Eagle Eye Solutions Group PLC (EYE) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us for our results presentation for our results after the 30th of June. So hopefully, what we'll do today is that we will be able to talk to you about why we believe that we are a tried, tested and proven solution for leading omnichannel retailers. And I mean, the first point, I suppose I make is don't judge us by what we say, judge us by the company that we keep, particularly in the year we've seen some wins, which we'll talk to you about, but also contract renewals from Sainsbury's, ASDA and JD, I think, consolidating that position. One of the reasons why we are the best in class for this sort of business is because of the scale and speed of our platform, 200 million personalized office weekly, GBP 2.1 billion transactions on the platform this year. And it's the speed and scale and security that we're able to do that at, that makes us stand out for these people. What these businesses are looking for is the ability to talk on a one-to-one basis to their customers. And of course, as their businesses become omnichannel, their customers appear in different places, in different guises. They appear in their shops, they appear on their app, they appear on their websites, they -- through e-mail, through loyalty card, et cetera. So what they need to do is they need to be able to pull that data together, structure that data and then analyze it to work out what the next best message is to send each individual consumer. Given the relatively low cost of storing data these days and the advent of AI, they are literally able to get to for the next best message for that specific consumer, and then they hit a problem. And the problem that they hit is that their transactional capability will not allow those many millions of messages to flow through to their customers. So that's where Eagle Eye comes into play. We do enable that. We basically take all the weight of doing these transactions from the point-of-sale and move it to the cloud. And it is that transactional capability, the linking together of their website, their stores, their app, all their touch points that we facilitate that enables them to move to a truly omnichannel experience, which is what they are trying to create for their customers. We've had a good year, I hope you'll agree, a strong trading. We were impacted by COVID in the second half, but managed to keep the business growing. We have won new plants, where we're sort of in implementation and now in early stage of transacting in 2 new geographies. We'll talk to you today about the work that we've done in the U.S. and how we think we -- that puts us in a very strong position to go forward in the U.S. market. The business has grown substantially and has innovated, but has actually controlled costs extremely well. And all of that, we will -- we'll talk a bit more about during our presentation, but we think we've made some excellent progress against our objectives. Clearly, like every other business, and we've being impacted by COVID. You can see on the right there the impact -- the immediate shock of lockdown, and that's actually grosses, switching off their own set -- we haven't got any toilet paper, we don't need to be sending out any promotions. You can see they quickly recovered from that and got back into pretty much BAU. But you can see that there is that bit of a step down there, and that is the 10% of group revenue, which is either brands who are seeking to promote through food and beverage outlets or our food and beverage clients themselves. I think we've responded extremely well to COVID in the management of our business, and we'll talk about our better, simpler, but cheaper approach and how we've managed the cash and also how we've changed our ways of working as a result of COVID. But generally, I think we have responded. When we met you last, which I think we have literally just gone into lockdown, we talked about -- I thought we were a business that will be COVID-19 resilient, and I think we have been proven to be that. In terms of current trading, the grocers are cracking on and others are starting to use the platform. We have created some COVID solutions, we'll talk a bit about those. There is some recovery in F&B and nongrocery. It's not back to pre-COVID levels, but it's maybe half the way back. There may be some delay in people making decisions, but on the other hand, I think there are some people who are saying the world has now changed, it's much more digital. We've got to crack on. So I think that will become clearer as the year goes on. As I said, I think the most important thing in a crisis like this is your people and the way that your people respond. We try to have a very strong culture as a business focused on meeting clients' needs. We endeavor to be a great place to work. This shot is from our virtual company day, some of the attendees, some of them were in purple wigs, you may notice. Purple is -- we talk about being purple, purple are our values. You can see those listed at the bottom. We work very hard with the business to bring those to life and to recognize them when we see them. We have increased our cross-business communication as a result of lockdown and spend our entire time on Zoom talking to anything from 1 to 150 different people. And we've also worked hard in this difficult year to also address issues of diversity and inclusion and to make sure that our people feel that we are doing the right things in those areas, and I think that has all worked extremely well in the year. Just finally, the markets -- I say this to you every year that the markets are gargantuan. And for a business that has revenues of GBP 20 million, that's why I always say, very small movements in market share can be transformational for us. I think the -- what -- the new news is that the pandemic, as has been well publicized, you all know 5 years and 5 months and that sort of thing, there's been an acceleration to e-commerce, pure plays, bricks-and-mortar retailers have without an omnichannel presence have struggled. Omnichannel is clearly the way forward, and what we do is we help businesses to be able to pull together all the elements of their omnichannel business into one place and for it to then be visible and present with consumers digitally. So I think we are in a very good position in a market that is huge and actually benefiting from growth as the result of the crisis. I'm now going to hand over to Lucy, who will take you through the numbers.

Great. Thanks, Tim. Good morning, everybody. So I'm pleased to sort of, first of all, introduce our key KPIs for the year. We've had strong growth of 21% to the revenue level, going from GBP 16.9 million to GBP 20.4 million by delivering on our customer strategy. We'll talk about all the elements of that in slides ahead. Recurring revenue stayed strong at 73%, and that should be a slight uptick from last financial year. We've made tremendous progress in our adjusted EBITDA levels. FY '19 had GBP 0.7 million. And this year, we've achieved GBP 3.3 million. We remain to have very low levels of churns, so 0.9% of value. This time last year, it was 0.8%. But if you couple that with the renewals that Tim talked about earlier on, it really does demonstrate -- or continues to demonstrate that Eagle Eye is incredibly sticky. We've had great performance on cash. We ended up at the end of the year with cash of GBP 1.5 million, which was cash inflow of GBP 2.8 million. FY '19 had an outflow of GBP 1.6 million. I'll talk a lot more about cash later on. The platform continues to perform incredibly well. Huge volumes going through the platform this year, GBP 2.1 billion, an increase of 140%. So great KPIs all around. For those of you who are not aware of the business model, I know a lot of you are, this is a reminder of that. We charge implementation fees to join the platform, and then our recurring element is license to access the platform and then transaction fees. We also split out SMS because they have slightly different gross margin, which I'll explain on a slide in a minute. I think the most important things to note here are sort of twofold: one, you see growth in each of the categories; and secondly, the element of license and transaction fees, so the real sticky bet and strategic bet, that has grown at a higher level, 25%, compared to the overall growth of 21%. This next slide is giving a little bit more color on those volumes going through the platform. So I've talked about sort of the volumes and that growth metric, but explaining that a little bit more, you can see in the graph on the right-hand side here, we've got last year and this year's volumes. And you can see that the significant uptick is driven by loyalty transactions, which is predominantly being driven by the impact of Sainsbury, the new net to going live, and that happened in Q1 this year. There's also, though, an uptick in all of the other categories, which is delivering both from existing customers doing more and also new wins in different geographies as well. I also highlight that, actually, the different categories of solution drive a slightly different price per transaction, and that's an intrinsic link between the value a consumer can get and what we're able to charge. So you can see there that gift charging there, a slightly higher price per transaction compared to loyalty, where there's more of an intrinsic link there between the value and what we can charge. This next slide is illustrating the income statement. I've talked about the top line. And as Tim alluded to, we did manage to achieve growth in the second half, despite COVID at 3%. Our gross margin is 94%, so slightly ahead of last year. Importantly, the margin of AIR, the main strategic element is 97%, and we've maintained that. When we move down to net operating expenses, GBP 15.8 million in the year, a growth of 5%, even though we've achieved the top line, the 21% growth, and sort of that element of increases coming from a couple of factors. First of all, an increase in staff cost. That is predominantly driven by standard salary increases and commission for the new wins, so that's a relatively small increase of 8% on our staff cost last year. And then in terms of infrastructure, that GBP 0.3 million represents a 6% growth on last year's infrastructure cost. And if you think we've had that 140% increase in volumes through the platform for just a 6% growth. Tim will talk later about the impact of moving to GCP, both in relation to cost and sort of technology features. I think as all businesses during COVID, people have looked at their cost base, and sort of we were no exception to that. We made sure that we sort of looked at cost that we naturally could hold back on to allow us the ability to still continue to invest in the areas that we needed to. So we did have a reduction in marketing, travel and admin staff by 15% just to give us a bit more flexibility to make sure we could invest where we need it to. People always ask, have we invested in the product, Tim will talk about the features that have been released this year, which is a great list. We invested GBP 4 million into the product, and GBP 2.2 million of that was capitalized. I've talked about the EBITDA profit being an impressive sort of growth metric. The bottom line that we're still making a loss, but again, good strides forward in terms of the improvements there. So FY '19 was a loss of GBP 2.4 million. And for this period, it was GBP 0.5 million. So again, good strides moving forward. This slide is a breakdown of what that revenue is made up of. I reiterate the point around the stickiness, the 73% of revenue being driven by transactions and license fees. But again, there's been growth in all categories. First of all, that implementation revenue has stepped up again. And as I often say, that's a good sign because it should allude to more sticky licenses and transaction fees in future periods. I'd also like to just point out, if you take the UK Tier 1 and international, it's really our big clients are in those categories. We've had 30% growth, which -- so overall, that category is growing at a bigger rate than the overall revenue of the business. So that's a really good sign as well. Next slide has got a lot more detail on the cash movement, but I think it is important to sort of talk about this element. First of all, I mentioned upfront, the GBP 2.8 million cash inflow compared to GBP 1.6 million outflow last year. We have benefited from COVID schemes that we've made to manage to take advantage of. So examples of that are taking advantage of the government's VAT scheme, negotiating with the certifier of PAYE, speaking to our key suppliers in terms of them helping us out on stress payment terms to allow us a little bit of headroom to be able to also look after our customers, who have been massively affected as well. So overall, that has given us a benefit of GBP 2 million during the period, and -- but that will unwind in the year ahead. So if you take the starting point of GBP 1.2 million net debt position, you take the operating cash inflow of GBP 6.1 million. The items there are listed both from the graph and within the bullet. Deduct the CapEx of GBP 2.8 million, and then the balancing figure is the interest that we paid for the facility, you get to a net cash position of GBP 1.5 million at the end of the year. So we feel as if we're in a good position to tackle the year ahead, and we've got -- still got our GBP 5 million facility with Barclays, that if you take cash, and that is more than enough to prosecute against our plan. We did also announce that we've extended our facility to September 21. It expired on May 21, so that was for audit purposes to allow us to get through that hurdle. The reason being that we didn't do it for longer is that we're in the process of looking at what does a business as usual lending look like because we're still in a category with Barclays, which has boasted of young, high-growth, loss-making businesses. So we expect over the next 12 months to be looking at what does the facility requirements need after that with slightly better terms. I'll pass back to Tim for the strategic update.

Thank you very much, Lucy. So just to remind you then, our strategy remains to win new customers, getting them transacting on the platform and then to deepen with additional products. And you will remember from previous years, we've talked about GBP 1 of win in year 1 from a new client, translating to GBP 4 by year 4. In addition to that and to assist in that process, what we do is we continue to develop new products and to upgrade the service to enable us to, a, deepen but also to win. We take all of that to new geographies, and we run this -- the business in this way that we call Better, Simpler, Cheaper, and I'll talk a bit about that later. So in terms of our customer strategy, we've had some nice wins internationally, Southeastern Grocers and The Warehouse Group, and we'll talk about that. So we've got one in Australia and New Zealand. The Warehouse Group is the leading nonfood retailer in New Zealand. And Southeastern Grocers is about #11 in the U.S.A. in terms of grocery business, where we've recently started working with Pret and, in pretty fast order, developed with them and launched their coffee subscription, which I'm sure you will all be aware of because it seems to have caught the mood of the nation as a new way of doing business. In terms of transactions, our brand revenues finished the year up 26%, despite the fact that they were really switched off for the last 4 or 5 months, so it was going well. We've taken the opportunity of lockdown to explain this opportunity to more venues, and we've signed a further 1,000 venues. These are pubs and bars onto the system, so that we're now able to offer 7,000 outlets where the brands can activate trial of their products and -- their new products and things like that. In terms of deepen, you can see from the U.K. performance; there's been an increased use of the platform by Tier 1, particularly Sainsbury's with the launch of new Nectar. And I've already mentioned that we have 3 significant contract renewals in the year. I wanted to share with you the progress we've made on developing the product in the year because I think it's important that you understand that, whilst we are delivering strong financial results, that is not at the expense of developing and growing the business. So we've improved our ability to handle and move data around the network and the speed at which we do that and, particularly, by being able now to make recommendations to consumers before actually furnishing them with fully formed offers. So we've got a lighter way of saying, wouldn't you like one of these. And if they say, yes, we then send them the fully formed offer. That means that our ability to get through the tens of millions of recommendations that we make a week is significantly reduced. We've developed a new channel to market, which is Message at Till, and I'll show you the use case of that, but that's for SEG, which they've launched 6 months after signing contract with us. We have developed the ability for consumers to personalize their loyalty rewards by allowing our clients, instead of simply exchanging vouchers for grocery, to have a wider range of rewards available and for the consumers to exchange for that, a bit like the Tesco scheme, if you're aware of that. We have created the capability to link your Air Wallet to a charity wallet, so that you can make donations to particular charities, which the retailer can contribute to if they wish. And we have also created the ability for the retailers to create coalition schemes. So for example, one of our clients wants to enable neighborhood stores to both issue and redeem points in their currency to show what a good neighbor and a good system they are. So we're helping with good citizenship. We're helping with charity. We're helping enrich the loyalty bank. We're helping the data move around the platform. We're creating new issuance channels. The AIR product is a significantly better product than it was a year ago. In the advent of COVID, we developed a product called Text & Trace, which was taken up particularly by Greene King. This was a relatively small thing and was done in a number of days. So it wasn't a huge investment and it's not a huge revenue earner, but I think it was very important to be able to offer our clients an immediate solution to a problem, what they were faced with. Some took it up and others didn't. But nevertheless, they were all impressed that we were able to support them at such speed. I've mentioned earlier Pret. They have launched their coffee subscription. We are the technology that sits behind that. We enable you to create the financial linkage and then to put your Pret QR code into your native wallet. And I think that seems to be the news on the street at the moment. I think that's gone off extremely well and is illustrating a new way that businesses are trying to do business in terms of areas -- that companies that have not been in the subscription space before trying to work out how they, too, can get into the recurring revenue business, and I'm sure we'll see more of this. This is the coupon at till product that we've developed for Southeastern Grocers. So when you get your till receipt, you will have a code on it, which you can either present at the till when you --and keep all of this paper in your purse. Or if you don't want to do that, you can scan it. It will then issue the offer digitally and then you can see the redemption journey that is going there. This is a light and fast integration, which has enabled us to get up and running and get SEG transacting within 6 months of them signing the contract. We work in partnership with Ecrebo to do it. They're the ones that do the printing on the till receipt. And it's a way of getting to market faster. So just then on the U.S., we talked about this at our last meeting, but you've got the situation now where, with our partner, News America, assisted by dunnhumby doing the analytics with Ecrebo doing the printing at till, that coalition of companies, we're able to talk to many businesses in the U.S. and also, actually, we're talking with dunnhumby and Ecrebo, so this is in other places in the world. So I think that sets us up to have some very good conversations going forward in the U.S. I talked about being Better, Simpler, Cheaper. First thing to say is that I think we've made great progress being a truly agile business. So I think a lot of businesses talk agile, I think we're doing it. Clearly, our software has been produced in an increasingly agile way over about the last 2 to 3 years. And what we've done is we've taken the skills from our agile coaches and apply that more generally to the business more broadly. So we produce software into weekly sprints. We now run the whole business on a quarterly plan and quarterly objectives. And we move resources every quarter dependent on the opportunities that face us in the coming quarter. In order to do that, we've split the business to take what we call the backbone, spine of the company, which are those core processes, the running of the business from the running of the platform, which have to be 24/7 365 and then taking the rest of the people in the business to saying these are a flexible resource. And we can allocate them to wins, and we can allocate them to projects, and we're working very closely with the senior leadership team in the business to create that greater level of flexibility. Lucy mentioned the GCP migration, I mean, 140% growth in transaction volumes, leading to a 6% increase in infrastructure costs. When we told you that we were going to GCP, people asked us, you asked us specifically, how productive would it be. Well, there's an answer. I mean, that's an amazing achievement. And going back to my point about being the natural choice of large businesses, large enterprises around the world for personalized omnichannel offering, you can see it's these improvements in the speed of the platform, the speed of offer allocation I was talking about earlier in terms of recommendations leading to offers and integrating the new point-of-sale systems. These are all things that you have to do if you want to be relevant for the largest businesses in the world. And I am really confident saying to you that it is the most scalable and robust loyalt and promotions platform on the market. There is nobody that can do the amount of personalization that we do and the speed and accuracy that we do it. So in terms of outlook then, we've had a positive start to the year. It's in line with our expectations. To be clear, our expectations have some COVID impact within them. And as we've said, last year, 10% impact for the lockdown, some recovery from that year-to-date, but it's not back to where it was, so there is still opportunity for that to move around a bit. I think, as Lucy explained, our funding position is strong and comfortable. Our focus, as this presentation is illustrating, I hope, is about building on the back of the digital transformation that's taking place in the retail sector. If you were a business that went into COVID with 10% of your sales going through e-commerce and 90% through shops, you've come out without having shifted to 80-20. So all those irritants about not being able to track customers properly and not being able to piece together all the silos of your business have become significantly more important to you as a result of this. And therefore, our solution is significantly more relevant than it was pre-COVID. We're continuing to invest. I hope I've shown you how we invested in the last year, and we will continue to invest in people and product going forward. And we particularly need to make some investments in the U.S. because of the opportunities that are emerging there. I think we are happy to support the market expectations for our growth. I mean, clearly, there may be some delay in there, and I've talked about food and beverage. But generally, I think we are sufficiently encouraged by the progress of the pipeline, both at home and abroad, that says that I think that the business will continue to grow nicely in the coming year. Thank you very much for listening. We'd be delighted to take questions.

And we'll go to Robin Speakman at Shore Cap.

And congratulations on a great set of results for last year. I guess, trying to ask a little bit more about the volumes coming through on the AIR platform. On my math, the increase in volumes are through the second half, which is just shy of 200%. And in that context, I just wondered about the volume development of the new price. If we use Southeastern Grocer as an example, clearly, that was implemented rapidly through the second half. How do you see them as a client maturing, if you like, through the course of full year '21? And what could be the growth rate in volumes that you see in the current year?

The major driver of growth in volumes in the second half of last year was the new Nectar personalized offers feature of the Sainsbury's program. And you're right, the next significant lift that we will get in transactions will come internationally. It will come from SEG. We barely got any transactions going from -- through from SEG, which started and certainly none have been seen in any results. So they will start to come through. As I've mentioned to you before, there are about 9 different products that SEG are in a phased rollout, launching to their supply base, which they can use to promote and access SEG customers, and we've just launched the first, and that is scaling up in the next few weeks, whilst we're working on the next one. And that -- then that will launch in a couple of months' time and so on with this rolling program. So I think a much more agile way of going to market, a much faster way of getting to market, and it will bring transactions through faster. But the other thing I think I'd just say about transactions, as you can see, that the way we have organized our technology, how we can manage the costs, while the volumes increase.

Okay, okay. Can I just ask about brands as well? So I mean, clearly, the fact that you can now, from contract win to deployment, you can kind of go through the integration process in a roundabout 6 months, which is a kind of welcome achievement. When it comes to brands, I mean, how do you see them? I mean, is the brand opportunity growing faster than that with merchants? And how quickly do you think you can act now in bringing the brand on board the platform?

The brands can come onboard in a matter of weeks. Indeed, the -- just picking up on the point that you made there, the launch of the Pret subscription was less than 6 months actually. So I think things are getting faster, but no brands can come on board quick. And of course, the big opportunity for brands now is, as I said, this extra 1,000 doors that have come -- we're able to create a bigger market for them to promote into, which is obviously more valuable to them. I think the brand market is looking promising and looking promising for some sort of longer-term relationships, rather than so much sort of tactical one-off, which, as I say, can be organized in a matter of weeks.

And we'll go to Kevin Ashton from Nplus1 Singer.

Congratulating you on the results. Just a few questions around Google Cloud Platform, actually. As you pointed out in the presentation, infrastructure costs were up just 6%. The first question, I think, really simple is has everyone been migrated? I suspect the answer is yes, but I'll ask that anyway. And then the second one, and I guess it's more with the new accounts, Southeastern and The Warehouse Group, how different an experience is it to do the implementation work when you're sitting on Google Cloud Platform? And then the third one is a follow-up is -- and I saw the comments from REX based about -- and they've finally talked about today about the improvement in transaction spend. And now we're talking about a 40% decrease in store closed. I don't have a number or cost, but whether you're -- that must be finding favor, I guess, with new accounts. If you can share some of those kind of improvements in operating KPIs. I can imagine that, that's quite an interesting thing to share with clients. So I guess, it's about -- has everybody migrated? How has it impacted your ability to implement and, I guess, to source new customers?

Yes, everybody has migrated. If we are going to -- into a new geography, well, the -- I suppose the difference is immense, Kevin, if you were facing a situation where you needed a new data center because -- I mean, to get -- to put together the data center network, we needed the Loblaw with months of work, whereas to open up the Australasia instance of our platform for The Warehouse Group was days, so not more than a week. So from that point of view, the difference is huge, I think. We've just done some sort of speed trials and productivity trials just to understand the capabilities of the system. We ran our program over 48 hours, where, in effect, what we did was -- we did something north of 2 Christmases layered on top of each other in 48 hours, and we didn't breach any of our SLAS. And that -- when I say 2 Christmases, that's take the volume -- the Christmas volumes for a major client, like a client has got more than 10 million customers. Double them, run it through the platform for 48 hours and see what happens. And as I must say, we didn't break any of our SLAs. So yes, it's a remarkable thing, but it is the sort of thing that clients that have 10 million customers need in order to be reassured that they can trust the live platform to be their promotional offer engine because if it doesn't work or if it slows down, you get problems at the tills, your business suddenly is promotion light, which will impact sales. I mean, it's an absolutely core aspect of retail trading. And so our development of the robustness of the core operating platform is a core feature for us, keeping clients happy and keep winning new ones, all of which I think GCP has helped contribute.

And again, just coming back to the last. I mean, you've answered the question really, Tim, but -- and if you take that kind of data to new accounts a bit in the U.S., a bit elsewhere, I mean, it must be a very different proposition, perhaps, for the ones that you have in 5, 9, 18 months ago.

We've always been in this space. We're just getting better, but we need to get better. And of course, the reason we need to get better and more productive is because we can -- we were a young business. We can bring our operating costs down, which means that one of the reasons that we need to be able to do these significant volume increases, but at that low cost is because it's a competitive market out there. And we've got to make sure that we are -- we can price our product in a way that somebody can envisage doing billions of transactions on your platform and being able to afford it.

And we'll now go to Emily Ritchie from Progressive Equity Research.