Half-year 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 unaudited half-year results for the six months ended 30 June 2024 ("H1 24").

Financial highlights

• Order intake in the period was up 12% year on year to £4.9m (H1 23: £4.4m)
• Service Level Agreement ("SLA") revenue up 21% to £3.1m (H1 23: £2.5m) as a result of the on-going SLA price rises that have been implemented by the Group. As a result, higher margin recurring revenue accounted for 58% of total Group revenue in the period (H1 23: 46%). Overall Group revenue for the six months to 30 June 2024 was £5.3m (H1 23: £5.5m)
• Adjusted EBITDA1 of £1.4m (H1 23: £1.4m) was flat against H1 last year, but with an improved EBITDA margin of 27% from increased level of higher margin SLA recurring revenue (H1 23: 25%)
• Profit before tax of £0.3m (H1 23: £0.2m)
• Adjusted earnings per share up to 0.3p (H1 23: 0.2p)
• Net cash generated from operating activities (after interest paid) £1.2m (H1 23: £1.7m)
• Gross bank debt reduced by £0.5m in last six months to £5.1m as at 30 June 2024. Net debt at 30 June 2024 was £4.8m (H1 23: £5.1m) (excluding IFRS 16 leases) representing a net debt/last 12 month Adjusted EBITDA1 of c.1.3x

Operational highlights

• Launched new IP-native PRIMA platform at the NAB trade show in Las Vegas. Investment in increasing the feature set for PRIMA has continued as planned.
• Investment in the Group's sales team to drive revenues; Sally Wallington appointed as SVP of Sales. Sally brings 20 years of industry sales experience and will drive our projected increase in project orders. In addition to Sally, the Group has strengthened its presence in Europe with the appointment of a new VP of Sales in the DACH region.
• We continue to adjust the prices of our SLAs to ensure charges are at the appropriate level for the standard of support, which has driven the increase in our recurring revenue and a stronger revenue mix. This has resulted in more multi-year SLA renewal orders being placed.

Current trading and outlook

• The Group's weighted pipeline value remains strong at £9.8m, 13% up on last year's value (June 23: £8.7m).
• In line with previous years and based on the strength of the weighted pipeline, we are expecting to deliver 2024 market expectations.
• Reduced hardware lead times and operational readiness means project orders landed in H2 can be turned around quickly and delivered before the end of the year.
• Increased number of multi-year SLAs booked, giving better visibility of future revenues.

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

"The Group continues to demonstrate resilience with increased order intake in spite of ongoing challenging external market conditions causing customers to continue delaying decisions on upgrades. The Group entered H2 2024 with a strong sales pipeline alongside improved visibility (and value) of recurring revenues. The Board is expecting to deliver against market expectations for the year with the expectation that there will be increased project orders placed in H2 2024 based on historical trends and a strong order book.

Given the continued momentum being seen by the Group, the Board is focused on driving further organic growth complemented by inorganic growth, when appropriate, as opportunities to enhance our technology are identified. We continue to progress with investment in the development of our new solutions to help support the industry in its transition to IP and I am confident PRIMA will be the best product to support the inevitable full-scale adoption".

Notes

CHAIRMAN'S STATEMENT

Introduction

In what has been a challenging market for orders, the Group is pleased to report a 12% increase in overall orders received. Importantly this has been driven by a 22% increase in our SLA orders following the price rise exercise undertaken and an increase in multi year SLA orders. The increase in SLAs continues to improve visibility of future revenue.

Despite the upturn in orders, revenue for H1 24 was 4% down on H1 last year. This is a result of delays to project orders in H1 being pushed back to H2. However, the Board is encouraged by the Group's visibility of these orders and expects a strong second half and meeting its expectations for FY24.

The Group has managed its cost base to ensure the project order delays have not adversely impacted the Group's Adjusted EBITDA margin and I am pleased to report a H1 Adjusted EBITDA margin of 27% (H1 FY23: 25%). The forecasted increase in H2 revenue gives the Board confidence that full year Adjusted EBITDA margin will be at 31% in line with expectations.

The Board is pleased with the investment in the sales team to support new opportunities and allow further market growth.

The Group has continued to pay down the long-term debt, and although net debt (excluding IFRS 16 leases) of £4.8m is flat with the FY23 year end position, the Board is pleased to see net debt is 6% down on last year's net debt position (H1 23: £5.1m).

Financial performance

Revenue was 4% down on the comparative period totalling £5.3m (H1 23: £5.5m). This is a result of project revenue being £0.8m less then H1 23 (H1 2023 £3.0m) on the back of the reduction in project orders. The project order reduction has been mitigated by the SLA price rises resulting in a higher recurring revenue of £3.1m (H1 2023: £2.5m).

Higher Adjusted EBITDA margins are achievable on recurring software revenues, therefore with a focus on increasing the mix of recurring software revenues and the usual cycle of higher project revenue in the second half of the year, the Group remains on target for a strong H2. Recurring revenue is up 21% and now accounts for 58% of revenue base (H1 23: 46%). This is encouraging for future years' revenue.

Adjusted EBITDA1 marginally increased to £1.40m (H1 23: £1.36m), representing a 3% increase on H1 23 following the change in revenue mix mentioned above, as well as careful control of costs. Adjusted EBITDA margin is higher at 27% (H1 23: 25%), and we expect to maintain this as we continue to focus on increasing the mix of recurring software revenue.

Cash conversion in H1 24 has remained strong with 101% of adjusted EBITDA being converted to operating cash (H1 23: 145%). The reduced cash conversion has been driven by the reduction in project orders delivered in the period, which have a large upfront payment. SLA orders are often paid over the length of the contract.

Net cash from operating activities (after interest paid) fell to £1.2m (H1 23: £1.7m); despite this the Group has continued its investment in R&D and paying down the long-term debt.

A net debt position of £4.8m (excluding IFRS 16 leases) represents a 6% reduction from the comparable period last year (H1 23: £5.1m). Despite the lower cash generation, although still over 100% cash conversion, to the comparable period last year the Group has continued to pay off the long-term debt at the same rate as last year.

The Group invested £1.2m in R&D in the period (H1 23: £0.9m) as it continues to develop software which can be sold on a recurring basis whilst continuing to maintain and develop our existing product range.

A decrease in financing costs as a result of lower bank service charges and slightly less interest as borrowing has reduced, has resulted in a net profit of £0.29m (H1 23: £0.24m). The current interest rate on loan repayments is 9.10% (H1 23: 8.22%). This has resulted in an adjusted EPS of 0.3p (H1 23: 0.2p).

Operational performance

The year-on-year order increase saw H1 24 orders come in at £4.9m (H1 23: £4.4m), driven by an increase in SLA orders as a result of the price rise exercise. SLA orders of £2.7m are 22% up on last year's H1 intake (H1 23: £2.2m).

We are still seeing delays in customers placing project orders, which is in line with previous years, and is a symptom of the current global market conditions. Project orders of £2.2m for H1 is flat on last year's project order intake (H1 23: £2.2m). We entered the year with a lower project backlog now that hardware lead times have been reduced. However, given the weighted pipeline value for expected orders is 13% up on last year's value, the Group expects to deliver a stronger H2 of project order intake.

Pebble Control has been integrated onto the PRIMA platform and has been rebranded PRIMA Control. The solution now focuses on IP and stream management for PRIMA applications and will no longer be available as a standalone solution.

Ongoing software development

• PRIMA: 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.

Cash flows and net debt

The Group held cash and cash equivalents of £0.2 million at 30 June 2024 (H1 23: £0.9 million). The table below summarises the cash flows for the half year.

As at 30 June 2024 net debt (including IFRS 16 leases) was £4.9m (cash £0.2m and bank debt of £5.1m and IFRS 16 leases of £0.1m). The Group was using all £5.1m of its available facilities at 30 June 2024, having re-paid £0.5m in the period.

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 (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 2023 Annual Report.

Current trading and outlook

The Group entered H2 2024 with a strong sales pipeline alongside improved visibility (and value) of recurring revenues. The Board expects to deliver against its targets for the year with the expectation that there will be increased project orders placed in H2 2024 based on historical trends and a strong order book.

The Board is pleased to see the SLA price rise exercise having a positive effect on business performance and providing a stronger recurring revenue mix. This will continue to give improved visibility of future revenue, which gives confidence of future trading. This increased recurring revenue is supporting our transition to an OPEX business.

The Board is pleased with the expansion of the sales team to help convert the opportunities that we have in the pipeline into orders. This will also drive an increase in the number of potential opportunities and increase new business. The Board is focused on driving further Group organic growth and will look to complement this by appropriate inorganic growth as opportunities to enhance our technology offering are identified. Furthermore, we continue to progress with investment in the development of our new solutions to help support the industry.

John Varney

Non-Executive Chairman

CONSOLIDATED INCOME STATEMENT

for the half year ended 30 June 2024

Earnings per share attributable to the owners of the parent during the period

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

NOTES TO THE HALF-YEAR REPORT

for the six months ended 30 June 2024

GENERAL INFORMATION

The Pebble Beach Systems Group is a leading global software business specialising in playout, content management, and IP control solutions for the broadcast and media technology 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 20 August 2024.

BASIS OF PREPARATION

The financial information for the period ended 30 June 2024 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 2023 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 2024. The Group financial statements for the year ended 31 December 2023 were prepared under UK-adopted international accounting standards. 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.

GOING CONCERN

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 16 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.

The 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.

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 timing of project orders being placed and SLA renewals continuing to slip during the price negotiation. Management have concluded that that this timing delay is short term only and cashflow levels are expected to increase in the next few months. The Board has concluded, based on review, challenge and prior experience, that management will be able to manage working capital movements appropriately such that covenants will not be breached in the period assessed. Management also had to manage working capital movements in quarter one 2024 to ensure there were no breaches in covenants. Management has 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.

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 Executive.

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 assets/(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.

OPERATING PROFIT

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

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 made are 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 Group Income Statement. Within capitalised development costs there are £5.4 million (6 months to June 2023: £4.0 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 operating activities.

NET FUNDS

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