All right. Welcome everyone to this next presentation here at ABG Investor Days. My name is Simon Granath, and I work as an equity analyst at ABG, covering IT and tech companies, and with us today, we have the pleasure of hosting Trifork, and the group investment director, Frederik Svanholm, and he will present the company for about 20 minutes, and then we will follow up with some Q&A, so with that said, Frederik, please go ahead.
Thank you, Simon, and thanks for having me. It's nice to be in Stockholm on a summer day for once. We are a company that has grown out of Denmark. We are an international software company, IT services company, consulting company. People call us a lot of things, but the main thing what we do is we help our customers succeed with software. I wanted to show this picture on the front page. It's an app and a web-based solution, a sort of a three-module system we built in Denmark, delivered in 2021, for pregnancies and sharing health data for pregnant women all over Denmark. So it's one of the solutions we do or did, a good example of software that really creates good, enjoyable experiences for users and making life easier with software.
Very briefly about me, background from investment banking, Carnegie, Danske Bank, and now I do M&A, venture investments, and some IR work also. This is our management. Very slim headquarters, you could say, and a very distributed organizational model. I'll get back to that. Our founder is Jørn. He's the CEO, still owns 20% of the company, and has a long track record of co-founding technology companies over the last 35 years. Kristian is our CFO, owns around 1% of the company, joined in 2007 when he sold a company to Trifork and became CFO of Trifork. Then recently, we expanded the executive management team to three. Morten recently joined as Chief Revenue Officer. He actually rejoined Trifork, was with us for some years, years ago.
We placed him in one of our startups that we later sold to CrowdStrike, a cyber company called Humio, and now he just joined us in the beginning of May. We have a track record of growth, and we are a growth company, and as our CEO, Jørn, says, "Anything that doesn't grow, it's dying." So we need to grow every single year, and we always wanna stay relevant, of course, to our customers. We also plan to grow this year, and we also like to make money, so you can see the CAGR in our EBITDA.
Adjusted EBITDA has been the same as our revenue CAGR, and despite all the turmoil in the world this last couple of years, our margins have been relatively stable, and we expect approximately the same for this year, so growth to continue. Here you see our guidance for the current year, and maybe I can just emphasize on our midterm targets, which is on a three-year rolling basis. We expect 15%-25% annual revenue growth, of which 10%-15% organic, and that sort of matches what we've done in the past, where around a third of our growth has come from acquisitions and two-thirds from organic growth. We don't really expect sort of any hockey stick improvements in our margins. We are in the industry we're in.
There is a certain, you can say, ceiling of the types of margins you can do, but there is some operational leverage and more software as a service that we're doing, so we expect slight improvements over time. And then we have a net cash position today on the balance sheet, no, no, no debt, and we have a mandate up to 1.5x, giving us a firepower of a little bit more than EUR 50 million for investments or other means of capital allocation. So briefly, this is Trifork in a nutshell, you can say. The core business, that's our solutions and services that we built for corporates and the public sector, 69 business units.
And then we have our Trifork Labs, which is software startups that product-based, either companies we are co-founding with our own employees or where we are backing external founders, and this is really the innovation hub of Trifork. I'll get back to that. Let's dig into the core business. We are around 1,100 people in 14 countries, 69 business units, and as you can see, we've grown sort of historically out of Denmark into Europe. A couple of dots in North America, we expect a few more over there, and actually yesterday we announced that we have hired an ex-Apple, ex-SAP executive to be our CEO of Trifork US. We see tremendous growth there.
We grew 56% in the US last year and 68% in Q1, so we expect the growth to continue, hopefully at good rates there in the future. So I just wanted to touch a bit upon what it actually is we are looking at, what are the external growth drivers of our core business? Enterprise mobility adoption is a big one. More and more corporates, especially, are understanding and want to harness the power of mobile devices in the core workflows of their workers. So especially field service engineers and factory workers increase productivity massively when you give them a device with custom software or an app.
I don't think I need to explain the healthcare cost too much, but just overall, aging populations, lack of doctors, lack of nurses, huge budget constraints for the healthcare industry, and of course, software here plays a huge role in increasing the productivity for the staff, and also to improve the customer experience towards, or the patient experience, I should say. Sustainability is, of course, a huge driver. Lots of the corporates are forced to invest into this now, also with the regulation, and software here plays a key role in reducing their emissions and reducing waste. Then regulation and end consumer demand is really driving Cyber Protection and Cloud Operations for us. This is some of our customers.
We work very closely with many corporates and the public sector. Some of the corporates, they don't want us to show their logo, so this is just a selection of them. But increasingly, software is becoming a competitive edge, so we can't actually explain publicly for some of our bigger customers what it is we're doing, 'cause we're working really in the core of their work processes. So I'm just gonna go through some quick case examples of things that we do so you get a bit more flavor. This is a platform we built for the Danish municipalities and regions, so all Danish municipalities.
A telehealth platform where patients that have lung problems, or it could be heart issues, that have a problem getting to and from hospitals, they get a suitcase sent to their homes with different devices that they can measure themselves with, and then they can have meetings with doctors and nurses via an app, and this platform also makes it easy for healthcare professionals to share data, so very patient-centric solution, and telehealth is something you will see in many more countries around the world going forward. It's something that will help reduce the cost in the system. For a big Nordic supermarket chain, we built this app.
Sort of, you, as a customer, go in, barcode on each product, and you swipe, and then you leave the store, so very good customer experience. Got good reviews. We also built for Swiss Air, the app for the crew. So it accesses passenger information and preferences before departure. What kind of food would you like? What kind of drinks would you like? And gives you a real-time overview also of what's in stock on the plane, and this is used to predict how much and which types of food to bring on the route, and of course, that reduces food waste, but also really just improves the passenger experience. So we've worked with Swiss for many years. Vestas, we built these four apps for their 10,000 service engineers around the world.
Vestas is running on SAP, and they needed apps to work seamlessly with SAP in the field. After we rolled these four apps out, they saved 400,000 hours in the first year. The return on investment was six months, and this case study was also featured by Apple on their website. We are reporting our business in six business areas. So you can see three verticals and three horizontals. The verticals, we have very deep domain expertise in, for example, Digital Health. We've been doing this for 25 years plus in Denmark. Fintech, we've built the online banks, and many interesting solutions over the years. The most used payment app in Denmark, we built back in the day.
Then we have the three horizontals: Cyber Protection and Cloud Operations, and then Smart Enterprise. Smart enterprise was, for example, the type of solution we did for Vestas. And of course, these three horizontals, they don't only support these type of industries, but also other types of industries, and we generally have a very low industry concentration, in this part. So we stand on many different legs. We have around one third of our revenues to the public sector and two thirds to the private sector, and our customer concentration is relatively low. And then we don't really do any business in China and Russia and other geopolitically sensitive areas. We focus on Northern and Western Europe primarily, and then increasingly now on the U.S. as well.
Yeah, in terms of risk as well, maybe it's worth mentioning that we also do acquisitions, as you saw on the first revenue chart, and we focus on small acquisitions. We believe that's less risky and makes it easier to understand what we're buying. And talking about risk, 'cause we believe it's very important to actually understand risk when you are in the space that we are in, 'cause we feel that software carries certain life cycle risks that are higher than in many other industries. Innovation speed is really fast in our industry, and so a product that you build today, it might be obsolete in seven years.
So as a consultant, a service-based business, we, of course, also have our own IP and certain frameworks that we can reuse for different types of customers again and again, but it's about managing how much you own. If you own the product and own the customer relationship, you can make high margins, but you also are increasingly exposed to this life cycle risk. And we feel we have a very balanced exposure to this. Most of the IP we built, we actually handed over to the customer, and then we work in small increments in close relationships with the customer. So we try to inspire them about smaller projects, medium-sized projects, that are manageable also for them to make decisions around.
And no, like, large projects, "Here, we build this, it'll take two years and 200 people, and then come back to us in ten years when you want something new." That's not how we work. So we try to get them into this wheel. This is our go-to market model. We call it Inspire, Build, and Run. In Inspire, we have our own conference brands. We do software conferences. We invite our customers in, our employees, and other stakeholders, to follow the latest trends. We get really interesting speakers in from all over the world, to understand what are the latest trends in the software industry. We film all of these speeches, and we put them on YouTube and Instagram. Actually, we have more than 47 million views of these videos, so think TED Talk kind of style.
And of course, we can use that data. We can see which videos are trending most, and then we know, "Oh, maybe we need to focus a little bit more on this new technology." So that also helps us always know how do we stay most relevant for our customers, 'cause that is really what we do. We know more than our customers, that's why they come to us. We do design workshops, and then we go into concept, proof of concept, and then product development with the customers. And this is the core part, you can say, of the most of our revenue, three quarters of revenue, and also three quarters of this revenue last year came from repeat customers, meaning customers we've had for more than two years. Mostly it's actually for many more years than that.
We make decent margins here, 21% adjusted EBITDA in Q1. Then we like to also run the software we built for them, meaning we maintain it, we service, we operate it in our data centers. This is mostly recurring business, and we also made okay margins here in Q1. The margin potential here is higher than this, but we've also invested a lot in the growth in this space. So a couple of words around our organizational model, 'cause I really think it's one of the unique feats about Trifork and explains the success we've had in the past. We have a extremely decentralized organization of 69 business units, and we see our organization a bit like a tree growing.
Every time a branch becomes thick, it will always naturally split in more branches, and that's how we wanna do with our organization. We would like to keep units small, 'cause that does a lot to culture, does a lot to delivery, staying close to the customer, changing directions fast, promoting internal talent faster, 'cause when we split a unit, when it reaches around 42 people, we promote an internal person to become leader of the new unit. Of course, so we have 69 business units today, and so it's a very flat organizational structure. We arrange workshops for all of our business unit leaders. 4x a year, they go on a two, three-day workshop, where they help each other solve the problems that they have, the goals that they have.
So every month, we measure their growth, their margins, their employee churn. We also, on an ongoing basis, measure their customer happiness, sick leave, et cetera. And then we have some sales directors, CCOs, and they basically coordinate the strategic sales initiatives that we're doing across the different business areas. But this means we can retain talent, attract talent faster, and means we are much more scalable and agile, and it really makes us stand again on many different legs in the way that we are not depending on only a few people in the organization. It's very widespread. So going into Trifork Labs quickly.
So here we co-found software product startups, either from our own employees that get good ideas that have a match with our core business, or external ideas that we see synergies with. So that could be that we act as a reseller of the products, and it really supports our innovation culture. We get other VCs and angels to invest, so both that validates the case, but it also reduces the risk for us. And we have a very strong track record here, and have done some good exits in the past. And actually, the value creation we've done in Trifork Labs has paid for a lot of our M&A over the years. So we see this as our R&D machine, but it's very transparent. Everyone can go in and see what we're doing.
Whereas for most other companies and many other industries, R&D is this black box, where no one actually knows what's going on in there. So we also think for our investors, this is beneficial. And then we like to exit before these startups reach the maturity phase. Just very briefly, because it's very hard for startups out there right now, and we get a lot of questions, "Well, what's the health of your startups?" And so we report the value of our startups every quarter, and here you see the five most valuable ones. And we feel relatively comfortable with these five. This one is in control of their cash flow. This one is profitable and paying out a dividend.
This one took in EUR 23 million last year and just landed a global partnership with Novartis. They have other big pharma and med tech companies, and basically building software for administering, for example, diabetes. This is a Norwegian cyber protection company owned by private equity, where we are a software partner. And then this is a cyber company that also is profitable and paying out dividends. So that's 70% of the book value in Labs. And Labs overall is around 14%-15% of our market cap at the moment. ESG, I think in respect of time, I just wanted to say, by far, the biggest factor for us when it comes to ESG is that we build software that helps our customers become more sustainable.
So a lot of the inflow that we get, we're also investing in building our own offices, actually, and this new smart building concept. But I would suggest you go and check out our ESG report for more detail. And then very briefly on our shareholder base. So as you see, our founder and CEO owning 20% still, Ferd, Norwegian investment company, 10%, co-founder of Trifork, he's not active anymore, 6.6%, and then a Danish foundation, 5%. And around half, or we estimate around half of our employees are shareholders, so that's a big chunk of this. But also, through acquisitions, we've paid with shares historically, so all of these founders that are still with the company, they also own good amount of shares. I think with that, we're ready for Q&A.
Great. Thank you so much, Frederik. Very interesting to hear your story, I must say. But let's continue with a couple of questions. So I'd like to start on the M&A opportunities that you see out there, because you've historically held an active M&A agenda. What types of companies are you looking for? What types of multiples do you generally acquire at? Can you talk a little bit-
Yeah
... on what you actually want to find out there?
Yeah, so as I said in the beginning, around a third of our growth historically has come from acquisitions, and it's something we expect to continue. Since we don't wanna do big acquisitions, necessarily, we need them to fit into our Teal organization, it means we have to do more small acquisitions. We do not really like to do too much of these bidding processes and structured processes. So our approach is more to find the companies ourselves or through our networks. Many times we actually know them really well, have partnered with these companies, delivered on the same customer with them, so that's the way we do due diligence. Often it takes a year or two.
And it means that when those companies realize that they would like to become part of Trifork, then you know, from the idea to signing the papers can go relatively fast. We see right now that the valuations for the good companies, the good IT services consulting companies, are still pretty high, in a historical context, and they should be. Because, to be honest, money has been cheap in the last five, eight years, at least, and a lot of companies that didn't deserve high valuations got high valuations. The ones that stand back today as being good companies and making good margins, they also know it. So that's not a problem necessarily for us.
We would rather maybe pay a little bit more and knowing that what we're buying is a high-quality founder, technical team, that really know what they're doing and have a roadmap for growth, and where we can find sales synergies within the group, and then we don't have to spend too much time going in and fixing things. A lot of the things that have fallen in value and that I meet many of them on a weekly basis, or at least a monthly basis, in these structured processes, not always of the highest quality, so those prices, you can debate if they are fair or not, but there's still many opportunities out there.
It's a really scattered market, and because we are looking for small companies, I mean, it's a blue ocean of acquisition opportunities, but it's a lot of hard work.
I believe, or I've presumed, that you've been able to increase prices in the recent two years, and that has been relatively uncommon for IT services companies overall to actually increase prices if you look at the sector from a 10-year perspective. But now prices are coming up. How do you price increases going into 2023, and also relating that to salary increases?
Yeah, it's a good question and one that we get often, and maybe first I wanted to say, as you saw in the first EBITDA chart, our margins in the last three years have been relatively stable, despite everything that's gone on in the world. We find that the employees have been reasonable. Of course, we also have to meet demands, and the people have to make a good living working for us, and we are in competition with a lot of other companies. But we also think our customers understand that we need to pass that on to them. And in many instances, especially in our build revenue, we have actually inflation-linked pricing, also on the public side.
We've managed that quite well, but yeah, it's hard to generalize and answer because we have 69 business units. We are in many different areas, so it's not like it's the same picture in every single niche that we are in. But overall, we are not seeing this massive, massive inflation picture that the media is painting. It's relatively modest.
Good answer. Then you talked a little bit about the customer journey as you acquire or as you win a new customer. Could you talk a little bit about the revenue and margin profile? Is it more back heavy, forward, forward-leaning heavy, or how should we think about margin profile as you acquire a new customer?
So if you think about the lifetime of... And we like to keep our customers for a long time, of course. As I think in most industries, the beginning of the relationship, that's where you, as the vendor, also invest in the relationship. So doing workshops, and inspiring them to what they wanna do, well, that's a cost that more or less is on our side. As we run into build, we invoice, you know, fast. We do not like to have our invoices out there for a long time, and we don't want to run the risk of any potential customer not paying their bills, of course. So that's more or less the revenue profile there fits with how we deliver the software. And then as we go into run-...
where we maintain and service software, of course, the margin profile goes up.
Mm-hmm.
But as I said, right now we are investing a lot into our capabilities in maintaining and servicing and operating. We are building new data centers. We built one in Switzerland and Denmark. In our Cyber Protection business, we've also invested quite a lot, so but we believe the margin potential is also relatively good there, and we have, in previous quarters, posted closer to a 30% EBITDA margin rather than the 21.1% we did in Q1.
Mm-hmm. Great. And then just a final quick one, because AI has certainly been in the news more recently. How do you seek to leverage AI opportunities out there?
We've been active in AI for a long time. For us, AI isn't a new thing. We've built an AI in the healthcare space, in the manufacturing space, in Copenhagen Airport, we've done a cool project with NVIDIA. So I want to say, first and foremost, the AI hype that you're seeing right now, it's a lot about language-based models, and basically making AI really user-friendly for the everyday person. In the industrial setting, also a lot of interesting things going on. We see this as a huge enabler for a company like ours, because it means adoption of interesting projects will go up amongst our customers. That gives more work to us. It's also a tool for us. A lot of things in our processes can now be done faster.
Yeah, no, we see it as an opportunity. Whether there are certain aspects of what we're doing today that we can more or less replace with AI, perhaps, but we see this as more opportunities than threats.
Interesting and exciting to hear about that in the future. Thank you so much for attending here today, Frederik.
Thank you. Thanks, Simon.