Risk Intelligence published a report today for the fourth quarter of 2022, therefore ending their full year. With me here today, I have invited Hans Tino Hansen, CEO. Welcome back.
Thank you very much. Nice to be with you again.
It's good to have you here. I thought we could begin with something that sort of confused me a little bit in the report. You're changing your principle for recognizing revenue in full periodization. Why did you take this decision, and what do shareholders need to know?
It is actually about standardization of figures for companies using an SaaS model just like we do. It's something that's been ongoing discussion in the board of directors for a couple of years, and with the change of chartered accountants auditors last year to Deloitte.
We came to the conclusion after their recommendation in December to make the switch for 2022. This has been implemented for the end of year report and Q4 report. The reason behind it is to produce transparency to the market, so you can better compare Risk Intelligence with peers within SaaS. It's also to provide better data for analysts like Carls quare that do reports on Risk Intelligence.
It does have a significant negative impact on revenue, on growth figures, on P&L and on equity with this report. For instance, DKK 11.6 million is moved from 2022 into 2023. There's also a negative impact from the recalculated figures of DKK 8.2 million on negative on the equity for from 2021 and 2022.
It has a, you can say, a one-time negative impact where all the numbers are being recalculated, but you can say that from 1st of January and onwards, we will be comparable to others in the market. It's important to say that it has obviously no impact on liquidity. We still invoice at the time of invoice that we did before. We still receive money upfront, our 12 months license periods. No impact on liquidity, but on the reported figures, yes.
In comparing to previous quarters where you didn't have this standardization, shareholders should look to the cash flow statements.
Yeah. That is obviously the place to look, and Much of the impact also comes from the fact that we have 66% of our revenue is invoiced in the second half of the year, which meant that growth figures will be carried forward every year. We'll get back to that.
Surely the underlying business should be the same. Is there anything that is being impacted positively?
Not really from changing the figures because it has no impact on our commercial relationships. They don't care about how we report our figures. In that way, no, it's more for the market and for understanding Risk Intelligence compared to other companies similar to Risk Intelligence.
Can you comment anything on how you compare to your peers?
Not really because I need to see analysis on that first. I think that one of the reasons that we had issues of comments on, we had very uneven quarters previously revenue wise, but we have even cost-wise. That meant that our quarters were very different every time we reported a quarter.
Now we will have almost even, slowly growing, obviously because of the periodization, quarters, and we will have the same cost structure. In that way, we won't have those fluctuations that we had before, similar to other SaaS-based companies.
I see. Well, let's move on to the report then. This is it is, what we're here for after all. You're growing your revenue, and it landed at DKK 4.8 million for the quarter compared to the corresponding quarter last year of DKK 4.3 million. ARR, annual recurring revenue, also climbed, and it's now sitting at DKK 17.3 million. How would you summarize the end of 2022?
Actually reasonably well. Obviously, the growth will be visible in 2023, the one that we actually generated in 2022 in fourth quarter. You will see there is actually a small negative growth in the ARR figure for Q4, which is due to a one-off adjustment because of change of revenue recognition.
As you probably saw, there was a growth in, as you mentioned, there was a growth in ARR on the year, and that's what we use on going forward. We are also changing our reporting or our guidance to report to guide on ARR and not on the total revenue. In that way, we'll also be comparable to other companies like us.
We'll talk about the guidance of ARR in just a moment, but, I wanted to also bring up the churn rate because we talked about this during a few quarters when you had, somewhat of a high churn rate, but this time it was actually rather low at around 2.4%, I believe, and net retention rate 111%. How do you comment on that?
First of all, we don't, we never have a high churn rate compared to other companies with SaaS. We have a high churn rate of 2.3%, I think, compared to our historic churn between zero and two. It's important to use the relative terms here.
I think the most important thing is NRR because NRR tells us how much we actually grow our current client base, which means that 111% means that we have increased the revenue with 11% with those clients. That is after churn, obviously. It's a net figure. That's the important one because one of the pillars in our growth strategy is to sell more to our existing clients. That's important and imperative for that.
One thing I noticed in the report was that you write that costs increased by 42% in Q4, and 26% overall when measuring on the full year. What drove costs during the quarter?
First of all, during the year, one of the, also in Q4, is implementation of the 2025 strategy that we launched in September. We have increased our commercial team to support that strategy. We will have, where we hired 1 sales person in the U.K., and 1 in Singapore that started 1st of January.
There are also other investments in the commercial side with sales and marketing. 2021 was a COVID year. That means that we had lower costs on running office operations, some other areas, which means that some of this is actually comparing 2022 with a not normal year, 2021.
Like 2020 was not normal as well. 2019 is actually the last normal year we had. When we get to comparing 2023, when we're standing here in a year's time, then we actually have two normal years that we can compare.
The 42% in the fourth quarter, the remaining 16%, basically from 26% to 42%, are two individual one-time posts that it's basically a question of periodization of costs. That's not really an increase in general cost.
You've started to implement this, 2025 strategy, you say, and expanding your sales activities. What is the next step to implementing the strategy?
We've also actually signed up two new partners, which was also part, one of the pillars in our strategy. Meta International, where we work together to reach a market that we haven't had access to, the luxury yacht market, with the super yachts and the mega yachts.
Geollect from the U.K., where we work on mutual clients, and we work on developing for protection of critical maritime infrastructure. We also work with Geollect on our new platform that we are going to launch end of this year. The last part is the commercial team. We have a number of other initiatives that are going to roll on in 2023. The organization is actually now ready for the growth strategy and will not be increased in a larger sense.
We'll look forward to hearing more about that. I thought now we could talk a little bit about LandRisk Logistics. A big name in the report was DHL, where negotiations have, what you called, entered the final stage. DSV was also a big name that has been signed. Tell us more.
DSV is one business unit in Belgium that has signed up, and we obviously hope that will be the that is actually the entry into DSV, and that we can get other business units in DSV to sign up. Hopefully being like ambassadors within the organization and develop the product within DSV.
DHL, we haven't signed the contract yet. We are kind of looking for one final certification, and then it's all done. You saw the press release was a little bit special because it DHL communicated that we had signed it, even if we hadn't, by mistake. We had to send out this press release. Obviously, it's a good piece of news.
No doubt close, but I thought to ask you this as well. With DHL and DSV at your back, how do you expect negotiations with future new clients to change?
Yeah. These two are two of the top three 4PL logistics companies in the world. We have dialogue with others, and they have been vastly improved by these two press releases, I can say. It is a sign that you can, that there is this breakthrough in the market for LandRisk Logistics that can be used in the pipeline.
Let's talk about the ARR guidance then that you mentioned in the first half of the interview. Your guidance now for the full year 2023 is a growth of between 15% and 30% in annual recurring revenue, but still expecting a negative result for the full year. When do you expect to turn your result positive?
With the 2025 strategy, we expected to have black figures already in 2023. Because of the change of the revenue recognition to full periodization, it'll be postponed to 2024. However, liquidity-wise, we will see a change already during the year. That will then move from 2023 into 2024.
Do you expect your liquidity to be positive?
Yes, we already expect that to happen in 2023. That will obviously have an increased effect on the liquidity during 2024 and 2025.
Hans Tino Hansen, CEO of Risk Intelligence, thank you very much.
Thank you very much for being with you today.