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

Hello, and welcome to today's broadcast with Checkin.com where CEO, Christian Karlsson; and CFO, Martin Bauml, will present the report for the second quarter of 2024. After the presentation, there will be a Q&A. And with that said, I hand over the floor to you, Christian.

Thank you, Ludwig, and good morning. My name is Christian Karlsson, and I'm the acting CEO of Checkin.com Group since end of May this year. So even if I'm the new CEO, I previously worked 6 years in the group as the Chief Commercial Officer. And today, I have with me our CFO, Martin, and we will go through our latest quarter report. What I mainly will go through myself is my comments from the CEO letter. I hope that you have been reading the report, but also about the business in general and the development in our main verticals. I will then hand over to Martin to go through more to the financial part, and we'll leave it, of course, with a lot of room for questions. Just as in Q1, we have continued to see weak travel volumes through the quarter. We have also had a breakthrough into the fintech industry after the quarter. As you obviously can see in -- on our net revenue for quarter 2, we have a revenue that goes sideways compared to Q1, but also year-on-year. Obviously, we had a really challenging first half of the year, but I feel we are really well positioned for the upcoming year. On the upside, though, even if we have a strong enterprise focus, which means that we focus on the largest companies in Internet, we still signed a double-digit number of new contracts in the quarter. As I mentioned, we also had a breakthrough in the fintech industry after a quarter. I will follow up a little bit about that later in the presentation. We have a strong belief in our new travel product, which is now live in Ireland with Europe's largest airline. A little bit about our verticals. Our main verticals, for those of you who are listening in for the first time, are travel, fintech and iGaming. So I will go a little bit into our current development around our verticals. But first of all, travel, so all have seen like we were facing some challenges around the travel vertical, which is mainly related to a less amount of bookings through third-party bookings, where the volumes are down like 38% year-on-year. The last year, we, as a company, has continued to invest heavily, product-wise and also in the sales and marketing part just around the travel industry. So far, it's not been paying off, not either with our current customers or not with like potential new customers, but we see a strong demand and interest of our product. We have, in Q2, released, together with Europe's largest airline, our new trial product that should cover all type of bookings. And I'm happy to announce that it's also now live in the Irish market, and we hope for an expected rollout on key markets going forward here. Also, as I was a little bit into, we're having a lot of interest around the products in travel. We have managed several discussions going on, and there were -- a few of them feels like they are in the ending stage. On the fintech vertical, we have been speaking about the last quarters about this big Swedish fintech company. I'm happy also to announce that we have been growing that business quite a lot. So we are live now in more markets than before, including the U.S. market, and they also now become our second-largest customers in terms of revenue. Now when all this is ready, we've been working really close with the product development together with this company. And we see that now we are in a good stage with that product to be really competitive against other banks, fintechs and insurance companies. iGaming was before one of our most important verticals, but has been decreasing a bit once we have been focusing more of our resources into travel and fintech. Even though we still see a lot of interest of our products in iGaming, the conditions has changed a bit in the regulated markets. We see that many of our current customers are operating in less markets. We see that many has slightly harder time to make money basically, which has also affected our revenue a bit in the iGaming market. Except that, I'm also happy to announce today that we sent a press release this morning about that we have signed an agreement with Stake.com, which is the fastest-growing iGaming company in the world at the moment. I'm super happy that they would like to work with us and then use our software. Upcoming, we see great opportunities from the new regulations coming in Brazil end of the year. It's with a lot of interest of our products, and we had already started to work with one company in Brazil and to be able to help them with the regulation. And I feel that we are in a really good position to gain more momentum there. Our financial targets remains. The financial targets are like a variant of the classic SaaS metric, which is called Rule of 40, which measures the profitable growth. And the target is to maximize the sum of the revenue growth per share and EBITDA margin. The target stays firm, and our ambition is still to exceed 80% of the annual basis. Year-to-year, on the last 12 months now, we are at 55%, which makes it that we need to have a rollout now in coming half, especially in the travel industry to key markets to be able to reach our ambition for the year. But the goal stays the same and ambition stays the same. But to reach the ambition, we will need to have a rollout to the key markets now in the coming half. And then over to Martin for some financial highlights.

Thank you, Christian. So the quarter's report itself is packed with a lot of numbers. And my goal here for this presentation is to go through the financial highlights. So as we already -- Christian already mentioned, net revenues fell with 3% in the quarter compared to the same quarter last year, and we had revenues of SEK 20.4 million in the quarter. This -- the organic growth was also minus 3% given that we -- there were no impacts from acquisitions this year. The gross margin was 75% in the quarter. That's lower than we've had before. And as we mentioned earlier, that's due to the capacity expansion that we have invested in and in order to meet future demands. And I can come back to that a little bit later. And despite the continued kind of lower revenues compared to the Q3 and Q4 especially last year and the lower gross margins, we still have an EBITDA of SEK 2.7 million in the quarter, and that's a margin of 13%. And the cash flow is somewhat improved compared to last year, and the cash flow from operating activities lands at SEK 2.2 million. And we ended the quarter with a cash position of 35 -- a little bit more than SEK 35 million and an equity ratio of 87%. So if we jump into the details with the net revenue. For those of you who have listened before, you recognize these building blocks where we now added the last -- or the latest yellow building block here, SEK 20.4 million of revenues in Q2, as we mentioned. And that's -- that corresponds to growth of the minus 3% compared to last year. And as Christian already mentioned, that's a lot of impact from the travel industry, especially when comparing to Q3 and Q4 last year. If we turn to gross profit, the gross profit in the quarter went down to SEK 15.3 million, and that's mostly driven by falling or the decrease in revenues. And the gross margin of 75% is lower than we previously had, around 85%. And the bigger story here is the same as when we -- what I told you in the Q1 report, it's because of the investments we've taken in the capacity expansions in order to meet our largest clients' or our largest customers' future rollout plans. We need to be ready when that comes, and we have optimized the systems to be able to run with higher volumes and meet that higher demand. But when the -- when those volumes haven't really materialized yet, then, by definition, the gross margin will be lower for a while. And that's a little bit driven by that -- even the direct costs are not completely variable with the underlying volume, and they are rather kind of incremental capacity steps, if you will, and that is what's happened now when we've actually invested in a few more steps, i.e., increasing costs and we are -- so we're ready to meet the demand when that comes. If we go to sales and marketing, we have increased these investments and put SEK 4.5 million into sales and marketing in the quarter, corresponding to 22% of the revenues. And for the first 6 months of the year, we are at 21% of revenues. And if we go a little bit further down the income statement, we reach EBITDA. It is down a bit, as we mentioned before, compared to last year. EBITDA landed at SEK 2.7 million in the quarter, corresponding to a margin of 13%. And similar to what I mentioned on the gross margin, you can say that we've optimized the company to meet higher demands and to be a bigger company. And when we have slightly lower revenues than we had hoped for, this is what happens to the margins. But as Christian mentioned, we have -- we are in a very good position with high leverage to increase these margins when the net revenue is coming in. And finally, we ended the quarter with a cash position of just over SEK 35 million and an equity ratio of 87%. And with that, I can pass it back to Christian for some closing comments.

Thank you, Martin. Just to summarize, we have continued to see low volumes in the travel segment through the whole half of the first year of 2024. We have our new travel product line in Ireland and for all type of bookings, not just related to travel bookings, through Europe's largest airline. We have a breakthrough in the fintech vertical at the quarter where now in August, they are our second-largest customer for revenue. Also Martin just talked about, we are really well positioned for leverage when we're increasing our volumes and traffic from our large customers. And with that, I leave it back to Ludwig for the Q&A.

And we have received a lot of questions. I think we go straight into it here. You have gone from high growth to lower growth and now to negative growth. What is not working here?

Yes. As I just talked about, we have seen like a decrease, especially in the volumes from our travel segment. We have invested heavily in the last year in the travel industry, both on the product side and on the sales and marketing side. Unfortunately, this has not paid off, and it's related to like a less amount of like third-party bookings where our volumes has been decreasing quite a lot. It's mainly around that. Still, we hope that this should be up and running soon, especially in the key markets, then we hope to get back to the real growth again.

In previous calls, you believe that travel volumes would return during the summer. Why hasn't that happened?

Yes. It's almost I don't need to repeat my answer from the previous question, but we had like a strong belief that it should come. Unfortunately, that new product we've been developing together has just been released in one market so far, and we've waited for like some key markets to be released, in the combination, of course, that our online travel agencies has like decreased the amount of volumes.

Christian, you're now the CEO at Checkin. How would your employees notice that you have become the new CEO?

Yes. So that's correct. I don't think they will feel a big difference. I've been with the company for 6 years. So obviously, I know everyone. And Kristoffer is still our active, like Chairman Borg, the Chairman in the company. But obviously, since I'm coming more from a commercial background, it's like I believe that people probably should feel that it could be a little bit more commercial, both in the sales and marketing focus going forward.

If you look at the development over the past 6 months, the venture towards enterprise feels a little bit like a failure. Why are we sticking with it?

Yes. I think it can, of course, looks like a failure when you're looking into the revenue. For myself, I don't feel it's a failure at all, especially in the like steps we're taking on the product development side together with those enterprise customers. So I feel like, especially from the product side, we've been taking big steps both in the travel and in the fintech industry. Unfortunately, right now, yes, it looks like a failure in form of revenue. But I'm convinced, once we grow together with our partners and with potential existing signings as well, we should see this as a successful opportunity in the enterprise for the future.

Will you reach your financial goal of 80% for 2024?

Martin, do you want to...

Yes, sure. I think, first of all, we just need to clarify the goal or the financial target. It's what the Board has given us. It's to maximize the revenue growth per share plus the EBITDA margin. And the reasoning behind that is that we, as a company, can choose a little bit to invest more in growth-driving activities to grow faster and maybe less profitable or focus more on profitability and maybe at the expense of slower growth. And as Christian said on the slide, I think it's a variant of the classical Rule of 40 target that many kind of scale-up companies or venture-backed companies are using. And we have an ambition level to reach 80% on an annual basis. And given kind of slow start on -- in 2024, it, of course, looks a little bit tough to reach that target -- or not a target, but ambition for 2024. But if we get the rollout that Christian has talked about here from our largest customers, then we believe that is still doable this year. And so the target remains to maximize the growth per share plus the EBITDA margin, and the ambition level is still to reach 80%.

Many iGaming companies have done well during the football Euros. Is that anything that Checkin has noticed?

Yes. We have seen, of course, increased activity in the iGaming vertical. For quarter 2, I think Euro Championship is like 17 days. So obviously, we've seen a little bit of spike. But since iGaming is like a less important vertical for us compared to what it was for a few years back, revenue-wise, we don't see that as a big spike like that. But of course, we see that it grows like in general, but there's nothing really we believe that are -- will be a big chunk of the revenue.

You told us that the software has [ removed ] some travel bookings, which has caused the volumes to drop. Is there a risk that the same thing will happen within several verticals other than travel?

I believe that this -- or I should say, these OTA bookings, this is like one case -- use case of many. It's the only place we're using this today, which is specific customers as well. So I can't see that is a risk at all going forward, that we should see this decrease going forward in like either in travel or in other verticals.

What potential do you see in the collaboration with Klarna?

We have never announced any deal with Klarna, but what we have said is that we're working with a Swedish international fintech company and where the potential is huge. We're working daily together with them to increase the amount of markets we [ ally ] with. It's also really fun to say that we also now have launched in the United States. And also now in August, they are becoming our second-largest customer in form of revenue. And yes, I'm really excited for the future with this partnership.

For several quarters, you have talked about strengthened collaborations with your biggest customer, but at the same time, growth has largely stopped. How should that be interpreted then?

I think this question has been coming up already a few times, and I think I've already answered that in the beginning of the Q&A here. But as we said before, it's related to the rollout of our biggest customers. And I think we can, after that, go to the next question.

Equity analysts believe that the sales will be strong in your Q2 here. What do you think about that?

Of course, our ambition is to have a much more stronger numbers than we had in Q2 and even in Q1, of course, obviously. I don't have so much more to comment about that. But of course, we're working everything as hard as we can to grow this business. But otherwise, I don't have any like other major comments around that.