Vista is looking forward to a bumper slate of Hollywood releases in the second half of 2024, including Gladiator II. Photo / Paramount Pictures
Vista is looking forward to a bumper slate of Hollywood releases in the second half of 2024, including Gladiator II. Photo / Paramount Pictures
THREE KEY FACTS:
Auckland-based Vista Group offers cinema management software, including for online ticket booking and customer analytics, and holds about 46% market share outside China and India.
Its first half-earnings saw it narrow its net loss, increase its ebitda margin and reiterate it will be cashflow-positive by the fourth quarter - but also lower its full-year revenue guidance.
Vista says 12% of its revenue is tied to box office receipts at present. That will rise to 50% as more of its customers shift to its cloud-based products.
Vista Group was laid low by the pandemic. But after digesting yesterday’s first-half earnings, Craigs sees potential for the biggest comeback since Rocky Balboa.
Analysts Stephen Ridgewell and Rob Morrison hiked their 12-month price target from $3.14 to $3.37, while retaining their overweight valuation (shares closed yesterdayup 5c to $2.40 for a $570 million market cap).
And they see potential for shares to “double within three years”.
“With Vista’s cost base relatively fixed, and its gross profit margin 60%, the majority of future revenue growth should drop down to ebitda,” the pair said in an overnight note.
“Our modelling suggests Vista’s ebitda could grow from around $20m in FY2024 to around $65m by FY2027. Applying a sector multiple of 16-20x implies Vista could trade at $4.37 to $5.46 per share share.“
Mixed news
With its first-half report yesterday, Vista delivered a slightly larger full-year revenue downgrade than Ridgewell and Morrison had been expecting as it trimmed its forecast to $148m-$153m from the previous $152m-$157m.
But the analysts said investors should look through the downgrade - blamed on a box office hangover from the Hollywood writers’ strike and cloud implementation delays - to positive signs including full-year operating earnings guidance (ebitda of $19m-21m) ahead of the consensus ($18.1m) and an annualised revenue rate of $175m by December 2025.
“You’re just about to enter the promised land of break-even,” said Canaccord’s Owen Humphries on a conference call, picking up on Vista chief financial officer Matt Cawte’s confirmation that the firm will become cashflow positive in the fourth quarter, “just two months away”.
Humphries was probing for news of a strategy shift once Vista was in the black. Chief executive Stuart Dickinson said it would be up to the board whether the dividend (suspended since Covid) returned. Jarden’s Guy Hooper told the Herald he thought a profit payout was off the cards.
Cawte and Dickinson said the focus would still be on migrating clients to Vista’s cloud-based products. The pair said the efficiencies of the cloud contributed to tighter cost controls, which in turn had fuelled a higher than expected ebitda margin.
Ridgewell and Morrison said the number of sites scheduled to migrate to Horizon (Vista’s first-stage cloud product) by the end of FY25 had increased by 50% since February to 2248 sites, “indicating Vista has signed up several large new customers”.
Hooper said there was also an upside surprise in “operating leverage”. Vista increased its full-year ebitda margin guidance to a stronger-than-expected 13%-14% - and it bumped up its 2025 outlook from 15% to 16%-18%.
Vista Group chief executive Stuart Dickinson says cinema admissions won't return to pre-Covid levels - but box office should.
Boutique local cinema chain Silky Otter was touted as a model customer for Vista’s new cloud and digital products. But Dickinson added that the firm will have “more clarity” on its ebitda margin boost once two “billion-dollar customers” transition from Vista’s on-premise products to its cloud: North American giant Cineplex, which is in the midst of a multi-year upgrade, and Europe’s Pathé - which should complete its upgrade by year’s end.
If Vista Group does hit cashflow positive status by year’s end, it will be the first time it’s broken even since the pandemic (in 2019 the firm made a $12.8m profit on full-year revenue of $144.5m, but lockdowns brought a $56.7m net loss in 2020 as revenue crashed to $87.5m).
Headcount down by 8%
Dickinson said a streamling process had seen multiple business units had been reduced to just two: one focused on cinemas, one on films. Staff head count had been reduced by 8% to 710.
The CEO said staff accounted for around two-thirds of Vista’s operating expenses, with hosting costs much of the balance. Vista Cloud was 100% on Microsoft’s Azure platform, while some segments, such as its Movio data analytics business, were on AWS.
“Our friends at Microsoft are very adept at making money,” Cawte quipped on the analyst call.
Dickinson said the cloud model allowed new features to be rolled out out to multiple clients at once, more quickly and cheaply.
Fortunes tied to box office
With its transition to its new business model, Vista’s fortunes will become increasingly tied to box office receipts.
Dickinson told the Herald that today some 12% of Vista’s revenue is impacted by its customers’ box office receipts and other transaction revenue. Vista sees that figure increasing to 50% over the next few years.
The global box office hit US$33.9 billion ($57.1b) in 2023, up 30.5% compared to 2022, according to Gower Street Analytics estimates.
But takings were still 15% behind the average of the last three pre-pandemic years.
“I’m not sure it will get back to pre-Covid in terms of admissions, but certainly in terms of revenue,” Dickinson told the Herald.
The second half of Vista’s financial year - and Hollywood’s fortunes - have been buoyed by two monster hits: Deadpool & Wolverine and Inside Out 2, with the likes of Moana 2, The Lord of the Rings: The War of the Rohirrim, Mufasa: The Lion King and Gladiator II on the way in the coming months.
But it would not be enough to make up for the slow revenue in the first half, Dickinson said.
Craigs says total film releases were down 18% in the first six months of FY2024. The running start to the second half and the slate of potential hits will help, but it is still working on the assumption that the United States box office will be down 8% for the year.
Takeover candidate?
Vista spiked in May after Australian private equity firm Potentia Capital paid $92.2m ($2.10 per share) for an 18.5% stake (now topped up to 19.9%).
Potentia said in a May 27 market filing that its Vista block trade had an “escalator” clause.
Namely, if a successful takeover bid for Vista is made by May 2025 at a price higher than $2.10, then the institutions that sold the 19.9% stake to Potentia (primarily Sydney-based Spheria Asset Management) will be paid the difference.
The clause inevitably led to market chatter about a possible private equity takeover.
On the earnings call, Dickinson would only say he had met with Potentia twice. The Australian firm had “asked for a board seat through the media”, the chief executive told the Herald. There had been no change to the board. He told the Herald that Potentia taking a sizable stake was a “vote of confidence” in Vista.
Ridgewell noted that Potentia had launched three prior takeover attempts of publiclylisted, mid-size tech companies after first buying a minority stake - although only one had been successful (Nitro Software for A$532m ($583.4m) in early 2023.
“Potentia is relatively small with A$1b funds under management, having raised its second fund of A$635m in June 2022. [It] has a patchy track record of completing deals.”
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
