Earnings Call: H2 2021

Oct 21, 2021

The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's to do so. These will be available via your Investor Meat Company dashboard and we'll notify you when they are ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you give that your kind attention, we would be most grateful. And I'd now like to hand over to Alan Pepper, CFO and Mark Furniss, CEO. Good afternoon to you both. Good afternoon, Mark. Thanks a lot for hosting us today, and welcome everyone to our annual results presentation. Alongside me, as Mark says, is Alan Pepper, our Chief Financial Officer and Chief Operating Officer. I will now head off video, and we will expand the slides, and we'll talk through our results fy 21. So just to cover our business for those of you who are new to our story, Asensys is the world's leading provider of software and technology to the flexible workspace segments of the commercial real estate industry. The real estate industry is evolving massively as it turns into a new way of working. So spaces that were sold on long term leases for big empty boxes that model those types of real estate products are no longer fit for purpose and we've seen that change, that catalyst for change really happened through the pandemic. So in the new world of hybrid and flexible working, real estate has to evolve to meet those requirements. And our technology is designed to help landlords and flexible workspace providers run those buildings and those spaces. It's designed to help drive occupancy, increase revenues in spaces, deliver amazing in building experiences and and to reduce the operating overhead and automate a lot of the processes to operate these spaces. And landlords and flex space operators they need the technology that makes it easy for their customers their occupiers to utilize the spaces and the services within and that is our software and technology. Fy 2021 for us has been another strong performing year. We've seen great growth in our key US markets so up 20% in terms of recurring revenues in the year. The long term structural drivers for flexible real estate are accelerating. You can see the impact of the pandemic to people's working patterns, where we want to work and when we want to work. And in the year, we've delivered, the flex services platform, which is our new capability, which we've been working on for many years to really meet the needs not just a flex workspace providers but the real estate industry at large. We completed a £33,000,000 fundraise to really underpin our growth ambitions and to make sure that we have the resources available to make the most of what is a rapidly expanding market opportunity for Ascensus. Since that fundraise and throughout the year we've expanded our geographic coverage, the product, its capability and its roadmap we've accelerated and also we've accelerated our go to market expansion plans across our North American, UK and European and Asia Pacific businesses. And the pandemic whilst undoubtedly challenging for the global real estate industry and for software technology providers like ours, it's beginning to give way to increased momentum for rules in our business as actually flex and flexible workspaces become a key part of the real estate future. This year revenues down slightly but on a constant currency basis up 2%, 87% of our revenues are recurring now and we've seen a 2% increase in our recurring revenues in the year. So that's resulted with our investment throughout the year in a 6% EBITDA margin. Covering some operational highlights, we have a fairly straightforward strategy to land new customers expand with them and then grow over time. So this year has been about really ramping our go to market activities to make sure that those customers across the real estate industry, those prospects are fully aware of our capabilities and how we can help. That's translated into really strong pipeline growth, and the depth of our pipeline is really encouraging for the future performance of their business. And in the year we've added 24 new customers, the vast majority being long term high potential strategic targets that we're delighted to have added this year. We've launched the flex services platform. We launched that to much acclaim in March 202021, And already we're seeing the benefits of that capability translate into renewals, improving pricing and also roadmap in terms of our pipeline developments and in terms of how we meet the needs of our customers going forwards. We've also completed our 2 largest customers. We completed renewals with those in the period. Our first our US customer industrious has renewed on a new 3 year global framework agreement and our biggest and longest serving UK customers also renewed too. As we've deployed the capital and our investments into our growth, we've continued to add a great level of talent to the business. So across all parts of our organization, across all geographies, we've improved the team significantly in every area. Because of that improvements in our headcount, we've been able to also extend our reach into the industry at large. So the real estate industry we've been able to use network effects. So people who are well known across the industry who've joined us been able to unlock new opportunities and relationships. And that's translating into an increase in brand equity and people understanding how we can help the real estate industry at large. Now undoubtedly the pandemic has impacted our business and it's impacted it in some ways in a challenging way but in many more ways positively for the particularly as we look out from here. So we've seen a significant increase in top of funnel activity. So pipeline engagements and engagement levels across our target customers has been very high. But also the pandemic has led to some extension in the sales cycles as uncertainty has been in the market. And we're starting to see that change now and start to see that pipeline translate into new bookings and momentum. And for all commercial real estate organizations and landlords, it is clear now delivering more flexible products, more products which are fit for purpose for businesses is now a strategic priority, which means that we are in a great place to deliver the technology and software to help those landlords realize that change. And that that is translating into what is a significant structural growth opportunity. As a census sits here today after 15 years since we launched our business, we're at the very start of real estate's journey to a more flexible answer, and we are right at the heart of that. Our platforms have been able to give us real time data of what's actually happening in buildings. So we have with amazingly high fidelity and amazingly high resolution being able to understand what's happening in real time to allow those and our customers to make better decisions across their business. And what we are seeing now is a snapshot here you can see that the hybrid working patterns that people are talking around about the blend of work from home and work from the office are really starting to pull through on the data. We're seeing you know 2 thirds of the working week be focused in and around the office. And again the real estate industry is beginning to evolve its thinking to make sure that the spaces and the types of offices that are built and deployed meet their changing needs and changing working patterns we're seeing emerging. I'm going to hand over to Alan now, who will take us a walk through our finances for FY 'twenty one. Thanks, Mark. And just, I guess, to reiterate, notwithstanding the challenges, very pleased with the overall revenue outlook. Whilst at a reported level, down slightly on last year, we've had £1,000,000 worth of ForEx impact, and so revenue up on a constant currency basis, driven by that significant increase in U. S. Recurring revenue. So U. S. Recurring revenue up 20% and nonrecurring revenue up 15% on the year, particularly weighted towards the second half, so twothree acceleration through the second half of the year. Our ARR run rate, so a key measure for us in terms of as we grow the business, ARR run rate at constant currency, up 5% year on year and operator revenue up 5% year on year as well, and I'll touch on the constituent parts of that in a moment. At an EBITDA level, we expect the I turn the year where we expect it to be different, and I'll touch on a second, significantly by an increase in sales and marketing costs, and I'll touch on that in a moment. Recurring revenues, a proportion of overall revenue, up slightly. And notwithstanding the challenges again of the last 18 months, net retention, virtually where we were in 2020 at 99%. Margins up slightly overall. ARR margins in line. Overall, the gross margin is up 1 percentage point driven by the U. S. U. S. Margins continuing to improve as that business becomes bigger, and we have more establishment in across the U. S. And the U. S. Business now, 52% of overall revenue at a reported currency, slightly higher than that, obviously, at a constant currency. And in terms of our underlying products, so these are the obviously the historic products, and Mark will talk about Flex Services Platform a bit in a moment. So Connect and operate 90 odd percent of revenue in Connect, slight movement between Operate and Connect driven as much by currency as anything else. Customer numbers on Connect are over the year along with sites. So again, very pleased with that as an outturn. And in terms of operate customers, this is the part of the business which had a significant number of smaller customers. This is probably the area that was more impacted than anything else, that area of the business or that area that type of customer. And that's seen some customer churn and site churn, but nevertheless, revenue up as our strategy to move, increasingly move that business in line with the rest of our business towards the multisite operators increasing that move, driving revenue increase through the year. And overall, recurring revenue margin is in line with previous years. On the specifics on the P and L, I've covered off the revenue side of the business. The only particular thing really to highlight is growth in U. S. ARR, which grew 17% year on year. That's our exit run rate in the U. S. Was up significantly, margin improvements I've touched on. And that movement in overhead driven by the planned increase in primarily in go to market expenditure, so partly full year effect of that of investments in 2020 and then the increase through 2021 dropping through, as I say, as expected to where we see the EBITDA number. As previously noted, following the fundraise, we'll expect that go to market investment to continue in future years. On the cash flow, nothing particularly to highlight other than and I'll touch on fundraise in a moment. Work capital is slightly positive through the year, just on some general work capital management. Our capitalization of development cost continues at the rates that we've previously indicated as part of the fundraise that will go off. But in the current year or the year 'twenty one, as expected, likewise, our CapEx investment, which is continues to be about expanding our digital infrastructure capability. And then clearly, the big element on the cash flow is the impact of the fundraise that we did at the end of the financial year in July where net $31,800,000 fundraise into the business driving that closing cash position. But notwithstanding the fundraise, we would have ended the year with a cash position in line with where we fundraise going forward. And then just to finish off from me on our sort of historic KPIs that we've touched on. So 33 contracted sites, either live or due to go live since year end. And on top of that, as highlighted in the previous note, we've got another 91 sites with our existing customers, and Mark will touch on direction of travel and some of that in a moment. Customer concentration at the top level remains consistent, which is not surprising given the types of customers we've got and those that grew through the last 12 months. Although in the second or the rest of the top ten, that overall element of the business broadening as the likes of Tish and Spare and Oxford Innovation and these guys become bigger businesses or bigger customers. The LTV to CAC down from previous reported periods as expected and as indicated, and that's entirely driven by an increase in sales and marketing spend through the year, which grew by about 60% year on year, And as I mentioned a moment ago, we'll continue to grow as we expand the business. And in terms of overall balance of business from a product perspective, increasing numbers of sites using both products, and that will feed through to the developments in the Flex Services platform on that side of the business in due course. That's it for me, Mark. Thanks, Alan. Let's come to market update and what's happening to the opportunity for Ascensus. So it is clear now that there is a weighting towards being in the office post pandemic. So not all of the time much more around a hybrid approach But it's also clear from recent research that actually the answer that nobody really wants is to be working from home full time. So that means that the real estate industry has to evolve at pace to meet these needs. And when we think about research that's been done about what occupiers want in these buildings the number one requirement is to have flexible space options in a building in future. Alongside that it's about shared meeting space, it's about air quality and environmental, it's about connected technologies and touchless technologies. All of these themes play into our product roadmap and our flex services platforms capabilities. So it is quite clear that the digital experiences in these buildings will be a key driver for real estate going forwards. And actually when you ask whether or not the market is ready to deliver this, occupiers, only 13% of them think that landlords are well positioned to serve these flexibility requirements. So landlords have a long way to go to start meeting these needs, And they realize that if they do that, that there will be a premium, there will be an increase in value and an increase in returns for them as an organization if they meet the needs of their occupiers. It is the move from long term lease to a long term customer. And actually, landlords also understand now that technology is a key driver for their future office portfolios. In order to deliver these services, in order to deliver and manage the types of spaces and buildings that occupiers are now demanding, technology is at the heart of that. It makes it efficient. It makes it commercially viable, and it also increases the quality of the experience in the buildings for occupiers. You can see, and I'm sure you all understand, actually, that the future is so much centered around flexibility that actually every business, every organization is designing that into their working practices going forward. So what we what we see is a market moving towards our technology is the world's biggest asset class real estate and office particularly needing to have the types of technologies and software that Ascensus has built over the last 15 years to meet the needs and the future needs of their occupiers. So the market is moving towards us, and it is all largely untapped white space. We have lots of opportunity to grow into the market. And it's important then when we think about how we've raised capital this year and how that actually is translating into the execution of our strategy. And our strategy is very, very simple. We land high quality, high scale commercial real estates providers and landlords as well as pure play flexible workspace providers. And we will expand and grow with them over time. So we get the benefits of compounding with these customers. And just a brief subset of our current customers are people like Tishan Spire were in the Rockefeller Center in New York. EQ office were in Sears Tower, the old Sears Tower in Chicago. And we're seeing new providers and new real estate companies choose a census as not just a low risk approach, but the right strategic partner for them going forward in terms of their technology and software requirements. So our platforms really line up with the requirements of our customers. Now those customers provide significant long term opportunity for us. Sales cycles are longer because they are much more focused on the right answer. They will take 12 months, maybe 9 months, maybe to make those decisions across the whole of the organization. But we are at the early adoption stage of real estate when it comes to flex. So our job is to make sure those logos choose a census and as they expand over time across not just the space that they start with but in their buildings and then across all of their portfolio The value to both those and those customers increases significantly over time. As I said, moving from long term lease to long term customer, these real estate brands and landlords have the ability to create large scale spaces, networks of spaces, which can be platforms. We also, as well as direct customers, we also have some distribution channels with people like JLL and Cushman and Wakefield, And obviously, the pure play flexible workspace providers that we've worked with for many years, people like Industrious who now are owned or 35% owned by CBRE and have significant growth plans, and people like landlord who Landmark who have been one of our longest standing UK customers and are still the biggest UK customer for Ascensus. So you can see that journey evolving, and we're really well positioned with the quality of our customer base today. But we have to make sure that our products and every part of our software platform lines up for the requirements of our customers and the future of their business. So this year, after, you know, Connect, which we launched in 2010 and Operate, which is 2017, we've evolved that thinking into our flex services platform, which was launched earlier this year. And that really is about bridging the gap between flex space and traditional space in these buildings. It's about giving the tools to the occupiers that makes these spaces much easier to use and the value in these spaces much easier to get to. It's a 4 pillars is our approach it's around the infrastructure so that intelligent infrastructure layer which is so important when we think about everything from Wi Fi to network services all the way through to sensors and occupancy awareness and access and smart access control and dynamic digital signage. And then we think about digital twin and space management and how do we operate these spaces and then how do we connect to the mobile device to make the occupier experience in these buildings seamless. Flex services platform addresses all of these requirements with a best of breed approach for each of these pillars. And so we are beginning to see the emergence of a new type of customer with a census, one that is thinking 5, 10, 15 years ahead. And that's great for our product because we can grow and scale in buildings and across portfolios with flex services platform. Just come on to our largest single market opportunity. We've made no secrets of our ambition for the US and and that's really delivered what has been a really strong performance in the last 12 months. So as we've said earlier, up 20% in recurring revenues this year. We've got a great leadership team now in the US led by Jeremy Bernard who's the CEO for our business in North America. He's building a very high quality team with undoubtedly a real estate bias. And that's translating into really strong customer pipeline, new customer wins, and existing customers still continuing to grow even or despite the challenges of the pandemic. And that's again translated into our largest customer industries renewing on a new global agreement. And their first non US site has recently gone live with us in the UK. So we must focus our a large proportion of our attention around go to market activities and scale up around the US market. It is such an important part of our future ambitions that we must deliver and execute really well our strategy in the U. S. Which I think we're doing to date. In regards to this year, our entry into the APAC market, we've appointed Eric Schafer as our regional CEO. Eric comes with a great pedigree and great real estate experience formerly head of real estate for WeWork in the region. He's already building a really strong local operational capability. So a strong team, again, with that real estate buyer. So we really understand our customer requirements, translating into very early top of funnel activity. So we're really seeing the pipeline develop well already. And ahead of plan, we've delivered our first APAC contract win. So a key part of our opportunity going forward, and particularly when we think about our global customers, they want to know that they have with us the ability to expand across APAC across North America and across Europe. And in Europe where our UK base has been for the last 15 years and where we've been most successful historically. The pandemic undoubtedly has created some challenges in the UK, but as we look out the European market opportunity is significant. So we're delighted that we've now recruited a CEO to lead the UK and European business for us and we will announce that person's name very soon. And that when we think about our activity across Europe, we've got good engagement with many European landlords now, REITs and real estate owners and asset managers. We've seen the largest UK customer renew for another 3 years and we're starting to expand our European business development activity. So as we sit here today we're very, very excited as well about the opportunity for growth out of the European market. So where does that bring us to in terms of outlook? Well, this year it's about once again delivering an amazingly resilient performance. So to have grown on a constant currency basis throughout a full year of the pandemic, I think has been a really strong performance by our business and talks to the quality of our customers, the strategy that we have in place. And actually that's how I'm translating into that momentum as the structural growth drivers begin to accelerate. As we come out of the pandemic and certainty returns to the real estate market we know that we are really well placed to deliver against our overall growth objectives. But in the year, we've not just sat and thought about the future. We've made sure we've strengthened the foundations across our whole business. We've looked at every part of our operation. We looked at every system process routine and made sure that we are fully equipped for the scale that our business will have in the years ahead. And when I think about our people, I think about our products, and I think about our value proposition as well as the market, I think we are really well equipped to realize our growth ambitions for the future. That concludes the formal part of the presentation. Mark, happy to hand over to you. That's great. Thank you very much indeed to both Mark and Alan for updating investors this afternoon. I'd also like to remind you that your feedback is important to the company. And after this meeting has ended, we'll redirect you for the opportunity in order that you can provide the company with your thoughts and expectations. If I may, Mark, Alan, obviously, investors had the ability to pre submit questions and, there were a number of questions submitted during today's event. Perhaps if I could ask you to read out those questions and where appropriate give a response and then I'll pick up from you at the end. Sure. Thank you, Mark. And so the first question is in previous IMC seminars you've published LTV to CAC ratios. 1, what period are you using to measure LTV? 2, how long does it take to reach breakeven? 3, how are you calculate calculating LTV to CAC? So question more on that. So what period are you using to measure LTV? Well, LTV is obviously a function of gross churn, and we use churn to forecast what that LTV looks like over time. So it's not normalized. We don't discount it. It is absolutely a function of how long our customers stay with us. And how long does it take to reach breakeven? In terms of the customer acquisition costs historically, that's been 12 months. So really strong in terms of an enterprise SaaS product. And we will, you know, as always, focus on a really efficient use of capital when we think about customer acquisition going forward. How are you calculating LTV to CAC? Question is whether or not the cohorts of customers you are using, what cohorts of customers, and if any forecasts are being used in the LTV calculations. So what we don't do is we don't forecast any increased revenue or margin performance or pricing change that may come over time. So it's absolutely based on the revenues that are both contracted and invoiced today. And the cohort of customers are absolute. So it's the full cohort at the moment in time on the annual basis that we calculated so when we think about the start of the year it is that same period a year ago with that same cohort of customers this year so really clean the way that most SaaS businesses will will use LTV to CAC. Next question, when you raised your published targets for ARR in 202526 and for market share in 2030. 1, could you update us on whether these are still your targets and whether you are on course to meet them? 2, what are you using to assess progress? And 3, what LTV to capital invested following the raise. So Juan could you update us on whether these are still your targets and whether you're on course to meet them? So absolutely we've been really clear and really open to the market about how we expect our business to grow over time. All of the foundations that we expected to put in place the deployment of capital the investment in our opportunity we've done really well since we've raised not just this year, but we raised at the start of the pandemic too. So absolutely still very confident in the outlook. I'm actually quite excited for the size of the opportunity as we look out. Definitely accelerating and we're doing all of the things well that we and our strategy says we should do. And what are we using to assess progress? Well, there are many measures, but if you think about how the leading indicators look, are we winning the right type of customer? So it's really important for us to focus on the right customer that not only gives us opportunity now, but it gives us that long term potential as they increase the amount of their portfolio as flex. So we want customers that we can grow with over time and actually can our technology grow much past the flex space in these locations, in these portfolios, and start really becoming a new type of operating system for real estate that manages and looks after the whole of the operations for the building. So we think about that as a leading indicator, the right types of customers. So top of funnel all the way through to bookings and then whether or not those expansion revenues come through. And then finally, what LTV to CAC or other measures of returns are you expecting? Well, LTV to CAC is a good ratio when it comes to efficiency. So it's really about for every dollar we're spending what that return profile looks to make sure we're not buying our way to growth, and that's really important not to do. The returns have to be real. And then so after we think about LTV to cap, we look at ARR growth, so that annual recurring revenue level. So is that growing? And then to make sure that we get the benefits of compounding over time and the operational gearing of a SaaS business like ours, how does that translate into net revenue retention? So are our customers growing over time, but not just net revenue retention but gross revenue retention. So really what's the chair number, and are we really just sort of relying on a small cohort of customers, or do we have strength in-depth across our base? And they're really the things that are the leading indicators and how we see our returns and how we measure our returns based on the capital we're deploying. And question from Michael, how do you see the geographic split of your revenue moving forward? Do you see the US driving revenues ultimately? Well, again, we make no secret of our ambition for the US. It is the single biggest real estate market globally, and we have done really well since our market entry in 2016, but we are really only just getting started. And and quite frankly, the majority of global real estate players are headquartered in the US so we if we are successful in the US then the our business is going to be unbelievably successful in terms of our growth ambitions in terms of our revenue performance our whole profit and loss performance can hang off the size of the US opportunity. So it is really important that we're successful in the US. Notwithstanding that APAC is a huge opportunity, Europe is a huge opportunity, and we can we have the horsepower to to push on in each of these regions and the product to support that too. Simon asks, given the strength of the balance sheet, do you see growth as being purely organic or are acquisitions part of the plan? If so, are any areas are there any areas you feel would be complementary? So, yes, we've got a transformed balance sheet. We are debt free. We are a UK PLC, and we also have a strong cash position. Undoubtedly, there will be areas that we look to for growth, whether they be organic or acquisitive. I think acquisitions for us, can they be accretive in terms of revenue and earnings? And, you know, this is the early stage of this market evolution. So there are a few scale players that are really relevant to us. And the second part is, are there technology elements that we can add that will increase the value of our products and services to our customers? And we are always looking at those opportunities. So absolutely, m and a can be part of the future, but it has to be right for us, whether it's technology or whether it's earnings accretion. So I think Perfect. Yes. I think I'll jump in. I think you've taken every question that was submitted. So thank you, Mark and Alan for for doing so. If any further questions do come in, obviously, we'll make those available to you, for you to review and respond if it's appropriate. I guess now that that's the questions, the Q and A finished perhaps, and I know investor feedback is important to you. Perhaps I could ask you just for few closing comments, and then I'll redirect investors to provide you with some feedback. Yeah. Great. Thanks, Mark. So this has been another strong year of performance for Ascensus. You can see the quality of our customers, our strategy really translating into the strength of our business, so that really resilient performance against the backdrop of an unbelievably challenging period for real estate. What's more exciting for me is that the momentum that we have, the the momentum that's now building across our business is only the start of the journey for us because of the structural change and that structural growth story that we are seeing unfold right in front of us. And and, you know, we were 15 years old this month. And for 15 years, we've worked unbelievably hard to earn the right to be the industry's choice, and we're prepared to work even harder for the next 15 years to remain that choice. And if we do, the returns for our business and our shareholders and our customers can be amazing. Mark, thank you very much indeed for updating investors and to Alan as well. Thank you so much for your time today. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Vicensys, we'd like to thank you very much for attending today's presentation. That now concludes today's session. So good afternoon, and thank you for your time.