Microlise Group (LSE:SAAS) — Audited results for the year ended 31 December 2024

0:00 Good morning, and welcome to the MICROLISE GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. 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. 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. And then I'd like to hand you over to Nadine Raza, CEO. Good morning, sir. Good morning, and thank you for joining us this morning. Quick introduction. My name is Nadim Raza. I'm the CEO for Muckrise Group. With me, I have Nick Wineman, who is our chief financial officer.

0:47 We're gonna skip over quite a lot of the introductory slides explaining what we do as a business and and how we operate and the market segments that we operate in. They are all those slides are available in the appendix section of this presentation. So moving on to the key line key highlights of our FY 2024. Revenue was up 13% to 81,000,000. We have adjusting adjusted recurring revenue of 54,700,000 to 21%. Adjusted EBITDA at 11.3%, up 20%. And our ARR stands at 56,600,000, again, up 19%.

1:36 A big increase in subscriptions. And, again, that's mainly down to the onboarding of all of the customers for ESS, the acquisition that we did in January 2024. We're still maintaining that really low churn rate, well below 10.7%. And cash was down 32%, again, mainly down to the completion of the ESS acquisition as of January 2024. Some of the operational highlights. We completed our fourth acquisition, which was ESS. We were pretty pleased with with how that's gone and integrated into the business.

2:23 We've had a lot of success in selling the transport management solution offering that we're we were able to bring on board through that acquisition, And we've had a number of successful wins in existing customers as as well as quite a few new wins with new customers through our TMS solution. We also have a new chief revenue officer who joined us in August and has made several enhancements and improvements to our go to market strategy. And we're pretty pleased with how that's going at the end of q one in 2025 as we are now. You know, very positive results as a consequence of those changes that we made towards the end of last year.

3:15 Overall, we brought onboard 375 new customers. The vast majority of those were in the 100 to 500 vehicle fleet segment, which is an area that we are particularly targeting, given that we've still got a lot of market penetration that we can do in that space. Also to note, the JCB contract, JCB being our largest customer, was extended through to 2029. So, again, but another four years still to go on that on that particular contract. And as well as that, we had over 50 large significant contract renewals, again, all contributing to that very, very low churn rate of north point 10%.

4:08 Overall, EBITDA was ahead of market expectations, and we had several significant wins in The UK as well as our international businesses in France and in Australia continue to to do well with some well known brands in those regions, staff in France, foodstuffs in New Zealand. It's worth mentioning that the items on reported revenue and recurring revenue, we're gonna cover on this next slide in just a moment. So as part of the cyber incident incident we had in October and November, we wanted to give you an update. One was that we didn't lose any customers as a consequence of it.

5:02 Our sales pipeline is ahead of the levels that it was at before the incident. In terms of spending on security, as a consequence of the incident, we're gonna be spending about £350,000 more than we had originally planned to spend in 2025 with further enhancements that we're doing. And we have various service credits and customer claims that we are very confident will be covered by our cyber insurance. And just to explain a little bit more on that and how that impacts some of the revenue numbers, I'm gonna hand across to to to Nick to explain the adjustments on the revenue and the EBITDA. Thank you, Nadim. So in in the reported numbers for for 2024, we we have reported a 1,500,000 adjustment to revenue.

5:58 So that takes us from the the underlying revenue of 81,000,000 to 79,500,000. That that reduction relates to contracted service service SLA breaches that we need to pay to our customers because of the outage. Obviously, we were we're out for circa circa two weeks. So we we've adjusted revenue to reflect that number. Obviously, that's treated as exceptional because it's it's obviously onetime, and and we want it stripped down specifically to not distort the underlying performance of the business. In addition to the 1,500,000 of revenue, there's also a a 2,900,000 cost provision that we've put through. Sorry. There's sort of 2,400,000 cost provision that we've put through for customer claims, and there's also a cost provision that we've put through for 400,000.

6:52 So the the 2.4 and the and the 2 point so circa 400 k amounts to another 2,900,000 of which, when added to the the 1,500,000 revenue adjustment, is a one point 4,400,000 impact to EBITDA. As Nadim said, we are expecting our insurance policies to fully cover that. So essentially, what we will see is in 2025 is is a reversal of the exceptional items that we've booked in 2024. For the purpose of this presentation, we will be referring to the adjusted numbers to to obviously present the the underlying business performance to give give everybody a, you know, a a true review of of how we've performed in the year. The statutory numbers are record recorded in in the appendices of the of this presentation.

7:45 Yeah. So it's important just to reemphasize that fact that we'll be talking about adjusted numbers may because, you the these adjustments we are expecting to be fully netted out by our insurance cover. So that will be done in in 2025. So just to talk a bit about what other investments we have been making and and we'll also continue to be making in 2025. We've launched our MICROLISE ONE offering as part of our conference last week. So it's really an integration of all of the products that we've acquired and developed over the last few years to provide a seamless integrated solution suite to our our customer base.

8:43 It's launched as of last week. Obviously, there will be continuing enhancements and further integration coming along. It's available to all of our customers, and we think that that will provide significant more value to our customer base and also help us win more customers going forwards. Of course, we continue to invest in security. We have several products already that use AI and machine learning, have them for for a few years. But, again, that's expanding with recent updates and enhancements to technology. We're also continuing with our support for a variety of third party hardware solutions. We've had a lot of success with this, particularly in that support with third party AI camera solutions as well as temperature monitoring solutions, and we're gonna continue to expand on that throughout 2025.

9:42 I'm gonna hand across to Nick now to give you some more color on the financial numbers. Thank you, Nadim. So what what this overview slide aims to illustrate is is, obviously, a lot of our financial KPIs improving consistently year on year. I I won't go through each of each of those in turn. I'll cover some off in in more detail as we go through the rest of the deck. But I think what we're trying to illustrate is that, you know, we we do have positive performance in all of our key metrics consistently. If you could just move on to the next slide, please, Nadine. Sure. What what this slide is is just a a breakdown of our revenue split.

10:28 As you may know, you know, we do consider ourselves to be a software company, but we do have other revenue streams as well. Graph on the right hand side represents the three main sections of of revenue that we have. The first one being the the recurring revenue, which is represented by the black bar. So that is currently at $54,700,000 So that's an increase year on year of 21.4%. So obviously, that's been driven by strong organic growth from order intake that we've seen at the back end of '23 that's rolled out into into '24 as well as new contract wins in 2024. The the blue bar is the the hardware. So we've seen a reduction year on year, which was anticipated, which is really down to sales of hardware to our OEM customers, which was really driven by slowdown in the construction and the automotive industries.

11:27 We're expecting that hopefully to level out moving forwards. So but what we have said is an impact of that is if we look at the services line, we've we've increased from 7,000,000 to 7,000,000 from 6,100,000. Now the services line is is split broadly in into three main sections. So we have professional services, which is effectively project management largely relating to our direct customers, although there is some project management for our OEM customers as well. We have engineering installation, which is exclusively for our direct customers because when we when we roll out a project, the hardware tends to be retrofitted to the fleets. And the third main aspect is integration services that we provide to both direct and OEM customers.

12:17 So what that has driven is is because we've seen an increase in the rollout of our direct customer projects that we've won over the year, we have seen an increase in both professional serve in in the in the categories within professional services, which has also had a positive margin impact in the year as well, which I'll come on to on the next slide. So overall revenue has increased. Adjusted revenue has increased 13% from 71,700,000 to $81,000,000 in the period. If you just move on to the next slide, please, Nadim. This is a slide that we introduced at the half year, and we wanted to kind of come back and revisit this to tell you about some of the things that we're continuing to do to drive our margins up.

13:04 The gross margin and EBITDA graph on the right hand side does illustrate that we are able to consistently deliver increases in both gross margin and EBITDA. So EBITDA margins have gone up from 13.2% to 14% in the year. Gross margins have gone up from 61% to 66% in the year. And there's various reasons for performance in the year, which I'll come on to on the next slide. But in terms of some of the things that we're looking at to help drive margin enhancement moving forwards are we're we've we've looked at our go to market strategy, as as Nadim referenced earlier, with the new CRO. We are really focusing on our direct sales. We've got a very, very healthy pipeline in The UK. Well, in all territories, it's it's building building very strongly.

13:53 So as as we deliver and win those deals and and roll those out, naturally, margins will enhance because, generally, margins tend to be a lot higher with our direct customer base. We've done quite a lot of work in the year, and there's ongoing programs regarding integration to third party products. So you may recall that we we had particular success with the Woolworths rollout that we we we won that deal in early in 2024. We we we did a pilot with them in 2023 with the Lytics AI camera. So our our plan moving forward is to integrate more into third party products for a number of reasons. One of which is to, obviously, enhance best in class technology, which we've been doing for some time. But, also, it helps to remove barriers to entry when we when we're in a competitive situation with a with a a tender.

14:52 If there's, you know, third party hardware that we can integrate into, then it it it doesn't it helps us in the respect that, you know, the customer won't have to raise a, you know, purchase order for any CapEx, etcetera. We can we can integrate straight into that. What that also means is that, you know, that could benefit the mix of the sale as well, that it would remove the the third party hardware margin, which tends to be lower than the the recurring subscription revenue and margin. We're obviously focusing on the sales of our of our acquired companies, so Vita and ESS. So, obviously, the you know, we're doing a lot of integration work there. We'll we'll discuss the MICROLISE ONE work that we've been doing to to help unify the platform and give customers a kind of one pane of glass to to see the products sweep through.

15:44 And finally, we've got various cost reduction programs going on across the business. So this will include the rationalization and consolidation of our hosting environments. But in addition to that, there are also a number of internal projects around various types of cost savings and efficiency initiatives, so utilizing more third party software such as Salesforce and ServiceNow and other applications that we use to streamline our processes and give us a a good base to help scale the business more efficiently and and profitably. If you could just move on to the next slide, please, So this is our adjusted profit and loss account. So as discussed, revenue has gone up by 13%.

16:29 Gross margins have gone up nearly 23% year on year. So that's seen gross margins increase from 6166%. We've seen improvements in both nonrecurring margins and recurring margins. So we have seen improved hardware margins in the year. We've also benefited from mix as well from OEM to direct customers. We've also seen improvements in our recurring revenue recurring margins as well. They they have been impacted to some degree by the acquisition of ESS because they had a very bespoke hosting solution, which is done on a customer by customer basis, which isn't particularly easy to scale.

17:17 So that there is plans in place, and we're working on transitioning that through to our MICROLISE hosted solution, which will be a lot more cost effective and easy to scale. In terms of operating expenses, they've gone up to 43,000,000 in a year. So the main drivers there are employment costs. So that we've seen that increase 2021% in the year. And the main drivers for that are the acquisition of ESS. So, obviously, with the business came, you know, a significant workforce around 45 people. We've also continued to invest in our graduate program in in various different functional areas of the business that is working extremely well for us. And we've also continued continued to invest and will continue to invest in our sales and marketing operations both in The UK and globally.

18:08 We've also seen an increase in in legal professional IT costs. So part of that is is the increase in security spend that we referred to earlier, And there's also increases in license costs, so Salesforce, ServiceNow, etcetera, that I mentioned previously to help us leverage efficiencies in our business processes. Adjusted EBITDA increased by 20% to 11,300,000, with EBITDA margin growing from 13.2 to 14,000,000. And the final point really to call out on the profit and loss account is we we can obviously see an increase in the depreciation and amortization line to 7,900,000 in the year. The two main factors are sorry. The three main factors are because of the the increased investment in PPE, so fixed assets essentially relating to our data center. We've seen that that depreciate depreciation charge increase over over the last last twelve months.

19:11 One considerable factor is the acquisition of ESS. So the the amortization relating to the business combinations is also pulling through there. And as we have continued to increase, although it has plateaued now and will continue at the same levels of our investment in internally generated software since we've IPO ed that has built up over the last three to four years. So we are seeing that amortization charge relating to that increasing as well. If you could just move on to the cash flow slide, please. Thank you. So cash conversion remains very strong at 91%. Our adjusted cash flow from operations has increased increased 12%.

20:00 As I mentioned, CapEx investment reflects investment in plant property and equipment, which which has reduced predominantly because of the activity in the q four and the restoration from the cyber attack. The so, yeah, our technical resources were were really focused on on making sure that the the estate was recovered from that suitably rather than rolling out on our investment plan. Yeah. We we do we do expect that our our fixed asset investment will be around the 2,000,000 mark moving forward in 2025. The other key points from a cash flow perspective to to reference are from an m and a perspective, obviously, there was circa 7,300,000 that that that went out of the business in relation to acquisitions. So that was effectively ESS and the deferred consideration from Vita, the acquisition that we made in March 2023.

20:53 We also paid our maiden dividend in 2024 of 2,000,000, and we paid an interim dividend of 700,000 in in November as well last year. And the final point to reference is the fact that we we've obviously got a healthy cash balance of 11,400,000, but we do have admitted RCF of 10,000,000, an accordion facility of of 30,000,000 with HSBC. So we do have access to another 30,000,000 of funds to support our growth via m and a, via further investment elsewhere. Okay. So thanks, Nick. I'll cover off market and and strategy. So just to give you a view of of what we're seeing in terms of market conditions in our customer base and also what we're seeing internally ourselves. So within our customer base, we're seeing consolidation continuing to happen.

21:53 And it's usually the larger customers that we have buying smaller customers. And so, you know, we're seeing good structural growth drivers there. We're also seeing that the focus on sustainability and reducing emissions is is taking a bit of a backseat within our customer base, and it's more focused on trying to improve utilization and efficiency and driving that bottom line growth and profits. So, again, both of those things are are good for us because they you know, it's our software that helps to drive those utilization and efficiency. So no nothing but positive impact on us in terms of sales of our products and further product sales into our existing customer base as well.

22:47 Internally, there's a few minor supply chain issues. Nothing compared to what we were seeing in 2023 or the early part of 2024. Few lead time issues on some components and on some IT equipment, but really nothing material to report on that. And, of course, talent and skills acquisition, particularly in certain tech roles, continues to be a challenge. There, we are running a lot of training internally and and looking at how we develop those skills ourselves rather than trying to find them in a in a scarce market externally. We wanted to give you an example of how we increase customer share of wallet over a period of time and give you that by way of a case study. So we want so this is an example of a a typical customer. In this case, it's LF and E, which operates refrigerated transport for pharmaceutical, medical, and health care industries.

23:56 First became a customer in 2023. They bought a couple of our products, fleet performance and journey management. Primary focus was in temperature monitoring. Then in 2024, they purchased more products, driver license checking, and our compliance suite with graph analysis. And now in 2025, they're looking to expand further with more additional products that we're working with them on. So not only has our footprint and our sales of our products grown within that customer, but the customer themselves have also grown over that period through increased utilization and increased efficiency. They've they've been able to pass value onto to their end customer. Overall, we've achieved a 450% revenue growth since 2023.

24:53 So this illustrates how, you know, we grow our footprint within a customer as well as the fact that, you know, the customer win in one year often leads to greater revenue appearing in future years as a consequence of that. Our growth strategy essentially remains the same. We are selling more into our existing customer base and cross selling some of our new products, particularly our TMS and and p and o solutions into those existing customers. We're also growing support for third party hardware. And, again, that helps to sell more solutions into existing customers, but also reduces barriers into onboarding new customers that have already invested in for the hardware.

25:49 Just a reminder that, you know, if everybody bought if all of our existing customers bought all of our product suites, we'd see almost a six fold increase in our recurring revenue. So there's a lot of white space us to go at within our existing customer base. We've also continued to renew contracts and have very long relationships with our customers, which again contributes to that really low churn rate of nil point 7%. The reminder, the JCB contract, who are our largest customer, that's been renewed through to 2029. In terms of new customer acquisitions, again, we've had positive growth in UK as well as our international markets in France and in Australia.

26:38 Several new customer wins across all those geographies. And, of course, we are continuing with our m and a journey. We've done four acquisitions so far, but by no means the end of of our ambitions in terms of acquiring further. So the strategic priorities as far as the business is concerned is that, you know, we are consolidating our acquisitions, moving them all into our own data centers. We are also at the same time integrating those products into a into a single suite called MICROLISE ONE. More value that we think we can provide to customers by doing further integration on that in 2025 and onwards. So you'll be seeing more of that appearing through our products, and and we'll continue to upgrade customers on a regular basis to introduce those new features.

27:41 We're looking at greater efficiencies internally, and that will continue to help grow our margins. We're working more closely with product partners, and that's hardware side as well as all the software services. And, again, you know, that will help grow top line and bottom line. We are continuing to invest in our security infrastructure together with our customers, and international expansion will continue, just growing our current footprint in Australia, New Zealand, and France, But there is a lot of of the future international expansion that we have ambitions on as well as m and a.

28:38 So just a reminder about the investment case. So the vast majority of our contracts are five year contracts, which gives us very great long term visibility of contracted revenue. We have a very low customer churn rate. We've got lots of opportunity selling multiple products into our existing customers, and that makes us very sticky. Again, reinforcing that low churn rate. There is lot of activity in margin enhancements and various new products that will show further growth in in that margin figure. Significant international opportunity.

29:26 And, of course, as demonstrated by the graph on the right hand side, even through COVID years and supply chain issues, we've shown good consistent growth over the last seven years. And we're, you know, we're confident that that growth will continue over over coming years as well. And then from an outlook perspective, we had a strong order book last year, and the order book continues to grow q one, so we're very confident in delivering our full year numbers. We're very pleased with how we've managed to cross sell solutions from our acquisitions, particularly on the CMS front.

30:15 And, of course, we have lots of cash available to us to doing further m and a, and that's something that we are also actively working on. And at that point, I will stop and hand across back and then for some questions. Nadim, Nick, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of the screen. Just Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard. As you can see, we received a number of questions throughout today's presentation. If I could hand back to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

31:01 Great. Thank you. So first question is from Lee, which says with recurring revenue of 67%, how do you anticipate this trending, and what are your targets for the future mix? So I think we will continue to see this going upwards driven by two factors. One, selling higher value, higher margin parts of our portfolio. So our TMS solution is is much higher value and much higher margins than some of our other products in fleet performance and compliance, for example. And so the more of that we sell, the more that will increase the overall percentage of recurring revenue that we see.

31:48 Secondly, the support for more third party hardware means that we'll be able to sell our software without having to sell additional hardware. And, again, that will change the mix favorably for higher margins and also more for recurring revenue too. So we are looking to seeing that increase. We don't I I I couldn't give you a view of where that's gonna end up, but certainly, I think it's gonna continue on growing over the coming years. The next question is also from Lee. How much of your growth and potential is international, and will you look to expand it expand into new markets?

32:36 So I think it's fair to say that we're continuing to see really good growth in The UK, but we are seeing double digit growth in our international markets, particularly in Australia. And at this point, the pipeline looks very strong. And, you know, we we we think that that growth in Australia particularly will will continue over the coming years. And so there's a lot of ambition, certainly, for continuing that in our existing markets. And we will be looking at other international markets as well, but more likely through an acquisition rather than starting from scratch ourselves in any new international market.

33:28 Next question is from James. To what extent is product integration driving cross selling wins across the acquired customer base? I can't give you an exact metric on this, but I think it's fair to say that the responses that we've had from customers, it's been very, very well received. We showed the MICROLISE ONE product launch at our conference last week. We had nearly 2,000 customer registrations for that conference, and, you know, the feedback was overwhelmingly positive regarding our strategy with with our MICROLISE ONE solution.

34:16 And certainly from the customers that are already using it, we had several customers using that product prior to to launch. Again, the feedback has been overwhelmingly positive. So we think it will absolutely contribute to doing more upselling in our existing customer base. And, also, it's a really strong contributor to winning new customers because they get the story. They get the fact that they can buy a solution that meets their current problem needs today. But over time, they can expand very, very easily with new products, new solutions from us that integrate with those existing solutions that they have without having to pay lots of money for having having lots of issues with integration if it was a third party product. So it's been very well received, and, you know, we're we're very confident that it's gonna continue to to help us sell more into our existing customer base and also help us win new business as well.

35:28 Nadim and Nick, thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Nadim, could I please just ask you for a few closing comments? Thank you. So I think, really, I I would like to leave you with this investment case slide. If you do have any questions, as I said, feel free. We're very open to respond on any further questions that you have. And think we're very excited about 2025 and looking forward to continue the continuing continuing on the the growth trend. So thank you very much for your time this morning.

36:15 Thank you. You. Thank you for updating investors today. Now 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 only take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team of MICROLISE GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.