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

I'm Alex Cheatle. I'm the Chief Executive Co-Founder; and Alan Donald's is going to be talking soon as CFO. Our mission remains that we want to become the world's most trusted service platform working behind global brands. And I think we're more excited than ever because the tech is now available to really make that vision happen quicker and better than ever before, more of that later. But our growth engine that sits at the heart of the business model is working well for us. So as our business gets bigger, it gets better, and it becomes more efficient. And we'll see how we're doing on that in a moment. It's a huge market opportunity. Not only are we a fracture of the market for customer loyalty in financial services, but we're an even smaller fraction of the market for organizing travel, lifestyle, luxury retail, tickets, dining as our key categories. However, within our niche market, we are the #1 leader, both in terms of scale, technology, success, reputation and so on. On top of that, the growth engine means that we can build on that success to be ever stronger. Now recently, the net revenue is up. So we have seen growth in net revenue, both on constant currency and in absolute terms. Profitability is also up. Cash and cash equivalents are up. We've won an extra large contract in the U.S., an important market for us and a medium contract in EMEA and Japan, the single largest opportunity market for us in Asia. We've continued to invest at the similar levels that we have done over the last few years into tech specifically around AI, and we've grown the number of active members. Now importantly, since the end of the half. So since the end of February, we've also made 6 advances, either with existing clients or with new clients, winning and underpinning profitable growth into next year. And we'll talk a little bit more about that in outlook. And here, you can see the growth, all of these are full years apart from the final bar on net revenue and adjusted EBITDA, PBT. So we're halfway through the year and H1 is always a little bit smaller for us, both in terms of net revenue and particularly EBITDA and PBT, but we're doing well and showing growth on last year, as we just talked. I'll hand over to Alan to talk the business model.

Thank you, Alex. Just as a reminder, our revenue model is that we get most of our revenue from our corporate clients, look after their high-value members, we get supplier revenue, which is mostly travel commissioned. And typical contract is through a high-touch request to manager or a digital request, which I would go into more detail later, and that wrapped up into our total corporate revenue and lease contracts are long term in nature with some agreed minimums. These are list for corporate clients. These are mostly financial services, no real change here. But as I've said, we renewed quite a few in post half year as well, so we'll go through that. And why did we do that? When the clients come to us. It does -- we can demonstrate an ROI to them by improving customer acquisition, retention and profitability, be it through higher spend, AUM and the upsell versus nonusers of our service. And it also drives Net Promoter Score and gets loyalty to the customers. And what do we do? We do travel dining and same luxury retail expansions inspiration. I won't go through each of these bullet points. Alex will cover the tech advances we've had as we just talked about around how we're linking in and getting Agentic AI to support us going forward. And this is how we look at our membership base. We do, as you know, segmented into very high, high and medium segments, fair high being sort of asset under management, high premium bank and credit cards and the medium being through the networks, be it Mastercard, Visa, Amex. And this looks at our eligible member base, just for the high and very high on the left-hand side, and that's the year-end number. We have 2.1 million eligible members in those segments. We've got millions more in the medium segments, active members. That's grown from year-end as we've got the new contracts coming on board, got a net increase of 5,000 between end of the year and half year. And active members are when we view ourselves at least once in the last 12 months. And then you look at the concierge revenue per active member, just to remind you that on the very high segments, they can afford to spend more per active member in the high or medium because of the value those members of those clients of the banks. And we make up to 3x the average concierge revenue per active member on very high compared to medium. And then this is how we sort of differentiate proposition by value segments between medium, high and very high where medium will be more digital first, and that's what we'll go through in more detail later on, where high maybe more enhanced hybrid and very high really personalized dedicated team and productivity in terms of how we market to those members. Moving on to financial results. AI is going to give you a high level. So as you said, net revenue has been up on both actual and constant currency. We managed to maintain operating expenses flat year-on-year. And that's meant our adjusted EBITDA is up nearly 12%, up to GBP 6 million against GBP 5.2 million last year and an improving EBITDA margin as well, just under 19%, again, 17% last year. We continue to invest in digital investments so is broadly flat. Share base payments are a little bit down because we got a one-off charge last year probably the extension of the salary sacrifice options that we have for our staff. Now time this expense was flat. So that means our PBT is actually up GBP 0.8 million to GBP 1.1 million in the half year, I guess, GBP 0.3 million last year. And then just looking at the net revenue bridge. Base corporate revenue was up GBP 1.2 million. So we did have good growth in some of our base business. Our fewer clients are actually holding back on marketing until we get the full digital rollout. So that will come through, especially in '25, '26. I mean our new contract wins have basically offset the large contract loss and that's been offset and our supplier revenue is just slightly up at 0.1%. And there's a little headwind on FX to get to our actual number. Supply revenue has remained consistent with some of the new business coming in and some advancements in terms of our improved product offering and supply [indiscernible] across all the regions, which has helped us maintain our supplier revenue. And then if you look at it by region, the net revenue between Europe, Americas and EMEA. So within Europe, up -- down 5% in Q4 '24, and that's impacted the margin on our EBITDA down 33% stock, but that's almost a mature region in the group. Americas net retain 1%, but up 1% in constant currency. And that's where some of our clients are awaiting our enhanced digital rollout. So growth has been -- just been sort of flat there in that market. But our adjusted EBITDA is in line with prior year with some of the FX rates, favorable FX rates offset some of the setup costs that we had for our new XL contract that we won in Americas that launched in December last year. Really good performance in EMEA, net revenue up 30%. That's where we've had strong base business growth in demand. And then adjusted EBITDA is up GBP 1.2 million to GBP 1.8 million of strong EBITDA growth as we get to continue operation efficiencies in that region as we grow that business. And then this is a slightly normal show that looks at the sustained technology investment. The GBP 6.6 million we spent in the half year, that's our total investment cash cost account P&L and capitalization. So of that GBP 6.6 million, GBP 3.2 million was capitalized in the half year. And why do we do that, it drives competitive advantage, efficiency, service levels and revenues and really drive that operating jaws of increased revenue and reduced operational costs going forward. Lastly, our cash flow, operating cash was GBP 2.3 million in the period, and that's been impacted by ourself increased net working capital, which is our normal working capital, there's more output in H1 that comes back in H2, and we will be positive in H2, Within that as I said, we've been invested in our technology GBP 3.2 million. The share was received in GBP 5.7 million. We used some of that to repay all the related party loans that have now been repaid of GBP 1.5 million, and that left us with a net cash positive of GBP 6.8 million, against GBP 1.9 million last year and GBP 3.9 million at the year-end. That was a quick one, so I'll hand back to Alex.

Thank you very much. So we're not going to play the video here of our Agentic AI, but that's an 8-minute video that we're using with corporate clients now. And I'm going to skip this slide, but this is just really to talk about why we have got the opportunity to really make AI happen in our business. Instead, I'll talk about, we have launched entertainment. So the box office is live and is growing our ticketing business well. Dining, we've deployed 7 rooms, which in the U.K., for instance, is about 40% of the top restaurants, and we're now building the API integration with OpenTable that will give us 99% of restaurants in the U.K. that our members want to book. We have improved service functionality. So we're rolling out WhatsApp, but we also launched LINE, which is the kind of Japanese equivalent of Whatsapp or WeChat in Japan. Which is going well. And we have launched our Agentic AI as beta, and we will be launching that later in the year, but we've been showing that to corporate clients. And when we've shown our tech improvements as well as the Agentic AI to our corporate clients, the feedback is really validating that this is what's going to be growing our business. So my favorite one there is top left, what you built is what we want to buy. Effectively, people want us to be touching more members at a lower cost per member per interaction. Because they get a better return and better ROI in their future proof in their business. And the feedback we're getting back from our clients is that we're miles ahead of the competition, and this is something that they want to grow our business behind because it grows their customer metrics. So ticketing is a good example of that because we've integrated the box office, Ticketmaster and Gresso , so we can market tickets and at much higher volumes and the cost to the corporate client of us fulfilling those digitally is a fraction of when it was high touch. And so that means they want us to the RCR members which bans and shows are you interested in? So we tell them about them when they come up with priority booking and then that becomes a virtuous cycle in ticketing, where we built more tickets made more of their customers happy at a lower cost, so we can do it at a much, much bigger scale. But AI isn't only about improved servicing and improving our service and efficiencies by category, here's an example about where we've used AI to drive content and communication efficiencies. So we've used AI to create content, to translate content, to source content sometimes and also to make sure that people can discover our content more easily. Now all of that has saved us a huge amount of money whilst driving up the amount of content and hence, the amount of engagement that's available to our corporate partners -- sorry, to our members and our corporate partners. And across the business, not only in transition and design but also in technical quality assurance and application support, we have been using AI to reduce the roles in the cost in those areas. And then we've been reinvesting what we've saved money in one area, we're investing it into AI developers, transformation managers who are making the changes happen, and who are making the changes continue to happen and the investment in growth with a sales director in North America, driving our business in that key market. So where from here, well, you know we're about winning more contracts, growing in new markets as well, not least behind the AI that's creating more products for us and growing the number of members that use us on each program, which is why having the support of our corporate clients who want to invest more with us is so important. I also thought we'd mention given that kind of geopolitics of today that TEN remains very, very diversified. And actually, we are more diversified than ever because we're a service business, we don't have tariff exposure. If people did become more concerned about things being delivered from countries abroad. Well, that's no terrible thing for us because mostly, we deliver our services in market in countries like the U.S. or Japan, we're in market, in Brazil, we're in market, Switzerland, the U.K., we're mostly delivering our services in market. And we'll be diversifying even more into other categories behind our digital model. Final thing to say. After the financial crash, Lehman Brothers, we grew at 30% and then continued very material double-digit growth in all of the few years after the financial crash because banks and wealth managers wanted to invest more to retain their cash rich clients then. And that we would expect to continue to do well in all the stories that we've looked at. So we're from here. So since the end of the period, we've had good news on 6 different contracts. Some of them new contracts, some of them renegotiated contracts at better rates, but all of them are underpinning growth into next financial year. Many of these things won't make a big difference to this year. But they will for next year. The response to Capital Markets Day was good. People are beginning to understand the difference that AI and technology can make in our business. Now it's up to us to prove that in the real numbers. Of course, to first start approving that is to get our corporate clients to want to roll it out with increased revenue, and that's gone very well so far. For us now, we expect to continue to generate net cash in the period we're in now, H2 '25 that will end at the end of August. And then beyond that, our expectations and including this year are unchanged for now. Clearly, we would hope that we would start having upgrades at some point as we announce new wins and time will tell. But we're feeling good in the business, and thank you, everybody, for your support and for listening to this today. Thank you.