Solocal Group S.A. (LOCAL) Earnings Call Transcript & Summary

Hello, everyone, for this review of our quarterly revenue for 2022. Thanks for being here and for spending your time with Solocal. I would like to present these revenue and I'm accompanied by Olivier Regnard, our CFO. So what should we take away from this first quarter of 2022. First of all, our sales performance was slightly down versus our expectations. We're ending this first quarter with minus 4.8% revenue as compared to last year. Our customer base is stable at 403,000 (sic) [ 304,000 ] clients, ARPA flat at EUR 1,360 and our churn is under control, I'll come back to this later on during this presentation, at 13.7%. What's very important for us is that our order backlog is flat. Let me remind you that over the last 3 quarters, our order backlog has been eroded slightly and it is now flat in this quarter. So we have EUR 286.2 million in secured revenue, enabling us to confirm our ambitions for 2022 and to continue to roll out the strategic plan we presented in October 2021 and I will come back to that later on. Let us first begin with our customer base and churn. As you can see, we are ending the first quarter at 304,000 clients and this is something we anticipated. Our forecast spoke about 304,000 or 305,000 clients. What you should take away from this is that churn increased slightly there too. We anticipated this and this was foreseen. During the announcement made for 2021, I said it that we should expect a slight increase in our churn. Why? Quite simply because what we planned and seen in the first quarter of 2022, our cohort of renewals almost doubled. The contracts for 12 and 24 months and in 2019 and 2020 came to a close at a very sensitive period in the first quarter 2022. Based on that, having a churn rate at 13.7% is for us a very good result. Would it remain flat at these levels? We may expect to see a slight increase in the second quarter, but I do not believe that there will be an inflationous situation as regards churn. That's what I had to say about churn and our customer base. ARPA is flat at EUR 1,360, a very good result in my opinion there too. It is flat and improving as compared to the first quarter 2021. What you should note is that our strategy for creating value is still producing results because our acquisition ARPA in the first quarter of 2022 is still improving by almost 2% over the past 3 months. At the same time, we can see our churn creating values below what we had so far. The churners leave us, but they leave us with a lower ARPA than what we normally observed during 2021. Our retention rate is still flat at around 54% meaning that today we are in a situation with a relatively flat ARPA. We will continue to push our ARPA forward because we can largely do so in terms of our sales force and products to significantly improve the business we generate with our customers. And lastly, during the presentation of the strategic plan, we emphasize our websites, the architecture, the main backbone of our portfolio. The question is how can we create more and more value around these websites. As you can see on this slide on Page 8, we can see the first fruits of this strategy. First in field sales, let me congratulate the work carried out by our salespeople. They have improved in terms of upselling websites. The Privilège websites were never that high in terms of activity. What I would like to share with you is that during the second quarter of 2022, we will put online double the amount of these Privilège websites that we had in 2021. Upselling is working as well on our Premium websites that are intermediate but with high added value and that benefit from upselling our Essentiel websites, the entry point. So this is a very virtuous circle. Let me also congratulate the performance in telesales. On the right of this slide, you can see the telesales. Never, never, never before has it acquired as many new customers on Essentiel. So we are winning over clients on the French market thanks to teamwork between telesales and field sales. All of this without any compromise in terms of quality. And as you can see on this slide, our ratings, customer ratings are extremely high. The products that we deliver are very well acclaimed for Essentiel, for Premium and Privilège alike. So we are on track when it comes to our websites. I will now give the floor to Olivier who will tell us more about our revenue for the first quarter of 2022.

Hello, everyone. Revenue in the first quarter of 2022 reached EUR 5 million below the first quarter of 2021. This decline was anticipated. You may recall that revenue finally ultimately reflects our past sales. You may recall that we had problems with the commercial capacities in the second quarter of 2021 directly due to the erosion of the order backlog that Herve spoke about with the decline in revenue for the first quarter slightly above expectations for 2 main reasons. A sales mix that was slightly unfavorable over the short term, but favorable over the long term reflecting a strong momentum in the sale of websites, as Herve said, converting into revenue over a longer period than other types of products we sell. Furthermore, we canceled a certain number of websites where it was impossible to reach clients for a long period. So to improve the quality of our production and production flows, we decided to quite simply cancel these websites. But the ramp-up of our commercial capacity that Herve will come back to later on and a sharp increase in win-backs should enable us to return to growth in terms of sales with our order backlog as of the second quarter, but also in terms of revenue for the second quarter -- for the second half of the year. Another business, still a high level of subscription-based order intake 86% (sic) [ 96% ] with tacit renewals. But as I said before, leveraging our plateau. So in future we'll no longer communicate on this indicator because we're now at a very high level and we can no longer make any progress because we still have offers for large accounts that I will tell you more about later on. In terms of revenue per segment, we have 3 product segments. The first with the presence with Connect accounting for 1/3 of our revenue. Then we have Booster, a digital marketing for advertising accounting for half of our revenue and Websites about 15% of our revenue. We can see a strong momentum with Connect for several consecutive quarters illustrating the need for professionals to be very visible on the Internet and also the success of our retention offers, a bit to the detriment of Booster. Secondly, Websites slightly down at minus 3.2%, but reprocessed for the effect I spoke of before, a one-off effect, so revenue would be up slightly by plus 1%. But when you look at the good momentum of the sales of Websites and the Websites put online, we expect a progression in revenue from Websites over the coming quarters. Booster is down as compared to the first quarter of 2021 as I explained before. Booster products as presented here cover all of our large accounts. We made a major effort in 2019 and 2020 to revamp our product range except for large accounts. We're currently working on large accounts and we will propose a product that is suited to the demand of our network clients in the third quarter of this year and to thereby reduce this decline. Regarding the order backlog, as Herve said before, it is stable versus the 31st of December 2021 at EUR 243 million. You may recall that the order backlog for the EUR 243 million, 75% of that is paid out in revenue in 2022, EUR 186 million. The rest is paid out in revenue for 2023 and 2024 as illustrated on this chart. In others, for the financial year, we've already secured a revenue at EUR 101 million and the EUR 185 million in the order backlog will be paid out mechanically over the year, so a secured revenue of EUR 286 million. Out of the EUR 286 million, this does not take into account or rather, we do not recognize revenue from order intakes from the 1st of April 2022 to the 31st of December 2022. Let me remind you that at the 31st of March 2021, the secured revenue reached EUR 310 million, watch out. You may recall that we changed our business model. We still had what we called migration over the first 4 or 5 months of 2021. So this figure cannot be compared for the time being with the EUR 286 million reported today. On a like-for-like basis, that figure could be compared as of the third quarter of 2022 as I have pointed out before. I will now give the floor to Herve to come back to the rollout of the strategy we presented in October 2021.

Thank you very kindly, Olivier. In fact, as I said in my introduction, it seemed important to me to take this opportunity to give you an update on our strategic plan performance. And you may recall that the strategic plan was underpinned by 2 main pillars. One was the execution of our go-to-market and to recover trust, the trust of our customers and the trust of the Internet users who use our PagesJaunes medium. So let's take a look at the go-to-market execution on Page 14. Here you see the first scheme. The managerial scheme has been clearly shored up. Now we have people who work as managers. We have 6 Regional Directors, a National Director and they have been hired and they are at work. And as we had announced, our pay plan has gone live. We put it into motion during the first 3 months of this year. And it was our decision to set up local twin pairs. We have in each region a HR manager to accompany the local director. And this scheme is now in place and we now need to ramp up the headcount and we're doing that as we speak. In Q1 of 2022, we recruited 74 hunters as we call them. And now you have to wonder whether this will suffice. Well no, because structurally over the first 3 months, we were always lagging behind by some 20, 25 of these hunters, which probably penalized us a bit in our performance of the first quarter. So we will pursue this recruitment campaign. But what mattered the most was to avoid compromising the installation, the stepping into office of these hunters. And so we have a 5-week training program to allow them to acquire the skills they need and this explains the slower pace of the ramp-up than what we would have hoped for. The goal of these hunters is to manage 190 hunters by the end of June. During the first quarter, we reached 140. Now beyond recruiting them and inducting them, we need to train them. And the integration program is now well underway. It's in full swing. And we have a 5-week training session for each and every one of these hunters. We have slightly adjusted the content of the course to refocus on certain products and services that require greater importance, the advertising range but also the website range. All of this has been put into place. And in the second quarter of this year, we will really give this new impetus and website range, which was not buoyant enough, will be revived and the same holds true for the advertising. Now what sorts of tools are we going to provide these hunters with. In fact, whether they are hunters or breeders, they need to have an effective set of tools. And we have all of them gathered together in the same place. We have a prospecting tool. We have a CRM ready to use. And whenever there are canvassing tours, they use the source map that they need, which has been perfected for their purposes. The second pillar of our strategy is what I call recover trust. The trust of our clients to begin with, which is why I like to use the word phygital. We have face-to-face interaction. We are in the process of perfecting those processes. And in the next few weeks, we'll have 2 teams with 2 different tasks. We'll have customer success managers on the one hand whose job it will be to onboard new customers and then support them in a customized fashion during a certain period of their life as Solocal clients. And then we will have a team of customer care managers who will be there to support the client throughout their customer journey and answer any of their questions obviously. And it is our conviction that we need to work far more closely and in a far more customized fashion with our clients and in a more fully integrated fashion. So much for the physical part of the strategy, now let's take a look at the digital aspect, which is completely dematerialized. We, I told you, wanted to give you a rundown on all the performance indicators of the solutions that we sell our clients. The Solocal Manager, our digital assistant, we have 2 new offerings which have been completely revisited, the priority referencing and the website. So today if you turn to the digital assistant, you will see that the clients who've signed contracts with us for these 2 offerings now have completely revisited dashboards. They've been completely reworked and they're fully operational and they make it possible for the client to check and keep track of the performance we provide. And we're going to go further. We're not going to be content with this. We're going to take this dashboard one step further on Solocal Manager and make it a locus of communication with our customers. We intend to extract a number of performance indicators from these dashboards and to push them on to the IT tools and the communication tools of our clients, thinking, of course, of mobile phones, but also the desktops of these very same clients. So we're in the process of establishing a scheme for upstream reporting of our performance for our customers' information. So we will be close by the side of our clients. We will also be close by the side of our Internet users. Two main projects have been undertaken. On one hand, we wanted to improve the search engine of PagesJaunes, which had become obsolete and which needed to be modernized. We've completed that project and this will allow professionals to use PagesJaunes far more easily and for instance allow them to improve access to their content. Contents, the professionals current material will be far easier to edit than used to be the case on PagesJaunes. As to the search engine, we're in the process of perfecting it. It is our commitment to reach quality score functionality of these professionals. We want to provide that so they can improve their offering even further. Another project was to improve, significantly improve the user experience. Well, we have completely revisited our PagesJaunes application. Since March of this year it has gone live and it's on iOS or Android. And from what we've heard back from the users, it has been very well received. And this brand-new app will make it possible to continue to improve the user experience. But more importantly, it will make it possible to provide all of the necessary information for an informed decision of these Internet users. I had announced in October of 2021 that we wanted to labelize our professionals and that is why we decided to modify the user experience of our PagesJaunes application and this has now been completed. So by way of conclusion, what I would like to say, well, 2 things is that for one thing, 2022 will be a year of consolidation. And this year it is our intention to deliver a flat ARPA, to bring our churn rate under control and to manage huge cohorts of renewals that have been observed and recorded and addressed in Q1 already. And we have a customer base of an amount that is quite considerable, 304,000. We intend this year in terms of our revenue which will be comparable to 2021. We also intend to achieve an EBITDA that will be comparable to 2021 and our operating free cash flow should also be comparable to 2021. Those are our 2022 ambitions. That was the message I wanted to deliver. And we're happy now, Olivier and I, to answer any and all of your questions. Thank you very kindly.

[There was a question off microphone.] I have no information about a capital increase. What I said during the presentation of our annual performance, we'll be in a position to refinance our debt as of March of 2023. And as at December 31 of last year, we had EUR 81 million in cash. We were generating cash flows in significant amounts. And as of March of 2023, we'll be in position to refinance our debt and we will start working on that as of September to take up any market opportunities that might appear as of March 2023. But at this stage, no capital increase is slated in any manner whatsoever. [Sorry, the questions are being asked off microphone. The interpreters just cannot hear them. The microphone is off.] The answer is that, as I've just indicated, says the CFO, as part of my presentation, this decrease in the revenues was expected. It was forecast in the first quarter and the second quarter as well. It's just the result of our order intake of the second half of last year. They're just faint tremors in the change and we're completely focused on ramping up recruitment, ramping up our sales force. That sales force will then make it possible to significantly increase the order intake, which will then flow into revenue of the second half of the year and that will offset the decrease that we booked in first 2 quarters.

[There is no microphone for the questions, apologies from the interpreting booth.] The answer to that question is this. This is less than expected as we speak. As I indicated in my presentation, we sustained a slight lag when it comes to our capacity and we're offsetting that, we're covering that slight lag. We're making up for it. And clearly, we need to acquire a sales force of some 190 hunters so as to be able to prepare to pave the way for our H2 and 2023, financial year 2023. All of our teams are fully mobilized on this project and in Q1 we took, clearly took a step in the right direction and we're on track. And if you look at the Internet site, the fact is that we have never done as much upselling and cross-selling as we are doing today. So there's a culture of win-over and value increase and increase in the penetration and that's deploying nicely through our -- throughout our teams at Solocal. I'd like to congratulate them for that by the way. And there's been an improvement both on the hunter side and on the breeder husbandry side.

[Still no microphone for the questions, apologies from the interpretation booth. The person asking questions is inaudible to us. The answer from the CFO is this.] Thank you for that question. If you recall, the strategic plan of October 2021 that we announced in October 2021 indicated that the strategy rested on 2 pillars. On the one hand, a focus on the field sales force with ARPAs higher than what we had, had. And to the "detriment" without banking too much on telesales because we had not had time to attend to that project. And we did indicate then that we were anticipating a growth in the customer base over a period of 3 years that would be flat and would stand at some 300,000 customers. So you can anticipate some 300,000 customers in our base this year.