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

Hi, and welcome to this interview with the CEO of Pricer, Magnus Larsson, who we will discuss the latest trends with about for the coming 15 minutes. But with that said, initially, would you like to give us a brief overview of what Pricer does and then we'll go into the questions.

Absolutely. So Pricer is a Swedish company. We work within the retail sector, and we focus on retail tech. We've been around for a little bit more than 30 years. So you can say that we pretty much know most of what it means to be a retailer, but also what they need in terms of solutions in the store. So our focus is technologies for in-store communication. So that's what we do.

Very good. And you've now been the CEO of Pricer for about 2 years -- could you talk a little bit about what has been the main focus areas so far? And what do you think are the main achievements?

I think the focus area as you could roughly split it in 3 areas. When I started as an acting CEO roughly 2 years ago, I felt that the focus was really to get the growth up. So we have had a flat year before and making sure that we address the customers in a different way. And then from my point of view, in a more active way, was really the key thing. I would say that was really successful. We could see that in 2022, we managed to get both order intake and net sales up around 30% or more for the order intake. And that is something that is continued. The second thing was to also get stability and a stronger balance sheet. So last year was a lot about actually making sure we had the necessary funds to continue the growth based on the growth targets that we set in 2022. And ending the year was sort of the final phase, you can say, transformation of the company, where we actually started to look at what should Pricer of 2024 and into the future look like. So we did a cost cut exercise, but that was basically to make sure that we have also the necessary space to further grow the company. So now we're into a transformational phase where we look at what is the way we work, how can we digitize more of our internal processes and how do we actually -- what kind of capabilities do we need in the company. So here, we are actually making quite a big change. So with the combination of the cost reduction and the transformation, I believe that we're really setting the foundation for long-term growth and to be competitive over time. So those have been really the key drivers, but getting the growth and then making sure that we have the possibility to actually really do the growth from a financial and operational point of view are the key things.

Very interesting. And speaking of growth, this is an industry that has been growing rapidly in recent years. Can you give us some longer-term views, what has happened in the cell industry over the past 10 years? And how do you think that Pricer is positioned to continue to benefit the trends that we see there in the market?

We could say, I think the -- one of the key things -- first of all, there's been a major growth, and we'll continue to grow. We see growth for the coming 5 to 10 years. We -- our assessment, and I can say that competitors are saying roughly the same is that out of the addressable market, let's say, it could be SEK 10 billion. It's probably -- or 10 billion units actually. Maybe we've done 10%. So we can see that there is a huge growth opportunity. 10 years ago, ESLs were primarily means to the pricing. So you have a store, your workforce might have been too expensive or you have lack of workforce, but the key use case was pricing. Back then, we also had segment, basically ESL. So they were -- I'd say they were pretty basic, but they did the work. Then we got graphical label. So the ability to actually communicate in a different way increased quite a lot. Nowadays, retail is the usage, of course, for the price change, but more also for the directing their staff. So they use the ESL to give direction, they use them to share information, but they also use them to help the staff find products when they want to do replenishment or they want to do picking. So the ESL have moved from being a tool to do price changing and communicating price to the customer, making sure you have the same price on the shelf as the [ till ]. But now it's more of a sort of the centerpiece of the store digitalization. So if you want as a retailer to work with your store processes to make sure that we get more effective, you need to have an ESL in your system. So we have the, of course, the ERP system and they have the cash points and the PDAs. But then this will be actually the really mental piece to help the work in the store. We see that also the next phase will be more -- if we have done a lot on the efficiencies on how can we now actually help retailers sell more, attract customers to campaigning, how can we help them when they do the promotions also get some kickback and an additional revenue stream from the consumer packaged goods providers, Procter & Gamble or Coca-Cola, when they do their advertisement. So I think increasing not only using it for the digitalization, which is now really fast-growing trend, but then also how can we get more money in the retail basket or the shopper basket. So that is really the key trends that I would say.

Very good. And you did mention now that price changes is a thing that for why retailers essentially buy ECLs. And of course, with the inflationary environment we have been living in for the past, say, put it 2.5 years. You have also seen a tailwind to your operations from that. And we could also see that, say, 2 decades ago. Inflation has been a driver to your operations. How do you see that now with the perhaps inflation now starting to trend down a little bit. Are you seeing any impact of that? Or is it so that the retailers essentially realize that, hey, we must need these solutions to actually cope for price changes over the longer term.

I think it's really the latter. So the inflation even though it's been painful for the shoppers and the consumers, it's been really good for our business because it created an event where many retailers felt that they have to now consider digitalization because they could simply not manage to do it enough price increasing with the staff. And when they started that, they also started the digitalization of the stores. So it's like what I would -- I would maybe describe it as a snowball effect. So they -- it started. Now we can see that retailers really across many geographies, also in countries where there was no real penetration before it could be Spain or it could be U.K., even U.S. We see that it starts now. And even though the inflation in some markets start to show clear downwards trend, the process is still now ongoing. Budgets have been set. They've seen the benefits and they want to continue. And here, I think really the working with the staff being more efficient in the store, looking at how can we communicate with our customers or the shoppers. That is now the really the real driver that I see. So of course, it's been helpful for us. And we see also the shortage of staff. And I think another driver for U.K., as an example, is the decision to do the Brexit, which is now affecting the availability of staff. So for many of the retailers we speak with they don't really have any staff or they will -- it's difficult to get them. So even with inflation down, they will still need to actually be more efficient in the store in the way they operate to manage.

Interesting stuff. And then I'd like to continue a little bit on the recurring revenue topic because you have a target you want to be recurring revenue to grow both in absolute terms and in percentage of sales. How do you think that is progressing so far? And is the industry ready to adopt software as a service solutions?

It's progressing. I'm always impatient. I want to have fast progress, but it's progressing according to plans. It's an important piece of actually -- especially the future gross margin, but also the -- it's a new way of working. And we can see when I started at Pricer 5 years ago, there was a hesitation -- certain hesitation among retailers to actually go all the way. Now when I speak to one of our really large customers, they measure the amount of code they actually run in the cloud with a target to actually do all their code in the cloud. So a few years ago, I could see that people said, "No, we want to have something in the basement." But nowadays, that's gone. And many want to get the data that we can actually provide the data that we provide from our cloud service is also that's something they want to share and they want to correlate it with data they get from other of the ecosystem players. So from a sales point of view, it's easy. So from our point of view, what we want to do is, of course, all new sales is pretty much SaaS-based from a software point of view. Then we do a migration program where we actually take our existing customers and now it's time to actually move on. So from a company point of view, this year, we took a big step and said that we're going from now we will be a Saas-first company. So whatever we do, it will be primarily SaaS. All new applications will be SaaS-based. And the target is within the coming years will be SaaS only and there will be no options really. So it's important. And it's also good once we have an installed base, we have 25,000 stores. If we had the majority of those on our SaaS solution, that gives us a perfect opportunity to sell more because we have a lot of functionality that we developed, If we have it on SaaS it's so easy to actually do the upsells and they'll say, "Well, do you want to try this?" And if you look at the successful SaaS companies, Salesforce, this concept of customer experience and customer success is something that will be quite easy to do if we actually have this base platform in place. So I hope for a lot of great things into the future.

Yes. Interesting. And data utilization and those types of trends clearly something that we see now, both for your company and for the industry as a whole. Are you saying that this is mainly being capitalized by the larger retailers? Or are you seeing it on a broader basis as well? You did mention that you have 25,000 stores installed. So are we seeing that the larger ones are in the forefront here or are they...

We can say that the larger ones and here I think Carrefour is a good example. They were quite early with saying that they're building their own data lake to actually be able to run any kind of statistical reports and models that they want with correlating data from all different sources. So if you're a Carrefour, large Tier 1 global retail, of course, then they will do it on their own. But I think for the smaller ones, it will be important to get the support from ourselves or other partners in the ecosystem to do it. So no -- and I think it will be -- if you want to understand the in-store environment, even without having, for example, computer vision, correlating data from actually people buy from logistics systems, from our systems, they will start to get a pretty good picture of do I have something on the shelf or not? It might actually be enough to use the available data when you actually correlate it the right way to really have good conclusions on how to manage the environment. So I think there will be a lot of development on this side.

Yes. Sounds encouraging both from a sales point of view, but perhaps also a margin point of view, you did mention that recurring revenue, they are positive for your gross margins. Could you talk a little bit on what has happened recently with the gross margins and how you see that progressing going forward?

So when we ended 2022, we could see that our gross margin was on -- well, I guess, I can say, unacceptable low level. We've been working actively both with sourcing and procurement, which is natural. We spent a lot of time with our suppliers. We expanded a number of suppliers. We have second, triple and quadruple sources for components where it's possible, which has helped us get the cost down. We have done a lot of redesign of our products. So it should be able to use standard components for more products than before, which has been helping as well. We've been working quite actively with pricing, how can we actually increase pricing, how can we look at the product mix, how can we work with upsells. So that positive trend has been visible throughout 2023. And we are expecting this improvement to actually continue also now in 2024. And since we don't guide on profitability, I cannot tell you what our hopes and expectations are, but we do expect a continuous improvement.

Yes, you do highlight a couple of tailwinds there. So it sounds good for the future. Then over time, you have increasingly established yourself in the U.S., which, of course, is a market that is seeing good growth currently...

Absolutely.

Can you talk a bit what is the latest and greatest in the U.S. market? You have some reputable customers there, for example.

We absolutely do. We have Best Buy, both U.S. and Canada. We have Canadian Tire in Canada, which is, of course, Canadian giant. Whole Foods owned by Amazon is also one of our customers. I think that the American market is growing really, really fast. And I think we can see that in Canada, we have had very fast growth. Even though during the second half, there were some slowdown, it's been mainly then, you can say, administrational reasons from one of our biggest customers. I see that this in Canada, I expect this to pick up quite much. U.S. Here, we have a little bit of homework to do. I think the market is growing very fast. We have done some reorganization to better address the market. And here, I think that our -- the global sales manager or sales management setup that we have recently announced, I think that will be one of the key things now to say that, let's address this market and the opportunities that we see in a different way because the market is there, and there is no reason to believe that we should not be the key player or one of the key players. I tell my team that we should be #1. But okay, then we have reality, and let's see where we end up. But I see from my point of view, the American market is massive. It's happening right now and that there will be a lot of opportunities for us to really be the key player on that market. But I would -- maybe have wanted it now, but I see that it will happen maybe a little bit later than I was hoping for a warning.

Yes. Still good traction in recent years. I must say, from my point of view there. Just on a final point, could we just describe a little bit on the cost savings that you announced earlier or in the latter part of 2023. What is behind that? And when do you expect this to yield full results?

So the cost saving, it's actually a combination of several things. One is, of course, that we are -- have done a headcount reduction. So we announced it in December. Actually, I would say all headcount reductions have been announced. We can assume we won't be able to see all the cost savings yet. I think that the maximum effect of the cost savings will probably be visible to in Q2, beginning of Q3. That's probably where we would actually see the peak. But it will also -- even though we have done cost reductions, we will actually take some of the savings that we want and invest in new capabilities, competencies. So we are making -- speaking then about the transformation, there are some capabilities that we haven't had before that we will also invest in. So hence, we will see there will also be a little bit of an increase afterwards, but that is because we're now rechanging the way we work. The other part of the cost saving is, of course, we've been looking at administrational costs. It could be travel or it could be facilities, what can we do to actually get the cost level down. So it's actually a major decrease that we do. It will have an impact, of course, on the results this year. It's a tough decision to make, but I also felt that it's the right decision to take because it does give us the possibility to take the last step of the transformation and really turn us into -- give us the capabilities that we need to be then to achieve the long-term competitiveness that I feel that we need to have. So hard decision, but I think that the outcome will be extremely positive for the company and for our customers.

And also from a profitability point of view, as you also highlighted.

Of course, for our shareholders.

Very good. exciting stuff, but I think we are running out of time. So I'd like to thank you for attending here today. And with that said, we'll end this interview.

Thank you very much, [ Simon ].

Thank you.