Infomedia Ltd (BGLOBAL.BO) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us this morning to run through Infomedia's financial results for the first half of 2021 financial year. Joining me on the call this morning is Richard Leon, Infomedia's CFO. The agenda for this morning is set out in Slide 3. I'll cover the highlights of the year before handing over to Richard to run through the financial results in detail. I'll then provide some further commentary on the market generally and our strategic priorities for the remainder of the year before opening the line for questions. Turning to Slide 5. For those of you who are new to the Infomedia story, we are a SaaS platform provider to the global automotive industry, and one of very few global providers offering a full-service continuum across parts, service and data. We provide digital solutions for an industry-facing significant transformation. Our Next Gen SaaS platform integrates solutions for our customers and creates cross-sell opportunities to new segments. Over 95% of our revenue is recurring, and more than 80% of Infomedia's revenue is generated from outside of Australia. We support more than 180,000 users in 186 countries. On Slide 6, we cover the highlights for the period. Top line remains steady. The result was affected by COVID-related delays and the complexities in converting new sales to revenue. NPAT increased 3%. The first half of 2021 financial year will be remembered for the successful rollout of Next Gen SaaS platform to our existing customers. We have received very positive feedback from our customers, which was a validation of our customer-centric design philosophy. We also won a number of exciting contracts through this period, including Ford Europe, Audi Australia and a number of sales through our leverage sales partnership model in the United States. On Slide 7, I'd like to take a moment to talk about why this period was significant in our evolution. With the introduction and rollout of Next Gen SaaS platform, Infomedia has taken a step change. We have moved from selling single point solutions to our customers to offering them a digital integrated platform that increases productivity and profits for dealers and drive customer retention and loyalty for automakers globally. I'll come back to this later. I will now discuss some regional highlights. In APAC, there was solid growth with 8% increase in revenue on the prior period despite the restrictions. We have strong momentum in this region and are capitalizing on our competitive differentiation in our aftersales end-to-end offering. We are seeing very good evidence of the value the platform provides and many cross-sell opportunities, resulting in broader and deeper customer relationships. There is an excellent pipeline and also good backlog of solid work, which is being converted into revenue albeit at a slower pace than we would like. Europe and North America were more heavily impacted by ongoing lockdowns and restrictions. In EMEA, revenue held steady, but lower trading activities resulted in delayed decisions. The lockdowns have been tough personally for the team. However, we have managed this carefully, and the team is performing well despite these difficulties. The Ford Europe Next Gen contract win was extremely significant. The rollout is scheduled to commence later in the second half of this financial year. We are also seeing very good data and insight opportunities and balancing on the strength of our global relationships and some smaller wins. We are focused on building and scaling these out quickly. In the Americas, the performance was impacted mainly due to delays in physically accessing dealers across the country. The response to Next Gen platform has been positive. We have been focused on leveraged partnership sales strategy, and this has opened up new segments in the automotive ecosystem. And this provides us reach into segments, like collision and mechanical, through sales coverage and support. At this point, I would like to hand over to Richard to walk through the results in more detail.

Thank you, Jonathan. Good morning, everyone. Beginning on Slide 9. Now at Infomedia, we are proud of our people and their collective efforts to achieve the business outcomes during a period of global uncertainty. By way of a quick recap, Infomedia took swift actions to protect our staff and support our customers in the face of the global crisis. We continued to focus on our growth strategy and successfully delivered and rolled out our Next Gen SaaS platform. While this sentiment may not be visibly apparent in our financial results, we delivered a first half that was consistent with our expectations, reflecting a steady top line, a modest profit growth and remained cash generative. During this peculiar period and also not yet reflected in our financials, we continue to win new multiyear contracts around the world across our core solutions as well as secure some wins that represents green shoots into those new customer segments of our expanded TAM. This is what we shared at our AGM in November last year. For example, the recently announced strategic win of Ford Europe validated sales potential of our Next Gen SaaS platform. Other more modest contract wins, notably partnership deals in Americas, as Jonathan touched on, opened further opportunities to not only pursue a leveraged sales model but also to help us penetrate into other customer segments, such as the mechanical space. On top of this, we are seeing some exciting developments in data provisioning and are actively engaging in multiple high-level customer discussions off the back of closing early wins in data. To give some context for some of these multiyear contracts that we have signed, many of these have a ramp-up, but from a total annual recurring revenue, some of these contracts signed would represent about 6% to 7% of our recurring revenue. As a reminder, these were signed during a quite challenging period, and these exclude opportunities that we are currently still working on. This traction is strategically important as it demonstrates the sales potential of our new integrated SaaS platform and our ability to leverage existing core products and data to expand our reach into other customer segments. This is exciting. Though the challenge for us during the past year with traveled restrictions and lockdowns, particularly in the northern hemisphere, is that our typical cadence of converting sales to revenue was abnormally hampered, leading to a flat top line result when compared to the previous corresponding period, or pcp. If I may draw your attention to the bar graph on Page 9, total group revenue mix. Notably, we experienced a 36% drop in onetime revenue in our first half compared to pcp. Onetime revenue often includes the likes of development revenue and crucially, installation and training revenue that subsequently leads to monthly recurring revenue or MRR. As you may be aware, with a recurring subscription model such as ours, the compounding impact of MRR over a 6-month or a 12-month period contributes a far more substantial amount to our top line that earlier, we can start to revenue. Despite this large drop in onetime revenue and delay in timing of the associated MRR, the bar graph also illustrates the continued growth in subscription revenue that affirms our competitive position in the global auto software market. As Jonathan mentioned, we focused on delivering our Next Gen SaaS platform during the period, and we accomplished this by maintaining development intensity. You will see in footnote A to the table, our investment in product development has been steady over the last 3 halves and necessary to achieve this outstanding result. With the Next Gen global rollout completed and also receiving positive feedback from our users around the world, our focus over the next few months is to stay close to our customers and monitor performance diligently to ensure users continue to have a positive experience and uninterrupted access to our Next Gen SaaS platform. As we support this effort, we do not expect to see a significant reduction to our cost base in the near term. This is particularly important as during this crucial period of settling in the Next Gen rollout on a massive global scale, we also take stock and use this time to critically review how best to rebalance our development capacity and capability. A delicate and challenging task to balance, firstly, delivering to contracts closed during 2020; but also consider how best to fulfill recent wins and to further monetize emerging opportunities in the new customer segments of our expanded addressable market. A similar footnote has been attached to our important metric of cash EBITDA. For those who may be new to the Infomedia journey, cash EBITDA is our key performance metric, as we believe this offers a more transparent view of our underlying activity by accounting for those cash costs that are capitalized. The purpose of showing this footnote is to reflect the outcome of a very peculiar and paradoxical year rather than just a 6-month period under review, a year buoyed by our proven ability to close new multiyear contracts yet, on the other hand, hampered by abnormal and uncharacteristic lag in converting new sales to revenue. Given the reported flat revenue, the decline in cash EBITDA in the period is defined by the sustained investment intensity that culminated in the successful global delivery and rollout of our Next Gen SaaS platform. Our business fundamentals remain strong, delivering an approximate $10 million in cash EBITDA under testing circumstances. On to Slide 10 and looking into the top line results by product and geography. From what we can determine today with emerging optimism linked to the rollout of COVID vaccines, many of our recent contract wins are likely to start to revenue late in the second half of this financial year. While this may moderate our second half top line growth. We expect to exit FY '21 with a stronger MRR base that will deliver growth in FY '22. From a product perspective, services continued to deliver solid growth, whereas parts did see a decrease. A combination of factors contributed to this decline, specifically, a delay in onetime revenue, as already alluded to; some modest temporary financial concessions granted to several customers who faced severe business challenges; and the unfavorable impact of currency fluctuations due to the strengthening of the Aussie dollar. Generally, our strong business and competitive position enable us to generate an overall net new MRR each period. In other words, new or incremental revenue exceed any churn or reduction. In the case of parts stand-alone, there were some months in the first half where we experienced a negative net MRR. Contextually, this is more a reflection of the timing and delivery of contract wins. For example, the recent sizable Ford Europe multi-year contract win will start to revenue late in second half. And with this new recurring revenue, we'll average up and exceed any negative net MRR. And for completeness of other revenue, the decrease around $300,000 was driven by a timing lag, again, in onetime revenue and also a contract renegotiation that has since been renewed subsequent to reporting date. As for the regions, despite the externalities already described and the associated impact on our short-term financial results, EMEA performed well to remain flat on pcp. Asia Pacific was our standout region, with revenue increasing 8% pcp driven by strong growth across parts, services and data. For the Americas, a region that currently operate under an endorsed dealer-to-dealer sales model requires a steady cadence of closing sales followed by prompt installation and training in order to derive recurring revenue growth. While we see sales momentum returning to normal, and the partnership contracts we announced have yet to ramp, the confluence of lockdowns and travel restrictions severely came with the Americas' ability to generate both MRR and onetime revenue during this period. The next slide on Page 11, this emphasizes the cash-generative nature of our business and demonstrates that even under a global crisis, our cash from operations improved when compared to pcp. Getting closer to our customers has also helped us improve our collections momentum. What is equally pleasing is to see our customers' confidence returning, and our DSO, or days sales outstanding, reducing to below historical averages. For us, this is a leading indicator that our customers value and rely on our mission-critical SaaS solutions. In closing, we achieved a solid result in a challenging environment; delivered and rolled out our Next Gen SaaS platform to all our global customers; continued to win new multiyear contracts across the world and across our core products; as well as secured several green shoots contracts within the new customer segments of our expanded addressable market, and this is very exciting. While abnormal events have hampered our ability to convert sales into revenues during this period, we anticipate incremental revenue from contract wins to ramp up later in the second half. At this stage, I'd like to return to Jonathan.

Thank you, Richard. If we can move to Slide 13, I'd like to revisit the 5 key trends that we discussed earlier at the AGM. We see driving disruption in the industry we support. Digital transformation in the automotive industry has accelerated in the time of COVID, and we believe Infomedia is very well positioned with our integrated platform to meet the increasing demand we see as a result. If we can just consider electric vehicles. Global automakers have absolutely accelerated plans to introduce EV models, mainly as a result of ESG pressures. This will result in a much more complicated car park of electric vehicles, internal combustion vehicles and hybrid vehicles. These, we believe, will require the need for more sophisticated technology solutions to manage the resultant after sales complexities. Dealership evolution. Lockdowns and travel restrictions have had a significant impact on dealers in all regions. Dealers are looking for ways to become more efficient using digital solutions to replace often manual processes and create better customer experience. Vehicle ownership structures. This is one that we believe that's actually being delayed, and we believe delays the alternate ownership structures like car as a service is -- will be delayed, and this is really evident in the rise of the second-hand car market. Connected cars. Automakers are increasingly looking for solutions to communicate with the customer with solutions that aggregate and connect disparate data silos to predict customer needs and also provide a seamless multichannel customer experience. And the digitization of the customer journey. Manufactures are looking for end-to-end... [Technical Difficulty] Good morning. I do apologize. We appear to have had some technical difficulties. But due to our agility, we've managed to solve this on a different line. Again, I do apologize, and I will continue, if I might from Slide 13. I'd like to revisit the 5 key trends that we discussed at the AGM. We see driving disruption in the industry we support. Digital transformation in the automotive industry has accelerated in the time of COVID, and we believe Infomedia is very well positioned with our integrated platform to meet the increasing demand we see coming as a result. I might just go quickly through the heading. The electric vehicles. We believe since COVID, global automakers had accelerated plans to introduce EV models, mainly as a result of ESG pressures. This will result in a much more complicated car park of EV, internal combustion and hybrid vehicles, needing more sophisticated technology solutions to manage the resultant aftersales complexities. The dealership evolution. Lockdowns and travel restrictions have had a significant impact on dealers in all regions. Dealers are looking for ways to become more efficient using digital solutions to replace often manual processes and create better customer experiences. Vehicle ownership structures. We believe there have been delays to alternate ownership structures like car as a service models, and this is evident in the rise of second-hand car markets. If we look at connected cars, automakers are increasingly looking for solutions to communicate with the customer with solutions that aggregate and connect disparate data silos to predict customer needs and also provide a seamless multichannel customer experience. And then finally, the digitization of the customer journey. Manufacturers are looking for end-to-end, consistent global solutions to manage their customer journey. We believe COVID has put more pressure to provide global integrated solutions from manufacturer to the national sales companies to the dealer network. We will continue to execute our strategy at a time when our industry is looking for digital solutions. We have introduced a digital SaaS platform that creates efficiency by replacing manual processes, improving productivity and customer experience, and enabling the manufacturers and dealers to more easily access markets to increase their aftersales. If we move to Slide 14. The Next Gen SaaS platform underpins our growth with integrated solutions that meet increasingly digital demand and cross-sell opportunities. I've spoken about a number of our accomplishments already. I would like to highlight our focus during this year to support our customers, and more importantly, our employees, in particular, those in Europe, America and Melbourne. There are a lot of people who have worked hard and extremely hard this year, and continue to work very hard, and I'm very proud of the team. We have recently appointed a new Global Head of People and Culture, Natalie. And Natalie is tasked with ensuring that the team has the support and the preparedness to deliver the opportunities we see in front of us. In terms of M&A, we have been keen to get something over the line, and it is easy to get impatient. However, we have to do the right deal, and we are still focused on a very disciplined approach to M&A. From a strategy perspective, nothing has changed. It has been slower than we had hoped. However, we are staying focused on deals that are close to the core. If we move to Slide 15, a review of our SaaS platform Next Gen. As I mentioned previously, Next Gen marks a step change in Infomedia's evolution. We have transitioned from selling separate point solutions to an innovative, integrated SaaS platform. Next Gen opens up new opportunities for our customers at a time when they are looking for digital solutions to drive growth and improve customer experiences. The Next Gen platform also provides an opportunity for automotives and dealers to access new segments more easily. On Slide 16, I'd like to talk briefly about how Infomedia is using data and our solutions to expand into new markets and segments. As we have said, our customers are wanting more integrated solutions with more functionality to access these new segments. We have spoken about the U.S. partnerships. In these scenarios, at the moment, Infomedia is providing menus and service and repair data to innovative partners that are growing in their own right As a result, Infomedia has access through these partners to new segments and new customers. In another example, we are supporting our customer, a large Asian auto manufacturer, by providing data to facilitate more accurate parts sales in the collision repair systems. In Europe, we have an opportunity as a result of changing legislation to support our automaker customers by providing a solution that helps them manage and distribute their data to different stakeholders in the retail automotive ecosystem. This is a very exciting time for Infomedia. We are one of few global players with parts, service and win specific data accessible by a SaaS platform to an industry that remains largely manual and faces significant digital transformation. If we move to Slide 17. In summary, we are proud of our business and our people who have proved to be very resilient during a challenging period, the highlight being the successful rollout of our Next Gen SaaS platform. As flagged at our AGM, the delivery of the Next Gen SaaS platform is strategically important and key to our future success to enable us to leverage our core products and data into other segments of the global automotive software market. We are very excited with the traction achieved to date. While we all await the outcome of a post-vaccine world, we are energized and optimistic, having observed signs of renewed customer confidence. With the critical rollout of our Next Gen SaaS platform behind us, together with a strong balance sheet and cash in the bank, we are in a position of strength to pursue organic and inorganic growth. We anticipate a return to consistent sustained growth buoyed by recent strategic wins across all regions, and remain committed to an aspirational target of doubling revenue to $200 million by 2025. At this point, I'd like to open the line to your questions. And again, I do apologize for the technical mishap. Thank you, operator.

[Operator Instructions] Your first question is from Quinn Pierson from Credit Suisse.

I guess, firstly, I think one for you, Richard. I just wanted to clarify what I heard earlier. In terms of the new contract wins that are awaiting implementation to generate revenue, did I hear correctly that I guess the aggregate of them would be a 6% to 7% uplift on your monthly recurring revenue? Just to confirm what you had said earlier, please.

Yes, Quinn. That's correct. Once they're fully ramped up. So that 6% to 7% would be cumulative annual recurring revenue amount.

That's helpful. And how do we think about the slope? So it sounds like towards the tail end of this financial year, we'll see a bit of a decent uplift. How much of that 6% to 7% do you think could be ready to be annualized by the end of this financial year.

By the end of this financial year?

Correct.

Probably very little because a lot of these are being ramped up and delivered as we speak. So they'll probably start towards the end of the second half. And many of them will ramp up fully in FY '22, and some may drag into FY '23. But I think the takeaway, Quinn, is that we're closing multiyear contracts of 6% to 7%, and these are the ones that we have actually signed. There's other ones that we're actively working on.

That's helpful. Secondly, from me. I was hoping for a little bit of a discussion around the $200 million target by -- for revenue target by 2025. I guess, if you could just help us kind of bridge ourselves in that doubling from here in terms of -- I guess, firstly, is that an all-organic growth number? And how to think about the expected slope of that growth into that? Is it more back half weighted? Is it pretty consistent? Any building blocks towards that $200 million would be helpful, please.

Yes. So the COVID interruption has probably made it slightly harder, but our conviction is through the Next Gen SaaS platform. We think this would be an accelerator for us. I think your other question is, it will be a combination of organic and inorganic. And as far as the ramp, I think this is where we need to be careful about thinking too linear about this. There'll be years when we would see a massive acceleration, whether it be through an acquisition or through a penetration into the new segments of our expanded TAM. I think our message here is that we have confidence that we have the solution and the strategic discussions with our customers to deliver to this.

That's helpful. Just to clarify, could you give us an idea of that $200 million by 2025, about how much of that we should be thinking coming from M&A? In other words, how much of that could you do organically?

No, I think -- the way we think about it is that we're going to drive out organic revenue now that we have opened up into new segments, or we're seeing the green shoots, as we call, into new segments. We don't want to mislead by fixing ourselves to a number. We're going to drive the organic as aggressively as we can. So right now, we prefer not to state how we think the mix might be.

That's helpful. And just lastly from me, again, a bit of a clarification. So if I heard you earlier correctly, development costs won't go down in the near term as you make sure you, I guess, continue keeping up with the Next Gen support. I think I heard that correctly. So do we think about the first half cost base and maybe double that to get to an annual number? And then after that, is there an opportunity for dollar costs to start decreasing? I guess if you could just clarify how to think about the cost base, that would be helpful, please.

Sure, Quinn. Yes, I think the safe play is to think doubling the first half of the full year view. I think the second question is where the -- again, maybe a paradoxical question for us is that with the Next Gen, as you know, we accelerated investment in that. And I think the investment that is starting to pay dividends. But now that we're seeing these green shoots into the new segments of an expanded TAM, the challenge for us is, do we pull back now when we see all these green shoots? Or do we maintain and see our top line grow faster? I think that's going to be our challenge for the next 6 months, and we'll probably share more come June.

Our next question is from Elijah Mayr from CLSA.

Just wanted to start with perhaps the U.S. business. Revenue was sort of down 6% year-on-year on a constant currency basis. Can you give a bit more color around how much I guess, was -- is -- were any of that due to concessions or sort of lost customers or churn going through that business?

Elijah, look, the Americas reduction was made up of a number of contributors. One is COVID concession. The other one is the mix of MRR and non-MRR. So when we compare it to pcp, Americas' last period had a significantly more amount of MRR. When you take this contextually with an endorsed dealer-to-dealer market, it really thrives on being able to generate installation and training revenue, which then close on to MRR, with the lockdowns and the travel restrictions that severely hampered that. Now again, if we open that broader, this is where our strategy of signing these partnerships that opens the door for leverage sales, tapping into other organizations' sales force, will hopefully help us through this COVID period.

Excellent. Appreciate the color. And then maybe just more specifically on the COVID concession for the U.S.A. business. Can you give us an idea of how much that contributes? Because I imagine that would immediately sort of return to pre-COVID levels once restrictions roll off. Is that the best way to be thinking about it?

Yes. Look, we haven't quantified it before, and we probably won't for a whole lot of reasons. I think maybe the way to think about it at the moment, with the returning confidence through the rollout of the vaccines, we've not seen many requests. So hopefully, with the vaccine -- post-vaccine world, we see us returning back to normal.

Yes. Understand. And just on the contracts and, I guess, the forward contract. So that's meant to start ramping up from the end of the second half. What specifically caused, I guess, the pushback in expectations? I think previously when it was announced, you expected it start ramping up from January. Is that just reflective of the current environment? Or is it sort of just pushing that out for operational reasons?

Look, the Ford contract, there's a chunk of work for us to do. And the reality is, I think we have -- there has been a slight delay in rollout. It is a significant rollout to many thousands of users across the whole of Europe. And I think we're working as a team with Ford. And the reality is, I think, being able to roll out in Europe at the moment is extremely difficult. Countries are locked down. So that really has been -- possibly, we were slightly naive or aggressive on our time lines, but the lockdowns have definitely slowed that down. We are -- but we have fully expected to have this rolled out by the end of this financial year. The complete rollout.

And then just finally, just lastly on the M&A side of things. Can you give us a bit of an update maybe where you're at the moment. I mean, is the difficulty in finding something appropriate for the business, more around the quality? Is it more around the valuations? Is it around sort of travel restrictions holding you back? Can you just give us maybe a bit more color on that?

Sure. So we think the opportunity is still very much what we thought previously. And in terms of our strategy, we think there are lots of opportunities in the M&A space. It certainly has been more difficult for us to actually execute some of the deals where we would typically jump on a plane and sit in front of the vendor and close out deals. We've been completely [ armstrung ] and we found that extremely difficult. However, in terms of our -- in terms of the opportunities within that space from an inorganic growth perspective, they are exactly the same. I think in reality, the execution has been morbid.

Did you find some businesses targets that you sort of like but just being held back by the current environment?

We have a long pipeline of opportunities at different stages of maturity, but we have, in terms of executing some of those closer, it has taken a lot longer than we had hoped.