Welcome to the Sensys Gatso Q3 presentation for 2023. During the questions and answers session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to CEO, Ivo Mönnink and CFO, Simon Mulder. Please go ahead.
Good morning, and welcome to Sensys Gatso's market presentation of the third quarter of 2023. My name is Ivo Mönnink. I'm the CEO of Sensys Gatso, and I will be presenting to you together with Simon Mulder, our CFO. In this market presentation, I will provide you with an update on our business for the third quarter, a year-to-date , 2023. We then follow up with a financial update by Simon, and finally, I will finish this presentation with a summary and our outlook. Now, let's look at an update of our business. In this business update, I will take you through our order intake, where we can report that our Dutch contract increased by 60% from SEK 250 million to SEK 400 million. The development of our TRaaS business that grew by 13% and represents 55% of total sales this quarter.
The deliveries to our Saudi customer, which are on track, how we are tracking on carrying out our historical order intake, our EBITDA, which increased by 200% this quarter, and finally, our view on the financial guidance for 2023, and are tracking towards the 2025 ambition. Now, let's look first at our order intake for the quarter. Typically, Q3 order intake numbers are slowish during the summer period. We're happy to see a positive exception this quarter. The order intake in Q3 arrived at SEK 145 million, 174% higher compared to the SEK 53 million in Q3 2022. During the quarter, we received the first order of SEK 60 million under the SEK 250 million Dutch procurement award, which we announced in Q2 2022. Deliveries and revenue generation for this order have started in Q4.
After the quarter, we announced that the revenue expectations of this contract have grown significantly. Instead of SEK 250 million, we now expect the contract to generate SEK 400 million in revenue, a growth of 60%. Of these SEK 400 million, SEK 200 million of system sales are scheduled to be realized before the end of 2025. The other SEK 200 million of the contract is recurring service and maintenance revenue to be realized over a 6-year contract period. Our strategic TRaaS sales for the quarter was SEK 86 million, was up by 13% compared to the SEK 76 million in Q3 last year. This recurring business equates to 55% of total sales in the quarter. The growth is mainly related to revenue from our Tasmania Police TRaaS Managed Services project in Australia, which we started earlier this year.
Year to date, the total TRaaS sales amounted to SEK 259 million, an increase of 18% and representing 64% of total sales. Of this year to date TRaaS sales, SEK 23 million, almost 9%, come from the Tasmania Police project. It is really very encouraging to note that the TRaaS Managed Services business model is now also resonating with customers outside of the USA. At the end of the second quarter, we delivered 75% of the SEK 275 million contract for our unique vehicle in motion solution to our Saudi customer. Deliveries for the remaining 25% of the contract have started this quarter, and we anticipate to complete these by the end of the year. With this, our Saudi customer will be the single largest user of our unique and highly effective in-vehicle speed enforcement solution.
Building on the excellent customer relationship and satisfaction with our technical capabilities, we have now started the process of testing new fixed traffic enforcement solutions, potentially adding to our business in this growing Middle East region. Our order book is strong, with large orders from the Swedish Trafikverket of SEK 850 million and the Dutch Public Prosecution Services. As mentioned, we were very pleased to announce that the latter has increased by 60% from SEK 250 million to SEK 400 million. The fulfillment of both these large orders is labor-intensive, involving specific development, project management, and other proprietary knowledge to answer the customer-specific enforcement needs. This competitive edge is a high barrier to entry in our market. The ultimate benefit is secured revenue, giving the company a solid baseline revenue for the next 12 years.
Our 65-year history of automated traffic enforcement solutions, with solutions provided in more than 70 nations, makes us unique in our ability to meet differing customer requirements efficiently. I am pleased to report that with all the hard work of our teams, our implementation plan is moving along as planned. The rollout of the Dutch project has started in Q4 of this year, and for the Swedish Trafikverket project will start in Q1 of 2024. This quarter's sales level is SEK 157 million, which is 65% more than it was in Q3 of last year. At this sales level, our EBITDA arrived this quarter at SEK 19.2 million, an improvement of nearly 200%. On a 12-month rolling basis, our EBITDA increased by 21%.
Later on, after development work for our commercial product projects is finished, we anticipate a decrease in our flexible development costs, as well as stronger revenues, which will improve the EBITDA in line with our long-term ambition. In order to attract more investors, the AGM voted in May of this year in favor of a 1-to-80 reversed share split. In conjunction with this event, we released our financial guidance for the full-year 2023, making it easier for investors to analyze the financial performance of the company. On the back of a record-breaking order intake, we are targeting full-year 2023 revenues in a range of SEK 550 million-SEK 650 million, and an EBITDA margin of 10%-15%.
In light of the restart of the deliveries to Saudi Arabia, the beginning of the deliveries for the two significant projects in Sweden and the Netherlands, and the rollout of the new programs in the USA, as well as several other smaller deliveries, I now reaffirm our guidance for 2023. On that note, I hand over to our CFO, Simon.
Okay, thanks, Ivo. We have three topics for today: 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. As with the previous quarters, the third quarter has been positively impacted by currency fluctuations. Sensys Gatso benefits from sales in euro, U.S. dollar and Australian dollar, which have been strong compared to the Swedish krona. For the third quarter, sales have been positively impacted by SEK 7 million. On the operating profit level, the impact of currency fluctuations are not significant. Looking at the sales for the quarter, we can see an increase of sales by SEK 62 million, with TRaaS Sales growing by 13% compared to last year. Growth in TRaaS Sales is mainly attributable to growth in our managed services program for the Tasmania Police.
Year-to-date, sales are up by SEK 70 million and TRaaS sales increased by 18%. The margin in the quarter landed at 38%, compared to 46% for the same quarter last year. As the margins vary between our business models, the sales mix has a large impact on the overall margin. In this quarter, 45% of sales are from one-off system sales, compared to 20% last year, creating a lower average gross margin. Year-to-date, our margin was 40%, compared to 44% last year. Our expenses have been stable compared to Q3 last year at SEK 52 million. The financial items have decreased by SEK 5 million, related to currency effects on transactions. Due to more stable currencies in 2023, these effects have minimized. Our operating profit for the period came in at SEK 8 million, and year-to-date at SEK 5 million.
The segment managed services consists of our US business and the software entity that designs, builds, and maintains our software suites, Xilium and PULS. This segment does not report on our Australian managed services business as this is part of a system sales entity, Sensys Gatso Australia. Order intake came in at SEK 22 million through signing 1 new program in the quarter. 12-month rolling, the order intake has increased to SEK 262 million, with 6 new programs and 1 contract extension. Our managed services business has been stable in the quarter, with sales totaling SEK 45 million. From a 12-month rolling perspective, sales remained at SEK 178 million compared to the second quarter of this year. From an EBITDA perspective, the profitability in this segment on a quarterly basis, as well as on the 12-month rolling basis, remain in line.
The EBITDA for the quarter totaled SEK 4 million and SEK 19 million for the 12 months rolling. As reported before, the segment has incurred expenses, which are mainly related to sales activities and scaling the organization for growth. With the increasing 12 months rolling order intake, we will be able to better cover the expenses once the new programs start to contribute in full. Now moving to the segment system sales, starting with order intake. The order intake in the quarter is up by SEK 70 million and landed at SEK 123 million. Part of this order intake are the first purchase orders under the earlier announced procurement awards in the Middle East of SEK 152 million and in the Netherlands of SEK 400 million. The purchase orders received under these procurement awards amounted to SEK 76 million, of which SEK 30 million relates to service and maintenance.
The remaining amount relates to system sales deliveries, which will continue to contribute to revenue as of the fourth quarter. 12 months rolling, the order intake is up to SEK 1.2 billion. This includes the largest order in the industry of our Swedish customer, worth SEK 850 million, of which the rollout of the first systems is expected at the end of the first quarter in 2024. Sales was up by SEK 61 million, driven by project deliveries of SEK 45 million to the Middle East, of which SEK 30 million relating to Saudi deliveries on the Vehicle in Motion project. 12 months rolling, the sales is up to 386, compared to SEK 324 million in the second quarter. The EBITDA came in at SEK 50 million for the quarter, up SEK 13 million compared to Q3 last year.
From a 12-month rolling perspective, EBITDA landed at SEK 55 million, compared to SEK 41 million in Q2 of this year. Discussing the financial position of our company, I would like to focus on cash movements, interest-bearing debt, and available cash. Year to date, we have built up inventory and work in progress to the amount of SEK 78 million, relating to customer contracts expected to be delivered in Q4 and further in 2024. We have continued to invest in fixed assets and operations, and our software platforms, Flux, PULS, and Xilium, to the amount of SEK 77 million. We've seen an increase in new financing from Rabobank, totaling SEK 21 million, related to CapEx finance. Our adjusted net interest bearing debt ended at SEK 73 million, compared to positive SEK 47 million, due to financing of inventory, work in progress, and investments in fixed assets.
The closing available cash at the end of the third quarter amounted to SEK 100 million, and our solvency ratio of 69% remains healthy. On that note, I would like to hand it over to Ivo.
Thank you, Simon. Combining 2022 and year to date, 2023, we added more than SEK 2 billion to our order book. We are currently executing against these orders. This increases our costs, with revenue trailing behind to offset these against. 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, groundbreaking roadside platform, Flux, coming to further fruition in the market. We therefore retain our long-term plan and our ambition to, by 2025, grow our net sales to more than SEK 1 billion, of which trials revenues is more than SEK 600 million, and we also retain our ambition to increase our EBITDA margin to more than 15% in 2025. On this note, I would like to open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Jesper von Koch from Redeye. Please go ahead.
Good morning, gentlemen, and congrats to the strong report.
Thank you.
All right. So first of all, I think we have to dig into the 2025 target. I mean, where we are, considering where we are today, I mean, you could land at about SEK 600 million or so in revenues for 2023. And to reach like SEK 1 billion in 2025, something significant needs to happen. And still, you appear quite optimistic about reaching those targets. So could you just, like, try to provide some more flavor to what you expect here?
Well, a couple of things. We monitor continuously, of course, our sales pipeline with all the opportunities which are out there in the market globally. And what we see is that there is a bandwidth, which is actually centering around SEK 1 billion. So around the 2025 timeline. That's one part. Second part of that is that you probably know that we have started automated traffic enforcement in Ghana. That on its own is a huge opportunity, representing now over 11-year period, around SEK 800 million, and that's moving along quite nicely. So we also see there that we're on track on making that operational, let's say, starting in 2024, mid thereof or end thereof, I would say. So let's see.
So that's a big opportunity. There are tenders out there in huge tenders out there in Europe as well, without being too specific. So that all adds to our feeling that that part is secured. On top, we are focusing in the U.S. to grow our business significantly. We've added to the sales staff, and there are markets opening now in the U.S. which have not been opened before. I'm referring to Florida. Recently, they allowed for speed enforcement around school zones, and we see a sales pipeline developing rather nicely for opportunities in that market. More recently, even California has opened up. For now, it's just pilot projects for large cities like San Diego, Los Angeles, and California, but it might well happen that more cities will be added to that.
So you see a tremendous, let's say, interest in automated traffic enforcement in the USA as we anticipated. So that is also it's gonna be part of our plan to grow towards the SEK 1 billion in 2025.
... Okay, okay. And then, if we could just like dive into what you see starting in Florida. You say that, okay, speed enforcement around school zones. Is it only school zones now? And do you anticipate even more, like use cases?
Well, there, yeah, I mean, it always starts with school zones because it's that, that's the most, the more acceptable speed enforcement solution, and following that, it's not unlikely, but there's no guarantees, of course, that it will evolve into other types of enforcement solutions. Regular speed enforcement.
In Florida, do you hear also, like, as you've mentioned, go for the somewhat larger cities, too?
In Florida or California?
In Florida.
Okay. Yeah, I mean, we have a strategy not to be disclosed here, but we have a clear strategy on how we want to approach the market. I don't think we will go after the super large cities.
Okay. And then turning to California, also, obviously, that a super interesting market. But so far only the larger cities. So with that in mind, like only being the larger cities as of now, are you tendering for those?
Well, I mean, we're not going to tender for, San Francisco, or Los Angeles, or San, or maybe San Diego might be, but, but definitely not for the two largest ones. So, we're not. So but I, I think the general message being that, in, in U.S., we've seen a, a changing trend where fatalities were coming down over a period of time, and now they start going back up again. So more traffic, more incidents, more, more fatalities. And that has translated into states looking differently at automated, traffic enforcement. So it's- that's I think the more general message, is that look at Florida, what they're doing, look at the other, look at California, but also the other states, will, will increase their, their interest in, operating automated traffic solutions.
So in general, the market has this positive momentum in the United States.
Okay. And just to try to clarify, like, speaking about, like, you say that your sales pipeline in the U.S. is very strong, with a band with centering around SEK 1 billion. So is it mainly from... Do you see Florida as a main driver there, and then, and then, like, a wide range of other cities in existing markets or where you're already present or, yeah, what do you see?
Yeah, let's say that, more general, the United States is driving that growth to a large extent.
Okay.
But there's also projects in other parts of the world that help us with it.
Okay, good. And then you say that there are huge tenders out in Europe. Any ones that are kind of imminent, or is it like further into 2024?
There is a tender coming up in the Netherlands, actually, two, which we know, and they're called EG40 and EG39. So, those are ones we're looking at. There's a tender coming up in Ireland, we know, and there are some other ones.
Okay, okay. Good. And then just, just going over to the cost side in the quarter, administrative expenses rose from SEK 18 million to SEK 23 million, like sequentially. Are there any temporary effects there?
Yeah, well, I think the increase is basically due to two things, right? One thing is the timing, just when these costs are made, and they happen to be made in the third quarter. And secondly, of course, is that there is a currency effect in there, as well.
Okay, okay. So, we should expect administrative expenses to go down to perhaps 2021 or something like that going forward?
Yeah, back to normal levels, definitely.
Okay, good. Also around CapEx has been heightened for some quarters in a row. Like, what specifically is this for, and what would you call, like, a normalized level?
Well, looking at CapEx year to date, we have invested SEK 77 million, out of which SEK 50 million is in fixed assets in operations, which is basically the investments we're doing in the equipment and in the United States. If you compare that to 2022 year to date, it was only 14. So what you really see is that these investments represent the investments we're making in the United States to support the program. So that's a really good thing.... From my perspective, I always say that if we see these investments going down, that means that we're not, you know, starting new programs in the United States or extensions.
Okay. So, yeah, so regarding the installations, were there, I guess there has been, like, or there have been many, many installations, like both in last quarter and this quarter, implying that Managed Services revenues should perhaps accelerate from here?
Yeah, and Jesper, of course, we've, like, like we mentioned in, on, on, on the call, right? I mean, the order intake has increased to SEK 262 million from a 12-month rolling perspective. And that, that's 6 new programs, and 1 contract extension. Very often with the contract extension, we get a small expansion. So if you look at those 7 projects in total, yeah, they need to be built up. And that's why we are investing heavily in fixed assets and operations. Like Ivo said, I fully support if we see CapEx investments going down, it means that we're not adding any new programs or expanding existing programs, right? So for us, this is a good thing.
With the 12-month rolling order intake of SEK 260 million, we can expect that revenues will grow.
All right. Sounds very, very promising. Thank you so much for taking my questions, and good luck going forward.
Thank you very much-
Thank you.
Jesper.
The next question comes from Örjan Rödén, from Erik Penser Bank. Please go ahead.
Good morning, everyone. You're starting with your TRaaS revenues, they were quite strong in year to date. Where do you see, and it was Tasmania, if I understand correct, that was the main driver there. Which other markets do you see the scope for increasing TRaaS revenues outside of the U.S. and Australia, Tasmania, right now? That's my first question.
Okay. Well, I mean, it might take some time, but in general, you know, given macro-demographic circumstances, I can imagine that governments are outsourcing more and more services. And this will be a service where they still can keep control over the citations, but they outsource all the legwork as they do in the United States. And Tasmania is a good example of them taking a similar approach to it. There is a tender out there in the Netherlands where it's called EG40, which is distracted driver, where we also see that the management, the government is no longer buying the equipment, but they're, you know, sending it out as a tender for a service.
So they still keep, to a large extent, keep control of the citation process, but you know, another large part is actually managed by the party that actually wins the tender. So you see some movers there already. In the more established markets in Europe, that movement is going, and it's going, but it's going slowly. Well, this will happen. If you then look at, for instance, Africa, Ghana is a good example. We do the whole nationwide traffic enforcement, and it will be done completely by us according to the same model as we see it in the United States. So it's a little bit depending on what region you look at.
If that is gonna happen, I'm pretty certain about. It will be slowish in the established markets and fast in the new territories.
Okay. Thank you. Over to the contract traffic market. I know you have been working hard on this, and you have also had some costs related to this. Is it possible to quantify how far you have reached in your kind of adaptation of the product and your model, and how much? And then, of course, where do you expect this to start to generate revenues, if you can have any timing on this?
Yeah. First of all, it's very important to note that even if we are the incumbent supplier to Trafikverket, and we are not doing anything else than speed enforcement in Sweden for many, many, many years. But once there is a new tender, which is the one we want, you have to start that process from scratch. That's a requirement from the customer. So, as a matter of fact, we had to go through about 1,000 tests to complete in order to, you know, verify the system one more time. Which is great because we have all the knowledge, and it provides a very large barrier to entry, not only in Sweden but also in other markets.
So and then the next step is that you provide the customer with a so-called prototype, which we passed, and then the next step thereafter is what we call the golden sample, right? So we're in that process right now. So these are two initial revenue stages, and once those are passed, then we start with rolling out the installment of the equipment, the existing, so replacing all the installed systems in the market, and then we are gonna add additional systems to those, and we will start with the service and maintenance of those systems. So that's the timing. So yeah, a small part of the revenue generation has already started. The second part will start towards the end of Q1, and from there on, we have a gradual-
... increase in revenue, going forward.
Okay, thank you. Your working capital build has been quite strong in this year. Is it what do you think? Have you or towards the end of the process of investing a lot in working capital or is it still a lot more to be done there? What's your view on the working capital management?
Yeah, I think at this point in time, Rödén, we're sort of at the peak of it, right? Until we get new projects to deliver, right? Of course, our cash is now invested into inventories and the work in progress. They are all based on the projects and the customer contracts that we have at this point in time. But if we win new contracts, then we will start to build that up again. Of course, we expect some of that amount to be released in the fourth quarter and early 2024, once customers start paying and we are able to ship out. So,
Okay.
That's on that part, and yeah, and of course, the other part we've spoken about earlier is the CapEx investments. And both is driven by the order book that we've seen over the last couple of quarters, right? So, yep.
Great. Great. Great. Thank you very much. That was all for me today. Thank you.
Thank you, Rödén. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
Okay, I see a message here on the messaging board. When will we approximately see the revenue ramp up from the six new TRaaS contracts in the U.S.? Yeah, we're doing the installation work as we speak to some of these contracts, so we will see this you know, ramping up over the well, next six to 12 months, I would say.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay, thank you all for attending our market review, and hope to see you next time around.