Welcome to Exsitec Holding AB presentation for the Q3. If you have any questions, you can use the raise hand function, use the chat function, or send an email to ir@exsitec.se. Now I'll leave the word to our CEO, Johan Källblad.
Thank you, Hampus. Q3 of 2022 quarterly update. Talking now here is me, Johan Källblad. I've been the CEO of Exsitec since 2010, so a little over 12 years. For me, I also have my CFO, Anna Gustafsson here to answer any questions if need be. This presentation I think should be around 15 minutes. It is possible, like we said before, to ask questions via the hand raise function in Zoom or by sending an email to ir@exsitec.se at any time. Start off by talking a little bit about our business, what it is that we do, and after that, we'll cover Q3 financials and priorities going forward. Looking at the company, we exist to help medium-sized businesses use digital tools to improve their operations. What is this?
It can be things like using automation to reduce administration, use data for better decision-making and forecasting or adopting digital sales and e-commerce. We like to target a mid-market segment where the customer is large enough to get really good value from investing in digital tools, but they oftentimes lack the right competence and experience internally. We can add a lot of value to this customer segment. The way we do it is that we've made a selection of relevant software products for different business use cases from a few software vendors. It's around 10, 12 vendors that have around 20 software products or so where we act as a reseller on a revenue share model.
We do in-house development of integrations between the software products, and we add professional services and a single point of contact support to keep this customer successful in using the software for a long time. The idea here with a component-based approach is that the implementation projects can be relatively small, and we earn trust and scale our engagement with the customer over time. It's a land and expand business model, where typically around two-thirds of our even our organic growth comes from existing accounts. These here are the primary software providers we work with. Reasonable balance. We're not dependent on only one software developer, but the largest four are around 70% of total software revenue. Revenue share partnership with these software providers. We market, sell, implement, and support the customer over time.
At this time, we have more than 2,000 companies in the Nordics as our customers. We think going through us is an efficient way for a software company to reach a market of scale if they want to reach medium-sized companies in the Nordics. These software components that we work with can be combined in a modular way, and we've created some packages to fit different industries. The packages are often made up of the same foundational components with some industry-specific add-ons. It may not be that big difference between how you do financial reporting, whether you're in one industry or in another industry, but some of the business needs can be very specific. The customer base is spread over quite a few different areas of operations with some clusters.
We've seen a lot of growth in the construction and installation space over the last few years, but a good spread throughout different industries. No one customer is more than 1%-2% of our total revenue over time here. We saw new sales or sales to new customers in the quarter at about the same level as 2021. No material changes in deal sizes, number of deals, and time from leads to a closed deal. This feels pretty good as 2021 was clearly an exceptional year in our space, where we actually ended up in quite a lot of capacity constraints that has limited us a little this year. Visma.net ERP is the shining star, very competitive offering, where we are the clear market leader and lots of win around automating finance operations.
We rarely sell integrations and hosting services standalone, but it's almost always a part of a delivery of some other system. Actually pretty good traction on the new customer sales. The business model we have, we set this up around 10 years ago, and we've had a solid and profitable organic growth every year since we reached the scale. As we've become comfortable with the core business model, we've been adding growth through acquisitions to be able to increase the size of our customer base faster than what we can do organically. That's the gray portion here, where the white portion is in the graph is the organic growth. At this moment, we're around 550 employees in Sweden, Norway, and Denmark.
That's a pretty big growth for us in this quarter. Net recruitment of around 70 people and the main driver in this is here on the next slide. An important DNA for us is to hire and develop talent. We can't really expect to find people that are already skilled in the exact products that we work with. So we try to find great people and train them, and this is a great culture builder also. We have been named one of the most popular employers in Sweden for university graduates in the technology field over the last couple of years, and we've added more than 85 people into our trainee program in Sweden. Most of them in Sweden, but we also have a large program in place in Norway and a somewhat smaller in Denmark.
Going in and looking at the financials for Q3. Some of the things I hope that we will remember is we have a strong financial growth on the top line, 39% total growth and 13% organic. We've like I said, we invest in the future. We have a lot of net recruitment around 70 people, and we've also done a structural deal in Denmark where we divested our point of sale business. It was a nice little business line with that made up maybe 20% of the revenues in Denmark.
We had a struggle growing, and we had especially struggles in getting the cross-sales between our business areas because this was a solution that was targeting retail customers on the smaller scale, smaller than our typical customers. We had a hard time reaching cross sales in this business, and we actually divested this to our largest competitor who will. It was a really good deal for us, and I think it will be a really good deal for them because they can consolidate the market in a way that we could not, and that we had no interest in doing because it's out of our actual key focus area in terms of customer segments that we want to work with.
We had SEK 21 million positive EBITA effect from this deal. And then finally, I hope, we have zero COVID. We're back to office work. We started this already in the spring, but we're really back and it feels like normal again. We do business travel. We meet up with our customers. We had a large kickoff in Sweden. Some costs obviously associated with this, but long term, this is a culture builder. We do things at every office every week and it seems that we are back to actually most of the people are back to working as we did before the pandemic. If we move on here, looking at adjusted net sales, overall growth is strong.
SEK 159 million adjusted net sales means growth of 39%. Year to date growth is 52%. Keep in mind here, the large acquisition that we made in Norway in late Q2 of 2021 is included in the comparables for Q3. Makes maybe total growth seem a little lower, but, I mean, the growth there is on top of the Norwegian acquisition that we did just a bit over a year ago. Organic growth actually picked up a bit, 13% this quarter versus 8% last quarter. Moving forward, we're not as happy with this. Adjusted EBITA, SEK 5 million for the quarter. Pre-adjusted is SEK 26 million, which includes the profit from the divestment in Denmark.
We have costs for growth, where we have scaled up recruiting and the size of our training program, and we have a fairly significant cost for travel and kickoff in Sweden that we couldn't do in 2021. Looking at the quarter, these expenses have increased from around SEK 4 million last year to around SEK 10 million this, in the quarter this year. Another reason though for poor margin is that we're not performing well in the business in Norway, where we've focused a lot on top line growth and sales, but costs are high and the internal efficiency is too low. I was gonna elaborate with some numbers here.
We thought we do talk about this. I do talk about this in the report, but looking, it's maybe more clear if we see it here by market area. If we look at the geographies, this is how we are performing. As you can see, Q3 is always a weak quarter because of the holiday period and because of our internal tradition to do a lot of our net growth in people in Q3. It's in Norway that we see the weakest performance in margin, despite a top line growth of more than 20%. We have in Norway a large on-premises customer base and a new customer base that use cloud products, and it's been hard for us.
We're adding a lot of staff and trying to grow the cloud business and the on-premise business is more demand there. It's more driven by legislation and things like that. We see a really poor performance here. We went from more than double-digit margin last year down to a -8% this year despite of having a solid top line growth. Sweden looks about the same growth. Like I said, we had a large kickoff actually in Sweden that we didn't have last year that more than accounts for the margin moving from 7%-6%. Very strong performance actually from SEK 78 million- SEK 110 million in top line.
Denmark also has a nice improvement and almost a 60% growth on the top line. We do over allocate our overhead costs a little bit to the Swedish business, but they also get more services from the central businesses. Don't take these numbers as something super exact, but this gives a pretty good view on how the different segments are performing. Recurring software revenue sees an increase of 25%. It's slower than overall growth, but faster than our organic growth. The majority of the non-organic growth is from our acquisition of Spot On Solutions that are experts in e-commerce. It's a consulting company, technical consulting companies that are experts in e-commerce. This is then primarily consulting business with a low level of software revenue.
Growth is, I think given the acquisitions, the acquisition we made here is probably what we should expect. Moving forward, looking at the totals and the revenue breakdown, recurring revenue is 28% LTM. We continue to see growth in contracted support and infrastructure revenue, which is another revenue stream that's an add-on service to the software we deliver. In the last twelve months, this is 8% of our revenue. Largest revenue source still is revenue from professional services related to implementing and maintaining the software we sell, and this made up 59% of total revenue. Looking at our priorities going forward. In uncertain times, we're increasing the focus on business excellence a bit. The main measurement for us here is our margins. Very simple.
We need to improve, especially in Norway. We try to keep it simple and focus on our customers and keep a close eye on any changes in the lead generation and the new sales to make sure that we have high awareness of possible changes in market conditions. As I've said before, we want to increase our footprint at our existing customers by having a relevant offering and making it easy for a customer to grow with us by having ready-made integrations and a single point of contact support. We're still at a shortage of staff in many areas, and we want to keep investing in our people with the trainee program being the flagship initiative here. We also feel that there are still good opportunities in continuing selective M&A.
Our focus here primarily is doing things that improves our market position in something that we already know and have a presence. Maybe a little bit more low risk in the M&A segment. Anything, if we can improve our market position in something we really understand and we can do that at a reasonable valuation, we definitely want to keep on the M&A work. The last slide, financial goal, is to reach a turnover of SEK 1 billion with a 20% EBITA margin sometime in the period 2023-2025. Tracking very well on top line growth. We're ahead of our internal projections here, but obviously we'll need to improve margins through business excellence.
While we keep doing what's taken us here, increase the share of recurring revenue, keep up investing in sales and marketing for organic growth and channeling cash flow into acquisition. These financial goals remain the same. That concludes my presentation. If there are any questions, please feel free to ask. Do we have any questions on this?
Yes, we have a question from Fredrik Reuterhell.
Please.
You've been unmuted.
Yeah.
Yeah. Fredrik.
Good morning. Do you hear me?
Yeah.
Yeah.
Good. Great. Thank you very much. I'm Fredrik Reuterhell from Redeye. I have some questions. You've written that you're not too sensitive to economic conditions in the previous report, and now you write that you see no significant concern in the short term. Can you talk a bit more about that?
Yeah. We're not affected yet. I mean, there are, I would say, two business areas, two customer areas that are affected, and obviously we are affected as our customers are affected. One would be business to consumer e-commerce. We don't have a huge footprint there, but we do have some customers like MatHem, Matsmart, Postmagasinet, PS and a few customers in that segment that are clearly keeping very close track on there. They don't buy that much. On the other hand, there are other segments that are doing really well. The other one is like the start-up communities.
It's also not a big part of our revenue, but I would say maybe 10%-15% of our customer base is clearly feeling squeezed right now. The thing with digital tools is that you can use them probably for both revenue initiatives, like maybe CRM systems and e-commerce, and you can use them for cost-cutting initiatives, and that's maybe data analysis and maybe improving finance operations and forecasting and so on. Logically, we think that you can use software. It's not the same software maybe, but you can use software both for managing your operations in a bad market, and you can use it for managing operations in a good market. What we try to do.
Now that's a little bit naive to say that nothing is. We're totally unaffected. We've increased our awareness in the sense that we look very closely at lead generation because I track how many leads do I get in each month or actually each week. We track what's the average time from a lead to a closed sale. We track what are the number of deals that we do, and we track what's the average order size. In this quarter, in Q3, we couldn't actually see that there was a difference between. We had a few more leads than the year before and about the same time from lead on the sales that we actually closed about the same time.
The average order size was like 1 % -2% lower, but that's not enough to be a statistical difference really. Actually the sales numbers look very similar to the same period the year before. We do keep track on this, because if the leads we saw in COVID from like late March 2020, we lost around 80% of our leads flow, and we lost 60% of our sales compared to the period last year. This can change, but that gives us around a three-month headroom to react if we recalibrate our ambitions if we see that leads stop flowing in.
So far we can't see in Q3, we can't see in our numbers that it would be a weakening in the market space. Obviously we read the newspapers also and so yeah.
Yeah. I mean, you wrote also that the demand for system, for efficiency and data analysis is up pretty high.
Yeah.
I interpret that as the customer wants to streamline and, you know, look over the cost instead of expanding. Have you seen this trend for a long time, or?
You can also use it to analyze your growth, right? We've seen really strong demand for data analysis for more than a year. I think this was one of our laggards two, three, four years ago. Over the last year and a half, it's also because we have a better market position and a better offering, I think. Our demand there definitely is to the level that we struggle to keep up with demand in that area. That's been. It's been like that for probably a year.
Mm.
Now it's forecasting season also. Obviously we sell and implement a lot of budgeting forecasting software during the fall because
Okay
... of forecasting season, but that's more a seasonal thing. General data analysis had really strong demand for more than a year.
Okay. I wanna ask you about the problems in Norway. I mean, in Q2 you had pretty weak margins and this.
Yeah
This continued in Q3 as well. You're taking steps, you know, towards steering that up. When do you think this will have an effect? When will this
Yeah. This is a really important question of course. I mean, we should see margin improvements in Q4. It's in Norway, but that's more seasonal maybe. I mean, Q4 is typically better. If I start to see real improvements in four to six months, I think that's a fair expectation. I don't expect it to be faster than that really.
Oh, okay. Great. I had some questions regarding the accounts receivable. It came down slightly towards the Q2, but what is your historical credit losses looks like?
Yeah. That's a good question. They're actually very low. This is a question for you, Anna. Anna is actually here. She just, I usually do the finances, so. At the worst we've had, we tracked a few years ago around 2%. We set up a goal to have less than 2% losses. As it turned out, it wasn't actually that the customer couldn't pay that made us have losses typically. What's more, that when we had quality problems in delivery then and we weren't agreeing on the invoice, that was our problem. We set up this goal to reach max 2% loss in our receivables, and we're way lower than that.
Yeah.
It's not really even a relevant goal for us anymore. We have very low losses. Anna, do you have a number in your-
No. We can see that they have not increased during this period. They're still low.
Yeah. It's quite unusual that a company that has deep financial problems start implementing IT. You know, if you buy your software from us, you're gonna be more successful over time. So
Mm.
No, we don't run these. You know, the difference, one difference is it's a tradition in our space to run really, really large ERP projects or programs that takes years and then they're really, really hard to use. Our component-based approach, it's much more that you buy one thing and then you deploy it, and then after three months you get value out of it maybe. We have our credit exposure to individual customers and individual projects, it's much, much lower than for many of our competitors because we have this component-based approach on how to do deliveries.
We're still keeping track that we're staying under the 2%, but we're so much under the 2% number that it's not actually even been relevant to look at. But
Okay. That sounds good. I saw in Q2 that you're running pretty high cost for travel and conferences. It's like SEK 10 million. Now you mentioned SEK 5 million Q3, right?
No. Actually it's SEK 10 million again in Q3. I think I said that we increased it, but we have around SEK 10 million up from SEK 4 million last quarter. I was talking about the specific thing that we did in Sweden. Overall-
Okay
In the quarter it's around SEK 10 million, so it's a big increase. Although I would say that it's probably like normalized. It probably should be to the level that we have now. I don't want to use that as an excuse. It was more that they were lower before. But so normally we run internal thing. It's a little bit slower typically in Q1 and in Q3, the business. We try to run internal kickoffs and such in Q3 and Q1, and then we just deliver in Q4 and Q2. Last year, last 12 months has been very
Last 18 months maybe have been very strange in that aspect because we plan things and then you could do some of them, and then you couldn't do other things. Comparables are a little bit messed up.
Yeah. I want to ask about the staff turnover.
Yeah.
I don't think you mention it in your report, but can you say something?
Yeah.
It's going up or down?
I just read this report the other day. Staff turnover in the IT industry in Sweden is 23% on average this year. Our average employee is younger than the average and we work in pretty hot technologies, I think. It should be our people should be super attractive on the market. We're fighting with this. We aim for around 15%, and it's been higher than that over this last year. We see it. It was almost no personnel turnover during COVID, and then it reached up and went over 20% earlier this year, and we're gradually working down towards numbers we like.
We are at our most efficient when we're at around 15%, and we've been higher than that over the last maybe 12, 14 months. Since around February, March of this year, we see it coming down a little bit, but it's still on historically relatively high numbers.
Okay. Can you say something about your order intake? You said relatively good levels. Yeah.
Come again. About my?
The order intake.
Yeah, yeah.
You wrote relatively good levels.
Yeah. Order intake is at the same level. Like I said, it's actually only a function of how many leads do we have, obviously, how many of them turns to deal. But we have around the same number of deals as last year, and the deal size is about around. The time to make a deal is the same as last year. Deal size was 1% or 2% lower. Actually, I don't think that's a statistical difference. So total number of deals were in Q3, the value of the new deals was the same as Q3 within a few percent the same as the year before.
I would have preferred to see a strong growth, but also most of our ongoing business is on existing accounts. It looked pretty good in this quarter, but I didn't have the growth that I had in 2021. On the other hand, 2021 was an exceptional year in terms of growth in new sales, and we had problems delivering all of 2022 because we sold more than what we had capacity to deliver. Maybe it's normalized now. The deal, the order intake from Q3 was fine. It was good. It's enough for us to keep on moving and having growth.
We are trying to watch very, very closely, weekly actually, to see if there are any changes that will affect us, because that will affect us in Q1 and Q2 in our delivery. We are keeping track of leads and conversions to a higher extent than what we have been.
Okay. Thank you very much. Very appreciated. That's all for me.
Thanks.
If there's no further questions, we would like to thank you for dialing to this call.
Thank you.
Thank you.