Elixirr International plc (ELIX) Earnings Call Transcript & Summary

So to recap our proposition, we intentionally span a number of capabilities at Elixirr in terms of what we can do for our clients. That spans from boardroom strategy and transformation all the way through to execution. And on this slide, just a snapshot of some of the large brands that we've worked with over the half year in 2026. These are clients that we have very recently worked with the clients that we have supported across a number of the capabilities on the left-hand side. And it's a mixture of those capabilities that really gives us the ability to deepen our client relationships. As Graham mentioned, we now have an increased number of gold clients and clients that are earning the firm over GBP 2 million of revenue a year. We're able to deepen those relationships by pulling on this suite of end-to-end capabilities on the left-hand side of this slide. And just to bring to life some of the work that we've done for some of the names on this slide, in the research and insights capability, we've been working with a major technology firm to create research-led thought leadership to help them market their services into their business-to-business market. That has resulted in demand generation performance growing from USD 1.7 billion to USD 2.5 billion. So we're always looking at creating commercial outcomes for our clients. And in the research and insights space, the work we did for this tech firm has very much done that. From a digital experience perspective, we've worked with one of the major financial services names on this slide. to transform digital experience through a complete website redesign that has spanned technological architecture, UX, UI, reusable component design and also AI-enabled enhancements to increase online conversion. And this has resulted in more than a 12x increase in online conversion and an increase of 170% in terms of online inquiries and form submissions, again, creating commercial outcomes for our clients. Lastly, I'll just call out Execution Edge. For a leading health care brand, we provided a 6-month biweekly breakthrough coaching program to 6 of its senior executive leaders. And this, combined with Executive 360 review looks at sort of the human performance element of the execution of their transformation agenda. made sure that they could continue to establish themselves as one of the leading health care systems in the U.S. So it's important to note that it's not simply the number of clients we work with, but also the depth of the capabilities that we bring to them. We've included a few case studies, more deeper case studies of how we've been working with clients across different industries. To call out a couple, these are non-AI case studies, and I have a couple of AI case studies. But to call out a couple, in terms of strategy development and commercial strategy development on the right-hand side of this slide, we created a USD 74 million annual EBITDA uplift, which has been identified for 2030 by creating a commercial strategy that prioritized 6 growth platforms for this particular organization, including executable market-specific playbooks, which redesign commercial coverage around customers and applications. So we're really delivering commercial results for our clients. That equates to a 51% cumulative EBITDA growth over 4 years. From an AI perspective, on the left-hand side, we've been working with a global insurance brand to create an AI-native motor insurance platform that has a 60% lower cost to serve. And it took us just 6 months to reimagine what an AI-native motor insurance platform could look like for this global brand name insurance firm, 6 months and a small team to take it from a concept to live regulated business where premium is now being placed through this platform, with 99% of processes completely automated, which is driving that lower cost to serve. On the right-hand side, we've been doing work in ethanol production. So looking at fermentation yield losses and how we could help to save USD 0.5 million to USD 1 million of margin in each quarter that this firm was losing because it wasn't able to identify yield loss early enough in the process. By building a predictive AI model, we've managed to save this firm USD 640,000 to USD 1.3 million in just one of their sites in 1 quarter. So you can imagine the cost saving that, that would create for this firm if we were to roll out that AI model across their multiple sites that they have. We also managed to achieve 96% predictive accuracy in a very short space of time, and the client is also now considering how they can use that proprietary model to help the wider industry to have better quality and to avoid yield loss. And why are we winning work in the market when it comes to AI? Well, a couple of reasons. One of them is that we have the in-house expertise and are also living the AI transformation ourselves. We have created Elixirr OS, which is our proprietary AI platform. When I spoke to you about a year ago, I told you about the Agentic platforms that we were creating. We had a number of different agents that were stacked on top of our data layer and the orchestration of that data that enabled us to grow our business and to deliver client work. And we've now brought all of that together in Elixirr OS. Elixirr OS helps us grow our business, helps us deliver client work by primarily being human-led. So we have ensured that all of our teams, senior and junior, retain judgment, client relationships and ownership of every output that Elixirr OS gives them. But the AI-powered side of Elixirr OS is the Agentic side, which completes repeatable delivery tasks and produces outputs for our consultants to review. And that's the case for both growing our business and for delivering client work. So as a partner, I can come into work in the morning, I can switch on Elixirr OS, and it's already scanned the market for publicly available information of what's happening across my client base. It scans my personal network across that client base, and it creates ideas for me to take to my clients to enrich the conversations I have with them and to generate and to develop business. It can even draft me e-mails to approach clients, whether they are new clients or existing contacts to try and initiate those conversations about how we can support them. Elixirr OS is also the platform we are now using to deliver client work and early results from 20 client examples are showing that we can deliver work faster, which enables us to have more time to give additional human value to our clients or to get to the next phase of work quicker. We're also saving time on administrative tasks. And as Graham said, we've now managed to automate 73% of repeatable project delivery tasks such as project reporting and project management work. And we're also finding that we can deliver work 8x faster when it comes to matching client records in this particular case, where client records could be processed in half a day versus 4 days manually. So the use of the platform is not just to grow our business and for business development, but also to deliver client work so that we can then add additional value to clients using AI. And this OS is reinforcing our ability to go to market and capture the types of case studies that I talked about earlier because our clients see that we are using AI within our own organization. We have the expertise. We are chasing the commercial value that it can create for them rather than just creating experimental pilots, and that is what has driven our AI revenue up 185% in H1 '26. I'm now going to hand back over to Graham, who's going to talk to you about M&A.

Thank you,. So we remain committed to our programmatic M&A strategy. If you remember what that means or if you haven't heard because of your first attendance, we're looking at 1 or 2 acquisitions a year that's going to increase our enterprise value by 10%, 15%, 20%. That's a better strategy, we think, and the research shows and doing lots of small deals and also a better strategy than doing one gigantic deal. And we've used it -- you can see on the right-hand side there. We've used it to great success so far, having done 9 acquisitions. You can see also how diligently we take it with those numbers. Since we IPO-ed in 2020, we screened nearly 6,000 businesses, engaged nearly 1,000 and met 300. I think I've personally met probably, I don't know, 250 of them. We are focusing on quality. We're focusing on board level capability, and we're focusing on businesses that have great clients. And if I think about the 3 lenses we look at, we look at industry, so how can they get us into new industries or deeper into industries we're already in. We look at geography. And you can see on the right-hand side, actually 5 of those from iOLAP through to TRC were the U.S. That was a deliberate strategy from our side. The U.S. is the biggest consulting market. We've been growing nicely organically there, but we can also speed that up inorganically. Just to tell you the kind of scale of the U.S. consulting market for every dollar spent in Asia, $2 is U.K., Europe and $4 is spent in the U.S. So it is a market that we should be focusing on, and we are focusing. And now when you think about our physical footprint, we have a very good spread across the U.S. from East to West, South and to the north of the U.S.A. as well. The way we structure our deals in the bottom left is really important. So we are all big shareholders. We try to manage dilution and we think about it very carefully. So we will look to structure a deal 1/3 cash, 1/3 equity and then 1/3 equity or cash at our discretion over a 3-year period that they have to hit certain revenue and EBITDA targets to achieve. If they do achieve those over the 3-year period, the kind of position we set them, it effectively means that they have to double their EBITDA in that period. So when you then at the end of year 3, look backwards, the effective multiple is far less actually than the multiple we agree upfront because of the value that they've created. And all of that flows through to the numbers on the right and bottom right, which we've kind of touched on. I think it's the clearest indication of success there is when we get cross-sell working like we have. There are hundreds, if not thousands of examples in the marketplace of an acquisition strategy where you think there's going to be good for sharing clients, but actually they just come in and operate as separate businesses and then you end up looking at the bottom line of client value. For us, it's all about market, it's about revenue, it's about shared rate cards. It's about creating extra EBITDA at that level, creating the market rather than really looking at where we can save 1 or 2 heads in the back office, and that has been working really well. And since pre-IPO, we've always had a 2-pillar sorry, we've got a 4-pillar growth strategy with 2 major areas of growth, one being organic, one being inorganic. We've always said 10% to 20% in each bucket. Some years, some halves might be 5% and 15% or 20% or 25% or even 30%. And on average, we're looking at that 10% to 20% growth in both sides. So that brings us to kind of a bit of a summary and outlook. Momentum is strong. As we said, a record first half. Revenues 25% up. EBITDA, 31%. Gold clients have massively increased. We're seeing a big increase in AI and tech demand. AI revenue up 185%. We're using it internally and externally as Emma has taken you through. And really, that $200 billion market opportunity is something we're looking forward to getting as deeply stuck into as we can. We are looking at capability offerings. We are -- like I said, we're buying and building. So a good example here is buying capability from Kvadrant, but also building out execution edge and really taking that to market, which is working well. And that means from an outlook point of view, we are -- we see multiple avenues for growth. And you'll see this morning that we've given guidance. Our total adjusted EBITDA for FY '26 will be in line with market expectations and revenue will be broadly in line. So we're pleased with H1. We're confident in our strategy, and we're looking forward to seeing it continue to succeed going forward.

So what we would want to do is just to answer as many of the questions as you guys have sent through. We're going to set aside kind of 10 minutes up to 15 minutes of questions. So we will do what we can in that time. Having looked through the questions, it seems like we've got a few themes. So we will try and answer in themes, I think, and the specific detail of some of these questions, we can follow up as normal on the platform writing. Theme seems to kind of be categorized in terms of the organic growth rate of 5% and the questions some of you have around that. Free cash flow is coming up a few times. Investor Relations strategy, Artificial intelligence is another theme. employee incentivization and the share price as it is, which I can certainly touch on. There's questions on company buybacks and partner and leadership buying shares. There's questions on M&A, again, to do with the share price. There's a few questions on the Peel Hunt broker note, which I can respond to. And then, I guess, a long-term sustainability and differentiation questions as well. So maybe, Nick, do you want to cover organic growth and free cash flow, some of the questions that have been asked, and then we'll get going from there.

Yes, sure. I mean there were a number of questions about organic growth and why it was 5% this period. I mean, of course, we're a project-based business, as you all know. And our organic growth in any period is a combination of those 3 blocks that I talked about on the bridge, right? It's the end of program work. It's the new clients and it's the net growth in existing clients. In every period, there's going to be a combination of those things. It doesn't mean that our long-term objective, of course, is to grow organically strongly, but there will be occasions when the interplay of the timing of all those different projects results like that. And for us, it's very much business as usual. There's no theme here. We're just continuing to focus on doing all the things that grow the business organically. So the 3 levers we talked about out of our 4-pillar growth strategy, our 3 organic levers. So stretching our partners to sell more, hiring new partners and promoting partners and growing the partner numbers as we did do during that period. And there was one link question, I think, on organic growth that was there asking specifically about the decline in the rest of the world in the context of having acquired Kvadrant. I mean it is important just to emphasize, we're not a country business. We don't run country P&Ls. We're client-led and we'll go where the work is with our clients where our clients that can mean a slightly different geographic mix in any period. Clearly, our strongest markets are the U.S. first and the U.K. second. In rest of world specifically, I mean, there was one very large client in Canada last year for about GBP 2.5 million in the 6-month period, which explains a large part of that variance. But for us, it's about growing where our clients need us to grow, not specifically being in any particular geography at any point in time. And then moving on to the question -- there are a number of questions about free cash flow and net debt. As I said in the presentation, there were -- H1 free cash flow is always low proportionately to the year. And then there were 3 specific reasons why it was lower in this half than you would normally expect. That will reverse significantly in H2. Net debt at year-end will be substantially lower. I mean if you look at the notes that the analysts have put out, they are -- all the analysts, I think all 5 of them have got numbers less than GBP 40 million, and that looks very sensible to me. We will see that free cash flow performance like we always do, reverse significantly in the second half. And there was a question linked to that to do with debtor terms. debtor days have gone up on average, not quite as much, I think, as the numbers that were in the question when you factor like VAT, obviously, that are not in revenue but are in the debtors number. We do focus very much on this. Our starting point for negotiation with new clients is always 30 days. Now with large -- with big multinational clients, we do agree exceptions from now and then if we have to, but only when we take account of the overall commercial opportunity and the profitability of that client and importantly, whether there's any credit risk. And I think I said in the presentation, with our client base, we don't see any credit risk and the vast majority of those H1 debtors have already been collected by now. And I think the next one was on North American strategy, IR strategy.

Yes. So maybe if I just pick up on the questions we've had on our North American, in particular, IR strategy and also on AI. We've recently appointed Canaccord as our joint broker. We have been out to Canaccord's Global Growth Conference in Boston and met a number of potential holders new investors to broaden that pool of investors that we're talking to about our investment case. In particular, we're interested in increasing the number of North American investors that we have on our register, particularly institutional -- large institutional North American investors. And I think starting that relationship with Canaccord at that fantastic conference has been really positive for us. We also continue to meet new investors here in the U.K. as part of this roadshow due to that secondary broking relationship that we now have with Canaccord. On AI, a couple of questions. One was about the type of work that we're doing and how that is different to the rest of the consulting market, how our competitors are approaching AI, why the type of work we're doing with our clients is different. And the other question was about our own use of AI, particularly in delivering client work and whether that leads to some future of higher margins for our business. To take the first question, the type of work we're doing with clients has always been very strategic C-suite level problem-solving opportunity creation. And we are working in the AI space with clients in exactly the same way. So a couple of the case studies that I give on the recorded presentation that you will see after the fire alarm that we had will bring to life that kind of work. So creating completely new AI native businesses from scratch for financial services firms as one example, or using AI as a technology tool to answer strategic business challenges to grow businesses or to save them costs. Our competitors tend to be speaking to clients about AI as a technology, and there are a lot of experimental kind of factories out there, AI factories where people are experimenting with very small proof of concepts. And it seems to be that's the lion's share of the work that's happening in the broader consulting market. we're very particular to be answering business challenges and creating business outcomes with AI solutions. In terms of the margin question, we are already a premium priced product for our clients because of the nature of the strategic work we do. And therefore, we do not see AI as an efficiency play to create more margin from our clients. That's not something that we believe our client relationships would be appropriate for our client relationships. But what we can do is we can give our clients more for the time that we are saving through AI. So more human input, more human advisory value that they're already paying us for and that they like us for. We also are able to get the next phases of work quicker if we can deliver initial phases of work, those research insights and analytical phases of work quicker using AI tools, we can get to more of the operating model and implementation work quicker with our clients and broaden those relationships at an accelerated rate. I'll now hand back to Graham, who's going to cover the rest of the questions.

Yes. Thank you, Em. We had questions around employee incentivization and where is that versus the share price that it is. We are a business that is full of shareholders. We talk about that a lot. We have options for people who join, and we have a share scheme that people can invest into and they get a match from the business. I think it's important to note that our employees aren't incentivized, and I talk about our whole team, including the mark team here. We're not here for day trading. We're here for building value in the future. We have certain restrictions around shares, and we have exercise periods and nominee agreements and all those good things, which means that actually our employees are looking at where are we in 5 years'. That's the important thing. They're on this journey to build the challenger consultancy, build the best consultancy in the world. And to be with us on that journey, it's not about getting angst about a day by day or a particular week where the share price is down. Obviously, everyone likes to see a good share price. Obviously, they do. But in terms of is that stopping the team being incentivized for the future, then it is not. So we are managing that as we always do. There's a question on buybacks and other leadership team buying shares. So a couple of thoughts here. One is that particularly in the last 48 hours, including this morning, we have several partners who have requested to buy shares. So our team are buying into where we are today and where we're going tomorrow. There are certain directors such as myself who would love to be doing that. But unfortunately, we do have a concert party that's been in place since the original IPO which means that Stephen and myself, we can't actually buy any shares whilst we're in the 30% to 50% ownership between us. We are very close to the lower end of that. I think we're at about 30.5% now for the constant party, which does mean in the future that will -- those restrictions will release. But the other thing that having constant Party does at least in the short term now is it prevents us from doing any buybacks as a business because if we do buy a share and then cancel it, it would mean the constant party voting rights go up even share, and that would then initiate the need for a bid for the whole business itself, which clearly we don't want to be doing right now. So yes, Stephen, myself, those in the constant party would be absolute buyers at the moment, but we are restricted, but the broader team are buyers and are actively doing so, which is good news. Another question on share price and kind of the ability to do M&A and what does it mean? I think it's probably worth just pointing back to the way that we structure M&A deals with being 1/3 cash, 1/3 equity and then 1/3 either cash or equity at our discretion dependent on revenue and EBITDA performance over that period. So actually, for a high-performing business to achieve all of their earnouts, it would effectively mean that they would double their EBITDA. And when you look backwards, that does give a far lower effective multiple. But that said, again, we are big shareholders ourselves. So we do look at this and manage dilution diligently. And we have a debt facility. Debt is cheaper than equity, especially where equity is at now. So we have a warm pipeline. If and when something is looking to convert, we will -- I can guarantee you, we'll be doing the right mix of cash and equity to protect shareholders in that space. A question here. I'm just going to read the question out, so straight from the question. Do you think that the severe downgrade by Peel Hunt was influenced by you dropping them as corporate broker, especially given that the other research analysts reconfirm the target price at a materially higher level than -- sorry, Peel Hunt's updated target price of 50. It was a surprise to us, I'll be honest, to see that. It wasn't on our radar in any way. And I think when you look at where the other brokers are, 2 of them are our corporate brokers, 2 of them are completely independent, but they've kept the high level of buy and I think between GBP 9 and GBP 11 target price. I don't know where, why, how, what, when was going on with Peel Hunt's report. So I can't really comment. And I certainly can't comment whether it was attached to us going out separate ways last year. But I will say it was a complete surprise, and we do not agree with it, and it's unhelpful. And finally, the question about how do we ensure the long-term sustainability and differentiation of our business model. I think that is a summary of what we've been talking about. It's around diversifying ourselves across industries, geographies, services. It's investing further into the U.S. It's being a leader in AI, especially given the relevance it's got in today's world. I do firmly believe and Stephen believes we will believe that we need to protect our higher-margin model rather than chasing lower margin revenue for scale's sake. We could do that, by the way, quite easily. We do turn down revenue that's had a race to the bottom on price. But we are keeping this deliberate premium space in the market. And it is that disciplined balance of organic and inorganic growth. Nick mentioned there will be years where timing just happens that organic growth might be lower than expected. But then on the other hand, inorganic might be higher. Our vision is to keep going at the 20% to 30% in totality and have a profitable business and a sustainable business while we do that. And that is all done by having the best possible talent we can, and we have got a world-class team, and we are looking for further world-class players to come join us. So hopefully, when you add all those things together, we are looking at the future with a lot of excitement. And I just want to say thank you for those of you who are with us on that journey already. And if you're not, then yes, we're looking forward to hopefully joining the register. There are some detailed questions here. Like I said, we tried to theme them in the time we have available. I believe that we will be giving some answers to those detailed questions in writing. So thank you very much, and we will speak to you at the next set of results.