Good morning, good afternoon, everybody. Thanks for joining our Q1 analyst call. Today, we're gonna talk about our FY 2023 audited numbers and our Q1 figures. The presentation will be held by myself. My name is Joerg Tewes, I'm the CEO of Exasol, and Jan-Dirk Henrich, who is our Chief Financial Officer. The topics for today, I'm gonna provide you with a business update on Q1 2024, and we're gonna share the audited financial results for 2023 and Q1 2024. And we also provide an update on the outlook for the rest of the year 2024. And at the end of the call, we would appreciate to hear your questions, and happy to answer those. So here's the disclaimer.
I pause from it for a second. Please glance over it. Thank you. So let's talk about our business in the first quarter of this year. So we're happy to announce that we have been able to achieve EBITDA profit in the first half—sorry, in the first quarter of this year. So we had previously announced that we would be aiming to achieve that in the first half of the year, and so we already were able to get above the loss-making zone in Q1. This is a big accomplishment for the company, and we've been able to do this for the first time since our IPO.
So it shows that we are on the right trajectory, and that we've been able to manage costs in a way that, that we can basically get to this point. So our liquid funds are well above the level they were one year ago, so they provide sufficient headroom for us to further grow the business. Our ARR is up 16% on a year-on-year basis, and the Q1 2024 revenue is up 13% versus prior year, following our strong Q4 2023, in which we had a couple of large upsell deals. Our churn in Q1 is in line with what we previously announced, so we're in line with our expectations.
Our gross new ARR in Q1 2024 is on prior year's level, with impacts of adjusted go-to-market motion, that I'm gonna speak to in a second, expected to come into effect in the second half of this year. We're actually seeing good momentum on our go-to-market focus on the BI acceleration narrative, how we present the product to the market, our Espresso product. So our pipeline is actually filling up the way how we expect it to. And in February, we also launched an extension to our Espresso narrative called Espresso AI, which is a first active step positioning us in the AI space for data analytics. So I'm gonna talk more about on the next two slides on that.
We are confirming our outlook for 2024. Okay. So, which is that ARR growth is up to 10%. Our overall revenue growth is 10%-15%, that we will remain EBITDA positive for the rest of the year, and that our liquid funds will stay above the EUR 10 million watermark the whole time through the end of the year. So let me talk about the business, and then I will hand over to JD, who will dive deeper into the actual numbers. Last year, in Q4 2023, we launched Espresso, which is a new product offering that we tailored for the needs of customers that have specific challenges in their data analytics stack.
So I wanted to bring this up here as a recap, and to help you understand how we're getting traction, what the market message is that we're sending to customers. So, Espresso is our next gen in-memory analytics database that's faster than anything else on the market. We have, that's our core product, Exasol, but you basically see that positioning here. Also, go to the next slide, where we have a more refined and distinguished product offering that is focused on solving a specific customer needs and customer pain points.
So the entry-level product is for those customers that have a spinning wheel problem with their respective BI tool, which is typically a Tableau, MicroStrategy, or Power BI that companies are using to create a business intelligence report. For those customers that have scalability problems, we've designed the Espresso offering, and that is basically our land and expand strategy into new accounts. That's how we're speaking to the market. For example, I'm actually currently in the U.S. right now. We attended MicroStrategy World and the Tableau Conference in the U.S. last week. And this is the key message that we're sending to the market and to their respective customers. So this is actually starting to see traction.
And then here on this slide, you also see the other options. So when we talk about Espresso as our land strategy, the expansion goes more to the right. There's Espresso Plus. This is when customers have a larger installation. The customer problem, I have a database performance and/or a cost issue with my existing data warehouse, so that's why they want to or can create a so-called consumption layer on top of their existing data infrastructure. And then to the right, we are also able, and we have customers that run all of their analytics load directly in an Exasol data warehouse.
So when you look at this, this also from a monetization point of view, entry-level, lower tickets are Espresso, and then over time, we are upgrading customers to Espresso Plus or to data warehouse solutions. So the largest customers that we have in our portfolio, they're all more on the right side, so they are Espresso Plus or data warehouse customers. But for us, this refined offering, that's basically what we articulated in Q4, is important when we speak about or when we try to bring on new logos to the team. So, we're seeing actually good momentum in certain key verticals.
What we picked here for this call is the financial services vertical, where we actually have been seeing quite recently good traction. So you see about EUR 1 million of new ARR in the financial services space. There were actually two new logos that we won, and one was in March, and then just very recently, this month, we won a financial service provider here in the U.S., also as a new logo, which I think is a testament of our verticalization strategy, specifically looking at banks, insurance companies, and moving them into the Exasol customer port.
So there's upsell opportunity there with existing customers, but also, we're actually very happy about these two new logos that we've been able to close in that space. One in the DACH region, the other one, like I said, here in the U.S. . So AI is something that has been on the map for a lot of our customers. So we actually have engaged with all of our large customers, understanding what AI means for them, where they see the future. And for us at Exasol, this is a huge opportunity, because what basically is happening in the data analytics BI market, every data analytics solution, every business intelligence solution, is going to get augmented by AI.
Soon, every company is looking for a way how they can pave the way into this AI-driven future. And so this launch of ChatGPT in November 2022 has really been the sort of iPhone moment for the industry. Every company, every business division is thinking about how they can leverage and utilize AI for getting better insights, faster insights into their data. So for us, that's like I said, it's a very large opportunity. We're actively working on our product offering in that space. What I just said, we're starting with customer needs. So we have done research, we've done customer interviews, and of course, we also have a clear perspective on what we think should be happening.
Exasol is primed our core technology to be a player in the AI-driven world. So when we go through the customer needs here quickly, customers really want to integrate their BI workloads into an AI environment. So the proliferation of GenAI will further explode data workloads and increase complexity of the workflows, and it is required to efficiently handle all BI and AI workloads in an integrated fashion. Data privacy is a really big topic. No enterprise wants their corporate and private confidential data to go out into public large language models. So it is important for any solution that it stays or can stay private.
This is an area where our ability to run data analytics on-premise and in managed cloud accounts, self-tenant cloud accounts, is actually very, very important. So, customers wanting to ensure privacy are also looking at on-prem solutions. What is important for any AI system is the accuracy of data. So whatever an AI system spits out, obviously needs to be accurate. Scalability, efficiency, this again high data workloads, the penetration of AI will demand data and analytics systems to be cost and energy efficient, to be scalable and highly performant. So that's, again, a benefit where Exasol, with our core database technology, comes into play to help customers to reduce energy consumption and cost. And then last but not least, is integrated solutions.
So, especially smaller organizations don't have dedicated AI experts, so the more integrated the solution is, the better it basically fits into the landscape. So we are evolving our product offering to seamlessly integrate into this evolving AI analytics landscape, and that's why we launched the Espresso AI offering in February. This is our first step into that space, and we will share more updates in the future calls. So Espresso AI consists of our strategy that we have here in 2024. There are three elements. I'm not going to read all this, but there's the Espresso AI, where we have a partnership with two companies, TurinTech and Veezoo.
Veezoo provides a tool for a ChatGPT-like interface into data analytics, and TurinTech has a tool called evoML, that helps companies do auto machine learning models. We also extended our core Exasol database to help data scientists leverage Exasol for AI use cases. We have a new interface in our system that we call AI Lab, that allows users to integrate third-party tools to that interface, most notably on the slide, Hugging Face, which is the leading marketplace for AI tools. And then, on the bottom here, we're also partnering with a large global solution provider to building a custom GenAI business solution. So overall, we're very excited about the space.
We think that Exasol is positioned nicely in the AI data analytics space, and we also see that as a significant impact for the future. So, summarizing, we're proud of the profitability that we achieved, and with that, I hand over to JD, who's going to take you through the financial results. Thank you.
Yeah. Thank you, Joerg. As he mentioned, let me now provide you with an update on the 2023 audited full year numbers, as well as the results of the first quarter in 2024. Both the audited results, 2023, as well as Q1 numbers, held little surprises, as both came in well within our expectations. But let's take it step by step, starting with a brief perspective on the 2023 audit numbers. Our financial audit on the 2023 numbers, conducted by our colleagues from KPMG, confirmed our preliminary numbers, as shared in our webcast in February this year. The only minor change compared to the preliminary P&L is a reclassification of EUR 300 thousand from non-recurring revenues to COGS, since the underlying transaction rather reflected the reversal of previous COGS than genuine income.
But this obviously left gross margin and EBITDA unchanged, which then stood at -EUR 5.4 million on an adjusted basis. Revenue growth compared to the previous year, through the adjustment, slightly decreased from previously 6.6% - 5.7% in the final audited numbers. The recurring revenue growth contained in this number, however, remained unchanged compared to the preliminary numbers, with 8.2% year-on-year growth. As a consequence, the underlying ARR growth for 2023 also remained unchanged compared to preliminary numbers. We ended 2023 with a 12-month growth performance of around 18% or EUR 6.4 million net new ARR.
Upselling to existing customers continued to be the dominant driver for growth, with the two biggest upsell deals in the company's history contributing roughly EUR 3 million of total upsell value alone in Q4. The gross upsell rate increased as a consequence to 123% versus 118% in the year before. However, ARR churn in value terms also increased to 9% from 4% in the previous year. As communicated previously, and also when we talked about our guidance in February, we expect this elevated churn to persist throughout the first half of 2024, as will be explained later. On a net basis, the increased gross upsell rate and the increased churn canceled each other out, resulting in a stable net revenue retention rate compared to prior year, at a level of around 115%.
I would also like to remind you that we have made two adjustments to our ARR number at the end of 2023. The first one is our standard adjustment to current FX rates, as we do at the beginning of each year, since we report ARR at constant FX throughout the year, and because the dollar overall has devalued versus the euro across 2023, there's a negative impact of roughly EUR 400,000 emanating from that. Secondly, we decided to make some amendments in the way how we include multi-year contracts with price increases into our ARR metric.
They are now included at currently prevailing price instead of average price across the contract period, hence showing a lower value in the present, which is, however, closer to the current revenue impact on P&L, bringing these two metrics into closer alignment. So both effects combined lower the like-for-like ARR level at the beginning of 2023 by EUR 900,000 to a value of 40.8, which is the starting value into 2024. Moving forward, all ARR values shown will be consistent with this FX rate and methodology, including historical values shown, which are used for like-for-like comparisons. And with that remark, let's move our attention to how Exasol started into Q1 2024. In Q1, overall ARR developments remained largely stagnant.
ARR churn, so we had a net decrease of slightly less than EUR 100,000 to EUR 40.7 million ARR. Contained in this change was an ARR churn of EUR 1.5 million, which was about EUR 600,000 higher compared to the same quarter last year. As I will explain later, this increase is driven mostly or almost exclusively by a downsell by that amount at a larger customer in EMEA. So that was roughly EUR 600,000 downsell in that account, which explains the increase versus prior year. A new business in Q1 amounted to EUR 1.4 million, which was slightly higher than in Q1 2023, hence compensating churn almost exactly.
The stagnant start into the year was expected, and the results confirm our perspective on how business would evolve in the first half of the year, given the currently elevated churn levels, which I will comment on in more detail in a moment. If we look at the ARR development by region over the past 12 months, we continue to see a higher growth velocity in the U.S. as compared to Europe. EMEA growth stands at 15.6% on a year-on-year basis, with strong upsell rates largely compensating for the elevated churn in that region, resulting in a net revenue retention of 113%.
On the other side, we see U.S. growth standing at 20%, with net revenue retention coming in at a relatively strong 115%, driven by solid upsell rates of 122%, combined with moderate churn levels. So as you can see here, the elevated churn that's currently affecting us is dominantly affecting our EMEA region. Overall, new logo growth is currently making a stronger contribution in the U.S. as compared to Europe, with roughly 5 percentage points growth contribution in U.S. versus 2.5 percentage points in Europe. Looking at the year-on-year ARR bridge in more detail, so this is end of March last year compared to end of March this year. If we look at the drivers, upselling, again, continues to be the dominant driver of growth.
The gross upsell rate currently stands at 124%, even versus a value of 118%, twelve months ago. ARR churn in value terms as of end March increased to 11% from 6% in the previous year. As seen on the previous page, this is driven by an increased churn in the EMEA region, which we expect to persist throughout the first half of 2024. On a net basis, the increased gross upsell rates and increased churn continue to cancel each other out, resulting in an only mildly increased net revenue retention rate compared to prior year at a level of 140%, 14%.
New customers contributed EUR 900,000 of growth over the past 12 months, with the Espresso initiative launched end of 2023, that Joerg just talked about, and the additional push into the AI space launched in Q1, we are confident to significantly increase the new logo contribution in the second half of this year. Now, I've talked about the elevated churn level before, so, given that overall increased churn dynamic, it is worthwhile spending a few minutes in putting this into context of the overall churn dynamics we observe in the industry at the moment. Now, this chart illustrates the development of last 12 months lost business rates since the beginning of 2022 of Exasol.
As you can see, churn rates were stable at a very low level up to the end of 2022, before gaining momentum in 2023. The macroeconomic tightening and the geopolitical situation in Russia that began in 2022 started showing its delayed impacts in the contract renewals that came up end of 2022 and early 2023, as is clearly visible here. The shutdown of our activities in Russia alone contributed approximately EUR 1 million of churn since early 2023, and several insolvencies of sometimes even larger customer in our core market, DACH, contributed another significant six-digit amount of lost biz in the same period.
In Q1, as already talked about in our February call, we additionally experienced a larger downsell with our largest customer in EMEA, related to an overall decrease in spend on data analytics in that customer, which in turn was due to its that customer's own overall profit situation. Now, to gain a sense of how this dynamic compares to those observed in other companies, we have started using benchmark data from OPEXEngine. That's one of the largest databases for performance metrics for SaaS and software companies in general, worldwide. So we started signing up to that service a couple of months ago and are comparing our own data to the database. As you can see, a relevant peer group of comparable company size and business structure currently experiences an average ARR churn of around 12%.
Now, while this does not make churn overall more acceptable or pleasant, it indicates that Exasol's currently elevated churn rates are, to a large part, expression of an elevated turnover dynamic in the software space at large, rather than a specific, competitive issue. That's still something we'll have to deal and work with, but it also, and obviously, we are reinforcing our customer retention and customer success measures, but our key focus is and remains in, continuing to build pipeline for new logo and upsell, business, such that we can compensate this currently larger churn momentum that the industry is experiencing. For the full year, we similarly expect our ARR churn to stabilize at a benchmark level of 12%-13%.
This expectation, however, has already been factored into our growth guidance for 2024, and hence does not affect our outlook provided for the year. With annual churn mostly hitting the books in Q1 and Q2, due to legacy contract renewal dates falling dominantly into that period, and the expected growing impact of our growth initiatives in Q3, Q4, we therefore expect net growth to turn positive again in the second half of the year. Irrespective of this current sideways movement in ARR, as Joerg already shared with you, we are very happy, and proud that we've successfully completed our path to profitability in Q1 2024. For the first time since Exasol's IPO, we can report a positive EBITDA on a quarterly level with Q1 2024 ending with a EUR 300,000 profit.
The decisive driver for this push beyond break even was the significant increase in recognized recurring revenue in the P&L, brought about by starting contract periods of the significant new business signings in Q4 last year. So you can see this here in the roughly EUR 800,000 uptick in overall revenue from Q4 2023 to Q1. Costs remained on a very well-controlled level, overall being 11% below prior year level on a quarter-by-quarter same quarter last year comparison basis. Personnel costs came back to normal operational levels after the Exasol impact for restructuring expenses in Q4 last year, and currently stand at EUR 6.7 million.
With this overall revenue up 13% versus same quarter last year, and costs down 11% versus same quarter last year, Exasol was therefore then successfully able to step into profitability. Now, the already mentioned revenue impacts of the significant new business signings in Q4 last year, particularly also impacted the development of our cash position in Q1. As you can see in the cash reconciliation bridge here, with most customers continuing to pay their subscription fees annually upfront, and the majority of contracts starting or renewing in Q1, we saw a cash flow adjusted for FX effect of almost EUR 8 million in the first quarter. Most of that due to the significant cash inflows from annually upfront payments, as expressed here in the change in deferred revenue.
Now, the EUR 500,000 of other effects were related to severance payments for the reorganization of our EMEA organization, which we concluded in December last year, and which, P&L wise, was already accounted for in the 2023 results, but the cash impact hit us in Q1 now. But still, the EUR 8 million of cash flow is a very strong showing. Q1 and I'd also like to mention that also marks the end of the XO effects that we have reported separately ever since the IPO. As you know, we've always adjusted for effects from the IPO-related bonus programs for the then-active employees, which was paid out over three years.
Now, the EUR 400,000 cash outflow in Q1, which you see here, were the last payment of these programs, which therefore are now fully settled and will subsequently no longer affect either EBITDA or cash performance. With this strong cash flow, which surpassed Q1 2023 cash flow by a factor of almost 2.5, our cash balance rose to almost EUR 21 million at the end of Q1. Given the seasonality in cash flows, while quarterly EBITDA is expected to remain positive from this point forward, we will see negative cash flow for the remaining quarters of the year. However, full year cash flow is expected to be largely in line with full year positive EBITDA, minus the restructuring payments made related to the reorganization conducted in December, which will, in the end, will be roughly amount to EUR 800,000.
This brings me to the outlook for 2024. No changes or surprises there either. With Q1 developing fully in line with our expectations, we reconfirm our full year outlook as well. We expect net ARR growth to stand at up to 10% by year-end, while revenue growth will be slightly higher at 10%-15% due to the delayed effect of the ARR increase end of 2023 on the P&L. With that, we expect EBITDA profitability on a full year basis and cash flows, which are largely in line with EBITDA minus the restructuring impact, maintaining our cash balance, however, well above EUR 10 million at year-end. This concludes my financial update. As usual, we look forward to meeting and interacting with you through our different channels during the rest of the year.
And we'll hopefully meet in person at the spring conference next week, where Christoph and I will be present, and we'll be happy to meet you and address all questions you might have. And with that, I would conclude our part of the call and look forward to your questions.
We will now begin the question and answer session. Sorry to interrupt, sir. We have a last-minute registration from, Miro Zuzak from JMS Invest. Please, go ahead.
Okay
Okay. Hey, Mirco.
Yes. Hi, Joerg. Hi, JD. Can you hear me?
Hi, Mirco. Yes.
It's actually Miro, but anyway.
Uh, sorry.
If nobody else asks questions, then I'll gladly take the opportunity. The first one is regarding your capitalized R&D.
Mm-hmm.
And because I see, I still see the depreciation charge for capitalized R&D, but I don't see any new capitalization.
Yeah.
Was it like a policy shift, that you expense all development costs, or is it just that you don't basically develop anything—... you can capitalize?
No, that was a policy shift that's been active for a while now already. So, we stopped capitalizing R&D costs at the beginning of 2022 already. So, the depreciation that you see is basically on the capitalized R&D expenses, which had accumulated up to that point. But then we shifted our accounting stance there and decided to no longer capitalize R&D expenses.
Okay. And is it, like the EUR 2.6 million, is this a good also, basically projection for the future, or will it go down?
No, I mean, it will obviously melt, and ultimately drop to zero. Yeah. So, I would have to look at the balance sheet of how much we actually have left. I think we have maybe two or maximum three years of depreciation on the old capitalized expenses left. But latest with that period, then the depreciation will drop to zero, and it will already, up to that point, decrease since you probably know the logic. It's individual product projects that are being activated and then depreciated, and as those gradually run out, then also the depreciation stops. Yeah. So, the depreciation level that you currently see will melt down and then gradually drop to zero over the next two- three years.
Okay. Because I see just EUR 3.1 million in basically capitalized R&D on the balance sheet, so that would mean that in two or three years-
Yeah
Basically, it's, it's gone.
Yeah, exactly. Yeah.
Okay. Then the next question would be, I mean, congratulations for the positive EBITDA also. I like the fact that it's an EBITDA and not an adjusted EBITDA. And you said in the call that, basically you expect every quarter to be EBITDA positive this year. Can you-
Yeah.
Say something about the seasonality? You know, is it like back-end loaded, like in the past a bit? You know, that basically you think that o r is it evenly distributed?
No, I think it's EBITDA will be steady, relatively steady. I mean, there's gonna be some fluctuation, depending on some exact timing of new business kicking in. But overall, I expect EBITDA to be relatively stable and flat, through our stable, positive, over the year. Yeah, so obviously, that's also related to the fact, if you look at the seasonality in ARR, last year, we had a very strong ARR showing in the fourth quarter. That was very heavily tilted to Q4, but then the P&L impacts of that increase will mostly materialize then in Q1, in the following year.
So the EBITDA performance that you see for this year will be largely determined by the revenues and the ARR performance up until end of Q3. And that's gonna be then relatively stable in performance until end of the year.
Okay. So I can, I can infer a bit from your answer, basically, the level of EBITDA that you're expecting, by, for example, quadrupling Q1 EBITDA plus, minus. Would that make sense?
That could be an approach-
Could be an approach.[crosstalk]
- without confirming a specific guidance.
Good. Then, no, of course. And then, other operating income, I think, you received, like, last year, some one-off grants-
Yeah
... still owed for the year of 2021. I mean, I know-
Yeah[crosstalk]
It's a very small number in your P&L, but still, could you guide us a bit what we should expect there in the current year?
Yeah. So last year, we received EUR 1.8 million on a net basis. A net because we've employed some consultancy support to apply for those grants, and net of the cost for that, we had grants of EUR 1.8 million. That was a relatively high number last year because we retroactively applied for the years 2020 to 2022. Then this year, we applied for the grants for the projects conducted in 2023. So this year will be a smaller number because it's only one fiscal year we applied for, and the amount we are expecting there is in the range of EUR 0.5 million-EUR 1 million.
Okay. Okay.
But that's already- t hat's including, included in our EBITDA guidance, as we just discussed.
Okay. So if I put all the pieces together, let's say, your ±EUR 40 million top line, I take a little bit of material cost, I take EUR 28 million personnel expenses, as a guess. It would mean that your other operating expenses really go down relative to 2023, which was already an excellent, basically a reduction versus 2022. Does this... I mean, can you still further reduce your other operating expenses this way, or am I making a mistake in terms of my thinking?
Well, there is a couple of effects that take hold. The decrease is not as drastic as 2023 compared to 2022. But there is a couple of things that are taking hold this year. One is, as I mentioned, we reorganized our EMEA sales organization in December, consolidating the two subregions that we had into one, bringing in one experienced new sales head for the whole region instead of having two. So that is impacting the 2024 full year cost. And the other effect that is still showing in the numbers is that we only shut down, I would say, our final activities in our little sports marketing venture in the middle of 2023.
This was because that's the time when the contracts ran out, they couldn't be stopped earlier. And the full year effect of that decrease also translates into the 2024 numbers. And also in general, with Chad, our new Chief Marketing Officer, who came on board middle of last year, he basically went through our whole marketing expense portfolio and rigorously reoriented all spending with a very clear ROI focus. And I think what we're seeing right now is that we're getting significantly more impact out of the money spent since the last three-four months, while at the same time operating at an overall lower marketing expense budget. Yeah, so... But these two effects on a full year basis is what you're seeing in those numbers.
I think the total cost base, total cost base is not that much significantly lower in 2024 compared to 2023, but it is decreasing a little bit.
Okay. Well, thank you, and congratulations again.
Thank you very much, Miro, and sorry for getting your name wrong initially.
No worries. No harm.
Once again, to ask a question, please press Star followed by one. Ladies and gentlemen, I suppose that was the last question. I would now like to turn the conference back over to Joerg Tewes for any closing remarks.
Yeah, thank you very much. Thanks for your participation and, looking forward to have you on our journey, getting Exasol into the profitability and then also in future revenue growth. So thank you very much for your attention.