Formpipe Software AB (publ) (FPIP) Earnings Call Transcript & Summary

Welcome to the Q2 Formpipe Live Q. And in addition to the quarter, we will, of course, also talk about the intended divestment of the Public division. There's an opportunity to ask questions below the stream. I will be back later to moderate the Q&A session. Today, I'm joined by CEO, Magnus Svenningson; and CFO, Sophie Reinius. But now it's time for you, Magnus to present. Welcome.

Thank you very much, Fredrik. And hi, everyone. Really good to be here to present our second quarter 2025, which we have named Divestment and Margin Improvement. And we will, of course, talk about the divestment. But first, a little bit of a highlight from the second quarter. And net sales came in at SEK 140 million compared to SEK 132 million last quarter -- last year. And again, we continue with our high level of recurring revenues. The ACV is on a stable, I would say, SEK 6 million level. We had very good momentum in our bank and finance business last year and this quarter has been weaker in the bank and finance sector. And then EBIT increasing up to SEK 12 million, which is a good progress towards our margin improvement, which we have been talking about during spring. That is excluding about SEK 10 million for our divestment costs that we have taken in the quarter. Then a little bit on the highlights. As I mentioned, margins are improving despite the currency headwinds we have had during the quarter. So that has a large impact, and Sophie will mention that a little bit more in her presentation. Then the stable ACV. There, we have the Lasernet business performing well with Dynamics. Bank & Finance is a bit weak. We hope to see improvements there going forward. Sweden came in good on the ACV numbers as well, while Denmark was a bit weaker. And then also, I want to mention Landbrugsstyrelsen contract, where we have worked quite a lot several years with that contract, but not being really, really content with the growth or the margin. And they have chosen to retender, and we have submitted a bid that we deem attractive and competitive. However, they have chosen to proceed with another supplier. And we will then continue to deliver up to contract, and until the contract is transitioned. And then we will take those resources and invest in the exciting things we do around One Public and the -- pursue potential program that has now moved forward and been a crucial part in the divestment. So if we talk a little bit about the transaction, this has been a theme around Formpipe for quite some time. And now we see, and of course, the Board sees that it is a good time. We have a good momentum in the One Public business as well as the Lasernet business. So it's a good timing. And when we have also worked with this transaction, we have seen a very, very good, solid interest from very competent takers. So it's been really good interest and good timing. And we see now for us as a group that historically, we have had to work with 2 businesses. And now we can focus on one business areas, and we can put all of our investments in that, in that business there. So it's a very exciting time going forward now with this divestment. So it was announced yesterday, and it is a SEK 775 million in at closing, and then SEK 50 million as a loan, and then there's an additional SEK 25 million being paid out when the STG, the taker sees that this has been developed in line with their expectations. So now we move in a phase where we will start this process of a carve-out, which is a new word for me. That means that we split up the joint resources, and there are a few around IT, finance, the brand, for example. So there are some areas that needs splitting up. And then there are personnel that needs to be moved and some contracts that needs to be moved, which is also conditional for closing the deal somewhere in Q4. So that was in short the some details around the transaction. And then if we then look at what is remaining, this is the Lasernet business and you who listen in, you are, of course, very familiar with the Lasernet business. But I just want to say that, in short, what we do is that I tend to say that we create documents that machines and humans can read. And those documents are crucial in basically all companies' customer journey. So when you do -- when you have a supply chain and you need to do -- you need to deliver something to a customer, then there is a number of documents like invoices, like statements, like picking orders, like delivery notes. All of that needs to be created. It needs to be managed. It needs to be delivered. And then in the end, it needs to be archived so that it can be retrieved. So that is a need all companies have. And of course, we have a niche in sort of mid- to large-sized companies, where we are very, very right. And we have shown that, with our partnership in the Dynamics ecosystem, where we've been active for quite some time, and we have something like 1,000 customers, and we are active in 60 countries. And then we have the Bank & Finance business, where we work closely with Temenos and which is very, very compliance driven. So in short, all companies need this technology, and it's driven by complicated, sophisticated supply chains or compliance. And then we have a large partner network, mainly in the Dynamics and Bank & Finance -- in the Dynamics networks, but also in Bank & Finance, we have a network of partners that deliver this solution. And then, of course, everyone is thinking what will happen in the next step, and we will have a Capital Markets Day in end of November, where we will talk more about how we will grow with the Lasernet business going forward. But I want you to have a look at this graph, the recurring revenue graph from the last, what is it, 5, 6 years. And this is a very steady development of growing ARR, and there is also good margin growth. And this is a trend, of course, that we aim to continue and to accelerate going forward when we are allowed to focus, but also to invest a bit more in the areas -- in the business area. And now Sophie, now we are coming closer to your part, which is around what is it we are selling and what is remaining, but also going into the Q2 numbers.

Thank you, Magnus. Exactly. So hello, everyone. So my name is Sophie Reinius. I'm the CFO for those of you who haven't seen me before. So we shared a similar slide to this one in the presentation yesterday. But now it is updated showing then June 30, last 12 months results. So it's an illustrative financial showing on the left-hand side was included in the transaction parameter as part of the Public divestment. And then on the right-hand side, we have what then will be remaining in our listed environment. So if we start on the left-hand side with the Public business that constitute then our Danish legal entity in Denmark. It includes the operational business of Public in Sweden, which is to be carved out and put into the newly established Formpipe Sverige AB entity, and we also have the business related to BGLink, which used to be in our Other business area on the right-hand side. But in this illustration, it's now included in the Public business as it is included in the actual divestment. So we have an ARR from a rolling 12 months as per June of SEK 241 million in Public. We have a net sales of SEK 313 million. We have an adjusted EBITDA of SEK 103 million. We have capitalized development of SEK 39 million, and we have adjusted cash EBITDA of SEK 56 million and then with a margin of 18%. So that is then the Public as part of the divestment. And then shifting focus then on the right-hand side in our remaining business, which will still be called Formpipe for some more time, which is still the name of the listed company, but will be renamed in due course. So there, we have a monthly -- yearly ARR rolling 12 months of SEK 217 million. We have net sales of SEK 236 million. So a very high percentage of our net sales are coming from the recurring revenue. We have an adjusted EBITDA of SEK 42 million, and capitalized development of SEK 13 million, which gives us an adjusted cash EBITDA of SEK 29 million and a margin of 12%. And then, of course, on the right-hand side, we have our supporting functions as part of group, which are then costing SEK 27 million as per June the last 12 months. So with that, I am moving more towards our kind of normalized quarterly updates in this very busy slide, which I know hopefully, everyone loves. But I will try to kind of digest you through all these numbers. So I just also want to highlight, we mentioned that in the previous call last quarter that we now have a separation between net sales and total income as we have separated out Other income. So there is a difference between net sales and then total income. But then starting then on the positive note, with SaaS revenue increasing 17% compared to Q2 last year that is derived by 18% coming from our Lasernet business and then 13% coming from the Public business. We've also had higher deliveries compared to Q2 last year, and this is a combination of deliveries coming from the Public business area as well as the Lasernet business area. And if you recall, in terms of Lasernet business area, we do have some additional costs in terms of delivery of those resources. So we use subcontractors for deliveries, and that is also why our sales expenses are a little bit higher. So that's directly related to that. And then we have had one-off costs of SEK 10 million, as Magnus mentioned, related to the divestment. And there, of course, will be additional cost in Q3 for the completion of the transaction. And this leaves us with an EBIT adjusted for the SEK 10 million of one-off cost of SEK 12 million compared to SEK 8 million that we had in Q2 last year. So with that, moving over to our growth in recurring revenue. So we then have SEK 443 million in recurring revenue on a rolling 12-month basis. So continuing with our positive note. And this is roughly then 80% of our net sales, so a very high percentage of our overall net sales, still combining Public and Lasernet, of course. We have an 8% year-over-year growth. We have a compounded annual growth rate of over 10% since 2014, so more than 10 years, and then a 13% CAGR in the last 2 years. And with this recurring revenue, we are then covering more than 105% of our fixed operating costs, which then gives us a lot of stability in our business overall. And then I'm shifting over to ACV. So we actually had a slight positive effect of ACV in this quarter of SEK 3 million compared to last quarter when we had a very large negative effect of minus SEK 19 million. That leaves us with a net ACV of SEK 6 million coming from purely SaaS and overall, it was a stable ACV, as Magnus mentioned, mostly related to the Dynamics business in Lasernet and also in the Public business in Sweden. So Lasernet with SEK 4.5 million and Public with SEK 1.5 million. And then we also had a small increase in BGLink, which in this slide is still under Other of SEK 300,000. So that gives us an outgoing ARR at the end of Q2 of SEK 458 million, which is a 6% increase compared to last year. So with that, I hand it back over to you, Magnus. Thank you.

Thank you very much, Sophie. And this is a slide that we've been talking about quite a bit over the last 18 months, which is our pursue potential program, where we have made an overhaul of the customer journey and introduced a freemium business model in the Lasernet Dynamics area, and we have also merged our 2 companies in the Public space, Sweden and Denmark, and also looked in and improved the technical platforms in the Public business area, improved the go-to-market, established a new leadership team. And I just want to highlight now because I've spoken about these improvements repeatedly in these presentations. And last quarter, we introduced a outlook add-in. And now this quarter, the team are introducing our first AI module. And this is pretty cool because in the platforms we are delivering to our installed base since long -- since many, many years, we are now able to add on new modern functionality with modern technologies. And this particular little module is pretty cool because when you have a large group of people like 10,000 using a software, then you have a lot of what I call seldom users, people that use the software rarely. And when they want to do something, it's hard for them to do it. But then we now introduce an AI assistant, helping them to get -- to move on with a task instead of going to a super user or other users and thereby taking down the efficiency in the team. And this is a first example on AI. And as you know, AI is a sensitive topic, but this is a very good first move because we don't have to bother about the sensitive personal data that the Public sector are working with and are also very concerned about. And this has been a project that our Public team has worked extensively with -- this transition, the team has worked extensively with the last 18 months. And it's been very, very scrutinized during the DD process that we passed here during spring when we have had very, very competent bidders looking into our operations. So with saying this, I just want to hand out a big thank you to you, all of you in the Public team that has made this transition possible but also made sure that you have been a very, very attractive target on this market, so -- in this transaction. So thank you very much for the work you have put in. Then when it comes to the Lasernet business, we have now worked with the new sort of packaging for a while and as I mentioned in the report, we made our largest deal up year-to-date or historically with Dynamics with the company, [indiscernible]. It is sort of if we start with Essentials, which is a free of charge product. This is the other end with an Enterprise solutions. And this was exactly the purpose of doing this repackaging that you should be able to really grow with the product. And it's really nice to see these installations with several -- Dynamics with several hundred seats, 400 or 500 users in our application being sold and delivered through our partner network. So that is sort of one example of how this new packaging have worked out well. And with this said, the Pursue Potential program is now over. We divest One Public and with Lasernet, we move into new targets and new ways of growing that we will talk about in our Capital Markets Day in November. Then we have our financial targets. And as you see and as you know, we tick 3 out of 4 boxes. We see -- you can also see that we are improving margins, but we are not improving or despite the currency headwind, we are improving the margins, not in the pace that we're hoping for because we have had a weak first half year, particularly in the Bank & Finance business. And now as we divest the One Public business area, we will also move in and find a new financial targets that we will return to in our Capital Markets Day. So with this, the key takeaways, the divestment of Public, focus on Lasernet, positive margin development that we see continuing the coming quarters. And from now on, we focus on Lasernet with a strong market and ARR position we have and again, Capital Markets Day in November. Thank you very much for listening in. And now Fredrik, maybe it's time for some questions.

Thank you, Magnus and Sophie. We have some questions about Lasernet from the audience, but let's start with just one question about divestment of Public. I mean you have been wanting to do some kind of deal like this for several years as far as I know. But I mean, why now and why in general, just remind us?

No. But it is, as I said in the presentation that we have followed these 2 business areas closely. We have developed them. And now we have seen that they are in a size where they can live sort of -- live stand-alone. It is also a matter of when you start this kind of process, you also want to see that there is an interest in the market. And we very quickly saw that there was a large interest in the market for Public. And that gave us more confidence, of course, to continue that journey. And then, again, now focusing our resources to allocate our capital better, allowing us to also invest focused in one business area rather than splitting our focus on 2 business areas, but of course, also the investment momentum in 2. Now we can focus on 1. So those are the main criteria for making the divestment now, the maturity, the timing and then also the need for focus on Lasernet.

I see. Makes sense. So let us focus about Lasernet then. And we have a few questions from the audience. So do you foresee any material changes to the Lasernet strategy going forward?

No. We will -- and I really like this graph that I showed, the long series of ARR growth. So doing more of the same is what we want to do. But there are obvious things that I, of course, want to focus more on. And one is the platform, making sure that the technical platform stays relevant. And the second one is the go-to-market, being more proactive in our go-to-market that is supporting our partners to do more business, making sure that this end user who's working with the customer journey somewhere is aware of our clever and very, very, very proven solution. And then how you do with this is, of course, yes, you can do this organically, a little bit day by day, but there are, of course, also areas when it comes to adjacent technologies, new technologies that can be acquired as well. And that goes also, of course, for the go-to-market that we might be able to get closer into some ecosystem or some geographical areas by some acquisition. And this is exactly what we are working to elaborate now as we prepare for the Capital Markets Day. So more of the same and in a careful, but also focused manner continue to develop -- continue the fine development of Lasernet.

I see. I'm sure we will get additional information in conjunction with the Capital Markets Day. But still, could you give us some indications on any like geographical areas or industries where you have a quite limited reach today, but where you see potential?

Yes, I can. We are doing -- I mean we are present in the U.S., but U.S. is a massive market. So of course, U.S. is interesting. But also the DACH area. DACH is a large dynamic users. So it is over a large dynamic market. So the DACH area is also an option when it comes to sort of geographical expansion. Then you can look at -- technically, you can look at sort of, yes, now we do produce a lot of documents, but there are adjacent areas when it comes to sort of how do you design this, for example, in the insurance industry. It's -- I think it's called call discuss quote or something, how you build the quote, how you distribute that. So there are a number of adjacent areas that are interested to look into as well as the new ecosystems. For example, IFS, I've talked about that before. That could potentially be something. So that is sort of how our brains are working right now to see what is the easiest to do so we can do that first and then, of course, always be able to be opportunistic if there is some sort of M&A opportunity coming by.

Great. We'll get back to M&A, but let's continue with another question from the audience. Is there a forecast on the remaining one-off costs for the divestment?

Is it?

No. So we don't have a forecast, but there will, of course, be some costs in Q3 related to the divestment. As you know, we're announcing it now in mid-August, and we've had costs up until this time, and we will continue to have some additional costs up until closing, but we don't have a number on that. Of course, it will be less than the SEK 10 million we've had up until Q2, but that's -- I don't want to elaborate more on that yet.

Okay. I see. So here's another question from the audience. Lasernet grew 7%. Are you happy with that?

No. We should absolutely do more. And as we said here in the call, Dynamics has this -- the last 2 quarters developed well. Bank & Finance has been slow. And a year ago, we had very good ACV numbers from Bank & Finance. So yes, there is a need for some patients when it comes to the Bank & Finance, but of course, we also need to improve and put our resources where we see the market growing. So no, we are not happy with that growth number.

And just a follow-up, where do you see the market is growing? Where do you want to put that resources? Any examples? I mean you touched upon that recently...

The no-brainer answer is, of course, within the Dynamics area because we are well established. We have a large customer, partner network. We have product that is well proven. And it is an area that is growing. So that is a very concrete example, which is sort of what we in Swedish tend to say is we dig where we stand. So doing more of the same, again, coming back to this low-risk expansion. So that is absolutely an area where we must make sure that we have emptied out all the options to be successful.

Okay. So additional questions from the audience. A question on the divestment. The purchasing price will be adjusted for working capital adjustment. Could you please share some light on the impact?

I think that's a bit too early to say. So let's come back to that when we are at closing.

Okay. So which profit margin number is your key metric? EBIT, EBITDA or cash EBITDA?

I guess it will depend also on going forward for the Lasernet business. So I think we've had lots of different KPIs that have been relevant for both Public and the Lasernet business combined. But of course, going forward and as part of Capital Markets Day, I think we need to define which KPIs would be most relevant for the remaining business. So I think we will come back to what we deem as the right KPIs and also the right financial targets going forward and how to measure those.

Yes. Okay. I see. So in terms of M&A, is it the intention to continue to focus as a software provider? Or do you expect to broaden your exposure and strategic profile in the coming years?