VusionGroup

Good day and thank you for standing by. Welcome to the Vision Group Q3 2024 sales conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Olivier Guernand, Investor Relations Officer. Please go ahead.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our Q3 2024 sales conference call. I'm Olivier Guernand, Vision Group's Investor Relations Officer. With me today are Thierry Gadou, our chairman and chief executive officer, as well as Thierry Lemaitre, our deputy chief executive officer and chief financial officer. Thierry Gadou will start with some remarks on the group's third quarter and nine months business highlights. Thierry Lemaitre will then comment on our financial performance for the same period. And Thierry Gadou will conclude with some comments on our fourth quarter and full year outlook. After these remarks, we will be happy to take your questions. As a reminder, some of the information to be discussed on our call today is forward-looking and subject to important risks and uncertainties that could cause actual results to differ materially. For these, I refer you to the safe harbor statement included in our press release and on slide two of this presentation. This evening's release was issued a short while ago and is available in both French and English on Vision Group's website The slides of this presentation can also be found on our website in the regulated information section. A replay and a transcript will also be available on our website after this call. And with that, it is my pleasure to hand you over to Thierry Gadot for his opening remarks.

Thanks, Olivier. Good afternoon, everyone. Thanks for joining our conference call. So before handing over The floor to Thierry Lemaitre to review our figures. Let me summarize the key achievements and the business momentum of the past quarter. Q3 has been our best third quarter historically. As anticipated, we started to accelerate our growth rate in Q3, now close to our full year target of around 25%, which we are confident to reach as this acceleration continues in Q4. In terms of geography, revenue growth was driven by the acceleration in North America as anticipated, while the MEA is still showing a decrease versus last year. I'll come back to both regions in a minute. In terms of product lines, VAS revenues continue to show a similar trend as earlier in the year, with recurring VAS growing rapidly, driven by cloud and data services. and non-recurring services decreasing due to an overall difficult environment for retail. ESL division growth is increasingly driven by the growth of EdgeSense, the new digital shelf system we launched earlier this year, which is now in high-scale rollout in Walmart US and in pilot in other retailers both in America and Europe. EdgeSense is our fastest growing innovation ever, by the way. Sales momentum has continued to be strong in Q3 with, again, high growth in new orders. We are building a strong backlog for the next quarters, which explains our confidence in our full-year target and in next year's acceleration. Let's look at our dynamics per region briefly. North America, now our first market, is clearly the primary driver of the momentum in 2024. The Walmart contract is now in an intensive phase. We're currently rolling out the program as planned, and we will have shipped over 500 stores by the end of this year with a target of 2,300 stores installed by the end of 26. The rollout pace will accelerate in 25. New production lines have been ordered during the third quarter and will be implemented in the next 9-12 months so that we can continue to increase our output capacity throughout 25. Our software revenues are growing rapidly as well. Furthermore, in parallel to the current rollout, new solutions and use cases are being tested to expand the strategic relationship with Walmart. We recently opened a new office in an innovation lab and a customer experience center in Bentonville, Arkansas, where Walmart is headquartered, as you know. And our board of directors and advisory board last week was in Bentonville, where they met with Walmart, discussed strategies going forward, visited stores, distribution centers, and, of course, the new Vision Group Innovation Center. As already announced, let me also remind you that there were several other successes in America during the third quarter. We signed a contract with Ace Hardware, the 21st largest retailer in the U.S., and one of the top national DIY brands. We have announced a rollout with Hy-Vee, one of the top regional grocers in America, and we hope to announce new deals in the fourth quarter, which are currently in their final contracting phases. In Europe, even if the multiple successes of recent months are not yet reflected in deliveries, which is normal due to the industrial lead times, order intake has been growing in Europe since the beginning of the year, and additional new contracts are being finalized in many countries, both in the food and the non-food retail sectors. Just a few examples to mention. The rollout of one of the world's leading sports retailers, which will reach over 20 countries soon. Travel retail is a fast-growing sector, too, and Fusion Group Solutions will soon be in over 40 airports in 15 countries on four continents. So if you travel, you'll see more and more technologies. The home improvement sector is also an area where Vision Group's leadership is undisputed, with several leading brands in the process of international deployment in many countries. Pharmacy is also a fast-growing sector, with several European chains signed into three, including Phoenix, recently announced, each comprising several thousand pharmacies in many countries, and other deals are soon to be announced in that sector. The same goes with health and beauty with one of Europe's leading brands now to deploy in more than 10 countries and several other major chains currently being piloted, including one with our new Edge Sense platform. And that's in Europe again. And new deals in DIY and consumer electronics, which have been signed recently in Europe. So another growth driver in Europe is the modernization of our large installed base and the pace of store renewals and migration to cloud is definitely accelerating. in 24 and will continue in 25. So Europe has many drivers at play to resume growth in 25. And of course, I remind everyone that even taking into account the temporary slowdown in 24, our European sales have been multiplied by no less than 2.5 times between 2020 and 24, which is an average annual growth rate of more than 25% over the past four years, above our European growth guidance of 20% CAGR. So I will now let Thierry Lemaitre take you through our figures and be back for a few comments on our outlook.

Thank you, Thierry. As you can see in the press release, and as disclosed on this slide, Q3 IFRS revenues to the 207 million euros, a 13% increase versus Q3 last year. Adjusted revenues corresponding to what is actually invoiced to customers, including Walmart in the U.S. amounted to 222.9 million euros in Q3, which is a 22% increase versus Q3 2023. On a nine-month basis, projected revenues reached 654 million euros, growing by 16% versus year-to-date Q3 last year. The trend in 2024 is quite similar to that in 2023, showing a Q3 lower than Q2 and the very strong expected Q4 confirming our guidance of 1 billion euros over the full year 2024 on adjusted basis. I remind that the 15.8 million euros adjustment in Q3 and 38 million euros adjustment over the first nine months are relating to the IFRS 15 restatements on Walmart contract and more specifically to the warrants and the schedule price decreases. In Q3, the split is approximately €7 million for the warrants and €9 million for the price decrease adjustments. We will elaborate on other entries in a few minutes. On the following slide, as mentioned previously by Thierry, Americas have become the growth driver with a 256% revenue growth over the first nine months in 2024 versus 2023. Europe is impacted this year by the completion of the rollout of our largest European customer, hence the revenue increase of 29% over the first nine months compared to last year, but a higher expected Q4 versus Q3. This trend is in line with our previous disclosures and the guidance for the full year. Vast revenues are also pursuing their evolution as for the past quarters. Recurring vast revenues keep on increasing strongly, notably driven by a growing number of stores operating their ESLs in the cloud. As of the end of September 2024, there were 135 million tags hosted in the cloud, an 80% increase versus the end of Q3 last year, which showed 75 million tags in the cloud. Recurring vast revenues amounted to 41 million euros at the end of September. They increased by 37% in Q3, and 31 on a nine-month basis. This acceleration of the growth in Q3 should be further enhanced in Q4 and deliver €60 million recurring vast revenues on a full-year basis in 2024. No surprise either, the trend of the non-recurring vast revenues is also similar to the previous quarters. Non-recurring vast revenues decrease every quarter, year on year, over the first three quarters in 2024 versus 2023, but are expected to grow again in Q4 this year versus Q3 this year and Q4 last year. Order entries, they continue to show a very strong momentum, confirming significant growth in the coming quarters. Q3 2024 showed a €442 million order entry level. Over the first nine months of 2024, order entries reached 1,156,000,000 euros, which is 63% increase versus the first nine months in 2023. These order entries will obviously fuel a significant driven growth in 2025. And I will hand over to Thierry Gallou for the outlook.

Thank you, Thierry. And as discussed in September, and as mentioned also briefly by Thierry, outlook is very positive. Thanks to innovation and global market leadership, Fusion Group is at the forefront of the digital transformation of physical commerce. We confirm very good momentum in H2. Q4 will see a new sales record and confirm our target of €1 billion adjusted revenues for the full year. We believe, as I mentioned earlier, that the macroeconomic situation will continue to weigh on our non-recurring VAS activities, so we now anticipate a total VAS revenue of 100 to 110 million euros for the full year, which is lower than our initial target of 120. However, we maintain our target of 60 million recurring VATs. We expect to announce robust growth in order entries again in the fourth quarter. We anticipate a further improvement of profitability with an incremental 100 to 200 basis points in EBITDA versus last year's 13.2%. And so no change here. And finally, we expect a continued positive cash flow in the semester. So in conclusion, 24 should be an excellent year, and we're already preparing for an even better 2025. I'll now hand over for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Do we answer your question? Please press star 1 and 1 again. We will now take the first question. From the line of Valentin Paul Jahan from Stifel, please go ahead.

Hello, everybody. Hello, Thierry, Thierry, and Olivier. Do you hear me well?

Yes, we do.

Just two questions. The first one will be that I thought that for the H2, the Q3 will be stronger than Q4 because retailers are generally very busy during Christmas period. And so Walmart, which is a major customer, will have concentrated its rollout in Q3 rather than Q4. You are expecting a very strong Q4. Like last year, that didn't particularly pose a problem last year. But on the other hand, it is possible that deployments at the end of the year could shift into January, since retailers are very busy during this period. So, minor delays could lead to shifts between quarters, I would say. So, my question was, What is the risk in this respect? I mean, you reiterated your guidance with confidence, but what do you think about the likelihood maybe of delivery shift into January instead of December? For example, what would be the impact if we assume, for example, all the revenue scheduled in December shift into January?

Yeah, I think the one thing, you're right that the end of year period is a busy period for retailers, but we need to differentiate installations, which obviously disturb stores and usually slow down absolutely at the end of the year. But on the other hand, shipments are different, and they are the driver of our revenue. So the risk of... of shipments and production being delayed by the very busy Christmas or end of year period is very small, because it's two different things. It's supply chain risk, which always can happen, let's be clear, but it's very different. You ship to warehouses as opposed to installing. So what drives our revenue is the shipments, not the actual installations in store, which slow down when we're arriving at the holiday season, you're right. We are quite confident on the shipments for this year.

So you would say that there is no risk in terms of the guidance? It's absolutely not at risk currently, you would say that?

I think there's two different things you mentioned. Saying that nothing is at risk in business, talking about the future would be, I think, very strange. So there are risks, but they are not the risks you mentioned. There are always supply chain risks. All of a sudden, you have production or shipments, but it's not because of the Shipments are not driven by the fact that the holiday season is a busy period for retailers. That affects installations in stores, which is not what drives our revenue. So I'm saying we're confident. Last year was exactly the same pattern, exactly the same one. We had a Q4 which was... This has to do with the seasonality also of our business. Very often you see the same pattern. So we're confident on our revenue. I would say as much as we can be, right?

Okay, okay. And maybe just a last one regarding Walmart. Just wanted to get a small update on the likelihood of, I mean, the possibility that Walmart took or taken a second provider of electronic devices. I know that your product is a little bit different now. It's more a rail, a digital rail, but a digital shelf, I would say. But is there any risk currently, since there is no exclusivity with Walmart, that Walmart hire a second operator, I would say, a second supplier, I would say? What do you think about this risk here?

Well, you know, right now we don't see this risk materializing. I think I mentioned a few things in my introduction comments. One is that there were further production lines ordered during the Q3, which means that we're going to continue to increase the capacity for Walmart throughout the year 2025. And so until the end of 2025, we're going to continue uh increasing capacity that is not really the behavior of somebody who is trying to you know to do what you are uh mentioning second thing you know we have we have an increasing partnership with multiple new projects going on and we just opened an office and an innovation center in bentonville and we had the board last week and you know it's a very uh very strong relationship that we have so i i More than ever, I see not this risk materializing.

Okay, thank you.

Thank you. We will now take the next question from Aurelien Sivignon from OdoBHF. Please go ahead.

Yes, good afternoon. Hi, gentlemen. Thanks for taking my questions. I've got some follow-up questions on order entries mainly, and the first one was, can you say roughly the breakdown in Q3 between Europe versus America?

We don't disclose the breakdown by region.

Okay. All right.

So maybe... No, I mean, we don't disclose it. So, I mean, if we begin to disclose it, we'll do it in a press release. You know how things work. So we don't do it. But there is one thing that we have disclosed in terms of details for the order entries this year is that we will have an order entry of roughly €1 billion for Walmart in the full year of 2024. So that's giving you an indication of that part, at least. But for the rest, we don't give more. This is not new.

Thank you. A follow-up on Europe, so basically you still expect EMEA to account for roughly 50% of total revenue, more or less. So I think it means roughly a flat Q4 in Europe year over year, which is still a big improvement versus previous quarter and especially Q3. So should we understand this is a combination of the multiple, I would say, new mid-size contracts in many sectors as you just mentioned earlier during the call or are there bigger rollouts expected in europe that will lead to to make you confident in q4 but also next year for for back to growth scenario i would say yes it's uh it's it's it's the result of many wins which take time to materialize because you know the supply chain times in our business is uh is long before between signing and start of rollout so

There's been multiple successes. I think we've been talking about successes, you know, in Europe throughout the year, and still in Q3, and still, as I mentioned, new ones to be announced in Q4. So, yes, you're right. Your calculation is right about the fact that we should be not far or around flat in Q4, so meaning, you know, and resuming growth in 25 as we already announced. And again, as I said, over the past four years, Europe is 25% annual growth in average, which is above the 20% guidance. It's just that we accelerated a lot the number of rollouts in an unanticipated way before in 23. So there was, I would say, a little bit of accelerated growth. It was more 45% per annum in between 20 and 23 so but we are still on our growth rate so there is uh uh you know we're still in a growing market and it will continue to grow and our plan for 27 is also known for for europe so there is a lot of things happening in europe both in food and in non-food i think i i did mention a few of them and uh and so uh yeah okay

And last one, if I may. Still another entry. I would like to understand if there is already a contribution from Ace Hardware in Q3. I believe it's a franchised model, so I would assume it would maybe take some time to get the orders and that you have recorded a small amount in Q3, but please correct me if I'm wrong.

No, no, you're right. There is absolutely no contribution from Ace Hardware in the other entries in Q3.

Okay, perfect.

Thank you very much.

Thank you. We will now take the next question. From the line of Laurent Jellebach from BNP Exxon, please go ahead.

Yes, good evening, Therese. Good evening, Olivier. So I have three questions. The first one relates to the guidance. So you maintain the over 1 billion sales for the year, even though you have cut the contribution of non-recurring VAS by 20 to 30 million euros. So my question here is, do you add a large buffer in your guidance previously, or do you see acceleration of hardware deliveries this year compared to your initial expectations at the first one? The second one is, can you elaborate on the number of production lines being ordered by Walmart as we speak? And the last one, you were also mentioning that you are working on new use cases with Walmart regarding bus services. Could you elaborate, if you can, on what kind of services are you developing as we speak? Thank you.

I will answer the first two questions, and then I will hand over to Thierry. Just regarding the guidance, I remind you, we always state you the guidance of 1 billion euros. And regarding the vast revenues, we had a guidance of 100 to 120. And so the revision of the guidance is to move from 100 to 120 to 100 to 110. So it's a minus 10 potential downwards on the guidance. So it's something that you can totally absorb by hardware. So that is not a revision by 20 or 30 million euros of the guidance. but only 10 million euros maximum on this guidance, and this is totally absorbable by the hardware. Just regarding the production lines, currently Walmart ordered four manufacturing lines. And regarding the use case, Thierry?

Yeah, just for the lines, as I mentioned earlier, I mean, Walmart has ordered now the lines that enable to do the plan in time and to continue to have sufficient capacity also for the future. So the 2300 stores are now possible with all the capacity that has been ordered, including recently in August and September.

We can maybe confirm, by the way, to answer the question from Vanna Temple previously, that it's very unlikely that Walmart would have invested in four lines if they wanted to give the possibility to a second source to deliver that. So the reason why they invested four lines, at least they financed four lines that we have invested in, is clearly because they are granting us the totality of the deployment to come. So that would make no sense for them to finance four manufacturing lines if they wanted someone else to deliver part of the volumes of the data that they will need to keep all their stores.

Yeah, and also it's not, you know, it's a very different product. You mentioned it, and it's also many years of software integration, software development. And so that leads me to the final question, Laurent. The use cases are all around, so there is two main domains. One is always, you know, around very accurate inventory management, which is one of the big pains in retail is to have, you know, very strong accuracy in store inventory management and in store inventory location. So that's one of the domains where several projects are underway. And the other one is, again, around, so that's new also on the shopper engagement and the way that the infrastructure that we put in place with EdgeSense can communicate and develop services for the shoppers, for the consumers in the stores. So that's essentially around these two things, and there are, you know, four to five projects which are developing now. And on top of, obviously, the different use cases that are already in rollout, which is around the price management, but also the install fulfillment and what we call local e-commerce fulfillment.

Thank you. Thank you. As a reminder, if you wish to ask a question, please press star 1 and 1 on your telephone. We will now take the next question from the line of Johannes Reyes from Apius Capital GmbH. Please go ahead.

Yes, good afternoon, Therese and Olivier. Two very short questions. First, also in Europe, maybe can you give us an update about maybe the countries which are the real drivers for next year? I think UK is one of the focus and maybe the Nordics. And secondly, you mentioned that there's a huge acceleration of the Walmart sales next year, to Walmart next year, so forth, the forced line. But what about capacity which is left for other customers in the US? capacity you have to serve further customers and how much this holds back maybe the signing of a contract with other players in the US because maybe of a lack of capacity or have you enough maybe reserves outside Walmart even to to services additional customers yes thank you Johannes so the so there are a number of of countries in fact in Europe you're right UK is a

is a country where a lot of things are happening. But it's not all. Germany, your country, is also a very, very active country for us. South Europe, France is a country where we have signed a number of things and we'll still announce some new deals soon. pretty much a large part of Europe. Of course, Nordic is also good. We have a good dynamic in new deals pretty much everywhere in Europe. So the market is, you know, let's say the economic situation of retail is not excellent, but the level of priority that store automation, store digitization is given to, is increasing. So we see momentum in both countries which were lagging behind, like UK, but also in countries that are still in the ramp up phase, like for instance, Germany. And for the US, now we have spare capacity, I mean, The capacity must be analyzed by product lines because, again, they're very different. So we have a chance on one hand where we now have capacity independently from Walmart. So that's an important topic and it's a little new. And, of course, ESL capacity, which is strong, too. So this will not be, let's say, something that slows down next year. And this is why we see a very good year growth-wise next year.

Great. Thanks a lot.

Thank you. We will now take the next question from the line of Timofey Dovgalev from Berenberg. Please go ahead.

Yeah. Hey, guys. Can you hear me? This is actually Ben from Bloomberg. Two questions from my side, please, on Walmart. I mean, if I listen to your words, Thierry, that Walmart is ramping up four different lines now, and if I see that they want to have 50% of the U.S. stores supplied by 2026, I mean, that's a lot of capacity they're ramping up there. Is it fair to say that the 50% of the U.S. stores is just the beginning that maybe next year they could ramp up or that they want you to supply 100% of the stores? And then my second question would be, What is happening with the stores outside the United States for Walmart? Have they ever communicated anything to you that they would be keen to have those sooner or later supplied by ESL and VAS solutions as well? Because if I look at the world map, I mean, Walmart has 4,500 stores in the U.S., and then they have probably 6,000 stores outside the United States. And I just want to understand a little bit, like, what is the commitment on the voice line you get from Walmart? Like, what is their plan over the next five to seven years in terms of digitalizing their stores to get a little bit of a feeling what size of follow-up orders you could get from Walmart maybe over the next four to five years? Thank you.

Yep. So to start with the US, you're right, the capacity now ordered, which will take time, by the way, to be implemented because it takes roughly, you know, from, let's say, a decision to ramp up, industrial ramp up. It's roughly a year, so it will take, so it was in Q3, but the capacity that has been that has been ordered and will be in place at the end of 25 is a sign of, is a good sign of the intention to go further than 50%. So, you know, we announce these when they're assigned, but it's a sign of intention because the capacity allows to do a lot, and if there were an intention not to do that, it would be a very high capacity installed, to be frank. We see that as a very positive side, but we have many other, you know, other signs as I mentioned. You're right about, so, and this is an implementation of EdgeSense. And again, EdgeSense is a very new, it's not an ESL system. EdgeSense is a very, you know, new infrastructure that, you know, goes much beyond the use of ESL. And so it's a, the U.S. is deploying a very new infrastructure. And so the rest of the world for the group, you're right, it's a bit more than the US in number of stores, but it's a lot less in terms of number of SKUs and number of ESLs or a number of items in the store, right? We're talking about a much, much bigger part for the US. We're talking about one to five in terms of number of SKUs per store roughly, right? It's a smaller part. The thing is, Walmart International has started much earlier implementation of ESLs with us, by the way, or mostly. We have implemented previous generations of ESLs in Canada, in Chile, in other countries. And so they are not in the same cycle. So discussions are underway about when international will be you know able to maybe use the capacity that's been ordered for the US and then replace and swap the older technologies that we have already rolled out and there are also countries we are still operating in paper so which would be also in the in the plan so these are still discussions in the in the you know in underway I know if I'm answering all all your question but

Yeah, that was perfect. Thank you very much, Thierry. I'm going back into the queue. Have a good evening.

Thank you.

Thank you. I would now like to turn the conference back to Thierry Gadot for closing remarks.

Okay. Well, I wish you a good evening, everyone, or good afternoon for some of you. And so we'll next now talk in... January will be next year. Thank you very much and talk to you soon.

This concludes today's conference call. Thank you for participating. You may now disconnect speakers. Please stand by.