Earnings Call: Q2 2021

Aug 11, 2021

Welcome to the Excitec Holdings presentation for the Q2. If you have any questions, you can use the raise hand function in the Zoom meeting or email at irexcitec. And without further ado, I hand over to the CEO of Exciitc Holding, Johan Kavlod. So hello. We decided to do this in English going forward since we've had a lot of international interest In our company and talking now, then it's me, Johan Kalblad. I've been the CEO of Excitec for 11 years now. And my deputy CFO, is also here with me. And as Hampus said, it's possible to ask questions via the hand raise function in Zoom or by sending e mail to irtexitec. Se. I always want to take the opportunity to talk a little bit about the company and what we do, and it's It's really quite easy. Our mission is to help primarily medium sized companies use digital tools to improve their business. And this can be things like reduce administration through automation and use data for better decision making or So this is our approach here. We've made a selection of software products for different business use cases. And we guide the customer to a good combination of software components. And The software is normally cloud based and sold through a subscription model where we have a revenue share partnership with the software developer who owns the IP. And we then add ready made integrations that we develop in house, and the customer gets usage to these through a subscription model. And then we do the customer success portion. We configure the software products. We train the users, make sure the customer is able to get value out of the software. And we have a large professional services organization that does this. And lastly, we offer a support service that's A single point of contact for everything we deliver and this helps us maintain a very long relationship with the customer. So The idea is really that we are in trust and scale our engagement with the customer use case by use case without necessarily making the traditional huge Big bang projects that can be a near death experience for a business. So it really is a land and expand model here. And these are the primary software providers that we work with. We have a reasonable balance with no one being more than 25% of our software revenue, but the largest 4 are probably around 70% of our software revenue. So We have this revenue share partnership with the software providers where we bring their software to new accounts and we make The customer is successful in using the software over time. And at this time, we have around 2,000 companies in the Nordics as our customers. And we think going through us is an efficient way for a software company to reach a market of scale. We defined this business model around 10 years ago and we've had a solid and profitable growth since we reached Scale around 2013, 2014. And today, we are around 400 employees in Sweden, Norway and Denmark. Around 70% of the business is in Sweden. As we become comfortable with the core business The core business model, we've been increasingly confident in adding growth through acquisitions. We see M and A as a very interesting growth opportunity going forward So and we've increased our ambitions here since we listed the company and we've got access to an efficient capital market. Lastly, on company information, an important DNA of Excitec is to hire and develop talent. We don't expect to find people that are already skilled in the exact products that we work with. So instead, we try to find great people and train them. This is also a great culture builder. And we've been named one of the most popular employers in Sweden for University graduates in the technology field for the last 2 years and even last year, we onboarded 35 people directly from university. Personally, I've actually spent the last 2 days welcoming 55 people that started with us now in August, and we have around 10 more coming on in So going into financials for Q2 2021. In short, we felt we had a really great quarter, both in terms of growth and profitability that scaled really well. So Overall growth, Q2 really strong, total growth of 91%, around 34% organic, rest through acquisitions. On the organic growth for comparisons, we should remember, of course, that Q2 2020 was It's affected by COVID. So even though we actually had solid growth also last year, we probably would have had a much better quarter had it been the normal circumstances. So comparables are easier. But and this year, we also benefit from an extra working day. But so 34% organic growth is Probably not something that's sustainable over time. Still, the numbers are what they are. So internally, we focus on total growth. So actually it says 90% here. Maybe that was a rounding error. It probably is 90% rather than 91%. I'm not sure actually from the top of my head. But Since product integration and support revenue is on a recurring model, there's a time lag before you see a good market condition reflecting the numbers. And this is why I think Q1 financial growth didn't fully capture how good the market actually was. And I tried to be quite clear on that On the last call and I shared a little bit more on the order intake, which we normally don't focus so much on these calls. But this quarter, we feel that really the market conditions really reflect and the numbers here on the overall growth. So focus on the quarter, obviously, growth and M and A activities. We are Find that the EBITDA in the quarter grew faster than the overall growth of the business, so a little bit improved margins. I would like to note also that we do not adjust for acquisition or integration costs. We take it directly over the result. And We have built the capacity to do most of this work ourselves. But this quarter, we did have around SEK 2,000,000 of external costs, So basically lawyers and accountants related to M and A, which is much more than usual. So the base business was even more solid from an earnings perspective. So EBITA margin in the short term, of course, is affected by margins in acquired businesses. But Since we were on the same business model in all our markets and we use the same KPIs and we centralized the things that aren't related to customer experience, We feel that we should be able to reach the same margins in an acquired business in maybe 18 to 24 months. So And then also the underlying business model gradually improves margins a little bit over time since the revenue share from recurring software licenses requires Relatively little work for us. So and overall, we're very happy with the profitability in the quarter and also for the year to date. So Looking at the recurring revenue from software as in prior quarters, all our major revenue streams are growing, but The one growing the fastest is the recurring revenue from software. For this quarter, this made up almost 29% of our total revenue as compared to a little over 25% last year. So solid growth in this portion of the business. Looking at the totals, the breakdown is very similar to what you've seen before. The one off perpetual licenses are Practically gone. And the recurring software revenue is slowly but surely growing as part of the total business. And Still the largest revenue source for us is revenue from professional services related to implementing and maintaining the software we sell. We don't sell consulting services outside of our product delivery. So we are dependent on having strong for sales. We're not really though dependent on the overall market for IT consulting services, but we are depending on strong software sales from that we generate ourselves. So Talking a little bit about sales, I shared a little of this in Q1 to give a better understanding of the underlying market conditions. I don't intend to focus on this a lot going forward. The reason being that we do a lot of small deals that actually build up our total sales on many, many customers. So It's not often an individual deal that has a large impact on our financials. But as a summary for Q2, all in all, a lot of movement both from new accounts and from existing accounts. We do a lot of deals on existing accounts all the time. These deals are the ones that are at least SEK 2.25 million And a sec with a significant software portion, we did 38 of those compared to 21 a year ago. Average deal size is also a lot larger than last year. So more deals with higher average value, Probably indicator of a good market, a competitive offering and that gives us a happy CEO. So I also Here I can take the time to inform you that we haven't yet integrated the CRM systems in Denmark and Norway. So the sales data is only for Sweden, which actually means it's relatively comparable to last year. So Order intake pretty strong from both new customers and existing accounts. Looking at priorities going forward, M and A activities has been a priority and is a priority going forward. For us, what we're looking for is To get us access to a larger customer base than how fast we can grow organically that can be in the target market for our current offering. And the other thing we're looking for is getting a better offering that can benefit all our existing customers. So it's 2 types of companies that we are Looking for and a new example here is that we just acquired Vitar in Norway that added a large amount of customers On a platform that we know really well, Financial Systems from Wisma. We've done a really good job in Sweden, I think, in cross Selling other software components into a similar customer base. So we feel that we have a pretty good blueprint for growth here. And we already announced this, of course, before quarter end here in June. And so there's nothing new here. We paid NOK 125,000,000 all cash. Vitaria has Performed at a lower level of profitability than we have and we're implementing a long term plan with the ambition to improve this. We're just getting started, so I can't really provide an update here. It will take time, but so far so good. Okay. When we did our IPO, I had a lot of questions around the business model and the relationship between us and the IP holders, the software for companies. So I will go through this again. It's probably not self explanatory. But we're very happy where we are in the value chain where we don't build software, we take it to market. We feel that we have less risk and a better cash flow in our position in the value chain. And to be quite honest, from my perspective, most Business to business software products are not that unique in function, and they often don't provide that much value stand alone. They do become very valuable and And sticky because they're hard to configure and integrate. And once the customer learns how to use it, it provides a lot of value. And We feel that being this trusted party that sells the software, that integrates it, that helps the customer become successful in using And that supports it over time. That's a really good place and a very important place. And we feel we don't need to build things that already exist. And it's probably too much risk developing things that don't exist before you have customers. So we're very happy where we are and we love that we have a portion of this business model with the recurring revenue and so on and great partnerships with the people that actually build software. So also priorities going forward, nothing new here really. We do want to increase our footprint at our existing customers. That's a great growth opportunity for us that we're working on every day. And we do this by having a relevant offering, of course, and making it easy for customer to grow with us by having out of the box integration and a single point of contact for support. So we want to keep investing in people for sales and marketing and in Talent development in general, this is where I spent the last 2 days helping to onboard 55 people. And Last, we do feel that there is a significant opportunity in continuing this selective M and A to add customer base and to add to what we can do for our existing customers. So I think that pretty much concludes the presentation for Q2 to 2021. And I'd be happy to answer any questions if there are any. We haven't received any questions yet. Remember, you can use the raise hand function if there's any questions. We'll wait a couple of seconds to see if there's anyone having questions. Thank you. If there are no questions, we'll get back to business. And I hope everyone is As happy as we are with the fall finally starting and getting on with the business as usual. Thank you. Thank you.