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

Good day, and thank you for standing by. Welcome to the VusionGroup Q3 2024 Sales Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olivier Gernandt, Investor Relations Officer. Please go ahead.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our Q3 2024 sales conference call. I'm Olivier Gernandt, VusionGroup's Investor Relations Officer. With me today are Thierry Gadou, our Chairman and Chief Executive Officer; as well as Thierry Lemaitre, our Deputy Chief Executive Officer and Chief Financial Officer. Thierry Gadou will start with some remarks on the group's third quarter and 9 months business highlights. Thierry Lemaitre will then comment on our financial performance for the same period, and Thierry Gadou will conclude with some comments on our fourth quarter and full year outlook. After these remarks, 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 both French and English on VusionGroup's website, vusion.com. The slides of this presentation can also be found on our website in the Regulated Information section. A replay and a transcript will also be available on our website after this call. And with that, it is my pleasure to hand you over to Thierry Gadou for his opening remarks.

Thanks, Olivier. Good afternoon, everyone. Thanks for joining our conference call. So before handing over the floor to Thierry Lemaitre to review our figures, let me summarize the key achievements and the business momentum of the past quarter. Q3 has been our best third quarter historically. As anticipated, we started to accelerate our growth rate in Q3, now close to our full year target of around 25%, which we are confident to reach if this acceleration continues in Q4. In terms of geography, revenue growth was driven by the acceleration in North America, as anticipated, while the EMEA is still showing a decrease versus last year. I'll come back to both regions in a minute. In terms of product lines, VAS revenues continue to show a similar trend as earlier in the year, with recurring VAS growing rapidly, driven by cloud and data services, and nonrecurring services decreasing due to an overall difficult environment for retail. ESL division growth is increasingly driven by the growth of EdgeSense, the new digital shelf system we launched earlier this year, which is now in high scale rollout in Walmart U.S. and in pilots in other retailers, both in America and Europe. EdgeSense is our fastest-growing innovation ever by the way. Sales momentum has continued to be strong in Q3 with, again, high growth in new orders. We are building a strong backlog for the next quarters, which explains our confidence in our full year target and next year's acceleration. Let's look at our dynamics per region briefly. North America, now our first market, is clearly the primary driver of the momentum in '24. The Walmart contract is now in an intensive phase. We are currently rolling out the program as planned, and we will have shipped over 500 stores by the end of this year, with a target of 2,300 stores by -- installed by the end of '26. The rollout pace will accelerate in '25. New production lines have been ordered during the third quarter and will be implemented in the next 9, 12 months so that we can continue to increase our output capacity throughout '25. Our software revenues are growing rapidly as well. Furthermore, in parallel to the current rollout, new solutions and use cases are being tested to expand the strategic relationship with Walmart. We recently opened a new office in -- an innovation lab and a customer experience center in Bentonville, Arkansas, where Walmart is headquartered, as you know. And our Board of Directors and Advisory Board last week was in Bentonville, where they met with Walmart, discussed strategies going forward, visited stores, distribution centers and, of course, the new VusionGroup Innovation Center. As already announced, let me also remind you that there were several other successes in America during the third quarter. We signed a contract with Ace Hardware, the 21st largest retailer in the U.S. and one of the top national DIY brands. We have announced a rollout with Hy-Vee, one of the top regional grocers in America, and we hope to announce new deals in the fourth quarter, which are currently in their final contracting phases. In Europe, even if the multiple successes of recent months are not yet reflected in deliveries, which is normal due to the industrial lead times, order intake has been growing in Europe since the beginning of the year and additional new contracts are being finalized in many countries, both in the food and the nonfood retail sectors. Just a few examples to mention, the rollout of one of the world's leading sports retailers, which will reach over 20 countries soon. Travel Retail is a fast-growing sector too, and VusionGroup solutions will soon be in over 40 airports in 15 countries and 4 continents. So if you travel, you'll see more and more our technologies. The home improvement sector is also an area where VusionGroup's leadership is undisputed, with several leading brands in the process of international deployment in many countries. Pharmacy is also a fast-growing sector with several European chains signed in Q3, including Phoenix, recently announced, each comprising several thousand pharmacies in many countries, and other deals are soon to be announced in that sector. The same goals with health and beauty, with one of Europe's leading brands now to deploy in more than 10 countries, and several other major chains currently being piloted, including one with our new EdgeSense platform, and that's in Europe again. And new deals in DIY and consumer electronics retail have been signed recently in Europe. So another growth driver in Europe is the modernization of our large installed base and the pace of store renewals and migration to cloud is definitely accelerating in '24 and will continue in '25. So Europe has many drivers at play to resume growth in '25. And of course, I remind everyone that even taking into account the temporary slowdown in '24, our European sales have been multiplied by no less than 2.5x between 2020 and '24, which is an average annual growth rate of more than 25% over the past 4 years, above our European growth guidance of 20% CAGR. So I will now let Thierry Lemaitre take you through our figures and be back for a few comments on our outlook.

Thank you, Thierry. As you could see in the press release, and as disclosed on this slide, Q3 IFRS revenues stood at EUR 207 million, a 13% increase versus Q3 last year. Adjusted revenues corresponding to what is actually invoiced to customers, including Walmart in the U.S., amounted to EUR 222.9 million in Q3, which is a 22% increase versus Q3 2023. On a 9-month basis, adjusted revenues reached EUR 654 million, growing by 16% versus year-to-date Q3 last year. The trend in 2024 is quite similar to that in 2023, showing a Q3 lower than Q2 and the very strong expected Q4, confirming our guidance of EUR 1 billion over the full year 2024 on an adjusted basis. I remind that the EUR 15.8 million adjustment in Q3 and EUR 38 million adjustment over the first 9 months are relating to the IFRS 15 restatements on Walmart contract and more specifically to the warrants and the scheduled price decreases. In Q3, the split is approximately EUR 7 million for the warrants and EUR 9 million for the prior decrease adjustments. We will elaborate on other entries in a few minutes. On the following slide, as mentioned previously by Thierry, Americas have become the growth driver with a 256% revenue growth over the first 9 months in 2024 versus 2023. Europe is impacted this year by the completion of the rollout of our largest European customer, hence a revenue increase of 29% over the first 9 months compared to last year, but a higher expected Q4 versus Q3. This trend is in line with our previous disclosures and the guidance for the full year. VAS revenues are also pursuing the evolution as for the past quarters. Recurring VAS revenues keep on increasing strongly, notably driven by a growing number of stores operating their ESLs in the cloud. As of the end of September 2024, there were 135 million tags in the cloud, an 80% increase versus the end of Q3 last year, which showed 75 million tags in the cloud. Recurring VAS revenues amounted to EUR 41 million at the end of September. They increased by 37% in Q3 and 31% on a 9-month basis. This acceleration of the growth in Q3 should be further enhanced in Q4 and deliver EUR 60 million recurring VAS revenues on a full year basis in 2024. No surprise either the trend of the nonrecurring VAS revenues is also similar to the previous quarters. Nonrecurring VAS revenues decreased every quarter year-on-year over the first 3 quarters in '24 versus '23, but that are expected to grow again in Q4 this year versus Q3 this year and Q4 last year. Order entries, they continue to show a very strong momentum, confirming significant growth in the coming quarters. Q3 2024 showed EUR 442 million order entry level. Over the first 9 months of 2024, order entries reached EUR 1.156 billion, which is a 63% increase versus the first 9 months in 2023. These order entries will obviously fuel a significant revenue growth in 2025. I'll now hand over to Thierry Gadou for the outlook.

Thank you, Thierry. And as discussed in September, and as mentioned also briefly by Thierry, our outlook is very positive. Thanks to innovation and global market leadership, VusionGroup is at the forefront of the digital transformation of physical commerce. We confirm very good momentum in H2. Q4, we'll see a new sales record and confirm our target of EUR 1 billion adjusted revenues for the full year. We believe, as I mentioned earlier, that the macroeconomic situation will continue to weigh on our nonrecurring VAS activity. So we now anticipate a total VAS revenue of EUR 100 million to EUR 110 million for the full year, which is lower than our initial target of EUR 120 million. However, we maintain our target of EUR 60 million recurring VAS. We expect to announce robust growth in order entry again in the fourth quarter. We anticipate a further improvement of profitability with an incremental 100 to 200 basis points in EBITDA versus last year's 13.2%. And so no change here. And finally, we expect a continued positive cash flow in the semester. So in conclusion, '24 should be an excellent year, and we're already preparing for an even better 2025. I'll now hand over for questions.

[Operator Instructions] We will now take the first question from the line of Valentin-Paul Jahan from Stifel.

Just I have 2 questions. The first one will be that I thought that for the H2, the Q3 will be stronger than Q4 because retailers are generally very busy during Christmas period. And so Walmart, which is a major customer, will have concentrated its rollout in Q3 rather than Q4. You are expecting a very strong Q4 like last year, that didn't particularly pose a problem last year. But on the other hand, it is possible that deployments at the end of the year could shift into January since retailers are very busy during this period. So minor delays could lead to shift between quarters, I would say. So my question was, what is the risk in terms of -- what is the risk in this respect? I mean, you reiterated your guidance with confidence. But what do you think about the likelihood, maybe of delivery shift into January instead of December, for example? What would be the impact? If we assume, for example, all the revenue scheduled in December shifting to January?

Yes. I think the one thing -- you're right that the end of year period is a big period for retailers. But it's different -- we need to differentiate installations, which obviously disturb stores and usually slow down absolutely in -- at the end of the year. But on the other hand, shipments are different. And they are the driver of our revenue. So the risk of shipments and production being delayed by the busy -- sort of the very busy Christmas or end of year period is very small because it's 2 different things. It's supply chain risk, which always can happen, let's be clear. But it's very different. You ship to warehouses as opposed to installing, so what drives our revenue is the shipments, not the actual installations in store, which always slow down that -- when we're arriving at the holiday season, you're right. But there is -- we are quite confident on the shipments for this year.

So you will -- you would say that in terms of the guidance, it's absolutely not at risk currently, you would say that?

I think there's 2 different things you mentioned, saying that nothing is at risk in business, talking about the future would be, I think, very, very strange. So there are risks, but they are not the risk you mentioned. There are always supply chain risk. All of a sudden, you have production or shipments, but it's not because of the shipments are not driven by the fact that the holiday season is a busy period for retailers. That affects installations in stores, which is not what drives our revenue. So I'm saying we're confident. Last year was exactly the same pattern, exactly the same one. We had a Q4 which was -- it is -- this has to do with the seasonality also of our business. Very often you see the same pattern. So we are confident on our revenue, I would say, as much as we can be, right? But -- so...

Okay. Okay. And maybe just a last one regarding Walmart. I just wanted to get a small update on the likelihood of -- or I mean, the possibility that Walmart took or taken a second provider of electronic shelf label. I know that your product is a little bit different. Now it's more a rail -- digital rail but a digital shelf, I would say. But is there any risk currently since there is no exclusivity with Walmart that Walmart hire a second operator, I would say, second supplier, I would say. What do you think about this risk?

Well, right now, we don't see this risk materializing. I think I mentioned a few things in my introduction comments. One is that there were further production lines ordered during the Q3, which means that we are going to continue to increase the capacity for Walmart throughout the year '25. And so until the end of '25, we're going to continue increasing capacity that is not really the behavior of somebody who is trying to do what you are mentioning. Second thing, we have an increasing partnership with multiple new projects going on, and we just opened an office, an innovation center in Bentonville. And we had the Board last week and it's a very strong relationship that we have. So I -- more than ever, I see not this risk materializing.

We will now take the next question from Aurelien Sivignon from ODDO BHF.

I've got some follow-up questions on order entries mainly. And the first one was, can you say roughly the breakdown in Q3 between Europe versus Americas?

We don't -- I mean we don't disclose the breakdown by region.

Okay. All right. So maybe...

I mean we don't disclose it. So I mean if we begin to disclose it, we'll do it in a press release, you know how things work. So we don't do it, but there is one thing that we have disclosed in terms of details for the order entries this year is that we will have an order entry of roughly EUR 1 billion for Walmart in the full year of '24. So that's giving you an indication of that part at least. But for the rest, we don't give more. So this is not new. Yes.

And could you just follow up on Europe. So basically, you still expect EMEA to account for 50% roughly of total revenue, more or less. So I think it means roughly a flat Q4 in Europe year-over-year, which is still a big improvement versus previous quarter and especially Q3. So should we understand this is the combination of the multiple, I would say, new midsized contracts in many sectors, as you just mentioned earlier during the call? Or are there bigger rollout expected in Europe that will lead to make you confident in Q4, but also next year for back-to-growth scenario, I would say?

Yes. It's the result of many wins, which take time to materialize because the supply chain times in our business is long before -- between signing and start of rollout. So there's been multiple successes. I think we've been talking about successes in Europe throughout the year and still in Q3. And still, as I mentioned, new ones to be announced in Q4. So yes, you're right, your calculation is right about the fact that we should be not far or around flat in Q4, so meaning -- and resuming growth in '25, as we already announced. And again, as I said, over the past 4 years, Europe is 25% annual growth in average, which is above the 20% guidance. It's just that we accelerated a lot in number of rollouts in an unanticipated way before in '23. So there was, I would say, a little bit of accelerated growth. It was more 45% per annum between '20 and '23. So -- but we are still on our growth rate. So there is -- we are still in a growing market, and it will continue to grow. And our plan for '27 is also known for Europe, so there is a lot of things happening in Europe, both in food and in nonfood, I think I did mention a few of them. And so yes.