Datalex plc (DLE) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us this morning as we present our 2021 results. And very glad to have you all on this morning. On the call, you have myself, Neil McLoughlin, General Counsel and Company Secretary of Datalex. I'm with Sean Corkery our CEO; and Dan Creedon, our CFO, who joined us in January this year. So very glad to see you all this morning. And in addition to the results, you would have seen that we've also announced that our AGM will be held on the 26th of May. So hopefully, this year, as we come out of COVID, we really look forward to welcoming you in person. And so we hope to see as many as possible of you at the AGM in May as well. And so before I hand over to Sean to take you through the results, just to note that the presentation this morning does contain forward-looking statements. And you should bear that in mind and see the disclaimer that we put on the screen. So thank you. Over to Sean.

Okay. Good morning, everyone, and thanks for attending. It's much appreciated. As Neil said, hopefully, we're going to see you all in May at the AGM. I think that will be fantastic, is long overdue. The other thing I want to say it's great to have Dan Creedon here this morning as our new CFO, and you would be hearing from Dan in a minute or 2. We're presenting this morning our 2021 results. I'm pretty happy with them, and I'll tell you why. I think it was a very, very difficult year. It was obviously a year that started with Delta the COVID virus and ended up with Omicron. It was definitely a more difficult year than 2020, where at least there was 3 months free from the virus. 2021 was also more difficult than that. The impact on the virus was more severe across a number of geographies, particularly in our case in China, which was less impacted in 2020. So a very difficult year, I would say. And in that context, I suppose, look, I'm happy with the fact that we grew our EBITDA. And that reflects on our cost scaling, which we've proved in the past, we can do and we continue to do. I'm very happy with our cash management, which included obviously raising funding during the year, but also the day-to-day management, including, by the way, the ongoing on terms payments by our customers is all part of performing and the accreditation that our customers give us. Very happy with the way we retained and helped our existing customers during a very difficult year in the industry, and a lot of our work was around adding software that help them to deal with the change, particularly around rebooking, cancellations and giving them more control over that through products like Configurator tool, et cetera. During the year, actually, we did a very good job in supporting our customers. And our NPS score is the highest ever in the history of the company. Over 15 years we have been having NPS fail in terms of customer satisfaction. And also within that sort of 97% of our customers said when asked, were we a real progressive and benefit partners to them during COVID and 97% came back with a positive affirmation of that. Finally, I'm very Happy with the pipeline that we've built up during the year of future potential customer wins. Not only did we increase that pipeline where we've moved a quantum towards the latter end of that process, which is in the final conversion process. That takes time, but the progression is very solid, and we did that during the year of 2021. It obviously reflects the industry's view that digital is the way forward. It's one of the top strategic areas for them to invest unless they recover their business. Let me stop there, and we get into some of the specifics with Dan.

Thank you, Sean. This morning, as you know, we released our annual report and that deals in great detail with our financial performance. But this morning, we pulled out some key highlights. Starting with revenue. Our revenue came in at $25.5 million. That was down 9% versus 2020. We'll talk a bit more about that. Our gross margin came in at 48% compared to 31%. Total operating costs came in at $27.4 million. That was down 7% versus 2020, roughly in line with the movement in revenue. And our adjusted EBITDA was up on 2020 by $1 million to $2.4 million. And as Sean said, we're very pleased with that. More work to do but a good effort given the revenue decline. Our net cash position improved significantly. 2021 was a year of immense progress in terms of the balance sheet. So we're pleased about that. And we made a loss after tax of $4.9 million. That was better than last year, $6.5 million. Of that $4.9 million, about $4.4 million related to financing. So we just fell short of breakeven in terms of operating profit. So going in the right direction, but more work to do, and that's what we're working on. Okay, so if we drill down a bit in terms of the revenue performance, it was a year -- a full year of COVID as Sean talked about. And that compared to the prior year or essentially about 9 months was impacted. And we also had some conservatism from our customers. Airlines had a huge amount to do, as you know. So they were not in a position to move forward with all the projects that they had planned. And we had the tail end of some customer terminations that had been announced in 2018 and 2019. But at the same time, I think it's fair to say that our model has proven to be resilient. Our balance in terms of fixed and variable elements ensures that the fall was less than it otherwise would have been. And I'd also point out that we continue to have strong annual recurring revenues exiting the year. EBITDA, I spoke about that up from $1.4 million to $2.4 million. I'll talk a minute about managing our cost base, but we're very pleased that we are able to push EBITDA forward given the year that we had. So I spoke about gross margin and returning to the region of 48% last year. I'd like to spend a moment and just comment on total operating costs and give you a view of how we look at that. Our operating costs were down by 7% year-on-year. That compares to 9% for sales. We were very anxious to strike the correct balance here because we wanted to ensure we did 3 things, which we feel are very important. Number one, continue to invest in our products and our capabilities we have as Sean will talk about in a minute, exciting opportunities around pricing AI and other areas. So we wanted to continue to invest in those. Secondly, we wanted to continue to work on business development on sales. Our team has been out in the market, having extensive conversations and building the pipeline. And hopefully, that will crystallize into wins as we go forward, just as it did with Virgin Australia. And internally and very importantly, we wanted to ensure that we have our infrastructure to support our existing customers remain strong and that we have room then to add customers effectively as we go forward. So that's a balance that we struck when we looked at our operating cost base, and we continue to look at that balance as we go forward. And lastly, then let me talk about the successful capital raise, helped us move our cash position on the left-hand side, as you'd see from $3 million up to $8.3 million, but it also helped us to essentially eliminate our debt other than some small property leasing debt cash allocations. That was an outstanding effort. I'd like to record our thanks to our shareholders for their support in 2021 and going forward. And I think this balance sheet movement puts Datalex in a much stronger position and is a platform that we can build on. I'm going to hand back to Sean now. But before I do, let me take this opportunity to thank the Datalex team and the employees for all their outstanding efforts. These financial results would not have happened without all of their efforts and indeed, let me thank the Datalex board for their support as well. Sean?

Yes. And just to add to that, I mean, the annual report, I think, if I missed this myself is a very detailed, very good document. It covers a lot of our strategy. It's definitely worth a read. We put some significant time into it. And on that, I suppose moving on to the future, we're happy with what we've done for our existing customers. I talked about the NPS score. We did a lot of development for them during the year. We also extended NPS into 2, the NPS product -- our NDC product offer, which is a distributor product into 2 of our existing customers. There's also some projects that went into moratorium during the COVID period. They are now starting to come back out in terms of activity, which is good. But we also -- and we've talked about this before, we're very conscious that we now need to scale the business. COVID has had an impact in terms of sizing of the business. We managed that to the best that we can, finding that balance that Dan talked about in terms of cost reduction, but also now on investments and capacity and capability to take on new activity. And that obviously, the win with Virgin Australia was a very big event not only in terms of a win in the COVID period when airlines are not making decisions, but also the fact that they're taking 4 of our products. The good news is that we're very actively engaged, just came off the phone from a weekly call with a customer in Brisbane. And we've got our team on the ground. They've been there since the middle of December, a lot of expats out there, and the program has gone very well. That airline, you can read it yourself, has very strong ambitions. We'll be making some statements of sales in terms of their growth, which obviously all goes well in terms of some of the work that we're doing for them. Critical to our strategy is our products, and we just continue to invest in them in terms of our 5 key product areas. And I suppose interestingly this year or in 2021 very strategically, we've developed this AI pricing product. Previously, we refer to it as dynamic pricing, now more specifically AI pricing. But it's the use of AI and analytics to help airlines to predict the optimum pricing and load factors that basically make routes more profitable. We did a pilot with one very, very large airline, and that's now moved into a formal RFP process, which is now being submitted in terms of our submission for that, and we're very confident that, that will go to the next level. That allows the airline to use our tool, as I said, to optimize routes in terms of revenue gain and to obviously modify those routes that are depreciating in terms of revenue and margins. As important is the fact that it brings us into a new sector within the airline industry. It allows us to now talk to a new clientele basically the people that manage revenue and the commercial side of the business. Prior to this, we've been dealing exclusively with the IT departments more or less in the airline industry in terms of our traditional pricing and booking engine and what we've been offering there. Finally, we have a very strong pipeline. I know you've heard that before. The important thing for me is the question of the pace of pipeline progressing. You can talk about your standard pipeline analysis of kind of 5 stages from initiation to closure of sale. The progression into the front end of that pipeline has continued to increase in double-digit growth terms and the movement of it towards the final aspect of the closure has also moved very, very strongly, and we've got quite a few potential customers in that final stage. We're not going to be announcing anything this morning on that. These things take time, they take patience. They take contractual negotiation and commercial negotiation. And we're not going to burst any conversation by rushing that, but we're confident of our ability to convert some of them, if not all of them. So moving on then, right, in terms of the outlook I suppose, right, and 2022 within the industry kind of started with a paradigm on the one sense in terms of that numbers are going up. As you can see here, 2022 is definitely going to be better as a percentage of traffic versus 2019. These are the latest IATA numbers that came out at the end of March, 83% versus 47%. We're definitely seeing that. The paradox is that it's not happening everywhere. It depends where you are, what kind of airline you are, what routes you're picking and domestic is obviously coming back stronger than international. Asia is an issue, continues to be an issue. China continues to be an issue for us in terms of lockdowns in Beijing and Shanghai currently and the expectation of when they will open back up again. So the medium term is very positive. The short term has a bit of a paradox in it, and we're just going to have to bear with it. And having said that, a number of our customers have shown very strong traffic improvement, particularly any ones that are related to the leisure industry, we've seen very strong pickup. We've obviously seen strong pickup in domestic America. Also airlines are suffering because of the surge in demand with some operational issues. So you can see some of that taking -- some of that capacity in the short term. You've seen various announcements on that. But look, I think we have to be cautious in the short term. I think we have to be -- we remain very, very confident in our ability of products or process in terms of delivery, the fundamental change in airlines towards digital. Read any statement from any CEO in the airline industry, I can guarantee you that digital transformation will be in the top 2, if not top 3 strategic goals that they have in terms of turning around and getting the year on back. Again, the -- so I think we should be very confident there. I think we should be hopeful rather than confident that the world will settle down within terms of geopolitical issues and the kind of tail of COVID particularly as it relates to Asia, and therefore, that decisions that are pending to be made in the industry, particularly as it relates to digital investment will actually be made. I think once those decisions are made, we are confident that we'll be in the finish line with a number of those decisions. And just a reminder that 37% of airlines are still doing it themselves. There's still a greenfield potential here for us. We see, as we talked about, very strong opportunity in the new sector around revenue management through pricing AI. And it should be said that during 2022, we're going to invest in more products, but also in our customer relationships within the SaaS model. So as we win customers, we will be investing on making sure that the delivery happens on time, that the products are plug and play in terms of their quality and their operability. And so you see some investments initially, which obviously in the Software-as-a-Service model gets paid back over the period of the contract very beneficially through our pricing in terms of price per transaction. So that's it this morning. That's where I would leave it. 2021, I am glad to see the back of it. I think in the context, we did well. We need to scale the business. We're very conscious of that on the revenue side, we've done it on the cost side. We're, as I said, very optimistic about our opportunities ahead of us, and we're hopeful rather than extremely confident about the world settling down. So we just have to bear with that in the short term, medium term is a lot more promising. So with that, I want to thank you for your time this morning, for your interest, for your investments, for your followership and for your ongoing support of what we do is very much appreciated. Thank you.

Thanks, everybody.