Exasol AG (EXL) Earnings Call Transcript & Summary

A warm welcome also from my side. Thank you all for joining us on our conference call today on our preliminary figures for 2022. My name is Jan-Dirk Henrich, I'm the CFO and COO here at Exasol. And actually, before we dive into content, I'm very pleased to introduce to you Joerg, Joerg Tewes, who's our new CEO since January this year. As you know, in our last webcast, you had to do with me alone. I'm very happy that we are able to speak to you again as a team in these calls. And without further ado, let me hand over to Joerg to give you a little bit of an introduction of himself and lead you through his agenda in the coming months and then also through the first agenda item of today's call. Over to you, Joerg.

Yes. Thank you, JD, for the warm introduction. I'm very happy to be here today and very much looking forward to our future discussions. But before I will comment on the achievement of the last year and later on, on our outlook, let me briefly introduce myself and say a couple of words on how I will define the new role as a CEO. So a bit of my background. My name is Joerg Tewes, and I grew up in Germany and have a diploma in computer science from the Technical University of Berlin. I started my professional career in the early 1990s, building actually a database product, an object database called Poet FastObjects. We successfully IPO-ed the company, Poet Holdings, in late 1999 in the Hamburg in Germany, and eventually merged that company with another database vendor in 2003, 2004. I moved to the U.S. to Silicon Valley here in California in 2008 and held leadership positions in large public companies, Amazon, Logitech and other technology. And I he was also a COO of a start-up -- eventual funded startup here in Silicon Valley, a company called Avegant. I had P&L responsibility of up to USD 1 billion. My last role was the General Manager position at Amazon before I joined Exasol where I was driving development and commercialization of well-known products like the Kindle e-reader product line and Amazon Fire Tablets as well as a new-to-world video communication product. I'm also a member of the Band of Angels, which is one of the Silicon Valley's oldest angel investor groups who done several early-stage investments, mentoring also start-up founders to grow their respective business. After being 15 years abroad, I'm actually very excited to move back to Germany, which I'm planning to do at the end of April where all of my family resides. And I have 2 children, they both live in Germany. So I'm excited to be back or coming back very soon to Germany. So let me switch over. Okay, let me provide a quick overview on where I am right now in my journey on getting onboarded to the company. So I've been on board since the beginning of the year, which is roughly 50 days now, and I'm very happy to share my priorities and my initial views of Exasol, even while I'm still in the process of learning about the business, its company, its customers and its key challenges. So my first impressions are that the company has a very engaged multi-wide employee basis, a great product that customers love and very committed customer base. It has its unique challenges that I'm excited and committed to tackle on a going-forward basis. I'm currently working on reviewing our existing strategic direction, including our product positioning, go-to-market plans, and I expect some refinement and updates over the course of the next couple of months. The data management market is a fast-moving space, and we need to make sure to focus on the areas where we can win and gain more customers. Coming from Amazon, they're famous for their customer focus or customer obsession, as it is called Inside Amazon. I will put even more emphasis on listening to and understanding our existing and future customers, driving towards a customer-centric culture. Amongst other activities, we have launched a customer satisfaction survey that will provide us better insights within the next couple of months into what our customers love about our product, but also where they see the need for future improvements. Those focus for me is to evolve and standardize business processes and mechanisms, driving towards improved organizational excellence. As we continue to grow, we need to adapt business practices of more mature companies. And the team has already made great strides in the last year, thanks to the excellent work specifically of JD and my other colleague and the [indiscernible] and Mathias Golombek, and that I would really like to credit for the work that they've done in the past year. I will build on that, and I'm looking forward to basically get the company to the next level. Last but not least, we will focus on our team and our employee base and work on best practices for hiring and retaining top talent and is still -- actually still very competitive job market. After my initial 90 days, I expect to be fully up to speed on all aspects of our business and having developed an updated strategic direction and implemented some new key metrics to drive future success for the company. So let me move over to the next slide. Our agenda for today. We will talk about the business performance in 2022 and on the financial results that the JD will walk you through in more details. I will provide an outlook for the future, and then we will have the Q&A session. So on our business performance in 2022. This is a high-level summary. So as you might note well in mind, we adjusted our ARR guidance beginning of November last year as we saw sales cycles extending, customers becoming more cautious regarding the overall economic development. Still, we managed to increase ARR by 17% to EUR 35.6 million, which is a good result given the overall environment and in line with our revised guidance. We had hoped for a slight ARR development coming from new customers towards the end of the year, which did not fully materialize. I will touch upon ARR details in a minute. We added 18 new customers to our client base coming predominantly from our main target industries. We also had 14 existing clients churn for various reasons. So on a net perspective, we had 4 new customers, increasing our customer base to 216. Upselling again was the dominant driver behind our ARR development as we recorded roughly 90 upsell wins last year, almost 1/3 in Q4 alone. This led to continued high net revenue retention, although we had some headwinds coming from lower gross upselling activities. Our revenue grew slightly faster compared to ARR development and stood at EUR 33.2 million by the end of the year. This corresponds to an increase of 21% year-over-year. Looking at profitability. We did a major step towards, as you can see from the development of our adjusted EBITDA. Coming from minus EUR 33.8 million on a like-for-like basis in 2021, we more than halved our operating losses and were able to grow the business double digit. It's a great achievement in our view. As we will see later, this came mostly from a more efficient personnel structure and from disciplined marketing spend. Keeping costs under control and spending budget wisely, combined with continued ARR growth, will allow us to reach breakeven in the second half of this year on a quarterly basis. Likewise, our liquid funds were positively affected by this development and stood at EUR 12.7 million at the end of the year. This corresponds to a cash out of negative EUR 14.5 million compared to a negative EUR 42.3 million we had the same period last year. As stated earlier, we are affected by the current macroeconomic uncertainties as customers act more slowly and more cautious. But it's also true that data volumes are increasing constantly, and the ability to get faster insights from this data will remain to be business critical. Therefore, we are targeting slightly accelerated ARR growth for this year, as you can see from our guidance we published last week. Profitability will also improve further in the course of the year, leading to a minimal cash out in 2023. In the light of the overall macroeconomic environment, we will continue to manage Exasol towards profitability. This will make us more independent of market fluctuations, strengthen our internal financing power and put the company in a more robust position overall. Achieving EUR 100 million ARR in the course of 2025 is therefore no longer likely. We will reassess the growth scenarios as part of our strategic planning and based on the current market environment and will update the medium target at a given time. So here's an overview on our ARR development by quarter. What you see on the left-hand side of the slide is a typical seasonal pattern with increasing ARR momentum over the year. But we already saw some negative effects from the overall macroeconomic environment in the beginning of last year. Although we managed to increase ARR quarter-by-quarter, especially new customer wins started to slow down in the second half of the year, which affected specifically our ARR development in Q4. This development is reflected in the total number of customers, which went up nicely until end of Q2. Q3 was already becoming more difficult, resulting in an only slightly growing customer base and the year ended with a net decrease in Q4. We will have a closer look at our main regions and the effect that drove ARR and customer development on one of the next slides. Before we dive deeper into that, let me give you more details on our new customers in relevant upselling industries. Part of our strategy to make our go-to-market approach more efficient is to focus on certain industry and verticals. Not every potential customer has the same need for high-performing database. It is usually the highly operationalized use cases where we really make a difference. These are typically found in what we define as our key verticals, which are, among others, the financial industry like banks and insurance companies, health care, telecommunication and transportation. And as you can see from this chart, this industry accounts for 50% of new customer wins in 2022. And it becomes even more obvious that these industries have constant need to process huge amounts of data at high speed when you take a look at our upselling customers. Out of 216 customers we had end of 2022, roughly 90 increased their contract volumes. And again, it was financial services, but also e-commerce and software IT accounting for roughly 50% of total upsell volume. We will continue to sharpen our go-to-market approach by focusing on our key verticals without leaving other promising options aside. Maybe a final word on headcount development before I will let JD give you more details on ARR development in our financials. As you can see, the largest adjustment to our headcount materialized in Q1 and partially in Q2 2022 as a result of the reorganization efforts we carried out in Q4 '21 and Q1 '22. It cannot be overstated that we succeeded in increasing our ARR while reducing our staff by almost 20%. Having now the target structure we need for our way forward, we do not see any need for additional changes. Our headcount will thus remain at around 200 employees for this year. And with that, I would like to hand over to JD for some more details.

Thank you, Joerg. I would like now to give you some more details on the 2022 financial performance and also some additional detail on our ARR development. As Joerg already commented, we had a decrease in the customer base in Q4, and we want to break out in more detail what happened region by region to give you some perspective on the key drivers there were. Now as stated by Joerg, our ARR grew by 17% to EUR 35.6 million at constant FX, therefore, coming in at the lower end of our revised ARR guidance. Now looking at our well-known ARR bridge on this page, we can see that 2022, again, was a year in which net revenue retention was the dominant source of growth. So if you take the total 17% growth, 15 percentage points were driven by net upselling, whereas only 2 percentage points were contributed to a total of 18 new customers. The net revenue retention rate decreased from 121% in 2021 to 110% in 2022. Now this was not driven by higher ARR churn. And so as you know, net ARR reduction rate is the sum of gross ARR retention rate and net ARR churn. So it was not an increased ARR churn rate, which was constant compared to prior year at 4%, but it was a slowdown in gross upsell rates from 125% to 118%. So both new customer acquisition and gross upselling were affected by the generally difficult economic environment in 2022. Now as Joerg already pointed out, we observed customers downsizing their average investments or delaying them all together. In addition, many customers consolidated their tech stacks, focusing on the single-platform strategy as compared to best-of-breed approaches, for example, which could particularly be felt at customers where Exasol so far only has a small footprint. We will see on the following pages, an additional driver for the low dynamic on overall number of customers last year was the U.S. market. In addition to the economic environment, our significant restructuring of the U.S. team resulted in no new logos being gained there in 2022. And U.S. is also the driver of the slightly higher customer churn rate in 2022, which globally stood at 7% compared to 5% in the previous year, which overall is still a very low number but still it was slightly higher. And the main driver, as you will see on the following pages, was the U.S. As a [Technical Difficulty] development, the overall customer base only rose by a net new 4 customers. So before I go into some details per region, I'd like to make -- or I'd like to highlight 2 effects to consider that affect the ARR baseline for this year. As stated in prior webcast, Exasol has ended its collaboration with the German Football Association, DFB, as of end 2022. This will lead to a net positive EBITDA impact of EUR 2.5 million per annum, which breaks down into a cost reduction of EUR 3.4 million and a loss in ARR of EUR 900,000 as depicted on this page. So the DFB was a customer at the same time and that was part of the overall collaboration agreement, which will now exit our ARR numbers, but as I said, with a significantly positive net EBITDA impact. At the same time, our U.S. business has benefited from the strengthening of the dollar against the euro throughout the year with a net positive impact of EUR 600,000. So going into 2023, our ARR baseline stands at EUR 35.3 million realized with a total of 215 customers. Now if we look at the ARR bridge by region, let's start with our most important region, EMEA Central. ARR grew in EMEA Central by 17% to EUR 25.4 million on a like-for-like basis. The customer base rose by a net 6 new logos to 142, or if -- 141 if you exclude the DFB. ARR churn stood at a very low 3%, and the customer churn was stable at 5% compared to the previous year. So here, you can see that in our core region, there were largely unchanged churn dynamics compared to prior years, or in case of ARR churn, even slightly lower, although the new logo acquisition was likewise not at the point where we wanted it to be. Moving to EMEA North and the emerging markets. ARR grew by only 11% to EUR 5.5 million on a like-for-like basis. The customer base rose by a net 3 new logos to 44 logos, and ARR churn and customer churn, as in EMEA Central, remained at very low and stable levels of 4% and 5%, respectively. Now if we move our attention to the American market, the mentioned impact of our restructuring of the team there become transparent. So ARR overall actually rose by 23%, representing the highest growth rate across the 3 regions, but this growth was exclusively driven by upselling of existing customers, whereas no new logos could be gained in 2022. At the same time, we lost 5 smaller customers, mostly due to budget consolidations on the client side. As a consequence, the customer base in the U.S. decreased in that region by 5 logos, although overall ARR rose to EUR 4.7 million on a constant FX basis, with another EUR 700,000 of FX tailwinds coming on top. Now summing up these insights across the 3 regions, growth suffered from lower -- slower upselling induced by an overall economic environment, combined with a not-as-expected new logo business, particularly in the U.S. EMEA Central and EMEA North, however, showed very stable churn dynamics despite an overall slow and almost recessionary economic environment in parts. So what kind of bottom-line impact does that translate to or did this translate to last year? So I would like to start with a recap of the adjustments we make to our EBITDA numbers. As stated throughout the year, we are adjusting our operating results by effects from the pre-IPO stock programs. This gives a better understanding of the underlying profitability of our business. In 2022, we made adjustments of net minus EUR 1.3 million on EBITDA level, compared to minus EUR 5.9 million in the prior year. These adjustments are mostly attributable to the revaluation of the stock appreciation rights as a result of the declining price of Exasol shares in 2022. Taking this into account, adjusted EBITDA came in at minus EUR 13.4 million, while reported EBITDA was at minus EUR 12.1 million. Compared to prior year's figure of EUR 31.6 million, this represents a cut in losses of almost 60%. The line items below EBITDA basically show the same adjustment, so that net income stood at minus EUR 16.3 million compared to minus EUR 35.2 million. Now this improved operating results was the combined effect of continued growth of more than 20% in terms of P&L revenue while reducing costs by more than 20%, significantly improving overall operating leverage. Now as you can see, the revenues went up both in Q4 2022 and for the full year compared to same period in the prior year with somewhat lower revenue growth momentum overall in Q4. That was, however, exclusively due to lower nonrecurring revenues compared to the previous quarter and also compared to the same quarter last year. If you look at the growth dynamics in recurring revenues, those remained stable off at around 30%, both on a quarterly basis compared to last year and full year basis compared last year. Gross profit margin for 2022 was a solid around 94%. Compared with last year's figures, this number appears to have decreased, but it must be borne in mind that last year's figure still included capitalized on work amounting to around EUR 2.2 million. As I've stated repeatedly, we stopped the capitalization of own work in 2022. So for a like-for-like comparison, this figure would have to be eliminated. If you take this into account, gross profit margin improved on a like-for-like basis from around 88% to the aforementioned 94%. Looking at profitability, you can see that adjusted EBITDA, as stated earlier, improved significantly, both the increase in revenues, plus the higher gross profit margin, were important drivers behind this. However, the most important factor was a much better capital efficiency. If you look at the overall improvement in EBITDA of just over EUR 18 million, more than EUR 13 million came from lowering our cost base especially in personnel and marketing. If you look at other costs, those were slightly higher, and this is mostly related due to higher advisory and legal fees, which were related to the significant IT infrastructure projects that we conducted in 2022 as well as onetime costs related to the changes in governance that we went through last year, so the changes in the Supervisory Board and also the changes in the Executive Board. Now the improvements of our cost base can be analyzed even better. If we look at it on a quarter-by-quarter basis, and it also sheds some light on how to think about the cost base in Q4. While we still started the year with somewhat higher personnel cost, in Q1, our efficiency measures implemented at the end of 2021 took full effect from Q2 onwards and remained fairly stable despite the increasing top line and also despite salary increases that we conducted throughout the year, which were compensated with efficiency measures. Our adjusted EBITDA, therefore, was better in the following quarters, particularly in Q2 and Q3 compared to Q1 before being slightly higher in Q4. Now this increase in cost in Q4, particularly in other costs, as mentioned before, is mainly resulting from the consultancy costs in connection with the completion of the IT project. It is also impacted by a onetime impairment we had to do in our balance sheet on capitalized own work from the past that has not yet gone into depreciation, so a project in progress. Now because we stopped capitalizing all together, we had to impair those capitalized expenses, which is a cost factor, which will not return moving forward. Now these combined effects had a negative but expected effect on our adjusted EBITDA in Q4. But as you can see, our underlying structural cost base, particularly in personnel cost is almost unchanged. And with the one-off effects in other costs vanishing in large parts in combination with the significant additional improvement in marketing expenses, which is related to our ending engagement with the German Football Association, we expect significantly improved quarterly EBITDA in Q1 2023 again compared to Q4 2022. Now let me briefly touch upon our cash flow development. Reading this slide from right to left, you will recognize the EUR 14.5 million effective cash out for 2022 that we've already talked about. Now this EUR 14.5 million includes extraordinary cash-outs from IPO-related stock programs, which came in at the announced EUR 2.7 million. Those of you who have been following us for a while know that this was anticipated and also factored in effect. So this means that excluding those effects, the cash out from operations stood at roughly minus EUR 12 million, which is a significant improvement versus the year before. Now with almost no cash need for investments, the difference between free cash flow and adjusted EBITDA is dominantly driven by deferred revenue effects related to the annual or quarterly upfront payments received from our new or upselling subscription customers. And due to the fact that we stopped capitalizing own work as well as more and more infrastructure components of ourselves being purchased via lease agreements, there is no significant CapEx effect to speak of. And that overall leads to a very, very good cash conversion rate from EBITDA. Now the significant improvement of cash flow is even clearer on the next slide when you compare the change in liquid funds on a quarterly as well as on a full year basis. We've used a longer time series here, as you would normally expect, to better assess the improvements made in recent quarters. Looking at Q4, the quarter-to-quarter comparison to previous year, underlying cash out decreased by almost 40%. And the progress in capital efficiency becomes even more evident when we consider the peak cash out in Q3 2021 of EUR 13 million. In total, cash out in 2022 decreased to EUR 14.5 million compared to EUR 42 million in the previous year. And it's again worth noting that this was accompanied by a 17% increase in ARR and a 21% increase in sales. And with that, I would round up my deep dive into the numbers and would hand it back to Joerg to give you an outlook on what we believe the year 2023 will look like and again, how you will be able to follow us throughout the year in terms of our capital markets calendar. Back to you, Joerg.

All right. Thanks, JD. So let me conclude today's presentation with a look at our guidance for this year and give you some more color on our midterm target. So the overall market environment is still very uncertain, and we're being prepared for unexpected development is one of key elements of our strategy going forward. So this means that in our case, we're managing Exasol towards profitability even faster. And for that reason, because of the lengthening sales cycles and more cautious customer behavior we saw in the second half of last year, we see the need to adjust our midterm guidance. I don't think this comes as a surprise as we already saw slower momentum in the second half of 2022. We will update our plans as soon as we have more visibility on the overall market environment as well as the traction we hope to gain from new development on Exasol site, specifically our new SaaS products that were in the process of bringing to the market. For this year, we're confident to turn Exasol profitable in the second half of the year on a quarterly basis. Our ARR is expected to increase to between EUR 42.5 million and EUR 44 million, while adjusted EBITDA will range between minus EUR 3 million to minus EUR 1 million. This again is a significant improvement. Cash consumption is expected to decrease further from minus EUR 4 million to minus EUR 2 million for the full year, leading liquid funds almost unchanged at EUR 9 million to EUR 11 million by the end of the year. And as you can see, this still includes extraordinary cash-outs for our IPO stock program of EUR 1.8 million. Finally, I would like to draw your attention to our financial calendar for this year. As you can see, we're planning for numerous investor events like webcast, conferences and roadshows. There will be also a Capital Markets Day this year, most likely in the second half of this year. So there will be many opportunities to meet in person for me with you in -- for the first time and to reconnect for you with Exasol, and we hope to see some of you in person during these events. But for now, I would like to open the discussion for further questions. Thank you very much.

[Operator Instructions] The first question is from the line of Nicole Winkler with Hauck Aufhäuser.

Yes, I want to ask a question regarding the SaaS rollout, especially. And if you can give us some more color here and if it's included in the 2023 guidance? And maybe another question is coming from the U.S. business. So yes, can you give us some more color on how the pipeline is looking like? And are there new bigger projects in the pipeline? And yes, that's it.

Okay. Thanks, Nicole. Yes, I can briefly speak about the SaaS program. This -- there's a bit of a history that I assume most of the participants in this call are familiar with. We talked about the rollout in the past. Our R&D team actually has made real good progress, and were -- we onboarded a few initial customers already, and we're doing a broader rollout of our SaaS product in Q2 this year. We have in our numbers, I mean, we've built a business plan for this year that anticipate some revenue from SaaS, but it's a -- it's starting. So it's -- in the bigger picture, it's not yet a material driver of our overall revenue. So that's the answer of the first question. The second, yes, I am -- as you might know, I'm still -- currently still located here in the U.S. So I'm working closely with our North American sales team over the next couple of months while I'm still here. And I am seeing a traction here in North America. We have a new sales leader who joined the company in October last year. And -- so he's getting fully up to speed. So we expect, unlike 2022, in 2023, to close more new logos here in the U.S. as well as to extend our existing business with some key customers that we have here in the U.S.

The next question is from the line of Lukas Spang with Tigris.

Yes. My first question is related to your sales team. You showed in the presentation that you have now around 40 people in your sales team. Can you give us more details relating to the different regions and also in terms of how many of these 40 guys or people are responsible for new customer winnings and also for existing customers?

So we have about -- maybe I'll start with what's most relevant, the quota-carrying account executives. So we have 13 of the AEs, account executives, across all 3 regions. We have 3 each in North America, 3 in the U.K., Nordics and 7 in Central Europe, the DACH region, which is our largest market. So they are basically the ones that work directly with our customers. They carry quotas. We did have that split between hunters and farmers as we call it, so new business versus working on existing accounts. Over time, we're reviewing our sales approach and we're moving more towards a model where account executives are responsible for both bringing in new revenue, but also making sure that we will work with existing accounts. So that's the general structure. The rest of the sales organization supports the account executives. So we have sales engineering in the 3 different regions, around 7 or 8. And yes, the rest is basically support for these account executives.

Okay. And then in terms of the verticals, you have this large part others. What are the main areas within these others?

Well, in general, I mean, the challenge with a database technology that we have, it's -- in principle, it's a horizontal technology, right? So it can be used in different areas. Telecommunication, for example, is one of these areas. We have T-Mobile, Verizon here in North America, which are 2 large customers. They're in the telecommunications field. And what we're looking at right now is part of our strategic evaluation, how can we be more focused on certain verticals and integrate our product into other solutions that are relevant in that vertical without being a 2 horizontal.

Okay. And then on your ARR guidance for 2023. So last year, we saw a higher part from upselling. So what is your expectation in terms of upselling versus new customers for this year and also relating to the different countries or regions?

JD, do you want to take that question?

Yes, I can. So if you look at the structure also, if you look at the growth guidance, we're talking about in between EUR 6.5 million to EUR 8 million of net new ARR. So what we're targeting for is that between EUR 2 million to EUR 3 million of that is coming from new logos. This is what we are aiming for in terms of share. This, in turn, implies net revenue retention rate on a slightly better level like last year but not significantly higher. So as Joerg pointed out before, the way we built the business plan for the coming year is not -- it's still reflecting a bit the overall economic environment and uncertainty. So -- and that's why we didn't plan with significantly increased upselling rates compared to what I've presented to you a moment ago on 2022. In terms of regional split, if you think about those EUR 6.5 million to EUR 8 million net new ARR, how it splits between regions. Again, that's going to be around EUR 4 million to EUR 5-ish million from EMEA Central and then the rest in equal parts from U.S. and from EMEA North.

Okay. But it seems that if you have won a customer, you have a lot of potential. So if the environment is getting better, it seems that if you can gain -- or gain more customers, you have a lot of potential in the time afterwards to grow with these customers and that seems to be a large growth for the future? Do you agree with this?

Yes, I think Joerg would agree, I would agree.

Yes.

In fact, if you look at the upselling numbers in more detail, we also see differences in upsell rates depending on which vertical you actually look at. So -- and this is also then something we are reviewing at the moment as part of the strategy refinement that Joerg was talking about, is to see not only where it easiest for us to gain new customers, but also where do we see particularly high upselling dynamics in terms of specific industries.

Okay. And last question. We already talked about this topic in the past, but I'm not sure right now, how many adjustments? Or will we see still some adjustments this year in the [ EBITDAR ]?

In the [ EBITDAR ], actually no. Although in terms of predictable ones. So the adjustments in EBITDA were related to the gradual building of -- gosh English [indiscernible] reserves. There we go -- reserves for these payments to employees. And in the P&L, there's not much that's going to be adjusted for 2023 because there's only one smaller final cash payment outstanding at the beginning of 2024. That's roughly EUR 400,000. And this will have to be built in terms of reserves in the balance sheet this year, but that's only a minor adjustment if you compare that to prior years. And then there is a certain number of treasury stocks in our balance sheet, which are attributable to Mathias, who is our [indiscernible] Board member who was around at the IPO, and the proceeds from selling those treasury stocks at whatever point that is in time will go to Mathias. But ex ante, that does not have a -- that does not have a P&L effect. Of course, we have to mark-to-market those treasury stocks in terms of reserves for that payment, and that will affect, but this will have no cash impact. And as I can predict, ex ante, which way the stock market will go, although we all hope it's only going to go up. There's no prediction on any adjustment related to that. So the only thing which I can give you visibility on is the roundabout EUR 400,000 for final payment to some employees who've been around at the IPO. Now on the cash side, in our cash guidance for this year, there is a EUR 1.9 million payment factored in, which has already happened in January, and that's the last big chunk, again, on the cash side as well, then the last effect will be the EUR 400,000 beginning of next year.

So that means if we would exclude this, you would be more or less cash flow neutral this year?

That's true, yes.

Or maybe slightly positive?

Yes.

The next question is from the line of Robert-Jan van der Horst with Warburg Research.

Fortunately, most of them have already been answered, but just a follow-up question on likely split between ARR coming from new customers this year compared to increasing business with existing customers. If I understood you correctly, in the last year, the main reason for the reduced average deal size was the economic environment. So just to clarify, the -- this was not structural due to other verticals that you're targeting but basically due to the economic environment. So why exactly do you not expect a catch-up effect here because the way I understood it, you actually gained in just the numbers of customers, a couple of new customers last year, but very low project volumes. And I always thought that there was like room for upselling so that they just plot the volumes, but they're also more postponed than canceled. Where am I wrong here?

So Joerg, do you want me to take this one?

Yes, why don't you take that?

So let me try to breakdown your exact question. The risk part of the question I understood was, why are we not expecting average initial deal sizes from new logos to go back up in the coming year? And the reason for that is the same reason why we're not assuming significantly higher sales next year, is because from an ex-ante assumption, we're not implicitly factoring into our numbers a increase in bullishness on overall market environment. So whatever new logos we gain in the coming year, I wouldn't expect them to be significantly higher ticket sizes than last year. There -- I think as I said, what we are looking at right now is refining our strategy in terms of which verticals to focus on as a result of that strategy. We might identify pockets where we see, on average, larger initial deal sizes. But as an ex-ante assumption, that's not something we factored into the budget. Now the upsell part, so the new logos that came in this year are basically the upselling for -- sorry, the new logos that came in last year -- we're in 2023 already, I keep forgetting. So the new logos that came in last year, are the upselling in part of upselling basis for the coming year. But you have to remember that our average over the coming years, but the average contract condition that we have is around 2 years. So the new logos from last year do not necessarily upsell in '23, they upsell potentially in 2024 upon renewal. Now there's always potential to identify new use with customers and upsell them ahead of time, but there's no natural renewal point, right? So the upselling dynamic of the new customers you gain unfolds over typically the next 1 or 2 years. So that kind of gives you a sense for the delay in dynamics that's going on.

Okay.

Does that answer your question, Robert? I wasn't sure.

Yes, it does, it does. So just a quick follow-up. So if I remember correctly, then you usually have lead time, like from the first kickoff meeting with the customers to a subscription from -- for about 6 months, right? So that...

6 to 9 months.

6 to 9 months. Okay, okay. So even if like the volume or interest in investment in IT infrastructure would pick up in the second half of the year, that will probably only result in increasing ARR then in 2024, right?

Correct. So the way we think about, for instance, the impact of our marketing spend, right? So whatever marketing spend we do from now between now and middle of the year and whatever pipeline -- new logo pipeline we built with that marketing spend still has a chance of converting within the same year. But basically, whatever pipeline you built in the second half of the year is basically most likely only going to translate into new logos in 2024.

The next question is from the line of Johannes Ries with Apus Capital.

Yes, 2 follow-on questions. First on JD. Maybe you mentioned there are verticals which have maybe higher potential on the upselling side. Can you mention who are maybe the most attractive verticals and therefore, you are focusing more on the future on this vertical?

JD, maybe I can make -- just make a comment and you can chime in as well. Well, we do think the financial services area is extremely attractive, and they obviously have multiple areas where they have the need for big data analytics. So we are working on -- and that's a segment where we see that we have good, strong customers, but also the ability to go broader with these customers.

Okay. Maybe a follow-on, also second question. Maybe, Joerg, to you. Regarding the -- yes, the potential to improve the growth of the company given this limited resources. For me as a guy looks at since decades on software names, I think partnerships are very helpful way to do it, but it's not so easy. You must live it. You must have the right product. You have maybe responsible people inside the company. What you have seen so far from the product and maybe your knowledge about the market? How much partnerships and what kind of partnerships could help you to accelerate growth going forward?

Yes. So maybe 2 answers. The first answer is one of my assessment. Focus is important. So we got to make sure that we sharpen our focus on respective verticals and also on our partner strategy. And with partners, I think we have 2 sets of partners that we're working on. So there are partnerships with hyperscalers. As you know, I just came from Amazon, I think AWS, but the other cloud providers are actually good partners for us that can help us on the sales and acquisition side. And then implementation partners that build solutions with customers. So we're reinvigorating this channel right now. We have a dedicated partner team. And I'm actually actively engaging in these conversations with our partner channel as well.

Do you also think that it makes sense that your product is also included in an OEM part of another software product? Doesn't it make sense?

Well, we actually have a couple of OEM customers, but it's a slightly different use case, I would say then -- so that's part of our focusing -- I would say, at this point in time, the OEM market is a market we're not actively pursuing. It's rather something we would obviously take. But I think it's a different go-to-market approach. And to my first point, we also want to make sure that with a team of 200, we're actually focused on certain areas. So OEM is not necessarily on the forefront of our priorities.

Okay. And coming to the implementation partners, who are the most important, who are maybe more active has also built up on -- maybe dedicated team inside and so on?

Well, we're currently in the process and I don't want to list names here in this call. So we're currently in the process of reviewing our partner strategy. And like I said, I'm personally engaging with some key partners that we have.

Okay. I'll wait for more details in the next month.

And the final question is a follow-up question from the line of Nicole Winkler with Hauck Aufhäuser.

Yes. I guess you have already touched during your presentation, but I just wanted to ask if you can give us a number or some color on the fact that the initial tickets of new customers declined. Can you give us an average to where the ticket size is now starting?

JD, do you want to take that?

Me? Yes. So I mean, if you look at past years, there's actually -- there's some structural dynamics to the initial ticket size that you have to factored in, right? So if you look at the prior year, so for instance, 2021, I think we had an average ticket size of [ EUR 70,000 ] to [ EUR 80,000 ]. But one thing you have to remember is that there was 1 new logo that year which, was a big financial institution, which came in at [ EUR 0.5 million ], right? And such a low growth puts up than the average entry ticket size. So one of the effects that happened in 2022 was we weren't successful in converting such a big new logo, which already, by math, that led to a lower average ticket size. So for the rest, tickets that we saw were at around [ EUR 30,000 ] to [ EUR 40,000 ]. I mean if you do the math, we had roughly, I think, EUR 400,000 with new logos, and there were some very small ones in there as well, right? So at [indiscernible] coming in, and it depends a little bit on how the mix will evolve. SaaS customers, we expect to come in at lower tickets again. But then because of consumption-based pricing, will have a higher upsell dynamics, right? So -- but in our budget discussions at our traditional business without SaaS, we are more planning with [ EUR 40,000 ] to [ EUR 50,000 ].

There are no further questions, and I hand back to Jan-Dirk Henrich for closing comments.

Well, I think both Joerg and I, thank you all for your continued loyalty and interest in the company. Let me also say a personal thank you to the good interactions in Q4 last year where -- which was the interim period between Aaron leaving and Joerg coming on board, and I very much appreciate the interactions we had in that time. Joerg, do you want to say something, last words.

Yes. I mean, JD, thank you very much for your service. I think you did a tremendous job over the last year, bridging the gap between 2 CEOs. So I really appreciate what you've done for the company. And I'm looking forward to continue to engage with the investor community. I'm excited to be here. I think we shared our excitement in this call today. And we'll keep the ball rolling forward. I think Exasol is on a really good projection, and I'm excited to be here. Thank you very much.