Zalaris

Investor Presentation • Aug 22, 2024

22 August 2024

Presentation of financial results Q2 2024

PeopleHub BY ZALARIS Your one-stop HR platform

Disclaimer

The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its contents.

This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in Zalaris ASA ("Company"). The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions.

This presentation includes and is based, inter alia, on forward-looking information and contains statements regarding the future in connection with the Company's growth initiatives, profit figures, outlook, strategies and objectives. All forward-looking information and statements in this presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for the Company. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions.

Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although the Company believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation. The Company is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither the Company nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.

Agenda

• Highlights
• Financial review
• Outlook
• Q&A
• Appendix: Company in brief

Today's presenters

Hans-Petter Mellerud CEO and Founder

Gunnar Manum CFO

Highlights

Revenue and EBIT improvements continued in Q2 2024

• Strong growth: Revenue increased 14.9% YoY to NOK 323 million with Net Revenue Retention in Managed Services of 106%
• Higher EBIT: adj. EBIT of NOK 28.4 million (8.8%), up from NOK 20.2 (7.2%) last year
• Strong sales pipeline in Managed Services, including an annual contract value of NOK 42 million supported by signed letters of intent with new customers
• Implemented detailed plans for annual EBIT improvements in DACH of ~NOK 40 million within the next NOK 12 – 18 months, in addition to ~NOK 10 million from new customer contracts
• Improved cash flow: Operating cash flow of NOK 18 million, up from NOK 3 million last year
• Following a planning period with focus on solid preparatory work, the strategic review process announced in April is well underway

Q2 sales securing growth and continued low churn

• Expanded and renewed services with existing customers in Managed Services
• Started implementation project for two large German Managed Services customers based on LOI
• Significant pipeline of Multi-Country PeopleHub new name and upsell opportunities
• Securing large long term Professional Services engagements with both public and private clients

Expansion of service coverage with Telenor to cover 1,800 employees in Finland and SAS to cover UK. Renewed agreements with Sporveien and Kongsberg Automotive for another five years.

Agreement for the implementation of a new SAP HCM solution for the City of Berlin with more than NOK 170m in Total Contract Value and winning new frame agreement for Application Maintenance services with NRW with more than NOK 32 mill contract value over 4 years

DACH

Global IT Services

German Retailer

Strongest Quarter sales to date totaling more than EUR 1,8 million total contract value. Balanced mix of recurring revenue 59% vs project deals 41%.

Managed Services grew 19% YoY to NOK 242 million and 75% of total revenue.

*Revenue in local currency converted to NOK using the avg. currency rate from the quarter last year. See the interim financial report for definitions of APMs

• Revenue in Managed Services grew by 18.8% YoY (+19.4% growth YoY when adj. for currency effects)
• 106% Net Revenue Retention YoY in constant currency as existing customers expand their geographic footprint and functionalities
• Significant growth in all regions in local currency.
  • Northern Europe: +15%
  • DACH: +32%
  • UK&I: +23%

Professional Services revenue was 4% lower YoY mainly due to less working days and lower AMS volume in Poland

Revenue NOK 69.7m (-3.6%)

*Revenue in local currency converted to NOK using the avg. currency rate from the quarter last year. See the interim financial report for definitions of APMs

• Revenue in Professional Services was 3.6% lower YoY (-4.2 when adjusted for currency effects). Revenue reduction is mainly due to lower AMS volume in Poland.
• Revenue was lower compared to the first quarter mainly because there were 4 fewer working days in Germany in the second quarter, and in addition more annual leave was taken, resulting in less billable hours
• Significant PS capacity being utilized to support Managed Services in implementing new customers (transformation projects) or delivering change orders. Particularly in Germany

Majority of Professional Services revenue is considered recurring and supports a continuous presence with customers

Distribution of Projects vs long term AMS based revenue

Revenue customer split

~52 % of Professional Services revenue is recurring, or recurring like, and based on long term agreements and relationships

~82 % of Professional Services revenue is from customers that were customers 12 months prior

* Customers that were invoiced in the same quarter previous year

** New customers since the end of the same quarter previous year

Financial Review

Revenue increased by 15% for the quarter YoY in local currency

Revenue NOK 323.2m (+14.9%)

• Revenue growth (as reported) for the quarter YoY: +14.9%
• Revenue growth +15.3% YoY in constant currency
• MS +18.8% to NOK 242m
  • Net retention of 106%
• PS -3.6% to NOK 70m
• Net new SaaS/BPaaS contracts signed, but yet to go live, has annual recurring revenue of ~NOK 113m

*See the interim financial report for definitions of APMs

Strong revenue visibility through 2024/25 - new BPO customers to go live should result in >15% revenue increase compared to revenue LTM

Revenue development based on signed MS contracts (NOKm)

Contracted ARR* development over time based on signed contracts (NOKm)

• Total annual revenue expected to increase by ~NOK 179m (+15%) vs. LTM Q2'24, based on already signed contracts (assuming no material churn and based on avg. currency rates for Q2 2024)
• The new contracts will normally generate full monthly recurring revenue when the customer has gone live on the PeopleHub platform
  • All current contracts expected to be fully implemented by Q4-2025
• Estimated future annual revenue assumes MS change order level at historical ~12% of recurring revenue, and revenue from PS & APAC LTM Q2'24
• No known material churns going forward

*The ARR for the quarter is an estimate calculated by annualising the actual recurring revenue (according to contract revenue and additional services) for the quarter, for customers at the end of the quarter. Please refer to the APMs section of the interim financial report for further details.

Higher adj. EBIT for the quarter

Adj. EBIT* (NOKm) and margin (%)

• Adj. EBIT NOK 28.4 (NOK 20.2m) +41%

• Adj. EBIT margin 8.8% (+1.6pp)

  • EBIT and margin improvements from increased revenue (lower unit cost) and operational improvements (e.g. larger share of service delivery from near-shore and offshore location)
  • APAC contributing with a positive EBIT for the quarter

• MS: Adj EBIT NOK 33.4m (NOK 29.7m) +12%

  • Positively impacted by operational improvements (ref. above)
• PS: Adj. EBIT NOK 2.3m (3.2m) -28%
  • Adversely impacted by reduced revenue and the onboarding of a new SuccessFactors team, which requires time to implement

*See the interim financial report for definitions of APMs

Condensed Profit and Loss

	2024	2023	2024	2023	2023 *
(NOK 1 000)	Apr-Jun	Apr-Jun	Jan-Jun	Jan-Jun	Jan-Dec
Revenue	323 206	281 219	641 724	542 604	1 133 971
License costs	27 243	26 983	52 250	52 089	103 231
% of revenue	8,4 %	9,6 %	8,1 %	9,6 %	9,1 %
Personnel expenses	172 420	155 080	335 077	296 333	589 845
% of revenue	53,3 %	55,1 %	52,2 %	54,6 %	52,0 %
Other operating expenses	86 012	64 979	168 366	131 541	287 068
% of revenue	26,6 %	23,1 %	26,2 %	24,2 %	25,3 %
(Gain)/loss on sale of assets			(10 503)		-
Amortisation implementation costs customer projects	10 839	9 058	21 369	14 891	33 765
Depreciation, amortisation and impairments	14 346	15 071	30 282	29 214	59 940
EBIT	12 346	10 048	44 883	18 535	60 122
Adjustment items*	16 040	10 169	18 322	20 167	35 647
Adjusted EBIT	28 386	20 217	63 205	38 702	95 768
Adjusted EBIT margin %	8,8 %	7,2 %	9,8 %	7,1 %	8,4 %
Net financial income/(expense)	(6 227)	(21 914)	(30 117)	(59 945)	(74 630)
Profit/(loss) for the period	5 332	(11 275)	11 750	(37 213)	(18 980)

* 2023 accounts are reclassified

• Personnel expenses: Revenue per FTE in constant currency increased by ~7%. Cost increase mainly due to increased number of FTEs YoY (+78) and higher option costs (+NOK 4.9m).
• License costs: Approx. in line with last year
• Other op. exp.: Increase mainly explained by higher IT costs (e.g. hosting), use of external payroll providers and consultants
• Financial expense: Includes NOK 6.6m in unrealised currency gain on EUR bond loan

Operating cash flow increased by NOK 15m YoY and strong cash position at quarter-end

Development in cash balance (NOKm)

* Before share based payment costs (ex. payroll taxes)

** Relates mainly to rental costs for office premises

*** Revenue deferred less project costs capitalised

**** Including currency movements

Outlook

Zalaris target NOK 1.5bn in 2026 revenues with 12-15% adj. EBIT through operational excellence and scale

1

2

3

Development in revenue

Key growth and margin initiatives

Drive revenue growth through continued new customers and upsell of existing customers

Standardized solutions and targeting right shoring will grow margins

Retool the organisation with AI tools for increased productivity improving customer offerings

1) Numbers in parenthesis in constat currency based on 31.12.23 currency rates 2) 2023 Q4 run rate of EUR 100m based on currency rate of 11.22 per 31.12.23

German improvement program combined with contribution from new signed contracts in Germany to increase EBIT-margin

EBIT-margin impact from ongoing operational initiatives in Germany and corresponding effect on group margin and EBIT

Note: Applied EUR to NOK = 11.46

¹ Of large contracts won with German clients, only the part related to deliveries in Germany is included in this analysis.

In summary: Q2 another all-time high revenue quarter delivered and well under way to deliver on margin targets as improvements in Germany materialize

• Solid Q2 with growth of 15% to annualized revenue of nearly NOK 1.3 billion with 8.8% EBIT
• Growth to continue as backlog of sold contracts with 113 million ACV to gradually be recognized as revenue over the next 12 months to bring us just short of target for 2026 of being a 1.5 billion company
• Margins expected to continue improving toward short term target of 12% as German EBIT improvement programme progresses combined with incremental margin from contract backlog being realized
• Strategic Review well underway after initial planning period to explore options for the future

Q&A

Appendix:

Company in brief

Payroll & HR solutions that enable digital organizations

Zalaris is a leading European provider of global payroll and human capital management solutions delivered through software as a service, outsourcing, or consulting delivery models

Supporting fully digital processes for payroll and human capital management targeting 20-30% cost savings

One common multi-country solution satisfying GDPR requirements combined with competent resources serving complex customers with local competence and language

A market leader within mid-size companies with cross-border needs and a strong customer portfolio of some of the largest corporations in the Nordics, DACH, UK&I and APAC regions

1,500,000	~1,100	340,000+
Employees served monthly by Zalaris supported HR solutions	Zalaris employees across the world	Employees served monthly through payroll services
NOK 1.13bn / 8%	17 countries	150+ countries
2023 revenues / adj. EBIT margin	With service centres and expertise in local regulations	With expertise in local regulations with partners

Zalaris' Product offering covering the full employee life cycle

Services delivered by two integrated business units with most revenues being recurring of nature

Diversified and large customer base comprising blue-chips across multiple industries

We simplify HR and payroll administration, and empower you with useful information so that you can invest more in people.

Thank you!

Zalaris ASA | +47 4000 3300 | www.zalaris.com