Aura Minerals (AUGO) Q2 2026 earnings call transcript

I will now hand the conference over to Kane Hannon, head of IR. Please go ahead.

Good morning and good evening everyone. Welcome to Ora's Q2 2020 Cenex conference call. All participants have been on listen only mode until the question and answer session. As a reminder, we will make certain statements to constitute forward-looking statements regarding future events and potential or assumed financial performance or potential growth of the company during this call, which are subject to material risks and uncertainties that can cause actual results, levels of activity, performance or achievements to different material from such statements.

We will also present both gap and non-gap financial measures. These non-gap measures should not be considered in isolation or as alternatives to or substitutes for or superior to our gap financial data in our financial statements. We encourage you to consider all measures when analysing our performance. Please refer to our results presentation for the applicable reconciliations. We would like to provide some context on the basis of presentation for today's results.

Because the acquisition of poor and closed after the end of Q2, our statutory financial statements reflect Ora on a standalone basis. To provide context on the company as it will operate going forward, we will reference unordered proforma summary financial results for the merge group. The proforma income statement, information, combines Ora's historical financial information with Ora's historical financial information.

The proforma liquidity and net debt positions are stated as of the July 17 transaction completion, affecting cash and debt amounts as are all transaction expenses and the repayment of the Ora ash grow facility to place a closing. Given the recency of the Ora acquisition clause, we have provided certain Ora standalone operational metrics, but we will not provide proforma operational metrics or certain supplemental financial measures this quarter.

We expect to introduce the standardised combined operating KPI set next quarter. As mentioned, we have posted the second quarter result presentation on our investor relations page, which was filed with the assets this morning. We will begin with an overview of results and a business update from our chief executive officer, Hari Ravichandrum. Then our chief financial officer, Brian DiCenzo, will walk through the Q2-26 financials.

Hari will return with final remarks before we open the call from Q&A. With that, I will turn the call over to Hari.

Good morning. Thank you for joining Ora's first quarterly earnings results call. We will be discussing the results of the second quarter of 2026. It has been a momentous few months for Ora. We posted very strong second quarter financial results on a performance basis, achieving 27% year on year AR growth. While driving a 51% year on year improvement in adjusted EBITDA, demonstrating continued tangible progress towards our goal of being free cash flow positive and you'll be going forward.

We completed the previously announced acquisition of Korea on July 17, enhancing our mission to be a global leader in online safety. And on July 20, Ora's securities began unrestricted trading on the ASX under the ticker symbol AXQ. These milestones align with our mission and strategic priorities and further the vision we have for this company. I could not be more proud of this position. We are in and excited about the vision we have as we enter the second half of 2026.

At Ora, our core belief is that every person deserves trusted digital protection that understands their needs and works proactively to keep them safe. Our strategic priorities as a company are to provide individuals and families the world's most proactive, intelligent, digital safety tools. And integrate these tools across a unique ecosystem comprised of the most important context in their lives, home, school and work.

And to pursue this mission within a business that demonstrates financial excellence. Our acquisition of Korea enhances our pursuit of each of these strategic priorities. It solidifies our position as a global leader in the online safety market, creating a significantly larger, more diversified business with global reach. It unites Ora's AI power suite of online safety and wellbeing tools with Korea's global connected school's ecosystem with its particularly extensive reach in the US and UK. And the addition of custodial product and global base of customers further bolsters are scaled consumer platform.

Combining these products and go-to-market channels will allow us to provide all-in-one protection for individuals, families and enterprises worldwide, spanning the major aspects of digital lives from home to school to work.

The Korea acquisition also furthers our ambitions around financial performance. It enhances our revenue scale and diversity. And the sales efficiency of the K-12, the school's channel and custodial, as well as the school to home customer acquisition motion, enhance our structural profit potential. Having completed this transaction, we have a very strong foundation from which to build a tremendous opportunity ahead. Tim, Crispin and the team at Korea have built an impressive business that fits well together with what we have built at Ora.

And we're thrilled to partner with them in this new chapter. We've already begun the process of functionally bringing two organizations together and expect to fully integrate the two companies by Q2 of 2027. Across organizational structure, brand architecture, unification and systems integration. Having completed numerous acquisitions in my career, I know that these integration processes are complex and progress is rarely linear. As we complete this work, we are hyper focused on streamlining the organization and achieving the right cost structure to achieve our ambitions for free cash flow. While not sacrificing our core priority of setting the organization up for durable growth and free cash flow at scale over the medium to long term.

We are in the early days as a combined company, but acquiring Korea has accelerated our vision and provides us with a care roadmap for the future. In addition to the many benefits provided by the Korea acquisition, we made numerous other important strides across our strategic priorities this quarter beginning with product. We accelerated our development and implementation of an agent intelligence layer that uses contextual reasoning to synthesize activity across the users digital life to identify threats to safety and well being much more accurately. We're already encouraged by the direction of these investments.

We recently introduced several new and enhanced intelligence products, including or intelligence, which is our AI intelligence layer and new AI powered family safety capabilities. Or intelligence continues to rapidly evolve, providing users with increasingly personalized insights, recaps and recommendations. We are encouraged by early engagement trends, which suggests that users are finding meaningful value in these capabilities and deepening their interactions with the or experience.

Our family safety capabilities, including proprietary digital well being index, and we continue to advance our youth risk and detection models, including the release of an updated cell farm detection model in July. These features, the digital well being index and our youth risk detection models will be critical in our integration of custodio with our or appearance app, where we've developed a full integration roadmap on our targeted to launch the combined product in the first half of 2027.

Product innovation is at the heart of everything we do. You can expect to see other new product offerings later this year as we continue to position or at the forefront of digital safety in an AI world.

Returning to our unique good marketing ecosystem, the query acquisition provides us immediate scale in the school's channel and in April, we enhance our value to the workplace with the launch of our business. Our business is an enterprise security solution designed to close the identity based security gap in modern businesses. Enterprise attacks were once grown by software vulnerabilities, device compromised and system weaknesses.

But today, employee identities compromised represents a leading driver of breaches. In 2025, Palo Alto network found that 65% of the initial access began with identity based security compromises such as phishing, social engineering, and credentialless use. Rather than focus solely on enterprise system access or a business aims to protect corporate IT environments by securing first employee accessing the systems.

Delivered through our new managed service provider channel, we're seeing encouraging early interest for this new product offering and look forward to seeing it begin to deliver financial results in 2027. We also made some key strategic hires in Q2 that bolster critical capabilities across the global organization. Stephen Young, formerly the CMO of Poshmark was hired as ORA's Global Chief Marketing Officer.

And Adam Medros, formerly Senior Vice President of Global Product and Trip Advisor, joined us as Chief Product Officer. These additions to ORA's executive team signal with bold investment in global leadership and product excellence combined with our existing investments in advanced AI to scale our platform and fuel growth worldwide. We're excited about the opportunity and vision we have for the business as we enter the second half of 2026.

We solve urgent problems across our footprint. Online threats are growing in scale and sophistication, driving record cyber crime losses and increasing concern about digital wellbeing. In the US, cyber crime losses reached $20.9 billion in 2025, nearly 400% higher than in 2020.

AI is accelerating these trends, reshaping how people interact online while enabling threat actors to operate with greater speed, scale and sophistication than ever before. Attacked by AI enabled adversaries, increased 89% from 2024 to 2025. At the same time, the human impact of digital life is becoming increasingly clear, particularly among children. One in six kids say they've been cyberbullied and in the US 40% of high school students report persistent feelings of sadness or hopelessness.

We provide tools to help individuals, families, schools and workplaces manage against all of these threats. Amidst this background, the world of technology is moving very fast. So we proceed with a real sense of urgency to innovate our product, to keep families and individuals safe and well in a digital world. To win in market and to screen line our organization to drive compelling financial performance.

I'll now turn it over to our chief financial officer, Brian de Chenzo, to outline our financial priorities and take us through the results of the quarter.

Thanks, Marie. And thanks everyone for joining the call today. As a reminder, the financials I'll be referencing today are unaudited for the second quarter, prepared on a pro form of basis unless otherwise noted, are based on US gap accounting and denominated in US dollars. Further, upon completion of the Korea transaction, we have standardized the definitions across all non gap metrics to the definitions we have historically used at Aura.

I will address certain methodologies employed in the course of my remarks and encourage everyone to review the presentation that accompanies this earnings announcement for more detail.

Continuing from his remarks, our third strategic priority is financial excellence defined across three pillars to rapidly grow and scale our customer base and revenue while maintaining discipline around you to economics to generate free cash flow in each annual period. And to maintain a balance sheet that supports the growth ambitions of the business over the medium to long term. We demonstrated material progress against these first two pillars with our operating performance in the second quarter.

And our subsequent transformational acquisition of Korea and a sex debut in July solidified our financial position with the completion of a $100 million equity raise in an up sized $100 million debt facility.

These actions provide us the balance sheet strength we need to execute our vision for the business turning to second quarter performance beginning with growth. We generated $85.1 million of pro form of gap revenue in the quarter, representing 27% year over year growth for the combined business.

Regarding ARR Aura uses a recurring gap revenue based ARR definition, which is more conservative than the bookings based definition Korea previously reported on. Using this methodology for this and prior periods, our Q two exit our ARR was $339.7 million representing 27% year over year ARR growth.

We've provided the definition as well as a breakdown of the differences in ARR calculated on each methodology for this and prior periods in the accompanying presentation.

This quarter's year over year growth in ARR was broad based driven by the increased scale of our employee benefits business and K 12 customer base, as well as new customer acquisitions in our direct to consumer business. Sequential growth in ARR was largely driven by growth in our direct to consumer business as the impact of growth and employee benefits is almost all captured in the first quarter.

And under the aura ARR definition, the growth in K 12 will mostly be captured in the third quarter. The revenue mix for the quarter was 54% from our direct to consumer channel, which includes the aura direct to consumer business, custodio and the community offering performance in this channel was right in line with our budgeted expectations. We saw continued strength and average order value, which was similar to our first quarter results and sequential improvement in our performance.

Subscriber growth continued in the second quarter. However, the quantum of growth was impacted with the $5 million sequential reduction in performance marketing consistent with the cost savings plans we have communicated.

The remaining 46% of revenue for the quarter came from our enterprise channel, which includes K 12 employee benefits or a business and other partnerships. The US was the growth engine for the period, now comprising 87% of the groups revenue, shifting to costs, our efforts to drive operational efficiencies across the combined group or food. Adjusted EBITDA was negative $12.6 million for the period, which represents a 47% sequential improvement and a 51% improvement year over year.

The improvement was driven by the expanded top line sequential improvement and our direct to consumer customer acquisition costs and the deliberate cost actions we announced in Q1. When we announced the transaction, we announced our intention to reduce our cost footprint by $55 million year over year in pursuit of our guidance to be free cash flow positive from completion through the end of 2026.

We specified at that time our expectation that the improvement would be driven by a $25 million reduction in direct and operating costs across the combined group and a $30 million reduction in brand and performance marketing spend at Aura. In March, we provided the market with a progress update that between Aura and Korea, we had action $17.8 million in direct and operating cost reduction.

I'm pleased to announce today that we have now expanded that savings through cost actions taken between March and June that will result in a further reduction of $9 million to our annualized run rate direct and operating costs. That brings the annualized run rate direct and operating cost reduction to approximately $27 million action year to date, exceeding our target of $25 million.

Many of these cost savings are beginning to be realized with the full run rate impact felt by the beginning of 2027.

In addition, in the first half of 2026, we were able to achieve a $7 million reduction in brand and performance marketing spend versus the first half of 2025. We have a further $28 million reduction in year over year performance marketing spend budgeted for the second half in service of our stated free cash flow guidance.

While this appears to be a large pullback, it's worth highlighting that the second half of 2025 was a period of higher performance marketing spend for us as we tested a variety of go to market strategies that resulted in elevated spend and less favorable unit economics than what we have seen in 2026.

We expect our second half performance marketing spend to be broadly consistent with our Q2 level and to the extent that we are able to achieve better than expected unit economics as we did in the first half. We will reinvest a portion of that budgeted savings in a new customer acquisition to drive further compounding growth within the business.

The cost reduction that drove the improved adjusted EBITDA was broad based with sequential and year over year improvements in cost as a percentage of revenue for all four spend categories.

Moving to our liquidity position, the closing of the Korea transaction after quarter end solidified our financial position with the completion of the $100 million equity raise and the up sizing of our bank of California facility from 50 to $100 million.

We also repaid and full, Korea's term loan with Ashgrove, which was both high coupon and as a term loan versus the Bank of California revolver, reduced our ongoing balance sheet and interest expense flexibility. These changes leave us very well capitalized against our business plan, where we intend to produce free cash flow in each annual period going forward. The net debt at transaction close was $9.9 million.

This is higher than our previous estimates do mainly to the one time items of the cost to retire the Ashgrove facility and higher than expected transaction costs. In addition, the transaction close six weeks later than our original expectation when we published our estimate in February with the burn experience during this period broadly in line with expectations. We remain well capitalized. As of transaction close, we have $124 million of available liquidity.

We replaced an onerous expensive term loan with cash and a flexible cost effective revolver. And we are heading into our seasonally strongest cash collection period, providing us with ample liquidity to pursue our vision and flexibility to manage interest costs.

To close, when we announced the transaction in February, we provided guidance on three financial targets for 2026. These are to grow error by 20% for 2026 to be free cash flow positive from closing through the end of 2026 and to take the cost actions both run rate and one time in nature to achieve this free cash flow target and set the business up for free cash flow generation in the future.

Today, we reiterate that guidance, the 27% error growth the business has delivered to June 30 puts us on track to deliver on our 20% growth guidance. As error growth in the second half of the year will benefit from the conversion of the contracted K12 revenues and continued growth in our direct to consumer business, albeit at a more moderate pace than in prior quarters owing to our pullback in performance marketing spend.

Further, we expect to achieve our stated free cash flow goals. And we have already actioned or planned approximately 13% more than the $55 million year over year cost reduction target we established with additional run rate savings possible via synergies now that the transaction has closed.

With that, I'll turn it back over to hurry to wrap up.

In the near term, we're laser focused on execution on achieving the financial targets Brian just outlined on driving product innovation and integration across the or on Korea technology stack on unlocking the interconnectedness of our unique good market ecosystem. And I'm creating the organizational and cost structure that can unlock profitable growth. As we look ahead, we believe that we have all the components required to achieve our vision and reach our medium term financial goals anchored in rule of 40 with a tilt towards growth and a healthy balance sheet to further our ambitions.

We're excited to start that journey.

This concludes our prepared remarks. And now we'll turn the call over to Cain who will manage the question and answer portion of this call.

Thanks.

But continue to be very focused on the performance marketing efficient spend. I'd say a large portion of it. At this point is probably more or driven, though we are seeing more and more tailwinds from the broad market because a lot of the AI driven scares that families have at the moment seem to be driving a lot more awareness of the issue and folks are much more worried about safety for themselves and their families as well. So we are starting to see those trends as well, but we're happy with the execution, what we've seen so far.

Sorry, can you say that again? The line is a good job.

You talk through what the was for performance marketing during the quarter, noting the second quarter. The second quarter was on the first quarter was one six months.

So I think I think you're asking about the trends of the performance marketing CAC. That we sort of provide an after Q one update.

So that means that that trend continues on. We see the same kind of trajectory in Q two that we did in Q one. There's been no. The marketing burn number in the synergies was meant to accelerate. I mean, the marketing burn reduction was meant to accelerate post the closing for the second half of the year. And we've been taking a glide path into that where we wanted to make sure we were testing, checking to make sure that by the time we got this point, we would not have to give up on growth by the time that we are making the marketing changes because again, it'd be worrisome to get to a point in time with a big change versus testing.

Are we into which sport we've been doing for the last couple of quarters. So that's why we feel very comfortable reaffirming the, the recastral numbers for the second half.

I'd also touch on the prior period that you referenced to the period to two of 2025. We've talked about this on prior calls. That was the period of probably the most disruption of AI generated search versus more traditional search. And so, you know, we and many other performance marketing type companies saw elevated CACs during that period. So I would view that prior period as being anomalous. And, you know, the sequential improvement that we saw in the second quarter over the first quarter this year as being more indicative of where we see the market today.

Yeah, so I think the way to think about that going forward with the movement of the Coria numbers to the or ARR definition is that you'll really see the impact of the K-12 business take hold in the third quarter. Under the Coria definition, you'd have bookings for deals that were contracted but hadn't yet started that would have flowed through the Q two numbers under the or a definition. We only really start counting ARR once something falls into gap revenue. So the service has turned on. So you'll be able to see, you know, the the sequential growth and really the year over year growth of what that business performs when we announce Q three numbers because things that were signed up in Q two, and frankly some things that will be signed up in Q three.

They will turn the service on in Q three and hit ARR then. So I think one thing that's interesting to highlight here is if you think about the portfolio of businesses that we have under the the overall company umbrella. You know, we've talked historically about the or a D to C business being pretty, you know, pretty unseasonable with a few elements of seasonality over the course of the year.

Around tax season around the holiday period, etc. And then the or an employee benefits business seeing a very large step up every year in in the first quarter when you've basically turned on the service for an entire annual cohort of customers from the prior year selling season. And so if you think about this mix of businesses going forward, I think what you'll see is the first half of the year will be driven, you know, more so by the legacy or businesses, the employee benefits business and the direct and consumer business. And then the second half of the business and this should be familiar, you know, with people that have followed Korea for a while with that third quarter or the September quarter I should say being the strongest quarter of the year.

Going forward, the ARR step up will really happen in that quarter as all of the new logo wins from the selling season. The service will turn on a Q three hit gap revenue and then translate into ARR.

Yeah, now we have you. Go ahead. Perfect. Thank you for saying congrats on the results and the power of work in terms of getting a transaction over the line. We'll see a lot of work going on there and plenty more to come. Just a few questions from me, maybe. So, Brian, I think you touched on this as part of the presentation a little bit, but just keen in terms of flushing out maybe the PCP ARR ad and just thinking about the ability in the business. And I guess this quarter compared to last year in terms of nominal numbers.

Yeah, so, you know, we were pleased with the ARR ad again with this being probably the least. The lowest quarter in terms of ARR ad across the year, given the dynamics that I just described that exist in the employee benefits business and the K 12 business. We were actually able to see a step up in year over year.

So, again, I think it was about six million quarter over quarter ARR step up on the order to see side. That's stronger than it was year over year. It was a little bit less on a like for like basis on the Korea side. But again, I think we see the momentum on the core of businesses as we head into the second half of the year.

I think if I can add one quick thing to look at the business is always on a year on year basis or the quarter. Because sequential quarter changes given some of the dynamics that Brian talked about for the or a business and the second half of the year dynamics for the core business. Make it a little tricky where, you know, it doesn't look like that steady, even a change quarter in quarter.

Yeah, look, I don't think we're prepared to comment in any level of detail on 2027 today. I think the, you know, we put out the commentary around rule of 40. And it's a reset towards the end of the call with the tilt towards growth is always going to be our bias as we want to scale this company and the revenue base as long as we're sitting good unit economics.

You know, the other thing that we mentioned on the call is our ambition is to be free cash flow positive on an annual basis. And so I think, you know, you can, you can think about those comments as being indicative of where we want to take this business in 2027, but I wouldn't go, you know, I wouldn't get much more specific than that at this point in time.

I think we've got a few in the works there. I think the initial one is getting the products integrated because there are features in the current custodial product that are very creative for the or of appearance customers, including things around sort of, you know, MDM based management, you know, better sort of app identification, et cetera, that the custodial team's done a phenomenal job with the other side of it integrating in the or of balance features, which are much more the behavioral trend management and understanding sentiment for kids, et cetera, inside the facility product is part of that kind of first wave of releases that were coming up with. So we're pretty excited about that. And then the second part there, I would say that we addressed a little bit in the comments were around the school to home motion, which is how do we leverage this massive base appearance that trust the their schools and the schools trust us to be able to keep them safe.

How do you sort of, you know, leverage that relationship to perhaps kind of build up more of a channel there where the core team obviously has done a great job on the community side over many years, but you know, there's, we think there's some acceleration opportunities there because with all of the or products that are available, you can make a paid version of community, much more robust versus simply having a simple paywall that doesn't have a lot behind it.

And or have to debate between what goes in front of the people are behind the paywall. And certainly feel like there's a lot of light and tell you and in that part of the business.

Thank you.

Thank you.

But were you saying that the performance marketing spend for the remaining quarters of this year is broadly similar to Q two because of the reduction on the PCP. Yeah, you should. We alluded to this earlier. You know, we didn't do sort of a step down in performance marketing spend at any point in time we sort of ramped down over the course of the first quarter and into the second quarter. So as you think about the aggregate spend levels in Q three and then in Q four. They're they're actually broadly similar to what we would have spent in the second quarter.

You know, the lows of performance marketing spend and and subscribers still grew on the DTC side. So it's a bit of a de-risking point in terms of, you know, what the cost reduction strategy.

Yeah, I think we probably say a couple of things there. One is we're very pleased with the performance that we experienced in the second quarter. I mentioned it on the call, both AOV and so average order value and CACs were, you know, actually better than expected. In that quarter. So we're pleased with the performance team put forth there.

The other thing is, and I mentioned this on the call as well, the 28 million feels like a very large step down on a year over year basis. But as I said, it was an elevated period and you can see that flowing through the historical numbers for the second half of 2025. And so again, I think you, you have the third quarter and the fourth quarter from a spend perspective will look roughly similar to what we had in the second quarter. And I think you can anticipate that you'll see, you know, a growth in DTC, ARR in that half of the year, you know, with those spend levels. I think the one small thing that adds to to to Brian's note there, I think your observation that a lot of the spend testing and the spend reduction has mentioned working its way down from the beginning of the year to now.

And we're still adding customers is sort of our sentiment as well. And that's part of the reason why we're reaffirming both the FCAF number and the group three number because we now feel like we've done enough testing. Where it's not like we have to go into Q three and do a hard switch of something. It's been well tested as we as we can enter into the second half year.

That's right. So, you know, there are very specific rules around what can be accomplished before the transaction closes. So we've been in, frankly, months of planning at this point around integration and, you know, synergy planning. But none of that would have flown through at this point since we only close the transaction two weeks ago or so. Potential is shaping up on the next quarterly earnings call.

Thanks very much, guys.

Awesome. Well, thank you everyone for joining the call. We're looking forward to speaking with many of you in the days ahead. That concludes our conference call this morning.