Advancedadvt (LSE:ADVT) — Investor Presentation

0:00 Good morning, and welcome to the ADVT Investor Presentation. Throughout the quarter presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time using the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. Have the company camera view all the 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 to Vin Maria, Chen CEO. Good morning.

0:32 Good morning. Hi. Good morning, everybody. We can't see you, but I think you can see us. So welcome, and I hope nobody's in their pajamas, so we'll see how we go. We're definitely not. So I'll carry on with where we are, and thank you for being here and making the time in your day. This is our interim results for the third first of August twenty four, and we're all about driving the customer journey, and this is through the whole piece of digital transformation AI alongside business application and vision critical applications. I'll give you some more details on that very shortly. The next slide is introduction and overview. In in a simple terms, what we've created in the last twelve months is a international software business that actually does mission critical applications for business solutions for the public sector and resource management solutions for the private sector and corporates.

1:30 I have to say we, as a team, have done phenomenal amount of activity in this market historically. You know, we've done a number of acquisitions, take privates, bought from private equity, etcetera. And operationally, I have to say that carve out is the hardest thing to do. It's like it's like root canal surgery while trying to run a business. So the in the last twelve months, we have relisted the business, completed a carve out, implemented new multiple new systems from HR payroll, CRM through the throughout, improved the operating metrics of everything required, won multimillion, multi pound contracts, multiyear contracts, and completed our first bolt on acquisition. What we've created is a mission CRISPR application business, software business that serves as two markets, a combination of public sector and private sector.

2:20 And if those of you that are familiar with us historically will know we acquired a bunch of assets in August last year in August, sorry, '23. And with the original assets, net net net, we paid 27,000,000 for, and we're delivering 5.2 times multiple EV to e EBITDA. And on a multiple 5.5 x, which for these assets was really good. And as you'd expect, when you buy something for that, you have a bunch of work to do to make sure they actually know the value you have to get. And the the 5,200,000 of EBITDA was before any PLC cost because this was they they had no PLC cost associated with them. What we've created in the first six months is a business that is running at $2,020,000,000 in revenues, up 31 percent, 4,000,000 of EBITDA after 2,000,000 of annualized PLC costs with EBITDA up 8%.

3:18 Pro form a revenues up 17% and pro form a EBITDA up 54%. We have 18% at current, about four points, and a 117% cash conversion. So EBITDA to cash is a 117%. And we still have 83,000,000 cash in the bank plus 25,000,000 of asset and liquid liquid assets. So about a 108,000,000 net, and that includes having bought our first acquisition. So the cash flow already has paid for the acquisition of such. For those of you that know us, you'll know these are familiar faces, and the photographs are probably about ten years long, but never mind. The reality of the situation is that this is a team that's done it multiple times before, you know, across executive team, nonexecutive, and indeed the advisory.

4:08 And the advisory team spend between three and five days a month really helping us develop the best practices for a business of these types. And we know having run these kind of business for many, many years, we absolutely understand what it is that it takes to become a great business in this space. And their job then is to once we've implemented the the concepts and the ideas and mesh measurements to make sure that the business actually starts to deliver deliver them. Our previous incarnations next one.

4:38 Are across exactly the same public markets as we've done, and we've always done publicly and have proven to be a hugely successful and have taken most of these are now in private equity hands. Keene's called Blue Jay,

5:06 In business solutions, we provide software, back office and accounting compliance software for the office of the CFO in public sector and health care organizations. So we have financial management, procurement, document management, budgeting, forecasting, benchmarking, accreditation. In the second line of business, we do human capital management. This is big ticket sorry, big customer base, resource scheduling, and allocation, and cap and calculations of very complex shift patterns, etcetera. And in the case of business solutions, all of this is generally public sector. I mean, the human capital piece piece, this is all private sector focused. And underlying all of this is about really driving all of these clients towards the cloud cloud through AI and digital transformation, using a bunch of analytics to help their businesses become more efficient, and really driving the business intelligence to help create efficiencies and value for our customer base.

6:05 In terms of market positions, you'll know that we have been in these subsectors for many years years. Business solutions, interesting enough, is still in same sectors we've always been in. And in fact, these same competitors were our competitors all the way for the last thirty odd years, and in fact, one of our suppliers has. In the case of human capital management, this is a relatively new market, but a market we fully understand. It does resource scheduling, so it optimizes an and the allocation of people to tasks or to jobs across the globe. So our customers in this space are all the household names that you know across the likes of, you know, KPMG, Deloitte, PwC, Capgemini, all ISS, Donata. And we have about, I think, 2,500,000 end users in this in this space and a product that's known globally.

7:01 The cloud sorry. Go to the next page. We have a stable and broad customer base, with over 300 odd customers in the public sector markets and 500 in the private sector markets and a very high contingency recurring revenue. If we look at the growth opportunity in the public sector, we see two. One is that every single one of our clients need to move on to the cloud, and in so doing, generates an additional amount of cloud revenues, particularly on Azure, and indeed additional services revenue as we transition across. And so far, we've taken 60 over a 150 clients across to our central our Azure product.

7:47 And the generally, we take about 20 a year across. And so, therefore, there's still quite a lot of growth coming out of this particular business over the next two to three years. The second part of this is the digital transformation piece. Once we've got these customers of ours, what we're looking at is looking at their legacy systems and their applications, their data silos, their integrate or lack of integration in terms of systems, and kind of

8:13 because certainly, you have generally about cyber and indeed about the user experience. And what we go back to do is to then say, okay. Yes. You have our core application, but this is what we can also do to help you. And we've won some very large contracts around the line of, you know, intelligent documentation, reporting dashboarding, you know, cloud services, modernizing the UIX, moving the platform onto cloud, and then supporting that business through the next phase of its life. And so people like we probably want something in order of £23,000,000 of contracts in that period already, including, you know, and like, mentioned, Susie and a few others. But, anyway, very good public sector clients doing more with us in the areas that they know they have to do in order to get some new efficiencies. With the government's focus on spend greater spending in public sector, I think we'll see that continue to do well.

9:06 In the human capital piece, this is a slightly different market. It's much more global in nature. The public sector version is very much UK centric, but human capital management piece is very much global in nature. The core product is really well known across the globe because it's used by, for example, 350,000 users in, similar numbers in, etcetera, but also by a large number of other clients across the globe. And the issue here always was that they we always felt that the value that the customer was getting from the product was so substantial and so mission critical, yet we never believed they were actually paying the appropriate valuation that they ought to be paying for a software product that was actually so key to their business success.

9:54 And so we spent the last twelve months really growing the market and driving capability and functionality looking at repricing of some of our enterprise customers, and we have signed all of them on multiyear, multimillion pound contracts, generally three to five years going forward, and also growing our SaaS revenues. So we have an enterprise product and a SaaS product where the previous incumbent had spent £10,000,000 developing it, but never actually managed to get around and do anything with it. We've seen a 100% increase in revenues on the SaaS product, and we see more to happen on that space, particularly in global markets. We sell and service from here, but we have quite a lot of interest inbound interest from across the globe and and from the large organizations all the way through to the smaller ones.

10:46 So look. In the the last twelve months, the ARR on our recurring revenue in the capital management piece was close to 92%. So we see this is a really stable ongoing business with very significant cash flows.

11:01 The final piece is to drive m and a, and ideally, m and a has all the same characteristics that we've always had, which was high levels of recurring revenues, very high barriers to entry, mission critical applications that we can cross sell and upsell to our base. So things like digital data analytics, payroll talent management, RPA and automation, resource strengthening, etcetera. What we've found at our very first acquisition has been, we've been fortunate to find that that's exactly what it does. So, we've acquired a business called Subtom, which does e invoicing for public and private sector. Its focus has been very been very much on private sector and with customers like Centrica, Capgemini, ASOS, Currys, TalkTalk, etcetera.

11:47 And we believe that the capability would be very suited to the public sector, and we acquired the business in July for roughly one times EBITDA sorry, five times EBITDA. The reality of the situation is we've won three sales already in public sector, and we think we have a pipeline on the fourth line. We think we can take this out pretty much all the public sector clients as well as some of our corporate clients. And what it basically does, it does invoicing matching reconciliations, etcetera, kind of standard stuff to help save public and private sector organizations substantial amount of amount time in their forecast.

12:21 I'll pass it to Gaby for the financials. So I'll just take a few minutes to walk through the financials and highlight some of the areas in which she's worthy of note. By virtue of us changing our year end to February, this set of financials can appear a little more complex. So what we've tried to do to begin with is look at the pro form a performance. So what we would really say is the like for like for those four businesses we bought in July 2023. So on the right hand side, you'll see in the green shaded area, the pro form a numbers for twelve months pre act, was 32,400,000 of revenues and 5,200,000 of adjusted EBITDA. If you look then across to the right left hand side, the August 24 for six months in contrast to that is 19,300,000. So the 32,400,000 for twelve months pre act in contrast to six months, 19,300,000.

13:09 And the 4,900,000 on EBITDA, again, a contrast to divide from two for double the period of time. I think what this underlines is a lot of what Vim was saying earlier on about the operational changes we've made with the business and also those larger contracts with our larger customers that we've secured and enhanced, and they've been a really driving force to moving these numbers forward. As I flip onto the reported numbers, I just want to get in just give you a little bit of context. In the gray shaded side of this slide, you've got the comparative numbers to December 23. These were agreed with VA regulation. Our brokers is the last published set of results, and therefore, that's why we've got December versus August period. That said, we have made 19,900,000 of revenue for the six months. That's up 31%.

13:59 Of that revenue, 80% of it is recurrent, offering great predictability and visibility going forward. The adjusted EBITDA is up 8%, 4,000,000, and we continue it to earn interest on our deposits, reaping net finance income of 1,900,000. The pretax profit of 8,300,000 is influenced by the increasing valuation of our investments, but that does mean we have a very strong balance sheet with 83,300,000 in cash. That's after the payment for the for the acquisition of Selloton, 4,800,000, and investors valued at 25,000,000. Again, the numbers on the right hand side are in our interim financial statements available on website, but it's a very strong set of numbers underpinning all the progress made today since the point of acquisition.

14:48 And I think what what we really like to say is that we're we're operators, not financial engineers. And you'll notice that we don't you know, our focus is about how to make sure the business is running as efficiently and as effectively as possible. And that's, you know, whether that's utilization metrics for consultants and and implementation resources, whether it's the frequently asked questions on support, whether it's the volume of activity that sales guys do on the account management side of things, whether it's about I mean, literally, every line of business is looked at in great detail to say what is not just best practice, but the great practice in each of these subsectors, and then we lead our businesses towards that through better optimization and better utilization of other resources. So our outlook is you know? Do wanna go? So I'm repeating some of what we've already said, but it's just a reminder, really. As an enlarged group, we're now positioned for growth. We talked about some of those levers earlier in the presentation, but we did do 20,000,000 of revenue for the first six months, of which, as I said, predictability and visibility around 80% of that being recurring.

15:50 We are straddled across both the public and private sectors, which gives us that diversified base and allows us to move in both areas. The 4,000,000 of EBITDA just for the first six months, and, again, that's after PLC costs. The cash conversion over a 100% for this period, and, again, in future periods, we expect that to be 90 to a 100%. We have about 240 employees and a 108,000,000 sitting on the balance sheet here in cash and investments. So this really gives us a platform that we are ready for cloud and digital opportunity going forward across both of those business business lines. And I guess then, really, it's just kind processing to really having categorized all this. The outlook is we've made good progress, and, hopefully, you'd agree with that in terms of both the financials and what we've done operationally.

16:38 There's there's significant growth opportunities, and I think that's aligned with the market. So, again, we're not forcing this behavior. We're actually driving the same direction. The growing pipeline in both the public and private gives us a good, again, a good platform to work with. Very strong balance sheet. I've talked about the cash. I've talked about the investment that we can use. And then we are looking to accelerate around the m and a side of things to make sure that we continue this growth. So overall, a good set of numbers, good progress, still well funded balance sheet with opportunity to grow. K. So there's a number of questions already on the board, which I just about read. So I'm trying to read it. So one is

17:22 Acquisitions. Right. Yes. Any information on future strategy from acquisitions and associated time frames. That's it. Somebody's obviously knows what they're talking about because, you know, we can't tell you all that. The the reality is we will constantly be looking. We're not we never stopped looking for acquisitions. They are more chat the bigger, more strategic ones are definitely more of a channel because PE still has its heyday in terms of lots of cash sitting around. But we are seeing quite a lot of the smaller ones now start to come out purely because the final resolution of what the budget's actually going to do has been done. And we expected to see more activity before the budget was announced, but I think people have, you know, either decided they're gonna carry on or actually this is time that they've they've

18:07 they've it's time to go. And that's and we're seeing a bit of activity around that right now. But we will also be looking always for a strategic asset, and we have made a number of propositions in the last six, eight months, which either didn't come to fruition because they didn't get the deal done or enter the PPE because it's more of a strategic fit for APE. That yeah. So it's part of the mantra. You know, we're always looking for good things. So if any of you have great businesses you want who are looking for an exit, please make sure we know about them. The next question is what are we gonna do with our M and C shares?

18:48 We will we as soon as we find something that we think they really need to do as an acquisition, we will manage our M and C position. Right now, we think we're in a good place. We think that the business M and C is has got a great chair in in thought, but, well, importantly, I think it's come out of the the challenges it had over the last few years and is positioned well for going forward. And if you know the business at all, you know there are two components. We want to be a part of it. The global services piece does phenomenally well and is incredibly profitable. And the second part, the advertising piece, has had its challenges, but actually, the management team are very much focusing on turning that background. And if that happens, you are I think there's quite a lot of upside on there, and and the market is is open to to to do that.

19:35 I will leave that there. But, yes, at the appropriate time, absolutely. We did look at an acquisition recently where the cost of it was gonna be set for 200,000,000. And so what we would have done is taking debt and then manage the the exit of MCC over prototype to pay down that debt. Finally sorry. The question of how we find new client response to adapting AR. So it's an interesting one about AI because people think it's new, and a lot of what AI is around at the moment is actually about combination machine learning and and RPA. And it's the kind of stuff that we've been doing for many, many years. But more importantly, it has become front to face and front of office, and it's quite important that we help our customers navigate through the changes around the the environment that they're working in. And so the part of that strategy is always about taking out the client base across to the cloud, supporting their transformation of the their platforms, and then ensuring that what you what we're doing is delivering AI that is complementary to what they need, but more importantly, helps them actually improve efficiencies and gain some of the value they are looking to achieve.

20:44 And and we have created a number of m I ML stroke AI driven modules, which interestingly, we've got a big user group session on the end of this month, and that is being they are key to what is being described and shown at those events. We also think there's real value in using the technology for ourselves, and that's exactly what we are doing. So whether that's through the invoicing piece in terms of what we're doing with Seroton, whether it's about frequently asked questions on the support lines, whether it's about managing customers through CRM systems, etcetera. This is this is a technology that nobody can afford to ignore, and and our ambition is to help our clients be the best version of the AI that they can use to help them deliver the best services to our organisations.

21:32 So our focus is very much supporting our client base, but also at the same time using technology to drive our own efficiencies further. Who are the main competitors in for your portfolio companies? So in the in the public sector, accounting and back office, exactly the same thing that we've always operated against. Do you want to go to that slide? It's You know, people like sorry. Yeah. People like we don't we don't have speech against the likes of SAP and Oracle because they're too high of a level, but unit four, ADVANCEDAD, and ourselves are all in that in the same space, so we know the market really well. The the beauty about public public business solutions is they're not greenfield. They tend to be brownfield. And what that means is that once a customer is in, it's very rare that they move away. And and so since our arrival, we've lost no customers at whatsoever in our portfolio.

22:30 If they've gone before we'd arrive, then we've managed their exit. But in terms of customers that we've lost, we have actually lost no customers whatsoever. More interestingly, we've had customers where they had said they were leaving and had given notice, but actually, they've now one of them, in fact, not only came back, but just signed a five year contract couple of days ago to stay with us for the long term. So in many, many ways, in public business solutions, we fully understand the market because we've been in it for thirty years and know the competition really well. We know what our customers are expecting from us and what they need us to deliver. In the human capital management market, we are the leaders with the retained product. And interesting enough, the enterprise client clients are all the KPMGs, etcetera, and they have already signed up for the next three to five years. But more importantly, the SaaS product is opening a brand new markets for us. And we are seeing competition in this marketplace, but we saw a 100% increase in our SaaS revenues this year of a revenue base, but the point is still significant growth.

23:34 And what's really fantastic is that we're getting a lot of inbound calls because the product is known on a global basis, and so therefore the opportunity exists to really do more with this over the longer term. It's quite interesting. You know, the market public markets are having their own challenges at this point in time, but and what's really interesting here is that we've had these businesses over a year, and we've had more offers to acquire actually, business solutions and the human capital management piece, and we were very expected. I think we've had eight eight inbounds on human capital management and a number for the whole business and a number just for business solutions. So we think we've got something. We believe that the markets will do well, and we think we can do very, very well with these product sets.

24:24 Our opportunity is really to leverage the opportunity that the cash gives us to do more m and a and grow the piece further. Any any plans to open up offices in The USA or Europe? Not in Europe per se yet. Our considered options in The US, particularly because we we have particularly, Retain, again, has a large number of very successful US customers, including E and Y, including PwC, including Rivaron, including Bank of America, Pfizer, and etcetera. So we think there's an opportunity to leverage that. And we all process this to land and grab, and what that means is we try and buy something as an asset in The US and then use that as a base to grow further. And that's what the ideal route would be, but we are partnering with some ex Deloitte people to look at launching, retained further in the stage right now.

25:27 When do you expect the house broker to initiate a note? I think it will be very shortly. Yeah. We're currently working with the broker, so they can be in a position. I think there was a question around synergies and program in terms of extraction from the capital from the original acquisitions. But what as mentioned earlier, we changed a lot of systems. We've done a lot of that network. We've got, I think, one system left to go, which is in flight. So we went on our way so far. So a few loads on on the journey, but everything's working well. I wouldn't do a car back again then. There's a lot of working time. Gavin used to have hair. Sorry. That's fine. But so did I. But, anyway, so yeah. So what else is there? Is it I think that covers most of the questions.

26:15 Covers everything. Perfect. I'll just jump in. Thank you very much for answering those questions you can from investors. Of course, the company can review the questions submitted today, and we will publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, then could I just ask you for a few closing comments? Yeah. I would say, we think we're we're a really strong business. We're a very strong team. And given that the markets need some real successes in the world of technology here in The UK, we're a we're a great candidate for that. And other than that, I'd say thank you so much for your time and your patience. Go have an amazing day. As I said to somebody about the other day, you know, there's a great song that says, what are you gonna do today to make you feel proud?

27:06 Have fun. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, we 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, but I'm sure it'll be greatly valued by the company. On behalf of the management team of ADVANCEDADVT, we'd like to thank you for attending today's presentation, and good morning to you all.