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

Good afternoon, and welcome to the Eagle Eye Solutions Group PLC results presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the management team of Eagle Eye Solutions. Good afternoon.

Thank you very much indeed. Good afternoon, everybody, and thank you very much for joining us. We're going to run you through our results for full year '26 today. And what I hope we will leave you with is an impression of increasing commercial momentum, strategic progress, and clarity around the future opportunity for us to continue double-digit ARR growth and strong cash generation. That's the agenda that we will be following. Just a quick introductory slide from me. We're a global leader in AI-powered loyalty and personalized marketing, and we have a huge opportunity ahead of us. So why? What is it about us that gives us this position? And I think there's 3 main things that we point to. First of all, we have a domain expertise. We sometimes say we're a software company run by retailers. And certainly, there's a few retailers around in Eagle Eye and people who've either sold or built software for retailers over many, many years. So I think putting it in a sort of basic terms, we speak retail. And they like that. The second thing is that we have products that handle proprietary data and create sales promotions on, based upon those, which create significant value for the owners of that data. And I think that gives us a very significant seat at the table. And then finally, we have a lot -- great distribution scale, both the customers that we've already got, look at the logo wall. If you're in that industry, it's certainly impressive, but also partners and indeed our OEM partner, and we'll be talking more about those today. But we have significant scale in the market. So domain expertise, data and AI, distribution scale, those are the 3 things that you can point to that give us a leading position in this market. When we met you last year, we had just recently suffered the contract loss with Neptune Retail Services. And it was a big and bitter pill to swallow. We explained that it was a one-off use case. It was not a reflection of the health or the opportunity of the business, but it was, to say the least, a financial inconvenience. We set ourselves some pretty stiff targets for recovery. And I'm pleased to say that what Lucy will lay out now shows that not only did we do that, but we did do more than that. And I think this is why we talk about a strategic reset for the business off the back of that misfortune. So over to Lucy.

Thank you, Tim. So let me just take you through the finances. So just to start, as Tim said, at the beginning of the year, we reset expectations. And I think the results at the end of the year highlights us delivering the key metrics ahead of market expectations. The 2, ARR and SaaS recurring revenue demonstrate the commercial momentum that we've got in the business. We delivered EBITDA significantly ahead of expectations, and we sit with a healthy balance sheet of over GBP 16 million of cash, which has grown by over 30%. And I'll take you through those elements as we go through the presentation. So if we start with the top line, we've been on a journey to be more SaaS over the last 3 years. And you can see that on the graph on the right-hand side. We've grown from 74% to 85% of SaaS revenue. And then if we just focus on FY '26, underneath the bonnet, we've seen that professional services come down as we deliver more products and also we use SIs to deliver our professional service in conjunction with us. The metrics that you would hope for us to move forward nicely, the AIR revenue and the EagleAI revenue have both done that. And that's important as we're getting more SaaS revenue coming through that it will drive our direct margin as we go forward. If I spoke to you this time last year when we just lost the NRS contract, we sort of said 1 of the important targets for the year ahead was to try and recover that GBP 10 million of ARR that we lost from that contract, which was a big task. I don't think we delivered that level of new ARR during the period before. But actually, what we've done this year is we've achieved that and we've overachieved against that, both from winning new customers, but also from deepening our existing customer base, and we achieved that 31% growth as a result. The customer concentration has come down. It's now gone from 64% to 60%. And we have 1 customer above 10%, which is Loblaws that has renewed in the period for another 5 years. If we look at the income statement, I don't go into the details of this because actually the comparatives as a result of the loss of NRS make the comparison a bit meaningless. But actually, if we just take a step back, despite that, we've delivered over 20% of adjusted EBITDA and our EPS is positive. But most importantly, as we move forward, we expect to move forward in a step change against those metrics, too. The most important thing for this year, I think, is to explain what we have done in terms of delivering ahead of those expectations and the steps that we've taken. First of all, that commercial momentum has driven a much stronger direct margin as a result of that overperformance on sales. We had to make some difficult decisions at the top, and we made some savings in terms of restructuring some of the senior leadership team. Then in addition to that, if we look down the organization further, we've made some careful management of people costs, but particularly in the area of professional services that as we're transitioning to be more SaaS, we've removed people who were effectively surplus to requirements as the revenue has come down in accordance with that. So those are the key things that we've done in the year. In addition, we got some savings in terms of timings from sales and marketing. So they're not sort of sustainable savings. But I think at the half year, due to our performance, we said we needed to invest for growth, wanted to invest more in sales and marketing, particularly in the U.S. We started that in half 2. And as we come into quarter 1, '27, we will have completed that investment. So as we move forward, we continue to focus on driving the EBITDA forward, and I'll talk about that in a couple of slides' time. A moment on cash. The cash position is strong, as I said upfront, over GBP 16 million of cash. We generated cash of GBP 3.8 million in the period. Our free cash flow as a percentage of EBITA was at 116%. That excluded the share buyback profit we effectively got during the period was about -- worth about GBP 0.5 million. So really, the key metrics in terms of driving cash forward we demonstrated in the year. Just to reiterate the cash allocation principles, which if anyone attended the Capital Markets Day, we went over that at that point. Our focus is in investing for growth, particularly in U.S. sales and also in innovation, particularly around AI data scientists. Our inorganic activity, we've done 2 M&A deals in the last 3 years. We continue to look for opportunities. Our focus is expanding the product offering, geographical reach and looking across the ICP, which is our ideal customer profile. Both deals that we have done had that connection of delivering for grocers, and that continues to be a criteria that we look at when we look at potential opportunities. And now that the share price has recovered and we've got the cash on the balance sheet and the facility that's untapped, it gives us more optionality around M&A. The share buyback program, as I said, we did our first share buyback in the year. It's something that we'll keep an eye on as we move forward. So we're reiterating our medium-term targets of GBP 100 million of revenue, i.e., to double the business and also move the adjusted EBITDA margin forward. Previously, we stated at 30%. Now we're restating at over 30%. If we look at the progress against the top line and these key channels to drive the top line forward, the deepening opportunity remains real. The top 10 delivered NRR of 113%. At our best, we've been at 120%, and we continue to push in that area as we go forward. Wins, we've said there's a big focus in the U.S. Tim is going to come back and talk to you and show you really where we see the opportunity there. We've had nice logos in the first half for signing for us for this full year. And Eagle AI grew by 35%, and we'd expect that to continue to grow at that sort of plus 30% level as we move forward. The OEM signed 2 new logos in the period. And again, Tim will talk to you about what we see the opportunity going forward. If we just take a moment to look at where the margin can go as we move forward, there's sort of 4 key areas that we're highlighting here. First of all, we've done a lot of work in the period looking at how we can make the platform more efficient. And actually, the work that was done in the period led to 150,000 savings June to June comparative. We'll see the benefit of that a couple of percentage points coming through in FY '27. We're currently looking at the equivalent project that we've got going on for '27, which again will take a chunk of the year to come through. But again, I would hope to get more efficiencies in the platform. We're currently delivering a direct margin of 70%. I would aim over the medium term to sort of move that forward nearer 80%. Everybody is talking about AI efficiencies. We are, too. We're using AI within the business operationally, but also from a coding perspective. What we're seeing now is an improvement in our throughput of about 75%. We're using that at the moment to deliver more stuff. As we move forward, 1, we're going to invest some of that back into new skills for the organization. In addition, we want to invest into security. We've got to pay for the tools that we use, and we'll take some of that to the bottom line as well. We're going to take the year to use all those -- look at all those different combinations and what we sort of said for this year, we'll make sure that we're not spending more than what we did last year in a combination of those things that I talked about, including the tooling. These things are important to drive the bottom line, but also to allow us to invest for growth. Sort of I've touched on that in the previous slide. We want to continue to invest. As a result of that, that can drive more operational leverage if we can get the top line moving as well. So if I was to summarize, we've got a clear line of sight to the 130 -- we've got a considerable TAM opportunity. And for those of you that saw us at the half year or at the Capital Markets Day, we showed you this slide, which we're illustrating basically our TAM opportunity that we see ahead of us, which is significant. We've got this increasing revenue quality to be more SaaS. Our cash generation is good. We've got a strong balance sheet with our facility that's untapped. We've got double-digit underlying growth, and we want to continue that momentum around that going forward. The margin has progressed significantly from the expectations from the beginning of the year, and we're going to kick on and move the margin forward again as we move forward into '27. So on that note, I'll hand over to Tim, who will take you through the strategic areas of the business.

Thank you very much, Lucy, and thank you for your stewardship through what had the potential to be an incredibly difficult year and made such great progress. I'm going to start off by talking about the market itself. It's a big market, and it's growing. And speaking from personal experience, I can tell you, it's a hell of a lot easier to grow a business with a wind at your back than the wind in your face. And this is very definitely a business that's got the wind at its back. What -- and it's accelerating, I think. And the reason that it's accelerating is because there is a greater realization that personalization is the answer because of the improved return on promotional investment that personalization gives and the very obvious fact that AI leads to the personalization opportunity. So 43% of businesses are saying their tech is not up to it. Well, that's our opportunity. We had a strong year in terms of wins across the Eagle Eye world, nice win of Z Energy and a great renewal in APAC, some super logos and new verticals in EMEA, and we're really starting to penetrate the middle market of U.S. grocers, of which the next slide illustrates is there are very many. And that is a huge -- it's not the only opportunity that Eagle Eye has got. It's not even the only organic opportunity that Eagle Eye has got, but it is a huge opportunity that we face. And we've got new people, new staff, new energy in that market, and we've just started to make some real progress, I think, and there's more to come, I'm sure of it. Moving on to scaling routes to market. We have the second big driver for growth that we have is what we call the OEM. And this is a partnership with 1 of the world's largest enterprise tech companies. They have $40 billion of revenue. They have 600 go-to-market people. They have an existing on-premise loyalty product that has about 5,000 customers. That's being sunsetted. It's a huge, huge opportunity for Eagle Eye. It will unlock new geographies, new sectors, and I believe it has the potential to double our business. If you look at this slide here, this shows the loyalty product set within the middle of the marketing stack with the idea that it's the central point that moves all the data around the marketing stack. That looks very similar to a schematic that we have produced over many years for the likes of Loblaw. If you go -- those of you who have been following us long enough and go back to that era of investor presentation, it's a very, very similar version of that, but this is the OEM, so they're all their products. And that's how it all sits and fits together. So it's a very significant undertaking. It's a powerful product. And if you want to get it all from 1 vendor, soup to nuts -- this is the place to get it, and it is the best on the market because it's got our loyalty platform at its core and our loyalty platform is the strongest in the world. It's we've -- they've already won 2 clients for this product. They're in advanced discussions with a further 40 within the pipeline. And our estimation is that within the next 12 months, we will win something of the order of 4 to 8. Conservative, but better to start there, but with a view that this really does have the potential to double the size of Eagle. Moving on to other sorts of partnership. A couple of years ago, maybe slightly more, we acknowledged the fact that we were weak in terms of partners and said that we were going to set out to build a network of partners to help us build our pipeline. And we've now got to a point where 35% of the wins that we generated were in some way influenced by partners. And we said that we thought that 50% was possible. I think that's absolutely possible. It may be more than that. So keep going. It's going well. It's making good progress, particularly photogenic, BCG bought us easyJet. Well, I don't think without a partner, I don't think we would have got it. We'd have been -- we wouldn't have been on the short list. And once they got us on to the list, we were able to win it. So that's, if you like, the third route to market, you've got organic, got the OEM, you've got partners. And now let's look at the product and how that's improving. The first thing is if you look at the AIR product and people say, why does AIR win these great big supermarket businesses? It's because of the scale. It's because it's what we do. The -- when I said earlier on, we speak retail, 1 of the things is we speak in tens of thousands and indeed millions, which you have to be able to do to cope with the sorts of volumes that they live with every day. Most people are just not used to that. And the amazing thing is that we can -- not only do we cope with these volumes, but we can adjudicate a basket of goods and work out all the points in, points out, promotions in, promotions off, all the earnings in 15 milliseconds. So literally, in less than the blink of an eye, it can be sent to the cloud, adjudicated and sent back. So as far as the customer is concerned, they don't -- they don't ever see it happening. Whatever goes on under the bonnet, they're not aware, but apart from the fact, they walk out the store with the right points total, the right discounts and having been charged the right amount. And it has phenomenal uptime because it has to, because it's part of the key retail system of checking out. Moving to the AI business. When we bought the business, it had 1 product, personalized challenges. It's now got 4, and I'm just going to take you through that evolution. The business has grown by 35% this year, led by the challenges business. Challenges are continuity promotions. What I see wherever they're implemented, wherever we go in the world is that there are a group of customers who completely get continuity promotions. They get this idea that if I'm prepared to spend a bit more, you'll give me a bit better price. And this is the way to do that. I mean, this concept, you go to the market, you say, okay, that's how much you'll give me for 1 goat, how much can I get 2 goats for? I mean, since time immemorial, this has been a -- is a way that people are used to bartering and buying goods. The trouble is in a self-serve high-tech environment, you can't do it until now, and now you can. People like it. There's a group of people that do it. If you don't have this type of promotion, you just leave that money on the table. So that's the selling message that we take to people. And we've just improved the product. It's a machine learning-based product, algorithms developed over about 7 or 8 years. But we've now put a transformer neural network on the top of it. And you can start to see there in the green bubbles, the difference that, that has made, the improvement that, that has made, 3% nice, 6%, not bad. 22% is amazing. And what that's saying is that this AI is able to find products that you have never bought that you are likely to buy with 22% more chance of getting you to buy something than its predecessor. That is a pretty significant step forward and I think an indication in a small way of what AI is capable of doing. On the right there, some of the brands that have bought this product this year. The next stage is personalized promotions. Now, this is where what we're doing, you don't have to do it this way, but what we're offering is we can bring the AI data analytics capability and marry it with the AIR execution capability. So you get the personalized list and you get the Eagle Eye real-time execution. That is the best way of doing personalized promotions in real-time cash off now. And that is the next stage that we can offer to people in a road map. And we're starting to see early indications of the improvement in return on investment of targeted versus mass promotions. The next product is what we call offer ranking. Basically, your local supermarket will have something of the order of 1,000 promotions in store now. You won't see most of them, and you certainly won't see all the ones that are relevant to you, and you'll see some that are not at all relevant to you. What this does is it uses your data to say of that 1,000 products, the 10 that are likely to be most attractive to you or the 20 that are likely to be most attractive to you are these. So we're not going to show you a meat product if you're a vegetarian, for example. We're not going to show you nappies if you haven't got babies. So I mean, clearly, that is it at its simplest level, but it becomes more sophisticated. And what you can see there is a result of doing that, the retailers are doing it, they are getting a higher click rate and people are basically looking and then acting because it's useful information because it's relevant. So if you add all of those things together, I think that they do make a considerable step forward in retail's ability to personalize off the back of their own data. But the issue is if you're going to do personalized promotions, you have to do an awful lot of them. And in order to be able to do an awful lot of them, you just have to do a lot of execution. So this agent is all about helping people to execute more -- identifying opportunities, identifying things that are relevant and interesting, seasonal, topical, new things they want to push, but then allowing the AI to create the promotion and make them as relevant as possible. And this is cutting the amount of time it takes to set up a personalized promotion by about 80%, so very significant. And that's the first of a number of agents that we will be launching during the year. So there we are, that's it. I started out by saying that I hoped you would agree that we should be confident about our return to double-digit revenues, both revenue and EBITDA. And I think there is an accelerating opportunity for Eagle Eye. I thank you for your interest. I thank you for your time.