Volue ASA

OSE:VOLUE

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Kristian Spetalen, analyst]

Hi, and welcome to this fourth quarter webcast with Volue hosted by Arctic Securities. My name is Kristian Spetalen, I'm the equity analyst here at Arctic covering Volue. As you can hear, I'm a bit stuffed in my nose, but I'll try my best. With me today, I have the CEO and CFO of Volue, who will take you through the Q4 presentation before we end with a Q&A session. [Operator Instructions].

[Trond Straume, executive]

Thank you very much, Kristian. For those of you who are new to volume, the company was created in 2020, but our roots date back to 1969 as part of the Norwegian Research Institute. We have more than 2,500 customers across more than 40 countries. Our team of more than 800 colleagues are spread across 9 countries and share the same passion of helping our customers navigate the green transition. Volue is active in 3 segments, all with relevance to the transition to renewable energy. For the Energy segment, we decided to expand from a dominating Nordic position in 2013 and into Continental Europe. Since then, we worked to expand our platform into thermal, solar, wind and batteries, et cetera.

This is important to our customers as they continue to operate their existing assets while expanding capacity in new asset types. For our Power Grid business, we enjoy a strong market position in the Nordics with decades of experience, supporting our customers, building probably the strongest grid in Europe and now tested through the EV revolution. We believe we can expand our footprint on the back end of our market position in the Energy segment. With our Infrastructure business, we work to complete a SaaS transformation in a whole market with more than 1,000 customers in the infrastructure construction business and covering 85% of the Norwegian population with our water and wastewater solutions. Combined with ongoing expansion to Sweden and Denmark, we believe in further increased profitable growth in Scandinavia.

Now let's move over to the highlights of the fourth quarter of 2023. Looking at the financial performance, we're pleased to continue our track record of strong growth in ARR and SaaS revenues. Operating revenues exceeded NOK 400 million for the first time and came in at NOK 413 million, representing a growth of 21% compared to the same quarter last year. Our annualized ARR base continued to grow and reached NOK 1.138 billion in the quarter.

To bring some perspectives, when Volue was listed in 2020, total operating revenues amounted to NOK 892 million. Consequently, the ARR base continues to be a great proof point of the performance over the last couple of years. The previously announced headwinds in nonrecurring market services revenues for the quarter were countered by strong project delivery and advisory services. In the quarter, recurring revenues amounted to NOK 272 million, representing 29% growth. SaaS revenues ended on NOK 106 million, which is 35% higher than Q4 last year.

Smart Power, Volue's next-gen optimization suite was launched in April last year. The market reception has been fantastic. During the quarter, the solution was brought live on 2 major customers in Italy, making Volue unrivaled in the country. In the quarter, the legal dispute originating for 2021 was also resolved with no effect on adjusted EBITDA and negatively impacting the result by NOK 57 million. This quarter is the second since we took control of Enerim and established Volue Energy Market Services. The integration process is progressing according to plan, giving us the platform for growth we were looking for. Volue Energy Market Services is now a strong player in the market with more than 70 terawatt hours under management.

In addition to the financial performance, I'd like to give you an update, providing insights to our achievements in the market. The Insight platform closed 369 deals in 2023. Given our strategy of building on our relationships with Insight customers, this achievement expands our foundation for upselling. We've announced and will further elaborate on the Smart Power breakthrough in Japan. In addition, we closed Smart Power deals with significant customers in our Nordic home markets and in Spain, which for us is very attractive for growth.

The Power Grid segment closed ARR for NOK 26 million in 2023, adding to our robust foundation. Spark, our initiative for managing local grid constraints have attracted 16 smart charging service providers and 4 grid operators. Additionally, the largest Norwegian energy supplier has introduced Spark week long smart charging and device in their consumer app. It is great to see the Spark ecosystem growing brick by brick. The Infrastructure segment won 100 new logos in 2023, and the construction product line has reached 90 customers in Sweden. Our confidence in global scalability for the segment keeps growing. Despite no current strategic expansion plans beyond the Nordic, we now have customers in 8 countries with no marketing activities outside the home market. This is for us a testament to the inherent business value of our products for the construction industry.

On concluding the year, it is rewarding to share our documented ability in translating ambitions into execution. In summary, the year ended with 41% growth in SaaS, 29% growth in ARR and 20% growth in operating revenues, of which the 60% were organic growth. SaaS is our growing ARR, which in turn, is outgrowing operating revenues, all with an uplift in adjusted EBITDA, precisely like we set out to at the beginning of last year.

Solid growth in ARR accompanied by an unwavering operational focus enabled us to deliver robust performance despite tough comps from the announced headwinds on nonrecurring revenues for the Energy segment. Operational focus is also what lifted the Power Grid segment from last year. And the Infrastructure segment continued its journey of uplift in ARR and margins accompanied by healthy top line growth.

For decades, Volue has built a solid license and maintenance business on mission-critical solutions, continuing to provide stable revenues. These robust cash flows, limits churn, vulnerability and enable investments in the solutions of tomorrow. This allows for a sweet combination of profitability and strong growth. On top of this foundation, we're building SaaS revenues with a land and expand go-to-market strategy. It allows us to deliver SaaS revenues that are outgrowing ARR and nonrecurring revenues. This avoids the bathtub effect while transforming the business model and improving profitability. We've gained a strong foothold in Europe through our strategy, and we're currently growing in Japan. Our progress in Japan serves as a great example of how we execute our go-to-market strategy.

The markets we operate in are already enormous and to add to our efforts in chasing growth, they're increasing in size at a high pace. When looking at this holistically, Volue is in a perfect position for profitable growth and business model transformation. And we've proven our ability to execute.

Volue's solutions are at the heart of the everyday processes of our customers, enabling efficient production and trading of power across Europe, unlocking sustainability benefits and operational improvements with higher and more consistent return, provide Volue with robust revenues, delivering unparalleled customer value every day for years has helped Volue foster long-standing relationships with a highly conservative customer group. Consequently, Volue has gained a great vendor position, where we are on the right side of the fence with industry giants, accompanied by high switching costs for customers.

Our history, track record and domain knowledge provides us with predictable recurring revenues from current solutions. Combined with an industry-leading customer churn below 2% creates a great foundation for the journey that Volue has embarked upon. On top of the robust foundation, we're building SaaS revenues with our go-to-market strategy.

First, we lead with our Insight platform. The offering is an industry-leading analytics platform for energy professionals, allowing full overview of energy markets and fundamental data. Since listing, the revenue of this product has more than doubled, indicative of both the platform strength, the market appetite for data and our ability to leverage our integrated sales force. The sales cycle of this offering is typically 6 hours to 6 weeks and a relatively easy sell for us, providing a foot in the door with the customer.

Secondly, when our customers have gained knowledge of the markets, they want to trade, and that's when we follow on with our trading solutions. At Volue, we possess the market-leading algo-trader, reaching the milestone of 50 million trades in 2023. This number is continuously increasing, pointing out to 2 main factors. We're able to add more customers to the platform and energy markets are moving quicker by the minute, making algo-trading capabilities a requirement to participate. The sales cycle of this offering is typically 6 weeks to 6 months. And thirdly, we have our Smart Power platform. When customers have insight of the markets and are trading sophistically they need to optimize their production with our heritage and decades of experience, we built the next generation optimization platform.

It is a unique multi-asset, multi-market platform, allowing for connections of all assets to all markets. This means whether you have hydro, wind, solar batteries or thermal, they can be connected to day ahead, intraday or balancing markets. Doing this helps our customers release 5% increased top line from optimal allocation of their assets. Using this offering requires customers to change how they monetize our assets. And consequently, the sales cycle is longer, typically 6 months to 18 months. The good thing is that when sold and onboarded, this is super sticky. This approach has helped us grow SaaS revenues from NOK 147 million in 2020 to NOK 397 million in 2023, an increase of 170%. And I frequently speak about how we're building ARR for the Energy segment. And I'd like to add some color to Volue's abilities to execute.

Since listing, we've been hard at work transforming the infrastructure segment. Unlike most business model transformations in the industry, we've avoided the drop in top line revenues as we built ARR. Now we're enjoying strong growth, healthy margins, robust recurring revenues while keeping customer churns at industry low levels. Altogether, this segment is in a very strong position following the successful business model transformation. And to us, this is what good looks like.

The next sequential building block is our ongoing geographical expansion to Japan. At the previous reporting, we described the Insight customer base as sufficient to start upselling our Smart Power solutions, which is exactly what we spent Q4 doing. We concluded 2023 with the first Smart Power deal in Japan, a deal structured as a proof of concept. The agreement is with one of the major power producers in Japan, and were true to Volue's go-to-market playbook of targeting customers of the Insight platform.

Expanding into new regions with optimization software through proof of concept isn't new. We successfully used this approach during the European expansion that started back in 2013, yielding significant benefits. It simplifies customer engagement, enables comprehensive value demonstration, ultimately leaving both parties more educated when making the long-term decision. Our successful implementation of the Insight platform with the customer had already earned us trust as we were scrutinized at a high level of detail, making the adoption of Smart Power, a clear vote of confidence. To us, this is a proof point that Volue is delivering a product with applicability for a global market, leaving us very excited for the road ahead.

Looking beyond our strong foundation, the building of SaaS revenues as well as a strong position in Europe and expansion to Japan. Let's look at the markets we operate in. We estimate the current European and Japanese SAM for Volue's Energy System serving portfolio is NOK 20 billion in ARR. The energy system is the green transition. And few other markets are fueled by global megatrends like the markets we operate in. At Volue, we believe the push for electrification will provide market tailwinds for as long as we can see. From 2020 to 2030, the number of power producers in Europe is estimated to increase with a CAGR of 6% from 8,600 to 15,000, bringing more potential customers to Volue. Furthermore, from 2023 to 2030, the installed renewable capacity in Western Europe is estimated to grow with a CAGR of 10% from 390 gigawatts to 750 gigawatts, bringing more volatility into the system and increase the need for Volue solutions.

Combined, this gives ample room for growth as market size will transform and Volue will expand its serviceable addressable market through geographical expansion and product development. In sum, these building blocks sets Volue up for success. Our long-standing customer relationships built on decades of domain knowledge and delivery of system-critical solutions are rare and difficult to replicate. They provide us with long cash flows and churn protections from which we can build SaaS revenues through our go-to-market strategy. We have a strong position in Europe and an ongoing geographical expansion to Japan, while our end markets are growing at a high pace, leaving ample room for growth.

With such a promising field to play on, why should Volue be the player to thrive? Well, the best and most tangible evidence are what we can find when we look in the rearview mirror. Since listing, we've been able to execute on the opportunities arising in the market and growing revenues by 64% from NOK 892 million in 2020 to NOK 1.463 billion in 2023. ARR has increased by 72% in the same period from NOK 572 million to NOK 984 million. SaaS revenues have increased 170% from NOK 147 million in 2020 to NOK 397 million in 2023. The pace at which SaaS is outgrowing ARR, which in turn is outgrowing operating revenues, speaks directly to the ongoing business model transformation.

Adding that our annualized ARR base is NOK 1.138 billion, bring some visibility to our growth. Furthermore, after headwinds on profitability in 2022, we've been able to increase adjusted EBITDA margins in '23 as guided, while undergoing such powerful growth on key metrics. From a more operational point of view and one of the indications we have on market development are the number of algo-trades on our platform. Since listing, this has increased 138% from 21 million to 50 million in 2023. The increase in trades from 2022 to 2023 is worth highlighting, given the drop in volatility in the same period. The Volue platform has become the market leader and executes about 1/4 of all intraday trades on the European Power Exchange, EPEX, on behalf of our customers. This is a testament not only to our ability to bring customers onto the platform, but also the underlying movement in the market, which is moving faster and faster, precisely like we wanted to.

So with these proof points on our ability to execute, it is time to hand the word over to Arnstein Kjesbu, our CFO.

[Arnstein Kjesbu, executive]

Thank you, Trond. I will now go through the financial performance for the fourth quarter of 2023. Volue's revenues continue to grow in the fourth quarter. Operating revenues ended at NOK 413 million, increasing with 21% from Q4 2022. The organic growth in the quarter ended at 13%. The Energy segment faced headwinds in nonrecurring volatility-driven revenues when compared to fourth quarter of '22. The [indiscernible] normal will deliver revenues is estimated to be NOK 25 million lower than compared to the same quarter last year. With that in mind, we are especially pleased with the uplift in ARR and SaaS that is outweighing the decrease in nonrecurring revenues, with growth rate at 35% and 26%, respectively. In sum, organic revenue are slightly lower than previous quarters in 2023. However, stronger than expected when we entered into 2023 with good underlying growth on ARR and service activities.

Furthermore, the margins in the quarter has improved and we are able to follow our guiding. However, 2 projects with negative booking in the quarter of NOK 12 million has improved the margins. Important to say these are not expected to continue and was fully booked in the Q4 2023. The cash flow from the quarter has been weakened from the settlements of the legal dispute in Q4. However, this is now fully paid.

Volue continues to invest in next generation solutions to meet our long-term ambitions, but at the same time, improving margins and cash flow is our core priority going forward. When we internally evaluate our progress, ARR and SaaS revenues and share of revenues is most of our important KPIs, hence this quarter is one exciting to share. Our share of revenues from ARR is 66% from the fourth quarter of 2023. And in the quarter, Volue generated NOK272 million in recurring revenues. The uplift brings ARR over the last 12 months at 67%, which is a substantial improvement from last year.

Our share of revenues from SaaS for the fourth quarter was 35% and Volue generated NOK 106 million in SaaS revenues. The uplift on SaaS in 2023 to 27% of total revenues also is a significant improvement. The growth rates in ARR and SaaS are all driven from all segments, strengthening our revenue mix and the foundations that we will continue to build recurring revenues going forward. Growing in annualized recurring revenue is driven from new sales, both due to new logos and upselling on existing customers. From July and onwards this year, we also included Enerim energy market services into our ARR base.

As stated previously in the presentation, we have seen strong sales in the quarter and the base was growing 30% from Q4 2022. Combined with low churn, this is a proof point of our path -- growth path and our profitability plan. At the end of Q4, our ARR base annualized recurring revenues on a 12-month basis is NOK 1.138 billion. This sales -- this comes from strong sales in 2020, giving uplift in our levels also when we are entering into 2024. And combined with good market outlook. This year, we expect the ARR to be solid also the -- solid growth rate also in 2024.

As we are undergoing transformation of our business models, we are pleased to see that our churn levels remain at a very low level and dropping on the last 12 months basis. To us, this is a testimony that our services as business critical and vital to our customers' performance.

As earlier communicated, Volue has settled the legal disputes raising from '21 in fourth quarter. This has influenced our -- the EBITDA with NOK 15 million and NOK 7 million in finance costs. These are all external costs that has been fully settled in 2023. Although we are not happy with the outcome, we are pleased that we can look forward as this case is settled and focus on growing the business for the product line.

We are pleased to see the progress in the Energy segment continues. This quarter, the segment is growing with 27% with an organic growth of 11%. What we are especially pleased with is the quarter -- in this quarter is the growth rate in recurring revenues and service revenues. The volatility has decreased versus last year as indicated in our Q4 report in 2022 and is in line with our expectation for volatility on a new normalized level in 2023. With the volatility revenues coming down with an effect of approximately NOK 25 million in the quarter. We are especially pleased to see such strong growth and it tell us a story that it is a healthy business, we are building every day at Volue.

We delivered strong sales due to increased demand of our services. Over the decades, we have built long-standing relations with great track record as well as positioned to continue for further upsell our solutions to also existing customers. And the adjusted EBITDA margin has reduced compared to last year. But given the high marginal profit from the nonrecurring revenues in 2022, the underlying development is strong and as we are on the right way. The integration of Enerim is ongoing as planned, and we are able to create momentum towards our combined service offerings. And in the quarter, the integration cost has impacted the adjusted margins in the period.

Power Grid segment is currently thriving. This quarter, we can report on a growth of 21% and improved in both adjusted EBITDA and ARR share compared to the same period last year. We are seeing an uplift in recurring revenue base, and that gives us growth going forward. The market outlook is good. The margin in this quarter has increased from Q4 2012 and expected to continue to grow going forward, with also uplift in the ARR. Volue invest quite significantly in addressing markets new and product for the area to meet new business opportunities.

For our Infra segment, we are pleased to see that the growth is very strong, and our shift in business model are progressing as planned. A very strong growth from last year at 32%. This is driven by a strong closing of new contracts. Margins have improved, and we are amongst the highest we have been able to report for the segments. We expect ARR improvements to further improve margins in the time to come. The current team is scaled to capture the growth and improved time to cash will continue to bring margin uplift and sustainability here forward. The improvement we are seeing from the infra segment is a great example of increased performance that can be delivered when progressing on the SaaS transformation. Back to you, Trond.

[Trond Straume, executive]

Thank you, Arnstein. Let's shift our focus to guidance. There are no surprises in our guidance as we continue to build a solid SaaS company, brick by brick. Hence, our guidance continue to be as follows: we remain confident on our target of long-term organic growth of 15%. We reiterate the target of NOK 2 billion in revenues by 2025, including M&A, which continues to be an important part of our strategy. We will provide year-by-year increase in adjusted EBITDA margin, cash conversion, share of ARR and SaaS revenues.

So thank you for listening in, and back to you, Kristian.

[Kristian Spetalen, analyst]

Yes, we have a couple of questions here. So I can start with the one from the Q&A on the web here. So first question, could you help us understand the annualized OpEx levels into 2024. For H2 '23, the OpEx level was NOK 490 million, suggesting some NOK 1 billion run rate. Is this correct given your statement on the team being scaled for growth and not having to add new headcount into 2024?

[Arnstein Kjesbu, executive]

I can answer on that. What we have been saying that our main focus is improving also on the margin quarter-by-quarter. Of course, the cost base is growing somewhat compared to the revenue size. But as we also previously stated, we do believe that we are more or less the headcount we needed. In the quarter, we also -- in Q4, we also added some more headcounts to deliver upon our service revenues, explaining some of the growth in the cost levels. But yes, we stay put when it comes to that our cost levels and the people that we have on board today is also what we need in able to grow on the levels that we are guiding going forward.

[Kristian Spetalen, analyst]

That's good enough answer. A bit on the same topic. Why was the R&D CapEx as a percent of sales, so high for Q4 for both Power Grid and Infrastructure? Is this expected to come down materially already in Q1, given you say 10% to 11% on a yearly basis?

[Arnstein Kjesbu, executive]

Yes. It was somewhat higher and due to the fact that during the year, it's [ variant ] when it comes to how money the production on these projects and also the assessment of the project, whether it's a capitalized one or not. But yes, we do think that was abnormal high for those 2 segments in Q4. And as we have guided, we stay on 10% to 11% year-over-year out of total sales as our expected R&D CapEx levels.

[Kristian Spetalen, analyst]

Okay. So just a follow-up on that. You're saying that it's just kind of the split between OpEx and what you capitalize...

[Arnstein Kjesbu, executive]

Yes, OpEx and also Q4, that is somewhat more production in Q4 because it's a fully operational quarter without no seasonality effects.

[Kristian Spetalen, analyst]

And then the projects that you mentioned that contributed NOK 12 million negatively. Could you just go a bit more into detail on what they are and what the typical normal margin on these type of projects are? Why did it go not the way you wanted? And yes, we can take some follow-ups also after that.

[Arnstein Kjesbu, executive]

Yes. First of all, this is implementation projects and also one was fully kind of finish up with in the fourth quarter, and we needed to take some losses on that and those ones. Normally, margins on those projects is quite significantly good. But unfortunately, on these 2 projects, it was not. So these ones are kind of settled. So we don't expect a negative impact from projects going forward. It's not part of our standard business model anymore. This is older projects because now we deliver more and more on our new business models without fixed price projects as these ones were.

[Kristian Spetalen, analyst]

And then if you were to characterize this as kind of a one-off. What's the revenue that was kind of entitled to these projects, just so we get apples-to-apples?

[Arnstein Kjesbu, executive]

The revenue size of these one has been carrying for kind of many years. But when it comes to, of course, this impact of NOK 12 million, this is quite significantly when it comes to the total size of the projects. So I would say that's a several percentage out of the total revenue. So usually, we don't have large implementation projects at these sizes.

[Kristian Spetalen, analyst]

Got it. And then you also mentioned some integration and the integration costs pulling down the margins in the Energy segment. Just wonder if you could quantify this, and if we should expect this to continue in...

[Arnstein Kjesbu, executive]

We -- it's very important for us to integrate the business lines at a kind of proper level to carry forward the future business models because that will also improve margins going forward. This is mainly kind of internal efforts, some external. We're not choosing to categorize this as one-offs since it's also a part of our -- embedded in our guidance going forward, but there is substantial millions that have been booked in 2023, not as one-offs, since it's impacting adjusted margins. But going forward, we expect this to be less and not significant pulling down margins for the segments. But in 2023, of course, there was impact in the -- for the Energy segment on those integrations.

[Kristian Spetalen, analyst]

Okay. And then moving a bit over to the top line here. So one question, wondering about why the ARR fell quarter-over-quarter in Infrastructure?

[Arnstein Kjesbu, executive]

Yes, we are building kind of -- the ARR level is kind of growing, growing year-over-year. Some seasonality has kind of been the percentage out of total revenues is somewhat lower than Q3 since Q3 also we have other revenues. So -- but the base is growing, as you can see in our presentation. So we expect kind of the momentum significantly also going forward.

[Kristian Spetalen, analyst]

Okay. And then also, let's see a question on Energy. High quarter-over-quarter growth in revenues, but costs follow suite plus NOK 31 million on revenue and plus NOK 25 million on costs. In the nature of the products, this is counterintuitive, please break down the development in items. I think you've touched a bit upon this with the integration cost as well, but feel free to answer that.

[Arnstein Kjesbu, executive]

Yes, of course, when you compare to last year, it was -- we had this revenues from the more volatile business. And of course, that is very much impacting the margins of shifting out NOK 25 million. That is more or less hitting directly to the EBITDA levels. Of course, we are able to shift that and also taken, as you said, some integration costs. We do think that the underlying business is from our internal investments is sort of showing better profitability. And also what we have comfort in going forward is that we are selling on the right products. And for us, it's extremely important to sell on the right products and then we are able to proof point of economy of scale going forward with the margins we expect from these product categories.

[Kristian Spetalen, analyst]

And then a question from [ Thomas Dowling ]. Payables are on the usual low level in Q4 versus the historical levels even when adjusting for the historical earnouts. Have you had any changes to your payment terms? Or have you just been too kind with your suppliers, quite a large impact on free cash flow?

[Arnstein Kjesbu, executive]

I do think, yes, that was some baked questions. When it comes to suppliers, I do think the cash flow element is mainly steaming from the Volue Energy Market Services area, which has -- which also brings collaterals through our balances and also that we then collect money also from the volumes of grids. So that's impacting the cash flow quite significantly since the volatility levels and price levels was low in Q4 compared to last year, and that's kind of impacting that cost. I know the cash flow pretty significant in the quarter and also combined to last year.

[Kristian Spetalen, analyst]

But for an annual basis or for the year as a whole, should we expect still a positive contribution from working capital as you grow? Or will it be more neutral...

[Arnstein Kjesbu, executive]

Because if you kind of -- if you move away that part of the business, you kind of see that mainly we are growing on recurring revenues. And usually, it's either 1 year prepayment or 3 months. And since we have in our business models to streamlining this, we get payments upfront, and that will definitely improve our working capital and also leave the more free cash flow for the operations and/or other investments in -- also in 2024 and afterwards.

[Kristian Spetalen, analyst]

And then any update on the strategic partnership with Enel, how does this go versus expectations and an important milestones coming this year?

[Trond Straume, executive]

Yes. So we went live in Q4. It's fantastic to see the impacts of that contract. And frankly, the impact that Volue software has a place in the Italian energy system. And as we know, Enel is the second largest power producer in the world after State Grid of China. So clearly, there's an opportunity just to continue to grow this contract, which is a global contract.

[Kristian Spetalen, analyst]

And then just a follow-up to you, Arnstein. Because I got 2 repeat questions on the same topic from the same person here. So on the Energy, with the growth of NOK 31 million on revenues and NOK 25 million on costs, the person was referring to on a quarter-over-quarter basis, why the OpEx follow the revenue side. I think one point to add there is obviously the seasonality on the cost side, right, that is impacting Q3 and then also the integration cost?

[Arnstein Kjesbu, executive]

Yes because it's hard to compare towards Q3 since that's the seasonality. And also, usually, it's more activities in Q4 and also the [ enduring ] costs combining these. So that's why we kind of see that level and also on of the project is booked in Energy which was higher on other OpEx.

[Kristian Spetalen, analyst]

And then final question here is when you expect to be free cash flow breakeven? On my calculations you kind of are, I think it's the working capital that's impacted this year.

[Arnstein Kjesbu, executive]

Yes, that's a working capital from the Energy Market Services that is impacting. So we expect the ordinary business to have good free cash flow, inflow also throughout this year. And basically, we see that there is more healthy combination between cash EBITDA, and that's the main driver this year.

[Kristian Spetalen, analyst]

Got it. And then a final one for me. You have reported quite solid growth rates in both Power Grid and Infrastructure. The last 3 quarters, I think, growth rates of 20% to 30%, while these segments have been kind of stable since the IPO prior to that. So just wondering any color on how sustainable this growth is going into 2024 and continuing to build backlog. I mean I think everyone agrees on the outlook kind of -- or the background for Power Grid makes sense, but the Infrastructure, I think, more investors are thinking GDP plus growth kind of terms?

[Trond Straume, executive]

So if you look at -- let's focus on Infrastructure, it is correct that it's been somewhat flattish on the top line since IPO, but we've been sort of very consistent and clear that this will change once we complete the SaaS transformation. And we showed the diagram in the presentation today where we're seeing that with 3 years now with a solid underlying ARR growth, we have now been able to sort of call it, wash out the classic license business. And now we're seeing that ARR growth is directly translating into top line growth. So we're delivering 21% ARR growth, which then translates to 21% top line growth and that does wonders for the margins.

So if we look at where we are, we have a very strong position in Nordic. We've now got 90 customers in Sweden. And I think there's one of the things that we truly know with Norwegian software for this space, we know that the Norwegian construction industry is super lean, super-efficient. So the opportunity for us to grow this in Scandinavia and further on is fantastic. And we also highlighted that in the presentation today that we -- without any marketing activity whatsoever, we now have customers in 8 countries, it's a testament that the software has got great business value in markets where we're currently not investing.

[Kristian Spetalen, analyst]

And then what about Power Grid of building -- further backlog building through 2024?

[Trond Straume, executive]

So if you look at -- one interesting measure to look at is if you look at the overall investment required between now and 2030, '40 and '50, if you compare renewable energy production versus power distribution. The investment required in the grid is actually outperforming the investment required for the whole renewable shift. So the backdrop is super strong. The EV revolution helps. People are installing rooftop solar, batteries, EV chargers. There's lots of need for more electricity to sort of build green industry. So all in all, the market outlook is quite strong for Power Grid. And also bear in mind that currently, we're only focusing on the Nordics. So the opportunity to sort of follow in the footsteps of that also provides a fantastic growth trajectory for Volue sort of mid- to long term.

[Kristian Spetalen, analyst]

Then a few more questions popped in there if we have time. So 2 from [ Thomas Dowling ]. So one is, should we expect no M&A in 2024, given that you guide flat cost base given that M&A would probably put that guidance under pressure integration costs, et cetera?

[Trond Straume, executive]

So how we think about M&A. We have said that we're going to do 1 to 2 M&A per year. We did 1 in '20, 1 in '21, 0 in '22 and 1 in '23. So we -- our M&A strategy is, we're looking for added and strong capabilities across the value chains. We're also looking for M&As that could help bring fast access to new and more market share. We've analyzed more than 350 companies across the European continent. We have sort of about 50 companies all on our radar, but we are super picky on the deals. So it depends whether we find the right company with the right focus, with the right culture, then we might do deals. But as and when we find the attractive ones.

[Arnstein Kjesbu, executive]

Yes, and to follow up on that. [indiscernible], we have also dealing with capacity to integrate and take on companies already. So we continue that capacity to be used, shifted venues to new acquisitions. Of course, if we are doing very large M&As and that will, of course, impact how we think of the impact from some -- for such acquisition, but that will be dependent on the targets.

[Kristian Spetalen, analyst]

I think the market also would appreciate seeing kind of the model and scalability work organically as well. And then moving to the other side of M&A because you have a strategic view on the industrial IoT segment. So a question here on the time line for any outcome of that.

[Trond Straume, executive]

So we put this under strategic review last year. And what we've done to date is that we've -- obviously, we've moved the IoT business under sort of reported as Other. Starting 1st of Jan this year, we rebranded the industrial IoT business to Scanmatic, sort of a brand that we own and that we had already. So in terms of running and operating the IoT business is somewhat different as it's sensor-based, and we're also serving more and additional industry segments than Volue traditionally has been doing. So for us, it's really about improving profitability for that segment and scaling that as a very healthy business. So in terms of time line, the team is laser focused. They know what they need to do, and we'll keep it sort of for the time being, and we'll sort of continue to assess to find sort of the right timing to potentially to do a transaction.

[Kristian Spetalen, analyst]

Then we take one last question also on M&A. If you would consider to sell the infrastructure segment if the price point is attractive.

[Trond Straume, executive]

I think if you look at Volue's DNA, we're clearly very much embedded in the energy transition, focusing on Energy and Power Grid. At the same time, if you look at technology, some of the problems we solve, there are some clear links between Infrastructure and especially Power Grid. We've been working hard with the SaaS transformation. I think we've really demonstrated that we are great owners for the infrastructure business. And moving forward, we're seeing that Energy and Power Grid is going sort of hand-in-hand in their expansion plans. Infrastructure is following a bit behind. But our thinking is that we are pretty decent owner for the Infrastructure business as well as the Energy and Power Grid.

[Kristian Spetalen, analyst]

Okay. I think that concludes today's presentation and Q&A. Thank you so much for coming, and hope to see you next time.

[Trond Straume, executive]

Thank you very much.

[Arnstein Kjesbu, executive]

Thank you.