StrongPoint ASA (STRO) Earnings Call Transcript & Summary

Pretty good. Next question is around costs. You say you are a project-based company. You still have too many fixed costs in the form of employees and other facilities. Should the fixed costs come down further, so that you can deliver profits under all possible market conditions?

Yes, it's a fair question. Yes, we are absolutely a project-based company, and we are repeating that every time, especially given that our recurring revenue is about 30% of total revenue. So that means that the remaining 70% is new sales or rollouts from previous orders. So as far as the cost base, we have completed two cost reduction measures, one in 2023 and one in 2024 last year. In addition, we are utilizing temporary workforce, for instance, on the ESL installations in the U.K. to avoid having permanent hires until we see further traction. We are repeating in the quarterly report that we are continuing our prudent approach on costs wherever it's possible. All this said, it's also important to understand that we will continue to invest in the U.K., which, by the way, is now improving. Similarly, on order picking, we will continue to invest in order to achieve the growth that we are looking for. But overall, I will say that we are continuously assessing this, the cost base, but we believe that as of right now and for the short term, of course, medium term, the current level, the current cost level, is where it needs to be in order to be able to generate future revenue growth.

Is the 2025 target announced in Q1 with midpoint revenues of NOK 1.65 billion and an EBITDA margin of 4% to 6% still valid?

So this probably refers to some of the ambitions that we talked about in Q1 last year in the strategy update where we said that for 2025, based on a number of assumptions, of course, we were looking at NOK 1.5 billion to NOK 1.8 billion in revenue with a 4% to 6% EBITDA margin. Looking at the year-to-date figures now with 1 quarter remaining, obviously, that seems challenging. And we're not making a big number out of that in the sense that these were certain assumptions made now 18 months ago. I think it's important to not necessarily look at that in detail, but the current traction that we have and the current improvement and the LTMs, et cetera. So obviously, we are not at the levels we want to be yet. But after all, we are observing improvements in -- both from the group perspective and in some of the markets that we do highlight in this report.

Next question is on order picking. Can you give some insight in the revenue model and the upfront revenue, installment, training, et cetera, yearly fees or only fee per user?

That's a very, very relevant and good question. I would say on a general basis for our model, it's a transaction-based model where the customer will pay per transaction regardless of the size itself of the online order. We do realize that we are currently not disclosing some of these ARRs and some of these values. It's still slightly early stage for us. And with some of the customers, it's just not possible to comment specifically on the details, but I would say on a general basis, to try to answer as much as possible, there is typically an implementation fee as there will be for any software-as-a-service solution being rolled out, and then it moves into a transaction-based revenue model.

The next question is around Spain. Considering the historical weak return of investment in Spain and the conclusion of the CashGuard Connect pilot, what key lessons has StrongPoint drawn from that experience? And how will these shape the future presence or possible exit from the Spanish market?

So I guess it's a twofold question. So for the business unit in Spain, obviously, it has underperformed for many years in the sense that it hasn't been profitable. Again, I think it's important to look at the development, and there has been absolutely a very positive development during the last two years or so. So the Spanish business unit is improving. It's still an important office for our CashGuard revenues. And definitely now going forward, not only with the order picking, but also with other revenue streams, such as the ESL revenue stream now being part of the new Vusion Group partnership. So that's the Spanish business unit. The second question relates to the CashGuard Connect project. Learning experience, obviously, this has been going on for quite some time now. It's been a challenging project. I think it's very fair to say that. This is also the reason we are, based on that experience, being slightly more prudent now to disclose anything in the sense that we will like to get these pilots confirmed and get the traction, commercial traction, that we are looking for. But still, we have to understand that this was a new solution that is being developed from the ground. And yes, it's been taking more time than maybe anticipated, but that's also part of the risks when you are moving into developing a new solution. Having said all of this, we now have several pilots, potential pilots being discussed, which we not necessarily have had before. So we are working extremely intensively to get traction on this project.

I think that was short and concrete questions that we've got in. I'll give it a second or two to see if they are coming in any others, because we have a slight delay on our screens. We got one late one. With the MC win in Portugal and Carrefour Belgium earlier, how would you characterize your pipeline of order picking projects beyond your core markets?

Yes. Again, a very fair and good, highly relevant question. Of course, difficult to talk about the pipeline in detail, but I think it's fair to say that we have an attractive pipeline. We are now slowly but surely building more potential prospects. We are also seeing, which is slightly new in the sense, inbound inquiries on the back of the previous wins. So although, as usual, software-as-a-service solutions will take time to sell and convince the customers of what would be a good solution, but we really do have a good pipeline right now that's pretty much what we can say. It looks promising.

Popped up a few more. Are you seeing any signs of contract bundling for instance, grocer choosing to implement order picking together with shelf labels or lockers?

Absolutely, again, it's a very relevant question. The brief answer is yes. There is, you should say, synergies between these products that -- and solutions that the question is referring to. So -- and that's part of the reason why we are looking at the integrations with order picking, Q-commerce lockers, et cetera. So, yes, not much more to add other than that's absolutely a very relevant part of the way we are working with sales.

Then we have one on the progress in U.K. and Ireland. And it says, the U.K. and Ireland posted 127% revenue growth in Q3. Beyond project timing, what's structurally driving the growth? And can it be sustained?

Obviously, 127% growth is unprecedented and not something you should consider as being sustainable. Having said that, we are making a point of three different reasons for this increase: one being shop fitting. The initial revenue stream of the company in the U.K. that we acquired three years ago, that has improved significantly year-on-year. And secondly, we have the two new revenue streams with the Vusion ESL installations and AutoStore projects. And the two latter ones, ESL and AutoStore are absolutely part of the strategy going forward. Of course, also shop fitting. And we are talking about the Vensafe pilots that we absolutely are working on too and that we believe and hope will materialize into purchase orders. So there are many, many potential revenue streams in the U.K. going forward to absolutely. And we are saying that this is a key growth market for us. So now it's starting to show, although still early days, but very pleased with the performance in the Q3.

One final one here. Recurring revenues are up 12% year-over-year, but you flagged a wind down of price-related licenses. When do you expect net growth in recurring revenue to reaccelerate?

A good question, simply not possible to answer. I think it's a question that we will have to come back to when we have more clarity. The components of growth will, of course, be order picking and other service agreements. So as I said initially on the previous question relating to the Pricer recurring revenue wind down, we will simply have to come back to this, and it's absolutely something that we are well aware of.

Very good, then I think we can wrap up and wishing everyone a good day and hope you connect again on February 12 for the Q4 presentation.