Earnings call transcript: ARMOUR Residential Q4 2024 misses EPS forecasts

ARMOUR Residential REIT (NYSE:ARR) Inc. (Market cap: $1.45 billion) reported its fourth-quarter 2024 earnings, missing analysts’ expectations with an earnings per share (EPS) of $0.78, compared to the forecasted $0.97. Revenue also fell short, coming in at $49.5 million against a forecast of $66.67 million. Despite the earnings miss, the stock experienced a modest 0.79% increase in after-hours trading, closing at $19.21. The company maintains an impressive 15.17% dividend yield, making it one of the highest-yielding REITs in the market.

InvestingPro analysis suggests the stock is currently trading above its Fair Value. Investors seeking deeper insights can access comprehensive valuation metrics and 7 additional expert tips through InvestingPro’s detailed research report.

Key Takeaways

• ARMOUR Residential’s EPS and revenue both fell short of forecasts.
• After-hours trading saw a slight stock price increase of 0.79%.
• The company anticipates improvements in margins and continued growth in cloud services in 2025.
• ARMOUR Residential’s stock is trading near its 52-week low, with recent market volatility.

Company Performance

ARMOUR Residential’s fourth-quarter performance highlighted challenges in meeting market expectations, with both EPS and revenue missing analysts’ forecasts. The company’s stock reacted with a slight increase in after-hours trading, reflecting cautious investor sentiment. The broader market context shows ARMOUR’s stock trading near its 52-week low, indicating potential investor concerns.

Financial Highlights

• Revenue: $49.5 million, below the forecast of $66.67 million.
• Earnings per share: $0.78, missing the expected $0.97.
• Stock price change: Increased by 0.79% to $19.21 in after-hours trading.

Earnings vs. Forecast

ARMOUR Residential reported an EPS of $0.78, falling short of the $0.97 forecast, marking a significant miss. Revenue also underperformed, reaching only $49.5 million against the expected $66.67 million. This represents a substantial deviation from the forecast, which could impact future investor confidence.

Market Reaction

Despite the earnings miss, ARMOUR Residential’s stock saw a 0.79% increase in after-hours trading. The stock’s current price of $19.21 is approaching its 52-week low of $17.35, suggesting that while the immediate reaction was slightly positive, broader concerns remain. The stock’s movement contrasts with broader market trends, where many companies are experiencing volatility.

Outlook & Guidance

Looking ahead, ARMOUR Residential expects margin improvements in 2025 and anticipates continued growth in cloud services. These strategic initiatives aim to enhance the company’s competitive position and drive future performance. InvestingPro data indicates analysts expect sales growth in the current year, with the company projected to return to profitability. The company maintains a FAIR financial health score of 2.18 out of 5, suggesting stable operational fundamentals.

Executive Commentary

Company executives emphasized the potential for margin improvements and growth in cloud services. A key quote from the earnings call highlighted, "Full effect of the cost and efficiency measures will be evident during 2025," indicating a focus on long-term strategic initiatives.

Risks and Challenges

• Market volatility: ARMOUR’s stock is near its 52-week low, highlighting potential investor concerns.
• Revenue shortfalls: The significant miss in revenue forecasts may affect future investor confidence.
• Competitive pressures: The company faces challenges from competitors in the cloud services sector.
• Economic conditions: Broader economic trends could impact ARMOUR’s future performance.
• Operational efficiency: Achieving the anticipated cost and efficiency measures is critical for future success.

Q&A

During the earnings call, analysts inquired about the company’s hospitality goodwill impairment, which reflects the actual financial performance of the hospitality segment. This concern underscores the need for ARMOUR Residential to address segment-specific challenges to reassure investors.

Full transcript - Armour Residential R (ARR) Q4 2024:

Company Executive/CFO, ArribaTech: Good morning, everyone, and welcome to this fourth quarter presentation. We have had many things going on during the previous quarter and let’s just dive in here. First of all, we had an all time high revenue of NOK 151,000,000 in the fourth quarter. That is 5.2% above same quarter previous year. Our EBITDA negative $11,700,000 but that as you can see also includes $13,800,000 knock of one time non cash items.

Adjusted EBITDA positive at the $2,100,000 which compares to $1,800,000 a year ago. In December, the shareholder meeting resolved to raise cash in Q1 and we did that and ArribaTek actually raised 41,000,000 in gross proceeds from that share issue, leaving the company in a net cash position. I’ll come back to the cash position a little bit later here. We have had a cost efficiency program going during the whole of Q4 and as part of that cost efficiency program, the headcount has been reduced by some 25 full time equivalents across the entire organization and the corporate head office has been downsized by approximately 70%. Also happy to inform that we are in advanced negotiations to divest both Aryabatic Marine and Aryabatic Hospitality.

And lastly, also very happy to share with you that our sales for Q4 is up 33% and compared to same quarter last year and it’s the best quarter in the history of the company. So we are very satisfied with that. Yes, revenue as I said, $151,000,000 for the quarter. Recurring revenue now accounts for 43% of the total revenue in the company. And at $63,000,000 it is up 17% in absolute terms compared to a year ago.

We have talked about EBITDA, but the adjusted EBITDA at $2,100,000 that gives us an adjusted EBITDA margin of 1.4%. Norway accounts for 71 of the total revenue of the group and in absolute numbers that is 107,000,000 for the quarter comparing to 96,000,000 a year ago, so up 11% compared to a year ago. Continental Europe, including Sweden, is 14% of the total and it’s a reduction of 20% compared to where we were a year ago. Lastly, UK and US, revenue of $22,000,000 this quarter, up 5% compared to a year ago and accounts for 15% of the total revenue for the group. So to the shareholders meeting arranged on second December last year.

There it was decided that the company would issue $350,000,000 new shares at a price of 0.1 kronor per share. Additionally, it was decided to issue 60,000,000 new shares to the members of the Board of Directors at the same price. The meeting also decided to issue 150,200,000.0 warrants to the underwriters of the share issue. And lastly, the meeting also decided to issue 60,000,000 warrants to the Board of Directors. Both those warrant issues have a duration of twelve months.

So the actual share issue ended or was undertaken in January and the company received the proceeds from that share issue on February 6 and we received at that time NOK41 million in gross proceeds. The warrants on the zero point three and zero point four above will expire as I said in twelve months and if all the warrants are exercised, an additional $210,000,000 shares will be issued with a gross proceeds for the company of NOK21 million. That means that as of today, our Libertec Group has 479,600,000,000 shares outstanding and on a fully diluted basis there will be 689,800,000.0 shares outstanding in ArribaTech if all the warrants are being issued. So that is a fully on a fully diluted basis 689,800,000.0 shares outstanding. If you look at the pro form a liquidity after the share issue, We have made a simple chart here showing what our cash balance was at the end of last year.

It was NOK23 million. We still had NOK3 million in unutilized credits from our bank. And then we received net proceeds from the share issue at NOK40 million. So that of course increased our bank balance significantly. And we had an agreement with our main bank that we would repay part of our credit facility with NOK 15,000,000, which means that at the end of all these events, we had a little bit more than 50 or around 51,000,000 in total liquidity available to us as a company.

As I said, we have had a lot of things going on in the company in Q4. The headcount reduction by 25 employees I mentioned earlier. We also have made changes so that most of the back office and support activities is removed from corporate level and will be performed in the regions going forward. Also, as I said, corporate staff reduced by approximately 70%. We have simplified the legal organization and this will facilitate better coordination, easier coordination across all business units and also improve our efficiency.

Another very important point here is that we have improved our forecasting capabilities and this should enable us to make quicker adjustments when we see changes in the market ahead of us and that is important for us. Lastly, discretionary expenses has been reduced across the board in a significant amount. Total (EPA:TTEF) restructuring costs that we have taken into the 2024 account is NOK10 million recognized in Q4 and will have a real impact on our Q1 and Q2 twenty twenty five performance. These measures are expected to contribute to improved margins, positive cash flow and improved visibility. And full effect of the cost and efficiency measures will be evident during 2025.

This is a slide that we have been using for quite some time now. Out on the right hand side, the tall bar there shows a total revenue in Q4 as segmented by business area. So at the bottom, you can see that the business services NOK74 million in revenue for fourth quarter. And if you look at the same quarter a year ago, that was the revenue was SEK70 billion, so it’s a improvement from a year ago. Ago.

Also, we can see that E and BPM flat from fourth quarter a year ago, but a solid improvement compared to previous quarter. Also, if you look at cloud, we in Q4 ’20 ’4 million, ’30 ’8 million while a year ago 31,000,000. So it’s a significant increase in revenue. We have also on the top, you can look at our recurring portion of our total revenue, 4329% of our revenue is created outside of Norway. Now to sales.

During Q4, we signed a total of six ten contracts for a total value of SEK285 million. Dollars That is up 33% compared to Q4 in 2023 and we are very satisfied with the sales performance at the end of last year. Should also mention that EA and BPM signed a total of 94 new contracts for a total value of $91,000,000 And in there, there are two contracts, both for oil and gas companies, one of them with NOK23 million total value and the other one with NOK11 million of total value. Similarly, business services also signed the two larger contracts, one for a research institute based in Continental Europe for Unit four installation of NOK21 million and another contract signed for a global engineering firm where we will do a Unit four rollout in UK and Ireland for approximately $15,000,000 So a lot of very good contracts for us secured and we will be working through this contracts during 2025. Then to cash flow development during the quarter.

Net cash from operations for Q4 was plus or positive $14,000,000 and of course the main contributor there is improvement in working capital, positive change of $26,000,000 and that compensates for the operating loss of $15,000,000 before impairment depreciation and amortization. Cash from financing was just little bit more than negative $7,400,000 where the main items there is lease payments and repayment of some bank overdrafts. Lastly, we have cash flow from investing activities negative $1,700,000 and that is all related to capitalized software development costs. So that means we ended the quarter with $23,000,000 in cash and cash equivalents at the end of the quarter and $11,700,000 of that is restricted cash. So to the balance sheet.

We have a total balance sheet at NOK $442,000,000 at the end of ’twenty four and that is compares to NOK $5.00 1,000,000 at the end of twenty twenty three. You can see we have taken an impairment of goodwill for hospitality equal to NOK 22,000,000 in quarter four and also we can see that cash here is down $16,000,000 compared to year end 2020 gs. However, cash improved as I said earlier by $5,000,000 compared to third quarter in ’20 ’20 ’4. If you look at the equity, at the end of twenty twenty four, it’s 189,000,000 and that gives us an equity ratio of some 43%, a little bit lower than that. So to outlook, our initiatives both within cost reduction and efficiency improvement, we expect that to definitely lift the margins during 2025.

We expect that the demand for cloud services will continue to drive growth for cloud and managed IT services. We have seen that the demand for eNBPM services and solutions is good both in The Nordics and now also in The UK after what we have to call the two slow quarters. Cloud migrations and related digital transformation projects is expected to see solid growth in 2025. And lastly, I would like to mention that our Hutti partnership strategy will continue. We have won our first Orbis contracts both in Nordics and in UK.

And in addition, we have during Q4 landed our first SAP project. So we are very happy to see that our Mutti partnership strategy actually starts bearing fruit. That is what I had and I will now give you a couple of minutes to articulate the questions if there should be any one. Thank you. To and and and and to and to and to Okay.

Okay. To Okay. So we are back again and I have received one question here related to hospitality. Basically, the question is how come we have so large write down on the good bill of hospitality for Q4. And that is really the financial performance over time as and the goodwill that we associated with that acquisition had to be taken down in order to reflect the actual performance of hospitality.

So that is the background of the impairment. Let me see if there’s anything else. Okay. So we haven’t received any further questions. So with that, I would like to thank you all for attending, and I wish you a good day.

Thank you so much.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.