Checkit plc (CKT) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Checkit plc full year results webinar hosted by Yellowstone Advisory. Before I hand over to the presenting team, I just want to go through a few admin points. On the screen at the moment, you'll see a poll asking if you're a shareholder. We'd appreciate if you could just complete that as you join the webinar. [Operator Instructions] We've got a few questions sent in ahead of time, and we'll cover all questions at the end of the presentation. Format today is a presentation which will last approximately 30 minutes, and then we'll have time for some Q&A. And then following the meeting, you'll be redirected to a short anonymous survey. And again, please, if you could spend a few moments completing that. It looks like we have roughly a balance of 50-50 shareholders to non-shareholders, so great to have some new names to hear the story today. And I'd now like to introduce the presenting team. We're delighted to have with us today Kit Kyte, CEO; Greg Price, CFO; and Will Maunder-Taylor, Global VP of Sales at Checkit. Kit, would you like to start the presentation?

Thanks, Alex, and good afternoon, everyone. It gives me a great pleasure to present Checkit's annual results for full year 2022, my first as CEO. So we've got a little bit of ground to cover, and as Alex said, it's going to take us maybe 25 minutes or so. I'll cover off the highlights -- financial highlights at the start and we're going to revisit the Checkit story, what it is that makes Checkit so exciting and, indeed, what makes the industry so exciting as a whole. We'll cover off the strategy. That's the strategy that we shared with a lot of our institutional investors back at the end of November during our capital raise. And then I'll pass it over to Greg to do financials in detail. And as Alex said, we'll go into Q&A for the remainder. So it's been a very successful year. We're really happy with our results. I'm going to highlight a few of these just to explain [ our market for you ]. So pipeline at year-end is GBP 15.4 million. That represents the annualized value of contracts in the pipe at various states to maturity, yet to be closed. So given our [ typical minimum time ] is 3 years to 4 years, you can assume that, that's near to GBP 50 million [indiscernible] pipeline. So that's grown significantly since last year. GBP 8.2 million of annual recurring revenue, so up 43% year-on-year. We're very happy that, that's actually ahead of market expectations, represents a second consecutive year of plus 40% growth. So again, very happy with that. The fund raise is GBP 21 million. Again, we're now well capitalized for execution of our growth strategy. Sales bookings of GBP 3.5 million. Again, that's an annualized value for the year. So again, this represents a significant increase on prior year. And I would point out that our typical contract timings are again 3 to 4 years, so you can take that as [indiscernible]. Recurring revenue, GBP 6.8 million, again up 31% year-over-year, a strong consistent organic recurring revenue growth. And revenue is at GBP 13.3 million, 7% down on last year, and that represents our transition towards a pure SaaS business model. So we have switched our priority away from short-term project-based revenues to a pure SaaS business. Indeed, as of Q4 last year, 75% of all of our revenues [indiscernible] So again, very happy with that aspect. Just going to spend a moment focusing on Checkit, who we are as a company, who we are as a product in the market. So what is it that we do? Well, simply, we are the platform by which deskless workers conduct their work. All of the activities, the tasks, the processes that deskless worker does, they do them digitally and they do it with the Checkit platform. We also have a nice ecosystem that sits around that, so the assets and the buildings by which these deskless workers conduct their tasks and activities are also monitored by our IoT devices and the feedback [indiscernible]. So we not only elevate the deskless worker and how they do their work, bringing it into the 21st century, but more importantly, at the enterprise level, all of the data that's picked up by tracking, guiding, prompting [indiscernible] storage units and the buildings in which they operate. All that data is aggregated in one place. Again, we provide advanced analytics, insights, dashboard that the enterprise [indiscernible]. This provides real-time insights to the businesses to make decisions around how they manage their operations. There's 3 things that stand out of our Checkit to make us unique to the marketplace. [indiscernible] platform. We are, as far as we are aware, the only provider that provides an end-to-end solution. What do I mean by end-to-end? A linkage between the platform and the IoT ecosystem is fully integrated. So as IoT devices pick up alerts or faults with the assets [indiscernible] transform this straight into the platform. They trigger alerts and triggers for humans [indiscernible]. The other thing to bear in mind is that we are a mature [indiscernible] that's something no other competitor [indiscernible]. The third piece is the way we can utilize our domain knowledge. So we're typically focused on 3 core entry verticals, which are health care, food retail, franchise and, indeed, facilities management as well. The industry knowledge we've gained there [indiscernible].

Kit, can I just interrupt for 1 second? Is there something covering the microphone at all at your end? Getting a little bit of feedback. I don't know where the microphone is.

I'll adjust that. I'll carry on and just assume -- you let me know, Alex, if that's better.

That is better, thank you very much.

Great. Thanks. So by way of mission statement, I'll read this out for you. We help business leaders to execute smarter, faster business decisions by illuminating their [ dark ] operations and elevating their deskless workforce. Let's unpack what that really means. Somewhat surprisingly, today, fully 73% of all deskless workers are still conducting their work and activity using paper. It's paper-based forms, Excel spreadsheets that speak to each other. So the deskless worker has just been underserved by technology, underserved by investment. That's been changing. And of course, COVID and the pandemic has accelerated that trend. As we now know, key workers are fundamental to the way that we [indiscernible] services. Factor in the impact of rising cost of labor, supply chain challenges, indeed, the inflationary market we currently existing in and also the absence of the inability to improve enough labor time to conduct your work. And large enterprises, multinational enterprises, are having a challenge in delivering their services and their business impact. And the third theme here is what we call dark operations, and this is the situation the same large enterprises that currently operating in. What does it mean? It means all the activities taking place between people, assets, things, as far as their large operating footprints go, and believe they got no visibility, okay? So they can't track the data in real-time. They can't see who's doing what and how effectively they're performing. By using the Checkit platform and our IoT ecosystem, we bring all of that into the light. We make what was invisible now visible. Again, as we mentioned about analytics and dashboarding, once you put that up in real-time, enterprise [indiscernible] leaders now get levers by which they can control costs far more effectively. It can impact the top line as well, for example, tracking from the sales, and they can prevent things like [ stock loss ] through wastage. So this is very, very valuable in the marketplace. When we consider the size of this opportunity, it's significant. So what we know is in the knowledge worker industry, which is more advanced from a sort of technology spend perspective, but there are about [ 600 million to 1 billion ] people. They have about GBP 2 to GBP 10 billion a year in business technology spend. We look at the deskless worker market. Even if we consider the deskless worker's less highly valued than knowledge worker, which is somewhat debateful, we just apply a conservative 2 to 2.5 multiple. It's a 2.7 billion person organization. That's [ GBP 570 billion ] worth of technology set that we see coming through over the next 5 to 7 years. And yet the market is still untapped. It's underpenetrated. We focus on 3 primary verticals: health care, retail restaurants, [indiscernible] as I mentioned earlier. That's about 800 million deskless workers. We're well set up there. But the point to note is you've got another 2 billion deskless workers split across industries such as education, manufacturing, construction. These are natural expansion opportunities to Checkit as we scale up our market off and as we grow together across different markets. So it's a low-hanging fruit and [indiscernible]. In order to do that, we've got to have some strong growth ambitions, and we do. For us, we absolutely aim to become the market leader [indiscernible] Not only that but we see the U.S. market as one of the core opportunities by which to drive that scale, okay? It's a significant opportunity for us. We expect the U.S. market to become the leading contributor of [indiscernible] business. We've invested accordingly. We have a strategy to do this. We've articulated this strategy a few months back [indiscernible] and we'll check in on how we're tracking against it. So 3 things really. We're going to convert Checkit to a pure SaaS business. We're going to accelerate scaling global growth, and we're going to transform the operating model and culture. By so doing, we're going to deliver shareholder value. So what do we mean by each? Converting Checkit into a pure SaaS business. As mentioned at the start, our priority is simply on recurring revenue streams only. Where there will be nonrecurring revenue streams, they will be in the form of professional services that are [indiscernible]. We have deprioritized one-off income related to the BEMS business in favor of a pure SaaS model. Accelerating scale and global growth. We've been investing over the last 12 months. We will continue to invest to enable that scale and global growth. Specifically, that is front-end sales team, marketing teams, commercial uses and indeed the product team. So harden up the proposition and keep driving innovation to keep us in front of the queue. Transforming the operating model and culture. This is very important because we're on a journey as a company. We need to make sure the processes by which we run ourselves are as agile and as [indiscernible] enabled as possible -- as SaaS as possible. In order to make all of this happen, the most important point here is around culture. We're building and driving a high-performance mindset across the organization. We've invested in senior leadership team, and I'm very confident we can deliver upon that. So let's have a look at the year that was, and we'll just see, checking how we're doing with that strategy. On operating model and culture, 15 months ago, 18 months ago, I would describe Checkit as Checkit 1.0. Multiple companies, multiple products, different cultures. Over the last year, we've driven significant transformation and evolution of the company. We're now at Checkit 2.0. One company, one mission, one platform, combined cultures. Going forward, we evolve again to Checkit 3.0. one company, one mission, one platform, one culture. Touch upon what we've done with pipeline because this is go-to-market. This is how we flip into an end-to-end SaaS, our go-to-market strategy. As I said, the pipeline at year-end was about GBP 15.4 million. That's a significant increase from how it was at the start of the year. What's really important to note here is the composition of that pipeline. Checkit -- traditionally, Checkit's got over 600 customers. It's got a long tail of what we'd call Tier 3, Tier 4 small sub-GBP 100 million, sub-GBP 10 million revenue clients. We flipped our pipeline, as you'll see, 54% of that pipeline now represents what we call Tier 1 large enterprises, 37% Tier 2 enterprises. These are big, multinational, multibillion-pound businesses. And that's where our target is. We target specifically because you get a far larger contract deal, and you get far greater stickiness from which we expand and upsell the full spectrum of Checkit services. Speaking of Tier, large Tier 1 clients. Some of you -- a lot of you will be aware of our relationship with BP. For those that don't, I'll try and bring this to life very briefly. So BP is one of our largest Tier 1 customers. For those who don't know what we do, I'll just play a story out and that does bring it to life. So imagine that you own a car, you're driving your car, you're going down the motorway. You pull into a service station. It happens in this story to be a BP service station [indiscernible] cafe. Keep fueling your car, you go into the store, you decide you want to buy a [ pastry ] because you're hungry, a cup of coffee, pack of chewing gum, something like this. That experience you've just gone through has been delivered to you by the Checkit platform [indiscernible]. I'll just explain how that is. All of the deskless workers, the BP store assistants providing the food or make sure that stuff is in the right place operate on the Checkit platform. Now the handheld assistance, basically looks like an iPhone, guiding you through the SaaS they need to do, everything from opening up the stores and making sure the goods in the right place to checking it's the health and safety [indiscernible] freezers, they've got Checkit IoT devices, Bluetooth devices in [indiscernible] real-time. So that [ pastry ] turns up at the right time at the right temperature ready for you to buy. So you buy your stuff, you move off, that's all good. But when you consider where we are with BP, we're in all 332 U.K.-owned locations. When you aggregate all of the data that's being captured there in real-time, and you present it at the [indiscernible] level by way of dashboard insights analytics, it's very, very powerful. We have algorithms that play there to help BP predict missed sales opportunities and, of course, drive further upsell opportunities in their own locations. So very, very powerful, very sticky. The potential size of this opportunity is significant. BP has 21,000 locations globally, of which 14,000 are franchise-owned, 7,000 are company-owned. So we're in just over 1,000 now in the U.K., Netherlands, Luxembourg and more recently, a big deal win in Australia and New Zealand. Clearly, there's a lot more room for us to grow. Will we get all of it? We don't know. But the opportunity and the size of this is certainly north of GBP 10 million there or account. A separate example, the NHS, a very sticky client for us, a very sort of, I guess, ethically promising opportunity here. We're in 86 trusts. We're in 350 sites, and we've been a leading [indiscernible] It's worth just over GBP 2 million of ARR for the company at present. A completely different set of use cases. We led here with IoT. We were monitoring their vaccine storage units, their blood plasma storage units automatically to prevent human checks. This, of course, prevents a significant amount of stock loss there. Just because if anything goes out of ranges, as it used to, where [indiscernible] just about [indiscernible] a year. We are hoping to prevent that. We're also freeing up staff, nurses, [indiscernible] time to better drive patient outcomes. They then use our platform, which would now be setting in [indiscernible] what they have to do becomes digitized, again, saving more time, reducing the administrative burden and helping that burnout. So again, another fantastic opportunity where Checkit's driving value. I'll pass over to my colleague, Will, who's Global Head of Sales. He's going to bring a couple more of new client stories to life to show you what the power of Checkit.

Thank you, Kit. So there are 2 things at the top of mind for me and the team, and that is on our journey towards selling to the enterprise, is making sure we're a must-have technology, not a nice-to-have. And also understanding the tangible value, the ROI delivered to customers. And we've learned a lot of this. I'd love to bring 2 stories to life in particular. So the first is within facilities management, particularly those with [indiscernible] focus, and this is 1 current customer we are growing with it with over 10,000 locations. And the challenge they face because they are paper-based is they have 0 visibility across their operations. They don't know where the risk is, they don't know what is or isn't being done by the teams, they have no insights to their data. They struggle to drive efficiencies because they can't measure efficiency, and they can't see [indiscernible]. And so at Board level for these companies, food safety or brand protection are critical, so much so, the CEO of this particular customer has now made digital operations or digital [indiscernible] a prerequisite for all the locations. And it won't be a surprise to people on the call that given wage inflation and the pressures on the job market at the moment, automating any manual tasks [indiscernible] tasks, what make jobs more attractive is a key priority. And that's really where Checkit is coming in to play, and we're seeing that store accelerate. So the first one is our rapid time to value because when people think about bringing in technology, especially digitalization, they think long, complex process changes, consultancy, digital transformation. We need 30 to 45 minutes to train customer stuff. We can get up and running in under a day or up to a week, depending on the scale. We give them real-time visibility so that means, 1 click, they can go into our intelligent dashboarding, which is a big differentiator. And they can see real-time across their entire region or country, what is being done, start to drive insights to make better decisions. Cost savings, incredibly tangible in the customer's own numbers across just 2 locations. They estimated we are saving them GBP 56,000 [indiscernible] 1 year. And then you get the efficiencies you can start to drive across the operations and some of the sustainability KPIs like food wastage or [indiscernible] efficiency or some of their assets. Next slide, please. As Kit alluded to, the NHS is a massive customer, and a big opportunity for us is digitizing the care side and the operations side. And this is a story I really want to bring to life with one of the digital [indiscernible] they are at the forefront of bringing digital technologies into the NHS. And some of the key top of mind challenges they had before Checkit was patient safety. They have no visibility across their paper-based processes that are high risk as to whether they get done, i.e., changing packs of blood [indiscernible] outside of a chilled refrigerator chain. Second is blood wastage. If they send blood offsite and this particular location sends 35,000 red blood cell packs a year offset to all hospitals and clinics. If the paper is lost, torn, gets wet, isn't filled out, they have to throw away the entire box, normally 12 red blood cell packs [indiscernible] we won't be surprised, post COVID, in [indiscernible] pressure is on them. And so training the team in 30 to 45 minutes, we instantly gave management and leadership visibility across all of that [indiscernible] processes because we digitized them. [indiscernible] is being done. We estimate that we're saving about 500-plus red blood cell packs a year with our QR code technology, that took days at the most to set up. And then also looking at the management side, huge time save about chasing people, filling out paperwork, auditing the work, responding to CQC questions. And then the effect on the smart business. So when you start seeing agency part-time, less experience staff, especially working outside of [indiscernible] key processes and operations, they can use our guided assistance and our software with our QR code technology to guide them through their key processes to capture it and then save their time, make [indiscernible] synergies across the lot of organizations. And this is so impactful that the department next door actively requests this technology [indiscernible]. So Kit, back to you.

Thanks a lot, Will. That's great. Obviously, we mentioned the U.S. is a significant growth opportunity to Checkit. We made the acquisition of Tutela LLC back in February last year. And that came with a set of existing clients, predominantly in the health care industry. We've grown it pretty significantly since then. So we have a U.S. Managing Director, Steve Peck, [indiscernible] who's leading up the front end side of this. He's got a 5-person sales team around him and a 10-person operational delivery team. So the Checkit footprint is established in the U.S. We've actually exceeded our goals for the year [indiscernible] growth. The most notable of which was the Grifols deal that we announced in the market about 2.5 months ago, GBP 2.7 million [indiscernible] deal, a significant Tier 1 client in the U.S. over 300 locations that we're now going out. Other little clients, Tier 1, that we [indiscernible] year ahead, we have a pipeline now that's focused on food retail and franchise, to some extent, the facilities management verticals, you can address the organization. And that is the focus of the team in the U.S. as we start to build out our footprint, leveraging the great work that we did over the previous 12 months. I'll hand over now to the CFO, Greg, to give us an overview of the financial status.

Good afternoon, everyone. I'm very pleased to present my first set of financial results as CFO in what has been a year of great progress for Checkit. As you'll see from the numbers shown on this slide, we've made -- we've seen strong growth in the year in our recurring revenue. If I pull out 2 numbers in particular here, our annual recurring revenue growth of 43% is a second consecutive year of growth above 40%. That shows the strength that we have in taking the platform forward. If I look at the loss that we made in the year at GBP 4.7 million, that's an increase on GBP 3.1 million year before, and that reflects the investment we've put into the business to continue to drive the growth that we're seeing in the business, and we see that, that allows that growth to become sustainable. If I go into more detail on annual recurring revenue, there are 2 key messages I would want to pull out on this slide. First of all, new business growth of GBP 0.8 million is a strong result for us with the new customers that we brought in across our key sectors, the hospitality, health care and food retail. We've also, though, been able to increase the footprint that we have with existing customers. So we have pricing and upsell initiatives with existing customers of GBP 1.3 million, which shows a strong performance in the year, both across new business and existing customers. In terms of revenue, our recurring revenue is our focus, and that represents here 51% in the year of our total revenue. But in the last quarter of the year, that was up 75%, and we expect that to continue to increase as we go into the new year. When I look at ARR of GBP 8.2 million, as I said, up 43% in the year, that is larger than the recurring revenue and that is an indicator of future recurring revenue. So there is more opportunity to have there. When we talk about our cost base, smart growth remains our priority, investing in the business but making sure that we do so in a way that drives returns for our top line. We have increased our investments in sales and marketing. So while that is 16% of our total cost base, we've increased the investment in sales and marketing by 80%. We've also invested in our product and our management team. And while operations remains the largest part of our cost base, we expect that to reduce as we shift away from the BEMS business in due course. As the last slide, I'll talk about our cash flow. Our cash flow supports our strategy in that you can see the investments in the business, both in our operating activities and our CapEx. But it's also reflective of the fund raise we did in November 2021, where we raised GBP 20.2 million net of fees, so that was a gross figure of GBP 21 million, and that leaves us with a cash balance at the end of January of GBP 24.2 million. So we are well placed to continue to fund our growth into the next year. Back to you, Kit.

Thanks, Greg. So to finish, we're very confident about the outlook for the year ahead. We are mindful of the macroeconomic environment, the inflation pressures that are currently underway. We don't anticipate direct impact from that, although we do consider the indirect impacts that may come down for the year ahead. But we expect another year of strong organic recurring revenue growth. And with that, I'd like to open up the floor to questions, Alex.

Thank you very much, team, for giving such a clear presentation and great to hear how well you're doing. We're now, as Kit said, going to open up to questions. [Operator Instructions] So just starting off on a question on BP. You've had a lot of success with BP, and clearly, they value your products. Are you prevented from going to any of the petrol forecourt competition like Shell or any of the other supermarket forecourts? If not, why are they not signing up?

Thanks for the [indiscernible] end of that. Short answer is we're not prevented at all from going across to competition as it were. I mean one of the benefits of growing with a client like BP is the ability for us to build new product features, test in a live environment and, of course, transport that across the [ equipment ] customers. So there's nothing preventing us. We are actually in conversation with a number of their competitors. These are very large Tier 1 enterprises. These are sales cycles that can take some time. If you remember, it took us more than a couple of years to get BP onboard originally. So yes, absolutely, we are firmly focused on those. And we look forward to getting -- announcing the next one as and when it comes in.

Brilliant. And then a follow-up question in terms of looking at petrol forecourts. With the increase in EV charging points at locations other than forecourts, are you left with a smaller number of sites for your products?

I mean it's an interesting question. I mean the short answer is, again, no. Arguably, it's the other way around. So if you think about the business model that's, in this case, BP are looking to do, you want to turn your petrol station, your service station into an experienced location, right? So with EV charging points, cars have longer dwell time on location. Therefore, the expectation is that people and consumers will spend more inside the location. So I would argue [indiscernible] we're having. The number of additional places and uses for Checkit devices and Checkit licenses grows up as a result of this. I don't know, Will, if there is anything else you want to comment on that?

No, I wouldn't, I think. The only element I'd add is the increasing value of food to go [indiscernible].

Okay. Got another question here on the NHS. So the comment is interesting blood packs issues with the NHS. What is the financial saving of 500 blood packs? And could you remind me of how many packs were destroyed by the NHS last year? I think you mentioned a number considerably higher than 500, if I heard correctly. If so, isn't 500 a conservative figure?

I'll let Will answer that question.

Yes, I'd love to. So we have multiple use cases across the NHS, and it's just one of them in terms of the ROI for digitizing [indiscernible] red blood cell pack, there is a cost with NHS and I'd say it's several hundred pounds per blood pack. But then you get the cost of patient outcomes, the delayed operations, the risk factor, and that is significant. And then you get the value of protecting the [indiscernible]. And that's just in 1 blood transfusion team. In terms of numbers, and this alludes to scale, that 1 location is sending 35,000 red blood cell packs offsite and then you could take a multiple of that across the U.K. with the potential safety [indiscernible]. But the value for Checkit at that department ranges not just from reducing blood wastage, which is a key, but also time. So every manager, they're spending between 6 to 8 hours per month alone chasing people, auditing, signing, sorting and bringing together paperwork, all of which we should [indiscernible] with the bigger organization.

I've got another question on the client side here. How sticky are your clients? What are attrition levels?

Let me take this initially and I'll let Will provide comment. Well, the answer is our clients are sticky. I mean, yes, when you've got 600 clients, a reasonable proportion of those are quite small, as I mentioned earlier, Tier 3, Tier 4. We have seen, as a result of the pandemic, some share, but that's mostly because they're in [indiscernible]. I think overall, growing our attrition rate is less than 3% as far as [indiscernible] sub-3% attrition rate, we're very happy with. And of course, the Tier 1 clients, Tier 2 clients where we see significant expansion across the lots of opportunities is really where the platform starts to get more sticky. So yes, we're very happy about it. I mean, Will, anything you wanted to add on that?

Yes. With the move to the enterprise, I'm just showing you the pipeline of the impact of that, I see a huge return on investing in [indiscernible] account managers, and there is advanced growth across our current customer base. And because we have that platform approach of sensor plug-ins, [indiscernible] to digitize operations. There are multiple cross-sell/upsell opportunities, bringing more products to that. And especially now with data to get alluded to the AI and now the level of insight and value to start to bring on around assets, energy efficiency [indiscernible].