Tracsis plc (TRCS) Earnings Call Transcript & Summary

I'm here today with Tracsis CEO, Chris Barnes; and CFO, Andy Kelly, who are reporting interim results.

Chris, can you provide an overview of the period?

We've made significant progress in implementing our growth strategy, which is really pleasing. We've seen strong revenue and EBITDA growth, good cash generation, and we've also seen an increase in profitability, all of which has enabled us to restore our progressive dividend policy as discussed last summer. We have made really good progress in growing our recurring software revenue, and we've won a number of large multiyear contract wins, which is really pleasing and will underpin significant future rail revenue growth. And really importantly, we have seen significant post-COVID recovery in our Events and Traffic Data division, and that was a really key objective for this period. And we expect by the end of H2 for both of those businesses to be performing at near normal revenue levels. Two other key areas to comment on, one is on our operational improvements. So we've continued to drive forward with more collaboration and greater integration across the group. One of the key achievements is the launch of the One Tracsis leadership program, where over 100 members of staff are now enrolled in a 18-month program, which is really important and will drive a lot more collaboration and closer working across the business as we look to improve our future innovation and the R&D products that come out of the organization. And then from a strategic point of view, we've made 2 further acquisitions. The first of those enables us to tackle the huge North American rail market through the acquisition of a business called RailComm, who've got a huge sales network across the U.S. into all of the major players. And then secondly, we acquired Icon Geo, an earth observation business, which enables us to expand our data analytics and GIS footprint, which again is another important part of our strategic growth plan.

Andy, can you give us an overview of the financial results in the period?

So as Chris said, we are reporting results for the first half of the year, which shows strong growth in both revenue and profit versus the same period last year. Revenue in total increased by 31% to GBP 29.2 million, and we also saw strong growth in adjusted EBITDA, which was up 14% to GBP 6.2 million and profit before tax, up 16% to GBP 1.3 million, and we saw profit growth in both sides of the business. Our cash generation remains strong, and we closed the half year with GBP 25.1 million of cash on the balance sheet and debt. And the two acquisitions that Chris mentioned were completed out of our cash reserves including RailComm, which was obviously using some of that GBP 25 million post period end. But even after that, it still leaves us with significant cash reserves on the balance sheet and the ability to continue to invest in further growth. And in the context of seeing a recovery in demand in those parts of our business that were most impacted by COVID, we have restored our progressive dividend policy and are declaring an interim dividend of 0.9p per share.

And how has each part of the group performed in the first half?

This slide shows how the parts of our business have contributed to driving that strong growth in revenue. In the Rail Technology & Services division, which is shown here on the slide in green, we've seen further growth in rail software revenue, overall increased by 4% to GBP 9.5 million. And we've won a number of new contracts on this side of the business during the first half and in the last few weeks that leave us well positioned to continue to grow this part of the group. Our Remote Condition Monitoring business saw H1 revenues decrease to GBP 2.2 million, having delivered a record performance in the first half of last year. And this part of the group has always been quite cyclical in nature, and the first half performance was consistent with the trend we've seen previously from its U.K. customer base in terms of the investment cycle. And one of the key strategic reasons we're expanding the group in North America through the RailComm acquisition is both to grow the addressable market for our Remote Condition Monitoring hardware and software products and therefore to diversify risk away from being solely focused on the U.K. market in this area of the group. The Data, Analytics, Consultancy & Events division, which is shown in blue on the side, delivered very strong revenue growth in the first half, up 72% to GBP 17.5 million. The biggest driver here has been a strong recovery in demand in the Events and Traffic Data businesses that were most impacted by COVID. Activity levels in events are back to where they were pre-pandemic. And therefore, you can see on the slide that's driven strong revenue growth over the H1 period last year. And on the Traffic Data side, we're seeing a phased increase in activity, which we expect to return to pre-pandemic levels during the second half of this financial year. And what's really pleasing here is the speed at which our teams are able to respond to this increase in demand as a result of the actions that we've taken over the last 2 years to safeguard these businesses and to protect as many jobs as possible. Elsewhere in the division, we saw growth in both the data informatics and the transport insights businesses. Both of these delivered organic growth as well as benefiting from the acquisitions of Icon Geo and Flash Forward Consulting, respectively, that were completed in calendar year 2021.

And Chris, stepping away from the financials, how has the group developed since the last set of results?

We've been focused on 4 strategic priorities. The first of those is driving organic growth, and the key focus there has been on increasing recurring revenue across the group. And I'm pleased to say we've made significant progress there across all of our rail technology product areas. So to give some highlights, we've won large multiyear TRACS Enterprise contracts not only in the passenger space but also now with freight operators, which we've had our first win in the freight sector. We've continued to win both Remote Condition Monitoring hardware and software contracts. And we've also won smart ticketing and delay repay contracts in the period. So that has enabled us basically to translate our record pipeline into ongoing recurring revenue, which will feed through as growth over the coming period. So that was really pleasing for us, and the pipeline continues to be really strong and continues to benefit from the U.K.'s transition to the Great British Railways model. The second area is to expand our addressable markets. We're looking to do that in 2 ways. One is through acquisition, which I'll comment more on in a moment and the other is through looking at new product areas that we can access like greater levels of innovation or also by joining together the different technologies for the different parts of our business. So that's very much driven by our Innovation Hub, which we're continuing to make progress with. So acquisition also remains a key strategic priority for us as a business and we completed 2 acquisitions. We completed the strategically important acquisition of RailComm in North America, which provides us with access to a huge addressable market through a long-established sales network. And then we also acquired Icon Geo, which is an earth observation business based in Ireland, which enables us to grow and expand our data analytics and GIS footprint. And then the final part is around integration and capability. So over the last 2 to 3 years, we've been focused very much on how do we bring together the organization, which has been made up of 17 acquisitions into a much more coordinated and integrated group. That's really starting to accelerate now. We've got a number of initiatives that are being rolled out across the organization, and the benefits of those will really start to be seen in the forthcoming reporting periods. So overall, really pleasing progress, and we continue to have strong momentum moving forward.

Andy, could you tell us more about your recent acquisition in North America?

As Chris mentioned, the acquisition of RailComm is a really exciting strategic development for Tracsis as it marks our first direct entry into the large and growing North American rail market and therefore fits absolutely into our strategy of extending our rail footprint and expanding the addressable market for our products and services. RailComm is a rail technology company that's based in Fairport in Upstate New York and its core product offerings are in yard automation and computer-aided dispatching, which is very complementary to the portfolio of what Tracsis is already offering to the U.K. market. And we see a really exciting opportunity in the U.S. to repeat the success that Tracsis has had in the U.K. and to be one of the very few rail technology software consolidators in this large market. And as part of our strategy to deliver that, one of our experienced managing directors will be moving into North America, overseeing our activities in the U.S. and identifying those further opportunities for growth.

And Chris, as we head into half 2, what's the outlook?

It's very positive, and we continue to have a record pipeline of opportunities despite having converted a number of large contract wins in the previous couple of months, which is fantastic, and that pipeline continues across the whole of the group. We have a strong and growing M&A pipeline, which will enable us to continue our acquisitive growth momentum. And as a reminder, that continues to be focused around extending our rail software and our data analytics and GIS footprint. We're going to continue to focus on the further integration of the group, which will include the ongoing implementation of our ESG priorities, and we will present at the full year an ESG scorecard summarizing that performance. And so overall, we're in a very strong position. We've got strong drivers in each of our core markets, and we remain very confident about future performance of the group.