Verimatrix - Q4 - 2020 - Transcript File

VMX • Q4 2020 Earnings Conference Call • Final Transcript
March 10, 2021 • 12:00 pm (ET)
Verimatrix (VMX)
Q4 2020 Earnings Conference Call
March 10, 2021 • 12:00 pm (ET)
Final Transcript
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March 10, 2021 • 12:00 pm (ET)
Corporate Participants
Amedeo D'Angelo
Chairman and Chief Executive Officer | Verimatrix
Richard Vacher Detourniere

General Manager & Chief Financial Officer | Verimatrix
Conference Call Participants

Stephane Houri Agustin Sofie
Analyst | ODDO BHF Analyst | BNP Paribas
March 10, 2021 • 12:00 pm (ET)
Presentation
Operator
Hello and welcome to the Verimatrix Full-Year '20 Results Call. My name is Monique and I'll be
your coordinator for today's event. [Operator Instructions].
I will now turn you over to your host Amedeo D'Angelo to begin today's conference. Thank you.
Amedeo D'Angelo
Hello, good evening to all and thank you for joining this call. I believe that most of you know myself
and the Company. We share with you the numbers, the figures for 2020, but also I would like to
share with you how our company in the market is moving or going forward in this year 2021. I'd
like to share the first slide.
Because as you see, 2020 has been a quite complex year as you all know because of COVID that
has created some problems in some countries that had a very difficult economical situation in
some regions. And therefore the behavior of the markets in the customers has changed in 2020.
Our customer in 2020 -- our customer overall are very healthy customers because they don't
distribute only video, but they also have ISPs, Internet provider. In 2020 during COVID, there has
been a good year for our customers. Even though some countries had some overall -- heavy
economically impact because of COVID.
An other aspect that we have to see because of the COVID has changed also the mentality of
some big customers. So was the fact to use the service through the cloud of our securities
software instead of having a perpetual license. We have seen during 2020, an acceleration of
demand of client changing from a capex mode of doing business investments on the perpetual
licenses, on-premises to have a demand going towards SaaS services, especially for the new
streaming video service on the OTT. And we have benefited of this initial migration in 2020. I will
talk a bit more about the SaaS impact, but as you know, when you move revenue from perpetual
license, the revenue that you recognize that is upfront, but when you go into subscription, you'll
recognize the revenue over the following 27 months or three years and therefore there is an
impact on the first revenue line that we show.
March 10, 2021 • 12:00 pm (ET)
In fact, we have a revenue traditional way although recognizing revenue. It is $95 million for 2020.
And from IFRS standpoint, it was -- it down 3% during 2020. We can say that the recurring
revenue has increased in 2020 by 3 points. But really the big highlight is on what you call ARR or
annual recurring revenue. I believe that we -- we told you guys, we have to start to measure the
performance of our company using also other parameters like total contract signing or annual
recurring revenue of churn. Other bit of information become along with the transition of the
company, this slowly is moving to SaaS. I say slowly because the whole market is not easy to
switch overnight from a more perpetual license into a SaaS service.
But there is a movement as you see on a growth of subscription, we had 20% -- 24% growth on
the subscription and the higher ARR, annual recurring revenue has grown by 2.4 times in 2020.
Therefore, if we had not increased the ARR in 2020, our revenue would have been higher by
approximately $9 million and so we would have been reduced of the no decrease in top line
revenue. The Company overall demonstrates a good resilience, even though at the end of the
year, resilience at the end of the year -- every year at the end of the year, the companies wanted
to do the capex, so they were doing capital investment to assure to have the shared or the
licenses and all the agreement in place to do business on the following year. At the end -- very
end of this year, there was a shift because I think some budget were delayed into 2021.
Can you share the next slide. So, if we take a look still on the numbers, then we talk, in general we
had the $24 million EBITDA that -- it is 25.3% of the revenue, but is higher on our core business,
because remember in 2019 there was some NFC license that we don't consider the productivity is
not a productivity that give us some profit EBITDA from there. On a comparable base, our EBITDA
in 2020 went up by 16%. So the Company, we had no -- particularly no bad debt and our
customers are quite as I said before, reliable, very good customer we have. The operating income
at $11.8 million was 3.9 times year-over-year and we continue to invest especially into the platform
to do -- to deploy SaaS services. Our financial position is quite solid. We had a good cash position
at $48.6 million with no short-term debt, then we can talk more about the long-term debt, but
practically we are zero debt position overall as a company.
So if we want to have a wider look on the business, the basic of the business is a very solid. I am
quite happy about the performance of the Company because the overall contract signed in 2020
were higher than 2019. Even though there were all these difficulties of traveling, not meeting with
customer ratios because of COVID. So our activity actually was higher in 2020, than 2019. We
have started to invest in 2020 to address better other markets and we won some business in the
market like the health, the automotive, some more of the fintech business with application
shielding and let's say into the IoT with a specific functionality, where you need to protect data and
March 10, 2021 • 12:00 pm (ET)
application. The need to protect digitalized data is growing more and more and our solution of
applications shielding the COVID protection is finding a very good traction in market demand. We
have grown that business in the last part of the year -- last year quite a lot and we expect the
application shielding and the content protection to grow substantially in the years to come. Our
core business as you know is a live streaming and broadcast protection of contact in to the PayTV
and the PayTV especially into OTT has been quite healthy.
Next slide. So these are the three let's vertical market, but to share that we do the activity. Until the
2019, the only business to do over the cloud was our analytic portion, but there was no practically
on the content protection and the video demand, any SaaS business. And we saw this growing,
started in 2019 by growing sharply in 2020. This service from the cloud is very well adapted to do
-- to deliver OTT services. We connected to AWS to the cloud and seeing at the success we had
in signing new contracts. Just in a quarter, we signed a $16 million contract on SaaS. We are
developing a total solution with the SaaS platform. We still invest and want to keep our business
on-premise because in this area, there is a lot of market still that are developing in certain areas of
the world and it is very healthy -- still healthy business.
With the platform, we are integrating all our products into the platform, connecting our customers
so that they can monitor also their daily activity and they have all the data that they need about the
performance of their services for the quality of experience and the quality of service of their
distribution of content. This business of SaaS is all subscription-based business and therefore we
see that growing in the future years to take us to very stronger position on SaaS. But we will not
be a 100% SaaS company for the future three years, four years to come. It will be a balanced
company with the system on-premise, I mean, license on-premise for perpetual license and a big
portion of our business in SaaS. So what we have to introduce is to start with new KPI to measure
the annual recurring revenue with total contract signed, they determine other parameters because
the Company -- I'm pushing the Company to go towards SaaS because this will make our
business much more predictable, less seasonal and with a stable -- growing the stable revenue
and the profitability that we can better forecast into quarters to come and the years to come.
I would give the word now to Richard for the financials and then we can have question and answer
and go to the conclusion. Thank you very much.
March 10, 2021 • 12:00 pm (ET)

Thank you, Amedeo. So indeed going into the numbers in more detail. So starting with the fourth
quarter of 2020, our company generated $24.4 million in revenue in the fourth quarter, which is
down 25% compared to 2019, sorry, but which was a high comparison basis. As a remainder, a
year ago we had recorded $5.4 million in license from a single customer, a major operator in Asia.
Revenue in the fourth quarter was impacted by customer' decisions to push back some orders to
2021 for budgetary reasons in the context of the global pandemic and also by set-top box market
condition, as a result of shortage of semiconductors and disrupted supply chain. As a reminder,
we are generating royalties from set-top box maker embed software provided by our company. But
at the same time, our company continued its software service growth and we successfully signed
16 subscription and SaaS contracts for total contract value of $1.3 million. In that we closed the
migration of several of our customers from on-premise contract to the software as a service
Verimatrix platform, which provide access to the latest version of our software and the ability for
the customer to easily scale their system so that we can better meet their subscriber growth.
Recurring revenues from maintenance, subscription fees and royalties, totaled $12.7 million in the
fourth quarter of 2020. These recurring revenues are down year-on-year as explained due to a
weaker than expected royalty collection from set-top boxes makers and also partly from an
unfavorable basis since we have enjoyed high royalties into fourth quarter of 2019.
Going now to the full year, revenue for 2020 was $94 million, which is down 11% compared to
2019 on a pro forma basis as if Verimatrix, Inc. had been acquired on January 1, 2019, therefore,
accounting for 12 months in 2019, compared to 10 months actually since we acquired this
business on February 28, 2019. Also, 2019 did include $3.9 million from Verimatrix NFC patent
licensing program managed by our partner France Brevets, compared to zero in 2020. So
excluding the...
Amedeo D'Angelo
The slider didn't change. The slide is still on Q4.
March 10, 2021 • 12:00 pm (ET)

Okay, sorry. New platform we're experience things, we need to get better. We need better?
Amedeo D'Angelo
Now you got in full year.

Okay, got it. Thanks, Amedeo. Excluding these non-recurring NFC revenue, the Company revenue
for the core software business was down only 8% year-on-year as explained by Amedeo earlier.
Overall, we believed that the reported revenue in 2020 does not fully reflect the positive business
momentum that we are experiencing and indeed it is better addressed as a middle side looking
together the reported revenue and the increase in multi-year subscription contracts. Nevertheless,
throughout the year, our company made significant progress in deploying our SaaS and
subscription-based offering consistently with our strategy. We signed in 2020, 56 of such contracts
with -- at this stage a limited churn and it does lead to an annual recurring revenue, which is a
kind of backlog at year-end of $9 million, which is an increase of 2.4 times compared to end of
2019 and it does also correspond to a total contract value of $20 million to be recognized our
guide of time of 27 months actually.
In 2020 subscriptions-only generated $5 million in revenue, which is 24% increase year-over-year.

Recurring revenues from royalties, maintenance and subscription fees were $54.7 million in 2020,
which is down 3% year-over-year, despite a growth of 5% growth of maintenance fee and a 24%
growth of subscription as I explained, but this was offset by weaker royalties as explained earlier
as well. And in total, the recurring revenues were 58% of the total revenue compared to 55% in
2019. In 2020, we also closed several cross-selling opportunities, which is bundling Verimatrix
application shielding products, which came from the former Inside Secure with Verimatrix video
conditional access products and also we were able to upsell application shielding products to
existing historical Verimatrix, Inc., customers, including two significant deals in Q3 and Q4 with
leading telecom operators in Europe.
March 10, 2021 • 12:00 pm (ET)
Revenue from the software license and non-recurring services were $40.2 million in 2020, which
is down 14% year-over-year as expected and as we -- as Amedeo explained, revenue has been
impacted in the short term by the transition of the revenue model from a perpetual license to
subscription. We do estimate that overall about $11 million of perpetual license that would have
been recognized upfront shifted to multi-year subscription agreement to be then recognized
ratably over the term of the agreements and therefore negatively impacting immediate revenue
recognition, but generating long-term recurring revenue for our company. We do estimate that the
negative impact on the total revenue for 2020 was about $9 million. Looking at the consolidated
revenue for 2020 compared to 2019, it's down 3% and actually the incremental revenue due to the
change in the consolidation perimeter, 12 months of Verimatrix in 2020 compared to 10 months in
2019 was offset by the absence first of NFC patent licensing program as I explained and a lower
core software business revenue as we just discussed.
Moving now to the EBITDA, in 2020, we generated $24 million of EBITDA, which is a 25.3% of the
revenue. This is the all-time record for our company, the best -- the best in the year we generated.
It's thanks to -- what -- benefiting from the full impact of the cost synergy plan that we
implemented in 2019 following the combination of Verimatrix and Inside Secure. It's also a
consequence of tight control of operating expense as I believe we do all the time, but in particular
in 2020 and because of the COVID-19 situation, we generated cost saving due to the lockdown
measures that were applied worldwide or at least where we have employees in Asia, Europe and
in the U.S. So practically no travel expense, physical trade shows being canceled, and also some
internal projects that were delayed due to lockdown measure rendering than more complex to
implements. And also I explained the tight control of operating expense in particular in the soft
start of the year, when we have limited visibility and until we realize that in fact our business and
our business model was quite resilient.
Adjusting operating income from the continuing activities, so continuing activities is all the
business and it does exclude the Silicon IP business that we had sold a year ago in December of
2019. So adjusted operating income from continuing activities was up close to 4% in 2020, at
$19.7 million and EBITDA was $24 million as I explained. From an IFRS standpoint, so the -- we
increased significantly our consolidated operating income in 2020 to $11.8 million, which is 12.4%
of revenue compared to an operating income of $3 million a year ago.
And well in particular and as you can see in this table, this is due to much lesser non-recurring
expense. We didn't do any strategic acquisition of divestment in 2020 focusing on executing our
strategy and also navigating among COVID-19. So good profitability from an IFRS standpoint. We
nevertheless had some one-off expenses in relation with past acquisition of some acquisition
March 10, 2021 • 12:00 pm (ET)
projects like fees, commissions, retention bonuses. A few remaining cost due to restructuring
program that we had started in 2019 and also some non-cash charges related to amortization of
intangible assets recognized on the acquisition what's called out purchase price accounting and
also a non-cash charge of $400,000 of share-based payment adoption to IFRS.
Finance income from continuing operation showed a net loss of $10.3 million in 2020, which is
mostly driven by the interest paid in relation with our indebtedness. So we have a bullet loan due --
so it's bullet, so it's due in 2026. There is a convertible bond due 2022 and we do have these
commitments under IFRS 16. Interest expense paid in cash was $5.7 million in 2020, almost flat
compared to a year ago, but on top of that we faced foreign exchange losses, the euro against the
dollar in particular in the later part of the of the year where the euro was very strong and also we
faced a non-cash expense related to the change in fair value of the convertible bonds in IFRS.
All-in-all, net income from continuing operations showed the loss of $1.4 million compared to a
loss of $5.9 million in 2019 and as I explained, it's a combination of the operating income from the
business minus the financial expense and income tax for $2.8 million. Discontinued operations,
which is related to the Silicon IP business division that we divested in December 2019 showed a
loss of $9.1 million in 2020, which is due to the reversal of the actual earn-outs that we had
estimated in 2019 in relation with the sale of the Silicon IP business and that we had expected to
receive in 2021.
Nevertheless, the transferred business did not -- Silicon IP transfer business did not generate in
2020 as revenue which was sufficient to trigger an earn-out payments. It's our understanding that
COVID-19-related travel restrictions and lockdown slowed down the integration of this new
business activity within the acquiring group and slowed down the transition of the customer from
one business to another and also trade changes between US and China, being a US company,
did not help either. So, no cash impact, but an accounting reversal of -- often I said that we -- that
we had estimated a year ago. Net income consolidated, putting together continuing operations
and discontinued operation, so we generated an accounting growth of $10.4 million, which does
include a limited loss of $1.4 million for the continuing business and $9.1 million for the
discontinued business.
Moving now to the cash flows. In 2020 -- end of 2020, our net cash position decreased by $5.2
million to $48.6 million at year-end, and actually the cash generated by the operations for $12.6
million, we have been used to pay interest, taxes, capital expenditure and reimbursement of some
lease commitments under IFRS 16. In 2020, continuing activities generated $22.2 million of cash
flows before changes in working capital compared to $18.3 million in 2019 and continuing
operations generated $12.6 million after working capital. During the year and despite COVID-19
March 10, 2021 • 12:00 pm (ET)
situation, our company did not experience significant delays in payments from customer of no
default. We have a breed of big and solid customer, so we were quite clear about that.
Operating activities overall generated positive cash flow of $3.5 million after payment of interest
and income taxes in the different countries, where we are profitable to be compared with a
negative cash flow a year ago of $3.8 million. Investing activities used $6.6 million in 2020 and it
does include the capitalization of project cost of $5.8 million, research and development in new
software and new SaaS offering and also some home-grown enterprise applications that we are
working on plus more limited amount of $1 million the purchase of software and the intangible
assets. Financing activities, we used $1.9 million primarily due to the reimbursement of the lease
commitment under IFRS 16, which is actually the needs, the rents that we pay for the buildings
that we have in the different countries where we are operating. And nevertheless, we are busy in
all or in parts of the year.
So to conclude on the financial situation and the balance sheet, before ending for the business
perspective and objective to Amedeo. So, net debt at the end of 2020 was $25.3 million, but
actually if you exclude the convertible bond -- and I would get back to that OCEANE and the
financial lease obligation recognized since 2019 under IFRS 16, we had net cash position of $6
million, net debt with net cash of $6 million. We generated cash already in the second part of the
year and we used -- we've done some cash in the first half of the year.
As you heard on the convertible bonds, they have a conversion price equivalent to EUR2.89 per
share further to the adjustment that resulted from the 2019 capital increase that we had done and
therefore we do disclose the OCEANE convertible bond as part to the net debt as of December
31, 2020. Because the share price of Verimatrix closed at $2.81 which is lower than the
conversion price. However, when you look at the stock price for the last three months, the average
was close to EUR3 per share. So in essence, we believe that these convertible bonds have to be
converted into shares if the stock price maintains until the due date, which is June 2022.
Moving now to Amedeo, who will comment on our business outlook and 2021 objective and then
we'd be happy to take your questions. Amedeo?
Amedeo D'Angelo
Thank you, Richard. Can you put on the slide -- this one. First of all, the comment that I'd like to
share with you is the market is quite solid. The increase of consumption on video on demand is
March 10, 2021 • 12:00 pm (ET)
about 15% in 2020, but is expected in the next four years, five years to still grow at 15% rate, the
consumption of the consumer for digital content movies and so on. There is a big increase in the
requirement for security. Security for all the IoT and vertical market that I explained and also for
the transmission of digital documents and to protect the data that are inside. So the basis of our
market is quite solid.
We are focused on executing our strategy and the strategy is moved from 2018 -- 2019 into 2020.
Of course, we were focusing 2019 and beginning of 2020 due to the integration of the two
companies Inside Secure and Verimatrix. But we have experienced, this high demand on the OTT
market as we were saying and the fact that customers started to be much more open than in the
past on having SaaS support and SaaS services.
What we did is we increase our cross-selling activity, so that now there are several telecom
operators that were not customer of Inside Secure that now buy application shielding and core
protection, this is a product coming from Inside Secure. So the activity of cross selling, it was very
slow on 2019 because we need to integrate the two company culture into one culture, started to
give it's fruit in 2020 and is accelerating in 2021. We reported SaaS subscription business as I
said, we are investing into R&D to integrate not only all this -- the Verimatrix products into the
platform, but as well as partners products, so that customers that would like to do a one-stop shop
for SaaS products, they can come to us and they have a full suite of our products to acquire on a
subscription basis through a SaaS service. We are -- we are quite bullish about the future and as I
say, in our -- in the future we like that you measure us not only on the revenue part, but also on the
quantity of new contracts in the annual recurring revenue in order to see the past that we're going
forward, that we see quite healthy.
So we are now -- so we expect that revenue is traditionally measured within the mid-single-digit
growth, but we expect that the SaaS business and the recurring revenue will grow on a double
digit for 2021. We expect an EBITDA to reflect, even though the revenue will grow due to the fact
that we are investing into a second marketing to have a better coverage in the market. We have to
upgrade the many new customers offsetting the SaaS services to invest in the marketing and also
the engineering because we need to develop the interfaces to offer the SaaS business. There is
also a negative impact in the footnote as you -- if you can read it, that it is about $2.2 million due
to the exchange rate with the dollar. So, we expect revenue in 2021 reflect EBITDA. So these are
my general comments.
I would like -- if you ask a question, I'm open to answer to any questions that you may ask. Thank
you.
March 10, 2021 • 12:00 pm (ET)
Questions and Answers

So we can maybe start -- we can maybe start with questions we have received through the
platform. Before taking taking some questions from those who are joining on the phone. One of
the question, do you intend to refund convertible bond in 2021?
So, I believe the question is more for the bullet loan, the private loan notes, which is due 2026 and
with indeed bearing interest of 7% plus LIBOR. So what we have said because convertible bond,
we do believe that we still have some time and we do believe that is a stock price carry on the
same trend. It will be in the interest of the bond holders to convert into stocks and therefore it
won't be a debt. As far as the bullet loan, the $44 million bullet loan -- as we have said in the past,
we have cash on the balance sheet, but we have almost an equivalent amount of financial debt.
We kept the cash so far in order to be able to size very quickly acquisitions opportunity, because
you know that doing M&A is part of our roadmap.
We have two options that we will be working on immediately after the release of the 2020 number,
either refinance this debt with a pool of banks in order to lower the overall cost, which enhances
that we would be in order to minimize completely the cost of the debt, we need to switch to a debt
that would be repayable every month, every quarter or every year, compared to a bullet financing.
So it's not the same profile in our cash flows in the future and therefore it can have an impact on
our projects or to refinance through another bullet loan little bit of terms or to repay all of that of
these bullet loan using our cash position and therefore if and when we have acquisitions project,
then we would raise new money, the dedicated on those projects. So this is particularly those
option we are working on and indeed we may do something in the very near future.
So, there is another question on M&A. Will you finance future acquisitions through loans or capital
increase?
It will really depend on the size of the acquisition of the profile of the target. If it's something that
we can solve with our cash flow plus a reasonable amount of debt, then we would do it. But if it's a
transforming of a very big acquisition, we may indeed combine debt and equity -- new equity we
have at those questions from existing shareholder already, investors, we felt that they were ready
to support the growth of the business.
March 10, 2021 • 12:00 pm (ET)
So...
Amedeo D'Angelo
There is a question about the forecast in October 22?
Frankly, we had a forecast from our sales people around the world with the pipeline to reach the
$100 million that we indicated. Of course, when we indicated this goal of $100 million, we
commented as well that the pandemic changed a bit the behavior of the customer. So depending
on the pandemic, I don't remember the exact word here, probably Richard may remember very
well. We aim to do $100 million and we had the pipeline to do the $100 million. What happened
the very last days of 2020 that the customers that used to give us always the signing, the call back
to the very end of the year because of their budget, they actually spent the budget due to some
capex. They put on hold to this and they postponed in the sense.
A big portion of this gamer from the shortage of the set-top box in the royalties that we take on the
set-top box that we are not -- we were not to be able to recognize at the time. We have to say that
overall, as I said, our business, our revenue was quite healthy and as Richard mentioned, you
should consider that this increase in subscription and SaaS impacted -- we had $1 million on our
business 2020. So on a comparable basis with 2019, you could say that -- we could have done
that $106 million in 2020 compared to the $100 million, $102.82 million that we did in 2019. So
there was a growth pattern. Also there -- we are quite satisfied with that. There was some
disappointment. I cannot hide the data. When I look at the pipeline, it was talking to the pipeline
was so clear to be in that range in the two [Indecipherable] and some delay into -- the future in
2021 in a real estate situation.
What you have to consider, 2021 we expect -- we didn't put the exact number, but we say there to
the ARR, the growth of annual recurring revenue is considered to be in the two digit growth and
we expect a very high growth on the SaaS and recurring revenue for subscription. So, I am bullish
here because now you have measurements that are more complex with ARR and with top line
revenue. So, the top line revenue being a single-digit, it doesn't tell you all the story if the
subscription and the SaaS business grows double-digit. So -- and this is a new image that you
have to -- we are not a 100% SaaS company, it will be easier to understand how it functions. We
start to be a mix in potential license and the SaaS. So we have to add all these key performance
indicator to understand the performance of the Company.
March 10, 2021 • 12:00 pm (ET)

So, if I may add, so indeed we could say we are short of $5 million -- we could say we are short $5
million. It's about 60% license fees that did not close because budget were not approved within
our customers. Remember we are talking about capital expenditure and not running cost. So 60%
of those $5 million is licenses that we were expecting to close and that did not close and about
40% of royalties that did not materialize because of lower volumes manufactured by set-top box
makers. And we are very surprised at the beginning of 2021 to see the number of the reported by
our -- by the set-top box makers, which does explain shortage of semiconductor, shutdown in
December in China, where you have many manufacturing sites, difficulty to ship also by
[Indecipherable] also on the product. In South America, you had shops, which were closed, plus
economies, which are challenged and so on and so on. So that's for the buck.
And again because we are shifting our revenue model and revenue revenue mix, you cannot
expect a huge rebound in 2021, because again, all the multi-year subscription agreement that we
are signing quarter-after-quarter, they don't produce -- they don't generate short-term revenue, but
they generate three-year revenue. So it takes some times it takes several quarters in order to
benefit for the top line -- for the revenue line to really benefit from this recurring revenue. That's the
kind of challenge we are facing in this transition period.
And then, there was a question and then after I believe we can take the questions from those
connecting over the phone.
So there was a question on NFC near field communications patent portfolio. So while they did not
close new sublicensees in 2020, but they are working on it. Currently they're working -- they're
discussing with the Company, making phones and laptops and tablets in California, in the Bay
area. It's a challenging one because they don't want to pay easily, but France Brevets is hopeful
that they will be able to sign that plus to sign other licensees with other handset manufacturers.
But also, you have also markets, which are opening like accessories and even the automotive
industries, because more and more you have car manufacturers, which are offering as an option
and NFC capability either to open your car door or to seamlessly clear your phone, your
smartphone with your car and so on and so on. So, we believe in this program, but again by
construction, by a sense, it is very lumpy and not predictable. And this is why we put it in -- in the
non-core business because this is not the technology we are using, this is just a portfolio of assets
of IP rights that we maintain and we were right to do it because we generated technique to count
revenue over the years and we do believe that there is more cash to come.
March 10, 2021 • 12:00 pm (ET)
So that was the last question. Do you intend to quote on the NASDAQ before year end?
No, we are not. If we can have the question from the audience?
Operator
[Operator Instructions] Our first question comes from the line of Stephane Houri from ODDO BHF.
Stephane, go ahead with your question.
Stephane Houri
Analyst | ODDO BHF
Yes, good evening and thank you very much for taking the question. Hello, Amedeo, hello, Richard.
You have already answered to some of the other questions about the $5 million and thank you for
the answer. Now, looking at your guidance, so you -- we can say that you're short $5 million from
the guidance on the revenue line, but also $2 million on the EBIT -- EBITDA, sorry. So if you make
a quick calculation, it means that the revenue that you have not made we're carrying an EBITDA
margin of about 40%. So, I'm a little bit surprised by the impact I would have expected a slightly
lower impact on the EBITDA? That's the first question.

Lower or higher?
Stephane Houri
Analyst | ODDO BHF
Lower, lower, lower. Maybe I'm not -- I'm not so clear, but if you do $2 million out of $5 million, it
makes, if I'm correct, it makes 40%. So it means that the revenue that you don't have carried
EBITDA margin of 40% basically, and I'm -- I don't understand why there is such a big impact in
fact.
March 10, 2021 • 12:00 pm (ET)

Okay. So, if I may add a little. So on the contrary, we see these things the opposite way because
we have -- our gross margin is 82%. So if you lose $5 million, you lose. Or if you don't achieve a
$5 million in revenue, then you should lose $4 million in EBITDA and in fact we are short of $2
million of EBITDA only, because, again, this quarter, well, first we were maybe prudent on the
EBITDA guidance that we had provided in October, first. And second, when we had prepared this
guidance, we were anticipating more investments, more travel expense, more back to normal and
it did not occur. So we were able to generate significant saving on the cost side, that allowed us to
recoup a significant part of the short side of revenue.
Stephane Houri
Analyst | ODDO BHF
Okay, I may call you back after because if I'm correct, your EBITDA margin is 25%, not 80%. So...

No, I was looking at gross -- yeah, we can talk after [Speech Overlap].
Stephane Houri
Analyst | ODDO BHF
Yes because you were guiding for $26 million of EBITDA basically for the year and you achieved
$24 million. So you're short $2 million of EBITDA out of $5 million which is 40%, but let's talk about
it later, if that's okay.

Yeah, yeah, because I believe it's a great news that we were able to recoup part of the short that
refered, but anyway, I'm happy to help you after.
March 10, 2021 • 12:00 pm (ET)
Stephane Houri
Analyst | ODDO BHF
Yes, please. The other question is -- as you are a little bit lower than expected on the -- on 2020
revenue and though you are not guiding for kind of recovery or higher growth than the kind of mid-
single-digit that everybody had in the consensus or the expectation, how do you -- how do you
explain that there is not such a rebound? How do you build your -- such a bigger rebound? How
do you build your scenario for the year, what are the assumptions?

Amedeo, you want to take it or you want me to do it?
Amedeo D'Angelo
No, the point is, Stephane, I think we need to really to go deeper to understand the fact that we
plan -- we didn't give exact number, but in our planning there is a big increase into the -- on the
recurring revenue. It means that the real total contractor that we sign this year compared to last
year is that more of a double-digit number, okay. And it is better in line than the market guidance,
but the impact of these new contracts, especially -- because they are subscription and SaaS will
be not on the full year on the 2021. It would be on 2022 and '23 because it is -- the recurring
revenue impact is due to the entry in three years.
So the basic of the business and the number of customers -- the number of contracts is the
increasing double digit and if we focus only on the single-digit growth saying -- they grow only
single digit without considering that we have a huge growth on the recurring revenue, on the
subscription in SaaS, then there is a distorted inertia of the market and the Company itself. You
have to give the number, give a value to the fact a bit, the total contract signed with the customer
are increasing sharply.
March 10, 2021 • 12:00 pm (ET)
Stephane Houri
Analyst | ODDO BHF
[Speech Overlap] And can you illustrate me some numbers that would be helpful?
Amedeo D'Angelo
I don't know, Richard, because we have it internally as our budget. We say that is a double-digit
growth. We decided not to give an exact figure. This also ploughs another question
[Indecipherable] in Q3, we said that we are going to give -- mid term financial target. And of course
we -- internally we have our mid-term financial target. We work for the mid and long term, but we
decided to give just the 2021 target because still this COVID impact changed the behavior of
companies and even countries. It still makes it kind of a difficult to give a clear prediction. So we
started with 2021 prediction and then as we go along, during the year once the situation is clear
about the COVID, we will give a longer term indication for our business. But the business is
becoming very healthy, very predictable and I judge myself. I don't know how many customers in
total value of the contract I am signing in the total value of the contract is a double-digit growth.

So, Stephane -- no, but to give some color and without providing material information that wouldn't
be in the press release, so in order to get there, and indeed, this is still a year of transition, 2021.
But overall when you split recurring revenues and non-recurring revenues, non-recurring revenues
being licenses either perpetual licensees or term licenses through some professional services that
here and there, we may sign. So we do believe that in 2021, we can achieve flat or slightly up non-
recurring revenue, but which is not necessarily what we want because we want to switch
customers to a subscription, but this is kind of idea we have, and therefore face no significant
increase in recurring revenues vastly in some maintenance fee because we have a strong
installed base and we are working on our customers, so that the renew the maintenance licensees.
We do hope that there will be a rebound in the royalty revenues on the short term because those
supply chain challenges hopefully will be resolved, even on the long run because the business is
going OTT, there might be less set top boxes and so on, but that's really a very long term, but on
the short-term that could help. And therefore the bulk of the growth in revenue would be around
March 10, 2021 • 12:00 pm (ET)
the subscription business either for SaaS applications, or from greenfield customers or some
existing customers that are transitioning to SaaS, but also and it's more a revenue model,
business model, than a service and product offering is offering to existing customers who have a
perpetual license, who don't pay the maintenance because they are happy with the software that
we have, to offer then a subscription so that we have access even if they are on trend to new
maintenance, but also to the latest version of the software and they could upgrade without facing a
capital expenditure one-time payment, but gets you payments other time and we do believe that
there is a lot to do here and not only greenfield customer wanting SaaS. So that's the kind of color
we can give on the way we see the business on the -- in the coming months.
Hopefully it does help you.
Stephane Houri
Analyst | ODDO BHF
Okay. Okay. And no -- yeah. Okay. Okay then my last question was the question of software on the
long-term target, but you gave the answer. So, that's fine. And maybe the last question my side.
You've talked about M&A, you were discussing about two possibilities. I think it was back in Q3,
are you still trying to buy companies who will help you gain market shares in the market you are in
or to expand in different verticals, what is your thinking about that?
Amedeo D'Angelo
Stephane it's not what we are -- we are talking to target about, the fact is that, our targets are
based on increase our product base in order to increase our revenue per customer, in order to
increase the -- because we have a lot of customers and what I want to do -- I want to address the
same customer because they have a big potential for buying products and enlarge my product
base. So the companies that are complementary to our product, but the goal in our strategy of
protecting the customer revenue and the monetization of content. There is a big push into the
market of not only OTT. There is a migration towards OTT, but also there are a lot of content
owners that would like to monetize their content. So, we want to add some products that will
facilitate -- will help us to facilitate these new tendency of our content owners, not only the
Hollywood studio. You have the content owners everywhere in the world that would like to
monetize their content. And so I need -- I would like to add the new products to my portfolio
products in order to address the emerging market like the content distribution from content owners.
March 10, 2021 • 12:00 pm (ET)
Stephane Houri
Analyst | ODDO BHF
Okay. And I remember the -- coming back to the question of the mid-term guidance, if you can't
give a detailed guidance, how long will it take according to you for this transition to SaaS to last, to
arrive, to the moment that you will have a kind of recurring organic growth like maybe you would
be able to say, mid-single-digit or high-single-digit again? How long this transition period will last?
Amedeo D'Angelo
Well, the transition, this is -- you have to another thing that I would like to share with you is that the
factor that we are in a market that are used to do perpetual license, okay? And to sign license and
you recognize all the revenue then the customer own practically the software they want to have
and maintenance [Indecipherable]. So this is the market behavior. In 2020, because maybe of
COVID, because of OTT growth expansion, we have seen the tendency from some customers to
say instead of doing capex, I would like to do opex and they are open to do a SaaS business and
we -- fortunately, we had already some of our products, the multi-DRAM projects to protect the
content, that were already on available on SaaS. So, we are growing, but the revenue today on the
SaaS is still small, okay?
So, this transition, today, we are -- when the results say there's a transition is because we are now
investing heavily, in having a complete platform to supply to the market because we think that the
momentum to grow SaaS is accelerating. But the business on SaaS growth will be every year
going forward and this year, we will have a single-digit growth on the top line, but as I said before,
double-digit on the SaaS, but this will accelerate into 2022, '23 and '24. So that we expect to be a
major SaaS -- in our company who deliver SaaS in 2024. So it is not a transition like -- it's still a
good year for 2021 and we see a lot of business, or new and there are new activity coming.
My problem on announcing, I would really like to have the COVID behind us, because personally, I
cannot -- personally, my VP says, go and visit their customers and get this momentum to gain
more new customers. And I'm not the only frustrated guy on all the industry, so everyone is
frustrated, and probably you are also frustrated because you cannot travel, and -- but this will give
us a much better sense, visibility feeling on how the market and our position in the market will
evolve. Of course, we have internal targets already for up to 2024, but we don't want to share to
the market because the variables are still quite important due to the COVID. I think probably by
July, when we announced the first half results, we will have -- I think -- I hope -- I think that COVID
March 10, 2021 • 12:00 pm (ET)
will be behind us and we can share more with you the mid-term targets.
Stephane Houri
Analyst | ODDO BHF
Okay, thank you very much.
Operator
All right. There is one final question in the queue. [Operator Instructions] Our final question comes
from the line of Agustin Sofie [Phonetic] from BNP Paribas. Agustin, go ahead with your question.
Agustin Sofie
Analyst | BNP Paribas
Yes, thank you. It's -- just one question to be clear on the flat EBITDA guidance versus '19. Is it flat
in your percentage of sales or in absolute term or bonus?

In dollar, in dollar.
Agustin Sofie
In dollar. Okay, thank you.
March 10, 2021 • 12:00 pm (ET)

So -- and it's a combination of a weaker dollar against the euro. And you know that we have
significant part of our operating expense that are denominated in euro. So on the budget, we
estimate that we would have a negative impact on the EBITDA of $2.2 million, if the US dollar
remains at higher than $1.21 for EUR1. So last week or the last two weeks, we are better, but we
don't know it will stay during the rest of the year, we could have positive news, even if you have
some hedging in place. So it's not freezing the situation, but it's limiting the upside, so that's one
part.
And the other part is higher operating expense because after having -- being very, very, very
careful in 2020, we do believe that we are hiring and we have some engineering R&D team and
sales and marketing expenses that will be to face in order to accompany this business momentum
on the subscription and software.
Agustin Sofie
Okay thanks, very clear. Thank you.
Operator
All right. There are no further questions in the queue. So I'll hand you back over to your host.

Okay. Amedeo, if you want to conclude.
Amedeo D'Angelo
Thank you everyone. I would like to leave you guys a message. The market is still strong. It's a
March 10, 2021 • 12:00 pm (ET)
good market with a reliable customers, long-term customers. We are moving to a stronger model
with SaaS and we are very bullish for the mid to long term, even though we didn't give the exact
numbers, we are ready positive on the future prospects. So thank you very much for participating
and we are always available for questions even after the session. Thank you. Bye.

Thank you all.
Operator
[Operator Closing Remarks]
March 10, 2021 • 12:00 pm (ET)
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VMX • Q4 2020 Earnings Conference Call • Final Transcript

March 10, 2021 • 12:00 pm (ET)

Richard Vacher Detourniere

Conference Call Participants

Richard Vacher Detourniere

The slider didn't change. The slide is still on Q4.

Richard Vacher Detourniere

Now you got in full year.

Richard Vacher Detourniere

In 2020 subscriptions-only generated $5 million in revenue, which is 24% increase year-over-year.

Questions and Answers

There is a question about the forecast in October 22?

Richard Vacher Detourniere

Richard Vacher Detourniere

Richard Vacher Detourniere

Richard Vacher Detourniere

Richard Vacher Detourniere

Richard Vacher Detourniere

Amedeo, you want to take it or you want me to do it?

Richard Vacher Detourniere

Hopefully it does help you.

Okay, thank you very much.

Richard Vacher Detourniere

In dollar. Okay, thank you.

Richard Vacher Detourniere

Okay thanks, very clear. Thank you.

Richard Vacher Detourniere

Okay. Amedeo, if you want to conclude.

Richard Vacher Detourniere

Thank you all.

[Operator Closing Remarks]

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