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

Hello, everyone. This is Magnus Larsson speaking. I'm the President and CEO of Pricer. With me today, I have Claes Wenthzel, our CFO, to give the presentation of the fourth quarter 2024. I would like to also apologize for my voice. I seem to have contracted something on my vocal cords. So, I hope I will not end up coughing. If I do, I will just ask Claes to help and fill in for a little while. So starting with the vision, as I always do for those of you that normally follows the presentation. We have done a lot of work on our strategy. We actually have now a strategy that has been approved by our Board, and I will start with small teaser. We made a change to our vision. Our vision is to be the preferred partner for in-store communication and digitalization. Some minor changes, but rather than retailer's first choice, we believe that the way and the path we're on being the preferred partner for communication and digitalization is the very right spot for us to be as a company, but of course, also for our clients, our customers and our partners. Looking at Pricer in brief for those of you that haven't followed us for a very long time. Swedish company, we were founded early '90s. We have roughly 200 employees. You will find us in 70-plus countries. We have -- our big ticket driver is our ESLs, shelf labels. And we are clearly a leader on the market. We are a strong #2, with more than 350 million labels deployed to date. Out of those, we have some 5,000 stores are actually connected -- we have 5,000 stores connected with almost 40 million labels on Plaza. So it's been a major growth on the Plaza side, as you can also see in our report. And Plaza, that's our subscription service for the management system of our in-store environment. We have had a year of transformation. We can say that we started -- when I started as the CEO, actually pretty much 3 years ago, we started to look at how can we restart growth, how can we rekick it to make sure it happens. So the first target was to actually get the go-to-market strategy in place and to achieve growth. Next phase was to actually strengthen the balance sheet. And the third one was transformation of the company. So in December in 2023, we announced a cost-cutting program of SEK 50 million. That was really to make sure in a transformation program, but that was also to make sure that we would be able to grow the company without actually scaling our costs the same way as we scale our net sales. And that has been a very successful transformation, as you can see from our Q4 and our 2024 figures. We're now moving into Phase 4, which will be a focus on doing long-term and profitable growth of the company. And you could say that we closed our third phase of transformation by recording the highest EBIT, the highest net profit and the highest order intake for the year and ever in the company history. So, what were the events of Q4? Well, I would like to lift the fact that the retail chain group, S Group from Finland, it's the Finland cooperative. They placed an initial pilot order with us in 2023. Then they made a very large rollout where you can see also positive impact on our net sales in 2024. They choose then to do another, more than 100 stores to place the order for the continuous installation, which we are now busy deploying. So, I was extremely happy to get that one because it was also a clear sign of the recognition of good cooperation performance and a very good solution installed at their stores. We could also communicate that we expand the framework with Canadian Tire. They plan to have 80% of all the stores deployed with ESL by the end of 2025. We have a good and active discussion with Canadian Tire. So this in -- just before summer in 2024, we announced that a North American Tier 1 grocery player placed an initial order of SEK 90 million. At that time, we could not actually name them. I'm happy to be able to announce that we could announce the SEK 485 million order from Sobeys. It's a continuation. We will start the deployment of these stores in April, May time frame. We have had a very close cooperation with Sobeys, but also direct with our partner, JRTech. And I think finally, for Q4, it's worth mentioning the refinancing of the Ture Invest bond that we have, which has been replaced by a public and traditional bond with Nordea trading on the Swedish market. So very good. In general, on the 2024 program, we have mentioned the cost reduction program, fully implemented early Q3. We could see it had the effect expected. It's been a lot of work, but it's also been a lot of work that made Pricer a fundamentally better and different company compared to before. Our production facility in Germany, we have full production. We do 3-color. We do 4-color label. We do 2 different sizes. So, I'm very happy to see that after the -- it took a little bit longer to get it in place, but we can see now once we have it in place, it's clearly a competitive advantage. Finally, I would like to also highlight the order intake once again. It's the highest ever order intake. We have had 2 quarters in 2024, with near SEK 1 billion order intake each. I hope that we can see more of this. We'll not give any forecast, but we can see that we are having good traction with several of our customers. So it feels really good to start the year with a very strong backlog and order book to be delivered mainly in 2025. And I also want to speak about Pricer Avenue. I have alluded public a little bit before that we were to make a big announcement at the NRF show. The announcement is Pricer Avenue. It started a few years ago when me, our Head of Technology and a few others of our peers, we started to discuss what would the future of ESL look like. And we were pretty sure it should not look exactly the way it had been looking. The look and feel of an ESL has been pretty much the same for the last 20 years or 30 years, thick plastic frame, some different sizes. You can virtually not tell if it's a Pricer or it's a label from a competitor. So, we know we wanted to do something differently. We have a legacy where we have been the best [ talent ] in the market to help our customers do savings to address their operational cost and lower it. That's our sweet spot. There is no one in the market that actually does it better right now. But one area that I really wanted us to focus on is the shopper experience and above all, how can we help our customers make more out of the ESL, how can we make them monetize from the ESL in a different way than just the efficiency. And this was sort of a very key thing for the development of Pricer Avenue. How can we make the shelf a full merchandise space, and they can either promote their own brand or what they can use it to promote a brand, other suppliers and get paid for it. So to date, there is no solution on the market that can actually do both until we launched Pricer Avenue. We had 3 fundamental principles. We wanted to have a nice looking design because we felt that we wanted to actually be able to recognize -- people to recognize this is a Pricer label, but we do not want to take the limelight away from our customer brand. So it's important that you should see it's a Pricer, but you should see -- still focus on the customer's message. So, we wanted design to be nice. The second thing we wanted to have modularity. You should be able to grow with the system in a different way. You should be able to choose should I have it battery operated, should it be light harvesting operated? Should it be connected to the main grid or just battery pack? So that was another one. Then we have the sustainability. How can we make a solution that is more sustainable? And also here, that has been embedded in the entire concept of Pricer Avenue. But we also see that there is more to come. With this form factor that we have done now, we choose to actually have very slim frames around the ESL and put some other technology at the bottom. There's a lot of place for a lot of cool sensors that we can actually add if you want to have a sensor that feels movement, if you want to have illumination, so you can actually light up the products or if you want to have a different protocol to communicate with the world that can be easily fitted, it's adopted to make sure it's placed. But the benefit of having this very small thin frames is that if you slide ESLs together, you can actually build something we call Floating Canvas. In fact, you can add as many ESLs as you like and make one large ESL out of it with one conveying message. So we are looking -- and actually, combined with this, we have communicated a totally different rail system as well, which you can actually light, you can communicate it and it actually carries power. So, we will be able to do communication on the rail. We will do it on the ESL. So, we're actually turning a dead shelf space into a full merchandise area. And this is something when we presented it at the NRF show, where all major grocery retailers immediately started saying, wow, you created a totally new way of communicating with our shoppers, but also allowing us to present our brand and our customers' brands or suppliers' brands. So it's a total new thing. We have received a massive customer interest. We communicated that we are planning to do pilots in the third quarter this year with selected customers. There are quite a few that's now asked for a pilot and that we should be able to produce -- in fact, there are standard factories as of Q4 for deliveries. So, I will stay a little bit with Avenue. We had the NRF exhibition, and that's why we actually launched. We did a very different launch compared to the way we launched products before. We basically kept all information close. There was very few people that had a complete picture on this. So it was a massive launch at the NRF. There was a massive interest. I can say out of all the years that I've been working with sales since basically since the '90s, this is the launch, and this is the event where I've had most positive feedback on a specific product ever. We had customers coming, saying that this is fantastic. You have really positioned us as the #1 innovator on the market for ESLs. And we had competitors coming, saying that this is fantastic, great, well done. We had suppliers. We had partners, but there was a massive interest. We actually got a call from a Tier 1 retailer afterwards, one we've had some interaction, but we haven't had any business. And he said, well, this was, by far, the most interesting announcement and product on the entire event and he's asking now to meet with us to discuss with his technical team to see, can we do something jointly? We also -- we presented some of our partnerships. We have changed the way we will work with partners. We will work with very few ones. In this case, we have selected Visual Art. We've been working with before on digital signage and retail media. We have added Focal System, which is a leader within in-store AI and computer vision solutions, and we are working much closer together with Google. Now, we're available on their marketplace. Being available on the marketplace with Google does open a whole lot of door, especially Google helps us to actually open them. But what we want with the strategic partnerships is that when we add their premium solution, we add our premium solution, that 1 plus 1 should not be 2 -- equal 2. It should be 3 or 4 or higher. So, we will actually work closely. We'll do a very deep integration on these partnerships to make sure it will be clearly customer value adding. As part of our strategy work, we have also come to the conclusion that we will work much closer to customers on important markets. We will either go direct or have a very close direct touch model. And one of the consequences you can see is that actually we are building our own team on the Nordic and Baltic markets now during spring. We see it's a market where we believe that we have the chance to increase our sales compared to today. We believe that we had a chance to increase our margin. So making this position now, making this change right now feels very good. So having said that, I think it's a little bit less marketing, a little bit more financials. Claes, over to you.

Yes. Yes. If we start to look to the left side, the order intake and the sales, the order intake has been very good the whole year and it is the strongest order intake ever. We are up 13%. When it come to invoicing or net sales, we are a little bit down. This is mainly related to that we had couple of big customers that were buying or even -- were invoicing a lot in 2023. If we take that away, the growth of the rest of the companies or the customers has been very good. If you look at the gross profit, we have had a stable growth each quarter, and this is due to better product mix, but also good procurement. If we go to the next slide, where we show the EBIT development rolling 12-month. This is the highest result ever in the company. All quarters has delivered a strong EBIT, and we have now an operating margin of 7.4%. And if we look at the next slide, which is the P&L, the margins are, as I said before, up a lot, and it depends on, of course, the product mix, the customers, but also lower prices and a good procurement. So that, combined with that, our cost is down as much as SEK 73 million compared to last year and more than SEK 30 million in the fourth quarter. Our result both net and operating result is up SEK 180 million. And if you go to the next slide and look at the cash flow and the cash situation. We have a good cash position now after the new obligation. And we also -- the new bond and we also have a new credit facility set up with Nordea now in the beginning of this year, which is SEK 150 million. The cash flow has been affected, that we took away the factoring we had last year, that has affected the cash flow with SEK 169 million. We have higher inventory now than we expected, and that is due to some pushed sales. And said that, we do not expect the inventory to grow as much as the sales the coming year. I think that's the most important thing when we look at the cash flow.

Thank you very much, Claes. So then going forward, what are we focusing on? Well, we will clearly continue to focus on profitable growth. We have restored profitability. You can see it in the result of 2024. You can see it in all of the quarters. But we need to make sure we do it also with a clear growth of sales and net sales. I want to make sure that when we leave the year that you can say that this has been work well done also on the sales side, but we wanted to be profitable. Here, of course, the product mix will have a clear importance. I will cover it a little bit. We will win in chosen markets. There will be prioritized market segment. It will be -- we have a very strong position in Canada. I would argue that with the announced [ consumer biz ], if we're not #1 yet, we will be #1 this year. So it's focused on U.S. We will invest on the U.S. market in additional resources to capture all the opportunities where we're currently in discussions, but also all the upcoming ones. We will invest in U.K., and we will invest in some of the countries in Southern Europe. From a segment point of view, we will focus on our sweet spot. It's the hyper and supermarket. It's large pharmacies, especially North American ones, and it's to do-it-yourself. It's a market with enormous potential and where we see that our ability to win and our hit rate and our win rate is high. So, we are streamlining our efforts. Of course, if someone has a hard discount or someone with electronic store want to buy from us, we will do it. But we are also looking very much on how to, in a proactive way, face the customers we want to win, and we will spend more time on that than we have done before. So it's been very important to really look at the segments. We will spend more time on the sales organization and more money on the sales organization. We will look at moving from product to solution sales. That's something that's ongoing, but we'll work more with it. We'll move into the area now, with 5,000 connected stores and more to come. We will move more into what's called by software companies as customer success, but also more on upsells to really make sure that we get as much money as possible out of existing customers. I do not want to leave any money on the table. And I think there's a lot of opportunity here to both get additional sales, but also to, of course, sell products with higher profitability. We will create a market-leading solution portfolio for in-store solutions. We will broaden our portfolio. Pricer Avenue will, of course, be a spearhead product. It's now positioned us as the most innovative on the market. We just launched the third generation ESL Pricer Avenue and we'll capitalize on that one. It gives us a lot of opportunities to look at merchandise, merchandise solutions, but also IoT solutions with the help of all the sensors that we can add. We will look on add-on Plaza applications. We will focus on the partnerships that we have announced. And of course, we will do more on our own R&D. So, also just like we're looking at making investments within sales, we are looking at making investments also on an R&D side to really make sure we capture the traction that we have on the market. So having said that, I would like to open for Q&A, and we have Cecilia Vinell here facilitating. Cecilia, do we have any questions?

Yes, we do. So first of all, can you comment anything on the OpEx growth heading into 2025?

Claes, it's more for you?

Well, we don't make any forecast. But of course, there is inflation. We will increase our employees a little bit. So, we will have higher costs, of course, next year, but not any huge things that...

I think maybe we can add that what we have done during the transformation is that we have changed the way we work. There are a few processes that will change. We do not expect our OpEx to grow at the same pace as our net sales and profitability. We do not need to add people the same way to get the results that we want after the transformation of work.

There's few questions on Pricer Avenue and recurring revenues. So, will Pricer Avenue allow for greater share of recurring revenue compared to our ordinary electronic shelf labels? Or is that more connected to the increase of Pricer Plaza?

I think that with the -- it's a bit too early to say. It's something that, of course, we wish. It will definitely be generating more solution-related revenues and higher gross profit type solutions. But I do believe that there is clearly a possibility to also increase the amount of recurring revenues. So what we've done, we have launched the concept. We plan to have it ready for pilots in Q3 and then deliveries in Q4. So, we're working on the operational models. We are in dialogue with several customers on how -- what they want to get out of it, what are the benefits they see. And of course, that will also be leading in the way we do the commercial set-up. It should be something where they make a lot of money and where we make a lot of money.

So, this is a question about us having the vision previously being the retail's first choice. But the person asking this question says that the competitors are growing faster. So, can you comment on retail's first choice?

No, we felt that focusing on partnership was more relevant. Of course, we always want to be the first choice for any customer, but we really wanted to elaborate on the partnership aspect. We work in partnership with our customers. We work in partnership with our suppliers and other partners. And I think that has shown now over the last years that has also been a really good way for us to win more. When we look at the -- what our customers think about it? We have done a customer survey. We had closer to 25 customers returning, both customers who were lost and customers that we won and we got very, very good feedback. And one of the things they really emphasized was our way of working in partnership model.

And I know that in the quarterly report in the CEO letter, your comment on the -- on our reseller StrongPoint, there are several questions on StrongPoint. So, maybe you can comment a bit on that?

Yes. Is there any specific question I should start with or? I can start.

Yes.

Yes. So we have had some -- over the last year, ourselves and StrongPoint had a lot of management meetings. And I think we could say that none of us was very happy with the result of our partnership and the results of our partnership. And I think that this was the expected way forward. We did not communicate on their announcement since from our point of view, it was actually not a material, not from an order intake point of view, and it was not material from a net sales point of view. And in addition, we do expect that all the Nordic and Baltic customers with the Pricer Solution installed, they did select Pricer. And we do expect that we will continue to serve them, and we'll continue to also sell to them. We see a good future in the Nordic, Baltic market, which is why we're actually now choosing to investing on our own.

And on that note, how do we see the U.K.? And how do we plan to take market shares in the U.K.?

So just like before, I see U.K. like an extremely hot market. It's almost past the U.S. when it comes to number of engaged Tier 1 and Tier 2 retailers. I think that all Tier 1 retailers are in discussions. We are certainly speaking with a few of them or most of them. It seems like there are budgets in place. There are plans. And whereas in the U.S., it feels like the lead time is still a little bit longer, so we have time to capture that market. I do believe that we will see some bigger announcements on the U.K. market and best cases towards the end of this year or in 2026. But I think that we'll see 1 or 2 or 3 of the Tier 1s making decisions on how to proceed with digitizing the source. So, I have a huge belief in the U.K. This is why we will also invest more in the U.K. market.

And as a follow-up question on StrongPoint and Pricer building a new sales organization for the Nordics. Question is about the costs and when will it be up and running and the rationale behind this? So, I don't know if that's anything you can comment on?

I cannot comment on the timing or the costs more than we will actually start building the team in 2025. We're, of course, always mindful of costs. We do what makes business sense. And to us, it will make a whole lot of business sense to make this kind of investment. Time-wise, I think that after having a fruitful partnership with StrongPoint, now it's time for us to go direct. So it also feels good to go.

And I think that what we can add there regarding StrongPoint, if we go direct to the customers, of course, we will have a margin on that. So if we increase the sales organization, that's something that will be paid by itself with the margin.

There's also a few questions on the U.S. and potential import duty on goods from Europe. What would be the effect on Pricer's sales?

If there are tariffs?

Yes.

It's very hard to say, of course, since we don't know if there will be tariffs or not. But I would imagine like this, if there would be tariffs of, say, 10%, I am sure that the ROI that we show a customer will still be appealing enough for them to actually make an investment. They will still make good money. If it's 25%, well, it's hard to say. Above all, I think it's more about the uncertainty than tariffs could create. If there are tariffs on food stuff, it might actually mean that the retailers would have to discount food to make sure that they still get these healthy volumes that they need. And of course, that could affect their ability to invest. We are producing in Vietnam, Thailand, Germany. We have competitors actually doing the manufacturing in some of these markets, but also depending on Mexican market. So depending on what tariff or if there will be a tariff on the Mexican market, that could, of course, have a huge impact also, which might or might not be to our benefit from a competitive point of view.

And on Pricer Avenue again, the gross margin. So is the gross margin on Pricer Avenue similar, higher or lower than our normal ESLs?

We can put it like this. We intend to position it as a premium product. We are unlocking the ability to actually get the operational benefit, but also to get the benefits associated with actually selling merchandise space in the store, which is a very big spend and very big wallet at the retailers.

And another follow-up question on the U.S. Are you considering to open some production facilities in the U.S. due to Trump's decisions?

It could be an opportunity. We haven't planned it yet. But we are -- yes, we are looking at the potential.

And here's a question on the advantages with Pricer system. So a potential customer, why would they choose Pricer system and not the usual system? What are the differentiations?

I think that the key thing is the reaction time. Infrared light ensures a fast reaction time. There is no disturbance interference due to -- from a technical point of view also. We can simply -- if we want a label to flash, we can make it flash within sub-seconds, whereas from a radio solution, it would be harder to do it. It's not -- it will not act the same way all the time. That's one. The other one is the battery life. So, our sweet spot customers where we have a tendency to win is the stores with very high density, supermarket, hypermarket, do-it-yourself, to name 3. But we also want to find a customer that want to use the system. They should really embrace digitalization. So, we want them to do frequent price updates. We want them to do frequent template updates. They should have Halloween template and Easter template, and they should work with campaigns, so they should use the display a lot. They should use the label to direct the staff as well to actually use the LED flash to help them find the product when doing replenishment or picking online orders. That time saving, which could be from 5 to 30 seconds per pick is a major case of the ROI model and which is why we actually are able to demonstrate really good ROI for our customers. This is also the key reason why we're able to sell at a higher price. As I mentioned before, our target is that the instruction to Mats, our Head of Commercial, is that we should, in average, always be 10% higher or more on the price side.

And a question on France. What are you expecting from customers in France this year?

We expect, of course, to continue. We have -- I'm still quite certain that we are #1 on the French market. So, we have a lot of customers to serve. So, focusing on selling more to existing customers. There's still a lot of stores actually without labels, but there are also a lot of stores that's moving into the need to actually buy new labels. We will look a lot since we have such a large installed base, how can we work with upsells. So if I would say, say one priority area, I would say upsells, selling more to existing stores and making sure that as many as possible are connected. Every single connected store will have a very high value to us. It gives us the opportunity to get recurring revenues, but above all, also to do upsells. We see there is a lot of interest for some of our partnerships with, for example, Focal Systems. So, I believe there will be some business there as well.

So, you mentioned Southern Europe as one area of interest. Why South and not markets like Asia or India?

So we see that on the Asian market, there is not really the kind of growth that we would be interested in. You might actually be able to do something in one country, but it's still comparably small. New Zealand, Australia is different. So, I call them the Pacific. But for Asia in general, volumes has been comparably low. We don't really see other competitors addressing those market very aggressively or very actively either, possibly with the exception of Japan. And India, it's market with future potential, but right now, there's no commercial potential because to make the ROI work in an Indian store, the price of the ESLs would have to be much lower.

And another Pricer Avenue question and on batteries. So, one of our advantages is long battery life. But if we remove batteries, are you -- are we not losing the competitive edge then?

I think with Pricer Avenue, we're gaining a competitive edge because actually, we're presenting something new to the market that doesn't exist. We can see that with the Vusion win or Walmart that there is an acceptance for powered rails, whether we like it or not and actually, we choose to embrace it. And we found a way of taking the rail and making into something different. I spoke about modularity. So, you can even start with battery, if you like. We just -- we have actually built the Avenue ESL like a sushi. Yes, the display is very thin. And then you can connect it either directly to the rail and get power or you have a small battery pack. If you actually choose the battery pack and then you want to increase the size of the display, well, you keep the battery pack and you just get a large display, which is also moving really well, working very well with the sustainability part. So, no, I believe with Pricer Avenue, we did open a totally new potential revenue source, and we created a lot of interest. So, I think we managed to establish a competitive edge that competitors do not have yet. And I might actually add that we have submitted a lot of patent applications from everything, from the design to the way we do the communication to the way the rail system is working, mechanics, software, the whole lot.

Thank you, Magnus, and thank you, Claes. These were all the questions.

Thank you very much. And thanks for everyone listening into our quarterly presentation. I hope you found it interesting. And I do look forward to do the Q1 presentation this year. Take care. Thank you very much.

Thank you.