Quadient S.A. (QDT) Earnings Call Transcript & Summary

Good evening. It is my pleasure to welcome you to Quadient's 9 Months and Third Quarter 2022 Sales Presentation. I am Catherine Hubert-Dorel, Quadient's Head of Investor Relations, and I am joined this evening by Geoffrey Godet, Quadient's CEO; and Laurent Du Passage, Quadient's CFO, who will host this presentation and answer any questions you may have at the end. As a reminder, you can submit your questions in writing through the web or ask questions live by dialing into the conference call. And with that, thank you very much, and over to you, Geoffrey.

So moving to Slide 5. Thank you, Catherine. Good evening to you all. I am pleased to present to you an overall solid Q3 performance. Quadient group revenue for the third quarter was up 8.8% on a reported basis to EUR 270 million. This was helped by strong currency gains, obviously, from our growing U.S. exposure, which represents at the end of Q3, 61% of major operations. At group level, this represents a growth of 1% on an organic basis. So we continue to enjoy solid demand for our solutions in terms of booking, leading to further growth in our subscription-related revenue, which has now reached 2.8% on an organic basis, and this is for a major operation in the third quarter, which we believe, further demonstrates the strength and the recurrence of our recurring business model. This solid Q3 performance was mostly driven by our cloud software solution, ICA, as you know, which continues to deliver strong double-digit increase in subscription-related revenue, at close now to 18% organic growth in the third quarter, which is in line with the second quarter trend. If we move now to the Mail-Related Solution, Mail-Related Solution posted another resilient quarter, the seventh in a row -- let me repeat this, the seventh in a row, delivering a very limited organic decline of 0.6%. Our Parcel Locker Solution, however, reported a small organic decline in the quarter, clearly, a weaker-than-expected performance, especially after the good Q2 that we had. This was linked to the delays of some of our retail U.S. projects. On the other hand, fundamentals and demand for parcel lockers remains sound, however, and I will come back, obviously, to this point in details with Laurent when discussing our solutions. Our Q3 performance could have been better as our backlog continued to increase in the third quarter. It is now more than 40% higher than the same period last year. Without the supply chain issues, we could have had a better Q3, obviously, and I will naturally go in deeper explanation on this topic with Laurent as well. Moving to Slide 6. Before we discuss the performance of our solution, let me spend a few minutes on our key commercial successes of the quarter. At the heart of Quadient's organization, we have built a scalable and integrated go-to-market strategy. We have built an efficient, on one hand, and flexible multichannel sales approach across our 3 synergistic solutions. This organization design provides us with a unique advantage to acquire customers, which is one of our top priority for all of our solutions, using the most efficient and cost-effective way and such at a global and worldwide level. So as part of our go-to-market strategy, the role is to ensure that we have the most appropriate expertise and support close to our customers, in proximity with customers. We align our channels to optimize customer acquisition on the one hand, without sacrificing customer experience and success on the other hand. We have, obviously, today, 3 primary methods to drive revenue and growth: the direct sales, thread telesales, and field sales; cross-sell, number 2, and upsell, which is really nurturing our existing relationship to sell additional solutions and modules to our customers; and the third one, indirect sales through our value-added partners and our network of partners. So if I move to the direct sales, in particular, so direct sales drive -- we've seen an important part of our customer acquisition, especially as this -- as you could see it in this slide, 3,600 customers have got, for example, new logos, right, in Q3. But what is equally, if not more important, is the contribution to client retention and renewals of contracts. If we take the example for our Mail business, client retention and upgrading contracts is also the responsibility of the direct sales organization. Additionally, direct sales are segmented to be efficient according to the product and deployment complexity level. Take an example from the off-shelf purchase directly made on our website, to the agility and flexibility of our telesales team, and up to the larger projects, longer sales cycles recording a relatively high degree of customization, deployment and field sales expertise. That's why -- how we have organized the direct channel. DPD carrier, DHL and other international carrier for the launch of the Parcel Lockers network in the U.K., or if I take another example of MetLife in Japan, insurance, or Pacific Source for CCM solutions are great examples of recent notable field sales deals. While telesales are very successful for Mail-Related solutions, and also our account payable and accounts receivable cloud automation software. They are all designed to be simpler, turnkey product installation, and it's why they're suited for telesales, inside sales organization. Once the relationship is established with our customer, our sales force is able to build on the integrated organization design. This ability to cross-sell, right, is what gives Quadient an advantage over the other providers. We are very proud of our expertise, and we're regularly mentioning cross-selling to you in our past presentation, as this is truly a differentiating factor in our sales success. So what we call cross-selling is our ability to sell different solutions, Mail-Related Solution, ICA, PLS to an existing customer. While, on the other hand, what we call upselling, is our ability to sell another service or another product or another module to an existing customer, but within the same solution. For that purpose, our platform approach for our cloud platform, ICA, is key to help upsell additional modules to an existing customers. As a reminder, 2/3 of our cloud software customers come from our traditional Mail business, cross-sell. But I would like to stress that cross-selling occurs in all direction, across all 3 solutions, not just our software platform. We sell mailing solution to software customers and lockers to mailing customers. Cross-selling is a very efficient way to grow business because it benefits from an existing customer relationship rather than acquiring a lead on the web, and we intend to continue building on this, as we focus on the core mid-segment size of the companies that is the bedrock of our customer base. Finally, we also rely, which is super important, on a diverse international network of partners to sell and also implement our solutions. This is categorized as indirect sales. And again, this is a very successful way to sell mostly our cloud software and Mail-Related solution across the globe -- sorry. We also routinely, obviously, monitor and analyze the most cost-effective channel to acquire, cross-sell and upsell and support our more than 400,000 customers. Adopting such a sales engine setup is proving very resilient, particularly in the time of recessionary environment, and we're not dependent on a single channel, nor region, not even a customer segment. And this blended and integrated go-to-market strategy enables us to continue to optimize our execution in a real and powerful way, without sacrificing product delivery and customer success. Moving to Slide 7. Let me now turn to the underlying driver of our successful execution of our go-to-market strategy, which goes beyond the organization design and efficiency. One of the key drivers behind customer acquisition today -- customer acquisition strategy, is the quality and the relevance of our innovative solutions. These solutions are making a tangible difference for all of our customers across all industry segments. We have summarized here the key fundamental benefits behind Quadient's automation offering, right? At a time when the macroenvironment is more and more uncertain, we are proud to have developed a portfolio of industry-leading automation solution, delivering most and foremost, cost savings for Quadient customers, and it turns for our customers as well, clients. So whether we automate mail delivery, or we automate parcel delivery, or we automate digital communication and our payment delivery, we fundamentally save time and money to our customers. These savings are coming together, obviously, while delivering, which is even more important, a superior customer experience, strong security and data integrity as well, and even a strong embedded ESG focus, retrieving a parcel, sending personalized mail to thousands of clients or accelerating the cash management of a subsidiary, each and all of these examples have one thing in common. They are all delivering important and seamless services via automation to a large range of customers. The Quadient solution naturally becomes an integral and essential part of our customers' operation, and as such, have a very high level of stickiness, which is why -- and this is also demonstrated in our very low churn level. So let's now move to Slide 8 and turn to the review of our 3 solutions, starting with ICA, our SaaS cloud platform, Intelligent Communication Automation software. So turning to Slide 9 and the key business highlights for the period of our software solution. Q3 has been another strong quarter for our cloud platform, with further growth in annual recurring revenue. Our customers' acquisition strategy, both direct and through our cross-selling and upselling effort, as I have just described, continues to deliver very good results. At the end of the first 9 months, our ARR is now at EUR 179 million, up 22%, and I stressed this on an annualized organic basis, so taking the effect of currency out. Current demand for digital automation remains very strong currently. We don't see any particular change. And we expect Q4 to be strong in terms of booking, and such despite the macroenvironment. Of note, over the third quarter, strong growth is seen in particularly in the mid-segment of enterprise with an acceleration of adoption for accounts receivable, which we call AR, and account payable, which we call AP, offers. We expect this positive trend in the mid-segment to continue in the fourth quarter as well. We have also decided to rebrand -- sorry -- these 2 products, Beanworks and YayPay, account receivable and account payable modules, to align their names with the Quadient brand. This changes of name is, obviously, the natural evolution in line, with the further integration of our suite, as I have mentioned to you before, moving from independent products to a modular suite with modules. The larger enterprise segment traditionally for software has seen also sustained growth year-to-date, and we're confident that Q4 should deliver solid performance again. The positive and increased penetration of our cloud software suite can be seen in the continuous progress we make quarter after quarter in our transformation from license to SaaS. The share of subscription revenue was standing at 74% -- 75% of ICA revenue at the end of the period. As a reminder, it was only 59% in the full year 2020. We can also see the progress in the share of our SaaS customers, which has reached now 79%, while the increase in platform usage continued to be very strong at 23% in the first 9 months of this year. I will now leave the floor to Laurent for more financial details and information on our performance.

Thank you very much, Geoffrey. So for ICA, revenue is growing at 5.2% over 9 months organically. It's standing at EUR 166 million with a reported growth at 12.7%, obviously boosted by U.S. dollar increase versus euro. If you look at Q3 standalone, it's growing at 6.3% organically or 15% reported. The acceleration in the bookings to date, and notably in H1, is now translating well into the growth of our subscription retail revenue at 17.2% year-to-date, as you can see on the left-hand side, and 17.8% in Q3. All modules are contributing to this growth, and with notably accounts payable and accounts receivable further accelerating at plus 65% in Q3. Performance in the U.S. is particularly strong for ICA. Total growth of ICA continues to be muted by a minus 43% decline to date in perpetual license revenue. This negative impact continues to be progressively reduced, as license sales only accounts for 7% of revenue now. Professional services evolution reflects our change towards SaaS and our customer segment mix. Outlook for the rest of the year remains very solid. We anticipate the further growth in subscription-related revenue upcoming, thanks to the strong year-to-date ARR evolution, driven by both more SaaS and also more usage from existing customers, and growth drivers remain unchanged with solid contribution from MRS cross-selling and significant customer acquisitions. Now back to you, Geoffrey, on Mail-Related Solutions.

Thank you, Laurent. Let's turn now to our Mail-Related Solution. Q3 is traditionally a quieter quarter than the rest of the year, and Q3 2022 was no exception. Having said that, performance of our Mail-Related Solution is incredibly resilient this year. After COVID and its push for more digitalization, MRS is further demonstrating the value it brings to its customers, and we're extremely proud of the quality of the execution of our teams, leveraging all the synergies with our softwares and local solutions. The quote we are representing on this slide at the bottom and -- the left side, "We are now able to comply with regulation standards, provide higher efficiency and reduce manual labor significantly", from a customer, is a good illustration of the benefit Quadient solutions are bringing to customers, as discussed earlier in this presentation. Our efficient go-to-market -- The digital channels we are now promoting as well as our cross-selling effort also continues to deliver great results with the acquisition of new customers this quarter. We continue to push forward with our innovation and new product offering, which are very well received as evidenced in the continuation increase -- continuous increase in the share of upgraded installed base, but also in customers' feedback. So overall, another good quarter for MRS, which could have been even stronger, if I had not seen for supply -- if it had not been for supply chain issues driving some delays in customer order deliveries and contributing to a further buildup of the backlog on MRS side. This backlog, together with the fourth quarter being traditionally a strong quarter in bookings, contribute to our cautious optimism for Mail-Related Solution in the last quarter of the year. Last but not least, revenue resilience and steady high profitability of Mail-Related Solution, even under the current high inflation macroenvironment that we all know, is a key contributor to Quadient integrated and synergistic portfolio of solutions.

Performance in Mail-Related Solution continues to be extremely resilient. We sell at minus 0.4% organic decline over 9 months and up 7.8% reported. Q3 performance is very in line with H1, with a confirmed hardware sales growth in Q3, positive both in North America and in Europe this time, with growth positively skewed still towards North America. France is the only underperforming region. Trend in subscription-related revenues also confirmed in Q3, with steady volume-based revenue across the world. Outlook for Q4 is positive despite rising supply chain issues. Some delays in installations due to transportation and suppliers lead to a high backlog, more than 20% above last year at the end of October. Solid customer demand is expected to support a traditionally strong Q4, even in the current macro context. We also will have further indexation benefits in this coming quarter.

Thank you, Laurent. Turning to Slide 13. Our Parcel Locker Solutions focus on expanding the installed base and our main geographies remain, as you know, are key priority over the third quarter. However, lockers installation was mostly slower than expected in the U.S. due to some project delays, in particular on the retail side. We closed the quarter with over 17,300 lockers installed, mostly from the rollout of our existing contract now in Europe, in particular, in France through our existing contract with retailers on the one hand and in the U.K. on the other hand, with our open network rollout. But also, we had some contribution in Japan and in the U.S. with some corporate and universities as well as our main residential verticals. We see good tractions of installation in our recently launched U.K. network, and we're happy to announce that we have signed a fourth international carrier in the third quarter as well. We expect the pace of installation to triple in Q4 versus the third quarter, and to reach in Q4 probably around 100 installations per month. If everything continues to goes well, and we'll validate that -- we would expect to continue to accelerate the pace of installation in H1 2023. In addition, we have recently launched our Parcel Locker offer in Ireland for the residential sector. And in France, we have just announced a new deal with Carrefour to install between 200 and 300 lockers in its shops as well. We continue to believe that innovation is key in this solution, as well as we continue to see good traction for our recently launched products, such as the larger lockers for the wired Do-It-Yourself retailers and the new functionalities such as the dropbox, in particular, to consolidate the returns for carriers, and not just do the last mile, but also the first mile optimization. The value proposition for the automation, again, of both first and last mile delivery continue to gather strength, and we see no change in the attractiveness of our Parcel Locker offer across our verticals. However, as e-commerce trends have started to show some signs of slowdown, as you know, we have seen increased cautiousness and recent investment decision. And as already mentioned in H1, we have seen slower deployment of some existing retail deals, while more negatively, other deals are being pushed back into -- or up to H2 2023, in particular, with the open networks we had in the U.S. We have also suffered in Q3 from extended construction lead times for the residential sector in the U.S., which has led to delays for the installation of the contracted blockers that we had. However, we see no fundamental change in the attractiveness of the lockers and into new residential building and the high level of backlog, more than 70% versus last year is confirming the solid order intake. The delays in installation is purely due to the longer construction lead time caused by building material supplies disruptions. Laurent?

So for Parcel Locker Solutions, the sales are slightly down, minus 1.8%, but it's up 4.8% reported and with the Q3 quarter flat in organic growth and up 7.8% reported. As you can see on the top left-hand chart, it is the business where we have the highest dependency on hardware placement that accounts for 1/3 of revenue. And indeed, what you see on the bottom left chart is that hardware sales volatility has been high from one quarter to another, with Q3 suffering from delays in U.S. residential sectors, and retail deals being postponed to 2023, as explained by Geoffrey. However, we see a high double-digit growth in Europe in Q3 albeit from a small base. Growth in subscription-related revenue has been slower due to the lower growth of the installed base in the U.S. and in Japan, and despite the acceleration seen in France and in the U.K., thanks to the current retail contract and the open network. A solid year-over-year performance is expected for Q4 with significant installs planned. Though we have a very high supporting backlog at the end of October 2022, it's 65% above end of October 2021. Most of this backlog is related to new construction building, and is now expected to benefit also 2023, which will be a good news for next year. Now moving to Slide 15. If we add all 3 major solutions together, this brings us the major operational scope, which is EUR 749 million reported over 9 months, up by 0.7% organically and plus 8.6% reported, with the Q3 slightly more dynamic at plus 0.9% and 10.8%, respectively. North America is growing at plus 3% organically over 9 months. And even at 4.2% in Q3, it represents 59% of total revenue of major operations. It is the main contributor of group organic growth, as you can see on the bottom right chart, and such despite Parcel Locker weaker U.S. Q3 performance. North America is clearly benefiting from the growing acquisition we made in the U.S., as well as the stronger performance of MRS. Our main European countries are impacted by weaker contribution from MRS driven by France, despite an attractive Parcel Locker organic growth, and are also benefiting from the initial contribution of the U.K. open network. Subscription-related revenue growth in Q3 is confirmed at 2.8%, in line with the 2.9% year-to-date, with subscription representing 71% of the total. And such growth rate, it further demonstrates the benefits of the recurring business model we have chosen, as well as the fast transition from license to SaaS we have opted for. Now let me address specifically the sales results for 9 months 2022. On this slide, you can see the quarterly reported revenue evolution and the year-over-year organic change in percentage. All solutions are well oriented, also boosted by dollar strength this year, notably as the U.S. represents more than half of the revenues and the largest market for each solution. From an organic standpoint, we see continuous mid to high single-digit growth year-over-year, over the past 2 years in ICA. We also see quarter-over-quarter growth. And please note that those results suffer from approximately 5 points of decline due to the change in business model in the past 18 months. MRS on the bottom left chart shows a remarkable resilience for 5 quarters in a row, just after the first 2 quarters of post-COVID rebound. Parcel Locker has shown more quarter-over-quarter volatility due to a large dependency on hardware revenue. Now as you can see on the total major operation level, at the bottom right, our fourth quarter is traditionally our largest quarter of the year, as we should also expect this year. As a summary, major operations now accounts for EUR 749 million over 9 months and close to 95% of group revenue. Additional operations only represent EUR 45 million of revenue over 9 months, and Q3 only contributes to EUR 13 million over the quarter, lower than in Q1 and Q2 for additional operation, due to the divestment of the Graphics and Shipping Solutions in June this year. This is now solely comprised of Mail-Related Solutions and Parcel Locker activities in the rest of the world. We intend to regroup them into our major operations next year. Finally, on Slide 19, when bridging our 9 months reported revenue of 2022 to 2021, we need to exclude the scope effect of EUR 18 million mostly related to additional operational divestment, of course, APS, but also Graphics and Shipping solutions that we need to remove from June onwards in 2021. And at back, on the right-hand side, the EUR 53 million of positive currency to reach a 5.6% reported growth for the first 9 months of this year. As you know, divestment have come to an end, and we should see the scope effect reduced in the coming quarters.

Thank you, Laurent, for those explanation. Let's move now to Slide 21. So not fully offsetting the weak U.S. low cost performance we had in Q3. Before moving to the guidance, let me tell you a few words regarding the dynamics that we observed in the group for Q4. Regarding our cloud software activity, the solid trend experienced since the beginning of the year, and in Q3, is expected to accelerate in Q4, and this is supported by the strong ARR growth seen throughout the year. This is further evidence of, I think, the successful transition we conducted and shifting from license sales actually to the SaaS subscriptions. If we have a few words on our Mail-Related business, it has delivered a solid performance over the past 7 quarters now. So we remain logically confident that this resilience shall continue into Q4. The recent supply chain issues have weighted on our ability to deliver some products, and contributed to a very high level of backlog -- sorry -- at the end of October 2022. So we are, however, cautiously optimistic that further resilient organic trends and subscription-related revenues should also support a solid performance into the last quarter of the year. A few words on our Locker solution. It posted a weaker-than-expected Q3, as I mentioned, introduction, and as commented before. However, I think, we do expect a significant improvement of our performance in Q4 2022 versus the last quarter of last year. Existing contract deployments, new contract recently signed as well as some installation in the new build residential segment in the U.S., are all expected to contribute to the growth in Q4. Importantly, I think that the last quarter of the year is traditionally an important quarter for our solutions. As I said, the group is heading into Q4 with a significantly higher level of backlog than the same period last year, meaning, on the other hand, that our ability to reduce this backlog, both in the mail equipment and in the parcel lockers will play an important part in our Q4 performance as well as in the overall organic growth of the full year 2022. So to this respect, so far, supply chain issues have not worked to our advantage, but we're working very hard to mitigate this impact in Q4, like we did actually last year. I'd like also to stress that, more than ever in this more challenging macroenvironment, our solutions answers our customers need for further automation. Our successful recurring business model achieved quarter-over-quarter solid organic growth in subscription-related revenue, and has proven especially very resilient, while the profitability of our installed base has improved and continues to improve, and we're expecting it to improve in Q4 as well. We're also positively exposed to a more dynamic North American market with strong demand from this market. However, this also come with its own challenge, as cost and salary inflation, on the other hand, are particularly high over there, and have been weighing on the group's profitability. On the positive side, FX, foreign currency rate, has had the opposite offsetting impact, was a significant benefit, thanks to the U.S. dollar and reported revenue and EBIT. So, turning now to Slide 22. Turning to the organic guidance for the full year. In summary, we do expect a strong Q4. But considering the weaker-than-expected Q3 due to the PLS delay, with the retailers project mostly in the U.S.A. on the one hand, and the uncertainty is coming with the ability to reduce the high level of backlog, on the other hand. We have decided to cautiously adjust the full year 2022 revenue guidance to an expected organic growth above 1% versus above 2% previously. This more cautious stance on organic revenue growth is also leading us to adopt a more prudent approach on the operating profitability of the group, as the lower revenue growth carries a direct impact on the EBIT level as well. In addition, I will remind you that the cost of -- on the cost and salary inflation, mostly from the U.S., have put pressure on the profitability of the group in H1, as you know. But with that in mind, we still expect the second semester EBIT margin to show a significant improvement against the H1 level, thanks, in particular, to a higher profitability of both our cloud software and Parcel Locker installed base. Well, Mail-Related Solution profit margin should remain very high. Therefore, we have reviewed our group EBIT guidance naturally as well, and are now expecting a low to mid single-digit organic decline versus a low to mid single-digit organic increase expected previously. Based on the current trends, we do confirm our mid-term outlook as well. So this concludes our presentation. Laurent, Catherine and I will now be happy to take your questions.

Thank you very much, Geoffrey and Laurent, and we will start with the questions on the conference call, please.

[Operator Instructions] we'll take our first question from Patrick Jousseaume from Societe General.

I have first question regarding the vendors guidance, mean, for EBIT. If I understand, was the starting point for this year -- is EUR 145 million. Then there is some positive currency effect to the tune of 5% to 6%. and then, this guidance of a low to mid single-digit decline. So is that okay?

I can.

Do you think it's the right way to look at it?

I can take this one, Patrick. So first, yes, you are right with the starting point. I mean we reported last year EUR 147 million EBIT before M&A-related expenses. You have more or less EUR 1.5 million to EUR 2 million of scope effect, which are the Graphics and Shipping Solution divestment. And from that, we have a guidance which is low to mid-single-digit decline. Then now you asked the question of how do I compute reported EBIT. I think that's basically what I hear in your question. As a reminder, the Forex impact on EBIT in H1 was about EUR 7 million, okay, considering that the dollar has stayed relatively at the level of Q2 in Q3. But be careful, the evolution last year in H2 -- the dollar has increased a little bit as well. It's probably fair to say that over the full year, multiplying this effect by 2 is not so far from the reality.

And my question is also about -- I mean, same type of question on the 2023 guidance now. So here, the starting point, if I remember, what is EUR 140 million, which is what you mentioned at the bottom of Slide 22 in the foot notes. And then starting from this, I guess, there is 5% during 3 years on average growth. And in addition to that, the same positive currency impact?

Yes. I mean again, the guidance are all mentioned organically. I mean, the indication we give from a reporting standpoint, give an additional -- I think, a flavor around where we land, and notably as the analysts work on a reported basis mostly. So it gives a little bit of color. But the guidance and the indication of the 3 years, that we confirm on the EBIT, which is basically a mid single-digit growth on the EBIT organic over the period of 2021 to 2023 -- is organic. It excludes the Forex impact. So in other words, Patrick, you need to start with the EUR 140 million of 2020, and you need to add between mid single digits, so probably between 4% to 6% year-over-year, to end up in the result of the year 2023. And again, this guidance is unchanged.

And before -- any impact of currency? You expect to be at around EUR 170 million, something like that in 2023?

So it's a little bit early, I think, to give a specific guidance for the next year. We'll wait for March. But as we did confirm, obviously, the guidance for 2023, we did look at it for the dynamic of each of the solutions that we have, if we were to just go through each one of them, because we have given an additional indication, for example, for the software side. On the software side, we said we are also aiming to get to EUR 250 million in ARR. We had EUR 179 million at the end of the first 9 months of this year. We expect obviously, some further improvement by the end of the year. And as we get into next year, we're going to have a lot of embarked, basically ARR and subscription revenue. And we believe that the impact of the license change to SaaS that we have suffered from, or that we have executed in '21 and '22, will be obviously less impactful and less meaningful in 2023. And I think we see that the demand for digitization is more or less continuing to accelerate currently. So we're obviously confident in the trajectory of our Software business. The Mail-Related Solution, in particular, we had given a floor on the decline of mail over the 3 years of the plan. We're going to need to wait until the end of this year and see how the beginning of the year is shaping up. But we're obviously starting the third year in a much better position than we could have hoped for, at the beginning of this year or even 2 years ago, with a more resilient customer base. The usage, I think, on the recurring revenue, which had been weakened during the COVID, is one of the strengths that we see since the first 9 months of this year. Again, as any business, we'll have to [ revalidate ] those assumptions as we get at the beginning of the year. We start from a better footage. And I think on the Parcel Locker side, as much as I am, obviously, disappointed for some of the delays that we had been surprised with on some projects for Q3. We do get into Q4 with the backlog of orders that makes confident about the step-up of improvement we expect for Q4. And as we get into 2023, we have obviously an acceleration that we're expecting on the rollout of the Parcel Lockers. In the U.K., we do have embarked a bigger contract, both in the U.S. and in Japan and France. So a lot of it is going to be obviously coming from existing orders, and the delays that we have suffered from, to some extent, also, in particular, in Q3, and this year, on the residential market, because we have signed a lot more bookings on new buildings, constructions. And unfortunately, a lot of those new bookings did not turn into installation being recognized in '22, which has been negative on '22, which, on the other hand, will become a positive for '23. And the 70% of increase in the backlog, 2/3 of it is related to those new constructions, which were really, for the most part of it, benefit next year. So we do take into account, obviously, all those positive momentum. We need to provide a level of cautiousness as well as we need to take into account that the macroenvironment will be less favorable. But after reviewing those assumptions, we did confirm those mid-term guidance.

Okay. And just if I rephrase a bit, on 2022, current year, what you are expecting in -- organically is less than EUR 145 million? And for 2023, at least -- I mean, it's around EUR 150 million, EUR 160 million excluding organic -- because if I apply 5% year after year during 3 years to EUR 140 million, I go to EUR 162 million.

So if you apply the low -- the mid single-digit EBIT growth over the 3 years, and if you [ land at ] those numbers -- I trust your calculation, Patrick. So that would be, again -- and as mentioned by Geoffrey , as a difficult uptake for next year, which is illustrated by all the favorable elements that Geoffrey raised across the different solutions. That's correct.

I think it is safe to take for the calculation and the validation of those assumptions, the low end of our guidance, naturally, and I will do the same thing. I think I would just add that, even in previous years, if we had to lower guidance, it doesn't mean that we give up on them, and we are obviously working very hard to normally be within the guidance. But if we could exceed it, we're not going to let pass the opportunity neither.

Another question is on your performance [ versus PD ]. If I'm not wrong, during the -- almost the same quarter, Suntec solution at [ PD ] grew 1% at constant currency. So do you think that there is -- do you see any reason to explain why your revenue was a bit down and Suntec revenue was a bit up?

So I was put enough caution of not commenting our competition performance. Just to remind, in Suntec, this is not just the equivalent of MRS activities as they have a lot of other third-party activities included into it. And I thinkm when we look at the performance versus the market or [ PD ], I think we have a geographical weight. There -- always a reminder all of us with, is that they are more exposed to the U.S. market than we are, as they are more 80% weighted in the U.S. versus our 50%. We're more exposed to market that has a bigger decline in a level pace like the French market. So those difference help us also assess when we apply those weights, because we obviously have our own performance in the U.S. that we could measure, how we are doing on the U.S. market, in particular, versus [ PD ]. So we're pretty confident today that we are [ proffering ] them in this main market. That's the first thing. The second thing is, our performance in Q3, as much as it was a very good performance -- and I'm quite happy even with 0.6% decline -- was clearly -- it could have been clearly better if we had been able to reduce further the level of backlog in Q3, which actually increased and is now at 20% higher than even last year the same period of time. We ended up having -- just going into some details, issues from having a series of containers stuck in custom in September for several weeks, which has prevented us to deliver some products. Some third-party product like balance, scale that are associated to our own product orders, the deliveries of our partners, a good delay as well, which prevented us to be able to deliver our own product in -- particular in the U.S. We had an equipment failure in one of our supplier in Northern Europe. It's been just -- not a big type of issue, just many small issues that are -- that pop up in Q3, in particular. And when we look at the booking outside of the pure revenue reference that you mentioned, I think, if I take into account the North American growth rate, the placement of hardware and the level of the backlog that we have, I think we're still offering the market fully, and this is why I'm still fairly confident about our Q4 performance, again, not taking into account, obviously, the amount that could remain in the first -- in the last 2 months of the year.

[Operator Instructions] There are no further questions on the audio line. Please proceed.

Thank you. So we'll now take the questions through the web, and we'll start with a question about guidance to stay on that topic. Can you give more details about the previous 2023 guidance?

I can take this one, if you want, Geoffrey?

Sure.

I think it's just unchanged compared to what we said during Capital Markets Day 2021. There is the mi single-digit EBIT growth, organic, over the period '21, '22, '23. So from a starting point in 2020 that was EUR 140 million of EBITDA before M&A expenses. So I think Patrick has been quite explicitly sharing his assumptions, and I think they were pretty much reflecting the guidance we gave and the [indiscernible] that we confirmed today.

We have never changed them since we have announced the plan. No.

So moving to the Parcel Locker Solution. Can you give detail about the delay delivery? Is it linked to specific -- is it linked specifically to U.S.? Or does it also impact Europe? Where are the current bottlenecks? Is it supplier transport? Is it linked to a specific supply of failure or linked to the general lockdown in Asia during Q3?

I can take this one --- this question, if you want, Laurent. So the gap in revenue recognition versus what we expected in Q3, clearly is kind of related to the U.S. scope. Actually, we have seen a pretty good level of placement, recognition of revenue. Quite actually the growth rate around more than 40% in France and the U.K. are quite impressive, even though the base is small because we're really relaunching those areas, but it's been fairly contributive. And the Japan even though slowing down a little bit, is still a growing, contributing region. So it's really related to the U.S. And in the U.S. in particular, this is where in terms of the business model, we have the most volatility in revenue recognition because the principle verticals that we operate into in the U.S. is also related to the residential market. And in this residential market versus the other market, we do place hardware versus subscription -- more hardware versus subscription relatively comparing the other region. So we had mostly 2 effects, and they're not really related to the supply chain issues. The supply chain issues are related to MRS. On PLS in the U.S., we obviously expected to further work and further implement and further wind project in the retail segment. And as you know, with the e-commerce volume going down, A lot of the projects we had won at the end of last year, in H1 this year, where we're in the phase of doing the proof of concept with the Phase 1, sometimes we're in the Phase 2 of the project, but before a major scale. A lot of them has been delayed, and even in the one we actually expected in Q3 itself, as those customers have to face additional priorities and those projects has been moved, postponed to 2023, sometimes even H2 2023. So that's a portion of the gap. The second portion of the gap -- and it's related to our own customers', I would say, life, is that in the residential market, while the booking has been pretty strong generally this year, or maintained at a good level, including in Q3, the booking has been skewed towards new construction since the beginning of the year. And the planning related to the in-store in those new constructions, keep being delayed at the customers. So that's generally spacing -- generally speaking, something that is quite frequent, because when you have a new construction, they are dependent on raw materials coming from other region, transportation issues, getting other different contractors, or working together. And the timing at which our installation needs to come up, we can be in the middle of the construction. Construction has to be finished with the lockers and gets destroyed or impacted during the installation process. So they do want stay for weeks before being installed. So those dates keep moving. That's our regular life. In particular for the planning of installation, we're planning Q3, because we are quite professional in the way we do our planning. We had a series of delays in those installations that had further impacted our revenue recognition for Q3 in the U.S. for the Parcel Lockers as well. So that's the 2 main drivers of the gap versus what we felt was a fairly safe and secure forecast for Q3 in Parcel Locker in the U.S. This is also why we feel fairly reasonable -- reasonably confident that Q4 is expected to show a major increase. We're not impacted, or we're not waiting or depending on the same project that got delayed. So we're not looking at the revenue of Q3 not recognized -- to be recognized in Q4. Those projects are being moved to next year. So it's a whole series of other projects for which we have obviously validated the confidence level we had to be able to install them in Q4. So they're different projects. I think it has addressed the...

Thank you, Geoffrey. I think we have another question on the line.

We will take our next question from Jean-Francois Granjon from ODDO BHF.

Just want -- I just want to come back on the Parcel Locker Solution business. So I understand there is some delay for next year. But I think that the environment and the macroenvironment should be unchanged next year for the construction, for the building, I think. So why are you so positive, optimistic to -- for next year and expected some more growth next year for Parcel Locker to the macroenvironment, probably under pressure next year? I don't see any change compared to this year. So why are you more optimistic for the Parcel Locker business next year?

So it's a fair question, and it's a rich answer because we obviously have the benefit of not being dependent on one vertical for the Parcel Lockers business and neither one region. So we have 3 main regions, I would say, today: Japan; U.S.; and obviously, our key region in Europe, mostly now the U.K. because we're going to benefit from the launch and the rollout of our U.K. network with 4 international carriers, and we also have some traditional activities in France and some other countries. And the situation is a little bit different for each one of them. If I look on the most potentially challenging one, is the retail segment. Definitely, depending on what type of retailers, sub verticals, if you want, some of them are facing challenge today. And we are expecting that they will continue to have challenge into 2003 potentially beyond. So we're also readapting our go-to-market towards a segment like the DYI into the retail segment, that might be more willing to invest during this period of time because, like any other people in a recessionary environment with less volume, cost saving is super important, and our solution, depending on how they obviously implemented, could save money even for the retailers. This is also why we had invested in the new product features that were specifically designed for some of the retailers. We're quite happy with the reception that we got from those retailers even in Q3 in this year. And as much as we look at some retailers being clearly postponing deals into next year and beyond, we have other retailers in which we even have started a new project in Q3 as POCs, and obviously, validating with them before we spend time and energy with them, that they have the capacity to secure investment going into next year. So I think on the retail side, there's definitely some delays for some of the big deals that we were expecting, that we're not counting for anymore, but we have other opportunities in the retail segment. You've seen the announcement even with Carrefour and Relais Colis just in the French market in Q3. So there's other areas that still like -- make us hopeful that the full market for us still provide some reserve opportunities. But it's -- definitely they're the most impacted. The second one globally is the residential market. So in the residential market, we moved from 1/3 of our booking being linked to new constructions and 2/3 on the existing building before COVID. And since COVID, more or less, we are now at 2/3 of our bookings related to new constructions and 1/3 on existing building. So I think there is a sentiment for us that this change, if it were to be sustained into next year, is that we actually have a huge backlog on new buildings that we have not been able to install and record this year. So this is definitely a more guaranteed windfall because those installation, we know the time frame. We usually recognize 90% of it over 15 months, and they have started even before than this year. So it's definitely more a backlog that will become more secure in terms of recognition next year. So it's a windfall for next year that is -- more is guaranteed. But if the new constructions are slowing down, which is what we see in terms of new projects, we know we can redirect our efforts on existing building. After that, we have another main vertical, which is the carrier. And this one as much as it is obviously related to the volume of parcel transactions, they are the ones that don't seem to slow down in terms of willing to invest, whether we see a relationship of existing carriers today in Japan. We feel we are confident that we can continue to expand the relationship with Sagawa, Japan Post, Yamato, is an example there. We have the same evidence as the deal we have now with Relais Colis or other carriers in France. But I think, more importantly, the best explanation I could say, is that we have signed in the last 3 or 4 months, which is in this context macroenvironment, 4 major carriers in the U.K., because specifically for the carriers, as they look at the current environment, reduction of their cost to delivery, and therefore, the automation that the lockers provide is clearly one of the priority that remains at least at this time, and we haven't seen any change to contrary. Some acceleration we see that outside even of the countries we have targeted. We see a lot more projects related to parcel lockers in Europe, in Germany, in Netherlands in the Nordics, where we've seen actually a competition, again, but on countries that we're not targeting, but we see more active projects. So I think we have the chance of a more balanced portfolio of verticals with some booked orders definitely -- that definitely makes us more confident we can achieve a good part of what we're looking for, for 2023. As of today, there will be a remaining part that we still need to secure in the coming months and quarters, and we'll have the full year for other activities. But I think this is the main reason of our cautious optimism for parcel lockers ramp up next year.

So I think we can move back to the questions from the web. Could you please give us the book-to-bill ratio for the group as well as for PLS, in addition to the gross number of backlog that you've already given at the end of September 2021? Alternatively, could you give us the total number of backlog for the group?

I can take this one. So you have, I think -- first, it's compared to the 31st of October 2021 because, obviously, we end our quarter with 1 month difference to the second year. I think you need to distinguish 2 phases. One phase, which is from October 2021 to July 2022, where we have a book-to-bill ratio -- is probably significantly above 1. So basically, we recorded more booking than we build. And so we have a net increase of the backlog. And now we are in Q3, in more book-to-bill ratio around 1, where we have a relatively steady backlog level, where we would have expected a natural further decline. But as mentioned by Geoffrey, we have some tensions, issues on the supply chain side that didn't necessarily let us reduce the backlog further. And we are still, I think, in the perception that the book-to-bill ratio will be 1. Hopefully, we can reduce it further to get back to a more normative backlog total for the group. But with all the uncertainties that we know and that Geoffrey raised, we need to be cautious over Q4.

One thing just before we get to the other question, but to follow up on Jean-Francois question 2. I think the level of reasonable confidence we have for the parcel lockers this -- next year is that, so far, even including the gaps that we had in Q3, so notwithstanding that, we do not lose today project in our main verticals to competition leader. So we also feel there is a strength of the relevance of the offering today that is obviously meeting the needs of our customers, and we feel confident about this too.

Moving to ICL Software Solutions. What about organic growth for YayPay and Beanworks automation comparables and account receivable automation solution for Q3?

So, again, we mentioned that in Q3, we had a strong growth again, on those 2 modules. 65% growth organic compared to Q3 2021. To go slightly further into the details, we are around 50% for Beanworks and close to 100% just for YayPay over Q3. And the weighted average gives you 65%, which is an increase compared to what we had H1.

Moving to a question at the group level, how inflation is impacting your revenues and your margin?

I think I can continue. So I think we are -- again, we have 3 different solutions. The year-to-date results show that we've been able to pass the cost increase, notably cost of sales, but also part of the OpEx to the customer on the new contracts. That being said, we have the quality and the drawback of having long-term contracts with some index that are not necessarily inflation. So we would, I would say, on the recurring side, be hit by the salary quite fast and the cost of sales. It will take time, and that would be see also an ICA to have all the contracts being reevaluated either at the end of the commitment tier or either on a yearly basis. So on the short term, I would say we have some margin squeeze. Over the longer term, we should be able to continue passing on the new contracts. And finally, when we get around the, I would say, average contract length being able to preserve the margin of all the 3 solutions.

We could also add just on the inflation. We had last year the impact of the supply chain, which was an impact of roughly EUR 10 million in 2021 full year, which was some portion, obviously, on MRS shipment of products that we manufacture in Asia to U.S. and Europe, and same thing for the parcel lockers. This, on the other hand, is something that has evolved positively now since probably the beginning of June, July, the same way for the last -- the previous 18 months -- so the price has increased, 5, 6, 7, 8x folds what we used to pay. It is dropping now at the fastest space. So we're not back to the level of pre-COVID obviously. We'll have some with fall next year because the cost of shipments are already slower. We won't get the benefit in '22 because, by the time you receive them, you really recognize the difference when you actually install those products, especially for the ones that are crossing the oceans. But there will be an additional windfall, for example, related to the inflation contrary to the other more negative increase on salaries that we have to adapt to.

Still at group label, do you consider Quadient a company that structurally will have a negative or positive working capital?

That's again, I think, a question for me. You can give it to me... If you look at the past evolution of the working capital, we have been either close to 0 or either slightly negative. Remember that last year, we had a minus EUR 7 million. The year before, I think we are around 0. You need to distinguish, I would say, long-term trajectory that, I think, are about flat to slightly, I would say, degraded, because we know we have a very negative working cap on the mailing, side because people with paying advance create some deferred. As the same case in ICA. It's not necessarily the case on Parcel Locker notably on the hardware sale portion. So from a mix perspective, as MRS is declining, PLS and ICA are growing, is slightly unfavorable, I would say, over the long run. And I think that then -- after that, there is the shorter-term impact. I mean, the things we can see from the seasonality. That's what we had in H1. But also that highly depends on the level of stock, which were relatively high at the end of H1, but also some time from a [ microeconomic ] standpoint, the evolution of the DSO or the evolution of the amount of payables, depending on when we sit into notably the large projects, it could be any project, et cetera. So we said that structurally over the long run, which is the question, slightly unfavorable evolution, but overall, not significantly different than the historical trend.

Next question, at least for you, Geoffrey. With regard to -- back to growth strategy, Quadient committed to returning to shareholders the potentially unused share of its net M&A budget, which was at the time, EUR 100 million per year net of M&A. As we are approaching the end of the 3-year plan, the plan 2019-2022, and there is still net EUR 200 million of not used M&A budget. Am I right that there will be a huge extra dividend in the first half of 2023?

So I think it's a good question. And so, it's a good one to clarify. We did present in Capital Market in 2018 where those recommendations or commitments were taken clearly. We have since made another Capital Market Day in the beginning of 2020 for the year '21, '22, '23, where we have revisited based on the end of the first phase of the plan, our shareholder written policy. And obviously, we have outlined new metrics, new targets for the next few years, for which we're obviously committed to deliver for '21, '22, '23, focusing -- summarizing some of the key elements, obviously, making sure we could sustain the organic growth trajectory of the company, really the requirements related to the CapEx that we could have, whether they are related to sustaining the new product development or the rented CapEx that we have for both MRS and PLS, and making sure we have enough room to adjust from 1 year to another one, the rollout of more extensive projects, such as the U.K., for example, that is about to start in -- I mean, it has started in Q3 and will continue into next year. The second key priority that Laurent -- if you're interested we'll also dive into more -- is our deleverage strategy, is making sure that, as we were developing and returning back to growth, both on top line, but also on EBIT, we will also be fiscally responsible in ensuring we deleverage the company, and that after the repayment of the ODIRNANE which was a hybrid vehicle that we have reimbursed, and thus have to reimburse at the end of June, which was updated in our H1 presentation, we would end 2023 with a net debt-to-EBITDA ratio, excluding the leasing, below 175, and we continue to operate in this trajectory. And I think that what we had established actually now -- almost 2 years ago, 1.5 years ago, is very relevant considering the increased cost of the debt, that was important to make sure we focus and we allocate enough capital to that. After that, we obviously have opportunities for either, obviously special project always. And more importantly, we said that if our share price was low on a yearly basis, we would be looking at potentially returning additional money to our shareholders through the form of additional dividend, because we also have a dividend policy with a [ floor ] at [ $0.50 ] and a minimum in is 20% of the net income payout. So in addition to that, looking at the form, that if we have obviously assume that we could fulfill the first 3 categories, would not wait the end of the plan, but look yearly, what will be the opportunities for returning extra cash to our shareholders in the form of either extra dividend or share buyback programs. So that's something that we're obviously going to look very carefully at the end of this year.

And with that, we have no further questions. So over to you, Geoffrey, for any closing remarks.

So thank you for being with us today. Thank you for the questions we have received. Obviously, as we had a little bit of disappointment on that miss on Q3 expectation, we have obviously set the expectation that we feel that we can fulfill for the rest of the year. But as you know, as we are transparent, we have invest -- lowered our expectation, and that has not prevented us to make sure we work [ reletantly ] to potentially meet or even exceed those guidance. So as we have some uncertainties related to the reduction of the backlog, you can imagine that everybody who's in Quadient, is obviously working really hard to get the maximum of the good bookings and the good backlog of orders that we have today, and obviously, also benefiting from all the good trends that we have across our 3 solutions, to make sure that we could meet or exceed our targets for the rest of the year. Thank you, everybody, and looking forward to seeing you in the coming days or weeks for some of you. Thank you, Laurent. Thank you, Catherine.

Thank you.

Thank you.