Zalaris

Investor Presentation • Feb 29, 2024

29 February 2024

Presentation of financial results Q4 2023

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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

Today's presenters

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

Hans-Petter Mellerud CEO and Founder

Gunnar Manum CFO

Highlights

Q4 2023 Highlights – delivering on growth and EBIT target

• Strong growth: Revenue increased 24.7% YoY to NOK 312 million with Net Revenue Retention in MS of 104%
• EBIT margin >10%: all time high adj. EBIT of NOK 33.4 million (10.7%), up from NOK 15.3 (6.1%) last year
• EBIT improvement program delivered: FY 2023 EBIT NOK 55 million higher (+133%) compared to base line in Q3 2022 (start of program)
• Market success continues with more than NOK 20 million annual contract value of new signings and upsell in MS and more than NOK 160 million for FY 2023
• Increased cash flow: Operating cash flow of NOK 34 million (when adj. for positive NOK 10 million reclassification to investments)

Market success continues with new signings in Q4

New signings and upsell in MS with Annual Contract Value of ~NOK 22m during the quarter

Significant pipeline of Multi-Country PeopleHub new name and upsell opportunities

Managed Services grew 23% YoY to NOK 229 million and 73% 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 23.1% YoY (+14.2% growth YoY when adj. for positive currency effects)

• 51% of growth came from customers that were customers in Q4 last year
• 49% of growth came from new names
• 104% 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: 10%
  • DACH: 23%
  • UKI: 14%
  • EasternEurope: 28%

Professional Services grew 22% and continued being strong contributor to Zalaris' overall success and Managed Services growth

Revenue NOK 75.3m (+21.6%)

*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 grew by 21.6% YoY (+7.2% when adjusted for positive currency effects)
• In local currency, revenue in UK grew by 93%, from consulting work from new clients, including a large airline, while Germany had revenue approx. in line with last year
• 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 recurring and supports a continuous presence with customers

Distribution of Projects vs long term AMS based revenue

Revenue customer split

• ~58 % of Professional Services revenue is recurring, or recurring like, and based on long term agreements and relationships
• ~83 % 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

X-shoring continue to develop in the right direction reducing onshore with four percentage points over the last months

Use of near-/offshore resources as % of total headcount improved with 4% over the last twelve months

Trend expected to continue towards Zalaris 4.0 target of 50%

Company in brief

Payroll & HR solutions that enable digital organizations

Zalaris' Product offering covering the full employee life cycle

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

¹⁾ 103 customers paying Zalaris NOK >1m, with a long-tail of ~100 smaller customers 2) 49 customers paying Zalaris NOK >1m, with a long-tail of 176 smaller customers

³⁾ Based on FY 2023 revenues

Diversified customer base across a wide range of industries

Financial Review

Revenue increased by 14% for the quarter YoY in local currency

Revenue NOK 312.4m (+24.7%)

• Revenue growth (as reported) for the quarter YoY: +24.7%
• Revenue growth +14.1% YoY in constant currency
• MS +24.5% to NOK 229m
  • 51% of growth came from customers that were customers in Q4 last year
  • 49% of growth came from new names
• PS +12.8% to NOK 81m
• Signed new SaaS/BPaaS contracts with annual recurring revenue of ~NOK 8m during the quarter, not including upsell
• Net new SaaS/BPaaS contracts signed, but yet to go live, has annual recurring revenue of ~NOK 96m

*See the interim financial report for definitions of APMs

Strong revenue visibility through 2024 - new BPO customers to go live will result in significant revenue increase

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 170m (+15%) vs. FY 2023, based on already signed contracts (assuming no material churn and based on avg. currency rates for Q4 2023 – EUR/NOK 11.65)
• The new contracts will generally generate full monthly recurring revenue when the customer has gone live on the PeopleHub platform
  • Total annual value of contracts to be implemented (NOK 96m) has been increased by ~NOK 20m from up-sell etc. to these new customers
  • All current contracts will be fully implemented by Q1- 2025
• Estimated future annual revenue assumes MS change order level at historical ~12% of recurring revenue, and PS & APAC revenue at FY 2023 level
• ~NOK 12m in churn, effective Q1 2024, included in net new signings

*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.

Significant increase in adj. EBIT for the quarter, year-on-year

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

• Adj. EBIT NOK 33.4 (NOK 15.3m) +118%
• Adj. EBIT margin 10.8% (+4.6pp)
• EBIT-improvement program to increase annual EBIT has delivered +NOK 55m by end-23 (vs. Q3'22 as base line)
  • Significant cost improvements by moving work to near-/offshore locations – work still in progress in Germany
  • Improved allocation of resources and focus on improvement in customer margins after rapid growth
  • Contribution from new signed contracts
  • Reduced used of external consultants through recruitment of own personnel still to be done hampered by tight market for SAP HCM consultants
• Reduction in EBIT margin for MS, compared to the previous two quarters due to additional investments in business development and increased capacity to handle volume growth in 2024

Condensed Profit and Loss

	2023	2022
(NOK 1 000)	Oct-Dec	Oct-Dec
Revenue	312 421	250 552
License costs	26 179	19 078
% of revenue	8,4 %	7,6 %
Personnel expenses	152 766	128 836
% of revenue	48,9 %	51,4 %
Other operating expenses	81 131	70 291
% of revenue	26,0 %	28,1 %
Amortisation implementation costs customer projects	9 915	8 832
Depreciation, amortisation and impairments	15 310	13 819
EBIT	27 120	9 695
Adjustment items*	6 280	5 594
Adjusted EBIT	33 400	15 290
Adjusted EBIT margin %	10,7 %	6,1 %
Net financial income/(expense)	(15 583)	(5 218)
Profit/(loss) for the period	20 879	(12 100)

Personnel expenses: Increased number of FTEs YoY (+43) and negative currency movements of (+9%). Revenue per FTE in constant currency increased by ~7%

• License costs: Increase as a % of revenue mainly due to currency movements
• Other op. exp.: Lower as a % of revenue, and increase mainly explained by currency movements (approx. +NOK 6m) and higher IT costs (e.g. hosting)
• Financial expense: Higher financing costs and unrealised currency loss on EUR bond loan vs. last year

*Items excluded from adjusted EBIT Q4 2023: share-based payments (NOK 2.8m) and amortization of excess values on acquisitions (NOK 3.5m) - see definition of adj. EBIT under APMs in the interim financial report )

Strong cash position and positive cash flow from operations of NOK 33.7 million, up from NOK 12.4 million last year

Development in cash balance (NOKm)

* Before share based payment costs

** Relates mainly to rental costs for office premises

*** Revenue deferred less revenue recognised less project costs capitalised

**** Including currency movements

• Positive cash flow from operating activities before reclassification of NOK 33.7m
• Cash balance at 31 Dec. NOK 136m (+NOK 15.3m from Q3.)
• Net interest-bearing debt of NOK 314.8m vs. NOK 333.3m at the end of previous quarter

1) Movement in customer projects and capex per the statement of cashflow adj. for a reclassification of NOK 10.4m from customer projects to capex in Q4

Outlook

Current growth trajectory supports our ambition of being a NOK 1.5 billion company in 2026

Development in revenue

* Based on current EUR/NOK rate

>10% annual organic revenue growth driven by:

• Growing HR and payroll market
• New large multi-country/global long-term contracts
• Expansion with existing customers products and geography (i.e. positive net retention)
• Higher than targeted growth in APAC
• M&A as a potential upside

Growth target per segment:

• Managed Services 15% growth
• Professional Services 5% growth
• Growing share of recurring revenue from Managed Services with long-term contracts of 5 – 7 years

Reaching target 2026 revenue combined with prudent capital allocation show operating cash flow potential in the range of 190-250 million per annum

• Targeted long-term operating cash flow conversion* of 70%
• Achieved mainly through:
  • Working capital improvements
  • Transformation projects for new customers to be minimum cash neutral

*Operating cash flow conversion is calculated as cash from operating activities before interest over EBITDA

In summary: 2023 delivered above communicated targets. Well positioned to continue positive development over the medium and long term.

• Solid baseline from delivering 2023 above target with Q4 Growth of 24.7% to annualized revenue of NOK 1.25 billion with 10.7% EBIT
• Growth to continue as backlog of sold contracts with 100+ million ACV to gradually be recognized as revenue over the next 12 months in combination with strong market and positive development in pipeline
• Margins expected to continue improving as operating improvements will bring DACH business closer to Nordic baseline in combination with scale effects, continued focus on automation, and improved productivity from implementing AI functionality

Q&A

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