Datalex plc (DLE) Earnings Call Transcript & Summary

Good morning, and welcome to the Datalex 2024 Annual Results Webcast. Thank you for joining us today as we present the financial and operational performance for the year ended the 31st of December 2024. We're pleased to have you with us as we reflect on the year's achievements, challenges and our strategic outlook for the future. Joining us this morning are myself, Jonathan Rockett, CEO; and Steven Moloney, the Chief Financial Officer. I will begin with an overview of the business highlights and strategic developments during the year, followed by Steven, who will take us through the financial performance in more detail. We will then discuss the outlook for 2025 and strategic areas of focus. If there are any questions, please submit on the platform or follow up directly with us, and we will respond after the call. Okay. So let's start with the key highlights for 2024. 2024 is the year we launched Stellex, our new offer and order management solution. This is our anchor solution as we look towards the future vision of the airline industry and away from the legacy technology that has served the industry well but is now a handbrake to the airline passenger journey we aspire to have. With the launch of Stellex, we then successfully completed the activation of our newest airline, Air Macau, onto the platform. Additionally, we continued the activation of easyJet with further Stellex offer capabilities and also migrated two existing airlines onto this platform. One area which we've discussed quite openly is that we are also examining adjacent areas for growth with modular product solutions. During the year, we had a focus on two areas: payments and Pricing AI. More to disclose on these when we look ahead to 2025. We also successfully raised EUR 25 million of equity from our existing shareholders, which was used to repay our debt facility and substantially strengthen our balance sheet. It also provided us capital to prove out our strategic initiatives. Our shareholders have substantially supported and continue to support the company in 2024. We delivered several positive developments in 2024. However, while the overall P&L has not yet shown significant momentum, the underlying performance after excluding nonrecurring revenue looks more promising. I will say the current P&L does not reflect the team's efforts, and I'm confident that it will better represent those efforts during 2025. Steven will now bring us through the 2024 numbers in a bit more detail.

Thanks a lot, Jonathan. I'll present an overview of our financial performance for 2024, and then we'll dive into each of the key financial metrics in a little bit more detail. So here's the financial summary and the key metrics for 2024. So revenue was $27.5 million in 2024, representing a year-on-year decline of 5%. The revenue decline is due to the cessation of contracts with Scandinavian Airlines and Virgin Australia in 2023 and consequently, there was $3.5 million of revenue generated last year that did not recur in 2024. This created a drag on year-on-year growth, mostly in services and other revenue. But more positively, platform revenue, which is made up of our SaaS license and transaction fees, grew 24% year-on-year. So while it's disappointing to see revenue decline, after excluding nonrecurring revenue from the prior year, the underlying growth and momentum in the business is strong. We delivered gross profit of $10.2 million, which increased 5% year-on-year. Again, despite the decline in revenue, we grew our gross profit year-on-year. So the mix shift away from services revenue towards higher-margin platform revenue allowed us to reduce our cost of sales, mainly people contractor costs who previously worked on services projects, and expand our gross profit margin by 3 percentage points to 37%. It will be a strategic priority for the company to continue to grow platform revenue as it's higher margin and more sustainable than services revenue over the long term. Our operating expenses were $13.3 million and increased 5% year-on-year, mainly due to higher IT and insurance costs due to inflationary pressures. We saw an adjusted EBITDA loss of $3.1 million, a modest increase of $0.2 million year-on-year, where higher operating expenses offset gross profit growth. We saw a loss after tax of $10.2 million, a 13% increase year-on-year on the back of higher interest costs and to a lesser extent, higher share-based payment costs. But having repaid our debt fully this year, we won't see the corresponding interest expense in 2025. So overall, while it's disappointing to see revenue decline and losses increase, after excluding the nonrecurring revenue from 2023, the underlying performance in the business is strong. In particular, it's positive to see strong platform revenue growth and gross margin expansion and the actions we've taken in 2024 will strengthen our competitive position and lay the foundations for stronger financial performance in 2025. We're looking ahead to 2025 with confidence as we enter the year with a strong recurring revenue base, momentum in platform revenue, margin expansion, a stronger balance sheet, having repaid our debt and removed the associated interest expense and having laid foundations for growth in stand-alone new verticals such as payments and Pricing AI. I'll now take you through each component of the P&L in a little bit more detail. We'll start with revenue. As noted, total revenue was $27.5 million, and declined 5% year-on-year. Our services revenue amounted to $10.2 million. This reflects customer activations and ongoing project work, and declined 27% year-on-year. Platform revenue, which reflects license and transaction fees associated with our SaaS revenue model, grew 24% year-on-year to $16.1 million. Other revenue of $0.1 million is down from $1 million in the prior year. As noted, the decline in services and other revenue is due to the contracts with Scandinavian Airlines and Virgin Australia ending in 2023. Scandinavian Airlines went into Chapter 11 bankruptcy and Virgin Australia discontinued the transformation program. Consequently, there was $3.5 million revenue recognized in 2023 that did not recur in 2024. And as noted, this created a drag on year-on-year growth. But more positively, we saw strong platform revenue growth due to ongoing customer activations and the transition of a number of customers to a full year on our SaaS revenue model. The underlying momentum in the business is therefore strong, particularly in our platform revenue, and we enter 2025 with a strong recurring revenue base and without the same drag on revenue seen in 2024. Our gross profit amounted to $10.2 million in 2024. The platform revenue growth strategy and less focus on services project work allowed us to reduce our cost of sales by 10% year-on-year, expand our gross profit margins by 3 percentage points to 37%, and therefore, increase our gross profit by 5% year-on-year despite the drag on revenue previously outlined. We expect this momentum of platform revenue and margin expansion to continue into 2025. And as noted, we won't have the same drag on revenue. Operating expenses amounted to $13.3 million, an increase of 5% year-on-year. Inflationary pressures resulted in higher insurance and IT expenses. We also continue to prioritize investment in people expertise, product innovation and our technology platform. We saw an adjusted EBITDA loss of $3.1 million, a modest $0.2 million increase year-on-year. Higher operating expenses offset gross profit growth. While it's disappointing to remain in an EBITDA loss position, the actions taken this year and momentum we've seen in platform revenue and margin expansion, while not yet materially benefiting the financial performance in 2024, will enhance our competitive position and deliver stronger financial performance in 2025. The ambition for the group, therefore, remains to return to EBITDA positive in 2025. And the work undertaken in 2024 should set us up for success in delivering this ambition in 2025. Our loss after tax amounted to minus $10.2 million, a 13% increase year-on-year. Higher interest costs and share-based payment expense drove the higher loss year-on-year. But as noted, we did strengthen our balance sheet, raising EUR 25 million in equity and fully repaying our debt facility. The repayment of the debt facility will remove the associated interest costs going forward and support a material reduction in the losses in 2025. Moving on to our balance sheet. Attached is a quick snapshot of our balance sheet. We won't walk through in detail, but we wanted to draw your attention to a number of key pieces. The key call out is that we strengthened the balance sheet significantly. As noted, we raised EUR 25 million or $28 million in equity, and we repaid our entire debt facility. The balance of the debt facility, including accrued interest at the time of repayment, was EUR 19.1 million or $21.3 million. I also wanted to give an update on our PAYE warehouse debt liability. We have a liability of EUR 4.3 million or $4.4 million. In 2024, we agreed an interest-free phased repayment plan with revenue over 6 years. That concludes the financial section of the presentation. I'll finish by saying we've made significant progress in 2024, putting the building blocks in place to allow us to strategically drive the business forward and we expect that to result in stronger financial performance in 2025 and beyond. I'll hand over to Jonathan, who will take us through the strategic focus and outlook for 2025.

Thanks for bringing us through the numbers, Steven. As Steven referenced, 2024 isn't reflective of our ambition or the team efforts, and I truly believe that the work we did in 2024 and the work we are doing now will lead to a substantially improved position when we look forward in 12 months' time. As we look to this year, 2025, our focus is on 3 core areas: enablers for future growth and scale; Stellex, our offer and order management solution; Stellex+, new stand-alone modules that are complementary to Stellex but also have the ability to be sold stand-alone to new airlines. First, I will highlight what we are doing under our enablers banner. We as a management team, acknowledge that we need to invest in these core enablers to properly drive future scale. Firstly, our platform is our product today. We have started a number of initiatives that will set us up properly to position Stellex in the years to come. This isn't a 1-year focus. It will be a multiyear project. We are starting by creating two distinct solutions, offer and order. For example, today, easyJet are using our offer capabilities, but over time, they will also engage with our order solutions. On top of that, the modernization of this platform will allow us to leverage modern technology and AI to further drive operational efficiency. Within people, as our strategy unfolds, we will need to enhance our existing skill sets with those that are required to take us to the next level and expand into new products. On processes, we want to make sure we stay agile while at the same time, having the right level of checks and balances to make the right decisions with the right data. In terms of Stellex, the industry is going through a period of change, with airlines considering how they can move into what the industry defines as the offer and order future state. This is the removal of the PSS reservation system. The industry vision is that airlines will move to a modular technology ecosystem, whereby they will no longer rely upon legacy systems in their technology stack. The investments in our platform is to align directly to this future modular ecosystem. For Datalex, what is really important is that we prove our capabilities with our existing airlines and our products to be our biggest marketing tool. As such, it is great that we migrated four airlines across to Stellex in 2024, and we continue to work on migrations of other airlines. Proving out our capabilities in the offer and order space and driving real value is crucial to us being able to attract new business to Datalex and to the Stellex platform. This is the area that we are operating at scale to date and as such, have a number of prebuilt capabilities and the expertise to maximize the benefits from these. Continued activation of easyJet as our largest airline on our books is a really important strategic proof point. We are happy to launch Stellex+. The vision here is to have a suite of modular products that extend Datalex's value proposition beyond the core Stellex platform. These products are purpose-built to complement Stellex directly addressing known pressing airline demands, designed for immediate impact that integrate modularly unlocking immediate value for our partners without the need for full Stellex deployment. Whether for current Datalex customers or new partners, Stellex+ products transform the end customer's buying journey and drive measurable revenue growth for airlines. Our two foundational Stellex+ products are born out of us seeing high-growth opportunities and a validated product market fit with our existing airlines. DLX Pay, a payment platform, which removes the back-end complexities of processing payments globally, while simultaneously enabling more personalized, simpler front-end customer purchase experiences, and Pricing AI, a pricing plug-in that enables airlines to find the appropriate balance between customer value, demand and airline profitability by utilizing AI technology, actionable insights, model adaptability and seamless integration. During the last 6 months, we have also added "Bring your own science" capability to allow airlines use their own data scientists and models in conjunction with Datalex models. Datalex is on a mission to transform how airlines retail and payments are a critical component of this. We see a significant opportunity ahead for airlines to make strides in this area. This is an area that in the future vision of airline retailing has been earmarked to add $14 billion in value for airlines by 2030. I'm thrilled to announce the launch of DLX Pay. I'm delighted we will be going live with this product with Air Transat later in the year. We've seen proven market demand for our payment solution that is designed with travel at its core. DLX Pay will enable airlines to connect with an ecosystem of payment providers, improve payment conversion and ultimately give the customer a more convenient and better payment journey, and therefore, a big value driver for airlines on revenue, cost and flexibility.

Okay. Thanks, Jonathan. So looking ahead, our 2025 financial priorities and ambitions are outlined below. So we're aiming to deliver total revenue growth year-on-year, supported by strong platform revenue growth. Driving platform revenue growth will continue to be a strategic priority in order to deliver more sustainable revenue and gross margin expansion. Our ambition is to return the business to positive EBITDA. We aim to do this through strong gross profit growth and managing our operating expenses tightly. We also want to continue to invest in our Stellex offer and order product capabilities along with investing in our stand-alone modular Stellex+ solutions, such as DLX Pay and Pricing AI, and we'll aim to raise more capital in 2025 to invest in growth. The quantum and timing is yet to be determined and will depend on the pace of investment in our product capabilities and new revenue opportunities. However, I can advise that our expectation at this point is that it will likely be a more modest capital raise than seen in 2024.

I would just like to end by thanking the team at Datalex for their efforts in 2024 and year-to-date in 2025, to thank the guidance and support from our Board of Directors and also to thank our continued support from our shareholders. We look forward to keeping you all updated on our progress during 2025.