Fadel Partners (LSE:FADL) — Interim Results

0:00 Good afternoon and welcome to the FADEL PARTNERS Interim Results Investor Presentation. Throughout this recorded presentation, will be in listen only mode. Questions are encouraged and can be submitted at any time through the Q and A tab situated in the right hand corner of your screen. Simply type in your questions and press send. The company may be in a position to answer every question received in the meeting itself. However, the company will review all questions submitted today and have a response 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 Tarek FADEL, CEO.

0:31 Good afternoon, sir. Good afternoon, and thank you, everyone, and welcome. We we'd like to go through our first half of twenty twenty three results today. And just by way of quick background, I am Tarek FADEL. I'm the founder and CEO of the company. I have over twenty seven years of experience in b to b software, and over ten years of that has been really in cloud b to b business applications.

1:02 I come at the industry from having spent six years at Oracle over twenty years ago. And by way of educational background, computer science, and business major, I'm joined by with Vickery Gibbs, our CFO. Good afternoon. So as Eric says, the CFO, my background is predominantly in investment banking where I was for for twenty years, essentially advising companies on m and a, capital raising, those sorts of transactions, and helping growth companies like FADEL, you know, accelerate through their journey. Lastly, I've been a public company CFO, and I I joined Jersey Oil and Gas as a CFO in 2018 and then moved to FADEL in April last year to start the the journey towards IPO that we did in in April this year and the journey beyond.

1:59 So we'd like to give you some statistics, and just run through FADEL really quickly as a as a business. 2023 marks our twenty years in business. Fifteen of those twenty have really been focused on working in the licensing and digital rights and royalty management space. Sorry. Hang on a second. Alessandra, are you able to put the presentation back up? Thank you. There we go. Thank you. As I mentioned, we've been in business for twenty years. 15 of those 20 have really been focused on rights of royalty management as a platform vendor. We have a 145 customers collectively between FADEL and an acquisition that we did in The UK in 2021 of image data systems, and we're trusted by some of the world's largest blue chip brands.

2:58 We have a team of a 150 plus employees at this point, very ambitious and super excited about what the future holds for the company. We are targeting revenue of 14,600,000 US dollars this year, and we're confident in hitting that number. And of that revenue, we are making strides to bring in most of that 80 to 81% of that revenue to be recurring in nature across both license and support recurring services. I'd like to quickly go through our product offerings. So as a company, our flagship product line is the IP management suite.

3:44 We take a position around helping brands manage their intellectual property and content licensing, and then stay compliant with those license agreements and the usage of that content. And so we do that over a series of different products that are sold to different personas within the organizations that we service. The IP management suite is really focused on streamlining the licensing process, and the the product is really tailored towards helping both IP owners, licensors, and IP users, distributors who are known as licensees, manage the license agreements, the rights within those agreements, and also be able to calculate and track the royalties that are either owed or that are due depending on which side of that fence you sit on. So companies such as large media entertainment publishing companies have been using our software deployed globally, the likes of Marvel and their parent company, Pearson, Hasbro, etcetera, where they've done global deployments of our software with hundreds of users managing, in some cases, billions of dollars worth of royalty revenue, in other cases, hundreds of millions of dollars of royalty payments all coming through our system. We've been focused on the consumer goods merchandise space as well as the publishing, both educational and trade publishing, gaming and high-tech, and as well as more specifically in 2023 moving forward.

5:15 We're seeing quite a bit of movement in the life sciences industry licensing as well. I'll move over to our brand vision set of products, are really tailored to be sold and marketed to marketing teams, industry agnostic, effectively marketing teams. We've seen the most success with brand vision in dealing with multinational brands who really spend a lot of money on their advertising campaigns and and marketing campaigns, mainly marketing directly to consumers. So companies such as Coca Cola, L'Oreal, Procter and Gamble, Whirlpool, household names that you can think of that effectively market to the end consumer. We're seeing quite a bit of uptick in key industries such as beauty, fashion, retail, tobacco, life sciences, and in general, fast moving consumer goods space.

6:14 What does the product do? It really helps marketers, one, manage the content that they're using for marketing, manage all of the license agreements that govern that content, so photography agreements, the talent agreements, the placement agreements, etcetera, which all carry usage rights for that content. And more importantly, moving forward, also help govern and police that content for these brands to understand where it's being deployed, how it's being deployed, and when does it need to be taken taken down off of their social media sites, their partner sites, their ecommerce sites, their own websites, etcetera. And the third product says really came to us through an acquisition of Image Data Systems in October 2021 here in London, which is a product known as PictureDesk, which is within within its relative space of being a cloud based content aggregation platform and visual search platform allows both photographers, photo agencies to place their content online and editorial staff at some of the largest magazine and news outlets to quickly search for that content and use that content in their publications.

7:27 We have both public and private cloud deployments of the software. So we have several implementations of the software deployed in a private cloud for the likes of Bauer, a three sixty, R Media, where they've elected to change out their digital asset management systems and use the sophisticated storage and search technology that's in PictureDesk to become, their own magazine digital asset management systems. And these are large deployments that we, will continue to do more of in the future. If we take a look at the IP management suite, it's worth to note that the IPM suite is about 80% of our business today in terms of revenue size and is a very, very sticky set of products.

8:14 One of the unique differentiators of the IP management suite is that it actually does both sides of the licensing process. So in one platform, you can not only manage the outbound licensing of the content and the IP, but also the inbound royalty payments as well as the inbound licensing of content and IP and the outbound royalty payments. And some of our large media and publishing clients use our platform to do both of those inbound and outbound. And then we have clients who either take, you know, one end of the of the cycle depending on where they fit in that life cycle. It is a unique set of product offerings. It's a very complex set of processing and, you know, accounting methodology that follows these royalty applications.

9:09 And our software has scaled quite well to, you know, allow for multi country, multi language, multi currency rollouts with hundreds and thousands of users on the system that are, you know, using it in a global fashion. Some of the industries that we're targeting, as I mentioned, are media and entertainment publishing, merchandise licensing, as well as high-tech and pharmaceutical. Just to to give some illustrative examples of where and who uses these products, with IPM Suite, if you look at, for instance, Hasbro, which is, you know, over a $5,000,000,000 media and toy manufacturer and also is a large licensor in their own right.

9:56 They do about $500,000,000 a year in licensing their own properties out, but they're also a large licensee of Marvel and Disney and others where they they do license agreements that give them the rights to to produce toys and board games and digital games for those properties from, you know, Marvel and Disney, etcetera. And so they've selected our platform to be able to manage all of their IP, both inbound and outbound, and all of their royalties inbound and outbound. Marvel's another perfect use case. They were actually our first client, and they've been on the platform since 2006 and have upgraded numerous times. But it's it's essentially our ability to not only bring together a team that understands the industry and helps customers update and enhance their licensing processes, but also the software that allows a licensor to track any underpayments that are being reported by the licensees and then track any overpayments that are that the licensee may be overpaying to a licensor.

11:02 Again, depending on how you deploy it and and which entity deploys it. So there's a lot of enhancements that we bring to the table. There's a lot of data that we capture that should be in the agreements, but it's it's not materialized in the reporting. So compliance and revenue leakage is a a primary concern for companies implementing our software. The brand vision side, we're selling to marketers, as I mentioned. And the marketers are concerned with making sure that there's a consistency in the brand that they're representing from a marketing standpoint, but also that they have copyright compliance with all the licenses. And so a lot of the brands that we work with are multinational brands who, really don't want their reputation tarnished by, you know, copyright infringement lawsuits.

11:52 Unfortunately, these are happening a lot more often to a lot of these brands that we're talking about, and it's the unknown factor of them actually using content that they just didn't know whether they had the rights to use or not or the permissions to use it on a specific channel, whether it's ecommerce or social media within a specific allotted time frame. And so we're bringing a lot of visibility into that process where marketers directly from their digital asset management systems, whether they use our DAM or someone else's DAM, can introspect the rights, understand what the usage patterns are for their content. And then when they actually do create their marketing campaigns, we're helping them police it.

12:35 And we're we're monitoring and crawling their social media sites, looking for their images and videos to ensure that they are compliant with the uses. And there's a couple of checkboxes there. You can not checkboxes. Links to to our website where there's a a whole wealth of further of our own content that you can peruse at your leisure to better understand the individual nature of the of the respective products. So in terms of our growth strategy and, you know, where we're spending a lot of our time is really what we call our fifty and five strategy, which is continuing to build our revenue engines to deliver 50,000,000 in revenue within five years. And we plan on doing that through a multitude of strategies that all complement each other. One is to land and expand in our installed base accounts.

13:28 We've done a lot of expansion whether it's through upping the the license metrics and or the subscriptions, for existing clients that are actually making more use of the software. And more use of the software depending on which software you've deployed could mean more users on the system, more digital rights managed digital assets, more sites to track, more videos to track and match, etcetera. It also means, especially on the IPM management side, helping clients with more support services. So once a client has done the deployment of our software, a lot of times, they ask us to provide them with dedicated support services for their own users internally in terms of how they're using the system and and the software, and they're signing up for multiyear recurring agreements on that front.

14:23 We've done quite a bit of those over the last several years and and plan on doing more of that. The other strategic pillar here is basically winning continuing to win net new large cap customers. So we, in many instances, naturally gravitate to, blue chip and large cap customers, who really care about, ensuring that they have brand consistency and compliance and don't want the headache of dealing with, you know, cease and desist notices that they're seeing more of today from the record labels, from music usage, from font usage, from photographers who claim that the brand doesn't have the rights to, you know, use their images, things of that nature.

15:10 And all these clients that we're talking to and prospects that we're talking to are really unbeknownst to them, this is happening. And so this is a a a case of the marketing departments being caught off guard by a lot of this activity and want to get ahead of that problem, and we're seeing a lot of activity there. The third pillar is really continuing to evolve our products and expand our offerings. We've done very well in terms of creating new products, families, making an acquisition, adding new features. We're on quarterly release cycles of our products. We've got some really nice features and and attractive features that we've deployed recently for our brand vision product, which allows our customers and our brands to to use our video tracking service, which is a very unique service that they're not able to find elsewhere to track videos and match them on TikTok, on YouTube, on other social media channels such as Instagram, Facebook, LinkedIn, x, formerly Twitter, and be able to uniquely identify where their content is and ensure that it's compliant.

16:23 And we continue to add more features and functions on both product lines, brand vision as well as IPM Suite. And next year, we're looking at doing things around identification of music and videos. A lot of the brands that we're working with are getting cease and desist letters from the record labels asking them to stop using their their songs in their twenty, thirty second video pitches because they were not properly licensed. And so we're looking to help protect the brands from those types of uses moving forward. And then last but not least, you know, we have made an acquisition pre IPO.

17:08 We will continue to look at making acquisitions moving forward to 2024 and beyond. The acquisitions that we will look at doing need to need to be a strategic fit into our platforms, both from a allowing us to be an end to end solution provider to the personas that we service and the companies that we service, but also help with revenue expansion and, you know, selling into their install base.

17:37 So in terms of why invest, you know, we look at some really compelling reasons that we offer investors. One is really a high quality revenue base. So our revenues are very sticky. They're recurring in nature, and they allow for multiple avenues of growth, be it both on the, upping of existing usage licenses and metrics, adding new products into the mix, as well as adding services and support into the mix. Growing customer base. So, you know, the company is very actively going after net new customer wins. We've enforced and are increasing our sales capacity. We've hired a chief revenue officer and a VP of demand generation who are actively building out their teams both in The US and in Europe to sell more product, find more leads, get more meetings, be in more events, etcetera. And we're seeing that strategy work really well since we've invested some of the IPO money directly into our sales and marketing initiatives, and it's and starting to bear fruit.

18:50 The the other factor here is that there are significant barriers to entry into this market. It's a complex market. Not many people understand the copyright licensing space or get alone have actually built platforms based software that allows people to manage their usage rights and understand the licensing agreements and connect that directly to the IP and the content. And so we've spent a significant amount of time doing that over the last fifteen years and building out platform technologies that allow us to utilize and integrate our software, not only with client systems, but also with partner systems. And so we've raised the barrier to entry quite high. And we also feel that at the end of the day, we have a multiyear head start on our competition, especially as it relates to licensing management and in particular to the video and image matching, and in particular, the video matching technology that we have.

19:47 That was an acquisition from from Image Data Systems. And so we feel that we've created and we've widened the moat around our offerings and capabilities, And we continue to have a multiyear head start that we're continuing to invest in our product strategies to continue to give us that that leap. So moving on to the the the one h results.

20:14 High level, just to counter through, our revenue was 5,400,000 for the year, and 81% of that revenue was recurring, is a modest uptick, sort of 4%, on on prior period. One h versus two h, in the context of what we expect to see for the full year is a is a tale, if you like, of two halves. And we spend quite a lot of time in the in the text of the interims explaining, how that is, and there are two key drivers behind that. One is the service revenue for for one h, and indeed, in part, two h is down on on prior expectations as a as a function of delays the clients have have asked for as a result of the macro environment.

21:05 Some of some of the decline is expected completion of of implementation projects, but the delays had an impact in terms of effectively deferring revenue into future periods. And we've chosen to keep the the cost of providing that service revenue in in situ, I. E, keep the teams in place rather than disbanding them. Because even if the the work is paused for sort of a six to to nine, twelve month type time frame, the ramp up time and the cost of getting the same, team back in in situ and ramped up on the products and be able to to execute to the same standards, it is a a delay that we didn't want to take, so we've we've kept that in place.

21:52 Obvious implication is that our our margins on the service revenue are down. They are negative for for one h. We we expect them to become positive again for for the full year, in aggregate. And over time, as we see, those delays coming out through the wash, I e, we're starting to see sign signs of green shoots already that some of that revenue is starting to be reinitiated. But the the green shoots are even more promising in that actually on top of the the deferred revenue or the delayed revenue coming in. There's some incremental on top of that. Another aspect of the h two bias, which will be for for our revenue for for the full year, I e, we're still very much on track for for delivering the 14.6 consensus forecast for for full year '23 revenue.

22:45 It is a function of the type of contracts that we're signing. Most of them are renewals. Some of them are renewals from multiyear agreements coming to the end of life. Some of them are simply annual renewals in in the vast majority of cases for customers that have been on platform for multiple years. But there's a a growing trend within industry where people, especially with, you know, such valuable content as many of our customers have, is wanting to ensure that their content is secure in a private environment.

23:16 And, you know, following extensive conversations with with our audit partners and, you know, on contract renewals, some of the contracts will need to be recognized upfront because they reflect at least three things. They are single tenant application, they're hosted in a private environment, and they're noncancelable in nature. And as such, those contracts, which for us will be one year one year recurring contracts, get recognized up front. And hence, the bias of our revenue for full year '23 is gonna be in in two h. Coming back to the service point, you know, the the service costs have brought our gross profit margins in aggregate down to 50%. But as the service work begins to tick back up, we see those margins lifting. And, obviously, as we sell more of brand vision and more of IPM now that we have a a much bigger expanded capability in the sales engine, those margins should lift back to to more expected norms on a gross profit basis north of 60 into 70% type territory in in due course.

24:27 Clearly, the IPO in April was hugely important for us and and brought in 8,000,000 gross, And we've managed to deploy a good proportion of that on the basis of our investment plans laid out at the IPO, and that's delivered the operational progress Tarek has talked about and continue to support the existing clients through various new code lives. If you if you look at it in sort of three three pillars again, Tarek's talks to BV, and, you know, we we draw out some of the new feature functionality including the the YouTube and TikTok connectors for some of our content tracking solutions as being particularly noteworthy.

25:13 Operational progress, we highlight a few names here that, again, I think Tarek has spoken to, and some that are written as text are there. Because whilst we've signed some elements of the of the contract work with them, until we're fully signed up, you know, we obviously respect the fact we can't necessarily say who who they are, but give you an indication. Again, they are Fortune 100, Fortune 100 type type companies, the the biggest and and brightest in their respective industries. For us, again, you know, one h perspective, a huge achievement to to get our IPO away. The timing for us was was great for the business, not necessarily great for the markets, but from an investor perspective, that's great. You you're getting in at the perfect point in the journey on a very, very, very good valuation for for for new investors.

26:05 Looking more to what we laid out, and we've kept the same language we used in in the IPO materials. You know, are we trying to do to win new customers, sell more to existing customers, scale the platform, and continue to invest in r and d? And we lay out here that progress, again, much of which Tarek's already spoken to to to demonstrate. You know, we take a very a very firm view in how we articulate what we do to the market under promise, over deliver. This is what we said we're doing, and we're very much in line with with with delivering on all of these IPO goals. So digging into the the numbers in a little bit more detail, I've spoken in parts about the revenue and the service mix, and I've spoken in parts already about revenue recognition and the nature of some of our contracts and whether they require upfront recognition or continue to be rateable, which is clearly the case for for a good proportion of them.

27:02 Spoken more about the gross profit margins, and I think probably the other noticeable point here is to pull out the FX impact. We're a multi currency, multi jurisdictional business, and there have been some significant moves in FX rates during during the period. We benefited to an FX noncash gain, in this case, of about a million in part predominantly from intercompany balances that are held in in sterling or referenced in sterling, and obviously being a dollar, reporter, that has, an impact. From a balance sheet perspective, you know, clearly a very healthy position to be in with much more cash, positive working capital, and our our balance of AR and and AP is, you know, positive trends and just a reflection of of the timing of of the periods.

28:01 Something to note, you know, on a net cash basis, we have, since since period end, have paid down the the line of credit, BofA. It's a facility that will be in place through through May next year, but its current balance is zero. So robust and healthy financials. In terms of of of cash flow, you'll obviously see the activity from the IPO coming through on on our financing activities. You know, most most, again, of what, I've I've spoken about already covers this off. And where you see some of the operational activities is obviously a reflection of of us continuing to develop our products and continue to invest in in our in our teams.

28:49 Coming back to, sort of summarize this. Please take away from this. Absolutely. We're trading in line with market expectations, and we look forward to being able to, you know, confirm that as we as we bring a trading update out in in early next year in January. But the momentum is is building as we go through through '23. Much of the plans that we've laid out are starting to build through to fruition, and our pipeline is building, looking to place us very well for a strong 2024. And we're looking forward to to all that that brings. I think at this point, we'd like to perhaps conclude and start to to ask a few sorry, answer a few questions from people.

29:37 So if I can go to to that, a question on how do customers measure ROI? So good question. So that depends, actually, both on the the different obviously, it's different ROI based on the product lines, and I'll take them one by one. The IP management suite ROI is really measured against contract compliance. So for instance, if I'm a licensor and I have thousands of licensees, am I one receiving accurate and timely royalty reporting from my licensees? Am I able to capture violation sales where the licensee, for instance, has licensed a particular property or a particular piece of content, but they're also selling other pieces of content.

30:26 So tracking violation sales and compliance to contracts. And more importantly, the financial ROI with the IPM suite is quite high because as in industry measures, there's over 15% underpayment or overpayment in in the industry depending on which side of that you you sit on. So if you're a licensor, you're trying to catch underpayments. And if you're licensee, you're trying to catch overpayments. And so the system, by just automating your sales reporting, your royalty calculation, and then your royalty statement generation, and that whole process allows you to actually have better visibility into how you're getting to your numbers and how you're reporting your numbers. So that's those are the forms of measurement in terms of ROI on the IP management side.

31:13 With regards to a brand vision, the ROI is slightly different because it's a different persona who's using the the products. It's the marketing teams. But that's all about measuring content reuse. So as a brand, do I know what pieces of content do I have? Do I know that if I can repurpose that content on specific social media or in print or or in specific territories? And what are the usage rights that are allowed? And how much money am I spending on producing the content? So that drives a lot of the ROI itself. Obviously, in addition to minimizing copyright compliance, lawsuits, which, you know, in in their own measure can run anywhere between tens of thousands of dollars all the way up to millions of dollars, and we've seen it all and anywhere in between where we've had brands come to us and say they're having to deal with several million dollars worth of lawsuits all the way down to tens of thousands of dollars worth of lawsuits. So they have very clear ROI measurement there on compliance cost avoidance.

32:19 And with respect to PictureDesk, we've actually published some some case studies as well across all the products. But in in particular, with regards to PictureDesk, the ROI is really around how do I search through millions and millions of digital assets and actually use those in my print libraries. So whether I'm a news outlet or a magazine outlet and I'm using content for both my print and for my digital products and subscriptions, I'm getting hundreds of thousands of images on a weekly basis. And how do I get my editorial staff to actually go through the process of selecting the images, licensing the images, and making use of those images? And the platform optimizes that whole process both by decreasing the number of people required to make those selections because the the search is so sophisticated in it, and two, by actually using AI visual searching, especially across images, allowing the editorial staff to to just more quickly identify the content, I e, at Bauer, for instance, and at a three sixty, they've reduced the search time for content to be used in magazines from forty seven minutes down to three minutes.

33:38 And so we if you extrapolate that by the number of editorial staff and the number of magazines that they own, and that's over a million dollars in savings a year just in reducing the number of hours spent by the teams doing that. And that figures from the clients. Yep. And there's a case study on our website, by the way, that that talks about that coming directly from the client. So another question is what's the renewal profile like of of our revenue line? A a a complex answer that I'll try to to simplify. So looking purely at renewals, we have a a mix of contracts across, you know, license subscription support and services and a mix of contracts per customer. So it's not one one contract per customer.

34:27 In many cases, it might be five to 10 plus contracts, and aspects of those contracts will be across different time time frames. Some of them are multiyear contracts in nature, and so there might be a a three year renewal cycle. Some are, one year in nature. But come back to a point that Tarek made, you know, it's incredibly sticky revenue. So what we found is, wherever those renewals are popping up, in almost all cases, they're renewing. You know, take IPM 80% of our revenue. We've lost one customer in fifteen years that's gone post implement post live, going going through discovery phase and onwards. And and they went off of our system because of a change in accounting software.

35:14 So if you've got very sticky revenue, when it renews as a function of the nature of the contract, going forward, as I said, there's a there's a trend that seems to be, a, industry there and, b, a function of of kind of some of this the software that we're now selling in the way we're we're selling it is that you're getting a shift to people wanting to be in a a private environment on a on a cloud hosting. And to the extent that happens, yes, we we do have, like we have this year, some back end waiting for for those renewals being, lumpier in December. They're with existing customers that have been been on platform for a long time, so we're we're very familiar with them. It's a process to go through because they're big complex contracts.

35:59 But, you know, the renewal profiles will be, you know, several million in December 23, in December 24, December 25, etcetera. But as we go forward and expand, I think the renewal profile will will, over time, certainly smooth out because it's a it's a case of, you know, it will be in year cycles, not, you know, parts of year cycles that the renewals come come to pass. So it's simply a a case of contract management as we go forward. Hopefully, that answers that. I I don't see at the moment anymore. Alessandra, can I pass back to you to ask if if there are any more?

36:45 Yes. So what what we'll do is you'll obviously, you've addressed those questions. And if there are any further questions, we'll we'll send them over to you and you can publish responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Tarek, could I just ask you for a few closing comments? Sure. Thank you. So thank you everyone for attending. We are very excited at the prospects of the company. Clearly, we've been around for a while. You know, we've been hiring quite a bit. We're completely building momentum post IPO. We felt that, you know, we we managed to pull off an IPO in a difficult market, but because the timing of our growth was right for the company. And so we went ahead with it, and we're proving out a couple of things. One is that our technical leadership and our vision for this space, mainly around compliance, brand compliance, and rights and royalty management is a fast growing space.

37:52 A lot of the brands that we're talking to do have problems. These problems are costing them money, and they're tarnishing brand reputation. And these multinationals care about their brand reputation equally as much as, you know, how much money they spend on these types of cease and desist problems. And so we feel that we're at the right time at the right place. We feel that we've made a really good acquisition with, the image data systems and the AI technology that is brought to us in the matching technology and how we've used it in brand vision. And in terms of continuing to just accelerate the growth, the IPO proceeds are being spent in the right way predominantly in sales and marketing and r and d, where we're accelerating pipeline build out for 2024.

38:39 We've accelerated building out the lead generation and the sales teams both in The US and in Europe, and we're gonna continue to do that on a rolling basis. And that's just providing us a lot of comfort in in not just 2023, but also 2024. So, hopefully, you share the same excitement that we do because we we have a strong belief in in where we're headed. Perfect. Tarek, Vickery, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, which I'm sure it be greatly valued by the company. On behalf of management team of FADEL PARTNERS, we'd like to thank you for attending today's presentation, and good afternoon to you all.

39:28 Many thanks. Thank you.