Checkin.Com Group AB (publ) (CHECK) Earnings Call Transcript & Summary

Hello, and welcome to this webcast presentation where we have Checkin.com Group presenting their year-end report 2023. With us presenting, we have CEO, Kristoffer Cassel, and CFO; Martin Bauml. [Operator Instructions] And with that said, please go ahead with your presentation.

Thank you, Jesper. So my name is Kristoffer Cassel. I'm the CEO. And with us today, we also have Martin, who is our CFO. And I think, first of all, thanks for everyone listening in to this presentation. We will keep a similar format to what we have done in previous quarters, which is that I speak a bit about the business and the outlook and then Martin goes into some of the numbers from the report to highlight a few things. But all in all, we expect you, as a listener, to have read the report and to already be somewhat familiar with us as a company. So we'll go pretty much straight to the point. And starting off, I think I write in the CEO letter that I'm grateful to begin the new year with the strength, and I feel this sort of step shift we have done last year and the profitability and the cash flow strength that we're having feels very, very good to have now that we start 2024, especially that we have strengthened the cash flows and the profitability. And I think that this quarter shows that the profitability improvements that we have had last year, we have fivefolded our EBITDA during the year compared to 2022, it's trickling down as well into real cash in the bank account. We have more than SEK 16 million in cash flow from operating activities during the quarter. And despite that we invest heavily in R&D and amortize on some of loans, et cetera, we still strengthen the net cash position by more than 7 -- by almost SEK 7 million. And we do this despite that we see a slight seasonal weaker usage than expected from our clients. And this profitability that we see enables long-term investment for us. We take all the investments in R&D and products from the cash flow that our operating activities generates. We also, as I said, amortizes our loans, and that strengthens our equity ratio with -- to 86%. So we're in a strong financial position for the year that begins. And as I said, just to repeat, the net cash is strengthened by almost SEK 7 million compared to last quarter. So we're now generating cash. And this allows us to think quite long term to do what's best for the company in the coming year. The organic growth is at 38% year-on-year, stopping at SEK 27.2 million for the quarter. That is slightly lower than the Q3 number, mainly due to seasonality usage from the travel sector, which is our biggest, most important sector. There is also some currency shifts where we invoice almost all our clients in euro currency, and we report this in SEK. But the travel segment has had seasonally weak usage. It's the most important customer vertical. And seasonally, we have seen weaker volumes during the winter compared to the sort of peak usage of the late summer. And I think we should expect continued weak volumes in Q1. And at the same time, we have, during the fourth quarter, ruled out more functionality together with our biggest clients, and we are taking a larger share of Checkin, which means that -- actually our expectations for the full year have strengthened. But as we say, we think volumes in Q1 should be quite weak as well. And the quarter's rollout should provide strong leverage. So the cooperation with our largest customers have developed well. As I said, and the technology rollout has continued during Q4. We have added new modules. I write some about this in the CEO letter, added new modules, but also taking a larger share of the total check-ins. And this should provide the leverage, as I said, when the volumes increase again. from the existing clients and especially this large European airline that we have been working with for a long time. But we also in deep discussions with several international airlines. And I think the potential of these discussions are obviously really, really promising. And with some luck, I think we can add a few airlines in the coming year, and that would of course be a -- really a shift -- a further shift upwards in terms of revenue generation. Because our focus continues to be on the large customers on the enterprise players, we see that these players requires long-term thinking and persistent work over several quarters, maybe slightly longer lead times. But once they go live, hopefully, great deleverage. And we speak about the large fintech company, which is a great example of this, where we are integrated. We are in a revenue-generating phase. And we have during quarter 4 and still working hard to increase their usage and add more use cases for our software. And the potential of that client within fintech is massive. If we play our cards well, I think, it has the potential to repeat the success we have had in the travel segment. But of course, it will take several quarters, and it requires continued work. We also have, in general, I think, a stronger commercial position than ever really in terms of the pipeline and the discussions we're having not only that we're speaking with several clients -- potential clients, but the size of each of those clients are very promising. So we will keep focusing on enterprise clients. And hopefully, some of this will translate into revenue in the coming year. Also, I just want to mention that a lot of mine and Martin's work is actually around acquisitions and M&A, and we are -- we see that there is still plenty of potential in the market to create shareholder value by additional acquisitions. And just reminding what we're looking for, we're looking for leading technology within niche areas that can strengthen our offering -- sorry, our offering to our clients and to the end user and also excellence in the team and product-driven companies with strong momentum and growth. We're not looking for M&A to increase the revenue sort of the next quarter. We see this as a long-term game and looking for acquisitions that make our product offering better and that accelerate the growth long term. And I hope to come back with some news in this area in the year to come. Also, it's the second quarter with new financial targets. As you know, we have a variant of the classic SaaS metric Rule of 40, but our goal is to maximize the sum of revenue growth per share and EBITDA margin. And we feel confident with the ambition to exceed 80% in this metric on an annual basis. This quarter is at 69%, slightly below the ambition. Last quarter was way above. But again, here, the important thing is over time and on an annual basis that we keep delivering on this metric. We believe if we can do that, that we will continue to create a big shareholder value also in the future. With that said, I will leave over to Martin, our CFO, who is also in the call.

Thank you, Kristoffer. So the quarterly report itself is packed with a lot of numbers and detail, so I thought we go through the high level overview in this call and then leave more room for questions in the end. And -- So net sales increased by 38% compared to the same quarter last year, ending at SEK 27.2 million in the quarter. That growth was not affected by an acquisition. So the organic growth was also 38%, which is actually accelerated organic growth compared to the same period last year. The gross margin was 81% in the quarter, in line with recent quarters. And we continue to see clear signs of the scalability of the business model that we talked about in the last quarterly report, which led to a sharp increase in EBITDA compared to last year, plus SEK 9.2 million, which corresponds to a margin of 34%. And the one thing that sticks out the most in this report is the strong cash flow, I think. We generated SEK 16.6 million in cash flow from operations, which is almost a 4 or quadruple -- which is almost quadrupled compared to Q4 2022. And the strong cash flow trickles into the bank account as well, of course, and we ended the quarter with a cash balance of SEK 37.7 million, where the net cash is up almost SEK 7 million compared to Q3. So -- and the strong solvency ratio of 86% means that we have a lot of financial flexibility as well. So going into the net revenue details here. We are adding the second largest building block ever in this building block slide, which confirms that we are at this new level that we have talked about in the last quarter. We had a few previous quarters where we were around or slightly below SEK 20 million each quarter, and now we are closer to SEK 30 million. So confirming that new level. And this quarter itself is SEK 27.2 million, as I mentioned, and the growth was 38%. And for the full year, net revenue landed on SEK 97 million, and that was also up 38% compared to the full year 2022. So going into the gross profit. That grew also in the quarter, up to SEK 22 million in the quarter, which corresponds to a margin of 81%. And we've been in that area in the last 6 to 8 quarters, something like that. And in absolute terms, we had a gross profit during the whole year of 2023 of almost SEK 80 million. And it is these high gross margins and the absolute money from it that allows us to spend and invest resources into revenue-generating activities and -- for most product development and also sales and marketing. And if we go to sales and marketing side, we have continued with these investments. And we've also experienced over the last year or 2 increased improvement and a larger focus on enterprise clients. And we did -- in 2023, we spent pretty much the same amount in, as we did in 2022 on the sales and marketing activities, SEK 15.3 million in the year, and that corresponds to 16% both during the year and also in Q4. And that's a little bit lower than what we done in our previous guidance. And if we move to EBITDA, as I mentioned, we continue to see the scalability in the business model and also some synergies still from the acquisitions of GetID and DATACORP, which led to a strong increase in EBITDA, so we had SEK 9.2 million of EBITDA in the quarter, which corresponds to a margin of 34%. And for the full year, we had SEK 27.2 million of EBITDA which corresponds to a margin of 28%. And if you -- as you can see here, it's a quite big increase compared to the full year of 2022. It's almost five-folded year-over-year. And finally, if we go to the cash position. We ended the quarter with cash of almost SEK 38 million. It is a bit down compared to last year. But as we reach this new level in the last 2 quarters, we have started generating cash and net cash was up almost SEK 7 million only in this quarter 4, which indicates we are at this new level where we are sell-sufficient and cash flow generating. And the high equity ratio of 86% in combination with these positive cash flows means that we now have quite a lot of financial flexibility. And with that, I'll hand it back to Kristoffer for some final comments and Q&A.

Thank you, Martin. Just to sort of summarize the points that both me and Martin has mentioned, we see strong cash flows, thanks to this five-folded EBITDA that we had during the full year. And we have delivered now organically without acquisitions, and we do this with a strong net revenue retention although in this specific quarter, it's slightly lower than the previous one, still, the net revenue retention and the fact that our clients continue to work with us and expand their usage is really a key driver to understand how we can fivefold the EBITDA basically in 1 year. And also commercially, we have never been in a better position, and we hope that translates to some news to come. And with that, I think we can open up for questions.

Okay. So thank you for that presentation. And we have a lot of question that has been submitted here. So the first question is cash flow is at high levels. Can we expect this high level to be maintained?

I think in a general sense, definitely. There will be differences quarter-to-quarter sometimes, but I think the key driver behind the high cash flow is the profitability, and the profitability in turn is driven by the scale. So if we continue to grow the way we have historically been growing, the profitability should continue step-by-step to increase, which trickles down into cash flow. So absolutely.

The growth is at 38% but still lower compared to Q4 2022, I think. What is behind it?

I think the organic growth in Q4 was 38% year-on-year. And actually, it was only 31% 1 year back. So we are growing faster organically. But I guess the question refers to that the revenue is lower than the revenue in Q3. And yes, I'll refer back to what I said the -- regarding the travel. The travel segment and their usage or seasonality, which is affecting our volumes in turn. So it's driven mainly by that.

Yes. Okay. So you mentioned new modules that help you attract enterprise customers. Can you tell us a bit more about them and what problems they solve?

Yes, definitely. I mean, in the end, it is the fact that we create unique and valuable software that solves our customers' needs that enables this growth that we have seen historically. And we've added 2 modules during Q4, one is called [ BOTLens ]. It's a solution to ensure that you don't have automated systems, populating or trying to act as a real person. And the other module is regarding analysis of signatures, not to e-sign documents, not to make legally binding documents but to use signatures as a way to -- or actually as an alternative to other ways of biometrically verifying a person. Both of those modules are fully in production now and starting to trickle in some revenue from, but they also sets us apart from the competition and its modules that we have created by listening to our biggest partners and their needs.

Checkin shows a continued strong EBITDA margin. What long-term goals does the company have for that?

The long-term goal is to maximize the sum of the organic growth or basically the growth, revenue growth per share. and EBITDA margin. The sum of those should be maximized. So we don't have specific targets for EBITDA. But I think it's fair to expect if we manage to keep growing the top line, the margins should improve over time.

Were you surprised that there are such large seasonal variations within travel?

In one way, yes, although it's maybe not that's surprising when you think about it. But maybe, yes, to some extent, we were. On the other hand, for us, our key focus is to get new customers in, make sure that the customers we have expand their usage and that we take a bigger part of their check-ins, so to speak. And that has been our focus. And then if there if their volumes are coming slightly -- not even throughout the year, in the long run, that doesn't really matter too much, to be honest, and our focus is to take more and more. And I think what the low seasonality now hopefully comes back as a high season over the summer.

Okay. You have relatively recently updated your financial target, how do you see the targets linked to the result in Q4?