Straker Limited (STG) Earnings Call Transcript & Summary

All right. We can see everybody joining. So that's good. So as I said, everybody, if you just wait a couple of minutes, I'll just wait until everybody is joined and then -- or everybody that had signed up has joined, and then we will begin. Just a couple of more minutes. Yes. We'll give it another minute, everyone, and then we'll get into it. I'm sure we're all very aware of the fun and games of Zoom as much as we've -- we all do it all the time now. It's always still an interesting environment to operate in. And always seems to be something new that catches you out at some point. So just before I start, I'll just cover off. We're going to do some Q&A at the end. [Operator Instructions] So yes, very happy to do that. So let me just now share my presentation screen, and then we will begin the presentation. Okay. So I'm just going to validate. Everybody can see my screen? Right. Okay, everybody. So I would like to welcome you all to this FY '20 full year's results -- full year results presentation. The aim here is for it to be reasonably short and succinct. So a 15-minute presentation. Obviously, it's up online, and you can read it, but we want to give you some context around these results. It'll be myself and our Chief Financial Officer, Haydn Marks, doing the presentation. [Operator Instructions] So just a little bit about our company purpose. Our purpose is to build the future of global communications using machines and humans. And the reason we put this here is that we're strong believers that AI and humans together are going to be the future of this industry and many communication-related industries, and we want to lead this field. So that is why we have that up there, and that is what drives our decisions on a daily basis from our strategy that we put in place down to how we execute and all the little things we do as a company. So now I'd like to do -- to give a quick business update on a few points and then hand over to Haydn and then come back to some of the bigger business and strategic themes that we've been working on. So first of all, we were on track prior to COVID to get around about a $40 million run rate. And that was based off having a very strong Q4. And also on the fact that we had an M&A deal lined up ready to be completed. So due diligence have been completed. It was just a matter of signing the agreement and getting that kicked off. Halfway through March, we could see that COVID was starting to hit and just that we effectively wouldn't be able to fly around and complete that transaction meant that we paused that, and I emphasize pausing. So had we got there, we were pretty much on track for what we had aimed to do in the year, possibly a quarter later, then we would have liked in terms of getting some of that over the line, but very happy that we were executing on everything that we had set in terms of the start of the year. So if you look at the M&A that we've done in the year, we made 2 successful M&A transactions On-Global in Vitoria in Spain and NZTC, both have been our most successful acquisitions to date. And the way that we measure that is on the speed of integration on the ability for us to get consolidation benefits on the adoption of our platform inside of these organizations. So it has been significantly faster for both of these transactions than it has been historically. And we probably had a little bit of luck that NZTC was actually in New Zealand when COVID hit, and we started to get restrictions because, obviously, we've still been able to complete that integration and get things done. And as I say, we would have had acquisition #8, but that was paused. So again, the M&A strategy was successful. We are finding the M&A deals, and we were working through and structuring outcomes and getting things completed. And the other point I'd make is that we have had a big focus on media. This goes back to us acquiring COM Translations in February last year and then growing our media business. And I think our revenue on a pro forma basis was up 55%, on a statutory basis was up into the many thousands of percent because we went from not doing media into being a major focus of ours. So off the back of us getting into media, we've also launched the RAY media platform to give us a competitive advantage to really to take advantage of the opportunity in this space. And the data that we have out there from 2008, which was the last time it was reported was the size of, say, the entertainment market worldwide, home entertainment market. And I guess you could believe that during COVID lockdown, that has probably tripled in size, given the sheer volume of home entertainment that's being consumed over the last couple of months. So we think it was a very good decision to get into media, and that is starting to play out into some of our results. So now what I'd like to do is hand over to Haydn Marks, our Chief Financial Officer, to go through the numbers. You're just on mute. You go ahead.

Thanks very much, Grant. Hello, everyone. Grant, if we can turn to Slide 9. Straker had continued revenue growth of 13%, up to $27.74 million for FY '20. The growth reflected the company's strategic shift to focus on enterprise customer segment of the market. Within the numbers, Straker had some great wins for the year. As Grant mentioned, with media up 55% like-for-like. And also enterprise and business revenue grew 18% year-on-year. We had some downsides as well due to the Deutsche Bank closure of its investment banking arm and also the move away from smaller work. But overall, it was a positive year, where we saw revenues from repeat customers grow 18% and now make up 86% of all of the revenues. Now turning to Slide 10. Our performance. So Straker's performance reflected the investment the company has made in growth activities to focus on the enterprise customer segment and also invest in media. The translation gross margin was up 50 basis points to 55.2% for the year after running more work through the AI-powered RAY platform. Operating costs were up largely due to the investment in R&D and also bearing the additional cost of being a listed company, which weren't all reflected in the numbers in the previous year. And so the resulting adjusted EBITDA loss was $580,000 for the year. Now turning to Page 11. Statutory results. So Straker has carried out a series of restructuring activities, which will result in a lower cost base moving forward, which will help benefit the company. The company also made an impairment of goodwill of $800,000 in our Elanex business due to the impact of the Deutsche Bank investment bank closure. After financing charges, which were mostly related to FX, our bottom line loss before tax improved to $2.71 million. Moving on to Slide 12, Grant, our cash flow. So Straker continues to have stable cash flows with an underlying outflow of $1.1 million. Cash inflows continue to be in line with revenues, which was good. And we now invest 10% of all our revenues in the R&D space with the focus on the AI RAY translations platform and also the new RAY Media Platform where the money is going into. We continue to invest in acquisitions throughout the year with the additions of On-Global and NZTC brought into the mix. And we closed with $11.2 million in the bank and are in a strong position to weather the COVID storm and continue our growth strategy thereafter. Grant, back over to you.

Okay. Thank you, Haydn. So look, obviously, you can't go through an annual presentation without mentioning COVID. And so I want to give a quick update on our COVID response, and it will be a theme that will run through the remaining slides, obviously, given the context of how it's affecting the global business environment. So if you look at initially what our response was about, look, our response was about immediately going into cash is king, and I think I said in one of our previous updates. I was the CEO of the company when we went through the GFC, well aware of what happens and the sort of things that affect businesses. So we went straight into cash as king mode. We transitioned very easily into remote working. We were very lucky that -- well not -- we weren't lucky, but we got a heads up in that. We have an office in Madrid. And so we could see what was going to start to happen globally and how quickly it was going to happen. So we certainly didn't hold back on doing things very quickly. So we transitioned -- the key things for us was that agility was key to this. As we transitioned quickly, we suddenly found that we weren't focused on having to spend time getting our workforce set up to work remotely. We have one team. We have one platform. Everybody works on it globally. We became focused on what are the opportunities for COVID. And we actually found some, and we were able to very quickly adjust and actually take advantage of them. So that was one the benefits of us being a very responsive company, but also one that can adapt and work remotely. And the other factor was that the team from the Board right down to our junior project managers made sacrifices. Salary sacrifices, leave sacrifices, worked incredibly long hours to get some of these projects out. So everybody really just pulled together to make sure that we could come through COVID as strongly as we can. And obviously, we've also got some access to government stimulus grants around the world. So just in terms of executing on our strategic priorities. So our core focus remains to become a $100 million revenue company. And to get there, we see there's 3 things that we've got to do very well. So obviously, we need to drive organic and acquired revenue. We want to be a top 10 media company because that's a big growth engine in the industry, and we want to become the most productive translation company in the world because we believe that's going to keep our balance sheet very strong, and it's going to give us the competitive advantage we need to drive that organic and acquisitive growth and to also be a major player in media. So to give you some context about how we measure that or what we do on a daily basis, we have charts and dashboards that show the speed for each language by translator and domain subject. These are surfaced across our teams. And every month, we're looking at those sorts of charts and numbers and figuring out how we actually make translators go faster. How do we adjust our platform? What are all of the inputs that are going to actually make them go faster? How do we retrain our engines? How do we get more data? So it is something that is focused and core and embedded throughout the whole organization. And that is really starting to come to the fore, I think, when you'll see some of the later slides. So we had 23% growth in the number of business customers using our RAY platform. And RAY, it's not a SaaS platform. When a customer goes on RAY, they do become a lot stickier. It becomes the go-to place that they get to when they are looking to do translations. It becomes an organizational focus in terms of the platform that they're going to use to get this translation localization done. And so it lasts through job roles and it becomes something that customers embed, and that's getting reflected in these high repeat revenue numbers that we see. And at the same time, jobs that go through RAY produce higher margins. And so this is just validation that this focus we have, obsessive focus really on speed and on efficiency and production is driving through. So we're starting to see some really good growth come through. And then just moving on, we've seen an exponential growth in our data assets. And so it's really important when you think about how many of the large tech companies have such a huge focus on AI and data, and so it is the thing that drives speed improvements. It is the thing that is going to give us everything that we need to be the most productive translation company in the world and to have a significant competitive advantage. And so off the back of all of these new data insights with this exponential growth in data, we've then released our WORKBENCH #4, version 4, which is allowing for adaptive AI and a very unique productivity-based pricing model that is unique in the industry and has driven off these assets, and is really starting to give our sales teams the ability to go into some large enterprises and show the difference that we can provide to them in terms of the way that translations are delivered. So again, our aspirational goal is to be a top 10 media company. And obviously, as I said earlier, there are a lot of reasons why this market is hugely attractive. What we have learned about this market is it is based on the ability to perform huge volume turnarounds in short time frames. So internally, that's one of the metrics that we're really focused on. So we've partnered with leading industry technology providers to streamline our supply chain. So if we can't -- if we can get speech to text going 10%, 20% faster than anybody else, that's cutting down 10% to 20% of the time it takes to deliver projects. And so one of the projects that we have done through COVID and through April was for a very large enterprise customer who had a need where a conference had gone from being a physical conference to an offline conference. And they needed basically what would have taken 8 weeks of subtitling completed in 5 days. So we had 35 people working nonstop for 5 days to get that out. But we had the platform to do it. We had the technology to do it. And so we're really starting to see that there's some big opportunities in the way that we can solve problems that others can't. And we're visually monitoring our WORKBENCH as we -- our media WORKBENCH, as we start to really evolve that, it's going to have some huge benefit as -- in this huge market. So just on to organic growth. The thing about organic growth, it's about growing that repeat revenue base. And is -- and it's a focus that we can see -- that we've been waiting for, probably for a number of years, is the market to move from a relationship-based model into a productivity-based cycle for purchasing. And one thing that will come out of COVID, I believe, very strongly is that, that will happen. People will look at their P&Ls and they're going, "Why are we paying for this, just because we've had a relationship with somebody based on the trust and the quality of that translation? So if these guys over here can produce the same quality translations at significantly lower cost and much faster using AI and automation, then why aren't we using them?" So we think it will start to change purchasing decisions. We can no longer go to physical conferences at the moment. I think we had 30 lined up for the financial year. At the moment, that's down to 0 until we can actually start attending any. So we've had online campaigns that we've rolled out. And we've been very aggressive on driving our message and getting to these decision-makers so that they can start to think about how they can change. And we have seen that reflected in our pipeline and some of the opportunities that we're starting to see. And as Haydn mentioned earlier, we switched from smaller jobs into moving into enterprise. And you can see the average job value going up as we're doing that. And obviously, one of the core things about going up customer size is those bigger customers are far stickier, so you'll see more repeat revenue at higher values. So now just over to stuff that's obviously of interest in terms of how we've tracked through COVID. So on a like-for-like pro forma basis, our revenues have been identical to the first 6 weeks of FY '20 and FY '21. And so in the context of the current environment, we consider that to be an excellent result. Like all companies at the beginning of April, the end of March, we sat down, we went, "What do we think impact does this going to have on our -- what type of impact is this going to have on our business?" And to be honest, we didn't think that we would come out of it with these types of revenues for the first 6 weeks. And it just shows that in certain industries, COVID can have a strange impact. There's nothing we can do if a large European manufacturer furloughs 20,000 staff for 2 months and they just shut everything down. But what we can do is take advantage of other COVID-related opportunities that are suddenly appearing. We're already a global company. We've already got offices all around the world. We've got salespeople who are then very active on taking advantage of these. And we've got a platform that we can adapt and quickly really take some big advantages. So it's probably above our expectations in the first 6 weeks. And in terms of how we see the year playing out, this is about as good a guess as we can make at the moment based on the fact that, really, crystal ball gazing into a very murky ball right now but we see some core drop-off and we see a lot of opportunities. So it's just about how that plays out over the year. And then just on to M&A. So our current pipeline is more than $200 million of revenue at several stages. And we have a much bigger secondary pipeline of people we could talk to, but these are people that we've been talking to for a while. It's going to be interesting to see how many or how these companies transition over the next few months, how they go through. And one of the things that we're looking at is how we think that these companies will play out. We've engaged with a number of the M&A opportunities that we already had in the pipeline. I just saw that question from Dan there on why M&A is taking long. And I guess, if you look at M&A from a, what did we want to acquire last year? Had we completed the transaction in March, that would have been the largest year of M&A that we had done. And we were just about to accelerate that even further. So obviously, at the moment, it's a very strange environment to complete deals. But given that we have been talking to a number of opportunities for a while, we think we can assess this over the next few months and see what is possible. We remain committed that to get to $100 million in revenue, we are going to need a mixture of organic and acquired growth. And so we certainly do have a big focus. And the reality is that our balance sheet should go further in these M&A transactions in that we'll probably have a lower upfront cost. We'll probably have a longer earn-out to mitigate some of the risks that COVID exposes in these sorts of deals. And we may have sellers who are more willing to look at an exit than they were previously, and that may give us a little bit more negotiating power through these deals. So just in summary, we have industry-leading technology that continues to develop at pace, and we are investing very heavily in that technology. And that manifests itself, as I say, in some of the margin gains that we get. Revenues have remained steady through COVID. So on the upside of COVID, hopefully, we get to take advantage of these new opportunities in a new business environment and to cement and get more value out of the existing ones. We're rightsizing the organization to make sure that we've got a very efficient underlying base model for the business, which is we're working on very heavily. And again, there's a lot of different things happening around the world, and some are positive for us in that regard and some are restrictive in terms of lockdowns and things like that as we go through it. And the growth opportunities remain strained -- remain strong, including an improved environment, in my view, for both acquiring large enterprise customers and also for M&A. So we think it's a really positive outlook in that regard.

So look, what I'd like to do now is hand over to -- back to the M&A, really. And if anybody would like to raise their hands, we are happy to either promote somebody to speak. I'm just looking through the M&A now. As I start, I can see the one from [ Dean ]. I see [ Laurie Smith ] has asked, do we have much exposure to the Australian market and M&A pipeline? I know we don't, to be honest. I don't think there's much at all. I can see somebody raising their hands. So Alex McLean. So I'm just going to allow you to talk. Alex? Alex, you're on mute. You look like you're on mute, Alex. So I'm just trying to see if I can unmute you. Are you good?

You got me now?

We've got you. Yes.