Konsolidator A/S (KONSOL) Earnings Call Transcript & Summary

Hello, and welcome to this Q4, 2024 presentation and Q&A with Konsolidator. With us today, we have the CEO and the CFO of Konsolidator. [Operator Instructions] I will now hand over the mic to Konsolidator to start the presentation. So Jack and Claus, your line is now open.

Thank you, and hello, and welcome and Happy New Year to all of you. This is a presentation about our annual report for 2024 where we also give a little bit of insight into 2025 and how we will see the near future for Konsolidator. The agenda today is more or less as it always is. At first, we will give a brief introduction to Konsolidator. We can see from the participant list that many of you has been here before. So we will not spend too much time on that because you already know who we are. And then Jack, he will present the financials for 2024 before I will go into -- talk a little bit about our new strategy, Resilient Growth, and how we will see the next 3 years from our point of view. And then in the end, as always, we will have some questions from you where all kind of questions are more than welcome. We will be able to answer as good as we can to all your questions. Welcome. First about us, as you probably know, we are a company that is doing more or less only one thing, and that is a financial consolidation for groups, which we have done now for 10 years. And we are in about 20 countries and have 250 customers. And as you probably also know that we opened an office in Madrid in April last year. So now we have 2 offices; one in Denmark, Copenhagen, and one in Spain, Madrid. And that is -- yes, that's in a nutcase who we are. All right. And then I will give over the mic to Jack, who will go through the financial for 2024.

Thank you, Claus, and thank you for joining. I will go through the financials for 2024 starting with the quarter key financials and then the highlights for the entire year. The SaaS matrix, Claus will get back to a little bit on the SaaS metrics at the end of the presentation also with our new strategy. As Claus mentioned, the numbers are impacted by Konsolidator in Iberia, which they started the operations on April 1. So it's 9 months in the impact on the financials. Primarily costs, but the ARR, they were within expectations. Revenue for the quarter was up by 11% to DKK 5.4 million in the green column. And the subscription fees and the onboarding and consultancy fees were up, the subscription fees were up by 12% and the onboarding were at the same level as Q4 2023. The EBIT was DKK 2.4 million as a loss, and that is DKK 2.4 million compared to DKK 2.4 million in Q4 2023, and that is also impacted by Iberia. Had they not been part of Konsolidator, then it would have been below Q4 2023. The payments or the cash flow from operating activities is also impacted again. What is also impacted, as you can see throughout the quarters, is for instance, at Q3 2024, it's a lot better from operating activities. And that is because we are transferring our subscription payments from 3 to 12 months. So customers are paying 12 months ahead. During Q4, we also had a capital increase of DKK 4.2 million, yes, for the entire year. You can see on the right-hand side, the 2024 numbers and compared to 2023. Revenue was up for the entire year to DKK 20.3 million, just a little bit below our expectations of DKK 21 million to DKK 22 million. The subscription fees grew up by DKK 7 million, but onboarding and consulting fees were decreased compared to last year. Again, EBIT loss for the entire year was impacted by Iberia by DKK 2.4 million for that 9 months. And as well, the cash flow was also impacted. We have a cash of around DKK 400,000 at the end of the year. But here in February, we got a capital increase of DKK 4 million, where we had DKK 2.2 million paid in cash and then a commitment of DKK 1.8 million, which should be according to the -- if you take our budget into consideration, should be enough to cover our liquidity for 2025. The capital increase also impacts our equity, which was negative on December 31 by DKK 2.4 million. So almost positive equity after the month of February. Yes, Claus.

Thank you, Jack. And that was the financial for 2024. Of course, if you have any questions, then just write them in the chat and we'll get back to that. But then I will go a little bit into how we see the next couple of years. But first, as Jack said, I will give some thoughts and reflection on some of our SaaS metrics. One of the important metrics for a company like ours, that is how much does it cost to get new customers. And that is measured through this KPI called CAC over ARR, CAC stands for customer acquisition cost and ARR is the new sales that we generate within a quarter. And that is one of the things that we are measuring very, very closely because one thing is growth, but it's also profitable growth. And as you can see that since 2022, our CAC over ARR has increased slowly. This is per quarter, and some quarters is by nature higher or lower than others. But no matter how we steer, then it has increased over the past 3 years. And that, of course, we have tried to change. And there is obviously 2 ways you can do it. You can increase sales, or you can reduce cost. And we have, for a long period of time, tried only to increase the new sales, but we also took some consequences in the summer where we reduced the cost and also the number of people in sales and marketing. And that actually had a very fast effect in Q4. As you can see that it was down to 2022. As you can see from other quarters, Q4 is normally a good quarter because the sales is fairly high, but we also saw a huge decrease in the sales and marketing costs. And as we made -- part of the reduction was reducing number of staff, which will only have an effect in Q1 this year. So we haven't seen the full effect in Q4, but we decreased the digital marketing spend in Q4 dramatically, and that's the reason why we have such a good KPI in Q4, which is the lowest we have ever had. We do expect that Q1 is normally low in new sales because our customers are busy with the annual report, but the cost will be lower than we saw in Q4. So hopefully and expectedly, we will see a fairly low CAC over ARR in 2025. Yes. Another thing which is interesting to look at, that is that, I think, ever since we started back in '16, we've got larger and larger customers who pay more and more in annual recurring revenue. And that is we are following that through this KPI called ARPU, which is average rate per customer, U is for unit, but for us customer. So there, you can see that we have more or less doubled the ARR per customer since we got listed in Q2 '19. And that's a trend we see continue. And there is some key drivers in that. One thing is that we are getting more and more functionality in our products so we can attract larger and larger customer. But what we have also seen over the past 1.5 years where we have been more and more focusing on partner growth, that is that in order to attract partners, you also need to have a product which is more and more complex so the partner can come out to the customers and generate some consultancy value. So we also see that in this journey, more and more partners are interested in our product who can go out and onboard more and more complex customers. So it's both that our product is getting more partner enabled as we call it, and which also with the increased functionality also see that we are moving slowly from being just a product to be a full solution. I also had a slide on that in a couple of slides. So you can see that more visually. But that are the main drivers to why the ARR per customer is increasing, more functionality, more complex product and then more -- which is positive because then we also can enable partner, which is a part of our strategy. So that's very positive. On our ARR expectation, it's not a big secret that 2022, '23, '24 has not been as we have expected. That has been a low growth, only 10% growth for us that is the dissatisfactory. And we have been working for more than a year how we can get back on the high growth rate that we used to have. So -- and then we haven't fully cracked the nut yet. I think that is honest to say, but we are still optimistic. We still believe that it will be possible. But we also know and we realized that for a little bit less than 2 years ago, in order for us to grow high in the world, we need to have another strategy than just direct selling. I mean the world is too big and the cost is too high, having direct sales around the world. So that was when we started the partner strategy approach. And we are continuing with that. And again, it's not a big secret for the first year, 1.5 years, it hasn't been that successful. But since the summer, we have seen more and more customers coming in from partners, and we believe that that trend will continue, and we can see more and more partners becoming more and more interested in selling our product. So we have guided DKK 23 million to DKK 24 million for 2025. Hopefully, it will be higher than that, but that is what we feel fairly comfortable with to guide on. And then with those growth accelerators we have out to the right, we hope and maybe also expect that we can overperform on that. And those elements, I've talked about them before, is Konsolidator banking. We had hoped, maybe a little bit also expected the first 1 or 2 customers in 2024. We didn't, but we are still both optimistic and getting some positive feedbacks. Hopefully, expectedly, we will get the first customer in the banking segment this year. And again, partner enablement, that's a huge part of our growth strategy. If we should grow fast in other countries, we need partners to help us. We got Konsolidator Iberia, which you know about, and they have performed better than expected in last year. And we believe that they will also be an important part of our future growth. The whole solution, I have a slide on that, and I'll explain why we believe that we can grow faster, higher with this whole solution. And then as I just explained, we have this higher ARPU. So of course, the same amount of customers with a higher ARPU, then you get higher income, higher ARR. So these are the main elements in what we believe can bring us back to higher than 10% growth rate. Again, when that is said, you can see over the past, what is that, 2, 4, 6, 8 years, we've had an average growth of 37% annually, of course mainly driven by the first years '18 to '22. Yes, but let me explain you about this whole solution. And now I will move into a slide which firsthand is maybe a little bit -- has a lot in it, but let's see. Let me go through it slowly. Yes, this is what we call the whole solution. And what this is, that is that as we have said before, customers are getting more and more complex. And the way that we see them getting more complex, that is to the left where we have the ERP systems. Then more and more customers are moving from on-premise ERP system to cloud ERP system. And when they do that, then suddenly the headquarter is getting access to a whole lot more data. In the good old days, 2 or 3 years ago, subsidiaries, they sent Excel spreadsheet to the headquarter with maybe a couple of hundred of data points in each spreadsheet and then the headquarter could look at those numbers. Today, with the API from the ERP system, now they have access to millions of data points. So suddenly, the headquarter have access to much more data than they used to have. And then on the right side, on the reporting side, in the good old -- [Audio Gap]

Claus, we lost your sound. I think you were muted. Can you just please unmute yourself again?

Can you hear me again?

Yes.

Sorry, because we were so secret, so I couldn't tell you. But let me try to repeat that. What I was saying was that to the left side on the ERP system, there's a huge pressure because the headquarter have access to much more data. And to the right side, now with the BI tools like Power BI and other BI tools, then the user can also access those data much more than they could when they were using Excel. So Konsolidator has a pressure from the right because of Power BI and also from the left because of the access to data. And we saw fairly, let's say, a year ago that we would not build -- develop Konsolidator to be a huge data warehouse. There are other products out there that is much better in doing that than us. And our choice has been Microsoft Fabric Data Lakehouse or Data Warehouse, whatever you want to call it. So our future solution to large and complex customers, that is a combination of Konsolidator with a Microsoft Fabric Data Warehouse, where they can structure all the data. And then from the reporting system, they can get access to all the data that they want. And there will be no limitation either in Konsolidator nor in the access point that the customers are getting. We believe that is the future a finance function should be structured. And then you can see at the bottom that we today have a partnership with the focus, and you see that budget and planning tool and also a Danish new product called Autobudgets. So those 2 budget and planning are FP&A tools, together with us is an extremely strong solution for the financial functions out there. And the last new things that is out to the right where we say ESG. And as you can see, it's powered by a partner. That's because we don't want to build our own ESG software. We, of course, know it's extremely important for all our customers. And we believe that we can, together with a strong software provider on ESG, can be an extremely strong solution to customers because we have the knowledge and the functionality to consolidate the numbers, all the 1,000 ESG numbers that you need. We are very strong in handling those, but we are not strong in writing text and making GAAP analysis as you need in the ESG world. So we will partner up with a strong provider in the software for the text and for the GAAP analysis, and then combine that with Konsolidator and our KPI module. We are in a, I'll not say, the final discussion, but we are in contact with 3 or 4 providers, and we believe that we will choose one or more in Q1, so we can go out and offer that to customers. The first test with customers with these different software is ongoing. And hopefully, we will have an offering in Q1. That's at least the plan. So that will be the whole -- you can say, the whole solution for our Konsolidator. With this, we will be a CPM system, corporate performance management system. And it will be something which is not only attractive for our customers, building up the future finance function, but it's also extremely interesting for larger partners who have the knowledge and the skills to build such an environment for our customers. So it go hand-in-hand with higher ARPU, closer connection to the customers and also in the partner enablement strategy as we have. Sorry, that was a long introduction, maybe a little bit technical, but I hope you got understanding that we are moving together and not against the digitization of the finance function. Yes, that was the presentation. And with this, I think we hand over the mic to maybe to Anders to give us some questions.

Perfect. Thank you for that, Jack and Claus. And let's jump directly into the questions from the audiences here. So the first question, I could see that you were looking for a new CCO. Can you explain why this is necessary and what you aim with this position?

Yes. I can answer that because the CEO will report to me. It goes actually hand-in-hand with this whole solution. Our entire deliverance model will change because until now, we have been mainly an accounting system. And we had always been very strong in debit and credit, as we're saying, I mean, correct -- accurate financial consolidation. But in line with the whole solution, we also need other types of skills in Konsolidator. It's an architect and Power BI expert and a data structure specialist and stuff like that. So it's not only a little bit change in the skill sets in Konsolidator. We don't need less of what we have. We need more of the new kind of skills. And in that conscience, we also need to reinvent or maybe come up with a new deliverance model. We also need to figure out how to train partners and how to maintain and enable partners to be able to sell us and onboard us in other countries. And we believe that we need someone who has that experience working with maybe CFO services or working with the larger products is needed in our company. So that is the main reason. Jack, if you want to add.

Yes, I can also add what we also see is that during the onboarding, we see a lot on the whole consolidation processes, how they change from getting the information before from different subsidiaries abroad in Excel spreadsheets like Cloud service now they come in, in a different way. So that whole process, not just Konsolidator, but also the whole process from, yes, ERP system all the way through the reporting part. And those competencies we also need.

The next question is around the partner strategy. So the partner strategy has been something you have talked about for some time, but not really been able to scale successfully. In the recent report, it seems like you have some traction here. Can you put some more words to that and if you're getting closer to a functionally partner strategy?

Yes. Thank you. It's fully correct. It hasn't been so successful. We started out by -- in the summer of 2023, where we announced that now we are going with partner strategy a way, not alone. I mean we do have direct sales, and we will continue to have that. But in order to scale faster and in more international, we need a partner. We started out with the D365 Partners, and that has been a tough battle, and they're not so easy to convince to sell Konsolidator for many good reasons. D365 Partners, they are very busy converting from one premise to cloud. And we fight against 4,000 other apps on, for example, Business Central App store. So that's a tough battle. And our product is also fairly complex. I mean, you need to know something about financial consolidation, so it's not just an IT system that you need to implement. So there's definitely been some learnings for us and the partners in how to sell Konsolidator through the D365 Partner network. I think the current conclusion is that it's a fairly few D365 Partners that have the capacity to sell Konsolidator, and now we are focusing on them. But what we have seen a very good traction on as is also said in the question, is that since the summer, a little bit before the summer, some of the CFO services in the Big-4 companies, they have seen a huge interest and value in Konsolidator. And that's mainly because of this slide. When Konsolidator was just the key and you imported all your ERP data from -- directly from the ERP system to Konsolidator and then reporting there, then there was not much for the CFO services to do. But with this whole solution and the data warehouse environment, then suddenly the Big-4 believe and can see that they can make some value and, of course, also business to them. So now suddenly, the interest from these are much, much higher than we have seen before, which, of course, we are extremely happy for and then also make us more optimistic on the partner way both in the near and the far future. We are not giving up on the 365 Partners at all. I just believe that the journey is longer. But as the D365 Partner, they are selling F&O and Business Central, which is where our main customer is coming from. It, of course, makes sense to at least get them to know about us. I hope -- that answer was a little bit long answer, but I hope it gave some kind of insight on how we are kind of working with the partners.

And then Daniel has a question here. 18 new customers in the last quarter. What is the regional split? Is this driven by Iberia or by your home market in Denmark or other strong markets? And what are the sales channels that were driving this?

Yes. Good questions. Yes, it's mainly Denmark, Spain and Sweden. As we also said before, we got our former Country Manager for Sweden back as a partner, and he delivered some good result in Q4. Denmark has always been strong for us, it's continuing to be strong for us. So I always said that Spain and Denmark, they were like 75% and then 10% from Sweden and the rest from the rest of the world, around those numbers for Q4. So yes, we are strong in Denmark. We are strong in Spain, and we are strong in Sweden. And you can say that's both a positive and also our difficult side is where we have, you can say, a physical or strong presence, we grow. Our product is well accepted in almost all countries, but we need, you can say, a local presence. And that's the main reason why we are so focusing on getting partners because we cannot have a presence in each country around the world. So we do need to find out how to crack the partner problem. And that, of course, we have some thought about in 2025.

And that was all the questions that we have received from the audience. So before we end the webcast, I will just hand over the word for you if you have any final remarks to end with.

To me? Yes. Thank you. Yes, as I've said before, and I'll probably also say in the future, 2022 to 2024 were difficult years. We still managed to grow a little bit, but they were difficult years. We believe that with the Resilient Growth strategy, we will get back to higher growth rate, not just because of the words in our PowerPoint presentation, but also because we see some good signs, both, as I said before, back in Iberia, partner and the whole solution. We believe that we are going into some brighter 3 years than the past 3 years.

Thank you.