Earnings Call: Q2 2021

Jul 16, 2021

Good morning, everybody, and welcome to Lime Technologies to Q2 update. My name is Nils Olsson, and I'm the CEO of Lime and been at Lime since 2006. Today, I also have the presenter of Magnus here. Yeah. My name is Magnus Hansson, CFO, and I've been with Lime since 2015. Can I also remind you too, if you have any questions, please send them in the chat, that you find in the software? Perfect. Thanks for that, Magnus. Before we dig into the financial numbers, let me give you a sum up of Q2. I'm very proud of all of our employees. It's been 16 tough months, I would say, working from home, closed societies. Still we have managed to have a growth mindset. We can see during the last six months that it's been a little bit harder to find the motivation and that more or less everyone at Lime are very tired of working from home. We hopefully can open up the offices now after summer. I'm very glad to welcome more than 50, almost 55 new employees, starting in August. That's actually a new record of Lime. We will have the onboarding in Lund at our headquarters. I will actually go there in two weeks to say hello to everyone and welcome them to Lime. We also feel during Q2 that the market situation is getting better, especially outside Sweden. We can see that in our order intake. We have had a really good order intake in Q2, growth of 39%. We can also see that the sales towards new customers is pointing at the right direction. One big focus for me is to put more effort into our growth markets. During Q2, we have continued the integration with Userlike. The feeling in Userlike is good and that it develops according to plan. We hope that we have our new product or add-on to Lime CRM to sell early this fall. We have also started to invest more in marketing and put more focus into our focus verticals to strengthen our brand and our position as a vendor. Finally, I'm also very glad to announce that we have a new management team in place. Let me welcome our three new stars here. We have Vishal Ganatra, has been in Lime since 2006, and will be the Head of Sales and Marketing, so we have merged the sales and marketing organization. I'm also glad to welcome Anna Hansen, that will be our new Head of Loyalty and Expansion, and that's also where we have merged our customer success and support organization. Last but not least, Filip Arenbo, that will be our new Chief Product Officer. All of these three started at Lime as trainees, it's very glad to see that we can do internal recruits and that we have really good competencies already from the start at Lime. Welcome, Vishal, Anna Hansen, and Filip Arenbo. Let's dig into the agenda. Today, shortly address the order intake. We will look into the revenues. Magnus will talk about the profit, and then we will do a summary in the end. Looking at the order intake, as we have reported before, our customer concentration is low, and it continues to be very low. Today, our top 10 customers stands for 7.2%, and the biggest customer stands for 1.4%. This means that we are not depending on one customer. We are doing deals with many customers, and we have continued doing that during Q2 as well. It has been a good mix of deals towards new customers and existing customers. Before we have reported that it has been a slightly increase towards existing customers. I will say that we see a trend shift now, and that sales towards new customers are increasing. Among some of the deals, some of the customers, we welcome two really nice utility companies, Bevela and VAMAS. We have in the real estate vertical, Aspelin Ramm and Bostadsrättena. We also have two nice wholesale deals here, one in the Netherlands, Viviela, and one in Finland, Kyrev. A good mixture between our different focus verticals as well. Looking at the revenue, and we are a product company, so of course our ARR development is a really important KPI for us. We can see that we have an ARR growth of total 33% in Q2 compared to last year, and only subscription is growing 44%. We can see that the service agreement, which comes from the old customer base, is quite stable. Of course, the 44%, we have an effect here from the Userlike acquisition, and Userlike stands for SEK 42 million of the total ARR in Q2. At Lime, we have 4 different revenue streams. We have the licenses and the subscriptions, of course. We have support contracts. We have licenses up front, and we have expert services. If we look at the subscription, which is growing fastest, we have a 27% growth in subscription the last 12 months. Today, the subscription part stands for 47% of the revenue. Service agreement today 11%. We more or less don't sell any more upfront licenses, so it's on 1%. We can see that expert services stands for 41% of the revenue. Looking at the revenue, we have a 21% growth in Q2. The last 12 months, we have a growth of 14%. Of course, 14%, we are not really satisfied with that, and we are trying to improve that and working on a higher growth going forward. If we look at the split between our segments, Sweden is growing 11% and the rest of Europe 66% in Q2. Of course, also there, we have a positive effect of the acquisition of Userlike. Looking at the last 12 months, we have 12% growth in Sweden and 24% in the rest of Europe. Magnus. Turning to profit. As you can see, we reached an adjusted EBITDA margin of 27% in the second quarter, and almost 30% in the last 12 months. If you look at the right-hand side, you can see that we have had a stable margin of around 22% during the transformation. Since the fourth quarter of 2019, we have slowly increased our margin as a consequence of an increasing recurring revenue base. From the second quarter of 2020, we've also had a slightly positive COVID effect that has reduced our costs in terms of travels and conferences and physical sales activities and so on. We've reached the 30% EBITDA margin in the last 12 months of Q2 2021. Looking at our expenses, on the left-hand side, we have our personnel expenses. That is, of course, the largest item in our P&L in terms of expenses. As you can see, as a function of sales, we are at a quite stable level of around 56%-57% during the quarter. On the right-hand side, you can see our other operating expenses. As a function of net sales, the other operating expenses decreased to 15% compared to 16% in Q2 2020. Of course, the increase in the absolute figures are affected by the acquisition of Userlike. Rolling 12 months, you can see we have, as a function of net sales, it decreased to just below 15%, indicating that we are getting slightly more efficient and also an effect of recurring revenue increases. Good. Thanks for that, Magnus. Let me sum up the Q2. As I said, we are having a good order intake, 39% growth in Q2 and 25% growth the first 6 months. It has been a good mixture between our focus verticals and also that we see a slight increase now towards new customers. In total, we reached 21% growth in Q2, 14% last 12 months, and I'm happy to see that our ARR growth is on a good level, 33%. Looking at the profitability, adjusted EBITDA margin 27% in Q2 and the last 12 months, 29.5%. If we look at the investments that we have done, as I said, we have hired more than 50 employees starting, and the majority starts now in August. We are also focusing our investments on the marketing side to increase our brand and our position in our focus verticals, especially outside Sweden. Our financial targets, we have, of course, the objective to reach an annual net sales growth of above 18% in the medium term. We are at 14% rolling 12 months Q2, and of course, we are doing everything we can to get back to the levels we had as stock. We have an objective to reach a 25% EBITDA margin. In the medium term, we are at, as we mentioned before, at 29.5%. Further on, we have an objective to be at below 2.5 in relation between net debt and EBITDA. We are 1.8. The final target is that we should have a dividend at least 50% of our net profit. In April of this year, the annual general meeting decided to pay a dividend of SEK 2.5 per share, corresponding to 53% of the net profit. Thanks for that, Magnus. Let's see if we have any questions in the chat here. First question, could you say anything on how Userlike is performing? Any growth slowed down after that acquisition, headcount churn? Yes. We can see that the Userlike is performing according to plan. We have more or less the growth that has been forecasted, which feels really, really good. We have not seen any churn during the period. Instead, we have hired employees, and we also will have some of the Userlikes during the onboarding now in August. The feeling with Userlike is good. Thank you. Second question, more M&As or focus on reaping benefits from Userlike first? We are constantly looking for new acquisitions. We have a pipeline with acquisitions with possible companies. At the same time, we don't feel any stress doing acquisitions at this time. We have full speed doing the Userlike integration and also developing Userlike's existing strategy. Also growing the markets in Norway, Finland, Denmark, and Netherlands. If the right company shows up, then we can of course, dig into that. Final question, how quickly could Userlike and Lime product benefits translate into tangible growth if you launch early autumn? If we look at the add-on, of course, that will take time to reach a mass that will actually have a really high impact on the growth going forward. The stickiness that is very important when we are doing this kind of add-ons, and also that we can help our customers with a bigger part of their customer journey and create more value to our customers with the combined offer of Lime and the Userlike products. Actually, a few more questions. Yeah. Okay. How strong was the order book in Q2, and how should that translate into growth in Q3, Q4? Acceleration in the growth reasonable to assume? The order books in Q2 was really good. We had a 39% growth there. As I said, 25% growth in the order intake year to date. Of course, that gives us a good possibility to start new projects directly after summer, and also gives us a good possibility to really do the right type of deals going forward. Of course, that will help us since we have a lag between close deal into where we actually start invoicing. That will help us in Q4 and Q1 in 2021 and 2022. Thank you. Final note, have a great and well-deserved summer, Nils and Magnus. Thank you very, very much for that, and have a nice summer to all of you as well. See you during the fall. Thanks. Thank you.