Newmark Security (LSE:NWT) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the NEWMARK SECURITY PLC interim results investor presentation. On the right hand corner of your screen. Please just 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 we'll publish those responses where it is appropriate to do so.

0:30 Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Newmark SECURITY PLC. Mary Claire, good morning. Good morning. Thank you very much. So I am Mary Claire Dweck, CEO of Newmark Security, and I'm joined here by our CFO, Paul. Today, we'll present a handful of slides that will give you a preview of how we are framing our plan to accelerate growth over the next five years together with our interim results at the end of twenty twenty five half year. Just wanna start with, despite the first half loss that we certainly anticipated due to ourselves being second half weighted and investment in strategic initiatives, we are looking forward to a very positive EBITDA for the year.

1:28 Well, for those of you who don't know us, a good place to begin is in the context of what we do. So let me describe the problem we solve. The common challenge for our primary clients, both human capital management, HCM software partners, and enterprise, is to manage their resources more effectively. As you're aware, HCM software partners is a major growth category that we're investing heavily in putting technology at the heart of this opportunity, increasingly with the help of AI to turn managerial bureaucracy into machine driven autonomy. But there's a data gap that exists between the physical world occupied by real people in an organization and the digital world where AI needs to operate.

2:20 This is the gap we fill, taking care of identity credentials of employees and colleagues, managing them securely and in accordance with strict compliance regulations, and controlling access and timekeeping recording so our client's systems can be optimized. It's where the AI data gap meets the reality that needs in order to operate more effectively. So we introduce ourselves as follows. NEWMARK is a technology innovator that focuses on people's data and device management. Through time clocks, software, and services, we link the digital and the physical worlds, connecting enterprise with its people to enable the future of autonomous HCM operations.

3:17 This includes biometric identity and security, time, and workforce management and employee data compliance. We've been operating in this space for over thirty years, and we've grown to a team of over a 100 specialists who spent all their time obsessing about innovations in people's data and devices, especially the ones we can make available to ATM software partners and end users' clients. That obsession has created market leadership with the best all round proposition that includes the highest quality devices, software, and services, all of which we can quickly connect and make available to our clients so they can develop the increasingly autonomous future of the HCM operation that they try to create.

4:13 Operating in headquarters in The UK and in The US, NEWMARK has a strong presence across North America, The UK, and Europe. And with the acceleration of AI adoption across every enterprise, it's a very exciting time for our customers who need a responsive partner that can offer the highest quality, well architected products that enable their advanced strategies. Crucially, this is in enabling us to target full shelf wallet, which includes replacing low end device manufacturers from China. Put simply, our task is to scale innovation.

4:59 NEWMARK's primary market and growth focus is through its growth technology brand, GROVNET Technology. Here, our model is enterprise platform driven with GT Connect being at the center of everything we do. GT Connect is enabling platform that connects devices, data, services, and people to enterprise and with the HCM system they run. Our service model can be seen as a stack shown from the bottom to the top that enables HCM operations. Firstly, we deploy a complete range of devices at time clocks from entry level to premium, giving clients a sliding scale of pricing to suit their needs and budgets.

5:49 All of our devices come with services attached, meaning they're all connected using GT Connect to bring their devices, data, and services together onto one secure cloud platform from where everything can be remotely controlled. Our remote services fall into two categories, device management and data management, with over 35,000 monthly subscriptions subscriptions generating over 12,000,000 monthly clock in, a number that is fast rising through our growing partnerships. Crucially, at the touch of a button, we can see the status of every connected device, quickly diagnose issues, and securely manage their configuration in the cloud.

6:38 Data management brings the power and the protection of secure cloud protocols onto your enterprise data from highly sensitive biometric identities and templates for every one of your employees to audible data collection and analytics over people's physical and engagements such as time clocks and in and out. Together with system management of security, storage, and data backup. All of this data is maintained with strict security and compliance. This removes a major headache for organizations investing in advancing HCM operations, where the HCM operation software partners need our specialist expertise in linking the digital and the physical world safely and effectively.

7:35 As I mentioned at the time of reporting in our previous full year results, in 2025, we are excited to have embarked on our new five year strategy growth plan. Our strategy for growth can be understood in three layers with key initiatives aimed at accelerating growth at each level. The first is revenue growth, which is entirely focused on expanding our existing and new partnerships. Here, we continue to seek and onboard traditional partners as well as actively working to displace other incumbents, such as low cost manufacturers by offering sliding scale pricing to high quality devices with differentiated services.

8:23 This drives maximum competitive advantage right across the market from end to end. It allows us to target full share of wallet for the larger national and global partners who themselves want to serve the broadest range possible to the market. The second is margin growth, which continues to pursue a strategy of increasingly high margin recurring revenue by attaching services to all new business. This also includes pushing services to every existing partner where they might not currently be taking advantage of the latest enhancements made possible by constantly advancing software and services.

9:11 The third layer is all about scaling quality innovation, where we're currently investing further to take our exciting offer direct to end users by leveraging existing marketplaces and emerging alliances with the world's leading HCM brands, Oracle, Workday, and SAP. We've already started work on this, adapting our per employee monthly subscription model, signing signing our first partnership agreement with Oracle, integrating our hardware and software, and have now begun the early stage of market testing led by a well connected domain specialist in this area. As this opportunity develops, our intention is to continue to invest to scale in this space, giving us additional resilience in our direct market channel.

10:11 We've continued to execute the strategy of building a hardware enabled software and services business and selling customers a wrap subscription to build stronger recurring revenues.

10:25 This division delivered revenue of 6,500,000, up 8% during the period with subscriptions based annual recurring revenues increasing by 30% year on year to 3,000,000 on in October 2024. GT's HCM growth was driven by a strong performance in North America where sales were up 16% with one of our largest North American partners experiencing a robust start to the year in terms of demand for g t 10 devices. We're also in demand in advanced discussions with partners to introduce our next generation GT 10 Mark two to replace the existing GT 10 Mark kit one in this fiscal year.

11:16 Demand for GT four and low cost GT four Lite devices has been particularly strong with orders in the latter helping to displace its main low cost competitor in the North America market. Sales in the rest of the world were slightly lower year on year after our largest rest of the world partner completely see completed a series of acquisitions, which impacted the business. Since this period, sales have been much stronger and new contracts won with two new major retailers, and we expect the full year to performance to be up on last year. Our partners' acquisitions have led to expansion in new European territories and such as we stand to benefit directly from this expansion as a sole provider of TimeProp software and hardware solutions to them.

12:13 To provide a little more detail on what I said about Oracle on the previous slide, earlier in the year, we announced the pending launch of GT Time in partnership with Oracle to target direct to enterprise market and expansion of data security and compliance. A senior US consultant with specific experience on working in the global HCM marketplaces has been hired to accelerate the rollout of GT Time and to gain further momentum for this key strategic initiative. We are pleased to report the clock and cloud based Oracle software integration has been completed and certified with Oracle. We're also pleased to report there has been already progressed with early business development creating sales opportunity and pipeline.

13:09 In addition to time clocks and software, Grosvenor also designs and makes class leading access control hardware that is easy to scale and extend so it can deliver much more than just access control. In transition to our newest products is to use, delivering growth and demand for Janice c four and future products with significant and a well qualified park pipeline targeted for conversion this year and beyond.

13:41 We're still working hard on the development of Janus c four Ultra, an advanced new hybrid cloud product with substantial potential being jointly developed with our partners, Gammonet. Access control did experience a slower start to the period than it was initially anticipated With sales being impacted by delays to upgrades projects and our software partner for the NEWMARK SECURITY PLAYED PLAYED PLAYED and the sales pipeline for PLAYED the second half is much stronger, positioning the business for a much better end to the year. Whilst access control continues to make a meaningful contribution, management will, in due course, be reviewing the division's longer term strategy to access how it can deliver better value to the group.

14:39 In the immediate term, management has taken a strategic decision to focus on Grosvenor's investment resource on HCM to take advantage of the growing market demand for data security and compliance and accelerate the development of its sales pipeline.

15:03 SafeTel has been providing innovative physical solutions for over twenty five years, creating safe spaces for employees and colleagues where overall demand is strong and growing, including door services, entrance control, screens and counters, and bespoke projects. The h one the highlight in h one was a continued growth of services and maintenance. Revenue up by 38% in accordance with the long term strategy, providing increased forward visibility that adds significant value and reflects the advantage of our high quality operations in this space. As previously disclosed in their group's AGM statement, the timing of four significant contracts being delayed until H2 will see SafeTel generate the majority of its revenue through the latter part of the year.

16:02 Consequently, H1's revenue decreased by 13% to $2,400,000 compared with the corresponding period prior. In terms of operations and building its sales pipeline, Safetel has performed well in accordance with the mark with the strategic long term plan, which includes growing share of services and maintenance work in the auto door servicing market. It's also invested in talent to strengthen its support services and installation teams and major senior hire to operate to optimize its operations, all of which is already helping to make the division more efficient and deliver on contracts more profitably.

16:50 Reflecting on some of the projects and contract highlights in the period, SafeTel successfully extended existing contracts with two large banking customers, a major petrol retailer, and completed the installation of physical security in a new major football stadium. In terms of growing its revenue pipeline for h two and beyond, the division won a series of new automatic door services and contracts with blue chip organizations, including a national retailer, a train operator, and a major pharmaceutical business, as well as contracts with a major housing trust, UK charity, and a large university in the North Of England.

17:35 Gonna hand over to Paul now to run through some of the group's key financials for the half year. Thanks, Marie Claire. As usual, all of our results announcements are published on our website at newmarksecurity.com. So let me now take you through a brief summary of our half year performance. The highlight was undoubtedly the continued growth in annual recurring revenues in accordance with our stated long term strategy. Notably, the core HCM business is enjoying a sustained period of growth that is set to deliver full year success at high margins. This strong performance is somewhat masked by delays in access control project upgrades and the timing of large contracts in Safetail.

18:24 This is why it is worth understanding the business unit detail as explained by Marie Claire earlier. Our consolidated group reporting shows the following headline results. Revenue of £10,200,000 compared to 10,400,000 in the prior year, but with normal h two weighted cyclicality and a number of known opportunities, I feel confident about achieving growth at the full year. As already mentioned, but worth repeating, we achieved an ARR of £3,000,000 at October 2024, up 30% on the prior year. We delivered gross profit of £3,900,000, which is flat year on year.

19:11 Gross profit margin increased by nought point nine percentage points to 3.8 38.1% due to a combination of high margin HCM recurring revenues and improved HCM product margins as component prices have slightly reduced.

19:31 EBITDA decreased by nought 300,000 to year on year to naught 500,000 as a result of the 10% increase in overheads driven by inflationary cost rises and investment in strategic initiatives following the approval of the new five year strategic growth plan in June 2024. This investment includes increases in headcount, marketing, and professional fees.

20:00 This increase in overheads resulted in a naught £400,000 loss after tax in the period and the 4.6p loss per share. As Marie Claire has previously stated, this loss was anticipated, and we expect it to reverse in h two. We maintained our investment in research and development in the period of naught £200,000 as we continue to develop our products. The group's cash at bank at 10/31/2024 was £300,000, up 300,000 on the prior year. Whilst this is £800,000 lower than the thirtieth of Red Bull two thousand and twenty four cash balance, the year end figure was artificially higher due to timings of large receipts.

20:55 Net debt, excluding leases, was down 40% to £2,200,000 at October 31 as a result of an increase in cash, CBILLS loan repayments, and a reduction in the invoice use of invoicing finance facilities year on year.

21:16 Thank you so much, Paul. So in summary, it's been a strong first half, driving further growth in services with high product margins and growth in annualized recurring revenues, strengthening our cash flow and our balance sheet. Our operations remain focused on continuing their performance with strong execution in building divisional sales pipelines, developing new partnerships, and extending existing relationships. Our increased investment is reflected in the lower EBITDA number at the half year, but we believe we will deliver a net positive impact by investing in the peoples and the systems to both enhance customer services and efficiencies.

22:02 I'm delighted that we continue to win and extend contracts with blue chip customers, which is a great testament to our people and our service offering. And like here, like last year, our sales pipeline group wide is weighted to the second half. And at this stage, I fully expect to surpass our previous full year's performance. And I said at the end of last year, we are with the offering, team, and platform we have now built, the future is extremely exciting for NEWMARK.

22:38 And that is the end of our presentation, and we look forward to your questions. Perfect. Mary Claire Paul, if I may just jump back in there. And thank you very much indeed for your presentation this morning. What I'll I'll do is I'll just bring back up your cameras for the Q and A. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboard. Marie Claire, Paul, as you can see there, we have received a number of questions, and thank you to all of those on the call for taking the time to submit their questions. But, guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that'd be great. Thank you.

23:33 Thank you very much. I will start with the first question, which is a presubmitted Are there any more threats or opportunities with the recent acquisitions of your customers, Workforce or Paycor? So we were not aware of these two acquisitions, and I'm sure their staff weren't aware at all. But in essence, both acquisitions deliver huge opportunities for us because workforce was a purchased by ADP, and we're speaking to ADP, and that just enlarges the workforce sales team, and we will have much more reach with that. So even though sales from workforce might have slowed down for the first half while things were settling in, we anticipate a stronger second half and this going forward to be very positive for us. And Paycor was purchased by Paychex and the same thing. We don't anticipate any downside on this and no negatives and anticipate this being a good thing for us.

24:30 But forward looking, I don't see, and we possibly wouldn't know about any of these going forward. How is new customer acquisition developing in the rest of the world? Are there any major customers apart from ProTime, and are there any contacts with Atos software in AG? So we are working on rest of the world. We have a team doing that. We have a number of customers. So ProTime, we might talk about the most because of that, our largest, but we probably have 15 other European customers based in The UK and the rest of Europe, and we're constantly working on new partners in The US and Europe. So that's a prime focus of ours and part one of our strategy.

25:16 And we spoken to well, we sort of looked at the Atos software, and I don't think they could be a customer because they don't have hardware, but we're looking to speak to them. And they came across our desk two, three weeks ago as well as an executive team. The third pre submitted question, if the share price still does not reflect the value of the company, are there measures such as share buyback or redemptions of dividend payouts plan? Well, thank you for that question. No. Because we continue to make strategic investments in our DTE platform and other areas. So we're not looking at sort of returning and dividends at the moment. But as the share price grows and as profits grows, that will something we will look to in the future.

26:04 Why has the performance this is from Benedict. Why has the performance and profitability deteriorated compared so much in h two of twenty four? What are the prospects of access control? Sales have been stagnated or declining for years. So as we said in the presentation, very much second half weighted. A couple of these acquisitions did take a bearing on h one. We're looking to recover in h two. So we're looking for h two, and we're always, for some unusual reason, second half weighted and anticipate this being the same. And we see it. We've got the pipeline. We've got the sales coming through, and we're ready more positive in the second half. What are the prospects for access control? And as I said in the presentation, we're looking at other strategic options. We're looking at sort of other products we can deliver.

26:54 And we thought as an executive team and as a board focusing on HCM, we were gonna see a lot more growth. But as we sort of time goes on, we are looking at a access control as well. David, thank you for your question. The team in SafeTel have done a fantastic job to turn around the business. It must be frustrating during this period to have gone backwards. Given a strong pipeline, how can we better manage the delivery of the pipeline and make money when moves to initiatives disrupt our plan? We must be left and fixed with cost to cover that hurts the business. We're we're looking at this. We're constantly looking at our cost, but we did have to make some investment as we've grown the business as you're saying, David, and sales have grown. Second half weighted again.

27:41 We've invested in operations. We bought someone to help us for delivery and efficient and growth margins, which is already seeing fruits. And a lot of these projects move from the first half to the second half, and we'll move to 25, 26. But we're always looking at this, and I agree with you. The team have done a great job delivering sales in a sort of refining operation on some margins, and I believe we've now done this. And so as sales come in, we'll be delivering better margins and better profits for the years ahead. Tom, you've there's quite a few questions. I'll just keep going. Tom, your reference to Oracle GT partnership is progressing with software integration completing. How significant is this partnership in future revenues, and what's the next step?

28:31 It's hugely significant. This DTOE platform is very significant. So we talk about Oracle being one of the partners. We have now working with Workday as well, and we'll be a direct partner with them. And we brought forward the SAP, which we were gonna do in a couple of years. I'm gonna do that integration and complete that this year. We look to deliver a lot more revenue through these two plat through these through platforms with other partners, and it's a very exciting opportunity and probably one of the most exciting opportunities we've seen for a while. So we're onboarding new partners as we go forward selling services, but this is a sort of key strategic development for us. David, revenues for GT over second half twenty four gone backwards. Can you explain more on this in the GT revenue position and the risk we need to manage?

29:25 We're constantly managing the risk, and the sales team are looking to drive revenues as hard as they can for h two. We're sort of halfway through h two. We see this as positive, but it's a key focus while looking at all the other strategic deliverables that we're working on. Benedict, what is NEWMARK's expected Egypt margin at the end of the strategic plan or in the current financial year? Paul, I'll hand you on that one. So, yeah, we expect margins to increase in the second half of the year. So, again, we do expect an increase in margin year on year based on our latest forecast, which is great news, as said, driven by our our move to primarily to HCM recurring revenues, which is fantastic.

30:17 Our five year plan also is is predicated on really driving those recurring revenues, which, again, will be pushing margins up. So we definitely are expecting every year for our percentage margins to increase over the five year period. Thank you, Paul. Last question. Do you think from Michael, the 16% growth rate in North America business is sustainable? Well, we're very excited by this fact, especially given the economic position in The UK. For next year, we're forecasting, driving more than 50% of Governer sales in The US, and that number sort of increasing as a group revenue and especially with delivering the DTE platform. So, yes, I do think that and more are sustainable.

31:05 And that comes to the end of the questions unless anyone has any other comments. Absolutely. Marie Claire, Paul, if I may just jump back in there. And thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this morning. But Marie Claire, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. So what's clear to us is sort of looking at our results, you don't you it's not clear what second half how second half weighted we are because we don't have forecasts out there. But it it this is sort of a deliverable and something we understood and an investment in the future we decided to make because we see the growth in the business coming forward and the deliverables in the next five years as huge.

31:57 So this is not a negative, something we anticipated. So please rest assured. Our cash position is positive as well. It's just a matter of timing. We have our banks supporting us. We're in a very good position. Sort of supply chain is positive. Our customers are very happy with us. We're displacing low cost Chinese manufacturers. Nearly all our customers are taking services now, so it's a very, very positive outlook for the future. Meanwhile, I've sort of discussed HCM. Safetel is growing. Pipeline has grown its to the highest level. Work in hand is at the highest level. It's just a matter of timing. And access control took off to a slow start this year, but it's certainly picked up for the second half. So good times ahead for us.

32:45 Mary Claire, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? This will only 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 NEWMARK SECURITY PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.