Exsitec Holding AB (publ) (EXS) Earnings Call Transcript & Summary

Welcome to this quarterly update for the fourth quarter and the full year of 2021 for Exsitec. Talking now is me, Johan Kallblad and I'm on my 12th year as CEO of Exsitec and my CFO, Anna Gustafsson, is also here with me. In addition to the financials, I will try to cover some of the highlights of 2021, but I will try to keep this presentation short, 15 to 20 minutes perhaps. It is possible to ask questions via the hand raise function in Zoom or by sending an e-mail to [email protected] and we'll answer questions in the end of the presentation, okay? So, this is the agenda. Starting off, I will talk a little bit about our business and then our financial performance in Q4. And then some highlights from 2021 and our priorities going forward. So looking at the company, we exist to help medium-sized businesses use digital tools to improve their operations and this can be things like reduce administration through automation or use data for better decision-making and forecasting or adopting e-commerce or managing a sales force. And the reason why we especially like the medium-sized businesses is that they know that they need to, but don't know how to deploy digital tools and that's where we can add a lot of value. So, this is our approach. We have made a selection of relevant software products for different business processes and use cases where we do in-house development of integrations between these products and we guide our customers to a good combination of software components that fit their business. The customer then gets access to software and integrations through a subscription model. And we then set up the systems and train the users to make sure that the customer is successful in using them. And lastly, we offer a support service, that's a single point of contact for everything we deliver. So, the idea is that we can earn trust and scale our engagement with the customer process by process, expanding their use of digital tools over time. So, it's a land and expand type of business model. And we have a revenue share partnership with the software providers where we market and sell their software to new customers and make the customer successful in using the software over time. And these are the primary software providers that we work with. We feel we have a reasonable balance where we're not dependent on only one software developer, but the largest 4 here are around 70% of total software revenue. They're listed in size-wise here. So, Visma is the largest one. We have a lot of customers, over 4,000 customers the last 12 months. So, selling and implementing through us is an efficient way for a software company to reach a market of scale when they are interested in reaching medium-sized companies in the Nordics. So looking at ourselves, we set up the core of this business model around 10 years ago, and we've had a solid and profitable organic growth every year since we reached scale. And as we become more comfortable with our core business, we've been increasingly confident in adding growth through acquisitions and we did a lot of that in 2021. M&A is an interesting growth opportunity and to going forward also, and I will get back to that. So today, like you saw on the last slide, we are around 475 employees in Sweden, Norway and Denmark. An important DNA of Exsitec is to hire and develop talent. We don't expect to find people that are already skilled in the exact product set that we work with. So instead, we try to find great people and train them. And this is also a great culture builder. We've been named one of the most popular employers in Sweden for university graduates in the technology field over the last 2 years. And this fall, we added more than 65 people into our trainee program and most of them in Sweden, but we also have programs in place in Norway and Denmark on a smaller scale. So, looking at the financials for the fourth quarter of 2021. From our perspective, overall growth in Q4 was exceptional, a total growth of 121% compared to the same quarter last year where around 25% is organic growth and the rest is through acquisitions. This is actually our strongest organic growth in quite a long time, which impressed me since we had a super strong Q4 of 2021 to compare with. Year-to-date, we're up over 80% in total revenue and just over 20% organic growth for the full year 2021. We are very satisfied with this. So, looking at the business areas, the largest one is the ERP business in Sweden, which is 32% of revenue. It's the operations around Visma and Medius primarily. We saw a strong growth and profitability throughout the year here. Also in Sweden, we are organized in 3 business areas. So other than ERP, it's the Insight business, which is 20% of revenue. It's budgeting in data analysis and visualization using tools from Qlik, Planacy and Microsoft. The customer experience business at 18% of revenue, it's CRM, e-commerce and custom solutions with tools from Litium, SugarCRM and HubSpot. Norway is 22% of the business. If this was in Sweden, it would primarily be in the ERP business and the same goes for Denmark, which is 8% of revenue in the quarter. So, looking at profitability, Q4 is normally a really good quarter. No exception this year. It's our most profitable quarter to date with an EBITDA of SEK 25 million. Margins are lower than last year. This is due primarily to lower margins in some of the acquired units and integration costs, where we, especially early in Q4, did a lot of traveling and meet-ups and we do feel that we should be able to reach the same margins in an acquired business in maybe 18 months to 24 months. So, we expect this to take some time before we are back to the margins we had last year. However, we also feel that long-term movement in our underlying business model is that we should improve margins over time as we are increasing the share of recurring revenue. Looking at the recurring revenue from software, we saw solid growth in all major revenue streams, but the one growing the fastest in 2021 was the recurring revenue from software. For the quarter, this made up a little over 30% of our total revenue for a total growth of 124% year-over-year. Year-to-date, we're up 107% from last year. And we've seen a super strong intake of new orders in both Q3 and Q4. Actually, in the short term, this can reduce the share of recurring revenue a little bit because the implementation project work is built on delivery, whereas the recurring revenue is built on usage. So, there is a lag from software sale to product revenue. But overall, really strong growth here. Looking at the totals and the revenue breakdown, like I said, recurring software revenue is slowly but surely growing as part of the total business, 29.3%, looking at LTM revenues. We also see good growth in contracted support and infrastructure revenue, which is an add-on service to the software we deliver. Last year, this was just over 6% of our revenue. So, we actually had over 35% total recurring revenue streams. Still the largest revenue source is revenue from professional services related to implementing and maintaining the software we sell, and we don't sell consulting services outside of our product deliveries. So, this revenue stream is actually mostly dependent on having strong software sales and taking care of the customers over time. This made up some 60% of our revenue with around 3/4 being on existing clients and implementations and 25% is for new implementations. So, quite a stable revenue stream, that one also. I thought this would be a good time to highlight some of the things that happened in 2021 on a high level. So, 2021 for us was really a year of growth overall. We see 3 drivers here. It's the growth through M&A and growth through organic sales and growth through recurring revenue. It's been a fun year, but it's also been challenging having this strong growth, put some pressures on internal systems and it's a pressure on keeping up with demand and keeping staff and the customers happy. So, starting off with M&A. These are the 4 deals we completed in 2021. We added market positions in 2 of our existing offerings through Millnet and Zedcom. We added a presence in Norway through Vitari and we added competence in new areas that can benefit our customer base with e-commerce through WooCode. We get new customers, we get new people, we get new abilities and grow the business faster than what we can do organically. We did, however, also have a very strong organic growth of over 20% during 2021. So, looking at our sales and marketing initiatives, we have really built up the capacity for digital marketing over the last 3 years to 4 years. We have had interactions with more than 5,000 CFOs and Controllers through our seminars. They are themed around the modern finance operation last year. We also do similar seminars for supply chain managers and for sales managers. We try to share a lot of information and inspire people to use digital tools and we see that this really has picked up our organic lead generation. And in 2021, we had around 50% of our new sales from our own lead generation. Around 30% is referrals and things we pick up from existing customers and 20% is from our software partners. So, looking at the growth in recurring revenue, the recurring revenue streams. There are several drivers here. When we are successful in selling to new clients, it will drive this since all our offerings contain a significant portion of recurring revenue, both from software, from integrations and from support. When we are growing with customers or expanding our scope with successful cross-sells, this also helps. And vendors like Qlick and Visma are incentivizing partners like us to convert their old perpetual license space to subscription-based license models. And lastly, we are also actively adding services that are on a recurring revenue stream, for instance, cloud infrastructure services. So, there's a lot of drivers to build the growth there and we've seen, like I said last quarter, over 120% total growth in recurring revenue streams. So, some short words to finalize this on our priorities going forward. This is not new. We do want to increase our footprint at our existing customers by having a relevant offering, making it easy for a customer to grow with us by having out-of-the-box integrations and a single point of contact for support. We want to invest in people for sales and marketing, for professional services and in talent development in general. We do feel that there are still significant opportunities in continuing selective M&A to add customer base or to add to what we can do for our existing customers. So, looking at M&A going forward, for us, the priority is to get access to a new customer base that can be in the target market for our current offering. And the other thing we're looking for is getting a better offering that can benefit existing customers. So, an example is the acquisition of Vitari in Norway that added a large number of customers on a platform that we know really well, financial systems from Visma. We've done a good job in Sweden in cross-selling other software components into a similar customer base. So, we feel we have a good blueprint for growth there. The organic growth in sales right now is so strong that M&A maybe is a little bit less vital for us in the short term, but we're always evaluating opportunities here. Last thing, our financial goal is to surpass the turnover of SEK 1 billion in revenue with an EBITDA margin of 20% sometime in the period 2023 to 2025. Our projections show us that this can be attained with -- in the current capital structure through organic growth and by channeling our cash flow into acquisitions. And this does not mean that we will not issue new equity if the right acquisition opportunity arises. When this happens, we will use all the tools in the toolbox and take the best decision for that situation. And all in all, we're extremely satisfied with the growth we've seen during 2021 and we're really looking forward to keeping this momentum going. And 15 minutes exactly. This concludes my presentation. Feel free to ask any questions. Do we get any questions today, Hampus?

No, you can use the raise hand function. If you have any questions. Otherwise, you can e-mail to the e-mail address, [email protected] and we will answer any questions there. So no questions, then this concludes our presentation for the Q4 report.

Thank you for listening in.

We actually got a question here. Okay. Unfortunately, we can't hear you, Mikael. You are welcome to e-mail any questions to [email protected]. This concludes our presentation for now. We look forward to the next quarterly report.

Thank you.