Final Results

Pebble Beach Systems Group plc (AIM: "PEB", "Pebble" or the "Group"), a leading global software business specialising in playout, content management, and IP control solutions for the broadcast and media technology markets, is pleased to announce its final results for the year ended 31 December 2023.

Financial Headlines

Headlines

• Delivered results ahead of market expectations, with revenue of £12.4 million (FY22: £11.2 million) and adjusted* EBITDA of £3.8 million (FY22: £3.2 million), despite continued tough economic conditions, with EBITDA also showing year on year growth of £3.6 million (FY22 £2.9 million).
• Gross profit continued to increase YoY, with a 14% uplift to £9.5 million, at a margin of 77% (FY22: 75%).
• Recurring revenue from support, maintenance and subscription arrangements within the Group's contracts up 13% to £5.2 million (FY22: £4.6 million), with recurring revenues representing approximately 42% (FY22: 41%) of total revenue and this upward trend is expected to accelerate.
• Orders in 2023 of £11.0 million (FY22: £11.3 million), 3% down on FY22. This is due to delays in Service Level Agreement renewals as an exercise was carried out to ensure charges are at the appropriate level for the standard of support contracted. £0.8 million of SLA renewals slipped into FY24.
• We saw a strong project order intake in H2. H2 orders were £4.0 million, 82% up on H1 order intake (H1: £2.2 million).
• Increased investment in our cloud-native solutions to support customers transition to IP-based technology. R&D spend of £2.1 million capitalised in the year, 17% up on 2022 (2022: £1.8 million). A further £0.4 million was spent on research and written off as incurred (2022: £0.6 million).
• Appointed a new Chief Commercial Officer with significant market experience to support the Group's market growth strategy and new product launches.
• The Group continues to reduce its indebtedness, with a further £1.0 million reduction in gross debt from £6.5 million at the end of FY22 to £5.5 million at the end of FY23. Net debt (excluding IFRS 16 leases) was £4.7 million (2022: £5.8 million). Net debt (including IFRS 16 leases) at the year-end was £4.9 million (2022: £6.0 million).
• Cash generated from operations was £3.9 million (2022: £2.7 million).
• 104% of Adjusted EBITDA was converted to cash generated from operations (2022: 85%) allowing the Group to continue to invest in new products and services at the same time as continuing to reduce our levels of debt.
• Adjusted EPS** increased 24% to 1.4p (2022: 1.1p).
• EPS also increased 33% to 1.2p (2022: £0.9p).
• Bank facilities re-negotiated in March 2024 with a new term loan facility in place until 30 October 2026.

John Varney, Non-Executive Chairman, commented:

"Our results continue to be encouraging with 2023 delivering an outstanding outcome. These results are a testament to the dedication of all our people who demonstrate, year on year, the ability to execute on our growth strategy and drive the business forward.

The growing strength of the recurring revenues within the Group, coupled with the benefits anticipated to materialise from the new product launches, saw the Group improve its outlook for 2024. We are delighted with how the current year has started and see 2024 as the platform for further growth in FY25 and beyond".

* Adjusted EBITDA is defined as operating profit before depreciation, amortisation and impairment of acquired intangibles, amortisation of capitalised development costs, share based payment expense, non-recurring items and exchange gains or losses charged to the income statement.

**Adjusted EPS is calculated on the same basis as basic earnings per share except for the adding back of the after-tax effect of the adjustments for amortisation and impairment of acquired intangibles, share based payment expense, non-recurring items and exchange gains and losses.

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

CHAIRMAN'S STATEMENT

INTRODUCTION

I am delighted to be reporting on a year when our results are ahead of market expectations. This has been achieved despite a challenging financial climate and continued disruption in the broadcast market. This achievement is a testament to our people and their delivery of our growth strategy.

Against the challenges of the global macro environment, characterised by high interest rates, rising inflation, and geopolitical tension, the Group has been able to continue to invest in new software solutions whilst at the same time pressing on with reducing our overall indebtedness.

We are reporting on a year of continued strong cash generation; now further strengthened by a significant increase in our recurring revenues. This has allowed us to continue to reduce the historic debt burden whilst at the same time completing a number of successful internal initiatives.

Those initiatives included the mitigation of the increased hardware lead time, through a temporary increase in hardware inventory, which has now been reduced to normal levels as supply issues have eased. This has allowed us to turn around a high number of orders booked in H2 2023, resulting in H2 revenue being 13% up on the previous year.

We continue to invest in project 'Oceans', our new software platform, which will be launched publicly in April as PRIMA; Platform for Real-time Media Applications. The platform uses state of the art software technology to provide customers with increased flexibility, scalability, and security for Pebble solutions.

Financials

Revenue in FY23 was up 11% at £12.4 million (2022: £11.2 million) including recurring revenue from support, maintenance and subscription arrangements within the Group's contracts, up 13% to £5.2 million (2022: £4.6 million). I am pleased to report that recurring revenue represents 42% (2022: 41%) of total revenue and provides good visibility of future years' forecasts. We expect the upward trend in recurring revenue to accelerate over 2024.

Gross profit was £9.5 million with the Group enhancing its gross margin to 77% (2022: £8.3 million at a margin of 75%). Our gross margin increased as a result of reduced third party hardware and software costs.

Adjusted EBITDA was £3.8 million (2022: £3.2 million), representing an Adjusted EBITDA margin of 31% (2022: 28%). Improved year on year EBITDA margin following a strong revenue performance and careful management of our costs. A similar increase was also shown in EBITDA, which was a 24% increase from 2022 to £3.6 million (2022: £2.9 million).

Conversion of profit to cash remained strong in 2023 with 104% of Adjusted EBITDA converted to cash generated from operations (2022: 85%) allowing our continued investment in new products and services at the same time as continuing to reduce our levels of debt.

We continue to view investment in the development of new products and services as key to future growth and continue to innovate by investing in new technologies. In the year, we capitalised £2.1 million of development costs (amortised £1.3 million), (2022: capitalised £1.8 million and amortised £1.1 million). R&D expenditure as a proportion of revenue was 21% (2022: 22%).

Net finance costs increased in 2023 reflecting the Group's pay-down of £1.0 million of its term loan which was more than offset by an increased interest rate of 8.80% (2022: 5.23%). Adjusted profit before tax was £1.7 million (FY22: £1.4 million) and adjusted earnings per share was 1.4p (2022: 1.1p). An increase in adjusted profit before tax and adjusted earnings per share is driven by an additional £0.6 million of adjusted EBITDA, partially offset by increased interest expense.

The profit before tax for the year was £1.5 million (2022: £1.2 million) driven by the increased EBITDA from the improved revenue generation in 2023. This resulted in an earnings per share of 1.2p (2022: 0.9p). We have continued to invest in our headcount, with a focus on commercial recruitment to support our anticipated new product launches, including the appointment of a new CCO.

Net debt (excluding IFRS 16 leases) at the year-end was reduced by £1.1 million to £4.7 million (2022: £5.8 million), comprising a cash position at year end of £0.8 million (2022: £0.7 million) and our gross debt being reduced by £1.0 million to £5.5 million (2022: £6.5 million).

For the first time in eight years, we closed with a positive group balance sheet for the year ending 2023.

TERM LOAN

We continue to enjoy a good relationship with our bank, Santander, who remain very supportive of our strategy to reduce our debt position whilst having the flexibility to invest in developing our new technology solutions. In March 2024 we agreed a new long-term facility with Santander, refinancing the existing £5.5 million loan facility until 31 October 2026. The new agreement has the same covenant tests as the last agreement and a repayment schedule consistent with previous years.

MARKET POSITIONING

Pebble is a leading global software business specialising in playout, content management, and IP control solutions for the broadcast and media technology markets.

Pebble's primary product offering is playout automation software, the execution of television schedules for broadcast channels. This market primarily consists of television broadcast companies, and service providers that offer outsourced services for the broadcasters. This global market is typified by Pebble customers such as, Fox News, CNBC, IMG, TV Globo. The market also includes some major streaming services, particularly those carrying live content.

Pebble's other core software technology is the management and processing of media associated with broadcast and streaming services, both file-based media and live media streams. This processing includes the composition of graphics, video effects, audio processing, and ancillary services such as subtitles and captioning. Pebble addresses all the requirements of modern broadcast services.

All Pebble's solutions are designed to meet the demanding mission critical requirements of broadcast operations. From compliance with demanding security requirements, to sophisticated resilience to ensure complete on-air reliability, our solutions are architected to achieve the highest levels of performance.

Pebble's customer centric culture is widely recognised as providing market leading service. We manage the customer relationship through the entire system lifecycle, leveraging our deep domain knowledge to deliver solutions tailored to our customers specific needs, and to provide 24/7 in life support of their solutions.

Pebble's portfolio of software-based solutions consists of:

Automation: highly scalable enterprise level playout solution for broadcasters or service providers with built around best-of-breed technology. The software allows flexible deployment either on premises, on virtual machines or in the cloud with exceptional levels of system resiliency.

Integrated Channel: under the control of our Automation software this solution provides all the functionality of a traditional broadcast chain including audio, video and graphics functionality.

Remote: real-time, thin-client access to the playout environment via secure web interfaces. It is easy to use with intuitive interfaces to control, monitor and manage channels remotely.

Control: provides connection management of IP devices suitable for TV stations, OB trucks, production houses or anywhere that uses IP workflows.

Workflow: a tool for the design and management of complex media workflows. Handles the ingest, indexing, and movement of media to support broadcast channels and streaming services.

MARKET OPPORTUNITY AND PRODUCT DEVELOPMENT ROADMAP

In 2024, Pebble will introduce a new technology platform PRIMA (Platform for Real-time Integrated Media Applications). This platform represents years of development and will provide the basis for the company's next generation of software solutions.

Built using state of the art technologies, PRIMA will immediately expand Pebble's addressable market by providing more flexible technical capabilities and a wider range of commercial models.

Multi-platform content delivery

For Pebble, multi-platform content delivery is its ability to deliver complex workflows to support our customers' linear and on-demand requirements, Video On Demand, OTT and On-demand. We continue to invest in the development of our Workflow solution on the PRIMA platform, responding to this type of market demand.

4K/UHD production

4K and UHD TV global sales have consistently increased since 2014 according to recent industry statistics. Pebble has already delivered a number of UHD systems to customers, and the development of PRIMA will reduce Pebble's reliance on third party hardware software, allowing more cost effective UHD solutions.

IP infrastructure

IP infrastructure has been an area of focus for Pebble for some time, and we continue to cement our position as the experts in IP. Our customers are typically either transitioning to IP infrastructure from legacy SDI (traditional non-IP digital video) deployments or are implementing IP infrastructures in a new broadcasting facility or greenfield site, and Pebble supports both. Control is a software solution designed to manage the connectivity of IP devices and is being integrated into the PRIMA platform to expand our IP capabilities.

Cloud Compute: Public, Private, & Hybrid

As broadcast and streaming services evolve, the media technology industry is constantly seeking more flexible and efficient use of IT infrastructure. Use of cloud compute is a significant trend in the market, and this is a combination of public services such as Amazon and Google, private cloud deployed on a customer's own infrastructure, and hybrid which is a combination of both. PRIMA has been designed from the ground up to not only support cloud-based infrastructure, but to be technically and economically efficient.

To complement Pebble's development roadmap and to broaden the Group's product offering, Pebble is also looking for in-organic opportunities in these areas that would accelerate the diversification of the company's portfolio. Areas of specific focus for potential acquisition opportunities are, production functions such as graphics, and file-based workflows supporting on-demand streaming applications.

GOING CONCERN

The directors are required to assess the Group's ability to continue to trade as a going concern. The Board concluded, from its thorough assessment of the detailed forecasts, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025 and that it is appropriate that the Group prepare accounts on a going concern basis.

BOARD CHANGES

Graham Pitman, Senior Independent Non-Executive Director, stood down on 30 April 2023. Richard Logan, who has been a Non-Executive Director with the Group since May 2020, became Senior Independent Non-Executive Director on 1 May 2023

TRADING OUTLOOK

As the Group enters 2024 with a strong pipeline, a platform for profit growth and with our dedicated, happy workforce, the Board are confident of the opportunities that lay ahead.

As a result of the growth in recurring revenues (the portion of revenues expected to continue into the future i.e. Service Level Agreements), and with the benefits that are expected to be delivered from the Group's new product launches, strong pipeline, and continued debt reduction, we were pleased to announce in our trading update in January 2024 that we expected FY24 trading to be ahead of the prevailing market forecasts. We are confident in the market opportunity for the Company and that the anticipated growth in FY24 will be a platform for further growth in FY25 and beyond.

John Varney

Non-Executive Chairman

For the year ended 31 December 2023

CONSOLIDATED STATEMENT OF PROFIT AND LOSS

for the year ended 31 December 2023

Earnings per share from continuing operations attributable to the owners of the parent during the year

Other comprehensive income - items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of overseas operations

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the year ended 31 December 2023

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. The address of its registered office is Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN.

The registered number of the Company is 04082188.

This results announcement was approved for issue at close of business on 25 March 2024.

BASIS OF PREPARATION

The financial information contained in these condensed financial statements does not constitute the Group's statutory accounts within the meaning of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2023 and 31 December 2022 have been reported on by CLA Evelyn Partners Limited with an unmodified audit opinion.

Whilst the financial information included in this Annual Financial Results announcement has been computed in accordance with UK-adopted international accounting standards, this announcement, due to its condensed nature, does not itself contain sufficient information to comply with UK-adopted international accounting standards.

Statutory accounts for the year ended 31 December 2022 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2023, prepared under UK-adopted international accounting standards, will be available on the Group's website: https://www.pebbleplc.com and will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2022 statutory accounts have been applied consistently in all material respects.

GOING CONCERN

At 31 December 2023, the Group's net debt (excluding IFRS 16 leases) was £4.7 million (2022: £5.8 million), comprising cash of £0.8 million (2022: £0.7 million) and the term loan from Santander of £5.5 million (2022: £6.5 million).

We enjoy a close relationship with our bank and have regular review meetings with them. In March 2024, we signed a new term loan through to 30 October 2026, which re-financed the existing £5.5m million RCF at the same level of commitment, with repayment levels consistent with previous years and appropriate financial covenants. There have been no breaches in financial covenants to date and no breaches are anticipated in the going concern period. However, both of the financial covenants in relation to the minimum liquidity and cash flow cover are sensitive to changes in the forecasts related to the timing of cash collections and payments in Q1 and Q2 2024 due to SLA renewals slipping from FY 2023 into FY 2024. Management are confident that this timing delay is short term only and cashflow levels are expected to increase in the next few months. The Directors are confident that whilst the covenants are not projected to be breached, management would need to ensure working capital movements are appropriately managed to ensure the Group meets its covenants. Management also had to manage working capital movements in quarter one 2024 to ensure there were no breaches in covenants. Management have estimated the timing of cash receipts and identified mitigating actions to be taken in the event of a breach becoming likely. Management's ability to enact these mitigating actions and their effectiveness are considered significant judgements.

The directors are confident that any loan extensions required post October 2026 would be granted given the historic track record.

To assess the appropriateness of preparing financial statements on a going concern basis, management prepared detailed projections of the consolidated statement of profit and loss, the statement of financial position and cash flow statements through to 31 December 2025. This review period extends to the end of the financial year for 2025, which is looking forward 21 months beyond the date of approval of these financial statements. The projections included testing against the minimum liquidity and cash flow cover covenants required by the new term loan facility.

These projections used the forecast for 2024 and were updated for current trading and forecasts. This analysis was then extended to the end of 2025. The projections were stress tested in two ways. Project orders for 2024 were reduced by 50%, then reduced by 40% with a 25% reduction in SLA renewals in 2024 applied. The existing support service contracts, where revenue is recognised over time were assessed based on historic renewal rates, to establish the likely renewal of this recurring revenue. Management reviewed the resource levels and marketing spend required to support the reduced revenue and reflected cost reductions in the forecast. Even with a 25% drop in SLA renewals, management concluded the business will remain a going concern. The Board has concluded from its thorough assessment of the detailed forecasts and ability to enact any mitigating actions, if required, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025, that it will meet the bank covenants and that it is appropriate that the Group and the Company prepare accounts on a going concern basis.

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 PLC costs. The chief operating decision-maker has been identified as the Board.

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

Geographic external revenue analysis

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

Net assets

The table below summarises the net assets of the Group by division. The statement of financial position 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 and the Board of Directors.

concern

OPERATING PROFIT

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

Non-recurring items

The following items are excluded from management's assessment of profit because by their nature they could distort the annual trend in the Group's earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis:

During the year the Group accrued costs of £105,000 relating to the termination of a senior employee's employment contract.

In the prior year after having been given assurance from HMRC that we qualified, we explored a potential equity raise, led by a VCT qualifying raise, that would have provided the Group with additional capital primarily to accelerate our development of next generation solutions. Whilst we secured good levels of support from existing and new investors, a combination of a worsening global economic situation and falling investor sentiment for the equity markets generally led us to curtail our plans at a fairly late stage in the process. As a result, we incurred professional fees totalling £0.3m which have been disclosed separately in the income statement as non-recurring items.

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. This was confirmed in Autumn 2022. Deferred taxes at the statement of financial position date have been measured using these enacted tax rates and reflected in these financial statements.

EARNINGS PER ORDINARY SHARE

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 amortisation of development costs is included in research and development expenses in the Consolidated Statement of Profit and Loss. Within capitalised development costs there are £4.9 million (2022: £4.1 million) of fully written down assets that are still in use.

CASH FLOW GENERATED FROM OPERATING ACTIVITIES

Reconciliation of profit before taxation to net cash flows from operations.

• CALLED UP SHARE CAPITAL, SHARE PREMIUM AND CAPITAL REDEMPTION RESERVE

POST STATEMENT OF FINANCIAL POSITION EVENTS

Since the year-end we have signed a new term loan agreement, details are disclosed in note 3.

The Board is pleased to confirm that following the publication of its audited results for the year ended 31 December 2023, the annual report and financial statements will be posted to shareholders on 7 May 2024 and a copy will also be available to download from the Group's website at pebbleplc.com.