Vitec Software Group AB (publ)

Thank you, operator, and a warm welcome to the fourth conference call in our history. I'm Patrik Fransson, head of investor relations at Vitek Software Group, and with me in the room is our CEO, Olle Backman. In this call, we will cover the report released this morning, but also give a short overview of Vitek Software Group. And as always, after the presentation, we will open up for questions. So, Olle, with that, I hand over to you.

Thank you, Patrik, and welcome to the company presentation here for the Q3 report. And as always, I will start with a run through over VTech software group, starting with this overall picture as always here. Starting customer perspective, 25,000 customers roughly still in line with what we have. Last quarter, 42 business units by now. And a business unit is a company or a group of companies that operate independently within our very decentralized organization. 12 countries. So last quarter, it was 11. So we added Belgium now as a new home market with the latest acquisition of Trinity. So we were very pleased with that. Proforma sales, so that's the guidance of the run rate that we're operating at is roughly 3.3 billion. And the recurring revenue part of that is nearly 87%. And I have nearly 1,570 colleagues of ours. And as you can see, the sales distribution there by market, I will get back to that a little later. Strategy chain, nothing changed here as always. We have everything from our values through the brand promise business concept objectives up to our vision. And the objective for the group is to be a profitable and sustainable growth company that develops and delivers vertical market softwares. So nothing new here either. And how do we go about this responsible growth theme of ours? Well, first of all, our business units are already market leaders usually when they come in or when they operate within us. They already have a decent or too high percentage of recurring revenues. And what we do is that we work very closely with them to develop them further. That we do through our decentralized organization. We do that through continuously monitoring that we are on the right level of product investments. So we don't under invest, but we also don't over invest. So we have a pretty good idea that has sort of evolved over time and the combined experience of all the years that we have been working on just how much you need to invest in order to be, to rely on today and tomorrow, which is our brand promise. And of course, this all fuels our organic growth that we work very, very closely and hard with the companies that we have. So we work with all our 42 business units in a similar way and pushing them to become a little bit better each year. And then we add acquisitions on top of that. And we do that through searching very thoroughly throughout Europe, using the same kind of characteristics that we look for. So they should be vertical, they should be established and profitable, usually market leaders, as I mentioned. They have a proprietary software that means that we own our own IPR, that we are in control over the technology, and they have a decent amount of recurring revenue. So if they fit these criteria, we are very happy to look into them for future potential add-ons to the group. And so far this year, we have succeeded in buying four nice vertical market software companies. We started up in Q1 with LDC, in Q2 with Midtheater. And then during Q3 now, we concluded the acquisition of Swedish Taxiteknik. And we also added Belgium Trinergy. All four of them really nice additions that fit our criteria very well. So we're very happy with that. If you look at the group from a vertical perspective, like I said, we have 42 business units. They operate in roughly 20 different verticals. And as you can see, the property management sector and the energy sector are two of the biggest ones, followed by health care or finance. And as you can see on the distribution here, we're not dependent on any single sector. But even within these sectors, we always operate in facilitating and providing business critical softwares for our customers. So that gives us a great stability to work from. The business units will find this chart also in the report. I won't go through all the details, of course, but you can see just the distribution there on size and the level of recurring revenues that they operate and also which year they came into the group. And as I mentioned before, Vitek has become another size that we are basically a mirror image of the vertical software market in Europe. So when we look into the pipeline for future acquisitions, it pretty much looks like this when it comes to the different sizes and shapes of the companies. Organization, nothing really new here either. We work in a very decentralized model. So it's the red box there at the bottom with all the business units. That's where all the action takes place. They are autonomous. They have the resources available to conduct their business in a very good way. And the rest of us are basically there to coach them, guide them and help them to become a little bit better each year. one of the greatest things about being part of a group and also the one of the big value adds that we present to potential new acquisitions is the sharing of knowledge what we share the called the sharing forums here so here you can tap into the knowledge pool of the other 42 business units and this is a really great community to be part of because being a single company in a small vertical and being a market leader, it's a pretty lonely place to be usually. So in order to have this inspiration and to find new ideas and also share your success stories, we have a lot of these sharing forums internally. So this is something that has evolved over time and we're becoming better and better at it. And it's very, very much appreciated among the business units. Then going over to the interim report for the third quarter and also for the first nine months. Looking at the quarter, sales was up to 809 million. That's an increase of 15%. And we look at the recurring revenue part of that, that increased by 17%. The EBITDA level increased by 3% and the margin was slightly down from 34% last quarter to 31%. This is, as I mentioned in the report, mainly an effect of the distribution of the revenues where both service revenues and license sales, which is a fairly small part of the total package, but of course it has quite an impact on the short-term margins. So it was a bit lower on that. And that is partly an effect of the trends that we've been seeing that customers are not investing that much in new rollouts and new features or changing over from one competitor to us. So it's a bit slower on the new sales side. We have still seen quite a decent amount of up sales to existing customers. But I think that's pretty much it. And also the fact that we have comparatively a higher degree of our transaction-based revenues, which has a bit lower gross margin profile than the others. But that's, yet again, not something that I'm really worried about in the long term. Operating profits up by 8%. And when you look at earnings per share, which is one of our key metrics that we work with closely internally and also from the board here, it's an increase of 27%, which is a really good number. Cash flows roughly in line with last year. And like I mentioned, the two acquisitions of Taxi Technik and Trinity closed during the quarter. Look at the first nine months. You can see that the growth level is roughly in line with 18% on the total and 22% on the recurring revenue. You can see the EBITDA margin is slightly down to 30% from 32%. Operating profits up by 17%. Good number. But the really strong is the cash flow for the first nine months, 939 million compared to 727%. And we think that you should always look at cash flow when it comes to VTech, either on a full year basis or at least on a rolling 12-month basis, because we have a really, really strong first quarter when we have a lot of prepayments coming through. And then we basically live off that for the first consecutive three quarters. So I think it's a fairly strong cash flow position that we have for the first nine months. Net sales, basically these bars explain what I have. The compounded growth over the years has been 22%. Like I said, the run rate today is up to 3.3 billion. You can see it's a bit down from Q2, but during Q2, we have the seasonality effect in our transaction-based volumes that are usually really high during Q2. So that's to be expected. EBITDA margins, pretty stable, so no drama here, like I mentioned, a bit down in the quarter, but overall around the 30% level, still a fairly good number. The allocation of the revenues here, you can see really the bars there and the basis on the subscription-based revenues, which is the light blue In the bottom growing at a steady and under really good pace Very stable and they have the transaction based on top of that a bit more volatile But as I mentioned it has two very different gross margin components in this so the Profit is not affected in the same way from these swings Organic growth We have measured it, which is on a rolling pro forma 12-month basis. That's good to give the guidance on the run rates today and also on the long-term perspective that we have. And as you can see here, we have had an FX tailwind for the past two years. It's not that we have forgotten to calculate it. It is actually a zero. at zero level just now after nine months. So we don't have any effects on the total group. And this is the chart that talks about this organic growth. And there we have the 9% on the subscription-based revenues. Which we think is a very good number. And then we have the transaction base. This is growing up a lot, about 17%. But that's, like I mentioned, a bit more volatile. But this was on a rolling 12-month basis. So it's still a great addition. And the total is up by 8%. And like I said, there is basically no FX effects in these numbers. Diversification of sales just gives you the feeling that this is a very distributed model that we have present in many markets and we have a lot of customers, so no single dependencies here, which is totally in line with what we have talked about before and what we aim to be. And lastly, just a few slides, summing up here, I think Fairly okay quarter growth-wise, a bit lower on the margin, like I said, but that's due to the distribution in the revenues for that specific quarter. And then we finished two really nice add-ons to the group with Taxi Technique and Trinity coming in. So by that, we go over to the Q&A sessions.

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