Discussion with Romil Bahl, President and CEO of KORE Wireless

In this podcast, Tom Rebbeck, Research Partner, talks to Romil Bahl, CEO of KORE Wireless.

KORE Wireless, an IoT connectivity and solutions provider, is planning to list its shares on the New York Stock Exchange in the next few months – a move that will be closely watched by others in the sector. 

Tom and Romil discuss KORE Wireless’s forthcoming listing, its growth plans and its positioning.

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Podcast transcript

Tom Rebbeck  

(00:10) Hello and welcome to the Analysys Mason Podcast. My name's Tom Rebbeck and I'm a partner in our Research division. Today I'm very pleased to have Romil Bahl, CEO of KORE Wireless, join me. First of all Romil, thank you for joining us.

Romil Bahl  

(00:23) Thanks for having me, Tom. Pleasure to be here.

Tom Rebbeck  

(00:24) Okay, great. Now, I don't suppose everybody listening will know all that much about KORE Wireless, so can you just start off by giving a brief introduction to the company and what you do.

Romil Bahl  

(00:34) Yeah, no I appreciate that. In fact, if people have sort of blinked over the last couple or 3 years they probably still think of KORE as an IoT connectivity provider because that's certainly what we have been for the majority of the 2 decades or so we've been around, starting in the N21 connectivity platform type space. But really over the last 3 years, Tom, I'm delighted to say we've been on a breathtaking transformation to transform to becoming more of an IoT solutions enabler. Much more comprehensive than connectivity. In fact, what we now say we do is deploy managed scale IoT applications. Whatever IoT means for our customers, from pet tracking or organ tracking, to fleet management to remote patient monitoring. And how we do it is through connectivity solutions and analytics. And so we've expanded our capabilities quite significantly beyond connectivity into IoT managed services and analytics.

Tom Rebbeck  

(01:34) Okay, cool. I think you see that in the most-recent financials that you put out. I think it's more than a quarter of your revenues now coming from IoT solutions.

Romil Bahl   

(01:41) Yeah, I'm glad you picked that up. We're very proud of the fact that a company that was basically 100% connectivity when this leadership team largely arrived in the last 3–3.5-year period. Yes, just over a quarter, 26% to be precise in 2020, was our newer services, so very excited about the momentum there.

Tom Rebbeck 

(02:01) Okay, good. You sort of touched on it already but maybe you can talk a bit more about your differentiators and your vertical market strategy.

Romil Bahl 

(02:08) Yeah, absolutely. You know, we would argue, first of all, that we had a very strong competitive moat, if you will. Even just as an IoT connectivity shop, because we were, I think, the first to really embrace and execute to the thesis of a global independent connectivity provider that aggregates across many, many MNOs to provide local, resilient, high-quality low cost connectivity service to customers that need that multi multi-type offer. When we talk about the multi-multi-multi offer at KORE, we're talking about multiple devices and technologies, multiple regions and countries in the world, and multiple protocols and technology barriers. We believe that proposition, by the way, 44 integrations into major MNOs around the world, three satellite providers, LoRa and other unlicensed... We can bring all of that to bear into our platform. Again, just in connectivity it's very strong. You add to that managed services in the most-highly regulated industries like connective health, where you need the HIPAAs and the ISO certifications and so forth.

(03:22) You can't touch a medical device without ISO 13485 in this country, and on and on. Really, in and of itself, the notion of becoming more of that one-stop shop, Tom, is itself a differentiator. We're saying, "Look, instead of having a dozen or 18 partners out there to launch one end-to-end solution, start with one. Start with KORE." Then we'll massively simplify our customers. So the other part of your question was the industry verticals. It isn't a stretch to think that if we're going to do all of these other managed services, analytics and these kind of solution-oriented enablement approach, we need to know more about our use cases and our industries than ever before. It's a very different world from being just a horizontal provider of connectivity. And so, we have picked our bets. We have chosen five industry sectors where the vast majority of the IOP spenders... In fact in over 90% of the market's been in these sectors the last few years. In the investment deck you would have noticed we said 80+% just to be conservative, and make those little changes other industries adopt.

(04:33) But look, historically our largest industry was fleet and telematics. It actually slipped to second because connective health became our top industry last year as the pandemic just exploded. In 18 months we've seen 18 years of adoption and acceleration in connective health. Those are our two largest, and then our next three bets are probably and surprisingly in asset mass monitoring and industrial IoT. And then in communication service providers as we enable connectivity services for those sorts of players. Yeah, excited about those five sectors.

Tom Rebbeck

(05:08) Okay, very good. One of the reasons that we're talking, and I think one of the reasons that you're going to be closely watched over the next few months is that you're listing. I think it's on the New York Stock Exchange in the next...is it next month that you're listing?

Romil Bahl

(05:22) Yeah, look, all we've said publicly anyway is Q3.

Tom Rebbeck 

(05:26) Right, okay.

Romil Bahl

(05:28) The reason for that is, of course, it's not in our control. It's when the SCC gets through the re-process.

Tom Rebbeck

(05:39) Of course. But maybe you could tell us a bit more about the plans for the listing and what that means for KORE.

Romil Bahl

(05:39) Tom, I think what I'll start with first of all is that this was a viable strategic alternative for KORE, in our opinion as a board, pretty much since I joined. I remember it was the May 2018 board meeting where we had our first discussion about a go public strategic alternative. The banker that had come in, and once a year, we would always bring in an investment banker to give us advice about just good governance practice. That particular banker told us then that between our just tremendous revenue visibility, and the 91% recurrent revenue last year...Between the public company experience of several of us. My first CEO job as a public company, several of our CHRO has been a public CHRO. Our CTO has been in a public company. You just go down the list and you say, boy, this is a better-prepared to be public company than many private equity shops they review and advise. And so it's been in the back of our minds since then.

(06:45) Over the period, or certainly over 2020, several SPACs reached out to us and said, "Look, we are excited about the IoT space, we love how you guys are positioning yourselves. We think you are relatively public ready and do you want to talk." We resisted the temptation mainly because we felt like we were on this 5-year transformation journey. We were only 2.5 years, 3 years into it, and we weren't quite ready to go. But then when Cerberus called, when a party with that kind of credibility and expertise calls, and on the CTAC advisory board, the CEO of the CTAC SPAC. Tim Donahue was CEO Nextel, McCaw Cellular before that, exec chairman of Sprint Nextel. The kind of people they had, we were like, "Wow, they will accelerate our transformation." That was the first time we said we'll put our hat in the ring, we'll see where we go. They were looking at over 100 companies, so we didn't particularly think there was a high chance we would be the last person, last company standing at the end of that. But we were.

(07:57) We're excited about it. If I was just to say another 30 seconds worth of stuff about why go public, why now, I’d say that it boils down really to the Cerberus, the real connectivity we think they can provide across the industry. But equally, just visibility of going public, right, just these kinds of interviews and meeting potential customers, becoming known, if you will, we think will be very helpful to the cause, because we're a very well-kept secret right now, as you said at the beginning of this call. Then the third big reason, and in some ways one of the biggest reasons to go public, is we are not treating this as an exit. We are not taking a dollar off the table. Every dollar that we are raising through the SPAC investors, through the pipe investors, every dollar is going to pay down our debt from the astronomical level it's at today, to a much more manageable 1.5, 1.7, to follow the Pro-forma EBITDA. That gives us financial flexibility to accelerate our growth, to move quickly on inorganic activity, and frankly gives us public currency - a stock to use as part of that acquisition strategy. We're very excited about how this move will accelerate our growth going forward.

Tom Rebbeck

(09:14) Okay, good. We'll come back to the acquisitions in a second because I think that's an interesting part of your plan. Just looking at the information that you've put out, quite a lot of financial information in advance of that listing. Some of the interesting things I thought, first of all the valuation itself. A billion dollar valuation, more or less, which I think is about 18 times your 2020 EBITDA. You're obviously raising a bit of extra money, you'll get some extra cash from this transaction, and as you said, the shares for currency are an interesting part of it. Also, I think interesting in the investor deck, and we'll put a link to the investor deck in the notes for this podcast because it's definitely worthwhile reading for anybody interested in the IoT connectivity space. But as part of that you talk about your revenue forecast or your revenue targets. I think in 2020 you were a bit over 200 million, you last quarter was something like 55 million. Just over that 200 million mark. Your target was over 400 million in revenue by 2025, so it's quite an aggressive rate of growth.

(10:16) Probably faster than market as we're expecting it. Maybe just talk a bit more about how you plan to achieve that faster rate of growth.

Romil Bahl

(10:24) Yeah, absolutely. By the way, well done. Just about everything you ticked off there. Just to clarify for your listeners, the USD55 million revenue number that you just mentioned is our first quarter of 2021, and we did put that out there with its fulsome results, and it is a record first quarter for us. We have some seasonality in our business. The first quarter is seasonally our smallest quarter, and so 55 is actually a pretty darn good number because if you just multiplied that by four, that would 220, which beats the number we put out for this year already. If you say that's my smallest, you get the idea. But let's talk about why we think there is acceleration of growth going forward. Certainly these will be the last few years. We've been dealing with two head winds that aren't necessarily specific to KORE. One of them is, one isn't. That's against the backdrop, of course, of the tailwinds of IoT.

(11:26): Let's talk through all of those dynamics just quickly. The first headwind that we're dealing with is there was some quite serious what we called one-time churn in the deck that you've obviously read of customers that happened when we did the five or six rather transformative period in KORE's history. When we went from really being a two-carrier, Rogers and AT&T-only sort of core, to being the 44 plus MNO integration company we are now. Lots of acquisitions that came with some blood in the waters, a pool load of customers that chose to go elsewhere because they weren't happy for whatever set of reasons. Or their sourcing department said, "Look, we've got to have two providers and the two providers we used to have have now come together, so you're going to go to someone else for it."

Tom Rebbeck 

(12:11) Right, okay.

Romil Bahl

(12:12) Those sorts of dynamics kicked in and that has been a reducing revenue set for us. The beauty of our business is, as you know, once the SIMs are out there and that device is working, pretty much till the end of device's lifetime, the revenue is going to come to us. When these customers "choose to put some subscriptions somewhere else for a while," or indeed just leave KORE, we're still getting revenue from but it's just decreasing as devices go off. That's dug a hole every year that you have to fill before you could go. The second hole, the second headwind, is the massive ARPU adjustments happening. Again, a kind of one-time phenomenon. Certainly from 2G, but also from 3G, getting into LTE line. Long-term evolution, 4G, 5G, 6G, we think will have far less...there might still be some ARPU reduction, but not of this one type.

Tom Rebbeck

(13:08) Okay, not the sort of price pressure you're seeing so far.

Romil Bahl

(13:12) Exactly. Some of our very largest customers interestingly enough are either flat or even going down in some cases, as their 2G revenues are going down, those domestics are coming off, and they're activating 4G. I need a lot more volume growth just to make that up. When you take those two factors out, the good news is that by the end of next year, we're sort of done in the United States, which is our major geography. The rest of the world still has to take their medicine on 2G, 3G headsets. We've been taking it, we've been filling those holes and then still showing growth. You just take those two factors out, Tom, and suddenly the growth rates that we're projecting going forward don't look that high. Again, IoT tailwinds, specifically if you look at our customer base, 3600+ customers. They're growing at about 20% on average, in terms of volume. You say if you did nothing else but serve these guys really well, don't lose them, which we've certainly started to do and we're certainly not losing customers anymore at the rate that we were at one point, you're going to put 20% devices out there and grow.

(14:18): And we have a fantastic cross-sell opportunity with these new services. Less than 200 of our 3,600 customers bought multiple services from us last year. As that number grows, we think solutions will continue to grow as well in the mix of the business. Again, it does look like a big number, Tom, but we believe it's very achievable.

Tom Rebbeck

(14:39) Okay, and finally let's come back to acquisition. Again, in the investor deck there's this anonymised list of 10 or so targets that you're thinking about. Maybe you can just talk in broad terms about what your acquisition strategy is. Is it looking to gain scale, go to new geographies? New vertical markets? Maybe a combination of all of those? What's the strategy?

Romil Bahl

(14:57) It is a little bit of a combination of those. But let me clarify a couple of things. First of all, we are not anymore, certainly after those transformative acquisitions that were done at one time to get backend integrations, to get a customer base, to build scale. We're not in that business anymore. We do not need to do acquisitions to grow. Acquisitions will be strategic because they extend our capabilities in a desired direction. The industry verticals as you just mentioned are key vector firmly because it brings in great talent, it brings in great anchor customers as references and use cases. But talent to me, and those resources and capabilities really are the most important part of that, because the more we can talk the language of our customers, the more we talk their use cases. We go in and talk clinical drug trials, we talk remote patient monitoring. We don't use the term IoT other than these general types of conversations. That's one vector.

(15:59) The other vector of acquisitions would be technological capabilities. Be it edge and edge compute, be it that AIoT, the artificial intelligence meeting IoT. Be it 5G readiness. We're doing several R&D projects right now to drive our readiness for 5G. But inevitably we're not in the ‘it-has-to-be-built-here’ business. If there's great teams that have built some really great stuff out there, we'd love to have them be part of KORE and be part of this exciting journey.

Tom Rebbeck

(16:32) Okay, excellent. Romil, thank you very much joining the Analysys Podcast today. As I said, in the show notes I'll add links to your investor materials in advance of the listing. I'll also put a link to the article that we published earlier this year on that listing. Romil, thank you. To automatically receive future episodes, please subscribe to the Analysys Podcast. Thank you for listening.

You can read more about KORE Wireless’s plans in Analysys Mason’s article Operators with IoT divisions will watch KORE Wireless’s NYSE listing closely. We also profiled the company in our report IoT connectivity disruptors: case studies and analysis (Volume IV).