The Pebble Group plc (PEBB) Earnings Call Transcript & Summary

Welcome to The Pebble Group Full Year 2021 Results Webinar. [Operator Instructions] There's PDFs, the slides on the right-hand side, and this webinar is being recorded. I now hand over to Chris Lee, CEO; and Claire Thomson, CFO. Chris, over to you.

All right. Thank you, and hello, everyone. Welcome to -- this is the presentation of our full year results for 2021 and give me a little bit of direction on how 2022 was started as well. So thanks very much for your time. Our aim today is to skip through these slides using as a guide rather than sort of walk through in detail and then take any questions at the end. So hopefully, will be through slides in 20 minutes and give us a lot of time to kind of renew on the status of your mind and give us some questions that happen. So my name is Chris, I've got Claire with me who's CFO. We kind of calculated between us we've got about 36 years in the business, and we're kind of where we look at how that split [indiscernible], a lot of depth and commitment from us not only and sort of from today, but also from the past as well. So I'd like to walk you through the business a little bit to start with. And then talk about Pebble Group's space in the market. So The Pebble Group is the provider of digital commerce and then product and related services into our global promotional products industry. And if I take you on to the left-hand side, it's just really want to sort of focus on this $50 billion market globally. So it's kind of quite niche in that sort of marketing advertising space, but $50 billion is kind of size, I think a lot bigger than a lot of people think. And also a real fragmented market. And so we try to find some really specialist and differentiated spaces in that market. And half of it is half the markets in North America. And in North America, it was around about 20,000 businesses looking to provide promotional products and into businesses in North America. And our first business Facilisgroup provides digital commerce into those 20,000 businesses, working to help them bring efficiencies, professionalize and grow their organization. So Facilisgroup provides that digital commerce platform into those businesses to help them grow. And on the second slide, Brand Addition, quite a different business, but in the same group and same sector and Brand Addition again, very focused in the specialist area and it looks to provide products to related services in some of the best known brands in the world. And so Brand Addition's customers, you will have heard of every one of them, and based under contract and providing product, distribution, e-commerce websites and services in a consistent manner across the world. And so Pebble Group in a big space across the marketing space with 2 distinct and different businesses within that. And so I work from the bottom to the top here in terms of the highlights for 2021. I think was a very good year in [indiscernible] Brand Addition and 41% revenue growth and that sort of not only is a bounce back from the difficulties that COVID caused in terms of demand in 2020, but actually, that 41% growth means the Brand Addition has made a full and complete recovery over 2019 levels, which we think is a great performance. Supply chain is kind of a big question in the world right now. And Brand Addition has been the last 3 months, Brand Addition has been dealing with supply chain. It's been the last sort of 12 to 18 months. And -- but a mixture of a very good and experienced team, long-term supplier and customer relationships mean in our supply chain has been extremely well managed. A little bit of gross margin [ hit ] this year, but not an awful lot. And so a great performance for Brand Addition over 2019 levels and a really well-managed supply chain in difficult circumstances. And taking this up to Facilis, a different business, selling tech, and you can see, I think there's 3 really great stats there. 40% U.S. stock is based in U.S. dollars. Facilis -- so that's kind of on currency, it's 40% growth, I think it's outstanding. But not only the actual growth, we're looking at EBITDA margins that are coming out there is 60%. I think that combination is a really powerful platform that have been produced there. And underneath that partner on our customers, the retention of those is extremely high at 98%. So if we can keep building our market share on a very stable customer base, and bringing those kind of growth rates and EBITDA returns, you see what a powerful business Facilis actually is. And so those 2 take us to the group highlights, 40% growth is excellent and 2 really cash-generative businesses as well. And then what we've navigated over the last 2 years has been quite difficult, we're actually sort of based in London today. It's been so lonely to do sort of meetings with institutions face to face, and the first time we've done that since we floated in 2019. And -- but what we've managed to do throughout since our quotation is manage our own cash, we've kind of gone through COVID. We've got some heavy investments in the Facilis and investment back into Brand Addition into working capital support is growth. And all those into our own cash. And so 40% revenue growth, managing our own cash really well, I think, if you see the performance from the Pebble Group and its team in 2021. And so we'll do now hand over to Claire, who should take you through the group numbers.

Thank you. This slide is sharing our key metrics and the headline here is that they're all clearly moving in the right direction. So Chris has talked about revenue growth. You can see that here, that's translated into growth in EBITDA. And again, that real strong performance on cash is GBP 5 million [indiscernible] this time last year. But this is an interesting slide, and it helps you understand the financial dynamics of the business. So the chart on the left-hand side is showing the split of revenue between Brand Addition, Facilis, and we can see where Brand Addition is our products business, the [ nicer], the larger proportion of the group's revenue that when we got those really super EBITDA returns in Facilisgroup, but on the SaaS subscriptions that we're charging, then that Facilisgroup is really catching up and is up 50% of the group's EBITDA. Group P&L, for the record, there are 3 lines highlighted in bold here. So revenue, adjusted EBITDA and operating profit. And you can see that they all move forward since across the period from FY '19 and shown a really strong performance and also demonstrating that what Chris just said again about our commitment into the product development in Facilisgroup and the investment that we've made and you can see that coming through an increased depreciation and amortization charge [indiscernible]. Cash flow. It's really, really strong with a strong performance and really straightforward. There are 2 points of interest on here. And you can see that we've been in working capital. So there's some investment in working capital in '21, and that's all in support of Brand Addition's growth. So there's been a proportionate level of investment that reflects the incremental volume that we've seen in Brand Addition this year and then the investment in capital expenditure which is, as I've just said, the investment into the products that we're developed in Facilisgroup as we drive towards our strategic completions. And again, balance sheet getting nice and straightforward. So we can see the working capital on there, and that is all associated with Brand Addition. So we've had some increase in volume, and that translates into incremental receivables and payables, but that's with some of the largest brands in the world. So a real quality blue-chip asset base. And I say every time that we have high-quality debtors, if we do invoice correctly, then we collect on that cash. We've got stock that's well managed and underwritten by our customers. So it's a really strong, really nice, clean balance sheet that the business has got. So we're going to move down to a little bit more detail on each of the businesses. And if we just pause on Facilisgroup, so we are focused in North America at the moment. It's about that $25 billion industry, it's highly fragmented and Facilisgroup has provided a digital commerce platform to the 20,000 businesses in our industry that are looking to professionalize and grow up. This is the P&L for Facilisgroup. So there's that [ PPC ] across the 3 years that we're sharing that clearly to the [indiscernible] growth, and I'm really focused in on the box at the bottom and the stats, some really strong performances and the main statistics that come out of this business. So we had 40% growth in ARR over '20, and these in EBITDA return at 60%, and even with a significant level of investment into our technology products and our strategy, still generating operating profit returns of over 40%.

Thanks, Claire. And so now we'll kind of go in the results from 2021 what goes behind there, and what drives that is what we're going to talk about now. Again, for the record, that's our revenues in sterling and the [indiscernible] business is a U.S. dollar business. So we're trying to put that on there since we acquired the business at the end of 2018, a sort of annual growth rate of 25%. And our ambition is to actually kind of take that forward even further. But you can see if we did know about COVID, we know about some of the challenges out there, there is a consistent growth in the business over the long term. And so we look at these 3 charts, we're pleased to move in the right direction, we know the Facilis' recurring revenues moved in the right direction. And now the fees that we charge, the subscriptions that we charge and the fees that sort of come to us from our preferred suppliers are all driven behind these metrics. So Partner numbers going forward, the gross merchandise value going forward, and that is what the sales through our -- coming through our platform and by our customers or our Partners. So if you say, 200 customers and $1 billion of revenue going through gross merchandise value, that gives you what the average size of our customers are at the moment, which is around about $5 million revenue businesses. And then encouragement from ourselves to push the products that our preferred suppliers through to our Partners. If that number goes up as well, that's really good for our Partners. It's good for our suppliers, and it's good for us too. So those 3 metrics moving forward, I know means that recurring revenues at Facilis are moving forward, too. And so if I'm trying to -- so to say, we've got a great business that we built in some super metrics. Now this business becomes really special if we can scale it. And the chart you see that there really is how we believe we can grow and expand the Facilisgroup platform and to really escalate its revenues. And right now, Facilis is a $17 million business, and that's in that top left-hand side that we're providing right now that order workflow to those businesses between around $2 million - $20 million of sales. We think it's around about 2,000 in that pipeline for us. We've got 200 Partners. So the top left-hand side of this chart, that's the business that the results have been placed on today. But we want it to grow the services that we offer to those businesses and actually extend the addressable market for us into the line of promotional products industry in North America. And so on the right-hand side, we have Syncore Lite that we're making those capital investments into. That opens up a lot more businesses. It's very fragmented market, goes into $2 million. And Syncore Lite is in heavy development stage right now and we'll be looking to launch that mid-2023. And then below level there, Commercio is an e-commerce platform. A lot of our Partners right now use e-commerce, a lot of the North American promotional products use e-commerce to sell. There is a wide variety of platforms that we use. And we don't think there's any to really get a name on a head for our customers right now. And they've been asking us for an e-commerce solution that links into Syncore that really helps [ outsell ] to their customers. We bought some software in 2021, which we further developed, and we're actually sort of doing 2 great beta testing. We'll be around 2 beta testing very shortly and begin to start charging for that product with our Partners. And -- but over the next 12 months, we're looking to bring new releases of Commercio that we believe each release will open up more potential Partners to fill users. And there's a lot this chart is saying is the top left-hand side is a wonderful business that will continue to keep growing. We will expand our offering to those customers by adding the e-commerce platform. And then on the right-hand side, we'll increase our addressable market in North America by bringing Syncore Lite. And together, we believe that the digital commerce revenues available from this market around that $700 million. So there's a big market for us to go for, and we set ourselves to target that we've been tracking against initial aspirations get that $50 million mark by doing Syncore, Syncore Lite, those e-commerce platforms as well that really extends the offering that we have and the market we're going to. And then we're tracking really sensibly against the milestones so far. We had a very good start to 2022, which means our GMV and are spend with preferred already towards our end [ golden ] numbers for 2022. And if we can kind of get those, the GMV and customer numbers and the preferred spend moving forward, we're really excited about scaling this business and scaling this business makes it a very, very powerful and valuable organization. So just summarizing, I mean we've got a wonderful opportunities in Facilis. We're really focused and we've a great team is focused on sort of those internal milestones at 2024. And that's kind of going to a successful launch of Commercio and standing great foundations for Syncore Lite in 2023 and really excited about what that business will bring. And I'll hand over to Claire to talk us through with Brand Addition.

So Brand Addition, as our products business that's working on the contract with some of the largest [ funds ] in the world, providing them with exciting products in a way that helps them address their own agendas around sustainability and ESG and do that efficiently through the use of e-commerce. Again, like Facilis was showing the segmental detail for Brand Addition on the P&L, the message that I'm showing here is that was a full recovery in that revenue line and [indiscernible] the 2019 number. So yes, Brand Addition was affected by COVID, but what we've been able to demonstrate in '21 is that we made a full recovery, managed our margins, managed our costs and that incremental volume translated through to an increase in EBITDA. And this slide is sharing a little bit more detail on how we managed to deliver that v-shaped recovery. And it was really around 3 things: we retain our customers, so our customers are working on the contract with us, they're all still with us; and we managed to win market share, to convert to new business through that period that we invoiced in 2021; and then also in shipment, we were able to grow our share of the wallet by our existing clients, and you can see that particularly in the consumer promotions' line, where we grew that successfully, and that was $46 million of the Brand Addition revenues this year. And also looking at '22, saying we've had a sensible start to the year, so we're off 11% year-on-year. In the middle of March, we've got 40% of our year-end expectation booked for Brand Addition. We've got new business opportunities that we converted in '21 that we will start to invoice in FY '22. And then we've also got room to grow in those and draw in clients. And this slide is just showing -- sharing with you the diversity of the Brand Addition revenue by both the sector and by geography. And again, we've got a good geological spread and good diversification by sector.

Okay. Thanks, Claire. I'll kind of take some of Brand Addition and then sort of finish off with some of the ESG bit as well on the slides. There we go. So supply chain's been a big issue. We can kind of probably say last 3, 6 months, but I think actually something that is Brand Addition will be doing over the last 12 to 18. And when you're faced with any challenge, I think there's 2 things to be thinking about the environment that we're operating in and secondly, the actions that you're taking. And so the environment we're operating in, we -- it's not the same product we're buying from the same factory and selling to the same customer. So we do have flexibility in terms of where we're buying from and sort of -- and the price that we're selling at and in the product that we're actually using as well. So I don't think we're trying to get a $9.99 retail price for the same product that we're trying to do [indiscernible] for the same factory. We don't have that constraint at kind of either end of our supply chain. And then secondly, it's sort of the actions that you've taken and the people that are doing this. So our supply chain is being extremely well managed by our teams. And that doesn't mean it's been easy. That doesn't mean kind of there hasn't been a lot of challenges that has the team that worked enormously hard. I think it's been a great team effort. So our account managers working with our clients to make sure our lead times are working. Our teams are on the ground and then actually in Europe kind of work with our suppliers to make [indiscernible] and I think our finance teams work around Brexit, our distribution teams working around Brexit, the real team effort and trying to -- if the winds blow in your face, you don't kind of necessarily have to take a step back. You can stand up and take action to change it. And I think the words we thought hard about that we believe is a well-controlled and supply chain in very difficult circumstances from Brand Addition in 2021. And I've seen that the continues again in 2022. So there's some kind of more detail on that about what -- how have been affected, and what we've done. But I think the message from us into the market is a well-controlled supply chain is something we're dealing with under difficult circumstances, but we are dealing with it. And then that takes us to sort of the final message on Brand Addition and the top 2 of these will be a familiar theme in terms of how we're looking at Brand Addition is retention of really good accounts, working with really sort of global brands over the long term and implementing the new business that we win, join a great sort of win, grow, retain, repeat mantra. It is very sort of -- that's kind of what we talk about at Brand Addition and still going out and on top of that, good customer base that spends the regular amount of cash letters that then kind of build with us over time, adding to that is how Brand Addition grows. And specific, I think, over the next -- sort of the last 18 months and the next 6 to 12 months is very much making sure we continue to do what we have been doing and then manage our supply chain and setting ourselves again sort of back on moving towards, moving our margins forward in the next 12 or 18 months, not moving them back, of course. And behind the 2 businesses, there's some commonality in terms of our cultures, our ESG and our approach into business generally. And that comes through. So ESG is something we've got a lot into over the last 2 years, but it's not sort of difficult for us to do that. It's something we really believe in. Honestly think ESG has about been running a business well for its employees, its stakeholders, be it investors, be it suppliers and be its clients and what's not to like about that. And so it's an easy thing for us to embrace and we've made some great senior appointments to kind of driving this on a day-to-day basis, but it's very important to me that what we do is live and breathe in the businesses. They're not tick boxes. They're not something to kind of say we do that what we say in the claims that we made has evidence behind it is to live and breathe in the businesses and then that's coming through in the actions to be taken. And what we also have is again a published ESG report in 2021 in October, we'll do that now on an annual basis. We've set our targets. We're going to measure ourselves against that, and I want us to do it because it makes our business better, and it's the right thing to do. And so they kind of, I hope, it comes naturally because why wouldn't it, it's a good way and see where to run your business. And so just finally to sum up work from me at the right to the left again. I believe 2021 was a great year for the business and well done to kind of everybody in our group for a huge effort that kind of went into those results, trying to phrase mine these results don't happen by accidents. And then they certainly did it, it's kind of on the back of good people with good strategy, working really hard. Brand Addition started well and order intake compared to the same point last year is 11% up. That's against the guidance that have around 8%, so that -- at this time of the year, that feels like a nice balance. Say it again, supply chain feels well controlled by great people, Facilis Partner numbers continue to grow. We're looking to expand that with the new products. And -- but also our GMV, so in other words, sales in our Partners' [indiscernible] system is perhaps a little bit higher than we even thought ourselves at 57% ahead. I think that's against perhaps a soft comparative in Q1 last year, but still at some really good performance, and we see how that works for the rest of the year. And then some of [indiscernible] of Pebble Group. I think it started well, definitely well with expectations and kind of where full of great enthusiasm, and we've got a really good plan [indiscernible] executing that. And I think our business continues to move forward from a strategic and financial sense as well. And so we hope that with a certain nice talk through having 23 minutes, after 23 minutes. And -- but I hope that's -- yes, there's a lot of detail in there. We're really happy to answer questions now, but really appreciate your time today.

[Operator Instructions] And we've got a question here. What gives you the confidence in achieving your targets for Partner numbers at Facilisgroup?

And so I think we've done real well in GMV. And if we have -- if the targets are around GMV, spend with preferred and then Partner numbers, so the GMV and the spend with preferred is doing very well. We think that's in a really great place. In terms of the Partner numbers, we've so far -- that 1 component of our platform has been Syncore concentrated on those sort of businesses between $2 million and $20 million, but we're actually expanding dramatically our addressable market by having Syncore Lite. So the hockey stick in those numbers aren't like for like wins. They are saying Syncore Lite goes into a much bigger addressable market. So if we won 500 of those customers, there's 20,000 now. So to put it in that context, I think, is now having means to be looked at. It shouldn't be looked at. We've grown by [ 25 ] each year, and we're in dramatically expanding our addressable market. And I think that's why we believe those customer numbers can be changed.

Tremendous. And going on from there, do you think that your target market of sub $2 million Partners will have the same resilience in tough markets that your current Partners have shown through the pandemic? Is there a chance of greater client attrition?

I think the answer to that is, it's hard to get less client attrition. Maybe give you right now, it's 98%. So you know our sort of retention almost can't be any higher. And so the default answer is probably, yes, that they might be a little more transient, but also there's a lot more of them. And I really think that we shouldn't underestimate the sort of the businesses that those people have, their lifestyle business, so we're doing $1 million a year for [indiscernible] merchandise, their overheads were pretty much nothing. It will be working from home most likely, and the overheads that are up to paying themselves their own salaries. So these businesses can -- they have no cost to cut, basically, they can kind of -- if their sales slow [ write ] down, they can actually kind of bet. There's nothing that -- they're not in premises, they're not employing many people -- so I think those businesses can kind of open sort of retract and kind of grow quite quickly. And I think that's proven that. We've been through COVID, those people, those businesses will be coming back again. They haven't sort of disappeared and gone up to something else.

Tremendous. And the question is here, thanks for a very interesting presentation. How are the margins this year for Facilis, previously said that you may trend towards 50% from the current 60%. Is that still the case? Or will it happen more with Syncore Lite?

Yes, I think we're definitely flagging. We're looking to scale the business, right? And so 60% margins are probably a little higher than we expected this year because we had an excellence for the last quarter. And so if you think 55% is the number we've probably averaged out to over the last 2, 3 years, which is an amazing number in itself. And what we're trying to say is let's put a percentage to 1 side of development, we translate, we like to spend $3 million or $4 million on ramping up the scale in Facilis and spending on a sales and marketing piece. And we think that the return of that $3 million to $4 million can be absolutely amazing. So if we can get to that $50 million recurring revenue, then kind of who knows where the return on sales can go on the EBITDA margin. So really think about, I think we are using money in really well to scale Facilis. And that might mean, I think we've got guidance now there is 50% into this year. And so -- that money has been invested for growth. It's not a permanent movement in margin. I think that's a really important piece because if we do get Facilis running in the way that we believe we can. And then it's not $50 million is no endpoint, it's like much beyond that, that I think spend in, I think it'd be so wrong it was not to sort of make very small dents and 50% margins is a pretty amazing number anyway. So if we can spend a little bit of money to scale Facilis, I think that is money tremendously well spend.

And the question goes on to ask, if you can talk a little bit about break or forecast, it's not easy to get access to Berenberg research. It looks like earnings per share estimate is for 4.61p for '22, which is down from '21's 5.14p. Do you know if the 4.61p is right? And why is the earnings per share number coming down?

Yes. So this 4.61p isn't a straight comparative to the 5.14p, so the right comparative will be 5.15p. So it's what we're saying is we think it's going to be flat next year. And that's really around the investment that we're making into the Facilisgroup. And so we've spent GBP 5 million over the last 2 years on those 2 products with forecasting to spend another GBP 8 million this year, and we're amortizing that on a really sensible period of 3 years. So we will see an increase in the amortization charge that is effecting our customer, so our expectation through the broker is that that's going to be flat.

Great. And another question now asks, why is The Pebble Group a better investment than Altitude?

Well, I don't think it's for us to ask, it's for investors to make that analysis. I think this is a big industry, businesses can be successful within [indiscernible] different sort of spaces. And so we're really keen to share our message as well and explain what we're doing and give investors stake to make informed decisions about to us. And then obviously, they will look at kind of the other businesses in other sectors, same sector. But I think that's for the other people to comment on or decide on. So I hope we've been able -- a big thing we want to explain our strategy really well. And we learn every time we do something like this and the questions and the [indiscernible] investors. And then so our goal is to really drive our business forward as well as we can, and it will help us make those decisions.

What are the main difference between the two?

Well, again, a kind of -- I think it's probably for others to sort of make those answers. I think is -- we set out our strategy, what we're looking to do, and there's always competition around. It's a very big industry. I'm sure is room for lots of people to be successful, and this is to be successful in it. And -- but really, this may set an out strategy what we believe and I think other businesses in our industry can be successful in parallel to us, and it's important that we explain our strategy right, rather than trying to try and compare and contrast the businesses.

Okay. Tremendous. And what's the split on people numbers between Facilisgroup and Brand Addition and the group?

Just over 500 people in the group, about 100 of those are in Facilis and 50% of those are in tech development there. So we've got 8 at The Pebble Group and then the balance of all is in Brand Addition.

[Operator Instructions] And the final question at the moment is what plans do you have for using the cash you're generating as the planned growth comes through?

So The Pebble Group is very cash generative through Facilis and Brand Addition. And that's been proven in the short time we've been on the market, and we definitely invest into growth right now, and if we successfully executed on those strategies, then cash goes -- turn into the business very strongly. I suppose we're looking forward to that position being a reality rather than a kind of a thought. So there's no firm plans not right now. I think our heads are sort of focused on getting our strategy right, executing well upon it and then we'll really look forward to managing that kind of challenge when it comes. But I think we're in a good place, very cash-generating role and let's hope we are able to execute on the plans and have that really great issue for us in a couple of years' time.

Tremendous. And that is the end of questions. Do you have any further closing remarks.

I think always really important when I get an opportunity to say something publicly, results don't certainly get achieved by accident. There's an amazing group of people, close to 500, kind of crazy it's 500 of us now. That's -- but thank you to the team. for, again, considering pretty unusual circumstances, it couldn't be done without a great team effort. So thanks to everybody. And we're always interested in understand questions, communicating our messages correctly. And so any feedback would be really thrilled to receive it and then grab questions from it. Thank you.

Chris, that was marvelous. But while we've got you, we do have 1 more question. Would you mind if I ask it?

Well, let's see what it is.

Okay. Can you please talk through the contract terms for the Facilis customers in cycle and Commercio, length of contract and element of volume versus recurring?

And so the contract length is 3 months' notice there, that's what all it is. And so we want people to be using our digital platform because it brings a great services. And we're now looking to tie them in over many years to something they would like. So people use Facilis because they want to be part of a great organization that kind of has great technology, super supplier relationships and great community. So those end contracts are long length. In terms of recurring revenues, recurring revenues are 95% of the revenues in the business. And those recurring revenues split around about 65% comes from subscriptions and the 35% comes from the sort of marketing funds.

That's tremendous. And I am going to let you go now. So many thanks to you both, and thank you to everyone for joining. [Operator Instructions] Many thanks for joining us. This is the end of the webinar.