Dillistone Group (LSE:DSG) — 2022 Results & Prospects

0:03 Good afternoon, ladies and gentlemen, and welcome to the DILLISTONE GROUP results presentation. To start with, if we could cover a couple of housekeeping items. Before we begin, you will see you would we would like to submit the following poll, which you will see on your screens. Throughout this presentation, investors will be in listen only mode. However, questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen or if anyone has dialed in via DILLISTONE at WALBROUP P R dot com.

0:34 The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate. These will be available via your investor me company dashboard. Finally, we would like to remind you that this presentation is being recorded. I would now like to hand you over to chief executive Jason Starr and finance director Ian MacKin. Tom, thank you. Hi, everybody. Welcome. My name is Jason Starr. I'm the CEO, and I'm joined today by by Ian, our finance director. Thank you for joining us. We appreciate with lots and lots of things to do at 03:00 on the Tuesday afternoon or whatever it is. So we appreciate you giving up your time to to talk to us and hearing from us in terms of our feedback on on last year and our expectations for the year to come. In terms of last year, we think it was a year of progress.

1:25 We've delivered our first recurring revenue growth for for a long, long time. We have delivered results that from a on a like by like basis are substantially better, significantly better than previous years. Ian is gonna talk to you about the makeup of those numbers and what we mean by adjusted. He'll take you through all of that momentarily. But we feel it's been a a year of progress as we build towards return to profitable growth, which market expectations suggest we'll arrive this year.

1:57 I would imagine that the vast majority of people on the call today already know us. But for those that don't, thank you for for participating. We we appreciate your interest. I'll very briefly explain what we do. So we are not to recruit company. We are a technology company that provides solutions into the recruitment industry. So our typical client will be a recruitment agency or an executive search firm. We also have a small number of in house recruiting teams at major organizations. And all of our products are delivered for a single operating business, that's Picker With People, and we have various products underneath that. Talent is in Filefinder plus Gated Talent, they're all focused on what we call the executive search side of the business. Voyager Infinity, mid office, and ISV are all focused on the contingency side of the business. And as you'll hear during our time together, we have some positive things to say across both sides of the business.

2:53 So what I'll do, if I may, is click on that, and I'll ask Ian to talk you through, last year's numbers in a bit more detail. Ian? Thank you, Jason.

3:04 This slide gives you an overview of the journey DILLISTONE GROUP has been on during its time on AIM. To start with, DILLISTONE grew organically and followed it up with a period of acquisitive growth. During this time, we were one of the highest yielding tech stocks on AIM. By our own admission, we had a couple of tough years with the loss of a large client and a product not performing as originally expected. We did recognize this and made structural changes to the business, which was starting to bear fruit in the second half of two thousand nineteen, and then COVID hit. Like many businesses, we've taken advantage support schemes in various territories to help us through the pandemic, but we also took the opportunity to further streamline the business.

3:53 This means looking to the future, we're now a very lean business with the recovery underway, and we're trying to turn that future revenue growth into bottom line gains. If I could just add a bit of color to that, I think when people look at our history, they see several years of of poor performance, and we've had several years of poor performance. But I think the the point that is I think Ian is making in this slide is that we actually had a substantial problem, which, you know, we made some bad decisions internally. We fixed those issues. We turned things around, and then COVID hit us again, and our head is for six again. So with our view now is that we've dealt with two sets of crises, and we're now coming out of the site. You'll see a bit more of that momentarily. So this slide contains the headline figures published in the preliminary announcement.

4:42 It does contain some positive movements in revenue and operating cash both being up. However, we do believe that to get a true comparison, you've got to adjust for the furlough and government support received in 2021, which wasn't present in 2022. When you do adjust, a much more positive picture emerges of the underlying business performance.

5:12 Total revenue is up 2%, which is the first revenue growth since 2016. Recurring revenue also showed growth for the first time since 2016. The turnaround is starting. Adjusted operating cash increased by 45 or 370,000. The order book was up 3%, and TACV, which stands for the total annualized contract value, was up 4%. TACV is a forward looking metric used in the software provider space to estimate what the next twelve months recurring revenue will look like. It's based on what the company currently knows, so it adjusts for known decreases but does not capture the anticipated future growth we expect in the next twelve months.

6:06 Adjusted EBITDA is up 27% at 949,000, and adjusted loss before tax reduced by a third to 453,000. All this gives us confidence we are on track with our recovery. The underlying operation is undoubtedly improving.

6:31 Running through the p and l. As previously mentioned, revenue is up 2%, which is the first increase since back in 2016. Although gross profit is slightly down, once we adjust for the impact of furlough and government support, the adjusted EBITDA is up 27%, and the adjusted EBITDA margin has improved to 16.6% from 13.3. The depreciation and amortization has stayed broadly level, and the interest paid edged up as we benefited from an interest holiday on our civil loan in the first half of twenty twenty one. We can see the effect of the furlough and government support items that we received the benefit of in 2021 at 389,000, meaning the reported loss did increase to 453,000.

7:32 The underlying cash position is also improving. Once furlough and government support are stripped out, the adjusted net cash from operating activities increased by 45% to 1,189,000. The investing activities, which is mostly our spend on software development, is broadly similar at one point o $22,000,000. All this leads to an adjusted net change in cash being 58% better or almost 500,000 better than 2021 and trending towards neutrality. Cash finished the period at 433,000, and we don't have any belief that we will need any extra cash going forward from there.

8:27 On this chart, which explains away the cash movements, The green bars indicate all the exceptional inflows received through loans or government support in the periods, and the red bars are all the cash outflows associated with acquisitions, dividends, and the financing and repayments of those loans taken out. This leaves the blue line indicating the underlying cash movement in the half years due to the actual upper underlying operation of the business. As we can see at the start of 2017, the operation generated a healthy surface, but then things started to decline.

9:11 As a business, we recognized the decline and reacted by reorganizing during 2019. We were just beginning to see the turnaround with the underlying operation cash positive in h two two thousand nineteen when COVID hit. Like most businesses, we were hit hard initially, but we regrouped, and we can see steady progress from h one twenty twenty. And this past year, the underlying cash operational cash for the financial year has turned positive for the first time since 2017 with both half years recording positive balances. Let me hand you back to Jason to take you through the rest of the presentation. Cheers, Ian. So, yeah, just to to reiterate the point here, I think this this this shows clearly the shape of the business over recent years. We we had a tough time.

10:00 We fixed it once. COVID, you can imagine, we sell into the recruitment sector. No one was recruiting when COVID hit. We struggled. We brought in cash, and you can see we've been improving consistently since alludes to last year. From an operational perspective, cash was positive in the business, and we expect that to be the case going forward, which is why we're comfortable with the to say we don't expect any any additional funds to be required in the business. So in terms of the future, we go into 2023 with a the strongest position we've been in for a very long time. As you saw from Ian's presentation, TACV, which is our forward look, is growing. We entered we come into the year with recurring revenue on the up. In the first half, the expectation is, and we've we've said this, that for the first time for many, many years, we will deliver recurring revenue growth on both the contingency, either mostly agency side, and the executive search side. So for the last few years, it's been a case of contingency has been doing sort of okay, whereas executive search has been poor.

11:07 But for the last couple of years, we've seen contingency start to accelerate, and now we're seeing executive search having bottomed out, returning to growth in the in this period we're in right now. What really is true about business, though, is that it's it's now highly geared. So as revenue grows, we expect to see performance improve rapidly. As we've touched on for the year we're in, we have good recurring revenue. We also have a large contract that we announced about a month ago. That is likely to show show value in the second half of this year. The value of that is dependent on a whole host of criteria, but it is likely to be one of the largest, if not the largest contracts we've had since we restructured a few years ago. What that actually means is that we've been able to make a statement like that three times in the last eighteen months. All of these relating to contingency clients that have signed up with us, all of them with significant contracts of the type that maybe not huge in the grand scheme of things, but by our standards, bigger than bigger than normal. So lots to be positive about on the contingent side.

12:15 On the executive search side, as I say, our recurring revenue on search is likely to improve in h 'one of this year for the first time for for many years. That's driven by two things. Firstly, our file finder product is performing much better now. We did some work over the last couple of years to rearchitect that, to take cost out of hosting so we can now host it much much more cost effectively. But we've also, in doing that, made the product much faster. That's made the client base happier. We've then given them free access to Telentis as well. And as a result of that, we've been able to increase the price. So now the Farfinder product is much it's doing a much better job in terms of retention, and it's providing us with a a higher margin than it would have done previously. The real growth opportunity for executive search is the Tollentis product, which is a product we launched two years ago. The executive search market is struggling at the moment for obvious reasons.

13:08 If you look at the most recent data from the government, I think we said that the last time the last nine months in The UK, we've seen a reduction in published vacancies. Those vacancies are the vacancies that exec search firms would typically be trying to fill. So our clients are struggling. They're downsizing. They are reducing staff. They're not spending money. But Telentis is now our fastest growing product. In q one of this year, we sold more Telentis systems than any other product despite that market. In q one of this year, we saw TACV growth on Telentis better than any other product despite that market. And our confidence is high that as the economy starts to recover for exact search firms, we will start to see much more revenue coming in through through the Telenis product. And the Telenis product is very high margin.

13:56 I wanted to share with you an understanding of who our typical clients are on Telentis at the moment. There's some slides on the screen here. And just to give you a flavor of how international our clients are, we have users just looking at this slide, Accord are in Belgium, Alto Partners are in Germany, Arthur Hunter in Romania, Henley Partners are in The UK, Johnson is in Austria, Australia. That's the second time I've said that today. Kestria is in Austria, MOI in The United States. Mercury, Oval in The Netherlands. Rogers are in Switzerland. The Ghana Group are in The US. Signium are in Singapore, and InterSearch are in Germany.

14:33 So just that handful of customers there gives you a flavor of of how global the take up of this product has been. Most of these firms have a relatively small number of users on the product, and most of these firms have a lot more people than not currently using the product. So we believe that, again, as the economy improves, we'll have the ability to extend our footprint with these firms, but also sell into an awful lot more more firms. So we remain very excited about Telentis. We think that the

15:00 revenue figure that we're looking at internally would be considerably higher if the economy hadn't tanked on us. But as I say, it's a product that is growing despite the the wider context, and we believe it's taking market share. And we're very excitement excited about the future of that particular product. So that essentially brings me to the end of my prepared notes. I will be happy to take any questions. Tom, do we have any questions that you want to figure out? Do. We do indeed. Yes. Thank you, Jason. Thank you, We have a number of questions. However, please do continue to submit your questions using the q and a tab on the top right hand corner of your screen. I'd like to remind you that a recording of this presentation can be accessed via your company dashboard and that your feedback is important to the company. So immediately after the presentation has ended, we will be redirecting you for the opportunity to provide that feedback.

15:57 We have a couple of questions, and in fact, you've you've touched on them a little bit within the presentation itself, but I just wonder if you can add a bit more color quite possibly. And we've got two questions from Glenn. Glenn, the the first of your questions will be best served actually by the report accounts, which will be published before too long. But Glenn also asked about the recent large contract that you announced and whether you can just add more detail, a little bit more color in terms of exactly what that is and and what impact that might have.

16:28 Thanks for your question, Glenn. So in terms of the new contract, we it's on the contingency side of our business. It's a UK based recruiter. They are a business that has several business you business units, and one of those business units was using one of our products. The other parts were using other suppliers' products. They went into market. They wanted to have a single product that met the requirements across the entire group. They looked at various firms, including our direct competitors, and they chose to implement us, which obviously we're delighted by.

17:00 In terms of the value of the business, the nature of the contract is such that there's a certain amount that will happen, but there are some development projects being built in, which we're being paid for. There are some some of those are known to happen. Some of those may happen or may not happen. There's no reason to think at the moment they won't all happen, but that's the nature of the contract. So that's why we've been a bit unclear about the the full size of the system, but the likelihood is that it will be the

17:30 certainly very likely to be the biggest contract win we've had since the restructuring. As I say, there are a few question marks around the actual size of it, but I think even with the worst case worst reasonable case scenario, it will be, by our standards, a notable contract win. And as I say, that's the third large, in quotes, contracts that we've announced on the contingency side in the last couple of months. Hopefully, I answered the question. Last couple in the last eighteen months. Sorry. Yes. Thank you, Ian. That's what that's what we need to be counter on my on hand to make sure they get my nuts in the next day. Good. Excellent. So a bit more color there. Chris has asked, are you looking to expand the product offering to customers, and what does this look like, and what investment is required? Yeah. Thank you, Chris. It's a good question. So to answer it in reverse order, we basically maintain the current level of investment in product development, but we are focusing the investment much more on the products that we believe are likely to generate value for the business in the medium and longer term. To give you an example of that, last year, we took off the market a legacy product called VDQ.

18:37 That was a product that was essentially an older version of Infinity. We gave our clients twelve months to switch to Infinity or or or levers. And as a result of that, we the the revenue from that group of customers, they're now paying us 95% more than they were previously, and we have less customers to to focus on. So with our development, we're doing much similar process. We're looking at products we think have a future. We're focusing our investment on those, and that remains the the same. We are clearly improving our products, but we don't expect to increase our product development beyond the level it's currently at significantly. But, yes, we we will be delivering enhancements and improvements for both our contingency and executive search clients over the course of the coming coming months. Excuse me. Great. Okay. Super.

19:28 Two two questions that are very similar. Richard and James have both asked about new clients. James' question is, the business looks highly operationally geared and would generate very attractive cash returns as revenue increases from here. What's the strategy on sales? Thank you, James. I I I would entirely agree with you. So, again, we've got a number of products, and, obviously, they all have different different strategies. The we've seen and and and we've touched on this, the contingency products are already growing comfortably, and, you know, the new contract win will will certainly support that. On the exact search side, you know, the the opportunity for is very significant. I mean, literally, to give you an understanding of how the Telentis sales process works.

20:18 In most countries, I don't wanna say all, but certainly most countries that we care about, if you go to Google and you type in executive search software, Telentis comes top. The user can go to our website. They can, if they wish, watch a webinar, have a demo. They can take a trial without speaking to any human being. They can use the product for a week free of charge to test it, and if they like it, they can put their credit card in at the end. So there's virtually no human involvement in that process. Yes. They have demos. I do demos. I go to conferences. I talk to people. But the actual process of the sale, it it's various it's basically hands free. So it's very high margin, and we can literally sell it worldwide. As I touched on in my slide earlier where I shared the clients with you or some clients, obviously, a subset, we have clients using that product now worldwide, you know, on every continent apart from Antarctica.

21:08 So and that's basically done with with one salesperson, essentially. So Telentis is a product that as the market improves, as the economy improves, and the companies that it sells to start to get back on their feet again, we feel there's a a really significant opportunity for it. And to emphasize your point, Telentis is our highest margin product. It's been designed as such. It's a true SaaS product. Okay. Great. Well, I think you've actually covered another question that we've had in, which was from Mark, which was how can you leverage the offering in global markets? I think you've you've answered that one as well. So yeah. So I just just had another point. Sorry, Tom. Apologies. I just tried another point, Matt. Thanks for your question, Mark. So as I say, Telentis or your question, comma, Mark, as opposed to your question mark, Mark.

21:55 But Telentis, as I say, our exec search products, we've always sold globally. The contingency markets are much more UK focused because one of the strengths of of our position in that market is tempting laws are different in every country. And therefore, you know, for us to sell a temping product to The UK, our product is relatively protected from some of our international competitors because The US product would have been designed around different laws. So but Solentis and our executive search products are truly global. Thanks, Matt. Sorry for interrupting you, Tom. Yeah. That's alright. And and then Richard Richard just followed up with another question which follows on from how you get new business, which is how do they become aware of you? And I guess maybe you can add some color to that. I mean, it it it it varies in different ways. So, again, with most we have a number of products. Every product is different, etcetera, etcetera.

22:45 The exact search firms have a couple of ways of finding us. If I go to Google, as I say, generally speaking, we will be top or in the top couple of rankings pretty much any country in the world. So if you're googling to find a product, you'll find a product. We also use what's called SDRs, sales development representatives who contact people on LinkedIn, booking demos. We do webinars, and we also get a lot of referrals. We've started doing conferences and exhibitions as well, but that's not a major part of what we do because it's you know, we we generally don't need to. So the majority of our people come to us. Okay. A quick question for Ian here. I'm looking at the balance sheet. Could you give us your latest position on interest payments and outstanding loans? And then the second part of the question, you've already touched on, but maybe you can just give more comfort. Are you confident that you won't need to raise additional cash?

23:37 Yeah. We we are confident that we're not gonna raise any additional cash. We obviously took out the civil loan during the pandemic. That at year end was just over £1,000,000. We're paying that down operational cash flow. We don't we don't think that situation's gonna change. We're very comfortable with our cash position at the moment going forward. Great. Okay. And one more for Jason. You've touched on the economy and the impact on recruitment. Is it not reasonable to assume that you'll struggle to deliver growth if your clients are downsizing? It's well, it's certainly a reasonable assumption. But as I say, we we're already doing it. The the recruitment market has been in contraction probably for the last nine months according to the government state data, but we we're we're growing. So we accept to accelerate when the economy improves. But certainly, it is true. But our current customers, some of them are smaller than they were twelve months ago. And as a result, they will have less licenses with us, but we are, you know, we're we're looking to grow revenue.

24:42 We expect to grow revenue, recurring revenue in h 'one of this year despite that. And our expectation is certain that that will accelerate as our clients start adding rather than removing licenses. And, obviously, when a customer has a license, it's I mean, it's so easy. It's just straight to bottom line line almost. Yeah. Great. Okay. Super. Alright. Well, I appreciate your time. Thank you both. Just for the for the diary for everybody, DILLISTONE GROUP Sorry to interrupt you. So just for anyone who's who who isn't aware of this, we have Tom is sat in a different location to us. Tom's our our PR guru and investor relations guru. I'm sat in the meeting room with with Ian, and we can actually see the questions as they come in. Tom, very kindly, is protecting us from the question, but I'm I'm gonna respond to it. So I appreciate appreciate the question. Ben has asked about executive compensation.

25:34 What I would say is that that will all be in the annual report when it's published. What I would suggest is that if you look at the annual report and feel that it's not appropriate, either our remuneration committee or I personally will be very comfortable to talk to you. But if you look at the cost of our board and look at it over recent years, I think that you'll find it's not a I don't think we have questions to answer. But if you check the annual report when it comes if you have follow-up questions, do contact me or do contact the remuneration committee. It will all be there. And as I say, we've not seen well, see for yourself. But, yeah, I don't I'm not too concerned about asking that question, but I appreciate your asking. Sorry for interrupting you, Tom. Maybe Not at all. No problem at all. So for the diary, DILLISTONE expects to be at the Mellow Investor Show in Chiswick on Tuesday twenty third and Wednesday May 24.

26:25 Interested investors should visit mellowevents.com, and I'm sure many of you are familiar with that event, but it's a good chance to hear DILLISTONE amongst others and get face to face with the with the directors. So could I ask investors not to close the sessions, you'll be automatically redirected for the opportunity to provide feedback. But, Jason, maybe ahead of that, you could just give us the twenty second summary of of where you see the group right at this point in time. Oh, thanks, Don. Yeah. So I I think we we are on a turnaround, and and and we've completed the turnaround. And and and we we're gonna hit market expectations this year, which will show revenue growth and return to profitability. So, you know, we we think that we're in a good place, and we've had some difficult years. But as revenue grows, as as one of the questioners asked or or pointed out earlier, we're very highly geared, we expect a substantial part of that to flow through. And we're optimistic about the future, but thank you for joining us.

27:20 Super. Great. Okay. Lovely. If anyone has any further questions or would like additional information on DILLISTONE, please do get in contact via DILLISTONE at walbert p r dot com. If you have additional questions as Jason has has referred, please do give us a line drop us a line. And and for the moment, many thanks for attending. Thank you. Appreciate your time. Thank you. Bye bye.