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Edited Transcript of LIMET.ST earnings conference call or presentation 25-Oct-19 7:30am GMT

Nine Months 2019 Lime Technologies AB (publ) Earnings Call

Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Lime Technologies AB (publ) earnings conference call or presentation Friday, October 25, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Erik Syrén

Lime Technologies AB (publ) - CEO

* Magnus Hansson

Lime Technologies AB (publ) - CFO

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Presentation

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Erik Syrén, Lime Technologies AB (publ) - CEO [1]

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Hi, everyone, and welcome to Lime's quarterly report, the third quarter. And that's me, Erik speaking, CEO at Lime, and also Magnus Hansson, our CFO, will be present here today. You can say hey.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [2]

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Good morning.

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Erik Syrén, Lime Technologies AB (publ) - CEO [3]

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Perfect. If you have any questions, you can write them during the presentation in the chat room and we will answer the questions after the presentation. Perfect. Let's start.

During my 20 years within the organization, we have had 19% in average growth per year with good profit, 25% EBITDA margin, in average, per year. We have had 4 different older structures and in the beginning. We were owned by the founders, ourselves. After that, we were a part of Bisnode, big enterprise, a group of companies, data provider. After that, we -- the management team together with a private equity firm named Monterro owned the company. Monterro only owns software companies and invest in software companies. And since December last year, we are now today, a listed company on NASDAQ.

During the 4 different owner structures, we have had the same focus, long-term profitable growth, and we have and remain the same focus today. So during the first 9 months, we have done plenty. We have focused on scaling up our businesses in Norway, Finland and Denmark. We have recruited a lot of people, more than 60 so far. And we have acquired 2 new companies, janjoo and More intenz. So the same companies during these 20 years, with the same focus, the same DNA, the same corporate culture, and we still have the same long-term profitable growth focus.

The agenda for today, and that's -- I will start to present a small organizational change. We have a new role coming up in the organization, Chief Operating Officer. After that, we will talk about the strategy, the next coming period. The order intake during the third quarter, the annual return on revenue, net sales and the profitability. So we start with the COO.

We have decided when you run a rapid growth company as we do, it's happening a lot, and that's really, really fun because it develops you as a person, it develops the organization in total, and of course, it develops the customers. To minor the risk and remove some of my duties, we have decided to have a new role, Chief Operating Officer. Our Head of Sales will have this position from [Janor] next year. And that means he will be in charge of expert services, customer support and sales. Nils, he has been within the organization since 2006, and he started his career as an account manager and as a successor and did a really good job there. And after that, since 2012, he has been the Head of Sales.

If you look at the strategy, the next coming period. We are lucky because we have a market that grows between 10% to 12%. Our vision is that we will become the leading supplier of CRM in the Nordics. I have previous said that we will keep our focus on the Nordics and will not open up in a new office until we feel that we have a good traction in Norway, Finland and Denmark, and that we have a model that we can export to new countries. Since the last quarters, we had a really good traction in the rest of the Nordics, and now we have decided to enter new market during next year.

We have to go and how to do it? We have decided to start off this project during next quarter. But what we're looking for is a country or a culture similar to the Nordics with more or less the same CRM penetration and the same competition. And probably, we will enter some of the countries. It could be Germany, it could be the Netherlands, it could be Belgium, it could be U.K. However, we will come back with more information during next quarter.

We have a big customer base, and that's a great possibility for us, more than 4,500 customers. And of course, we have the possibility to add new functionality, add new departments, new users, and then they need to buy more licenses. We also have the possibility to sell expert service of ours to our existing customers, help them with more integration, with more trainings, create more value for them and make the product more sticky then. We have also the possibility to sell add-ons and especially companies we have acquired. And we have also the possibility to transform and move customers -- old customers, on-prem customers over to our SaaS model.

We have also decided to keep on investing a lot in our platforms, both Lime Go and Lime CRM with more functionality. And we, today, have a dedicated add-on team, working with new add-ons to both platforms, both Lime Go and Lime CRM. Additional to that, we continue to look at acquisitions, got smaller companies to acquire to improve our product portfolio, both to new customers but also existing customers.

And then we have our verticals, utility, real estate, wholesale and consultancy. They are really important for us, especially when we go abroad and enter new markets. So in the first step, we should focus on those verticals and be the market leader in those verticals as well.

If you look at the order intake during the third quarter, a good mixture between small and midsize deals. To mention a few, Lunds Kommuns Fastighets, an important deal for the real estate vertical; Härjeåns, utility company -- a utility. And then we have done a good amount of deals in the wholesale vertical, both in Norway, Finland and Denmark.

As said before, earlier, the customer concentration going down, and this will continue to go down when the customer base growing. The biggest customer stands for 1.4% today, and the 10 biggest customer stands for 9.3% of the revenue.

Being a SaaS company, maybe the most important KPI we have, that's the annual recurring revenue. We have had a good growth during the third quarter, 22% up to SEK 173 million in annual recurring revenue.

If you look at the revenue streams, subscription growing fastest and today stands for 40% -- at 42% of our revenue. Support contract on a stable level, and that's good. That means that we keep our customers and also license fees from when the customers pay upfront, also on a stable level and low, stable level. And that's also good. That means that we have done the transformation, and the transformation is more or less over.

And then we have the expert services. We had a weak second quarter. Now we are back on track with a good speed and a good chargeability, and that's good. And approximately, 70% of the revenue from expert services come from existing customers. So we have a recurring character of that kind of revenue as well. And that's good because then we are helping our existing customers, creating value for them and creating stickiness in product, and then we will achieve them, large and strong, will be low.

If you look at the revenue, the total growth of 23% and an organic growth of 18% in the last 12 months, 19% in total group and 17%, organic.

If you look at the split between the segments, the rest of the Nordics, 54% and 17% in Sweden. And if you look at the last 12 months, 43% in the rest of Nordics and 15% in Sweden. So we see that in third quarter, we have a higher pace than the last 12 months so in Sweden and in the rest of the Nordics.

Let's proceed and go over to the profitability and the costs. Magnus?

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Magnus Hansson, Lime Technologies AB (publ) - CFO [4]

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So if we start with the left-hand side, you can see that the EBITDA margin grew in the third quarter from 28.2% to 28.4%, despite the quite successful recruitment we've done during 2019. The margin in the third quarter is normally higher due to the fact that our staff is holding their vacations, and hence reducing personnel expenses. And as you can see that the rolling 12 months EBITDA margin grew to 22.6%, almost 23% at the end of the third quarter.

And if you look at the right-hand side, you can see that the EBITDA -- adjusted EBITDA grew by 21% in rolling 12 months in the third quarter. And also, as we've mentioned before, you can see that we've had a quite stable level of around 22% adjusted EBITDA margin over the last 4, 5 years.

And turning on to our operating expenses. You can see that -- on the left-hand side, you can see that our personnel expenses grew by almost SEK 6 million in the third quarter. That's 19% growth. However, as a ratio of net sales, it dropped to 53.4%. Our -- of course, our personnel expenses are the vast majority of our total expenses. And rolling 12-month basis, you can see that the personnel expenses dropped to 59.8% of net sales.

And on the right-hand side, you have other operating expenses. And in the other operating expenses, we have the IFRS 16 effect. So they're not quite comparable, but if you exclude the IFRS 16 effect, the other expenses as a ratio of net sales dropped to 22.1% of net sales, implying that we are getting a bit more efficient.

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Erik Syrén, Lime Technologies AB (publ) - CEO [5]

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Perfect. Thanks, Magnus.

If you look at the financial targets, and regarding the growth, our objective is to have a growth, organic growth above 15%. If you look at the last 12 months, we have reached 17%, and that's above about the target. If you look at the EBITDA margin, we should be above 23%, and we are at 22.6%. We are not satisfied with that level. And we expect this one going up, going forward. However, if we feel that there are good investments we can do, for example, recruiting new employees, we will do that and prioritize growth before profit in the short term.

Capital structure, the net debt in relation to EBITDA should be less than 2.5%. We have reached 1.3%. The EBITDA, going up, and we're paying off the debts. So this one going down, and we expect this one going down. And if you look at the dividend and dividend policy, we should pay out 50% of net profit, and this year we have paid out 55%.

Let's do a quick summary of the third quarter. And we have decided that Niels will become the COO and the head of -- in charge of customer support, sales and expert services. And this will minor risk and remove some of my duties next coming period. And we have also decided to open up new market during 2020, and I will be back with more information about that during next quarter.

If you look at the annual recurring revenue, that one's growing 22% and reached SEK 173 million. The growth, 23% total growth and 54% outside Sweden, and 17% in Sweden. And the profitability, 28% adjusted EBITDA margin, the same level as last year. And then you need to remember that we have invested a lot in recruitment. And despite that, we reached the same level. I think that's something we should be proud of.

Okay, let's continue to the questions. Magnus?

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Questions and Answers

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Magnus Hansson, Lime Technologies AB (publ) - CFO [1]

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So we have the first question. Have you reached breakeven in any market outside of Sweden so far or -- sorry, have you reached breakeven in end market in Sweden so far? Or when do you target to do so?

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

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First, our focus in the rest of the Nordics, that's growth, not profitability. And we see when we scale up the businesses outside Sweden in the rest of Nordics, when they coming up to a good amount as Finland, Norway, then the profitability going up pretty fast. So yes, we have reached breakeven, but we'll not disclose the numbers.

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

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And the second question, when you enter a new country, do you prefer to do it through bridgehead acquisitions, or will you enter organically?

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

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We have done it during the past in Norway and in Denmark ourselves, organic. It could be a possibility. If we find a company to acquire, it could be an add-on -- with add-on functionality or it could be a CRM company in a new country, in a new market. That could be a platform for us, but our first prioritization, you can say, that's doing this organic.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [5]

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And question #3, can you elaborate a bit on the expert services segment, how you expect its stickiness to be over time and how it relates to creating new recurring business to your other divisions?

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

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As I said, and has said before, 70% of the revenue from expert services coming from existing customers, and that's not recurring. However, it's a recurring character, and we expect this one going up, existing customers, when the customers' base become bigger. And so that the amount of expert services from existing customers, going up.

And we really -- this is a really important revenue stream for us because this makes us different compared to Salesforce and Microsoft because we're doing everything ourselves. And when we're helping our customers with integrations, training new users, doing -- creating value for them, our software becomes sticky. And then we keep our subscription revenue and it remains (inaudible) low.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [7]

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Question #4. How was the total order intake in the third quarter compared to the first and second quarter?

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

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We don't disclose the order intake, order pipeline. But normally, the third quarter is a little bit slower and because of the vacation in the summer. But as I said, we have had a good mixture between small and midsize customers and deals coming into the business.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [9]

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And question #5. Will you give us some flavor on other Nordics, what country contributed the most to the strong performance? Any market being challenging in the quarter?

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Erik Syrén, Lime Technologies AB (publ) - CEO [10]

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As said before, both Norway and Finland performing very well, and they have done that since fourth quarter last year. And we see the same trend here during the third quarter. So both Finland, Norway had a really good pace. And Denmark, we're working pretty hard with and we have done some actions and look forward to see some results from those actions during next coming quarters.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [11]

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And that was the final question. So if you don't have any more questions, we would like to thank you for your time.

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Erik Syrén, Lime Technologies AB (publ) - CEO [12]

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Thanks, and thanks for listening, and have a really great weekend. Thanks. Bye.

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Magnus Hansson, Lime Technologies AB (publ) - CFO [13]

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Bye.