Earnings Call: Q3 2020

Nov 4, 2020

Thank you. Good morning, everybody, and welcome to the call for up sales, the 3rd quarter results. So the agenda for today, I will do a short presentation about up sales and our growth strategy. And after that, we will talk a little bit about the financial highlights from the Q3. So next slide, Slide number 2. So up sales, short introduction. What we do is that we help B2B companies find new opportunities and win more deals. And we do this by providing a sales and marketing platform software to our customers, which we sell as a subscription service. And the product consists of a combination of CRM, marketing and analytics. The company has been around since 2003. Our head office is in Stockholm and we just passed 700 active customers. And we are currently a team of around 50 people. So next slide, looking at the business model for up sales. So the last quarter, we almost had 95% of the revenue as subscription revenue. So we sell our service as we sell our service as a subscription where our clients pay per user per month fee. And they are also able to purchase additional add ons such as integrations and then more advanced features. And the main the core strength of our business model is that the dynamic and scalable platform enables us to deliver very fast to all of our clients and even larger clients are able to get up and running rather quickly without the need for consulting work, which is usually the case with the more traditional software sold by our competitors. So next slide. There are actually 3 components of our strategy, which we focus on. So the first one is to build the world's best B2B sales software, which enables us to develop additional add ons and features, which we can sell to existing clients to increase contract values. The second part, which is also a critical part of our efforts right now, is to scale our sales team to be able to win more contracts and to get more clients. And the third part is to invest in customer success to keep our churn low and to grow our existing contractor, our existing clients. So we usually talk about Upstate having a land and expand strategy. So the most important part when finding new clients is not to maximize deal size, it's just to get the client on board and then they can grow by collaborating with our customer success team and add more features as they evolve their usage of their platform. So next slide, short overview of what we actually do. So there are actually 5 parts of the upsell platform, which we usually talk about. So the core part is the CRM and the sales, which are our clients use to manage their opportunities and their prospects and their contact information and their to dos and so on. And the reason why we are able to deliver so quickly to so many clients is because of the second part, which we call rich data integration, where we use 3rd party data and we build plug and play integration to the most common ERP and other systems that our clients use. So they can get their data into Upstate as fast as possible. On the left side, we have the marketing aspects of up sales. So marketing automation is used by our clients to generate leads and to create an effective way ranking and scoring leads, making sure that the sales team is focusing on the most relevant prospects at all times. And similar to on the CRM side, we have something we call the campaign engine, which is also one of the reasons why you can get up and running rather quickly with Upstales. So using the campaign engine, our clients get access to ready made templates for e mail campaigns, for landing pages, even for online ads, which they can launch in just a matter of hours rather than days or weeks, which is usually the case with other platforms. And the 5th part is where we tied all together is with Up Sales Insights, our analytics offering, where our clients are able to use all the data that they generate in the CRM and also on the marketing side to make better decisions and to find more profitable business opportunities. So let's go to Slide 6. So we want to build the best sales and marketing software in the world. And we have seen historically that investing in the product leads to increased average contract values. We have increased our average contract value every year, the last 5 years. And the feedback we get from our clients is that these off the shelf add ons we have to integrate to other systems, it's very attractive because you can get started quickly. The risk is a lot lower and very few clients are interested in doing large bespoke consulting work. And we usually like to highlight that we do this even for larger sales teams. So our largest client has 300 sales reps in 10 countries. So this is not something we are only able to do for smaller clients. So next slide, the second part of our growth strategy, scaling the sales team. So the main benefit of our sales model that we deploy is that it's very effective in terms of cash. So the money we invest in sales and marketing, we have an ROI on that in a matter of months instead of years. And this, of course, reduces the need for external capital. And we have seen we added a couple of members to the sales team in the beginning of Q3. And these people are already productive and contributing to the growth. So it's a very short ramp up time for when we hire new sales reps. So next slide. The 3rd part is our customer success. And we believe that customer success is a key component in our growth strategy and probably in the growth strategy of most SaaS companies. And this creates growth in 3 ways. So the first one is that we sell add ons and more seats to existing clients. We also find cross selling opportunities within larger existing clients. So the typical case is that we do a smaller deal with some part of a larger enterprise. And from there, we can continue to grow. And the third part is that investing in customer success creates a lot of referrals, which is actually a rather large part of our a large part of our new business comes from referrals from satisfied clients. So this is, of course, something we're very happy about because it's a very it's probably the best feedback you can get that the product is working and that you're taking care of all your customers. So let's head into some of the financial highlights for the Q3. So starting to look at Slide 10, the revenue. So our ARR amounted to SEK 78 800,000 at the end of the quarter. That's an increase of SEK 3,300,000 during the quarter. And our ARR grew by 20.6 percent the last 12 months. And our net sales amounted to SEK 17,900,000 in Q3. And I'd like to comment on these revenue numbers. We are very happy with the fact that we continue to grow the ARR in Q3. The Q3 is usually a rather slow quarter in terms of new business, mainly due to a lot of customers being on vacation in July and probably a big part of August as well. So if you look historically on our Q3, it's almost flat growth in both 2018 2019. So we're very happy to deliver growth in Q3. And we continue to increase the share of the subscription share of our total revenue, which is why our net sales is growing slightly slower than the ARR. So I believe we had around 90% recurring revenue share in Q3 2019, and we had 94.4% in Q3 2020. And this is also aligned with our strategy to sell less consulting hours. So next slide, looking at the profitability. So EBITDA was SEK 6,000,000, which is a margin of 33.4%. Our EBIT was SEK 3,700,000 and the net income was SEK 2,700,000. So next slide, looking at the cash flow. Our operating cash flow was negative SEK 700,000. Total cash flow negative SEK 1,600,000 and our net cash at the end of the quarter was SEK 27,000,000. So that concludes the financial highlights, and we will now move into the Q and A. Thank And our first question comes from the line of Richard Ingburg of Erik Penson Bank. Please go ahead. Your line is now open. I have one question regarding the growth in the quarter. Could you please shed some light if it's on new customers or existing customers? Or if you can, there's a total mix or some sort of a mix? Sure. So with the terms in terms of revenue distribution, looking at the growth, I would say that the Q3 was a rather typical quarter with around fifty-fifty of the growth coming from new clients and existing clients. Good. Thanks. Thanks for the answer. Thank you. We currently have no further questions via the audio teleconference. I will now hand back to the speaker. All right. So in conclusion, I'm very satisfied with the 3rd quarters with the Q3. And we're looking forward to finish 2020 with a strong Q4. Thank you very much for participating this morning.