Earnings call transcript: StrongPoint Q1 2025 sees stable revenue amid tech expansion

StrongPoint ASA, a leader in retail technology for the grocery sector, reported its first-quarter earnings for 2025, showing stable revenue figures and a modest improvement in profitability. The company recorded a revenue of NOK 347 million, a slight decline of 3% year-over-year, but saw a positive trajectory in other financial metrics, such as EBITDA, which improved to NOK 10 million from a loss of NOK 6 million in the same quarter last year. The stock price reflected a cautious market reaction, with a slight drop of 2.61% to NOK 8.96. According to InvestingPro analysis, the stock is currently trading near its 52-week low, and their Fair Value model suggests the stock may be undervalued at current levels.

Key Takeaways

• Revenue reached NOK 347 million, a 3% decrease year-over-year.
• EBITDA improved significantly to NOK 10 million from a loss of NOK 6 million.
• StrongPoint’s stock saw a minor decline of 2.61% in recent trading.
• The company is expanding its retail technology solutions across Europe.
• Sainsbury’s order picking solution was a key growth driver this quarter.

Company Performance

StrongPoint’s performance in Q1 2025 reflects a mixed bag of results. While revenue decreased slightly, the company managed to turn around its profitability with an EBITDA of NOK 10 million, compared to a negative EBITDA in the prior year. This improvement highlights the effectiveness of cost management strategies and operational efficiencies. InvestingPro data shows the company maintains a strong gross profit margin of 79.85%, despite facing profitability challenges in the last twelve months. The company’s focus on expanding its retail technology solutions, such as electronic shelf labels and order picking solutions, is driving growth, particularly in markets like the UK.

Financial Highlights

• Revenue: NOK 347 million, down 3% year-over-year.
• EBITDA: NOK 10 million, improved from NOK -6 million last year.
• EBITDA Margin: 2.9%.
• Operating Cash Flow: NOK 8 million.
• Net interest-bearing debt increased by NOK 12 million to NOK 72 million.

Outlook & Guidance

Looking forward, StrongPoint has set ambitious targets for 2023, aiming for revenue between NOK 1.5 billion and NOK 1.8 billion and an EBITDA margin of 4-6%. The company plans to leverage its investments in the UK, Ireland, and Spain and expand its e-commerce SaaS solutions globally. With the next earnings report scheduled for May 19, 2025, investors will be watching closely to assess progress toward these goals. The focus remains on transitioning electronic shelf label partnerships and developing new solutions in the Nordic and Baltic markets. For deeper insights into StrongPoint’s valuation and growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, which includes detailed analysis and fair value estimates.

Executive Commentary

CEO Jakob Twerbach emphasized the company’s dedication to innovation and market leadership. "We are a retail technology company that focuses on delivering the best of solutions to grocery retailers in Europe," he stated. Twerbach also highlighted the success of the Sainsbury’s order picking solution, calling it "the world’s most efficient order picking solution."

Risks and Challenges

• Supply Chain Disruptions: Potential disruptions could impact product delivery and cost structures.
• Market Saturation: Increasing competition in the retail technology space could pressure margins.
• Economic Conditions: Macroeconomic factors may influence consumer spending and retailer investments.
• Currency Fluctuations: As a company operating in multiple geographies, currency volatility poses a risk.
• Debt Levels: Rising net interest-bearing debt could impact financial flexibility.

The absence of specific questions and answers from the earnings call means investors will need to rely on the company’s strategic guidance and market performance to gauge future prospects.

Full transcript - Strongpoint ASA (STRO) Q1 2025:

Jakob Twerbach, CEO/Presenter, StrongPoint: Good morning, and welcome to this Q1 presentation by Strongpoint. My name is Jakob Twerbach. I’m joined by Marius Drevellin, our CFO. I will take you through the Q1 results. I’ll start off with the highlights in this quarter.

We had a flat revenue development of minus 3% to NOK $347,000,000. The decline is explained by last year’s rollout of electronic shelf label tag replacement that we did in Norway. Beyond that, the quality of our revenue increased. We’re seeing a 17% growth in rolling twelve month recurring revenue. This stems from the growth of license revenue, license fees that we get from our own solutions, own proprietary solutions and third party solutions.

The growth this quarter was explained by Sainsbury’s order picking solution that we get rolling out by increased self checkout solutions into The Baltics and by other third party solutions. EBITDA for the quarter improved by NOK 16,000,000 to plus NOK 10,000,000 this quarter. That gives us a EBITA margin of 2.9%, improved yet not at the levels that we are aspiring to, but it’s a step in the right direction. Operating cash flow was NOK 8,000,000. In the quarter, we had a breakthrough with Oto store in The UK, the first Oto store for one of the leading fragrance shops in The UK.

We also started a new third, new proof of concept for VentSafe. This is the third VentSafe proof of concept we’re running in The UK. And lastly, we have initiated two proof of concepts for an artificial intelligence solutions to reduce theft in self checkouts. We’re doing that in Norway, we’re doing that in Sweden, and we also formalized a partnership with the supplier this quarter. Now for those of you that are less familiar with StrongPoint, allow me to give a very brief review of or presentation of what StrongPoint is all about.

So StrongPoint, we are a retail technology company that focuses on delivering the best of solutions to grocery retailers in Europe predominantly. We had last year a revenue of about 1,300,000,000.0, about one third of that is recurring revenue. And we’re doing this or delivering this revenue by providing a combination of own software, third party software and also product hardware for customers. We have 500 people across the nine geographies we operate, and we’re doing or we’re operating in these nine countries to help our retail customers achieve improved operations in the store and to enhance the shopping experience for our gross sale grocery retail customers and consumers. So that’s we are serving European grocery retailers predominantly.

Those are the stable, resilient and less tariff prone or tariff tariff affected customers that we are serving, I think is important to say in today’s context. So what What are the solve problems that we solve with our solutions for grocery retailers? Well, there are five key problems that we solve. Number one is e grocery fulfillment, ensuring that the grocery retailers are able to pick, pack and deliver e grocery orders in a most effective manner.

Secondly, we’re supporting grocery retailers to reduce theft and shrinkage, which is in these times and have been for some time a growing concern of grocery retailers. Thirdly, we have a set of solutions to make these store operations more efficient. And fourthly, we also have pricing promotion solutions, most notably electronic shelf label that we provide to customers to both make price changes more effective, to make the promotions more effective and to help grocers achieve more revenue from retail media, which is growing in demand. Lastly, we have cash management handling solutions. Cash is a very prominent part of the way that retail operations is driven in Southern parts of Europe today.

But let’s not forget, we also, even in The Nordic countries, have with just 2%, three %, four % cash usage, a very big volume of cash that needs to be handled in the most effective manner and Strongpoint does exactly that. Now these are the five groups of problems grocers face that Strongpoint support with. So how do we support our customers? Well, we don’t only sell products or solutions. We do that, but we in addition, we make sure that the installation is done appropriately to get the most value out of the solutions.

We also do the service of those solutions whenever a hardware is not working appropriately. And lastly, we’re staying in very close contact, achieving that customer intimacy with our support offering. And going through the entire value and life cycle of products like this enables Strongpoint not only to have recurring revenue, but also repeat revenue in the markets that we operate. We like to separate between the traditional Strongpoint markets, The Nordics and Baltics, but also the new and very large and exciting markets, UK and Ireland and Spain. Looking at customer success this quarter, I want to highlight three things.

Firstly is the Oytl store win into The UK, following a very successful implementation of a three temperature zone auto store in Norway, we’re now also moved into The UK, although only ambient solution. But it’s a breakthrough for Strongpoint. We’re also now starting to sell Outdoors’ solution set, which is called Peo. It is a smaller and more standardized solution that we have anticipations regarding to provide more revenue and profits for Strongpoint and customers going forward. We’re running now the third proof of concept of Venseth in The UK.

In this quarter, we have just started with Morrisons, one of the leading grocery chains in The UK, following the ongoing proof of concepts to both Sainsbury’s and Aston. All of these proof of concepts are slightly different in nature. In the case of Morissons, I really like the fact that we have a customer and a customer team that we’re working very closely with that also challenges us at Strongpoint, even when offering a traditional legacy product like EventSafe. What do I mean when I say that? Well, I mean, in the case of Morrison’s, we are introducing select screens in the aisle, and we’re providing dispensers, sort of defensive dispensers after checkout with a big retail media screen and platform.

That allows the retailer to gain revenue from from retail media, which we haven’t done in the past. Those are the kind of customer projects that I really love. So we have great expectations for what these proof of concepts and the VentSafe product in general can provide for value to customers in The UK. Lastly, in terms of customer success this quarter, we have two ongoing proof of concepts for an artificial intelligence solution to prevent theft in self checkouts. We’re doing this with a supplier called SAI or SAI that has been working on this solution and applying this solution in The UK market.

And early indications are very good in Norway and Sweden, where we’re running these pilots or proof of concepts, and we have high expectations for what those also could yield in the quarters and years going forward. We formalized the agreement with SAI also this quarter. Now not strictly for this quarter, but nevertheless, want to do round off by the two or two major projects that we are working on. One is the Sainsbury project, the rollout of our order picking solution. So the order picking solution win with Sainsbury’s was announced a year ago in Q1 last year.

We spent the year both implementing a number of changes that has been needed for Sainsbury’s and we’ve started rolling out the solution. There’s been added requirements from Sainsbury’s that we’ve had to take into the road map that we have. That is probably going to impact the rollout that we have for Sainsbury’s, where we have earlier expected the rollout for the 300 close to 300 stores to be completed by September. We probably or will be needing to move into next year as the months of October, November, December are freeze months for any grocery retailer in The UK really. That doesn’t have much or any financial implications for us at Strongpoint, and the project is still moving very nicely forward.

Secondly, we have CashGuard Connect. The CashGuard Connect is a proprietary cash management solution that we have been running in pilots in stores or in store with Mercadona. The project and product is developing very nicely now going forward. We are planning for additional pilot stores, and we are also seeking with the customer a more firm long term financial commitment, and that will be priority now in Q2. We’re also excited to see that the solution is not only of interest to Mercadona, but also to other grocers both in Spain, in The UK and elsewhere, where we have started to present this groundbreaking cash management solution.

And with that, I’d like to hand over to Marius to take us through or take you through the Q1 financials. Marius?

Marius Drevellin, CFO, StrongPoint: Thank you, Jacob. I will now go through the key financials for the first quarter this year. Starting off with revenue. The Q1 revenue this year was SEK347 million, a reduction of 3% compared to last year. First of all, we had solid growth in The Baltics, driven by large self checkout deliveries.

In addition, The UK had a 16% growth, which included our first ESL and Autostor installation revenues. Sweden also contributed positively with 28% growth. These increases, however, were offset by a decrease in Norway, as we had large ESL rollouts the first half of last year. Moving on to recurring revenue twelve months rolling. This increased by 17% compared to Q1 last year.

This growth is fueled exclusively by a 68% increase in license revenue, mainly from our order picking on the back of the Sainsbury’s contract that started Q2 last year and self checkout solutions. If we move on to the EBITDA, this improved from minus SEK6 million Q1 last year to a positive SEK10 million in Q1 this year. This is due to a recovery of the international segment, mainly in The Baltics, but also of improvements in Spain. The profitability in The Nordics remained flat versus last year, despite the large revenue decrease in Norway, due to previously completed cost reductions. These were the main P and L items.

So what about the cash flow movements so far this year? We started the year with 82,000,000 in cash and ended the first quarter with SEK85 million, so fairly flat development. This includes a positive contribution from the operating result of SEK10 million and an increase in interest bearing debt of SEK 20,000,000. We spent SEK 11,000,000 on CapEx relating to development of the Cashguard Connect project in Spain and our own POS solution in The Baltics. Now let’s move further into the key components of the working capital development.

Inventory reduced by 34,000,000 this quarter. The main reductions came from self checkout deliveries in The Baltics, grocery lockers in Sweden and shop fitting equipment in The UK. This reduction was offset by increases in accruals and other short term liabilities, mainly project related deferred income. Now let’s look at the development in net interest bearing debt. During the first quarter, the net interest bearing debt increased by SEK 12,000,000 to SEK 72,000,000.

This was mainly to fund the development CapEx in Spain and The Baltics as already mentioned and leasing payments including rent. Disposable funds were 85,000,000, down from 102,000,000 at the end of last year. And finally, the equity ratio remained stable at 46% at the end of the quarter compared to our covenant of 30%. So to conclude, I will hand it back to Jacob for some final remarks.

Jakob Twerbach, CEO/Presenter, StrongPoint: Thank you, Marius. Just wanted to conclude with a short outlook. So outlook in the short term, we remain cautiously optimistic to achieve what we have set out for this year of achieving between NOK 1,500,000,000.0 and NOK 1,800,000,000.0 revenue with a 4% to six percent EBITDA. I say cautiously because we are doing quite a lot to to both transition into the new electronic shelf label partnership we have with Vucent and also to conclude in a good fashion with the partnership that we’ve had with Pricer for many, many years. If we look longer term, there are positive trends.

We have interest in our solutions, and we continue to be trusted by our customers. There are three points I want to single out for this background. Number one is that in The Nordics and in The Baltics, our traditional markets, we do have a good profitability. And what we’re doing now and going forward is to ensure that we get a further development, new solutions and improved relations with the customers that we and have. Secondly, the reap we have to reap the benefits from the investments that we’re doing in what for us is new markets.

That is, course, The UK and Irish market and Spain. We have been on our investment mode in these markets still, but I have great expectations for what those markets can give us in the years to come. And lastly, we have, in my view, at least the world’s most efficient order picking solution. We’ve seen that with the dozens of customers we have across Europe and beyond. And we’ve seen that with the win of Sainsbury’s.

This is the kind of solution that I believe have global potential. So the global potential that we have in our ecommerce SaaS solution is very significant and will be part of the growth that we at Strongpoint will hopefully then encounter for the many years to come. And with that, I’d like to round off and welcome you to a Q and A session that we have on audio a little bit later today. Thank you so much.

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