Good morning, everyone, and welcome to StrongPoint's third quarter Q&A audio call. Today, we have Marius Drefvelin, CFO of StrongPoint, here to answer your questions. Before we start, let me give a quick recap of highlights from this morning's Q3 announcement. On the financials, revenue for the quarter was NOK 320 million, up 2% compared with last year's third quarter. The 12-month rolling recurring revenue increased by 12% compared to Q3 last year, ending at NOK 380 million. Year-to-date EBITDA is NOK 31 million, with NOK 14 million in Q3, equal to a 3.4% margin. Highlights from the company operation were that Sonae MC, Portugal's largest grocery retailer, replaced their order-picking system with StrongPoint's solution. Two new Ensaf anti-theft pilots were launched with leading U.K. grocery retailers. Our in-store pilot with CashGuard Connect ended at StrongPoint's initiative.
The project continues with other grocery retailers that have shown interest for pilots. In Q3, we were pleased to announce another out-of-store sale in the U.K., this time for a U.K.-based retailer and distributor of household products. That was the Q3 highlights. A reminder for everyone, please click the button in the lower right corner of your screen to ask a question. We have already received a number of questions that came in in advance via the investor@strongpoint email address. Kicking off with the first question, Marius, and that's on VenSafe . Status on the VenSafe pilot in the U.K. Is there a time frame where we can expect decisions and purchase orders?
Thank you. This morning, we talked about two additional pilots, and we now have five of these in the U.K. We have to acknowledge that this will take time. It will take time for the customers to learn about this new solution. In addition, there are certain regulations that could apply to some of the use cases, for instance, on tobacco. Overall, it is looking promising so far in the sense that we do have five pilots after all. At the same time, it's currently not possible for us to say anything specific on timing based on the reasons I have mentioned. As soon as we receive purchase orders of a certain size, of course, we will inform the market accordingly.
Very good. The next question is on order picking. Is everything ready to sell through Vusion's sales channels?
Just to be clear on this one, we are co-selling together with Vusion, meaning that they can give us leads, but they are not selling for us. The solution is absolutely ready to be sold. Q3 was the first quarter for us where this partnership started. We have a very close dialogue relating to their solutions and our own solutions, mainly speaking the order picking.
The third question here is on ESL. Pricer is now starting to sell directly in the Nordics. How do you see the possibility of selling ESL from Vusion in the Nordics going forward?
First of all, just to repeat that we were the ones canceling the agreement with Pricer last year, as we have pointed out several times, including in the presentation this morning. As for selling Vusion in the Nordics, there are good opportunities in the future, absolutely. There will be competition. However, we believe that it's possible for us to capitalize on the close relationships that we do have with our existing customers.
Another one on ESL and future expectations. The question goes, recurring revenue will be impacted as license revenue from previous ESL provider winds down. What more can you say about this now?
This is a question that we have seen being repeated a few times now. This refers to the recurring revenue base relating to two revenue components, one being the third-party license revenue, and secondly, the support agreements that we have with Pricer and that we have built up over many years. Even if the partnership has been canceled, there is still a transition period which has not been fully concluded yet. Therefore, it's not possible and too early for us to quantify the effect right now. We will do this as soon as possible and when we have more clarities. Having said this, it's important to remember why we made this switch.
One of the key reasons for the good growth that we do talk about in the U.K. this quarter is because of the ESL installation work that we have done in the U.K. that otherwise would not have been possible with the previous partnership.
We have gotten a few questions around CashGuard Connect and Spain. I'll try to summarize them into a few ones. First one goes like this: what can you say about the new potential in-store pilots? Who will pay for these?
Okay, we are in dialogue with a handful of potential customers regarding pilots. These discussions are in different stages, and there is no clear one answer on how to fund this. There could be different ways depending on the type of customer or partner that we are discussing with. I would say that it would typically be a combination of us and the customer itself. This is a work in progress.
Very good. This morning, Jacob said that in parallel, the solution is in the process of being validated to ensure both manufacturability and durability. What does that mean?
This means that we have progressed from only focusing on the development of the solution to now having concrete discussions with manufacturers who will be or may be partnering up with us to industrialize the product. In a sense, you could say that we have moved over from obviously having had a pilot, which is working, to now having discussions on how to industrialize going forward, obviously assuming that there will be commercial agreements being reached. There is still testing that needs to be done. There is still a part of a technology risk involved in the solution, as there will always be with bugs, fixes, etc. The key focus right now is to get the pilots out there.
Next question is also related to pilots, but it's regarding lockers. You have pilots in the U.K. How is the progress?
We have two kinds of pilots. One, we have the proof of concepts on temperature-controlled lockers. Secondly, we have pilots on non-temperature-controlled Q-commerce lockers. Of these two, we should say that there is more progress on the latter, meaning the non-temperature-controlled lockers and Q-commerce. We are observing attractive growth, generally speaking, in this market. This is an efficient way of delivering online orders for the grocers.
There is a question on CashGuard through international partners. What is the status on CashGuard sales through our partners? What is the strategy going forward?
Our strategy remains, meaning that we are working with a handful of partners abroad, which we believe is the most cost-efficient way to sell our CashGuard outside of our core markets. During the last two, three years, this revenue has declined, which is a combination or due to a combination of increased competition and lower demand. Although we naturally would like to sell more, and of course, we are working on this, it's also fair to remember and keep in the back of your mind that this revenue varies or comprises about 1%- 3% of the total revenue. From a significance point of view, it's not a big number, but still, it's something that continues to be part of our strategy.
Very good. Next question is around cost. You say you are a project-based company. Do you still have too many fixed costs in the form of employees and other facilities? Should the fixed costs come down further so that you can deliver profits under all possible market conditions?
It's a fair question. Yes, we are absolutely a project-based company, and we are repeating that every time, especially given that our recurring revenue is about 30% of total revenue. That means that the remaining 70% is new sales or rollouts from previous orders. As far as the cost base, we have completed two cost reduction measures, one in 2023 and one in 2024, last year. In addition, we are utilizing temporary workforce, for instance, on the electronic shelf labels installations in the U.K. to avoid having permanent hires until we see further traction. We are repeating in the quarterly report that we are continuing our prudent approach on costs wherever it's possible. All this said, it's also important to understand that we will continue to invest in the U.K., which, by the way, is now improving.
Similarly, on order picking, we will continue to invest in order to achieve the growth that we are looking for. Overall, I will say that we are continuously assessing this, the cost base. We believe that as of right now, and for the short term, of course, medium term, the current level, the current cost level is where it needs to be in order to be able to generate future revenue growth.
Is the 2025 target announced in Q1 with midpoint revenues of NOK 1.65 billion and an EBITDA margin of 4.426% still valid?
This probably refers to some of the ambitions that we talked about in Q1 last year in the strategy update, where we said that for 2025, based on a number of assumptions, of course, we were looking at NOK 1.5 -NOK 1.8 billion in revenue with a 4%- 6% EBITDA margin. Looking at the year-to-date figures now, with one quarter remaining, obviously, that seems challenging. We're not making a big number out of that in the sense that these were certain assumptions made now 18 months ago. I think it's important to not necessarily look at that in detail, but the current traction that we have and the current improvement and the LTMs, et cetera. Obviously, we are not at the levels we want to be yet.
After all, we are observing improvements both from the group perspective and in some of the markets that we do highlight in this report.
Next question is on order picking. Can you give some insight into the revenue model, any upfront revenue, installment, training, et cetera, yearly fees, or only fee per user?
That's a very, very relevant and good question. I would say on a general basis for our model, it's a transaction-based model where the customer will pay per transaction regardless of the size itself of the online order. We do realize that we are currently not disclosing some of these ARRs and some of these values. It's still slightly early stage for us. With some of the customers, it's just not possible to comment specifically on the details. I would say on a general basis, to try to answer as much as possible, there is typically an implementation fee, as there will be for any software as a service solution being rolled out, and then it moves into a transaction-based revenue model.
Very good. The next question is around Spain. Considering the historical weak return of investment in Spain and the conclusion of the CashGuard Connect pilot, what key lessons has StrongPoint drawn from that experience? How will these shape the future presence or possible exit from the Spanish market?
I guess it's a twofold question. For the business unit in Spain, obviously, it has underperformed for many years in the sense that it hasn't been profitable. I think it's important to look at the development. There has been absolutely a very positive development during the last two years or so. The Spanish business unit is improving. It's still an important office for our CashGuard revenues. Definitely now going forward, not only with the order picking, but also with other revenue streams, such as the ESL revenue stream now being part of the new Vusion Group partnership. That's the Spanish business unit. The second question relates to the CashGuard Connect project. Learning experience, obviously, this has been going on for quite some time now. It's been a challenging project. I think it's very fair to say that.
This is also the reason we are, based on that experience, being slightly more prudent now to disclose anything in the sense that we will like to get these pilots confirmed and get the traction, commercial traction that we are looking for. We have to understand that this was a new solution that is being developed from the ground. Yes, it's been taking more time than maybe anticipated. That's also part of the risks when you are moving into developing a new solution. Having said all of this, we now have several pilots, potential pilots being discussed, which we not necessarily have had before. We are working extremely intensively to get traction on this project.
Very good. I think that was the short and concrete questions that we got in. I'll give it a second or two to see if there are coming in any others because we had a slight delay on our screens. We got one late one. With the MC win in Portugal and Carrefour Belgium earlier, how would you characterize your pipeline of order picking projects beyond your core markets?
Yeah, again, a very fair and good, highly relevant question. Of course, difficult to talk about the pipeline in detail. I think it's fair to say that we have an attractive pipeline. We are now slowly but surely building more potential prospects. We are also seeing, which is slightly new in a sense, inbound inquiries on the back of the previous wins. Although, as usual, software as a service solutions will take time to sell and convince the customers of what would be a good solution, we really do have a good pipeline right now. That's pretty much what we can say. It looks promising.
I popped up a few more. Are you seeing any signs of contract bundling, for instance, grocer choosing to implement order picking together with electronic shelf labels or lockers?
Absolutely. Again, it's a very relevant question. The brief answer is yes. There is, you should say, synergies between these products and solutions that the question is referring to. That's part of the reason why we are looking at the integrations with order picking, Q-commerce lockers, et cetera. Not much more to add other than that's absolutely a very relevant part of the way we are working with sales.
We have one on the progress in the U.K. and Ireland. It says the U.K. and Ireland posted 127% revenue growth in Q3. Beyond project timing, what's structurally driving the growth? Can it be sustained?
Obviously, 127% growth is unprecedented and not something you should consider as being sustainable. Having said that, we are making a point of three different reasons for this increase, one being shop fitting, the initial revenue stream of the company in the U.K. that we acquired three years ago. That has improved significantly year- on- year. Secondly, we have the two new revenue streams with the Vusion ESL installations and AutoStore projects. The two latter ones, ESL and AutoStore, are absolutely part of the strategy going forward. Of course, also shop fitting. We are talking about the VenSafe pilots that we absolutely are working on and that we believe and hope will materialize into purchase orders. There are many, many potential revenue streams in the U.K. going forward. We are saying that this is a key growth market for us.
It is starting to show, although still early days, but very pleased with the performance in the Q3.
One final one here. Recurring revenues are up 12% year- over- year. You flagged a wind-down of Pricer-r elated licenses. When do you expect net growth in recurring revenue to re-accelerate?
A good question, simply not possible to answer. I think it's a question that we will have to come back to when we have more clarity. The components of growth will, of course, be order picking and other service agreements. As I said initially on the previous question relating to the Pricer recurring revenue wind-down, we will simply have to come back to this. It's absolutely something that we are well aware of.
Very good. I think we can wrap up. Wishing everyone a good day and hope you connect again on February 12 for the Q4 presentation.