Pricer AB

STO:PRIC B

Earnings Call Transcript 2022-Q3

[Magnus Larsson, executive]

Hello, everyone. This is Magnus Larsson speaking. I'm the Acting CEO of Pricer. And I would like to welcome you to the presentation of the third quarter for 2022. With me today, I have Susanna Zethelius, our CFO.

The Q3 report highlights. I'm, of course, extremely happy to present a quarter that gave us the best order intake to date and actually, the second best revenue in a quarter to date, so up until now for Pricer.

We've seen an acceleration orders that have been driven by franchisees and cooperatives, both in Europe and Americas. And I think this is -- why has this happened? It's, of course, we can see the underlying market trends. We have spoken in previous presentations about the inflation and how it's been affecting the interest from retailers pretty much across the globe.

Why can we see this very, very strong growth on the franchisee side? It's because they have framework agreements. They have available money. They know they can make a very quick investment because they run their own store or a number of stores. So we have seen a very big increase in the franchisee sales. We see the same kind of interest also from the more established chains that have their own stores, but it takes longer time for them to do the budgeting and get everything through, but we see an equal interest on their side.

I would also like to say that now in our home market, Sweden, we have actually had an all-time high installation level of electronic shelf labels. It's been extremely nice to see. And then for those of you living in Sweden, you will find the Pricer label increasingly in quite a few or actually quite many now stores across entire Sweden.

The strengthening that we have done on the sales organization that was announced in Q2, together with the underlying market trends, we can now say that they are really positively affecting the results. We have more customer dialogue. We have more customer interactions. We -- I would say that we probably address our customers in the same way we have a coordination with sales and delivery and marketing that is now also creating extra traction. So it's been very positive results. And I can see already now that it has affected the very good results of the Q3 quarter.

Of course, I'm also extremely happy to say that we have returned to profitability now in this quarter. We have spent a lot of time looking at how we can actually get our operating costs down. This is something that, of course, we're happy to see that we've been successful. But we see that there is a need to intensify this work, which is something that we will also do not only on the OpEx side but also on seeing how we can work more on our COGS side.

Moving on to the market update. So what's happening in the market? We can see very strong customer demands in several markets. I would like to mention Canada, where we see big demands and big interest, and it's actually interest that are turning to orders, and it's turning to revenue in quite wide customer base. We see it in France. Of course, there is a lot of the entrepreneurs, the franchisees that are putting a lot of orders. Same in Sweden. We see a lot of interest in Benelux. Of course, we announced the big order with PLUS in Netherlands, but that's not the only order we're rolling out. Once again, we see it in Belgium, we see it in Netherlands.

And I was about to say surprisingly, I'm not surprised, but I'm really happy to see that it's also Eastern Europe. And here, we have had a few really nice wins. Not all of them have been communicated yet. They might be early phase, but it's been a new market with new customers where we can say that we also managed to address new segments, segments that we previously might have thought would be difficult to actually sell. We have examples of hard discounters in grocery that choose Pricer as the vendor of their pricing system.

On the Americas, we've spoken a lot about that we see an upside in America. We can now see that, that is materializing in form of POCs. So basically where a customer is testing our technology. They're testing us. They're testing others, but clearly indicating that now they feel the time is right to actually start moving into digitizing the stores using ESLs. We have won a number of pilots where they actually move from saying, "Yes, we believe in your technology. Now we want to test it in a store. Does it really work?" And as the benefit we believe in the store, it could be one store. It could be a few stores where they really test it. Is this -- do we get the money back as expected? Does it help our staff as expected?

But it's also been shown as orders. We have now received orders quite a few many small ones but also gradually getting larger orders. Most recently, we announced now that we have won [ Kelowna ] in Canada, together with our partner, JRTech. Jean Coutu as well, one is a pharmacy. The other one is do it yourself. For the RONA case, it was even announced that they are now moving from radio to our technology based on the reliability our system brings.

So extremely happy, and I hope to be able to speak more in Q4 and during next year about where we are and how far we come actually with these POCs and pilots and how they hopefully will materialize in -- gradually into orders and then gradually into large orders.

We have received some questions from the [e-mail], and I should remind you if you have any questions, please send them to [e-mail], and we will get them at the end of the presentation. But we have received someone and then questions on Germany and U.K. On Germany -- I'll start with Germany. Where it's not developed as I would want, I can see that there are opportunities. We have not managed to capture them before. I think that there will be good opportunities into the future. But we're not where I want us to be on the German market. We are now revisiting the go-to-market plan. So this is something we should do in a different way to make sure that we actually get the traction that we believe we will get from the German market.

But on -- speaking of traction, we can say that the work we do now in Spain and that we do in the U.K. and Ireland is generating the kind of response that we want. We have a lot of customer dialogue. There's a lot of customer interest. We see that they are ready to go ahead and start actually discussing ESL. They are ready to discuss digitalization, and they are actually ready to make tests and some of them are now planning for investments during the coming couple of years. So I have really high expectations on both Spain, U.K. and Ireland. And here, I have to say that, especially within Ireland, I've seen that there's been a lot of interest that we do expect will also not only spill over but will actually be -- it will be the same thing in the U.K.

On four-color, the hype that we have seen on the market and interest is now actually materializing into pilots. We have won a number of pilots where we actually test four-color in store. It's still limited scope. It could be parts of the store or specific areas, but we can see that the major players within retail -- grocery retail are now moving ahead. They tell us that this is now what we need. We want to go ahead. We want to test it.

And we have won a number of them actually with key players where we have not actually previously been deploying anything, which is extremely positive. We have actually also won a first full store at the major nonfood player. It's the first store. They have quite a few in their chain. I cannot disclose any more details, but it will be very nice to follow this one and see if it works per the expectation, which I believe that it will. But that could be the starting point, of course, for something different.

We are also spoken about signage. Now we are planning to do the launch of Pricer's signage solution. It will be a full merger of signage and ESL. When I look at what's available on the market, I believe that we are doing something that competition is not doing yet. I think that we will take a launch, and we will -- maybe it's bold, but I think actually, we will be ahead of competition in this way.

We made a softer sneak preview-type presentation at Paris Retail Week in September. It created -- I put here in the slide, great, but I would say immense interest. We were also lucky enough to have one of the French key influencers passing by our booth and made a video on it. And it reached -- created major hype on the market. We had several people coming back saying, "I saw this great video on your solution. Can you please show it?" So I'm really excited to present it. I would say, end of November, somewhere beginning of December, we will do the relaunch. I will not tell you anything more about it right now, but there will be some proper launch on this one.

But capturing the market situation, we see a strong demand. We see a growing demand, both in customers wanting to buy these kind of solutions. They need the solutions, but also that we have the ability to meet their need. We are planning to grow further. We are confident that we will grow in line with our plans. And we see that we have all the signs, we have the order intake supporting this. And we see that the customer and their needs are supporting this. So we will plan for strong growth into the future.

Capturing back to or actually tying back to what we communicated on the Capital Market Day, just to give you an idea of where we are with the different initiatives we started.

Well, strengthening sales, we have a regional organization in place. It's working really well. It is creating traction. It's well received by our customer, combining the delivery organization with the sales organization, with the marketing organization has created a closer bond to the market. It has created our ability to actually spend more time and be more visible. So very, very promising.

Increase agility. We have made quite some changes to the organizational setup within R&D, within product and how we work together with the sales team, a way of working in general processes, but also how we interact and also a focus on what we're doing and what we should prioritize. And I can see that there has been a very positive effect on the ongoing projects. This is also one of the reasons why I'm now certain to say that we will launch a new project. We will get it in place. We can say that the things that we set our mind to do, we actually do them and we do them as per our plans.

Supply leadership. We are continuously working to see how can we stay ahead of the game. How can we make sure that we work with the manufacturing, lower cost. It's, of course, been extremely challenging now during the pandemic and the aftermath of it. It does not mean that we have given up trying to work with it. We look at lead times, we look at the carbon footprint, and we will continue to do this. Our aim is to take and get the supply leadership on the market.

And new business models. We -- as you could see from the quarter report, we are growing the recurring revenue. We are working with the business models to make sure that we find the right models to really appeal to market, appeal to customer and make sure that we deliver the recurring revenue as per our plans.

So that's at large where we are right now. And now I'd like to hand over to Susanna for the financials of the third quarter.

[Susanna Zethelius, executive]

Thank you. So we have strong financial third quarter to present, which is, of course, positive news for us. And I will go through the numbers a bit starting with order intake, where we had 78% growth in the quarter versus the same quarter last year. And it was also, like Magnus mentioned, the best third quarter ever when it comes to order intake.

The orders did come from a broad customer and end-market base. A couple of markets to mention is France, Canada, New Zealand and also Bulgaria, which is a new market to us. The order backlog was SEK 538 million. The majority of that is expected to be delivered in the fourth quarter, and the year-to-date order intake was up with 45% versus last year.

Moving on to net sales. We had a growth of 16% versus the same quarter last year. It was the second best net sales quarter ever. This was also distributed across a broad customer base and a couple of comments about the markets. EMEA stood for 51% of the net sales. And there, like Magnus mentioned as well, it was positive to see that we had the big demand coming from Sweden. For Americas, that represented 44% of sales, and we had new customers coming in from the Canada. APAC stood for 5% of sales, where we can see that New Zealand is still strong and we had growth in Australia and also Southeast Asia.

Moving on to talk about the margin and starting with the gross margin. It was 16.6%, flat versus Q2. We have started to see indications that cost pressure from components and logistics decreased. However, the time lag before it shows comes in our gross margin. Also the strong dollar, which is contributing on the revenue side, is putting extra pressure on the gross margin in Q3.

And then moving on to talk about the operating margin. We have turned back to profit in Q3. OpEx was down versus previous 2 quarters, and we had a strong focus to review our cost base to manage growth in an efficient way. Then a couple of comments about the cash flow.

We did show a positive cash flow in Q3 and a positive change in working capital. Inventory levels and account receivables were up because of increased production and sales and is being offset by the increase in accounts payable. We're working to refine our capital efficiency to manage the growing customer demand. And to further strengthen our position in this growing market, we're in the final stages of taking up new debt, which will enable us to deliver our planned future growth.

And with that, I would like to hand over back to Magnus.

[Magnus Larsson, executive]

Thank you, Susanna. So wrapping up a little bit before actually moving into the questions. The market is growing fast. I have spoken before about events and trends combining them and the correlating them, that will create a perfect storm. It feels like we're now moving straight into the storm. Markets are expanding. We can see that we have always spoken about 5% global penetration of ESLs. I'm pretty sure, even though I don't have any figures yet, that we will see that number increasing quite steeply now over the coming couple of years.

Thought leadership. We are now executing on the strategy that we communicated during the Capital Market Days. We are looking at the solution. We are planning the roadmap. There will come new exciting products during next year, things that we haven't done before. We will -- I will not communicate exactly what it will do, but it will really enforce our position as a thought leader within especially the agnostic tech solutions for retail. We will do higher, but we will also make sure we have all kinds of different solutions, including the design, we've spoken about radio. So there will be an interesting blend of product and exciting things to come.

We will focus on in-store communication. We will make sure that we help our retailers make a lot of money out of using our solutions, saving money, enabling the customer, their staff to do things in a more efficient way, but also generating money through smart way of doing communication, doing advertisement, promotions, and of course, by making sure that their shoppers, customers experience a fantastic customer journey that they're happy with and they'd like to come back to the same store to continue the shopping experience.

We plan to grow faster than the market. We believe that the sales organization, the way we develop our business and our new recurring revenues will -- models will actually make sure that we meet our targets according to plans.

So having said that one, I would like to open up for the questions that we have had so far. So [ Charlotte ], please?

[Unknown Executive]

Yes. There has been some questions. You -- beginning with, you have a large framework agreements with, for example, Carrefour and Canadian Tire. Can you say how much of that has been delivered so far?

[Magnus Larsson, executive]

I would very like to say how much has been delivered so far, but I cannot go into any details. But what I can say that there is substantial upside left in both contracts and that we expect to continue to sell to both accounts for maybe not the foreseeable future but for the coming years.

[Unknown Executive]

Has the agreement with Nationwide Marketing Group yielded anything yet?

[Magnus Larsson, executive]

It's yielded so far. Of course, there's been order, but it's also yielded a lot of positive impact on the market. It's one out of many important contracts that we have, where we believe that, over time, it will be substantial business, maybe not only with them but with these kind of customers at large.

[Unknown Executive]

You did address this in your presentation, but there is still a follow-up in the U.K. and Germany. Which type of hurdles have you seen? Why are we not seeing sales in Germany?

[Magnus Larsson, executive]

I think that the different reasons. I think it has had much to do with the way that we have addressed the market, the way that we want to capture sales before. That's one thing. Then I think that the market has been a little bit behind, let's say, market in the Nordic or France or Benelux, as an example, where we see that the need is coming right now. We are having more dialogues now with different kind of retailers in both markets than before.

I think we are right now will come a little bit further. The business will come further in the U.K. market. They are ready in a different way to take this dialogue and actually turn the dialogue into tangible business, whereas we still have some work to do in Germany.

[Unknown Executive]

And another angle on Germany is, how is the production going in Germany?

[Magnus Larsson, executive]

The production is going fine. We actually don't produce yet, but we are developing the site according to plans. There's been some small delays. But we do expect, as I think we have communicated previously, to have volume production in first quarter next year.

[Unknown Executive]

Okay. And then there are some on the competitive environment. Do you face price pressure on prices?

[Magnus Larsson, executive]

It's both. It very much depends on the market. In some markets, we can see that the price pressure is much higher. Whereas in others, it's been -- it's, of course, always a competitive environment, but it's a little bit less focused on this extreme pricing. So depending on segment, it could be depending on market, depending on the competitive environment. Very often, if we have a market where there is a very high price pressure, it could be that you have a new market that someone is eager to enter that specific market. But it's very rare that we see sustained price pressure on a level that is very, very low.

[Unknown Executive]

And there are some follow-ups on the competitive landscape. How well positioned are you on technology, radio versus infra pricing and rollout?

[Magnus Larsson, executive]

Well, I believe that we are in the best position. I see signs that the companies that have invested in radio, some of them like RONA, they announced that they will move over to infrared and we know it's because they feel that what they get is more a higher reliability and a longer lifetime. Radio is also a good technology. You have to use the right technology at the right place. It has to be based on the use cases. And I think for the use cases that we see that customers need now, including the emergence now the four-color, I think that IR is simply a better choice. But that does not mean that I said that radio is bad because we'll use it for specific use cases where it will be helpful.

[Unknown Executive]

You talked about some projects turning into pilots. And the question is, how long does it take for a pilot to translate into orders?

[Magnus Larsson, executive]

It could be -- it's very much depending on the customer. But I think that someone that made a decision that we want to proceed and we want now to do a major deploy of our technology or competitor technology in a store. The time it normally takes for them to actually assess the technology, do pilots, verify that they get the savings they expect and they have the possibility to industrialize the deployment, well, could take maybe one year in average.

[Unknown Executive]

And another question on your supply chain and procurements. Do you expect the situation getting back to normal during 2023? Or is it by 2024?

[Magnus Larsson, executive]

We -- it's really hard to say. We -- as Susanna mentioned, we can see that we have the feeling that maybe we have reached a peak. And of course, I hope that I don't have to regret those words. We see that indications that prices will now start getting down, or our cost will start getting down. We are, of course, also addressing it, by the way. We work with, for example, local production in Germany, where we know that we can actually get the cost of transportation done. But then we're doing procurement on the component side, on the display side. But yes, we believe that it will go down. I cannot tell you exactly now how much it will go down, but we are positive. We believe that we will see cost benefits during next year, but maybe it will be more into 2024.

[Unknown Executive]

And you have a drop in R&D expenses in the third quarter to SEK 3.1 million. Supposedly, you have capitalized much more R&D than in the past. Could you develop on that? Could we have more color about the ongoing projects?

[Susanna Zethelius, executive]

We have been reviewing what projects we've been working on and made adjustments accordingly to make sure that we're doing it the proper way going forward.

[Unknown Executive]

Yes, four-color label. Lots of things are certainly being introduced in the market, including four-color, digital signage and a focused higher share of recurring revenue. Could you talk a bit on how this impacts the unit economics and perhaps whether it changes the way your salespeople do their everyday work?

[Magnus Larsson, executive]

It will change the way our salespeople do the everyday work. We have historically been selling -- focusing on selling solutions, but they've been very much based on a onetime fee. There has been a small recurring fee pretty much based on support and then now gradually with the Plaza service. But here, we also need to look at how can we actually add and build on top of it. So we need to develop our product portfolio, what can we actually put as a recurring service. But then we also need to enable sales and make sure that we have that dialogue with the customers to make sure that this is exactly what we want. And we can see that it's something they do want because we're discussing it and they're asking for it. But it's something that will take some time. And here, I think we also need to make sure we have very clear packages that are easy to sell. So it's ongoing work.

[Unknown Executive]

And that's it for the questions.

[Magnus Larsson, executive]

All right. Thank you very much. Thanks for spending this half an hour with us. It's been a pleasure, and we look forward to come back in -- with the Q4 report back in next year. So thank you very much. Bye-bye.

[Susanna Zethelius, executive]

Thank you.