Gorilla Technology Group - Earnings Call - H1 2025

Transcript

Speaker 2

Thank you for standing by. This is the conference operator. Welcome to the Gorilla Technology Group Inc. earnings call for the first half of 2025. Gorilla Technology Group Inc. is listed on NASDAQ under the ticker GRRR. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the questions queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. Before we begin, we will read the forward-looking statement. Today's call includes forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements reflect management's current expectations and projections about future events and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially. Forward-looking statements often include terms such as expects, believes, plans, anticipates, may, should, and similar expressions. For a discussion of important factors that could affect Gorilla Technology Group Inc.'s results, please refer to our filings with the SEC, including our report on Form 20-F. Except as required by law, Gorilla Technology Group Inc. undertakes no obligation to update or revise any forward-looking statements made on this call, whether as a result of new information, future events, or otherwise. I would now like to turn the conference over to Jay Chandan, Chairman and Chief Executive Officer, and Bruce Bower, Chief Financial Officer. Please go ahead.

Speaker 4

Thank you very much. For everyone who's dialed in, thank you very much for your support and attention. Gorilla Technology Group Inc. has entered the second half of 2025 with more momentum and firepower, and more market reach than any other time in our history. Our first half delivered about $39.3 million in revenue, which is a 90+% year-on-year increase. At the same time, we did so by executing on very large, complex projects in multiple geographies. It has proved that our AI-driven security, intelligence, and infrastructure solutions are in demand at the highest scale, and that we can deliver them consistently at scale. Now, financially, we've also strengthened our position on every front.

We have a rock-solid CFO who's reduced debt to $18.1 million, improved our liquidity with about $26.1 million of cash, and then further added another $105 million to our case in July through an equity offering to accelerate growth. These are not just numbers on a page. These are what we call listed few for securing and delivering long-term high-value projects, which will define the future of Gorilla. Operationally, we've also signed three new projects over the last 30 days. I promised I was going to be announcing a lot more coming in the coming days in my previous call, and we will be making very many announcements shortly as well. Two projects were in Taiwan, one in the UK. The one in the UK was a significant extension of the existing UK customer we have, but the two new projects in Taiwan were new customers.

These were strategic portals for us, not one-off wins alone. What it also does is helps us strengthen our long-term recurring revenue base with new customers so that we can increase and expand further into these markets. Profitability remains a core discipline for Gorilla. On a normalized basis, adjusted EBITDA and adjusted net income both came out about $5.7 million, demonstrating we're not just chasing top-line growth. We are building a profitable, sustainable business. Our model now is structurally much stronger compared to where we were last year at the same time, shifting from a very seasonal, milestone-heavy cycle to multi-year contracts that will deliver steady revenue alongside what we call milestone upsides going forward. We are no longer just a business of supplying technology. We're delivering national-scale AI private security, data intelligence platforms that change how governments and enterprises operate.

More importantly, with the platform partnerships and global delivery capabilities we have now in place, or which we have created and put in place, Gorilla is built to scale, and we're built to win, and we're built to lead. I will pass it over to Bruce.

Speaker 0

Thank you, Jay, for the kind words, and thank you also for the overview. Jay gave you the headline financial numbers. What I wanted to do is to dive into a few items and really highlight certain things. The first is, as Jay mentioned, the first half revenue surged to $39.3 million. That is obviously a great start, you know, up 90% year over year. One of the things you might notice is that the gross margin is in the low 30%. This is skewed lower compared to last year because of the mix. Last year was just essentially service revenue, which is higher margin. Nonetheless, we still maintain our full-year forecast for gross margins in the 40% range, and that's given basically the mix that we see in the second half of the year.

A couple of other things is you notice that there are two one-off adjustments or losses that show up, and I wanted to explain those. The first is a financing-related loss. This is primarily due to the exercise of warrants by warrant holders in the first half of the year. This is basically a pure accounting item. There's no cash impact, and that's essentially the loss or the difference between the exercise price of the warrants, which was $5.60 a share, and the prevailing market price, which was higher. We just have to book that for accounting purposes as a loss. There's no cash impact. There's no impact on the business at all. Actually, we were collecting cash from the warrant exercise. There's also FX-related losses. As we note, this is due to the lagged impact of the devaluation from the Egyptian pound in 2024.

What happens is there's certain work that was performed that went into the contract assets or the unbilled revenue, and then this revaluation carried through to now when we recognize it. I would note that the Egyptian pound has strengthened substantially in the last few weeks, from over 50 to almost 48. We would expect this effect to be a little bit muted or even turn around in the future. Moving on to the balance sheet items, we ended the first half with $26.1 million in cash, and subsequent to the close, as we mentioned, we did an equity offering of $105 million of gross proceeds. Where that leaves us at the moment is we have about $114 million of unrestricted cash, and we have $11.3 million of restricted cash. You'll notice that the restricted cash figure now is much lower than at the end of the first half.

It was about $16 million at the end of the first half. That is because we had a bid bond or a guarantee that was released, so that returned about $4.9 million. Going forward, we also expect to see the restricted assets drop even further. This is, first of all, due to the release of a customer guarantee to the tune of $2 to $3 million in the upcoming weeks. We continue our debt pay-down strategy, and we should be able to net about $1 million from paying down a loan facility and getting restricted assets released from that. Where we are at the moment with the debt position is it's $18.1 million at the end of the first half.

We're happy because this is down from $21.4 million at the end of 2024, and we just continue to selectively pay down debt where we can release deposits that are tied to the debt. Just to recap for those who may not know this, we have a working capital facility. It is secured by two things. The first is a property that we own in Taipei, and then additional to the value of the property, we were forced to pledge some restricted deposits. Here's a bank account. Here's a deposit. It's locked up, and that is the collateral. As we pay down the debt, then we release the collateral, usually on a one-to-one basis. You pay down a dollar of debt, release a dollar of collateral. It remains cash neutral for the company, and that's why we pay it down.

Overall, we don't want to pay off all of the debt because it's at 3% in dollars. It's quite cheap, and it gives us financial flexibility. A couple of other things to note. The first is that after the equity offering that we did, the shares outstanding right now are 22.9 million. This is basically because we sold treasury shares and issued about 1 million shares in addition to that. One of the advantages to the equity offering, the way we structured it, is that we have 3.47 million pre-funded warrants, and this is where we have collected almost all of the cash, but we have not issued the shares yet. Those shares will only be issued when the pre-funded warrant holder wants them to be issued. The share count should stay at 22.9 million until that part starts to change.

In terms of the outlook, the first thing is I want to confirm that the backlog for this year, when we came into the year, it was $93 million. Of course, we delivered $39 million of revenue, so that is taken out of the backlog. We've added $4 or $5 million to the backlog, so the backlog remains around $59 million from now until the end of the year. We are still confident in our guidance for this year of $100 million to $110 million revenue for the total year, targeting EBITDA margins of 20%+, and also targeting operating cash flow positive with the current contracts and the current structure. That leaves us on track for full-year numbers.

You can see from the way that we've spoken to you in the past, and we'll continue to speak to you, we don't stick our finger in the air and make guidance that way. We build it from our backlog, which is confirmed orders, signed contracts that we are either working on or about to implement. We don't look at our pipeline and take a guess. For the next year, we can confirm that we have a backlog of $70 million. Once we firm up that backlog, then we will get to the market with a more formal guidance. Stay tuned on that front. As Jay mentioned, we have several near-term opportunities, which we anticipate making some announcements about in the coming couple of months. Hopefully, that will give you a better idea of the backlog for 2026 and also what the guidance is.

One of the things we've talked about in the past, and I want to talk about again today, is the funding strategy for future projects. When we do announce those future projects, what are we doing? The first step is obviously to look for project-level funding, where there is another entity that is friendly to Gorilla or that is an SPV or otherwise, it's a customer that is funding a project. We look for that as a first step. The second thing is we look for debt. Third is equity. As you note, we raise equity. The sequencing was important there. We saw basically a need for equity to do two things. The first is to have that ready so that we could say to the customers, "Yes, we're ready to go. We have cash right here, right now.

We're ready to start." The second thing is that the availability and the terms that you get for debt improve. We are now in the market for debt. We've engaged the bank, and we're looking for debt right now. In the future, I anticipate that we'll be making more announcements about how we fund projects, and it'll be with an emphasis on project-level funding and on debt. With that, I conclude. Jay, unless you have anything else, we can move on to Q&A.

Speaker 4

No, absolutely. Let's move on to M&A.

Speaker 2

We will now begin the question and answer session. To join the question queue, you may press star and one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press star and two. We will pause for a moment as callers join the queue. The first question today comes from Michael James Latimore with Northland Capital Markets. Please go ahead.

Speaker 1

All right, great. Good morning. Congrats on the strong growth this year so far.

Speaker 4

Thank you, Mike.

Speaker 1

Jay, maybe can you just highlight or summarize which customers or projects or regions were the main revenue drivers in the first half of the year, and which do you expect to be kind of key to the second half of the year?

Speaker 4

Absolutely. The first half of the year, Mike, we've very actively worked on projects in the Middle East and in Taiwan. The second half of the year, it would be a majority of a lot of the revenue would be coming in from Taiwan, Thailand, and the Middle East. For 2026, the mix is almost an even spread between the US and Southeast Asia.

Speaker 1

Great, great. Getting nice and diverse sources.

Speaker 4

As we had promised a couple of years ago, we promised a couple of years ago to de-risk our business, not just in terms of territories and geographies, but also in terms of business segments. That's where we are today.

Speaker 1

And.

Speaker 4

That we have managed to kind of de-risk it.

Speaker 1

Maybe just touch on two projects you've highlighted in the past. You know, one, One Amazon climate tech initiative. Can you detail a little bit about, you know, when that's going to roll out, how you're going to roll it out in terms of the number of sensors and when? Just a little more clarity on that would be great.

Speaker 4

Absolutely. This is going to be slightly long.

Speaker 1

Hold on.

Speaker 4

Two questions there. Now, one has. Progress, it's been progressing very strongly. In fact, it's been a really good success story for us, even pre-implementation. The milestones we have, one will be the official showcase at the New York Climate Week in September 2025. That's where the world leaders are gathering, and they'll be talking about the One Amazon climate tech initiative. The second one will be the tokenization completion and launch at COP30. That will be in November 2025, alongside the official release of the One Amazon token as well. On the technology side, we've already got our teams in Taiwan and in India working on all the sensor technology, whether it's in a field deployment, environmental monitoring, IoT devices, configuring them for forest health, biodiversity tracking, and anti-deforesting alerts. We've also now actively engaged on our POCs on the satellite mapping.

Multi-layer imaging, creating AI-based land use mapping operations, enabling real-time monitoring and verification. The Internet of Forest, which is the third part of our technology solution, is providing the connectivity, the edge AI, the cloud analytics to capture and process environmental data at scale. We've already started working very closely with universities to democratize some of the data. I was in India until yesterday, just got back this morning. We are now signing up with a very large university, one of the top tier universities in the country, so that we can build the innovation lab and absolutely make sure that we are able to help build large language and small language models in the region. Finally, we've also started on the cost per hectare analysis. The model is fully operational, where basically what we're doing is we're working to optimize the resource allocation and the project ROI.

On the blockchain and tokenization, we're currently working on the platform, building the platform, which is built in play in partnership with the leading blockchain infrastructure provider. We're also working on carbon credit and environmental asset tracking, which is directly linked to the on-the-ground data from the sensors as well. What we have done now is we have deployed some of the sensors, not only just in the Amazon and rainforest, but in other regions just to do a compare and contrast. The one good news I can add to that is that we have officially now signed the land use agreement. We have a little over 130,000 hectares signed by the state of Marco Corozo. I think the governor of Marco Corozo will actually be launching it at the New York Climate Week as well.

This allows us to now go to the other territories where we've been in active conversation to close the ongoing negotiation, secure footprint for the large-scale conservation and restoration. Our role, Mike, is very clear. We are the exclusive technology backbone for data capture and analytics, all of the connectivity, security, and the system integration. More importantly, we want to make sure that One Amazon is a measurable, verifiable, and a commercially viable climate tech initiative. I hope that answered your question.

Speaker 1

Excellent, excellent. Thank you. I guess just the last one for me, the Smart School program in Thailand. Maybe can you provide a sort of quick update there? Once that starts getting deployed, what kind of revenue might you be able to see in the first year?

Speaker 4

Sure. Mike, we are currently in very, very deep negotiations with the government. The project, as I mentioned previously, has already expanded in scope. It's not just the smart education. There is a smart cloud infrastructure, as well as there is the AI database integration project as well at the same time. We are in active discussion both in terms of scoping with the customer and agreeing on some of the contractual terms as well. I want to be a little careful so that I don't comment on any specific details such as the commercial model, delivery schedule, and so on. The size and scope of the project has only expanded, not reduced. When there's a formal contract and a public announcement, we will definitely share the details over the course of the next few weeks.

Speaker 1

Okay. All right. Excellent. Great. Thanks very much, Dr. Luck.

Speaker 4

Thank you. Thank you, Tim.

Speaker 2

The next question comes from Brian Kinsdillger with Alliance Global Partners. Please go ahead.

Speaker 3

Hi. Thanks. This is Kevin for Brian.

Speaker 1

Hi, Brian.

Speaker 3

Could you provide an update or a little bit more of an update on any of the large MOUs that you've discussed and the progress to signing contracts? While you've had a few MOUs, is there one that you think is closest to getting signed? If so, which one?

Speaker 4

Sure. I mean, Brian, the Banhai port in Taiwan and the AD were both on the MOU phase. We closed them already. As you know, Banhai, we'll be deploying our AI port logistics safety and operational efficiency on the port over the next few months. On the ADE, that's a far more complex project. That will integrate our AI-based analytics to track and disrupt financial crime networks. It's the first of its kind, which we're building, especially for the blockchain platform. The remaining contracts we are working on currently are in the final stages, and we will announce once they're signed. We are on plan, and just to be blunt, closing multimillion, multi-year AI infrastructure contracts with governments, especially, is not a same-day exercise. The MOUs which we talked about, we are at a very mature phase.

I can give you an example for, you know, we talked about the project in Thailand previously, the one with the Thai police. That project, we have actually deployed and completed the proof of concepts already. The customer is extremely happy with our results. If anybody outside of the market today took some time to look, they would see actually our solutions running live in multiple locations, including Pattaya, Chiang Mai, Ayutthaya, Lokori, and so on and so forth. The opportunity remains, and we are currently engaged. Once we converted these proof of concepts into contracts, these will turn into what we call broader national programs as well. More importantly, you know, we are still sticking to our commitment that this will turn out to be a $50 to $60 million project. I hope that answers your question.

Speaker 3

I could add a couple of points as well.

Speaker 4

Sure.

Speaker 3

Kevin, just to add two more things. The first is that not all projects that Gorilla undertakes have the same life cycle. Some go through a very lengthy procedure of discussing the initial terms, signing an MOU, going through a proof of concept that sometimes can take months to refine and execute properly, and then expanding that into a formal contract, like the system that Jay was describing. Some of them, however, skip over some of those steps, and you start talking about an idea that goes straight into the contracting phase. Some of the opportunities that we alluded to earlier in the call are like that. There is no MOU. We skipped over that phase, and we're just talking about final signed contracts at the end of the day.

The other thing I would note is that the timelines, one of the reasons we're so cautious about how we forecast revenue, why I'm always talking about backlog instead of our finger-in-the-air forecast, is because the timelines can shift. Something that is a proof of concept can take longer. Maybe it gets reworked. Like Jay mentioned, in a couple of projects, the scope has actually expanded. We're happy to have the project take a little bit longer in exchange for a larger scope. That just makes it very difficult to forecast properly, and that's why we err on the side of being conservative. When we do MOUs, it's the start of a relationship. It's a relationship that takes time to cultivate and then to flourish as business. We don't try to force it. We try to let it take its own time and focus on the business relationship.

If it takes a little bit longer, we want to make sure that the market is not getting overly excited overly early. Instead, we message the market when it's mature.

Speaker 1

Great. Thanks. Could you talk a little bit more about the primary uses of the capital raise? Will there be any significant increases in expenses that can help drive top-line growth or near-term M&A opportunities, or is it just to kind of have a solid cash balance that makes winning new contracts easier given your financial positioning?

Speaker 4

I can take that if you want, Bruce.

Speaker 1

Yeah, yeah.

Speaker 4

We've raised about $105 million, Brian, because we were moving forward on some very large projects. We want to make sure that we can hit our ambitious targets without, you know, and without the right capital, we're just not being realistic. I'll give you an example. Government offers to put in a bond, a bid bond, a cash-based bid bond for a very large project, which was that alone was like $20 million. We don't want to get hamstrung. That's one. Secondly, we're not raising money for the sake of raising it. Every dollar we raise right now to date is tied to a very clear high-return opportunity. Whilst, you know, equity was the right move at the time, we always want to make sure that we are looking at debt and other strategic funding structures as well so that we can minimize dilution while maximizing growth.

Now, in terms of our growth today, we are very actively engaged in our M&A, as you know, with CNF and CAN. That said, we are also actively engaged or looking at opportunities in India, currently where we are looking at about a 500, and actually about between 750 to 3,000 people center to help grow very quickly. We're also actively potentially pursuing an acquisition in the United States as well. Apart from that, all the projects which we are working on are pretty strategic. We have a whole mix of new R&D products that are coming in. We will be investing some of the investment into our SD-WAN, which is our Intelligent Network Director products. We're working very closely with NVIDIA. We're building quite a number of, you know, we're co-engineering a number of these solutions and for the One Amazon as well.

You will see quite a few developments over the next few months.

Speaker 1

Great. Thank you both.

Speaker 4

Thank you.

Speaker 2

The next question comes from John Marc Andre Roy with Water Tower Research LLC. Please go ahead.

Speaker 3

Great. First of all, congratulations on a great first half. I wanted to ask about gross margins. Obviously, they tend to be going up and down. Bruce, maybe you give us some color on when that might stabilize in the future, or is that unlikely?

Speaker 0

First of all, the gross margins, as I mentioned, in the first half of last year and the first half of this year is influenced really by the revenue mix. Last year, we had a couple of large projects in Taiwan and the Middle East, which were really primarily service and software, so higher margin. Whereas in the first half of this year, there were significantly more hardware deliveries in that mix, as part of filling one contract, which took the margins down. I would say that for the year, we expect the margins to move up towards the target that we announce, given the mix, as Jay was talking about with some of the contracts that we have announced and are working on. In the Middle East, in Taiwan, in Thailand, other places, we expect that mix to bring it to a 40% gross margin for the year.

Looking forward, we expect, given the current contract mix, a similar margin profile in the future for the full year. Given that these are governments, the timing can kind of shift around. The timing of the recognition of revenue for hardware or for services can move around. Any one quarter might be volatile, but over the full year, they should be stabilized and hopefully over the next few years drifting up. Does that help?

Speaker 4

No, that definitely helps.

Speaker 0

To add to that.

Speaker 4

Oh, sorry. Go on, please.

Speaker 0

No, go ahead. Go ahead, Jay.

Speaker 4

No, sorry. Just to add to that, I think Bruce made a very valid point, right? We've already moved from a very lumpy, milestone-driven revenue model to a more predictable model. If you look at our last two quarters and the next two quarters, it'll be more predictable. More importantly, what we are trying to do is we're trying to move away from these lumpy projects itself to long-term, multi-year, sustainable revenues, which means we're signing multi-year projects. What will happen over a period of time, you know, where we're stating our ship right now, we will see the effect of that towards the latter half of this year, or latter quarter of this year, and the first two quarters of next year.

Whilst there will be some revenue spikes and some of the, you know, spikes in gross margins and so on, over a period of time, what you need to look at is the yearly number at the end of the day. The yearly number will be much more managed, less volatile, and we will have more visibility with a much, much, much more stronger baseline for growth. We will be capturing all the upside from all these bins as well at the same time. Just to give you an example, the projects we're talking about in Southeast Asia, in Thailand, we've got the projects in Singapore, we've got projects in Jakarta, Malaysia, and in Taiwan. These are all three, five, eight-year contracts. These are not just maintenance contracts. These are proper long-term, multi-year, recurring contracts.

That will allow us to, and those will be more stable as opposed to lumpy as well. Just wanted to add that there.

Speaker 3

That's really helpful. One quick question on your US efforts. I know you were talking about possible acquisition. Are you still working with AECOM significantly in the US?

Speaker 4

Yes, yes, we are. I mean, for us, it's, you know, AECOM, Cisco, One Amazon climate tech initiative, which is now moving its tokenization strategy to the US, just FYI, would be amazing. More importantly, we will also be working very closely with the likes of Hewlett Packard Enterprise, whom we signed a global OEM relationship with, and with NVIDIA in the near future as well.

Speaker 3

Oh, great. Thanks so much. Again, congratulations.

Speaker 4

Thank you, John.

Speaker 2

This concludes our question and answer session. I'd like to turn the conference back over for any closing remarks.

Speaker 4

Thank you very much. I have some questions which you probably need answering, but I'm happy to respond to people who are attending us messages at any given point in time. What I wanted to let people know is that our business is moving forward in what we call a real-world implementation. We are managing country risk, sovereign risk, procurement risk, implementation risk, and making sure that we can get paid on time and can deliver on time. That is actually something I think most of you have seen today that our customers are paying us. They're not just holding their money back. Our largest customers already paid us this quarter, as you've seen from the customer this morning. What we are making sure also is that we reduce our overall accounts receivable and make sure that we are able to run a complex global organization.

For a company of our size, it is very unique that we are positioned in so many different countries. At the same time, we also want to make sure that our cash conversion stays on the money, no pun intended. Ensuring payments flowing in line with the project milestones is very essential for us for maintaining liquidity and funding expansion. What we are doing is that we are having a multi-sourcing, multi-localization, procurement program. At the same time, we're making sure that strict payment protection and contractual safeguards are also put in place. I mean, guys, we're dealing with government. It always slips. We want to make sure that before we make any major capital outlays, we ensure that we are protected and ensure our cash flow. The reality is, we all know that sometimes the execution can slip.

We also know that the design of our contracts and some of the operational plans take those risks off the table before they become a problem. What we are doing is we're still delivering growth in a very volatile global market today. I would really appreciate all your patience, and I'm really thankful for everyone being very supportive of Gorilla. Thank you very much, indeed.

Speaker 2

This brings to a close today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.