LeadDesk Oyj (LEADD) Earnings Call Transcript & Summary

So warm welcome to LeadDesk Earnings Call for 2021. I think we have everybody on the call now, so we can begin. Big thanks for joining in our success, and great to have you all on the call. I will be presenting on the call and together with our CFO. And if you have any questions and answers, then there's a time reserved at the end of the presentation when you can then get your questions answered. So if you have any questions, please post them in the chat. The presentation is going to be focusing on 4 things. So firstly, I'm going to be giving a short introduction to LeadDesk, what the company is, what it does, and where we are. Secondly, we are going through material events of last year and then focusing on the key figures. Lastly, we'll be looking at this year and how 2022 is looking for LeadDesk. On the call, we have myself, Olli Nokso-Koivisto, I'm the Group CEO for LeadDesk. And together, presenting, I have also our interim CFO, Paul Stenback, who will be presenting the key figures later on in the presentation. Paul?

Yes. Hello, everyone, also from my side. [ I'm ] Paul Stenback the interim CFO of the company. My background is, firstly, with M&A consulting at Ernst & Young and after that I've done -- worked as CFO for a few tech growth companies, including being the first CFO of LeadDesk back in the days. So the company is familiar. The reason why I'm here remotely and not next to Olli is that I caught a bit of a flu earlier in the week, so it's better that I remain remote today. Back to you, Olli.

Thanks, Paul. So firstly on LeadDesk, my favorite topic. So nowadays, the Nordic market is a very important market for us, and we can see ourselves as a leader in the whole of the Nordic markets. But on top of that, the European -- the whole European markets have become home territory for us, and we excel across the European landscape. And this is a very important factor also when considering the strategy of the company and the expansion of the business. We are proud to say that we are one of the leaders also in the European CCaaS space, meaning the Contact Center as a Service space, focusing on the customer support and sales-based contact centers of Europe. Our purpose and why we are so enthusiastic to come to work every day is that we believe that by providing intelligent solutions for contact center agents across Europe for all those customer service and sales agents across Europe, we can really provide for happy customer experiences together with our customers. So with our software, they can really take their customers experiences to another level. They can service their customers better. More enthusiastically, they can be there together with their customers. And our target is to lead the whole European CCaaS market. And we now set the target last year for ourselves to reach EUR 100 million in revenues to sell for that. There are not many, many European players in the market, and we believe by reaching this target, we can be the clear #1. Then looking at the software in itself. We focus on the first line of the customer experience. So our customers typically have large-scale operations in customer service and sales, and they have high volume first line for both customer service and sales. And we really excel in providing in that space. So that's the space we are really focusing on. The first line of both sales and customer service. For the most -- for the people who see this slide before, you might recognize the [ credence ] towards the CRM and support software. And we've actually added this to showcase the commitment we have towards providing [indiscernible] integrated solutions together with the CRM solutions as well as the support ticketing software, so that the escalation parts from the first line, then towards the more complex business processes handled on the backend can be managed as fluently as possible. And this is super important for us going forward. Then if we look at the space more directly, why we are, where we are and why the position is so crucial and the software stack we provided so crucial for customers is that when you are talking about high volumes of customer communication, it's super important to service the customers, the end customers, the consumers and the B2B customers at the right time when they need help, when they need conductor and connect them with the right person to solve their issues, bring the right issue -- right solution into space with AI solutions and create noise management and management solutions as well as then service the customers in the right channel. The last part here is becoming more and more important as more modern communication methods are being implemented across enterprises as well as SMEs. So looking at our solution, we are moving to becoming the center of all the customer communication at our customers. So we are at the top where the customer communication gathers, where we spend distributed and handled and sent onwards. This is provided by our CPaaS platform on the right-hand side here, but by the conversations, but where we take all those customer conversations, put them into one harmonized system, so they can be managed and handled efficiently. The second part of the value is providing world class user interfaces for the contact center agents to service both online and new customer service cases, sales, mobile or the remote workforce and talk for those crucial ecosystem integrations. In this mix this year, we've also brought in now, training our intelligent platform that came to us through an acquisition in the summer. Also, looking then at the next step for those cases that cannot be handled in the first line, then we have a great set of integrations to backend systems to help out in solving all those cases that are super important for our customers. Supporting this, we also have Workforce Engagement Solutions for real-time reporting, management for those team leaders in the contact center wanting to get the best out of every agent and working together with them in order to succeed as well as the other engagement solutions where our customers can be more engaged with their employees. As we all know, the landscape is changing. Employees are scarce resource. They are things to be valued instead of use. And as such, we provide the best tools to really value and bring the best out of your employees. That's about the solution. Then if we look at the company where we have from, originally from Finland, we are now expanding to be a European company, with overseas and market established in the Central Europe. And we've -- major part of the growth also coming from outside of the domestic market. Here, you can see that we are servicing our customers all the way from north of Norway, all the way down to south of Spain. So really being a European company, and we have now that both the infrastructure as well as the customer base to support this. But the service customers now and in the future, we have to, of course, also act globally at the same time. Our software is on a global level, and we can compete against the best in class in our industry. And we also have the infrastructure in order to support global customers across continents. This is, of course, highlighted by some of the wins. We have thought that we have also had releases on last year. So at the same time, we have the company infrastructure, the business infrastructure set up in Europe with the tight focus now to really free in that growth. But at the same time, we are a global software and our software can provide for the global markets. That's LeadDesk in brief. Now looking at the material events in 2021. We look at what we promised to achieve in '21. We promised strong organic growth, which we delivered, especially looking at our ARR numbers, which include the enterprise deals that we closed in the late part of the year. We are in a very good position to deliver organic growth also then on the revenue side in the future. Here, I just want to distinguish that when we are talking about ARR, we're talking Silicon Valley language, meaning that that's the booked revenue. It's not our license revenue, our recurring revenue times 12, it's the booked revenue, which is forward looking. And I see that even though we had a rough third quarter with some setbacks, even though those, we managed a good year. Then looking at our offering, we've extended our offering. You've seen the previous slides evolve throughout the reports that we've given. We are really focusing on at the same time, extending the product offering and getting that into the market as well as then, of course, through the acquisitions adding great parts to our solution, which would be -- take too much time to develop ourselves. We also promised to focus on integration. And looking at our integrations, I calculated that we have 5 -- now 5 acquisitions in the past, and 4 of them, I would consider big successes. With then the one highlighted in the report, Loxysoft Sweden, having trouble than last year, especially in the second half. Even for the Loxysoft Sweden, we have managed to secure now the revenue, and it's been on a slight increase at the end of the year. We are still focusing, of course, on nonorganic growth, which we delivered on -- in the summer with the GetJenny integration. Then going into the figures, I'll leave it off to Paul.

Thank you, Olli. So I will review a few of the key financials of the company. As Olli mentioned, we are a European company and becoming even more, so which is also shown in the numbers our international share of revenue increased from 49% to 61% in fiscal year '21, which is the right track that we want to go towards. Those of you who have seen this slide before noticed that France is of a different color than before. We have a fair number of customers and growing revenue in the country already. And we're in the process of setting up a local team and subsidiary in Paris. So far, the customers have been serviced from the Dutch office. Next slide, please. And this is really the most important graph of them all, it's simple, but it tells a great story. So 2021 was a good year in terms of revenue growth. We grew with a total of 78%, ending up at roughly EUR 24.6 million in revenues. The 2 main drivers of the growth was the Loxysoft acquisition, which included to enter this, one in Norway and one in Sweden. It was closed in January '21. And then we have seen a good amount of organic growth within both our SME and enterprise level customers throughout Europe. Next. A few more KPIs. Our EUR 24.6 million revenue is split across 1,500 customers, which means we are not very dependent on any single customer. Our employee headcount increased significantly from just over 100 last or 2020 and now close to 200 coming from both the acquisitions that we've done, but also from a stellar recruitment performance throughout 2021. Our ARR grew actually even faster than revenue with 86%, ending up in roughly EUR 22 million. And as Olli mentioned, it gives a good base for our revenue growth going into '22. And finally, EBITDA, the most important profitability measure is solidly profitable also in '21. And then we added a cohort analysis graph to this year's annual report as it gives a few good insights into where we are with the business and what happened in '21. And also what's coming up for '22. What this graph shows is basically the recurring revenue development over time. So that's the x-axis. And then so the time is x-axis and revenue is y-axis. These different colors represent the year when the customers became LeadDesk customers. So for example, the lower most part is customers that were -- became LeadDesk customers in 2016 or earlier and then going upwards it's '17, '18 and so on and so forth. The 3 takeaways that I would like you to take out of this. First of all, the old customer cohorts looking at 2016 to 2019 are very stable, and generate revenue over time and have even been increasing over time, which indicates a good revenue retention. This is really the beauty of the SaaS model that when you -- once when you -- when you acquire a customer and keep them happy as we have so far succeeded in LeadDesk, they generate revenue for a long period of time. The second takeaway is the 2020 year, which is the second highest color on the graph, which behaved slightly differently compared to the other cohorts. We had a really good year in 2020. Organic growth was strong. And one of the drivers there was the remote work trend caused by the COVID-19 pandemic. So many, many customers, for example, changed their field sales into telesales during that year because of the circumstances. However, what we then saw in 2021 and, in particular, in the third quarter, we saw that some of these customers have now returned to a more normal operational model, which means that they've reduced their usage of LeadDesk during the second half of the year. However, now in -- early '22 numbers indicate that the decline has now turned and is stable again. Finally, the third takeaway is the uppermost part of the graph, so -- which shows new sales in 2021, which has been strong. And in terms of new sales, it's one of our best years, and we expect that to continue in '22 as well. Then the last slide, please. This one, yes. So a few more -- so we've talked about a few of these topics already, but I'm going to choose a few more KPIs to comment on, revenue grew really well. Comparable revenue when we adjust for -- adjust for a change in an accounting in revenue recognition principles and for our acquisitions. The revenue growth was roughly 15%. Our EBITDA, as mentioned, remained on a good level. If you wonder why the EBIT, so the next profitability measure on the P&L is worse than the previous year. The main reason behind that is that, it is impacted by goodwill amortization from our acquisitions, and particularly from the Loxysoft acquisition. So that makes the comparability between those 2 are not very good. And finally, as shown by the [indiscernible] KPIs on this chart, our balance sheet remains strong despite the significant M&A transactions and level financing that we have taken to fund those. So we are in a good position to go into 2022. That's all from financial point of view for the moment. Back to you, Olli.

Thanks, Paul, and thanks for the very good presentation on the numbers. Looking then at 2022, moving forward from the last year. If we look at the spreadsheet, we have for '22. We are maintaining our strong organic growth, and we are investing in growth, and I said previously on the call, we are setting up the France office in Paris. And then we'll have local setup also in France. We will be extending our offering and taking already developed products into the market during the year as well as then we are working on our M&A pipeline and really striving for good deals on that front. Here, we've indicated that as the valuations of the private market are still pretty high considering the weather outside. We expect that this is hindering a little bit on the process, but we are hard at work there and see good process opportunities on that front as well. Lastly, as I talked earlier, when presenting the company, we are looking at the ecosystem and partners. So on the partner side, for example, the deal together with [ plus point ]. It is a significant move from our part as they are our first major channel partner as well as then looking at the ecosystems -- looking at the major global ecosystems and our positioning within that space. So our growth in '22 will be on 4 fronts. Firstly, strong organic growth, extending our offering and taking our products into the markets, looking at the opportunities on the nonorganic growth side. And lastly then looking at the ecosystems -- global ecosystems and our partner channels. Through this, we see that the outlook for '22. We expect that the company will grow 13% to 23% of annual growth in '22, and we expect positive profitability as measured in EBITDA and operating cash flows. This outlook does not consider the impact of significant acquisitions on the revenue or the profitability. Here, on top of this, we have now communicated that we will be reporting and giving a business update. We will be giving a business update for the first quarter. So that you get info more frequently than before. We've also said that we are looking into now reporting in IFRS for this year, so meaning [indiscernible] accounts published early next year. We have a strong independent board with strong expertise both from the private equity markets and from the B2B markets, marketing as well as auditing. So we have a super strong board composed of independent board members, this week and the independence that the company needs to succeed in the future as well. Looking at the investment story. We are continuing on a strong international growth. So we are focusing on strong international growth, which we also support through M&A. We remained stably growing and profitable, and we can really provide for stable and efficient solution, one proof of this is our new enterprise customers. We also remain innovative and pioneering, and you can expect for our product offering to evolve also in the future. There's a strong investment that we really think are good shareholder value now and in the future. That's it for the presentation. But I'll thank you from my part, this point and happy to take any questions you might have, please post them on the chat box or if you want, you can also open the mic.

[ Jacko ] here from SEB. Regarding the ARR in the end of the year, -- just to confirm, where all the major deals that you've announced during the past 6 or 7 months now, where all those deals included in the year-end ARR, also including the SpareBank deal?

SpareBank deal, which was announced in January, right?

Yes.

Yes, Paul.

Yes. So SpareBank then was not included as it was signed and announced in January. So it will show up on this side of the year. All the others were included. However, there are still significant upsell opportunities on those deals. So we are obviously hoping that we can increase the amount of ARR that we get from those large clients.

Okay. Excellent. Still continuing on the sales cohorts that you provided. And regarding the COVID impact and the 2020 cohort. Could you confirm that the negative impact is mainly and only because of the reduced use of the services and not because of ending customer relationships.

They are both, but it's mainly due to reduced usage as there have been also quite a few bankruptcies, for example, happening. But from the management side, there has not been like any significant like change of systems to some competing system, for example, if that is the essence of the question. Maybe due to reducing usage, some bankruptcies also related somewhat to COVID.

Okay. Then one on the Loxysoft, Sweden, which obviously saw some challenges during '21. But could you give some color on the development in Loxysoft, Norway. Have they been growing during '21 still, and how the growth compares to the group average growth -- organic growth, if I may?

Yes. So Loxysoft, Norway has been a success, and it has been growing last year. It not -- did not fully offset decline in the Swedish side, but it has been growing. And it's basically pretty much a separate business and that it was actually lots of growth to an acquisition in the past, and it's focusing on mainly on the -- large end of customers and the enterprise customers. And for example, the revenue that we mentioned on the banking side in Norway, that is pretty much due to that acquisition as well as then we announced Finnish energy company as well. And I believe that we would not have won that deal without the acquisition and especially the Norwegian business. So it's actually a joint effort in implementing that at the customers. So there's been good upside from the Norwegian boxes of deal.

Okay. Great. Then a follow-up on the international share of revenue, which I calculate was just 53% in the second half. This is quite a notable decline from first half when you had, if I recall correctly, 69%. Is that a rather steep decline in the share of international revenue mainly because of the Loxysoft, Sweden? Or have your finished operations just been performing so well?

And also, we calculate all GetJenny revenue as Finnish revenue at the moment.

Okay. Good one. Yes, yes.

But all if you want to extend.

I was about to say the same thing, yes. The driver of -- if you compare H1 to H2 is GetJenny , so because that impacts most of second half, but none of the first half.

Thanks, [ Jacko ]. Any other questions. If no other questions, I would like to warmly thank you all for joining in this call and in our success. And I hope to see you then in a few months again. Thanks, everybody, and have a great relaxing weekend.