Release Date: September 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eleco PLC (LSE:ELCO, Financial) reported record interim results, showcasing strong growth and positive momentum in its strategic initiatives.
- The company achieved a significant increase in annualized recurring revenues (ARR), up by 31%, indicating a successful transition to a SaaS and subscription-based model.
- Eleco PLC's recurring revenues now constitute 74% of total revenues, providing greater predictability and stability.
- The company successfully launched new products, including AstaGPT, a generative AI application, enhancing customer adoption and problem-solving capabilities.
- Eleco PLC demonstrated strong cash generation, with free cash flow doubling compared to the previous period, supporting future investments and growth opportunities.
Negative Points
- Operating expenses increased significantly, partly due to the absorption of costs from recent acquisitions, raising concerns about cost management.
- Scandinavian revenues experienced a decline, attributed to currency effects and economic challenges in the region.
- The company faces ongoing challenges in the construction industry, with political and economic uncertainties potentially impacting future performance.
- Despite strong cash generation, there is uncertainty regarding the utilization of cash reserves for large investments or acquisitions.
- The integration of the Vertical Digital acquisition, while progressing well, presents potential risks and challenges in aligning with Eleco PLC's strategic goals.
Q & A Highlights
Q: The only real concern which I had was with the large increase in OpEx from H2 to H1 this year. Were the costs fall forward into H2 or were there lumpy amounts? How should we think about the H2 OpEx base?
A: Neil Pritchard, CFO, explained that the increase in OpEx was primarily due to the absorption of cost bases from two acquired businesses, accounting for approximately GBP1.2 million to GBP1.3 million of the movement. The remaining increase was due to inflationary pressures and strategic investments in go-to-market activities and scaling up the business.
Q: Why have Scandinavian revenues reduced in H1?
A: Neil Pritchard, CFO, noted that while there was underlying growth in customer numbers, Scandinavian revenues were affected by the transition to SaaS, economic pressures from higher input costs, and adverse currency effects. In local currency terms, revenues would have been up by 2% to 3%.
Q: What synergies and strategic advantage does the acquisition of Vertical Digital bring to Eleco? How is the integration progressing?
A: Jonathan Hunter, CEO, stated that the acquisition enhances Eleco's R&D capabilities, particularly in AI and new technical disciplines. Vertical Digital's team and culture fit well with Eleco, and the integration is progressing smoothly, providing cost advantages and expanding Eleco's technical capabilities.
Q: What additional AI-driven features are planned for the future, and how do you see AI transforming Eleco's offerings in the built environment?
A: Jonathan Hunter, CEO, mentioned that Eleco has an AI roadmap, with AstaGPT being the first release. The company is working with customers to identify problems and develop AI capabilities, focusing on high-quality data input for effective AI solutions. AI is expected to enhance Eleco's offerings by providing valuable insights and solutions to customer challenges.
Q: Given the strong cash generation in the first half of 2024, how do you plan to utilize cash reserves? Are there any large investments in technology or acquisitions planned?
A: Neil Pritchard, CFO, indicated that ongoing cash generation supports R&D and innovation. While the primary focus remains on organic growth, Eleco is open to M&A opportunities that provide strategic fit and shareholder value. Investments may also be directed towards go-to-market strategies and senior hires.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
