Datalex plc (DLE) Earnings Call Transcript & Summary

Good morning, everyone. This is Sean Corkery speaking. Apologies for being a little late. We had an issue with Teams, so we're doing this now over a phone. And hopefully, you didn't have the same issue trying to log in on the Teams. We issued our results this morning for 2022. That's what we're here to discuss. The numbers came in pretty much on par to the guidance, the revised guidance that we gave in November. It was revised at the time due to the ongoing lockdown in China that we spoke about then. And ultimately, it reflects 2022 as being a very difficult year, I guess, where the accumulation of COVID on the one hand, particularly as it related to China. And also, I guess that a lot of our contracts were not based on transactions led to a disappointing year. So while you all saw a recovery in the industry, we didn't see that recovery in 2022, as I said, namely because one of our big markets, China did not participate due to COVID and had its biggest lockdown over the 3 years of COVID. Some of our service contracts got pushed out. And also, as I said, our contracts were -- a lot of them were fixed and not based on transactions. And so we didn't see the uplift in those transactions. Despite all that, significant progress has been made around our increased revenue under contract owing to change in the contracts and renewing them with existing customers and also signing new customers during the year, just very recently, LATAM, and easyJet, obviously, earlier in 2022. Our group cost did increase, and that was as per the plan as we continue to invest in our products and our technology and also in the activation of new customer wins. We are pursuing strategies around our fundraising or debt repayment and the provisions of extended equity and working capital. We'll talk a lot more about that next week in London when we have a Capital Review Day, and we'll go through some of the future plans there. We are looking forward to 2023. It started a lot better. Our own indication is that bookings through our platform have increased 31% year-to-date. And that obviously gives us confidence. In addition to that, China, obviously, is coming back very strongly, which I'll talk about. So moving to the second slide here. I think 2022 really -- between 2022 and some will overflow into 2023 has created a very strong momentum in customer renewals and customer wins. We had a task to do to renew some of our key contracts. We couldn't do that before the contract dates were up. We did it when they came up, which is namely towards the end of 2022. Very importantly, we used the timing of the contract renewals to fundamentally add to the tenure of these contracts, but also to substantially change the terms of the contracts, namely moving most of them from fixed-based contracts that obviously did not reflect trajectory of more passengers flying to a license and transaction-based contracts. So hence, the traffic numbers are now coming through, our booking engine would be reflected in our revenue over a period of time as we pick up on those transactions based on these new platforms. We've also added and won new customers. Over the last 18 months, we have won 3 significant customers, Virgin Australia; easyJet, second largest low-cost airline in Europe; and LATAM, which is the biggest airline in Latin America, close on 100 million passengers. And we've signed these 3 new contracts, 2 of them are in activation mode, which is Virgin Australia and easyJet. And obviously, we'll be starting immediately with the LATAM project and LATAM implementation. We continue to invest in our products, as I said, which clearly has been validated in both our product strategy and the solutions that we're providing to our customers by not only the wins, saw 3 wins over the last 18 months, but also the clear renewal of our existing customers under the new contract terms of license and transaction, which I've mentioned earlier. Our new Pricing AI product was launched in May, and we continue to have that product operating strategically at pilot levels with some airlines and we're very confident that will come to a full product fruition in the future. And finally, in order to improve our operations efficiency, both at a customer level and a cost level, we put together, in a recent reorganization for 2023, a dedicated activation team that is focused entirely on the activation of new customers and doing that as quickly and as efficiently as possible to bring obviously the customer online and allow them to use the product as quickly as possible and obviously allow us to benefit from the transaction benefits that come from that. So before I hand over to Dan on the specific numbers, the numbers are pretty much as we said in the guidance. 2022 is a difficult year because of China, in particular. However, in the backdrop, we continue to win customers. We continue to fundamentally change contracts with our existing customers and renewal of those contracts has now allowed us to talk about contract -- revenue under contract value significantly increasing since the last time we spoke. So with that, let me hand over to Dan.

Thank you, Sean. This morning, we published our annual report, which covers the financial results for 2022 in great detail. We'll also add some color commentary to that on May 10 when we have our Capital Markets event, and we'll also talk about the future. Today, I'll just very briefly summarize some of the key numbers in terms of 2022. As Sean said, revenue came in at $23.5 million, slightly down on last year and below our expectation, and I'll explain why in a moment. That fed down through into gross margin coming in at 27%, operating costs of $35 million and adjusted EBITDA of minus $5.3 million. Our net cash, cash less borrowings came in at $0.1 million, and we recorded a pretax loss after tax rather of $11.5 million. So drilling down into the revenue performance, really, it's a tale of COVID, direct COVID impact in China, which is a significant market for us in terms of transaction volumes. Thankfully, that lockdown was finally lifted in Q1 of this year, and we see it coming back very, very strongly. But that was a huge headwind in 2022. In fact, if anything, '22 was probably the worst year for COVID in terms of China over the previous 2 or 3. The results, however, an indirect impact of COVID in that elsewhere in Europe and in North America, airlines really have to focus on operational matters and getting their planes back in the air. We all saw some of the challenges in the airports. Airlines had very, very similar challenges. So they had to really focus very hard on that, and we saw some of their digital transformation projects being deferred, as they did so. And that impacted 2022 and we discussed that when we released guidance in November. The good news is that those projects are coming back. They're already being put back on the table by airlines. We're working on them. And as Sean will talk about in a minute, demand for digital retail transformation has never been greater. And you hear that from every CEO that is out in the press, there's huge demand for more innovative ways to offer and engage with customers. And that's fundamentally what Datalex helps them to do. So those 2 factors impacted 2022. The good news is that they're gone now, they're behind us hopefully, and we move positively into 2023. The lower revenue fed down into adjusted EBITDA, down from $2.4 million to minus $5.3 million in 2022. The lower revenue was a primary driver, but also, as Sean said, implementation projects for easyJet and Virgin Australia. They will take time to come to fruition, but we're very confident that the implementations are on schedule. We're confident that they will, within the next 12 months, start to yield a material benefit in terms of the financial results and become a bigger and bigger part of our business as we go forward. And also, as Sean mentioned, we announced this morning that we've won another customer, LATAM, and that will yield benefits over the next 12 months as well. So that was EBITDA. I spoke about gross margin. Let me spend a minute on operating costs. Operating costs were $35 million. That's up from $27.4 million last year. Last year included about $2.7 million of one-off credits and the remaining delta really was driven by the implementations. And also, we proactively made sure that we protected our customer support capabilities and our product development capabilities at a core level that made sense for the future. And that was a short-term hit in 2022. But again, we're very confident in the investments that we've made, the customer support capability that we've retained, the product development that we've done and the customers that we've won over the last 18 months and continue to look for new wins that will yield benefit strongly in the next number of years. So then finally, speak about cash. Cash came in at $6.5 million, that was down from $8.3 million. That included a drawdown of the Tireragh facility of $5 million and total borrowings was up to $6.4 million. We'll speak about that more on May 10. We've said that we are pursuing fundraising options in relation to loan repayment, but more importantly, in relation to being able to fund the growth opportunities that are now on the table and that we now see. And we're excited about that, and we'll speak more about it on May 10. So hopefully, everybody on the call can make that or if not, we can follow up later. So all of that being said, a lot more detail in the annual report, more color commentary on May 10, and I'll hand it back to Sean.

Yes. Look, just to finish off here. Clearly, we're going to go through the future in much more detail on May 10. So this morning is not the morning for [ the matter ] maybe on the 2022 numbers. In summary, 2022 was a challenging year, and we said that a few times already. However, in contrast, we see all the things that affected us in 2023. Pretty much turning from a downside to an upside. Starting with China, which is very much strongly backed, it's now running at about 45% of your bookings for 2019. Last year, they did about 15% of the 2019 number. The April numbers have shown another 22% growth over March and -- so that's very positive. Secondly, we have increased our customer base by 3 wins in the last 18 months, including a very, very large win with LATAM America, 100 million passenger airline just in the last couple of days. Third, we have renewed all of our current contracts in 10 years between 3 years and 5 years. And more importantly, we have changed the terms of those contracts, which now show a trajectory of where the airline industry is going in terms of volume and passengers books and hence, transactions. And finally, we continue to see, as Dan mentioned, a very, very strong appetite for digital retail transformation. It's on the top of every CEO of every airline's agenda generally in the top 3 between aircraft fuel, you get digital retail has been in the top 3. If you look at what we have going here, basically, the pillars that we're building or confidence on is the fact that airlines are recovering in profit faster than anyone expected. And it seems like it's sustainable and has a strong trajectory going forward. And second pillar is digital retail solutions as part of broader customer experience and an enhanced revenue for airlines has become one of the key factors in terms of their recovery. We are in digital retail solutions. The vertical we support is airlines. Both of these are growing both the demand for digital retail solutions and airline passengers in terms of bookings are increasing, and hence, our confidence going forward in terms of 2023 and beyond. And we look forward to going through the detail of that on May 10, next Wednesday in London and to discuss in more detail kind of our model and how it ratchets up and as I said, correlates with the industry itself. So with that, I'll close the call, and we look forward to talking again on the 10th of May, and thanks for your time and understanding. Thank you.