U.S. Markets open in 2 hrs 58 mins

Edited Transcript of LIMET.ST earnings conference call or presentation 13-Feb-20 8:30am GMT

Full Year 2019 Lime Technologies AB (publ) Earnings Call

Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Lime Technologies AB (publ) earnings conference call or presentation Thursday, February 13, 2020 at 8:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Erik Syrén

Lime Technologies AB (publ) - CEO & President

* Magnus Hansson

Lime Technologies AB (publ) - CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Hi, everyone, and welcome to Lime's Quarterly Report, the Fourth Quarter '19. My name is Erik Syrén, I'm the CEO at Lime. And with me today, I have Magnus Hansson, our CFO.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good morning.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So what have we accomplished so far or during 2019 then, we -- our first year as a listed company. We have focused on scaling up our businesses in Norway, Finland and Denmark. We have recruited more than 70 employees. We have acquired 2 new add-on companies, Janjoo and More intenz, and we have decided to expand into Netherlands.

We have created 19% growth with 23.1% EBITDA margin during '19. We continue our long-term profitable growth journey.

The agenda for today, we will talk about the investments we have done during the last quarter, our strategy going forward during 2020, our order intake during the last quarter, retention and revenue churn, sales and net sales growth and profitability.

Let's start with the investments then. As I mentioned and as I said during the last quarter, the third, we have decided to enter a new market outside the Nordics, our first market outside the Nordics. And what we have done during the fourth quarter is that we have looked into the European markets, European CRM market. And we decided pretty fast that we should look deeper into Netherlands, Germany, Poland and U.K. And we have decided to enter Netherlands in the first step. The reasons behind are that we see that the CRM market in Netherlands is growing pretty fast. The culture and the business culture in the Netherlands is pretty similar with the Nordics. The competitive landscape are similar as well. And our industries, especially utility, real estate and wholesale are big in Netherlands and the size of the country is pretty good. We can reach the whole country with 1 office.

We have also decided to acquire additionally 35% of the shares in Janjoo. As you know, we acquired 30% of the company in 1st of July '19. During the fall, we had worked with a product offering, including their products in ours and done integrations, Lime forms and Lime portals. They add-ons to our products, Lime Go and Lime CRM. And during the fall, we have sold these products, both to existing customers but also new ones. And we have had a really good traction during the fall with these 2 products. And now we are even more comfortable with -- they are a really good product market fit for us with these 2 products.

From 1st of January, we will consolidate the numbers into Lime. Today, we own 65% of the shares. And we've also integrated Janjoo into Lime. So they will be 100% part of Lime from first quarter 2020.

Let's proceed to the strategy. Next year, we expect the market, CRM market in our markets growing by 10% to 12%. As you know, our vision is to become the leading supplier of CRM in the Nordics. We have still much to do, both in Norway, Finland and Denmark. We are small players on those markets. We remain -- our vision to become the leading supplier of CRM in the Nordics.

We have decided to enter Netherlands. However, in the beginning now, we focus on recruiting people, building up the office and knocking doors, building up the brand. And we know it will take time to reach big numbers and reach breakeven. So in the short term, building up the brand, building up the office and recruiting very good new employees.

We have a big customer base, more than 5,000 customers, and we have a great potential here to sell additional licenses. We have the potential to sell add-ons and extra services hours to our existing customers, creating even more sticky product with more -- and creating more customer value for our customers.

We have also potential here to move old on-premise customers over to our SaaS offering. Platform expansion, we will add new functionality to Lime Go and Lime CRM. And we will also continue to work with add-ons and develop add-ons to Lime Go and Lime CRM ourselves to make the product offering even better. Additional to that, we will look into acquisitions. Acquire add-ons to Lime Go and Lime CRM, both that we can sell to existing customers, but also new ones. And we will also start looking into a project to see a possibility to acquire platform in new markets, it could be in Netherlands, but it could also be in total new markets. Nothing decided yet, this is a possibility, and we look into the possibility.

Verticals, we continue to focus on real estate, utility, wholesale and consultancy. They are really important for us, especially when we enter new markets. Those are the verticals we should be the market leader in, in the first step.

If you look into the order intake, the customer concentration going down, as I have said before. Today, the 10 biggest customers stand for less than 9% of the revenue, and the biggest one stands for 1.3% of the revenue. The order intake during the fourth quarter has been good, a good mixture between small, mid-sized and big enterprises between all our markets, between all our verticals.

To mention a few, Umeå Energi, a public tender; also Norrtälje Energi and VASYD public tenders, good utility deals; Sterner, a big deal in Norway; and AIR SUPPORT in Denmark. So we have had a good order intake.

Let's continue to retention and the churn. As you know, we measure revenue churn. We had a month recurring revenue in December '18 of SEK 12.4 million. If we remove all the downgrades, all the lost customers and add all the upgrades, all the additional licenses and add-ons we sold to the same customer base, we can see that we actually sell more than we lose to the same customer base. That means that we had SEK 12.6 million in monthly recurring revenue in December '19. And then we add all the new customers we have acquired, 2.7 million; and we had then SEK 50 million in monthly recurring revenue end of December '19.

Let's continue to the sales. Annual recurring revenue, ARR, had a growth of 19% in Q4 '19 compared to Q4 '18. If you look at the revenue streams, we can see that we had a really good pace in subscription growth. Support contracts, still on a stable level, the same amount in numbers. However, in percentage, it's gone down, but we keep the customers, and that's the good thing here. That front decreased down to 3% as expected. And then we have the expert services in a good growth during the fourth quarter, however, in percentage, in a stable flat level. And we continue to have approximately 70% of the expert services revenue coming from existing customers, a recurring character of that revenue.

If you look at the revenue, we had a growth of 19% during the fourth quarter and 14% organic growth. During the whole year '19, 19% growth and 16% organic. If we look at the split between the segments, 53% in the rest of the Nordics, really good pace, and 12% in Sweden. And more or less the same during the whole year, 50% in the rest of the Nordics and 13% in Sweden.

Let's continue to the profitability. Magnus?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

So if we then turn to the EBITDA development, you can see that we reached EBITDA margin in the fourth quarter of 2019 of 24.3% compared to 22.5% in Q4 '18, adjusted EBITDA.

And on -- in 2019, we then reached 23.1% compared to 22.2% in '18. And we then reached our financial target of 23%. And if you look at the right-hand side, you can see the development of our adjusted EBITDA over time. And as you can see, we've had a quite stable EBITDA level during the last couple of years and we started off at quite a high level. And then we -- during the transformation to our SaaS offering, we've had a stable level of around 22%, 23%.

Turning to our personnel expenses. You can see that the personnel expenses grew by 11% in Q4 of '19, however, decreasing as a function of net sales, mainly explained by the increase in recurring revenues. And in '19, our personnel expenses grew by 14%, again, decreasing as a function of net sales.

And on the right-hand side, you have our operating -- other operating expenses. It grew by 5% in the fourth quarter compared to the fourth quarter of '18 and by 2% in '19 compared to '18. Please make a note that we have -- we are disclosing our leases in accordance with IFRS 16 in 2019 and not in 2018. Still, we are getting a bit more efficient in '19 compared to '18.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Perfect. Thanks, Magnus. If we continue to the financial targets, our sales growth target is to achieve organic net sales growth above 15%, and we reached 16% during '19. The EBITDA margin, Lime's objective in the medium-term is to achieve an annual EBITDA margin above 23%. We reached 23.1%. We did a really good profit during the last quarter, Q4. The capital structure, the net debt in relation to EBITDA should be less than 2.5%. We are at 0.7%. We paid off the debts. We increased the EBITDA. So this one going down pretty fast.

The dividend policy is to pay out 50% of the net profit. The proposal from the Board is to pay out 51% of the net profit, and that means SEK 1.50 per share. And that means that we increased the dividend compared to last year.

Let's look at the short summary of the Q4. We have done several investments during the quarter. We have recruited a lot of people. We had 20 new employees started a trainee program in the beginning of January. We have continued to recruit people and already signed a group of people who will begin their training in the beginning of January -- August, sorry. We have also decided to expand to Netherlands, and we have started to recruit a sales manager and looking for 2 to 4 sales reps and consultants. And hopefully, they will begin their training in the beginning of August. And we have also acquired additional 35% of Janjoo and we will consolidate and integrate the company already from January.

Growth, 19% total growth during the fourth quarter and 53% outside Sweden. The profitability, 24% in EBITDA margin during the fourth quarter, and we increased the profitability. As I have mentioned before, when we see that we're coming above 23%, we will use that money and invest even more in growth. We will prioritize growth before profit. And the dividend, the Board's proposal is to pay out SEK 1.50. We increased the dividend, and that means 51% of net profit.

Thanks for listening. And any questions?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. We have received some questions during the presentation. So let's start with any particular reasons why the cash flow was particularly strong in Q4?

And the cash flow is -- in Q4 is -- mainly consists of -- it's 2 factors, mainly. It's -- we had a decent, strong EBITDA margin and also we had a strong development of our net working capital. And usually, we have a strong development of our net working capital in the last quarter as our service agreements are invoiced to a larger proportion in the last quarter.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And the cash flow, you can say, help us with investments in Janjoo, for example. So we paid the Janjoo acquisition, the new shares we've acquired, with our own cash. So we financed the acquisition ourselves.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And another question. Can you elaborate a bit more on the CEO comment where you stated increased profitability enables further growth and investments. Are these solely tied to the expansions in the Netherlands? Or are there any other investments you will cater for as well?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. We will continue to invest, as I said, both recruitments. So if we feel that we can afford, then we will recruit even more people in all our countries, in all our markets. And it includes Netherlands, for example. And it includes sales reps, expert services people, sales reps, customer support, of course, operational staff. We will also invest more, even more in our products and increase that amount. And we will look into even more acquisitions. So it's a combination.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And yet another question. Could you update us on how large or rather small share of your users are on subscription-based licenses? And how large the chunk is on upfront?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

The number I have said still is valid. Approximately 70% of our customers still is on a front price model. That means that they pay support contracts to us, and approximately 30% of our customers are at a subscription price model. So we have a great potential here to move old customers on upfront price model with a support contract with us, move over -- and move them over to our SaaS offering and a subscription fee.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Will you give us some indication of how much the calendar, with more bridge days around Christmas, affected Sweden expert services in the quarter?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Of course, we had many holidays during this December. So during Christmas and New Year's Eve, there were many bridge days and that's, of course, affected us. But I think we did a good quarter in overall in expert services and we had a good profitability and we work pretty hard the first 15 days in December. So I can't see it affected us so much.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Is it still Finland and Norway driving the strong sales development in other Nordics? Or how is Denmark performing?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, still, Finland, Norway, and they're doing great, I would say. Denmark, we're working hard with, and we have recruited a few new employees. Still, we need more. If you know anyone, please send them to us. We're looking for sales reps and consultants that can help us build up our Danish office. So that's something we're working hard with.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

What should we expect in terms of operating expenses into 2020 given the Netherlands expansion?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

You can say that we will reach our financial targets also doing Netherlands. What we can see is that when we reach a certain level, both in Finland and Norway, we see that the profitability comes and we see good profit from those markets. And that make it possible for us to do new investments, for example, Netherlands. And so we can do Netherlands with the money we earn from the markets in Norway, Finland, and we can afford it, and we can reach our targets anyway. So that's what we can say about that one.

We can say something about recruitments in plan for the Netherlands. So we plan to recruit a sales manager. And we plan to recruit 2 to 4 sales reps and consultants in August. And of course, building up our office, and then we will invest in marketing during 2020. So that's what we expect to invest during 2020.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Are you planning to adjust your offerings in a way that you can grow further with companies that currently outgrow Lime?

--------------------------------------------------------------------------------

Erik Syrén, Lime Technologies AB (publ) - CEO & President [14]

--------------------------------------------------------------------------------

I didn't get that question really, but can you explain that question a little bit more?

--------------------------------------------------------------------------------

Magnus Hansson, Lime Technologies AB (publ) - CFO [15]

--------------------------------------------------------------------------------

So we'll do the next question and hopefully, we'll get back to that questions. Apart from the current vertical focus you target, is there any adjacent one you are also eyeing on?

--------------------------------------------------------------------------------

Erik Syrén, Lime Technologies AB (publ) - CEO & President [16]

--------------------------------------------------------------------------------

No, we will continue to focus on utility, real estate, wholesale and consultancy. They are really important for us, and we focus on adding new markets instead of new verticals.

--------------------------------------------------------------------------------

Magnus Hansson, Lime Technologies AB (publ) - CFO [17]

--------------------------------------------------------------------------------

That was the final questions, apart from the one that we didn't quite get.

--------------------------------------------------------------------------------

Erik Syrén, Lime Technologies AB (publ) - CEO & President [18]

--------------------------------------------------------------------------------

Thanks for listening. If you have any more questions, you can send me an e-mail or -- yes, send me an e-mail or give me a call. So thanks for listening, and have a really nice day. Thanks. Bye.

--------------------------------------------------------------------------------

Magnus Hansson, Lime Technologies AB (publ) - CFO [19]

--------------------------------------------------------------------------------

Bye.