Arribatec Group ASA (ARR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Arribatec's Q1 2023 Presentation. Today, as in previous occasions, we will be looking at the financial performance, talk a little bit about the market and contracts and also some words on operational issues. Let me first start with the highlights of Q1. We have an all-time high quarterly revenue of NOK 150 million, that is a 19% increase compared to same period last year where we had NOK 126 million in total revenue. More interestingly, for me at least, is the fact that we now are reporting positive EBITDA of NOK 5.3 million. That is a NOK 11 -- or more than NOK 11 million improvement compared to same period last year and is something we have been working hard to achieve. Lastly, from a financial standpoint, it's important to note that we, as of today, have NOK 62 million in cash in our bank accounts. And on top of that, we have a NOK 20 million credit facility with our bank, Danske Bank, which has not been utilized. So in total, NOK 82 million in liquidity at the end of Q1. I will come back to liquidity a little bit later in this presentation. Also, we see a strong demand for our services across the board in Arribatec. And interestingly and importantly for us, we have seen an increase of 25% for our consulting services. As you can see here, we have had a strong business development quarter, sales quarter. We have landed a total of 465 new contracts this quarter for a combined value of NOK 191 million. That is also for us a record high quarter. Lastly, I just want to highlight that we have opened and are building up now a Cloud hub in Granada in Spain, where we already have people in the office. And we are building this hub together with the other activities that Arribatec has in Spain. Lastly, we want to mention that we again have been reappointed as a global elite partner by Unit4. And needless to say, we are very happy with that. We are still the largest partner for Unit4 globally. So let's look a little bit more in detail on the financials. As I said, NOK 150 million in revenue. That is all organic growth. So 19% growth compared to the same period last year, all organic. Recurring revenue is, for this quarter, NOK 51 million. One year ago, it was NOK 47 million, so it's a 9% increase. And it accounts for 34% of our total revenue in the entire group. Lastly, we have an EBITDA of NOK 5.3 million positive. Again, that is more than NOK 11 million improvement compared to the same period last year. And we have a EBITDA margin then of 3.5%. So I'm very happy to be able to show that we now are a profitable company. Looking across the different regions. Norway, we have NOK 93 million of our revenue there. That accounts for 62% of the total revenue in the group. For Europe, including U.K., we are logging NOK 45 million in revenue for the quarter and 30% of the total for -- and that's an 18% growth compared to the same period last year. Lastly, Rest of the World, which for us basically means U.S., we have NOK 11.8 million of revenue. That is 126% increase compared to same period last year, and we are very satisfied with the way things are going now in the U.S. So let's just look at the bigger picture for Arribatec as a group. We have today 16 (sic) [ 17 ] offices around the world. Most of them, as you know, are in Europe and Norway being the largest of the offices. Currently, we have 370 people in the organization. It's a little bit down compared to fourth quarter. And as you know, we restructured and closed down a couple last year. And that is partly reflecting the little bit lower number of employees in this quarter. Also important to note, we have now 1,000 -- or actually more than 1,700 customers around the world and still counting. So I also would like to spend a few minutes on our strategy. We are a company that we see ourselves as problem solvers and we streamline complexities in organizations, in processes and in systems with lasting results for our customers. We have a wide range of backgrounds and expertise in our company. And we offer a unique mix of services and products that help customers unlock their potential. These 2 sentences are important for us and how we see ourselves. And strategy-wise, we have set goals within 4 main buckets, so to speak, within -- how we're going to engineer a profitable growth for us, how we're going to attract and maintain and develop our employees -- our talent, how we can create and deliver products and services that our customers can be helped by, and lastly how we can increase our customer engagement and satisfaction. These 4 main topics is the drivers of our strategy. We have also, during 2022, developed our ESG strategy. Today, it has 8 main or 8 material topics that we have chosen to focus on. And we have spent a significant amount of time and of resources to make sure that all staff in our company know, first of all, that we have an ESG strategy and we will also be training our staff during 2023 in how to act in according with this strategy. So we are very happy to have this in place, and it is in detail described in our annual report, which we -- what we call it distributed or published just a few weeks ago, and I encourage all of you to have a look if you find this of interest. So, Arribatec, I just want to mention again how we have organized our activities. We have 5 business areas today. They are those 5 that you see in this figure, the 3 large ones, EA-BPM, Business Services and Cloud. They are industry agnostic, and basically, every company with more than 50 people need to buy services from one of those BAs. They represent 90% of our total revenue and basically 90% of our total amount of employees as well. The 2 smaller ones, Hospitality and Marine. They are what we call industry verticals. And Marine is offering asset management system to ship owners and ship managers, while Hospitality is offering unmanned check-in, checkout kiosks where you also can do payments after you have stayed in hotel. On the left-hand side, you can see some of the main services and products that we take to market from the 3 largest business areas. All of these business areas have their own management teams and their own staff. But as I said, we are working closer and closer between those 3 industry agnostic BAs because we see that more and more of our customers is asking us to provide services for more than one BA at a time. So a little bit about financial performance for Q1 for each of the BAs. I'm not going to go through all these numbers, but I want to point out that we see healthy margin developments, both in Business Services, EA-BPM and Cloud. We also see that we have a high demand for consulting services out of all of those 3 larger business areas, and we are showing positive EBITDA in all 3 of them. In Hospitality, we still have a negative margin. This is due to the fact that we are in the middle of an intensive market development period. And we are expecting to reduce the negative EBITDA during Q2 and the EBITDA positive later in the year. Marine has a 3.2% EBITDA margin. And I'm sure you would remember that we restructured them last year, and they are now at a place where they have a cost base that is better suited to the product family that they are delivering to the market. Also, we see a reduction in top line or revenue, and this is due to the fact that we in Q4 last year sold part of the IP to another company in order for us to be able to focus on our core business. And by doing this, we also handed over, so to speak, a few customers to our -- the company that actually acquired the software. So that is what is going on in the individual business areas. A quick look at how revenue has developed for the company and for the business areas over the last 5 quarters. What I would like to point out here, first, if you look at the top line of the 5 top boxes, it tracks recurring revenue as a percentage of total revenue in the entire group quarter-by-quarter. We see that we have gone from 37% to 34%. However, this is not because the recurring revenue is decreasing. As I said earlier in this presentation, recurring revenue for this quarter increased by 9%. But as the rest of the revenue streams increased more, the relative portion of recurring has come down to 34%. We are also seeing that activities outside Norway accounts for 38% for this quarter. That has been fluctuating around 38% to 40% over the last 5 quarters, and we are working hard to build higher activity levels also outside of Norway. The individual BAs here, you can see the revenue development over the last 5 quarters and it's a growth in all 5 of them except Marine. Also, next, I would like just to highlight what we are doing on the business development side. What you see here is the total Norwegian kroner amount or value of the deals or transactions we have signed over the last quarter. So you can see that Business Services is still the most active business area with NOK 87 million in new contracts or scope extensions. But both EA-BPM and Cloud is having very good momentum in the marketplace. You can see here, we have, in total, signed agreements for 465 -- or we have signed 465 new contracts, either for scope extension or new business for a combined value of NOK 191 million, and that is an all-time high for a quarter for us as a company. I also want to just briefly mention some of the contracts that we have signed in this year -- sorry, in this quarter. There are -- these 5 contracts represents customers within segments where we are strong. They -- some of them have a mixed deliverable of services and products from more than one business area. And as you can see, combined the account for NOK 76 million. And mind you, this is only 5 contracts out of a total of more than 400 that we have signed so far in -- during the entire Q1. Then I would like to address the cash flow development of the company. So first of all, we have increased our cash balance by NOK 22 million since -- over the last quarter. We ended last year with NOK 40 million in our bank accounts. It now stands at NOK 62 million by the end of Q1. We have reduced our bank debt or credit facility utilization by NOK 7 million and repaid a small amount in our -- of our bank debt in Italy. So with total cash at NOK 62 million and the credit facility that we have not touched in Danske Bank of NOK 20 million. We have total liquidity of NOK 82 million at the end of the quarter. And in there is NOK 13 million, which is restricted cash, meaning money that we cannot touch because it's either something that's going to be paid to the government every second month or it could be house or office rent security deposits. Lastly, the blue letters at the bottom right says that right now, as of this morning, we had a total cash and unused overdraft facility of NOK 84 million, and that for us is a comfortable -- more than comfortable level of liquidity. And then a quick look at our balance sheet. We have increased total value of the balance sheet by NOK 40 million since end of last year. And the increase in cash accounts for half of that increase. We have an equity ratio now of 50.2%. Apart from that, not any significant changes that needs commenting on in the balance sheet. So let's look at the outlook for the next few quarters. First of all, we expect a higher growth rate in 2023 compared to last year, and that is without any planned M&A. So that is all pure organic growth. We have -- the background for that is that we have responded and we are continuing to respond to several large tenders, and we are optimistic about our chances to win new work through those tenders. We see a strong demand for Cloud services. Hence, we have, as I mentioned in our previous quarterly report, built up or strengthened the Cloud team in Bergen. And this quarter, we are actually building up our Cloud's cluster in Granada, in Spain. This is all due to market demands, and we also see that more and more of our larger clients come to us and asking for our ability to take on -- take over and manage their IT services and their IT landscape. So Cloud growth, and that is good news for the entire group. Hospitality are in dialogues with several larger customers that speaks for a large amount of hotels. The solution that we are offering to the market is of interest to all the hotels that we're talking with. And now we are continuing to letting the conversations with our customers mature. And we believe that during Q2 and the following quarters, we will see a higher rate of signing up new hotels. So that is interesting for us for many reasons, but it's also building up our recurring revenue base, and that is also a good thing. Marine, seeing incoming calls from the marine industry and the cruise industry in particular. Our own software InfoShip has -- we have done a lot of demonstration both in U.S. and in Italy and in Greece with very good response from our customers there. And we do expect to be able to sign contracts on a regular basis going forward now for new vessels to take our software and use. And lastly, looking forward, we will continue to focus and drive margin expansion, and that should -- that's a pressure that we will not let up on. So to summarize, NOK 150 million in revenue for the quarter, all-time high, 19% growth compared to a year ago and all organic growth. Recurring revenue, NOK 51 million, and that is for an improvement of NOK 4 million compared to a year ago. We continue to build the recurring volume and it accounts for 34% of our total revenue in this quarter. EBITDA, NOK 5.3 million positive EBITDA for the quarter. That is more than NOK 11 million improvement compared to the same period last year, a margin of 3.5%. As I said, we are pushing hard to expand the margin of our business. Lastly, NOK 62 million in cash or actually in deposits in the bank. We have on top of that a credit facility NOK 20 million that has not been utilized. So total liquidity of NOK 82 million at the end of Q1. With that, I will stop my presentation and ask if there are any questions to what I've said or what you might be wanting to hear more about. Yes. So we have not received any questions to the presentation. So then it only remains for me to wish you all a good day and talk to you again soon. Thank you so much.