Ten Lifestyle Group Plc (TENG) Earnings Call Transcript & Summary

Thank you, everybody, for coming to the analyst presentation today, and welcome to this year's annual results from Ten. We've got a lot of good results, a very positive outlook to share, so we'll press on. As a reminder, I think everybody listening to this video, will know that we're all about becoming the world's most trusted service. And as an investment, we're all about being the world's best place, the world's best service to organize dining, travel, entertainment and premium shopping, and that's a huge total addressable market that runs into the trillions. Now within that, today, we're the market leader in lifestyle concierge. So we organize things for our members around the world, and those members come to us because our corporates pay for them to be members of our service. We've got improving profitability, on a percentage margin basis, in the business, even despite the pandemic, and we've got a growth engine that delivers better service, as we get bigger. That better service allows us to win more business, allows us to invest more into our tech or into our proposition, grow the quality of service, grow the size of the business, as our corporates invest more with us and see better results from us. So that's really how we become the most-trusted service business in the world. Now, there is no time for a metaphor, and this is somebody that some of you may recognize. It's Tom Dean. Tom is a swimmer. And some of you will know him from July, well, in Tokyo, in his first Olympics. This young man won gold in the 200 meters freestyle, and he then also won an amazing second goal in a freestyle . And in doing that, Tom became the first British man to win 2 gold Olympic medals at the same Olympic Games in 113 years. And today, you'll learn that Tom and Ten share many of the same characteristics. So at the end of 2019, Tom was expected to do well, but nobody expected him to win a gold, if the Olympics had been held in 2020 as planned. But the 12-month COVID delay allowed his 20-year-old body an extra year to strengthen into the best swimmer in the world. Now, like Tom, we were doing pretty well, going to COVID. We were back to a very good double-digit growth, 23% in the year before COVID, and we were expecting to generate positive cash flow, some of which we would have invested back into more growth. And COVID did delay that growth. However, here we are after COVID, now doing even better than we were in early 2020, with great growth and results ahead of where we were back then because we're fitter and better than ever. Now, Tom kept building the strength in the techniques during the pandemic that won in the golds. And at Ten, we kept investing into the technology and the service levels that underpin our success. We could have easily cut, but we managed our business so that we didn't need to. Tom actually, unamazingly, caught COVID, not once but twice in 2020, and the pandemic shut, his practice pulled down in the city above. However, he still won those 2 golds and because he worked well on his recovery, and he adapted. He adapted his training so that he swam in the River Thames near his home in Marlow, instead of in a swimming pool. Now at Ten, we were hit by COVID, too. Our core service categories, traveling, eating out, live entertainment, were hugely reduced. But we adapted with organizing staycations, home deliveries, book clubs, virtual events and so on. And those efforts meant that we came through COVID with net cash. And remarkably, we didn't need to raise debt or sell new equity fee. We actually increased our EBITDA profitability, on a percentage basis. And now today, our core services are recovering. We still benefit from our successful adaptations and the innovations, we made during the pandemic, and we'll benefit coming out of COVID because we've got record service levels, better technology than ever, higher profit margins, a stronger competitive proposition. And because we retain not most but actually every single one of our corporate fines and we won new contracts in the past 18 months, we've today got more eligible amendments than we had before the pandemic, and we've got a strong pipeline in the new business, too. So Tom's focus is now on the World Championships in Japan and the European Championships in Rome, and then, it will be all eyes on Paris, 2024. Now, at Ten, our focus is to continue to drive our growth engine. Our improved proposition and service levels allow us to grow revenues, increase our buying power, which allows us to invest more into tech, improve our proposition and service levels, which drives more growth. So that's where we are today. Now, for a deeper look at the numbers, over to Alan Donald, our CFO.

Thank you, Alex. Just stick on the key financial highlights. I always say, the group managed to remain relevant to our clients and members throughout the year, maintaining profitability, despite the challenging conditions. As Alex noted, net revenue was down 21.6%, to GBP 35 million versus last year. And if you look at that, between our corporate revenues, the revenues we earn from the corporates, who pay us look after members, that was down 22%. And our supplier revenue was down only 15%, slightly less than corporate. The better supply revenue performance, we saw an improvement in the last quarter of the year as travel opened up, especially in Europe, and I've got a slide later on to explain that. To offset the net revenue [ stockpile ], we did manage our operating expenses. They reduced by GBP 9.1 million versus last year. And that meant, our adjusted EBITDA of 4.4%, which is slightly below prior year of 4.8%. As Alex said, though, we did improve our margin. Our EBITDA margin actually improved by 2 percentage points to 12.8%, and that related to an improved loss-before-tax of 5.5. And as Alex said, we did continue to invest in our technology. Hence, we did, our cash did reduce in the year, but that was a conscious decision to continue to invest in the business as we -- so we're stronger, coming out of the pandemic. Next slide. This is just a look at our income statement. I've got a couple of slides on net revenue later, but just to explain the operating expenses, in terms of the savings we made. The bulk of these savings are delivered through our continued operational efficiencies and the freeze we put on salary and bonuses. Together, we're reducing our headcount to just manage our resource [ productivity ] levels we saw. We also, still, continue our salary-sacrifice exchange for share options and I was preforming a cash-saving measure. But it did save our EBITDA level, and the charge for that came through in our share-based payments charge below [ PBT ]. We also got government support across most regions, and that amount to GBP 2 million this year versus GBP 1.6 million in the prior year. That included furlough in the U.K., [ course ] by Europe and other similar government schemes across the world. In addition, as part of retaining key personnel in the U.S., we did take out a U.S. government bank-paid last year, and that loan was fully forgiven in the year as we qualified with the expenses we paid. Depreciation did decrease GBP 1.2 million year-on-year and actually been driven by the reducing right-of-use assets, which is our property leases. And that's because we did look to downsize, and we also renegotiated a lot of our office space and lease costs in the last year. As I mentioned, our share-based payment charge is in line with last year and actually been driven by the salary [ sacrifice ] we put in place. We did have some exceptional costs in the year. GBP 0.4 million of that was an impairment charge on our content to be capitalized, and we also have some exceptional project costs of GBP 0.2 million we wrote off in the year. And I'd say that related to a loss of GBP 5.5 million, an improvement of 0.4 on last year. As I said, this is just a graph on our net revenue bridge, saying, as I said, GBP 21.6 million to GBP 34.7 million. Fortunately, we didn't lose any clients to the pandemic, but our base corporate revenue did contract by GBP 7.9 million as our core activity is reduced. Our supplier revenue reduced by 0.5% versus prior year. And I've got a slide -- next slide, we'll go into a bit more detail on that. And then as mentioned last year, one large contract [ renewal ] changed to a small affiliate contract at the start of the year, and that reduced revenue by GBP 1.6 million. But we also did launch 2 new [ metal ] contracts in the year, and that contributed 0.5. As I said, I wanted to just take a little bit of time to explain what happened to our supplier revenue and the impact of the pandemic. [ TenMAID ] predominantly travel-related and specifically, the majority of our supplier revenues total commissions. The graph on the left-hand side, that's the full year supplier earlier from 2019 through to 2021. So pre-COVID, for full year '19, we made about GBP 5.5 million of supply revenue, which is 12% of our net revenues. Now that reduced to GBP 3.3 million, 7.4% net revenue in FY '20. As the year just gone, it went down to GBP 2.8 million, which is 8% of net revenue. However, if you look on the right-hand side, this is the half-year split. So H1 2020 was just before pandemic hit. We had GBP 2.5 million, which was 10.7% of net revenue. There is some seasonality in our business because supply revenue is probably, higher in the second half of the year. But then, you can see the impact of the pandemic from H2 '20 onwards, down to GBP 0.8 million. And then, it's a slight recovery in H1 2021, and then we've seen some strong recovery in the second half of this year just gone. And predominantly, in the last quarter, as I said, that's where EMEA, we saw traveling up across that region, and people start to travel again. Moving on, this is just a split of the net revenue by region. As you can see, the pandemic across the world, EMEA declined by 18%; Americas, 28%; and APAC down by 21%. As already highlighted in Europe, the [ Redwood ] contract change happened in EMEA, and then we did have a supply revenue recovery in the last quarter. Then, just looking at the adjusted EBITDA by region. Whilst EMEA EBITDA is down by GBP 2 million, to GBP 6.2 million versus prior year, the margin actually held up pretty well. It was 44% versus 47% in the prior year. Remember, EMEA is our most mature region in the group. American loss actually decreased by GBP 1.7 million, and we managed costs really carefully. And as I said, maintained key-resources activity returns, and that's where we got the U.S. PPP loan forgiven during the year. In APAC, despite the revenue shortfall, we did improve profitability. That is through continuing operational efficiencies and various cost-control measures. We always put this slide in because it's a key one for us. It's looking at the continued technology investment in the business. And in the year, we invested about GBP 11.5 million into our platform, communications and technologies, and that adds up to about GBP 46 million in total, since IPO. Why do we do that? I think, it's a continued great [ peak ] to great investment. We do it because it creates competitive advantage. It drives efficiency, drives service levels and revenues. A lot of this is discretionary. We could have got hold on this. We didn't think, that was the right thing to do as we came through this pandemic. Our cash flow, operating cash flow in the U.S., GBP 4 million. That was driven by our operational efficiency and costs. And noncash items, that was signed down. Our increased amortization was offset by the loan forgiveness and the reduction in depreciation I talked about, and that's been offset by a reduction in lease payments, following down the cash flow, as we renegotiate and reduced our space. In addition, as I said, we've continued to invest in our technology. Now about GBP 11.5 million. We capitalized GBP 5.4 million in the year. And then in June, we did get some cash receipts from employees exercising share options in the year. That meant, our cash stood at GBP 6.7 million, a decrease of GBP 4.3 million in a year. And as I said, that's first joined by our technology investment. I'd also note, just post year-end, we did actually have further proceeds of about GBP 1.1 million as more employees exercise options in September '21. So that helped support our cash position into the new year. And then, I want to just take a little bit of time to go through our business model, and this slide we showed before, and this just looks at our revenue model. The pie chart on the left-hand side is the split of corporate revenue/supplier revenue, which I've gone through already. So the full year '21, supplier revenue is 8%. Our corporate revenue, which we get paid for by our clients, is 92%. On the right-hand side, this is the make of our typical contract. We get paid a fee for high-touch service, where Lifestyle Manager responses to an e-mail or a call or a live chat or WhatsApp as just a digital request, which comes through our platform. Our contracts are normally 3 years in length, and on about 60 of these contracts have a guaranteed minimum attached to them. Now, this is a new couple of slides. I'll take a little bit of time to go through this. This is the first time that you've analyzed our member base, and this is looking at our eligible members and active members. The left-hand graph highlights the number of eligible members in our very high value -- in high-value segments from 2019 through 2021. I'll explain what these segments mean, in a minute. The right-hand graph highlight the total number of active members by value segment. That's very high, high and medium. So what do these categories and segments mean? Our eligible members are defined as the individual members, who have an eligible product, offered by one of our clients and have legitimate access to our service. Active members are those who have used our service at least once in the past 12 months. We then split our client base into very high-, high- and medium-value segments. Very high, that includes private banking clients members with a high level of investable assets under management with the bank or customers that are very premium, high-end products. The potential actual corporate budgets per member from these clients, are higher because of the profitable nature of this member segment and typically results in a higher penetration of active members to eligible and also a higher average concierge revenue per active member in this segment. For high value, this includes typically mass affluent retail banking or credit card holders of our issuing bank proposition. And finally, in our medium segment, as we know, customers are less valuable per capita to sponsored corporate for various reasons, and it's specifically tied to type of [ current ] product, and it's normally through contracts over our payment network providers. And the average value per member is lower but represents a large eligible member base, which gives us global coverage across the world. As you can see on the left-hand graph, eligible members have grown since 2019, despite the impact of the pandemic, as we won new contracts and expand existing into the very high and high segments. Now, the medium segment in this graph because that the eligible base runs into millions. And then total active members for all segments, we've grown over the period since 2018, although with a slight dip between 2021 and '20 due to the impact of the pandemic. This next slide, a final slide we look at, is -- just look at the concierge revenue value segment. And just to highlight, 62% of our concierge revenue is underpinned by material contracts, be it medium, large ex large, where the members are of high or very high value to our corporate members. I'll now hand back to Alex, who can go through our operational update.

Great. Thank you very much, Alan. So operationally, with very good news, we won 2 contracts, despite the fact corporate activity was subdued during the pandemic. So we won with Westpac, one of Australia's top banks; and Credit Saison, who are like the Barclaycard, the kind of super Barclaycard of Japan. We retained every single material contracts in the business. Now that is really worth reflecting on how much do our corporate clients value us. Well, every single one of them continue to invest with us over the last 12 months, at a time when it would have been relatively easy to pause. And we continue to invest into tech, content comms, that's helped us with efficiencies and service quality, which has improved our EBITDA margin. We've continued to invest into our people, both our Ten academy, our top-performing senior leadership team. We've got improved member proposition and record member satisfaction, as a result of that. So really, really happy with how we've operated over the last 12 months. But to remind us what we're all about. I'm just going to play a 1-minute video as a musical interlude and remind you how we actually serve our members. [Presentation]

Great. So thanks, everybody for that. As you can see, our members benefit from the service. So many of you, they use the service. They save time. They manage, they get better results. They manage better value, build their status, socially and really live their life to the max and how they'd like to. What's equally important is, why do our corporate clients invest in that? Why have we got 100% planned retention? It's because they've got hard commercial reasons to do so. They see better customer retention, acquisition, more assets under management, higher spend on card. Essentially, they make more money, and that's something that we can prove, with them using their own data. In the year, we've achieved a record Net Promoter Score. That's how we evaluate -- how our members actually evaluate our service, and it's great to see, that is up for the multiple year from -- and it's been up every year for many years now. The growth engine, really in practice. And because our corporates are enjoying our service more than ever, because our members are enjoying our service more than ever, we're being allowed to work with our corporates to send more communications out, to activate more clients. And so we've actually sent out more newsletters, articles, guides to inspire our members and encourage them to use the service than we ever have done before. And we got better at explaining to our corporate clients what we're all about. So if you haven't done already, do have a look at Ten Lifestyle Group. Under Case Studies, you can see all of these and more that explain to the brands that give us money to support their customers so that they make more money, in turn. You can see how those people go about benefiting, and we really bring that alive through these case studies of sales collateral. One way that we prove this, as I say, there's a lot more data behind it, but we can prove that when members engage with our service, they're more likely to be retained by the brand. We can also improve growth in AUM, growth in spend on card. That's what drives this extraordinary 100% client retention. And the clients that we've got, are some of the world's very best corporate clients, some of the world's top brands, and they're very diverse. We don't have customer concentration. They're very diverse across the world as well. We're in all the world's major regions. Now on tech. This drives efficiency but also activation of members, and it also drives service quality. Some of the improvements we've made over the last 12 months, we got a new onboarding journey. So that more members that become an eligible member, they've become an active member. We've improved how we personalize so that we find out more about our members so that we can be proactive in helping support them. They can like, follow and favorite on our platform. And we can automate quite a number of our requests so that, for instance, if you fly to New York, you've booked a flight for the first of June. Then, in May, we'll, as you note, say, "these are the restaurants, these are the things, we think, you'll enjoy in New York", based on the fact we know you're going to be there shortly and based on your profile. Other automations. We've increased chat functionality, and we've improved how we match a specific members to the best lifestyle management for their need. And overall -- this is a really important slide. Overall, fully-automated requests have increased by 74%, and a total of 70% are now serviced using either full or partial automation, and that is one of the things that's driven our EBITDA margin, despite the fact that our revenues fell over 20% in the reported year and despite the fact that we continue to invest into technology. But on this slide, you can see why that's a good investment. Content is another part of our service that we've been investing into. So some of you, who have been following our [ RNS ], will see that we just announced a content contract. It's worth more than GBP 250,000. It's a medium-sized contract for this financial year alone, just based on content. What do -- what makes our content special? Our expert writers produce articles, destination guides and a variety of digital magazines. And they do that, using the data, the contacts and the insights from the concierge service to make sure that our content is the highest quality, the most up-to-date and the most relevant for our members. We've also invested into our people. So whilst we were able to take some people out of the business because the company became more efficient, we managed very well with home working. We continue to invest into developing leadership in the business. We retained every member of our senior leadership team that I'm really happy with that decision and the fact that they've chosen to stay with us as well. And we've also made progress on things like diversity, equity and inclusion, which we're taking very seriously as an international business that really does care about those issues. And partly, as a result of those actions, we had record scores in the employee engagement survey, which happened much earlier in the year. Now, this slide shows again, some of the key areas that we've improved. Most of these things, I've talked about already, but a couple to call out. On the left-hand side, we've created APIs, whereby corporate clients can take our platform into their technology. So as an example, one major global bank has included our service digitally, into their banking app. So when people are checking their bank balances and managing their day-to-day banking, they can see our service. And we're already seeing uptake from new users, who discover our services as they go about their day-to-day banking. We've also integrated loyalty points so that members can spend their loyalty points with our corporate partners, with us, as well as spending their cash to book things like hotels and flights, and we've grown the number of brands that we support to 27 across the world. And of course, any of you that aren't fortunate enough to already have access to our service. Some of you in the U.K., might be members through [ Coots ] or at [ West Black ] or maybe by HSBC. For those of you that aren't, could join privately at tenmembership.com. And even if you just joined for a month or two to give us a try, and then hopefully, you'll be hooked, then you'll experience the onboarding that I talked about earlier on. So where from here? One thing that's really important to note is that, typically, when we win a new client, they tend to be either a client that didn't already have concierge so we start from a base of 0 or we replace competition that's been running a contract. And typically, that means the penetration, the usage has been relatively low. So we then build that usage. That builds the revenues, the number of active members. And over time, we can prove to the corporates, with their own data, that they make more money from investing more with us, and that turns us from being seen as a cost to being seen as a driver of their own commercial advantage, until we become to the optimum state, where Ten is a hero benefit and we're totally integrated in with their technology and with their proposition. Now clearly, we would like all that to happen much quicker than 6 years. And of course, we're working on that, all the time. But what this tells you is that when we win clients, we expect to grow them. And that's important because when you look at what we're doing today, we've got GBP 35 million run rate from the year that we've just reported, going into this year. But on top of that, we've increased the number of active members with Barclays, with Swiss Card, with some other clients as well. We've got the tools, now that we're coming out of COVID, to grow usage and, hence, revenue per active member as well because we can not only use some of the things we invented during the pandemic, but crucially, dining, traveling and so on are back at levels that are actually above pre-COVID. And we've also won new clients as well, whether that's Westpac, Credit Saison, some of the smaller ones that we mentioned in [ RNS ] as well. And then beyond that, we can grow in markets outside our major market today, of financial services so we can grow in the employee market, the auto market, the luxury market, private membership as well. COVID also has made us stronger in some ways, in that it's proved to our corporate clients that we compete very well against other competitors for customer-loyalty budget, like insurance -- complementary insurance, for instance, lounge access, corporate entertainment. Face-to-face corporate entertainment had taken a huge hit over the last couple of years and allowed finance directors to evaluate where they should be spending those areas as much or spending more with us. We've also in a fortunate position, in that our financial service clients always need high-value customers, and they need them even more as they make more money from them, typically, in a banking relationship, when interest rates start to rise, even if only by a very small amount. Hotels, restaurants, retailers, luxury brands need us more than ever to reach our customer base. And our competitive position is stronger, both against other concierge businesses, who, we don't believe, has been as successfully making themselves attractive, they're not as digital, they're not as financially healthy, they didn't adapt as well as us, but also against indirect competitors. Many of you might have had real trouble with travel agents, with tour operators, dealing with airlines directly, during the pandemic. That really gave us, as Ten, a chance to shine and win new members and permission to serve people who previously, might have been happy with their tour operator but aren't very happy today because they don't feel, always, that they were treated very well. Also, our cost base, we can improve because we can reduce our rents around the world. And clearly, we're not expecting to do quite as much travel to win new clients. We've won big new contracts via Zoom and by our Microsoft Teams, over the last 12 months, and we expect that to continue, albeit it will also be good to get back to face-to-face selling as well. So this has taken almost for from our RNS today. What are we really looking at for 2022 and beyond? So firstly, there are some things we can share. Demand for our core services is increasing as the pandemic is easing around the world, and that's stimulating first-time users as well as repeat users from our existing active members. All of that grows revenue. Supplier revenue, there was GBP 5.5 million pre-COVID, is actually tracking above that level today, albeit we can't be totally sure that's going to continue. We've only had 2 months of the new financial year, so far. We're looking forward to having a full year of impact of new contracts and contract extensions that we won during the past year. All of that should be -- lead to increased net revenue. And we can definitely confirm that we're trading in line with the Board's expectations for this current year, and we continue to convert the pipeline of corporate contracts. So overall, we expect to grow net revenue and grow EBITDA. We're going to maintain -- or we expect to maintain a positive net cash position as we grow again and as we maintain a decent level of investment in technology. Now, one thing to point out, though. In H1, which goes and runs to the end of February, we will expect some reduction in net cash because as we grow activity, the money that we get from our corporate clients, sometimes, lags that item. But overall, we're definitely seeing recovery. Still got COVID headwinds. There's not a lot of travel still going on in Latin America and in Asia, so there should be more recovery ahead of that. But why are we confident about becoming the world's most trusted service business and taking steps towards '22? 100% client retention, record service levels, growing supplier revenue, improving margins, the strong sales pipeline, continued investment in our tech and proposition that's improving both of those things, mean that we really are looking forward and enjoying this year, so far. So thank you, everybody. And thanks to Tom Dean, our double gold medal swimmer, for giving us an inspirational metaphor as well in amongst our results. Thanks very much.