Omda AS

OSE:OMDA

Earnings Call Transcript 2024-Q3

[Einar Bonnevie, executive]

Good morning, ladies and gentlemen, and welcome to the presentation of the achievements for Omda in the third quarter of 2024. The report and a copy of the presentation can be downloaded and found on our website, omda.com, and of course, also on NewsWeb. This presentation will consist of approximately 30-minute presentation and followed by a live Q&A session. You can type in your questions at any time, and we will attend to them later. A recording of this webcast will also be made available on our website and soon after, a transcript will follow.

And as always, I'm sitting here together with my long-time partners, Sverre Flatby. And before we dive into the details and the presentations, Sverre, could I have -- what is your high-level main takeaways from the third quarter?

[Sverre Flatby, executive]

Good question. A few very important aspects we should talk about there. One is the fact that specialized solutions, they dominate. And if you look at our quarter now and the quarters before, several so-called one-size-fits-all type of solution providers have tried and attempted to outcompete our solutions. But our solutions remain dominant. And I think that is a very important fact going forward. The recurring revenue stays on because -- and grows. And this quarter, it continued to grow, and it has done so for 30 consecutive quarters. So that's one thing.

And secondly, also large customers are expanding their solution portfolio of specialized systems. As demonstrated this quarter, a large region purchases new systems. And the systems, proven by the fact that we won a tender, a software for oncology tender in the third quarter. And this type of solution that actually handles 3 million inhabitants is a highly mission-critical software.

So if you combine those two facts, you see that long-term recurring revenue from 27 countries, diversified business with increased recurring revenue over time, coupled with ongoing deployment of new solutions in current big customer sites. And those two put together, that is actually a trend. So my friend, that trend is probably my main takeaway from the third quarter 2024.

And what is your take on the numbers, Einar?

[Einar Bonnevie, executive]

My take on the numbers from a high-level perspective, three things really. First and most importantly, decentralization works. Remember that the report and the P&L and what we see is really the weighted average over the performance in all business areas. And at first glance, it looks decent, maybe a bit uninspiring. But dive in and look behind the obvious, and you'll see that all, except for one business area, Emergency, all the other business areas, they performed well or dare I say, very well. That's one thing.

Another thing is that the recent initiatives on FTEs, on costs and decentralization of Emergency yet to show the impact. We -- and this effect will be gradually visible over time. Remember that the closing of the divestment in Cebu was at the very end of the quarter. And then, yes, we're seeing the same thing as we have. We still have some work to do on cash and cash management and especially again in the Emergency business area. But that said, yes, we are running thin on cash, but no, we are not running out of cash.

Okay. These were my main takeaways, Sverre. So now maybe you could go through the presentation and give us some more insight on the details.

[Sverre Flatby, executive]

Sure. And let's start with our fundamentals. As I mentioned, the trend is very good, and it's due to the fact that we have been having a strategy and a vision and a mission that is crystal clear on what we are going to achieve and what we are for our customers, for society. And this mission is not going to change. Running a business we are going to do changes as we go, but this is not going to change.

And what we have done over the years is to develop very good business areas. And the common thing with these areas is that they have a long-term relation with their customers, long-term recurring revenues, and they have a critical position among the customers. So that is why we have these trends going on with the increased recurring revenue over time.

And then when we look at all these without diving into the specifics, I would like to focus on the third quarter and what has actually happened here. So if you look at this, and we're going to dive further into this, and Einar will go through numbers more in detail, but just to explain what Einar mentioned about what is performing well and what is not performing well. And as you will see, most of these, I would say, actually all, are performing as expected or better, except for Emergency.

And I think that is a very important conclusion when you dive into the numbers and look at them because that is also reflecting what are the measures that we have announced previously in the previous quarters and how are we following those up to secure that the red circle here becomes green. And LIMS is the one that is yellow here, and that is why we have, over the past quarters, explained the road map for LIMS that it will take some time before they get back into a complete green situation. However, it is as expected and it follows the plan. So all in all, I would say we are quite happy with the trends and the performance this quarter.

And I'm now going to explain further about Emergency and the actions taken to secure a better performance. Before that, I was talking about our recurring revenues. And I think it is important to understand the value creation of what's going on also in the third quarter, 81% of our sales being recurring. And as you see, we have four in prioritized sequence here, four income types. And the first two are our most precious ones and of course, recurring revenue the most important. And the combo there, 83% is very good. And as you all know, #3 here, the professional services are also some kind of semi-recurring because it's always something with our customers. So this combination makes it very visible over time. So all in all, I think you have to see that the quality of income is very, very good this quarter.

And don't forget, when I talk about these trends and the increased recurring revenues, independent of oil prices, financial crisis or presidential elections for that matter, our income is coming. We don't lose money because these customers are there and they are paying their bills. And more than 90% of our recurring revenue stems from very important public or public-owned businesses. And they are diversified, 600 contracts, 27 countries. So there is no binary threat to our recurring revenue streams.

And in the bottom here, you see the high stickiness over decades and the low churn is continued. And all of this makes us very happy when we exit the third quarter, see what's going on with the trends in the market. So all in all, a very strong position to be in.

This is just a snapshot from the report, the PDF that was published 7:00 this morning. And just to shortly comment on this, NOK 103 million in sales, this income -- total income this quarter and an EBITDA of 21%, it's decent, could have been better, but decent. And the simplicity of our numbers is also important to remind everyone about because if you see the three income types that matters and the three cost types that matters, you will analyze the business clearly.

And as we did the previous quarters, just to look at the income side, the software part is really good, high quality and growing. The professional services is still slightly weaker than we expected and we want it to be. And on the cost side, cost of goods sold is actually developing very well and also other cost is where we want it to be. So then again, the salary and personnel, that cost is too high. And we explained during our previous quarterly presentations that we have some actions and measures, and I'm going to explain thoroughly what they -- the status of those and what the outcome will be. So we're not going to do anything new. We are just going to follow up what we have announced previously in the previous quarters.

So let me go through those we announced in the previous quarter and see the status there. First of all, professional services, degree of invoicing and price increases. That is something we've been working on. And as Einar mentioned initially, Emergency is the area where this is actually not performing well. So all in all, we can see that the trend is okay. The professional services will get back in the right level -- on the right level and the measures taken on the Emergency side will be the rest of the measures I'm going to explain today.

And first of all, we said in the previous quarter and the first quarter, we're going to review the sub-performing BAs. And since we have now concluded it is the one business area, let's also focus on what we're going to do. And we're not going to do something new. We're going to do what has been our successful approach earlier just to continue what we are doing and make sure that we decentralize this business area.

And why should we decentralize this business area? Well, when we IPO-ed, we were about the same size, Omda in total, as this business area. And it's no doubt that the decentralization of our original IPO situation, the decentralization has been a success. So we're going to continue that success and make sure that we decentralize this area. So that is one thing. We're going to go deeper into that and what it means.

And then we also mentioned in-shoring and remote development phase out. And what is that? Well, it is a more modernized approach and also it has to do with customers what they want as well that a local approach to development is a better model. So that is one thing. And the good news for the third quarter is that we actually closed the divestment of our Filipino operation, the CSAM Philippines. So that is done. And that will also reduce the number of FTEs in the company in the short term, but also more in the next quarters as well.

So that is the combo of that and also the third one I mentioned previously is this collection of activities altogether is the action plan we are following systematically each quarter to secure that we get where we want to be. Nothing is going very fast, so you won't see it directly in the numbers in the third quarter, but I will explain properly what the actions here mean when it comes to, for instance, cost of salary and personnel. But all in all, these activities are the most important takeaways from the third quarter when it comes to margin improvement from 21% and better.

So let me explain this graph for all of you. On the left-hand side, you have the number of FTEs. And in the bottom here, you see our quarter now in a broader perspective. You see here from '22 until '25. And what is the graph showing? Well, the graph is actually showing the number of FTEs each quarter since the first quarter 2022 and until the third quarter this year.

And I have deliberately taken these circles, added those in the third quarter in '22, '23, '24 to explain to you the numbers of the third quarter because if you look at it, you see the trend of number of FTEs versus the cost, because in the circle here, you see the cost in million Norwegian kroner for the specific quarter. And the reason -- the main reason why this number is higher than it should be is that the end of the quarter, a lot of reductions were taken and not on the average of the quarter. So that is the main reason.

So -- and I explained the actions we have taken previously to do this. And to put everything into a planned perspective, what did we do in mid-'22? We started the decentralization and then we had the so-called Project Triginta to secure that we have the trend of reducing the number of FTEs in the company compared to income. And what we now do is to carry through those actions I presented on the previous slide and then there are a couple of things that will change completely, the number of FTEs in the company in the short term.

And that is, one, the divestment, which immediately, as you see from the number of FTEs, also had an impact in the third quarter -- in the late third quarter. But then again, we have a remote sourcing ramp-down project, meaning that we also reduce further the same level once more during the first half year in 2025. And this is very important to understand to analyze our numbers.

And then I will say, as important as the other actions, we mentioned decentralization of Emergency. What is that? Well, we have identified, when we looked at our budgeting for '25, what are these natural businesses inside the Emergency business area. So there are four business units that will be created based on that decentralization process. And when we analyzed it, we find also there a lot of possibilities to reduce the FTEs compared to income.

So all in all, and this is not a guiding, but I think it's very important for everyone that looks at our numbers is, this last trend showing on that slide, you see that what is happening now is the combo of the divestment, ramp-down and decentralization will reduce our number of FTEs very much. And that is actually the most important thing when you see exiting the third quarter 2024 that will help us make sure that margin improvements are coming.

So that means, since we have this under control, that we will continue using our business model. And many of you that have followed us, you have seen this slide hundreds of times, but I think it is important, we're not going to change any of that. We have this strong position in health care, focus on this trend I mentioned with specialized health care, which is very strong that creates this long-term recurring revenue. And then to focus on the profitable growth there, at the same time, we will continue to acquire companies with strong recurring revenue that have the same characteristics that our current business areas. So that's what we're going to do.

And also, I would like to say we are not going to change or reduce our ambitions when it comes to growth. You might say we are maybe a bit behind when it comes to the ambitions in time, but we're still going to do exactly the same with the same ambition. And we will focus on those four: organic growth, profitability, cash discipline and acquisitions.

So going to be strong in Europe and also worldwide. And as you see from our numbers, we are getting stronger outside the Nordics. So this is not only an ambition, we are actually showing that we're doing it.

So that -- by that, Einar, I think it's fair to say we should now dive into the details of the numbers. So here we are.

[Einar Bonnevie, executive]

Okay. Thank you, Sverre. Now comes the fun part. Let's have a look at the numbers.

The performance in the Q3, I'd like to remind us all that what we see really, again, the weighted average performance of all the business areas. All right, NOK 103 million in total income, a decent uptick from the same period last year. And the organic growth seems a little slow, 3%. But again, it's a combination of all the business areas, 3% in constant currency, around 5% in NOK. That said, keep in mind that the license and recurring software -- recurring revenue, they comprise 83% of total sales. They grew 6%. So the most precious part of our income grows a little faster.

The margin, 21%, right, that was down from last year. But again, it's decent. But again, we will see that it's really a combination of the growth and the performance in all the business areas. COGS, gross margin, quarter-by-quarter, we improved 6.5%, approaching our target of 5%, down from 7.3% last -- in the same quarter last year.

And then salary and personnel, yes, it's still too high. It's down from the second quarter and the first quarter, partly -- mostly because of seasonality, holiday pay in the Nordics. And you see a stark reduction in the number of personnel. But again, the 271 employees, that's the end of the quarter and not the average. And then other cost is actually where it's supposed to be. We've guided around 15%, and that is where it is.

But -- and as we said, decent results, but maybe a bit uninspiring. But again, this is the weighted average, and statistics is like a bikini. What it reveals is interesting, but what it hides is vital.

So let's go into the details. The performance, as you can see, is in its entirety impacted by the performance in the Emergency business area, now to be decentralized. Let us go through this and spend a little time on this graph. This is really a graphical representation of the table found in the quarterly report. You see on the bars there, the light green is the organic growth in that business area over the last four quarters, so trend growth, if you like. The dark green is the growth in the third quarter. Then the purple bar is the EBITDA in that business area in the third quarter. And finally, the purple line is our EBITDA target of 30%. You see that between the gray area between 5% and 10% is really where we have guided our organic growth should be.

All right. If you look at this, you see that all business areas, except for Emergency, they performed well or very well. Take Connected Imaging, the growth in the third quarter is higher than the trend. Same thing with Health Analytics. The growth in the third quarter, higher than the trend. Same thing in LIMS, growing very fast. Same thing with Medication Management. Last quarter, some people were -- asked us, the growth was a bit slow in Medication Management, what happened? They're working on a new contract that Sverre just described, and we see the results now. I think it was time well spent. And Woman & Child also grows as it should. So the growth in all business areas, except for the one that isn't decentralized is within our guided range between 5% and 10%.

Then have a look at the profitability measured in EBITDA terms. Connected Imaging is around there. Health Analytics seems to be a little below -- hey, keep in mind, there's no CapEx in Health Analytics. So if you added [ 10% normalized CapEx, you would actually be at 35% ]. And then we have LIMS. We have said that this -- that is an area, it's growing fast, received a ton of contracts. But the performance, it will take some years. For instance, the Danish contract, it will take some years until it reaches and comes on plateau. But from then on, it will perform very well. This is an investment that we are doing in this business area. We think it's absolutely brilliant. Then Medication Management won new contracts, far outperforming our targets on profitability. And the same thing with Woman & Child, decent growth, absolutely and decent profitability.

And that leaves us with one culprit and that is Emergency. And what we are going to do now is to say that, okay, hey, the recipe that we gave to all the other business areas that work so well, we're going to prescribe exactly the same recipe for Emergency, do exactly the same thing.

One more thing on Health Analytics. We did -- we have done two acquisitions within that business area. It was -- and the last one was completed in the first quarter of 2021. Coming back to what we have said about how long does it take? We said it takes 2 years to buy, integrate and build model. So we said that, okay -- sorry, I said '21, I meant '22. So first quarter '22, 2 years after the first quarter '24, what did we see in the second quarter this year? We saw performance was improving. And now in the third quarter, we see that the performance is improving even a little more, right? So -- and again, we say what we do and we do what we say.

Okay. And of course, Emergency, I said that was a culprit. And of course, it has a huge impact on the total results when you see that this represents such a big part of our total business, 43%. We see that the other business areas, we are a well-diversified company and also geographically, interesting to note that the rest of the world approaching 20% of our total sales.

Speaking of sales, the most important part of revenue is the recurring revenue. And we see that it is steadily increasing, has been so for almost a decade. It's now -- it grew 6% year-over-year and annual recurring revenue now represents NOK 334 million. So this is very comfortable. And again, the counterparties within the public sector and minimal churn.

The revenue mix is a favorable one. We saw that, again, software and new licenses and recurring revenue represents a large part, 84% of total sales. And also please note that, year-to-date, if you look at the year-to-date numbers, you'll see that the increase in sales year-to-date on the licenses is notable indeed. And hardware sales, they were a bit low this quarter, nothing special, seasonality -- they come and go. We wouldn't be surprised if they pick up in the fourth quarter. Again, professional services, they were a bit lower than expected and on par with last year. But again, if we break it down and see who performs and who do not perform, it's not like nothing has happened. I mean, Sverre mentioned that we were promoting invoice-your-hours and do some work. Most business areas, they perform on par or above last year or well above last year. There's one, again, one culprit and that is within Emergency. So it's all linked to that business area.

Cost is developing favorably. There's still more to do on PersEx, yes, but of course, we will continue to focus on the gross margin, of course, targeting 5%. We are on track slowly but surely, we're getting there. When it comes to the number of employees, again, the reduction in FTEs implemented -- they were implemented at the end of the quarter. This is in its entirety explained by the divestment of the Filipino operations. We agreed the terms at the end of June, at the end of the second quarter. We said during the second quarter presentation that we would close the transaction during the second half of this year, okay? We closed it during the third quarter at the very last day. And then also the 20 people were released from their duties, but that happened on the very last day of the quarter. So obviously, it had no impact on numbers. So the 271 FTEs that we present as the end of the last day of the quarter, it's not the average, right? So that will have effect from the fourth quarter and onwards.

And the same thing with the decentralization of Emergency, that will take place in the fourth quarter this year. So that will take -- have a full effect from the first quarter next year. That is what you should put into your model. Okay. Other costs, half of it office lease software for internal use, et cetera, it's where it should be.

Okay. The EBITDA margin, yes, it's below target for reasons that I have explained. Again, it's a weighted average, most business areas, except for Emergency and also LIMS, they are on -- at or above the target. That said, it is a significant improvement compared to the first quarter of this year. And also, please note, year-to-date -- it's not only this quarter, year-to-date EBITDA margin has improved and also the nominal number, the NOK and the cash EBITDA. So year-to-date is also -- we see an improvement there. And the current ongoing initiatives, both like the divestment of Cebu, the effect that it has had already and then the gradual effect it will have during the -- over the next half year will have a positive effect. The same thing with the decentralization of Emergency and the rightsizing of the cost structure there, it will have an effect, but it's yet to come. We have started, but we are not there. Again, during the fourth quarter, we will complete the decentralization of Emergency. You will see the effect -- full effect from the first quarter. The -- so that is that.

The CapEx, it is just what we have always guided on. We have -- our guidance is around 10%. It was less than 10% during the third quarter last year, it's less than 10% this year. What you may notice that the CapEx not related to software, the PP&E was reduced. It's normally around 1%. It was 1/10 of that this quarter. We didn't have to invest that much. We are managing it efficiently, and we didn't really have to invest. So if you don't have to spend the money, we don't.

Okay. The net working capital and cash, let me spend some time on this. I would say a bit disappointing, we must admit, compared to our targets. So there's absolutely no doubt. There's still more to be done in this field. But again, why is it as it is? First, remember, there is seasonality in the net working capital and cash numbers. Typically, approximately 50% of our recurring revenues, they are invoiced and paid upfront on annual fees. And right now, remember, NOK 334 million, so say, NOK 340 million. So more than NOK 150 million to NOK 200 million are to be invoiced and paid annually upfront. Right? That will be invoiced in the fourth quarter, so this quarter, and it will be paid in -- at the end of this quarter and early next quarter. So that is the seasonality of the business.

That said, our target is to have a net working capital of minus 10% or better. It was minus 5% last -- same time last year. It's minus 5% now. A few things that should be adjusted for like the sale of the Filipino operations as a seller credit and also Norwegian tax refund arrangement that usually is paid in the third quarter, now paid in the fourth quarter, no drama there, but it represents approximately 2 percentage points. So in all fairness, it should be minus 7% versus minus 5%, but still not good enough. So you should expect to see a stark improvement in Q4 and especially Q1. So that is -- and again, we're not -- we are a bit thinner on cash than we would have liked, but we know where to find and we are not running out of cash.

Okay. That said, again, our target and goals, they remain the same, and we will continue to grow organically, precious but hard, and we will try and we will continue to do smart acquisitions like the one we just announced with Predicare, and we will probably continue to -- we continue to work on those small and smart acquisitions that will take us there.

Okay. To conclude, our priorities, we will continue to focus on organic growth. And as you have seen, it is very good in all business areas, except one. We will continue to improve the margin, and we have told you how. And it's about maintaining growth and reducing the salary and personnel as simple as that. Cash discipline, yes, cash conversion, net working capital, everything that has to do with accounts receivable, everything that has to do with that, it's a focus and top priority area. We will continue to further decentralize. Again, the medicine that worked so well for all the other business areas, we will prescribe the same for Emergency, and we have full confidence it will work there, too. Was it that Mark Leonard who says, we are anti-economies of scale corporation? And last but not least, we will continue to focus on M&A. If we can do smart moves, we -- smart acquisitions, we will, of course, do them.

Okay. Before we go into the Q&A session, remember to subscribe to our newsletter, just scan this code with your mobile phone and you can sign up for the newsletter.

[Einar Bonnevie, executive]

Okay. Time to move into Q&A. And we have some questions here. We have currently 13 questions. We will attend to them. And as we address them, you can continue to type in your questions as we speak.

One of the first questions here, Sverre, relates to the performance in Emergency. And that question is, can you expand on the slower growth in Emergency? It seems like it was driven by tough competition, given the strong growth last year. What drove the strong growth last year in 2023? And what has changed? Did we lose any customers or any churn or what happened?

[Sverre Flatby, executive]

No, not at all. Not lost customers. That's not what's going on. It's actually a large implementation project. So, much of professional services, for instance, in one of the areas that becomes a separate business area. So we see also inside Emergency, the same that we see when we transparently look at all the different other business areas we have. So no, there's no trouble there. It is the simplicity of the combo of the continued projects going on versus the number of heads you have in the company.

So when we dived into the decentralization, we see that there are a couple of things on the income side, efficiency and invoice hours, as we have talked about, and there's a couple of things on the number of FTEs. So the actions I presented a few minutes ago, they will solve this problem, this challenge in Emergency.

[Einar Bonnevie, executive]

Okay. There's another question on Emergency. You may have answered it partly already, but the question is, what is the problem with Emergency? And what are you doing to address it?

[Sverre Flatby, executive]

Yes. I think a more general answer to what is the problem is actually, in my head, that it wasn't -- isn't decentralized because it's complex software. It's also a lot of different types of software. And to get synergies between them and to have all these business areas to perform well, the clarity and responsibility is actually more important than people think. So we are now working on appointing the four leaders and will, from the 1st of January, solve the problem by being decentralized. So that is actually, in my head, the fundamental challenge that it hasn't been. So all in all, we're quite happy with the development there.

[Einar Bonnevie, executive]

Okay. There's -- let's continue with Emergency. And there's a question here from [ John ]. What will the effect from reduction in FTEs be on personnel expenses in Q4? And what are expected cost effects from reductions in Emergency?

[Sverre Flatby, executive]

Well, we haven't published these numbers in the quarter. But as I showed you in the graph, when it comes to the number of personnel trend -- and you can download the presentation, and you will see the trend there, so you can make your own calculations. But obviously, there are a number of people when we decentralize, we see that there are a number of people there as well. So all in all, the summary of the ramp-down of the remote sourcing process and together with the Emergency process, decentralization, we see that the summary of that brings us back to where we want to be, and that's the most important thing. And you can do your own calculation using that slide.

[Einar Bonnevie, executive]

Okay. And another one on the FTE side. Let's take a look at that. I believe we touched upon it. It came in before I went through. But did the headcount reduction have any impact on OpEx in Q3? And what was the timing of the reduction in Q3? And when do you expect the additional 30 FTEs to -- being planned for 2025? And can you say something about the timing for this cut? I combined two of your questions, Emilie.

So as we said, the employees, the 30 FTEs that left us in the third quarter -- sorry, 20, they left us on the last day of the quarter. So we had no impact on Q3 whatsoever. It will impact on Q4. And the remaining 30 that are still there, what can we say about those?

[Sverre Flatby, executive]

What we can say is that each business area that uses is primarily three business areas using these people. They have the plans to secure that we ramp down everything within the first 6 months of next year. So that is the plan. And before that, the decentralization will add a reduction in Emergency.

[Einar Bonnevie, executive]

Okay. Then a question about the income side. A few questions from John here. And one is related to professional services. And the question is, what's the status of professional services? What has been done? And what are the effects so far?

[Sverre Flatby, executive]

Well, all the business areas have gone through in detail the effect and how each individual is performing. And the good thing is that every employee in the company, including Einar and myself, we are logging our hours to secure that we have a complete company-wide statistics. And based on that, all the business area managers have done a thorough walk-through of how this is working. And as you -- as Einar mentioned, when he went through the slide per business area, I think all of them are performing well and has had the effect entering the third quarter compared to last year. So all in all, that has went really well, except for Emergency, where we see it's relatively slower than it should be. But then again, to fix that, the decentralization and the transparency and focus and responsibility will fix that as well.

[Einar Bonnevie, executive]

Okay. There are some more questions on FTEs and the Philippines. And also the timing of the effects and the question is, what will be the -- what will the effect be from the Philippines divestment be in total? And what effect will we see in the results in Q4, Q1 and Q2 next year? So I guess this relates to the timing, when will it kick in? You have touched upon it, but maybe can you be more precise? Or how should we think about this?

[Sverre Flatby, executive]

Well, we haven't -- again, we haven't published specifically what this part and the other part is doing. But the simple calculation is this that the summary of the number of heads reduced in the fourth quarter based on Emergency decentralization is one thing. And the first two quarters next year, we will finalize the ramp-down of the Philippines. And the summary of that is bringing us back to where we want to be. That is actually the calculation that I've done.

[Einar Bonnevie, executive]

Okay. Thank you. Another question on the Philippines. I'm trying to group them here. How similar are the OpEx FTE levels of the Philippines FTEs versus on a group level?

That is a very good question. And the thing is way back in 2008 or actually before when the Cebu operations was first acquired, the cost difference was substantial. But over time, it's fair to say that, one, the salary increases in the Philippines has been higher than it has been in the Nordic. Inflation has been higher. New pension schemes, et cetera, have been introduced. And also the Norwegian krone has weakened very much against the Filipino peso. So the huge cost advantage is really disappearing. It's still there, but it's not as of the same magnitude it was 10, 15 years ago. It varies a bit, the cost level. So the lowest paid are definitely on the salary base alone more competitive. The highest paid are approaching Nordic salaries. So that's where we are. I think I'll leave it at that.

And then there's a question still on salaries. And I completely understand because that's what we have to attack. I mean, COGS and other costs, yes, but that is also the [ claims in Porto Bone ]. We need to focus on FTEs because that is where the bills are. That's the bill fold. And can you explain what the difference between personnel expenses in Q3 last year due to this year consist of?

So you're probably asking about why the jump. And the reason is, there are several things. One is the annual salary increase that comes. That is one part. One part, there are actually more people, that is another part, and some consultancy. So that is -- and I guess where most of the consultants are in Emergency. So I don't have to -- so that is a cocktail of those really.

Okay. And then let's move on to M&A, Sverre. There are some questions here on M&A. And that is about the M&A funnel. How many targets do you have that are a good fit with your existing business areas? And are you in DD with any? And what are the size of these targets?

I guess you have to tread carefully here.

[Sverre Flatby, executive]

Yes, I agree. It's, of course, difficult for me to talk about things going on. They are not published. But what I can say in general is that we have, as you've seen, been quite -- it has been a slow action on the M&A side the last couple of years, although we started with one that we published now that will be closed in the fourth quarter. But that doesn't mean that we have high -- don't have high activity on the area. So what we have, we have a lot of discussions, both with smaller targets, the size of the one we published, and we also have discussions with bigger ones. So we do that and have that for years. And also the one we published, just as an example, we have talked to them for many years since more than 5 years.

So all in all, I'm confident that we have a funnel that is good enough to reach the targets that we published when we IPO-ed. I know that we are slightly behind when it comes to the year, we hoped to be there. But all in all, the funnel is good, and we handle it properly. So you just have to wait to see, and we will publish the new projects when they arrive.

[Einar Bonnevie, executive]

Okay. We have 6 minutes left and 5 questions. So let's try to attend to them. Another question related to M&A and funding of it. How many newly issued shares will be bought back and how much dilution should be expected in the long run? And what are your competitive advantages when it comes to acquisitions compared to other serial acquirers?

Let me take the first one, and you can take the second one, Sverre. We have bought back shares amounting to approximately NOK 30 million. And you can see the -- in the table in the report, you'll find an overview of what's bought back. And there is no dilution in buying back shares and [ use of them ]. There will be a dilution if we issue new shares as a compensation for an acquisition.

And the competitive advantage, what are they, Sverre?

[Sverre Flatby, executive]

Well, if you take an example, like the acquisition we announced a few weeks ago, that is a typical thing where the owners see that the best home for their solution is Omda. And such a triage solution, a highly valuable methodology and software that has been working for 20 years and then add that to contracts and processes that we have, then you see the synergy. So that is why we get more out of it and also it's good for their customers and for their employees.

[Einar Bonnevie, executive]

Okay. Two more questions here that relates back to the salary, personnel expenses, EBITDA margins and the timing. Let's take those. And one is about the seasonality effect on the salaries.

The seasonality effect, typically, you see it in the third quarter is related to holiday pay arrangements and the accounting for these under GAAP, [ SGAAP ] and NGAAP. It amounts to, say, roughly NOK 10 million if you compare Q2 to Q3 around there.

And then one question from [indiscernible] and that relates to the margin. You say your current ongoing initiatives are expected to take you to your EBITDA margin of 30%. Can you give us a detailed bridge from where we are today to your 30% goal with what each step will bring and the circa timing of it?

How precise can we be? Maybe we get a chance to go more into the detail later today. [Technical Difficulty].

[Sverre Flatby, executive]

Yes, there's at least one thing that the graph that I went through today, which is in the presentation, you can download. If you use that to calculate, I think you'll find the answer. I think it's as simple as that. As you see the strong growth on the recurring revenue, that will stay there and you see the reduction of FTEs, you will get the answer.

[Einar Bonnevie, executive]

But maybe one way to think about this, Sverre, is that we said that we have launched initiative of the de-ramping in Cebu. We have sold and we closed that divestment. Approximately half of them, they left us at the end -- last day of third quarter. They are not there in the fourth quarter. The rest will gradually be phased out until the second quarter next year. And so that's one way to think about it. And also, I think you said that the decentralization of Emergency will take place and be completed in the fourth quarter. So we're heading into the first quarter next year with a completely decentralized organization.

[Sverre Flatby, executive]

That's correct. And if you put that into your calculation, you will get the answer. Yes.

[Einar Bonnevie, executive]

Okay. Two more questions. One really relates to M&A, I assume, and that is what is the size of the seller's credit?

Right now, there is no seller credits, so no off-balance sheet seller credits. In the bond agreement, we have a carve-out for up to NOK 100 million in seller credit. But right now, there is 0.

Okay. There's one more question and 1.5 minutes. So I think this aligns well. The last question is a little different. What would you consider to sell the company if there is an offer at 4x to 5x sales? And what is your agenda for succession and deepening the bench?

There's really two questions bundled as one. First, when it comes to selling the company, if someone makes a bid for the company, that will be handled according to laws and regulation and good corporate governance. So that would be handled by the Board and decided by all shareholders and recommendation would come from the Board on any offer. So that is really a Board and general assembly question.

And the last, what is your agenda for succession and deepening the bench?

I mean we will not live forever, Sverre, even if we -- we can try, but we'll probably die trying. So what about succession?

[Sverre Flatby, executive]

We're going to stay there forever. I think that's the initial plan. And of course, what's going on now is very interesting. We're going to stay there till we reach our goals, and we'll see what happens.

[Einar Bonnevie, executive]

So you're not getting rid of us that easy. We actually enjoy what we're doing, and we are on the right track.

Okay. There seems to be no more questions and time is up. We hope you have enjoyed this presentation. And hopefully, you have come to the same conclusion as we have. The glass is not empty, it is half full and we will promise to keep filling it over the coming quarters.

Tune in again late February when we will present the results from the fourth and final quarter of this year. And until we meet again, thanks for watching, enjoy your weekend. Take care and stay safe.