Auction Technology Group plc

Good day, ladies and gentlemen, and welcome to ATG Half Year Results 2024. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, we ask that you please use the raised hand function at the bottom of your Zoom screen. If you're dialed in by phone, please select the star nine to raise your hand and star six to unmute. Instructions will also follow at the time of the Q&A. I would like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to John Paul Savant, Chief Executive Officer, to start the presentation. Thank you.

Thank you. Welcome and thank you for joining ATG's interim results. I'll kick it off and then turn it over to Tom to go through some details on the numbers, and then I'll end it looking at some of the key initiatives and the results we've been able to generate with those. Today we're sharing little news relative to the trading statement in terms of any changes or differences in the numbers. The exciting part of today I think is really giving context to what we achieved in the last six months that drove those numbers and the message and the momentum that we're creating as we enter the second half. One key message that I wanted to get across is that what we expected in the first half of fiscal year 24 happened, both the challenges and the positives. So on the challenging front, as we had said back in December, we knew that there was going to be some ongoing challenges, particularly in the INC group driven by Proxybit. And as the half unfolded, that was what dragged back our first half results, as we explained before, and which Tom will go through in a little bit more detail. But I think what we also talked about in December was that we were launching and ramping multiple initiatives, including ATG Pay, ATG Ship, and ATG Excel, which is the cross-listing initiative. And I'll be spending more time later talking about those. And so for us, that was a really exciting period in these last six months, and we're beginning to see the benefits. And the key part of that is because Those key initiatives drive KPIs that demonstrate that the marketplace playbook works for the auction industry. And so if you go to, yep, thank you. And so that is maybe where I'm going to start out headlining for people is that What we're excited by right now is that ATG is demonstrating that this marketplace playbook that has worked in many other industries works for the auction industry as well. And so what do I mean by that exactly? The marketplace playbook is really about owning the core transaction, then monetizing around that, extending network effects, through different types of investments around the marketplace that then keep your cost of acquired customer or your CAC low. And then that in turn allows you to extend volume gains over time. And so what exactly, have we done in the past? I think you've probably heard me talk about ATG as a two-sided marketplace, but I think what we're excited by now is that we're in a position to talk to you about how we're evidencing that that is working as we invest against these other areas. So what do I mean? The first part is value-added services. So we've invested against that. and it has increased our take rate and our revenue. So plus 44% year-over-year growth against an already solid number and with huge room to grow. And that extended our take rate by 0.7%. We also investing in the cross-listing initiative that drove incremental GMV on the auctions where it was available. And it drove an average of a 9% uptick in GMV on those auctions. The third part is acquisitions. And selective acquisitions can accelerate. First of all, they can add the scale, but they can also accelerate your network effects. And in the case of ESN, that's exactly what happened and which I'll talk about. So ESN, a solid business in its own right. We quadrupled the growth rate since we bought it, and now it's at 36%. But on top of demonstrating the value of the network effects and the value of that acquisition, the other key thing that ESN has helped us do is demonstrate that people ready to buy at auction are not just those who traditionally buy at auction. It also includes anybody who's buying in the secondary goods market. And that is what is represented by the 180 million plus web sessions and bidders and buyers that were on ESN who are now being cross-listed onto live auctioneers. The fourth point I wanted to raise is that following that playbook and leveraging all elements of it, cross-listing, various value-added services, M&A, all contributed to ANA growth. And ANA grew 17% year over year. Now, as you look at INC, we are also following that playbook, and we are leveraging cross-listing, white label, and value-added services, which is all in the early stages, but we believe it's demonstrating the same impact as you follow that playbook on the INC side based on the strong lead indicators we're seeing. To date, as we talked about, there was minus 2% growth on INC. but there's positive momentum building as we begin this back half. And so based on that, we are confident in our outlook for second half 24 with improving momentum in GMV and sustained growth in our value-added services. And so with that, I am now going to turn it over to Tom for the period.

Morning, everybody. If we move to the next slide, Just to give you the headline financials. So revenue in the first half was $86 million. That's up 6% year over year or 1% on an organic basis. Adjusted EBITDA of $35.7 million, down 6% year over year, giving you adjusted EBITDA margin of 42% and adjusted diluted EPS of 16.6%. Adjusted free cash flow was 27.7 million at 77% conversion, with adjusted net debt at the end of the period of $141.6 million. That's leverage of 1.9 times. We can move over, we'll go into those in more detail. So revenue first, you see revenue by segment on the table on the left-hand side. So of our 86 million of revenue, $44.6 million came from arts and antiques. That's up 17% year over year. So included in there is a four periods contribution from ESN, but also ESN on an underlying basis also. grew very strongly through the period. If you take out ESN, the organic growth was 5%. That's despite a difficult backdrop, a macro backdrop for the arts and antiques market. That growth came from value-added services, which we'll talk about in a moment. Then industrial and commercial, $35.2 million of revenue, down 2% year over year, really two halves within there. So industrial and commercial has got four marketplaces within it. Three of those perform very strongly and are supported as with ANA by VAS. But we did have the headwinds. We did have negative performance on proxy bid GMV that we talked about in the trading statement and we'll talk about in a moment that offset that lead to that decline of 2% in INC revenue. Auction services. This is principally our white label business. Auction services went from 5 billion last year to 4.4 million this year. impacted by the introduction of our new cross-listing enabled a white label solution. So during the period, we would normally sign up customers. We did this time, but actually we're signing up to the new product, transitioning towards that through the period. So most people are going live about now rather than through the period. So that did have a small effect on revenue in the first half, but that will start to unwind as people go live in the second half. If you look at our KPIs at the bottom there, so GMV down 17% year over year to 1.9 billion, heavily impacted by proxy bid. And in particular, something we talked about the full year, I'll talk about again in a moment, the rotated volumes of a single auction house, that switched at the beginning of half year to 23. If you look at an underlying basis excluding that, 9% decline in GMV, more than offset by an improvement intake rate from 3.2% to 3.9%. If we move over a slide with a revenue bridge with a product view. So you can see on the left-hand side, 80.8 million of revenue going to 86 million in the first half of 24. Of that, you've got a drag from commission. So commission was down 9% year over year, mirroring that GMV decline. We split it out there between volume and mix the mix is the commission rate mix is slightly influenced by that auction house I talked about which paid very little or very low effective commission rates relative to the group average so it exaggerates a little bit the volume impact net of it all we lost 4 million of commission revenue first half this year versus first half last year however offsetting that more than offsetting that you've got the growth in value-added services so 5.2 million of extra revenue from VAS That's 44% growth or organically excluding SM, 40% growth with a material contribution from each of the three product lines, marketing, ATG pay and ATG ship. FAS now contributes 23% of our total revenue in the first half. Small increase in fixed fee revenue, 0.7 million. And then it moves over to ESN. So an extra 4.1 million of ESN revenue. As I already mentioned, we had two months last year, four months this year. So you get a boost from there. But also ESN on an underlying basis grew very strongly in the period. So 36% organic growth or pro forma growth from ESN first half this year versus first half last year. which is also making a significant contribution to that 4.1 million. And then auction services, 700,000 down, as I've already explained, lead you to 86 million for the first half of 24. The little row at the bottom shows the contribution to each of those factors to our overall growth rate. So our overall growth rate was six percentage points in the first half of that or within that you've got a five percentage points drag from commission so that nine percent reduction in commission impacted group revenue performance by minus five but then that's more than offset by the growth in VAS a forty percent growth in organic VAS led to a six percentage point improvement in group total revenue impact at one percent from fixed fees and then you've got five percentage points from ESN which isn't included in our organic revenue growth number and then a small reduction from auction services Move over the page, talk a little bit more about arts and antiques. So some of the headline KPIs, so THV, 2.8 billion, down 5% year over year. And in fact, if you get beneath that a little bit and you look at the auctioneers we have, so our mid-market regional auctioneers, and that comprise about 65, 70% of our total revenue comes from those smaller houses, actually doing okay. So not growing strongly, but low single digit levels of growth. All of that decline is concentrated on what we would call tier one. So these are our larger national auction houses. There are about 100 of them across the group that form in that category. And they are suffering in the wider market backdrop from ANA linked to weaker macros and consistent across other large auction houses. That cohort is driving that decline we're seeing in THV. Conversion levels are broadly flat over the period, but the THV overall is leading to GMV decline. You can see there from 442 to 412, but that is being more than offset by the improvement in take rate from 8.3% to 9.5%, with good fixed fees performance, but in particular, standout performance in VASP. Overall leads to marketplace revenue growth of 5% in organic basis to 44.6%. So if we move over slide to INC and so before we get into the table, just look at some of the headline numbers. So on the left hand side, THV. So we talked a lot about THV in the four year results, in the four year results. We gave in November, you can see half year 124 of 3.9 billion. The comp is going against from half year 123 was an exceptional period of activity. That was a period of very high asset prices, but also for us, a very high period of activity. So it was a 9% decline year over year in THV. But actually, when you look at half year one in a historic context, overall levels of activity are still good, still high. They're just not as high as the exceptional levels that we saw in the first half of 23. Asset prices are still edging down now, but the high levels of deceleration that we saw at the beginning of the period are now over. And in fact, when we got to March, April time, overall THV has been relatively stable on INC. And that is consistent with the last period of high levels of activity in February 23 that we saw on reverted to more normal levels from March onwards in 23. And that's also what we're seeing in there. in the performance in the early parts of half year two and we expect that to continue for the rest of the year so THV and INC we think will be relatively stable in the first and the second half of 24. On the right hand side you can see GMV and INC so the headline number down 19% year over year from 1.8 to 1.5 and is heavily influenced by this rotated volume just to remind people We had an auction house, which we did a lot of volume with, frankly, quite high effort for us, but relatively or very low levels of revenue. We swapped that auction house for one of its consignors, so took a subset of its volume. But at normal rate cards meant the revenue impact was negligible, but it did have a distorting impact on our KPIs. If you remove the effect of that, our underlying level of GMV change was minus 9%. partly influenced by the THV I've just talked about, but also some of the issues we had on proxy bid, following the rate card and some increased white label adoption amongst a certain number of auction houses that's impacted the performance in the period. Now, the good news is that most of those effects are now starting to work their way through the numbers. So I've just talked about THV, which at the moment is broadly flat, rotated, That happened on the 1st of April, 23. So when we got to the 1st of April, 24, that's now dropped out of the numbers. And we're also seeing much reduced impact from the rate card. We're now a year away from that. And a number of things have been done to mitigate that. so underlying gmv on proxy bid as we've gone through march and april has been flat so clearly long term we want that to grow but relative to where we were which was which was reasonably significant declines we're very pleased um with that performance and gives us good hope for the second half of the year if we move over a page Same numbers, just in a tabular format. So we talked about the THV decline of 9% and the GMV decline of 19%, which if you look at underlying basis, it's more like 9%. That has been, as with ANA, that GMV has been largely offset by improved take rate, 1.9% last year to 2.4% this year. And here I should mention the other three marketplaces. So Proxibid where we've had the issue comprise around 60 to 65% of INC revenues. We have three other marketplaces making up the other 14%. Those three other marketplaces have performed very well. Aggregate growth across those, revenue growth across those sites has been 14% year over year. So the issue has been very specific to proxy bid and very specific to proxy bid GMV, something that we believe we are now starting to leave behind us. We move to the next slide, look at the overall P&L. So on the right-hand side, you can see revenue, 86 million up 6% year over year. If you look at a couple of the cost lines, the cost of sales up 10% to 28.1, and a couple of rows beneath that, administrative expenses up 8% year over year. So both those cost lines have gone up more than revenue, leading to adjusted EBITDA, which is sort of three-quarters of the way down the page, 35.7 million, 42% margin, 6% down on prior year. I'll talk about that more on the next slide and give you a bit more insight into what's happening with cost. Before I do that, just move back up to net finance costs of 7.4 million. So down a third on prior year. Last year's was artificially inflated by some FX on our intercompany loans. If you look to the underlying level of finance charges, they're a broadly flat year over year. That reflects lower net debt, but higher interest rates. First half of last year still hadn't had the full impact of increasing rates. This year, clearly, rates have been relatively stable over the period. The net of both those two effects has been flat finance costs. Hopefully, well, should US interest rates start to come down at some point over the course of this year, that will feed through to lower finance costs for us. And then finally, at the bottom, you've got adjusted diluted EPS with the reduced EBITDA and relatively flat underlying finance costs and broadly flat depreciation and amortization that has declined 14% to 16.6 cents in the first half. If we move to the next slide, we'll talk a little bit more about cost. So as just mentioned, a bit down margin in the first half of last year was 47% and this first half of this year, 42%. So five percentage points for the chart on the left-hand side just breaks that out into its component parts. So 2% points of that is revenue mix and specifically the declining commission Commission has an above average margin, a high contribution to the bottom line. So when that goes down, like it has in the first half, nine percent four, that does reduce our overall EBITDA percentage. So two percentage points is due to revenue mix. You then got three percent due to cost. And so this is basically cost that's increased more than more than more than revenue. Two main drivers behind that. We've, during the course of the first half of the year, we've established a technology hub in Mexico. That will be the basis for our technology investments going forward in Mexico. We've also made some changes to our product and marketing organization. We bought in a new CPO. Our old CMO left us and there was one or two headcount changes as part of that reorganisation. So both those two initiatives actually in the first half of this year incurred extra costs that we wouldn't normally make. So, for example, in the case of the Tech Cup in Mexico, we actually had double running costs for a while of the people we'd recruited in Mexico because they're relatively early days. The capitalisation of that team was lower than it might normally be. in the second half. So in aggregate, that extra spend has taken our margins down by about three percentage points relative to what it otherwise would have been. Now, in terms of what that means going forward, if you look at our four-year guidance of 46% for our EBITDA margin, and given we've had 42% in the first half, you can infer that in the second half, we're expecting a EBITDA margin of 50%. So a reasonable upstep by eight percentage points. That aggregates out at about $5 million reduced cost, $5 million of lower cost in the first half relative to the first half. of that percentage of that margin improvement an element is revenue mix so whilst commission has been a drag in the first half we expect that to be broadly neutral to up which would leave um the margin enhancements that come from some of the other revenue lines that have an above average margin such as esn uh able to feed through but then get the cost impact of the things we're doing in the first half. So we get a double whammy. So we lose the one-off costs that we incurred in the first half, but also the net impacts of those initiatives that happened, the tech hub and the reorganization of sales and marketing, sorry, of products and marketing, do reduce our ongoing running costs. So in the second half of the year, you get the benefit of those lower underlying costs and also the loss of the one-off costs. And that then is compounded by slightly more capitalization in the tech team than we did in the first half of the year. That will just switch spend from EBITDA to CAPEX. CAPEX in the first half was around 5 million. We're expecting around 6 million in the second half of the year with a four-year guidance of between 10 and 12, midpoint 11. So that's the bridge to get you from 42 to 50 with a full year average of 46%. We move over the page, look at our net debt. So we opened the year with 141 million of net debt. We had an adjusted EBITDA of 36 million, capex of 5 million, as already mentioned, a working capital outflow of 2.8. That's wholly due to the payment of bonuses. The annual bonus is paid in the first half of the year. So in the second half of the year, that effect isn't there. We've had interest and tax payments of 15 million. So notwithstanding anything else, you'd have 129 million of debt But then we paid the final tranche of consideration for ESN, 12 million, which has left net debt at the end of the year pretty much the same as where it started at 142 million. Because EBITDA has nudged down a little, that has meant that Leverage has nudged up a little from 1.8 to 1.9, but in the second half of the year, with the benefit of increased EBITDA, better revenue performance and lower costs, and also the absence of any large payments such as ESM, that should give us a fairly healthy level of deep leverage in the second half of the year. We expect to be around 1.5 times levered at the end of September. And finally, we move to the guidance page. Really no changes on anything else that's previously been communicated. So revenue in the range of 175 to 180, giving a midpoint of 7% growth, underpinning that 2% to 5% organic growth. The difference between the first half and the second half, the first half organic growth being 1%, fundamentally being the loss of the drag from commission. So the fact that proxy bid GMV is now stable basically means we're trading. It's a consistent place with the second half guidance that we've given. And that loss of drag from commission is then allows the benefit of continued fast growth to continue in the second half of the year. Just an EBITDA margin of 46%, which I've already talked through. And then all the other elements, net finance cost, tax rate, capex, are all as per the November 23 guidance and all broadly consistent with the performance that we've seen in the first half of the year. So with that, I will hand over to Jean-Paul.