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

Good morning, everybody, and thank you very much indeed for joining us for our results presentation. I think what we'll be able to show you today is how strong momentum wins have led to a performance that is actually ahead of where we suggested we would be last time we spoke with you. So here, just focusing back again. If you remember the last time we talked to you, we had lost a major client. And what I was setting out to do with Lucy was to say, don't panic. The business still has great fundamentals. The market is strong. The client base is strong. And we will get to the GBP 100 million of revenue and 30% EBITDA that we had always said we would. That message landed pretty well, I'm pleased to say, and we have made good progress against it. Our ARR is building strongly, 29% plus year-on-year. We've had 8 or so major contract wins, 4 of them in the U.S. The U.S. is starting to perform more strongly, as we said, we felt it had the potential to do. Most importantly, we needed to return to profitability. And I'm pleased to say that we've achieved an EBITDA margin of 18%. I think we initially indicated that would be more like 13%. So we're very pleased with the progress we've made there. The OEM, the partnership that we have with one of the major software companies of the world is starting to deliver. The first 2 contracts have been delivered. And AI is coming towards us, is helping us. We've been an AI business for a decade or so now, and it's now 15% of our sales and almost 20% of direct profit. So it's a real business with real revenues and it's growing fast, and we'll return to that. So a good half, I think. We continue to want to be the leader in AI-powered loyalty and personalization. What does that involve? First of all, we are the largest and most powerful transaction engine in the world. We can do more personalizations than any equivalent and we do them faster with greater security and stability. As I said, we've got 10 years or more experience in AI, and our AI capability, the capability of our AI products is improving all the time. And we have very deep retail expertise. We've got $750 billion revenue is enjoyed by our major customers. Clearly, the figure is only intended to be indicative just to give you a feeling of the size and scale of businesses that we support. Now the reason why we're starting here and these things matter is because clearly, there is a lot of talk about what is the impact of AI and what will AI do to existing players and so on and so forth. And in my view, in order to be successful, and indeed, it's not only me, in fairness, Goldman Sachs and others are articulating this, you need three things to be successful: you need distribution scale, you need the quality of your AI model and your software and you need domain expertise. Now we have all of those things very strongly, and that's really what this seeks to lay out, to show and to reassure. Just looking at AI. Our AI business is growing by 30%. As I've said, it's more profitable than its sales interaction, and it's getting better. Our algorithms are getting more powerful using transformer neural networks and LLMs. Our original work was with machine learning, and we've added these extra layers, and there is no doubt that our affinity engine is able to find products that you are more likely to buy and to enjoy as time goes on. We do a huge number of interactions on our customers' data. These 2.8 billion interactions a minute, they are on retailer loyalty data. So they share their loyalty data with us. We do these calculations to work out what customers have a high affinity and a high likelihood to buy. The second thing that's happening with our AI business is we're developing more products. It started with challenges, continuity promotions. And then we've launched Personalized Promotions, which are now with businesses like Morrisons, Wakefern as part of the win that we'll talk about a bit in the U.S. And we've got other products coming where, basically, what we do is we do the analytics on your loyalty data and then we back-to-back it with an execution engine, which means that you can deliver it to customers as a finished promotion. That is a pretty unique attribute of the EagleAI business. And then finally, in France and the U.K., broadly around 750 million of sales have been influenced as a result of our AI-based promotions. Just I mentioned Wakefern. Wakefern was a win in North America. AI played a very big part in this win. And actually, they have contracted for all of our main products. So real-time loyalty, that's the real-time loyalty program which enables you to use AI data in order to personalize to the largest extent that also challenges the original EagleAI product and Personalized Promotions that I just mentioned. It was a competitive process. And the Chief Sales Officer, Darren, has been very kind and allowed us to use sort of his words, and indeed, has done a press release with us so that we're able to talk to American retail about what we can bring to their loyalty and promotion programs. And he talked about how advanced our technology was, really referring to AI there, and as I said at the end of the last slide, how it is clear that we are starting to drive incremental sales. GBP 1 of investment through these promotional tools will drive GBP 7 of incremental sales. So I'm going to hand over to Lucy now, who's going to run you through the numbers.

Thank you, Tim. I'm pleased to present the half 1 results to you where we've delivered ahead of our initial expectations. The key metrics here are really showing the underlying strength of the business. Just to pull out a few of the KPIs. We've delivered double-digit ARR and recurring revenue growth excluding NRS. We're delivering on our promise to recover the EBITDA margin. We'll talk more about that later on. And we've ended the half with a robust balance sheet with over GBP 12 million of cash and an unutilized facility. So we're pretty pleased with the results for the first half. We'll move on to look at the revenue mix. As you guys know, we're on a journey to become more SaaS and step away from professional services. You can see that in the period, our professional services have moved from GBP 4.4 million to GBP 3 million, and that's exactly in line with our strategy as we use system integrators to do that professional services work for us instead of doing it ourselves. If you look at how the SaaS profile has moved over the last 3 years, you can see it shifted from 72% positively towards 85%, so moving in the right direction. And I would expect over time that, that percentage to continue to increase. Just as a reminder what our definition of SaaS is and recurring revenue. We include both the license fee, the access to the platform but also the transactional element as well. And that is because in the main, we sell banded transactions. So one transaction going through the pipe guarantees a step of transactional revenue. So that's how we define our recurring revenue. If we look at the income statement for the first half. If we take a step back, we've been significantly impacted in this period by NRS. But we laid out at the start of the half to try and recover as much as we could from the loss of that contract and we've been taking significant steps to improve the margin, and we'll talk about that in the next slide. But actually, what we've achieved is 18% adjusted EBITDA margin against the expectation for the full year initially of 13%. And we still delivered a positive EPS. We'd expect that to improve as we go forward as well. So when I met you 6 months ago, I talked about this journey to 30% EBITDA margin and what we needed to do in this year to make improvements in our margin following the loss of NRS. And I'm pleased to report we're making significant steps forward on our recovery journey, and I'm getting more confident about delivering the exit rate of 20% EBITDA margin. So let's take you through some of those things. So I've talked about this transition away from professional services. That's important, as you can see here, as the direct profit of professional services is significantly lower than the recurring revenue element. And we're on our journey to that. I would expect that level of revenue to continue at a similar rate in the second half. We've been on a significant effort to reduce the GCP cost as a percentage of sales. The work has been continuing all through the first half and into quarter 3. The guys have done a really great job. And this is to make sure that we're OEM ready, we're not paying for redundant time of the platform. And they've made important steps forward. I'm expecting quarter 4 to deliver a much more effective rate of Google Cloud spend. I'm expecting the reduction from last year to the end of this year to be about 20% reduction of that cost. We just acquired PPS when I spoke to you last. We were doing an assessment of the cost base. What we've done is taken out the finance function now. That's all being run by the group. We've handed over the property lease that we had in Ireland. And we're currently, as a phase 2, looking at what we can do around the platform costs. So for example, their platform is currently on Azure. We're on GCP. So we're looking at a phase 2 of bringing those two cloud providers together. A piece of work that we've done in the half that I didn't talk about when we met was looking at the consolidation of the senior leadership team. We've lost two significant heads, of which their responsibilities have been spread across the team. And we've also, in this period, looked at the consolidation of the product team as well. Some of that work happened in half 1, some of it in quarter 3. So we'll see more benefit in the second half than we will do in the first half on that. It's important that we're giving ourselves space to invest into sales and marketing. We'll hear from Jeff later in terms of his desire to do more in the U.S. So what we're doing is freeing up cost to be able to invest there. We're doing that currently as we speak. And the performance in half 1 has allowed us to do that. So if we take those elements, we're performing ahead of where we expected to be. And it's important that as we get bigger, we'll get more operational leverage from those fixed costs. So we're getting more confident in terms of our journey to that 30% EBITDA. The cash position was strong. I raised this at the first half. Overall, we had a net cash inflow despite a lower EBITDA and restructuring costs, and that was driven by the improved working capital, if we exclude the share buyback program. The free cash flow percentage conversion was 140%. We'd expect to continue to deliver a strong cash flow performance into the second half. And it's probably worth just highlighting the share buyback program. We've just completed that post period. We've generated a nice return on that GBP 1 million. And we're looking now at what we do with our capital distribution. Clearly, in the last 12 months, we've done some M&A. We're looking to invest into the sales and marketing of the business. And we will assess again looking at whether we want to do more on the share buyback program. So investing into the business is sort of the priority for the next half. If I take you through the ARR growth slide here. When we met last, I said our goal was to try for this financial year to recoup what we've lost from an ARR perspective from NRS. And we've achieved that in the first half of the year. And as a result of that and the shape now of the business, the health of that top 10 looks much better. So we've had a major reduction in the customer concentration, going from 72% to 59% of that top 10. The top 10, less than 25% of the ARR is being renewed or due for renewal before FY '28. We're underway with one of the big ones right now, which is going well. And we've only now got one customer that's worth more than 10%, and that's renewed to 2030. So the overall profile of the ARR, one, it's growing strongly, and it looks a lot more healthy as we go into the next half of the year. Touching on now on the Win and Transact and Deepen element. We've had a really strong half in terms of our Win momentum. The new wins in half 1 are more than double than what we did for the whole of FY '25 with a particular focus of North America doing a really great job, as Tim highlighted upfront. Partners are also playing a really important role in this journey. 35% have been influenced or referred by partners, Google and Deloitte particularly being great partners in this space. And we expect that to continue as we go into future periods, giving us more opportunities to win. Our NRR was 108% if we exclude NRS. Our target is to be above 120%. The top 10 delivered 115%. And it's important that the wins on the left-hand side fuel the NRR growth. We know we've got a great track record of GBP 1 of Win transforming to GBP 3 of Transact and Deepen by that third year. The last couple of years have been lighter on wins. So I'm really pleased with the Win momentum and, therefore, confident that we're going to return to the 120%-plus in future periods. We've done a piece of work in the last couple of months, looking at the opportunity that we have in front of us. Usually, we just tell you it's a very big market, but we've done the work to look at this in a little bit more detail. Today, we're sitting at GBP 42 million of ARR. If we look at the opportunity by taking the top 35 customers, which is about 90% of our revenue, and expand what they take to the core customer offerings, then that can double the revenue of the business. If we now look beyond that and look at the markets just that we're operating in today and look at our ICP, so look at grocery and big retail, that increases the opportunity in front of us to GBP 1.9 billion, which is significant opportunity for us. You then layer on top the opportunity the OEM brings, which is new sectors and new geographies, and doing pretty prudent calculations here, we can increase the opportunity by GBP 1.4 billion. So the context here is our medium-term target is to get to GBP 100 million. And therefore, that feels very achievable just by looking at the areas that we're focusing on and the opportunity that's in front of us. And that should drive both ARR growth and NRR growth as well. So to summarize this section. We've had a return to double-digit underlying growth. The margin is recovering really well. The ARR is building strongly, and I've just demonstrated to you the significant TAM opportunity in front of us. So therefore, we feel pretty confident in terms of our journey to that GBP 100 million and 30% EBITDA margin. And now I'm going to hand back over to Tim to talk you through how we're delivering on some of these transformative initiatives.

Thanks very much, Lucy. Last time we met, I introduced you to Jeff Baskin and Zyed Jamoussi, who look after the sales and product for Eagle Eye. And I thought that what I'd do is let them update you on what they've been doing for the last 6 months. So I'm going to hand straight over to Jeff Baskin.

Good afternoon, everyone, and greetings from Arlington, Virginia. I'm Jeff Baskin, the CRO here at Eagle Eye. And it's good to be talking to everyone again. As we entered this year, our objectives were pretty clear. I challenged the team to accelerate our win rate, reduce our sales cycle, increase deal size and increase the quality and quantity of our pipeline. And I'm very delighted to report that we've seen some really good progress in all of these areas, particularly in North America, which has been a major focus for us. As a reminder, the U.S. is the largest and most advanced loyalty market in the world. We've identified over 230 retailers in the U.S. within our ICP, and contract in this market are typically around 2 to 3x our average contract size. So it's a really important growth market for us. U.S. retailers are further along in digital engagement, slightly more tech savvy, I think. The competition is intense from regional and national grocers and other retailers. And so the demand for measurable ROI from loyalty investment is extremely high as well as the use of AI and other technology to get the upper hand. U.S. retailers are also looking for true one-to-one personalization and getting more bang for their marketing dollars and really getting attribution and true ROI. Many of the medium to large regional retailers in the U.S. don't have huge marketing budgets or data science teams. So AI solutions and personalization seem daunting and only things that, frankly, the Krogers and the Albertsons here in the U.S. can take on. Our solution really gives them a chance and strategy to compete against them and other mass retailers like Walmart and Target, who are causing regional grocers and other retailers in C-store and other specialty verticals a lot of problems, being the mass retailers that they are here in the U.S. Eagle Eye's AI personalization engine, I believe, is really that true equalizer for many who are in our true ICP. We give them the ability to work with their current marketing teams, their current loyalty teams and to implement AI at scale. I've mentioned retail media before. It still is a huge topic here in the U.S. and a huge value driver for them. Everyone is still trying to figure it out, though, and how to take better advantage of retail media dollars coming from the CPG brands. So brands are looking for eyeballs but they're also looking for incremental sales and attribution. And that's what our AI personalization engine can provide. We have seen a demonstrable uptick in sales activity in the first half of this year and that's flowing through to our results. So a lot of the stuff that we've put in place through our revenue journey is really starting to bear fruit. We've developed what has been a really true consultative sales approach, which I believe is absolutely crucial when selling to large enterprise retailers. And we're going in with a very prescriptive approach based upon that experience of implementing many of these programs with some of the largest retailers in the world. And this approach is having a significant impact on our close rate. We have people on the ground now that truly understand the market and have relationships with key players in the industry. The key shift over the last 6 months or so has been execution. We've refined that ICP that I just mentioned and targeted and deepened industry engagement through flooding the market, as we like to call it, going to conferences, being there, creating meetings way, way ahead of time and making sure that we're going into these meetings not as introductions, but as presentations. And doing those at these conferences like the National Retail Federation or FMI or ShopTalk are great ways for us to, a, get our name out there and help flood the market, but also have real meaningful meetings with these folks. Deploying these strategies and more has already paid off significantly. Wakefern Food Corp. was a standout win, taking advantage of our full suite of solutions, recognizing our platform as state-of-the-art loyalty and personalization edge. So they chose everything. Our biggest priority in the second half of this year is to continue to grow out an A player team that has that deep industry experience. Because we had a strong Q2, we absolutely must take advantage of that momentum and continue to flood the market with good news which will further establish the Eagle Eye brand in the U.S. The brands that we've been able to bring on are very reputable and are brands that other U.S. prospects want to try and copy. As far as new verticals, our focus to date has been grocery, and there still is tremendous opportunity here in the U.S. But another key area that we're really focusing on is convenience retail. And we think this is a market where we can win very quickly. We've already won with QuikTrip, which is a major C-store chain in the U.S. And this is really attractive in many different ways. There's hundreds of thousands of C-store retailer locations here in the U.S. They're very high frequency. It's perfect for what the Eagle Eye AIR platform is doing, but even more perfect for our EagleAI and our personalization. So that's where we're really focusing. I'm really excited about the team we've put together and the team we're about to continue to put together, and I think there's tremendous opportunity here in the U.S. and elsewhere. So thanks so much for your time, and look forward to chatting with you again. Thanks.

Hello. I'm Zyed Jamoussi, CTO of Eagle Eye. At Eagle Eye, our ambition is simple: to be the platform powering the next generation of retail marketing. Retail is undergoing a fundamental shift. Traditional mass promotions are giving way to personalized digital marketing powered by data and AI. Retailers need to engage every customer individually across channels in real time. And that is exactly the transformation that Eagle Eye is enabling. We have been building a platform that allows retailers to deliver personalized digital marketing at enterprise scale combining deep retail expertise, SaaS infrastructure and advanced AI. And we are making strong progress. Let me start with our SaaS transformation. Over the last few years, we have deliberately shifted Eagle Eye toward a highly scalable SaaS model. The objective is clear: build a product-led platform with recurring revenue, strong scalability and improving margins. In the first half of the year, that transformation continued to accelerate. We are increasingly selling Eagle Eye as a standardized product rather than a customized solution. In fact, our last 7 customer wins were delivered without customer-specific builds. That reflects the maturity of our platform and reinforces the scalability of our model. Today, SaaS represents 85% of group revenue. At the same time, we are improving operational efficiency across the business. We have reduced cloud infrastructure costs through optimization initiatives with further reductions expected in the second half. Another important driver of productivity is the adoption of AI across our engineering teams. AI-assisted development is now accelerating how quickly we build and deliver new capabilities across the platform. The result is a stronger, more scalable SaaS business positioned for long-term growth. Let me now turn to AI and the role it plays in Eagle Eye's strategy. AI has been central to our platform for nearly a decade. We began applying AI to retail promotions and loyalty as early as 2016 when we founded EagleAI. And the results are real. In 2025 alone, we estimate that AI-driven personalized offers delivered through our platform generated more than GBP 750 million of incremental sales for retail clients just in the U.K. and France. But what we are seeing now is an acceleration in what AI makes possible. At Eagle Eye, our focus is very clear: enabling personalized digital marketing at scale. The most important development this year has been bringing together EagleAI and our AI platform into a unified offering called Personalized Promotions. This is where Eagle Eye's differentiation really comes to life. AI determines the right offers for each individual customer. AI then executes that promotion instantly at enterprise scale, integrated directly with the retailers' point of sale and digital assets. The result is true one-to-one personalized digital marketing in real time and at scale. For retailers, this is transformational. It dramatically increases campaign effectiveness, reduces operational complexity and unlocks the value of their customer data. That full chain from AI decisioning to execution inside the transaction is something that we're probably the only platform that can deliver at such a scale. And we are already seeing the competitive advantage it drives, more wins, including Wakefern, where our platform replaced legacy loyalty infrastructure with a modern AI-powered solution. Looking ahead to the second half of 2026, we are continuing to expand our AI capabilities. We are introducing AI agents into the platform to make it significantly easier and more productive for marketing team to set up and optimize campaigns. And we are working closely with Google Cloud to explore how personalized digital marketing can integrate directly into the agentic commerce. As shopping experiences increasingly become AI-driven, retailers will need their marketing and promotions to operate seamlessly within those ecosystems. That is exactly where Eagle Eye is positioning its platform. So this is a very exciting moment both for the retail industry and for Eagle Eye. Our mission is to power personalized digital marketing for retailers worldwide, helping them drive incremental sales, innovate faster and unlock the full value of their data. And we believe we are very well positioned to lead that transformation, and I'm already excited to tell you more at the next update.

Thanks, Zyed, and thanks, Jeff. So now just on to the OEM. This is where we are a technology provider to one of the largest software businesses in the world. They have a current customer loyalty management product which is on-premise. They have announced the sunsetting of that product and they're going to move to a cloud-based product, and we will be the core loyalty management technology that sits within that suite of products. Initially, there are 25 customers that are being approached and are progressing down the pipeline. You can see that because this is a business of such scale, they get huge numbers of people at their marketing events and their conference events and they have a very large sales team. I went and spoke to their Middle and Eastern Europe sales team, and it looked like the audience was about the size of the whole of Eagle Eye. And that was just people selling in one part of the world. The product went on to their price list in November. Two contracts have been secured since then. They are two blue-chip retailers, one in our standard ICP grocery space, but another one in furniture retail. And we expect that to account for about GBP 2 million of ARR. We're in the process of helping them build their pipeline further, and we anticipate the win rate to be 4 to 8 retailers a year. So I think the point about this is, we are capable and we will deliver GBP 100 million of revenue and 30% EBITDA from the organic that Jeff and Zyed were talking about. This is icing on the cake. This makes us fast, it gets us there faster and it makes us bigger. So then finally, my final slide is really just showing the growth drivers that we have that can help us to achieve GBP 100 million and beyond, and there's four different ways that we have of growing the business. Half 2 '26 has started strongly, and we look forward to making continued progress on both the sales and particularly the EBITDA front as we move towards the end of this year. Thank you all very much indeed for joining us. I hope you found it useful and enjoyable. I must say I was proud of Lucy, Jeff and Zyed. I think they did a great job of explaining the opportunity in being an Eagle Eye shareholder. And I hope you feel happy that you are or more inclined to become one, having seen what we've had to say today. So thank you all very much indeed for joining us. And of course, Lucy and I are always available if you want a deeper dive.