to talk to you, very good to catch up. Thank you very much for your time and for joining us today on the podcast.

Romil Bahl 

(18:34) Thank you, guys, Tom and Ibraheem. A pleasure to be on.

Tom Rebbeck 

(18:37) Great, thanks. I will put links both to your most recent investor presentation, [and] also to the previous podcast that we did with you. If you’d like to automatically receive future episodes, please subscribe to the Analysys Mason podcast. We also welcome your comments, feedback and reviews. Thank you for listening.