S4 Capital plc (SFOR) Earnings Call Transcript & Summary

So good afternoon, everyone, and good morning in America. Apologies for invading your Memorial Day weekend. But I'm here with Mary in our London office, and Scott is in Singapore. And we've got a brief presentation by Mary on the Q1 results. And then Scott will fill out the Q1 by talking about our 2 additions or 2 mergers. And then we'll open up for Q&A. So Mary, off you go.

Thank you. So hello. Thank you for joining us today for our Q1 trading update. We have delivered strong top line growth in the first quarter with revenue up 70% on a reported basis and 41% on a like-for-like basis at GBP 207 million. Gross profit net revenue was up 35% on a like-for-like basis to GBP 171 million. We maintained our full year guidance of 25% growth gross profit net revenue. In the full year, we continue to target a steady improvement in the EBITDA margin and from this year onwards, in line with our 3-year plan. Operational EBITDA for the year will be significantly weighted to the second half. The group is naturally weighted to the second half, with the average second half delivering around 2/3 of the full year EBITDA. This will be even more the case in 2022 due to investment in our growth, including our whoppers and our new pitch whopper as well as investment in our management infrastructure. In addition, we will be taking selective cost actions with an increased focus on operational efficiency, given the current economic uncertainty. Since the end of Q1, we have added 2 new whoppers, 1 through pitch and 1 through combination. Both will be fully effective in 2023 and will take our total to 8. The new pitch whopper will be operative from the second half of this year with resources ramping in the first half. Our net debt at the end of March was GBP 48 million, and it is currently ranging between GBP 140 million and GBP 190 million on a monthly basis, reflecting significant combination payments, including TheoremOne and the growth of the business. We continue to maintain significant liquidity. Moving to the next slide. My comments here are all on a like-for-like basis. We delivered strong gross profit net revenue growth across all practices and regions. Content grew 33%, including strong growth from our whoppers and particularly BMW. Data & Digital Media was up 35%, with continued strong performance from the activation and performance business. And technology services was up 58%, with Zemoga now operating under the integrated brand as the Tech.Monks. From a regional perspective, EMEA grew fastest with gross profit net revenue up 55% and is accounted for 20% of the business. The Americas, our largest region, grew 29%. And in APAC, we saw gross profit net revenue for the quarter, up 41%, with the region accounting for 8% of the mix. In the appendix, recognizing questions which have been asked following the full year results, we've included information on outstanding contingent consideration and invested capital. And we're happy to take any questions on these at your convenience. And with that, I will pass to Scott for an update on our mergers.

Great. Thank you, Mary. So welcome, everyone, and I'm going to just quickly cover a couple of the mergers that we've done, 1 in Q1 and 1 after Q1. So the first one was 4 Mile Analytics. So that was the deal we did in Q1. 4 Mile has joined our Data & Digital Media practice. It's a very focused company specializing in data analytics, data engineering, governance. And they have a specific platform expertise particularly around Looker, which is a platform that Google acquired several years ago, but also Snowflake, Fivetran and Google Cloud. They have 50-plus data engineers, primarily in California, and generated revenues and gross profit, which is the same for them of approximately GBP 6.5 million in '21 and growing strongly. It's a great addition to our business and a great example of a company that's come in and made a real difference quite quickly. And it's also a business that, from a sort of addressable market perspective, really is not attacking the digital media spend market but much more the data, analytics and digital transformation kind of budgets. We then move on to TheoremOne, which is a more recently completed transaction. This is in our technology services practice, which you just heard Mary reference. So I think it's important to sort of define that maybe what that means for us. So for us, that's custom software development. It's essentially building digital products and services for our clients and also the systems integration around their marketing technology. And the thesis for us sort of moving more into this direction is really that technology and marketing, we see them intersecting more and more. And our clients see the kind of partners who they can trust to work with them seamlessly across both technology and marketing. Just as they internally are increasingly seeing collaboration between the CMO, the CIO, the CTO across their own digital transformation efforts. So you're all familiar with the Zemoga merger, which Mary referenced, which was a significant expansion for us last year. And in the 6 months since that deal, we've seen really meaningful synergies already. They've converted several of our existing clients and likewise introduced both creative and data and digital media capabilities to several of their existing clients. So actually, TheoremOne is a great sort of additional deal in this area for us. It's very complementary to Zemoga, both in terms of structure, business model, client base and really approach. So as Zemoga is primarily a nearshore offering with most of their engineering staff in Colombia, most of their clients and revenues in the U.S. Theorem has a more onshore offer and a more consultative offer. And the 2 will work very well and very closely together and already are. Theorem generated revenues in GP of around GBP 58 million in '21. It does bring, as Mary referenced, one whopper with it. So that's in the financial services industry. And they also have very strong relationships and large relationships with several of our other technology whoppers, so a great addition to the team. And with that, I'll pass it back to Martin, and I think, Sergei, we're open for Q&A.

Okay. Thanks, Scott. Thank you, Mary. Sergei, can you take questions, please?

[Operator Instructions] There are currently no questions in the phone queue. [Operator Instructions].

We'll just give another minute or so and if none, we had several this morning in our [indiscernible] call and we had 6 analysts that were asking a number of questions that are being covered by analysts which are already being sent out. So if anybody needs it by all means just send us a note and we'll send you the broker circuits. Any questions, Sergei?

No, sir. I don't see any questions in the phone queue.

All right. Very good. Well, thank you very much, everybody. We'll be back with you half year should be our AGM in the middle of June and half year should be in September. So look forward to talking to you again soon. Thank you.