Checkit (LSE:CKT) — Investor Presentation

0:01 Good afternoon and welcome to the CHECKIT PLC investor presentation. Throughout this quarter presentation, 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 simply type in your questions and press send. The company may not be in a position to answer every question it receives 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, I'd like to submit the following poll. I'd now like to hand you over to Kit Kite, CEO. Good afternoon to you, sir.

0:31 Hey. Good afternoon. Thanks. And thanks everybody for joining today. It's good both good afternoon and good morning. I'm actually doing this from The United States on the East Coast. And so for those who are joining from The US, good morning as well. Okay. Good. So we'll get straight into this. Very pleased to present the highlights trading update highlights for the financial year 2024. And, yeah, pleased with the 16% growth in ARR to 13,300,000. Also, recurring revenues are now at 93% of our total revenue base. So this is really, really, really powerful from our perspective and in in line with our strategy, helping us better predict future revenue streams and income streams that come through.

1:17 And as Greg will take you into a little bit more detail, we've also half losses for the year in line with our strategic imperative to expedite path to profitability. So, again, very pleased with that result. Our land and expand strategy as it relates to customer growth continues to be validated. We signposted an MSA that we signed with Compass Group about the half year point last year. Since that point, we've added five new contracts with that particular customer, and the pipeline of further opportunities continues to grow as we look at the the year ahead. So, again, very exciting. And as it relates to our product, and we'll spend a bit of time talking about this, as we go through the presentation, we continue to invest in making it a scalable single platform, but more importantly, investing in what we do with data, customer data, and how we harness the power of AI.

2:16 Alright. So we'll just cover off how we're gonna spend this session. For those that are new and as a refresh for those that have been with us for a bit, we'll cover off who we are and what we do, what makes CHECKIT differentiated in the market. I'll then cover off our strategy before doing a review of f y '24, and then hand over to Greg, for financials before we open up for questions. Okay. So, effectively, who is CHECKIT? What is CHECKIT? For those that are new to this story, we we play and we target large blue chip multisite enterprises that are specifically focused around the deskless worker. Okay? So large enterprises for whom the majority of their workers do not sit behind a desk. They're interacting on the shop floor, in the warehouse, with machines, with customers, from food retail operations, health care companies, biotech companies, people working in labs. These types of workers, people who have to move around and interact with the built environment.

3:19 And our target is to optimize and help businesses make the most of these workers, these assets in order to be far more operationally effective so they can sell more, they can run their business more effectively. So if we if we look at a cascading stack here from the very top, what we're doing is we're helping senior executives, operational leaders, heads of compliance, heads of maintenance. We're helping them by making visible the state of their operation. These are these are large organizations who are typically operating in the dark. They don't have data. They're they're not able to track the work that their people are doing. They have no visibility how their assets are working. We make that visible through the CHECKIT platform. Okay? In the hands of a worker, what this looks like, it looks like an iOS app or an Android app or tablet or a memory device in their hands.

4:13 That is the CHECKIT workflow tool, and that guides, prioritize, assist the way they interact with the environment, the tasks they need to do, the daily checks they need to do, their ability to capture photos, their ability to signpost faults in real time to better improve the operational performance of the business. Surrounding the worker is typically a built environment. Okay? They could be very complicated health care systems and assets like deep freeze fridges and freezers of vaccine storage units. They could be hot holds. They could be any number of physical assets. And our IoT Internet of Things sensor network allows them to be continuously monitored, automatically monitored, thus removing the need for humans to have to interact with their assets and feeding those alerts and those data points back into the platform to contain to create a continuous ecosystem.

5:11 And then the final point here about what makes CHECKIT quite exciting is if you think about the environment in which we're operating, you're taking customers from an analog world, one where they rarely get any data at all, literally using pen and paper or Excel spreadsheets to a digital world. So we're generating vast amounts of data. And as we go through the presentation, I'll explain how we're bringing that data to life in order to mine and provide intelligence for operational leaders to further drive cost savings, sustainability initiatives, etcetera. Okay. So let's have a quick look at the strategy then that we're pursuing. As I mentioned, for us, we operate on a pure SaaS recurring revenue script subscription model.

5:56 It's now 93% of all of our revenues, so we've continued the transformation on that path. Minimum three year terms that we signed with customers, very high net revenue retention rate as Greg will take you through. The nonrecurring revenue that we do sell is effectively professional services, configuration, platform optimization, and training that surrounds an implementation of the CHECKIT platform. The second key pillar, one of the reasons why I'm speaking to you from The US at the moment, is that we want to continue to leverage our success, but more importantly, expedite it into The US market. We need to make The US a success. The US, see as a significant growth opportunity for CHECKIT given the size of the customer base, the type of Boojeet customers, and their match with our check with our with our platform and our product.

6:48 And the third piece is we're we're continually looking to refine both the markets and the industry verticals in which we play in order to find the right fit between our product and the margin, that the customer has such that when they have product outages or stock wastages, it becomes a critical pain for them. We see a lot of opportunity, particularly in The US.

7:11 So let's take a step back and just consider how the platform and ecosystem actually works. So we have a workflow tool that is the core of our platform. K? Effectively, we're looking we're helping workers and customers do three things. Okay? We're helping them manage the workforce, manage the operation through the use of dashboarding insights and analytics generated by the tools that are in workers' hands. So visibility and optimization. At the same time, we're able to integrate both data and information from a live environment, asset performance, environmental data back into the platform to further assist the performance of the operation, but also the visibility of what else is going on in the environment.

7:57 And in the hands of the worker, we're helping not just to assist them to get the job done, but we're transforming the way they interact in their workplace. And we should remember that in these industries, we're typically dealing with 75 to 80% attrition rates amongst the workforce. And this leads typically to a situation of knowledge walk walking out of the door. So anything that we can do to retain knowledge, onboard workers much more efficiently, and indeed retain workers because they equip the kind of tools that they expect in their daily lives becomes a real benefit to an organization. As I mentioned before, what we've got here is an IoT and sensor network then sits around that platform. It's like an ecosystem.

8:42 Okay? And it is used to monitor the assets that exist in that built environment. So as we said, fridges, freezers, vacuum storage units, HVAC controls, energy management systems. These sensors are reporting and alerting in real time the monitoring of those assets back into the platform so that leaders and people on the ground get immediate visibility as to when there's an issue in which they can then take a remediation action.

9:09 This is very, very powerful. I mean, only last week, there was an article in the Guardian newspaper that talked about a Swedish research laboratory who had lost over Christmas, it had a freezer failure. That failure cost them decades of research samples to the tune of £37,000,000. That's just one asset going down. So you can see the value of being able to monitor this automatically and then immediately act upon it if there's an issue using a human. Taken together, you get a single end to end platform that drives intelligence. And this really is the core of the CHECKIT value proposition. I think it's what makes us stand out amongst peers and competitors. We not only monitor the assets, but we also digitize the people. We bring them together seamlessly so you get this playoff effect between assets, people, actions, remediation actions, inspections, etcetera.

10:04 But more importantly, as we'll see, we generate a lot of data, and that data becomes very, very action oriented and becomes intelligence for the for the senior customer.

10:16 So what are we actually doing then with the data? What's really exciting about this?

10:20 Over the last six to nine months, we came to a realization that we were sitting on vast quantities of data, billions of data points being generated across our customer base. And with the advent of large language models and the usability of AI in inside the awareness and conscience of senior customers, we decided to get ahead of the market or ahead of the curve on this, and we started to turn the datasets that we're using into actual reusable information for customers. So

10:51 not just turning into net information but into action. So we've built machine learning and AI algorithm tools to help drive, in particular, sustainability initiatives for customers. What does that really mean? What it means is by monitoring their assets in real time and generating the data from them, we're able to give customers predictive maintenance benefits. We can tell them when an asset's likely to fail before it fails,

11:15 thus preventing the kind of insight I described earlier from the Swedish research laboratory. That in itself is highly valuable. But not only that, we're else we're also able to predict the asset health as a whole for customers. So, for example,

11:32 when and how do you do swap out routines of your assets? At the moment, when you're flying blind, maintenance leaders are just replacing assets on mass, again, at huge cost and inefficiency. On top of that, and especially given the energy fluctuations we've seen over the last year or two since the Ukraine crisis, our ability to also help customers manage the optimal performance of their assets within the correct temperature ranges, again, yields a per unit energy saving that when you put that at the scale of thousands and tens of thousands of assets becomes

12:06 significant for an organization. These we have these algorithms built. We have them in beta with one of our largest customers in The UK. And what's really exciting is the opportunity to then roll that out over the course of this year across our existing customer base and indeed as a point of difference for new customers. Okay. So let's take a look at the year review.

12:28 Again, I've mentioned our focus on recurring revenues. I think that point has landed. To say here that we've been growing our recurring revenue to come under a growth rate of 30%, and, really, what we see now is a really tight linkage between the ARR that we bring in and then the recurring revenue that flows from the following year as you can see in f y twenty four following on from f y twenty three's ARR growth.

12:52 The US is a critical global market for us. We've been in The US for about three years. It is now worth about 26% of total group ARR, and this is a really positive first step. But as we know, The US market is is not just significant. It's highly competitive. So for us, it continues to be a focus, for growth. So the aspirations I've put on the US team and The US organization is for it to be the leading contributor of ARR to the business within two years and the leading overall contributor of ARR within two to four years. Okay? So big goals for The US, but we see this as really where we can make this business grow the most.

13:33 And then before I move on to financials with Greg, just I just wanna elaborate on the markets we play in and the future markets we expect to be in. So, again, for those who are new, our ARR is roughly split 30% from health care customers. So think the NHS, we're in 86 different trusts, private hospitals, blood plasma providers, even a few pharmaceutical providers, retail, which would encompass food retail operations, the likes of BP or John Lewis Wade Troves that we've spoken to before, and indeed hospitality. So hospitality would also include what we call soft FM, so the likes of Compass Group and Selecto are customers, but also very large and well known hotel price. So it's roughly 30% in each category.

14:22 What we've seen that next alongside the product innovations is where we will target future markets.

14:28 So for us, adjacent industries such as food manufacturing become the next best low hanging fruit for us to target. Why?

14:36 Because we have the domain knowledge, but also they have the the product quantity and the margin risk that comes with stop loss, inefficiency, and poorly run operations. And same again with biotech and r and d laboratories as I signposted earlier. So this is a very exciting opportunity for us to expand. Right. I'll now take over and talk about the financials. When it comes to financials, I talked about two key themes this year. So those themes are growth and efficiency, and I'll update you now on the progress we're making on both these fronts.

15:18 So first of all, growth. And today, we report annual recurring revenue growth of 16% year on year, recurring revenue growth of 17% and group total group revenue of £12,000,000 is also growing by 17%.

15:37 When it comes to efficiency, we've been able to deliver a 46% improvement year on year in our EBITDA from 6,400,000 to 3,400,000. And with cash of £9,000,000 at the year end, we're very confident in our runway to breakeven.

15:58 So if I go into the top line growth in a bit more detail. So as I said before, ARR grew by 16% from £11,500,000 to £13,300,000, and revenue grew by 17% from 10,300,000 to £12,000,000 And both of these are in line with analyst guidance from Singers and Edison despite the challenging economic conditions everyone has faced.

16:28 Our land and expand strategy to bring in customers on a smaller initial sale, show them the value we can offer and then upsell and cross sell has generated growth from our existing customer base, which is evidenced by continuing high net revenue retention rate of 111%. And our gross revenue retention rate of 99% further evidences the stickiness of our customer base. With ninety three percent of our revenues being recurring, this provides good visibility for future periods. So just to explain that a bit more, on this slide, you can see ARR of £11,500,000 in FY 'twenty three, and that provides visibility for FY 'twenty four recurring revenue of £11,200,000 and we expect that trend to continue.

17:23 So our strong recurring revenues give us a solid base, which allows us to pursue our path to profitability. And on this slide, we can see how we've been able to grow revenue while reducing our OIBDA losses. OIBDA of £3,400,000 is an improvement of 46% from the £6,400,000 we reported last year, so nearly half the amount. We've achieved this in three ways. First of all, by improving our gross margins, by carefully managing our operating costs, and also by delivering operational efficiencies. And to give a specific example, we moved our first line customer support offshore in September as well as delivering some cost savings that's leading to an improvement in the quality of service that we provide to our customers.

18:14 And I'll talk more about our cost management program when we present our full year results in April. But for now, I'll hand back to Kit. Yes. Thanks, Greg. So that concludes our presentation for now. I'd like to hand over to Alex, who will fill some questions that have been posted. Thank you, Kits. Yes. We've had quite a few questions that have come in. Some are quite similar to each other, so I'll try and group those together. The first one I'm gonna kick off with is on the land and expand strategy. And the the question is, what is the split of a r o ARR growth between this and simply putting up prices for existing customers? So I guess maybe you could give a breakdown between price and volume on that.

19:05 Yeah. Thanks. I mean, ultimately, the split between, new or existing customers and price growth is is around about the 70% existing customer expansion, 30% price growth. We had been quite successful with price growth in the previous couple of years, but we feel we've hit saturation point with existing customers there. Therefore, it's about upsell and cross sell of new new sites and new locations. Thank you. We've had a a couple of questions in on this. One came in ahead of time, and one came in during the the call, which is on new customer numbers. Management have talked about a significant opportunity pipeline. Could you comment on that and talk about how many new customers have been acquired over the last year?

19:52 Yeah. So we'll be able to provide new customer numbers when we present the prelims in April. But it's I mean, again, in line with the land expand strategy, what we do see is that the cost of acquisition for new customers in the current environment is quite expensive and protracted. So where we do get them, for example, Macy's in The US recently, we then expect to expand from there. So, typically, new customer acquisitions are lower in contract size, hence the land, and then larger as we expand them out over time. Thank you. Next question is on gross margins. With the recurring revenue percentage of total revenue at 93% for both f y twenty three and f y twenty four, are further gross profit margin expansion possible from the high 60% level at July 20 Yeah. So let me answer that one, Alex.

20:46 So we had just as a reminder for everybody, at the last year end, we had gross margins of 63%. Those increased to the high sixties at the half year. I'd expect this year ends that would continue to be at the high sixties, that same sort of level. And then next year, I do expect there to be further gross margin expansion to be to be starting with a seven. So, yes, is the is the short answer. Okay. Thank you. And then a specific question on on contracts. How big is the average contract size, and what is the largest individual customer? Yeah. So as I mentioned earlier on land land expand, average contract size in a rate region of about 20 to 25,000 pounds of ARR. This is quite typical for industry peers such ourselves.

21:36 In terms of the largest overall con customer, that would be Waitrose John Lewis, which is just over 2,000,000 pounds of ARR. I I might add further. I mean, there's a sort of follow-up question to this. You know, in terms of the ARR profile, we've got 500 customers, but the top, you know, top 10 customers represent about 35, 40% of our ARR book. Top 20 is about 55 to 60%, and then there's a longer tail beneath that. Again, thinking about the focus of where we're growing the business, it's increasing the size and the number of those larger BlueCheck customers, which do come with longer sales cycles, but that's where we see, you know, the the bigger value over time. Thank you. Next question. How should we view selling and distribution costs in a high inflation business environment?

22:27 For example, how much ARR or lifetime revenue can be expected to be generated for one pound of sales and marketing costs? Yeah. I'll let Greg just handle that conversation. Yeah. Sure. So it will vary by area. So, certainly, we look at the, CAC that we have to incur, and that will be higher for, enterprise customers. And it will vary between the, food retail side and the medical monitoring that we we offer to customers. So I think there's there's no real straightforward way to, to answer that directly. But I I would say that in terms of sales and marketing, we certainly are seeing progress in terms of how we're developing our the the way that we sell them to customers.

23:29 Okay. Thank you. I'm gonna group another two questions together. What do you forecast as the minimum cash balance before you break even? And then is there any risk that you need more capital to grow in the next two years? If The US strategy is successful, would you need to invest faster? Yeah. Let me initially handle this, and I'll I'll let Greg say say what we can say. So, yeah, according to our forecast, you know, we're expecting breakeven at some point over the next twenty four months, and we don't see our cash balance being a problem getting us to that point as long as we maintain the twin focus on profitability and consistent growth rates. So we do have the option to accelerate spend to seize a growth opportunity, particularly if something reveals itself in, for example, The US.

24:21 If that is compelling enough, then we can still make that decision, and I'm we're still confident that our overall cash position will see us through to breakeven, therefore, cash generation. But, Greg, is there anything else you wanted to add to that? I think you've largely covered it, KIT. What I would say is the guidance that's out for FY twenty five shows an EBITDA of 2,300,000. So that's a further improvement from the EBITDA we're reporting today. Would expect that sort of trend to continue. So as you say, we expect to breakeven in the next two years. And, yeah, absolutely, we we are confident that the cash position will be sufficient to that point. Thank you. Could you provide an update on the ground in terms of your selling success in America?

25:11 I mean, yes. From the as as we stand in The US, I mean, as you can see, it's now 26% of our IRR from a very, very small base three years ago. So we are being pretty consistent in our growth. The majority of our customers over here are still on the health care side of the industry, so that's blood plasma customers and a limited number of biopharma customers. The focus for this year is around augmenting that with effectively nonhealthcare customers, but the focus particularly on food retail organizations and also facilities management players where we see a big footprint in The US. So I'm confident as I look at the year ahead that we'll be able to execute on that strategy and take advantage of the opportunities that present themselves. Thank you, Neil. A question on the data.

25:58 How do you ensure that the data collected is correctly analyzed? Well, I suppose the short answer is, you know, we have our own data lake. We have our own data scientists who are specialists in this field. One thing we're able to do because of the vast amount of we're getting from all our different customers is to be able to compare and contrast trends therefore, in a way, about what we expect to be able to happen and what we consider to be best in class. And that is the then the job of the algorithms which they've built to make sure that data and the output of that data is effective for an organization. I mean, this is the reason why we've got customers going through quite a, protracted and focused beta testing exercise in order to then firm up those algorithms and effectiveness often with customers.

26:46 So it gets a feedback loop of its own. Got a link to a question to that is, are your customers being bombarded with actionable information created from various data generators? And if so, how do you how do you overcome this? I'm not convinced actually that the the the types of custom we are playing with are, at the moment, being overwhelmed with lots of data insight and intelligence. I think this has been quite an overlooked field in some respects. You know, as it relates to their large operational footprint, there's there's not much that I can see of that's been giving them actionable insight such that they're then drowning, you know, looking for signal in the noise. So at this stage, we think that the when when we speak to the customers, and this is universal both in Western Europe and also The US, when we raise the possibility of what we can do with our ML and AI tools, they are very, very excited because they've been crying out for this kind of actionable insight, and they've been getting none of it. So I I would I would I would actually suggest that this is a an underserved opportunity in in for our particular demographic and one that we think we can really do a good job on.

28:03 We've got a compliment here and then a question. So the compliment, great job. ARR momentum is building the building nicely. And here's the question. You've both got a tranche of options due to vest in the next few days that are underwater, and it's a tough ask to your next set in a year. You roughly need the share price to double for them to be in the money. That must be slightly disappointing for you both, and I'm sure largely due to the broader market nervousness and misunderstanding of SaaS. So the question really is, are you both still up for this, and is the reward where it needs to be for you? I mean, look. I it's a it's a it's a nice it's a nice compliment, and I understand the sentiment behind that question. Yeah. I mean, for me, this is a very exciting opportunity.

28:51 I think the upside, if we can continue to execute on our plan, is is significant. And I think once the market gets its head around the size of the opportunity, both in The UK and, of course, in The US as well, then I think we'll see that play through in the in the in the share price. So for me, I'm bullish. You know? Okay. Thank you, Kit. Question about revenue and pricing. How should we view revenue price inflation? Is real price inflation on products possible for new customers, and can the existing customers' recurring revenue match or beat in period CPI? I'll let Greg take this. Yeah. Sure. Thanks, KIT. So short answer is is yes.

29:38 Real price inflation is absolutely possible. It's a competitive marketplace, so we have to man manage our pricing against what's out there in the market and what people can get from other customers, other suppliers. But, certainly, as inflation has gone up and is now coming down, we'll be looking to make sure that our pricing reflects that. Question again on The US. Can you give us a bit more flavor of the environment in The US and which areas are showing most interest? Yeah. Sure. So the the one of the so high level differences that we see in The US compared to, say, UK, Western Europe, apart from the fact that it's this single joined up much more expanded market is they have a much a much greater number of what we typically call mid tier customers.

30:37 Mid tier being, you know, for for checking at least at least a billion of revenues or more. They have a far far more of these types of customer, which might have anywhere between two to 500 locations spread across the country. So, again, so where we see the interest and the appetite, we've been successful so far on the health care side. We have a we have a lot more success that we should be expecting to drive there, least least of all, because actually we haven't targeted The US private hospital network that effectively so far. And that is a footprint we've developed well over in The UK, Western Europe. So we look looking to transplant that success to The US. That's the first thing. Second thing, again, when we look at large facilities management providers, so think of names like CBRE or JLL with huge footprints across The US and their end customers as well.

31:26 We see this as, again, as a great opportunity given the stickiness of those customers that we have in Europe and, therefore, the use case that we can put to play. So I think those are the opportunity areas where we see a a good crossover of CHECKIT value prop, CHECKIT product market fit, and the value scale. Thank you. Could you give some more color on the inventory buildup, please? Is CHECKIT expecting high hardware cost inflation, so cheaper inventory was bought last year? Yeah. So let me take that one. So I think it's important to remember the supply chain constraints that were in the market coming out of COVID. So, actually, the inventory that we bought last year was ordered about two years before that.

32:15 So that was the level of supply kings to drape that we had in the market that meant that there were, I guess, an order cycle of two eighteen to twenty four months and certainly twenty four months that it's worse. So we can, to a certain extent, talk with the benefit of hindsight now to say that the inventory we bought last year was at a lower cost than if we had have ordered it now. So we we have benefited in in in that regard. It is using up some of our working capital at the moment, but that will unwind over the next eighteen to eighteen months or so. So, yeah, I'm I'm confident that that has actually worked out in our favor. Okay. And we've come to the last question now, which is, are you looking to make any acquisitions to accelerate growth? And if so, what capabilities are you looking to acquire?

33:06 Yeah. It's a good question. So for us, we are softly considering m and a opportunities in the market. It's not a core part of our growth strategy. We we wanna do that organically. But where we would be looking at acquisition, I think, is where there's a complement to the product set, the so the existing product set either on the workflow or the IoT sensor side, and one which brings with it a customer base that we feel confident in our ability to upsell cross sell in. You know? That that those would be the key characteristics. Geographic opportunity would be helpful. I suspect The US opportunity is a bit more bit bit too highly valued, but, you know, we'll we'll look at them as they come on as needed basis. Okay. Thank you, Kit. So that was the the the last question.

33:53 Perhaps, Kit, you'll be able to summarize and say a few words before handing back to Alessandro. Yeah. Thanks. I mean, look, we're really pleased with the direction of travel. You know, this is a tough economic climate, and so our ability to half losses and continue to main maintain consistent growth rates is exactly part of our plan. We're looking forward to taking people through more detail of the prelims in the back end of April. And indeed, we're we're excited about the year that's now underway, and look forward to continuing on this strategy and and to seize the opportunity further. Perfect. KIT, Greg, Alex, thank you very much for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will then take a few moments to complete, so I'm sure it'll be greatly valued by the company.

34:41 On behalf of the management team of CHECKIT PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.