Welcome to the Sensys Gatso Q1 presentation for 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star 5 on their telephone keypad. I will hand the conference over to CEO Ivo Mönnink and CFO Simon Mulder. Please go ahead.
Thank you. Good morning, welcome to Sensys Gatso's presentation of the first quarter of 2023. My name is Ivo Mönnink. I'm the CEO of Sensys Gatso, and I will be presenting our Q1 2023 results to you together with Simon Mulder. In this market presentation, I will provide you with an update on our business for the first quarter of 2023. We follow up with a financial update by Simon, and finally, I will finish this presentation with a summary and our outlook. Let's now look at an update of our business. In this business update, I will take you through our order intake in Q1, of which no less than 93% is recurring revenue. The strategic TRaaS sales, which is now 76% of total sales. Our investments in the strategic U.S. market, which are starting to pay off.
The increase in development efforts caused by the historic order intake of 2022, and our short-term EBITDA decrease, which was part of our plan. Let's look first at our order intake for the quarter. The order intake in Q1 arrived at SEK 90 million, comparable to last year at SEK 84 million. The order intake excludes the Dutch procurement award of SEK 245 million, which was won in Q1 2022, and which will be added to the order intake once the orders are formally allocated. We expect this latest Q3 this year. Of the Q1 2023 order intake, SEK 83 million or 93% relates to TRaaS recurring revenue, including SEK 35 million for one new city we added in our strategic USA market and two renewal contracts in the US.
With total sales of SEK 113 million, our first quarter was successful and on par with Q1 2022 sales. Our strategic recurring TRaaS sales increased by 25% from SEK 69 million in Q1 2022 to SEK 86 million this quarter. Our TRaaS managed services business, which is primarily realized in the U.S., increased by 23% this quarter from $40 million to $49 million. In the quarter, our TRaaS sales reached 76% of total sales, exceeding our target of 60% for our 2025 ambition. We started executing on a new plan for our U.S. market in the second quarter of 2022, when we onboarded a new leader for Sensys Gatso USA. Compared to Q1 2022, we have now added three sales managers to our U.S. sales force.
The investment is paying off with an increase of 7 closed contracts in the strategic market, of which 4 new cities, demonstrating the effectiveness of this strategy. By placing significant orders in Europe, Australia, and the USA in 2022, our customers clearly displayed their enthusiasm for our solutions for automated traffic enforcement. Orders received for the whole year of 2022 totaled SEK 1.5 billion. This order intake represents more than 3 times the yearly revenue for 2022 and is by far the largest in Sensys Gatso's 65 years of existence. We received an additional SEK 90 million in orders in Q1 of this year, bringing our total order intake that is currently in a project development phase to SEK 1.6 billion.
Our engineering team is currently working hard to develop solutions to cater for the customer-specific demands for each of these large wins and for many smaller ones. This is reflected in higher development costs now. These project investments will be leveraged during the revenue generation phase of these long-term contracts. Our temporary upscaling of the development teams has a side effect. We are to a high degree using short-term consultants for the upscaling in order to be flexible and effortlessly able to scale down once the push is over. The downside is that this is a rather costly way of increasing capacity, which is visible in our Q1 financial metrics. As soon as our new product platform, Flux, has proven itself on the market, we will adapt our development capacity thanks to the way that Flux is built.
More importantly, the transition to Flux enables us to further grow our top line without linear development cost increases. Our EBITDA arrived at SEK 1.5 million for the quarter, compared to SEK 60 million last year. The decrease in EBITDA can be attributed to an increase in operating expenses of SEK 11 million, which is primarily due to greater sales expenses to achieve our top-line goals in the United States. These investments will be leveraged once the seven new contracts recently won by our sales team start adding to the top line later in 2023. Our cost has increased by SEK 9 million, mostly as a result of additional development times needed to simultaneously complete a number of key projects and also construct the new Flux platform. Once these projects are completed later this year, we will reduce our development costs.
The decrease in our EBITDA this quarter should not be looked upon as being structural. On that note, I hand over to Simon.
Thanks, Ivo. We will go through our consolidated income statement, the performance of our segments, and finally, our financial position. Looking at the consolidated income statement, we focus on sales, margins, and profitability. The sales for the quarter came in at SEK 113 million, a similar level compared to Q1 last year. The sales mix, however, has significantly improved, with 25% more TRaaS sales in the quarter. The total TRaaS sales came in at SEK 86 million, or approximately 75% of total sales. The development efforts needed on several big projects that were awarded in 2022 had an impact on our gross margin for the quarter. The development efforts taken as a cost now will benefit future efficiencies and profit as we move to operational mode of these projects. Underlying, the gross margin of our TRaaS revenue remains strong.
The expenses have increased by 17% compared to Q1 last year. The increase in expenses is mainly due to investments in sales and development organization. Based on our strategy to grow in the U.S. market, we have invested in sales employees. The investments in the development organization is to support the development work on our platforms, Flux, Puls, and Xilium, which are partly capitalized on the balance sheet. Taking these investments in future growth into account, the operating results for the quarter landed at SEK -9 million. Our managed services business has grown 8% compared to Q1 last year from SEK 40 million to SEK 43 million. The sales from a 12-month rolling perspective has increased from SEK 148 million to SEK 178 million, an increase of 20%.
Typically, the sales in the first quarter is somewhat lower than the remainder of the year due to seasonality. In Q1, we have seen volumes on programs impacted by heavy snowstorms during the close of 2022 and the start of 2023 in large parts of the mid and northeastern part of the U.S. We started to invest in sales employees during 2022. This has resulted in a higher cost base that needs to be leveraged with higher future sales. During the fourth quarter of 2022 and the first quarter of 2023, we've already seen the effects of our increased sales efforts. The order intake for managed services in the quarter amounted to SEK 35 million compared to SEK 26 million. Twelve months rolling, the order intake landed at SEK 307 million, an increase of 43%.
The segment Managed Services also includes our software development department in Amsterdam that is responsible for the development of our Puls and Xilium platforms. During the quarter, we've invested in additional development consultants, which have been working hard with the core team to support TRaaS projects. This has had an impact on the profitability of the segment. The EBITDA for the segment from a 12-month rolling perspective landed at SEK 26 million compared to SEK 42 million in Q1 2022. Moving to the segment system sales, starting with order intake. The order intake in the quarter came in at a similar level as Q1 2022. Main drivers behind the order intake are the existing customers that place repeat orders on their installed base. During Q1, we received another order from our customer in Ecuador, demonstrating the traction in that market and the appreciation of our enforcement solutions.
Twelve months rolling, the order intake landed at SEK 1.2 billion, mainly due to Trafikverket and the Dutch tender won in 2022. Sales also came in at a similar level, SEK 71 compared to SEK 73 million. These sales of SEK 27 million in project sales consist of manufacturing and delivery of our enforcement equipment. The remaining SEK 44 million is related to TRaaS revenues, mainly for service and maintenance. Starting the fourth quarter of 2022, this segment also has TRaaS Managed Services from our Australian entity on the Tasmania Police project. This project has a sales of SEK 6 million in the quarter. Twelve months rolling, the sales for the quarter came in at SEK 317 compared to SEK 394 million. The lower revenue is due to less project sales, which are typically more volatile.
The focus during the quarter for this segment has been on development efforts for the big projects awarded in 2022, specifically Trafikverket and the Dutch tender. The development efforts have been concentrated on ensuring that the project is designed in a way that it would operate effectively during the TRaaS service and maintenance operational phase, which will last for 12 years. On top of this, we've invested in development time in the first U.S. execution of Flux. These expenses are seen as part of a first-of-a-kind development, which are not capitalized on the balance sheet. The EBITDA came in at SEK -2 million for the quarter. From a 12 months rolling perspective, the EBITDA landed at SEK 33 million compared to SEK 63 million. Discussing the financial position of our company, I would like to focus on free available cash and interest-bearing debt as key metrics.
The company's opening available cash position was SEK 171 million, consisting of SEK 100 million in cash at banks and SEK 71 million in remaining credit facilities. During the first quarter, the investments of SEK 23 million and the negative result of SEK 9 million had the most impact on our cash position. The investments were made for new programs in the USA or expansion of existing programs. While there has also been an investment in our software platforms, Flux, Puls, and Xilium. The negative operating result is mainly due to increased development efforts on big projects, as well as increased sales efforts in mainly the U.S. region. With these investments in assets and in organization, the available cash landed at SEK 143 million at the end of the quarter.
Our adjusted net interest-bearing debt remains positive at the end of the quarter at SEK 14 million. Our solvency ratio remains at approximately 76%. On that note, I would like to hand it over to Ivo Mönnink.
Thank you, Simon. We added SEK 1.6 billion to our order book in 2022 and Q1 2023, and we are now executing against these orders. This temporarily increases our costs, mainly in our global development team. Our profitable TRaaS business continues to grow, and our strengthened team in the USA proves to be able to push our top line in this strategic market. On top, we see our new groundbreaking roadside platform, Flux, coming to fruition in the market. 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, and we also retain our ambition to increase our EBITDA margin to more than 15% by 2025. Thank you for attending this presentation, and I would like to open up for questions now.
If you would like to ask a question, please dial star 5 on your telephone. We will take the first question from Taylor McGinnis from UBS.
Good morning, gentlemen, and thanks for that presentation. All right.
Morning.
Morning. Could you just start by elaborating on the low system sales in the quarter, like anything that was special to that situation?
Well, in general, I think you have to say that, system sales is volatile in by nature.
Yeah.
If you look back to what we've seen the last quarters was actually huge orders coming in from Sweden and from the Netherlands, which have a large system sales component to it. There is a bit of a lumpiness in there. We all know that. By comparing then year-to-year quarters, you see that you could see large deviations, plus and minus. The second point to mention is that we've had a deliveries to Saudi in Q1 2022 system sales, you know, the Vehicle in Motion, which was a large uptick as well.
Yeah.
We did not see those in this quarter. They might come back. We don't know that yet, that could potentially happen going forward. This sort of, I think explaining why we see that, uh, that, uh, those results.
All right. The order for Swedish Trafikverket has that, like, started its deliveries yet?
Not yet. No. We are in development phase. You have to imagine that although this is an order, or a project which we've done before in the past, when a new project comes out, the development requirements are really significant. There's a lot of developers working on this project to make it viable for the Trafikverket with a new execution. That takes time. We expect the first revenues to come in by the end of this year. From there on, of course, we will start rolling out the installations of the new equipment, and thereafter there will be the maintenance phase of the equipment. If maybe you recall, the total order value is SEK 850 million.
Yeah.
Over 12 years, of which 50% is TRaaS and 50% is system sales.
Okay. basically a bit more concentrated, system sales, like.
Yeah.
From Q4 2023.
In the beginning, it will be more system sales, and then, once the installations are in place, then it will become more TRaaS.
Good. Also, the development in Saudi, do you still expect final deliveries in H2 2023?
Well, we do expect deliveries of some kind in Saudi this year. I mean, that's what I can say. That can be, hopefully there will be different executions of solutions we offer, but it can also be that we continue the deliveries of the Vehicle in Motion.
Okay. It sounds like a part of the remaining deliveries, should be anticipated, but not the full.
We don't know that yet. This is in the... We're still in discussions with the customer, and that has to do, and I think I've explained that before, is that, yes, there is a contract for 1,001 Vehicle in Motion, of which we have delivered 750. The customer, the end customer, I should say, finds it difficult to find the operators for the systems as well as the cars to build the system into. They requested us whether we would be willing to delay the deliveries of the remaining 250 Vehicle in Motion. We listened to them, and we accepted that, but that doesn't mean that it's gonna be... It will be delivered, it's just a matter of timing, I would say.
When that exactly will be.
Okay.
Is still a discussion phase with the customer.
Good. I mean, do you... Because previously we talked about a potential new order from this customer, although, like, difficult to say when. How are those, how's that pilot going?
Yeah. I mean, we're actually in a phase where we are ready to start doing what we call first-of-kind testing on the roadside for 2 solutions. You go through a what we call acceptance phase by the customer. We first need to do the roadside testing, then there is gonna be acceptance phase and possibly some adaptation still. From there on, you have a qualified product, and if you have a qualified product, orders can be placed. That is the way it functions. The timing thereof is I'm sorry to say, but it's not easy to predict that. I wish we'd be able to do that, but it's it is depending on many factors that are not in our control.
Okay. sounds promising. Like, such a testing period, is that typically, Do you still have, like, competition during a testing period or it's more of them testing your product only?
Yeah. I mean, the testing is meant to qualify us as a supplier for that particular solution. Right? We can expect orders, but we're definitely not the only ones that have entered the market there. You know, listening to them, they really like us for the service delivery and the quality of our solution we have demonstrated with our Vehicle in Motion. We stand a very fairly good chance of bringing in new orders for new solutions in Saudi. I just have to say again, the timing thereof is hard to predict, Jasper.
Okay. I mean, service and maintenance recorded really strong numbers, for the second consecutive quarter. Anything special that was included in this quarter's numbers?
Do you wanna take that, Simon?
Yeah, of course. We all know in Sweden that we've had some equipment that was demolished somewhere in 2022. We had some additional orders in replacing and repairing those units. That's a specific uptick in those numbers. The same goes for the Netherlands, where we've had some replacements going on. That's basically the lumpy part in the service and maintenance business, right? Otherwise, it will be very predictable.
Yeah. Okay.
This happens every now and then.
Okay.
Yeah.
Yeah. All right. That was all fixed during Q1, and we shouldn't expect, like, that kind of extra revenues in Q2?
No, I wouldn't expect that.
All right. You also mentioned that snowstorms in the U.S. impacted your U.S. TRaaS business. Like, are you able to quantify, like, the financial impact of that?
It's always difficult, of course, to quantify the impact of that. For sure, we see that, you know, with these snowstorms, obviously, there's a lot less people on the road. What also happens in our U.S. business model is that there's a latency in it. We record an event, and then later we see whether or not that turns into a citation and there is a payment. There's also a little bit of delay in those effects. I wouldn't be comfortable to put a number on that, but for sure it has an impact. I think this year, more than any of the years that I've been here, these snowstorms have been significant.
Long-lasting as well.
Yeah.
Yeah.
Yeah. Okay. We should expect some negative impact on services in Q2, too, I guess, due to the delay effect.
I think usually we have, like, a delay of about between 30 days, maybe sometimes a little bit longer, depends on the program.
Okay. Okay. Yeah
...and how we structure it. Yeah, maybe April a little bit, but I don't expect too much there from the weather. Yeah.
All right. Okay. Moving on to your cost base, your R&D expenses, was like temporarily heightened due to the consultants for the Flux development. Was this all classified as CapEx? Yeah, let's start there.
No. I mean, we did take a lot of these costs in our P&L, hence the lower EBITDA. It is. I think that's the key point of this report, is that we really planned for this. We saw the large order intake materializing. We saw that we needed to deliver these projects on time to large customers with long-term contracts of 12 years plus. We have our recurring revenue base in the U.S. where we need to deliver as fast as possible as well. We decided to increase our cost base mainly by using costly consultants. We are in, let's say for Trafikverket and for the Dutch national tender, we're like 85%-95%...
or not, 85%-90% ready to deliver. you know, thereafter, you can imagine that our flexible development cost increase will come down. That's what we have in mind. There's another reason why we put so much effort, for instance, behind the Dutch tender, is that if you are the first to deliver, then you have the option to choose from the lots which are available, and obviously you choose the more interesting ones. That's the reason why we pushed for increasing our development capacity short term and the impact you see on the numbers. As I said, it has been planned for and it's temporary.
Okay. How much... I mean, could you try to quantify, like, how much are your OpEx-related R&D expenses heightened, and how much extra is on CapEx right now? Because that number was also very high in the quarter.
Yeah. You should see that development efforts are in three places, right? Two spots in the P&L, one being cost of goods sold, when we have an actual product or project. One spot is OPEX, when we do generic development, more in the sense of research and development kind of efforts. I think those costs are slightly higher, but not a lot higher than previous quarters. It's more in the gross margin area where you should look. Of course, in the CapEx, that is mainly for investments in Flux, Puls, and Xilium. Like Ivo said, is that we've already delivered the first Flux execution to the US.
Once we start, we have it finalized and start delivering on customer projects, then we can downscale that part. I wouldn't expect higher CapEx or investments in fixed assets in intangibles after that period either. Yeah, there's development expense tied out to getting a project up and running and doing the customer-specific development work. That's what we're talking about here.
Yeah. What we should also not forget, Jasper, to add to this, is that, you know, the way Flux has been built is that it will become much more scalable than what we currently have as a solution. Meaning, for instance, that once we have developed the speed functionality for Flux, and we have incorporated it in the United States, you know, taking that to the Saudi market is gonna be much easier, much faster, and therefore much cheaper as well. That will give us a definitely a competitive advantage going forward with this platform.
Okay. Sounds good. You say that, it's supposed to be delivered or completed, this, like later this year. Like do you have any idea like when?
Yeah. I mean, we're working on a roadmap. We're trying to manage our development resources between the building of this platform and the finishing of the platform and the commercial projects which are also, of course, the bread and butter for tomorrow. there is a balance there, and I'm a little bit cautious about giving you exact timings for that.
Okay.
We made great progress because I think if you look at the picture on the presentation, you could see Flux being installed on a highway in the United States, and it's actually delivering citations. We are, we have made great progress on that program.
Okay. Sounds good. You also, at an event you recently said that you have decided to also opt for the somewhat larger cities in the U.S. for your U.S. TRaaS business, which you previously did not. Could you just elaborate on what lies behind this decision?
Well, I mean, it's all about scale, isn't it? We have a platform, it's called Xilium, and we can actually drive a lot of volume through that. Also the sales efforts for a smaller city are, okay, somewhat lower, but not huge, to a huge amount lower than the sales efforts you need for a larger city. Also, you know, making sure that you incorporate the business rules for a larger city is also comparable with a smaller city. If you look at it from that perspective, that bringing on board a larger city adds scale and adds revenue, whereas sort of the cost to bring on board that city is not gonna be dramatically higher than compared to a smaller city. That's behind it.
We're also not targeting, by the way, you know, the super large cities. Let's be clear on that as well. A mid-size city would be very welcome to have in our portfolio.
All right.
Having said that, adding to that maybe is that, you know, the salespeople we brought on board are people that have a vast network in the U.S. market from the industry. We're not bringing on board, have not brought on board rookies. We have brought on board seasoned salespeople.
Okay. All right. Thank you so much. That's all for me. Good luck going forward.
Thank you very much, Jesper.
Thank you, Jesper.
Please state your name and company. Please go ahead.
Örjan Rödén, Erik Penser Bank.
Hello, Örjan.
Hi. Sorry, my... I have a bad voice here. I think I heard a number 85%, 90% ready. Does that imply that you think that all these extra costs are basically loaded to the first half of the year, or do you expect this to be more full year effect also in the second half?
When I mentioned that percentage, I have talked about Trafikverket and the Dutch tender, right? The two large contracts we won. Yes, they are very close to completion, so we're in the final phase there. Of course, indeed are loaded in part also in 2022, but most of that now. Yes, you're right. We're almost done there for both these projects.
Oh. Okay. Is it possible to quantify exactly how much is extra extra and how much will also be a higher cost base level on a more sustainable tech period? Sorry.
I'm afraid that's difficult to say at this stage. I mean, give us more time, and we'll come back to you on that one at a later stage. Is that fine with you?
Yeah, sure. That's fine. Thank you.
Okay. Thank you.
That's all.
.....
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Okay, thank you everybody for attending and Örjan, Jesper for asking the questions. Much appreciated, and I hope to see all of you back in our next quarterly presentation. Have a nice day.