Sensys Gatso Group AB (publ)

Good morning and welcome to SensofGazzo's market presentation of the first quarter of 2024. My name is Ivo Munnink, I'm the CEO of SensofGazzo and I will be presenting to you together with Simon Melder, our CFO. In this market presentation, I will provide you with an update on our business for the first quarter of 2024. we then follow up with a financial update by simon and finally i will finish this presentation with a summary and our outlook let's now look at an update of our business in this business update i will take you through our order intake which is up by 253 percent this quarter the strong backlog in our whole markets sweden and the netherlands Strong revenue growth of 11%. An explanation for the typical Q1 seasonality in the US market. Our gross margin, which is suppressed this quarter due to the startup of system sales deliveries in the Netherlands. An update on our enhanced relationship with our Saudi customer. And finally, an impression of our successful inter-traffic show. Order intake and procurement awards during the first quarter came in at 380 million compared to 90 million in Q1 2023, an increase of 253%. Of the total order intake, 270 million or 86% of the total order intake is US trust managed services. This is nearly eight times higher than the U.S. Trust managed services order intake in Q1 2023 of 35 million. In total, there were nine new contracts signed during the first quarter in our strategic U.S. market. Of these contracts, four are new cities with a total contract value of 154 million and five are renewal contracts with existing cities with a total contract value of 121 million. Overall, we see a strong order intake this quarter, especially when looking at our trust order intake in the USA. It demonstrates that our increased sales efforts in the strategic markets are paying off. In 2022, we received two large orders in our home markets, Sweden and the Netherlands. The combined value of these two contracts is 1.25 billion. the swedish order of 850 million is in its final development phase the rollout of this project will commence in the third quarter and will continue for the next five years the dutch order worth 400 million has started its rollout and will continue in into the first half of 2025 depending on the acceptance schedule from our customers Of the combined contract value of 1.25 billion, approximately 5% has been delivered so far. The remaining revenue for these two large contracts still is in the backlog and is therefore approximately 1.2 billion or 95%. Overall, our strong order intake this quarter and large backlog combined provide for solid revenue generation in the coming years. Total revenue for the quarter arrived at 125 million compared to 130 million in Q1 2023. This is an increase of 11%. Looking at revenue by nature, our system sales for the quarter arrived at 41 million. Compared to 27 million in Q1 2023, this is an increase of 51%. Our trust revenue for the quarter of 84 million was slightly lower than Q1 2023 at 86 million. This recurring business equates to 67% of total sales in the quarter. The trust revenue is primarily driven by our trust managed services in the US, which was up by 16% to 50 million compared to 43 million in Q1 2023. Our Tasmania Police project has contributed 10 million, or 12%, to our trash sales. We normally see fewer citations in managed services at the beginning of the year. This is due to seasonal effects brought on by extreme weather, particularly in Ohio, Iowa, and Rhode Island, our top revenue generating states. As a result of the extreme weather, people drive less and more slowly. in addition during the holiday season schools are closed for several weeks and automated traffic enforcement is deactivated by law in q2 we usually observe a return to increased citations and revenue levels our gross margin this quarter was 37.5 percent compared to 40 percent in q1 2023. This is mainly due to lower margins on deliveries of system sales in the initial phase of a new contract. We typically start the rollout of a new system sales program with the delivery and installation of systems, followed by acceptance by our customers. And only after customer acceptance, the systems go into operation and the service and maintenance part of the contract commences. This is a gradual process over a period of 12 to 18 months. The program will come to full fruition when all new systems have been installed and are in operation. The overall gross margin of the contract will gradually recover during this phase. Mid-April, the largest global show in our industry, the InterTraffic, was conducted in the Amsterdam Arrive. The day before the opening of the show, we organized our partner day in our Harlem offices. Here we presented to more than 50 invited partners and customers, our fast software-based product vision and 13 user stories. At our booth at the show, we presented a live demo of our new Flux roadside system. The show was a great success for CensusGazzo, renewing many existing customer relationships and developing promising new ones in various regions. After a successful delivery of our unique vehicle in motion solution to our Saudi customer, we are extending our relationship to potentially introduce new enforcement solutions and server level agreement to maintain the installed pace. During the inter-traffic industry show, we signed a memorandum of understanding with TahaCom, our Saudi customer. With this MOU, San Saskatchewan will collaborate with Tahacom in multiple initiatives across Saudi Green Initiative, local content, and the Road to Saudi Vision 2030, reinforcing the strong partnership between the two entities that dates back to 2016. San Saskatchewan and TACOM will provide the kingdom with next-generation traffic safety solutions which can handle a variety of smart mobility features in all environments and weather conditions. On that note, I would like to hand over to Simon Milberg.

Okay, thank you, Ivo. We have three topics for today. Our consolidated income statement, the performance of our segments, and finally, our financial position. Looking at the consolidated income statement, we focus on revenue margins and profitability. The revenue for the quarter came in at 125 million compared to 130 million, an increase of 11%. The trust revenue has shown a decline of 2% compared to Q1 2023 due to a one-off impact on additional repair and maintenance requests in Sweden resulting from demolished cameras in late 2022. 12 months rolling, the trans revenue is up by 10%, driven by growth in our US and Australian managed services programs. The group's gross margin is impacted by lower margins on initial deliveries of the Dutch project, with the expectation that this will return to normal margins on this project once the project is in full operation. The gross margin amounted to approximately 37.5%, 12 months rolling, the margin is at 40%. The operating expenses totaled 55 million in line with Q1 2023. 12 months rolling, there is an increase of 6 million related to investments in the organization in the US mainly. Our operator profit for the period came in at negative 7 million compared to negative 9 million in Q1 2023. Our managed services segment predominantly reflects our U.S. business, including the costs related to development and maintenance of our software suites Zillium and Pulse. During the quarter, we've had high activity in contract signings, with $275 million in total contract value over the contract periods. The start of these programs depends on receiving legal and construction permits. Revenue has grown by $7 million to $50 million in the quarter. The growth in revenue is driven by new programs contributing in full to the top line. In comparison to the fourth quarter of last year, revenue has declined by 9 million, which is due to seasonality. As our revenue is largely dependent on volume, weather has an impact on the output of the programs. The managed services segment has realized an EBITDA of 8 million, a growth of 4 million compared to the same quarter last year. On a 12-month rolling basis, revenue has grown from $178 million to $199 million, a growth of 12%. The EBITDA from a 12-month rolling perspective has increased by 15%, from $26 million to $30 million. During 2023, we have invested in our US organization in the operational as well as sales teams. We can now see these investments paying off. Now onto the second system sales, starting with the order intake. Order intake during the quarter landed at 44 million, mainly due to repeat orders of existing customers. During the quarter, we have continued to deliver on the Dutch project, for which we communicated an additional order intake worth 150 million in the fourth quarter, bringing the estimated contract size to 400 million in total. Revenue has increased by 6%, growing from 71 to 75 million in the quarter. Due to the initial deliveries on the Dutch project, we've seen a lower gross margin impacting our EBDA. This has resulted in a negative EBDA of 4 million for the quarter. 12 months rolling, our revenue has increased from 317 million to 436 million, a growth of 37.5%. with our EBITDA increasing by 24 million, approximately 70%. Discussing the financial position of our company, I would like to focus on cash movements, interest-bearing debt and available cash. The largest movements in our available cash position are working capital and investments. During the first quarter, we have received payments on deliveries to Saudi of approximately 60 million, improving our cash position and lowering our working capital in trade receivables. Due to the pre-financing of big projects, we have invested 70 million in inventory and work in progress. These investments are mainly related to signed projects. The net improvement in working capital amounted to 40 million. The USA has continued rolling out unsigned contracts of 2023. resulting in investments in fixed assets and operations of 16 million. In the first quarter, we have demonstrated Flux as a new product to the market. On our platforms Flux, Pulse and Zillium, we've continued to invest to the amount of 8 million. In 2023, we started investing in our Ghana joint venture. The investment in the quarter amounted to 3 million. Our total investment in fixed assets amounted to 27 million in the quarter. The adjusted net interest bearing debt has decreased compared to the closing balance of 2023, mainly due to replenishing the credit facility through the receipt of the payments from the Saudi project. The adjusted net interest bearing debt at the end of the period amounted to 61 million. The available cash has improved from 84 million to 112 million by adding the operational cash flow of 50 million and taking the largest movements in our cash position into account. And on that note, I would like to hand it over to Ivo.

Thank you, Simon. Our order book is strong with a revenue backlog of nearly 1.2 billion from two large contracts in our whole markets, Sweden and the Netherlands. Our profitable trust business continues to grow and our strengthened team in the USA proves to be able to push our top line in this strategic market. On top of that, we see our new groundbreaking roadside platform Flux coming to fruition in the market. We therefore retain our long-term plan and ambition to, by the end of 2025, grow our net sales to more than 1 billion, of which Thras revenues is more than 600 million. And we also retain our ambition to increase our EBDA margin to more than 15% by the end of 2025. On this note, I now open up to questions.

Good morning, gentlemen.

Thank you for a good presentation. Let me start with the US and the nine contracts you have landed there. What would you say is the normal lead time from signing to revenues? And in general, are these contracts in line with the normal pattern? That's my first question.

Yeah, contract to signing is city by city different. contract signing to operation I should say and that's depending on the number of cameras that go into the ground and the permissions that need to be granted by the by the city so but typically I would say they're not different from any other cities that we have signed up until now in general okay

Thank you. And on the same topic, is this strong delivery in terms of contract signings, a catch-up effect of earlier hard work that hasn't materialized, or do you see this as a sign of a very strong underlying demand?

Well, there's a couple of things here. One, we see states and therefore cities opening up for automated traffic enforcement, so that's a market effect. And that's due because of fatalities and injuries in traffic are increasing actually in the United States. We all know there's this United Nations initiative to half the fatalities and injuries by 2030. That's very, very nearby. And the US is not in line with that at all. It's quite the opposite. So there is pressure to increase traffic safety and our systems, as we know, are a major contributor to that. So that's one aspect. The other aspect is that, well, and as examples, we see states like Florida, Connecticut, California, now opening up for school speed zone enforcement. So that's a market effect. On top of that, we have increased our sales force because this is the market which is not driven by initiatives from the government, but it's quite the other way around. So you can, with a good sales force, and we have one in the United States, you can push with cities to implement traffic enforcement. And that is, of course, taking time. So the initiatives we took to grow the sales force is now paying off and signing more contracts. On top of that, what we also see our sales force doing is opening up the existing contracts and extending them not only

in in in time but also in more locations so that also has a positive revenue effect okay thank you moving over to the to the order to traffic market i i realized that you have now introduced a an expected uh timing of all the starting the deliveries to uh to that order uh should i interpret that as You being now quite confident in the ramp-up plan of reaching this timeline.

Yes, we are. And we do introduce the new flux system with traffic fair get. So we need to go through all the loops of approvals, etc. And that typically takes time. But we're now in a position that we can say that we're ready to start the rollout. And it's almost, I wouldn't say a guarantee, but it's close to that, that the rollout pattern will be according to what we expect.

Okay. Your cash flow was, in my view, quite strong. Was it the underlying cash flow or was it one of? Simon has already touched upon the working capital, so we can leave that aside, but I I see that the financial items are having quite positive impact and also non-cash items is also quite positive relative to the first quarter last year. So could you elaborate on that, please?

Yeah, so the non-cash items are in the cash flow statement are of course related to the depreciation. So that is one item. Yeah, and the cash flow was pretty strong. Of course, we built up in inventory, work in progress, trade receivables in 2023, ramping up towards the second half of the year for the deliveries on Saudi. And in Q1, we've received 60 million from that customer on those deliveries. So that has had a huge impact on our cash position. And of course, we see that with the growth of the revenue in the US, that it's a big cash generator. There's of course upfront investments, but once these programs are operational, the cash contribution is fairly large.

Okay, so if I may summarize, you would say that this is a normal pattern, there were

substantial one-offs into this this is more an effect of how the underlying business has performed is that the correct interpretation yeah there's no there's no difference in the underlying business itself and the one-off or big impact in q1 is received of a fairly large amount from saudi okay thank you and then the final question

Yes, sorry.

That is relating to the fact that we had increased deliveries in the quarters before. And so the timeline of these payments and the due dates of these payments were sort of coinciding. And that's why all that cash came in in Q1.

Okay, thank you. And final question to you, Ivo. You're reiterating your targets for 2025. You are now also stating towards the end. Could you elaborate a little bit on that wording?

We have not restated anything. It's the same 2025. We just wanted to make sure that everybody understands that includes the full year of 2025. No, no revision of the ambition. No. So by 2025, meaning for the full year of 2025, our ambition is to be at 1 billion revenue, 16 million TRAS, and at least 15% of EBITDA. So no revision.

Thank you very much. That was all from me.

You're welcome.

The next question comes from Tim Ellis from Kepler-Chuvriak. Please go ahead.

Thank you. Yes, good morning, everyone. Thanks for taking my questions, Ivo and Simon. First one is about the projects in the Netherlands and Sweden. Maybe just a follow-up question to my colleague from Carnegie. So what you mentioned that the rollout started in 2023 for the Netherlands and that it will start for Sweden in Q3 2024. That is basically what you had anticipated after the full year results, right? There's no change in neither to the positive nor to the negative with regards to the planning? That's correct. Okay, cool. Then one small question just from my understanding you mentioned when you were talking about the managed services in the US that the automated traffic enforcement needs to be deactivated during school holidays did I understand that correctly or no that's absolutely correct so and this is this is for the market in total so this is not just us this is a legal requirement yeah and the idea is to keep children safe when going to school

Meaning that the traffic needs to slow down during school hours. So meaning that also before school starts, in the time that kids are not at school or going to or departing from school, those hours you cannot enforce. And the same applies to holidays. So when there are school holidays, the systems are not in operation. And that's always been the case. So this is no different from before.

Okay, interesting. But that relates to all traffic enforcement, not only school zones?

No, this relates to school zones.

Okay, I was a bit puzzled for a moment, but thanks for the clarification. Then one question with regards to your, I wouldn't say renewed, but continuation of the relationship with Saudi Arabia. Do you have any insights there what the impact could be so there were no negative experiences in the past? I mean there was this delayed revenue but it was not out of your hands I assume. So you expect there a lot of growth contribution coming from Saudi Arabia going forward?

Well, what Saudi Arabia and I can everybody recommend to have a look at what's going on in Saudi Arabia. It's very much for the positive. As you probably know, they have a vision 2030. This has the objective to make lives better for the Saudi citizens. There is a World Expo scheduled in 2030. And there are tremendous investments in the infrastructure in general. They realize that the fatalities in traffic need to come down. They also realize that automated traffic enforcement is the way to do it. It's the quickest way to bring the numbers down. And whatever they do, they do with big numbers. And we are a qualified vendor to Tahacom. And Tahacom is the procurement party of the Saudi government. And yes, whatever they do, it's big numbers. So we'll see what happens, but we have an extremely good relationship. They're happy with the technology they bought from us. And we have a memorandum of understanding signed with them. So we're in a good position. Let's put it that way.

Okay. Then one question with regards to managed services markets in the US, but maybe also more in general. Do you see a change of market share there? Do you look at competitors and see what they're doing? And are you outperforming them?

There is no clear market data, and let's start with that one first. So that's an omission. What we do see is market growth in general, and we see our business growing. And I think we are doing relatively well compared to some competition, but that's difficult to quantify that. I do believe that our investments in our sales team, they are paying off. We hired a bunch of really good people and we see the results coming in from new contracts.

Do you see any trends in winning contracts? You try to win 10 and suddenly you win 9 and before you used to win 5 or vice versa. Is there any trend you see at the moment?

It's difficult to say. Maybe because of the relatively still small numbers it's difficult to apply.

One last question and then I leave you alone. With regards to your free cash flow, any hints what we can expect for the full year? I mean, the explanation for Q1 is pretty clear, but I guess that also means that we'll see some less intense wearing capital effects in Q2, Q3 and Q4. Can you give me any? Yeah.

So if you look at the two big contracts, of course, the investments in inventory and work in progress for the Dutch program is already ongoing, right? So that impact is there and will remain. As we've just elaborated in Q3, we start to roll out on the Swedish systems. So we will see some impact there in building up inventory. and of course we expect to grow in the in the US so the capex investments there uh hopefully are very significant uh because it means that we've landed uh considerable contracts uh and or contract extensions and expansions um in the US we we have for the US business we have a separate credit line to finance that that is not taken into consideration in the free available cash so we have approximately 75 million swedish kronor in a separate credit facility not part of available cash solely for the investments in the us okay but that means that if you win contracts and you have ramp up costs that would eventually show up in the capex and uh yes And it will show up in a loan.

Okay. Okay. All right.

Thanks.

Yeah. One more comment maybe from our side. We're doing well in the USA. I just mentioned that to you. I encourage you to look at the latest press release, which we released like 30 minutes ago. You probably haven't seen it yet, but we just signed a contract with the city of Albany worth nearly 200 million. Right. So that's nearly 20 million US dollar. And it's an addition of next to the red light, which was 160 million Swedish kronor. Sorry, 3.7 million. We now have additional 60 million of revenue from that contract. So it's a huge win. We're happy with that. And you see now what happens because this is an existing customer where we did red light 3.7 million revenue. We do negotiations and we have additional functionality, school zone, and that adds another 16 million to that contract. So great win.

Yeah, we've received some questions online. Maybe we can go through them now. First off, Oscar has asked some questions around the credit facility for the US. To answer that first, and I just, I think, explained. We have a CAPEX facility with a Rabobank of 100 million Swedish kroner until the end of 2024.

up until 2023 we've used approximately 25 million swedish kronor so that leaves us 75 million swedish kronor for investments in this year second question from oscar what does the timeline look like in general from receiving an order to recognizing revenue in the us i think we explained the first part which is uh it's depending on on the number of cameras and the installation time and the permits by the city it's difficult to make a um and a statement there what we can make a statement about is that uh one once when do we receive the revenue well once these cameras are in operation they create events and the events till a revenue till we receive payments is approximately 30 days i would say yeah so one event 30 days later revenue okay and where are we here

Yeah, and then another question from Oscar is, are you happy with the financial position? Of course, as a CFO, I would always say I'd like more. But no, I think we have 112 million Swedish kronor in available cash at this point in time. That excludes the 75 million in the US CAPUS facility line that we have. And of course, depending on when the investments will be made on the new programs and even newer programs to be announced, we will start using that credit facility. I must also say that we are very happy with the good relationship with Rabobank, which is always willing to support us in our growth needs.

A question in Swedish from Jan Andersson. What is the status of Ghana? Pretty good. We are all set up to start the first probe citations to go out, the trials. So we're not going to go into full enforcement until we pass that stage. Another stage we still have to pass is that the government still has to give its final blessing. And those, as we all know, motions are slow. We're very confident that we'll be enforcing in Ghana anytime soon. possibly around the summertime, I would say. Another question from Jan is about the status in Colombia, Uruguay, South America. South America in general, I can say it's a bit of a difficult market for us. It's complex. There is some risks to it, political risks, some other risks. So we go into Colombia and Uruguay and Ecuador in a cautious way through distributors. um more than anything else um so that's where we are it's not a major part of our our 2025 ambition i think that's the most important comment to make on this and then the question is which another question here in sweden again is which market has the highest potential in 2025 that is without doubt the united states there's we see the highest growth potential but also the highest contribution to our ebda um as a reminder if you wish to ask a question please dial pound key five on your telephone keypad um let me see johannes asks how long does the implementation of a contract take hence when we would you expect to see revenues from today's contract win ah today's contract win is related to albany Let me see there.

So the good thing with Albany is that Albany is an existing customer. I think for more than five years now. We've renewed the base term of the contract for another five years. We have been enforcing on red light within the city of Albany. And we're now going to add 20 school zones to that contract. adding 116 million Swedish kroners over the contract term to the total contract. Because we have a good relationship with that city and we are already in, it could go relatively smooth putting these cool zones up. But of course, implementing 20 cool zones in a short period of time is a challenge. In any case, the ambition is that In September of 2024, this year, schools go in session again after the summer holiday. So it is our ambition to aim for that timeline.

Yeah. Okay. So, and then revenues could come in 30 days later after the first event.

Then Marcus Monius had a question. Trust revenues were down even though the US part of trash increased. What is the reason for this? Yes, if you look Q1 2023 and Q1 2024, a special thing happened in Q1 2023. And the people from Sweden would recognize this is that in late 2022, a number of cameras in Sweden were demolished by a group of people. And early 2023, we repaired all of those systems and might even have replaced some of them. Typically those repairs either from demolishment or regular repairs coming gradually, right? So it's spread out over the year or over the years in this case. We had a bump up because there was a significant event at that point in time So that's the reason why it's somewhat lower. But of course, if you look at the US trans revenues, it moved from 43 million to 50 million in the quarter. And that is a good growth.

okay i think we're well maybe a remark which is about the one billion uh how do we feel about it i can tell you we are feeling rather good about that and and the reason for that is that we see tremendous growth in the united states and not only new contracts but also efficiency gains of the events coming in that will help us with revenue without doing anything but also a great addition to the ebda so that's that's that's a game which was not foreseen so huge growth in the us usa expected on top of that really good outlook on what happens in in saudi so i'm really happy with that and then look at what we brought in in in orders in sweden and the netherlands 1.25 billion in total so we're looking yeah and that is spread over multiple years i realized But the outlook on getting to the 1 billion is very realistic. Thank you all. If there are no further questions, I hand back to the operator.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you all for chiming in and for also putting up these questions. That's good for us to be able to answer those. So keep doing that for the next sessions as well. And hope to see you back in the second quarter.