Earnings Call: Q3 2020

Oct 22, 2020

Work Magnus, perfect. It's a time up, so that's good. So let's start then. Welcome to Lime's 3rd quarterly report 2020. My name is Bjerg. I'm the CEO at Lime. And with me today, I also have our CFO, Magnus Hansson. Good morning. Perfect. Say hello to the audience. Perfect. Let's go through the numbers then. Klein, what we do is that we develop and sell CRM software and during the last 12 months, we have reached SEK327,000,000 in turnover and EUR 90,000,000 in EBITDA. Today, we have 7 offices in the Nordics. And since August, we have also our first office outside the Nordics in Netherlands in Utrecht. And in total, we are approximately 300 employees. And the agenda for today, first, I will talk about a little bit about COVID-nineteen and how we are affected by the COVID-nineteen. After that, the all intake and my feelings and our feelings around the business climate on the market. After that, the P and L, both sales and the profitability. And last but not least, the investments we have done so far this year but also what we plan to do planning to do going forward. So let's start with the COVID-nineteen situation then. Early, when the crisis came to Europe in mid February, we decided to use and see COVID-nineteen situation, the crisis as an opportunity for us. We decided to be a tiger to keep, continue to invest in growth, continue to invest in sales and marketing, continue to recruit a lot of people, continue to look for acquisitions and continue with our proactive behavior to find new ways to gain revenue, come up with new campaigns, new products. And I'm really, really proud how we have handled the crisis so far. We have handled the crisis like a tiger and we have done this together as a team. I don't know when the COVID-nineteen situation will stop. However, I promise you that we'll keep on fighting, and we will have and keep our proactive behavior. And so far and if we compare the activity levels now compared to how we did and what we did before the crisis, we actually do more custom visits, more sales calls than ever before. So we will keep this mindset also going forward. However, we are affected. As I mentioned during the Q2, we had a low and less than expected order intake from new customers since mid March until May. And if you look, we also have a lag between our order and when we gain the revenue. And normally, it's a lag between 2 to 6 months. And that means the low order intake in Q2 affected the growth in Q3. Also, we decided to be a flexible supplier for our customers. So we gave the customers who were harshly impacted subscriptions and suspensions. And we also decided that it's important that we do new deals and we can be more flexible regarding the terms and giving the new customers some deferrals of the first invoice. And that means that this together affected the annual recurring revenue growth during the Q3. We also had a strategy to have holidays and vacations during July and then come back early in August and get up to speed early in August. However, many of our customers and their employees, they actually extended their holidays in August and that meant that we didn't have any people to talk with on the customer side. And that affected the expert services space in August, also affected the growth. The growth was 11% during the Q3. This is not a level we are satisfied with. We have done actions. We do actions to come up to normal levels as soon as possible. Let's proceed over to the order intake then. And actually, the order intake since June, both June, July, August, September until today actually, we have a growth compared to last year. And the feeling out there is that the business climate getting better and better day by day. And we also feel that we have a good traction in our verticals and especially utility and real estate. We're doing deals. We're doing big deals. For example, during the Q3, we have done deals with But more impressively is that we're doing and we have done more than 200 new deals during the Q4. So we add more than 200 new customers during the Q4. And if we look at the customer concentration, we see that the customer concentration going down. Today, the biggest ten biggest customer stands for less than 8% of the revenue and the biggest one stands for about 1%. We have a low, low risk in our customer base and we have good traction. And I'm more positive today than I were in July. Let's look at the revenue and the sales. The annual recurring revenue growth was 12% during the 3rd quarter compared to the same period last year. The subscription had a growth of 17%. I will say that's a decent level for us. We're not satisfied, but it's a decent level. And the support contracts, minus 3% on a pretty stable level still. If we look at the revenue streams, we see that the subscription revenue still has a really good traction, 25% growth in subscription last 12 months. The support contracts on the stable level, the upfront still going down. Today stands for 1% of the revenue. The transformation is more or less over. And we see that the expected service is 40% and still about 60% to 70% coming from existing customers with our recurring character of that revenue. Sales, a total growth of 11%, organic growth 10 percent during the Q3 and the last 12 months 18% total growth and 14% organic. If we look at the split between the segments, Sweden and the rest of the Nordics, we can see that Sweden, I would say that we have a good traction in Sweden, 11% growth. However, Norway, Finland and Denmark are more affected by the restrictions from the governments in those countries, only 10% growth during the Q3. And if we look at the last 12 months, 26% in the rest of the Nordics, 17% in Sweden. Let's proceed to the profitability. A really good quarter regarding the profitability. We had 28% last year going up to 33% this year, a good improvement and increase. We also see the last 12 months 27.5 percent in EBITDA margin. On the right side, you see that during the transformation when we're going from an upfront price model over to a subscription price model And as you know, that's affect both the growth but also the profitability. We had between 21% to 23% EBITDA margin. Since Q4 'nineteen, we see that the profitability going up and that's because we cover more of our fixed costs with recurring revenue. And we also see that the turnover per employee going up. And today, 27.5%, an improvement of 44% compared to Q3 'nineteen. If we look at the costs, we can see that the personnel costs going up 10%, up to €40,000,000 However, as a percentage of our sales is going down, as I said on the previous slide. And it's the same trend last 12 months, going down to 55.7%. Other operating expenses, we have a positive COVID-nineteen effect because we're not doing so many troubles, conferences, etcetera. So we can see that the other operating expenses in Q3 going down with SEK 2,300,000. And last 12 months, we can see that the other operating expenses are on the same level as last year. Let's proceed to the investments then. I have promised you investments. And being a tiger, let's see what we have done then. We have recruited. This year, we have had so far more than 4,000 people applying for job at Lime. And so far, we have recruited more than 70 new employees. We had more than 40 people started our 3neet program early in August. And I'm really proud to say that more than 60% of the people we have recruited, our new colleagues are women. Even during and even and also during this COVID-nineteen situation, we see that the engagement levels in our organization going up. We are known for our strong corporate culture, our value driven organization. And if you look at the employee net promoter score, it is today 47, a really strong number and this one going up. We have also and we will also launch new products, more new products than ever before, both during the Q3, but also during the Q4. To mention a few, we have launched a new version of line BI. In this add on, you can analyze all data in Line. You can visualize the data on dashboards in line or on TV screens for the entire organization. Many of our customers have demand and need to sign their quotation and agreements and they would like to do that in Lime as well. And we will release our new add on Lime eSign during the Q4 and then our customers and users can sign the agreements with a bank ID or just with a sign, for example. We have also done a completely new version of FLANGO, invested a lot in the user experience, the user interfaces, and this version is much, much more user friendly than the version before. We actually had some beta customers trying this version right now. And since this week, we are we do all our sales on Langlo on this version. And actually, I talked to the sales reps yesterday during Stockholm and they were amazed by the feedback they got from their prospects and the customers. So this is a version we look forward really much to see what the market says and we believe very much in this version. Acquisitions, we continue to look for companies to buy. What we're looking for is tech companies that can add value for our existing customers, but also new ones. We would like to improve our product portfolio. We have done 5 so far during the history. And And additional to that, we're also looking for platforms in new countries. It could be CRM vendors in Germany or U. K, for example, we can use as a platform in that country. The climate and the business climate out there is pretty hard and it's hard to find good acquisition and the value expectation are really high, but we continue to look and hope looking to close a couple of deals going forward. Summary then. If you look at financial targets, sales growth, Lion's objective in the medium term is to achieve an annual organic net sales growth above 15%. We are at 14% today, very close to the target. We are not satisfied. We promise to do what we can do to improve and come back to normal levels. EBITDA margin, Lime's objective in the medium term is to achieve an annual EBITDA margin above 23%. We have reached 27.5 percent while we're doing investments. So we are very much above the target. However, we will keep on invest in growth, and we will prioritize growth before profit. The capital structure, the net debt in relation to EBITDA should be less than 2.5. We are at 0.4. We pay off the debt and we increase the EBITDA and that means this one going down pretty fast. This is good because then we can afford doing acquisitions with debt. And the dividend, we have a dividend policy to pay out 50% of net profit. We have paid out this year also during a COVID-nineteen situation 51%. So with our strong cash flow, we can handle both dividend and investments. Q3 summary then. We are affected by COVID-nineteen. Order intake was less than expected in Q2. Deferral of the first invoice for new customers and extended holidays affected the growth in Q3, but we have done actions and we hope we can come back to normal levels as soon as possible. Growth, 11% growth and 18% total growth last 12 months. The profitability, 33% while we're doing investments and 27.5% last 12 months. And as I said, investments. We continue to handle the crisis and see the crisis as an opportunity for us. We continue to invest in sales and marketing, recruitment, product development and new markets. Thanks for listening. Any questions so far? No questions, Magnus? No questions. Then we are more or less done here. So if you have any questions, you can always call me or send an e mail. Otherwise, we end this seminar. Thanks for listening. See you. Bye.