Good afternoon, and welcome to the Fadel Partners Inc. Interim Results Investor Presentation. Throughout this recorded meeting, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right-hand corner of your screen. Just click Q and A, type in your question, and press Send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Tarek Fadel, CEO. Good afternoon, sir.
Good afternoon, and thank you for joining us today. With me is Ian Flaherty, our CFO. Just by way of quick introductions, for those of you who don't know us yet, my name is Tarek Fadel. I'm the founder and CEO of the company. I come with close to thirty years of enterprise B2B technology experiences. Prior to Fadel, I was with Oracle, in a multitude of roles, both on the product side and the consulting services side, and have a computer science and business degree.
Yep. Again, my name is Ian Flaherty. I joined Fadel in February, 2024 . Previously held various financial management roles in publicly listed companies within technology and direct-to-consumer sectors. I'm a CPA, starting my career with Ernst & Young.
Thank you. So we're gonna basically level set our product offerings and solutions, just so that for people joining us today who'd really like to understand the solutions that we offer. The company is a leading technology developer of cloud-based enterprise software for both intellectual property and brand licensing, as well as brand compliance solutions. We have two main product lines, the first one being the IP Management Suite, which is really a suite of product offerings that allows companies to better protect, manage, and monetize their intellectual property through licensing agreements.
Both, understanding the rights that they're giving to the licensees, so if they happen to be an IP owner or licensor, as well as all of the royalty and monetary relationships that exist between the parties. And so we offer a complete suite of products that allows companies in sectors such as consumer brands, consumer products, publishing, gaming, technology, who really rely very heavily on the intellectual property licensing aspect and this type of software to be able to manage the licensing rights as well as the royalties. We work with large enterprise clients. We've also been working with smaller mid-market clients moving forward.
We are very excited this year that we've taken our intellectual property management suite of products, which were mainly focused for large enterprise and large mid-market clients, and have brought the same technology and capabilities, just in a pre-configured manner, to the mid-market and small market licensees. These are companies that effectively are in industries like apparel manufacturing, retail, gaming, where they actually use licensing to promote and increase the value of the products that they're selling. They're not actually in the licensing business because they make apparel or they make bedding or thermal cups and what have you.
But they do still have to comply with all of the complex agreements that come from the licensing agreements that they enter into with companies like Hasbro and Disney and Marvel Entertainment and Bandai, et cetera. And so we've brought together a new product offering for that market, a very nice addressable market size. We'll be talking some more about it in the presentation. But we've also started closing business with these mid-market licensees that are seeing a lot of value in being able to automate their licensing and royalty management capabilities. We continue to do quite a bit of work with our large enterprise customers.
We've brought on this year also Sanoma, which is one of the largest European educational publishers in Scandinavia, to do a European rollout of our solution across multiple countries. On the other side of the fence, we have another product offering called Brand Vision, which is a digital brand compliance solution. It's applicable to effectively global brands that are marketing directly to consumers. So when you think of sectors such as fast-moving consumer goods, consumer goods companies, beauty, health, electronics, apparel, fashion, so a really large smattering of sectors where they're global brands in nature, and they're doing quite a bit of marketing around the products.
The delivery model is a multi-tenant SaaS platform, and what we offer as part of that product suite, that's constantly evolving, is a digital rights management capability that integrates to the company's asset management systems from the likes of Adobe or Open Text or Bynder or Aprimo. We also bring forward an AI-powered image and video matching algorithm and engine that allows us to track and manage content that is being used in marketing campaigns online, and online is a very wide spectrum of both social media as well as e-retailer sites, e-commerce sites, as well as the brand's own partner sites and their own sites, and so we've taken a position that we're protecting the brand from a compliance standpoint, ensuring that the content that they're using in their marketing campaigns...
Can be used upfront and as well as policing that content for them so that they're not in violation of any copyright compliance issues. That's a fast-growing segment of our business. You can see from some of the names that are on this slide, large types of companies and the industries that we just mentioned, that have either deployed or are in the process of deploying our solution globally.
So the problems that our solutions solve are mainly around helping companies with governing usage rights for their intellectual property, whether that's content, whether it's technology, whether it's character properties, and then being able to determine the royalty payments, whether it's the royalties that are owed from that relationship or the royalties that are due from that relationship, so on either side of the fence. We see that, given how fast digital content is multiplying, that a lot of the customers that we're dealing with, even the most global in nature, are not very equipped to be able to manage the content production in the systems, because most of that process was outsourced. A lot of it was outsourced to agencies. And so these big brands are bringing this capability in-house.
But when they bring digital agency work in-house, they realize they also need systems to accompany that, and those include things like digital asset management systems, digital rights management systems, tracking systems, et cetera, and the other aspect is that the market is quite fragmented in this space, and there isn't really end-to-end solution providers that exist, so part of the market drivers for us is that we take an end-to-end perspective to help automate the company's manual processes to tie disparate software solutions together through our automation platform, and then allow both finance and marketing teams to use our products, depending on which product they're using, to be able to do more with the same or less headcount, so our customers typically are, you know, facing licensing and copyright infringement.
They're dealing with inaccurate royalty calculations, whether they're a licensee, and they might be overpaying, or a licensor, and they think that they're being underpaid. We've dealt with all of those types of situations, and then just basically allowing them to be a lot more efficient in, you know, their time spent, the reuse of their content and their IP, and the cost that it takes to actually manage these types of processes, so when we come to the table, we're helping take a very inefficient manual spreadsheet or old system-type process, and we're automating it. In terms of our addressable market, if we look at our Brand Vision product offering, the market opportunity is quite large.
The digital rights management space is growing up to north of $8 billion by 2028 at a compounded annual growth rate of over 18%. There are a few service providers in this space. Some happen to be digital asset management providers, others are payroll companies, but it's a space that is currently underserved that we're going after and growing fast. The digital asset management market opportunity is also growing quite fast. There's more vendors in that space between mid-market and upmarket vendors that are playing in the space. What's common across all of them is that many of them don't really have sophisticated digital rights management, and so we're able to actually capture, through a partnership, that segment to enhance their product offerings.
And then the last but not least is the tracking, which is the content quality management bucket here, that is also growing at over 11% compounded annually. Where a lot of the competition may be other types of technologies, but could also be internal IT departments at companies that are using and leveraging some open APIs to do matching and image tracking. What's unique there to note is that we are one of the very few, if not the only vendor, that's actually doing video matching for our customers. And we're very excited about releasing our ability to also do audio within video matching in Q4 to help brands stay compliant with their music licenses.
The other i f we go to the other side, we are looking at our IPM suite product, which includes as a subset our licensee offering, which is also IPM suite, but for the mid-market and small market. There's a continuously growing addressable market there. So we have effectively 12% growth in that market on a compounded annual basis. The market itself is projected to reach $16 billion by 2026. We deal with a handful of competitors in this space that you know are based on the sectors that we compete in. We are very well placed, usually in the top two, I would say, from the various different vendors.
And we've brought together this licensee offering, as I mentioned, which is really configured and preconfigured to streamline royalty operations for smaller companies. And so there's a handful of players there that really have not taken the same position that we have in terms of being able to out of the box deliver an audit-proof system with dynamic reporting that allows the licensing department to understand and you know where their positions are from a royalty reporting standpoint, but also how well they're executing on their licensing agreements and then how they can use that data to accurately project and renegotiate, whether it's amendments to their agreements or new agreements moving forward.
So we brought the solution together that also ties the licensee with the licensor, because we have many of these licensors and licensees that are both using our platforms, and we're able to effectively create the synergy on both sides that allows the licensee to use all of our learnings from working with licensors, and use our pre-built reporting templates and statement templates that allow them to just report based on the same formats that these licensors require. So that's sort of the addressable market and the competition. In terms of progress that we've made throughout the year, we continue to make strong progress. So in late March, we introduced the licensee offering.
We continue to grow our Brand Vision and our capabilities, both in terms of growing our ARR, growing our number of customers, but also in terms of growing our capabilities. And it's important to note that we're constantly innovating on that front. It is a fast-moving part of our business in terms of technology drivers, especially in the content crawling and image and video matching sides. Lots of newer AI technologies being used to more accurately identify and match content that we're excited about. We also have seen professional services revenue momentum in our business this year compared to last year.
That's mainly led by what we're seeing is a bit of a market comeback for projects that were sidelined initially in twenty twenty-three, that have come back in twenty twenty-four, mainly in our existing customer base, as well as customers continuing to roll us out globally in their environments. And then we've done a strategic sales and marketing team and systems enhancement, and so we focused quite a bit of time on ensuring we have the right go-to-market teams, both from an inside sales team doing business development work, outside sellers, marketers, and then being able to manage and track and capture all that information that's now able to give us more insight into how well are we growing our pipelines?
What are the most effective activities that we're doing in terms of our outreach that are producing quality leads? How many of those leads are making it into the pipeline? And then how many of those are closing? And if there aren't leads and it closes, what can be done, whether it's from a messaging standpoint or a deal standpoint, that can help accelerate the closure. So I think we're finally at a point where we have those data sets. We review them several times a week, as a management team, and in particular, with our sales and marketing executives. And we've ramped up a team of five sellers who, you know, have effectively learned our solutions, and the persona of the people that we're selling to are going to market.
We're already starting to see that come through with some of the new client wins, not just in the first half, but also in the third quarter that we're expecting in our fourth quarter.
With that, I'll walk through some of our financial highlights for half one 2024. From a revenue perspective, we closed half one with $5.3 million of total revenue. This is a 2% decrease from the $5.4 million booked and recorded in half one of 2023. Comprising that number, license, subscription, and support revenue was $3.4 million, representing a decrease from $4.3 million in the prior year. Just for context on that, in half two 2023, certain IPM customers transitioned to self-hosted environments due to their GDPR and security compliance requirements. This resulted in shifting of revenue into half two, because essentially, those agreements are now recognized upfront at the point of renewal instead of pro rata throughout the year.
On the services side of the house, services revenue increased 90% to $1.9 million, compared to $1 million in half one of 2023. This is due to the new IPM implementation reference for Sanoma, as well as a number of other regional expansions in our IPM customer base. Overall, the company feels confident in our full year forecast of $14.8 million in total revenue. And just for context, that represents $9.5 million of revenue in half two 2024, compared to the $9.2 million of revenue recorded in half two of 2023. So consistent trend there year over year. A new area that we introduced in our interim reporting this year is the ARR metric, broken down by our product offerings.
As a management team, this is an area where we're focusing heavily, and we're prioritizing growth in ARR across the business. From an IPM perspective, IPM ARR increased 3% from December thirty-one, 2023, so a six-month growth rate of 3%. Comprised in that is a 13% growth in customer count to 18 customers. We had no logo churn in the IPM business for the first six months of the year. For Brand Vision, ARR for the six-month period grew 33%. That's a 22% in customer count to 11. Again, no churn from a logo perspective during the year. PictureDesk ARR decreased 31% for the six months. This is comprised of a 9% reduction in customer count to 104 customers, down from 114 at the end of 2023.
The majority of the ARR decrease is driven by one significant private instance customer on the PictureDesk product, which comprised roughly $300,000 of ARR and churned in January of this year. Just for context, the remaining portion of our ARR for PictureDesk is comprised of primarily small $5,000-$8,000 annual ARR customers. Again, just for additional context on this, the PictureDesk or IDS acquisition, which owns PictureDesk, was primarily treated in the early years as a technology acquisition. We've taken a lot of the core components of that technology to drive the growth in our Brand Vision product. That being said, we do see a significant market for the PictureDesk product, and we've recently hired our first dedicated PictureDesk sales rep.
So we hope to see this business stabilize and grow in the years to come. From a gross margin perspective, gross margin for the first half of 2024 increased to 53% from 50% the prior year. Comprised in that is a decrease of the license, subscription, and support margin down to 48% from 65%. This decrease is largely driven by the timing of revenue recognition discussed above. Much of our revenue for the year has shifted to the second half, which coincides with the timing of renewals of our client-hosted IPM suite instances. So we are anticipating that to normalize for the full year 2024 numbers. From a services perspective, our margin here increased significantly, up to 61% for the first half of the year.
This is driven by the return of significant volume of work in this business and higher utilization rates during the first half of the year. For the full year, 2024, we are on track to deliver 65% gross margin in the business. Key metrics from the cash and balance sheet. We closed the first half of the year with $2.2 million of cash on hand, down from $3.2 million at the end of 2023. Just keep in mind, that number does not include our access to our current credit line, which provides $1 million of additional capital as needed. As of today, we have not pulled any funds on that credit line during 2024, and it stands ready to be used when we, and if we need it.
Revenues, or sorry, receivables decreased from $6 million to $3.4 million from December to June. This, again, is driven primarily by timing of our large renewals at year-end. And we expect, again, the receivables and to increase for those in half two of 2024. Payables has decreased slightly, again, just due to general timing and variances. We have quite a bit of expense that occurs, you know, at year-end, related to bonus accruals and other audit-related matters. I'll pass it back to Tarek to provide our summary and outlook.
Great. Thank you, Ian. So since we've seen the successful launch of our licensee offering, we've won three new customers on that product stack and have built a strong opportunity pipeline deals that we're looking to close some in Q4, others in twenty twenty-five. But we feel very strongly around the capabilities, the messaging, and our ability to execute in that space. We also feel very strongly about the addressable market size in that space, as there's thousands of these mid-market, small licensees to go after, which is a nice well-sized addressable market. We're continuing to grow with our Brand Vision offerings and increasing our AI-based matching technologies, which continues to attract new customers even within our install base.
Roughly 25% of our customers now also have the tracking into our digital rights management offering. But we feel that every single one of our digital rights management install base clients could also use tracking, and therefore it provides an ability to expand, for expansion, not only in install base, but also to help us start lead net new product sales with some of the larger brands that we've been talking to. We are now at a situation where our team is fully ramped on the sales side and operational. And I would say we hit that point about midway through Q2. And we've also hired for the first time a dedicated PictureDesk sales rep based out of our London office who started with us a week and a half ago...
who will be also focusing on exclusively building the PictureDesk pipeline, both for public and private accounts globally. Our R&D continues at pace, so we're constantly adding new features into our platforms. Both features that the customers, the global group of customers have been asking for, as well as new capabilities that we're innovating on, we're ahead of the market and trying to ensure that we stay ahead of the market. We're excited over this coming second half release of Brand Vision on the tracking side to include also audio matching for the marketing videos.
And we are getting quite a bit of use cases and requests from a lot of the brands that we work with around being able to protect them from cease and desist and copyright infringement of music in their marketing videos that the record labels are actually catching before the brands are catching today. And we continue on our path of continuing to innovate as we scale, and looking very closely and watching expenses as we do that. And we continue to anticipate a break even next fiscal year, in 2025 .
With that, we're concluding the formal portion of our presentation, and we can turn to Q and A.
Fantastic! And, Tarek, thank you very much indeed for your presentation. Ladies and gentlemen, do please continue to submit your questions just using the Q and A tab situated on the right-hand corner of the screen. Just while the team take a few moments to review those questions submitted today, I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard. Tarek, as you can see, we've had a number of questions that have been submitted, today. If you could just click on that Q and A tab, where appropriate to do so, just read out the question and give your response, and I'll pick up from you at the end.
Sure thing. Thank you for your question, Ben. First question: how are you positioning the business to diversify revenues and manage revenue concentration?
Great. Thank you, Ben, for asking. So basically, we look at the business really, as I mentioned in two slivers, the IP Management Suite and Brand Vision, and PictureDesk is part of our Brand Vision offering, and we're looking to really diversify the business in several ways. One is to be able to sell more product of, you know, each of the products. So we have actually product line diversification, mainly because the IP Management Suite set of products are sold to finance teams, licensing sales teams, and are transactional in nature, where there's accounting finance functionality behind it.
The Brand Vision capabilities are sold to marketers, digital asset managers, chief digital officers, people that are really focused on managing the rights for their marketing content, and so and to different sectors. And so by having these two types of solutions, over on the long run, the revenue is diversified by having two completely different types of buyers in different industries. And then we're overlaying on top of that a geographical diversification, because we're actually also positioning and selling quite a bit of solutions both in North America and in Western Europe, that's starting out. And so we've layered a geographical diversification as well.
Great. One additional question from Ben: When considering the expansion of your pipeline, which sectors are showing the most promise, and how are you tailoring your offerings to meet these specific needs?
So again, it's a product-based, if you will, the answer to this question, but on the IPM set of products, we're seeing two major sectors or subsectors, I would say. One is the consumer products licensing sector, working with both licensors and licensees, as well as the publishing sector, and within publishing, we're particularly strong in educational publishing. We do both trade and educational and magazine with our PictureDesk offering, but the one that's attracting a lot of newer projects, bigger projects, is the educational publishing sector, mainly being driven by a lot of the digitization of the products that these publishers are introducing into the higher ed space.
Which all of a sudden requires them to update their systems, because their systems don't really understand how to manage subscription data, how to manage rights at a very granular digital asset level, and then how to actually account for it when they're looking to pay royalties. So actually, that's driving quite a bit of demand in that space. That's on the IPM side. On the Brand Vision side, as I mentioned, what we found over the several years that we're selling this solution, is that the brands that are really care about the solutions are, one, the global brands, I call them the Global Five Thousand, that are operate across multiple countries, have larger marketing budgets, but then also specifically focus on marketing to the consumer.
And so that's a multitude of industries, as we mentioned, ranging from CPG, FMCG, beauty, fashion, travel, retail, automotive. And so we're going against those sectors. They all have the very similar marketing business processes of getting the content from what we call post pre-production, all the way into production and post-production. Which one, sorry?
So this is a good one. From James: Are there any plans to scale up sales through strategic partners rather than your own sales force?
Yes. Depending on the solution, obviously, the answer is yes. We do believe that our licensee platform, as well as our Brand Vision platforms, are ripe and open to strategic partnerships. On the Brand Vision side, we have strategic partnerships with many of the large digital asset management vendors already, and we do get leads from that channel. We are also looking, moving forward, at creating strategic partnerships for the Brand Vision side with some of the media agencies who already work in some of these large global marketing teams.
On the licensee side, we do believe that, given that it's a newer product offering, we wanted to basically go direct to market first, so that we iron out all of the messaging, the pricing, the go-to-market activity before we find any go-to-partner channel. But we do agree that, the licensee side as well is right for, strategic partnership sales moving forward.
One question here from Nadeem: For Fadel to be more attractive for investors and suitors, we need to move closer to the Rule of 40, revenue growth rate plus profit margin greater than 40%. How far are we?
So, I guess everyone is talking about the Rule of 40, which you know over the last eighteen months has been a key focus area for you know investors. We're looking to first of all get to profitability as we continue to grow as well as get to a higher year-over-year growth rate. The growth rate in the Rule of 40 could be either measured by ARR or MR or top-line revenue. It depends on how you apply the formula. We are making quite a bit of headway on our ARR growth, and it's already in the double digits year-over-year. We are starting to report on our ARR growth numbers.
Obviously, as Ian mentioned, and as you've seen in the presentation, the growth rates are differing by product lines. But we do have double-digit ARR growth for both product offerings. That is a key focus for us, is to be able to get to that Rule of 40 over the next years.
Great. And final question. Thanks for your presentation. How is the pricing environment, and how has it impacted the ARR rate?
Yeah. Good question, George. Thank you. And so the pricing environment, I think, in twenty twenty-four, has been, I would say, a little on the softer side. Companies are looking for maximizing their spend. We have seen a strong pipeline pull in, but especially the first half of the year, we also did see some delays in decision-making. I think, that's probably more of a global macroeconomic factor, because if you remember, I think in the first half of 2024 , there was a lot of talk, especially in the US, about, are we in a recessionary period, going into one, or are we gonna be okay?
I think the tune has now changed, obviously, with the Federal Reserve Bank starting to come off of the rates, signaling that there's another set of cuts coming before the end of the year. And then the job market data placing strongly. So the tune has completely changed to, you know, we're escaping a recessionary period. And so we're starting to actually see that. Normally, in our fourth quarter, we'll get also opportunities that from companies that effectively have leftover budgets that they'd like to spend before the end of the year. So we're expecting that as well this year. And in general, in the second half of this year, we're seeing the business environment, if you will, be a little more bullish on expanding moving forward.
So that's all positive from my perspective.
Fantastic. Ian, Tarek, I think you've covered all those questions that we've had through. And of course, any further questions do come through, we will be able to review, and we can publish responses where appropriate to do so on the InvestorMeet Company platform. Perhaps before redirecting investors to provide you their feedback, I know it's particularly important to you and the team, Tarek, I could just ask you for a few closing comments.
Yes, thank you. So I'd like to thank everyone for joining us today and for keeping the presentation interesting and asking your questions. We continue to be bullish on our business. You know, we've gone through, I would say, our post-IPO ramp and have put in place what we believe is a solid sales and marketing process, which is predominantly where the majority of the IPO focus has been. We feel strongly about our market position. We are continuing to address, you know, any challenges that we run into as a business, more so now, obviously, also with the situation in the Middle East. We do have an office in Beirut, as you know.
That we've actually have taken steps to one ensure that our team is safe and sound. We continue to be fully operational with the full staff in the office as we are north, if you will, of the conflict zones, but we've also taken steps to put secondary resources in an office in Jordan as of March of 2024, so we've staffed up that office as well with our new people, so that we have a second line of backups.
And then, as of this week, we've also signed leases on office space in the northern part of Lebanon, which is about an hour and a half away from Beirut, which is relatively safe and calm, to give our employees an option to decide on whether they want to work out of our Beirut office or the north office, but also to ensure that there's contingency within country, in addition to the contingency in Jordan and the rest of our offices, which happen to be in London, Paris, and New York. So we feel that we've done a good job at ensuring continuity, keeping employee safety in mind, while we continue to execute on our plans. And, having said that, I'd like to thank everyone for joining us today.
Fantastic, Tarek, and thanks indeed again for updating investors today. Can I please ask investors not to close this session? You'll automatically be redirected to provide your feedback, so the team can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team, Fadel Partners Inc, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.