Michael Friis: Welcome to today's event where we have the pleasure to present Inderes, as you can see here on the front page. The first nine months, the results of the Q3, also 2023 results is today's topic. To help us through today's presentation and take questions during the presentation and in the end of the presentation, we are joined by CEO Mikael Rautanen. As always, there is a box down below where you can ask your questions during the presentation or in the end of it. Do feel free to do it. You can do it in Danish. I will try and translate to the best of my ability. For full disclaimer, we should also say that we have a technology, HC Andersen Capital in Inderes, and you own 20% of HC Andersen Capital. I think we have that disclaimer out of the slide here.
Michael Friis: I will hand the call over to you, Mikael. It seems like pretty good results, but we were a little bit early warned or warned is a wrong question with your upgrade, but let's dive into what is going well for you this quarter.
Mikael Rautanen: Thanks, Michael. Good to see you, and welcome everyone online watching the webcast. Yeah, like you said, we did issue a profit warning, but it was a positive one, so we kind of warned that it is going to be more positive than we ourselves at least expected. So, Q3 business review. As a First North listed company, our Q1 and Q3 reports are these a bit smaller business reviews, but this will give you a good overview on where we are in terms of our performance. The Q3 numbers. It is on a positive note. Revenue up by 11%. It is pretty much coming also from the recurring revenue, and this was the second consecutive quarter that we were on a double-digit growth. The accelerated growth in my papers is not kind of driven by one-time items.
Mikael Rautanen: Profitability also up, adjusted EBITDA and reported EBITDA grew by 35%, and EBITDA margin to 22.4%. This is a seasonally strong quarter for our profitability always. What is driving the improvement? I would like in the big picture say we have been through a quite aggressive investment phase where we have been investing in building the software business, renewing the research business, building the international growth, and now many of those investments are starting to pay off, combined with market conditions that are now continuing to show signs of turnaround. The headwind that continued for quite many years is now slowly turning into tailwind. We have IPO activity coming back in Finland, also in Sweden. The Finnish economy, which is a big factor for many of our customers here in Finland, is picking up also, which has a positive indirect impact on us as well.
Mikael Rautanen: And one should not forget the AI transformation and the investments that we have been doing in AI. I am happy to say that with AI, we have been able to build better products for our customers. We have been able to get rid of many manual processes internally, which makes the work more meaningful for our people. So people are also excited about that. But from a shareholder perspective, there is a business case for AI. So we are getting more and more efficiencies also from AI. Basically, we have been able to grow without recruiting and increasing the headcount as fast as we earlier planned. So that is a positive development as well. Of course, when you look at Q3 only, it should be noted that last year, Q3 was relatively weak.
Mikael Rautanen: We had a really weak quarter for project sales, so of course, it is easier to grow from a bit weaker comparison period. The weakest part or the low light of this report, international revenue. It did not grow in Q3. It actually slightly declined. January to September, international revenue is still growing. There I would like to highlight that the international revenue has increased within the software business. International revenue has increased within the research business, and where the decline is coming from is the events business that kind of represents the biggest part of the international revenue. I will touch that in more detail in the events part of the presentation. But overall, going in the right direction. Research business, strong performance. The contract portfolio is back on a growth track, up by 10 contracts to 153. Sweden business is growing, and the loss is narrowed.
Mikael Rautanen: Here we have been doing a lot of transformation around AI. It has been a big push from the team. They have been doing great work, and we are getting more and more routine type of task automated, which is being reflected in the operational efficiency. So in the previous world, we used to say that one analyst can cover around 10 companies, and we expect that to increase materially going forward. At the same time, of course, one question is will we get that as a margin improvement and fully or can we protect and maintain our pricing? And here what we are seeing is that we are actually holding up or even being able to increase our prices given the new feature and increased value for the customers with also the AI being reflected towards the end user, the investors.
Mikael Rautanen: For example, our research model is fully open. So meaning that when a company comes and becomes a customer of Inderes, and we do the research on the company. Now, if the investor uses any of the AI tools investors usually uses or any investing platforms, it is very likely that they will get access and be exposed to research that Inderes is doing about the company. So really making sure that the company is findable for the investors and there is third-party research and analysis that is trusted available about the company openly in the investing phase. That is going really well. So there is a really solid business case for AI with the research business, I would claim. At the same time, it should be noted that we will not give up on the really high quality of the research work that we do. So we will not increase efficiency and margins at the expense of the quality of the end product.
Mikael Rautanen: It's a limited number of companies that one analyst can still cover in a way that the analyst really knows in and out the companies that he or she is covering. Well, Mikael, you're an analyst yourself, so you know the game here.
Michael Friis: I know the game. But also, no way I would cover materially more and still know the companies as good as this because what you might say learning is maybe 50% and then doing the tedious work as an analyst, that's maybe 50%.
Mikael Rautanen: Exactly.
Michael Friis: It's not about that you cannot do anything, but you can really increase, I think, efficiency.
Mikael Rautanen: Exactly. One thing with Inderes compared to traditional sell-side research, what our analysts really love and enjoy is that when you come to work at Inderes, your work is 100% research. You don't need to do sales, and that's a big difference, of course, that many of the analysts who have come from the sell side traditional research to Inderes that's one thing they usually love the most about working at Inderes.
Michael Friis: I guess that should also indicate that you can get the good names because I guess name recognition must be the name of the game here. Analyst, well-known, well-trusted. I guess that's the competitive edge in an AI world or am I wrong to think like that?
Mikael Rautanen: Yeah. Since the founding of the company, we've been investing in building strong names in the industry, personal brands that are visible in the investor community, visible in the media as well. I would say we've succeeded in that historically, and we're going to continue to grow our people and analysts on that path because I think that's going to be increasing in importance, which information and who investors are going to trust.
Michael Friis: Yeah.
Mikael Rautanen: Having recognized public faces is one element there definitely. When competing with talent, we're not going to be competing against large banks with money. So that I want to make clear because of course if you want to work in a big international investment bank, you're going to be making quite a lot of money most likely. So we're in the talent competition. We're using other strengths that we have and not going into the money competition even though long-term, I think we are also good and competitive in that perspective given the equity programs that we have and the salaries. That is something I need to be clear with when talking to investors, not competing with money because that game we won't be winning.
Michael Friis: I think you mentioned it yourself. Yes, you love to be anonymous. You hate to be a salesperson, right? But you need to be both in the big banks, right? I guess it's not always money counting.
Mikael Rautanen: Yeah, exactly. Moving on to events business. Here a bit mixed performance. Finland really strong, good performance continued. Sweden, a bit more challenging. Sweden, the market is going through a transformation. We are going through a transformation. There are two sides. The first one, this transformation to more software-based delivery model. That is a negative driver for our top line, but it is a positive driver long-term for our margins and the scalability of the business when the transformation is done. Right now we are pushing through this transition on the remote production product area. That is one area hurting our numbers. Then where we are seeking to grow is the area where we are really good at building high quality online and hybrid events for the IR segment.
Mikael Rautanen: This category is growing, is moving in the right direction, but the pace is not at the level which we are targeting. These two things combined, we are not growing internationally in this business. Added also with some larger event productions that have been postponed to next year, which is affecting the rest of the year outlook. Then going to software business here, continued strong performance driven by Videosync platform and the IR software revenue. AGMs is also part of this business, but Q3 is not the AGM season. Here again, in this business, AI a big topic, obviously. We are bringing new AI features to the products very much into the core workflows of IR, automating them and reducing the risk of errors. That is what customers ask for.
Mikael Rautanen: No IR is like, "No, I would like to have more manual processes that have high risk of errors." This is really resonating in the clients. Combined with our, I always need to mention the exceptional customer service that our team is giving for the customers in addition to really good products. This combination is working in line with our targets this year. We have reached the market leadership in all of the specific product areas in Finland and then together with you, HC Andersen, in Denmark we are growing the number of customers as well, especially in the release distribution product. That is moving forward as well. That is also a validation that we are learning the recipe to scale this business internationally or in new countries through a partner model.
Michael Friis: I am also thinking here, because you mentioned AI, but I also think now because I also operate in the business environment here, that putting something into an AI agent or an LLM model outside of your own, it is an IR. There is a big scare what will be published, what can be read somewhere else, because we are in an area where if you want to make it write something or you want to make it proofread or something like that. Any thoughts about that? Are you going in a way where you are developing open weight models internally where data stays there or just a little bit thoughts about that? Because I guess you are in an area where you really do not necessarily want to put out your information in the big LLMs, or if you do it, you know you do it with a risk.
Michael Friis: This is sensitive stuff a lot of AI people are working with.
Mikael Rautanen: Yeah, exactly. A big topic and really important for the customers. Maybe I will give some practical examples here, what we are doing so you get the idea.
Michael Friis: Yeah.
Mikael Rautanen: For example, with the release distribution, when our customer sends out a stock exchange release, we have an AI that proofreads the release and makes sure that there is no discrepancies between the language versions or that there is nothing unusual or exceptional in the release. If you have mistakes, it will prompt you, "Hey, you better check this before you press send out the stock exchange release." This is built within our software and just a feature that tens of companies have avoided sending out false stock exchange releases because of this simple feature. It is actually pretty simple. This is one example. Another example that we are just rolling out, when, for example, we sent out our IR calendar for next year as a stock exchange release a few weeks ago.
Mikael Rautanen: We have an agent that will pick up the information and then prompt the IR in the IR Suite, "Hey, I am going to update your IR pages with this new information. Do you approve the changes?" Then you just click Yes approve, and then the workflow is done. Compared with history, where you would need to remember that when you send out a release, you need to pick up the information and then go to your IR website and manually update the information and stuff like that. So it is really flowing into the core workflows that the customers have and helping them to automate them.
Michael Friis: True.
Mikael Rautanen: Maybe one thing to mention as well in the Videosync platform, we are rolling out an MCP. It means that basically you no longer necessarily need to log in to the actual software. You can use your own LLM to do your task and work through this MCP connection. That is coming out. Maybe we will share some more info about that later on, but that is also a big shift in the industry. If we look at the bigger picture, what is going to be the interface that clients are going to be using the software? Are they going to log in to your software to run the processes, or are they going to be using their own LLMs and natural language to run the same task they did in history?
Mikael Rautanen: I think that is a change that is going through in every software sector, but likely to touch also the IR space where we have our finger on the pulse and we are experimenting a lot of stuff there as well.
Michael Friis: True.
Mikael Rautanen: Yeah, very good. Quickly on the figures in a bit more detail. January, September revenue up by 9%, recurring revenue up by 9% as well, and project revenue by 10%. Cost level I would say flat-ish and that resulted in EBITDA improving to EUR 2.2 million from EUR 1.3 million last year. Last year we did have some non-recurring items affecting the first part of the year. So adjusted EBIT margin 4.4% compared with 13.2% year to date. As always, I want to remind that we are under the Finnish accounting standards, which means that we are doing the amortization of the intangibles from the acquisitions or the goodwill. So that is giving accounting cost item of EUR 0.5 million for the January-September period, not affecting cash flow in any way. Looking at the Q3 numbers specifically, so growth of 11% and margin improving to 22.4% compared with 18.4% last year. Guidance.
Mikael Rautanen: On 28 September, we issued an updated guidance. Previously we were expecting revenue to grow and EBITDA margin excluding non-recurring items to be in the range of 10% to 13%. Given the stronger than expected performance and the slight tailwind from the market we are now expecting EBITDA margin excluding non-recurring items to be in the range of 12% to 14% and revenue to increase 6% to 9%. Shortly, a recap on the strategy. This is the journey we are in. Last year we updated our strategy with more disciplined focus areas, building the research events and software business run more independently. This strategy is still really valid. It has brought a good clarity and direction to the organization, and especially we are happy with the software business.
Mikael Rautanen: We have the strategic ambition to build it as the third pillar of Inderes, and I think we are making good progress in that area. When I say that we have been doing heavy investments in the declining market, with that I refer to how much we have been actually investing since the IPO. In total, it is around EUR 17 million, which covers acquisitions. Part of them have been paid with our own stock. Then R&D. R&D, we do not capitalize to the balance sheet, so that is a cost item. In total, we have been investing in R&D a total of EUR 5 million in this period. Then there is a small part of traditional CapEx. Where have we been investing is, well, first of all, building the software business, where I would claim that we are making good progress, and these investments are paying off.
Mikael Rautanen: This year, in the H1, the software business turned into positive profitability combined with good growth. Then we have done some M&A transactions, the bigger one in Sweden and the small one in Denmark, the minority investment. Here, especially in Sweden, I think we still have a lot to prove that those investments are shareholder value-creating. We have been investing a lot in renewing the research business. 5 years ago, we built up the whole research platform, rebuilt it from scratch, and now it has been renewing towards the AI era. Then, of course, the events business has been undergoing significant transformations as well the past years. First, given the changes with COVID and then post-COVID changes, like adapting to the quickly changing market conditions. I think we have done a lot of right choices in that business area given the quite turbulent market, I would claim.
Mikael Rautanen: The financial targets, combination of 30% revenue growth plus EBITDA percentage. This year, if you look at our guidance, we are going to be in the ballpark of 20%. So not reaching the Rule of 30, but Rule of 20, maybe. Given the mix of businesses that we have and the growth prospects that we have, I still think this target, there is ambition to it, but it is definitely achievable. Finally, on the payout for this year. So, the whole profit distribution for this year, EUR 1.7 million planned, and basically this payout program is approximately today, maybe tomorrow, fully completed. So the second part of the dividend is paid out on Thursday. The buyback program, EUR 900,000, was yesterday 97% completed. So that is going to be actually completed a bit ahead of time. That is because the liquidity of Inderes stock has been, I would say, higher than we expected.
Mikael Rautanen: But it is good to have a liquid share.
Michael Friis: Yeah.
Mikael Rautanen: If you want to invest in us, there it is.
Michael Friis: To see it as a bad thing, I am not really sure.
Mikael Rautanen: Liquidity is a big challenge for many companies,
Michael Friis: Yeah
Mikael Rautanen: especially the small cap companies. I would say, the relative liquidity of Inderes stock is actually pretty good compared with our kind of market cap, like how quickly the owner base changes. I think we can be happy with liquidity. What we are not happy with is, of course, the performance that we have had. But on that one, we are every day coming to the work to democratize the financial information and to make a hell of a good business out of it. That is where we are going. Any questions, Mikael?
Michael Friis: Yeah. There is one to your guidance, and you, as an old analyst, you know you will get this one. If you go to the low end of the guidance, it is a slowdown compared with the first 9 months. A high end looks nice. Is there anything we should look out for? You mentioned Sweden, something has been postponed, but is there some other things you are seeing that makes you caution, or is it still evolving business environment that you take some cautions, and that is how we should read your guides.
Mikael Rautanen: Hmm. Well, the ones you mentioned, some larger event productions being pushed to next year on a one-quarter level that might have quite significant impact actually in our numbers.
Michael Friis: Yes.
Mikael Rautanen: We did have relatively good Q4 last year as well, so it is also the comparison.
Michael Friis: Comparison
Mikael Rautanen: period. Yeah.
Michael Friis: Yeah. Nothing else you are seeing. The Finnish economy is going well. I am also talking about, we can see with a little bit jealousy, the IPO market actually opening up for you. It is a big part of your business, I know that. But how has the first IPO fared? Have they been well-received in the market, I guess? That is what makes windows continue in the IPO market. Of course, it can be shut down for macro reasons, but it is also how they fare, the first IPOs. Have they been reasonably well being taken well with the market and hereby is always measured in share price in such a short period?
Mikael Rautanen: I would say reasonably well, yes. We have had some companies generating really strong returns, and then some companies trading somewhat below their IPO prices. So it is a mixed bag, but overall, if it is a company with solid numbers, if it is preferably a larger company, because the really small-cap sector is, the sentiment is still very weak.
Michael Friis: Yeah.
Mikael Rautanen: If it is a company that has some AI or data center exposure, then there is more appetite. So it is a bit depending on the profile of the company. The window is definitely not open for all companies yet, and we are still waiting to get the small-cap sector going as well. But there, the sentiment unfortunately continues to be quite weak, but I bet that will change over time. Maybe one thing regarding IPOs, last year I was challenged quite a lot because of Inderes not winning the IPO companies as research customers. Today I can say that out of all the IPOs in Finland last year, each one of them is our research customer. So 100% hit rate, I do not know how to improve from there.
Michael Friis: You took a little bit of time. Perfect. Then the split between M&A and distribution going forward, do the internationalization strategy demand more M&A? As you said, you are maybe not getting the returns you hope for in Sweden. Do you demand more M&A to be stronger, bigger, or is distribution maybe still your preferred is where you are seeing maybe the capital allocation going here in the midterm? I know I am not making you make any targets, but just your thoughts. Do we need more M&A for international strategy, or should we look at you also as a solid distribution company going forward?
Mikael Rautanen: Hmm. I would say it is more our own execution that we are now focused on. Of course, we are keeping eye open for potential M&A, but to grow and especially to grow earnings, I think we have the right pieces in place at the moment.
Michael Friis: In place, yes. I guess distribution because I guess, and you cannot comment on it because you do not show cash flow in the quarters here, but
Mikael Rautanen: Yeah
Michael Friis: that is the same. Then maybe looking a little bit into 2027 without you guiding. With those pieces in place where you are seeing revenue growth, which is market-driving, outstripping cost base. You control the cost base. Is this a new normal that we should start seeing you actually have a flattish cost development going forward because efficiencies and the prior years' investments will make it that you have a flattish or lower cost than maybe your revenue growth, if revenue growth is in the normal range?
Mikael Rautanen: Well, you know how to place your questions, does not it?
Michael Friis: Yes.
Mikael Rautanen: It's a tricky one. Not to go into the next year guidance that we haven't given. Overall, maybe I can refer to our long-term financial targets. I think they're still valid, and we're well-positioned to not only grow our top line, but also to grow especially our profitability, profit.
Michael Friis: You choose the corporate. That was also one I think you could do. That was the last question, Mikael. Thank you for taking us through your results and answering questions through the event. Thank you for the audience listening in. May everybody have a nice day.
Mikael Rautanen: Thank you.
