Parrot SA

PAR:PARRO

Earnings Call Transcript 2018-Q1

[Henri Seydoux, Founder, Chairman & CEO]

Hello, hello, everybody. Thank you for being with us for this conference call. With me today are Olivier Maury, Parrot's Chief Financial Officer; and Marie Calleux, Head of Investor Relations. I'm going to present our results for the first quarter of 2018 and we will answer your questions together. To begin with, it's important to note that since IFRS 15 came into effect on the 1st of January 2018, certain marketing costs that were previously recognized as operating costs are now directly deducted from revenues. For this quarter, the impact represents around EUR 300,000. For information, in the press release released this morning, we have provided a pro forma view of the first quarter of 2018 excluding the application of IFRS 15. The figures presented during this conference call are the IFRS 15 figures. Now let's start -- let's get started with, first of all, the contraction of revenues. In terms of retail sale, we issued a warning when communicating on our earnings for 2017, midway through March, regarding the expected contraction in retail revenues guided for during our previous earnings announcements and taking into account realignments of our drone product portfolio, our withdrawal from connected products and the continued rapid reduction in our automotive activities in line with the trend observed and taken onboard for the past 3 years now. While waiting for our next product launches, for which, you now know that the first announcements will be made in early June, we have a very few products to sell, and we are focused primarily on preparing for the arrival of our new products with a few carefully selected retailers for the end of the second quarter. I cannot tell you more -- any more about this at this stage, but the wait will not be very long now. In terms of commercial drone sales, down slightly for the first quarter, for this first quarter, the situation shows more contrasts and growth will need to be assessed on an annual basis. For this quarter, we have identified 2 factors. On the one hand, the adverse weather conditions in the Northern Hemisphere, this concerns both the United States and Europe, which slowed down our ability to compete missions for drone services, particularly for precision farming or inspection, which also temporally limited our ability to sell equipments. On the other hand, we had accelerated the convergence of our expertise and our offers for commercial solutions and drones. At the start of this year, we have notably strengthened our control and management of senseFly, our commercial drone manufacturer acquired in 2012. This managerial change result in a period of inefficiently, following which various important decisions have been taken, notably with, firstly, the reorganization of all the teams in charge of business equipment sales. These are now being led by senseFly management. For the moment, this has not had any impact on the comparability of our figures. And we'll bring these to your attention when this is the case. SenseFly team have access to a powerful international distribution network for commercial drones, and we'll be able to serve their distributors with a wide range of products, from entry level to advanced solutions. Secondly, my appointment as senseFly CEO focused, in particular, on moving forward with our expansion strategy, while also accelerating technological, commercial and operational synergies within the group and its subsidiaries. At this stage, the development plan is forecasting a [ decent ] growth in our equipment sales for the second half of the year as our Drone Business Solutions is up 30%, driven by continued growth for Pix4D, plus 22%; and the ramping up of Parrot Air Support, EUR 200,000 for the quarter compared with close to nothing in Q1 2017. In the first quarter, Pix4D's model has indeed demonstrated its solid capabilities with growth across all the solutions offered on our 3 vertical markets and in all our regions, EMEA, APAC and Americas. We're also starting to see a high level of recurrence revenues in March. Pix4Dmapper passed the milestone of 10,000 unique users per month. Gross margin. The slow level of sales, which is expected to [ end ] with the arrival of the next phase of innovation for both consumer and commercial segment, nevertheless, highlights the effectiveness of the actions taken in the group's gross margin up to 49%, its highest level since 2015. More specifically, this reflect the benefit of shutting down certain commercial products, particularly the connected devices and older drone range; the positive change in the margins for our core products, the Bebop 2 and Mambo, made possible by the upgrades and packs offered; and the group ability to manage a high level of pricing elasticity per product, per region and seasonality. We can now adapt our sales price line with market opportunities and our launch schedules and not to reduce stock levels, which are now effectively recalibrated. With regard to the cost structure. Current operating expenditure for the first quarter came to EUR 25.5 million, down EUR 4.7 million or minus 16% from the next -- from the first quarter of 2017, and EUR 1.4 million or minus 5% from the fourth quarter of 2017. R&D spending came to EUR 9.5 million, representing the main cost heading for the period, with 133 people allocated to commercial roles and 126 for consumer roles. I would like to remind you that 1 year ago, this proportion was reversed. Sales and marketing spending represents EUR 7.2 million, down to a low level. This compares with EUR 12.8 million for the fourth quarter of 2017 with high seasonality for marketing and EUR 11.8 million for the first quarter of 2017. This reflect the impact of the reorganization around 3 platforms as the deployment of the selective distribution strategy. 98 people are allocated to commercial drones with 82 for consumer drones. Some outstanding new recruits have joined the department in the past few months, including Huawei former Marketing Director for Europe, Vincent Vantilcke, and various online sales specialists as well as business specialists focused on commercial drones, particularly in the precision farming and security sectors. Overheads represents EUR 5.6 million for the quarter. This increase notably reflects the strengthening of the group's IT system with investments in the supply chain and the group's digitalization. Production and quality spending represents EUR 2.4 million, which is low, while waiting for the new innovations to move into production launch in the second quarter. For the full year, our support functions, overhead and administrative costs and production are expected to be consistent with the figure from 2017. Noncurrent income and expense are not significant. This compares with income from the capital gain on Parrot Automotive sales after deducting the reorganization's nonrecurring costs recorded in the first quarter of 2017. The share in income from associates is linked primarily to the losses generated by Parrot Faurecia Automotive. This subsidiary is currently being sold off and is continuing to strengthen its team to meet the technological challenges of the cockpits of the future that the Faurecia wants to develop.Now I would like to share some additional information with you concerning our balance sheet and cash position. At the end of the first quarter, we had EUR 99 million in net cash, down EUR 16.4 million from the 31st of December 2017. EUR 13.8 million have been used for operations with working capital requirements stable. Inventories, trade receivable and trade payables are at the low level. Our investing and financing cash flow levels are not significant, and I would like to remind you that all our internal development costs are recorded as expenses. And the change in exchange rates have cost us just over EUR 1 million. In total, our cash and cash equivalents represent EUR 131.2 million at the end of March, from which at this stage, we need to deduct the Parrot Automotive bonds that will be converted for Faurecia. This leads me on to our expectations and our strategy for 2018. We are moving forward this year with engagement and determination. Following a difficult period for the business hence, which we are well aware of, for our shareholders, I hope that we will be able to show you concrete signs of improvements on the next quarter before returning to strong growth over the second part of the year. The second quarter will be marked by the first relaunch phase, driven by innovation and the deployment of a stronger sales and marketing strategy and a higher level of pricing elasticity. Over the past 18 months, our R&D has focused on developing a new scalable technological platform able to cover several generations and types of drones. It is aimed at consumer uses and sufficiently powerful to be deployed for our Drone Business Solutions. This is one of the key elements for ensuring our agility while effectively managing our resources and our pace of innovation for the coming years. In the meantime, we will be presenting the first new product to you on the 6th of June. This is just a first step with the development plan that we prepared throughout 2017. Several milestones need to be passed in order to continue developing Europe's leading drone group. This is a strong ambition and this will take time, but we have the resources to move forward, and we are targeting, like you, a strong return investments in an industry that is still in its early stages of development. Thank you for listening. We are now ready to answer any questions you may have.

[Operator]

[Operator Instructions]

[Henri Seydoux, Founder, Chairman & CEO]

Okay. So thank you very much, everybody, for attending this call. And we will speak again for the next quarter financials. Goodbye.