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

I'm Alex Cheatle. I'm the Chief Executive, Co-Founder. And Alan Donald is going to be talking soon as CFO. I'll be running through the highlights of the last year, and then Alan will talk through the financial results and a reminder of our business model. I'll then dive back into an operational update and looking forward where are we from here, and we'll have time for Q&A at the end. So overall, we've had a year where we've sustained the improvements over the last couple of years. So in the previous 2 reported years, we grew at 30% a year, and we had a step-change last year in profitability. And the good news is that, that step-change in profitability is sustained and the revenue growth is also sustained. So whilst we didn't grow revenues and we didn't grow profit by much, albeit we did grow by a bit, what we did do was sustain a very big setup improvement from the previous years. And we're now in a great position to continue to grow because of our investment in tech and improving our proposition, and we'll talk more of that in a little. I'd also say that since the year-end, we've won an extra-large contract in the U.S.A., and we've won a medium contract in one of our most mature markets in Asia. And both of those will make a difference to H2 of this current year, and both of them are good signs of us growing in markets, the U.S.A., the market with the most high net worth in the world. And the market that we've grown into in Asia is a super important market for us, which is also very good, and we've won that from a competitor. Great growth in the last couple of years. And then we've sustained at around GBP 63 million in net revenues. Active members have also stayed around the same in the last year after we got on growth in the last 2 years. Adjusted EBITDA is up. Profit before tax is actually marginally down, and that's because of movement in noncash items, amortization and depreciation as well as increased interest and some FX losses. As a business, we're all about becoming the world's most trusted service platform for our members. So we're the best place in the world to organize travel, dining, tickets, retail, but then also the most trusted to drive customer loyalty for the world's leading brands, particularly in financial services. And this brand logo list is a number of our top financial service clients around the world, have actually got more corporate clients than this, but this is a very a good slide for us to show because what it demonstrates is that these people that use us to drive the commercial impact and the profitability that they get from their most valued clients are people that can afford to invest more and more with us. And the reason they do that is because we drive ROI for them. The more they spend with us, the more money they make because they have an improvement in client retention, client acquisition and share of client, whether that's improved spend on card, whether it's improved assets under management or improved upsell, just cash or lending that they benefit from their clients. What we can prove to them is with their own data, very often, that positive impact that gives them an improved return on investment. And we do that by delivering the world's best services in travel, dining, entertainment, luxury and retail. So in travel, we give people the best pricing when they want that, but also we've got an amazing team of lifestyle managers and travel experts that can organize the best holidays for people, who are going through all the kind of detailed things that make a difference on a complex [ itinerary ], a honeymoon or a sabbatical trip down to just the fly-and-flop holiday. And we've got great benefits, room upgrades, early check-in, late checkouts, complementary breakfasts at thousands and thousands of our top hotels as well as best pricing in almost all of the world's hotels. In dining, we are the world's best recommendation and booking service and more about how we're improving on that later on. Entertainment, again, we're going to talk about later on in this presentation, but we're becoming the best place to organize your music, theater, sport and other events as well. Again, we've developed in luxury retail, lots more events around the world, which our luxury retailers put on for us to get our members into their stores, drinking champagne, eating canapés. And then what the retailer then wants is those people to then buy luxury items. Other things around those 4 main pillars on the left-hand side, experiences and content inspiration are also important parts of our service. And the reason why people invest in Ten is that we were a huge market opportunity. We're the #1 market leader in concierge, and we've got a proven growth engine. So the market opportunity, good to think of it in two ways. Firstly, we are still 0.2% of the customer loyalty market in financial services alone. So we could grow that very significantly and still have lots of room for growth. Even more importantly than that, as we become the best way to organize travel, dining, tickets, retail; that market opportunity becomes absolutely vast to be organizing the world of -- in those 4 areas for the world. So high net worth and mass affluent is an extremely powerful place to be, and that's a huge market above and beyond customer loyalty and financial services. But within corporate concierge, delivering concierge through other brands and actually delivering it in total, we're the #1 market leader outside of American Express. So we're the #1 in terms of investment into tech and assets, where assets might be relationships with hotels or restaurants or inventory of tickets. And we've got these long-term contracts with the brands that you saw earlier across multiple years that allows us to have the mass affluent and high net worth side of a two-sided marketplace, the suppliers being on the other side of that marketplace. And then that growth engine means that as we mature our business, the business gets better because it gets more efficient and higher quality. Both through the efficiency improvements and the quality improvements allow us to continue to drive growth and create a deep competitive moat and a more and more valuable business. And that growth engine is worth looking out, for those of you that haven't seen it on our website. And really, this slide is summary of that, but it's a 4-minute video that's worth looking at on the website. So where from here? It's about growing our large member base. So we've got that member base and that mature platform, now it's a question of just scaling it. And we only need to scale it in the markets, the verticals of travel, dining, retail and entertainment. We don't need new verticals within our proposition. We're in financial services. Actually, just growing in financial services will be enough, albeit we are exploring. We've got some very interesting stuff going on in markets outside services as well. And then we're already profitable and generating cash, and that allows us to reinvest into the growth engine and grow our balance sheet as well. Alan, over to you.

Thank you, Alex. I'll first go through our income statement. As Alex said, we've broadly maintained our net revenue at GBP 62.9. We actually reduced our operating expenses in the year, and that's driven our improved adjusted EBITDA at GBP 12.8 million, which on a margin basis, is a 1.2% increase to 20.3% in the year. Also lastly, we continue to invest in our digital capabilities, our amortization increased to GBP 5.8 million. And to drive efficiencies out into the business, we did take some exceptional costs of GBP 0.7 million in the year, that's going to drive efficiencies going forward. Our finance expense was increased by GBP 0.7 million during the year, and that was due to higher loan and lease interest as well as FX losses on our intercompany balances. And whilst we did make a second consecutive year of PBT of GBP 0.5 million, the impact of that higher loan and lease interest did impact year-on-year, so slightly down. We also recognize a tax credit in the year that that's recognizing some of our deferred tax asset off the back of historical losses as we go forward. And then this is the net revenue bridge that we show normally. I said net revenue maintained at GBP 62.9 million, although there was a bit of a currency tailwind. So we're actually up $1.5 million at constant currency. Our base corporate revenue did grow to GBP 0.9 million. And our net increase of GBP 0.3 million on new contracts more than offset the large contract we lost in H2 '24. Our supplier revenue was slightly up at GBP 0.2 million. And the next slide shows the historical breakdown of supplier revenue. The graph just shows our half-year performance pre-COVID, coming through COVID and the recovery since then. So our supplier revenue is mostly travel related. It's about just over 12% of our net revenue. So pretty consistent through the year as we invest in the product offering around that as well as maintaining and developing our supplier relationships across the globe. And then from -- on net revenue and adjusted EBITDA by region, as I said, overall, we were flat and then there were small movements on the net revenue, Europe, up 2%; Americas down 3% and AMEA up 2%. So flat overall. And then if you look at the adjusted EBITDA, Europe, which is our most mature region, adjusted EBITDA was up GBP 1.2 million to GBP 10.4 million and the margin at 39% is the highest in our most mature region. Americas, adjusted EBITDA did dip in the year, and that reflects continued investment in preparation for new contract launches. And as Alex mentioned, we did this extra-large-contract's in U.S., was won post-balance sheet. Then AMEA, strong corporate performance, up GBP 0.9 million to GBP 1.8 million, and that was on the back of new contract launches and continued operational efficiencies. Continued technology investment, this graph on the right-hand side just shows what we're spending on our technology platforms, comms and infrastructure. So it's looking at a total cash cost, both P&L and capitalized. So in the year, we spent GBP 12.8 million, of which GBP 6.7 million we capitalized as we developed those assets. And why do we do that? It grows competitive advantage, it grows efficiency, services levels and revenue across the business. And as you can see, the purple line shows the actual percentage, tech investment as a percentage of net revenue. And that has declined each year since 2021. And we see that continuing. And the percentage of tech spend as a percentage of revenue will continue to fall as we grow the business. Cash flow. We did increase our cash and cash equivalents up GBP 1.1 million to GBP 9.3 million against GBP 8.2 million last year, and our net cash increased a little bit up GBP 0.2 million to GBP 3.9 million in the year. A little bit of hit on operating cash flow through working capital movements and the reduction in PBT. As I said, we continue to investment in tangibles, that's a GBP 6.7 million we develop. And then at the start of the year, we did take out some more loan notes of GBP 1.1 million just to help the balance sheet. Moving on, this is a reminder of our business model. This next slide we show is -- the pie chart just shows the split of our revenue. So the corporate revenue is what our clients pay us to look after their high-value members. So 88% of our revenue comes from that. I mean supplier revenue, mostly travel related, is 12% of revenue, as I've said. On the right-hand side, our typical contract, we are long-term contracts, normally 3 years and often with agreed minimums in there. And we get paid by activity via high-touch request through talking to one of our lifestyle managers either through e-mail or through phone or WhatsApp. And then it's through our platform, digital [ request ], which is self-serving through our platform, and that's what drives our total corporate client revenue. This slide as well, we're looking at is that this is looking at the eligible members we have that can use our service and the active members who's actually used it. And as a reminder, we do actually segment our clients, looking through to the lens of the bank, how they value their member. And we look at it from a medium point of view, high and very high, medium maybe being a credit card that somebody might have, high being on a premium bank account and then very high where some members may have assets under management. So we do look at that how we segment it. On the left-hand side of the graph, we're just looking at the eligible members who can use our service in the high and very high value because medium, there's many millions, so it wouldn't fit in the graph. But as you can see, we broadly maintained that at 2.1 million. And then to have the active members who's actually used our service at least once in the last 12 months, as usual, we broadly maintain that overall across all 3 segments, coming ahead of just under 350,000. And lastly, we do look at our average revenue per active member, average concierge revenue. We don't show the scale of that because it gives our competitors a view of what -- how we're making our money. But just to show you, as you can see in the very high that the banks can afford to pay us up to over 3x what somebody -- a bank or a credit card company in the medium, and it shows the value of that and how much more they can spend because that customer is very valuable to them so they can spend more money with them. But that's to give you the quantum between each of the value segments. And then, how do we actually interact? So the corporation is different by value segment. And what we do is we look at it medium, high and very high end. That's a sort of gradient. So that in the medium, it is digital first, it's going through the digital platform, it's using eCRM productivity, AI and chat. It's having an online content inventory and marketing, driving into the platform to use it. And then in the high segment, more of an enhanced hybrid. So it's an omnichannel contact. You can talk to our lifestyle manager or through the digital platform. There's some targeted offers and live events, and we have that high-touch offline service if you need to use this off the back of the platform and some personalized marketing. And then you go to the very high segment, it was a lot more personalized where we have a dedicated team, high personalization productivity, some guaranteed ringfenced inventory. You have to use our private travel service, which we're growing. And there's unlimited marketing, we can do that, and we can customize that productivity. So that's how we actually interact and we differentiate the corporation by value segment.

Thank you, Alan. So we won 5 medium contracts, including with a private bank in AMEA, Emirates NBD in the Middle East and the Global Travel Collection, continue to invest into our tech. And we've also won some awards. So this is just something to celebrate. We won the Concierge Agency of the Year, the top awards ceremony. Spear's gave us a recommendation, and we also won the TTG Luxury Travel Awards, not only for being a great lifestyle concierge service, but actually being a travel service, just the travel part of our business there as well. In banking, it's important to say that it continues to be the case that banks, credit cards and wealth managers are looking to round out their offerings. So where previously, many of them offered banking, lending, investments and protection insurance, now offering lifestyle, they accept -- helps them with acquisition retention, share of customer and customer profitability. And that continues to be a big driver of our growth. But that driver is amplified because of improvements to our service. And one area that we've improved in the last year is in tickets for music theater and sport. We've integrated Ticketmaster, one of the first people in the world to integrate Ticketmaster API. And we've also integrated Ingresso, which has gives us access to lots of theater, and our own box office for where we've got our own tickets of inventory that we can build the box office in within our own tech to, for instance, market and allow members to book tickets for our box at the [ O2 ] or a ticket and allocation of ticket to any venue anywhere in the world, we can lay out on our platform. Now the reason this is important is that this allows us to own more stock as we normally do it on sale or return. We don't actually take inventory risk, but to have more stock that we make available to our members that our banks can then market. And we can do that very often in response to the demand from individual members, who tell us that they're interested in Coldplay, or they tell us they're interested in Drake or they're interested in the ballet. And we can then let them know what we've got. They can just book it online, which is the preferred medium for most of our members. And our corporates, what they get from that is more adoption of the service. People are delighted because they could get Ed Sheeran tickets that they couldn't get as just a normal member of the public, but they could get it because they bank with a particular bank or they've got a wealth management relationship or a particular credit card. That really drives up acquisition, retention, share of customer. And it's because it's often personalized to the member that really gives them even more of a kick and a buzz and net positive impact on the commercials as well. Plus, when they come to buy tickets through us digitally, they then find out about other aspects of our service. And that drives the rest of our business, too. But tickets isn't the only part of the business that we've improved. And probably the best way to explain how we've improved dining in the last year is just to play a short video of some of the world's top chefs explaining how we work. [Presentation]

So we've also, in the year, improved our proposition from an ESG point of view. So we continue to be retained as a B Corp accredited business, which means essentially that we pay attention doing the right thing for the planet and the people that live on it, as well as doing the right thing for shareholders. Now this is not a "are we doing the right thing for shareholders all the right thing for the planet" kind of choice. This allows us to recruit and retain excellent-quality staff and also directly ties in with us making more money, both in terms of revenue and profit because many of our corporate partners want to drive ESG-driven propositions through to their client groups. So it increases how much we can market and how much we can engage new members. In terms of our proposition, what we've already built on our digital platform is super impressive, and it's getting more impressive. So some of the things we've improved in the last year is we've launched a copilot, AI-driven copilot. We've launched something called [ Ten Lingo ], which is how we translate using AI between all the different languages that we operate in. That's a hugely increased amount of language coverage that we've got in terms of content around the world of Ten. And we have drive -- driven automation, not only into how we deliver service to our members but also how we actually deliver our own internal departments and how they work as well. We're doing more through chat, chatbots and WhatsApp. And in WhatsApp and chat, that's easier, in fact, very straightforward to influence AI integrations that allow us to triage requests before they get to a lifestyle manager. More about that later on. And personalization is also something that we've driven a lot across the last year, gathering a lot more information about individual members, so we can serve them better and continue to drive engagement and customer success, driving the profitability of our corporate partners. But where from here? So in the next 12 months, we're currently expecting to deliver this kind of road map. Some of these items will drift into '26, but most of them should be achieved this year. So some of them is around content outside log-in, for instance. We've noticed that many of our members, when they're first activated, come to our pages before they log in and then drop off. They don't log in because they don't understand the full range of what we can do. So we're improving content outside log-in, fairly straightforward. Once they're into our service, top left-hand side, we're hugely increasing the number of restaurants that they can book. So in the U.K., for instance, 98% of restaurants that our members want to book will be available digitally online on our platform, many of them with better availability than they have on their own website or on other partners' websites and many of them with benefits that aren't available to members of the public. We're improving Ten MAID that our lifestyle managers use. So as we improve that, for every 10% difference that makes the efficiency of our lifestyle managers, that drives GBP 2 million, GBP 2.5 million to the bottom line in terms of cash and profit. And then we're also developing AI chatbots that allow our members to relate to us and engage with us in a super efficient way that drives down the cost of servicing, then drive up the speed of response. And AI is something that we're going to be reporting back to you in the coming months about our progress here because we have got some extraordinary advantages. So if you think about, there's lots of AI bots out there that are doing wonderful things. But essentially, what they're doing is they just servicing what's already available to the public on the Internet. Our proposition is that we get much better results than an individual can get using the Internet itself and everything that's on it. So we've already got better coverage and better than the Internet results in dining hotels, tickets and car hire. We will work on airlines in the next 12 months as well. In some markets, we've got full coverage in dining. Other markets, it's more partial but we've got globally full coverage on hotels, pretty good coverage on tickets for the major events, and that's growing all the time. Airlines we've got great coverage, but our proposition in terms of price isn't yet better than the Internet. It kind of matches the Internet. Car hire pretty strong as well. But particularly with dining and hotels, we should be automating lots of that where members want to relate to us like that in the coming months. Now, one of our other advantages is when AI fails, we can seamlessly drop through to a very, very strong group of lifestyle managers available 24/7 365 that can pick up where the AI fails and can pick -- it might fail because we don't have coverage of that particular asset that the member wants. It might fail because the members are asking for something particularly complicated that AI can't yet solve or because the member just simply wants to talk to a human being. In each of those cases, we'll make our wonderful lifestyle managers available to take over. Again, a pure digital play doesn't have that, and that means today, the experience of members using a pure digital play is one of disappointment in many, many cases. We've also got a revenue model in place with that extraordinary range of brands you saw earlier on that allow us to make more money and revenues as we drive usage, and digital usage led by AI is a major part of that. We're also [ driving ] tailwinds because more suppliers are making better, high-quality APIs available. Large language models are improving all the time and using chat, WhatsApp and other channels is also improving what we can do. Some changes we've had in the business. Jules has stepped up to become our Chairman at the beginning of this last reported financial year. Ed and Carolyn have joined us to support our growth as well. And so they've been in the business for over a year now. And then Jon Mullen has joined us more recently as a new CTO, very focused on AI, a very good track record of developing complex platforms and putting AI very usefully into businesses. So in his previous business, he created AI-driven commentary for sports events, he was able to pull out the highlights of sports events and broadcast them in almost simultaneous time periods and also work on outcome predictions for betting using AI and automation. So where from here? Essentially, as you know, we grow our revenues by growing with current clients, winning new clients and then growing to new markets, which allows us to address even more corporate clients. That's where most of our revenue comes from, on top of supplier revenue and our private membership. Supplier revenue about 12%, as Alan talked earlier on; private membership, less than 2% of our net revenues today. So it's mostly corporate clients where we're growing. And then as we grow and as we put more automation and tech into our business, that then grows the profitability that allow us to reinvest back into growth. So in terms of current trading, we're seeing that come through with wins. So we won an extra-large contract in the U.S. with an existing global client, and that's worth an additional GBP 5 million plus in corporate revenue. We also won a medium contract in Asia with a new client, and that's from a competitor and a very good time for us to be winning in that mature market from competition, growing our scale in the market in which we're already mature. We -- the fourth bullet point there, we raised almost GBP 6 million in new equity into the business through a secondary placing, and that has supported the growth of the 2 contracts I've just mentioned as well as strengthening our balance sheet and paying off some expensive debt we have in the business. So where from here is we are expecting 2025 to be a year of net revenue growth and profitability growth behind that corporate revenue growth and growth in efficiencies inside our business and, of course, always looking to improve the member experience, both through tech and through our lifestyle managers and through extracting more value for our members from our supplier base.