26 October 2023
Presentation of financial results Q3 2023
Disclaimer
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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
Q3 2023 Highlights – delivering all time high EBIT
- Strong growth: Revenue increased 24% YoY to NOK 277 million with Net Revenue Retention of 106%
- EBIT improvement program on track: all time high adj. EBIT of NOK 25.6 million (9.4%), excluding investments in building APAC, up from NOK 11.4 (5.2%) last year
- Market success continues with additional approx. NOK 20 million annual contract value of signings and YTD delivery of 124% of 2023 sales budget needed to continue target growth rate
- Increased cash flow: Operating cash flow, before interest, of NOK 25 million
Market success continues with new signings in Q3
- New signings of ~NOK 20m during the quarter
- Pipeline of Multi-Country PeopleHub new name and upsell opportunities grew 27% YoY to NOK 810 million ACV
Managed Services grew 25% YoY to NOK 200 million and 72% 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 24.5% YoY (+15.3% growth YoY when adj. for positive currency effects)
- 58% of growth came from customers that were customers in Q3 last year
- 42% of growth came from new names
- 106% Net Revenue Retention YoY in constant currency as existing customers expand their geographic footprint and functionalities
Most regions with above target (15%) growth in local currency.
- Northern Europe: 6%
- DACH: 40%
- UKI: 54%
- EasternEurope: 54%
Professional Services grew 19% and continued being strong contributor to Zalaris' overall success and Managed Services growth
Revenue NOK 73.1m (+19.1%)
*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 19% YoY (+4.1% when adjusted for positive currency effects)
- In local currency, revenue in UK grew by 87%, 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
~59 % of Professional Services revenue is recurring, or recurring like, and based on long term agreements and relationships
~86 % 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
Right shoring continue to develop in the right direction
Use of near-/offshore resources as % of total headcount improved with 1% since Q2
Trend expected to continue towards Zalaris 4.0 target of 50%.
Company in brief
Payroll & HR solutions that enable digital organizations
One global IT platform with local presence
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
Market leader within mid-size companies with cross-border need and a strong customer portfolio of some of the largest corporations in the Nordics, DACH, UKI and APAC regions
| 1,500,000 |
~1,100 |
300,000+ |
Employees served monthly
by
Zalaris
supported HR
solutions |
Zalaris employees
across the world |
Employees served monthly
through payroll services |
| ~EUR 100m |
17 countries |
150+ countries |
|
With own service centers |
With expertise in local laws |
Geographical footprint
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
3) Based on LTM Sep '22 revenues
1) 89 customers paying Zalaris NOK >1m, with a long-tail of 100 smaller customers
2) 46 customers paying Zalaris NOK >1m, with a long-tail of 189 smaller customers
Diversified customer base across a wide range of industries
Financial Review
Revenue increased by 13% for the quarter YoY in local currency
Revenue NOK 277.5m (+24.1%)
- Revenue growth (as reported) for the quarter YoY: +24.1%
- Revenue growth +13.4% YoY in constant currency
- MS +24.5% to NOK 200m
- 58% of growth came from customers that were customers in Q3 last year
- 42% of growth came from new names
- PS +19.1% to NOK 73m
- Signed new SaaS/BPaaS contracts with annual recurring revenue of ~NOK 20m during the quarter
- Net new SaaS/BPaaS contracts signed, but yet to go live, has annual recurring revenue of ~NOK 99m
*See the interim financial report for definitions of APMs
Strong revenue visibility through 2024 - newly signed BPO contracts 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 112m (+10%) vs. LTM Q3'23, based on already signed contracts (assuming no material churn and based on avg. currency rates for Q3 2023)
- The new contracts will generally generate full monthly recurring revenue when the customer has gone live on the PeopleHub platform
- All current contracts will be fully implemented by end-2024
- Estimated future annual revenue assumes MS change order level at historical ~10% of recurring revenue, and PS & APAC revenue at LTM Q3'23 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 (ex. APAC) for the quarter, year-on-year
Adj. EBIT* excluding APAC (NOKm) and margin (%)
- Adj. EBIT (ex APAC) NOK 25.6 (NOK 11.4m) +125%
- Adj. EBIT (ex APAC) margin 9.4% (+4.2pp)
- EBIT improvement program to increase annual EBIT by NOK 40 – 50m by end-23 on track (Q3'22 as base line)
- Cost improvements by moving work to near- /offshore locations ongoing – mainly completed in NE and in progress in Germany
- Improved allocation of resources and focus on improvement in customer margins after initial rapid growth since 2021, which necessitated large increase in FTEs
- Contribution from new signed contracts
- Reduced used of external consultants through recruitment of own personnel
Condensed Profit and Loss
|
2023 |
2022 |
2023 |
2022 |
2022 |
| (NOK 1 000) |
Jul-Sep |
Jul-Sep |
Jan-Sep |
Jan-Sep |
Jan-Dec |
| Revenue |
|
277 459 223 564 |
818 788 |
642 191 |
892 743 |
| License costs |
23 482 |
20 704 |
73 348 |
61 120 |
80 198 |
| % of revenue |
8,5 % |
9,3 % |
9,0 % |
9,5 % |
9,0 % |
| Personnel expenses |
|
138 853 120 179 |
431 558 |
354 988 |
483 824 |
| % of revenue |
50,0 % |
53,8 % |
52,7 % |
55,3 % |
54,2 % |
| Other operating expenses |
73 919 |
58 392 |
203 620 |
152 246 |
222 537 |
| % of revenue |
26,6 % |
26,1 % |
24,9 % |
23,7 % |
24,9 % |
| Amortisation implementation costs customer projects |
8 959 |
7 316 |
23 850 |
22 807 |
31 638 |
| Depreciation, amortisation and impairments |
14 608 |
12 617 |
43 029 |
37 033 |
50 852 |
| EBIT |
17 638 |
4 356 |
43 383 |
13 998 |
23 694 |
| Adjustment items* |
6 027 |
5 393 |
18 985 |
16 953 |
22 548 |
| Adjusted EBIT |
23 665 |
9 749 |
62 368 |
30 951 |
46 241 |
| Adjusted EBIT margin % |
8,5% |
4,4% |
7,6% |
4,8% |
5,2% |
| Net financial income/(expense) |
|
1 113 (13 776) |
(58 642) |
(34 884) |
(40 102) |
| Profit/(loss) for the period |
|
13 371 (11 100) |
(23 842) |
(26 622) |
(38 721) |
- Personnel expenses: Increased number of FTEs YoY (+89) and negative currency movements of (+9%). Revenue per employee in constant currency increased by ~4%
- License costs and other operating exp.: Increase mainly due to currency movements
- Other op. exp.: Additional externals (+NOK 5.8m, but marginally lower as a % of revenue), external payroll partners (+NOK 1.1m), currency movements (approx. +NOK 6m)
- Financial expense: Includes unrealised currency gain of NOK 12.6m mainly relating to the EUR denominated bond loan
*Items excluded from adjusted EBIT Q3 2023: share-based payments (NOK 2.6m) and amortization of excess values on acquisitions (NOK 3.4m) - see definition of adj. EBIT under APMs in the interim financial report )
Strong cash position
Development in cash balance (NOKm)
- Positive cash flow from operating activities before interest of NOK 24.8m
- Capex relates mainly to internal system development including projects partly financed through SkatteFunn
- Cash balance at 30 Sep. NOK 121m
- Net interest-bearing debt of NOK 333.3m vs. NOK 356.3m at the end of previous quarter
* Before share based payment costs
** Relates mainly to rental costs for office premises
Outlook
Solid revenue growth last 2 years and ambition to grow to NOK 1.5 billion by 2026 (+10% p.a.)
Development in revenue
>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
* Based on current EUR/NOK rate
Increased focus on growing operating cash flow conversion and prudent capital allocation
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
Twenty-three years of continued growth combined with scalable solutions deliver value short - and medium-term value
- 1) Zalaris PeopleHub is increasingly in favour by mid-market and large customers seeking to digitalize their Payroll & HR processes resulting in 24% reported growth in Q3. We are now a 100 MEUR annualized revenue company and expect to continue delivering above our 10% growth target over the next 36 months.
- 2) Zalaris PeopleHub is a scalable solution supporting our Zalaris 4.0 industrialized approach to HR & Payroll and is starting to show with an all-time high adjusted EBIT in the quarter. We are on track delivering on our 10% EBIT target and next milestone of becoming a NOK 100 mill EBIT company. We are now aiming higher and are targeting 12-15% EBIT over the next 36 months.
- 3) Focus on capital allocation starting to show effect in Q3 with NOK 25 million in operating cash flow and in combination with increased profitability will drive free cash flow toward our target level of >70% of EBITDA.
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