Sensys Gatso Group AB (publ) (SGG) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of Sensys Gatso Group's Q2 2025 Interim Report. My name is Lew Miller, Group Chief Executive Officer. I started with the company on June 16 of this year, bringing 20-plus years of industry experience in various senior leadership positions in global markets. Joining me this morning is Simon Mulder, the Group's Chief Financial Officer. I'll be speaking briefly on joining the company and then provide an overview of our strong quarterly results. I'll then turn the discussion over to Simon to review the group's financial results in greater detail before addressing our financial outlook for the remainder of the year and opening things up for questions. First and foremost, I'm thrilled with the opportunity to join the company and would like to thank Ivo, our prior CEO, for his excellent guidance of the company and smooth transition. Here at Sensys Gatso, we have a strong history and globally recognized brand, a global footprint in core markets with strong demand for our automated enforcement solutions, including in Europe, Asia Pacific and North America. And we have innovative technology backed by a talented and dedicated team. In short, we have a very strong foundation from which to grow. And again, I'm very excited for the opportunity to lead the company. Now into my third month, I've been focusing on engaging with our global teams and stakeholders to better understand what drives our performance. Assessing our markets to support good investment decisions backed by strong business cases and evaluating our technology and go-to-market strategies to ensure we are positioned for success. All of this is with a clear goal of driving profitable growth and efficient operations. With that said, let's take a look at our financial results for Q2. Focusing first on our strong revenue results for the quarter, we achieved SEK 204 million, representing a 22% increase over the same period in 2024. This included significant revenue from our core Swedish and Dutch projects as well as the commencement of TRaaS revenue from our Saudi maintenance contract. The U.S. business is recovering nicely from last year's legislative changes in Iowa. With incremental revenue from new contracts and program expansions. Overall, we continue to see strong demands in our core markets with numerous opportunities in process. Turning next to EBITDA. We are also pleased with our Q2 results. EBITDA for the quarter amounted to SEK 31.4 million or a margin of 15.4%. This is up from 7.3% in Q1 and a 29% increase over Q2 2024. Overall, our EBITDA margin for the first half of the year is 11.8%. We believe our Q2 results better reflect our underlying operational performance heading into the second half of the year. With that, I'd like to turn things over to Simon to speak to our group financial results in greater detail.

All right. Thank you, Lew. As always, I will take you through group financial performance, go into detail on our segment's performance and look at our cash position. To start with the group financial performance. As Lewis already mentioned, Q2 revenue increased by 22% to SEK 204 million, with system sales increasing 39% and TRaaS revenue increasing 7%. The increase is mainly driven by Swedish and Dutch projects as well as Saudi revenue. We've seen a good gross margin -- gross profit margin of 43%, positively impacted by Saudi revenue. This has resulted in a strong EBITDA of SEK 31.4 million, up 29%, representing a 15.4% EBITDA margin. The Q2 performance resulted in a positive cash flow from operations of SEK 22 million. Looking at the segment Managed Services. The segment Managed Services mainly relates to our U.S. operations. We see a strong market demand with significant procurement activity. Despite that, we've seen a lower order intake compared to Q2 of 2024 due to renewal timing and expected sales cycles. During the quarter, revenue has stabilized. The revenue was slightly down from SEK 48 million to SEK 46 million, impacted by currency fluctuations to SEK 5 million, the impact of Iowa legislative changes of approximately SEK 6 million and an underlying growth of our U.S. business of approximately SEK 9 million from new customers and program expansions. EBITDA was up by 28% to SEK 9 million, including a onetime insurance recovery of SEK 8 million. Then moving to the segment System Sales. The order intake for the quarter amounted to SEK 40 million. This is from various customers, existing customers with smaller and repeat orders. Revenue during the quarter was up by 33%, driven by deliveries on the Swedish project and the Dutch project as well as Saudi Arabia final invoicing. The segment system sales now has a TRaaS revenue that is stable around SEK 47 million per quarter. EBITDA is up by 29% to SEK 23 million, impacted by a high flowdown of the Saudi financial invoicing, but offset by the provisioning of the LatAm receivables. Then moving to our cash position. Our available cash ended at SEK 137 million. During H1, we've invested in fixed assets and in working capital, both to approximately SEK 40 million. The investment in working capital relate to project-related inventory buildup and receivables that will convert to cash. Several items have impacted our interest-bearing debt that ended at SEK 291 million, such as increased lease liabilities related to the prolongation of our headquarters to SEK 22 million, translation effects on our bond of SEK 10 million and increased credit facility usage of SEK 20 million. With that, I would like to hand it back over to Lew.

Thanks, Simon. To conclude our presentation, I'd like to address our financial outlook for the remainder of the year. In doing so, we need to recognize certain instabilities in the global political environment, which pose challenges for forecasting our full year results. However, our strong base of long-term recurring revenue helps to mitigate risk. We achieved approximately SEK 100 million in recurring revenue quarterly from long-term contracts with high renewal rates, with contributions from each of our core markets, including approximately 50% from the U.S. In light of this, we are reaffirming our 2025 financial guidance. At midyear, we're trending to the lower end of our revenue guidance of SEK 700 million to SEK 800 million and the midrange of our EBITDA guidance of 12% to 14% -- we'll continue to closely monitor market developments and are confident in our ability to deliver in line with expectations. To summarize our interim report today, the takeaways are as follows, we continue to see high demand globally with multiple opportunities in process. For the quarter, we had strong revenue growth with improved EBITDA margins, and we're reaffirming our 2025 financial guidance. With that, I'd like to open things up to questions.

[Operator Instructions]

Yes. Hello, everyone, and very welcome to the financial world of Sensys Gatso Lewis. We're looking forward to work with you. I will start with some financial questions for Simon and then I turn over to some more market-oriented questions to you, Lewis. Simon, if I understand correct, the net one-off impact on the result is plus SEK 4 million, minus SEK 18 million plus and SEK 14 million minus. Is that a correct interpretation?

Yes, that's correct.

Okay. Second question is on the FX items. I suppose that, that is noncash, that is just a reevaluation of different balance sheet items. Is that -- have I interpreted this correct?

Yes. Orjan, you're absolutely right. So we know that we have euro bonds, and we have various receivables and payables in different kind of currency. And these translate at end of the month, end of the quarter and are largely unrealized translations of those currencies.

Okay. Another question is on investments in fixed assets. They were quite high in the quarter. What was that? And what is the outlook for your CapEx budget for the rest of the year?

To start with the first question, Orjan, is that in the presentation of the Managed Services segment, we elaborated on the underlying growth of that segment related to the U.S. business. of approximately SEK 9 million in the quarter. And of course, that revenue buildup or increase is driven by new investments in fixed assets and operations. That is ongoing for us throughout the year. So I would expect it to be similar during H2. I hope that answers your question.

Okay. And final question for you, Simon. On the cash flow from working capital, what's the timing of the conversion into cash? Is it within the next weeks? Or is it within the next years?

Yes. If we look at the inventory and work in progress buildup and especially the work in progress buildup, that, of course, needs to convert the receivables and convert into cash during 2025. Of course, we have big projects ongoing. So we will see working capital remain to be high for a while. But of course, these positions will convert into cash.

Okay. Okay. So it's more of a little bit longer-term duration rather than a very short-term duration. Is that the correct interpretation?