Huddlestock Fintech AS (HUDL) Earnings Call Transcript & Summary

Okay. Hello, everyone. It's 12:00 at least here in Oslo. So that's the plan for -- we are going to start. So welcome, everybody to this Q4 presentation. It is scheduled to be 30 minutes, little bit shorter than some of the previous ones earlier on. But the idea is to have it perhaps a little bit shorter and crisper. This presentation will be recorded, as you probably all can see and it will be made available on our website sometime after this presentation and we did the same time for the Norwegian one earlier on today. So as soon as the technical people are finished to do some finalizing with the recordings, they will be available. I will go through the Slide deck that is also published. It's available both on our website I believe and also on the stock exchange pages. So I will, of course, do my comments and go through these Slides. And if time then I also some minutes at the last part of the presentation, so if there are other questions able to answer those. And also if, as always, if you have any questions and not at this moment, this time, please use our [email protected] if you would like to send me some questions, of course, you can send it also directly to me. So our policy is to be available and answer all questions that we get. So don't be afraid of that. Well, then let's start and not with me today unfortunately, he was not able to participate because of something else, Oyvind Hovland, the Chairman and me will be responsible for this presentation. For those of you who have followed Huddlestock for some time, you probably have seen me before, because I've been within the company for some months, but not in this role. My new role is -- was valid from February 1st. So I thought it could be a good idea to just have a quick review of myself and as the CEO, that's, of course, low to be able to spend some time talking about yourself. So I'll just use this first time at least to say a few words. Well, okay, I'm a Norwegian guy, living just outside Oslo. My education is within economics, finance and business where I have my Master. From the professional career side, I have a few years from the Oslo Stock Exchange, now part of the Euronext group at the Stock Exchange. I was working on the customer side and customers from the stock exchange then was listed companies. So I have actually some experience then from the exchange side compared to the side now we are listed and so I think that, that experience is good to have. After the stock exchange, I was working at Norwegian CSD, VPS also now part of Euronext, start to work with issuers, which had their securities registered in the CSD. And in the last years, I was focusing more and more on the fund side and I was responsible for fund system that was providing services to fund managers, originally to the Norwegian market. But during a project, we enhanced that product, so it was also able to serve clients outside Norway. So that was a start of a journey with being responsible for a spin-off from the VPS Euronext system, a company called Centevo, with subsidiary in Northern both Sweden and in Norway and focus on wealth management, asset management services to primarily the Nordic market. After some years at Centevo, I was responsible for a start-up called Dtech pension service provider to pension providers also as SaaS solution. And that was actually back in June '22, I started up. And part of that journey, I came across the Huddlestock guys and the result of that journey was that Huddlestock acquired Dtech March last year. Meaning that since March last year, I've been within Huddlestock where I have been responsible for corporate development and also Investor Relations and I think that is a very good background for me in my new role now because I'm quite insight in the company. I know the clients and what is good and what should be better. And I think that's not coming in with totally a white piece of paper in front of me. I'm -- I think I know this company quite well. Within these different companies I've just mentioned, my roles have quickly been on the management side, different management positions. And my main focus, except of course from working within the tech industry has been on the market and clients and customers and sales side. So I define myself as a quite commercial guy. And also at least the last company's after the stock exchange and the CSD has been very much about to build tech companies and also to industrialize them, as I call it, to go from a situation where you have a good product and great customers and you have revenues and then start to turn these companies into more structured entities with a more streamlined set-up. So that's short about me, then probably to the more interesting stuff here and that is the financial figures for '23. A few highlights to start with. First of all, Huddlestock has been and is and will be a company that is reaching for growth. So growth is important for us and it is with that background, very good to see that also 2023 delivered on that part. The top line growth were -- was 88%, almost 90% that is definitely within what we had reached for. On the right side of this Slide, you can also see another objective that we are focusing on and that is the part of our revenues that are recurring, meaning that revenues from clients that are coming steadily in month-by-month, that is a business model that is very good when you are building a company because then you have steady revenues in bottom and then you can use them when you are doing your scaling job. At the same time, we are focusing on growing. We definitely also have focus on profitability and that is a topic that we have been discussing many times also during these quarterly presentations. I'm coming a little bit back to that. We have been working through 2023 systematically with different areas to improve the EBITDA margin. If you just look at the number, '23 compared to '22, it was an increase in a negative way by 14% and is that good or bad? Well, of course, I would like to have it positive and that's my objective to get it positive as soon as possible. But I think it is also important to remember that, that EBITDA figure from '23 must be compared to the growth of almost 90% on top line. So if you -- from relative terms, if you compare these 2 figures, it's a big improvement that I think also is worth to mention. Okay. Then let's go through some highlights from the last quarter last year. As I have mentioned, we are very satisfied with top line growth, year-over-year growth, almost 90%. Also I think it is very important to highlight a little bit more, one very important part of our group's business and that's the consulting area, professional services, it's called Visigon. For '23, they delivered NOK 51 million in revenues and so then you can see, that's actually more than 50% of the top line. And also very positive is to see the EBITDA margin of that business, reaching 13% last year. So that is also something that I think is very important to highlight and actually not only for Q1 and Q4, but that's something that is for the whole year, so I'll come back to Visigon a little bit later as well. When it comes to profitability, I've just mentioned about the EBITDA margin for '23 as the full year compared to '22. But if you look into the year -- the financial year '23 and look at Q4, I'm very happy to see that EBITDA margin in that quarter was actually the same as last year. So that is a signal about that we are working in the right direction with both focus on cost and revenues, so that in some time ahead, we will make these 2 lines between revenues and costs across each other. The revenues on the recurring side, as I mentioned, good growth year-over-year and a big percentage of our revenues are coming from recurring revenues and that's also a very good thing to have as a part of your revenue base. As always, when you are finalizing the year, you're going through the books and the balance sheet and doing evaluations what is there. And in Q4, we have written down NOK 18.5 million after some considerations we did by the end of the year and also, but not at least during Q4, we had a successful fund raising that was closed in November I think. So that's also -- some of the things I think it is worth to mention from Q4. Okay. We are now in February. So we are -- yes, actually, we are more than half away on this first quarter. So definitely things have happened already and that's why it's important to mention also things that, that is, from my perspective, important to highlight from this period. I have just mentioned myself and my new role in the company, so I'll not spend more time on that. But I think I would like also to mention that we have a new group CFO that started January 2nd. It was -- the news was published, yes, some time last year, I think. But Morten is now in place. He is coming from professional companies and have a lot of experiences. And also, just after a few weeks, he has become one of my important wingmen going forward. So to have Morten as part of the management team as well, now is a big improvement. Garantum Wealth Management is a client we signed up. I think it was just before the summer last year, starting with reporting clients and tax and using our depository. That relationship has worked very well and they have decided now to extend their business relationship with us and include fund trading as part of the services that they are going to use from us. And for me and why I highlight this is that this is a good example of how our value proposition and our services are relevant and attractive for the market and this is exactly how I'd like to see it companies and the customers coming in, working with or buying some of the products or services we have. And then as they grow and as their need are changing, we are able to serve them with exactly what they need. In the first part of this quarter, we brought out the news that we had signed an LOI with AVL in Germany, definitely a very interesting and important milestone for us when it comes to the German market. What is happening now is that we are working on practical set-up. It's a lot of stuff that needs to be in place to make sure that the full solution is working. It's about tax reporting, it's about [ AML ] questions, it's front-end solution and so on, something that needs to be in place around the trading engine. That said, we are both working with the setup and of course, we also need to see that the setup is a setup that is also good for us from a financial perspective. And last but not least, as mentioned before, Solaris in Germany. They have been focusing on both bank and card and investor investments, Investment-as-a-Service. And as part of that setup, we have had an agreement with them. They have had some, yes, can I say challenges or some, yes, challenges internally and the conclusion of that is, as I mentioned before, they have decided to focus on the banking side. Still, Huddlestock is the partner that they would like to work together with, but because of the change in the business model, we agree that original agreement was terminated and let's say it down and that is what we're doing now to see how we can set-up and replace that with a new formal partnership agreement with them. So that is discussions that is going on. Going forward, what will be important? Well, I mentioned to you that I'm a client and sales and commercial man, so making sure that we're building and growing our pipeline is definitely important. But since I also I'm very focused on profitability, the pipeline and the clients and the customers we are working ahead to need to be a very close connection to our profitable product, so to have a good match with the clients we are coming in with products and services we have. That said, we do also have lot of very well and we love our clients and it's important to not forget to make sure that we also take good care of these clients, meaning that deliveries to these clients and the focus on these clients and how we can assure that we are a good provider to them is very important and we'll also be focused very much going forward. When it comes to efficiency and costs, internal efficiency is always important, you can never be finished with that as a topic. That is a topic we have started to work with then that through '23 and it will continue in '24. And it can both be about how we're working the working processes, but also if we are organized in the right way. So no holding house on that part. And as I mentioned, I think that Visigon is so an very important and interesting part of our group. So to grow the professional services business and Visigon is also a priority going forward to grow a successful business and then do even more of that. In general and this is a topic that I'm repeating myself in many times, profitability is a focus. And what is that meaning? Well, we need to do more of those things that can improve or increase our revenues, our profitable revenues and also to make sure that we have cost control and where possible, where we can reduce cost. And both these 2 things are things that we are constantly working on every day. Huddlestock has a growth strategy as I mentioned before, meaning that even though we have had a good growth to this point and of course, organic growth is perhaps and probably some of the most important areas where you're growing your revenues. We are always open to see if there should come any opportunities that would fit into our strategy and make sense to have part of the group, meaning that we're working on also to identify any long-term financial partners that can support our strategy. So to the end, going forward, my perspective and my message is that the activities and the business development that we are deciding to spend time and energy on should always be such that are supporting our objective of delivering long-term shareholder values. So this long-term perspective is always something that is very important for us. Well, that was a few Slides first before we jump into the figures and some of them will, of course, be, yes, some sort of repetition from the previous one because the previous Slide has very much been to highlight some of the following months, but anyway, let's go through them. Again, start with the top line and the revenue side. Definitely happy to see a good growth from '22 to '23. The growth is definitely big result of that is acquisitions of companies, but also there are organic growth within these figures and that's a combination that is giving this growth with almost 90% that I think is very in line with the strategy we have. When you do acquire companies, you always get cost with it, that's not a surprise, some of the cost side has, of course, increased from '22 to '23 as well. In Q4, there are as normal, but also this year, some one-offs that has been taken, but the message that I think is important to send out is to see that the revenue growth has been 88% compared to the operating cost with 70%, meaning that these 2 lines are not at the same angle. So if you just follow that path, at some point, the revenues will exceed the costs. The challenge and the biggest objective now is to make sure and do whatever is necessary to get these 2 lines across each other as soon as possible and then and not sometime in the future. So that's the challenge and that's the way we need to manage it as well. When it comes to depreciation and amortization, as we could see by the end of last year, that was figure that was rising quite significantly compared to '22. The main reason for that is because we have been working and investing in technology the previous years. And now in the late '22, but especially in '23, that technology has been started to use. And then it's -- the rules are quite easy to -- on that part where they're starting to use the technology and starting to get revenues on the technology, then you need to amortize as well. So that is the biggest explanation and it's actually not surprising and actually, to me, it's good to see because then it means that our technology is starting to be used. And also, as I mentioned, there have been some write-downs in Q4. Group EBITDA side, the right side of it, I've commented. I think that it's worth to mention that Q4 '23 compared to '22 shows a flat path. We're in line with last year. And if you compare that to the growth on the top line with almost 90%, that is actually a good improvement, even though the actual figures itself shows that it's not being that improved. But compared to the top line, it's a big improvement year-over-year and that's something we are very happy with, of course. And on the EBIT side, then you have everything with you, all costs and amortizations as well. I have mentioned amortizations regarding technology that has been starting to be used. But also in this picture, we will also include -- it's included the amortization of goodwill that is following from companies that we have acquired during '23. And since we acquired a lot of companies during '23 -- though in '22 and '23, then the amortization on the goodwill is also giving the results here. Then technology. This is the revenues that are connected to our services that are recurring, so the figure of NOK 41.9 million, as you can see here on this table on the left part of the picture here is the same as we have on the recurring revenue side. As you can see on the right side is definitely going to some shifts during the year that is following the companies who have been acquired. But on the left-hand side, you can see how the revenues are steadily growing on this side. So as being a technology company, we definitely would like to have -- I would like to have 100% recurring revenues, at least that should be the target is going in the right direction and I think that is out of NOK 87 million in top line to have NOK 41.9 million as recurring revenues is definitely a signal that we are working on and going in the right direction. Then back to the Visigon business, the consulting revenues from Visigon. As you can see on the left side, they are going in the right direction and growing steadily as well and that's good. On the right-hand side, you see a typical pattern for consultancy business, where we have seasonal differences. And typically, you can see in the summer season, when our vacation, that is something we saw last year. We saw it this year, we saw it year before last year and we probably will see it next year. But what is very good to see is the big growth going out of the year. And the last quarter in last year was an all-time high on the revenue side. And as I highlighted in the beginning, 2023 also delivered an EBITDA margin of 13%, so that's very, very good. That was short and sweet walk through of the Slides that are -- it is already published. So let's stop the presentation and see if there are any questions that has come, it might not have been that. That is, of course, okay. As mentioned initially, please send an e-mail, you can call me, we have [email protected] as our preferred channel for written e-mails into the company. We also have an agreement with something called investorweb.no, where we also answer questions. Well, this PowerPoint will be present or will be published at our website and the recording of this presentation will be available on our website as well. [ Alash ], I see that you raise your hand.

Yes, I have -- would have one question about recurring revenue because that number, of course, is quite impressive that 566% on growth. But if I understand correctly, this is basically because or it's coming from synergies right with acquisition companies or why that growth is so big, because, for example, if you, let's say, take like a baseline recurring revenue, which was in Huddlestock before and recurring revenue, which was in the [ brick ] note and after acquisition, how much that growth, we have that is like...

The recurring revenues?

Yes, yes.

Yes, yes, I not -- I do not have all the other questions indeed all the answer in detail, but the general answer to your question is definitely because lot of the companies that is acquired, including Bricknode is bringing in a lot of recurring revenues. So what we are looking at is how is the number of millions of recurring revenues before Bricknode for example and after that if you compare this to questions, you can see that all these 2 figures, you will see a big growth. So that's the simple answer. [indiscernible]

It's one of those Norwegian names, right? We do this in English. I -- first of all, it's a good result. Congratulations. I am excited about the profitability being around a corner -- around a corner. So I'd like to get some more view on that relative to your -- how much cash you have left on -- at the end of '23. So I don't know how much are you willing to say about that stuff?

So that's part of the -- to our same story. So what I'm doing when I come now in -- I've been Chair for 2 or 3 weeks, so it's quite new for me, but that's about to go through the business and see how we can shorten down the -- shorten the cash need on the day-to-day business, but at the same time use or have some partners that can support us on more strategic initiatives.

Also the second question, if I may, this stability on the German market, I joined late, so you might have said something about it in the beginning, but what are you able to share about your expectations in '24 for the German market?

Well, we do not guide, so I'll not say that much about thing. What we do and what I have commented today is about the status on this AVL LOI agreement and how we are just now working on the practical set-up. It's not only about trading engine, it's about how it will work together with tax reporting, AML, front-end system and so on, so that's the practical part of it. And of course, we need to see that practical set-up is also giving meaning in a good way from financial perspective. And then we have this Solaris agreement where they have been doing -- done some changes, where they are now focusing more strictly on their banking business, whilst at the same time, very interested in the Investment-as-a-Service business. But since they are now strategically working on banking business, the agreement that we currently have is not fitting 100% in. So what we are discussing now is how we can work together as partners and set up a partner agreement still with the same objective, but with the fact that they have changed a little bit about their business. So that's the part we are working with them. And of course, you have -- as you perhaps know, we have a couple of people also at on-site in Germany, working every day also on potential top line and partnerships out there. So I think that message from me and that is something I also said in the Norwegian version today is that I will be reluctant to say more things than I can promise if you understand what I mean. A little bit conservative about that. So -- but I'll definitely share information that is relevant and thought for the investors.

If I may, one last question, the write-down you did of NOK 18 million, have you shared what is related to, the write-down you did, yes, sorry, yes.

No, I don't share the details.

And I read about that, I haven't read the reports yet, sorry about that. So -- but, yes...

Yes, no problem. Yes, no, I do not think we have published the details and it's a combination of -- you go through the, what you call it in English, [Foreign Language], you are looking into all the -- in the balance sheet on the technologies there. So it's a combination of many things. So it's more a healthy walk-through and something that also I would like to do as a new CEO, go through the balance sheet and see what is relevant or not. So no dramatics in it, but it's a combination of many things that sums up to that figure.

So top line, just I want to say I'm very happy about Visigon actually also returning profitability, this is very good and also your recurring revenue promising signs.

Yes.

And with the cost-cutting stuff, it seems like it's around the corner, but at the same time, the company has been thinking that for a few quarters, right, getting to that sort of quarter-to-quarter profitability, yes.

Yes and that's also why I mentioned and some of my objectives is to go perhaps even more aggressive on these 2 parts to see how we can shorten the period before these 2 lines cross each other. So the class you say and that's my message as well, we are in the right way, definitely, just are in patience to go faster. Okay. Then I think we need to stop this presentation because some of the audience perhaps also have other agreements or appointments. So thank you very much, everybody, for participating and please send the questions if you have any and have a nice day and week going forward. Okay. Goodbye, everybody.