This week our Insights team turned its focus on the rise and fall of AIM-listed Accesso’s share price. Can the new board deliver a turnaround?
accesso Technology Group (accesso) is the self-described “premier technology solutions provider to the leisure entertainment and cultural markets”. Employing 900+ people across nine offices, accesso offers ticketing, access control and virtual queue technologies, primarily for theme parks in the North America and the UK.
Tom Burnet, the group’s former Executive Chairman, previously stated that the company can grow to become a billion-dollar business and a cornerstone of the attractions and leisure industry.
The group experienced a period of meteoric growth but over the last 12 months there has also been a substantive decline in stock valuation with the Market Cap. now (June 2019) approx. £192M.
Growth via acquisition
‘Accesso LLC’ headed up by former Disney Parks executive Steve Brown, was established in 2000, briefly entered bankruptcy and re-emerged around 2007. Following its acquisition by the privately-owned ‘Lo-Q PLC’ in 2012 for a reported £13.7M, the company then launched on the London Stock Exchange AIM as accesso Technology Group plc under the ticker symbol ‘ACSO’.
The merged company at the time offered ride-reservation (‘virtual-queue’) systems and online ticketing for theme-parks. Under the leadership of CEO Tom Burnet in 2013 the company quickly acquired ticketing and point-of-sale software provider Siriusware for a reported £8M, complimenting its theme parks and attractions client-base by adding others within the ski and snow sports sector. Then in 2014 it acquired the North American-based ShoWare, a ticketing solutions provider for casinos, sporting events, fairs and performing arts center’s for $33M (approx. £19.2M).
In 2017, accesso acquired Ingresso, a global distribution system for entertainment ticketing for an initial £18.8M + Earn-Out (eventually paying an additional £7.2M despite the ultimate loss of Amazon UK – its largest client), and also acquired ‘The Experience Engine’ (TE2) a data analytics and marketing personalization platform for $80M (approx. £62.2M), the largest transaction to date which also required a separate £58.8M fundraise.
Changes at the top
This rush for growth was then somewhat halted by a strategic rethink, which initially resulted in Tom Burnet migrating to the role of Executive Chairman (May 2016), and the transfer of US-based Steve Brown from COO to CEO. Steve Brown then stood down in February 2018 with the appointment of Paul Noland as CEO, and most recently (May 2019) travel industry veteran and former-IAAPA President John Guilfoy was appointed COO.
This change of personnel also saw a revised strategic emphasis for company growth drivers, from Organic + M&A (Mergers & Acquisitions):
- Core Product & Margin Improvement + Market Expansion + M&A (2017 Presentation)
to a far greater emphasis on making-do, albeit whilst still mentioning M&A:
- Up-Sale of Additional Products to Existing Clients + Consolidation in Existing Territories + New Markets for Existing Technologies & Services + M&A (2018 Presentation).
However, during 2018 accesso incurred $1.7M costs in professional fees relating to a late stage abort of an undisclosed acquisition, and notably the group hasn’t completed any transactions since 2017.
The company also changed its organizational structure with greater emphasis by the Board to review the reporting of its operating segments. This review concluded accesso should present more granularity around the company’s two main activities: ‘Ticketing & Distribution’ and ‘Guest Experience’.
accesso should present more granularity around the company’s two main activities: ‘Ticketing & Distribution’ and ‘Guest Experience’
Additionally, the Board also engaged an external agency to redefine the company’s TAM (Total Addressable Market) with ‘Ticketing & Distribution’ equating to $1.9Bn and ‘Guest Experience’ $1.5Bn, a combined $3.4Bn sector of opportunities to target.
The company also recognized the need to move from being a supplier of end-to-end solutions, and going forward would offer accesso systems individually, in combination, or integrated to 3rd Party technologies i.e. to adopt an open-platform approach – but that this would mean a short-term increase in technology R&D expense. This technical reorientation of accesso also enabled the company to present itself as a SaaS (Software as a Service) model with high levels of repeatable revenues, aiding a (potentially) more positive market valuation of the company.
London Stock Exchange AIM
Any analysis of accesso’s performance must be made in context within London’s Alternative Investment Market or ‘AIM’ where the company is traded. (If you are familiar with AIM, please move onto the next section, if not, a quick summary may be helpful.)
The AIM was started in 1995 for small-to medium-sized growth companies as a low-cost alternative to stock exchanges to raise investment capital.
The regulatory environment is much less restrictive than the London Stock Exchange and the AIM has even adopted a ‘comply-or-explain’ approach to following the fewer rules they have.
Getting listed on the AIM requires underwriting and continuous oversight from a Nominating Advisor or NOMAD. The NOMAD, in theory, oversees the activities and compliance with the AIM’s rules and regulations. However, since they also receive fees from the same companies they oversee, there is a potential / obvious conflict-of-interest, further calling into question the AIM’s control environment.
The AIM’s historical performance should be of no surprise. Smaller, more risky companies have generated an annual -1.6% return over the 24-year history, and if you invested in all of the companies listed, 70% of investors would have lost money. One analysis of nearly 3,000 AIM-listed companies found 30% of the investors lost 95% of their investment.
Most companies listing on the AIM are therefore small, poorly capitalized companies to start and approximately 30% are gone in less than one year. Further, given the few(er) regulatory guidelines, lax compliance, and (potential) conflicts of interest with the NOMADs charged with oversight, there have been many cases of fraud reported. (One famous case was Langbar International, which listed at $750M on the AIM. However, they had none of the assets they claimed and their NOMAD failed to conduct sufficient / any due diligence.
There are a number of challenges with understanding the accesso financials as presented because the comparable financial statements at times have included the impact of IFRS 15 reporting and other times did not. However, other than the impact on revenue, the results directionally (particularly relating to cash) were not materially impacted.
Nevertheless, summary financial observations:
- Total 2018 revenue was up $16M and 15% to $119M, driven largely by the most recent acquisitions (Ingresso and TE2 up 32% and 39%, respectively). Organic growth was lower at $6M or 8% comprising of Ticketing and Distribution up $9M and 18% offset by Guest Experience down $3M and 11%.
- accesso Gross margin was up 2 points to 74.3%.
- Operating expenses were up $18M and 27% to $82M. However, the cash expense increase is actually worse without the impact (benefit) of capitalization, which results in a $26M and 35% increase in spend.
- Included in the operating expenses were acquisition-related expenses totaling $19M, up $9M and 92% from 2017.
- The resulting operating profit was $6M, down $4M and 38%.
- Cash generated from operations was down to $18M from $33M in the prior year.
- To drill down further in the 2018 analysis, whilst revenue is moderately up year-on-year (8% organic) and margins are also slightly up, there are a number of issues with operating expenses.
- Essentially, the company continues to outspend the 15% increase in revenues with a 28% increase in expenses (35% excluding the impact of capitalizing expenses).
- The company’s aggressive capitalization policy continues to load the balance sheet with additional risk whilst reflecting ‘improved’ P&L performance, with the resulting amortization expense increased 67% year-on-year to $20M.
- The company’s cash position has deteriorated which is likely to be one of the biggest investor concerns i.e. cash generated from operations was down $16M and 47% to $17M.
- In 2017 the company invested (net of acquired cash) $78M in new acquisitions, or ~2.7x revenue. However, the company also invested an additional $12M in Ingresso and TE2, or a 72% increase in their organic development costs.
- Purchase price, incremental development costs and deferred compensation/transaction costs considered, it is hard to see how these investments will be accretive (i.e. add value).
- Additionally, non-acquisition investments in 2018 included capitalized development costs ($21M) and deferred compensation expenses ($7M). Net borrowings totaled $5M.
- The resulting impact was a $7M decrease in cash.
The extent of ‘management adjustments’ applied to determine what the company calls, ‘Alternative Performance Measures’ or APMs, can be seen in the reconciliation between Operating Profit and Adjusted EBITDA (a non-GAAP metric). The company’s calculation adjusts Operating Profit from $6M (decrease of $4M and 38% from 2017) to an Adjusted EBITDA of $35M, and $9M and 36% increase over 2017.
Rollercoaster ride Fallout
accesso investor concerns were apparent during Q4 2018 and then in one week (5-11 February 2019) the stock dropped 53%.
The above comparison between AIM and ACSO over the last year reveals that the percentage declines are ~10% for AIM (as the total AIM suffered during the period Q4 2018 – Q1 2019) versus ~50% for accesso.
Arguably these falls were triggered by various company actions made during this period including:
- The company announcing the termination of an advanced stage acquisition that resulted in a $1.7M expense
- The management decision to launch a review of accesso’s investment priorities – following approx. £129.1M of acquisitions to date
- The stepping-down of Tom Burnet as Executive Chairman, with Bill Russell to replace him
All of these announcements, and perhaps the core financials themselves, influenced the decision by Blackrock (9th Feb 2019), to reduce their holdings (from 6.1% to below 5%), which was then immediately following by a further 5.4% decrease in the stock price.
Based on a current P/E ratio, accesso may still be considered attractive.
There remain concerns regarding cash, as spending far outpaces growth
But there are concerns regarding cash/spending i.e. spending that far outpaces growth; the policy of aggressive capitalization is mortgaging the future; and there have been some questionable transaction economics (i.e. will Ingresso and TE2 be accretive).
Pressure is on the new Board team of Bill Russell, Paul Noland and John Guilfoy to turn around a company that many believe is on a collision course with serious cash issues.
Other articles in our Finance Insights series:
- (31 May 2019): Millennial Ticket Discovery – TodayTix vs GetYourGuide
- (15 May 2019): LiveNation Entertainment Q1/19 Analysis
- (26 April 2019): StubHub’s performance in the wider eBay picture
- (19 April 2019): DEAG – Growing & diversifying the portfolio
- (4 April 2019): Eventbrite’s stock performance since IPO
- (22 March 2019): CTS Eventim’s dividends and performance
*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to [email protected]
Disclaimer: This article is for information purposes only and may not be reproduced or distributed to other persons without written permission. This article is not a substitute for the necessary advice on the purchase or sale of securities, investments or other financial products. In respect of the sale or purchase of securities, investments or financial products, a banking advisor may provide individualised advice which might be suitable for investments and financial products. This article is based on generally available information and not on any confidential information. We (the author(s) and publisher) believe the information included herein to be reliable, but we do not make any warranties regarding its accuracy and completeness. This article constitutes the current judgment of the author(s) as of the date of publication and is subject to change without notice. It may be outdated by future developments, without this article being changed or amended. The authors receive no compensation or hold any financial interest in the company or companies featured. In short, all/any ‘FP&A at TBF’ Insights are personal opinion only and do not constitute investment advice. All commentary, and content is for informational purposes only. Do not construe any such information as official legal, tax, investment, or financial advice. For any investment decision you should always seek a professional financial advisor.