Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2024-Q3

[Jacob Tveraabak, executive]

Welcome, everybody, to this StrongPoint Q3 presentation here in a beautiful morning in Vilnius. My name is Jacob Tveraabak, I am the CEO of StrongPoint. And with me today, I have Marius Drefvelin, as always, our CFO. I will start with a short introduction of StrongPoint followed by our Q3 results and then additionally, some highlights before handing over the word to Marius for the final piece.

Let me first start with the StrongPoint's purpose. And we're getting retail technology in every shopping experience from smarter and better life. And the way we do that is by impacting the grocery retailers to drive efficiency savings, thereby allowing them also to increase margins, either by reducing prices to customers or through its own bottom line, but also impacting end consumers, enabling a smoother shopping experience.

The way that StrongPoint allows for that to happen is to offer a broad set of products and solutions, own and proprietary technologies and third-party technologies. And that is a combination of what we call in-store productivity improvement solutions, but also a very impressive set of e-commerce offering, handling both what's happening in the store as well as outside the store.

We are present in 9 countries with an impressive set of reference customers across these 9 geographies. Our StrongPoint sells its products and solutions. We just not only sell products or solutions. We also ensure that we do the appropriate installation for the solutions and products to function. We take care of the service and the support to make sure that these solutions work as optimal as possible as well. And this end-to-end ownership and drive of the products is what is driving both the best customer experience and satisfaction, but also, of course, to the benefit of StrongPoint, the benefits financially for StrongPoint.

Now allow me to get into the Q3 results. Firstly, our revenue in the third quarter increased by 7% or NOK 20 million to NOK 313 million in quarter. This growth is driven by very impressive product improvements in the Baltics and Finland, with a 36% revenue growth compared to same quarter last year. And similarly, in Sweden, with a 25% revenue increase from many, many impressive products. We're also seeing a staggering 176% improvement within e-commerce. This is driven by a combination of products, Click & Collect Lockers predominantly being sold to the market as well as our Order Picking solution. The growth in our Order Picking solution contributes to a 10% increase in recurring revenue. And we're we in StrongPoint talk about recurring revenue, we also include service support contracts. So if we are only looking at the software recurring license fees were actually growing by 33% in this quarter. Again, this is predominantly driven by the plug-in of the Sainsbury orders.

If we also -- and I'm saying this also despite the fact that we're seeing a rather negative growth in the shop fitting market. We have a NOK 35 million reduction in shop fitting. And despite this, we're actually seeing this increase of 7% in our revenue.

If then I go to our EBITDA, we're improving our EBITDA with NOK 8 million to NOK 12 million or close to 4% EBITDA margin. Obviously, that is not the level we aspire to be at, but it's a move in the right direction. And in particular, if you think about the fact that the EBITDA is being kept down again from a loss of NOK 14 million from shop fitting business compared to the same quarter last year. This is quite an improvement in the financial results. The financial results is obviously a combination of the great project-driven performance and software licenses. We're getting in this quarter, but it is also the effect of the organizational and cost measures we have taken earlier in the year. I'll be also very happy to say that although we have a rather big decline both in revenue and EBITDA for the shop fitting business, which is a U.K. and Irish business line we're operating. I should say that we are experiencing a very impressive set of opportunities in these markets. As examples right now, we are about to start 3 separate yet with Tier 1 customers, proof of concepts on the Vensafe solution. The first 1 actually starting next week. We're very prosperous about what that solution can offer to the U.K. market where that is a really, really big issue. We're also seeing, again, on the back of the successful launch of the Order Picking solution that we identified and announced earlier this year. A proof of concept on the grocery lockers that StrongPoint offer.

So all in all, in the U.K. market, there's a lots of opportunities arising in that market that is not reflected, unfortunately in this quarter's results. But the U.K. is certainly a market we have great expectations about in the future.

If I then may move on to some of the customer success stories that we announced in the third quarter. Firstly, again, I must say on the -- probably also on the back of the earlier announced Sainsbury's Order Picking, we're seeing the attention we're getting really worldwide for our solution. And as a result in the -- in this quarter, we announced the win with the leading q-commerce player in New Zealand, Delivereasy, where we are now delivering the order picking solution to handle all the volumes.

Secondly, we have now officially launched the world's first 3 temperature zone, AutoStore. This is a big event for StrongPoint. It is also a big event for our customer delivery [indiscernible]. And it's a big event for AutoStore. Having been at their customer and partner event earlier this month, the 3 temperatures or multi-temperature zoned AutoStore is a world news, which was repeatedly taken up on stage at this event.

And lastly, being in real news here now also overseeing the rollout of our self-checkout solution, our award-winning and very, very proud to announce the roll out our self-checkout solution to Maxima, which is the largest grocery retailer in the Baltics. I feel very confident about both a good continued rollout this year, but also well into 2025.

I also wanted to provide an update to investors very shortly on 2 very important projects for StrongPoint. One being, of course, the Sainsbury's Order Picking project that we announced in Q1 that we have now started to roll out. We're now live in at the end of this quarter in 13 Sainsbury stores. First phase has been successful. We're getting very positive customer feedback. And whilst we're now going into a, call it, freeze zone, meaning there will be no additional rollouts due to the Christmas and holiday season. We will be rolling out the remaining stores getting us up to close to 300 stores in Q1 and in Q2. It is important also for me to get across that as with any good -- and you'd expect normal software license contract we have already in this quarter, as you've seen, started charging the minimum order quantities that is defined in the contract with Sainsbury's, which means that as we are rolling out more and more stores, we need to get to orders or the number of orders beyond these minimum order contract volumes for additional revenue to get to StrongPoint's.

That said, of course, both we and Sainsbury's hope and believe that we will get beyond these minimum order quantities. That is something we will be working towards in the next quarters and years to come.

The last large product update I will give is on CashGuard Connect. Earlier this year, we announced the largest grocery retail chain in Spain as the customer of this very exciting cash solution, a revolutionary cash management solution that we now have out in a live store. Since the announcement, we have been working on continued development and industrialization of the CashGuard product. With the final developments now being in the end of completion and ready for the next set of pilots. The testing and ongoing pilots will be ongoing, so that we have as a goal of starting the really -- implementation of ready-made industrialized product in Q4 2025. We're also seeing with the announcement and with the sharing of what the CashGuard Connect solution can offer. We're seeing a great amount of interest, both in Spain with other clients in the U.K. and in other markets as well. So we're very hopeful and prosperous about what the CashGuard Connect solution can offer not just in Spain but also beyond.

And with that, I'd like to hand over the word to my colleague, Marius Drefvelin. [Foreign Language], Marius.

[Marius Drefvelin, executive]

Thank you, Jacob. I will now go through some of the other financials for the third quarter. To start off, we have positive earnings per share in the third quarter of NOK 0.06 with positive impact from our operational performance as well as financial items. As shown on the figure to the right, the 12 months rolling earnings per share also improved from negative NOK 1.59 the previous quarter to negative NOK 1.32. If we adjust for the noncash amortization related to previous acquisitions, the 12 months rolling EPS was negative NOK 1.05. So overall, an improvement quarter-by-quarter.

That was the earnings per share. Now this figure shows the 12 months rolling recurring revenue. And this consists mainly of 2 parts. First, we have the service agreements which relate to maintenance and support agreements plus field services and spare parts on our products. And second, our license revenue which includes both third-party licenses and our own IP.

The final and third component is rental revenue on CashGuard in Spain. Compared to the third quarter last year, the total recurring revenue increased by 10% to NOK 346 million. This growth was fueled by a 33% increase in license revenue driven by the new order picking contract that Jacob has already touched upon. But there is also growth in license revenue on other products, including grocery lockers. So what about the cash flow movement so far this year? We started the year with NOK 39 million in cash, which has been reduced to NOK 34 million at the end of this quarter. The negative EBITDA of NOK 3 million has been improved during the third quarter as we have touched upon. Moreover, the working capital has improved mainly due to reductions in inventory. We have spent NOK 23 million of CapEx so far this year. And as we have talked about before, this mainly relates to the development of the CashGuard Connect project in our joint venture in Spain, but it also includes CashGuards for rent as well as other fixed asset investments. All other development costs are expensed over the P&L. The other main cash item was leasing payments of NOK 22 million. These were the main cash items so far this year.

Now let's move further into the key components of the working capital development. And as the figure shows, the working capital has been reduced during the year by NOK 5 million. And as we have said earlier, we are a project-oriented company, and therefore, the working capital levels will depend on the volume and the type of projects that we deliver. There was an increase in accounts receivable as we had an increase in deliveries at the end of the third quarter. To mitigate this, however, we have been able to reduce the inventory quite significantly by NOK 49 million so far this year. And managing our working capital level is a continued priority for us also going forward.

So turning from our main working capital changes so far this year to the development in our net interest-bearing debt. Well, first of all, we have been able to maintain the debt level in line with the previous quarter with a small increase from NOK 105 million to NOK 109 million at the end of the third quarter. Moreover, we had disposable funds of NOK 61 million at the end of the third quarter. We have previously informed that we signed a refinancing agreement to improve our headroom. This new financing, which is with L'Oreal Bank is a combination of an RCF facility and working capital financing for a total of up to NOK 200 million. We have now started the working capital financing solution, and this will continue to improve our headroom during the year and going into next year. And with this new financing arrangement, there will be an equity ratio covenant of 30%. In comparison today, we have a 48% equity ratio.

So to finish off, later today, there will be a Q&A call at 10:00. Please log in through the link on our website, where you can post your questions. The next quarterly presentation will be on the 13th of February with our fourth quarter results.

So with this, we thank you for your attention, and wish you a great day.