Innofactor Oyj

OMXH:IFA1V

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Sami Ensio, executive]

Okay. Hello, everybody. It's 12:00 A.M. in my time in Seattle, West Coast U.S. So my name is Sami Ensio. I'm Founder and CEO of Innofactor. We have new people here, but we have also a totally new person here, Antti Rokala, our new CFO. He will present our presentation. But would you like to, Antti, say some nice words before we start?

[Antti Rokala, executive]

Thank you, Sami. Yes, I joined Innofactor as CFO 1 month ago. I will be sharing with you the highlights of the past year. I find that rather -- I find myself rather confident in doing that after 1 month because what I have learned is that Innofactor has extremely well-established financing and operational follow-up and well-established management processes. So it's kind of easy to join the company that keeps the learning curve short.

[Sami Ensio, executive]

Nice to hear, Antti. And you probably can present the presentation from your computer. And of course, if you have any questions to me, please ask during the presentation after that. But please, Antti.

[Antti Rokala, executive]

Thank you, Sami. As said, Sami is 10 hours different time zone, and there is maybe challenges with connection. So I'll take us through the highlights of last year.

I tried to find you, Sami, but I like [ the red there ], but there it is. There it is. Very shortly about the reference of the company. We have about 600 professionals working in the Nordic -- throughout the Nordic area with 1,000 customers in Nordic counties, Scandinavia and Finland.

First time last year, Innofactor reached revenue of EUR 80 million -- plus EUR 80 million, and we reached EBITDA of 11%. We will go through these numbers more in detail as we enter in the financial part. But I want to share you, before that very shortly, what is driving the development in the coming years.

Artificial intelligence is going to convert the way we work, convert the way we act in private life and it's going to affect heavily in industries and businesses, and so the revenue [ affected ] of business as well. How exactly, remains to be seen, but we have to keep in mind that artificial intelligence is going to shape our work in the coming years, coming months even.

This time is the first time Innofactor is reporting what we call solution areas. Solution areas are similar to what Microsoft has, we are Microsoft partner. The solution areas reported first time in this, what, tele-report, which was released this morning, is Digital Services; Business Solution, Information and Case Management; and then we combine data, cloud and cybersecurity to one solution area. For the reason, you will see -- understand when -- once you see the numbers by area.

Management team. Here, management team is actually the same as last year. It's only my bio that has appeared since January. Going further, both management and Board are heavily involved in company like the investment, even -- and share ownership. Even I had the opportunity to place something before I showed in the company, and I intend to continue doing so in the future.

I also saw this organization for a reason that it has been changed from last year in a way that these 3 solution areas remain as they have been. And then we have here, again, combined data, cloud and cybersecurity to one solution area to establish 4 equally strong areas throughout the company.

Financial information. Innofactor reached revenues of about EUR 22 million in the last quarter of '23. It represents growth of about 7%, 6.8%. We have a long-term goal of growing 20%. So we have a journey to go before we are there. However, we improved -- Innofactor improved in all the areas in '23, even if we are not in our long-term goal.

EBITDA of EUR 2.9 million represents 13% of revenues, and it also grew by 10% compared to last quarter a year ago. Order backlog is showing a slight decrease compared to what we had a year ago. However, we had some orders which we moved from order backlog to frame agreements, which we published for the first time this year. Taking -- acknowledging these orders more to order backlog, it will have been rather stable. It's not growing actually from year-to-year.

Price competition, we experienced quite heavily, quite intense. However, Innofactor was able to keep or even increase slightly average selling prices in '23. And we expect that the price competition to continue given the economic environment and some downturn in economy and some challenges our customers had in their economy -- economic outlook.

I'll go further. Was freezing a little bit. You can see that net sales reaching more than EUR 80 million for the first time grew by 13%. If I exclude the acquisition done last year, the organic growth would have been 9%. EBITDA exceeded EUR 9 million for the first time, representing a growth of 16.6% compared to last year again.

And order backlog, okay, would have been stable if we are reporting exactly the same way. However, we moved some orders, as said, to frame agreements, which is also released -- as were released for the first time -- published for the first time now. Equity ratio is very close to 50%, giving company a solid foundation to further broaden even investments.

There is a simple slide, which is revealing how order backlog is -- affect the revenues. Typical when we establish an order, the lead time to revenues is about 1 or even 2 quarters. So sales now is revenue in summer or autumn. And the revenues are typically immediately reflected to EBITDA as well to price.

And we need a number of people to deliver the growth in revenues, however, we need sales in order to grow a number of people. And sales, in this market environment, may be a little bit challenging for a short, temporary period. We can see that we have a rather good balance between the public and commercial customers, which gives also as a solid foundation given some economic uncertainty in the market.

We have a goal of having a 33% recurring revenue from licenses and Software as a Service. And we reached -- we came close to that goal in the last quarter. We reached -- or last year, we reached 31.5%. On the other hand, Sweden, Netherlands, Denmark and Norway, they are underrepresented in revenues. These pictures will be more balanced in the future. And they are also underrepresented in profits. The profit mainly comes from Finland.

We have a lot of key performance indicators. This table is directly drawn from quarterly report. I don't think I go through these numbers in detail. So we place questions at the end of this session regarding these numbers. So regarding our environment and market and operations, but just I refer to EBITDA and revenues, they were record high in year '23. They never have been EUR 80 million and EUR 9 million -- EUR 80 million in revenues and EUR 9 million in EBITDA.

And these are the solution areas I referred to earlier. This is the first time we are publishing our key performance indicator per solution area. We can see that we have had a stable revenues between those solution areas. On the other hand, we have a deviation in value-added per the solution areas, also profit generation.

EBITDA in Information and Case Management, which represents -- where we represent our own database product called Dynasty, is the highest. In Digital Services, we develop our own solutions to customers, tailor-made solutions to customers. And in Business Solutions, we represent Microsoft products like customer relation management and enterprise resource planning. And then we have now data, cloud services and cybersecurity services in the one separate solution area. And you can see here, the challenges are different by solution area. We may discuss this a little bit later, how do we tackle those challenges.

Long-term goals remain 20% growth, 20% EBITDA. And how did we achieve these goals in last year? And this reflects -- okay, our revenues increased by 13%, of which 9% was organic and 3% came from acquisition last year. EBITDA for year, okay, it grew by 16.6%, but it is still not in the level of 20%, which we have as a long-term goal. We have a strong cash flow, EUR 7 million operating cash flow, so with an increase of almost 8% and giving us also a solid equity position of 48%, 49%.

Now how do we want to reach our goals? Shortly, I'll comment. Operating efficiency, very simple, invoicing rate. We will have 80% to 85% invoicing rates per person, billable person. We will have recurring revenues. We will grow the recurring revenues as a percent of the operating income of the company. We have a goal, our licenses and Software as a Service to at least -- or over 33%. We came close last year.

Then we will increase the billable personnel, but that requires sales, first sales, then billable personnel and then increase the share of wallet in other Nordic countries where Nordic countries, as I said, is underrepresented for the time being in revenues and profit.

According to the dividend policy, the Board of Directors is proposing to distribute repayment of capital amounting to 0.0 -- EUR 0.07 per share. And the Board of Directors is also proposing to authorize -- to be authorized for further 7% per share later on. Market guidance, our expectations remain that Innofactor would increase in EBITDA and revenues from the last year.

Some positive news from the last quarter that were released in NASDAQ Helsinki. We gained a couple of orders, significant orders, one from a metal union, a Swedish labor union worth EUR 1.6 million; and another order book by City of Tampere in Finland, another EUR 1.6 million. So we had a successful last quarter in sales in '23.

Here, I have a listed -- we have listed some key points or from CEO's review. These are just repeating what Sami Ensio is saying in the quarterly report. Price competition remains, but we -- remain, but we managed to keep the price level or even increased to better price level. Sales were successful in fourth quarter, contributing to revenues this year.

Software as a Service and licenses exceeded 30% of revenues for the first time. And then we have some companies also working on to increase the stability of its personnel by establishing a personnel bonus fund to decrease the turnover of personnel and to commit the personnel better and earlier. We know that in the IT sector, IT brands, companies are heavily competing of IT competent personnel.

Largest shareholders remain CEO, Sami. Now Sami Ensio is holding more than 20%, 22% of the shares through his [ descendants ] also. The insurance company, Ilmarinen, and another Board member, Risto Linturi, as major shareholders. The trading of stocks has been more active in '22 and '21 than it was in '23. 18.6% of shares were traded last year. And 1 year change in stock valuation is almost stable, and that's what I have to say. Market capitalization increased from EUR 39 million to EUR 45 million.

To respect your time, I would like to keep this introduction short to give you a possibility to ask questions at the end of this presentation. So please, you are free to comment or question. And then I stop sharing.

[Sami Ensio, executive]

Okay. If there is not any questions, I would like to thank all of you being interested in this. So we have -- we'll have next quarter info in April, I think so, or something like that. So thank you, everybody. Have a nice day. Thanks. Bye-bye.