Good morning, everyone, and welcome to our Q3 presentation followed by a Q&A session. We are already well into the fourth quarter, and we're happy to share the last quarter results with you and how we are positively progressing across markets, revenue streams, and with key strategic projects. At the end of the presentation, we will open up for questions, and you can at any time during the presentation post questions in the chat. For those of you who have not been following the company recently, my name is Morten Meier, and I have been the CEO of Techstep since February this year. I'm here today with our CFO, Ellen Solum, who has been here since February 2023, and we will give you an update of our financial results as well as our direction, progress, and outlook going forward.
As I said, when I took on this role nine months ago, I strongly believe we are in a great position to create history and become the market-leading mobile and circular technology company in Europe, and we are progressing very well on this super exciting journey. We have had continued strong tailwind with key strategic partnerships and strengthened our position for managed mobility service within public and private enterprises. Customers and partners continue to increase their focus on sustainability and circular technology, as well as to increase efficiency, productivity, and flexibility in a mobile-first world. We are very well positioned to enable and accelerate their initiatives and drive this transformation. As a mobile and circular technology enabler and accelerator, we are serving private enterprises and public sector across the Nordics with our direct sales model and the European and global markets through our indirect partner model.
With our direct business model, we combine our own software and unique expertise with the broad range of different hardware and software technologies we represent to better equip our customers and their office and frontline users with the best mobile tools and solutions to optimize their work. In the indirect partner model, we are empowering partners to deliver and integrate our highly scalable solutions and services into their core business models or as value-added services and capabilities to serve their customers in a better and more efficient way. We continue to transition our business model from transactional and point solutions to recurring and holistic services, taking stronger responsibilities to operate, support, and create value for our customers and partners as a comprehensive managed mobility service provider. Let me take you through some of the many highlights from the third quarter.
The profitability keeps improving, and for the first time in more than two years, we have growth in both revenue and net gross profit year over year. ARR is up 6% year over year, and moving into fourth quarter, recurring revenue contracts is all-time high. Our own software is growing the fastest with 12% in recurring revenue. We also delivered a positive EBITDA Adjusted for the eighth consecutive quarter, representing an improvement of 11% year over year, and we continued to generate positive cash flow from operations last quarter. We won the new exclusive agreement with Tradebroker, and we've already signed and onboarded new customers based on the agreement that went live last month. Our backlog grew steady during the quarter across software, hardware, and services.
During the quarter, we had strong commercial momentum across our solution portfolio as well as our defined markets with several new signings and renewed contracts with key customers and partners, and our strategic agreements and projects are progressing according to plan. I'll come back to some of these projects later in this presentation, but first, I will hand over to Ellen, who will take you through more details of our financial results for the quarter.
Hi, and good morning, everyone. Before we go through the financials, let me say that we are very pleased to present the quarter results this year. For the first time in several quarters, we are seeing growth in all revenue streams and recurring revenues, and we are improving our profitability. This is quite a milestone for Techstep, and it is showing that delivering on our strategy is steadily yielding results. Total revenues in the third quarter were NOK 237 million, which is a 5% growth from third quarter last year. We had growth in all three revenue streams, and the share of revenues from high-value products and services increased from 30% - 32% this year. Revenues from devices have grown by 2% year over year, despite last quarter's report highlighting challenging market conditions during the first half of the year, particularly in Sweden.
This quarter, however, we're seeing an improvement in commercial momentum, with Sweden showing the most significant positive impact. Revenues from owned software show considerable improvements with 13% growth year over year, driven by a Polish entity this quarter. Advisory and services likewise show 12% growth, and again, it is Sweden heading the development, where we have seen a positive momentum within all our advisory and managed services in the quarter. Net gross profit was NOK 82 million, up from NOK 79 million in the third quarter last year, constituting 4% growth. The net gross profit margin was stable year over year at approximately 35%. The increased share of revenues from owned software and services is driving the margin up, but as the device volume is increasing and customer mix changed, the gross margin on devices is reduced.
EBITDA Adjusted is NOK 14.2 million this quarter, up from 11% from NOK 12.8 million last year, and it is the eighth consecutive quarter where we are showing positive EBITDA. Our net loss for the period was NOK 6 million. However, we have about NOK 16 million in amortization of intangible assets per quarter. The loss is entirely non-cash. The amortization relates to both technology and customer contracts through previous M&As, as well as owned-developed technology. At the end of the third quarter, we have a book value of NOK 135 million in these capitalized assets. As we said, we have seen positive commercial momentum across all the markets we operate in. However, recognized revenues in Norway decreased with 7% year over year to NOK 148 million this quarter, driven by a decline in revenues from devices.
The total device sales, including device as a service, was up with 5% this quarter compared to last year, but as a larger share of the device sales in this quarter was sold as device as a service compared to last year, the recognized revenues declined. This is in line with our strategy to sell more as a service, but as we increase the share of device as a service, this will temporarily negatively affect our reported income in the period, as revenues from device as a service is recognized over the service period instead of at the date of transaction. However, we increase the recurring revenues and future profitability, both as a result of the future contract revenues, but also as the margins on device as a service is generally higher over the total contract period than for transactional device sales.
Sweden has had a very strong quarter with 32% growth in revenues and 11% increase in net gross profit as all revenue streams have performed well. The margins on device sales have decreased somewhat from 21% - 14%, but this is due to changes in the customer mix as the total volume has increased. When we presented the second quarter, we announced that we have had a challenging situation in Sweden and that we have had a high priority on strengthening the Swedish sales organization and revisit the sales strategies, and although the market is still challenged in Sweden, it is very positive to see that our team has delivered on the strategies.
Poland has had a significant growth as well, with 39% growth in revenues and 50% in gross profit due to both expansion of current partner and customer contracts, but also by capturing new customers and agreements both in Poland and within the European market. The net gross profit over the last years has been steadily declining, and this is the first quarter where we deliver a positive year-over-year growth. The growth is driven by higher revenues from high-margin products and services such as our own software, our managed and aftermarket services, but this is partly offset by the decline in margins from device sales, as I mentioned. Leaving this quarter, we had active contracts for recurring revenues of NOK 326 million annualized.
This is a 6% increase year-over-year with growth in all our revenue streams, but it is mainly driven by new contracts and expansions related to our own software, where we have a growth of 12% year-over-year. The previously announced partnerships we have entered into with DeviceNow and ICE, as well as the new Tradebroker agreement and Sykehuspartner, will over the next years drive recurring revenues within both owned software and advisory services. In the third quarter, the financial effects of these agreements are negligible, and we are only including contracts where invoicing has commenced, and we are basing the annualized numbers on the last month's invoiced amounts. We have a strong belief that these and other agreements in the pipeline will drive recurring revenues going forward. However, as we have said before, the timing of substantial ramp-up in revenues is uncertain.
A key measure for our profitability is the EBITDA adjusted to net gross profit rate, as it monitors the level of our operating costs in relation to the growth in net gross profits. For the third quarter, we had a conversion rate of 17%, which is at the same level as third quarter last year. Although the net gross profit increased, we also had a slight increase in operating costs, including personnel costs. We have continued our cost optimization in 2024, reducing overhead costs and number of FTEs, but we see that rising salaries, as well as the inflationary effects on our other operating expenses, somewhat offset these savings. In addition, we are increasing our investments in our back-office systems and IT architecture to be able to further streamline and optimize our operations.
As we are not capitalizing our own FTE costs or the purchase of cloud solutions, operating costs will over the next quarters be impacted by these investments. The last 12-month conversion ratio is at 9%, which is a 3 percentage point improvement from the third quarter last year and an 18 percentage point improvement from the same quarter in 2022. This demonstrates that we are on the right path toward making the company profitable. In the third quarter, we had a positive cash flow from operations of NOK 18 million, down from NOK 39 million last year, as we had a negative development in working capital this year compared to last year.
In the last year, we have focused on improving our working capital management, but we increasingly experience that in the market and in particular in the bid processes we are part of, we are meeting demanding payment terms from our customers. Last year, we also had a very high cash flow from return devices in the second-hand market, improving the operating cash flow with about NOK 5 million versus the third quarter this year. Cash flow used for investments was NOK 6 million in the quarter, which is at the same level as last year and consists of investments in developing our own software. We have considerably reduced our CapEx spending over the last few years, but we expect our investment level to be at about this current level going forward, as we continually need to develop and invest in our products.
Net cash flow from financing activities was minus NOK 11 million last quarter, consisting of down payment of loans, interest, and IFRS 16 leases. Last year, we had a cash inflow of NOK 24 million, which included a drawdown on credit facilities of NOK 31 million after the refinancing of our bank borrowings. Net cash at the end of the quarter was NOK 16 million. In the beginning of October, Techstep completed a private placement and successfully raised NOK 30 million in additional capital, further strengthening the liquidity. In addition, we have undrawn credit facilities available in the amount of NOK 45 million. At the end of the quarter, our equity ratio was 49%, up from 45% at the end of 2023, and a total balance of about NOK 1.1 billion.
Current assets, which primarily consist of trade receivables, was NOK 151 million versus NOK 200 million at the end of last year.
The change is primarily due to seasonality, and the change from the third quarter last year is NOK 14 million, as we have continuously improved our collection rate. Total borrowings decreased with NOK 41 million year-over-year and NOK 16 million since the end of last year, while our net interest-bearing debt had increased with NOK 11 million year-over-year. In our balance sheet, we have items related to Device as a Service of NOK 146 million in assets, representing the leased-out devices, while liabilities and deferred revenues related to Device as a Service were NOK 172 million. These liabilities are non-interest-bearing and represent future revenues related to the devices. Then I'll hand it back to Morten, who will take you through a business update and the outlook.
Thanks, Ellen. And let's first have a quick look at our key priorities to support the continued growth in recurring revenue. First of all, we need to scale our business through our indirect partner model, finding new and faster routes to the market, both through existing and new partnerships. We have two main categories of partners: product partners, tightly integrating our software and capabilities into their core offerings, and the more traditional sales partners who resell our software and services to their customer base. We see very good traction in both channels, getting access to new market segments regionally and globally.
Secondly, we need to cross and upsell to existing and new customers, delivering more solutions and services across our portfolio, serving all their different user groups from office workers to field workers, and increase our penetration across software, hardware, and services to create more value for our customers and more stickiness of our offerings. As the result of these key priorities, we will be strong. We will see strong growth in recurring revenue through the as-a-service approach. An important part of scaling our business is also to expand and grow in new geographical markets, getting access to existing customers of our partners, as well as being able to serve new customer segments and get more feet on the street positioning Techstep offerings. The key components of our offerings in the indirect channel are our highly scalable software solutions and managed services.
Developing existing partners to broaden their scope and recruiting new partners serving different markets are key to our expansion. This will significantly increase our addressable market across Europe and globally. In our whole market, mainly served by direct sales, where we have the majority of our more than 2,000 customers, we need to engage with all kinds of decision-makers, from IT to business and C-level, to position our complete portfolio and better respond to all their different needs. There is no customer out there where we are sold out, so there is a lot of white space to address and to become even more relevant to our customers. In August, we signed a new agreement with Tradebroker, a procurement agency representing over 80 large and mid-sized Norwegian companies for delivery of mobile and circular technology solutions across devices, software, and services.
This frame agreement replaces a prior agreement we shared with another supplier and represents a 20% to 50% increase from the previous agreement, as Techstep now is the sole supplier, and 41 member companies have already committed to procure under the agreement. The agreement also offers good opportunities for adding more members to the agreement and upselling a broader range of services and solutions from our portfolio. A key focus in the selection process was the ability to deliver devices as a service combined with lifecycle management, security, and sustainability, building on circular economy principles. Since the contract was effectuated on October 1st, we have already signed and onboarded the first customers with complete offerings. The previously announced project and proof of concept with Sykehuspartner and selected hospitals, a prolongment of the Sykehusinnkjøp agreement, are steadily progressing forward.
The ambition is to deliver a completely managed mobility service, including devices, lifecycle management, and managed services for all office and clinical devices. Several pilots have been rolled out to hospitals and departments, and we aim to finalize the full scope of deliveries to fully manage business-critical devices serving their 82,000 users in the region. The comprehensive service is expected to be launched at the turn of this year, with a phased rollout over the next three to five years, everything delivered as a service. In September, we successfully onboarded the first DeviceNow customer to their lifecycle platform according to plan. This milestone follows the strategic partnership agreement we entered in Q1 2024 with DeviceNow, which is a global provider of subscription-based IT devices, introducing Techstep's lifecycle management platform to a wider customer base worldwide. DeviceNow, which has a global reach across 190 countries, serves several major global customers.
This partnership allows Techstep to increase its global reach, while DeviceNow can add further great value to their offering through the lifecycle platform. Additionally, the partnership includes opportunities for incorporating our managed services into DeviceNow's portfolio. We anticipate onboarding additional DeviceNow customers to the lifecycle platform during fourth quarter this year. In Q2, we signed a partner agreement with the Norwegian mobile operator ICE for introducing Techstep's own software and managed services to their B2B customers. Since then, we have worked closely with ICE on how to commercialize offerings and services. The formalization of the strategic partnership was signed early in October this year, and ICE will launch their device lifecycle management services to the market in Q4 this year. ICE anticipates onboarding the first customers in the first quarter next year, with ramping up the financial effect from second half 2025.
To sum up, the third quarter showed strong development with improving profitability year over year, and for the first time in more than two years, we have growth in both revenue and net gross profit. Moving into fourth quarter, recurring revenue contracts is record high, and market momentum is building. We have several new signings and renewed contracts with key customers and partners, and the strategic agreements are progressing as planned. The expectation is a further acceleration in the fourth quarter and continuation into 2025. We stand by our guidance, as shared last month, in relation to the share issue, and our ambitions for 2024 are to grow recurring revenues annualized year over year by 5%-15% and grow net gross profit by 0%-5%, with an expected EBITDA adjusted conversion of 10%-14%.
In 2025, our ambitions are to accelerate the recurring revenue growth above 30%, grow net gross profit by 20%-30%, and raise the conversion rate above 20%. That concludes today's presentation. Thank you for listening. We will now move directly over to a Q&A session, so please stand by if you have any questions. We will see if there are any questions posted so far. You can always submit the questions to us by using the investor relation email address or by using the chat function in this presentation. We are back, and thank you for a few questions that we have got in the chat. So, first question was, what have you done with Sweden, and how do you see the market ahead? Let me try to address this.
We discovered the challenges in Sweden during the first half, and we already back then initiated several activities to cope with this challenge. First of all, let me say we have a very strong and dedicated team in place, but we did some activities. We did some refocusing on the go-to-market strategy. We did some fine-tuning in the team, some minor work changes as well, and we initiated a strategy session both with the management team in Techstep ASA and also with the board. So, it's kind of many different activities that have been the driver for this strong turnaround. We're super happy about the development we see in Sweden, and we are very optimistic about Q4 as well. We have a stronger pipeline than ever. We have more customers. We are winning new territories both in the public sector and in large enterprises.
So, all in all, a lot of different activities lead to this positive change that we have seen from first half and now into Q3. Then we have a few questions. Maybe you can help answer, Ellen. How should we think about growth through 2025? Will it be even more back-end loaded?
The nature of our business is very much that the first half year is, of course, slower with the growing and the revenues coming into the second half. Of course, what we are communicating consistently now is that we believe that the substantial growth will come from our new partner agreements and Sykehuspartner and Tradebroker, of course. So, Tradebroker will be a more even growth through the year, we believe. Yeah. But the larger partner agreements, Ice, DeviceNow, and Sykehuspartner, will be a little bit, or not a little bit.
We believe it will be back-loaded, yes. That's what we're communicating. We have the agreements. We have started. We will eventually start invoicing, but we will start slowly to make sure that we are able to deliver. So, the major growth will occur in the second half next year.
Yeah, and just to add to that, that's the beauty of recurring revenue as well. So, as long as we are able to add more customers every month and to win new territories, we will see significant growth throughout the year. So, we're really happy with the attention we have in our own organization to drive recurring revenue and the market responding to our as a service concept. Then it's a question related to the cost development in next year.
We have spent the last two years really cutting costs, so we're down to very much of a bare minimum at the moment. I think it has been necessary, absolutely necessary for where the company has been. We believe that the current cost base that we're at is enough to scale the business eventually, but of course, we will see some increases in regards to inflation and salary increase going forward, and of course, small adjustments in the number of employees. I don't think we can stay at the level we are right now, but we don't anticipate it to be very large increases. We should be able to scale the business from where we are. But I also mentioned we are investing in our back-office systems. We are implementing new ERP. We are redesigning our IT architecture.
We are using cloud solutions for this as well as our own employees and consultants. So, next year, we will see some effects from this, but not major increases in our cost base.
Good. Let's see if there is a question related to the gross margin increased substantially relative to Q2. How do you expect the margin to develop in fourth quarter and 2025?
That's back to the growth in cost. Like I said, we believe that the cost base we are at at the moment is where we should be, not expecting substantial growth in cost, which means that all our additional revenues will be directly converted to EBITDA. The margin will increase as we increase the part of recurring revenues. The recurring revenues have better margins than the transactional revenues, but we've also seen effects that as we grow device sales, margins are pushed down.
We have seen a consistent increase in margins over the last few years, and I believe that will continue into 2025.
Then we had a comment and question maybe here. Congratulations. Strong growth, strong numbers. ARR grew almost 10 million in third quarter. And where did that growth come from? And as we said, and you can see in the presentation, across all different revenue streams and all markets, actually, that we grew both. It looks like we declined in Norway, but as Ellen said, that was due to a larger portion of device as a service. But we grew across software, we grew across devices, and we grew across services, and we grew in Norway, Sweden, Denmark, and Poland. So, a strong growth across all solution areas and regions.
Okay, there's another question here. So far in 2024, revenues have decreased with about 7.5%. Your ambition for 2025 is significantly higher. What are the key factors that may drive this disruptive development? To me, without further explanation, does not seem realistic.
Yeah, I think we feel that we are very realistic with the ambition we have put forward, and it's a lot based on the scaling focus as we also presented. We see huge potential of scaling our great offerings in new markets, geographical markets, and to reach new customer segments that we are not serving today. And you could see the great takeoff we had in Q3, and we expect that, as also said, to continue into Q4 and 2025. So, we are optimistic, and at the same time, we believe we are realistic about the ambitions and growth potential going forward. We also know that these major partner agreements, as mentioned, with DeviceNow, ICE, but also others, have huge potential.
They have existing customer bases today where we have a joint ambition to migrate and move those customers onto our lifecycle management solution. So, we have a close and transparent collaboration going with those partners, and it's based on their ambitions and together with our realistic view on those opportunities. The Swedish company was a very different animal than the Norwegian company and business, and what have you decided to do with the Swedish business? Yes and no, but historically, Techstep has acquired several companies in Sweden with very different kind of background. But I think we have managed to bring them closer together and also to replicate some of the successes that we have had in Norway to Sweden.
We are now merging the sales organizations, getting the teams closer together, serving all kinds of users, both the traditional office users, but also the more frontline and kind of rugged part of the business that we acquired in the Borås area. We are working on harmonizing the way that Sweden and Norway works, and also then within the Swedish entity, how we can make sure we can see synergies across the kind of different approaches that we have had to the market historically. We have also done some business takeover recently as we announced with the Consept business and collaboration going forward, which we see a very positive progress with.
Sweden is developing, and as we could see on the results for Q4, it's been a very positive turnaround after a challenging first half, and we are very optimistic about both Q4 and going into 2025, serving both large enterprises in Sweden where we have some really, really nice logos on the customer list. We have a very strong position within the public sector in Sweden with our Kammarkollegiet agreement and several municipalities and regions as customers, and we will continue to develop and strengthen the partnership with partners like Consept. Yeah, I think we conclude the presentation for today. Thank you for questions. Thank you for listening, and we wish you a great Friday.