Pinewood Technologies Group PLC (PINE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our FY24 results presentation. I'm Bill Berman, CEO, and with me today is our CFO, Ollie Mann. I'm delighted to announce a set of results that came in ahead of analysts' expectations, and Ollie will walk us through the headline financials shortly. But first, I'm going to reflect on what has been a landmark year for Pinewood. Following the successful conclusion of the transaction with Lithia, we have worked hard to ensure the company's transformation into a standalone software business, and it's off to a really good start. Our main area of focus at the beginning of the year was to make sure we had strong foundations in place to support ambitious growth targets. This involved getting our resource levels to ensure we are in the strongest position possible to execute against our strategy. This early preparatory work was so successful that we are already beginning to see it bear fruit, with early success delivering on key strategic goals set out at our Capital Markets Day in October. Let me take you through some of the highlights. We have signed up two of the largest auto retailers in the U.K. in Marshalls and Lookers, which is a testament to the strength of the Pinewood platform.

We’re really enthusiastic about collaborating with these two groups and can’t wait to support them in expanding their operations, boosting efficiency and productivity, and in the end reducing their costs. Then there’s the February 2025 acquisition of Seez, a top automotive AI platform, which ranks among the most thrilling milestones in Pinewood’s history. We have a rare chance to leverage their AI technology’s strength to develop Seez as an independent business while creating more cross-sell and up-sell possibilities for the existing Pinewood operation. The equity raise, which was oversubscribed and funds the cash portion of the transaction, demonstrates that our investors are as optimistic as we are about what this deal could do to strengthen our outlook over the next few years. We’re likewise seeing strong momentum in growing our international operations, and we have a promising set of opportunities ahead. Last, our North American expansion has advanced very well. We remain on track to pilot our system in North America during the second half of 2025, with the full rollout to begin later in 2026. At this point I’ll pass things to Ollie, who will walk us through the financial review.

Thanks, Bill, and good morning, everyone. Before I walk you through the financial highlights, a quick reminder about the period these results cover. FY23 was a 13-month period that ended at the end of January 2024, because of when the Lithia deal closed, and we're now returning to December year-ends. FY24 therefore spans the 11-month period ending December 2024. That means FY24 and FY23 aren't comparable on a like-for-like basis, so we've shown the 11 months ending December 2023 as the comparative. As Bill mentioned, we've made a very strong start as a standalone software business, and our financial performance reflects that. On a like-for-like basis, revenue grew by 15.1% and gross profit grew by 16.5%. As a result, gross margin rose from 89.3% to 90.4%. A key driver behind that strong revenue growth was the highly successful rollout of the system into the remaining Lithia U.K. stores, which wrapped up in December 2024. Our recurring revenue came in at a high 86.5%, which sits within the 85%-90% range we typically expect for recurring revenue. Most of our non-recurring revenue comes from training and implementation income tied to rolling out the system.

The bulk of what we spend on cost of sales goes toward hosting resources. Gross margins came up because we put several cost-reduction measures in place around our hosting infrastructure, all while continuing to tune system performance. As planned, operating costs rose compared with a year earlier, reflecting the team we've been building, which better sets the business up for expansion across the coming few years. And our underlying profit before tax reached GBP 8.5 million, which beat what analysts had expected. Now let's turn to slide seven, where I'll walk through the main cash flow movements for the period. The Lithia transaction closed on 31 January 2024, but the related cash movements settled on 1 February 2024. Several of those movements appear on the cash flow slide, among them the proceeds from the transaction and loan repayments, the GBP 10 million put into a North American JV, and lastly the GBP 358.4 million dividend distributed to shareholders. During the time the accounting and legal steps to pay those dividends were being carried out, interest of GBP 4.3 million was earned. In September 2024, we made our first investment in Seez, buying 9% of the business for $4.2 million, equivalent to GBP 3.2 million. Together with cash generated from trading, all these movements brought the year-end cash position to GBP 9.3 million.

Back in March 2025, we got £9.9 million from Lithia tied to a tax debtor, plus several million pounds from the February 2025 equity raise, so our cash position looks solid. As Bill will walk you through in more detail later, though, we have a strong pipeline of strategic opportunities, and we're constantly hunting for ways to maximize growth of the business. On slide eight, you'll find the end of FY24 balance sheet, and the key points there are closing shareholders' funds of £39 million, with the main driver behind the reduction being the £358 million dividend and the £9.6 million investment in the U.S. JV. That's the initial £10 million investment minus our share of costs incurred during FY24. The other investment, £3.2 million, is the initial Seez investment. Other intangible assets of £16.3 million represent the capitalized software asset, which has increased as resource levels and development work have grown during the period. The £21.4 million receivable balance includes the £9.9 million tax debtor. Then the last balance to call out is the £9.3 million cash balance. Beyond that cash, we also have a £10 million RCF facility, which remains undrawn.

Moving to slide nine, we have several non-underlying items, and the majority of them are tied to the Lithia transaction. Restructuring and transition costs came to £2.2 million after the Lithia deal, along with £0.9 million in transaction costs. On top of that, £4.3 million of interest was earned on cash that was held while the special dividends connected to the transaction were being finalized. Among the other items are the share of JV results, which came in as a £0.5 million cost, and share-based payment charges totaling £1 million. At this point I'll pass things back to Bill, who will walk through the operating highlights and the strategy.

Thanks, Ollie. I'll walk you through a few of the year's highlights now, along with the early headway we've made on our strong strategy. A major driver of growth in this year has been the substantial enlargement of our user base, which rose 6% to over 35,000 users. In parallel, we stay focused on vertical sales — that is, upselling into the customers we already have — and on landing new customers, which have likewise pushed revenue higher. Ollie mentioned the net churn across our customer base, and it stayed remarkably low, at only 1.1% for FY24. That reflects how strong our solution is and how sticky our customer base has proven, which underpins an appealing level of recurring revenues. With vertical sales making a growing impact, we believe user count isn't the finest metric for judging how the business is performing. Going forward, we will for now consider other potential alternative measures. We also closed a five-year contract with Marshall Motor Group to deploy our full product suite throughout all of that group's dealers across the U.K. Securing an agreement with one of the U.K.'s top dealership groups marks a significant milestone for the business. We're eager to get started working with Marshall Motor Group, and we expect the rollout to kick off in H2 2025.

Now turning to slide 12. Over the last 12 months, our position has been quite clear: North America is a major opportunity for Pinewood. Because of that, one of the main priorities in 2024 has been getting ready to roll the system out there. Both our product group and our development group are progressing well on tailoring the system to the specific requirements of U.S. customers. We're still on track to pilot the system in North America during the second half of 2025, and the full rollout is set to start in mid-2026. Given the potential we see in that market, we will open an office in North America, which means we'll be nearer to both new and existing partners. That location is due to open during 2025, and we have already begun recruiting our North American team. During the past year, our technical teams worked hard on creating a new user experience for every customer of the Pinewood system. I'm pleased to say it will launch during 2025, following several years of development work. This amounts to a complete overhaul of the front end of our system and of every part of how customers use it. The system's underlying architecture stays unchanged, backed by security measures that lead the market. Since we use one version of the system across all the countries where we operate, this substantial improvement to the user experience will be felt by all of our customers.

Going forward, it’s going to be used in all system rollouts, including Marshalls, Lookers, and our North American pilot. We’re looking forward to sharing more of this with you—including some of the new features—once the UX launches later this year. After year-end, we signed a major new contract with Global Auto Holdings. They’re one of the biggest auto retail groups in the world, with franchise dealer locations in the U.K., North America, and Scandinavia. The largest part of their group is the ex-Looker stores. They’re one of the U.K.’s largest auto dealer groups. They also have a sizable presence in North America and Scandinavia. The agreement aligns well with our strategy, since Global Auto Holdings’s global footprint straddles three of our four strategic pillars. In recognition of the scale and nature of this agreement, we issued Global Auto Holdings a cashless warrant with a strike price of 330p. The warrants can be exercised only once the Pinewood system rollout is completed in separate geographies, with 5% relating to the U.K., 1% to North America, and 1% to Scandinavia. Another significant event in the past year is that we took the acquisition of Seez, a leading AI machine learning and AI generative automotive platform.

This comes on the back of our initial minority investment in Seez, and during that period we were impressed both by how good their technology is and by the potential it showed to deliver further benefits to Pinewood users. So we made the decision to acquire the remainder of Seez in February 2025. At our Capital Markets Day in October 2024, we set out how we plan to expand our products and add new verticals. To summarise, we said we would assess whether it made sense to build the technology in-house, to buy the technology so as to accelerate strategic progress, or to partner on certain products via a revenue share agreement. In this instance, we decided that the speed at which Seez would deliver benefits both to our customers and to Pinewood's earnings profile far outweighs the cost and time involved in developing the technology ourselves. Over the short term, Seez chatbots present an opportunity for significant revenue generation, particularly in North America, where over 90% of dealers are using some form of AI chatbots. Lithia Motors' commitment to install Seez chatbots into all their U.S. and U.K. stores will not only enhance revenue as soon as they are launched, it will also be an opportunity for breaking into the market for Pinewood AI branding across all of North America.

Out of the GBP 35.7 million in gross proceeds that came from the equity raise, GBP 26.7 million went toward the cash portion of the Seez acquisition, and the rest was applied to speeding up Pinewood's growth opportunities. Moving to page 16. As for our progress on those strategic goals, we're delighted beyond measure by how the Pinewood team has responded. In the U.K. and Ireland, our target of landing two top 20 U.K. dealer groups has already been met — a massive accomplishment that shows how much trust customers place in the Pinewood system. On the international side, we're still chasing several avenues, and we've been shortlisted for a number of sizable contracts in Central Europe. We're continuing to grow our vertical sales channels and building several new revenue streams in-house in areas that were not monetized before. Last, in North America, we're very happy with what we've achieved to date. Our product and development teams are doing a great job on the localization work required for North America. And last, to slide 18. As we've laid out, our priority for the coming year in the U.K. is to repeat what we accomplished with Lithia U.K.

Working alongside Marshalls and Lookers to deliver a best-in-class system implementation, which will let them operate their business more efficiently and more productively, at a significant cost reduction. We've brought in talent and expertise to our already strong sales team, and we're confident we're well positioned to grow our customer base among the top 100 U.K. dealers. As set out in the strategy section, our priority markets remain North America, Central Europe, Japan, Southeast Asia, and South Africa, and we have confidence in the pipeline across each of these regions. Our focus is on rolling out our new user experience during 2025, which we believe will significantly enhance the customer experience on what is already a market-leading system, so looking ahead, we expect underlying profit before tax for FY25 to be in line with current market expectations. Beyond that, our previous guidance for FY27 was underlying EBITDA of GBP 30 million. We're raising this to a range in the mid to high 30s for underlying EBITDA in FY27. Thank you for joining us today, and we look forward to any questions.

We'll move on to questions at this point. Jack will walk around first and handle the ones from people here in the room using the microphone. So if you have a question and you're in the room, and after that we'll take the questions from the outside room.

Thanks a lot. This is Ciarán Donnelly calling from Berenberg. I have a few questions of my own, and perhaps I'll start things off. Regarding what was said about the possible scenarios for the US JV, I realize you can't disclose too much, but could you walk us through the kinds of scenarios you're considering and, potentially, which one you might regard as the optimal scenario?

Okay, so in the end, I think the JV was an excellent route for getting into North America. Our product is strong. We operate in 21 countries. It performs well. We're confident about entering North America. What makes that structure unique is that we were able to partner with Lithia. That gave us access to their more than 300 stores, and they've devoted thousands of man-hours of their time and effort to assisting us in launching the product in North America. But going forward, under the existing JV structure, there could be certain constraints on our ability to penetrate the market. Frequently, quite similar to the situation when Pendragon was the owner, it would be a restricting factor when it comes to selling to other dealer groups. We are currently in discussions with Lithia in several different ways about potentially exiting them from the JV and having Pinewood assume full control of it. And there are multiple approaches to accomplish that, whether through cash, whether via a financial instrument, perhaps an equity-for-equity exchange, or some combination of two or three of those together with all of that.

They have been fantastic partners, though, and they are quite open to the discussion. So with luck, at some point later in this year, we will be in a position to come to the market and tell everyone where things stand.

Perhaps for the second question, focusing just on the international pipeline — it sounds as though things are moving along pretty nicely there. You've obviously done very well in the U.K. Are there any different dynamics we ought to know about when it comes to bringing on new customers internationally compared with the U.K.? Any differences, I'd imagine, would be of interest to you.

Of course, localization varies, and operating systems differ somewhat in how transactions get done. What's great about our platform is its flexibility, which lets us handle those differences. Some of our peers or competitors actually run separate systems for various regions of the world. Maintaining several systems and multiple versions of them is really hard. When you have stores across multiple countries and one system for one country and another for a different one, that places a lot of strain on the dealer group, whereas a platform like ours — where borders truly don't matter and we're language agnostic — lets us support multiple countries, multiple languages, and even multiple languages inside a single footprint, which gives us a big advantage. As you can see some of the economic headwinds out there, whether that's inflation, interest rates rising, potential tariffs, and whatever else, there are definitely headwinds on costing within dealer groups, and a platform like ours gives them the ability to be far more efficient, achieve higher productivity, and ultimately reduce overall cost of operation. That really positions us well going forward worldwide.

And perhaps just one last one from me. It's great to see, obviously, the FY27 medium-term target being upgraded. Maybe, Ollie, could you just touch on kind of the visibility in terms of, obviously, the short term, but maybe going out to FY27 — kind of, obviously, you've given a range of mid to high 30s. How should we think about that? And I guess in terms of the visibility you guys have out to that point.

Sure. Look, back when we held the CMD in October, we put out £30 million for FY27, and at that point we said we felt confident about it and saw potential for upside. Now we're in that same spot with the mid to high 30s. Look, we believe that since then we've signed the Global Auto deal and acquired Seez, and we feel, look, we're quite comfortable with that figure. We'll watch how things develop. Look, as for Marshalls and Global Auto, we expect that by then, by the beginning of 2027, both will be up and running. Look, with Seez, we've made a really strong start. We're just a few weeks in, but already we're in a really good position with them. We're very excited. Look, we believe there's upside potential there, but we're confident in the FY27 numbers, the guidance we issued.

And Kieran, given how those rollouts unfold and since doing that takes a fair amount of time, you begin to look ahead. As Ollie mentioned, we can see and know that Marshalls and Lookers will come on board between now and the end of 2026. You more or less know what the revenues, EBITDA, and ultimate net from that will be. So our confidence in that is high. There isn't much volatility in it. Even if we brought on another large customer, by the time the behind-the-scenes work and implementation are done, you'd have to line up two separate contract periods with them. Even if we brought in another big one, it wouldn't necessarily add a huge amount into 2027. It could be modest, but that would really pay off into 2028. And that's simply the kind of sales cycle and life cycle that comes with this.

The main point — and sorry for jumping in here, Kieran — is that recurring revenue comes up in questions quite often, and we don't expect much movement there as we move ahead. So in the past we've sat in that 85%-90% range, and we expect to remain within it going forward. That gives us strong visibility and confidence in what's coming through.

Great, thank you.

Hey, this is Andy Wade from Jefferies. I've got a couple of questions for you. The first one is about K.W. Bruun, the distributor in Europe. When it comes to those 200 sites there, how confident are you that they'll be included in the rollout opportunity?

With that Global Auto Holdings deal, they directly acquired eight dealerships in it, and those are being moved onto that system. I can’t speak on behalf of Global Auto Holdings, and it isn’t included in the transaction, but having eight stores running one system via the distributor while the remaining 200 sit on a range of different systems doesn’t make sense. From my discussions with them, their eventual aim is to move to one platform. I’d say we’re in the leading position for that, though I can’t comment on it. We haven’t built that into any of our forecasts or anything like that, but we believe it’s clearly a chance for some upside.

Alright. That fits right into what sets us apart, I suppose, when it comes to larger groups — cutting that staffing expense and driving operational efficiency. So we can’t talk on their behalf, though we do believe that definitely aligns with it. I suppose once you’ve given it a go. Yeah. Okay, great. Next question: is there any kind of insight you could offer us, as folks who are nearer to it, regarding how Tekion is progressing, since they’re somewhat of a frontrunner for what you aim to accomplish in that space?

Look, their product is excellent. They began in 2016 with nothing and grew into a major player. They aren't certain about the precise size here, but my guess is their user count is roughly equal to ours, more or less. The good part overall is that they're essentially clearing a path for us, letting us follow behind. At present, I believe they're facing some difficulties with certain incumbents. There are numerous lawsuits going back and forth between a few of the incumbent systems and them. As they sort through that, we keep moving forward alongside Lithia. And once that resolves, I think it only benefits us going ahead. It's an enormous market, 20,000 groups. I'm confident they'll end up ahead and compete with us, but the market is large. With 20,000 opportunities available, they can take their share, and we'll take ours.

Thanks. And then for the last one, this may come across as a very naive question, but I'll go ahead and ask it regardless. The people making the decisions for you are clearly fairly senior within the businesses, correct? I'm just genuinely curious why you actually need to expand sales teams when it's the senior folks — well, men and women — who are the ones making those calls. I'm interested in the process side of things, really.

A lot of this comes down to the fact that we operate in 21 countries, so sheer size and scale let us handle things that way. On the point Ollie raised, and that I then mentioned about being in the vertical sales channels — well, for something like a Global Auto Holdings or a Marshalls, Ollie and I, along with the senior management team, would be involved. If it's a new product we're selling vertically through those channels, that probably won't get handled at that level, and you'd have a traditional sales associate doing it. With some of the AI chatbots that Seez is going to bring to the table for us, it's easier for our team to go out and sell that. You have to remember that a lot of our current customer base is the small to medium-sized dealers. In the past we were kind of locked out because of our ownership by Pendragon, so now that's off. That's how we've got Marshalls and Lookers and opened up that market. Those might still be handled by Ollie, myself, and the senior management team, but the 5, 10, 15, 20 store group, they have account managers. They have great people they work with.

Those are the folks they’re familiar with, and those are the people it will ultimately sell through to. Honestly, that’s a really solid question, but once more, we have operations in Sweden, Switzerland, and Japan. As far as I recall, they’re only about a day behind or ahead of us or something along those lines, so we’ve got other team members over there to take care of that one.

That makes sense. Thank you.

Hi, this is Damindu calling from Peel Hunt. Perhaps others have a solid grasp of how the market looks. I simply wanted to ask: in Central Europe, Japan, and South Africa — that region, and Central Europe in particular — is the competitive situation quite comparable to North America? Are the same companies involved? And on a related note, I was just looking through the Tekion versus CDK lawsuit, which is interesting, because even after they got that court victory where the data was meant to be handed over, they kept Tekion dragging along in that — I believe it's a discovery trial — essentially making Tekion spend money before go live and get charged. Do you see a similar sort of competitive environment in those other regions, or?

Not necessarily. I can address the Tekion point in a moment. But take France, for instance — there are only a handful of French platforms operating there. Reynolds and Reynolds out of the U.S., Keyloop, hold a moderate stake in that market. In Germany, you've got something like 20 different companies in this space. Of all the countries, you'd expect a bit more standardization and structure. It's rather a free-for-all. And no one really holds much beyond low double-digit share — around 10%, 12%, 13%. That actually creates a really good opportunity, since the market is just so fragmented and customers run on multiple systems. Particularly if we can partner with an OEM, we're able to enter. Nothing really resembles the U.K., where at present it's essentially us, CDK, and a 10%-15% with some small groups out there. Move into North America. Three groups at present, the incumbent groups had, before Tekion, roughly 80% market share. I believe that may be down to 75% at CDK, Reynolds and Reynolds, and Dealertrack. Now Tekion is entering. A few small players are sort of floating around, but they're incredibly small.

When it comes down to it, data is everything in this business. Yes, we have a great tech stack, but the purity of our data is one of our best strengths. That's also what powers AI. So with the Seez combination, having access to this pure data stack sits here and really supercharges that product. There are multiple different ways to access data and to be able to get it out. And over the years, we've become very creative with that, working within the confines of whatever the local rules and regulations might be on that. But it'll be interesting to see how the CDK and Tekion lawsuits. Because now CDK is suing Tekion for piracy and hacking and everything else. So those are some pretty big allegations. But by the time they're done beating each other up, hopefully there'll be clarity on directionally which way everything goes.

Could I also ask — I think it was a month or two back, at a different conference, the NADA conference, I'd say, here in the US — and I was looking at this long-term data trend that one of the chaps was presenting. What's interesting is that for a very long time, in aggregate, dealers were basically earning a 2%, 3% PBT margin, and then obviously, COVID changed everything. New car versus used car, and then there's kind of a mean reversion happening, I suppose, so it's.