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Edited Transcript of LIMET.ST earnings conference call or presentation 19-Jul-19 8:30am GMT

Q2 2019 Lime Technologies AB (publ) Earnings Call

Jul 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Lime Technologies AB (publ) earnings conference call or presentation Friday, July 19, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Johan Holmqvist

Lime Technologies AB (publ) - Head of IR

* Erik Syrén

Lime Technologies AB (publ) - CEO

* Magnus Hansson

Lime Technologies AB (publ) - CFO

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Presentation

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Johan Holmqvist, Lime Technologies AB (publ) - Head of IR [1]

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Hello, everyone, and welcome to Lime Technologies' interim report for January through June 2019. My name is Johan Holmqvist; I am head of investor relations at Lime. And with me today I have Erik Syrén, Lime's CEO, and Magnus Hansson, Lime's CFO.

After the presentation, there will be a Q&A session. You can ask questions in written form by using the chat function during the presentation. You can submit them continuously and we will answer them after the presentation.

I hereby hand over to Erik.

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Erik Syrén, Lime Technologies AB (publ) - CEO [2]

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Hi, everyone. Erik speaking here, CEO at Lime. And also our CFO Magnus Hansson will be a presenter today. As many of you know that we developed ourselves CRM software and our vision is to become the (technical difficulty) [provider] of CRM in the Nordics (technical difficulty).

We have had a really, really good strategy over many, many years still and we have built today a good [impression] in Sweden. But I am really, really proud to see that our investments in the rest of Nordics -- Norway, Finland and Denmark -- are starting to pay off.

During the second quarter we have had a really good growth in the rest of Nordics, 53%. And I think this is evidence of our vertical focus, focus on utility sector, real estate sector, wholesale, and consultant firms. And also, being the Nordics CRM expert, really working the Nordics as well.

Our mission is that we create customer magnets. And during the second quarter, we have done two acquisitions: we have acquired More intenz and janjoo. And the purpose behind the acquisitions is that we would like to create more value for our existing customers but also new ones. To be better at sales and customer service, so attract new customers, keep existing ones, and develop existing ones. And I will explain more about the acquisitions later on during this presentation.

The agenda for today: we start off talking about the order intake during the second quarter and really the second recruitment process and the recurring revenue. After that, the turnover, profitability, and last but not least, the acquisitions.

So let's proceed to the order intake. As I have mentioned before, the customer concentration in Lime is low. The 10 biggest customers stands for less than 10% of the revenue and the biggest one stands for 1.7% of the revenue the last 12 months. So we are not doing deals with one customer; we are doing deals with many, many hundreds of customers every year.

During the second quarter, we have done 165 new deals; so many small and midsize customers, but also a few large enterprises. To mention a few: NewWave in Finland, a wholesale deal; two new big ones in Norway, Elenia Oy and Private Barnehagers Landsforbund. Private Barnehagers Landsforbund, that's a management deal, and Elenia Oy is (technical difficulty) deal.

Mäklarsamfundet in Sweden was a management deal. Bengt Dahlgren, consultancy firm; Finspångs Tekniska Verk, a utility deal; and then we have DocuNordic, accountant work and we did (technical difficulty). And they have obviously in the whole Nordics, both in Sweden, Norway, Finland, and Denmark. So a good order -- a positive order intake during the second quarter.

We are working with CRM and that means that we help companies being good at achieving their customers. And of course, we need to be good at (technical difficulty) well. And also, we have some [friction mold]; it's very, very important to keep our customers long term. And we measure revenue share to see how we keep our customers.

If we look at the amount of recurring revenue in June 2018, we had SEK11.5 million one year ago. If we remove all the downgrades or the lost customers and add all the licenses and add-ons they have acquired during the next 12 months, we can see that the amount of recurring revenue in the end of June 2019 was SEK11.5 million, the same amount a year before. So we keep the same amount monthly recurring revenue and this means that we have a positive or a [near toll] revenue share.

If we add all the new customers we have acquired during the last 12 months, that's SEK2.5 million. And we can see that we had monthly recurring revenue end of June 2019 of SEK40 million. And once again, we are not doing deals with one customer; we are doing deals with many, many hundreds of customers, so this means that we have a low risk.

Recruitment, as I mentioned, during both the Q4 and Q1, we have had a good traction in the recruitment process. We had 20 new employees started in January; now we will have 40 new ones, new employees, starts in August, in the beginning of August. During the first half year, we have had 2,800 people applying for jobs at Lime and we have done 16 new employees, 16 new recruitments.

Almost everyone who will begin in Lime has an academic degree, and 30% of the people we have recruited are women. A number we are proud of, but not satisfied. We work hard to attract more women to Lime and hopefully we can increase this number going forward.

Almost everyone coming into Lime we train in a trainee program, our onboarding process. We have two trainee programs: one that starts in January and one that starts in the beginning of August. And it's a combination between practical work and lessons and trainings.

We are also a value-driven organization. And everything starts with the recruitment process to find the right people with the right values in line with ours. And also during the onboarding, during the trainee program, we train our new employees in our corporate values and the corporate culture to keep it and remain it and develop it.

To measure the engagement level and how satisfied the employees are, we measure employee Net Promoter Score. The grade is between minus 100 to plus 100 and we are at 37 today. And that's a good score, especially when we grow as much as we do.

Let's proceed to the annual recurring revenue then. This is a really important KPI for us, how we create new customers and new licenses and how much licenses we sell. The revenue streams, the annual recurring revenue consists of two revenue streams, you can say: service agreements and subscriptions.

The service agreements, they are coming from the old customers paying upfront for licenses. And they pay us a small amount every year in a service agreement for upgrades and customer support. And the second revenue stream in annual recurring revenue, that's subscription. And we can see that during the second quarter, the subscription revenue has grown by 32% and the service agreements are pretty flat.

So we have a really, really good growth in our subscription revenue. And in total, our annual recurring revenue growing by 21%, so in a good way compared to the same period last year.

Let's proceed through net sales and the revenue streams. This is maybe my favorite slide; you have seen it before, many of you have seen it before. And the red on the top, 41%, that is the subscription revenue. And as I mentioned before, 32% growth compared to the same period last year.

The service agreements, that's the orange one, is 17% of the revenue. This one is pretty stable; the same level as the quarters before. And that's good because then we are keeping our existing customers. The blue one, that is our old money upfront license money, going from 28% in Q1 2015 and today 4% of the revenue. And it's pretty much the same amount as the quarters before and that means that the transformation is more or less over.

And then we have the expert services, 37%. If we look at the second quarter, the expert services had a growth of 2% and holding the organic growth back a little bit during the second quarter. And the reasons behind the 2% growth during the second quarter, there are more holidays in the same period last year. We have clamping days during Monday and Fridays and that's affect [sociability] during the Monday and Fridays. They are clamping days, of course.

And then we have also internal training. So we have changed language when we are doing customer adjustments. In the past, we have used Visual Basics and SQL and today we are using Python instead, so we have had a lot of trainings in the expert services organization during the second quarter and that affects the growth in expert services.

If we look at the growth, total growth during the second quarter, 14%, and everything is organic growth, 14%. If we look at the growth last 12 months, 19% in total, 18% organic. And as I mentioned before, the expert services holding the organic growth back during the second quarter. We expect that the growth will come back to normal in Q3 and Q4.

If we look at the split between the segments -- Sweden and the rest of the Nordics -- we can see that Sweden growing by 7% affected and of the expert services. And this holding also the growth in Sweden back. 53% in the rest of the Nordics, as I mentioned in the beginning. A really good and strong number in Norway, Finland, and Denmark. And if we look at the last 12 months, we can see the growth has been 37% in the rest of the Nordics and 15% in Sweden.

Let's proceed to the profitability. Magnus?

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Magnus Hansson, Lime Technologies AB (publ) - CFO [3]

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Yes, so if we turn to the profit, if you start at the left-hand side of the slide, you can see that the EBITA development, we had a growth from SEK11.6 million to SEK13.8 million in the second quarter, a growth by SEK2.2 million, 19%. And reaching an EBITA margin of 19.8% in the second quarter of 2019. And then we proceed to the rolling 12 months, you can see that we reached 59% EBITA at the end of June 2019 and that is an EBITA margin of 22.2%.

And then if you look at the right-hand side, you can see that we started off during 2015 with a slightly higher EBITA margin. And then, as we mentioned to you, a few of you before, we transformed the Company from being an upfront -- having an upfront model to a SaaS model. And during that transformation, we've had an EBITA, adjusted EBITA margin of around 22%. And as you can see, we grew the EBITA with the 23% rolling 12 months by the end of the second quarter.

And then if we proceed to the operating expenses, you can see on the left-hand side, you can see our personnel expenses. They grew by 14% in the second quarter, reaching SEK44 million, but decreasing as a percentage of net sales to 63%. We have mentioned in our reports before that we recruited quite heavy during the first six months and we are quite satisfied with the 63% in the second quarter.

And then we have the rolling 12 months. The personnel expenses grew by 17% to SEK160 million and that is 60.5% of net sales, so slightly lower than the quarters before.

And on the right-hand side, you have our other operating expenses and that's heavily affected by the IFRS 16. So if we remove the effects of IFRS 16, the other operating expenses in the second quarter would be SEK14.6 million and that would then give us a margin of 20.9% of net sales. So we are still getting slightly more efficient than we have been with our other operating expenses.

And then you have the same effect on our rolling 12 months. If we remove the effects of the IFRS 16, we would reach an operating expenses of SEK57.6 million. That would be 21.8% of net sales. So again, improving our efficiency.

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Erik Syrén, Lime Technologies AB (publ) - CEO [4]

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Thanks, Magnus. Let's proceed to the acquisitions then. As I mentioned, during the Q1, we have invested a lot of resources and time in looking into new acquisitions during the first half year. I think we have looked at 15 companies. We have done three due diligence processes and we have made two acquisitions during the first half year, during the second quarter here.

The first company we have acquired, that is More intenz. That is a company working with sales and customer service and culture development service around that kind of processes. They were founded in 2004. They are nine employees. They have offices in Malmö, Stockholm, and Norway and also using subcontractors and partners in Finland and Denmark. So they have employees, people in all markets we are established.

Their turnover is approximately SEK16 million. And in the first step, we acquired 58%, a majority of the company, and after that we have warrants to acquire the remaining 42%. And we will do that over time.

We have used More intenz services in the past, during the past -- and in the past, and they have also used our products. We have recommended More intenz as a company to our customers in the past as well.

The purpose behind why we acquired the company is that some of our biggest customers demand more services to become better at sales and customer service and customer care and these kind of services to help them be better. And when we had the opportunity to acquire More intenz, we felt this is a good service and it can improve and create more value for our customers and even create longer relationship with us as a Company. So we felt this is a good thing to have in-house, and it makes our products portfolio stronger.

The second acquisition we have acquired, that is janjoo, a company that develops and sells software and dynamic forms, e-signing, and web portals. They were founded in 2015. They are six employees. They have one office in Gävle. The turnover is approximately SEK5 million, growing fast. In the first step, we will acquire 30% of the company and we have warrants to acquire the remaining 70% and we will do that over time.

The founders behind the company, we have worked with them since they established the company and we have had a tight cooperation with the company. And today, approximately 50% of their customers are using Lime already today.

Two main products: forms, helping companies developing web forms on the Internet. It could be an order form for companies to -- or their customers to create orders or it could be a service ticket form directly on the Internet as well. Some of the information you need to gather from the CRM software -- for example, Lime -- and some information you need to leave also when you have done the form or added the form directly in the (inaudible) software or the CRM software. So we have a tight integration together with Simpliforms and Lime today.

Portals, the second product, the second main product. Here we have developed this product together with janjoo. So some of our customers have external uses, using some of the information our companies or customers have in the CRM software. It could be resellers; it could be subcontractors.

A reseller would like to see their deals and update their deals in their pipeline and a subcontractor maybe would like to see their tickets and also update their tickets. And then you need a tight integration together with Lime and between Lime and the portal.

I believe both janjoo and More intenz are really, really good acquisitions for us. And they will make our product portfolio stronger, both for existing customers but also new ones and especially for our focused verticals. And then we are talking about real estate, utility, wholesale, and consultancy firms. So I'm really glad to welcome both More intenz and janjoo into Lime.

The integration of More intenz, we will start immediately after the summer and they will be a part of Lime. Janjoo will be a separate company until we acquire a majority of the shares, then we will do the integration of that company as well.

If we look at the financial targets, Lime's objective in the medium term is to achieve an annual organic net sales growth above 15%. We have reached 18% last 12 months, so we are above the target. The EBITA margin -- Lime's objective in the medium term is to achieve an annual EBITA margin above 23%. We have reached 22.2% the last 12 months.

We are not satisfied with that level. We should be above 23%. However, we will prioritize growth before profit. And that is one of the reasons why we are doing so many recruitment as we do during August now or the people who will begin in August. That is a long-term investment in our growth. To remain long-term profitable growth, we need to invest in more people.

If we look at the capital structure, the net debt in relation to EBITDA should be less than 2.5. We have reached 1.4 end of June. This one going down pretty fast when we increase the EBITDA and pay off the debts and we expect this one also going down also going forward.

If we look at the dividend and the dividend policy, we expect to pay out 50% of net profit. We paid out 55% in a dividend in May, so we are above that target as well.

Let's do a quick summary of Q2. If we look at the development in annual recurring revenue, maybe the most important KPI we have within Lime, 21% growth. The subscription growing by 32% compared to the same period last year. And annual recurring revenue reached SEK167 million.

If we look at the growth, 14% organic growth and 14% total growth. The expert services holding the organic growth back during the second quarter. We expect this one going up going forward. 53% outside Sweden and I am really proud and glad to see that our investments are paying off. And our vertical strategy and our strategy that the Nordics CRM experts that that strategy works.

If we look at the profitability, adjusted EBITA, 20%, an improvement compared to last year. So we still and continue to invest a lot, but improve our profitability. Order intake, a positive order intake during the second quarter. And a good mixture between small, midsize, and large enterprises and a good mixture between our countries.

That was pretty much everything from us. And now over to the questions.

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Questions and Answers

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Johan Holmqvist, Lime Technologies AB (publ) - Head of IR [1]

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Yes, and then we have three questions from Sebastian Olsson. And question number one is you mentioned in Q1 that you gained market share from competitors. Have you seen increased competition in Q2 or is it internal training in calendar the only explanation behind the somewhat slower growth in Sweden? And do you expect Sweden to come back to 15% to 20% growth or somewhat lower ahead?

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Erik Syrén, Lime Technologies AB (publ) - CEO [2]

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Many questions in one, so we start off with our competitors and if I have seen any changes. We still compete with mainly Salesforce and Microsoft and SuperOffice in Norway; they are really strong there. And they are pretty much the same competitors as we have had the last 15, 20 years. And we haven't seen any change in their offering or if they are strong or not.

If we continue, I believe that we have had a really strong order intake during the second quarter, 165 deals. And many small and midsize and some of the new ones also big ones. So we have had a good order intake. And once again, we are doing a good growth in annual income revenue. That means that we are selling a lot of licenses on the market. So we keep our market shares and we gain market share. That is my feeling on the market.

And going forward, I expect as a management that -- and we see that the expert services affecting the Swedish revenue and the growth in Sweden and holding that back. And as I mentioned, I believe that expert services will continue and come up to the normal growth going forward. So I expect that Sweden will perform better growth the next coming quarters.

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Johan Holmqvist, Lime Technologies AB (publ) - Head of IR [3]

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Will you please give us some flavor of what countries and verticals are driving strong growth in the other Nordics during the quarter?

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Erik Syrén, Lime Technologies AB (publ) - CEO [4]

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Yes, especially utility and the real estate vertical in Norway; had really, really good traction in both verticals there. We also see that we did Private Barnehagers; that is a membership organization. Used to be a strong vertical for us and a focused vertical. And there we see that we are still doing deals in that vertical.

In Finland, it's mainly wholesale deals, small and midsize, building up the order intake in the second quarter in Finland. And in Sweden, it's a combination between all the four verticals.

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Johan Holmqvist, Lime Technologies AB (publ) - Head of IR [5]

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And the last question from Sebastian is will More intenz come into numbers in Q3? And then do you call this as subscription revenues or expert services?

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Erik Syrén, Lime Technologies AB (publ) - CEO [6]

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Both More intenz and janjoo, we closed the deals July 1, so they will be included in our numbers from Q3. And More intenz will be recognized as expert services.

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Johan Holmqvist, Lime Technologies AB (publ) - Head of IR [7]

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That is all the questions we have for now. So if you have more questions for Erik and Magnus, please submit them now. Well, I think we have all the questions right now. Erik?

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Erik Syrén, Lime Technologies AB (publ) - CEO [8]

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Yes, thank you for listening. I would like to wish you all a really great summer. Hopefully we will have great weather here in Sweden, and then after the summer we will have a lot of new energy to deliver good value for our customers, and also start the onboarding of our new employees. And last but not least, do the integration of janjoo and More intenz.

So thanks for a good first half year, I would like to say. And we really look forward to the next second months. Thank you and bye.