Dillistone Group (LSE:DSG) — Review of Interim Results and Prospects

0:02 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, 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 is dialed in via dillarstone at walbrookpr dot com. 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 meet company dashboard. Finally, we would like to remind you that this presentation is being recorded.

0:49 I would now like to hand you over to chief executive Jason Starr and finance director Ian MacKinn. Jason?

0:56 Cheers, Tom. Thank you very much. Hello, everybody. Appreciate your time today. Thank you very much for for joining us this afternoon. We we do appreciate your your participation. So what we're gonna do today, I'm gonna talk to you a bit about who we are, what we do. Ian is going to take you into the the numbers and I'll then talk a bit about the the future and what we expect to see going forward. The way we would position this I think is recovery delivered an opportunity to follow. For the last few years we've been talking about various problems that we've had and how for last couple of reporting periods at least we thought we could see a way out of them and that we were making good progress. And I think this is the first year where we can really say, yep, we've really started to deliver. If you look at our headline figures, they include our first H1 operating profit since 2018.

1:46 Our rolling twelve month adjusted profit has improved by GBP 350,000. We've reported our first recurring revenue growth since 2017 for a H1 period. Our recurring revenues are now worth more than 90% of our total revenue. And despite a challenging economic climate, which I'll touch on in a few moments, we do fully expect to deliver end of year profit in line with market expectations. So we are in a much better place than we've been for a long, long time and we're optimistic about the future. That would essentially be the headline that we're sharing with you. I suspect most of the people on the call probably know us, so I'm not going spend too much time taking you through my five thirty seven page PowerPoint presentation of the organization but I will share a bit about what we do. We are a recruitment technology company. We are not recruiters. We provide technology solutions to recruiters.

2:37 We tip we typically split our client base into two groups contingency firms and executive search firms. Contingency firms are the high street agencies that you see on every town center in The UK. Typically perm or temp agencies, small businesses placing everything from temporary drivers to office administrators to nurses to railway construction engineers and so on and so forth. The contingency market, we deliver various products to a CRM, a skills testing platform, a pay and bill platform. The other side of our business is executive search. So our executive search clients are headhunters. They are global. You'll find them virtually all over the world. And to that audience we deliver

3:23 CRM functionality, candidate sourcing functionality, compliancy functionality as well. We have a small number of corporate clients but that's really around the edges of our business. All of our products are now delivered through a single trading entity which is known as Icaru People and that is widely regarded as offering the best service in our sector. And you can see from the snippet on the screen, we have lots and lots of very positive reviews from clients all over the world reflecting that. So that's essentially what we do. I'll ask Ian to talk you through the financial ramifications of doing that. Ian? Thank you, Jason. So to start with, in recent presentations, we've been showing adjusted figures for items of government support related to the COVID period to present the underlying performance of the business.

4:12 Just to note, during h one twenty twenty three, we benefited from a small amount of support for a US employee retention grant that covered a time period encompassing the COVID period. Going forward however, COVID is now largely behind us, we'll concentrate purely on the reported numbers going forward. On that basis, this slide contains the figures published this morning in the interim document. It shows the results of the continuing steps being made towards the financial turnaround of the business despite the challenging economic backdrop for our primary market.

4:51 With total revenue, which is a historic measure, and TACV, which is forward looking, both are broadly leveled despite the economic conditions. Recurring revenue, however, is up 4% to stand at over 90% of our total revenue. Adjusted operating cash is also broadly level, up 1% to 565,000. However, the real story of these results is the move towards the elimination of losses. EBITDA is up 47%, and the adjusted loss before tax is reduced by 83% to 46,000. All this gives us confidence towards year end we're on track to hit the market profit projections.

5:32 Running through the income statement, as I said, the headline is the elimination of losses. The result from operating activities before acquisition, government support and one off costs has turned to a small positive of 36,000. This continues the trend we've seen recently. We've moved from a 129,000 loss in h one twenty twenty two to a 27,000 loss for the h two, now to a profit of 36,000 the current year. The trend is definitely moving in the right direction.

6:04 As mentioned previously, revenue is broadly level in the uncertain economy. EBITDA adjusted for The US grant is 34%, up to 581,000. However, it's worth noting on this figure, the margin has risen from 16.7% in h one twenty twenty two to 20.6% currently. Depreciation and amortization is slightly down with the interest paid edging up due to the rising interest rate being paid on the civil loan. All of this means that the reported loss has greatly decreased and at $4,746,000 pounds for the half year.

6:47 So the underlying cash position is broadly in line with 2022. Once government support is stripped out, adjusted net cash from operating activities is down slightly at 519,000, investing activities, which are mostly are spent on software development, is broadly similar at 469,000. All this leads to an adjusted net change in cash being down 217,000. Adding the government support back in, the overall net change in cash is actually slightly better at 171,000. It's worth noting we're two years into the five year repayment of the civil loan, having already paid off 600,000 of the initial 1,500,000 loan, leaving us with 900,000 left to pay on it at a rate of £300,000 annually.

7:43 So in summary, we believe all the above is evidence that we've continued to make progress on the financial turnaround of the business. We made our first half year adjusted profit in five years, recurring revenue has grown, so we've now got over 90% of our revenue stream on a recurring basis. The adjusted EBITDA has grown by over third on the back of operational efficiency, and we return to a positive EPS. With a continuing focus on the bottom line, we believe we have the foundations to take advantage when the economy turns. Now let me hand you back to Jason to take you through the rest of the presentation. Cheers, Ian. Thank you. And obviously, Ian will be very happy to take any questions you might have around the numbers.

8:29 So what we've been talking about, what we've been focusing on I think recovery. And I think if we are talking about recovery, we have to talk about where we came from because obviously it's a directional path. So I wanted to provide a bit of context. Our numbers have been fairly poor since since 2019 essentially and arguably longer. We basically have had what looks like a single problem. It's taken us a very long time to fix. That's not quite true. If you look at the history, the not so recent history of the business, essentially, everything started to go south in 2018 when we had a very large client, our largest client by far back then, leave us, and we launched a new product that failed significantly to deliver on our internal expectations for it. The business had a bad period and as a result, we took steps to reorganize, to restructure, and we can plan actually completed that largely by the end of twenty nineteen. Coming into 2020, we expected that we turned a corner. We expected to return to profitability in that year.

9:29 But unfortunately, COVID then came along. As we touched on at the top, our clients, our recruiters. During COVID, recruiters were decimated. We saw clients disappearing. We saw clients downsizing. Nobody was buying new kit. And as a result of that, again, we had another challenge. So essentially, it's been a period of what, four years depending on how you define it where we've had to deal with two ongoing two essentially big set of problems and we've had to fix ourselves twice. Why am I explaining this now? Because I think it's relevant to the current environment we're in. In q two of this year, the recruitment sector, the audience we sell to, suffered a significant downturn in terms of demand for their product. This is general data on vacancies in The UK. You can look in most markets, can look at public company statements in the recruiting sector. Q2 was really difficult for the recruiter sector.

10:22 Why am I highlighting this? I'm highlighting this because our business now is much more lean, it is much more flexible than it's ever been before. So what this actually means is that despite the fact that the economy has taken a significant downturn in our sector, we feel we'll still deliver on our profit expectations. We'll do it on a lower revenue line where unfortunately growth has been tougher than we would have expected but we still expect to deliver profits despite this turnaround. And I think that's a major change in our business now. We used to be historical historically a fairly large business for total well, not large in the grand scheme of things, but a heavy cost base that was difficult to change when when the economy changed. Now we're very lean. We have higher margins. We can move things around much more efficiently than we ever did before.

11:07 And that gives us confidence going into the

11:11 remainder of this year and beyond. On the contingency side, one of the big announcements we made at the beginning of the year was that we'd won a contract for our Infinity product which was one of the biggest in our history. We expect to deliver that later in H2. We put in our announcement this morning that while the final value of that contract is to be confirmed, it's likely to be marginally higher than we'd originally anticipated. That contract is going well. That's expected to go live this year. It gives us very

11:41 good confidence on the contingency side of the business for for the first half. The Exec Search side, our Executive Search product lines have been in decline for years and years and years. They grew year on year revenue in the first part of this year. So, again, that's positive and not something I've been able to say for a very, very long time. The real opportunity for the group though stems from our Telentis product. Now, I'll be candid with you, I would have expected Telentis to be at a higher level than it's at now given its history and where we would have liked it to have been. But as I say, Q2 hit us in a way that we weren't expecting and saw all of our products, including Thylentis, take a bit of a pitch. Thylentis has already recovered. The revenue it lost in q two, it's mung back again but it is still in a market where there are lot of executive search firms buying our technology than we would have liked. But the opportunity for this product is huge and I'm gonna spend a very quick thirty seconds showing you something in the product for those of you who haven't seen it.

12:44 Telentis is a cross between LinkedIn Recruiter which is the Microsoft LinkedIn product that makes all the money for for LinkedIn product range, and a CRM, so an executive search CRM. The difference is the two products were essentially integrated. So our product doesn't just allow you to manage your business, it allows you to do your searching as well without having to pay huge amounts of money to LinkedIn recruiter. Over the course of the first half of this year, we've implemented a host of well, I'll say exaggeration, a number of improvements, some of which relate to AI and specifically OpenAI, which is the technology for pin underpins ChatGPT. We were one of the first in our sector to deliver any integrations with ChatGPT. And I just wanted to show you a couple of examples of that just to whet your appetite for the type of thing that clients want and clients will be buying from us when the economy recovers. So this is Telentis.

13:38 I'm gonna do a quick search by clicking on the search button. This takes me to a search screen. And I'm gonna use ChatGPT OpenAI to do a search for me. And all I'm gonna do is tell it what I'm looking for. So I'm gonna pretend my client is Whirlpool and they are looking for a CTO. So I just type in CTO Whirlpool. Telenetus passes that information to ChatGPT and ChatGPT has now built a search. If we're not happy with it because obviously ChatGPT can be a

14:10 bit random in its search criteria as we tell ChatGPT to run the search again. That's better. So you can see it said okay if you're looking for a CTO you're likely to have these job titles and we know Whirlpool sells home appliances you're looking for someone who has this type of background. So once I've built the search screen I can click on Telentis' search button. Telentis searches across five fifty nine million public profiles to find candidates that potentially meet our criteria. But what we can then do is say

14:41 to the system, okay, well, let's use ChatGPT again to find similar candidates. So if I choose one of these candidates at random, let's say Junja, if I click on the find similar people button here, again, we are using ChatGPT to search our person data and our company data and use ChatGPT's own understanding of the world to build a very detailed template of what that candidate looks like. And we can then use that in a few seconds to search across 559,000,000 public profiles. So this is a product that is at the cutting edge but does things its competitors do not do. And when the economy recovers, we're extremely confident it's going to deliver for all our stakeholders. We're extremely excited about this product even if we're yet to see the revenue growth that we would have liked from it.

15:33 So in, you know, in terms of where that product is though, we do have clients using it pretty much all over the world now. I think our biggest market is in The UK but then it's probably The US. We have clients in Australia, we have clients in Africa, we have clients in Europe, in Asia using it as well. And as I've touched on, we really do believe this is going to cause the business to have a very bright future when the recruitment industry recovers. So, there you go. In short, that is essentially what's my prepared presentation. We believe we've delivered a recovery. We believe that the future of the business is not going to swing around anything like as much as it did now. You know, we're expecting to deliver our numbers this year despite the economy and we're very confident at this stage of doing a similar situation next year. All of our budgets assume that we're not going to see a massive recovery in the recruitment sector. Obviously, if that does happen quicker, then we'll, you know, we'd expect to benefit sooner and to a greater extent.

16:35 But there you go. That's comments Ian's comments. Thank you very much for your time and very happy to take any questions that people might have for us. Thank you. Yeah. Super. Thank thank you, Jason. Thank you, Ian. We have a number of questions. However, please do continue to submit your questions using the q and a tab situated on the top right hand corner of your screen. I would like to remind you that a recording of this presentation can be accessed by your investor meet company dashboard post the presentation itself. And, additionally, your feedback is important to the company. So immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback.

17:09 And so just following on from that latter closing statement you made around ChatGPT, Christopher has asked, how accurate do you find the results of ChatGPT, and how do you build the integration internally? That's that's a million dollar question. ChatGPT is unbelievably accurate, and then you use it again 20 later and it's a bit random. So what we've had to do, the actual integration is very simple. And, yes, we have built it internally. But, essentially, we've had to put as much time into validating it and and checking, but it's it's it's not misleading in its its feedback as we have to actually do the integration itself. So the first iteration of chat GPTs was used to build the search screen.

17:56 It worked really well for a couple of weeks and then we had to change the query entirely because it it just different it just started to deteriorate. We're doing it a different way now and it's more consistently accurate. We are using the ChatGPT for the search screen that builds template candidates and that seems to work much better. But to be honest with you, unlike the first ChatGPT project we did, the second ChatGPT project we did is using a lot more of our own knowledge and then ChatGPT to bring it together. So when we do the similar people search, we look at essentially the public profile of the person. We look at the organizations they've worked for and what our platform knows about those organizations. And then we give all of the intelligence to ChatGPT and say, using this, give us what the customer should be searching for. So we do a lot more of a legwork now for ChatGPT than we were doing when we first launched this. And as a result, it seems to be fairly consistent. Certainly, the the new, you know, the new search for similar people search we launched a couple of weeks ago seems to be seems to be very consistent. Next month, I anticipate we'll launch our next ChatGPT integration or OpenAI integration which is essentially allowing our users to rewrite our candidate profiles. So, for example, let's say you are a recruiter, you found 10 candidates and you want to send them over to your client.

19:21 You've got their LinkedIn bio, some of which are in English, some of which are in French, some of which are in the first person, some of which are in the third person. With Tlenti, she'll say we write this 150 words in US English, click a button and Tlenti will do it for you. And again, that's using ChatGPT. We, you know, we always caution our users to read what they say what's being presented to them excuse me, before they send it off. But it's doing a pretty good job. But it's not perfect. Thank you for the question, Christian. I appreciate it. Right. Okay. And Christopher's got one more question actually which we might go straight to, which is what does the preferred provider agreement with the major recruitment business that you refer to bring to the company? Are there minimum revenues, etcetera?

20:07 Thank you. So someone's read our new report. That's good. So this is on the executive search side of our business and it is for TALENTYS, the product we've just been talking about. The business or the client is a how to describe them they're a global but US centric franchise recruitment business. They are very well known in the sector. All of their offices are franchises. The deal we've done is essentially or the agreement that's been reached was reached with head office. They were recommended to our product by an existing officer who was using it. As a result of that, head office reviewed the product, put some technical tests on it, a number of their offices trialed the product and as a result of that, the head office basically signed off and said, this is a good product and one that we are comfortable to recommend to our users. So it is we've gone through a process of evaluation.

21:03 There's no guaranteed revenues as a result of it, but they have helped us with marketing it to their members. And over the summer, we have signed up a couple of their offices and we would hope to sign up more in the fullness of time. So it's not something that's necessarily going to cause us to be inundated with revenue on day one. It's a very significant morale boost. It's a tick in the box. It's it's third party accreditation. It's a marketing opportunity. It's already generated revenue, but it's not yeah. We're not we're guaranteed to roll it out to the next 150 to a 150 offices over the course of the next twenty minutes. It's not quite that, unfortunately. That's different, obviously, to the contingency contract that we announced earlier this year that's going in later this year, which is an Infinity implementation where various businesses are involved, but it's all contracted centrally and they will get it because of the nature of the contract we've signed.

21:58 Thank you, Chris. Great. Super. Alright. And a question for you, Ian. What what are the main contributors to the improved EBITDA margin? I mean, really, it's a consequence of the work we've done over the last couple of years, really taking a hard look at our cost base and all the work we've done within our own software to enable the hosting costs to be reduced level from the levels they were one, two years ago. So it's really the efficiency that they've been building through the the business that has now come to fruition within the cost base. Super.

22:45 Okay. Jason, a last question for you and then I guess maybe we could just sort of move to to tie up the the presentation. But the question is, how do you view the recruitment sector right now? Your guess is as good as mine. So the summer is always slow for recruitment. Even in the best of times, it's always slow for recruitment. So q two was was fairly difficult. July and August is always quiet. I don't think I would be suggesting it got any worse. I would just say it's pretty much the same as it always is. It tends to pick up again around this time. So if you were to ask me in a a month or so, I'd I'd probably be in a better position to to answer that. I don't think it's deteriorated, but I'm equally I'm not sat here thinking that it's suddenly suddenly recovered either.

23:32 We have built all of our look forwards. All of our planning is based on a sustained period of challenge. So I think it would be yeah. We're certainly not banking on an immediate uptick. We obviously hope to get one. Right. Thank you for the question. Yep. Quick quick question for Richard, actually, which is is on how you how fees are charged. It would help if you could outline how fees are charged, e g per seat. Hold on. Let see if I it right. Per seat per per search per month, etcetera. Yeah. Thank you, Richard. So, obviously, we have a variety of of of of products, but the vast majority of our products are delivered on a per user, per month, per user, per annum type subscription model. So a SaaS type model, software as a service. The pricing is typically again, depending on the product you go for, it might be between 50 and £100 a month, might be a bit more per user.

24:31 So if you have 10 users, you times that figure by 10. As I say, does vary by by product. So some products are at the lower end of that. Some people some of our products are slightly higher, but that's broadly how it works. We also for some of our products, we'll provide professional service fees along alongside it, but the majority of our new clients who sign up now will pay primarily a recurring revenue fee based around a certain number of users paying 50 to £100 per user per month. Thank you. Super. Yeah. Very helpful. Great. Okay. Super. Well, that's end of the questions. Would you like just to give us a thirty second sort of elevation, Jason? Well, I I think I'll just reiterate what I what I said a moment ago. I think the yeah. We have had a difficult few years. No question.

25:17 And, you know, some of that was extraneous events. Some of it was our own mistakes, my mistakes. But I think, you know, we we've we've had a a tough time with it, but I think we we have come out the other side. You know? We're on the road show today, I think it's the first time for a few years that no one has asked us if we need to raise money. And for the record, no. We don't need to raise money. And we actually haven't needed to raise money throughout this period or certainly since since the COVID line. So, yeah, it's we're we're we're far we we we believe now that the results are beginning to reflect that we have turned a corner. As soon as soon as the economy recovers and we we start to see sales get back to where we'd like them to be, we'd yeah. We're really quite confident. Thank you. Cheers, Tom. Super. Alright. Well, look. Thank you both. Could I ask investors not to close this session as you will now be automatically redirected for the opportunity to provide feedback.

26:07 If anyone has further questions or would like additional information on DILLISTONE, please do get in touch via DILLISTONE at Warbrook PR dot com. Many thanks for attending this presentation, and we look forward to updating you again soon.