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Welcome to the Techstep Q3 Results Release. [Operator Instructions] Speakers, please begin.
Good morning, and welcome to Techstep's Q3 presentation. My name is Jens Haviken, and together with me is our CFO, Marius Drefvelin. Today, we will go through our Q3 presentation and prepared remarks, then open up for questions afterwards. So let's begin. Next page, please. We will start by looking at the quarterly highlights before we take a closer look at our latest acquisition, Optidev, which was completed in early October. Marius will walk through the numbers before we take a brief look at the market opportunities and our value proposition. Finally, we will summarize and open up for questions. Next page, please. We have added good progress on our operational and strategic goals during this quarter, and we have delivered a solid financial performance with increase in both gross profit and profitability. Onboarding customers on our managed mobility offering Flow is our first priority. In the quarter, we officially launched Flow in the Swedish market, and a total of 5 new contracts were signed with a value of NOK 43 million. An important milestone was that we strengthened our position with Managed Mobility Services through the acquisition of Optidev. The Optidev acquisition also contributed to a 60% increase in our annual recurring revenue, totaling NOK 60 million. I will now hand over to Marius, who will give you an update on the Optidev acquisition as well as take you through our financial results for the third quarter. Next slide, please.
Thank you, Jens. This acquisition is a very important highlight in the quarter and a major step towards our ambition of being the leading provider of Managed Mobility Services in the Nordics. Next page, please. When we approached the owners this summer, we have been following the company for some time already. Optidev's shares many similarities with Techstep, but it also has complementary services. Specifically, the company offers a mobility solution comprising a hardware unit or device, combined with its own developed software and third-party software. This is managed by Optidev in an as-a-service model. Their hardware offering is not a mobile phone or an iPad, but rather a handheld rugged device, typically used within the transportation, logistics and retail sectors. Optidev was founded in the year 2000 with the main office in Borås in Sweden. As you can see from the financials, the company has grown steadily. And the acquisition will contribute with the gross profit increase of approximately NOK 113 million and EBITDA of NOK 36 million based on 2020 estimates. Next page, please. From an industrial perspective, the acquisition of Optidev does not only contribute with a significant increase in gross profit and EBITDA, but it also drives a number of other strategically important KPIs. For one, we will increase our share of owned software from 12% to 14%, and we will increase the share of advisory and services from 41% to 44%. Second, with Optidev's gross margin of 59%, the combined gross margin for the new group will increase by 5 percentage points to 32%. And finally, the share of gross profit from Sweden will increase from the current level of 24% to 42%. Increasing our presence in Sweden is important due to the size of the market and the growth potential, particularly within the enterprise segment. Next page, please. On a pro forma basis, the gross profit increased by 24% from NOK 80 million to NOK 99 million in the third quarter. The gross profit for the last 12 months, including Optidev, is NOK 416 million. The EBITDA increased from NOK 11 million in the third quarter last year to NOK 27 million this year. The EBITDA for the last 12 months, including Optidev, is NOK 88 million. And finally, the annual recurring revenue will increase by 60% from NOK 38 million to NOK 60 million. Next page, please. Now next, we'll look at the reported figures for Techstep in the third quarter. The acquisition of Optidev was formally completed early October and will be integrated in the reporting from the fourth quarter. Next page, please. For the key figures, revenue decreased from NOK 243 million to NOK 213 million, mainly from lower hardware volumes across all segments. More importantly, however, gross profit increased by 19% from NOK 60 million to NOK 72 million driven by the leasing portfolio and the one-off delivery. EBITDA adjusted increased from NOK 5.8 million to NOK 16.5 million as a result of the gross profit increase as well as cost-mitigating actions during the quarter. The net interest-bearing debt was NOK 12 million. With the Optidev transaction completed, this will increase the net debt by NOK 135 million with the acquisition financing and seller's credit. Finally, we had CapEx of NOK 49 million of which NOK 45 million was leased out hardware to customers. Next page, please. The gross profit for the last 12 months increased from NOK 293 million in the second quarter this year to NOK 305 million in the third quarter. We see that the decrease in regular hardware sales was offset by an increase in leasing. The leasing portfolio is an important part of the Flow offering, and we continue to see this as a driver of gross profit. Moreover, we saw an increase in our own software from NOK 36 million to NOK 38 million, whereas advisory and services remained relatively flat. Going forward, the gross profit split and development will increasingly reflect our focus on rolling out our own Managed Mobility Services offering. This offering is a solution, including finance mobile devices, connectivity, services and support, and most importantly, our own software. This will boost the value for the customers by reducing administration costs and increasing the flexibility and security related to having a mobile workforce. Today, software drives a smaller part of the gross profit. However, we expect this to change as we expand our software-driven offering in the Nordics. Next page, please. Here, we see the development in EBITDA adjusted relative to gross profit on a 12-month rolling basis, increasing to 17% this quarter. The increase in profitability was due to the following 2 drivers: one, a positive contribution from the leasing portfolio, impacting both gross profit and EBITDA; and two, a lower cost base, driven by mitigating actions during COVID-19.Next page, please. Here, we see the annual recurring revenue, which only includes our own software. One of the key focus areas and the core value driver is the Origo Business Cloud, and this is where we expect the growth going forward. On the total ARR, Origo comprises approximately 25%, whereas the remaining 75% is the white label mobile expense management service. From the second to the third quarter, the Origo ARR increased by 12%, whereas the growth in users was 16%. Year-to-date, the growth in users is 27%. For the white label service, we have a small decrease in the quarter as expected. Early in the quarter, the platform for Origo Business Cloud was launched in Sweden. This enables us to roll out Flow to Swedish customers being the core of the MMS offering. With this, I will hand it back to Jens. Next slide, please.
Thank you, Marius. Next slide, please. There are a couple of mega trends we see, which tells us that we are at the right place at the right time. The first one is Managed Mobility Services, their IT services and telecom convergence. Enterprises all around the world want to take advantage of mobile technologies. And they have, over many years, with IT learned that the most efficient way to have noncore processes is to outsource it to someone that does this for a living, like Techstep. This is now happening rapidly and is defined by the analysts, companies as Managed Mobility Services. Gartner stated in one of their reports lately that they expect this part of the IT and telco market to grow with a compound annual growth rate of 31% over the next 5 years. Next slide, please. The second trend we see is the rise of the deskless worker. 80% of the workers in the world don't sit at a desk, and these people have, over a long time, been overlooked when it comes to technology and software. This is rapidly changing. A survey conducted in the U.S. among 1,000 enterprises found out 82% planned to invest in technology for these user groups. And in average, they plan to increase their investments with more than 30%. As you see, the trend is valid across many different industries, with manufacturing and transportation in the lead. When they were asked why they plan to do these investments, the primary driver was productivity, followed by employee experience. I would say, based on our own experience, we echo these findings. And I would argue that they are tightly connected. Helping your employees to do a better job, to be more efficient, also improves the employee experience. One of our current customers, [ Leber's ], clearly articulated that employee experience was a major driver in their recent managed mobility project. Next page, please. When looking at our whole market, how does it look? There are about 14 million employees in the Nordics. When we take a closer look at the numbers, we have identified some 7 million people in Norway and Sweden in what we have defined as attractive sectors, and with a high degree of desk-less workers. 4 million are again in what we define as enterprises. Even though our solution are relevant to any business, we are primarily targeting larger organizations. The MMS market in the Nordics are still in early days, and we are confident that Techstep is well-positioned to take advantage of the expected growth. Next page, please. Techstep is a Managed Mobility Services provider with a sharp focus on customer needs and value. As stated before, managing mobile devices and platforms is rarely anyone's core business. We, however, are true experts in this field and have an extensive set of services that enable our customers to employ mobility as a service. The key components in our service stack is device management, platform management and advisory services. Device management is the foundation. In Techstep, we have packaged these services and marketed as Flow. Flow provides several clear benefits to our customers, including reduced IT administration, lower overall cost, data protection and sustainability benefits. Flow is powered by our Origo Business Cloud, which is at the heart of the solution. This is a proprietary Software-as-a-Service solution that we have developed over the last few years. It has several capabilities that enable us to deliver this as a service. Platform management is a service where Techstep typically takes on the responsibility of managing the customers' endpoint management system. Examples of such systems are Microsoft Endpoint Management or MobileIron. This service often includes app administration, identity management and security. And this requires specialty skills about the endpoint management system itself and the operating system of the device. Again, this is skills a typical company don't have internally. These offerings are supported by our consultancy practice. The services range from providing advice to C-level to deep-level expert advice on SURP technologies. These services are typically delivered as projects. A typical customer journey starts with some sort of advisory before we establish the foundation through proper device management. When this foundation is in place, the next step is to establish the platform and to implement solutions and applications in a secure and efficient manner. With the recent acquisition of Optidev, we have also acquired industry-specific solutions for field service workers. Next page, please. Let's dig deeper into some of the things we have achieved operationally during the third quarter. Next page, please. As far as stated earlier, Flow wins is an important metric for us. In the third quarter, we signed 5 new Flow contracts, giving us a total of 21 since we started last year. So far, we have primarily targeted and sold the solution in Norway. However, in the third quarter, we officially launched the solution in Sweden, and 3 of the contracts in the third quarter was for Swedish customer, which the largest was the Swedish Radio valued at NOK 18 million. Flow has been well-received by both new and existing customers, and we have a promising opportunity pipeline for Flow and other new opportunities going into the fourth quarter. Next page, please. BAMA is a long-standing customer of Techstep. And as part of their continuous development of business processes, they have decided to invest in Managed Mobility Services. This means that BAMA's employees across the organization will gain access to mobile devices and new applications to be used in their daily work. In addition, the IT department will employ Origo Business Cloud, which allows for both device and user management and self-service administration. Techstep has provided consultancy services in implementing and managing the Microsoft Endpoint Management platform as well as Origo Business Cloud. In addition, it includes the delivery of hardware as well as second-line support of the entire solution. The agreement commenced on September 15 and has an expected value of NOK 14.5 million over the next 3 years. Next slide, please. With that, I would like to summarize today's presentation. The acquisition of Optidev has strengthened our overall position in the market and particularly in Sweden. We have expanded our Managed Mobility offering Flow into Sweden. The MMS market is growing, and we are confident that we are at the right place at the right time. And we will continue to invest in our own IP and software as well as pursue M&A opportunities. With that, we thank you for listening in and we move to the next slide and open up for your questions.
We will open the question session by asking if anyone from the audience would like to make a question. All right. We have some pre-submitted questions for this session. First question, "Based on recent development of the COVID-19 pandemic, have you seen any changes to the market conditions? And how do you expect the current developments to affect growth?"
Jens here. What we see right now is that the public sector is holding back spending somewhat, especially on replacing devices. They are using devices longer than they normal do, and this is probably connected to the increased leasing finance COVID-19-related activities like testing, increased staffing and health boost and so on. So that we are not too concerned about this for 2 reasons. The need to change the device won't go away. It will eventually need to be replaced as it will worn out over time, and we are ready to handle that when they are, smooth and efficient as ever. So the device itself is still strategically important for Techstep. We can deliver our services from existing devices or even devices sold by someone else. While it is the software and the services that's important to us, that is where we add the value to our customers. I think in the private sector, it's a mixed bag. Some industries are already hurt, while some other industries are prospering. Here, we typically see that the number of users goes up or down, rather than they operate and act. So it's harder, I would say, to sell. What we see though is that the customers who have, which have Managed Services contracts, for instance, Flow, they are more robust to the market condition as we see now. Well, of course, our first priority is to ensure that as many of our customers are, at first, they are moving away from the traditional buy and use paradigm to a Managed Services paradigm. It is far better for them, and it's far better for us. And our ambition is to grow the number of users in our Managed Services offerings, going forward, and we believe the value proposition is strong enough to be highly valid also in a situation like this.
Thank you, Jens. Another question is, "What synergies are you expecting from the Optidev acquisition?"
Yes, this is Marius. I think, first of all, this will broaden our offering on an overall basis. Therefore, we do expect to see some synergies on cross sales, both on existing customers of Techstep and Optidev, and potential new customers as well. On the cost side, we do not expect to see any major synergies because both are fairly slim organizations.
Thank you. I have a third and final question, "Which ambitions do you have for Origo and third-party software?"
Again, I think the important part of that question relates to the Origo development because this is a key focus area for us, where we have high growth ambitions. During the year, we have achieved many operational milestones, including our ability to deliver Flow in Sweden. As for the third-party software, this is not necessarily a key focus area for us. However, it is a key component in the MMS offering, and we see that our customers find it convenient to buy this from us.
Thank you. That concludes the Q&A session, unless there are some final submitted questions that I'm going to hear at this time. So I think with that, we will close the session, and we thank you for participating, and thank you for listening, and have a continued good day.