Vusion S.A. (VU) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SES-imagotag 2022 Full Year Results Conference Call. I am pleased to present today's speakers, Thierry Gadou, CEO; and Thierry Lemaitre, CFO. Gentlemen, please go ahead.

Good evening. Thanks for joining our conference call following the disclosure earlier, just a few minutes ago for our full year '22 results. So you can follow the slide show if you are connected on the web conference. So 6 weeks ago, we had already discussed our strong growth numbers with sales of up 47% at EUR 620 million. And we are happy to confirm today that this growth was profitable and significantly more so than the previous year. That should not be a complete surprise as we had provided precise guidance 4 months ago at the Capital Markets Day. You remember, probably we had given an EBITDA range of EUR 53 million to EUR 60 million, a 9% to 10% margin range, and we end up close to EUR 59 million at 9.4% EBITDA margin and a significant increase in net results. However, when we promised at the beginning of last year that we would increase significantly our profitability in '22, we didn't know we would suffer during most of the year, the combined headwinds of supply chain tensions, the worst commodity shock of the decade and the increase of the dollar, all combined. So we are all the happier today to be with you confirming this performance in such a difficult context. 2002 (sic) [ 2022 ] has been a very good test of our resilience and of the relevance of our strategy and business model. I will now let Thierry take you through the detailed numbers.

Thank you, Thierry. So it's my pleasure now to present the full year 2022 financial performance of SES-imagotag Group. And as Thierry said, these results really confirm the quality of our business model since we were able to face major headwinds and deliver a significant performance improvement. Despite the very detrimental ForEx impact, especially in H2 and higher component costs with subsidy almost stabilizing in the variable gross margin rate and since we could point for the OpEx, which now represents only 11.7% of the revenues versus 14% in 2021. We could grow the EBITDA margin by 2 points at 9.4% of the sales which means grow the EBITDA in its value by 81% at EUR 58.6 million. We even reached over the second half of 2022, a 10% EBITDA margin. And finally, we also multiplied by 9 the net income, which now stands at EUR 18.7 million. So on the following slides, you will see the major impact of the 2 headwinds that we previously highlighted. The first one being, of course, the ForEx impact on the euro-dollar exchange rate. As you can see on the graph, and the deterioration of the euro-dollar exchange rate has been brutal especially in H2. 100% of our COGS are denominated in dollars. And even though we succeeded in invoicing, almost 50% of our revenues in dollars. This has, of course, a very detrimental impact in our 2022 accounts. It cost us approximately 4 points margin, which means that if we had kept the same exchange rate in 2021 and 2022, our VCM rates would have been 4 points higher. Hopefully, as you can see, the trend is now improving early Q1 2023. And this should pave the way if the trend remains, of course, to a better performance in 2023. Second headwind on the following slide. This is what Thierry previously highlighted as well, which is the company's costs increase. These costs increased continuously over 2021 and 2022, which was actually not the trend before 2020 and the COVID-19 and in spite this cost increase and the ForEx impact, I remember that we could almost stabilize the margin. Good news here, too. As we had expected, we now see that the purchasing costs are decreasing again and this should benefit our production costs in 2023. On the following slide, it seems to be now a usual trend that you may get [indiscernible], which is the OpEx ratio, and you see that this OpEx ratio is decreasing. It represented a bit less than 12%, 11.7% precisely in 2022 versus 14% in 2021. And this is, of course, essentially due to the higher revenue growth, but also a good control of our [ bets ], which are essentially consisting of HR costs. This puts, of course, the company in good shape to be able to deliver the 10% OpEx ratio that we have set as an ambition for 2027. So finally, on the following side on the EBITDA, you see as a summary that the significant growth supported the EBITDA increase and the increase in profitability of our value-added solution, which is something which is nice to remind, plus the pricing power translating into selling price increases that we place to customers could almost offset the negative impact resulting from the ForEx and the higher COGS. CapEx. Our CapEx have increased in 2022 versus 2021, and this is mainly the result of our R&D investments that we are pushing in order to develop our next-generation digital shelf system. This is, of course, a significant investment that we should also see in 2023 but this is at the level of the ambitions that we are currently nourishing towards the large customers, which are likely to buy these solutions in the coming quarters. And the cash situation to end up this financial presentation. We ended the year 2022 with a EUR 40 million net debt, which is mainly impacted by fast-growing EBITDA, of course, higher R&D CapEx and the negative impact resulting from the de-consolidation of our Chinese JV, which had almost EUR 20 million on its balance sheet. This means a 0.7x net debt to EBITDA leverage. This is, of course, a very low and moderate level as well as net debt-to-equity ratio of 20%. And this puts the company in a safe situation to bake in 2023 with a sound balance sheet. So what's the outlook for 2023, based on the 2022 results. Of course, we confirm our strong growth on the revenue and our EUR 800 million revenue target. And based on the positive outlook on the COGS and the -- so the dollar. And of course, the strong increase that we are expecting on the VAS, we anticipate a continued significant increase in profitability in 2023. So that's it for this financial performance and I leave the floor to Thierry.

Thank you, Thierry. Well, I can only -- as a word of conclusion, confirm what you just said. I think we have continued to build in '22 a strong platform for our customers' success first, but also for profitable growth and in '23, we will benefit from all these construction of the past few years. We will benefit from the largest portfolio of digital solutions available in the market and their increasing adoption. We will bring several major innovations to the market. Thierry has been mentioning our significant investment in R&D to develop a completely disruptive new digital shelf system, and this will come to the market during this year. We also anticipate that Europe will grow fast, but that America will be our fastest-growing region. We will benefit from a more favorable environment in terms of supply chain and industrial costs, as Thierry just said. So despite the current global economic headwinds, which exist, we [ continued], we start the year with great confidence on our target. Our profitability should continue to increase semester after semester and all in all, we see '23 as a first major milestone on our way to the VUSION '27 target. Thank you for your attention. And of course, we are available for questions if there are any.

[Operator Instructions].

So well, I said if there are any. So no questions means we've been very, very clear. So I think if -- we will wait for another minute. And if there are no questions, then I think...

So sorry about the time. We have our first question from Aurelien Sivignon from ODDO BHF.

And congratulations for the '22 performance. I will ask 4 questions, please. First, on VCM, can you comment on the breakdown between ESL and VAS in 2022? Is it too fair to assume that the VAS VCM is around 3x higher than the ESL VCM? So that is my first question. Then on the OpEx sales ratio, so which has greatly improved last year, do you see further leverage in 2023? Or should we expect the 10% ratio to be reached, let's say, later in the '27 plan? Third question on CapEx. I would appreciate if you could maybe give us more color on the CapEx trajectory for 2023? Because the acceleration has been strong in H2 '23. So that's why shall we consider that the '23 CapEx sales ratio to be in the 5% to 7% range as guided in the '27 plan? And my last question was about the acquisition of In the Memory and Belive.ai. So since both still are now closed, could you give us more color on the total cash out we have to take into account? And maybe if you can say well on the margin contribution for '23 we have done for those 2?

Thank you, Aurelien for this set of questions, a very comprehensive one. VCM rate, yes, I think it's fair to consider that the ratio is still approximately 1:3. Nonetheless, as you saw on the slide on the evolution of the EBITDA, we mentioned that our VAS, our solutions are showing an improvement in profitability, which is just translating the fact that more and more of our services are now cloud-based with a profitability, which is, for instance, higher than the professional services or maybe the maintenance that we were essentially having in the VAS in the previous years. So it's a 1:3 ratio. And of course, this ratio is likely to increase moving forward. So that's the first one on the VCM rate. OpEx you should not expect OpEx -- First, there is OpEx already -- so OpEx, no, I don't expect that the trend, which is a minus 2 points every year is going to repeat in 2023. In 2023, we will have significant recruitments. So it's fair to assume that if there is an improvement, it will be a very limited one in 2023 compared to 2022. So let's tip around the 12%, which is kind of a target for 2023. CapEx in 2023, we will still have the impact of the continuous improvement and the continuous investment on the digital shelf solution that we are developing. So it's fair to assume a high-end 7% of sales in CapEx, and then it should progressively get back to 5% to 7% in the coming years. But '22 and '23 are quite a peak in terms of CapEx due to the development of this specific range and new solutions. Belive and In the Memory. In the Memory, we have finalized and completed the acquisition. It's not the case yet for Belive. What we said is that we have not given any guidance on these 2 companies. I think it would be easier to give you a bit more guidance once we could integrate the performance of these 2 entities in our accounts, so you can see how it translates into the financials. So let's wait probably for H1 and maybe already Q1 to see the revenues at least In the Memory. But more likely at the end of H1, we'll give more precise guidance on these 2 entities.

So we have another question from Valentin-Paul Jahan from Stifel.

Good afternoon, everybody. Do you hear me well?

Yes, we think so.

Sorry for taking my questions. I'm sorry, I was interrupt, so I didn't hear everything. So may be you answered some questions I will ask, but I have 3 questions. First, could you please give a comment on the order book in the [indiscernible] dynamics over the beginning of this year, 2023? This is the first one. The second one is you confirm that you are targeting EUR 800 million in revenue, which you have made through our consumer [indiscernible]? So what contributions should we consider? And third one, you would give out the EBITDA level for 2023. You then trade at your target of 15%. So could you please elaborate a bit on that? This is due to FX mostly or -- yes, you can add some details.

So I'm not sure -- so for the first question on the order book, we'll take -- I didn't hear quite well the second question, but -- regarding the EUR 800 million. But anyway, for the first question, we, of course, will discuss the Q1 numbers in 1.5 months, I think it's 26th of April. But generally speaking, for the first half and the full year, we anticipate this year a substantial growth in our order increase versus last year. So that's the dynamic. I'm not sure I understand -- I understood your question on the EUR 800 million.

I think it was the impact of the acquisitions for the EUR 800 million. That's it Valentin-Paul?

Yes, you are targeting EUR 800 million, but yes, you made acquisitions. So can we consider that you are -- that you can [indiscernible] something above this target or?

Well, this is a general -- again, I will make the same answer. I think we will make when they are completed first. So one is completed now. The other one is still underway. So we will make, I would say, a more detailed debrief on these acquisitions when everything is completed. Nevertheless, they are small companies, so they don't change dramatically, I would say, the top line. So -- and they were -- when -- so it is not very, I would say, material in terms of the top line. There are more transformational I would say, acquisitions. So regarding figures, again, as Thierry said earlier, we will make more detail with the H1 accounts and especially and more when we have absolutely completed these 2 acquisitions. But they are not anyway going to changing significantly, I would say, the top line we're at EUR 800 million. We're talking about relatively small companies. So it's not changing very much. And there are many other reasons why we could be above or below at the scale of our business. So it is let's take it as a target. Also, we had in visibility anyways, those acquisitions when we made our guidance also [indiscernible].

Yes, do not consider Valentin-Paul that we are revising down the guidance and that we need these 2 acquisitions to deliver the EUR 800 million that [indiscernible]. These are very small and tiny figures. So it's not really very representative in the total revenue target that we have. On the EBITDA, yes, you're right. We had mentioned -- but it was a very long time ago, a 15% EBITDA margin. I think it still remains a goal. Of course, it is subject to the evolution of the overall economic situation and the dollar. And you can see that there is much volatility. There has been much volatility in 2022 on these 2 items. So let's wait a little bit to move forward in the course of the year 2023. And we should soon be back with a more precise guidance. But 2023, 15% EBITDA margin still remains a goal for the company.

So we have another question from Laurent Gelebart from BNP Exane.

So I have one question regarding Captana. I would like to know if you are happy with the take-up rate of this product when you push it to your clients? And do you believe that with the contracts you have to sign with Walmart, it will be embedded in the contract. The first question. The second one is regarding your new generation of ESL and so on, do you have risk in terms of inventory of product becoming of, let's say, old fashion or that you will have to impair because you're not going to sell them? How are you going to transition basically between the new generation and the old one?

Two good question. So regarding Captana, yes, we are happy with the take-up rate. In fact, it's a solution that has -- there is a tremendous appetite because the ROI is extremely strong to monitor, out of stock and shelves in real time for retailers. We -- it's -- it's -- there are -- after '22, we have gained many, many pilots already started rollout, and every time we see how relevant this offer is. But more importantly, even we see how unique our offer is. We think that the performance of our solution compared to what we see elsewhere in the market was very good. The acquisition of Belive is also very instrumental into making our solution a bit more universal because Captana was very targeted at our ESL customers. And Belive is making it a bit more, I would say, agnostic. So we have great expectations on the take-up in the future. This is one of the biggest agenda topic for retailers leaders right now is to be able to monitor shelves, to monitor execution, to monitor other stock and to monetize that data also with brands. And again, here, you see the logic of the other acquisition, which is Memory. They have a great expertise in monetizing data to CPGs. And that is also going to be super extremely complementary to Captana. Talking about this new generation of shelf system, the way we are managing the transition is -- it's a big change. So we are thinking about right now, focusing it on -- especially the U.S. market, which has no cannibalization risk. And then we are thinking about -- we will never jeopardize the investments of our customers. So there is not going to be any obsolescence of our platform, which is actually quite performing, but there's going to be a gradual upgrade of our customers, like we've already done, by the way, when we move from low frequency to high frequency or when we -- there's always been a gradual upgrade and take refresh of our installed base. So there is no risk of obsolescence. And for now anyway, this platform, which had a significant announcement, maybe some of you noticed because we -- we announced the part of this innovation with Qualcomm about this new bluetooth-based protocol. That's part of the -- it's one of the many disruptions in this platform. So right now, focus on America. And obviously, on the first of all of their customers, which is Walmart. So that's how we intend to manage the risks. So no obsolescence is going to be...

And in terms of selling the product, is it going to take place this year? I mean, first contract and implementation or contracting this year and implementing then the year after?

Well, we have this technology already in pilot, well, obviously, as you know, in Walmart, but also other retailers. We -- so it's going to be -- I would say, the first contract, yes, for this year. And then in America, we are going to make essentially our proposals now based on this system towards at least around H2 next year is going to be essentially on this system. But that has been already planned and organized. So this is not an improvisation. So most of the U.S. market should be continuing to grow or migrating rapidly to this new system.

So we have another question from [indiscernible] from [indiscernible] and Company.

One technical question. One technical question, first of all, is it fair to assume that with your EUR 800 million revenue in 2023 should balance the euro-dollar exposure you have? Or is it a little bit too soon to conclude that?

So I think it's too soon, [ Iber ].

Okay. The second question for the other Thierry. I consider, but I might be wrong that the risk acquisition you made with Belive, is what I call bolt-on acquisition, i.e. things you -- Belive is important to add on to the existing technology you're developing with Captana. In, let's say, in the years ahead of us, do you think you will still have those kind of bolt-on acquisitions to make or some, let's say, very strategic acquisition to make in -- like the one you realize with last year? So because you're missing a little bit of technology to fully develop Captana.

No, I think the -- no, we don't -- at least we don't have any insight. I mean, obviously, it's -- it would be very absurd for us to say we don't need anything as a statement. But I would say that we very carefully searched and we're looking for something quite precise. In the case of Memory, it's very obvious. We needed category management expertise. We needed a data science expertise in the context of retail and CPGs. This is very important for us to improve our solutions and also to increase the ROI of our solution because it's in the data that you find the profit. But the -- and for Belive, it's the same, we needed something that could expand the scope of Captana outside the perimeter of the VUSION ESLs customers. So I think we have great assets in technology and we're not in search of anything that we see are missing. It doesn't mean we say we do everything, but -- and we intend to do everything in retail tech, of course, that's not the point, and we probably could not. But we have great avenues now because we've engaged with Captana, with Memory, with VUSION, we have now a very comprehensive set of technologies to digitize retail and to extract the value out of this digitization. So I would say -- we don't see -- actually, we don't have acquisitions in sight. We don't have acquisition in search at the moment because we think we have a very, very good portfolio. And let me tell you that Engage is on the retail media in-store story. Captana is on the supply chain transparency story. Those are huge business opportunities. So they are a huge market and so it's enough to focus. So do we -- are there going to be small acquisitions like usually we do. We take technology. We have so many customers. We take technology, we scale it, right? We don't need to buy necessarily big things to -- we don't buy revenue. We buy technologies and capabilities. And we keep them, by the way, because we -- so I'm not saying we couldn't -- we don't need for something that will strengthen our AI engines or it's not -- maybe we could, but it's not a fundamental thing that we see a need of. Now we have really made 2 things that we were in search of. Recently, to give you an example, recently, somebody showed me a picture of me at the EuroShop 2020. And I was small on the picture because I was not the main character of the picture. But under my arm, I had a leaflet, a brochure of Belive. That was in 2020. So you see we take our time to watch and their people, I think we made a great success in integrating all of them. And so there is no need for more at the moment that I see at least.

So we have no further questions. [Operator Instructions]

Yes, since there is no question. So I wish you goodbye and we will now talk next on the 26? Is that right? Okay, 27th of April. So have a good evening, and see you soon. Thank you very much. Bye-bye.

Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.