Celebrus Technologies (LSE:CLBS) — Post-AGM Q&A

0:01 Good afternoon, and welcome to the d four t four Solutions PLC post AGM q and a session. Throughout this session, investors will be in listen only mode. Questions are encouraged and could be submitted anytime by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives to the meeting itself. Have the company will review all questions for today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following poll. I'd now like to hand you over to Peter Simmons, chairman. Good afternoon, sir.

0:28 Thank you very much, Alex, and thank you everybody for joining this q and a session this afternoon. As I think probably everybody's aware, we we did the formal AGM at 9AM this morning, and I'm pleased to announce that all the resolutions were passed with over 99% majority. So that's already been put out by RNS, I believe. I think most people will also be aware we put a brief update out this morning via RNS. So for the benefit of anybody who didn't read that, I'll just read that out now. It read as follows. AGM trading update and contract win. D four t four solutions, the aim listed data solutions provider is pleased to announce a contract win with an existing banking customer.

1:13 The contract was one of the two contracts previously mentioned, which were expected to have closed in the last financial year. This contract includes a high proportion of low margin hardware and is expected to be substantially delivered in the first half of the current financial year. This contract win accounts for a large proportion of the revenue shortfall from the last financial year. At the AGM this morning, the chairman confirmed that the group has a strong pipeline, he and is very confident in the group's strategy to deliver growth and create significant shareholder value in the coming years. So that was the AGM statement this morning. So before we move on to the q and a, I thought one of the things that would be appropriate to cover in this session was board changes.

2:01 There are two effectively that we we just, I guess, need to bring everybody up to date on. The first one is the appointment of Helen Gilda, who you can see on the call there. Helen Wave, maybe. Helen joined us a few months ago and has joined as audit committee chair and non exec director. And for those of you that aren't aware, in my role as an NED and chair, I was also chair of the audit committee. So as part of the succession planning for finding a new chair replacement, and for those that don't know, I'm coming up to nine years early next year, and therefore, under the corporate governance rules, to retire. So as part of that succession planning process, we sought via professional headhunting process a new non exec who could take on the audit committee chair role. And I'm delighted to welcome Helen, who brings a lot of relevant experience both in business as well as as an NED.

3:02 And Helen will be has now already, in fact, taken over the audit committee chair from me. So welcome, Helen. And, yes, just to confirm, we're also in the process at the moment as part of the sort of orderly succession of running a process to find a new experience chair to take over my role, which will I guess, the the process is reasonably well advanced already. We're down to a a long list. I think the headhunters like to call it, and we'll be starting the interview processes once the world's back from holiday, probably early September. And watch this space for further announcements, I guess. But anyway, that's the board changes. So moving on to q and a. Obviously, if anybody who's on the call has got questions that they'd like to submit, please feel free to do so using the platform.

3:54 What we tend to do is if we get duplicate questions, we'll we'll aggregate rather aggregate them rather than reading them all out individually. And we've had a number of pre submitted questions, so I'm gonna kick off with some of those. So the first one, I think, possibly is already covered by this morning's r and s. But but the first question was and I I guess it was the one that was

4:18 sort of top priority for a lot of people was what happened to those deals that slipped at the end of last year? So, Bill, can I can I hand over to you and you can give everybody an update on that? Yeah. Sure, Peter. So so as you as you read out in the RNS, the the one that was the the sort of lion's share of the of the revenue that we announced on the April 3, RNS has has now closed, with the majority of that, the hardware revenue on that sort of falling in this first half as you outlined. The second deal is with a with a an entertainment company for a CELEBRUS license. Conversations are still very active, but but, candidly, it's on their side because they've had quite a few changes on their side, and they've had some

4:59 some business communist business stuff that they're sorting through is probably about all I can say. But we've agreed legals, we've agreed a contract, and we're just waiting for them to have the appropriate staffing to proceed. Excellent, Bill. Thank you for that. And I guess the next question here kind of follows on from that, really, which is is a question about pipeline. And are are you seeing

5:22 improvements in in both the pipeline pipeline and the overall sales cycle? Cycle. So I've got I guess that's another one for you. Yeah. I'm I'm quite I'm quite happy with with where the the pipeline is growing and the conversations that we're having. From a direct standpoint, we've alluded in in the road show, which was only about a month ago. But for those of you that weren't weren't in some of those meetings, about 65, 70% of our pipeline is now direct sales opportunities, which is putting us in the driver's seat and giving us better control over how we move those deals to closure. So we are seeing a shortened sales cycle. We've we've also learned a lot throughout that process. And I also see that we've got some questions in the or a question around some of the Salesforce, deal flow as well. So I might as well just tack that on to this one, Peter, because it it it all kind of comes together. With Salesforce, if those of you that have been following Salesforce, you might actually have seen that that they were in the news for some, some unfortunate reasons on their part, the other day with regards to a lawsuit around the the lack of real time ability of their CDP, which is something we run into around the globe with everyone's CDP, and a key differentiator for our platform in making those better. With Salesforce, there's several clients already using the integration, which is good news now.

6:39 We have actually two sales meetings this week, with, with existing customers to add the Salesforce,

6:46 CDI integration to their platform. And we have four or five deals that we're working actively with Salesforce with the new one that entered the pipeline yesterday. So, pretty thrilled across the board with how the pipeline's building, with Salesforce. We've had some conversations with their data cloud team as well. And I suspect given some of the news that has hit the wire that that might get escalated a bit faster because we can add a lot of value there, to solve for some of their lack of real time that they allegedly have according to the the paperwork that was filed this week. Great. Thank you, Bill. So

7:22 you mentioned there in in in your sort of response to the first question about direct sales. Give us a bit more color on on how it's working out to have a direct sales channel. Yeah. So it it's it's interesting. You know, you you we're sort of in the process of of building a a machine, for lack of a better word. It's it puts a different focus on how we market and the types of things that we market, and you'll see some of that actually coming in in the next few weeks with some additional product launch and features that we're we're bringing to the market. But then that carries through into how we're developing business. So we have sort of people doing the old school pick up the phone and calling, you know, business development reps out finding leads, basically working for the sales staff.

8:09 We have the sales staff holistically focused and incentivized on selling licenses, and then we have the customer success team that we've stood up who now is solely focused on hitting a year over year target of growth in their respective markets for existing

8:22 customers. And all of that is designed to, in essence, continue to advance our land and expand model, where the sales team is focused on identifying the pain point and very as quickly as we can, them a portion of CELEBRUS to solve that pain with then customer success coming in to to pick that up and expand that customer and get them to using all the other features and functionality that we offer them across the platform. Okay. Great.

8:48 I just noticed another question popped up, which is a supplementary question about the r and s. And and it says, can you expand on this morning's comment about a high proportion of low margin hardware? Bill, are you happy to take that, or do want Ash to cover that one? Well, I can talk about the deal structure, and then I think it would be helpful for Ash to give to give an overview of just the margins that we've put in place because we've also changed our our hardware margins a bit as well. But the deal structure, so this is an on premise analytic environment that we manage for one of our banking customers. Our our focus going forward, has been cloud first, as the CELEBRUS platform is is fully cloud enabled across AWS, Azure, and Google.

9:30 And so that's our desired approach. It it brings benefits to us. It brings benefits to the customers. And, frankly, it allows us to get our features out to customers much more quickly than an on premise environment, you know, where we're working through internal client IT teams and security teams. That particular deal is a mix of of hardware as well as software. And the margins in all of those categories, whether it's hardware, software, services, etcetera, all vary. And and I'll throw that over to Ash to sort of talk through sort of how we view those margins, you don't mind, sir. Yeah. Thanks, Bill. So let me just explain sort of our revenue stream and the margins within each of the revenue streams. So we've got four different revenue streams effectively that we disclose in our results. The most important one of those is our license revenues, and that's most important because it's the highest margin. So typically in the industry, software industry, you'd see a license revenue having a margin of somewhere around 85 to 90%.

10:29 The one below that in terms of profitability is our support maintenance, and that includes now also our CELEBRUS CELEBRUS cloud offering as well. And typically, with the support maintenance and software industry, you'll be looking at somewhere between 7075%. And then below that, you've got services. And those might be services which are kind of additional to actually implementing the product or doing upgrades or all those

10:52 things for a customer. It also includes some element of long standing customers that we have for whom we provide services perhaps around data installations or web services and things like that. So web services services in general are probably around 40%. And as Bill said, we have this element of hardware, which is very lumpy year to year. And that typically historically has had a margin of 10%, and we've recently increased that up to 15%. So those are the different margins. Now in terms of understanding what the blended is, historically, it's been quite difficult to understand the margin because of the degree of lumpiness of hardware year to year, which either sort of

11:31 depresses or flatters the margin. So this year for the first time, we will we've split out the hardware. So what we're disclosing as a key metric is software revenues. And that also provides a better underlying trend of where the revenues are going without the lumpiness of the hardware revenues. But in addition to that, we've also shown the software revenue gross profit percentage. We think that's a better metric in terms of understanding where the business is going and certainly better to understand how the margin might increase in future. And so on that point, so in future years as we sell more new logos, as we have more sort of upsell with existing customers, typically in those scenarios, you'll have a breakdown of 80% of license and 20% of support and maintenance or services.

12:22 And so what you'll see then is that as we get more new customers on, the proportion of revenue which is license revenue will increase. And so we expect the overall software gross profit percentage to increase over time as well.

12:36 Okay. Thanks, Ash. Another one that's just popped in, Ash, which kind of definitely one for you. It says for a typical contract, when you sign a contract for five years, how do you recognize the revenue year by year?

12:49 Sure. Well, let's take the most typical scenario. So it's a three year contract, either a new logo or a renewal. And within that, we'll have the license, we'll have the support and maintenance or or the the CELEBRUS cloud, and we'll have an element of services. So with the license, what we do is we recognize the annual license in one lump sum. So with the point of sale, and then one year later for year two, and then two years later for year three. And that's a requirement under IFRS because once we've delivered the license, our obligations essentially are fulfilled, and so we have to recognize a whole of it in that month. As for the support maintenance and the service cloud, well, that's a service which is offered month by month, of course. And so we recognize those revenues each month proportionately.

13:38 And then as for the third item, the services, well, that's typically either a t and m, so time and maintenance, and we'll be recognizing that as we deliver the services. And in some cases, it might be on a percentage complete basis. So if it's a three month project, for example, we'll estimate the percentage complete month by month, and we'll recognize the revenue on that sort of time recorded basis. Okay. Thanks, Ash. Bill, there's one just popped in which is probably aimed at you, I think, which is when when you're building up a direct sales team,

14:10 what what what are the limitations to scaling? And how is it helping give you better visibility of future new wins?

14:19 Yeah. No. It's a it's a good good question. And also just harkening back to the revenue one, hardware, by the way, we recognize on delivery of hardware to the client's data center is kind of the the final point. So that's why it's so lumpy as well because it can be a pretty large number of or amount of hardware that we deliver. From a from a sales team perspective, I think the key point that that I'll highlight is, you know, in our financial year results from this previous period compared to the last, the OpEx stayed flat. We did that while standing up a direct sales business, while standing up customer success, etcetera. So we've managed the cost within the business quite well through our through our restructuring to make way for this, which was part of the plan that Ash and I and the and the management team had put in place. From a visibility perspective, having direct deals gives us much more control.

15:05 In a reseller channel, we're sitting, in many cases, behind the partner. We don't even always have direct access to the customer, and we don't necessarily know all the levers that can be pulled to get a deal done. So when it comes to sort of building out the direct sales pipeline, I like to think of it just like all of you with diversifying your your investment portfolio. For me, it's all about how do we diversify all of our revenue streams so that we're not holistically dependent on a single one. And so that in a given quarter or a given year, we can be looking at all the all the deals like we do now at the start of the quarter, and we look and see which ones can we get over the line potentially this quarter, and that's where our focus goes. So it it does give us, quite a bit more, flexibility. There really haven't been any limitations.

15:50 We've stood up the team that we intended

15:52 to stand up. We added customer success like we intended to, and we made way for those costs by by making efficiencies elsewhere in the business as a result of the different platforms we've put in place or some of the restructuring that we've done across the business. Great. Thank you, Bill. Ash, this is probably one for you, but you

16:12 you've talked, I think, in some of the previous communications about improving internal processes and creating efficiencies, which leads on from what Bill was just talking about. Do you wanna just give a quick flavor of some of the things that have helped with the making the business more scalable?

16:27 Yeah. Sure. So this time last year, we talked about the systems we'd implemented at that time, which included a new CRM. We're using using We had implemented a contract manager, a license manager, and we'd also implemented an HR system called High Vol. In the last twelve months, we've also then, on top of that, implemented a new finance system, which which is is Oracle NetSuite. And these are important for a couple of reasons, as you say, Peter. Partly, they're important because they produce efficiencies in terms of how we operate. They allow us to share information better across departments.

16:59 But the other point, as you say, also, is that it they allow us to be scalable. So as we systematize how we operate, it's much easier to add new headcount and integrate them into the processes that we're operating. Because a lot of these processes are then driven by the systems. So that's been an ongoing project, and that's largely complete now. We are looking at other systems which are probably in the short term less critical that we might implement in future. So for example, perhaps a project management system to replace the one we currently have. And of course, once you have these systems talking to each other, they provide a degree of granularity in terms of what's happening within the business. And that's also a reason why we were able to sort of vary our pricing more accurately to produce the margins that we need to be producing.

17:45 And also in some cases, we've had to walk away from customers who are noncore and not profitable.

17:53 Okay. Actually, there was a specific question on that, Ash, and maybe you just wanna talk a I'm assuming these are in the main legacy customers whose volumes and and spend with us have declined over time that you've kinda looked at. Yeah. It's exactly that. So it's customers who are long standing customers, non core, so non CELEBRUS, which is what we're trying to drive here. It's software revenues and licenses.

18:19 And so, of course, these customers as they're reducing a number still requires to maintain certain skill sets and that doesn't become that becomes inefficient and unsustainable when you have a diminishing number of those sorts of customers. So we've accelerated that sort of transition effectively. And so now increasingly, the bulk of our revenues are CELEBRUS or software driven. Excellent. Okay. Bill, this one's probably for you, but there's a question about expansion or continuing the growth in Far East and and Australia. Sure. So from a focus perspective, the majority of our focus at the moment is growing The US business because that's where we think the majority of our opportunity lies.

19:05 In APAC, we have some existing customers such as an airline, a pretty large airline that we've expanded with in this previous year.

19:12 And we're working through partners in that region because we found that the easiest way to service it at this point in time in terms of scale. So we have some good partners that we've been engaged with, a couple of new services partners as well that we've brought on board, and we have a handful of opportunities that are floating around in that region via those partners and some some some historic partners that we worked with that we're revamping the partner agreements with as we speak

19:35 to to drive ideally more logos through them as well. So I think for for the Far East, that's how we'll continue to support that in the short term because it helps us with scale and it it it lessens how much we have to invest to to drive some success in that in that market and region. Okay. Great. Question here, Ash, I think probably aimed squarely at you, but Bill, feel free to chip in as well, which is a question about the 17,000,000 of cash on the balance sheet. And, you know, it's obviously reassuring. It means that the going concern

20:06 question and discussion with the auditors is a relatively short one, but I guess people are are asking, well, what are you gonna do with it? Okay. Well, I'll pick out the first part of that, and then maybe, Bill, if you wanna follow through on the rest of it. So, essentially, off that balance, we regard working capital requirements to be somewhere in the region of 10,000,000. Now by the nature of the business, we have a lot of lumpiness also in our cash flows. And the reason for that is that when we sign a new contract or when we have a renewal, the customer will typically pay pay the whole of the first year's license and support maintenance in one lump sum. And in months where we don't have that, I mean, it's in general terms, we might be billing perhaps 500,000, but there'll be other months where we have a number of those and we might be billing $45,000,000 in a month. So there is a degree of lumpiness to our cash balances and our working capital requirements.

21:01 But we got 10,000,000 as being a sort of a sensible level of working capital cash. The surplus beyond that is there to provide any sort of cushion we might need in terms of a buffer. It also requires us to have the capacity to invest when we choose to do so. And, of course, there's always a sort of, like, a lag sometimes between the investment you make and the return on investment that you get from that investment.

21:26 And then the third part of it, of course, really relating around sort of broadening out the business through m and a, which perhaps, Bill, you wanna talk about. Yeah. I can just follow on from that. I mean, there's there's nothing imminent. I always like to lead with that, but we have been much more active in the m and a space working with advisers, looking for, potential technology company that would be be worth acquiring to bolt on to the CELEBRUS platform. We have a profile of what it is we're looking for. We've actually in in the previous financial year, we did explore a couple of companies that that didn't pass the the sniff tests from our engineering teams, but we'll continue down that path. And and, ideally, we find something that's a good fit and and, come up with a with a strong acquisition for the business that that's a one plus one equals four scenario.

22:15 Great stuff. Okay. Right. We've got a new one just popped up on the screen, Ash, which is definitely, I think, over to you, which is a how's the office search going?

22:25 That's an interesting question. Well, the office search is going very well. So we have identified a new office space. That space is around six and a half thousand square foot compared to the 17,000 square foot we now we we currently have. And, of course, post COVID, the hybrid working scenario that we're in has enabled to do do us to do this. So the situation with the new office is that we're going through lease negotiation and through the fit out plan that should be completed in the next month or so. And then we would anticipate moving into a new office probably somewhere around November, December time. And then I assume this is also alluded to is what are we gonna do with our current office? Well, it's currently up for sale. So it's on the market. We've had interest from quite an interesting range of potential buyers ranging from budget supermarket chains, investors looking to turn it into property, which in fact there is close by in Sunbury, not too far from the industrial area that we're in.

23:29 And then we've also had interest from people who wanna turn it into a school and a nursery, which actually will be an interesting use of the building. I think it would lend itself quite well to that. But most of those discussions are at an early stage at the moment. Okay. Great. Well, I think that's probably covered all the questions that have come in. So unless anybody's got any last questions that they want to fire up on the investor meet company platform, I think we're probably close to wrapping up. Perfect, Peter. Thank you very much for that. And I think you've actually addressed all those questions from investors. And of course, the company will review all those questions submitted today and we'll publish those responses on the investor meet company platform. But just before redirecting investors, provide you with their feedback, which is particularly important to the company, Bill, could I just ask you for a few closing comments?

24:14 Yeah. Just thank you everybody for for the time and the questions today. Hopefully hopefully, the answers help give you a glimpse into where the business has come from and and where we're taking it. But as always, if you have any questions or you'd like to get, communication to Ash and I, you can reach out directly at investors at d four t four solutions dot com or via FinCap or Canaccord. Perfect. And thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of d four, d four solutions, we'd like to thank you for attending today's session, and good afternoon to you all. Thanks, all.