Pebble Beach Systems Group plc

Results for the half-year ended 30 June 2023

Pebble Beach Systems Group plc (AIM: "PEB", "Pebble" or the "Group"), a leading global software business specialising in playout automation, content management and IP Control solutions for the broadcast and streaming service markets, is pleased to announce its unaudited half-year results for the six months ended 30 June 2023 ("H1 23").

Financial highlights

·      Revenue up 9% to £5.5m (H1 22: £5m) with recurring revenue up 13% to £2.53m (H1 22: £2.24m)

·      Order intake in the period of £4.4m (H1 22: £5m) as economic nervousness caused some clients to defer non-essential spend

·      Adjusted EBITDA¹ of £1.4m is marginally up against the last year comparable period (H1 22: £1.3m), representing 25% of revenue (H1 22: 26%)

·      Net cash generated from operating activities (after interest paid and IFRS 16 lease payments) was £1.7m (H1 22: £0.6m)

·      Gross bank debt reduced by £0.5m in last six months to £6.1m as at 30 June 2023. Net debt at 30 June 2023 was £5.1m representing a net debt/last 12 month Adjusted EBITDA¹ of c.1.6x

Operational highlights

·      Hardware delivery lead times are coming back down to pre-COVID levels. This is reducing the need for buffer stock and our new Chief Operating Officer is working to reduce the buffer levels.

·      Investment in our new IP-native Oceans platform continues as planned.

·      Neil Maycock appointed as new Chief Commercial Officer. Neil brings a wealth of industry experience and knowledge from his time at Grass Valley. Neil will work closely with our product and sales teams to strengthen our commercial offering.

·      Significant success in the Middle East with 2 new deals with existing customers with an order value of £0.65m. These deals are validation of the excellent support and superior technology we offer.

·      £0.36m order placed by a Spanish state broadcaster, with Pebble beating strong competition to win this order.

·      A key new win in Brazil, where our excellent local resellers sold a new system to a state broadcaster with an order value of £0.13m.

Current trading and outlook

·      The Company's existing weighted pipeline value remains strong at £8.7m (June 22: £7.4m) and we are receiving many   enquiries following a competitor's announcement to end of life their playout automation solutions, so we expect this pipeline value to grow.

·      Strength of pipeline and level of customer engagement provides management with confidence in delivering full year growth despite the reduced order intake in the first half, highlighting the resilience of the Company and its ability to deliver project backlog.

 John Varney, Non-Executive Chairman of Pebble Beach Systems Group plc, said:

"The Company has delivered a robust performance for the first half of 2023, despite a delay in new order intake.

Our continued long-term aim of investing in new software solutions whilst reducing our overall indebtedness remains central to our strategy to ensure we continue to be well positioned to benefit from the industry transition to IP as full-scale adoption occurs.

The Board continues to have confidence that the Group can deliver a strong second half with improved revenue and achieve the Board's expectations for the year.

Notes

¹ Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) a non-GAAP measure, is EBITDA before non-recurring items and foreign exchange gains/losses.

For further information please contact:

The Company is quoted on the LSE AIM market (PEB.L).  More information can be found at www.pebbleplc.com.

About Pebble Beach Systems

Pebble Beach Systems (trading as Pebble) is a world leader in designing and delivering automation, integrated channel and virtualised playout solutions, with scalable products designed for applications of all sizes. Founded in 2000, Pebble has commissioned systems in more than 70 countries, with proven installations ranging from single up to over 150 channels in operation, and around 2000 channels currently on air under the control of our automation technology. An innovative, agile company, Pebble is focused on discovering its customers' requirements and pain points, designing solutions which will address these elegantly and efficiently, and delivering and supporting these professionally and in accordance with its users' needs.

Forward-looking statements

Certain statements in this announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.

CHAIRMAN'S STATEMENT

Introduction

We have performed well in what has been a challenging start to the year, with a 9% increase in revenue on the comparable period last year. This is despite new order intake slipping as a result of economic nervousness and customers delaying decisions on non-revenue generating upgrades.  Despite this slippage, we are expecting an uptick in H2 23 and a stronger second half, consistent with what has happened in the last two years. Our existing pipeline value remains high, and we can see new opportunities arising from a leading competitor's decision to end of life their playout solutions.

It was hoped that a strong H1 would allow further investment into our sales department to facilitate market growth, however this has now been postponed to mitigate the slippage in orders we have been experiencing.

The Board is pleased that through careful cashflow management, the Company has been able to continue to improve its balance sheet. At 30 June 2023, net debt accounts for only 1.6x the annual EBITDA of £3.3m for the 12 months to 30 June 2023, bringing the business's net debt position to a more acceptable level.

Financial performance

Good revenue performance in H1 is showing a 9% increase on the comparable period last year to £5.5m (H1 22: £5.0m). I am pleased to announce recurring revenue is also up 13% to £2.53m (H1 22: £2.24m) and now accounts for 46% of our revenue base (H1 22: 44%). This is encouraging for the future years' revenue.

Adjusted EBITDA¹ increased to £1.4m (H1 22: £1.3m), representing 25% of revenue (H1 22: 26%), following planned investment in headcount including the appointment of a new Chief Commercial Officer in May. As a result of this investment in headcount adjusted EBITDA margin is lower at 25% (H1 22: 26%), but this is expected to recover in line with full year expectations thanks to an increase in revenue in H2.

Cash conversion in H1 23 has remained strong with 145% of adjusted EBITDA being converted to operating cash (H1 22: 62%). Net cash from operating activities (after interest paid and IFRS 16 lease payments) rose to £1.6m (H1 22: £0.6m); this has allowed the Group to continue investing in R&D and paying down the long-term debt.

The Group's net debt position of £5.1m represents an 18% drop from the comparable period last year (H1 22: £6.3m). This reflects a stronger cash position from the comparable period last year and the Group continuing to pay off the long-term debt at the same rate as last year.

Investment in R&D of £0.9m in the period remains flat year on year following headcount investment in 2022 as part of the Group's strategic plan of product developments (H1 22: £0.9m).

An increase in financing costs as a result of rising interest rates resulted in net profit of £0.24m (H1 22: £0.26m) being slightly down for the year. The current interest rate on loan repayments is 8.22% (H1 22: 5.37%). This has resulted in an adjusted EPS of 0.2p (H1 22: 0.4p).

Operational performance

A slight reduction in orders to £4.4m (H1 22: £5m), is a result of delays in placing orders due to economic nervousness seen across the industry. I am pleased the weighted pipeline value remains strong at £8.7m (H1 22: £7.4m), which gives the Board confidence the Business will have a stronger H2.

There have been some significant wins and the Board is pleased that Pebble was able to fortify its relationship with two key customers in the Middle East with new orders worth £0.65m.

Three significant orders in Europe totalling £0.7m were won in H1. Two orders were for system and hardware refreshes, and one was a new automation system.

Ongoing software development

·      Oceans Automation. Work continues on a cloud-native playout solution to complement our current enterprise level automation offering.

·      Media Processing Engine. Work is progressing on the software solution for video playout capability with preliminary integration with Oceans Automation achieved. The next milestones will include APIs, graphics management and subtitling.

·      Pebble Control. Development of the IP control tool is advancing with added control functionality with the release of the first device control version expected by the end of the year. We are co-chairing the work on the new open standards protocol and are simultaneously working on the implementation of it.

Inventory build

·      We have seen inventory lead times drop to pre-COVID levels, reducing the risk of delays to order fulfilment. As a result the operations department is working to reduce our inventory levels and will continue to prioritise using existing stock.

Cash flows and net debt

The Group held cash and cash equivalents of £0.9 million at 30 June 2023 (H1 2022: £0.8 million). The table below summarises the cash flows for the half year.

As at 30 June 2023 net debt², excluding the impact of IFRS16, was £5.1 million (cash £0.9 million and bank debt of £6.0 million). The Group was using all £6.0 million of its available facilities at 30 June 2023, having re-paid £0.5 million in the period.

Going concern

The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. In making this assessment, which covers a minimum period of twelve months from approval of this half-year report, the Directors have considered the Group's trading forecast, cash flow forecasts, available headroom and projected financial covenants on the banking facility, the levels of opportunities in the pipeline and recurring support revenue (see note 3 below).

Principal risks and uncertainties 

The principal risks and uncertainties facing the Group remain consistent with the principal risks and uncertainties reported in the Group's 31 December 2022 Annual Report.

We view supply chain disruption as less of a risk following a decrease in product lead times. This has given the business confidence to lower buffer stock levels back to pre-COVID levels and the Operations department will work to deliver that.

Current trading and outlook

The appointment of a new Chief Commercial Officer, with considerable market experience will help focus our commercial offering and support the sales department in landing new orders. Despite orders slipping in H1, they have not disappeared from the pipeline, which remains encouraging.

We can see a number of new opportunities coming in following our competitor's announcement to end of life their existing automation offerings and the Group is confident that this and other ongoing sales initiatives will lift order levels in the second half.

The strength of the pipeline and the engagement with customers gives the Board confidence that the Group can again deliver a strong second half of the year and deliver against the Board's expectations for the current year.

John Varney

Non-Executive Chairman

CONSOLIDATED INCOME STATEMENT

for the half year ended 30 June 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 30 June 2023

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the half year ended 30 June 2023

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2023

CONSOLIDATED STATEMENT OF CASH FLOWS

for the half year ended 30 June 2023

NOTES TO THE HALF-YEAR REPORT

for the six months ended 30 June 2023

1.       GENERAL INFORMATION

The Pebble Beach Systems Group is a leading global software business specialising in solutions for playout automation and content, serving customers in the broadcast markets.

The Company is a public limited company and is quoted on the Alternative Investment Market (AIM) of the London Stock Exchange. The Company is incorporated and domiciled in the UK, with registered number of   04082188. The address of its registered office is Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN. 

This half-year results announcement was approved by the Board on 22 August 2023.

2.       BASIS OF PREPARATION

The financial information for the period ended 30 June 2023 set out in this half-year report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2022 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified.

The half-year financial information has been prepared using the same accounting policies and estimation techniques as will be adopted in the Group financial statements for the year ending 31 December 2023. The Group financial statements for the year ended 31 December 2022 were prepared under International Financial Reporting Standards as adopted by the European Union. These interim financial statements have been prepared on a consistent basis and format. The Group has not applied IAS 34 'Interim Financial Reporting', which is not mandatory for AIM companies, in the preparation of these interim financial statements.

3.   GOING CONCERN

The Directors, having made suitable enquiries and analysis of the accounts, consider that the Group has adequate resources to continue in business for the foreseeable future. In making this assessment, which covers a minimum period of twelve months from approval of this half-year report, the Directors have considered the Group's trading forecast, cash flow forecasts, available headroom and projected financial covenants on the banking facility, the levels of opportunities in the pipeline and recurring support revenue.

We maintain a good relationship with our bank. The current loan agreement secures the facility until 30 September 2024 with banking covenants and a repayment schedule in place.

We have a strong order book and pipeline which underpin our third and fourth quarter revenue.

The Directors have a reasonable expectation that the Group will have adequate resources to continue in business for the foreseeable future and therefore continue to adopt the going concern basis in preparing the interim financial statements. 

4.       SEGMENTAL REPORTING

The Group's internal organisational and management structure and its system of internal financial reporting to the Board of Directors comprise of Pebble Beach Systems Limited and Group. The chief operating decision-maker has been identified as the Board.

The Board reviews the Group's internal financial reporting in order to assess performance and allocate resources. Management have therefore determined that the operating segments for the Group will be based on these reports.

The Pebble Beach Systems Limited business is responsible for the sales and marketing of all Group software products and services.

The table below shows the analysis of Group external revenue and operating profit by business segment.

Geographic external revenue analysis

The revenue analysis in the table below is based on the geographical location of the customer of the business.

Net liabilities

The table below summarises the net liabilities of the Group by division. Balance sheet reporting is disclosed by the divisional assets and liabilities of the Group as this is consistent with the presentation of internal information provided to the Executive Management Board and the Board of Directors.

5.       OPERATING PROFIT

The following items have been included in arriving at the operating profit for the business:

6.       INCOME TAX EXPENSE

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase from 19 per cent to 25 per cent. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

7.       EARNINGS PER ORDINARY SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The average market value of the Company's shares for the purpose of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

Adjusted earnings

The directors believe that adjusted EBITDA, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, share based payment expense, non-recurring items and exchange gains or losses charged to the income statement and their related tax effects.

The reconciliation between reported and underlying earnings and basic earnings per share is shown below:

8. INTANGIBLE ASSETS

The amortisation of development costs is included in research and development expenses in the Consolidated Group Income Statement. Within capitalised development costs there are £4.0 million (2022: £3.6 million) of fully written down assets that are still in use.

9. CASH FLOW GENERATED FROM OPERATING ACTIVITIES

Reconciliation of profit before taxation to net cash flows from operating activities.

10.       NET FUNDS

Reconciliation of change in cash and cash equivalents to movement in net debt:

Ends