Q-Free ASA

OSE:QFR

Earnings Call Transcript 2023-Q1

[Thale Solberg, executive]

My name is Thale Kuvas Solberg and I'm the President and CEO of Q-Free. And joining me today is our CFO, Trond Christensen. I'm talking here today from America. Having it in the ITS America, were key players in intel transport type systems at gathering together to understand how can we play a future on through sensation technology in the mine. There's a lot of exciting happening in our industry, and I'm keen to tell you more about that going forward. But first, I want to give you a point on the financial results for the first quarter for Q3. We have a revenue of GBP 244 million in the first quarter, representing up 13%. And EBITDA of NOK 12 million, up from NOK 10 million and also solid cash flow from operations reflecting NOK 22 million in the first quarter. More so, we see a continued growth in ARR, Annual Recurring Revenue, currently, a 29% increase in recurring revenue for the first quarter alone and that represents NOK 361 million. For on backlog of GBP 1.4 million, GBP 1.4 million, sorry. Given a glance of Q3. We have been in this industry for a long time. We're stable back in 1984, listed back in 2002 and are now having a revenue of EUR 900 million. We have our headquarters in Norway, but we have a global outreach, having offices locally in more than 40 countries and sell into more than 50 different markets. We are not a big player of this only having 340 employees, but we are a global leader within our industry with our technology, with our innovation and outreach. We have 2 main business areas, Tolling and Traffic Management. Tolling represents around EUR 600 million in revenue and 80% of the revenue is in Europe. Traffic management on the read has 75% risk revenue share here in the U.S. and then that is more around NOK 300 million in revenue. What we do see though is a shift where the various business areas all come together, where we are also seeing how synergies across using data across will be more and more important going forward. As I mentioned, we have a global footprint. We have around 25% of our staff in test and 30% of our sales. In Europe, we have around 65% of our full-time employees, 60% of our sales. And in Australia and Poland, we have 10% of our employees and also around 10% of our sales. So why do we go to work? Why do we actually work with the ITS industry? The fact is that traffic is a global challenge. It's an economic challenge, but it's also impacting all people living across the globe. Take an example, I'm situated now in the U.S. and 27 million days of delay every year for highway freight ships in the U.S. alone, and that equivalent to 75,000. It's enormous impact from an economic point of view. Congestion is also highly relevant in Europe. And it's estimated that the cost of congestion is an equivalent of EUR 100 billion and it's also forecasted to grow to EUR 150 billion towards 2050. Something needs to be done because also 99% of the global population reefer that actually exceeds the limit that is set by WHO with regards to equality. And that is threatening our health. And taking it down every single day, 3,700 people across the Gualcalife from traffic accidents on the roads. And also, these accidents means that 50 million people are injured in traffic, and it's a major cause of death for youngsters in the age of 5 to 29. Again, global challenges that needs to be solved. And in Q-Clean, we know that technology is a bit part of this solution. SSE sustainability is key in actually delivering it. And we have, during the last years, actually gathered our product portfolio under 3 main pillars, what we call Q flow, having focus on optimization and movement of people, goods editor, we find some private lines like ALPR, where we have also an electronic multi-lay free funding, where we see ferry track trolling as well as advanced traffic management systems, ensuring that is a good flow in the bat. To claims about stimulating sustainable transportation, where we deliver products and services such as congestion charging and low emission zones, use euro use charging, waiting where the polluter pays counters and classifiers as well as a scaled pedestrian monitoring. And then we have Q-Safe, which is all about improving road and safety, where we are now working on connected vehicles and connected intersections, lane management closure as well as ALPR, what will also call Automatic License Plate Recognition. And we believe in order to be able to deliver products going forward, services to our customers, data is key. And we do with our open platforms and cloud-based solutions facilitate sharing data. We're continually leveraging our new technology. And also, we're eliminating accidents, we eliminating make reducing emissions and the quest for a better society. For those of you who have been following us for a while, you know that we have been through a sustainability and growth journey. We did back in 2018, put in a strategy where we wanted to focus our efforts in reducing business complexity. And now we're in a scale base where we actually have started in stabilizing our solutions. We are now delivering that to the market, and we're going to have a focus on that going forward. There also target selected markets. And we're doing this both alone to get -- and also together with partners. And we know the fact that we are now focusing more and more on recurring networks, building software, doing synergies across our product line are also able to and we do deliver and develop in-house world-class technology. We are leading in DSRC technology. We have class ALPR in our systems. We have skiable software and back-office platforms, also working on road user charging for the fee. In traffic management, back in the third and fourth quarter in 2022, we launched a new reloading software platform, Kinetic mobility, which has really received well in the marketplace. We have our traffic controllers as well as being from loyalty solutions. So this -- we have to see stainability, -- we have a strong focus on profitability across the value chain, but also sustainability as low about 80% of the climate corona product actually is already created in role files. So we're looking at that end solution development. We're looking at procurement and production processes, marketing as well products delivering product deliveries. So taking a few moments to look at the market highlights with test [indiscernible]. We are scaling for impact that we deliver our product services team. As I mentioned, data, understanding the potential in data is like going forward. There's also some of the reasons why we in traffic mentioned, have installed an alerts, the sector aligner this quarter. We're all installed and committed to Canton powers for some of our customers. And also not least, we have been participating in ensuring that our customers are gaining from the funding campaigns that the U.S. government has now released as part of ATNS. [indiscernible] we are spending a lot of our time on large is in Europe because there is a shift in the marketplace. New countries are coming out, Lithuania. We have delivered and make the solutions in line and also image review contracts worldwide. At the heart of what we do is continuous improvement and also focus on information security, and I'm very happy to see that we, in this quarter, also ensure that ISO Certification 2001 for information security was obtained for additional locations in Q3, meaning that we are now certified ISO for 9001, 14001 271 and 45001. Sustainability is also about our workforce being an attractive employer for the future. And I'm, therefore, also pleased to see that we have now gone from 65% on the C Index, which is a global index managed by EY, the consultant firm to a staggering 86% for Q3, meaning that our emphasis on diversity being a future leading employee is actually being recognized. We also received grants from the Norwegian Research Council for the next generation of ins tax as well as being awarded ITS Australia's connected auto-tunes and Connected Vehicle award, working together with Lexus, the ambulance service of Victoria as well as the University of Melbourne, again showcasing that partnership, sharing in wealth, knowledge, sharing of understanding of the future actually is highly valued in this industry. And I mentioned, I am talking to you today from America, and IDS is definitely receiving increased attention in the U.S. market. In March, the U.S. DOT was awarded more than USD 94 million through smart grant programs. These are our customers who are actually implementing our products and services from those sustainable cities and societies. In America now, there are 3 different grand schemes, the race grant, which is focusing on rebuilding American infrastructure, with sustainability and equity, where there's USD 1.5 billion to be received in 2023 alone. It's a smart brand around strengthening mobility and revolutionizing transportation, representing USD 100 million A for a 5-year continuation. And also their paying brand for advanced transportation technology and innovation with more than USD 60 million a year being awarded to our customers were in the U.S. market. And we are capitalizing on this assisting our customers to getting a share of these brands and also showcasing what products from Q3 can be useful in solving future problems going forward. And that brings me now to the outlook. As you understand, there's a lot of assets and positive transformations in this industry. And we are confident with seeking insight into how do we need to develop a market, our business products and also organizational investments for and to ensure that we're actually committing for these changes. So what are the trends that we see? We do see growing infrastructure that needs to be covered by tells the state purchase arbitrage because also the gas tax is also declining, mostly due to EV vehicles being on the road. We will see higher urban and into urban traffic in required facilitation and control of traffic. And for -- to doing this, the digitalization and products deliver like customers -- companies like Q3 is key. We all see a political push towards a zero economy, including -- and air pollution, to pricing mechanisms such as adjustment charging and ousting to ensure better traffic flow. And as I mentioned, we do also see a change from new altering with existing colos. So in all, there is definitely in this space, and we're leveraging on these market opportunities that are now coming up. We have spent the last continue to do so to strengthen our sales efforts in the U.S. because right now, there are such many new customers lined up in the ATM sector and also the huge market for the ALPR business. France is now opening up regional wide upgrade selling infrastructure to Morion, and we do see the same with grain share, which this core came out with a national-wide tolling system bid. So we do say see a positive drift in market demand, and it calls for a revised strategy to ensure that we are on the right strategy and with the right KPIs and for the future. We have started this journey. For us, scalable technology is key when we will continue to invest heavily in cloud-based motor technology with an open user-centric approach that also accommodates the third-party equipment and then data and integration. We do believe in partnership, and we do believe we need to have partnerships in order to grow. Therefore, we are partnering with key players and a product development delivery model as well as across the value chain. And ESG, it is now a license to operate, and data-driven footprint that calculate the value chain, including all of our suppliers, and we're working together with our customers on green has. And with that, I want to give the word over to Trond Christensen, our CFO, for the financial update.

[Trond Christensen, executive]

Good morning, everybody. As usual, we start with the key takeaways from this quarter. We are fairly consistent in the message that we have been giving over the last few quarters, maybe a little bit boring. But on the other hand, it really shows that we are consistent in what we are doing and it's all supporting our strategy. We continue to have a very strong growth in our annual recurring revenue, which is currently on NOK 361 million annualized. We are able to present an improvement in the EBITDA for the quarter year-on-year and secure a double-digit growth on all revenue this fueled by product sales. And we still have an extensive order backlog of NOK 1.4 billion and have a positive cash flow of NOK 22 million from operations. If we dig into our figures, we also see that the growth is mainly related to recurring revenues. Our nonrecurring revenues have been kind of shift a little bit this quarter. We have, relatively speaking, more product deliveries and not quite so much projects, but the continued growth in recurring revenue continues. Our margin is a little bit down. This is mainly due to the changes in product mix, which will vary quite a bit from one quarter to the other. Our OpEx is up, but a fairly modest growth. Those that have been following us will remember that first quarter of last year, we had a one-off write-down on some accounts receivables in Ukraine following the resonation. This was reversed later in the year. But it's fair to say that the underlying growth in is more than this EUR 5 million. Of course, Q3 as anyone feels the effect of inflation increase in salaries and all of the things, but we are very confident that we have this under very good control. It's also worth saying that we are consciously investing a lot in both sales resources, delivering capacity and developing our product areas, et cetera, all of that can be capitalized in the balance sheet. So it is also affecting our OpEx, but it's definitely building the future for Q3. As a result of this, we ended an EBITDA of SEK 12 million, up from SEK 10 million last year. Again, securing double-digit growth quarter-on-quarter this time mainly fueled by product deliveries. As I already mentioned and Thale has already mentioned, we have now consistently over at least the last 1.5 years, but very much focused on growing our base of recurring revenue. We are shifting part of our business model. We are focusing quite a lot on software and on the long-term service maintenance agreements on the products and systems that we have delivered in the marketplace. Like I said last quarter, there will -- it will not be possible to have the same growth each and every quarter. There will be fluctuations, but the long-term trend is definitely clear. We will keep increasing this space. We have had some questions on the percentage of ARR related to our total revenue. That's also a key figure that will go fluctuate because if we get big projects or big product deliveries, that will affect revenue there on them quite a lot while the annual recurring revenue is, of course, more stable. So for us, it's not important to have a certain percentage of our revenue as recurring. The important part for us is to have a really good solid base of recurring revenue, and that keeps growing over time. If we get product sales or one-off projects on top of that as one as they are profitable, that's great all that. Re-gearing segment revenue. As you see this time, it's the traffic management division that has most of the growth. They are basically growing in all areas of the business, not any huge one-offs on the quarter. So it's a story of growth all over, and we hope that, that will be able to continue continuously, even if the growth rate will, of course, vary. Tolling is not growing that much this work. They had some good profit deliveries during this quarter. Previous quarter, it was project activity that fueled turnover. But tolling is still possibly expecting good growth in Canton. And as I said, 15% growth in EBITDA year-on-year, even if, of course, first quarter 2022 was affected by a SEK 6 million write-down on accounts receivables in Ukraine.So these are the changes in EBITDA per segment. Traffic Management affected by not having the Ukraine write-down that I've already mentioned a couple of times now, but also a clear improvement in the underlying earnings of the division. This quarter was a bit down compared to last year, mainly due to changes in products. This will be a little bit quarter-by-quarter, but our confidence in terms of earnings in tolling is consistent. Order intake, NOK 189 million in the quarter. You see we are now for a couple of quarters on a book-to-build of less than 1. We are not worried about that at all. This will also vary a bit from quarter business. There is a few very large projects and tenders ongoing. So there will be a few months with book-to-bill on less than 1 and a few months -- a few quarters with a very significant book to beat. We are still very comfortable with the NOK 1.4 billion order backlog. Someone will perhaps ask why the backlog has increased even if we have a book-to-burn order intake less than turnover the last quarter, and this is basically due to currency changes because most of our backlog is in dollars, Euros or Euro-related currencies and due to the fluctuation of the NOK, this will also affect our absolute figures for order backlog, but still extremely solid. We also have to present a positive cash flow from operations once again of NOK 22 million. We have a negative cash flow from investments of NOK 17 million. As to be following have probably observed, we have started to increase a bit on our investment activity. It's a mixed picture what's in them. There are some investments in tolling systems and other systems that we own and actually rent to the customers. This is the part of building our recurring revenue base but we are also increasing our investments in development of specific customer solutions. A lot of it is supporting the annual recurring revenue, like, for example, the Kinetic platform that we have mentioned in previous presentations, but we are also investing in traditional Q3 technology, both in tolling and in traffic management to secure and further improve our competitiveness in the market. At the end of this quarter, we have NOK 151 million in available cash. We had no utilization of our cash pool of our facility and have a very strong liquidity reserve available. On balance sheet, I will not go too much into detail on that one, but our total balance sheet is increasing. A lot of this has to do with currency effects following the reduction of the look value. A lot of our assets are related to dollar and euro business. So our balance sheet is always affected by this. And we still have a very strong equity ratio of 49%. As a consequence of that, we have been able to reduce our net interest-bearing debt further. It's now at SEK 152 million. And yes, it gives us a good basis for investing further in the company and also taking on new larger companies, new larger contracts. By that, we go to the Q&A section. So far, it's actually not been any questions as far as I can see on nice nothing so far. So I don't know Thale, perhaps you would like to go on the screen and wrap this presentation.

[Thale Solberg, executive]

Absolutely. I just want to say thank you for joining us this morning. And we are here to build the future for sustainability and transportation. And with that, I wish you a very good day. Thank you.