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

Good morning. Thank you for joining us for the revenue update of the revenues of Solocal for Q3 2022, in the first 9 months of 2022. We are going to be hearing Hervé Milcent and Olivier Regnard, in that order. Before we begin, I would like to inform you that this is going to be recorded, and you will be able to listen to a replay on the website. You can download the slides as of now. This announcement session will comprise some guidance, which may be altered by future developments and any risk factors that might influence the outcome at the end of the year are included in our documentation. I will now hand over to Hervé Milcent. You have the floor, Hervé.

Thank you very much, Sharon. Welcome. With your kind permission, we will immediately turn to Slide 4, which will sum up the takeaway messages of Q3 2022 for Solocal. Now our revenue remained flat relative to Q2 of 2022 at EUR 99.6 million. The order intake for the quarter was affected by our difficulties in recruiting and retaining the sales force. I will come back to this matter later on in my presentation. But I can tell you now that we've taken measures this quarter that are already beginning to bear fruit. Now my second point this morning will be the fact that we've strengthened the executive committee by appointing David Gillaux as COO. His task will be to improve the customer journey and boost customer satisfaction. We will rely on his expertise and his experience to address the other pillar of our new model, which is critical for any subscription program, and that is loyalty and customer satisfaction. I would also like to report that we have successfully launched our new advertising offer called Booster Notoriété this quarter. It is a magnificent example of a successful project both during its development phase, which is very quick, brief, and in its commercial launch. I'm quite proud of the work that was done by the totality of our teams at Solocal. Olivier Regnard will also fill you in on the fact that we can confirm our 2022 outlook. We adjusted them last July, with an expected revenue of about EUR 405 million, a pursuit of cost-cutting measures which allow us to generate approximately EUR 115 million in recurring EBITDA and EUR 30 million in operating free cash flows, as defined by the group. Let us now turn immediately to Slide 6, if you will, and take a look at how our customer base has changed. As announced, let me recall that 2022 is a rather unusual year for Solocal as we've had a high volume of contract renewals because the 24-month contract came to an end and needed to be renewed, so that customers that had a choice of renewing or terminating their subscriptions. Now in spite of adverse circumstances, we've kept good control over the churn. The annual churn rate is only slightly up by 16.1%, but the retention rate is flat at 52%. When it comes to customer acquisition, we have 7,000 new clients this quarter relative to the 9,000 of the previous quarter, which is a very slight slump because, again, with an uphill struggle to recruit and retain our sales force. And there was also the seasonal effect of the summer holidays, particularly the month of August, which is traditionally a month in which business slows down considerably. We are going to take a look now at our ARPA. Let me remind you that it corresponds to the average revenue per customer. At Solocal, we track this indicator from 2 angles, 1 from the standpoint of the past and the other forward-looking tracking, which is the ARPA for the entire group, which bakes down as acquisition, churn and cross and upsell ARPAs, respectively. Now when it comes to the ARPA based on our revenues, it is proving to be resilient quarter after quarter, and it stands at EUR 1,340. And the fact that we've been able to maintain that means that we have a very sound pillar on which to base our future growth. Now the most interesting aspect of this is the fact that our acquisition ARPA is on the rise by some 4.8% relative to Q2, which means that the average spend of our clients who are acquisition customers is growing, which means that we've succeeded at focusing on creating value rather than focusing on volume. Slide 8, let's take a look at recent developments now. In particular, the 3 main dimensions: the sales force, customer satisfaction and our service offering. Let's start with the sales force, the trends have been mixed now. The field sales force is the one where the greatest effort will be required. Our traditional sales force are -- or the value of the orders book per salesperson is on the increase. It's been rising. Whereas, if you look at the hunter population of our sales force, they are down slightly this quarter, which is due to the fact that our recruitment of the sales force is fresh, and so it will take some time to own and acquire knowledge about our offering. Now we have not remained inactive in the face of the situation. We'll be focusing on this particular aspect on the next slide. When it comes to telesales, I'm quite satisfied with their performance. Although pure acquisition sales are below expectations, we can still bank on this very solid contributor. And when it comes to large accounts, their contribution is slightly below expectations simply because in the past, we did not invest sufficiently into the SME segment. Now that we have Connect Réseaux available, we can expect this to pick up. And there will be new developments in the first quarter of next year. We need to make up for our technical deficit and allow this segment to reposition itself. Let us now turn to customer satisfaction, one of our priorities for 2023. The challenge is that dedicated and highly experienced team has been set up, and the first results are already available. Look at our trust pilot performance, it stands at 2.7%. Whereas in H1 of this year, we stood at 2.4% and last year at 2%. So this is improving. And now that we have David Gillaux on hand, I'm sure that this will improve significantly and customer satisfaction will rise sustainably. Let us now turn to our offering -- our service offering. We've redesigned the advertising offering. We started with Booster Notoriété successfully launched this quarter. In less than 2 months, over 300 customers have signed up. The Booster Traffic offering will be launched next year. And as announced previously, it contains significant improvements. We've also worked hard to improve our large accounts offering. Connect Réseaux will be available or is available already, pardon me, Connect Réseaux will be available in Q1 of next year, and Software-as-a-Service platform is on the drawing board. Let us now turn to Slide 9. Our key acquisition lever. This channel accounts for 60% of the value of our customer acquisition at Solocal. As you can see here, and I've already had occasion to comment on this graph, you can look at the measures we've taken to recruit and retain hunters. We've been successful at this. We have reached our target. 180 hunters, that was our target, and we reached it. We've taken 3 steps. We worked to train, we worked to improve the compensation package and we have succeeded in improving the skill set of our sales force. Our field sales force. I would be remiss if I didn't mention the generalist population, 200 of them, who had to manage the attrition due to the migration that they had to manage for a period of 3 years. Their productivity has continued to improve, and they've been focusing hard on both cross-selling and upselling. I'm quite satisfied with that. And I do hope that this will continue to improve quarter after quarter. Olivier Regnard will now talk you through developments in our revenue and our order intake and our prospects for 2022.

Thank you very kindly, Hervé. Good morning all. We sell 3 ranges of services: Connect, Booster and the Websites. The Connect range provides the ability for our customers to be visible on the Internet and to provide their details, their opening hours and publish opinions simultaneously on all the platforms. Booster is an advertising -- a digital advertising offering, including priority listing, Booster Contact, Booster Websites and the key account offering. The Websites range is our production and hosting -- website hosting offering. We host 40,000 internet websites in France. Now to build on what Hervé said, the first 9 months, revenues are down 6% relative to last year and down 7.5% relative to Q3 of 2021. This trend is not homogeneous to all our offerings. But the trends in each business line are similar to the previous quarter's results. The Connect range is still buoyant and is growing by 15.3%, buoyed by an increase in price decided upon in 2021 and people turning to this offering. The Booster range is down 19%, affected by the performance of our offering designed for key account holders. And as we mentioned, our priority has been since 2018 to target SMEs, so the key account range is lagging slightly behind. This should be made up for in the next half year, thanks to the Connect Réseaux offering launched in Q3 and also thanks to the launch of Connect Réseaux Ranked, which should be operational next year. The Booster Contact sales performance has negatively impacted the revenue of that range compared to the same time last year. In Q3, revenues are down 7.5%. In absolute value terms, the revenues of the quarter are identical to the revenues of the last quarter. Quarter after quarter, we can be better measured in our performance than making a year-on-year comparison. If a contract is renewed, then it significantly buoys our performance. 53% of our revenues come from sales whose renewal has been completed at least once. And this trend is still at work relative to Q2, although it's less marked. This is a result of our success at changing the business model and the fact that our performance is based on 2 pillars: loyalty building and acquisition. The order intake is EUR 243 million. That's down 2.3% relative to Q2, at which time it was EUR 240 million. This trend is primarily the result of a seasonal effect. As we indicated earlier, August being that time when business drops off because of summer holidays and we measure our progress linearly. So that explains that decrease. In the first 9 months of this year, renewals and acquisitions are on the same trend as the first 9 months of last year. You will remember that order backlog only contains signed contracts that are past due. So we have a good visibility of when we can recognize that revenue. The conversion rate will result in EUR 78.3 million booked in Q4. And then in 2023, a further 59.1%; and in 2024, 7.4%. So secured revenue for 2022 is EUR 379.1 million as at September 30, versus EUR 403 million at the same time last year. Now this does not reflect the renewal of contracts that are scheduled, although we know that these contracts will be renewed. The date of the contract signing is what we retain when we calculate our secured revenue. This also makes it possible to have good visibility over year-end revenue, and this is what you can see in the graph on the following page. Our year-end revenue will be made up as shown of the secured revenue, EUR 379 million; the revenue from renewed contracts, whose renewal date will be in Q4 of this year; and the revenue from order intake performed in Q4. In 2021, the sum total of these last 2 elements, whose breakdown is indicated in purple, stood at EUR 25 million. These various elements make it possible to expect a year-end revenue on the order of EUR 405 million. And this is what allows us to expect recurring EBITDA of EUR 115 million and free cash flow on the order of EUR 30 million. I will now allow Hervé to give you his concluding statement.

Thank you very much. Olivier. Before we come to Q&A, let me quickly say a few words about what you should take away from our performance this quarter. Our Q3 revenue is still impacted by sales force hiring and retention difficulties. Yet, as I indicated, we've taken steps to overcome these difficulties, and they're already beginning to bear fruit. I'm convinced that, in very short order, we will see the improvement in our acquisition performance. We've also continued to improve our portfolio offering to satisfy our customers' expectations. The advertising range has been completely redesigned. The launch of Booster Notoriété has been successful, and we're eagerly looking forward to the new version of Booster Traffic next year. The key account offering, which required investments, is in the process of being recast so that we can recover our #1 position in that market. As you will have seen, we're also focusing heavily on customer satisfaction, and that has improved significantly. And we can confirm our 2022 outlook, as Olivier has just told you. Our expected revenue stands at circa EUR 405 million, our recurring EBITDA is expected to reach EUR 115 million and our operating free cash flow is expected to reach EUR 30 million. I would like to thank you very kindly for your attention. And I'm very happy to answer your questions now.

Thank you Hervé. The first question has to do with our positioning relative to the Google Search engine and the manner in which we manage opinions on the Internet.

All right. Well, about Google, let me say this. They are -- 2 things. They are a partner of ours and they are also a competitor of ours, make no mistake about that. And so our offering is positioned in such a way as to allow them to gain from our experience and our expertise, and we retain our G&A when we address our markets. And those markets that we address are not just a search engine. Our markets are hyperlocal, ultra-local, and that's what gives us our unique abilities and assets. So yes, search engines are important. But the level of granularity of our sales network is very, very -- is a very powerful lever. And we have these 300,000 SME clients to count on. So these clients and our prospective clients can enjoy the experience of search engines that are not necessarily ours, yet, they can fully access our strengths, which are proximity with SMEs as well as local banners. So it's a very powerful combination, and we're going to continue to develop that. I'm going to maintain our various partnerships with Google as we retain our unique characteristics and strengths. You've asked about the ratings. In June of 2021, our rating level was 2 on Trustpilot, not excellent. Now for the last year, we've been working hard first to understand what caused the dissatisfaction of some of our customers and how we had gotten into the situation. And as we examined the situation and as we fleshed out our customer satisfaction team by recruiting new members, we were able to better meet our customers' expectations. Now as to whether this is a job completed, well, no, but we've certainly come a long way. And if you look now at our current Trustpilot rating, a year after that level of 2, we now stand at 2.7. And I can assure you that we're going to continue to invest so that, that rating continues to rise. And we're really going to work hard to ensure that our customer responses are constructive.

What about the medium-term targets of the group now? Can you tell us about that?

Well, just like many other corporations, we've undertaken our budget making exercise for 2023. It should be completed by the end of the year. And the guidance for 2023 will be issued when we announce our annual performance results. As we announced at the end of H1 and pursuant to the lag in early 2022, we will update our guidance at the end of the year, as I just said.

Thank you Olivier. A question about the EBITDA, EUR 115 million for the full year. The question is whether this contains IFRS 16 figures for rents.