Inderes Oyj (INDERES) Earnings Call Transcript & Summary

Welcome to today's presentation that we have the pleasure to present Inderes. To help us through today's presentation, we are joined by you, CEO, Mikael Rautanen. Of course, the topic of today, [ your Q2 ], Q4 and full year report and outlook for '25, that will be the main focus point on the call today and of course, the main achievement you have seen during the -- last year. As always, you're welcome to ask questions in the box down below, during the presentation or after. But I think we will take the main part of the M&A session in the end. But for now, I'll hand the call over to you, Mikael.

Thank you, Michael, and welcome, everyone, on my behalf as well. So yes, 2024 financial statements, how did the year go? Looking at it in the big picture, we grew 7%. We grew revenue on each of the product areas and particularly in the software that's where we made the most progress. And I could call them a few breakthroughs as well. So that business is now on a very solid track, while the 2 biggest revenue lines, Equity Research and Events, more modest growth. But still, our target markets declined last year. So it was a shrinking market last year. And given that we were able to grow in these conditions, we can be pleased with that. At the same time, we continue to improve our profitability to 11.6%. And one thing to highlight here was the extremely strong operating cash flow. So cash flow after investments up by 106% to EUR 2.8 million, demonstrating -- well, I always say this is a company founded by the equity analysts. So Cash flow has a special place in our hearts. We understand how to do cash conversion and what's the value of generating strong cash flow. The second part of the year or the second half, overall improved compared with the last year. But as we highlighted in the Q3 release, the last quarter of the year was fairly weak. So it's partly due to timing issue. We had a lot of revenue booked for Q3 and not much cost book for Q3, while Q4 was basically the opposite. So the Q4 numbers were weak from that perspective, I recommend to look at the second half in total. Going more detail to each business here. So if we start from equity, Equity Research. By the way, we are now publishing for the first time the revenue numbers of each of these business lines. So Equity Research is EUR 7.2 million of revenue last year, up by 3%, strong profitability. We did unfortunately enter the year with one contract less than what we had when starting 2 years ago. So this was first year in history that the contract base declined, which we are, of course, not happy with. It's a very tough market. We look at the market conditions, we are seeing this as a trend across the board. So long term, we believe this is a structurally growing market as commissioned research is the way to bring equity research for all listed companies and all investors. But the market conditions are now such that it's fairly difficult to win new customers because this is not a must have product for the listed companies. We are doing very well in the must-have products like press release system, investor relations website, AGMs. But in these conditions, Equity Research is a bit more tough sell also given that we have -- we are covering so big part of the Finnish market. And in Sweden, we haven't yet been able to create the market for our product.

Do you have the number that was delisted that is unavoidable that equity research stops. And I don't know whether you have that number.

We -- on top of my mind, I don't have the split on how many of the churn was based on delistings, but obviously, it was a big part of the contract cancellations where because of delistings during previous years, especially in Finland. But we have been able to replace those by winning more companies in Finland quite successfully. And then again, Sweden, a year ago, we landed a bunch of contracts there, but last year didn't go as expected. We didn't win as much deals as we targeted. And we did lose some of the customers that came in so during the first contract period. And given kind of like now it's been 2 years learning the Swedish market, we have fairly good sense now on what we need to do, how we need to refine our sales tax exempt strategies, and we are doing some adjustments to our go-to-market to find the right model. So to sum it up, I'd say that we're going from -- more from tactical sales into building the Inderes name, building the relationships towards the companies and trying to get it through that way, actually pretty much the same recipe we used in Finland back in the day. Looking at the reach of our platform, how many investors we reach. So this is a new data point we are now publishing. So we had 19.1 million site visits on the platform last year, fairly flat number. While the number of active members declined to 66,000 from 74,000. Now why is this declining is because we migrated to a new technology platform 1 year and 4 months ago. And in the new platform, the content has been kept open. So you don't need to log into to access the content that much. So -- and this has been a choice we've made. So that's why the number of logged-in users is declining, but we can kind of like I can show a hard data point that the platform is still vibrant and very active. And of course, this 19.1 million, it doesn't count in the partner channels that we have, meaning Nordnet, [indiscernible] Finland, Avanza, Bloomberg, Reuters, FactSet, Capital IQ and so on and so on. Neither does it account for the social media channels that play a significant role in our investor or B2C reach. But now I'd say like now that we have this metric in addition to the number of active users, it does give a bit more broader and better perspective on the reach of our platform because that reach is also crucial for winning the equity research. When you do commissioned research, you need two things. You need to reach the investors and the second part is that you need to reach investors to also trust what they read. So if the investors don't trust research, then it's basically useless. So it needs to be independent, it needs to be critical, and we need to be able to also lose customers because our research is critical. And of course, we do see that in this business model, that's part of the game and we accept it. Moving to Events business. So revenue-wise, this is actually our biggest business right now. So Events growing by 4% to EUR 8.6 million last year. Good profitability level. Now this has been -- because of the pandemic, the story here has been -- it's been a super tough market since the pandemic. So what happened during the pandemic? Massive tailwind, like you grow 100%. And then post pandemic, a terrible hangover throughout the whole industry. And we are now seeing -- like last year, we saw that the hangover after the pandemic is resulting in some peers being struggling. We've seen some bankruptcies. It's been a tough market for many. What I'm proud of is that we doubled this business during the pandemic. And after it, we have been able to maintain that volume that we reached. Yes, some product lines have been declining sharply, but we've been able to offset said that with our strong focus on Investor Relations, building up the AGM capabilities, building up the hybrid event capabilities on top of the online events and so on. So I think our team has done quite a great job in this business area, which so rapidly changing conditions. And we do have quite strong competitive advantages and strengths in the Investor Relations category, given our expertise in this segment, given our reach and distribution channels in this segment and also our technology platform Videosync. Of course, this business also has been suffering a bit from the churn because of delistings and then also Sweden. I want to be fully transparent that we acquired a business 2 years ago in Sweden in Events area that has grown since the acquisition. But our ambition level on the growth is way higher, and we are doing hard work to get that business to a growth track.

Is that more -- is that -- is that client? Or is it an upselling to the existing client that has disappointed you a little bit? Is the number of clients, I mean or the upselling for higher quality and productions?

Yes. I'd say both. And then the churn has been also a disappointment mainly because of delistings. There were over 60 delistings in Sweden last year. So actually, last year, we had -- we had some 30-something IPOs in Stockholm. Everyone is cheering like Stockholm over 30 IPOs, well done, but they had over 60 -- Stockholm had over 60 delistings at the same time. So while Finland was 5 and 5, for example. So it's also the other side of the coin. But that's it, like there's -- there are signs that the IPO window is slowly opening both in Finland and Sweden, hopefully at some point in Denmark as well. Some projects that are kind of like -- that have actually started, and we have assigned contract. Moving on to the Software business. And this was the highlight of last year, so 40% growth to EUR 2.4 million, still negative on profitability wise. So this is because of the development stage of this business. It's going from R&D phase into commercializing and growing the business, but significantly improving the profitability as well. And I want to highlight here that this business has been more or less built from scratch over the past 4 to 5 years. So kind of like I can be quite proud of the innovation capability of this organization that this demonstrates really our ability to build up new businesses that match the Inderes concept where we also have clear competitive advantages and synergies to the other product areas. The IR software, there we are growing the number of customers, strong growth there, both in Finland and Denmark, thanks to our partnership with you guys in HCA. So that's been a positive thing. One big highlight of last year was the Videosync sales. So we landed significant deal with a significant European event producer. So they are starting to run their event operation on Inderes Videosync platform. So that is commercially, an important deal for us, but it's also strategically an important deal for us. In practice, it means that like Videosync is the key platform in running Investor Relations events already in Nordics. So if you watch any of these quarterly events, it's extremely likely that it's run on Inderes technology. And going forward, this will be the case more and more across Europe. So it's our technology under the hood connecting investors and listed companies making investor information transparent and accessible for all. I mean, that's at the core of Inderes. So Videosync also growing and then the AGM software part of the AGM product also -- we kept strengthening our position in the market in Finland and particularly landing several new big clients, extremely complex projects with companies that are listed in multiple countries. So our team's ability and the technology that we can handle these complex projects and productions is a great demonstration that we are extremely competitive in this product area. Looking things and summing it up from a geographical point of view. So with Finland, I'd just like to highlight that we have a very solid base in Finland. And we're seeing some signs of recovery in the IPO market that we look forward a lot. In Sweden, it's been now 2 years since we made the acquisition in that market. We are not happy with the growth we have achieved so far, and we are reorganizing internally, adjusting our sales strategy. We're a bit increasing the autonomy of the product lines, meaning that instead of going in with the type of like end-to-end offering, we're going in with more product-by-product approach, trying to get into the customers. Doing these changes because, well, the results haven't been what we wanted them to be. And if they are not there, then we need to adjust and change. And that's going on at full speed. There's nothing new. When we start building new business from scratch, that's part of the game you need to find the model that works. Denmark, so now I'm speaking a bit on behalf of HC Andersen Capital, a bit of a disclaimer here, but I'm also proud of what you have achieved there. I mean, Denmark has been absolutely horrible market for the past 2 years. And the fact that you have been able to grow over 20% in those conditions does tell something about the team, about the energy that you have and also that built a product portfolio and a concept that has a good fit in the market. And on Inderes behalf, I can say that our collaboration has played one part in this. So we are now live with paying customers in Denmark through HCA on each and every product that we have. So we have Investor Relations website live. We have the press release system. We are running these deep dive Equity Research contracts. We have done the pilots on first AGMs. We've done the press conferences, the IR events. So each and every product is now kind of like open. And you know the first sale is always the hardest.

I know. And then as you said, the need to have and nice to have. That is the business right now, and you need to have the software that is need to have to really have success currently.

Yes. And then if you really think about the life of a small cap company like us, Inderes. I mean, we need to make the life of small caps easier, and it needs -- it has to be cheaper to be publicly listed. And what we are seeing, looking at this market internationally, there are inefficient structures. There's not enough competition in many of these areas. So I still very strongly believe that there is a need for what we are doing. We need to help the life of the listed companies so that it can be cheaper and more easy to be a publicly listed company. And also, we need these information services for them to solve the liquidity problem that, that so many of the small companies have. And how you solve the liquidity problem long term. Information is the key because if investors don't have information, the companies -- then they won't trade. So that's at the core of what we do. Then highlighting just the deal we had, which is basically a European deal, touching several countries in Europe. And this is also like going into this, this was not in our books when we did our strategy, but the opportunity came up and we were able to shift our focus there and build a great partnership with this new partner where we unfortunately have not yet disclosed the name, but that's now live and ongoing and ramping up. So from international growth perspective, that was a milestone for us. All right. Let's dive a bit deeper into the figures. A lot of numbers here. Maybe I'll just highlight and pick a few highlights here. So recurring revenue now 60%. The base of the recurring revenue grew by 6% last year. Sweden and Finland, basically, both of them grew by 7%. Cost structure has been fairly stable. So that's why we improved the profitability slightly. And adjusted EPS, EUR 0.95 compared with EUR 0.8 last year. And there, I want to highlight that the only adjustment we make there is purely accounting items that have no cash flow effect. So basically goodwill amortizations because of the Finnish accounting standard. Q4 numbers, so not that good numbers on that quarter, just 1% growth and breakeven profitability. And like I explained earlier, the book -- this was mainly due to -- some deals landing to Q3 instead of Q4, and then we had some projects that were postponed, some Capital Markets Days postponed from Q4 to 2025. And then we had a lot of -- some smaller and some bigger onetime cost items such as moving the offices, both in Helsinki and Stockholm, that put a bit extra pressure on the cost structure as well at the same time. So that's the explanation behind these numbers. Balance sheet is very strong. It's a bit lighter compared with a year ago. One significant reason is there is that we pay the second part of the acquisition payment last year. And then in the Finnish accounting standard, we amortized the goodwill from the acquisition. So that's -- that makes the balance sheet a bit more light every year. And cash flow, very strong, EUR 3 million, doubling the operating cash flow. And I think this just reflects that the financial foundation of the company is rock solid. And given that we generate strong cash flow, that's part of the business model. So that enables us to first, continue and accelerate the investments to international growth. That's the name of the game, international growth for us, but also to continue the increasing profit sharing. So we are proposing a EUR 0.02 increase to the annual dividend paid into installments. All right. Then to the outlook. So basically the same as last year, revenue to grow from previous year and profitability measured by EBITA percentage, excluding nonrecurring items, improved from last year. And the background here last year, we said the market is going to be declining or stable. Now we're saying that it's going to be stable or growing slightly. And we're going to grow faster than the market, and we're going to accelerate our investments to international growth. Financial targets. So these are the long-term targets. We have revenue growth and profitability, 30% to 50%. and annually increasing payout. Last year, we missed the target. It was -- the market conditions were tough. And given those market conditions, it is very tough to reach the level of 30% in last year. Last year, we missed it. That said, still, we want to keep -- we want to set the bar high for ourselves. We want to have ambition in the targets. The target level should not be such that you kind of like reach it very easily, especially in hard conditions. So working every day to build a structure and products that takes us to those levels. All right. Quickly summing up the big picture where we are going as a company. So this is the evolution of Inderes. Historically, 8 years compounded annual growth rate, 34%. It's been in the past years [ has been ] a story of transformation from 2019, it's a transformation from one product company into a product suite, still maintaining a laser sharp focus on the Investor Relations segment and category. And that was a good strategic choice. We've been able to grow significantly because that product portfolio really works. And then we started to reach levels that kind of like we are running out of space in Finland to grow, then we need to ask ourselves, do we want to grow? Yes, we want to grow. We want to challenge ourselves. So it was obvious that the next phase is international growth. So -- and for that, we did IPO 3.5 years ago. And I can already say that kind of like doing the IPO was the right thing. That was the -- that was a stepping stone for us to take this company to the international growth, and that's the path that we've been taking. So now it's been a transformation from a private company to a public company. Transformation from a very local Finnish company into an international company. Transformation after transformation, and that's the -- that's the name of the game for us. That's what we enjoy, and that's what we like to do, challenge ourselves to the next ventures. And it's been an exciting journey. So far, it's been a learning journey. The -- turning this into an international organization. Some of the hypotheses we made when we started this journey have been very relevant. And some of the hypothesis we've had, we need to challenge based on our learning so far. And this spring, we are doing a strategy work. It's an open strategy process we do internally, involving all the 120 employees. So we're doing the strategy work as we speak, and we're going to present the new strategy in Capital Markets Day in May, I would say, there will be some updates to it. The foundation we set 2 years ago, I think that's a good foundation. So you don't need to expect that we're going to make a huge turn in our strategy, but some refining to it obviously expected because we -- I can tell that now we know and understand the game way better than we did 2 years ago. So that's it. I'll leave it for the questions.

Perfect. Let's jump into some questions. Cash flow, is there something exceptional in 2024, while the growth is so much higher than your earnings growth? Or should we also expect that to stay strong and growing, maybe not faster than earnings, but stay at this level and move up with earnings. So how should we think about the cash flow? Was there anything exceptional? Or is that your business model with of course, a lot of the depreciations and so on that you might see on the bottom line in the P&L, but of course, it's not a cash flow?

There were no kind of like significant onetime items. Some very minor onetime items like some receivables that had been amortized that we were able to collect at the end of the day, but nothing significant. I think more significant is that our financial processes are just getting more and more efficient. So it's a lean and efficient machine in that...

So it's a good base level to think and to grow with the earnings growth this -- if we should think about that like an analyst?

Like an analyst. Potentially, yes. And -- but then again, like -- well, you know [indiscernible] it depends. It varies year from year like, does the payments land the last day of the year or the early January. So of course, there's seasonality in that. But overall, I would give quite big part of the credit to our financial team.

Perfect. And then the increasing software teams you mentioned in your report, is that to make new products or to make sure you get more out of potential license deals like the large European one you announced?

Yes, it is to tap on the growth that we are seeing. Of course, we need a stronger organization to deliver the growth and not new products, but investing and improving the existing products, for example, as we go to these bigger deals, more of an enterprise-grade customers. There are bigger demands when it comes to information security, for example, and also on there are also areas that we need to invest in to make sure that our products are capable to serve extremely demanding enterprise-grade clients internationally. So a lot of areas where we do want to invest, and of course, we want to make the products better all the time.

And then with this European license deal you made. Has that changed your focus? And I know I probably need to wait on till the Capital Markets Day, but are you looking for more like such license deals? Trying to piggyback on this one and have this as a potential showcase in the future and trying to reach out further, are you already identifying some license partner because I guess that must be pretty, as an old analyst, I guess that is a pretty good margin business licensing software out. So a little bit about whether you see more potential there? Are you already looking for other potential partners?

In a way, this was a type of deal that we have had also in the history, but they have been mainly like very small event agencies that start using our platform. And this was kind of like the major one in Europe. And there are not many these type of players in the market. So very, very happy with that. The deal is based on white labeling solutions. So this partner can also resell our software to third parties. So that makes it, in a way, scalable because there's the...

So the [ program available ] on making this a successful because they have such large potential, should I understand it like that as such...

Yes. That's the [indiscernible]

[indiscernible] way to -- you get a lot of contact points and has a lot of potential if you're making this license deal successful for both companies?

That's a great way to put it. So that, I would say, has the bigger opportunity making this successful compared with trying to find...

To find new products.

Others.

And then last question. Share buyback has been used as a distribution tool for you lately. I think it's almost ending this program. Should we expect that also in the future that excess cash, I know you can't say whether you start a new one until you do it. But should we expect that to be used as a tool to distribute excess cash besides the dividends also in the future?

Yes, the current program is, I think, it's ending as we speak, maybe this week or next week. Well, I can say that it's in our toolbox and the Board evaluates it case by case depending on the situation and the context whether we use that tool or not.

That was the last question I had on my paper and from the audience. Thank you, Mikael, for taking us through your results and answering question, and thank you for the audience listening in.

Thank you, Michael. See you next time.

See you.