Trifork Group AG (TRIFOR.CO) Q3 FY2025 Earnings Call Transcript & Summary

Dear audience, welcome to the presentation of Trifork's Third Quarter Results for 2025. My name is Frederik Svanholm, Group Investment Director at Trifork. Today, our CEO, Jorn Larsen; and our CFO, Kristian Wulf-Andersen, will be providing a presentation of approximately 35 minutes, followed by Q&A. Before we start, I'd like to say this presentation will be recorded and made available in its full length on our investor web page later today. Second, I would like to inform you that if you want to download the slides for today's call, you can find them on the front page of our investor website. Third, we invite you to ask questions in the Q&A session and engage with management. Before we get started, we have to present this disclaimer. Okay. Let's jump to the presentation. I now hand it over to our Group CEO, Jorn Larsen. Jorn, please go ahead.

Thank you, Frederik, and thank you, everyone, for joining in on this call. There are 3 takeaways I'd like you to remember after this call, and I'll just start introducing them to you, and then we go over the presentation. So first of all, we will present today that we have had a lot of success in the past quarter, closing some of the pipeline that we have with our platforms and products. Actually, we have seen a growth of 25% on our own platforms and products. This we report as Run, a part of run. More about that later. We see especially public customers being a strong growth factor for us in Q3 and in this year, which is very positive. But you have to remember that it's actually our private pipeline that is the biggest, but we have executed a lot of new business with public customers this quarter. And thirdly, we can also soon stop talking about our cost-saving program. It's complete. It's showing results now. In Q4, it will have full kick-in factor or kick-in effect. But let's move on to the presentation. So, we can here see the overview of the Trifork Group, the Trifork Segment, the Trifork Labs segment. We see now that public is 41% of our total business, with a strong growth in this quarter. We also see that the Run is 32%. And if you remember, 5 years ago, 4, 3, 2 ,1, it was quite stable of around 25%. And actually, I said in some calls that I never believe that we could break that barrier of 25%. But more than 1 year ago, we decided that now we want to do it. We want to be a product and platform-led company. And now we see the result of that very shortly after. Normally, these things take a long time, but we are pushing and pushing. And now I don't see why we can't continue to balance Build and Run. So, my aim is to do a 50-50 reporting sometime in the future, but let's see what's possible. This is not a guidance. We still have a very strong lab portfolio. We will talk more about it later, with almost EUR 84 million in value. Here, you see our revenue and our EBITDA. So on revenue, things look very comfortable. On EBITDA, we have narrowed down our guidance as we will see on the next page. But what I want to say on this one is that Kristian will come with a quite detailed breakdown of why we still see this as our guidance and where we will end up between EUR 32 million and EUR 34.5 million. And as you all know, the year is almost over. We can see to the end of it. So, we don't need a lot of -- we don't need any miracles to happen. We don't need disasters, of course, as well. But if everything equal, we will meet this guidance as we now see on the next page. So here, you see that we have narrowed in, which is naturally as the year goes. We narrow the guidance. So, you see we are between EUR 217 million and EUR 222 million in revenue, in EBITDA, EUR 32 million to EUR 34.5 million. And that means that we will break the record. As you all know, I like breaking records. We will break the record for sure on revenue, knock on wood. And with EBITDA, it takes a little more to do that, but we will be very close to the EBITDA record. We have a fairly strong EBIT development. So where we have also narrowed in, and this is our new guidance, EUR 16.5 million to EUR 19 million in EBIT. Let's move on. So here, we just zoom a little bit in on private and public sector. In '24, we saw weakness in markets for actually both or that's what we experienced. Now, we see that private sector is still, you can say, an interesting place to do business. Therefore, we have a way bigger pipeline because it seems like still sales cycles in many cases are longer, but they do close, but we just need to have more in the pipeline and we are continuously building our pipeline. There is, you can say, plenty of market out there as we see it. We will talk about that a little bit later. In public sector, you're not really in that much control. The public sector has to put work out for competition, and we can bid. What we can say is that the work we bid on and we want to bid on, we win 75% of that, which is pretty good. And you should, of course, know that it's very expensive to bid on public work. So, you cannot just bid on too much of it. You need to be very tactical about where you want to play and what you want to win. And it seems like that works really well for us. You see a 14% growth in the quarter of public sector work and a more modest growth in private sector. But I want to say that in some areas of private sector, we are actually growing very much, I mean, a lot, so double digits easily. But what the average is hit by is that there is also some business that we are less focused on that falls away, and this is the average, but the average actually is hiding a spread between the areas where we see a lot of growth and where we actually see decline or where we directly steer towards not having it in our books because we want to reduce risk in our business. Let's move on. Highlights in Q3. So first of all, I mentioned of one public, one win, which is namely the Danish Health Data Authority, which was led by the Netic Group company and where we will continue to take care of the medicine data in Denmark is something we have been doing for quite a while. And by the end of this contract that we just won, we will be close to 40 years anniversary of taking care of the Danish population's medicine data. And we are very proud of that. And I'd like to thank the team, but also the trust that the government shows in us. Also, we have other wins in Switzerland, Greenland and in Switzerland. And more will be published in the next quarter. We have a few contracts that are in silent mode that we will publish in Q4. Organizational-wise, we have slightly fewer people doing, you can say, more than a year ago. But we are hiring again. So it's expected to grow in the coming years, this number. Also, turnover is 19.4%, which seem a little high, but there is a lot of change in the organization when you move from service to product. So, that is reflected here. Sick leave is back to more normal numbers, although I hope it will go down. I don't like to see people sick. Partnerships is a really strong thing for us. We are very happy working with our large tech partners, but also small partners. And I will talk a little bit about that later. And very important thing we have now been able to publish is our 51% stake that we have invited a partner to take over. So, now we are operating the security area together with Wingmen. And we have done that because to be a strong Cisco and Splunk partner and to be a very strong and solid company that protects companies' data with our security operations centers, you need a lot of power. You need a lot of people because they sit 24/7, eyes on glass. And we expect good growth from this joint venture that we now have. Let's move on. Here is just a little self-evaluation on strategic priorities as we set out in the beginning of '25. I don't have time to go through all of them, but I'll just say that repeat one more time, we are very happy with Run. We're very happy with how we have developed partnerships. There's a lot of things we can't do alone. We do it with really competent partners. And the level of the partnerships we have are -- they are high. It's best-in-class partners that we partner with, and we're quite proud of that. M&A, you can say, is deliberately a little more on hold. We do announce an acquisition every now and then, and we will continue so, but they have not been major. And in the next 1 or 2 quarters, I don't expect to see major M&A activity. Let's move on. Okay. So, here is what we're talking about. So here, the number, 26% increase year-over-year of own platforms sold to our customers. And I want to dive a little bit down into the Notion platform and products. So, platform is where you can build a software system on top of, and a special version of a product is something you can install and be up and running in a few weeks. And we have both. So, our AI platforms, our data platforms, you still need to build things on top of. But our aviation product suite, we can make sure that an airline is up and running very swiftly. We also have other products that can be installed and actually do a lot of work. Our FastWork platform and products from Arkyn is an example of -- we can go into pilot very quickly. So the areas we are focusing on because we have also doubled down on domain focus. So Digital Health, as you know, been in a long time, fintech still there. Aviation started being niche more than a decade ago. Now it's becoming major, and we are seeing strong pipeline development in aviation with multiple products. Public as well. We have products offering to public, and that's especially our data platforms, but also others. So the energy sector is primarily our FastWork. So, our field service on top of SAP. And in manufacturing, it's Vision AI, et cetera. And then we have our services. So, we have these expert teams that then implement and tailor-made our products and platforms in IoT, in security and AI adoption, in spatial computing and new technologies as well. So, let's move on. So, we have a few examples and case stories as well mentioned here. And one is actually our continued work with Royal Greenland. We have had many years relationship with Royal Greenland. And thank you, Royal Greenland for trusting us all this time. Our latest innovation, together with them is actually something that is right into AI and Vision. I've talked many times about for the past years that we were very early on Vision AI. We still are developing this quite a lot. We have a big U.S. account that takes a lot of advantage of AI on drones. So, we put cameras and sensors and drones, and we collect data here. We look at shrimps for the purpose of faster and more accurate quality assessment of the catch. And Royal Greenland is a big company, 112,500 tonnes every year. It's a lot of shrimps. And now we will use AI to detect the quality of this. Yes. And I talked about aviation and a special product within aviation is the flight deck simulator. And I don't know how many of you have tried to fly planes. I've had the luck of trying helicopter and planes with a capable person next to me. But I've also had the pleasure of using some of the simulators and our partner simulators and it's like being in reality. So the experience is mind-boggling, real. And you very quickly forget that you're in a simulator because when you're being challenged with bad weather, with traffic and other situations that you need to be trained at, your brain really is forgetting that this is not real. You are fighting for your life. And this is what is necessary when you want to train the muscle memory, when you want to be prepared in situations where you need to act correct and swiftly. So, this can also be done in the cabin for firefighting, but we are working very closely with partners in helicopter, simulators and training and also fixed wing, both for Boeing planes and Airbus planes. So, this is a very exciting area. And this is on top of our very mature, you can say, in-flight and crew applications and catering applications. Okay. Let's move on. So, Labs update. I want to just say that we have 23. I'm very proud of the whole portfolio, its amazing technologies that are in each one of these companies. I want to highlight just one this quarter, and that's AxonIQ. So, AxonIQ is a technology we started developing in Trifork Amsterdam years ago. And all of a sudden, hundreds of thousands of people had downloaded this worldwide. And not so many years ago, we established a start-up company, and we got some venture funding. And the company quickly grew to a critical mass amount of customers, actually enough for the company to breakeven. And then we have been in the planning phase for what's next, what's the next quantum leap for AxonIQ. And we closed a round very recently, and we have developed a new version of the AxonIQ product. And now we are able to actually take quite advanced back-end solutions. It can be in fintech. It can be in insurance or retail, and we can apply AI on it. And not many can do that because most of the AI tools you see in Instagram and wherever you pick up your news about these things, they are very much about the interface and the gadgets and quick and dirty applications. But if you have a top-tier bank or Global 500 retailers, you need something more solid. And you need to be able to track back in time what did AI actually do to your data? And can you roll back the transactions. And with AxonIQ, we can. And AxonIQ has seen more than 70 million downloads of their product over the past 2 years. It's absolutely mind-boggling. We have not been super successful in commercializing this huge footprint, but we are very confident that we will now. We have enforced the management. We have new investors, and we are also moving the business more into where the main customer base is, and that's in U.S. And we will, also at Trifork, use this a lot more. It's a very sharp, very precise tool, and it can reduce a lot of costs and reduce risks in migrating from old legacy platforms into new platforms. So, this is very interesting. Let's move on. So here, you see the top 10. And I just -- I think, spent enough time on explaining AxonIQ. I can also just mention one more thing. So, ExSeed Health have now for 3 years, been in an FDA approval phase and we hope, fingers crossed that in Q1, we will have the approvement to actually also sell our product in the U.S. market. It's already being sold in Europe, all over Europe and U.K. But the U.S. approval will be a big milestone for ExSeed Health. Let's move on. So Kristian, the word to you.

Thank you very much, Jorn. So, I will go a little more into the details on the financial review. Overall as Jorn explained, we grew to EUR 49.3 million in Q3. That's a 4.7% organic growth. As you see here, the growth for 9 months is 8%. We did have some inorganic growth in the first half based on the past acquisitions we did last year in Sapere and Spantree in the U.S. In the second half and in Q3 here, we don't have any past acquisitions accounting for inorganic growth. So all growth and also in the guidance is organic growth in Q4. Overall, we saw a very positive development in the Danish market with a 7.1% growth in Q3. As we talked about also at the half year, we have some, you could say, old business areas in U.S. and U.K. that we also expected to decrease based on some customers leaving in '24 and also have an effect here in Q3. This is now, you could say, leveled out, and we believe that we will not see the same effect in Q4 anymore, but that was behind the decrease we saw in U.S. and U.K., which was expected. In Switzerland, we also saw very good traction, driven by the new engagements that we have in aviation that Jorn already talked into where we are just launching or have now in production some of those cabin crew products into a major European aviation company. So yes, that was on the revenue growth. Divided in relation to Inspire-Build-Run, then we saw that Build was more or less breakeven to last year, even with less employees in the area, but declining by 3%. Some of that decline is also because of our approach to the customers in relation to how we sell the solutions that we deliver in the engagement. So where last year, it was more focused on the bespoke part and doing really the bespoke development and having a lot of that as build-based revenue. Then now some part of that is part of the increase, you could say, in the run-based business where we now pitch the same solutions, but as driven by products and products being part of the components in the solutions that we deliver. The Trifork Segment adjusted EBITDA, I will talk a little bit into. As Jorn said, overall, we on 9 months have an adjusted EBITDA of EUR 21 million, which is 2/3 of the way to the lower end of the guidance of $32 million. It's actually not uncommon that we see 1/3 of adjusted EBITDA to be realized in Q4. So if you look back in Q4 for the last 3 years, then you see just about 1/3 of adjusted EBITDA actually coming in, in Q4. So it's not unusual that this is how the operations and seasonalities work. Part of that, I will just go a little bit deeper into. Inspire, for example, we have our 2 major conferences, GOTO Copenhagen, that was fully sold out in October. We have in December, our conferences in Australia, which are the majority of revenue in Run coming in, in those. So if we compare Q3 to Q4 and you can say the change from how to make EUR 8 million in Q3 and how to make at least EUR 11 million in Q4, then we have what I showed down below here, an expectation to land a positive EBITDA in Inspire in Q4, meaning that compared to Q3 where we had a minus, we would have EUR 0.6 million to EUR 1 million improvement. In Build also, we see that we have more workdays in relation to how much vacation and workdays when looking into that compared to Q3 and Q4. We also, in Run, we have ramp-up of activities. So, some of the wins that we already have told about, we are ramping up on, meaning also both increase in revenue and EBITDA. And then as Jorn mentioned, we also have more effect of the cost saving that we did in the past, which then also have a positive effect in Q4 and the way moving forward. That said, of course, when we launched the cost saving program, we also mentioned this was at the same activity level to be compared to. So now, we do see additional growth in other areas where we then start hiring people again. So of course, costs will also, at that point, go up again. In Trifork Segment performance, we measure on the adjusted EBITDA. Individually, looking into Q3, we had a margin of 16%, which is now getting more in the range where we want to be. But as I said before, we do believe that we should be able to see even more improvement on that. When looking for the 9 months, we see 13% due to the smaller margins in the first half, then we haven't seen the effect on the full year yet to the extent that we expect in the future. On the Trifork Group performance measured on EBIT, we now see a direct effect of the increase in adjusted EBITDA and then also see a large increase compared to Q3 last year. Depreciation and amortizations are more or less on the same level, a little bit higher than '24 based on the small acquisitions we did in Q4. But otherwise, things are as usual. That said, in Q4 and the guidance for Q4 and EBIT, then we do have a positive impact on the deconsolidation that we announced in the area of around EUR 3 million, a little less, a little more. So, that's also included in the overall guidance. And this is -- yes, this is then included, but nothing included in Q3. Looking into the separate segments, then you see Inspire with minus EUR 0.6 million in Q3, just like in last year. Here, we didn't see all the cost saving effects yet and some are delayed in Inspire. But as I said before, we believe that we will have a positive result in Q4 and then more or less breakeven for the second half as previously announced. The Trifork Segment in Build, we see here that overall, the small decline. That said, the decline was actually a little higher overall if we adjust for the inorganic part of growth. So, that's just to let you know more of the details here. But the overall change from Build to Run is what I explained before. We do see a margin improvement. It's not with full effect yet, but isolated in Q3, we saw the margin of 13.8%, which we expect to improve further on. Looking towards Build and Run and seeing how they contribute to EBITDA overall. Then in Q3, we actually saw that Run was more or less providing the same as Build. That said, as before, we still expect to improve the margins in Build, but we also see that the development we have in Run is a solid development that we actually also expect to be able to grow EBITDA, together with high growth in revenue for the future. Overall, for Run, you see here that we have for the year until date, 9 months, we have a high growth. That in the first 2 quarters was supported by larger hardware revenue as well, hardware deals that we talked a lot about. In Q3, it was more or less on the same level as last year, meaning that the majority of all the growth we saw was related to revenue on our own products and platform. So, 25.3% was impact directly from that. And that's a positive development in the way that we see this. We also saw that margins still actually was more or less on the same level. We believe that's a good thing because we also do see that when we deliver new products, then in the first phases and the first customers where we deliver the products, we don't have the same margins as we would have on, you could say, when delivering the product to customer 8 and 9. So initially, we do expect lower margins in the delivery of products when it's new product lines that we are delivering. But overall, we're satisfied with the margins that we have in this segment. Looking into then the -- as I talked into before, how the revenue is distributed in between the different areas in the Run. Then you see that the sum of hosting and security and license support is growing quite madly, and this was what I was talking into before. You see that it seems that there are some differences in between hosting and security and to license support since the hosting and security seems to go down. This in Q3 has been due to some reassessment of revenue as we have our Contain platform where we now measure that as license support as this is also sold as separate licenses. So, that's what's behind there. So it's not because we are stopping, doing some work, but it's because some things has been reclassified. So the most important thing to watch is really the summary of those 2 areas. Overall, looking into the Labs segment and performance, you see we did some exits. So, you see the realized gains increasing here. And as an effect of that, you see the book value of accumulated unrealized gains being a little less. Overall, until date, has a minus of EUR 1.1 million on EBT level, combined by a minus EUR 1.5 million on the EBITDA level and then a small plus on the development in the assets. That said, we still have high-activity level and do expect to see more activities in Q4 that would increase the EBT results for the Labs segment overall for the year. In relation to cash flow and financial position, then we had a growth in our operational cash flow. So that's good to see. We also decreased the net interest-bearing debt by repaying loans. And now, we are at a total level of 1.3x compared to the leverage of 1.5 that we guide on midterm. So, this is all for the financial review, and now we are ready for questions.

Thank you, Kristian. [Operator Instructions] And we have the first question come from Mads Quistgaard from Carnegie.

I hope you can hear me. First, coming back to the financial positioning. Could you talk more into whether you expect to continue to deleverage, obviously, but do you also expect to continue with M&A? And what is sort of the prioritizing between share buybacks and M&A in the current market environment?

Yes. I mean, we do expect for Q4 that we will continue to deleverage. As Jorn said, in the current market and in the -- you could say, the change from going to a product-led company, then the type of acquisitions that we did in the past in more service-oriented businesses is really not the target we have today. So, we're switching the focus to what kind of potential acquisitions that will fit into the strategy that we have right now. So, that's why Jorn also mentioned that he doesn't expect any in Q4, maybe, at least not any major ones. But of course, we're very interested in finding the right niche products to add into our portfolio. So, that would be the type of acquisitions that we're looking for in the future.

All right. Clear. And when you mentioned potential bolt-on acquisition, but not any major acquisition, what do you mean by major, just to put it in perspective here?

Well, it's maybe more to look into a set, you could say, individual add-on products, meaning in the size of acquisitions would most likely be in the same range as what you've seen us doing in the last couple of acquisitions. Major acquisitions would be like 9 in the past or something like that.

The next question will come from the line of Poul Ernst Jessen from Danske Bank.

Two questions. One is that you say you've come to the end on your cost-cutting program. And you said it will be fully implemented in the fourth quarter. Will there be a sequential impact of this from Q3 to Q4? And the second question is on the pipeline you have within new products, new technologies, the Vision AI and Pro. When do you expect that to materialize into revenue and orders?

Maybe I can take the first part in relation to the cost cutting and then Jorn, you can chip in, in relation to the pipeline. Yes, there will be -- as we mentioned in the last quarters in relation to the cost-cutting program, part of that has been related to facilities and where we operate, et cetera. And that is dragging a little bit into Q4, but only the first month or so. And then all of that is, you could say, in place and will continue moving forward. Then, of course, we had some one-offs, which also was dragging into Q3 in cost of -- you could say, implementing cost savings. And in Q4, we don't see that high cost to this part. So, there will be an improvement compared to Q3, anything equal.

And would you put a number on it or you can share?

Not more than what we did that we see, you could say, as we did in the presentation here that there would be a range improvement from Q3 of EUR 0.5 million to EUR 1 million.

Okay. And then about the pipeline on the new tech.

Yes. So Poul, thank you for the question. So, we probably have in the range of 50 products and platforms that we are working on. And what I mean working on is that all those are marketable and sellable today. They appear in our pipeline. Some of them, or all of them have a road map for further features and development. And the way we do these things is that we grow the products together with customers. And therefore, we don't need hundreds of millions of euros to build those products as you would normally see in product start-ups as I've been experiencing it for the past 3 decades. And of course, it takes a lot of, you can say, creative thinking to make this work because by default, when you hire someone who knows about product, you say, okay, where is the vault of money that I can just take from and just go crazy because that is default behavior. So, we have to be very, very smart about how we grow our products, who we partner with. The good thing about -- let me just mention aviation again. So, we have all this know-how. And now we have polished products and you've seen probably a lot of LinkedIn messages and push-on on conferences, news from there. And we also have now really good partners in this space, so that can work as sales channels or innovation partners. And as mentioned before, we are targeting 120 airlines. We do it because we know they can save money and increase safety. And the reason why they can is simply that we offer that they can share some of that cost with other airlines. So we are this, you can say, company in between, our customers that can make them collaborate in a very structured and controlled way so they don't see unwanted IP to flow across and they can still compete. And so this pipeline for just one area, aviation is growing a lot at the moment. And we will -- but there is like a limited market, of course. There are 120 airlines we are targeting. But for us, it's a big market. It is way more than the size of Trifork today, just this one market. And I could repeat myself when it comes to Digital Health and fintech and the other areas. So if I should just put one more thing on, then it would be Vision AI. We have been doing it for a long time. We see more and more pipeline there on Vision AI. And as I also told you that the way we do that, we don't experience a lot of competition because everyone is running to some other place. I don't know where that is, but they are not really focusing on what we have been doing for a long time. And the new thing I see, Poul, is that AI today, as I mentioned with AxonIQ, is now a serious factor in or tool in converting legacy systems. There is still a lot of legacy systems, systems that were built 20 or 30 years ago. There are heaps of those systems. And that's also an enormous market. But it has typically been systems where big companies has been very reluctant to port it because it simply has been seen as a mountain you could not move. But with AI and with offerings such as AxonIQ, we believe we can start attacking some of those big legacy systems because AI, for sure, what is really good at today is to understand systems to actually know what's going on inside. You have to remember that a lot of these people that build these systems, they don't -- they are not alive anymore. And young people are a little bit afraid of touching things that were made from people who are not around anymore and in weird languages that nobody understands, but AI can understand it. So the first thing is to understand what actually goes on -- what's happening in a big system. But the second thing is how do you then convert it in an effective way because you're not going to put millions of hours into replacing a system as it was in the past. You need to do it in a more effective way or it simply doesn't pay off, okay? So, that's just to mention 2 streams of pipeline we have.

As a matter of fact, we don't have any more questions. Now, I see Mads coming back. Mads from Carnegie.

Just a question on the Danish public sector because, obviously, in the current market environment, it's fantastic to have a high business with the Danish public sector. Jorn, you mentioned a win ratio of 75%, which I know for you guys is higher than historical levels. I've asked before, but can you just remind me what is working so well for Trifork in the Danish public sector today? Is it your product strategy? Or what is working?

Yes. It is the product and platform strategy that is working because whenever I talk to CTOs, CIOs of these agencies, they want to buy products more and more. A few will still have a need for doing bespoke work and custom-built applications because maybe you can't buy software, but you can at least build it on platforms and then you have less work to do. And so 10 years ago, we were mostly focused on health care, so the agencies within health care and then also business administration. And now we don't see why we can't deliver all of these platforms and products to most of the agencies. And that means that for us, the market is expanding. And again, as I said before, I think this little breather we had in '24, which was stressful, but it also gave us an opportunity to rethink why are we not in the other places, okay? And so now we are. We are bidding at work. As you remember from this year, we have the Danish driver license system. We are operating the Dutch one. And I'm just telling the teams, why won't you just do all the European driver license theory test. Now, we have 2. Why not just offer it to all of them? And there are a few countries that actually put these things up for tender in these months and this time. And now we have really good references. Of course, we want to win across Europe, these things. But also in Denmark, just broaden it out because agencies do have a very similar need when it comes to platform engineering and data engineering and AI.

I'd just see if anyone else have a question. That does not seem to be the case. So, I think we can end it slightly earlier than normally. So, I'd like to say thank you to everyone for joining in today. If you have any more questions or requests, please contact me. You can find my contact information on the website. We are available for online meetings with institutional investors, and you can see our investor events page, which conferences we will attend in the coming months. Thank you for your interest in Trifork.

Thank you very much.