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

Good afternoon, ladies and gentlemen. I'm Olivier Gernandt, VusionGroup's Investor Relations Officer. And with me today are Thierry Gadou, our Chairman and Chief Executive Officer; as well as Thierry Lemaitre, our Deputy CEO and Chief Finance Officer. Thierry Gadou will start with some remarks on the group's first half business highlights. Thierry Lemaitre will then comment our financial performance and Thierry Gadou will conclude with some comments on our full year outlook. After these remarks, as mentioned by the operator, we will be happy to take your questions. As a reminder, some of the information to be discussed on our call today is forward-looking and subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on Slide 2 of this presentation. This evening's release was issued a short while ago and is available in French and in English on VusionGroup's website, vusion.com. The slides of this presentation can also be found on our website. And with that, it's my pleasure to turn you over to Thierry Gadou for his opening remarks.

Thank you, Olivier, and good afternoon, everyone, and thanks for joining our conference call. So let me first summarize the key points of today. So H1 performance was in line with our target. Revenues are up 13% versus last year at EUR 430 million in adjusted terms. As anticipated, there was an acceleration in the second quarter. Revenues jumped from EUR 178 million in Q1 to EUR 252 million in Q2. Thanks, in particular, to the ramp-up of the Walmart project. New orders surge in H1, reaching EUR 714 million, up 38% year-on-year and over EUR 1.1 billion over the last 12 months. Thanks to many commercial successes, both in America and in Europe. Recurring VAS revenues grew plus 28% at EUR 26 million, representing around 60% of total VAS revenues, which amounted to EUR 44 million, down minus 25% year-on-year due to less one-off revenues in a difficult macroeconomic environment. And finally, we confirm our full year '24 outlook with adjusted sales above EUR 1 billion and improved profitability with a high level of confidence in our guidance of an incremental operating margin of 50 to 100 basis points. So before letting Thierry Lemaitre go through the detailed figures and discussing our outlook. Just a few comments on the strong business momentum we experienced in '24, despite the difficult economic environment, both in the U.S. and in Europe. In the U.S. first, our growth is very strong, both in terms of sales and order entries. On the one hand, Walmart's deployment has entered a rapid phase. I'll say a few words about it in a minute. More broadly, the launch of EdgeSense and VusionOX is very well received and poised to accelerate the U.S. market. This powerful momentum will be even more visible in the second half of the year and in '25. U.S. has now become, as promised, our first market. The group is also successful in many European markets, France, the U.K., Germany, Scandinavia and Portugal and particularly in a multitude of nonfood market segments, such as pharmaceuticals, sports, DIY, furniture and household appliances. We haven't announced all our wins yet, but thanks to these successes and others to come soon, we anticipate a rebound in activity in Europe in the second half of the year compared to H1 and solid growth again in '25. Finally, just a few words on the Walmart rollout. As you could see at the beginning of June, there was a lot of communication by Walmart during their shareholder week on our digital shelf project, which was presented to the analysts and the press as a strategic project for the company. Walmart's feedback on the technology and the benefits were extremely positive and we're immensely proud of such a rare recognition by the best and largest retailer in the world. Walmart also announced an accelerated pace of rollout with a plan to reach 2,300 stores, supercenters in the U.S. in '26. That's 50% of the total U.S. fleet. Indeed, we have entered a rapid phase of deployment. Over 500 supercenters will have been installed before Christmas before the end of this year and that pace will increase again next year. So the program is on track. Customer is happy. This will accelerate our growth in the market as a whole. I will now let Thierry Lemaitre go through the detailed figures of our press release.

Thank you, Thierry. Good evening, everyone. As Thierry already commented, you can see on Slide 6, the H1 sales figure, which we are disclosing today. As usual, we are disclosing IFRS figures and IFRS figures adjusted for 2 IFRS 15 noncash restatements to present a more economic view in line with what the group is actually investing and collecting. We'll elaborate in a minute on the magnitude of these 2 adjustments, but let me remind you, first, the key points of this disclosure. H1 sales totaled EUR 408 million and EUR 430 million on an adjusted basis, which is right in the middle of the EUR 420 million, EUR 440 million guidance. We recorded an impressive EUR 714 million order entries over H1. Recurring VAS reached EUR 26 million in H1, up 28% versus H1 2023, and we enjoy a strong momentum in the U.S. and several commercial key successes in Europe and, therefore, confirm our EUR 1 billion adjusted revenue target. We also have a high level of confidence in our guidance of an incremental EBITDA margin of 50 to 100 bps. Coming back now on the following slides on the IFRS 15 restatement amounting to EUR 22 million in H1 2024. I'd like to remind their nature and their magnitude. As you probably already know, they consist of 2 restatements related to the Walmart contract 1 for the warrants granted to Walmart and 1 for the price consideration. The graph presented on this slide is for illustration purposes. The scales are not linear, but it shows the way these 2 restatements would impact the group revenues on a cumulative basis. For the warrants first, that you can see on the blue line, [indiscernible] expert assessed the valuation of these warrants at the time of their grant, which was EUR 163 million. This EUR 163 million will come in deduction from the revenues in proportion to estimated revenues generated by Walmart over the duration of the rollout. On a cumulative basis, at the end of the rollout the end part will hence be minus EUR 163 million on the revenues and down to the net income. For the second restatement, VusionGroup will grant a volume-based price discounts to Walmart and under IFRS, I remind you that we have to put the revenues at the volume weighted average selling price. At the beginning of the rollout, we invoice and collect at the selling price, which is higher than the average, and this results into a negative restatement on the revenues. At the contrary, at the end of the rollout, we invoice at a lower price than the average, and we have then to book a positive restatement under IFRS. So the cumulative impact is 0, being negative at the beginning and positive at the end of the rollout. Over the full year 2024, these restatements should amount to a bit more than EUR 20 million, which is the difference between what is invoiced and collected from Walmart and what it should have been based on this theoretical average selling price. This is what is shown on the second line. We also want to share with you today that we have already negotiated cost decrease with our suppliers, based notably on increasing volumes and we can confirm that the scheduled price decrease will not impact negatively the margin in '24 and '25. In other words, the cost decrease we have negotiated will at least offset the impact of the price decrease. On the following slides regarding the performance per region. EMEA keeps on decreasing at minus 25% in H1 2024 versus H1 2023 on the back of the completion of the rollout of a large European client, and this is more than compensated by the very good traction in America and APAC at plus 205% versus H1 last year. Americas and APAC represent 45% of the H1 revenues, and this strong momentum is expected to continue. On the following slide, on the VAS side, recurring VAS revenues increased plus 28% in H1 2024 versus H1 2023 at EUR 26 million, and we confirm a target of around EUR 60 million for the full year. Nonrecurring VAS are still under pressure and decreased versus H1 2023. But we are expecting a recovery in H2 and aim at reaching EUR 120 million to EUR 140 million total VAS revenues over the full year. On order entries following slide, they are at a peak in Q2 at EUR 440 million, showing H1 at EUR 714 million, at a 12-month rolling level of EUR 1.1 billion, mainly driven by the strong momentum in the U.S. and in Europe. The EUR 1 billion order entry for Walmart announced early May this year will be fully recognized in the order entries by the end of 2024. We expect this EUR 1 billion to be a rather equally split on each of the last 3 quarters, Q2, Q3 and Q4 and are recognized when we receive from the Walmart team the prioritization for stores and their expected deliveries. I'll now hand over to Thierry Gadou for the outlook.

Thank you, Thierry. So as I said in the introduction, our objectives for '24 remain unchanged and are comforted by the H1 performance. So we expect a record performance in H2 at EUR 580 million to EUR 600 million, which is around 40% growth, and that's the first semester that will be above EUR 0.5 billion. We confirm an annual adjusted revenue target of EUR 1 billion, with EMEA already starting a rebound in H2 and representing 50% to 60% of total annual sales and rest of the world, representing around 40% to 50%, driven by the 3-digit growth in the U.S. Total VAS revenue, as Thierry just mentioned, would be around EUR 120 million to EUR 140 million for the full year, including EUR 60 million recurring services and with an end of year backlog able to double recurring fees in 2025. We expect an improvement in adjusted variable cost margin with the first half of the year and for the full year compared to the same period in '23. The group also confirms its objective for a continued improvement in profitability with an adjusted margin expected to increase by 50 to 100 basis points. And again, as I mentioned, we feel quite comfortable on that EBITDA improvement range. Continued cash flow -- positive cash flow in '24 is as we expected. We anticipate continued robust growth in order intake in H2. And with an order book at an all-time high, we can already anticipate and are preparing a strong growth trajectory in '25. In conclusion, this year, '24 will be an excellent year in every way, and we are already preparing for an even better '25. Thank you, and I'll now hand over for questions.

[Operator Instructions] And it comes from the line of Ben Thielmann from Berenberg.

This is Ben from Berenberg. Three questions, if I may. First one is on order intake, recognition from the EUR 1 billion Walmart rollout. You mentioned that the EUR 1 billion will be recognized equally between Q2, Q3 and Q4. And if I look at Q2 order intake numbers of EUR 440 million, is it fair to assume that roughly EUR 300 million of that was coming by Walmart? This is the first question. The second one is on order backlog. Maybe you can guide us a little bit what share should we assume of order backlog by the end of this year to translate into 2025 revenues? And the third question is basically whether you can give us some visibility on the down payment recognition related to the EUR 1 billion Walmart rollout in particular?

Okay. Ben yes, yes. On your first question, yes, it's a fair assessment. So yes, it's a fair assessment. Order backlog, the way it will translate into revenues in 2025. Well, difficult to say. We said because if you did -- usually, we delivered the backlog and approximately 6 months. But when we receive very large orders, these large orders are usually to be delivered over more than 6 months. So actually, when you see the level of order entry that we received, the EUR 1 billion that should be fully recognized at the end of 2024. We said that this EUR 1 million -- EUR 1 billion should be delivered by the end of 2026. So in this case, that confirmed that when we receive massive orders they do not translate in revenues necessarily the following year, but in this case, in more than a year, so it to be splitted in '25 and '26. And just regarding the down payments, while we received already a portion of this down payments, the way we receive the down payment is in twofold. First of all, Walmart, as we already explained, is ordering a certain number of manufacturing lines that we invest and that Walmart is 100% prefunding. This one, this time in the EUR 1 billion order that we received Walmart has already funded 2 manufacturing lines on top of the first one that was already funded in 2023. So that's already one element. And then we received approximately 50% down payment on the stores to be delivered according to their schedule. So we have already received a significant portion of the -- not a massive portion of the EUR 1 billion. But we have received a significant portion of down payment. That is something that you will be able to see when we present the full financial statements in September.

And the next question comes from the line of Yann de Peyrelongue from Gilbert Dupont.

I just have a question on the freight side. Do you see any trouble from China from containers? Because I see this on other companies. So it would be helpful. And maybe if it's a difficulty for you or not at all?

We -- not -- let's say, we see as everyone that there is some difficulties here and there, but we have different means of transportation and multiple alternatives that -- so we don't see anything that would be affecting the guidance that we gave. And so in that respect, it's managed. Let's say, it's mitigated so far.

Okay. And maybe just to give some flavor on EdgeSense. What is the part of your backlog that is coming from this technology? I don't know if you disclosed this, but...

No, we don't disclose it, but there is -- let's say, right now, it's a big part of the backlog because, as you know, it's a technology that's been sufficient, that's been chosen by our largest, let's say, client right now. And so therefore, it's a big part of the backlog. But it is also, and that's more -- probably more important a big part of our pilots in -- primarily in America right now, and we will introduce it in Europe soon. So it's the next generation of solutions. So it will be ultimately present everywhere and representing a big part of our revenue in 2017, but it takes time. And right now, the answer is, it's a big part of our backlog because it's chosen already by Walmart. But as I said, I think it's reshaping a little bit the market, and we see really extremely great feedback from all customers. We see that we are solving problems that were unsolved before in the digitization of stores. And so we're more optimistic than ever, not only because of the Walmart rollout, which is de facto operating standard. But it's also because of the reaction. So it's going to be -- an even increase -- an even important -- more important part of our backlog in the future.

Okay. And so maybe because of your technology, you will have a bigger market share, I guess?

It's a real possibility. We see -- for sure, right now, we have the -- I mean, not everybody is publishing or disclosing their figures. But we have the clear feeling that at least in terms of order entries, we are gaining market share on the market and that it will translate in an increase of market share in the following year -- following years.

[Operator Instructions] And the question comes from the line of [indiscernible].

I had one actually is the last 2 quarters have been experiencing negative growth in Europe due to all the reasons you mentioned. Would you consider a ramp-up back to positive growth in the third quarter or do you consider this could be delayed somewhat further?

No. So what we said is really 2 things. First, a rebound in H2 compared to H1. So -- because we've been accumulating new orders and new wins in Europe. But we expect growth to be back and -- actually substantial growth to be back in '25. Because the new orders take time to -- as you know, to plan and to manufacture, there is always a lead time between the moment where you basically win a deal and actually the moment where you start delivering. And therefore, because of that, so we said very clearly and we had announced it will be decreasing in revenue in Europe this year because of the comparable basis with the peak in the rollout of this very large German customer last year. But we are back in growth and very confident now because we've been having many wins in Europe, and so we're back in growth in strong growth, and that was planned. So there was nothing new, and we didn't give any guidance on quarters and -- but it's in H2 rebound in '25 back to strong growth.

Okay. Thanks, Thierry. Well, if you allow me, just a clarification, there is a global target for Europe -- EMEA of 50% to 60% for this year, if I'm reading you correctly. So there has been a negative growth over the first 2 quarters. So I guess, we might expect if it's going to be back to very strongly positive, we might expect the next quarters to be positive. Otherwise, it's going to be challenging unless I missed something, otherwise, it seems to me challenging to reach a 50% growth with having 3 quarters negative.

Sorry. No, just to make sure we have the same understanding of the numbers. What we said is Europe would be 50% to 60% of the total revenue, which is because we are [indiscernible] it's going to be EUR 500 million to EUR 600 million. That means that Europe will be -- so EMEA, sorry, because it includes also Middle East Africa, EMEA would be EUR 500 million to EUR 600 million. So -- I mean, it's very precise, actually, if you look at it, so it's -- that's what we said, right? So it means [indiscernible] between H1 and H2 to reach EUR 500 million to EUR 600 million and then back to growth in '25.

And the next question comes from the line of [indiscernible].

Can you hear me all right?

Yes. Yes, we can.

Okay. I would like to get back if it's possible on your press release on the 3rd of July. On the Blakemore retail contract. Can you disclose a little bit more about what the memory post in-store solution is? And is it using any Captana material at all or not at all?

Sorry, any what?

Captana cameras. I'd like if it's -- I'd like to understand what is the solution about. And if it's using the Captana material.

No, I understand the question. No, no, I understand the question. So -- and it's a good question. We are seeing very, very good -- I know the U.K. has been discussed over the first half and it's a very, very dynamic region at the moment. And so it's moving very well. So Blakemore was one announcement of the -- of recent. There will be more. And basically -- so we have a number of solutions. One of that is data analytics, of course, electronic shelf labels, cloud, et cetera, and data analytics. And then we have computer vision, which can also be. So computer vision is not part of the Blakemore contract so far. It's only data analytics. So the combination of pulse and memory, which is basically using analytics around the sales data to be using even better the ESL solutions and have dynamic pricing and promotions and more agile and intelligent pricing strategies based on retail analytics. So that's what it is. No Captana in Blakemore.

And the question comes from the line of Adam Gildea from Bank of America.

I have 2 quick ones on the Walmart contract, if I may. The first, you mentioned 500 stores by the end of 2024 and then 2,300 by the end of 2026. I'm just wondering if there's any color on the timing of the rollout over 2025 to 2026. Is it going to be fairly even? Or more back-end loaded? So how should we think about that scaling towards the 2,300 stores? And then second, I was wondering if you could just talk about the recurring VAS solutions included in the Walmart deal, what they've signed on for and how that might impact your guidance for the EUR 60 million this year and then the doubling of recurring VAS revenue next year?

Well, the first question, yes, I think it's certainly not back-end loaded. And linear is a good assumption. If it's different, it would be more front-end loaded than back-end loaded. But at this point, I think we're embarking on relatively linear, but it's still not uncertain, but not completely certain for us because it's also decisions that are not all under our control. But I think it's certainly not back-end loaded and more front-end. Because the project is very strategic. I think they explained it very well during their communication in June, and they want to -- they accelerated the rollout, so it's certainly not to make a back-end loaded or roadmap of plan of rollout. And your second question, yes, I mean, obviously, we take into account everything we know in our guidance. So there is a significant revenue per store -- recurring revenue per store in that program. And of course, it's activated as we install and activate the store. So this is why it's really -- those revenues are triggered by the installations and the start of the run of the stores. And this is taken into account in our projections that we gave, which is around EUR 60 million this year in recurring revenues as well as other things, of course, but that is included and the doubling of that number, so around 120 in '25, that's, of course, included in that and an assumption of rollout is included in that, but a safe assumption of rollout of that program. And of course, plenty of other things that are also growing in that recurring part.

Maybe 1 quick follow-up, if I may. Could you just confirm which -- to the extent you can, which of the recurring VAS solutions they've signed on for?

Well, there are several things, which they explained. It's mostly in the cloud right now. But there are different features using, of course, the ESL for their original function but also all being store fulfillment functions that are also used. So that's the first key usage and many are currently under pilot. So that's the 2 things that are already, I would say, embedded.

And the next question comes from the line of Ben Thielmann from Berenberg.

It's me again. Just a quick follow-up. Basically, the same question we just had regarding the time line of the rollout for the EUR 1 billion Walmart rollout. I mean if you say that the EUR 1 billion order intake may be split probably equally from Q2 to Q4, we just spoke about it, does it mean that 2/3 of those EUR 1 billion revenues are likely to be recognized as well in like Q2 and Q3 2025? Is that roughly fair to assume, which would basically go back to the question that actually most of the revenues of the EUR 1 billion will be recognized actually in 2024 -- sorry 2025 rather than 2026, right?

No, that's not what we said, Ben. Because we said that roughly if you take the 2 order entries that we received from Walmart, we said that the first order entry which was approximately 600 stores. We said that 500 stores should be completed by the end of the year, which means that there will be a limited number of stores to be still delivered over Q1 next year. And then we will start delivering part of the EUR 1 billion order entries, probably end of Q1, early Q2. So no, this is going to be splitted over multiple quarters, not starting in Q3 again to start very likely in Q1 or maybe in Q2, but we will have a part of this EUR 1 billion that would be already visible in revenues starting in Q2, Q3, Q4 in the course of 2026.