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

All right. Well, thank you, everybody, for coming. I think we'll kick off. We're pleased to be -- excited to be announcing our results for the year to the end of August, and we'll press on straight through with that. So first thing to remind, we are all about to become the world's most trusted service, and we do that by providing our service through large corporate clients, specifically banks, private banks and wealth managers. Next slide, please. And we see that as a huge market opportunity. So firstly, we get paid from premium brands driving the loyalty of their most profitable customers. And we are becoming the best way for those wealthy and mass affluent individuals to organize their lifestyle and travel needs, which is an absolutely huge market. We've become the best way for people owning more than GBP 100,000 a year or to the ultra-high net worth. That is a colossal part of the market. And within our market of providing concierge and travel services, we're now the established market leader. So we've got 100% corporate client retention. We win almost all of the tenders that come up, albeit there are quite a few more still out there. And we're looking forward to continuing to grow our competitive advantage. There's also, in our model, a growth engine. What I mean by that is that as we get bigger, we get better both in terms of efficiency and service quality. And as we get more efficient and improve our service quality, we get bigger, which drives efficiency and service quality, more about that later. So essentially where we're at today is we are winning new clients. We are improving the service engine. We can show that with the data that we go through today. And the market opportunity remains huge, both immediate market opportunity of working with wealth managers, private banks, bank's premium credit card businesses to look after their top customers. And then as we get better and better and better, other market opportunities as well. And the growth engine is something which I think everybody on this call has seen the video of before, but it is worth reminding that as we get bigger, we increased member engagement through more end users' uses that there is a better and stronger ROI through our corporate clients who give us more money. And that allows us to invest into tech, improving our proposition. That then allows us to increase more cash, more margin because we get more efficient but the improvement in service proposition actually leads to more members activated in service and using it. And so that growth engine continues. This year, we're particularly pleased because we are at record levels of net revenue. We're at record levels of EBITDA and that GBP 4.9 million EBITDA really past the fact that GBP 4 million of that came in the second half. The first half of this year was poorly damaged by Omicron. If you remember, we hired a lot of people because we saw good growth in September, October, November last year. And then the wind very much got taken out of our sales in terms of revenue in December and January, albeit we're high on to that cost. So the first half of this year that we're reporting, we only had GBP 0.9 million EBITDA. In the second half, GBP 4 million and that increased across the second half. Cash levels are pretty much at the same level as last year. We won new contracts. We retained all of our existing contracts. We've got active members up as well, the number of end users using our service in the past 12 months, growing to 275,000 and that also grew a lot more in the second half than the first half. Our profitability was notwithstanding the fact that we invested actually more than ever into our technology, content and telecoms. And so because of the trading to date so far this year, albeit we've only had 2 months because we've got very strong client retention, growing demand and because we -- our proposition is getting better all the time, we're very optimistic about meeting their expectations in the market of 2022. And our platform is very well positioned for growth. This is quite important. So -- we mentioned this the half year. We've got a large member base and we're scaling that, but we don't need to be scaling in new markets, we don't need to be scaling into new categories and we don't need to be scaling even outside of financial services to meet their expectations and exceed their expectations that are out there in the market. So what's good for us is we want to, over the next 18 months, really be doing more of the same in existing markets and existing categories that will help us achieve decent cash generation and then some of that cash we'll invest back into future growth. So that's why we're feeling good in the business today. Over to Alan.

Thank you, Alex. And as Alex said, record net revenue growth this year of 35%, adjusted EBITDA up 11% despite the impact of Omicron as Alex indicated earlier. So with that growth, all 3 regions grew, in particular, Americas was up 67% year-on-year, EMEA 21% and APAC 25%, so strong across all 3 regions. Both in our corporate revenue, that's the revenue we get from our corporate clients who pay us to account for their high value members. That's up 29% to GBP 41.1 million. And supplier revenues recovered well as travel has started again, that's doubled to GBP 5.7 million compared to last year. As Alex said, adjusted EBITDA up 11% to GBP 4.9 million. As Alex said, it was 2 halves, the first half impacted by Omicron of GBP 0.9 million EBITDA; and then in the second half of the year, a strong return to profitability, GBP 4 million in the second half and that's around about 15% margin in the second half. And that means our loss before tax improved by 31% to GBP 3.8 million; it was GBP 5.5 million last year. And as Alex said, cash is at GBP 6.6 million, which is similar to improved cash last year, while we did take on debt during the year and that support future growth in the business and manage our working capital. In relation to the income statement, our operating expenses did go up year-on-year, partly due to the removal of payroll assistance where we did salary sacrifice last year as a COVID and project also government support came over as well, and that was GBP 2.8 million. And then we did put additional FTE on to support the increased activity as it came back strongly as expected in the second half. Depreciation is down by GBP 0.5 million and is actually driven by reducing right-of-use assets as we reduced our office space year-on-year. Share based payments were down by GBP 1.1 million. Again, that's due to the salary sacrifice option schemes that we had during COVID ended in March '21. We do have exceptional items this year. The majority of that relates to the closure of our Russian office, where we sold [ back end-stage ] cost of closures and that was in March '22. Our net finance expense is slightly better, that's primarily due to FX. It's difference of our intercompany balances. And that, as I said, loss before tax improved by GBP 1.7 million. This is a normal chart really show in terms of net revenue growth and splitting it. As Alex said, we retained all material contracts for third year running. Our base corporate revenue, as said, grown by GBP 6.9 million. But we included a new measure here, we call it the net corporate revenue retention rate. That's basically looking at our recurring revenues year-on-year for the same customer base. And in 2022, that rose by 120%. Prior year, it was 75%, but that was the impact of COVID. This is a measure that we're going to use going forward to track and good -- in terms of the money we get from our base business going forward. And I think that range will be [ between 110% ] plus 20% going forward. New contract wins in the year contributed GBP 2.3 million. That's the 4 contracts we launched during the year. And supplier revenue up more than double year-on-year. On that point, the next slide is to look at the recovery of supplier revenue, and I've shared this before. And the 2 graphs here, the left-hand side shows the year-on-year improvement. So actually, we're above pre-COVID levels. In 2019, we had GBP 5.5 million supply revenue. This year, just going, we did GBP 5.7 million. And then if you look at it on the half year to half year, you'll see how COVID impacted just strongly through '20 and '21. And we've seen strong recoveries through each half of the year. At the end of the second half of the year, our supplier revenue is 12.8% of our net revenue. Moving on to, as I said, all 3 regions grew strongly. EMEA up 21% and that was a recovery of base business plus supplier revenue recovery despite the impact of Omicron, which impacted the business for 3 to 4 months. And as I said, we won 2 medium contracts in the region. Americas being a star of the other regions, up 67%, and that's due to increased member activity. And one of the big increase has been, if you remember, we launched the extra-large contract in February 2020, just as COVID hit. So that contract has never really reinflated to the size it was and there's no sign to do that. Especially in the second half of the year, we see strong growth coming to Americas region. APAC is up 25% year-on-year. That's primarily due to Credit Saison, the new large contract we won, which we launched in the start of the financial year. However, we have seen that APAC is the subtle last region to come out of COVID as we saw various lockdowns throughout the year, and it's just starting to come out even towards the end of the year. From an adjusted EBITDA point of view, EMEA is down slightly year-on-year by GBP 0.6 million. But as Alex explained, that's where we did -- we increased our FTE at the beginning of last year. We kept that FTE because we knew that we'll need it when we came out of Omicron and that's proved right in terms of the growth that came through in H2. In Americas, adjusted EBITDA loss improved by GBP 1.5 million and that's a strong uplift in net revenue, offset by increased FTE and the increase in activity and net really moved the region into profitable in H2, and there's a slide on the next slide to explain that. As said, APAC slightly down year-on-year as we got new contract Credit Saison, but base business was down, but we are seeing some signs of recovery towards the end of the year. That's a new slide we've got just to show the improved profitability in Americas. The slide looks at net revenue over the 4 years against adjusted EBITDA. And as you can see from a net revenue perspective, we are actually higher than pre-COVID levels at GBP 16.5 million; that was GBP 15.8 million in 2019. We've improved profitability year-on-year. So we've gone from about GBP 4 million loss in '19 to '22 [indiscernible] at GBP 0.7 million in 2022. And we just went to profitability in the second half of that year. So that's where we're pointing that for Americas. There's a sub-driver on our profitability and that's improving, and we're looking to see move into profit for this financial year coming up. We show this slide over, it shows that we continue to invest in our technology and that's really across our digital platform, TenMAID, our CRM system, content and our infrastructure and communications. Why do we do that? It creates competitive advantage and drives efficiency, service levels and revenues. And we'll start maintaining that level of investment. It will probably also go up but not as fast as our net revenue growth. We will still maintain that going forward. As to our cash flow, operating cash flow came in at GBP 4.8 million, slightly better than last year and that was due to the reduced loss before tax of GBP 1.7 million. That was driven by our working capital as the business grows, and we've got some reduction in noncash items, principally due to the share-based payments. As I said, we continue to investment in intangibles of GBP 6.4 million. And during the year, we did receive some receipts where employees did exercise some of their stock price options at the start of the year of GBP 1.4 million. We raised loans of GBP 3.4 million as I said before. And then lastly, that means that a decrease in cash was only GBP 0.1 million in the year, GBP 6.6 million against GBP 6.7 million. Back to Alex again.

A brief reminder, again, I think everybody on this call knows about our growth engines. I'm not going to play that video today. But -- skip through that, but it is worth having a look. There's a new updated version of that on our website and really worth having a look at that and certainly very useful for sharing with any colleagues and family you might want to share that way to explain our business on. But a brief reminder, we make our money mostly from blue-chip corporates, particularly financial services paying us on account of their top customers. We also make some money from supplier revenue mostly in travel. We get paid for delivering high-touch service, where human beings are involved and also for digital service, which is self-serve. Mostly are multi -- almost all are on multiyear either 3- or 5-year contracts with guaranteed minimums on the larger contracts or contracts in new markets. This year, one of the things that underneath our business that drives it is the number of active members using our service and the number of active members that we've got that are either very high value or medium high. Very high value are very high value to the company that's paying us for the card offered. So that would be a private bank and their high net worth customers. It will be the top end of a retail bank where some of their customers have got assets under management with them as well. It also includes a couple of the very, very, very top credit cards, for instance, credit cards where people are paying thousands and thousands of pounds a year for the benefits of that product. High value are customers who are worth a little bit less. Maybe they are wealthy people, but they've got a bank account, but no assets under management with -- associated with that product, for instance. And then the medium-value customers tend to be people that we get members that we get through Visa, Mastercard, through payment hubs. You can see that in every different type of member, we see a growth in active members. And we've seen them in each geography and we've seen them in each segment as well. And now because those people then use us, once you are active, you tend to use this and use a small. That grows our revenues very directly. Operational update. Contracts we've got, 4 new contracts retained contracts. We talked about active members going up. Member satisfaction levels have continued to be high. And one final thing to mention here is that we have applied for a B Corp certification. I'll talk about that a little bit more later on, and rolled out our digital platform as well. We're now live on 80% of our material contracts. We've got our digital platform. That's up from 64% previously. Around the world, the new growth is spread geographically. And we also have not only growth but good contract expansions, renewals. When we are renewing contracts, we're typically pricing up as well now, as you'd expect. And we're also launching more engagement really by having more digitalization, more of our platform as part of our service, more onboarding, more reengagement when people haven't used the service for a while and so on. So generally, very happy with our corporate client growth this year. And when we look at the client list, it's pretty awesome. We've got some really rock-solid corporate clients who -- some of whom, by the way, don't necessarily use their logos. So it will be even better if we had to not only use logos that we've got permission to use. But it's a pretty fantastic client list that we're really proud of it and we're proud about how familiar that looks to people that have been looking at our client list for the last few years. We tend to add to it with very few come away and none have come way in the last 3 years. As I said earlier on, we're not looking to add new categories. We're not looking to get good and serve our clients, our members in new areas. But these are the areas, particularly dining, entertainment, travel, retail and events. The Book Club really, I would categorize as a type of event. And editorial really spans across dining, entertainment, travel and retail. Within each of these areas, we're just getting better all the time. As our buying power improves, we demand more from our suppliers. As we -- our technology improved, we've got more things integrated in. Our tech stack is our knowledge about our members and as their preferences improves, we can target the right thing to the right number at the right time. And of course, as we get more member in the market, we also just have a lot more things coming to us. So hotels, who years ago didn't want to do business with us, will be desperate to come and visit our offices and give us good deals, same for airlines, same for entertainment and so on. Actually, we had a nice breakthrough the other day. It's a little bit cheesy, but because we not really want to work with venues and with ticket companies to get tickets, we also want to work with producers. I was delighted that we got Michael Bublé's availability all over the world on his latest tour without having to deal with either ticket company or their inviting. We did that just straight directly with his global producers of that. So these kind of things are the kind of things that show they charge each individual part of the business, both in terms of efficiency and service quality as we grow the business. And the platform is doing better all the time, more languages, more currencies, more functionality and more ability to customize it to the corporate, which is really important to them as well, whilst maintaining it as a single platform. What we don't want to do is build different technology stacks for different clients, and we haven't needed to do that. That really accounts against scalability and in the end, accounts against having a really high-quality tech stack with the right features and benefits from members. It would also make us far less efficient. So the fact that we're delivering to all of those brands that you saw on that slide earlier on with the same tech stack, but that, that tech stack allows things to look, feel and be different but without any complexity for us in terms of coding and content and features and so on. And we got better engaging our members with better content and all of you who've got access to the Ten platform, please do go on and have a look at the new inspiration section there because it really is just a huge improvement on last year. We've got much better use of video. Our content is much easier to search, much easier to find what we're looking for and that's already driving a lot of repeat use because it reflects better than it ever did before. And what we did is we made inspiration unmatched by improvements in travel through improvements in some of the other areas as well, offers and experiences for sure. And our content also got better looking and is used more broadly by different corporate clients as well around the world. We've had content that we've actually sold as additional things to our corporate clients in 7 or 8 languages in the past year and more than we've ever done before. And when they use our content, that not only makes us more money because they pay for it, but also drives more usage of our service, which also drives our stickiness and revenues as well. Other page. Payments is important. So making sure that people can store their cards and they can with one-click buy, is a small but very important improvement. And we also increasingly -- our corporate clients want to have only their accounts they're able to use on our platform. Sometimes any of their cards to use -- if they want to use another card, they might be in charge for that where it might be possible. And preferences are something that we're good at now, and we're going to carry on getting better in months. So enhancing member preferences. So people can tell us what they like and then we could tell them more about those things at the right time when they're in the right place and so on. And channel choice. For years, our service was e-mail and phone, and then we have e-mail and phone on the platform. And now we've got e-mail, phone and chat both through WhatsApp and also through our own chat functionality on the platform as well. And WhatsApp and our own chat functionality is just going up and up and up in terms of use, and that's really helping us to engage with our members as well. And some of those conversations can be automated or semi-automated. In terms of improving how we operate today rather than changing what it is we do is a bit of a theme for the last year and the next 18 months. A big part of that is that we've got automated journeys. So if somebody has stopped using our service, where the corporate client agrees to this, which is a majority of them, we would then say, "Look, you've used us for 3 months. Here are some ways you might think to use us from here on." Based on their proposal, that is really growing the number of members. They stay engaged with the service, and we'll continue to grow active members. But also, when we get a new member base and we go out to them when we tell them about our service, where previously a long time ago, we would just send them one e-mail and see who responded, now we're doing a lot more in terms of video. Often our communications are targeted to people based on their age, their location and so on. And we do more than one. We do a series that are really, really well received and that are growing the number of people that actually activate our service, right, at very early stage by an additional 50%. And these small changes, 50% improvement there, 10% improvement somewhere else, 5% somewhere else, 20% somewhere else add up to a much, much better member experience and far more engaged members. B Corp is something which is also something that we've applied for B Corp, we are moderately confident of getting -- I would say, we are confident of getting, but we haven't got it yet. But this year, why did we apply for B Corp? B Corp is a certification that you are a business that's serious about doing the right thing by the world and how it operates. Now for us, this is a good thing in itself, but it also helps us attract and retain talent. There's a lot of people who find this a very attractive staying with an employer and it gives us a competitive advantage and it enables conversations with the corporates to pay [ otherwise ]. So for instance, Mastercard are extremely keen to grow their environmental credentials. They're also very keen on DEI, diversity and inclusion and equity. Coutts are themselves a B Corp, [indiscernible] Swiss Private Bank, who we don't network with, but they are a B Corp. Coutts, we certainly do work with. This allows us to have conversations at very senior levels of how we can help them with their agenda around ESG or indeed being B Corp. But the B Corp certification gives us kind of a table stakes around those conversations and see it grows our revenue, plus this attract and retain talent and makes us even proud of the business that we're running. So in terms of outlook. Now as you know, we want to be growing the size of our current contracts and then we want to win new contracts with current clients. We want to win new contracts with new clients and we're also open up for new clients in new sectors. But this is the most boring slide in the deck and the most exciting one at the same time. So apologies, this is really a cut and paste, which is what our corporate government size sets to do from our freedoms that were published today. But let me talk you through it. So we do expect to grow revenues because of growing demand as we continue to increase active members and first-time users from a growing eligible member base. Now our corporate clients, particularly the banks who are benefiting from higher interest rates, are enthused about paying us to deliver more service to more of their wealthier customers. And to put that in some context, amongst are very high member -- very high-value members. We have around a 10% -- actually 11% penetration of the eligible very high members today. We've got about 11% penetration. On some programs, we're up at 30%, 40%, 60% penetration. We've got a long way to go. And we have very few of our corporate clients that have very high-value customers [indiscernible] to hold engagement. They want to show engagement. They're happy to pay more, and we can do that through the tools that we've got. Similarly, amongst our high-value clients, we only got 3% of the eligible members using our service today. We think it's very credible that we should get that to 10%, 12%. So we could -- we should do very well only by growing in existing clients, albeit we do expect to win new corporate clients as well. And we have done that last year, 4 new material contracts, and we want to see ourselves continuing that of magnitude of growth. Supplier revenue is important as well because although this is our smaller revenue stream, only 12%, it doesn't cost us much more, if anything, to actually grow that line because booking travel successfully with more people we get paid for in terms of corporate revenue and then we make the revenue on the supplier side as well on many contracts. And so we're very pleased that we've got record levels of that so far this year, and we're expecting to have a good year on supplier revenue for sure, a record year. Beyond that, we want to continue to grow profitability. Now how we grow profitability? Firstly, whilst we expect to maintain our investment in our kind of central costs, if you like, people like which are our technology, communications and content, we do not expect to grow that investment at the same level as we grow our net revenues. So that will drop to the bottom line and improve our profitability. On top of that, we will continue to grow efficiencies as the growth engine kicks in more and more, and we have more things that are digitized or semi-automated and more experienced staff in the markets, particularly in the Americas, where we've had very high growth in the past 6 months in particular. So that will grow our margins, and we are very focused on improving our profitability, probably even more focused on that than growing our net revenue, albeit we're very happy that we will be growing our net revenue at very healthy levels. We did take some loans into the business and that's really just to give us a very prudent level of working capital and a buffer there. And we then expect to achieve cash generation in the second half of the current financial year. So overall, the Q4 trading to date has been strong. We've got very good metrics in the business. That means that we are very optimistic about another year of good progress and meeting the expectations that are out there in the market. So half an hour, that is everything for me.