Good morning, and welcome to the Sensys Gatso Q3 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ivo Mönnink, CEO. Please go ahead.
Yeah, thank you. Good morning and welcome to Sensys Gatso's presentation of the third quarter of 2022. My name is Ivo Mönnink. I'm the CEO of Sensys Gatso, and I will be presenting our Q3 results to you together with Simon Mulder, our CFO. Next slide, please. In this market presentation, we will provide you with an update on our business for the third quarter. We then follow up with a financial update by Simon, and finally, I will finish this presentation with a summary and our outlook. Next slide, please. Let's now look at an update of our business. In this business update, I will take you through the contract we signed yesterday with our Swedish customer, Trafikverket, with a revenue of up to SEK 850 million, by far the largest order in the industry and in our history.
Information about our new embedded software platform, FLUX, one of the key reasons why we won the Swedish tender. The impact the new contract has on our full year intake, which will at least arrive at SEK 1.2 billion in 2022. The developments of our strategic recurring TRaaS business model up 16%, our margin development, the developments and investments we're making to ensure future growth, and finally, our strong financial position. Next slide, please. Now, let's first look at our order intake for the quarter. The order intake during the third quarter totaled SEK 53 million, compared to SEK 64 million in the same quarter last year. The order intake for the quarter mainly relates to the order received from the LATAM region for SEK 29 million.
The Q3 12 months rolling order intake arrived at SEK 543 million, compared to SEK 293 million last year, up by 85%. The Q3 order intake excludes the Swedish procurement award, valued up to the amount of SEK 850 million, of which the contract was officially signed yesterday. This amount will be added to the order intake in Q4. Next slide, please. As mentioned, the Q3 order intake excludes the Swedish procurement award, valued up to the amount of SEK 850 million. The tender was won from our long-time customer, Trafikverket in Sweden, and is of great strategic importance for Sensys Gatso. It was Trafikverket that first introduced to the world the globally adopted concept to aim for zero fatalities in traffic, also known as Vision Zero.
The Vision Zero approach has, since 1997, proven to be highly successful, increasing traffic safety in Sweden. As the single technology provider to Trafikverket, we are proud to have been part of this from the very beginning. The delivery of traffic safety systems and fast service and maintenance are estimated to approximately SEK 400 million over the first six years. The first phase is a development phase to be followed by system deliveries and subsequent maintenance and calibration services and further system deliveries over the 12-year contract period. With the signing of this new contract, the largest in the industry and the largest in our history, we're delighted to now continue the relationship with this leading customer in traffic safety. Next slide, please. Our order book has grown this year with two large contracts won in our home markets.
In March, we won a procurement award in the Netherlands for the amount of approximately SEK 250 million. This amount will be added to the order intake once the orders are formally allocated. We expect these allocations to start by Q1 2023. The Swedish Trafikverket procurement amount of SEK 850 million will already be added to the order intake in Q4 2022. When doing so, we arrive at a historic high year-to-date order intake of at least SEK 1.2 billion, more than two times higher than full year 2021. Next slide, please. Swedish Trafikverket's Vision Zero sets very high standards, and Trafikverket has complex and specific technology requirements. We entered the tender with our new and most advanced embedded software platform, FLUX. FLUX manages a wide range of roadside sensor types that collect traffic and violation-related data.
Since the FLUX software platform is independent of hardware, it's flexible and ready to take on future sensor technologies. The new software provides our customers a cost-effective and future-proof solution. This was also one of the primary reasons why Sensys Gatso won the Swedish tender. I'm very proud of how our teams worked together to win the largest order in the history of Sensys Gatso, extending our relationship with Trafikverket for another 12 years to come. Next slide, please. Sales in the quarter arrived at SEK 95 million, compared to SEK 130 million last year. The third quarter sales in 2021 included significant deliveries to our Saudi customer, which we don't have this quarter.
Our strategic recurring TRaaS sales arrived at SEK 76 million, up by 16% compared to last year and 80% of total sales. The increase in TRaaS sales is mainly due to higher volumes on our USA TRaaS programs and favorable currency translations. Looking at 12 months rolling, our total sales arrived at SEK 506 million, 8% higher than last year. Also on a 12 months rolling base, our TRaaS sales increased by 24% from SEK 234 million to SEK 291 million. 12 months rolling, our TRaaS sales represents 58% of total sales, very close to our 2025 strategic target of 60% TRaaS sales. Next slide, please. Due to the large share of the TRaaS business in our top line with typically higher margins, the overall gross margin arrived at 46% this quarter.
Looking at our gross margin on a 12-month rolling basis, we see a four percentage points margin improvement from 39%-43%. This structural gross margin improvement is supporting our strategic choice to focus on the more profitable recurring TRaaS business. Next slide, please. The underlying expenses for the quarter, adjusted for foreign exchange effects in Q3 2021 COVID-related one-off benefits, amounted to SEK 44 million compared to SEK 39 million last year. During 2021, we initiated the implementation of a new ERP system, which aims to connect all subsidiaries in one global system to support the 2025 strategic plan. This implementation is well underway and is expected to be finalized by the end of the first quarter 2023. The cost of the implementation has temporarily increased the expenses in 2022.
When fully implemented, the ERP system will provide better insight and utilization of global resources, as well as enhanced global collaboration on projects. The increase in expenses is partially due to increased sales expenses related to implementation of the new proactive sales model in the United States. We are executing on our new U.S. business plan by making demand creation investments in the U.S. market, the region that holds the largest growth potential for Sensys Gatso. With a new U.S. leadership and sales team in place, and related additional travel and expenses, we expect these investments in USA to temporarily suppress our EBITDA until we see higher revenues coming through. The Q3 12 months rolling EBITDA amounted to SEK 77 million compared to SEK 69 million last year. This is an increase of 12%.
As a percentage of sales, the 12 months rolling EBITDA came in at 15.2% compared to 14.7%. The EBIT for the 12 months rolling period amounted to SEK 36 million compared to SEK 31 million, an increase of 16%. Next slide, please. To date, in Q3, we have delivered 75% of the SEK 275 million Saudi Arabia contract for our new and unique Vehicle-in-Motion solution. Also to date, we received 90% of payments related to these deliveries. Tahakom, our Saudi customer, is an important customer of Sensys Gatso in the region. Since 2018, we have delivered no less than 950 Vehicle-in-Motion systems, making Tahakom our number one customer for this innovative solution.
Due to our customers' dependency on a number of external prerequisites outside of their control, such as availability of vehicles and drivers, we have recently been asked to temporarily pause the deliveries of the Vehicle-in-Motion contract. The remaining 25% deliveries of the SEK 275 million contract are now expected to resume as of the second half of 2023. Meanwhile, we are carrying out various proof of performance tests for fixed speed systems. Passing these tests will open the door to the much larger and growing fixed speed and red light market in Saudi Arabia. As a result of our rapidly increasing activities and a broadening of the relationships with our customer, we have finalized the incorporation of a new subsidiary in Riyadh. We also recruited our first employee for the company, Mr. Fawaz Al-Andri, who has joined us as Head of Operations.
Next slide, please. At the end of the period, free available cash amounted to SEK 177 million. This is SEK 73 million higher, or 70% higher compared to Q3 last year. Year to date, Q3, Sensys Gatso generated a positive cash flow from operating activities of SEK 119 million, compared to -SEK 2 million last year, and this is an increase of SEK 121 million. The positive movement mainly relates to payments of trade receivables and use of inventories to the amount of SEK 86 million and SEK 36 million in other movements. After investing and financing activities, the Group added SEK 76 million to its available cash position since the beginning of the year. With our strong available cash position and our low level of debt, the company has a healthy financial position. On that note, I'd like to hand over to Simon, our CFO, for the financial update.
Next slide, please.
Thank you, Ivo. I'd like to take you through the following topics today, our consolidated income statement, the performance of our segments, and finally, our financial position. Next slide, please.
The third quarter sales of SEK 95 million is SEK 35 million lower compared to Q3 last year due to high system sales delivery to Saudi during the third quarter of 2021. Looking at the development of the TRaaS sales, we can see a steady increase compared to Q3 last year of 16%. Year-to-date, the TRaaS sales even grew by 25% with total year-to-date sales at the same level as last year of approximately SEK 333 million. The margins in 2022 remain strong, with 46% in the third quarter and 44% for the year-to-date. This is an improvement of four percentage points compared to last year, third quarter. The strong margin development is due to the growth in TRaaS revenues compared to 2021. The expenses in the quarter have increased compared to last year.
The underlying expenses for the quarter, adjusted for foreign exchange effects and Q3 2021 adjusted for COVID-related one-off benefits, amounted to SEK 44 million compared to SEK 39 million last year. The increase in expenses is partially caused by the implementation costs related to our new ERP system. When fully implemented, the ERP system will provide better insight and utilization of global resources. At the same time, we have invested in our sales organization in the USA, temporarily suppressing the EBITDA. The operating profit, EBIT, for the quarter landed at -SEK 4 million. From a year-to-date perspective, the EBIT came in at +SEK 9 million. The profit for the period arrived at -SEK 5 million for the quarter and +SEK 10 million for the third year-to-date. Next slide, please. Our Managed Services business has continued to grow in the 3rd quarter with an increased sales of SEK 8 million.
The increase in sales is mainly attributable to higher volumes on our USA TRaaS programs and a stronger dollar to Swedish krona translation. During the quarter, the segment has not incurred any order intake, but from a 12-month rolling perspective, however, order intake is up by 246% to SEK 321 million. The order intake is a mix of contract extensions, safeguarding our base revenue, as well as new contract signings that will contribute to further top-line growth. In 2022, we have adopted a new data-driven sales approach for the U.S. market, taking our data points from sensors and projecting them on potential new customers to demonstrate the impact of traffic safety on their cities and on their municipalities.
Associated costs with setting up this new sales approach and onboarding of new sales employees have resulted in a higher cost base during the quarter, which will contribute to a higher order intake and sales in future. EBITDA for the quarter ended at SEK 5 million with SEK 39 million from a 12-month rolling perspective or 23.2% EBITDA margin. Next slide, please. The segment system sales has seen a slightly higher level of order intake in the third quarter at SEK 53 million compared to SEK 42 million last year. The order intake for the quarter mainly relates to orders from the Latin American region and smaller repeat orders, repair, and calibrations from our existing customer base. From a 12-month rolling perspective, the order intake is up by 53% to SEK 251 million, excluding the Dutch procurement award of SEK 245 million.
After the quarter, the company has signed the largest contract in the industry for speed enforcement in Sweden, worth up to SEK 850 million over the 12-year period, consisting of system sales deliveries and TRaaS services over the contract period. The sales for the quarter came in lower than Q3 last year at SEK 51 million. The sales in the third quarter last year included high deliveries to Saudi for the Vehicle-in-Motion project. At the same time, the segment incurred one-off additional costs related to the ERP implementation. EBITDA for the quarter ended at SEK 2 million, with SEK 39 million from a 12-month rolling perspective or 11.5% EBITDA margin. Next slide, please. On this slide, I would like to take you through our financial position looking at available cash and adjusted net interest-bearing debt.
We started the year with an available cash position of SEK 101 million and ended the third quarter with SEK 177 million, of which SEK 108 million in cash and SEK 69 million in remaining credit facilities. During 2022, the US dollar and Australian dollar have become stronger compared to the Swedish krona and the euro. For future investment purposes, the company keeps a strategic amount of US dollars, Australian dollars, and euros in cash. Due to the currency fluctuation, these cash positions have a positive translation effect of SEK 14 million. The high cash position has led to a low usage of our credit facility, which has decreased from SEK 64 million to SEK 33 million. During the quarter, we've made payment on the final tranche of the vendor loan connected to the acquisition of Gatso in 2015.
With this final payment, we have concluded the acquisition financing. This has reduced the shareholder loans from SEK 29 million to SEK 22 million at the end of the period. With the current available cash position, the company has a net positive position of SEK 53 million when deducting external debt from cash. With our solvency at 76% and a net positive cash position, the company's financial position remains strong. On that note, I would like to hand it over to Ivo Mönnink. Next slide, please.
Thank you, Simon. With the winning of the largest tender in our industry in Sweden and a large procurement award in the Netherlands, we have secured our ongoing business in two of our home markets. Already now, we know we will realize in 2022 the highest order intake in the history of Sensys Gatso in a single year. At the same time, we are investing in the USA and Saudi Arabia to prepare for accelerated growth in these strategic markets. Our recurring and profitable TRaaS business continues to grow, and with SEK 177 million available cash, our financial position remains strong. We continue to see in the short term, limited impact from supply chain cost increases and the war in Ukraine.
We therefore retain our long-term plan to, by 2025, grow our net sales to more than SEK 1 billion, of which TRaaS revenues is more than SEK 600 million. We also retain our ambition to increase our EBITDA margin to more than 15% in 2025. As final note, I would like to open up for questions. Operator.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Jesper von Koch from Redeye. Please go ahead.
Good morning, gentlemen. Let me just start with the system sales. Could you give any comment on, like, how much system sales per quarter have you delivered to Sweden, like, on average in the last, say, two or three years? Like, system sales without service and maintenance, if that's possible.
Well, that's really hard to say because it is actually fluctuating, so we need to take a deep dive there and come with an analysis and get that back to you. Maybe I'll start.
Okay. Okay, no worries. Just like a follow-up on that, I mean, Europe, like just revenues from Europe declined from SEK 39 million-SEK 24 million, like year-on-year. Would you say that the decline is from Sweden mostly?
Yeah, I think you could say that. What happens if there's a new tender coming out, you see sort of a build-down of the orders from Sweden, and that will obviously result in a build-up going forward now that we have won the largest tender in the industry. That's, I think, the most important thing from the report is that this is by far the largest tender, not only for us, but also in the entire industry. Obviously, all of our competitors have been looking at this tender for a long time, and they decided either not to participate because it was too difficult for them to reach the technical and complex requirements from the customer, or when they participated, they actually failed to achieve those.
I think, you know, we really have to stress the fact that this is a tremendously important win for Sensys Gatso. It's one of our home markets and it's securing 12 years of both system sales and recurring TRaaS revenues from a customer that has been fundamental to the introduction of Vision Zero, which is now a global concept that is being rolled out in many countries around the world. I think it's important that we can say that Sensys Gatso, the Sensys part of Sensys Gatso, has been part of this global Vision Zero concept and introduction from 1997 onwards. We've been there from the very beginning. This is a really important win for the company. Really important. As I said.
Yeah. Yeah.
It's the largest in the industry up to SEK 850 million. We haven't seen that before.
About that win, I mean, you say that around the SEK 400 million will be delivered during the first six years. Could you just talk about like how you would try to specify how you think it will be distributed, like between like system sales and service and maintenance?
Yeah. Yes. Not going too much detail, but you can anticipate that it would be, you know, building down from 75% system sales to 25% system sales and vice versa for the TRaaS part of it over the 12-year period.
Okay. Good.
Does that make sense?
Yeah, it does. As I understand it, the service and maintenance part of this order that is like on top of your existing contract in Sweden for service and maintenance.
Well, it's actually very similar to what we're doing now. What will happen is that the entire installed base will be exchanged with the new FLUX embedded software platform-based system. There will be new installments, so that's sort of the new system sales part. There will be repairs and maintenance, and there will be annual calibrations as well. That's the TRaaS part of this order. In general, it will be split 50% systems and 50% TRaaS. That's how you have to look at it.
Okay.
Now, TRaaS obviously at a higher margin than the system sales part of it.
Yes. Yes. Moving on to Australia, I mean, regarding your order for Managed Services in Australia. If you could just talk about, like, how far have you come here in terms of getting it up and running and so on.
Yeah, good you ask that. It's actually starting to generate revenue as of this quarter. We have been rolling it out successfully.
Is that as of Q3?
I would say as of Q4. Yeah.
Okay. Mm-hmm.
As with any new project, it starts up slowly, and then it will expand from there.
Yes. Good. I mean, you also received the follow-up or the extension agreement in Victoria the other day. If you could just talk about, like, the progress that you're making in Australia and what potential you see in the near term.
Yeah. I mean... Hmm. I think the, the one important thing that has happened recently in, uh, in Australia is the, is the win of the TRaaS, uh, business in Tasmania. And the way we look at that is that it's actually the first close to the U-US model, uh, TRaaS business outside of the U.S. I can imagine that other states in Australia are watching this. If this is successful in Tasmania, it will open up new opportunities in other states in Australia. But it might also open up o-other opportunities in other markets outside of, outside of Australia. So I think we mentioned it last time around, it's of large strategic importance for us to make this a successful project.
It is, you know, talking to an earlier comment I think I made some time ago that the TRaaS business model in the U.S. over time will also go into other markets. That's what we see happening right now. Yeah.
Yeah. Regarding that, do you see, I mean, lately any specific markets that are, like, initiating talks that indicate that they're moving towards this full TRaaS model?
The answer is yes, we do.
Yes. Okay. Yeah.
You gonna ask me now we can't read. No, we do.
Okay. Okay. Sounds good. Regarding the Saudi order, if you could just provide some more flavor to the delay on the order. I mean, I know that you have like kind of a poor insight into the end customer and how that thinks. It just seemed that a lack of drivers and vehicles postponing the order by a year sounded a bit strange. If you could just talk about it.
Well, I mean, maybe not, because you talk about 950 in-vehicle systems that have been delivered, which makes Saudi the single largest customer for that solution. They need to be driven by police people. Just imagine finding a pool of police people that need to drive these cars. It's not that easy, right? Certainly, I mean, the shortages we see in personnel in Europe are not different in those parts of the world. That's an aspect. Yes, there have been delays in delivering the right models because they order the system for various different cars basically, and it hasn't been easy to find these cars in the market.
That combination made them ask us, right, "Can we actually delay this?" The answer for us was, "Okay. Yeah, sure. We are supportive of doing that." Let's look at alternative solutions for us then as well. We're on that path looking at. That's the real interesting part in my opinion. We're now on the path of.
Mm.
Looking at new fixed solutions in that market. The market for fixed speed and red light in Saudi is way bigger than for the in-vehicle solution. I'm hoping that, you know, we can actually make it work, and we become a supplier for those solutions as well, which would make us a unique supplier because we would be able to supply them all three solutions. That's where we are working hard on to make that happen. No guarantees, obviously. If that would work out like that, I would be really happy. The other thing, comment to make is that it's a delay, right?
It sounds a bit negative, but if we paused it, maybe it's a better word, to make sure that once they have their drivers and vehicles somewhere in 2023, that's what we're expecting, organized, we can resume the deliveries on that contract again. That's the current situation.
Okay. Sounds good. Regarding the potential of, say, speed cameras and red light cameras, do you have any sense of the timeframe for such potential?
That could be rather quickly.
Okay. Good. A question for Simon regarding the OpEx level. I mean, how much of this sequential increase from Q2 stems from a stronger US dollar effect, exchange rate, and how much is from actual, like, increased sales efforts?
Yeah. I think it's approximately 50/50 if you look at it. Of course you know, Jesper, that the U.S. dollar and the Australian dollar has gotten very strong compared to the Swedish krona. That has a significant impact, of course. Yeah.
Okay.
It's approximately at the 50/50. Like I said, you know, in the U.S. we are supporting the team, and the team is executing on the new business plan for a data-driven sales approach. We're investing in that approach at this point in time. Yeah.
Okay. Good. Just about that, I mean, that more proactive data-driven sales approach that you're now using in the U.S. Is that something that you're, like, starting to adopt also perhaps in Australia and perhaps also other markets? Will that come later?
Yeah. What is actually unique to the U.S. is that this is not sort of the typical tender business which you would see in other markets. In the U.S. you can actually proactively approach target cities and present them a case based on data where they can see how traffic safety will increase by adopting automated speed enforcement. We know that speed is the most important factor to fatalities and incidents in traffic. By using data from our installed base in the U.S. and projecting that on a target city, you can actually demonstrate that to the politicians that need to adopt such a system. That's typical for the U.S., I would argue.
Let's say, in Germany or in maybe the Netherlands or Sweden, that would not be the case. You know, the central government would come out with tenders, and they will ask.
Yeah
You know, competitive buyers and ourselves to participate in that. There's less of a proactive approach.
Okay, good. Regarding the increased investments in the sales force in the U.S., do you see, like, how much of that increase do you see that continue to increase? Like, do you plan to employ, like, much new employees going forward, or have we found kind of like a stable level?
No, we have increased it actually quite significantly now. The team is going out with the proactive sales model. We will have to demonstrate that, of course. You start filling a sales pipeline as you call that, and then you need to execute on that. It could mean that following that we are going to extend the sales team further. That could be a definitely possibility. Entering also into new states, because you know what we communicated before, that we are in 11 states. Potentially we could be in 24 states. It could be a way forward there once we, you know, have demonstrated this model to be successful to expand from this.
That would also mean that we would definitely have reached a much higher revenue level, of course. What we have in our mind. The longer-term plan, or even, I would even say the short-term plan, in the next three years is to triple our business in the U.S. with the proactive sales model.
Okay. What was that? To triple your business in the U.S. in the next how many years?
We're talking about three years.
Three years.
We're now at six programs. It will be over 100 programs, and also somewhat larger cities in between.
Yeah. Well, going into that, if you could just talk about, like, your sales approach, like towards larger cities versus smaller cities. It seems like so far your main approach has been towards, like, smaller and mid-sized cities. Yeah. If you could just elaborate.
Yeah. You're right. I mean, we don't want to take on like big cities like New York or Washington. We're not geared up for that, and that's also not where we wanna be. We're looking for a certain sweet spot, not to be disclosed, of a size of a city we wanna go after. Also somewhat larger cities. Not a ton of them, a couple, I would say. We can do that because our new MD or President in the United States, he's come from a competitor and has experience with implementing much, much larger programs than we've been used to. That's an asset we have now on our team. Really happy with that.
Good. Just one last and perhaps more high-level one regarding your financial targets of reaching SEK 1 billion in revenues by 2025. Obviously, like if you 3x your sales from Managed Services from today, that will help quite a lot.
Yeah
Just talk about your strategy to reach this level and also perhaps if you include any acquisitions in that target?
I did not get that. The line is breaking up, Jesper.
Okay. Like how you aim to reach your target of SEK 1 billion by 2025, except for 3x-ing your sales in Managed Services?
Well, I mean, one strategic pillar is to enter with the new model, the TRaaS model into new markets. I already said that Australia has been our first successful attempt there. You asked whether we are talking to other targets as well, and we are. That's an important part of the model. Also looking at how do we expand our TRaaS business with our installed base, you know, with the business we're doing with our partners, that's another part of it. The biggest chunk of growth needs to come from the United States because we're there with 36 programs in 11 states.
The potential we see is 14,000 cities in 24 states, and that's way too many. We're not gonna go after that large number. If you would look at maybe 1,000 of those 25, 4,000 cities, and if you then look at 10%, it's a good start for the coming years, and it would get us a long way into achieving our target, definitely on the EBITDA part and on the TRaaS part.
Okay, good. Regarding, like, it doesn't seem like acquisitions is anything that you're looking like mainly into.
I can't answer that.
Okay. Great. Thanks for all the answers and good luck going forward. That's all for me.
Thank you very much, Jesper.
Thank you, Jesper.
Again, if you have a question, please press star then one. There are no more questions at this time. I'd like to turn the conference back over to Ivo Mönnink for any closing remarks. Ivo?
Okay. Thank you, everybody, for joining. Also on behalf of Simon, we hope to see you again in the next market presentation. Bye-bye.