Huddlestock Fintech AS (HUDL) Earnings Call Transcript & Summary

Hello, everyone and welcome to this quarterly presentation and first half year report of 2024. My name is Leif Arnold Thomas. I am the CEO of the Huddlestock Group and I will walk through the slide deck first. And then if you have questions, please type these into the chat channel and I'll go through those afterwards. The total time is set for 30 minutes and I would expect that, that's enough. So let's just start. But again, welcome, everybody, for participating. Okay. Second quarter of '24 and the first half year is the topic for this call. And you are now listening to the quarterly presentation from Huddlestock. And our mission in the market is to enable companies that would like to launch investment services or saving services or trading services to come to us so that they can just be able to deliver that in the market without a lot of investments and a lot of time consumption. That's the short way of telling what we are delivering and our value proposition to our clients. And Q2, very short. It's a quarter where we have seen that revenues has declined from NOK 21 million in Q1 until NOK 18 million in Q2. And the reason for that is actually quite easy to explain. The most important, I think and what pleases me, is to see that recurring revenues from the technology part of the company, what we call Investment-as-a-Service business, they grew with 7% from Q1 to Q2. And that's in my perception, a very good figure that I think it is important to highlight also when it comes to comparing revenues from one quarter to another. And the explanation for the decline in revenue from these 2 quarters is the consultancy area where we have had some changes in the staffing. And with all the consultants going out and new coming in, it takes always some time before the new ones are up in speed. So that is what has happened in Q2. So when it comes then to the top line, yes, it has declined a little bit from these 2 -- from Q1 to Q2 but explanation is, actually very not good but it's easy to explain. And when it comes to profitability, EBITDA was minus NOK 4 million in Q1 and minus NOK 6 million in Q2. I will come back to a little bit more of the parts underneath these figures. But we have had some reduction in personnel costs with approximately 14% that I think is important to emphasize since we are in a period where cost reduction and efficiency is one of the highest topics of agenda. The plan forward and the short-term objective is, of course, to continue the work that was started in the first half. And a lot of decisions and activities have been done during Q2 that we expect to see the results of also on the cost side during the last part of '24 and into '25. What is very important for Huddlestock is to work with our heart, our technology, our products. And what we have planned for development on that front is developing on track. It's about to migrate Norwegian customers that uses third-party systems today into our own technology and also, of course, to make sure that the technology that is working in, for example, Sweden also is adjusted so that it can works in -- work in another market, for example, Norway. We are still, of course, looking out of the Nordics, and Europe is then the place I'm talking about and Germany, especially. We did write and announced an LOI with a big player in Germany called AVL in January this year. And that process has been going for months. I would really like to keep it much more shorten. But on the other hand, Germany is a very different market than the Scandinavian markets. Things are more manual in general. It goes a little bit slower. But at the same time, it's -- all figures and numbers, everything is bigger. So we are continuously working with that process. We have a good dialogue and have had that all the way with this company called AVL. And a part of that work, I was happy that we could announce last week that we have signed an LOI with Tradevest, which, in the AVL setup will be an important component for the whole delivery package. When it comes to Consulting business, I expressed in Q1 that, that was an important area for us and that we have been working on and see how we can make that business grow. And that is something that we started in Q1. And in Q2, we have already -- or that was actually after Q2. We have now started to see the first result with a new Danish logo as a client of ours in Denmark. So we have not been allowed to say so much about that client. They would like to keep in the dark. But for us, it is very important to -- step in the right direction and it's a very good match with the ambitions and the work we have been doing on the consulting area and make that to grow from the good base that we already have. And Huddlestock, we have, what we call, two-sided business model. It is what we call Investment-as-a-Service. That is the product area, the tech area where we do offer investment solutions to companies out there that would like to capitalize and use our technology, infrastructure, trading solutions and also our regulatory permissions if they do not have that. The business model is based on monthly licenses, assets under management or administration and transaction fees. And it is important for us to have a revenue model that is divided between more than 1x because then, as I will come back to, that makes us -- makes it possible for us to get revenues on some of the sites, even though the other sites is not growing and vice versa. On the other hand, we have the Consulting business area. We have on that part big players in the market, big banks in the market. We are on long contracts and history so far has seen that we're able to sign up loan contracts and it's a very sticky business. So that is the basis for a growth strategy that we have been starting on. Then on the customer side, we also have, in 2 directions, we have the incumbents or the players that has been in the market for many years. They very often have a big distribution network where they could capitalize on new services and that would make Huddlestock interesting. And also, we have a lot of new start-ups and new ideas coming on that would like to take the advantage of the opportunities that is coming in the market, following more investors and more technological solutions possible to capitalize on. We'll try to find good figures for this market and to illustrate how big it is or how it grows and it's difficult to find the perfect illustration. But almost every report you're reading and whatever angle you are looking from, the signal is the same. We are in a strong growth market within the digital investments area, meaning that, that's the area in the market where increased demand for investment services is combined with new digital services. And we probably only have seen the start of that journey but that is at least where the space Huddlestock is in. And we think that this is an interesting place to be and to capitalize. If you look at our own customer base for today, we reported in the Q1 report that we had 7,000 end clients in our systems and they had 11,000 end client accounts. If we look at the comparization between Q1 and Q2, it could see -- it looks like we have just made an error because the figures are the same. The explanation is that if you look at Q2, the numbers are a little bit less than the one you see and Q2 is a little bit higher than what you see. But when you make it a little bit easier, it's pretty much the same. And that is also the same as you probably everybody have seen that we have not signed up any new clients in production in this period. But I mentioned the revenue model and how that was divided between different areas. And what is very interesting for us to see that our customers are succeeding. So even though we have not any new customers starting to use our services, we see that we have a very good growth on the assets under administration and that is one of the revenue [ legs ] we have. So when our current clients are succeeding and getting more assets under their administration, that is also something that we are capitalizing on because that is one of the revenue sources for us. So it's a demonstration that we are able to capitalize on our current clients as long as they are succeeding. We have 3 -- at least 3 main areas we are focusing on. It's in the Nordics and especially in Norway and Sweden, where we have this Bricknode system that was acquired last year and that is well functioning in the Swedish market. We are working on sales towards new potential clients, of course, in the Swedish market. But we are also, of course, eager to get that technology working into the Norwegian market. And Stackby.me is the first Norwegian client that is using the Bricknode technology for fund trading. What is important going forward is, of course, to make sure that all existing clients in Norway can also use the same Bricknode system and, of course, new companies that we are attracting, then there's no question, it's the Bricknode technology we are using. And why is that important? Well, it is important for many reasons. One is, of course, to make things easier internally. All employees can work in the same system. We can -- we do not think about other systems. And also, of course, it has a cost side because when we can use our own technology for all our clients, we'll not be able to -- it's not necessary to pay any third-party providers for that service. So new sales and cross-sales is important components in Norway and Sweden. And we have also tried to estimate approximately what could be our market share in Norway and Sweden and we estimate it to be between 10% and 50% of the serviceable market for us. And that is the customers or the companies that are out there today but we also experienced that they are coming, new potential clients every week or month in this market. So it's a very interesting place to be. Outside the Nordics, we do have a lot of interesting companies that we are -- really would like to have companies and we're working hard to get that. But of course, Germany is one important space for us. And that's a place where we have been physically for many years and we have people on the ground and we have an LOI with a very interesting company called AVL that was signed in January. And we are now working together with AVL and ourself on how to put together all the pieces in this ecosystem. And with that as a background, I was very happy to be able to announce last week that we have signed an LOI with Tradevest. That is one of the local components that would be interesting for Huddlestock in the European strategy. Consulting [indiscernible] business, I've talked a little bit about. We have a strong foothold in especially Sweden and Denmark and we have now started to explore, to grow that business even more. The Nordic market is, of course, not perhaps a big market. To us, we still have a lot of potential to take out of the Nordic market. But the Nordic market, defined as Norway and Sweden compared to, for example, Germany, is just a 1/4th of the German market. So we are talking about a big market with millions of potential customers. And with millions of individual investors in this market and coming into this market, this market is also being more and more populated by different preferences. So with different preferences that open up opportunities for new players to offer new value propositions and new services. And what is very common in such situations is that they need a technology partner. And LOI with HILI in Norway before the summer and also AVL and more that is not signed as LOIs, is that they need Huddlestock technology to be able to realize their ambitions. Of course, to take care of our current customers is important and we announced that Kraft Finans was [Technical Difficulty] Okay. Sorry about that. I don't know what happened but let's continue. Yes, I think I was finished with this. This was about the market that was evolving and how new comers and different old comers see new opportunities within this market and where more and more companies out there see that Huddlestock can help them to realize their goals. And Huddlestock is, to our knowledge, at least, the only company in the European space that can deliver a complete Investment-as-a-Service offering, meaning that, based in our technology, in our investment platform, we are able to support our customers. It could be a front-end solution, it could be an adviser solution or it could be with APIs as well, if they do have some other preferred solution for that. But of course, to having the investment platform and technology is not enough, we need to also make sure that instruments or connections to different markets or sources need to be fed into the system. So there we have full flexibility. Also on the bank and [ custody ] side, we have the opportunity to connect to whoever our client thinks is the best. And of course, on the license area as well, some of our clients have their own license and they are only interested in some of the other solutions. Other [indiscernible] and their clients really would like to have that as well as an regulatory umbrella around it all. So we have full flexibility. We can deliver it all and we can deliver parts of this. And that is something that is very important for us in communication with existing clients or with the prospects that we're able to put together the different pieces of the whole that is necessary to have a good parallel setup for our clients. Going forward, in addition to work with the tech integration, to make us be able to migrate clients over to our own platform and also to work with technology to make sure that all processes are as automated as possible, we are, of course, also looking forward. And if I just have some highlights of the next period of '24, the last half, it's now a lot about to do the adjustment into the Norwegian market. We have this ASK, Share Savings Account, that is a typical Norwegian thing, a little bit comparable to the ISK in Sweden, for Swedish investors that might listening to this. It's about tax reporting. It's one of the areas that is normally different from country to country. And most of it is the same but they still have some small adjustments. And now we're working on those to handle Norwegian tax areas. Automatization, I've been talking a little bit about and, of course, to migrate the current Norwegian customers over to our own technology, making things much easier for us and, of course, also making it possible for us to reduce costs. We do have equity trading available in the Swedish market. And now we are working on how to also make that accessible for the Norwegian market. And even though it might hear easy, it's a lots of small bits and pieces that needs to be put together in a order and be tested so that we make sure that what we deliver is on high-quality and not just rush to the market with something that is not working properly. So that's the main priorities for the last half of '24. Visigon, I've been talking a little bit about as well. Ambition is to grow that business. We see from the history that they have a steady business. And with new services or new energy to make more out of that, I'm very happy to see that we have already been able to sign up a new client in Denmark. And in Q3, we will launch a new Visigon website as well. So a little bit about the financials. I've been a little bit into that earlier on. I think that even though the top line has been -- declined a little bit from Q1 to Q2 with some very direct and rational reasons connecting to the Consulting business, it's very good to see that recurring revenue business from the technology side has been growing organically with 7% from first quarter to the second. So of course, we are -- if you look a little bit, some years back as well, it's an ambition to make the recurring revenues to be as much of the total revenues as possible. And that is the big picture that we also still would -- will work on to increase that percentage and the part of the business because recurring revenues are very good and steady to build on. When it comes to P&L, we have more focus on Q1 to Q2 than to compare with Q2 last year. And the reason for that, it's actually very simple. And that's because the company is totally different today than last year, especially Huddlestock Solutions that was with us last year is not now a part of the business, that was divested end of last year. So that is why we have -- most focused on the development from Q1 to Q2. Total operating income, I have -- I think, commented a lot already. I've said before and I say again that we are constantly working on the cost side. And with that as a background, I'm happy to say that the personnel costs have been declined with approximately 14% from Q1 to Q2. On the other hand, we have other operating expenses that has increased a little bit in Q2 compared to Q1. And the reason for that is very close connected with all activities that has been done in Q2 to prepare for the last part of '24 and into '25. It's about restructuring the organization, it's about changing roles and responsibilities, it's about to look at all costs, it's restructuring most of it. We will always have some operating costs for sure. That's absolutely for sure but we have had some extra operating one-offs in Q2 that makes the EBITDA going in the wrong direction from a little less than NOK 4 million to a little bit higher than NOK 5 million in Q1. Depreciations and amortization and impairments is on the same level as Q1 and that makes sense, a little bit higher than last year. And that's, of course, a consequence of acquired companies that we have done since last year and also due to technology that has been developed and we are now starting to use. When you start to use the technology that you have invested in, then you also need to start amortization. Cash flow ended out in last quarter with approximately NOK 10 million on bank accounts. And that's -- if you see what has happened during that period with the cash flow from operations, investments and financing, we are out of Q2 as well with a cash balance of the same level as when we went into this quarter. So to sum up, we will still continue to focus on the profitable consultancy business and make that grow. We will focus on our investments as a service part of the business, that is the [ tech ] point and very much about recurring revenues. We will still work close and hard with the market outside the Nordics and in Germany, particularly. And of course, at the same time, have a strong focus on the EBITDA positive, neutral part of it so that we are not bleeding money. And that is, about to focus on sales. It's about to grow the Consultancy business. It's about to increase and enhance efficiency in the organization and as always, good cost control and cost reduction where that is possible. So that's the takeaway from this presentation and also what we will focus on in the months to come. Thank you. That was 30 minutes. I cannot see that we have received any questions. So if there are no questions, you are always welcome to send questions to [email protected]. Of course -- and I apologize for the technical challenges in this meeting but that is something what happens. I'm so happy that I was made -- possible to come back again. Let me see, there is 1 question, someone is writing in it seems. No. Okay. Then I say thank you very much, everybody, for participating. And please contact me or someone else in the group if you have questions along the road. Thank you.