Huddlestock Fintech AS (HUDL) Earnings Call Transcript & Summary

Hello, and welcome to this Q4 financial results presentation for Huddlestock Fintech. We have set this presentation for 30 minutes, and I will run through a slide deck for approximately, I will guess, 25 minutes. And then if you have questions, it could be typed into the button on the top saying Q&A. And if you do not have questions during the presentation, but have question afterwards or any time, please use the investor relations at huddlestock.com or you could also contact me directly. So let's just start with the presentation, and I'll share it with you right now. My name, Leif Arnold Thomas. I'm the Group CEO of Huddlestock and I will run through this slide deck for you. First, let's take a summary of the quarter. When it comes to the revenue side, I'm happy to announce that we have been able to increase our top line revenues with 16% from Q3 to Q4. And that is very good since that is supported by growth both in the Investment-as-a Service area, growth of 8% and also from the consulting business. So in both revenue legs, we have seen increased revenues. Also, because growth on revenues is important. It is also important to have a control on the cost side and to improve the profitability. So the EBITDA is one of the areas that we are following quite closely. And from Q3 to Q4, we were able to improve our EBITDA with approximately NOK 1 million, which I also think is a very good point to -- and then be an important part of this report. At the cost side, we reduced the operational expenses with NOK 1.3 million. I think that is also saying something about the focus cost internally in the business, and that is very important. On the personnel side, we have not been more employees rather fewer. And the cost of the personnel side is actually the same from Q3 to Q4, except from some one-offs and I will come back to that later on in the presentation. And it is booked costs that has with the year-end to do. During Q4, we have as we always do work a lot on clients and sales. We were able to announce an expansion of an existing customer for the contract which is very good. And also with a very solid basis of revenues from the consulting business, we have worked with an updated strategy for that business, and that was decided also during the last quarter of last year. Outside the Nordics, you all know that Germany is the market we are focusing on. And we worked with the basis of an LOI with AVL signed in April, now in January '24, work with how we should operate -- how do you say it, to do it operational to deliver on that opportunity. And through the year, we will work with different opportunities and the signing of the partner agreement with Tradevest was an important part of the road and the path to the German market. After the quarter, we have seen some fruits from good work on the sales side during the whole autumn. We signed up 2 Norwegian new asset managers. And latest by this week, we announced also an extension of a contract with a Danish company, which is also very good and fits very well into the updated new growth strategy for the Visigon business. A few weeks ago, I had my 1-year anniversary in my role as the CEO of this group. And when I took over this responsibility, we had just put behind a year of '23 that had been quite intense. During '23, Huddlestock acquired 3 businesses and divested one business, meaning that we saw a significant growth on revenues from '22 to '23 as a consequence of these acquisitions. End of '23, we have lot of technology and products and services, that we needed to put together and make sure that it was all integrated in our platform. So that was the basis, a lot of opportunities that has been very important to have focus on in '24. And that is my next point. During '24, we said quite early that we had some focus areas. And of course, the profitable consultancy business in Visigon, that was one of the objectives to make sure that we kept that business healthy, made it even more profitable and also to invest and find out if and how we should develop that business even further. So that is one of the objectives where I think we have met and have a good place -- we are a good place to be going forward. An important objective of all the acquisitions and yes, it could also be the divestment is to be able to have an attractive Investment-as-a-Service suite to the market. And with all the bases in place, the objective was for '24 to grow that business as fast and soon as possible. We have -- as we have seen now the last few weeks, been able to now get new contracts and a lot of these new contracts are also already starting to generate revenues. But with the ambition of having a significant growth in that area during '24, we are not there yet. So that is still an area that needs focus. Outside the Nordics, Germany is definitely the market we would like to work in because of a lot of opportunities there. It is marked as checked not because we are there yet. But during the year, we have transformed this LOI between 2 parties that really would like to have a good and solid service in place in the market. We have, during that year, used a lot of time to discuss and investigate different ways of coming there as soon as possible at the lowest risk and shortest time as possible. And the partner agreement with Tradevest is an important part of that journey. So that is why I will say that our way into the German market is definitely on the track, even though it takes a longer time than we all anticipated before. As I've said before, growth is important, but to earn money is also important. So therefore, it has been very important for us to always look on how we can improve our profitability and we have had a short-term goal also to become EBITDA positive during '24. The figures today shows that we are not there yet, even though I mean that we are on our way and that is a balance between to give some push on the speed button and also on the break button. So that is '24. And then what about '25 because now how the backend from '23, some of the main objectives from '24 and now going forward in '25 to succeed with the business we are in. Well, we still would like to be and focus on the market from the old traditional businesses out there but also to the new start-ups and ones that have great ideas where they would need Huddlestock's services and competence to succeed. On the business side, we have 3 areas, divided into 3, and that is because we have experienced and seen during the year, that we need to make sure that the activities and the strategy are well fitted for the different purposes, meaning that, for example, Visigon with its business, it will have now a growth opportunity through a separate strategy. I will come back to that. When it comes to the German market and to succeed together with AVL, hopefully, we need to work through local partners. And in the Nordics and the Investment-as-a-Service area, it is very much about doing what we have done so far to focus on our technologic platform and working with sales and delivery. I have explained many times, and I have worked in this industry for many years, that sales cycles along within this industry. It typically takes 3 months if you are lucky from a starter sales process until it's signed. The normal, I would say, is 6 months, perhaps 9 months, and it's not uncommon that the sales cycle take 12 months to 18 months. So the sales cycle is long. And then when you have signed an agreement, then it typically also will take some time before the revenue starts to come. And that means that the revenue growth we see now in Q4 compared to Q3, is results from work that was done last summer and early autumn. So this growth is now going in the right direction. So that is good but it grows slow, even though 8% is definitely good if you see it from a quarter to another. But that is still my impatience. I would like to see that revenue growth even faster. The good thing is that the business is quite sticky because most of the customers that choose to use our services typically move out something else. So it goes slow up and slow down. But what we see now, if we start to turn this development, it's very sticky, and that's very good. It's sticky, and it is recurring business. On the right side, we have some KPIs that we normally are always focus on because these are KPIs that are important for us, not extremely one by one. But as a part of many KPIs, these are important. And during Q1, Q2 and Q3, we reported a growth in all these areas. In Q4, you can see that assets under administration that will see capital under our accounts has declined a little bit and the same with the number of client accounts. And the reason for that is that one of our customers have taken out some of the assets and put it in some other place because they would like to offer products and services that is not within our area. But customer is still our customer. And as you can see, the number of end clients is still growing. And my point here is that even though some of the KPIs and areas are moving in the wrong -- if I can say that wrong direction. This picture also demonstrates that our business and revenue model is quite steady and solid. Germany and market outside Nordics, nothing especially new on this slide. But nevertheless, Huddlestock's home market is in the Nordics. We have the expertise. We have the skills. We have the knowledge. We are within a legal framework. We have support from government about doing things as automated as possible. And this is where we come from. And what we expect and what we see is that also Rest of Europe are coming after us. And that means that, that is a perfect place with that background and to position ourselves as a supplier in the general market. The experience from the Nordics and experience from acquisition of different systems, for example, Bricknode and make it to work in Norway, for example, tax reporting is one example, is that such take time and with the experience from the Nordics, where it takes time to roll out the technology, even though in the same region of Europe. We believe that it will take too long time, be it to costly and too risky to do that by ourselves only as step number one. Both Huddlestock and AVL have the same ambition to launch a modern, attractive service and products to the German market. And during that discussions and along the way, we have identified Tradevest as one local company that will perfectly fit in the pieces in the total package so that AVL are able to launch something in the German market together with Huddlestock. So use of partners and local partners when you go out of your home market is some takeaway that we have experienced and that -- which is our strategy now for the German business. Discussions and dialogue with AVL goes very good. So that is also why I have this slide about it. And they plan to actually launched a separate brand in the market, which would be the brand where the products and services within trading of securities will happen. Then I think it is -- I would like to spend a few minutes also on the consultancy business. We have always mentioned the business, not use that much time on the business, but I think it's time to do that now. Visigon is one of the revenue streams of Huddlestock which is profitable over the year, it has been growing. And the Visigon business is a company that has been in the market for more than 20 years. The customers are typically big banks and financial institutions. Contracts are long and the relationship is also long. So it's a business that is slow, steady profitable. And even though you see that revenues of '24 went a little bit down from '23. If you had looked at all the staples from the years going back, you will see a business that is steadily growing, some years up, some years down, but it's steady, growing and profitable. And that is a perfect place to be when you look forward because then you have a very good basis on their competence and relationships to do something more. And that is exactly what we did last autumn within the Visigon business. We have been working with a strategy to see how we could improve growth and take the next step with a very solid business as a foundation. So in Q4, we decided and we have already started to deliver on a new and updated growth strategy for that business. So what does it mean? Well, Visigon is a traditional consultancy business. Their focus is in the Nordics. It's very much based of treasury system and it's very much about to sell hours. And the hours sold to the customers typically become the customers' property. What we do now and the strategy is about is to take a more clear place within that market. So yes, Visigon will still deliver hours and the consultancy business to both software providers and customers, but also take a bigger part of the value chain. And they will focus more outside the Nordics We investigate European opportunities. And as part of delivering products and services, which they have also built themselves, they will be able to increase the share of recurring revenues, meaning that Visigon going forward, will not only be hourly-based revenues, but also recurring revenues, more of the same as we have on the investment as a Service area. The strategy is -- yes, it's built in by 3 pillars. It's about to take care of applications that is, for example, installed to customers and make sure that it works well and performance is well in everything. The next area is hosting, whether we'd like to take more responsibility for the software at the customers that takes away risk and complexity from the customers, which is something they would like to pay for. And also, last but not least, also to offer more operational responsibilities is some sort of outsourcing. So the customers can fully focus on their business and that everything else could be taken care of Visigon. And the contract that was announced this week with EIFO is one example of the first of these blocks. And the good thing with EIFO is that it's, number one, it's a very solid and healthy and well-known organization in Denmark, that's for sure. But what is important also is that the revenues from that contract is very much about recurring revenues, which is exactly what we are looking for. So we can still, of course, and will, of course, deliver hours on top of that contract, but we have a good delivery model in bottom when it comes to revenues. So this is a way for the consultancy business to grow on top of their existing business. So that means going forward, we have 3 business areas, we can say. It's Visigon, where it's very much now to deliver on the new revised growth strategy. We have the German expansion, which is very much based on also cooperate with a local partner. And we have the Investment-as-a-Service area, where it is about to roll out and to adjust and to sell more of what we already have. And the signals of the last weeks is that it now seems to materialize some of the work being done in the last half year. So to sum up, growth on top line by 16% from Q3 to Q4. Personnel costs in line with Q3, except from a few year-end things. NOK 1.5 million of the NOK 2.7 million is something that follows accounting principles in Sweden and then have no cash effect. And we also have some year-end effects in U.K. and Germany that is included. But we have no more employees, and we are working even more efficient now than we did just a few months ago. We have a very strong focus on all costs. That's important, and that is why I'm also very pleased to be able to report that our operating expenses has also been reduced quite a lot from Q3 to Q4. So EBITDA, still negative. We worked for a positive EBITDA, of course, but it has improved with NOK 1 million since last quarter, which I think is quite good to see when it comes to all the efforts that is done every day on all the areas within the company. A little bit about cash flow, start of the quarter, NOK 10.5 million another quarter, NOK 10.9 million, so that's almost the same. If you start from -- on the financing side, we did have a capital increase in September last year. it was September/October. So some of the payments came into us in October. So that is why some of this NOK 4.5 million is also a part of that capital increase. What is very good to see, I would like to emphasize that, is to see the cash flow from operations. If you look back to the quarterly presentations last year, first, second and third quarter, the cash flow from operations has been negative between NOK 5 million, NOK 7 million, NOK 9 million per quarter. This quarter, we report NOK 1.8 million, and that means that our daily operations and deliveries and obligations to the clients are not losing money here. And we include both the German business and include the investments and service business. Investments is an area which we, of course, could just cut away, but we do not want to do that because that is about to make sure that we take care of the existing revenues and that we are prepared for taking on board new revenues. So that is why we try to have a good balance on how much we should invest. So that is, I think, the most takeaway. And I think, as I said, the cash flow from operations is significantly improved compared to last quarters. So with that, I'm finished with my presentation. And if you have questions, you can, of course, type them in. And as always, please contact either me or use our website to ask. I must say that to have dialogue with investors is very valuable for me. It is both to get a mirror from our investors if there is something that we should explain better. If there is something that is explained or are very good and it is a big and good input for me and the rest of the management group as well and the Board. So I really appreciate the communication I have with a lot of new investors. So please continue with doing that. Okay. It seems like no questions. So then I would like to say thank you very much for participating, and thank you for being interested in Huddlestock Fintech and I'm sure that you will hear more from me and Huddlestock going forward. Thank you very much, everybody.