Esker SA (ALESK) Earnings Call Transcript & Summary

Good evening, hello ladies and gentlemen, and welcome to the Esker Press Conference, where we are going to present and discuss our results. So my name is [ Zena Assi, ] I'm Executive Assistant. And I'm just joined today by the CEO and Founder, Jean-Michel Berard; our COO, Emmanuel Olivier; and our CFO, Catherine Plasse. So today, Jean-Michel, Emmanuel and Catherine are going to explain how the company performed during the Q4. So we will start by showing the key figures and the Q4 financials before we move to our Q&A session. [Operator Instructions] So let me now pass the floor to Jean-Michel on an overview of the Q4 results.

Hello. Good evening, everybody. So I'm going to start by a short presentation, talking about the key revenue numbers for Q4 2023. So you may have read the press release already, that we achieved EUR 46.9 million in Q4 for the Esker as a whole. That brings us to EUR 178 million for the entire year. That's a growth of 14% for the year, 13% for the quarter. Of course, the SaaS product drove the growth at 16% for the year, and we've been impacting partly with the legacy product, which is usual for the difficult economy. As you can see on this slide, the performance is quite well shared among the different region of Esker. So Europe is leading the pack at plus 15%, followed by Americas at plus 14%. And Asia Pac is slightly behind, with 11% growth for the year. So as you can see, the breakdown is mostly SaaS as subscription or traffic, which is the bulk of the revenue, then 17% is for consulting. The legacy product represents only 2% of the revenue. This -- On this scheme, you can see how we made our growth last year. So EUR 22 million of SaaS on top of last year revenue, EUR 3 million of consulting, but partially offset and mostly offset by the drop in the legacy product at minus EUR 2 million. And if we put the revenue in perspective from the lifetime of Esker, you can see these shots, legacy product represent almost nothing, while the company keeps growing on a regular basis. You can notice that the growth last year in absolute value was bigger. This is mostly due to the dollar rate, which has not been helpful this year for Esker. It has been a great quarter, and we signed plenty of deals during this quarter. These are the top names that we have closed. And then I'm going to talk about the SaaS revenue, which is growing steadily, particularly the subscription part of it, which represents 52% of the whole revenue, for a total of EUR 12.8 million in December and the traffic or the transaction-based revenue is growing, but at a lesser pace. Regarding the bookings, we -- as you can see, we have achieved such a tremendous quarter in term of incoming orders. It's plus 58% compared to Q4 last year. So it's really the much bigger quarter ever for Esker. And it's by far the biggest and the best quarter we have ever lived. And if we put that quarter into the year, we have -- we can display a growth of 24% versus last year for the entire year. But -- these bookings are mostly due to Europe, which grew by almost 100% -- 89% and France as well because French was driven mostly by the new mandates on the invoicing -- electronic invoicing for which is supposed to be mandatory on September 2026. So regarding this Q4, these are the major events. So we celebrated our first 20th years in the cloud. So we set up the very first ever of the cloud solution of Esker back in 2003. During Q4, we got the EcoVadis Platinum Medal, which highlights all the work done regarding ESG. So we have added 7 points compared to last year, that brings us in the top 1% of the company evaluated by EcoVadis. Same for EthiFinane. There is -- there are no medals, but we rank in the top of the company evaluated by GAIA, and EthiFinance. So 75/100. We got our certification -- or recertification for the ISO 1401 (sic) [ 14001 ] for environment, ISO 2701 (sic) [ 27001 ], which is more for a security. SOC 1, SOC 2 for the compliance, HIPAA is for health care in the U.S. and SSAE 18 is for the accounting purpose in the U.S. I told you that we are faced with strong momentum regarding invoicing in France, despite the mandate being postponed. So in the middle of the summer, the French government decided to postpone this reform by 2 years. So from July '24 until September '26, due to lateness in -- some delay in the implementation of the server. We were scared at that time. And afraid at the time that the customer may decide to postpone their own project as well. But we made a lot of efforts in the direction of our customers to explain them that they better go now, if they want to have the time to be compliant and also they can take this opportunity to make the entire accounts payable, accounts receivable cycle, rather than just being compliant. In -- on the R&D side, we have made a lot of progress with the generative AI. Many people, they call that ChatGPT, but there are many other version. So this is part of the road map of Esker to bring AI into our solution. But it has been an acceleration with this type of new AI appearing for the -- 1 year ago. And we passed the threshold of an NPS at 70 for technical support, which is, I would say, something that is brilliant and rarely seen among the software vendors. Regarding the future, you can see that we have a growing pipeline. So these are our open deals. The deals we didn't sign. Of course, we've seen a little drop between December and January 2004 (sic) [ 2024 ] because we closed many deals during that period. And you can -- but we have a pipeline of deals to close that is 15% bigger than it was 1 year ago. That -- so we expect the year 2024 to be a good year in terms of closing. So just to summarize what I've said regarding the numbers. So we experienced best quarter and the best year ever for the revenue. We experienced as well an outstanding quarter for bookings, up 58% compared to Q4 in 2022. The French invoicing mandates is boosting order taking. But not only, we also experienced a very good performance in Europe due to -- which is the outcome of the investments that we have made in those subsidiaries for the last 2 years. We expect an operating income around 10% for the whole year 2023. We gave some explanation in the press release of today. It's unusual to close so many deals. Therefore, we are going to pay more sales commission than we were expecting. And it's going to have an impact on the P&L that we think will be between 1% and 2%. So that's the reason why our operating income will be around 10%. We don't know the figures yet, but it will be in this range. For 2024, we expect the revenue to grow by 12% to 14%. We've been voluntarily conservative. We have a strong year to beat. The economical condition are not necessarily very good at this moment. We have seen that Asia, for example, is not performing as well as Europe and U.S. So we are very conservative on those numbers. And we have made some efforts regarding the operating profit by having a very conservative budget for 2024, with less recruitment, less new open positions. So therefore, if the revenue is there and the growth is there, we will post a profit between 12% and 13% this year in 2024 for the whole year. Thank you very much, and we welcome all of our -- all your questions. I think we have plenty of time to do that. Thank you very much.

Nicolas Thorez.

Nicolas, we are going to give you the mic.

Is it working?

It's working, yes. We can hear you.

Thank you for the presentation, Jean-Michel. I have 3 small questions. The first one, is it possible to quantify a bit the volume of the traffic impact over Q4? I mean, relative to the overall growth? And what's the forecast that has been made to build your 2024 sales guidance in terms of traffic, and what could be a worst-case scenario for you? That was my first one.

Okay. Well, I think that during the second half of the year, the traffic was lower than the regular trend by 3% to 4%. And regarding the forecast, we kept this line as the projection for 2024. That's why I said -- I told that we were conservative on that.

Okay. And given that you have signed a lot of contracts in H2, so congratulations. But given also the cautious message that you have in the number of transactions, what's the, let's say, the sequence that we should expect in terms of cost between H1 and H2? I mean, should we understand that the growth in SaaS will continue to slow down in Q1 and Q2? Maybe getting closer to something like 10% year-on-year? Or this is not the right way to see it?

No, I think we will have a growth that is comparable to what we have during Q4, which is something like...

15%.

15%, 14% to 15%, yes. But this is the combination of both the transaction revenue and subscription revenue.

And H2 should be higher than H1...

It should be slightly more dynamic because we closed many deals in December. Therefore, we don't expect them to produce revenue before July or August 2024.

Okay. But if you expect something like 15% in H1 and a bit more in H2, and you're really conservative on your sales guidance, right?

Yes, we are.

Okay. Maybe a last one on the price. What's the price effect that we should expect for 2024? I mean, given the level of the CeNTech Index in France at the end of the year, and what you've already pass on in terms of price increase over 2023? What could be a right -- good level to expect in terms of pricing for '24?

We think we can expect at least 3% here, thanks to the price -- automatic price increase compared to this year to last year.

[indiscernible] Financial Bank.

Okay. Give him the mic.

Yes. Can you hear me?

Yes.

Yes. The first one would revolve on the booking. So after all the record quarter you have done in France, do you expect the same level, I would say, on dynamics in terms of booking momentum going forward? And what do you also think in terms of booking in Europe, as you mentioned in your press release, that it should also be very dynamic in some other European countries. It would be my first question.

Okay. We think that it's really a guesstimate that we will have a dynamic booking period for '24. For the year of '24, we have a big pipeline to sign in France. So the bookings should be dynamic. Of course, we will be in comparison also during H2 with a very strong period of time for France. So we cannot expect 80% growth for the entire year for France. For the rest of Europe, we also have a large pipeline of deals to be signed. But maybe I will let Emmanuel to answer, but we don't think we will post the same performance. It will be more normal, I would say, in the range of 20% to 25% growth for bookings in Europe, and we can have a good surprise coming from the U.S.

Okay. The second question would be on the product and namely on the Order-to-Cash, which has had a strong momentum in the latest quarter. Could you shed a bit more light on the latest development that you have also in Q4? And what are your expectations for this time -- for this type of products for 2024?

2024, I can give you the right figures if you want, but I need to -- I don't have the numbers on the tip of my head, but the Order-to-Cash is performing extremely well. The growth -- growth for accounts receivable on a worldwide basis was plus 66% versus -- so for accounts receivable.

Okay. For Q4?

Yes, for Q4, yes, plus 66%. So it's -- it confirms the trend that was already very positive. And we are having a strong momentum in the U.S. on this type of product, because the cash is becoming more and more important for the companies.

Okay. Understood. And another question on the OpEx. In the previous call, you mentioned to potentially review or revise your variable remuneration policy for salespeople, potentially working on their target. I just wonder, [ conservatively ] speaking, if this topic is still on the table, if you had started the discussion and whether it is fair to assume like some change on that front? And also whether it could have a material impact on the OpEx.

Well, I'll let Emmanuel to answer this question because he's in charge of that. I'm not aware of all the last developments. Emmanuel?

Yes. Hope you can hear me. This is something we do every year. The targets are revalued every year, reassessed every year. What we had to face during 2023 is a very unusual situation, especially for France. Just keep in mind that bookings for France in Q1 were down 40%. They were down as well in Q4 of 2022. So when the targets were set, we -- it was very, very difficult to forecast that the French business, in terms of booking, would actually grow by almost 100% in Q4. And so this is highly unusual. So that won't happen again in 2024. And so that effect that we're talking about is unlikely, very unlikely to have the same impact on our OpEx in 2024. Just keep in mind that the deals that we did not close in Q1 in France, were closed late in Q4. So if they had been closed in Q1, they -- yes, there would have been commissions paid, but there would have been revenue as well because we would have had enough time to actually implement those deals and the effect on -- the bottom line would have been far lower, due to this -- the time that we would have had to actually put those customers in production. So that rhythm, that structure, that dynamic of deal closing for the French market is very unlikely to happen again in 2024. So the effect won't be as great in 2024, except if -- and that would be great news, by the way, because I'd like to remind everyone that this is fantastic news for the health of the business in the end. If we happen to once again below target in Q4 for the French market, this would be great news. But I think realistically, the booking situation for the French market will be much more regular during the year, and therefore, the effect will be lower as well.

Okay. And a very last one. It's a more broader question, but I just wonder if it would be also fair in the future to also introduce like a cash generation guidance or something like this to have more focus on cash instead of profitability, where you can have some cut-off effect as we have had last year? Is it potentially something on the table in the future?

We have not considered that. Can this be on the table? Why not? It's always a possibility. I don't see why this wouldn't be possible. But right now, I don't think we're short term at this moment in a position to do that yet. But I'll take the point, and that [indiscernible] thing does as well.

Okay. So we have a question from Gustav.

Can you hear me?

We can hear you.

Good, good. I have 2 questions, please. The first is on margin guidance. And we've talked a little bit about sales guidance earlier and how you feel it is conservative heading into next year. I'd like to ask a similar question on margin guidance, please. How do you feel about the margin guidance into next year? I know you've talked about slowing headcount, et cetera, to kind of manage that part of the business a little bit. But given sales guidance is looking a little bit conservative, do you feel the margin guidance is ambitious? Or how should we think about that? That's my first question.

I think the margin forecast is realistic, because we are not going to change our cost structure from -- overnight. We already have some people on board that we are going to raise the salary, and we still want to keep investing into the business. So I think this forecast is quite realistic and not conservative.

Super. And then I had a question on M&A, please. There's been some developments in the market since December and until today, with one of your peers, and the price that's been paid for the asset is quite high. First, how do you feel about that from Esker's point of view? Does this change how you view your own M&A activity? And second question, would you consider attracting strategic bidders or suiters to maybe unlock some value in Esker's business as well, given the multiples that are being paid for companies in your space.

Okay. What -- the price that has been paid by -- to Pajero is exactly in the same range of what we are seeing on the market. So we have approached a handful number of companies that we are looking for to acquire and this type of multiple prevented us to acquire them. Then the second question, are we open to a deal? We are not close to a deal, but we are not looking actively for that, but it's a possibility.

Let's move to Julien Onillon. Hello, Julien?

Please give him the mic.

Yes. Do you hear me?

Yes.

So most of my questions have been asked. But I just like to come back on the, let's say, the competitive landscape. A lot of acquisition, as you mentioned, has been done over the past one again with Pajero. How do you feel about your performance within the competition? In terms of gaining market share, does those private equity, which [indiscernible] those acquisitions are suddenly cutting the marketing expenses of their, let's say, new company, which allow you to effectively accelerate your growth? You have seen obviously very strong growth in France, but you were one of the leader in France. So I would say it's maybe not there, there's a difference make, but more in the U.S., I'm thinking and Europe at [indiscernible] by Germany, U.K. and of course, Spain and Italy. How do you see on those different region, the competition going on? And do you feel that you are getting market share there? Or not or how you feel it?

I think I can take that one. What we're seeing from all of these competitors that have been bought by PE firms or from competitors that were owned by PE firms and continue to be owned by PE firms, but had to reduce expenses because financing conditions obviously have changed drastically and their plans -- investment plans have to be revised down to conserve cash before they can do an IPO or before they can sell to somebody else. So this is something we see across the board. The effect of that on the market has been that most of our competition has reduced expenses. So that could translate into closing offices, for example. We have one competitor called HighRadius, which is American. They have closed all of their European offices, except London, for instance. It could mean redirecting investment and efforts to the core of the business, and that's the case, for example, for a competitor called Basware. I mean they went essentially back to what they were doing 10 years ago, in terms of what their message is about, and I can go on and on. So every time there's been a reduction of investment, a reduction of the market presence for those competitors. We did not have to do that. We -- For Esker, working on profitability is about controlling investments, not closing anything, destroying anything or destroying any value. Consequently, I think our market position in those places, in those countries where the competitors have retracted essentially, is putting us in a better position. So that ironically is more the case in Europe because most of our competition is in the U.S., and most of the savings by those American companies have been made on the European market. So I think this is a very good situation for us in those markets. But even in the U.S., once again, going back to let's say, more simple solutions, more proved solutions by the competition is showing that they're a bit weaker and that puts us in a better situation. I think we benefit from years and years and years of more disciplined management of our expenses in that regard.