Micro Systemation AB (publ)

STO:MSAB B

Earnings Call Transcript 2022-Q2

[Joel Bollö, executive]

Good morning, everyone. Welcome to the Q2 presentation of MSAB. I can see that we have a good number of attendees, which is great. I have opened up the possibility for each and every one of you to ask questions after my presentation, but you are all muted as of now. And please make sure that your mics are muted during my presentation.

So let's start to show presentation of the results for Q2 and the first half year of 2022. And afterwards, we'll take the questions in regards to the report.

The report has been out for an hour, so hopefully, you have had a chance to read through the figures for the first quarter. And it was great and I'm proud to say that we make a record high sales of second quarter for MSAB. It amounted up to SEK 87.1 million, which is equal to 35% growth compared to last year.

EBIT amounted to plus SEK 2.7 million. Last year, we had minus SEK 1.9 million, so we have almost an improvement of SEK 4.8 million.

Profit after tax amounted to SEK 2.7 million compared to SEK 2.9 million last year. And tax can varies over quarter depending on sales and tax things around the globe. Since as you know, we have subsidiaries and pay local taxes in local countries. Cash flow from the operating activities amounted to surplus -- yes, SEK 1.0 million.

So what did this growth come from? Well, proud to say that we had a broad growth in sales, so the sales is not just related to one single region or one single business. It's a broad increase in sales. We had a slight growth in Asia region. We had a significant increase in the North America region, but as well as in the EMEA.

And I think this shows the strength in our products and our offers and the improvements, both in how we sell and our marketing activities, but also that irrelatively so to our competitors increasing -- sorry, yes, improving the performance of our product shows the -- in our figures here for the second quarter.

So what does the sales consists of? Well, the 2 main areas here -- 2 biggest areas here is the new sales and the license renewals. And we can see that there is an increase of new sales and license renewals, but also in professional services and training.

A comment worth mentioning here is that we recognize revenue from our sales in licenses where we're seeing the order because we have no commitments for that. So variations over quarters can varies, but over periods, you see that we have significant growth in license renewals and new sales.

And the license renewals is a measurement, I would say, of the appreciation from our customers how well they think we perform in terms of improvements of all the updates that we give them during the license period as it is active. So we have seen -- we have seen year after year how both of these tables are increasing. So that's good.

So what does the new sales consist of? Well, if you look -- I mean, we have a product mix of different things that we are selling. And here, we can see that still the top selling product and actually the thing that increases the most is still our office version. We're proud to see that the office version has improved so much and the appreciation for what we do is -- yes, is increasing a lot.

So office version is the thing that MSAB started with, and it continues to be our best-selling product. And I'm happy, I'm proud to say that, that one is actually increasing the most. Not that we don't see performance and the increased improvements for the others as well, but to see that a product for now 19 years in row continue to increase. Well, that just shows how great this performance -- how great this improvement of this product has been for the last 19 years.

We can also see that training increases from pretty low levels. It increases quite a lot of percentage-wise. And it's simply that the societies has opening up, so we can start traveling, our customers can start traveling. And we've been limited, especially in training and services, as we also can see increases a lot here due to that -- the lockdowns and simply we have not been able to meet our customers to the degree that we wanted, and customers have not been able to travel themselves either.

So all-in-all, we can see it's a good distribution of increase of sales both in regions, but also in license renewals, new sales. And all of the new sales, we can see that there's a broad increase of sales throughout all of our offers.

So therefore, I would say it is a significant -- there is a stable growth that we foresee. As I said it earlier this year that I believe that 2022 will become a great year for MSAB.

If we look a little bit closer into the figures, yes, as just mentioned, you can see here on the top left that increased sales went up from SEK 87.1 million from SEK 64.6 million. But if we go to the right side here, we can also see on the rolling 12-month period July to June, last year we can see our 12-month revenue now is up to SEK 360 million almost SEK 361 million compared to the SEK 333 million that we did last year.

And also I have to remind you all that normally the Q1 and Q2, the H1 year period is the slowest one, I would say slowest. But it's the one that we sell the least. The top-selling quarters for MSAB is the Q3 and the Q4. So it's great to see that we are -- even though the half of this period is measured by the Q1 and Q2 that the rolling revenue now is up to SEK 360 million.

EBIT margin is -- sorry, EBIT is up to SEK 42.6 million and we had SEK 44.3 million. I'm not -- wouldn't be too worried about that. We're going to drill into the presentation of that, but that's simply due to that our cost is more equally distributed over the year than our revenue. But still, it's a good profit for that sales.

Also, return on equity, you can see we have increased from 26.6 percentage last year up to 44.8%. And the same thing for the rolling 12 months, 38.9%, now it's up to 44.8% also for the rolling 12 months.

So all in all, we continue to deliver strong results, very financially stable, no debt. So I think in the worrying times that we are in now where other type of measurements or if you look more granularly to figures into different companies that would say that I think MSAB will continue to deliver, and we'd be, hopefully, be a winner also for our investors and the stock market.

If we narrow down into the consolidated income statement. Well, here you can see figures once again, but there are some figures worth mentioning here and that sticks out. And if you just look on the top, revenue, we've seen that SEK 87.1 million compared to SEK 64.6 million . Cost of goods sold, well, it increases from SEK 6.2 million to SEK 8.8 million. Absolutely -- I mean, we are in the, what we call, normal margin around the 90% gross margin range. So it's no surprises there.

Other external costs, well, there has increases quite a lot since last year. I'm not too worried about that. I try to summarize basically what it is. And you can see that, I mean, we hardly -- did not travel at all last year. So travel cost has increased, trade shows has increased. Those 2 have increased quite a lot, which is good. I mean, it's because of those increasing that we can do such a great revenue as we do now, and things start to opening up. Last year, there were simply no travels and no trade shows.

We have also increased our marketing activities, and that's more of the long-term investment. And we see that the change that we do in our marketing activities, both in social media, our webpage, our -- yes, there's a lot of things that we've done in the past 18 months and going to continue to do, starts to pay off.

Of course, there is a currency impact on this as well. We know that the Swedish crown have lost in value compared to all our large currencies that we deal in, in Great British pound, euros and U.S. dollars and flight costs has increased a lot. When we do -- some flight cost, of course, we just push or postpone -- I'm sorry, not postpone, but we're just forward to our customers. But there's a lot of shipments being done that is not just specific shipment to customers. So those things in combined make this increase of external costs.

Natural question here will be, well, what is the level of the -- what is the level of the -- our external costs that you're going to think is going to continue to increase in revenue? Or do you think this is the level where we're going to be?

Well, I would say the second one is probably the most -- is what we believe. We believe we're going to be in this level. Around this, maybe a little bit less, maybe a little bit more for individual quarters, but this one is not direct related to the revenue. Even though what I just said that travel and trade shows and marketing activities is, of course, impacting sales, but not as direct as cost of goods sold, for example.

The other one that increases compared to last year is personnel costs. And of course, we have significant amount of our salaries paid in other currencies than Swedish crowns, so that impacts that. We have more employees this year than we had last year. We have had, during the last year, also, of course, salary increases and there is recruiting costs into this one as well.

So this is a level -- I mean, this will -- also varies over different quarters. But there is no real big surprises in these increases of other external costs or personnel costs. What I think is important to focus on is, of course, that we do such a great revenue increase. And also, by doing that, we increased the profit significantly as well.

So I said that we have currencies and employees and a lot of things happening globally. You can see that this is our global presence. That was a while ago since we showed this map and we have opened up offices both now in -- or hired staff, I would say, in both Norway and in Finland. So we continue to increase our presence globally.

We see that that's the concept for making good business. And places where we have our own staff, even if it's just a couple of people working from home or a full subsidiary, that makes the big difference if we see where success comes from.

And the demand for what we're doing by no means is decreasing. We see that the growth in volume of digital devices just continue to grow. We see that the amount of data per device just continue to grow. And of course -- and I should say of course, but there is also growth in number of exhibits per case that you need to do, which means that suspects should they have not just one device, many, many times there's multiple devices. But also more and more interest from witness phones and others.

I wrote a statement here that I used to use before, but I rewrote it now because I think it's more valid than ever. And that's the former FBI Director. Now it's many years ago, but I think he was so spot on 5, 6 years ago. I think he said that the cell phone is probably the single most important evidence you find at a crime scene today. And today, people would probably say, take away the probably, they would say cell phone is the single most important evidence you will find at the crime scene today.

So we see that the market demand for what we're doing is continuing, and it's by no means decreasing. This is not done without challenges. We see that the police around the globe is many times criticized sometimes we're not doing -- performing as good as they want or they do it the wrong way or whatever.

But it's challenged -- the police forces are challenged. And I would say that what we are doing is -- and I say the digital revolution that have impacted the whole society has also challenged the police work, and we are there to help them, I would say.

So we have great examples where police have invested fully in our systems and their performance not only in crime solely, but also appreciation from society has increased a lot. And we, I guess -- not I guess, we know that having a strategy for implementing and securing detailed evidence is something that makes a difference for them.

And therefore, we also -- we are also involved in several different initiatives. When I say initiatives, I mean that there is something beyond just what the capabilities are in the products, there are a lot of initiatives not only what we can do, also how these things are done.

And I won't go through all the examples as you see on the screen here. But it's very important that we are involved in these, and we are probably the supplier globally that are involved in most of -- most or highest number of different types of initiatives.

And what this brings in is that we've been viewed and we are the thought leader in the industry. We're not just following what the regulations are. We are there in these different initiatives also discussing how the future standards, what should be the capabilities of different -- what should -- what are the different capabilities and things that the police should be able to do and under what circumstances should they be able to do those.

We have never been on levels or high levels as we are today discussing not only -- I mean, what type of products our customers are looking for and performance of those, but it's also how we can help them change their whole process, change their whole work for the police force, regionally or nationally. So we're very proud of that.

But that said, we see there is continuing to be initiatives that we can make our -- continue -- I would say accelerate our great growth. And there's 4 different categories that we will focus on, continue to focus on and do even more investments in. And that is, of course, take lead in the opportunity to access data from phones and apps.

We support over 40,000 different phone profiles already today, and we support more than 4,000 apps. But by no means this will be easier. It's just will continue to be more complex and the lockdown and security in phones will continue to be raised. We have shown that we performed very well on that one, but that's a thing that we never can let or stop investing in.

With the amount of data, both volume of phones and volume of data, we also need to improve our technology to implement smart artificial intelligence features into our tools so we can filter out faster and smarter possible evidence, I would say.

Then also opening up for new products. We're also going to continue to focus on new verticals. Both the Frontline and XAMN, I think, has a great potential of growth. As I said and you saw on the spreadsheets, that XAMN is still our top selling product and continue to be that, I think. But I think growth potential is even higher in Frontline and XAMN products. And we also look into new segments, see what we can do on that one.

So to summarize on that, I would say I have very positive future, both short term and long term for MSAB. I think the positioning that we have, the market demands and the strong products and solutions that we can offer in combination, it's a great recipe or ingredients for future growth.

And I think it's important to say that it doesn't mean that it will be bumps on the road. We might find out things that we find challenged. But over time, I think it's great.

And by the MSAB positioning, I mean, we have probably the best rumor out there. You could call any of our customers and ask how it is to do business with MSAB. I know that they would say it's great. We see that they appreciate much more now a partner that they can trust on. It's, of course, important. It's mandatory that you need to perform in terms of what product wise. But what we can do as a supplier starts to become even more important.

So I say that was my short presentation of the figures, what I think about the market, where I think we are heading. And I'm going to stop sharing and open up for questions.

Anyone that wants to unmute and ask some questions on the report.

No? I don't see anyone doing that.

Okay. By that, I would like to thank you for listening in. And if there's anything you wonder or want to ask for afterwards, feel free to contact me through my e-mail. Okay. Thank you so much. Bye-bye.