...Good afternoon, and welcome to this Q2 presentation with Risk Intelligence. With us today, we have the CEO and the CFO. First, there will be a presentation, and afterwards a Q&A, where the management team will answer questions submitted via Stokk.io. There have already been pre-submitted questions on Stokk.io, and the Q&A is still open so that you can submit questions live as well. I will now hand over the mic to Risk Intelligence to start the presentation. Hans and Jens, your line is now open.
Thank you very much, Anders, for the introduction, and welcome to this session on the Q2 report. We are kind of happy that you are spending a warm afternoon with us. Maybe it's in the garden or on the terrace. I don't know. Or you are watching it later when it's more colder. But also, welcome from our side. Jens, do you want to say anything before we start?
You nailed it down, Hans. So it's... I'm okay.
Very good. Then we will continue with the content. Yeah, we are talking about the main activities and highlights and a little bit about the outlook for 2024. And then we have Q&A afterwards, like we usually have in these sessions. So first, Q2, what has been the main activities? We have continued to roll out the new platform to clients as they were renewing or prior to their renewal during the quarter. We've had a renewal process with a zero churn and upsell to some of these clients, and upsell is with the new features and the third-party data that is available as options. We do not believe that we can continue to have zero churn.
It is, you could say, not a normal situation to have zero churn. We also have companies in the shipping industry that acquire each other and merge, and therefore, we will start to have churn at some point. So you cannot kind of take that situation and move, kind of move it into the future, and I think that we will continue to have zero churn. That's not natural. Unfortunately, I can of course say. Then we have signed up five new maritime clients and two new LandRisk clients, and the maritime clients are for the Risk Intelligence System. We've also got other smaller new clients on various advisory services, but normally we do not report on those.
We've had quite a few advisory services projects, as you can also see, that we have had an increase in advisory services. We've also, during the quarter, had some larger reports for our legal clients. On the partner side, we have signed an agreement with Bosch, and we have implemented their solution into LandRisk Logistics, and we are looking quite a lot forward to that cooperation also because Bosch is quite eager to move forward with us on in this area. With those words, I will hand over to Jens and the figures.
Yeah. Thank you. Just say two words about our second quarter report format, because this is the second quarter that we actually have the new format, and I hope you all like it, because we like it, and it's more to the point as we wanna present it. So we will continue that and of course continue developing it from here. To the numbers, boiling down the 20 pages second quarter report into a few slides, and again trying to look at the focus points from our side, which is of course the top line. We have a revenue recognized 21, 21% up compared to the second quarter last year.
Again, the invoice, which is what we say, the activity level in our company, we were actually 24% up compared to last year. The costs are luckily not following that trend, so only up by 8% compared with the same period last year, which gives, of course, an increased EBITDA. Still negative, but again, 36% better than the second quarter last year. Taking us down to the operational cash flow, which is almost zero in the quarter, but again, compared with last year, where it was negative by DKK 1.1 million, it's an increase, a positive increase of 91%.
The net cash flow is again more or less zero, minus DKK 64,000, an increase of 79% compared to last year. And the bottom, just, Hans mentioned it, the churn, zero again. And despite what the future is, we can present a zero churn again this quarter. Looking at the six months, the first half of the year, because we are following the trend that we did in the first quarter, we are... I would say that the first half year shows the same picture.
Revenue recognized up with 28%, invoiced revenue up with 36% compared to the half year in 2023. Costs only 5% up compared to last year, so we actually maintain the trend we have with keeping the costs at a low level. EBITDA 51% up, still negative, however, more than 50% better than last year. Our operational cash flow, however, was positive by almost DKK 900,000, compared to the -DKK 3 million we had at the summer last year, and which gave a positive cash flow again of DKK 500,000, compared to a negative net cash flow last year of DKK 340,000.
Looking at the metrics from the quarter, which is not at least interesting, our Total ARR went up with 33% and our System ARR grew by 30%. If you look at the right bottom table, so to speak, we got the three last quarters with the dark blue color on the right. So we hope we follow that trend because that's Q4, Q1, and Q2, of course, not Q3 yet. And the top one is just showing the growth from last year quarter to quarter. That's what I have to say about the numbers. They speak for themselves, I think, but now you got it from my mouth as well.
Thank you, Jens. Then, if we are talking about the outlook for the rest of the year, obviously, because we're in August, we know some, and if you follow the press releases, you'll see that there have already been some news that have impact on ARR, for instance, from Q3. But as again, as in Q2, we are continuing to roll out the platform with renewal and hopefully upsell to some of the clients during this quarter. As you may remember, then, some of the... You know, all of those that had that renewed in the middle of Q4, they had the price increase as of first of January this year. That was, they were met by that in November, December last year.
So this means that the price increase for the new platform will be applicable to all clients until basically November this year, because the price increase from first of January goes back to the standard price increase of 3%. On top of that, you will have any upsell for new features or third-party data as mentioned. Then the third thing happening now is the partners that we've been discussing for some time are about to launch new products with Risk Intelligence data integrated during the second half of the year. As with these kind of development projects, we may get a launch date, but it's not necessarily the date that it will be launched.
Everybody who's been doing development projects know about this, so we will make sure to make it public when it's launched. Guidance is unchanged, so ARR growth through the year 15%-30%. System ARR between DKK 22.4 million-DKK 25.3 million. EBITDA around zero, ±, and net result negative and net cash flow positive, as you already saw for the first six months. Then we move to the questions. We've divided them into four areas. One is system metrics, including ARR. The next one is sales and growth, then it's investment and development, and the last one is the financial result.
Perfect. Hans and, Jens, let's move directly into them and start with the first question here. The first, slightly technical: Do you count contracts with a limited span, e.g. five years, towards ARR? And if yes, does it count as churn if they are not renewed?
Thank you. Yes, all system licenses are included in the System ARR and all intelligence reports licenses are included in the Total ARR. So it's the system and intelligence together that constitute the Total ARR. If a license is multi-year, for instance, the five years mentioned above, then this is included, and if it's not renewed, then it counts as churn.
Perfect.
I will say that, I have to say that the value it will be churned with will be the last year's value, not the five-year value, obviously.
Yeah. And then the next question: The average revenue per unit is DKK 169,000. But what does the average revenue per unit include? Is it inclusive or exclusive of add-on sales of other services, or only system license revenue?
Yeah. The ARPU is calculated only on the basis of total system license revenue, including any features and, data, and then divided by the number of licenses, so it's pretty simple. It does not include the revenue from other services to the client, and as mentioned here, it can constitute actually between zero and DKK 500,000 or even more in some cases. So the actual revenue per client, which is different from ARPU in this case, because it's not a metric as such, as a SaaS metric is, is higher.
...And then the next question: Partner sales have been mentioned as being implemented from the end of 2024, but what does it entail, and how will it impact e.g., ARR?
As presented earlier, both today but also at earlier presentations, the agreements with NAVTOR and MedAire will see product launches with our data integrated during the second half of 2024. The revenue related to the Risk Intelligence System data or any licenses for the full Risk Intelligence System sold by these partners will impact ARR as they come online. Then there will also be, and we already did, some advisory service projects for some MedAire clients that will obviously impact the advisory service revenue, and thereby both the invoiced and the recognized revenue in the quarter or half year period and year.
Perfect. And then we move along to the next category, sales and growth. How does the price increase related to the new platform impact growth during 2024?
Yeah, it's actually a question we have had before in a slightly different form. But the price increase applies to all renewals, except for those on multi-year license agreements with fixed price or with a built-in price increase, which most of them have. And this means that such an agreement will only face the 20% when it has to be renewed after 2, 3, 4 years, depending on how far we are into the multi-year agreement. Furthermore, all API license agreements have not increased with more than the standard 3% because the API has no relevance to the new platform. It's not delivered by the new platform. It's a data delivery. So this means that the growth is a composition of price increase, obviously, additional sales, so features and data, upsell in that case.
It's also in a question of new sales, obviously to new clients, and then any price increases on API or additional API sales during the year, the period.
We have read in the report about the API licenses increasingly becoming a more important business area. Can you explain something about the revenue from this area and how it differs from the standard Risk Intelligence System license revenue?
Yeah. The API is a set of data delivered from Risk Intelligence System servers to the client server and integrated by the client into their own systems or solutions. So the data is the same that is presented 24/7, 365 to our clients in the Risk Intelligence System. So it has already been produced, so to say, in the production system in our organization. The data is the same and, but the level of data depends on the agreement, and it could be only the incident and alert data, as with the recent agreement with the major international insurance company that we had a press release about, with a relatively big figure. That is only the incident and alert level.
It could be the full set of Risk Intelligence-produced data, including our threat assessments and whatever we have of risk and threat assessments on the system, countries, port, sea areas, and so on. And obviously, there's different costs if you only have the incident level or you have the whole thing. There is a cost of running and maintaining the Risk Intelligence platform besides the production of the actual data, which is the front end, but the delivery of the actual API has very limited costs. The marginal cost is close to zero.
We saw the press release about the tenth NATO member state becoming a client of Risk Intelligence. Can you elaborate on this business area and if the average revenue is on the level of ARPU or higher?
Yeah. Thank you. Each of these ten NATO members have between 1-3 organizations each as a client with Risk Intelligence, and they are of a very diverse nature. You could say US Navy, which is public, is kind of at the one end, and then you have smaller, special entities, maybe from police in some countries that are very small with only very few users, while others can have many more than 100 users. So in terms of license structure and size and everything and data, it's very they're very diverse. It's a big very wide range from very small to very big in our terms.
Some, mainly the larger ones, also have included API licenses, including the US Navy, which is public information where our data has been integrated in in their systems. So that means that the ARPU for government clients is higher than the overall ARPU for all our clients.
Perfect. And then category three, investment and development. With the investments in a new platform and API service finished, can we expect falling investment, investment expenses, or do you plan to develop new features?
Yeah. First of all, we always develop and have already been, always been doing it. Obviously, if we're a tech-enabled company where we are using a platform, then we need to develop on the platform and develop new features, and especially now, where we have the possibility to actually develop new features that we can sell individually to some clients and not to others. That's one thing. The other thing is that the main cost or investment in the new platform, it has been concluded. It was launched in December last year.
And we only do a new platform every 5-7 years, meaning that that spike in investment will obviously drop, but we will continue to develop, especially because what we develop will give us more revenue and more options for clients, which will hopefully lead to an even higher satisfaction level of our clients. We also, according to the strategy, do development on the LandRisk Logistics, but only in connection with the client agreements and thereby revenue from the clients or in some way of shared costs on the development for LandRisk.
And then we move on to category four, financial results. Already now you are above the lower bracket of your ARR guidance. With half a year more to roll out the price increases and signing new customers, what is the reason you have not updated your guidance?
Yeah, it's a good question. The ARR is the known license value at the time of calculation, so that would be thirtieth of June, plus any known changes to licenses, any known churn, and any known price increases within the next 12 months. The price increase, as I already mentioned earlier, the price increase associated with the new platform was already applied for those renewing in mid Q4, 2023, for first of January licenses. So that means that they are not getting the 20% again in November. That would be nice, but I don't think they will accept that. A large part of our renewal period is Q4, and therefore we cannot change the guidance until we have a relatively high certainty about the level of renewal in Q4.
So that, that is basically the reason. Yeah.
Is 2024 the last year with EBITDA around zero? What is the forecast for 2025 with regards to the net result?
Yeah. As we have not yet published the forecast for 2025, we cannot comment on the year in more detail, except to state that what was made public earlier, both during the capital increase in 2023 and earlier this year, is that while 2024 will be around zero EBITDA, then and a negative result, then, the full year of 2025 will be positive EBITDA. That doesn't necessarily mean that each quarter will have positive EBITDA due to the way that the revenues can be distributed differently, especially those that are non-recurring and therefore do not have periodization.
Perfect. And that was actually all the, questions that was pre-submitted, but we have also received a few live questions here. So I will just take it one at a time, and then you can answer to the best of your abilities here in the, in the live world. First question: Nice report, but I got concerned when I read the balance sheet. Can you tell more about how you repay the debt, especially short-term, but also long-term debt?
Yeah. As I think it's mentioned in the earlier press releases, then there is an annuity on the long-term debt that goes to 2026. We obviously always have the possibility or the option to see if we can refinance during that time. Some of that debt is of the long-term debt has a relatively low interest rate, so that would not be beneficial for us. And the short-term debt is via cash flow and potentially via refinancing. So it's kind of it depends on the cash flow, as in all other situations. I don't know if you have anything to add, Jens, on that.
No, that's fine.
Yeah.
That's all.
Then, the final question here is from Thomas, and I will try to read it. I'm not sure I completely understand the question, but maybe you better understand it. The question from Thomas is: Risk Intelligence already has developed and continues to do so, sea, ports, land. What, if any, additional P&S components could conceivably fit well into the Risk Intelligence service range as a companion sector? Fully recognizes the challenges involved.
Yeah. The answer is that in our strategy, we decided that sectors that where we do not have a natural, we would say, footprint or a natural sales channel, we will do together with partners. So in one case is the luxury leisure industry with super yachts and mega yachts. We do that together with MedAire International SOS. That is horizontal widening of our market. The same could be applicable maybe to some other areas, but one that could be is air freight. Because air freight is basically freight that is moved by planes instead of ships. And the terminals is actually the same type of terminals that is already covered by LandRisk because they're obviously land-based, but also the same type of terminals that are in ports.
So the difference is actually not that big. We will most likely not enter passenger transportation by airplanes, that is a total different ballgame. But air freight could be a natural extension in the future. There might be others, but these are the ones that we have discussed. Also, because there's some of our big logistics clients, they are actually involved in air freight.
Perfect. And then another Thomas also has a question here: In terms of renewals, hence not to update the guidance due to a lot of activity in Q4, could you talk us through the historic renewal rate as well as drop-offs?
Yeah. The historic renewal rate, or rather, churn, is between 0% and 2%, meaning that we've now had, I think, three quarters with very close to 0%. I think last year was a 0.6% for the whole year, in total. And again, that is a bit of an unnatural level because just the fact that companies are buying each other, acquiring each other for, and mergers, then sometimes we lose 2 licenses that become 1, and that 1 license is not as big as the 2. So there we will have some churn. We also have some that leave the maritime business. We also have some that come back. We will soon be telling about one that is coming back.
So these things are also happening along that way. But normally, just to give an indication of what we expect is between 0% and 2% churn in Q4, like in other, all other, as well. The thing is just that the number of renewals, so the total revenue up for renewal is much, much bigger in Q4 than in the other quarters because of the calendar year renewal.
Yeah. And Thomas has a question more here: Would you categorize your strategy in terms of guidance for 2020-2024 as being rather conservative or ambitious, up against a rather healthy pipeline?
Conservative, because I think that we have been earlier probably a bit more optimistic or positive on the guidance. And when we did the new guidance, but basically the budget and the new guidance for 2024, we agreed to take a more conservative stand on 2024 simply to deliver on what we... we say forecast is not what we promise, but at least what we put in the outlook for our shareholders and the market.
Perfect. And that was all the questions and also all the live questions. So, that finalizes the Q&A. But, before we end the webcast, I will just hand over the word for you if you have any kind of final remarks to end with.
Jens, do you have anything?
No, just thank you for people listening and not interrupting.
Yeah, thank you. Thank you for the good questions, also, the last live questions.
Mm-hmm.
I think, it gives us a good indication of what people are thinking about and sometimes also what we could actually explain better in our written material.
Mm-hmm.
So it's actually a good process. And as Jens said, Jens has been working with the team on developing the new report format. So any feedback we can get on that is also much welcome in the future.
Mm.
Thank you very much for joining in today.
Thank you. Bye.