Pricer AB (publ) (PRICB) Earnings Call Transcript & Summary

Thank you. So welcome, everyone, to this audio call of the Pricer's Q4 and Full Year 2020 Financial Results. As you probably already seen, there are many records to be very proud of in today's report. And particularly considering the circumstances around that, I can't stress enough the importance of the people within Pricer, who made all of this actually come true. So next slide. And I'm sure it's also well understood that this is a very exciting time in the ESL industry in general and of course, within Pricer in particular. But before we dive into the quarterly financials, I would just like to spend a few minutes talking about the fourth quarter more in general and also about the contract that was recently signed with Carrefour. And I'm sure that many of you are particularly interested in this contract as it is, of course, a significant win for Pricer. So we have been a supplier to Carrefour in France since 2004. And over the years, we have installed our system in around 200 hypermarkets. During 2019, Carrefour issued an RFP with an intent to select 1 global ESL partner to support all of their new ESL installations on a global basis. So the RFP was based on the intent to install roughly 500 stores, but it was always clear from the get-go that there are no minimum commitment in this contract. But as part of the selection process, Carrefour conducted an in-store performance testing where they had us demonstrate a wide range of use cases. And this was, of course, the price updating, but then also things like digitalize for picking up online orders and pick to light for more efficient replenishment process. And so our ability to demonstrate some of our key capabilities, which will be on speed and reliability, made us come out on top in this evaluation. And we should also remember that the cloud-based platform, Pricer Plaza was also an important part of the selection of Pricer as the strategic partner of choice. And within Pricer, we think very highly of the Carrefour team and that, of course, makes us even more proud to be their preferred choice for an ESL partner over the coming years. So for the fourth quarter, we can also conclude that the lockdowns in some of the -- mostly European countries, didn't really cause the same delays in installations that we noted during the second quarter. So instead, the greatest challenge during the fourth quarter was to solve transportation between continents. And we're also very pleased that we have been able to continue to recruit and strengthen our organization despite all the current circumstances. So next slide. So let's move into a recap of the financials for the fourth quarter. So we came into the quarter with a backlog of SEK 754 million, which was a reflection of the many large customer projects that were ongoing in parallel during this all. So the delivery activity during the fourth quarter was consequently very high, and it resulted in, again, a record high net sales for an individual quarter of SEK 680 million. And if you compare that with the fourth quarter of 2019, it represents a quarter-on-quarter growth of 186%. So there are, as always, several countries that contribute to this record high next phase. But the top 3 contributors were the U.S.A., France and Canada. Moving to the next slide. So the order intake remained on a similar level as in the third quarter and amounted to SEK 464 million. And although this is historically high quarterly figure, it was significantly less than the fourth quarter of 2019 when Best Buy placed an order of SEK 625 million. So those are some very challenging comps. And the order intake in the fourth quarter had a customer mix and a good geographic distribution. Besides the generally strong quarter in France, it also included additional orders relating to some of the ongoing customer projects that were also announced in the quarter with Best Buy and PLUS Retail. There was no major contribution, in fact, in order intake of the fourth quarter relating to the new agreement with Carrefour, and that is just something that we would like to highlight. And moving out of the -- of 2020, the backlog at the end of December remained on a very high level at SEK 495 million. So moving on to the next slide. The gross margin also remained on a similar level as in Q2 and Q3. It reached 22.5% in the fourth quarter and, of course, as always, it's the contract and the product mix that impacted gross margin, but there are also some headwinds from the weakened U.S. dollar against the Swedish krona. In addition, we have -- what we have seen during the pandemic is that freight costs have been going through the roof. And of course, this is grounded airplanes and more extensive border control that have cost us a general shortage of transportation opportunities in the market. And although we have shifted as much as possible to sea trade, the pricing levels for sea trade has also increased dramatically during the second half of 2020, which had, of course, additional pressure on the gross margin. The next slide. EBIT, operating profit came in at SEK 69 million for the fourth quarter, which corresponds to an EBIT margin of just over 10%. And this is in line with the same EBIT margin for the period in -- for the fourth quarter in 2019, but it was a decline compared with the third quarter of 2020. The operating expenses have increased compared with the same period in 2019. And this is primarily relating to higher personnel costs and other operating activities aimed to build the organization for continued growth. But there was also an impact of roughly SEK 10 million in the fourth quarter, which primarily relates to a lower level of activation to the balance sheet of R&D expenses. Of course, this has no cash flow impact, but it distorts comparability between quarters. Next slide. And when we look at the cash flow from operating activities, it saw somewhat of a catch-up effect during the fourth quarter and reached a record high level for an individual quarter of SEK 203 million. And this is the result, of course, of the ongoing work to improve working capital, but also in combination with the temporary effect from favorable payment terms relating to some of the larger customer projects. But as always, we recommend analyzing the cash flow over time and not quarter-by-quarter. And the cash position at the end of the year was SEK 262 million, and the Board proposes a dividend of SEK 1 per share, which is a 25% increase compared with last year and the dividend is to be payable in 2 equal installments. So next slide. So moving on to the financial results for the full year of 2020, here I'm particularly proud to report a top line growth of 75% year-over-year. And this kind of growth figures is not uncommon for start-up companies, but they're certainly not so frequent for 30-year-old technology companies. It also shows that although there is some lumpiness in our figures, the growth over time has been significant. On average, we have grown more than 20% per year over the past 5 years. Profitability has also increased, which is, of course, a good sign of health. It also demonstrates that we are in this for the long run, which is why we never, for a moment, divert from our strategy to deliver high-quality products and services that generate real value for our customers. So being successful in business is all about piling satisfied customers on top of one another. And this is, of course, our goal then what motivates us as a team. So next slide, please. Looking at some of the key figures, we can conclude that 2020 was a very good year for Pricer. Despite all the challenges caused by the pandemic in terms of lockdowns, remote working, significantly reduced traveling and so on and so on, we managed a record high year in terms of sales and profitability. And considering the large order from Best Buy of SEK 625 million in December 2019 as well as the weakening of the Swedish krona versus the U.S. dollar, it makes the comparison figure from 2019 challenging, but we still managed to grow the order intake by 5%. The growth is spread across multiple geographies and customers, where the U.S., the Netherlands, Norway, Canada have contributed the most. And despite the transition to mostly digital interactions, we added many new customer names to the list during 2020. And we're, of course, equally proud to be working with all of them. The operating margin is somewhat lower than last year. It's primarily a result of the decrease in gross margin but also combined with higher operating expenses. It is also worth mentioning that we have not received any COVID-19-related government funding. But as said, we have continued to build the organization for continued growth and success. So next slide, please. Although I'm very pleased, but not so surprised about our development in 2020, first of all, trying to have the best-performing solution of all ESL suppliers. And as the requirement for an ESL system extends beyond price updating, then our differentiation becomes increasingly valuable. And of course, secondly, the penetration rate of digital edge price label is still on very low digits. And as the world is becoming increasingly digital, it's quite natural that the analog paper label, which remains our largest competitor, will be replaced over time. And of course, this generates the great opportunity in this market that is still ahead of us. And then with the explosion of online shopping following the pandemic, the need for retailers to engage with shoppers in a unified way across all their sales channels has become increasingly important, and also the aim to replicate some of the advantages with online shopping in the physical store environment is a trend that has been noted for some time and where the digital shelf labels can be an important part to ensure accurate information to the customer in the store. So in the end, it's about improving the customer experience by building trust and loyalty. The dramatically increased demand for online shopping has also resulted in a drastic increase of in-store picking. This is a new process for many physical stores, and there is a strong demand for system support to make this process as efficient and accurate as possible. And the Pricer ESL business is particularly suitable to support this process as it can provide guidance for loop optimization and speed up the picking process by utilizing the system's real-time capacity for pick to light. And in addition, the pandemic has exposed a vulnerability to many retailers with regards to the dependency on the staff. With sick rates that have been much higher than normal, it has become increasingly challenging to operate a physical store and driving automation and simplifying processes is a way to improve the flexibility when it comes to staffing and the allocation of labor in the store as well, of course, as to optimize the process efficiency itself. So in the end, it's about being able to do more with the app. The next slide. And then on a more general note, we continue our geographical expansion to meet this increased demand in the market. And as previously mentioned, we established presence in Taiwan and the Netherlands during 2020 and most recently we also added dedicated resources in the U.K. In 2020, we also launched our cloud-based platform called Pricer Plaza. And at the end of 2020, we had more than 500 stores connected to Pricer Plaza. Although we continue to deliver and support both the on-premise and the hosted cloud-based solution to manage our system, we are pleased to see how Pricer Plaza is gaining traction in the market. And of course, besides improving the speed and simplicity of the system integration, Pricer Plaza also enables our customers to quickly and with quite little effort to apply new functionality and new applications that become available in the system, making this solution future-proof. And being able to deliver an integrated solution of products and services, we gradually transition into becoming a strategic partner to our customers on the digitization journey. It changes our business model from a product sell towards a solution sell, and it also enables an ongoing dialogue with our customers that generates new ideas and lots of input on ways in which we can provide additional value. And when we think about future-proof, we're also moving forward with our battery-powered shelf mounted camera and the ShelfVision application. And the idea here is to insert eyes in the store to offer retailers real-time insight of the status in the store. So collecting data in the stores to better understand customer behavior is the first step towards aligning the in-store analytics with the algorithms that successfully drive the digital sales channels. And this new application opens up for a different dialogue with existing as well as new customers. And although the application works well without the Pricer ESL system, there are significant values to gain for customers that combine the 2 solutions. And some of the use cases in the ShelfVision applications include gap detection to show if products are sold out or missing on the shelf. It includes planograms, planogram compliance and also ensuring accurate management of promotions in the store. And these are some of the use cases that are currently being tested in stores. And as this application matures, of course, more capabilities will be added. And next slide. So to conclude this presentation before moving into questions, I'd just like to express my gratitude to all Pricer colleagues who have gone really above and beyond to make 2020 a fantastic year. It was certainly not without obstacles along the way, but everyone joined forces and came together to make this happen. So thank you, everyone, who have contributed to these fantastic results. So let's move on with questions.

[Operator Instructions] Our first question comes from the line of Simon Granath of ABG.

Helena, congrats on the strong results at the end of 2020 here. As the first question, you say that you're taking [indiscernible] becoming a strategic partner for store digitalization. Can you explain to us what does these initiatives involve?

Well, it's more about the dialogues that we engage with the customers that the Pricer Plaza also enable us to have a very continuous dialogue with different levels of people within our customers. And of course, that sort of -- that puts us very well in front of the people we need to dialogue with in order to improve and secure our system and the solutions. And so this, let's say, joint dialogue in how we can add more value on our -- in our system, that is a very, very valuable input for our product development and, of course, that as we add more value to the system for the customer, of course, that is just a very good iterative process to remain with the customer for a longer period of time rather than at the initial time of installation. So we stay with the customer for a much more extended period, and that is a very interesting position for us.

I see. You also mentioned that Pricer Plaza allows customers to add more solutions on top of the platform. Could you provide some examples regarding these add-on solutions that customers are allowed to add?