Robert Maltbie

Robert Maltbie asked about the company's capital deployment strategy, the sustainability of NLEX's performance, specific sectors targeted for growth, and the impact of artificial intelligence on operations.

Answer

Executive Ross Dove and Executive Brian Cobb addressed capital strategy, emphasizing the importance of maintaining available capital for opportunistic transactions while minimizing interest costs. Brian Cobb noted that NLEX's performance is sustainable due to high volumes of charge-offs, despite normalized pricing. Ross Dove confirmed they are pursuing balanced growth opportunities across both financial and industrial divisions, including M&A, and are actively embracing AI to enhance efficiency across the business.

Inquired about the motivation for the C3 prepayment and capital deployment plans, the drivers and sustainability of NLEX's strong performance, specific growth opportunities by sector, and how the company is leveraging AI.

Answer

The C3 prepayment was to avoid interest costs while keeping credit available for opportunistic deals. NLEX's performance is considered sustainable due to high volumes of charge-offs, despite normalized pricing. The company sees growth opportunities across both financial and industrial segments and is actively using AI to improve efficiency and client services.

Robert Maltby of Singular Research inquired about the company's plans for its cash balance, the outlook for the dividend, the sustainability of its high gross margins, and the primary catalysts for future top-line growth, including partner expansion.

Answer

Executive Clint Stinchcomb stated that the best uses of cash include continuing the dividend and pursuing accretive acquisitions, particularly content libraries. Executive Phillip Hayden added that the dividend would, at a minimum, be maintained. Clint Stinchcomb explained that gross margins are sustainable, though large licensing deals may carry lower margins. Both executives identified content licensing as the biggest catalyst for top-line growth, supplemented by international pay-TV deals and FAST/AVOD expansion with 20-30 new partners expected across media and tech.

Questioned the reasons for the year-over-year decline in gross margins, the sustainability of Q1's sales momentum, the company's strategy for share repurchases, and the operational benefits being realized from AI.

Answer

The gross margin decline was attributed to long-term investments in operations, personnel, and inflationary pressures; margins are expected to improve sequentially but may not match the prior year's full-year level. The company hopes the positive sales momentum in strategic services will continue. The share repurchase plan remains the same as last year, with the slow Q1 start being a timing issue. AI is primarily used in the scanning business for data extraction and is being explored for back-office efficiencies in marketing and finance.