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

Welcome to the Sensys Gatso Group Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to speakers, CEO, Lewis Miller; and CFO, Simon Mulder. Please go ahead.

Good morning, and welcome to the presentation of Sensys Gatso Group's Q3 2025 Interim Report. My name is Lewis Miller, Group Chief Executive Officer, and joining me this morning is Simon Mulder, our Group Chief Financial Officer. I'll be speaking briefly on our strategy moving forward and then provide an overview of our excellent Q3 results. I'll then turn the presentation over to Simon to review the group's results and segment reporting in greater detail before addressing our financial outlook for the remainder of the year. In our Q2 market presentation, I highlighted a plan to assess the company over my first 100 days with the goal of defining how we will deliver profitable growth moving forward. Having completed this assessment, we will move forward centered around three strategic pillars designed to drive growth, efficiency and service. The first pillar focuses on strategic market and customer engagement. Key to this pillar is concentrating on our four core markets, Asia Pacific, Europe, the Middle East and North America, while increasing our share of recurring revenue. The second pillar involves advancing technology and go-to-market strategies. We must better leverage our global solutions and development spend across our core geographies, while highlighting our market-leading technologies. Third, we will continuously work to optimize our organization through operational efficiencies and recruiting, retaining and rewarding top talent and performance. With that said, let's take a look at our Q3 performance. Starting first with order intake. We saw strong bookings in Q3. Specifically, Q3 intake landed at SEK 331 million, up significantly from SEK 54 million in Q2 of this year. Australia and the U.S. were key drivers, highlighted by a first-time sale of fixed systems to a new state, South Australia, as well as provision of speed trailer technology for use in the state of Victoria. Recurring revenue made up 86% of the intake with a healthy mix of renewals, existing customer expansions and new customers. Turning next to revenue. We continue to see year-over-year improvement. Revenue for the quarter landed at SEK 165 million, 17% increase over the same period in 2024. This included strong system sales from our core Swedish and Dutch projects, a full quarter of Saudi maintenance revenue and good performance in the U.S. Managed Services business. The U.S. business is fully recovered and growing over the impact of legislative changes in Iowa last year. While the weakened U.S. dollar did impact our results, our underlying year-over-year growth rate in local U.S. currency is 17%. Now looking at margin. In our Q2 report, I noted that our 15.4% EBITDA margin better reflected our underlying operational strength moving into the second half of the year. Q3 results validated this statement with EBITDA margin increasing to 17.7%, significantly up from 9.9% in Q3 2024. This continued our positive trend in rolling 12-month EBITDA with year-to-date performance now sitting at 13.8%. Our Q3 margin results were driven by economies of scale in Sweden and operational efficiencies in the U.S. With that, I'd like to turn the presentation over to Simon for a closer look at our results and segment reporting.

Thank you, Lewis. As always, I will take you through our group's financial performance, the segments and our cash position. Starting off with group financial performance. Our Q3 revenue increased 17% year-over-year to SEK 165 million. A large contribution came from System Sales, which increased by 60% year-over-year with recurring revenue remaining stable despite currency fluctuation challenges. Our gross margin for Q3 was 42% compared to 37% last year. The gross margin has improved due to continued deliveries on the Dutch and the Swedish projects. We've seen a strong EBITDA performance in Q3 with SEK 29 million, up from SEK 14 million from Q3 2024. The EBITDA margin landed at 17.7% compared to 9.9%. For the quarter, we've seen a positive cash flow from operations amounting to SEK 38 million and for the year-to-date SEK 18 million. Now diving into the segments and starting with the segment Managed Services. We can see that year-over-year, all key metrics have improved. Our order intake is up to SEK 104 million from SEK 25 million last year. This is driven by renewals with a total value of SEK 58 million and expansions in new customers totaling SEK 46 million. Our revenue came in at SEK 45 million, up 7%. The increase in U.S. dollars, as Lew already mentioned, is 17% year-over-year. During the quarter, we've seen a negative currency impact to the amount of SEK 4 million. Our EBITDA is up to SEK 6 million for the segment Managed Services with an EBITDA margin of 13% compared to 5% in Q3 2024. This is driven by improved operational efficiencies in the U.S. Turning to our segment System Sales. We can also see that year-over-year, all key metrics have improved. Order intake is up to SEK 227 million from SEK 70 million in Q3 2024. This is mainly driven by Australian order intake to the amount of SEK 196 million in the quarter and smaller repeat orders in the EU. Revenue for the segment came in at SEK 120 million, up by 21%, driven by the Dutch and the Swedish projects, but also notable, the first full quarter of Saudi maintenance contribution this year. EBITDA came in at SEK 23 million, up 92%, driven by economies of scale in Sweden and an important contribution from the Saudi maintenance activities. Both of our segments, Managed Services and System Sales, have recurring revenue. Recurring revenue is predictable. Our underlying recurring revenue amounts to approximately SEK 100 million per quarter, and is based on long-term contracts with customers with a high retention rate. Part of the order intake during the quarter was incremental order intake and will grow our recurring revenue base in the future. As recurring revenue is in both segments, we also see a good geographical mix with contributions from each of our core markets globally, the U.S. market taking approximately 50% of recurring revenue. Going to our cash position. Available cash was stable at SEK 133 million. Year-to-date, we had positive funds from operating activities of SEK 38 million, funding our working capital needs of SEK 33 million year-to-date. Investments in fixed assets and operations and software platforms is financed through the bond proceeds. Our interest-bearing debt has increased to SEK 292 million, mainly due to usage of funds for our investments. Main movements are increased lease liabilities due to prolongation of lease of our headquarters in Jonkoping, SEK 18 million; translation effect on the euro-nominated bond, SEK 12 million; and usage of credit facility by SEK 19 million; and closing our cash on bank to SEK 116 million. And with that, I'd like to hand it over to Lew.

Thank you, Simon. To conclude our presentation, I'd like to address our financial outlook for the remainder of the year. Overall, our outlook has improved. Full year revenue guidance is unchanged, trending toward the lower end of the range of SEK 700 million to SEK 800 million, and overcoming the impact of currency fluctuations. We are increasing our full year EBITDA guidance from the mid to the high end of the range of 12% to 14%. We are committed and confident in our ability to deliver in line with expectations. And as always, we'll continue to closely monitor market developments. To summarize our interim report today, the takeaways are as follows: We are very pleased with our strong Q3 performance; we have a clear strategic direction moving forward; order intake is up; and year-over-year, all key financial metrics are improved. With that, I'd like to open things up to questions.

[Operator Instructions] The next question comes from Orjan Roden from Carnegie Investment Bank.

The first question relates to the Australian order. What is the timing of this in your current plan?

We expect to deliver in -- we had multiple Australian orders that came in, in Q3. Is there a specific order that you're referring to?

Well, then it's a general average of...

General question?

Yes, general question on all these orders, yes.

So certainly, yes, the Australian orders were a mix of both renewals of recurring revenue projects in Tasmania and Victoria as well as new projects also in Victoria and South Australia, as previously mentioned. And that is also a mix of recurring revenue and onetime system sales. The onetime system sales will be delivered over a period of months and the recurring revenue will be implemented typically in a handful of months, 3 to 4 months, or in some instances, in the renewal, a continuation of what's already occurring today. So a combination of continuation and incremental as well as onetime system sales and recurring revenue.

Okay. And the incremental part, do you expect to deliver that in this year? Or is it rather for next?

Yes, it will primarily be next year.

Next year. Okay. How do you view the potential in South Australia? As a new state, do you need to increase the organization there? Or can you manage this from your current organization in Australia?

Well, we'll monitor that over time. Initially, we would work through our home office in the Melbourne area. As with all new projects and customers, our expectation is that we'll perform well, and we'll see where that leads moving forward.

Okay. Other question relates to the gross margin. It was very strong in the quarter, especially comparing year-on-year. Were there any special items in this quarter? Or would you say that this was a pure underlying performance?

Yes, thank you for that question, Orjan. It was a strong performance, right, at 42% gross margin. What we see is that once we get to scale, and we can see that in Sweden, once we start delivering volume, the margins improve. So that's one item. And the other item is, as I already mentioned, right, we've had the first full quarter of Saudi maintenance, and that comes at a good margin contribution. So those are some of the items. And of course, last year, we detailed on the lower margin that the first deliveries on a large projects such as the Dutch project, we see that in the first deliveries, right? But once we come up to speed, we also see margin improvements there. So it's those three things that are driving it.

Okay. And just to remind us, the Saudi maintenance, for how long period do you expect to have that in your books?