Inderes Oyj (INDERES) Earnings Call Transcript

Welcome to today's presentation where we have the pleasure to present Inderes, as you can see on the front page, your half year report, press from the press today that will be the subject and and the achievements through the first half year and a little bit look into the future by your guidance. As always, we are joined by CEO, Mikael Rautanen, who will take us through the presentation and answer questions in the end. And for full disclosure, it should also be mentioned we have a partnership on technology and business, and you have ownership in HCA. So I think we get the disclaimer out of the way. As always, there's a box down below where you can ask questions. But I think I will hand the call over to you, Michael. And it looked like me -- like there are some acceleration. Is that the Finnish economy who's getting better? Or is it you getting better? Maybe we will be wiser.

Yes. Thanks, Michael. Good afternoon, everyone, on my behalf as well. I would take the credit to our team on good work and also good execution and the big investments we've been making in the previous years now starting to be more and more reflected in the growth numbers. We had a good Q2, 14% growth. And today, we released also the July revenue report where the growth was 12%. So growth has continued also in July, so we're very happy. Happy with that one. I mean, yes, the market conditions, there are some signs of recovery. Not much headwind anymore, I would say, some IPOs coming in not too many delistings. So it's getting better, but one can't say it would be a booming market and especially in the small cap first north sector, it's still a pretty weak market, but we're pushing forward nicely. All the business areas grew in the first half and especially, we're happy with the software business. There, we have said that one of the targets of this strategy period is to build the software business into the third pillar. Solid progress in terms of that strategic target. Profitability slightly improved from the previous year in terms of adjusted EBITDA and since we had no nonrecurring items, the reported profit was significantly up. What I'm excited about also is that we've been making a lot of investments into AI and turning into a more AI-native organization. And we're seeing good momentum there. So tangible benefits for the business, better products for the customers, more efficient internal processes, people being excited and happy how these new tools are taking away the processes and tasks that are more manual and not that interesting for the talented talented experts that we employ. So overall, good first half and especially second quarter. Going into the business lines. So research business, revenue up by 7%. Happy to see that the commission research contract portfolio is back to growth and also revenue grew by 7% margins at previous years level. We're seeing really solid business in Finland, winning the newly listed companies at a really high hit rate, and at the same time churn being very low. Sweden, revenues growing and the losses are getting smaller there. So we've made some internal changes there and strengthened the autonomy of the of the local team, and that's moving also into the good direction, even though it's not still contributing significantly to the growth numbers. Inderes platform, also the volumes are on a healthy level and increasing from last year. Events business, revenue grew by 5%, margins somewhat below last year level. We had a really good first half, the previous year. So this is fully in line with what we what we anticipated. Solid AGMs and solid Capital Markets Day season for the first half and of course, the second half is more critical in terms of Capital Markets Day productions. Margins, the sales mix puts a bit of pressure on the margins because of higher subcontracting costs. In the events business, the remotely produced earnings calls such as we are doing actually right now in this call. This is a remotely produced earnings call. We're using our own webcams and it's remotely produced. This is a business area that is at the lower price point. It's -- and it's becoming more and more software-based. And we're actually driving the transition into -- turning this into more and more software-based business that's putting a bit of a pressure on the pricing of the product. At the same time, there is some price competition in the market. So that's putting a bit of a pressure on the revenue line, which is offset by the strategic goal that we have to grow into the larger responsibility event productions where we are seeing good good growth momentum also in Sweden. And that's kind of like the strategic play that we have implemented successfully in in Finland and now pushing the same transition in Sweden.

Does that mean you're a little bit more protected in Finland because there you have moved it to the higher level? Is it Sweden where you're seeing the pricing pressure because there's not that much, so the question is, is it isolated to Sweden? Or are you also seeing some tendencies about the price pressure in Finland?

It's related to Sweden. So the Finnish business is on a really solid foundation and then there's the market difference between Finland and Sweden that in Finland, companies tend to invest more into high-quality Investor Relations event production while in Sweden, many companies are still doing audio cast, audio-only earnings calls, which is quite simple production-wise and not that high price pressure. But there are some companies kind of like seeing that, hey, actually, investor communications is also one area where we need to represent this company and the brand of the company in a professional way to a really critical stakeholder. So there's also companies that are kind of like, yes, this is an area we're spending couple of thousand euros more actually makes a lot of sort of sense in terms of building the company brand and trust towards the critical stakeholders being owners and investors. Yes. Then software business, the high -- star business of the first half, 23% growth and EBITDA margin growing to 10% compared with breakeven in the first half of last year. Here, we are -- and we have said that we will invest in growth and international growth and prioritize growth over profitability, but given the successes that we've had in sales, the profitability is also scaling or scaled nicely in the first half. Growth coming from all the product areas. Also within the AGM business. So there, we have been quite cautious on the growth outlook because of our really strong market position in Finland. But despite that, we were able to grow still in this season, the AGM business and we're seeing good traction for the fully digital general meetings after this spring. And I would say it's only when this transition is happening. Some people are against it, but I mean come on, like general meetings have been the same for the past 100 years. It's just a matter of time when it's going to change. And we're going to be driving that change. We delivered one of the biggest AGMs in the Nordics, fully virtual, very happy customer and executed with no hiccups. And that is opening up very interesting opportunities for our AGM business for the upcoming years because we believe the capabilities we have built in our software platform within this category are quite unique. So good development here. Then a bit more detail, zooming into the numbers, is the full income statement of the first half, so 9% growth, recurring revenue up by 8% and international revenue at -- 21% of revenue, up by 7%, the -- still not on a level where we want it to be. And at the same time, the business in Finland has been continuously outperforming our own expectations. Cost level on a planned level fixed costs pretty much flat year-on-year or no significant changes. What's affecting the profitability is the growth in materials and services, which comes from the larger event productions that come up with higher subcontracting costs and a bit different margin mix. Overall, adjusted EBITDA EUR 11.4 million compared with EUR 11.3 million last year and adjusted EPS at EUR 0.58 compared with EUR 0.55. Zooming into second quarter, which showed some acceleration, so revenue up 14%, recurring 9% up. And also, we had a good growth in the project revenue in the second quarter. And in June, we had good sales in the events business on the month that is usually quite slow. Here's also today's revenue reports. So we report our revenues monthly. So we also released today the revenue development in July, showing 12% growth compared to last year. Events business being flat and research and software driving the growth. Not much surprises or exciting stories to tell about this one. We have a strong and solid balance sheet. Cash flow on a healthy level. Because of strong sales in June, we did increase the amount of receivables, which affected the cash flow for the first half report somewhat, but there's just a seasonality effect in terms of collecting the receivables that's affecting -- having a slight negative impact on the cash flow. Guidance for this year remains unchanged. So revenues increased from previous year level and relative profitability measured by EBITDA margin, excluding nonrecurring items, 10% to 13% compared with 11.4% last year. And still, we're seeing slight growth in the market as background, and we will continue to make investments in the international growth and R&D, which is affecting the profitability. One item to lift from the first half, for example, R&D spending, which we booked directly to the income statement. So we don't activate R&D spending to the balance sheet. That was EUR 0.6 million and growth of 30% compared to last year. So one example of the investments we're putting. So that's the first half in a nutshell. You want to throw in...

There are some questions. Is the margin level somewhere sustainable? Or do you need to invest more there? You have invested a lot in the past, and now you're seeing the top line comment that also the margins. But do you increase investments again? Or are this starting to be a sustainable margin in the software business.

As said in our strategy, we'll continue to grow the investments, which will affect profitability. In our strategy, we did say that we are seeking to scale the profitability towards the end of the strategy period, meaning towards 2029. So short-term, we are not looking to scale this to high margin levels because it's not yet mature business. But for the first half, it did develop better than we expected. But in a way, you can also think that, that gives us more -- better capability to accelerate the growth at the same time. Profitability is not yet the priority for this business line.

Do we have revenue from AI products? Or is it primarily cost savings? I know it can be hard to make that distinction. But do you have an AI products that you're directly selling and revenue from [indiscernible] so more enhancement of current product portfolios that get stickiness and it's more on the cost savings side that you see in the AI FX.

We're embedding AI into our products and product portfolio with new features that make the products more rich and thus increase our pricing power or open up new monetization opportunities for us, and that's going across all business areas. Then within our internal operations, we're seeing concrete efficiencies, for example, within the research business, the number of companies, one analyst can cover, given the new tools we're seeing that we can increase that number quite a bit. It's still early days. And then, of course, software development is an area where the impact is something we're really seeing already how much -- like with the same small software , how much you can get done. It's incredible. So kind of like when we needed to grow, it's especially with software development, it's like you don't need to be always just recruiting new team members to get new things done.

And then finally, the revenue growth, is this -- is there some timing in this? Or is there something we should be aware of that has moved into the first half versus the second half? Or is it somewhat -- if you look at the first half, is that a kind of our underlying growth rate?

If you look at the July revenue report, you can see that there's no first half compared with second half timing effect because we did continue good growth also in July. So -- and we've had 5 consecutive months of good growth level. And the recurring revenue grew by 9% in the second quarter. So for me, those are signals that the growth is -- we still need to accelerate, but the growth is becoming more sustainable.

I think that was that for this part.

Very good. Then just quickly, quickly recap of the strategy coming out to the big picture, past in U.S., how we're building the company. This is where we come from, and this is where we're building this company. The research business that we have built is a really solid business, even though we haven't yet succeeded in getting that strong international growth path, but it's a very, very strong and resilient and solid business, that's the foundation for Inderes and gives us the platform and the community. In 2020, we went into the events business, which has built into the second pillar of Inderes, especially in Finland and now we have interesting opportunities within this niche market in Sweden. Then the third pillar will be the software unit that we have kind of like ramped up from scratch during the past years very much with the help of the proceeds we raised in the IPO, so that has given us the capability to invest and build new businesses and we're on a good path to build that into the third pillar of Inderes. And given these 3 businesses, the growth opportunities we see in the market and the business mix, we firmly believe that this combination enables us to reach the level of 30% revenue growth and profitability combination that we are aiming for. In terms of payout, here's a quick update on the payout for this year. So we've communicated that this year, we intend to pay out EUR 1.7 million to the shareholders divided into a share buyback program of EUR 900,000 and a dividend of EUR 0.45 per share to be paid into installments. After the first half, the status is that we have completed approximately half of the share buyback program. So that's ongoing full speed, and we aim to complete it during the second half. We have paid out the first installment of the dividend, EUR 0.22. And the Board is planning to pay out that's going to be a separate decision, a dividend of EUR 0.23 in the second half of the year. So to conclude, we're here to democratize financial information by connecting investors and listed companies. Investors need to find accessible and trust for the information on companies and stocks. In this world of noise and AI generated content, they need a trusted information source that Inderes is and the listed companies, once they go public, they need to communicate to the markets to their shareholders. They need to find the right investors for the company and we're the -- we're here to help the listed companies to get the most out of being a publicly listed company as we are ourselves.