Inderes Oyj (INDERES) Earnings Call Transcript & Summary

Welcome to today's call where I have the pleasure to present Inderes, joined by CEO, Mikael Rautanen. The Q1 results is on the agenda with an update also on the market and your business lines. And I think you used the word in a highly volatile market, I think that's a neutral word for in the stock market likes to put on it where we don't like it so much. But I guess that's, of course, affecting business. As always, you can ask questions in the box down below during the presentation, I will call on. And I also want to make the attention to that we have a partnership and Inderes owns 20% of HC Andersen. But for now, I will hand the call over to you, Mikael.

Thank you, Michael, and welcome, everyone, on my behalf as well, watching on the webcast or on the recording. So, January-March business review. So quarterly, we do the shorter business review and every -- the first half and the second half are the longer deep dive reports, but a bit of a flavor on how the year started with Inderes. Like you said, I would say the volatile or unstable market is a good term to reflect the current market conditions, which is kind of like we earlier used the word uncertain. I think unstable is now a better word because it's fast changes in both directions, and it's really hard to say where this is going. We need to be on the pulse on what type of risk come with the market, but also on the opportunity side. I think that's one of the strengths of this company. And also in these conditions, the foundation we have, the recurring revenue business model, that's the strong foundation that gives us the predictability and visibility to the uncertain future. So that's one of the reasons why, again, in these conditions, we were able to grow -- still growth driven by the recurring revenue business and then the AGM business, which I would say is not recurring, but reoccurring because in that business, once you get into the clients and you deliver for those clients and they are happy, they will return year after year because AGM is luckily something you need to do every spring. So decent growth in the unstable conditions. Profitability-wise, slightly below last year. There's a bit of seasonality in the margins given the timing of Easter, which affects the timing of when companies are having their AGMs. So, the volume part and some of the margins this year compared with last year are a bit more weighted towards the second quarter. So that's something to take into account. Disappointment in the quarter, I would say, was events business in Sweden. Otherwise, I mean, in Finland, we did really well given the conditions, very strong performance, very happy clients, but Sweden events business was the negative part of this report. Our revenue decreased in Sweden, and that's something we are addressing or have been addressing already quite a while. So that's part of the -- our work to find the right go-to-market model for taking Inderes into the international markets. I would say in full transparency, turning this company into an international company is a learning journey. We've been on that now for 2-plus years. We have learned a lot, and now we have a better understanding of what we need to do to find the go-to-market model for the Inderes business into new countries. That's something no one has ever done. So, we need to kind of like find the recipe to trial and error ourselves. And that said, we've been making some changes into how we organize. And in the event side, also, we're making changes on how we deliver the productions for the clients. So quite a lot of changes going on in the organization to find the right go-to-market model for each of our businesses, research, events and the software business. Going to these business lines. So, if we look at research business, the number of research contracts decreased to 141 from 145 last year. But at the same time, the revenue in this business grew because of higher average prices in the contract portfolio and the sales of complementary services. Why we declined in the contract base was because of 2 reasons. One is de-listings. So, the amount of companies coming into the stock market versus going out is something that is affecting our market. And then in full transparency, in Sweden, we have lost some clients that have been dissatisfied with independent approach of our equity research. So obviously, Inderes Equity Research is not something that is good for your company if you are looking for marketing or promoting of your stock-only because it has also the critical side of it in it. On the Inderes platform, it's been fairly stable in terms of reach and number of active community members in the beginning of the year. So slight increases from Q4 numbers, and that's going fine. On the events business, here, I would like to highlight really strong performance in Finland. So, we've been strengthening our position, especially in the big clients as a trusted partner for their Investor Relations event productions for their AGMs, and also other online and hybrid event productions. And that really comes from the extremely strong and good feedback that we get from our customers all the time. And we've been playing this really long-term, and that is now reflected in the performance in Finland. On the Sweden side, as I mentioned, sales decreased. Finland was able to kind of like offset that effect, but that's something that we are disappointed with. We are going through some changes in the Sweden events business. So, adopting a new delivery model where we will improve the quality, efficiency, and scalability of the production. So, it's a 2-sided thing. There's the volume part of this business. So quarterly audio cast, which is kind of like a high-volume product that we need to take more into an automated software-based delivery. And then on the other side, we need to increase the production value of the event production, something we've been really successful in Finland. So, going into a higher production value events, more demanding and more complex productions like AGMs, Capital Markets Days, and also large-cap and blue-chip quarterly productions where the customers are demanding -- kind of like more demanding. Software business overall, good momentum continuing. This is the smallest business of Inderes, is the newest business. And there after a long period of significant R&D investments and building the product portfolio, now we're shifting more and more to the commercial phase very strongly in Finland, and then also preparing all the time for international go-to markets. So overall, good momentum continuing. There, we have the AGM products. That's mainly Finland-based revenue, season for the spring going really well in line with our expectations. In the Investor Relations software, we're still growing the number of customers, getting some really good logos to the customer portfolio, both in Finland, also some with Denmark, with AGA, and also in Sweden. Video SIM platform, at the end of last year, we announced a significant deal with a European player on this front, and ramp-up of that partnership is now supporting growth. It's still fairly early stage with the integration or how fast the client is taking our platform to the usage. And as they progress, that will also support our growth in this front. So, that's also going as planned, I would say. Going to the quarterly numbers and outlook. So, if we look at the income statement in the business review, we report the income statement from revenue to EBIT. And here, 6% growth. International revenue was, in terms of euros, fairly flat. And there, like Sweden business declined, but the growth in other international business was able to offset that. Recurring revenue, up by 5%, project revenue up by 7%, mainly driven by the by the larger AGM productions that we had. And the large AGM production is something that is also affecting the materials and services cost line in the income statement because the bigger productions usually come with a bit of lower margins. EBITDA around 9% compared with 11% last year. Excluding some nonrecurring items related to the changes in operating model, we're going through not significant items, but excluding those 10%. And the guidance being unchanged, so still expecting to grow from last year and improving profitability, excluding nonrecurring items. Minor change in the background of the guidance. Previously, we were slightly optimistic that, especially given the IPO pipeline that we would say the market was expected to remain stable or grow slightly in 2025. Now we have taken that to an expectation of the market is not expected to grow in 2025. And this is because of the market uncertainty, or recently, we've seen quite a good pipeline in the IPOs, but probably those projects once again are going to be postponed unless the market starts to suddenly pick up again. So that's mainly related to the IPO activity. So far, what is good is that despite the turbulent times in the -- we're at least not yet or not right now, seeing that customers would be kind of like pulling the hand brake and looking aggressively for cost savings. So, it's mainly related to the IPO part, how much company is coming into the stock market and how much is going out. So that's for the first quarter update. Any questions at this stage, Mike?

It was only due to lower IPO activity that were changing there. And that I think you answered quite well. So that is the primary reason for you changing the working in your guidance. Can you talk a little bit how far the game of this IPO and then being pulled? Or I don't know how much you can elaborate.

Well, like there's a part of the IPO market that kind of like we know and where we are involved in the project and then there's kind of like unknown projects that other advisers, which is also relevant for us because when they come to the stock market. In terms of the projects where we were involved, it's really much, a lot of companies that are prepared to IPO waiting for more stable market conditions, but they haven't kind of pressed the button to actually start the projects. In Finland, we had 2 IPOs early this year that were successful. So that's after 2 years of silence. So that was a good sign. But I think now many of those companies that would have been following them are a bit on the wait-and-see mode. But things can change very quickly because we know for sure that there is quite a lot of pipeline in the market, at least especially in Finland. And in Sweden, we already started to see last year quite good amount of activity.

What about delisting? Do you think you're over the hump? Or are you still seeing something from the delisting side, companies being acquired, talking about delistings? How does that look in Finland? I know you don't know the unknowns, but you must have a feel for it.

Yes. So far, like the last around 6 months, we were expecting delistings, but there hasn't been. I don't know if there's been any. So that's been surprisingly quiet. But I think we should expect, given the fairly low valuations in the public market, I know that there must be also investors and companies looking for the option of going back private. So that's something that we should also expect to happen. But like long-term, it's part of the stock market evolution that you have companies coming in and coming out. For now, at least in Finland, it's been surprisingly, and in a positive way, surprisingly quiet on the delisting or acquisition front.

Perfect. And then there was a question about the Sweden business. Will you focus more on the event business now than the research part? Or is that to be determined? Or should we wait on the Capital Markets Day to hear more about maybe where your focus will be in the Sweden business going forward?

We will absolutely focus on growing each of the 3 business lines. So, research, yes, events, yes, and also software. The change that we are doing is that each of these businesses we will build their own go-to-market strategy because these are very different businesses, very different business models, very -- they require very different go-to-market strategies when going to a new country. They are in different development stages. So, we're kind of like pivoting the go-to-market a bit because how we started this was kind of like going to a new country with the full Inderes offering. And obviously, that strategy has not worked as we expected. So, we're now finding the spearheads with which we go to new countries, Sweden being one of the countries we look in the strategy.

And what about the software side? I guess that's a need to have, and always a nice spearhead in. I don't know whether I'm jumping to conclusions or something like that. But is that - could that be a way in starting with the need to have and then making yourself well known, and yes, using the advantage that probably software is more scalable and more globalized, you might say, go-to-market.

Yes, yes. The software part is absolutely one of the spearheads in our strategy. And if I jump to this slide, so here, we can see the software business is still a relatively small part of Inderes, but growing the third pillar of our business from the software part is absolutely something where I would say we do have interesting value creation opportunities from a shareholder perspective. And of course, at the same time, building a bundle of the software events, research, all linked to the Inderes platform and the ecosystem, which gives you the distribution power towards the investors. There's also really strong synergies between all of these businesses. But that's it. The software business is something that we have built basically from scratch over the last 4 years, and now it's coming together. We're finding the product market fit and seeing really good traction in Finland, some good openings outside Finland. And obviously, that's something where we need to push for more growth.

And I know we discussed it before also on these events. Could you -- to gain there, you might say the footing in Sweden or something like that? Are you looking at acquisitions? Or is there simply not something that fits into your model in Sweden besides what financial engineering you already acquired.

In terms of acquisitions in our business, like the challenge is that there's not -- at the same time, it's a positive thing, that there's not much to buy because we are focused in the very small niche of Investor Relations. And there's not much Investor Relations focus, purely Investor Relations-focused player out there in the market. So, for most of the competition, Investor Relations is not their core business. It's a side business that they are doing or they are more or less generalist. They are generalist event agencies, generalist communications agencies that are doing Investor Relations, while our core business is Investor Relations. So, there's not that much to buy in the market if we look at the -- but of course, acquisitions is something we have used in history and also something we have in our toolbox if the opportunities would come.

But it's not a big part of your strategy, if I should listen between the lines, update.

Yes. But building a leading Nordic Investor Relations events player, that's one of the end games that we're building up. And well, I could say that we already are in Denmark AGA events, which is kind of like part of the Inderes ecosystem. The IR events we produce in Finland, the IR events we produce in Sweden, a handful also in Norway. We're kind of like already in this fairly small niche, by far the leading player, but we still have a lot of way to build a truly Nordic really strong player in this field, leveraging from the shared technology platform, from the shared distribution network towards the investor and also building up really strong competencies by building a product that is really tailored for the needs of the Investor Relations professionals, having that data and analytics also feeding into the Investor Relations software. So, there's a lot of things we can do in this front going forward that I'm actually really, really excited about. And we really need to invest and build these competitive advantages because in this business, we always need to remember that the competition is a free option. You can also run your IR events on Teams or Zoom. So, we really need to build up such a distribution, such analytics and such related features and service that that the clients don't opt for the free option. And well, that's something we have demonstrated quite well. Sometimes we might have a client switching to Teams and then quite soon coming back because it didn't serve the investor, the end audience at the end of the day.

Yes, you touched upon it. You don't see any changes to competition. That's not what you see, and clearly not in Finland if we look at the numbers, but anywhere else, you don't see big changes to the competitive side or what we should call it. Should I understand you, the areas have been facing?

Yes. Same as always. There's always competition. Some of it is price-driven. Some of it is the kind of like free options. But on the events part, not significant.

That was the questions I had on my mind. So, if you want to do some closing remarks or end of the presentation, then you are welcome to do it, Mikael.

Yes. Maybe I'll just shift over one slide back to zoom out to the 10-year perspective on where we stand. So Inderes, where we started from building very locally the equity research business and the platform around that business, scaling that up and then still remaining a local company, expanding the product portfolio to cover the Investor Relations events, AGMs and Investor Relations software. So, kind of like covering the end-to-end of running your Investor Relations operations, linked to the Inderes platform through which the listed company can reach the relevant target audiences for the IR. And kind of like that package has been super strong, creating a lot of value for the investors and the Investor Relations of the companies. And with that expansion, we grew really fast. And then kind of challenge with being a Finnish company, building a local business in Finland is that this is such a small market. So, we were outgrowing from Finland and soon we decided that now we need to go geographical if we still want to grow. And yes, we want to grow, we want to challenge ourselves. We want to become better in what we do. And end of '21, we IPO-ed, raised some capital, and then started to work to take this company into an international company. The past 2 years have been the first years in building the foundation for international growth and really about finding the recipe for the go-to-market of these businesses. And yes, I think it's exciting to build new things from scratch. That's what we that's what we get excited about. And obviously, there's a lot of international opportunities in this market. Investor Relations needs innovation. It's a very conservative industry. There's a lot of room for innovation on the investor perspective. Is information democratized, and thus all investors have equal access to high-quality investing information, high-quality equity research. No, there's so much work to be done in this market. So that's why we are on that journey with these 3 core businesses being our spearheads in the international growth. And then part of the company renewal is also that we have new international Board member joining in Hanna Raftell, bringing global expertise from the financial sector to the Board, and the new Chair of the Board, Joakim Frimodig also starting after the last AGM. And yes, very Inderes-specific thing. We also involve our investor community to the governance of this company, which is something that's really, really cool. So, the community itself selected Teemu Hinkula as the community representative for the Nomination Committee for the next term. So, we really are a community-driven company. We also involve our beloved community to the governance and decision-making of this company at these levels. So that's very cool. Really looking forward to working with them also. And then please set to date, 27th of May, our Capital Markets Day. So, there we will present the update for the international strategy. Long-term targets, unchanged. Revenue growth, profitability combination 30% to 50% and payout annually increasing absolute payout, including dividends and share buybacks. Yes, the dividend was -- first installment of the dividend was just quite recently paid out and the second installment is going to be paid in the second part of the year. Perfect. Any questions?

Yes. Actually, if we go one slide back, it might dig a little bit the targets. If you should look at it, you are now going into a phase where you need more trial and error to find the right model that might dampen growth, because Finland, of course, you can grow the software business, but in a couple of years, that will be big. And if it keeps growing like that, it will add on. But is it more on the margin side, we should look at this over the coming years maybe that this model where revenue plus the margins should give you 30% to 50% as a target? Is it more on the margin side if we go ahead? And I don't know whether you want to answer that or how you think about this model going maybe in the next 3, 4 years? Where are the 30% to 50% coming from?

Let's put it this way. I'm more dissatisfied with the level of growth we have right now. This has been a growth company from the very beginning, and growing single digits is not something that is in the DNA of this company. Now, of course, we're growing single digits as we speak because of various reasons. Some you can look outside and many things you also need to look in the mirror. But really getting into a growth track, I think, is something where we need to step up the game on all businesses. And if you think about Inderes value creation, it needs to come from international growth. It's really hard for any of our businesses to grow their value if they stay local in Finland. So, growth and primarily international growth is how we can grow our value sustainably long-term while keeping also good care of the financial discipline and keeping good care of the profitability. Of course, that's something, and cash flow, that's something that is also deep in our DNA. But long-term, absolutely, we want to be and we need to be a growth company. And within that, it said that we also need to transform into an international company because Finland is just too small.

You would also have asked this in the old days as an analyst to try and get you out of you where your target margins are. It is in your DNA to have the black part of this also to be a big part of this. I got the message. Thank you, Mikael, for taking us through your presentation of your company and a little bit about the thoughts on your internationalization strategy, and thank you for the audience listening in.

Thank you, Michael. See you next time.