System1 Group (LSE:SYS1) — Capital Markets Day

0:01 Good afternoon, and welcome to the SYSTEM1 GROUP PLC Capital Markets Day. Throughout this recorded meeting, 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 split the following poll. I'd now like to hand you over to James Gregory, CEO. Good morning good afternoon, sir.

0:32 Hi. Good afternoon. Hello, and welcome everyone to SYSTEM1's Capital Market Day. Thank you for taking the time to join us today. So I'm James Gregory. I'm the CEO here at SYSTEM1 and have been since December 22. I'm delighted to talk with you today. I joined the business as chief operating officer in August 2021, and I was charged with completing the digital transformation of SYSTEM1 into a platform business. SYSTEM1 was an exciting opportunity for me as it allowed me to bring my experience in scaling digital businesses to a business primed for growth, and that is what I believe we and you are seeing now. We have lots of new new listeners here today. So I want to set out an agenda and talk you through how we'll cover the content. Firstly, we'll start with who we are and what we do.

1:19 I'll then share some highlights from our q three results before looking under the hood, focusing on what we've delivered and how we've delivered the strategic review that we set out 18 ago. I'll then set out how we're just scratching at the surface of the opportunity available to us. I'll then hand over to Robin who will take us through how we keep the customer at the center of our platform and product development. And then Chris Wilford, who will take us through how all of this builds up to a scalable model of growth. And finally, time for q and a at the end.

1:51 So let's start with the customer. Our mission is to help the world's largest advertisers make confident, creative decisions that lead to transformational business results. We're truly customer focused. We know who our customers are and what we can do for them. And importantly, why are we able to help our customers? Well, we know that 51% of advertising has no long term impacts on market share growth, and we know that 95% of new product launches fail. On top of this, as Mark Pritchard, the P and G chief brand officer puts, creativity is a superpower. The power of creativity for growth could be considered the industry's most fundamental reason for being. And these are problems or opportunities that our platform and products deliver against.

2:38 Our customers are crying out for help, and we're the only ones who can help here. We're able to help marketers make smart decisions and carry out marketing that will provide highly profitable return on investment. So this brings me to who we are and what we do. SYSTEM1 was born from the world leading intellectual property created over many years as part of Brain Juicer PLC. SYSTEM1 has taken these prediction methodologies and invested in turning this IP into market leading, repeatable, scalable products. Now SYSTEM1 is a marketing decision making platform that provides our customers with predictions and improvements to improve their marketing effectiveness. We believe we're the world's best of what we do, and we're laser focused on executing our strategy to grow the business, answering three of the most critical marketing questions for our customers.

3:29 That's advertising effectiveness, brand effectiveness, and innovation effectiveness.

3:37 Our business is focused on doing this through our predict your and improve your offerings. The predict your data products in blue and the improve your data like consultancy offering in yellow work hand in hand to help our customers create world class marketing and are both built into our platform service and offering. For clarity, what we mean by data or predictor is an automatically produced prediction of how well advertising or innovation will drive return on investment. And data led consultancy or improve your is the consultancy provided by our expert team to help improve based on the insights from these automated predictions. We've also learned that we need the ability to retain bespoke consultancy, which allows us to help customers transition from what they're doing today to what they could and should be doing in the few We know this is only a very small part of our offering, likely around 5% of revenue at scale, and something we only offer to new and very large customers with high revenue potential to help them come on board.

4:40 And we're very clear that the growth and success of the business will be measured by the predict your and improve your offerings. To support this, we fully built out the platform that delivers all of the predict your offering for data products as well as some of the improve your offering where possible. This end to end process used to take multiple days and weeks across multiple teams, both internal and external. The platform is now integral to us. It allows us to offer predictions of market leading speed in under twenty four hours compared with our previous ad test offer that took up to two weeks, as well as allowing the business to scale without having an additional labor cost.

5:25 The platform also operates as a results platform for customers to receive and view their predictions and improvements. We invested in high quality user experience in building out the interactive results platform across all of the test your ad, the test your idea, and test your brand offering. You can see from the images here how we're able to bring to life top results such as star, spike, and fluency ratings on the top left image through some live respondent feedback on a second by second basis as they view the tests and the ones underneath it.

5:59 Our predictiveness is driven by the scale of the business. We're not a startup. We've got significant legacy in intellectual property, and we've tested over a 180,000 ads, brands, and ideas, over 14,000,000 surveys, and we've measured over 30,000,000 emotions through our face trace technology, all applied across over 50 markets. These stats are significantly up from our last Capital Markets Day due to the volume of growth we've seen in the business. When I talked to you last year, my commitment to you was to create a business that grows quarter on quarter, half on half, and year on year, and we're delivering that. On the chart here, you can see in blue our data offering, and in yellow, the data led consultancy. And what you can see is this is growing every half consistently.

6:48 What you'll see on the far right column, because we are still in our q four period, we set out what our q three results plus the q four consensus to get us to a half year for the second half. We have momentum, and we're capitalizing on it.

7:07 Our business is built on our unique ability to translate emotions into predictive results. We deliver high high return on investment on marketing for our customers. And the reason our customers come back to us time and time again is for our predictiveness. We leave with this as our unique selling point. We have this underpinned by market matching, if not leading, speed and price. Interestingly, customers often feedback. It's the combination of predictiveness and speed that allows us to win, and we're actually learning we have more flexibility over price than we originally thought. We're really clear on our model for growth or our flywheel. That's what you can see in front of you here. We start with a customer at the heart of all we do. Our mission statement, to help the world's largest advertisers make confident, creative decisions.

7:59 In the top right quadrant, what you can then see is we create a platform and proposition to help those world's largest advertisers. Once we've done that, we increase our fame for our predictions, our improvements to help the world's largest advertisers. We then make it easy for SYSTEM1 to convert these world's largest advertisers. And once we converted them, we scale up and embed throughout their businesses. And once we've done that, we then reinvest the results of our higher volumes and margins back into the business, into the flywheel, and into our stakeholders. And then underpinning this is something really important. We have a robust support structure and performance culture. This is one of the biggest things we've been implementing over the last year or so of my my time here, and I think it's made a big difference to how the business is performing.

8:48 Right. So into our q three highlights and outlook for the rest of the year. As per our RNS last month, we noted that q three platform revenue grew to £6,200,000, up 46% versus q three. And within that, our Predict Your revenue growth was up by 53% to £5,200,000, and Improve Your revenue was up by 16 to £1,000,000. We won over 60 new clients in q three in itself and over 200 in the last nine months. We have five new partnerships secured, including a leading ad supported broadcast and cable network in The US. We've returned to cash generation. Cash in the bank was 6.4 versus 5,100,000 twelve months ago.

9:35 And our year to date gross profit margin is up by a whopping 4.5 points on the same period last year to 87%.

9:45 And looking at our full year expectations as we set out, revenue for the current financial year is expected to be at least 29,000,000 compared with 23,400,000 last financial year, And our statutory profit before tax will be comfortably above £2,000,000. That's materially ahead of the pre January 24 consensus and compared to last year £700,000.

10:10 Super. What I really want to do now is to take you under the hood. Let's have a look at what's working well and what's driving the growth of the business. Fundamentally, we're doing what we said we'd do. We're delivering on what we set out in the strategic review. Firstly, we're customer focused. Secondly, we're focusing on predicting this as our USP. Thirdly, we've expanded our product. Fourthly, we're building out our partnerships. Fifthly, we're winning in America, and all this culminate sickly in winning more customers. Right. So first, let's start with the customer. It's at the heart of all we do. We know we're targeting the world's largest advertisers, and by doing so, we would also serve the medium and smaller players in the market.

10:59 And we know what the world's largest advertisers want from our platform and our products. They want a database they can compare themselves against their peers. They want flexibility alongside expanded products to meet their demands, and Robin will talk a bit more about that in her section. Most of all, they want a predictive outcome to drive return on investments on their marketing spend. We're increasing our fame to help the world's large to help target world's largest advertisers. We're growing this through partnerships, leveraging their credibility, and again on slide. We're creating thought leadership and promoting this through our and our partner channels. We use our own media out of the week to highlight our customer successes, our uncensored CMO podcast to put our customers at the forefront of the market.

11:45 Orlando Wood, our chief innovation officer, is on a stage from Cannes through to New York. And we also use earned media. So you'll see the likes of Mark Ritson out there using our data and his opinions. Ad week and marketing week featuring our data and their content. And we have a clear go to market model. Now, obviously, we can't share all the special source, but we know who we're targeting. We're getting in front of the buying centers, and we know how to win. And this is making our customers successful. And then we have a service model to meet their needs. This is light touch, but it does require excellent account management and gives us the opportunity to engage with the world's large advertisers at strategic level and be core to the way they create their marketing.

12:29 We continue to invest in being predictive. Data quality underpins everything we do. If we don't have data quality, we don't have a USP. So we we are continually building out checks to ensure we can continue to prevent fraud and bad quality respondents. We built our APIs that allow us to plug into the world's largest sample providers, derisking our supply. And we're also using AI to ensure we stay ahead of the market. Our prediction list is brought to life through validations. So what are they? Apologies. These are case studies that show how our predictions translate into return on investment. We continue to publish these for all markets, all verticals, all product channels, and we ensure that it's clear to the world's largest advertisers with the right partner for them.

13:15 And for the world's largest advertisers, our database of testing almost every advertaires provides the basis for customer specific validations that we can carry out to prove at a customer level we are predicted to. We built out new product channels across the marketing funnel too, including dimmesh digital as promised. We want to serve all customers' needs across the advertising, innovation, and brand space and capture all their spend. We've launched new products in the advertising space to cover the full campaign. That's TV, digital, outdoor, print, and audio. And we also test throughout all parts of the creative process from early stage script, storyboarding, through offline edits, and into finished film.

14:00 And the images you can see on the screen here are where we worked with Boston Beer to help them create the winning Super Bowl adverts where we work with them from very early stage at the storyboarding through the offline edits and into the finished film.

14:16 We're also expanding our partnership base to successfully launch products, grow our fame, and win new customers. We previously announced that we partner with ITV, GLOBO, and GROUP PEM Nexus in their TV space, with Pinterest, LinkedIn, and Tees in the digital space, and with JC Deco in the outdoor and print space. And I'm pleased to announce that over the last three months, we've also added in new clients. We have one of the leading ad supported broadcast and cable networks in The US. It's a real shame we can't name them, but for confidentiality reasons, we won't at the moment. We also partner with Roku, Ardman, and Fuse in the TV space. And then to ensure we have a partner in the audio space, we now partner with Radio Center with more to come.

15:05 We're focused on growing in The USA. We know it's the biggest market opportunity, the largest spend in any region, and it used to be our main revenue region. So we knew we could do it, and we're pleased to see this focus is paying off. We're now working with five of the top 10 advertisers in The USA. Again, we can't name them, but they're from this list in front of you. Answers on a postcard if you would like.

15:30 And what's brilliant is all of this is culminating in SYSTEM1, growing our customer base, both by winning new customers and by increasing our retention rates. We don't have a leaky sieve. We've increased the spend from our client base up 32% q one versus q one to q three versus q one to q three last year. And most excitingly, we've won over 200 new clients this year, and new client revenue is up 237% q one to q three this year versus last year. And, again, because we are still on our q four period, when we get to the end of the full year, we'll share the full year

16:09 So a year into the job, I thought it'd be helpful to share my personal reflections on what's allowed us to be successful. I brought it down to three key things. Number one, everything we do starts with a customer. It's who we're here to serve, the world's largest advertisers. Hopefully, you can hear it coming through today and in our comms in general. If we get this right, everything will follow. Number two, we focus on getting it right for our people. That's the right people in the right roles with the right reporting lines. That's all the way from the exec to our frontline colleagues. We're focusing on our superpowers. We're helping people do what they do best. We're removing blockers from people's daily lives so everyone's adding maximum value. We're setting up the right compensation models so we can share a successful variable reward, but also derisk the base.

16:57 And this is all underpinned by a true performance culture. And then finally, we're doing what we said we'd do. We're not getting distracted. Consistency, stability, clear communication. We're saying the same thing to you we did last year, and we plan to continue to do so in the future. And what's lovely is to see the results of this. We're consistently delivering growth. We've delivered three lots of quarterly growth this year. We've moved from a one off to a trend and to momentum, and and the ambition is to turn it into a slam dunk for exponential growth. We built the platform. We pivoted the model to deliver it, and now and now we're accelerating the growth from it.

17:40 And then finally from me, I just wanted to touch on the future because we haven't scratched the surface of where we could get to. There's three reasons to believe that I want to leave you over here. We have the opportunity to grow in a large addressable market with innovation being a massive opportunity. We're showing early signs of progress in the largest region of spend in The USA, and in targeting the world's largest advertisers, we're targeting those who spend the most on marketing and pretesting.

18:08 So in the in the addressable market, there's massive headroom in pretesting, and we're playing in the growth areas. Total market re total market research spend in FY '23 was a $129,000,000,000. And in the areas we play in, $20,430,000,000. When you look at these, ad ad pretesting, it is the smallest of the three areas we play in, but it's still a massive market. And we've grown well in that space, but we're still less than 1%.

18:37 Innovation, you can see here, is by far the biggest, and it used to be our biggest revenue earner. And Robin will update you on how we plan to win there. And then brand sits alongside these twin engines of growth and marketing. Our offer allows us to play in this too.

18:52 The largest market by far is The USA. We've seen double digit growth, but we want to get to the same levels we're at in The UK. And The UK is the second largest spend globally where we have the most growth currently. So even just capturing more share in this market provides massive upside. And then finally, we're targeting the world's largest advertisers who account for majority of marketing spend. Like most global markets, majority the of spend comes from the top 20% where we're focused on winning. And to bring this to life, the top 10 global advertising brand brands spent $1,000,000,000 over f y twenty three on advertising.

19:32 We know we can grow faster these customers, and we have the ability to scale them to over £1,000,000 each fast. And with that, I'd like to hand over to Robin who will bring to life how we're delivering these three growth opportunities by putting the customer at the heart of our product development.

19:51 Great. Thank you. Thanks, James. Hi, everyone. I'm Robin Duchesere. As part of a strategic review last year, I took on the new role of chief product officer, and I've been doing that now for over twelve months. My background, I'm a research researcher by train. My career spans twenty years across client service, sales, and operations. I've worked in large corporations like our competitors at Kantar, but also in small start ups like Streetbees. What I'm really passionate about is helping our clients make great decisions to grow their businesses, and so SYSTEM1 is the place to be to do be able to do that. Now James has shared with you some of the highlights I'm just trying to move on. Okay. Sorry. James has shared with you some of the highlights of some of our success already over the past year. So my focus today is really to tell you more about what we're working on right now, what's coming next, and what we seem to be in the future.

20:48 I will say that our success continues to be focused in the rooted in the needs of the customer. So understanding the world's largest advertisers' needs and serving those in the best possible way will be no different this year as it has been.

21:05 Yeah. So what are we working on now? So our success to date has been on sorry. I'm struggling to move the slide forward. The success to date has been on our tools business, and test your ad is our main suite of tools to serve that market. And you can see that the revenue has grown really strongly over that this period. Test Your Ad Pro is now our biggest selling product and accounts for over 40% of our total company revenue. Now while it continues to grow, we're really listening to our customers and our prospects to know the degree of flexibility is really, really important. This is particularly true in The US.

21:52 Our clients really do buy into our SYSTEM1 philosophy, our predictions, the speed, the value of the platform, and there's often just that one extra thing that they need to convince internal stakeholders to make the switch from their incumbent and come along and test with us. Now we've recently started working with Pfizer, and this is exactly the the challenge that they had. They love our predict and improve, but there were a couple of extra nonnegotiable questions that they needed to include in order to be able to work with us.

22:27 And so we launched Test Your Ad Pro in response. It's scalable and repeatable, but also provides the customer with some choice. So this is a new third tier that we're offering as part of our test your ad offer. So we have our test your ad essential, which is our basic product that provides predictive metrics. We can then offer an up grade to test your ad pro, which unlocks richer diagnostics. And then now we have this new test your ad pro plus, which provides the option of new flexible question models.

23:02 So let me give you a bit of analogy of how you can think about it. It's a little bit like a car production line. So the car is the core product, but you can choose it as it is or for a fee, you can change some of the features. So you can have a different color. You can change the interior. You might fancy some alloys. All of these are set of fixed editions, but the core car is still the car. So TYA Pro Plus is just like that.

23:30 It's really easy for us to manufacture it at scale. We retain really high margin, but most importantly, that customer feels like they're in the driving seat. They have the ability to choose.

23:44 So just to bring this to life, this has been really successful for us with unlocking work with big big advertisers like Pfizer. Pfizer has a large HQ in The US and global reach. They were keen to have, you know, additional things that they could customize to ensure that they could answer their internal objectives and work with their stakeholders. So in this example that we're showing here, imagine brand attributes. Client wants to test their own specific attributes.

24:16 In this example, we have a fixed question type. We have a fixed reporting style, but the client is able to change the attributes. So very easy for us to automate, and at the same time, the client is getting what they need. Now the opportunity for this is genuinely huge. It's helping us open doors to large new clients globally, but it's also giving us the opportunity to upsell with our existing clients.

24:44 Okay. So that's now. So what's coming next? Well, James talked about the opportunity in innovation, and that's really where we're seeking to to maximize over the coming year. So if a client buys into SYSTEM1 philosophy, so the fact that we measure emotion to understand real world behavior, we know it's not such a big leap for them to then go from their ad testing to believing that approach to work to applying that to their innovation funnel. And at the same time, we have the validations to prove that our method is highly predictive of real world outcomes. So we'll be working through the model for growth that James showed earlier, and applying that to our innovation suite. So we'll be relaunching tester innovation in 2024.

25:33 Our new product position for test your innovation really is putting the customer at the heart with tools to help them bring their successful innovations to market. We can position some of our existing tools into this new framework, but it actually also provides us with a lot of opportunity to develop develop new ones in this space. And we'll be continuing to build the thinking and the products out through 2024 and beyond. And excitingly, we're actually seeing innovation testing grow in our business for the first time in five years. And honestly, we really are only just getting started.

26:08 Now the important thing to do is to learn what we've done on TYA and repeat for test your innovation from the outset. So the first thing will be that we'll be offering that scalable flexibility that I talked about. So there'll be a test your innovation pro plus option, which ensure that the client feels in control, but we make sure that it's scalable and repeatable.

26:29 And, of course, consultancy, with clients having options to buy the data, the blue that Jane showed earlier, but also the yellow, the consultancy on top to ensure that we can help provide with our expert guidance to improve their innovations and slam have its best chance of success.

26:49 And we actually know that's how clients like to buy the data in in reality. So we know that that's how they're buying. They tend to buy data and consultancy together. So 78% of our revenue is actually coming from clients who buy both the data and the consultancy, and that accounts for about 40% of our client base. So we're now going to show you a little illustrative teaser video of our new test your innovation early stage tool, really just to give you a flavor of what's to come. Thank you. So now we're going to move

29:40 on to the future and what's on the horizon. So Test Your Ad Premium is our subscription product. We actually test almost every ad that airs in The UK and The US, and we now have an enormous database of nine 90,000 ads. As we grow our work with world's largest advertisers, the demand for this product is really increasing. We've actually seen this double between h one last year and h one this year. Later in the year, we'll be looking at this product to see how we can widen adoption among our growing client base. Secondly, test your brand. Developments are probably most likely to fall into the following fiscal, but there are a few platform enhancements we're planning to make. And at the moment, we're developing an exciting API which would allow clients to be able to put their data into their own business intelligence systems.

30:30 And, of course, a hot topic of AI. So we're actively working on how this will benefit our our customers and our business both in the short and the long term. And it's a thread that we expect will eventually run through all of our products from the data quality tools to mining our database and support for our consultancy team. So just touching back on the key themes and reasons to believe that James had set out, I think you can see that everything that I've shared with you will help to deliver against these three core areas through our innovation relaunch, through our focus on flexibility, which is particularly important amongst our US customers and prospects, and all of this laddering up to meet the needs of the world's largest advertisers.

31:17 Okay. I'm gonna hand over to Chris. He's our CFO, and he's gonna show you how all of this scales up. Thanks, Robin. My name is Chris Wilford, chief financial officer at SYSTEM1, and I'll be explaining why we believe SYSTEM1 can scale profitably. And when we talk about scaling in this context, we mean increasing the company's revenue without a substantial or commensurate increase in resources. So let's start with the top line growth right now. This chart shows the actual revenue in pounds million for last financial year, and on the right, the consensus figure for the current financial year. And at the far right, I've split the current year into the actual revenue for quarters one to three, and the blue bar is the implied quarter four revenue to get to the consensus number of 29,100,000.

32:16 And you'll see we've delivered year on year and quarter on quarter growth this fiscal. And so we confidently expect to reach at least 29,000,000 by the end of our financial year in March. And, clearly, if we replicate the quarter on quarter growth that we've seen so far this fiscal, we'll exceed that consensus figure by a margin. But because the order to invoice time is relatively short in this business, it's a little too early to claim that. But I hope we can agree that at least 29,000,000 is achievable given what we've delivered to date and that this is a business that's growing. On this next chart, I've kept the full year revenue numbers from the last slide and added adjusted EBITDA as a second bar in blue.

33:07 And the line on the chart is the EBITDA margin. The only adjustment to earnings in our adjusted EBITDA, by the way, is share based payments. Now those of you who were here this time last year might remember and answer a question. I suggested that you'd see the impact of our operational gearing once annualized revenue broke through the 30,000,000 mark, and this has turned out to be true. Based on the third quarter, our annualized revenue is running at around 32,000,000. Consensus adjusted EBITDA is more than double last year's number as a function of this revenue growth, and in particular, margin improvement. And we therefore maintain that the scaling effect has kicked in.

34:01 In December, we showed this next chart in our half year presentation, and it indicates our goals for five important financial KPIs versus what we achieved at the half year. And when we say goal at scale, let's assume at scale means we double the revenue base that we have today. And I hope over the hopefully short time frame between now and at scale, we foresee platform revenue growing to over 90% of our output. It's already over 80, by the way. Gross profit margin staying at or above 85 with an EBITDA margin at or above 30%. And I'm now going to explain why we think there are good reasons to believe that the 30% EBITDA margin is achievable at scale.

34:52 Firstly, we start with a cost base where the where only the direct costs rise in line with revenue. And those direct costs, 3,700,000 last year, represented just 15% of revenue and less than one sixth of total expenditure. The remaining five sixth is the of the cost base is overhead costs that are mainly fixed or discretionary and mainly the cost of people. And the majority of these costs are in admin, operations, and tech. So back and mid office functions that are supporting the sales and marketing effort. So we expect overhead costs to shrink as a proportion of revenue as the revenue increases. So we anticipate only relatively low impact on our overhead costs as the top line business grows with any increases expected to focus around sales account management, business development resource, discretionary third party expenditure on business development and technical innovation.

35:55 And we intend to maintain our portfolio discipline over projects, change and development projects to ensure the strongest, fittest, and the strongest and fittest projects make their way to the top of the list based on the size of the opportunities and the return on each investment. And so we believe that starting with the cost base we have, we can double the revenue of the business and its EBITDA profit margin in parallel. And finally, here's an illustration of how the profitability of the business could develop when our revenue is double the consensus number for this year. I've added a new data point on the right of the chart we saw a moment ago to illustrate the effect of our scalable model for growth.

36:41 So whilst this is an illustration and not a profit forecast for a specific financial year, it shows that by doubling our revenue and our margin in parallel, we could more than quadruple the EBITDA number from a consensus of 4,100,000 on a $299,000,000 revenue this year to 17,500,000 on a 58,000,000 revenue base. And I'll now hand back to James to summarize before we move to q and a. Thank you, Chris. So I'd like to call out a few points just to finish up the presentation. Firstly, platform revenue is growing strongly, and we've got lots of headroom for future growth.

37:30 We have a record number of new client wins in f y twenty four and also strong revenue retention. We have a revitalized innovation proposition coming soon. Profit margin is trending up due to a scalable business model. We've returned to cash generation, and what we have is a relentless focus on execution and a customer centric approach. Our next update will be end of April when we'll be sharing our, trading update based on our full year revenue. And with that, I just also like to thank you all for joining today, and we'll be moving into question and answer now. James, Chris, Robin, thank you very much for your present presentation this afternoon. 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 your screen. 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 by your investor dashboard.

38:28 As you can see, we have received a number of questions throughout today's presentation, and thank you to all investors for submitting their questions. But please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. SYSTEM1. Thank you. We have some questions in the q and a, so we'll we'll look to tackle those as we go through. A couple of them overlap, so we'll make sure we try and answer them all, but we might be merging the response to them. I think if I can, the the first question was around market segments is proven to have so question was, now the market segment is proven to have strong growth. Can you talk us through the likely changes in the competitive landscape? And then secondly, can you talk through a little on the competitive landscape? Any new entrants, new solutions that compete with you, and what's you doing to stay in front?

39:15 So I think firstly on that, it's worth saying that we're seeing some wonderful growth at the moment, and this is brilliant. And it's also worth remembering we are a relatively small player in that market. So actually, although there is increased spend in it, it feels a little bit like we're swimming against the tide. Other people out in the market aren't also producing large amounts of growth, and we're fortunate that we're able to to move in a more nimble and agile position to be able to create growth and grow within the segment rather than having to grow the overall segment to be able to find any growth within it. In terms of the competitive landscape, we've created a really strong brand performance in The UK in particular. We find The US is a more crowded space, and it's where we've been investing some of our discretionary spend in marketing and brand awareness.

40:01 And it's somewhere where we need to continue to do that in the future going forward to make sure that we can grow and stay at and and become at the forefront of that market. A second question came in around AI. And with other people spending or projected to spend significantly on AI, how will we protect our business against that kind of spend, or do you work with people, in particular, agencies of that space as a reseller? Now I'm not gonna give any opinions on other people out there and where they choose to spend because that's obviously at their discretion. However, one thing I'd like to say is that we do partner with agencies. So often a quote that we hear is we're the only market research company that agencies like to work with, and that's because we celebrate creativity rather than dull creativity.

40:50 Agencies are out there to drive creativity, and AI can be seen as a creative accelerant. So I can really see how AI builds into that model. From our side, as Robin said, we're using it already, but we tend to be using it more an efficiency space. So that is cheering our high data quality, ensuring that we can mine our database, etcetera. We are going to be spending a small amount of discretion we spend on AI just to ensure that we stay relevant, but we aren't going to be spending anywhere near the level that some people have put out in the market in recent times. Super. A question around how we sell to our customers and how we differentiate from our our offering to our competition. Surely, they also say they have predict so how do you get your message to be heard and away from the noise of the market?

41:42 So I think as I talked about earlier in the presentation, we're really clear on why we should be successful, and that's twofold. That's because we are predictive through the use of emotion. So when you look into our methodology, it's all about left brain thinking versus right brain thinking. And what most of our competitors out there are doing is talking about rational thinking. What we do is we take emotion and we translate it into return on investment. We turn that into predictiveness. That's been built out over the last twenty years in intellectual property and isn't something that someone would copy overnight. What we also have is a bit of a defensive moat where we also tested every ad in The US and The UK over the last five or six years. So we're able to say for every single person we work with how they can how they are doing and how their competitors are doing. And that's something which, again, alongside our IP is something that other people can't copy.

42:34 Now in terms of being heard above the noise in the market, that's where I think actually are working with partnerships when you have other credible partners out there saying we are a good person to work with. And, also, what I talked about in the earned media space. So these are people we don't pay. We have we have nothing more than just relationships with, but when they're out promoting us using our data in their own arguments, it raises you to the forefront. There was a question around our sales team. Have we changed it in the last twelve to twenty four months? And if you say, what background are the new team members from? Are we increasing the quality of our sales team? So what's lovely is we've actually got a pretty stable set within our sales team. And, actually, what we're seeing really is by giving people the focus and the motivation to do a great job, it's really accelerating.

43:25 We're also reaping the rewards of long term brand investment. So we have been building out our new brand and system one over the last five years. Since before then, it didn't even exist. When we are recruiting new people in, and we will always be recruiting people in, that point on performance culture means that you are continually improving. We're bringing people that have varying varying expertise depending on where we want them to operate. We're bringing people from agency background if we're partnering into agencies. We're bringing people from a marketing background, ex CMOs and marketing directors when they're facing into marketing departments. And we also have people joining us from our competitors who I think look at our our proposition and love the idea of joining a growth and a scale up business. Super. I think they were the questions I've noted, and I think there's probably a few more come in. Maybe. Why don't I take one that's probably aimed at me? Where's it gone? There was a question on CapEx.

44:21 What's the CapEx spend to add the new functionality? And I think the best way to answer that is we have, for a number of years now, run a portfolio, a change in development portfolio for all the platform and product innovations that we put through. And in a typical year, that has been around £2,000,000. You know? In in a big year, it might be 2.5. In a small year, it might be a little bit less. But let's assume it's 2 to £2,500,000, and we effectively in the normal course events, we would make sure that we run a constrained portfolio with, as I said, the fittest and strongest projects getting into the portfolio quickly and other projects having to wait their turn or or continuously being deferred. I don't think that's an unusual approach to change management. The other point to make, most of you will know this, is not all of our development is capitalized.

45:19 Some of it's capitalized, some of it's some of it's expensive. And and typically so just to be more specific on that, developments to the platform will almost always be capitalized. Developments to specific products may or may not be. Thanks, Chris. A question here on pricing. What do the pricing metrics for the platform look like? So the way our platform operates is twofold. Access to the test your ad premium database is a subscription model. So that is a fully annualized contract, and you subscribe based on the size of the markets and the amount of markets you you subscribe to.

46:04 That will account so last year accounted for about £750,000, and we expect that to be close to double this year. So that is fully recurring revenue. Outside of that then, we have a reoccurring revenue model. So for pricing, we charge our customers on a by project basis. But what we do to encourage them to stay with us and to spend more with us is we offer a volume based discount model, which they can axe which they can access. We operate through large POs and large statements of work with our customers in this space. And as I as I said before, our all of our top 20 customers will be spending over a quarter of million pounds with us, many of them exceeding a million pounds. And another question was how so in a similar area was how much does a large client typically spend on ad testing a year?

46:54 How much is through SYSTEM1 versus through other competitors? So in the space of ad testing and idea testing, we can cover the majority of what they need, and that's why we've been building out our model across the full parts of the funnel. So whether that's testing in digital, TV, audio, etcetera. And we can also do from very early stage all the way through to finished film. So in that area, we can serve all of their needs in the ad testing space. As we build out the innovation proposition over the next year, we're looking to also be able to capture that full piece there too. In terms of how much does a large client spend, as I just mentioned, all of our top 20 clients spend over a £250,000, and they can easily spend over £1,000,000 too. There was a question also around what's the sales cycle. So how quickly can it go from, how quickly can you build up a customer?

47:45 And this is a really interesting one because, unfortunately, it depends. So we have some customers who will come in on an RFP, and they'll be asking for a million pounds of services from day one. And they're lovely. That's the ones we love to get because from day one, you have the guaranteed income it brings. There are others, some of the world's largest advertisers who do one test. And then it's up to us to be able to woo them with an excellent account management and really grow that account till it scales to a million pounds, and that might take us up to a year as well. So it can be anywhere from one day to one year. Can I pick one, James? Save your voice. There's a question on whilst you've grown quarter on quarter this year, I note that q one twenty four is down on q four twenty three. Is there any seasonality with the business? Is q four typically the busiest quarter?

48:32 And, yeah, we do get we we do get a lot of people inside and outside the business trying to read the tea leaves of, you know, which quarters are up and which quarters are down. It is a bit like trying to predict the lottery numbers. You think you've seen a pattern or well, I I don't, but some people do in the lottery numbers, but but it's not actually there. So not there's no predictable seasonality. Q four can be the biggest. It can also be the smallest. It's happened a couple of years ago. And so you can't guarantee that q four will be will grow on q three this year the way it did last year. And if we knew that, we'd obviously be suggesting high well above 29,000,000, probably well above 30,000,000. And and I think if if I can if I can build on that, Chris, I completely agree with what you're saying. Our ambition is to grow this mainly probably from a half and half or a year on year basis. That we would love it to be on a quarterly basis, but sometimes that will be driven by customer demand. If the customers have the demand in one quarter or in the next, that is with within their cycle. So where they're creating their advertising or their innovation.

49:36 So if you then balance this out over the half perspective or at least the annual perspective, you will see that consistent growth going forward. Yeah. So it's hard for us to stop customers wanting to use that, you know, use their budgets before the end of their fiscal years, And that's that I guess that's what happened in q four last I mean, q one this year was well above q three last year. So it's not as if there was a a terrible trend change. But q q four was was a standout quarter in in what was an overall disappointing year last year. Yeah. Another question on pricing. So saying that you've mentioned you have flexibility on pricing when it comes to winning customers. And I understand you've put in select price rises. How much further, how quickly do you think you can increase pricing? So we did last year put in with our existing customers a price rise, and, actually, they all love our service enough that we didn't have anybody leave us or have any challenges because of this.

50:32 Obviously, increasing prices with people who already bought into long term contracts can take time as well for it to flow flow through into when it actually hits. What we have got, I think, is the ability to also really hold our market prices and not have to discount significantly strongly against them. So, again, when I talk about having price elasticity, it might be that that's where that comes in, and it's actually more about our discount model being less discounted versus having to move the base price where people come into. Got a great question here on guidance on free cash flow for in the at scale scenario. And, obviously, think I I made it really clear that that wasn't a a forecast, and we wouldn't normally so we're asking for guidance or something.

51:18 There's some guidance. However, to be helpful, I think in the long run, I'd expect free cash flow and earnings to be quite well correlated in this business. I I hope that's helpful. In terms of the the absolute numbers should be quite similar as we look forward. A question here on customer churn, which was what's his customer churn like? So we don't have a specific metric that we published yet on churn. I think one thing that we've heard is if if we get compared with a SaaS model, often our customer churn can look out of kilter. Now what I did share with you today was spend from customers. So what you can see from that is that we aren't decreasing spend year on year from our customer base.

52:05 Actually, we're increasing it. So the stats I had earlier was 32% up for q one to q three versus last year. So that means our customers who retain in the business are spending more. However, if you look at the quantum, there will be customers who do choose to leave, and that might be for many reasons. It might be they've done one test with us just to see who we are, and, actually, we weren't what they were looking for in the market. It might be that, actually, on a we we count a customer as being a consistent customer if they spend every single financial year. They may be a small customer who does a campaign once every two years. So, actually, within our numbers, they wouldn't count as they would count as a lost customer and then a new one customer as well. So I think the measure that we're most looking at is retained revenue as an answer to customer churn. Got a question on what's the upper size of the larger clients at the moment? It appears to be 1,000,000. Well, I think we can be quite helpful there. We fairly consistently, our top 10 customers represent about a third of the company's revenue.

53:11 And we've had a situation in the past where a single customer was more than 10%, and I think we could have two or three customers that are close to 10% as I look forward to the next couple of years. So you can definitely we can it's very broad. We could have multiple customers over a million and some customers over 2,000,000 and maybe some over 3,000,000. That's not at all out of your question. A question here on how dependent is SYSTEM1 on particular CMO relationships? If a client's CMO changes, how likely is the ad testing relationship then likely to change with the new supplier chosen by the new CMO, and how embedded within the client workflow system on that testing service.

53:59 So I think if you refer back to our model for growth or our flywheel, you'll see within there when we talked about scaling up, that was about embedding ourselves in our in our customers. What happens at that point is that within their systems, often what we'll find is they will have directly built in access to our platform that from their own intranet, their own their own systems. So, actually, there is a big change for them to be able to move supplier. Now that's not to say that actually if there was a CMO who has relationships, they might want to bring things in, but we aren't finding this at the moment. What we're seeing is actually if you look at our top 20 clients last year, they are all spending with us year on year. And if until our top 20 this year, that's because someone's accelerated and overtaken them rather than they've decreased their spend. Another question on The US and how we cited it as a big target market.

54:51 How is John Kieran and members of the US advisory board getting on, and is there anybody that we can talk about joining that space? So I'd like to think about The US as a as a bit of a journey. So we're probably on year one of a three year growth journey in that space. So we're making progress, but there is definitely more to come before we see the same levels of growth that we have here in The UK. John Kieran's done an outstanding job over there. We had a relatively new sales team, and for him to be able to be in The US to bring to life who we are, what we do with that passion as a founder and our founder and president was incredible. He was also really able to get the market going by knocking on some doors and sort of being the founder over there in person. What John's expertise really is is on that first starting first starting a business and that real entrepreneurial enthusiasm you bring in. And then what you reach out to that then is the level where you need the big points and scalable growth.

55:47 So with that, John Kieran has actually just moved back over to The UK around Christmas time, and he's going to be helping look at some long term strategic opportunities in that space of three to five years. What we'll be doing is then expanding our US Sales Leadership Team to be able to cover that ex and execute in that gap of scalable growth. In terms of people on the advisory board, can we come back to that towards year end? Because I'm not sure in terms of what we have signed in terms of contracts whether there are people we can name or not. Maybe I'll take this one as I'm ultimately responsible for legal. Are there any exclusive clients that won't allow you to work for others? And that's not a yes or no. There are some clients who have very reasonable requirements that individuals don't work on a competing account, and I think that's pretty pretty common in a number of businesses, and that's true for us as well. But I don't think we have anywhere we are completely excluded. I'm not sure that would be practical for us.

56:48 Okay. A question here in terms of what do we believe the total universe of prospective clients to be? What percentage do you have? And what do you believe your target would be in three years? So with our q three numbers, Chris, I don't believe we've put out a total client number. We talked about having over 200 new client wins. So when we come to our full year, we do it. We do put out there our total client number. Yeah. And what's great to see is that our total number of clients is growing year on year, so that would be a great number, and we'll be we'll be able to celebrate that in a few months when we put this out. In terms of what percentage do we have, I mean, low single digits. We I mean, if you look at the share the market share I talked about where we're not even cracking 1% of that market spend, you have to you have to believe that, therefore, we are gonna be similar on that representation in the number of clients.

57:34 So in terms of what our target would be in three years, I think let us come back to that. And in the summertime, we'll be probably putting out a few more projections about the speed of the growth of the business and where we want to get to. Yeah. I mean and I think it's fair to say that percentage of clients is partly linked to another very good question about how how clients adopt SYSTEM1. Do they go do they do they mandate us exclusively? I'm just trying to find the question now. Or do they keep other other providers alongside? I think it's fair to say we see all models. We see ones where there's a complete global mandate to use the SYSTEM1 everywhere, and that's where an organization is run that way. It's run centrally, and they control it centrally. And there are others where each country makes its own decision, and so it's fragmented.

58:27 And there are some where even in country, you'll have they'll have a portfolio of testers, and they might even fat add to pretest, and they might use us and other people. And and that's fine as a you know, in in our strongest product area, we've got, you know, one percent global share. That's fine by us. I mean, we're very happy for people to try us out. And the question here on marketing spend. If we had an incremental dollar to spend on marketing, is it better spent on new customer acquisition or account management of existing customers? The new client wins are very impressive, but the size of your work with them must, in some cases, be very small. So I think we would definitely be of the approach that new customers are the lifeblood of the business. They're the lifeblood of any business. We are as we said, we don't have a leaky sieve, so we are able to retain the business we win as well. And that's what's great to see. So if we are then filling the top of the funnel and we don't have fast outflow at the bottom of the funnel, that funnel is just gonna get bigger and bigger as we grow going forwards.

59:25 In terms of the size of what we win, it's true. Some of them can be very small. Some people come in, and they will do one test for a couple of thousand dollars. But what we actually see with most of our customers is they do then scale up. And in particular, it doesn't take us much effort to do a test. When we talked about the platform, doing one test for that point of a couple of thousand dollars, we're still making high 80% margin. So even on that one customer, the margin's there. There isn't a loss of direct acquisition cost from our marketing. So if we were going and targeting a customer who was only going to spend one test work with us, that wouldn't be a good spend. In But particular, the way we're growing through our partnerships and our fame means we have broad reach to the markets, we'll be bringing in all sides of customers. And while we do have direct marketing to customers, that will be on the world's largest advertisers who can spend a lot.

1:00:16 There's a there were a few questions from the main. I think I can see one at the moment. I think I I'd hate to answer this. Okay. Okay. There was a question there. The question about dependency on CMO relationships, I think, is a good question. Yeah. Do you want me to? I think I've answered that. Okay. Great. Thanks. So just to make sure we've not left any. So question here. So how do customers typically behave when they make the switch to SYSTEM1 testing? Do they tend to use it entirely, or do they tend to continue using a panel of providers? No. We've got that one. K. How long do you envisage that The US would bet in? Do you envisage entering other markets, e. G, Canada, Australia, or The US, UK ROI large enough? So on that, we do already work globally. So we have a large market in Australia.

1:01:05 We serve Canada. We serve through Brazil and South America, Europe. Our offices, we have satellite offices based around the world. So we have one in Singapore up for Australia, covering APAC region, one in The UK, and then multiple small ones through Europe, one in New York, one in LA, and then one in Sao Paulo. So we are really working across the global markets. And in terms of investing how long will The US bed in, I mean, the great thing is it has already been our largest revenue driver beforehand. So we have we really believe we can turn this on fast. But as I said, I imagine it's probably kind of year one on a year on a three year journey. Right. How long does it take to build up the data?

1:01:52 So assuming here the data is referring to our database for test your ad premium, we've been investing in this for over the last five to six years. So if somebody wanted to copy this and try and build up the data, they would have significant multimillion, so double digit million pounds of spend to be able to do this. And that's both look accessing all of the the adverts that are out there and then also testing them with panels. Now alongside that, though, people could try mimic that, but what they can't mimic is the intellectual property that's built into our methodology. So even if they wanted to test on their own system, all of those adverts, they wouldn't be able to then apply the same star score, spike score, fluency score at true measures of emotion that turn into predictiveness and return on investment.

1:02:43 So while there may be a cash or a time which may take them a year or two to to test, also maybe a couple of years to build out a platform in that sense, they would also have to try and mimic the IP, which is probably the hardest thing alongside that. And then a question. I understand that many clients are still relying on traditional panels. How do you overcome this? So I I'll have a go at best understanding this if I can. So by a traditional panel, this this would does this mean using market research respondents? Because we do that. And so for real clarity, we have an automated panel, but within that, we do reach out to market research respondents who are watching an advert, responding to an innovation, or providing their feelings against the brand. Now, again, we capture all of the responses in terms of feelings and emotions, and we run it back through our automated platform to create a report.

1:03:46 But this isn't, when we say automated, it's the platform that's automated, but does still rely on real humans to provide the response. Okay. And response to that meaning I mean, things like SurveyMonkey. Got you. Super. So in terms of whether they're going to set up a panel and run it themselves or whether they're going to go and use our our platform. What I think is great about our our our platform and our products is that we have a brilliant product, but we also allow people flexibility. So when Robin talks about our products, we said we have the ability for people to use our standard scale standard scalable product, but they can also ask their own questions too. So if I worked in a business, my background, I previously worked at Tesco, and there was a specific measure that Tesco wanted that wasn't within our metrics, we are able to also allow that question to be answered in the way that you might do on a different platform.

1:04:38 We can do that through the through the platform in our products. It's a completely scalable way Robin was explaining it, and it's also then able to be captured in the data stored and provided back through our platform to the customer. So, actually, that DIY builds that exist elsewhere, we can offer alongside our product in a scalable way. Yeah. And the other benefit of that is that you've you've got consistency where everyone else in our benchmarks are tested in the same way thousands and millions of times over, so you have comparative points. If you're using something like SurveyMonkey, it will change every single time. So you just have to make your own survey consistent, but you can't then compare them to competitors, for example, because you'd be deploying different methodologies each time. So we're setting out the gold standard of testing, which you can use, and then you can bolt on additional add ons if you need.

1:05:28 And then a question. Yes. So if I'm wrong, maybe this might be wrong for you then. So does our predictive this IP evolve over time? Does it improve with new insights? Yes. So we continue to be great thought leaders in the advertising space in particular. We are constantly looking at our database out new thought leadership and understanding new insights to really understand how advertising works, and we have a really, really big voice in that space. And so as we uncover new insights, we look to bake those back into the product. So I talked about this a little last time at Capital Markets Day. We looked at the left and right brain attributes of how advertising works and how it's most effective. And then we look away of codifying that and then building that into our products.

1:06:13 So we've done that for TV. And at the moment, we are we've just released a listen up publication on audio, and we are now doing the equivalent and putting the life left and right brain features into our audio product. So you can see how over time as we discover and uncover new insights, we're always looking at baking those back into our products. Alright. I think we've now answered every question in there. So if somebody feels their question hasn't been answered, please do add it in quickly, and we'll try and make sure we do answer it. I've just answered a quite technical question, through the chat rather than James, Chris, Robin, thank you for answering all those questions you can for investors. And, of course, the company can review all questions submitted today, we'll publish those responses on the Investor Meet company platform.

1:07:03 Before redirecting investors to provide you with their feedback, which I know is particularly important to yourselves and the company, James, could I please just ask you for a few closing comments? Yeah. Well, firstly, thank you for taking the time to to join us today. Sorry. I'm bit joyful from our side, and hopefully, it is from yours too. Hopefully, that you've got the takeaways that are we're really here to serve the world's largest advertisers. We're really clear that we've got a growing model and that we are gonna grow in a scalable manner going forward. So we look forward to speaking to you in April when we come back with our trading results for the year and then future conversations over the summer. So thank you very much. Speak soon. James, Chris, Robin, thanks for updating investors today. Can I 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?

1:07:51 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of SYSTEM1 GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.