LeadDesk Oyj (LEADD) Earnings Call Transcript & Summary

Welcome, everybody, to our call -- earnings call for 2025. Sorry. So, welcome everybody to our Earnings Call for LeadDesk for 2024. My name is Olli Nokso-Koivisto. I'm the CEO of LeadDesk. And I'm super happy to be able to present to you our 2024 numbers. As we've published today, we had a strong profitability in 2024, which now lays a good foundation for us for an ambitious 2025, which is a transformational year for us. And I'm super excited now to be able to tell you more about it. Together later on, on the call, I also have Kaisa Ronkko, who's our CFO, who will be deep diving you into our numbers for last year. More detail on the agenda. First, we take a deep dive into LeadDesk. What do we do? Who do we serve? Then we look at some key takeaways from last year. We do a deep dive into Zisson, the acquisition we did late last year in Norway, and then we'll briefly look at our guidance before then deep diving more into last year's financials, together with Kaisa. After that, I'll be walking you through our strategy and the market outlook. And at the end, we'll have a fireside chat and a chance for your questions then later on there. But let's get to business. So LeadDesk in brief. So for LeadDesk, we have 2 main markets. One, our home market in the Nordics and our growth market in Continental Europe. So, our home market; Finland, Sweden and Norway, especially now with the Zisson acquisition, represents a major part of our revenues. While at the same time, Finland, through the Zisson acquisition has become the second largest market, with Norway surpassing Finland as the largest market for LeadDesk now. And this change is transformational, of course, as we are more and more now a European company and we can focus on the broad market, firstly, in our home market and then also in Continental Europe. Looking at the journey, deep diving into the journey. Since our IPO, we've managed to grow well and now we've also managed to grow our profitability, well in line with both organic growth, but even then surpassing that. So, we can really show profitable growth for last year. Last year's EBITDA 15%. We are super happy about that and we see this as a development we want to continue forward. Key takeaways from last year from my perspective. So firstly, the profitability improvement. We did a lot of work concerning profitability last year and now we can really build a solid foundation, which we can expand further. International growth, as said, going forward, Finland is no longer our largest market. Norway has surpassed that, and we see that well under 30% of our revenues come from Finland. Acquisition-wise; so Zisson at the late part of the year is going to be transformational for the company and 2025. And this was also supported by our early acquisition in the summer of Telemagic, also in Norway. And now with these acquisitions and with our organic growth, we can really excel in that market. We've continued investments into AI. We've had follow-ups on that in our releases throughout the year, last year. We've released 5 products to general availability on the AI field. And now all our customers, for example, have access to AI-based transcriptions of all their voice calls on the Leaddesk platform. This is really a great achievement, which then allows us for further development in 2025, for example, text analysis and AI training of other systems. So, this is a great achievement, and I'm super happy about it. And we can offer it to all our customers as a standard included in the standard product. As earlier said, Zisson is a transformational deal for us. We're super excited about it. We get great access to health care and public sector, for example, now in Norway, but this also allows us more scale, which we can then use for benefits on both efficiency, but also growth going forward. Last year, some 15% EBITDA, super happy about that. We did a lot of hard work, a lot of hard decisions and a lot of dedication involved in that. We reached the very high end of our guidance. And on the other hand, on the revenue growth and sales side, we managed to work on that as well. Of course, majority of the focus was working on profitability, which we see also going up in the future as you will see in our guidance. Short deep dive then in Zisson. Zisson is really a growth catalyst for us. It's transformational in the sense that we are really now a true European player. Our home market is strong. It's very strong, and we can both grow and be profitable here, which is super exciting. And at the same time, we get better access to, for example, the public and the health care sectors now in Norway, which then combined with our Finnish health care success is a great synergy in itself. We will be also able to provide LeadDesk AI services to Zisson customers going forward. And at the same time, Zisson has great products such as, for example, Socialboards, which will then benefit existing LeadDesk customers. In a nutshell, Zisson, before the recent 2024 profitability measures was around EUR 9 million in revenues. As we stated, that we will have -- there will be a decline in that now, and there was one in '24. So, that's something we've taken into account. It's under control and handled. They, for example, run down a product whereby then they were -- they've been able to now concentrate on more profitable business. On the EBITDA side, there's a lot of development in Zisson. As you've seen from the previously published numbers, Zisson has been hardly working on their profitability. And we see these effects also then in '25. There's, of course, going to be one-off costs relating to the integration. But nevertheless, we are very confident in able to be guiding a lot higher EBITDA margin than for '24. Super exciting, and I think that this is going to be really transformational for us. Looking at then the guidance for '25. So for '25, we are guiding 23% to 33% in annual revenue growth. So this is, of course, helped by the Zisson acquisition, which we will see for roughly 11 months of this year. And then on the profitability side, as you saw, we reached the very high end of our guidance for '24. So, now we can really be confident in hiking that up to 14% to 19% for '25. So, big things happening for LeadDesk in '25. Very excited about that. Then let's do a bit of a deep dive into the financials and the numbers. But before that, we did have a leadership change going on now. So, Kaisa is now leaving the company, and we have Teemu Rautiainen starting as our CFO in late March. And this is Kaisa's last call, but I'll let her in now to present the great numbers we had for last year.

Thanks, Olli, and it's great to end my LeadDesk career with such good numbers. Now, let me share the main highlights of last year's numbers with you. First, let's have a look at the revenue side. Now, 2024 was a year of stable revenue growth, with total growth of 7.9% in comparable currencies. This year, we also exceeded the EUR 30 million milestone with full revenue -- full-year revenue reaching EUR 31.6 million. Relative organic growth was again strongest in Continental Europe, especially in Spain and Netherlands. Then in absolute terms, growth was strongest in our Nordic home market, and this growth was led by Norway, even without the impact of the Telemagic acquisition. For the annual recurring revenue contract base, our growth for last year was 3.4%, reaching EUR 26 million at the end of the year. And this growth was somewhat slower compared to previous years, mainly due to our conscious decision to focus on more profitable clients. Then if we move on to the profitability side, and this is what I'm most proud of. I'm very proud of the development we've done over the past couple of years and especially during 2024 when we reached almost 15% of EBITDA margin. The improvement in EBITDA margin was driven by the scaling benefits as revenue grew and also our other profitability-enhancing measures such as the previously mentioned decision to focus on more profitable clients and also our strong focus on our efficiency improvement. And naturally, we've continued to keep the cost -- strict cost control that we initiated some while ago. Then, of course, this profitability improvement is also visible in our cash flow. The operating cash flow for the full year reached EUR 4.5 million, which is a EUR 1.3 million improvement from previous year. And of course, we managed to keep the net working capital in control while growing the EBITDA. In addition to the positive cash flow from operations, our overall cash position was further strengthened by the sale of the minority stake in ProFinder at the end of November, and this had a positive cash flow impact of EUR 2.6 million. Now, this was all from the main financials. And I will now let Olli to tell you a little bit more about our strategy for this year.

Thank you, Kaisa. So we've sharpened our focus, and we're now focusing firstly on profitability and then on growth, but I will tell you all about that now. So on our targets, they remain the same. So, we want to be the #1 in Europe. We want to be the #1 contact center software in Europe, with 1 billion customer interactions annually with EUR 100 million in revenues and with a nice 20% EBITDA margin. So, this is our target to be #1 in Europe, 1 billion interactions per year, over EUR 1 million in revenue and a 20% EBITDA margin. Exciting target. So how do we reach that? So, that's going to be reached by both the home market growth. So Nordic, Finland, Sweden, Norway. We're going to be growing here, and we're going to be doing it profitably. And this is a core foundation for our other activities. The continental market is huge, and we see that by excelling in that market. With focused efforts, we can really then do nice growth there going forward. And as we know, inorganic growth is important to us. It's a very good market now for M&A and non-organic growth. They are double the amount of competitors on the European market compared to U.S. There's a lot of local champions. The European market has been very fragmented. And going forward, you need continental scale that we have in order to excel. And that's why the inorganic growth part is very good for us. On top of this, we see there's going to be a lot of opportunities for us to take the extra step in AI with new AI tools, helping our customers out in handling the customer interactions, and it's a huge potential for us going forward. We are currently successfully executing on the strategy that we've communicated. So now we're focusing on strengthening our profitability. This will enable us to have an even stronger financial foundation going forward then on the next step, which is then larger growth and larger focus on organic growth, but it also allows us to execute successfully on the M&A strategy. We've been doing good acquisitions where we've been able to then get scaling benefits and work on our profitability together with the scale. And now that's something we really want to continue. And at the same time, we are looking at also heightening the organic growth going forward, then especially in the later part of this year and going to '26. Our Northern Star, EUR 100 million in revenues, 20% EBITDA margin. With the current setup, I really feel comfortable with this target and very excited to be able to strive for that. And the whole organization is behind reaching these targets. Then when we look at the market, so let's look at the market a bit. So the CCaaS market, the market we're in, Contact Center as a Service. It's over EUR 1 billion market in Europe, in the markets where we act, with then the split between SME, enterprise, roughly 50-50. But especially in the continental market, still some -- over 40% of the potential customers are working on an on-premise solution. This is a lot different in the Nordics. Still the continental market is relying quite a bit on legacy on-premise solutions. The market in itself is then divided into outbound contact centers, call centers and contact centers. So the outbound typically sales side, that's still quite a bit one channel. So that's still telephony. Then we have the call centers, which is telephony going in and out, especially, for example, transportation, health care sector, public sector, they are focusing quite heavily still on the call center market. And then you have the contact center market, which is all channels, social media, messaging, telephony, all combined. And we can service all these different subsegments. Looking at then the growth levels in the markets and why we've decided on working on more profitability in the Nordics and having the growth market focus more in the continental market. If we look at the numbers, these are by Frost & Sullivan. So, Frost & Sullivan expects 16% growth in the continental market going forward, while at the same time, the Nordics is at 8%. And we, of course, need to be a part of this growth and are part of this growth in the continental market, and this is where we will excel also in the future, while, of course, we, at the same time, need to grow in the Nordics, but we need to be more conscious of the profitability choices we make here. So simply put, continental market, it's a huge market, growing faster. The Nordic market growing slower. But here, we can really work on our profitability together with growth. On the short-term outlook, this remains largely the same. So, there are some tailwinds and there are some headwinds. And going then to the first tailwind here, there's still quite a bit of enterprise investment debt. The market situation for midsized and large companies is still hard, which means that they have to look at their cost base very tightly. And of course, then that builds up the investment depth that we can help. LeadDesk is very easy to take into use. It has great potential to help customers with their profitability and efficiency targets. But at the same time, of course, on the headwind side, there's still the economic situation and companies are slower to move and make these investments. On the headwind side -- on tailwind side, there is a great need for efficiency, especially in the Nordics, we see this. This has changed a bit now in continental market, but especially in our largest market, in our home market in the Nordics, there's a lot of need for operational efficiency and we can really help in that. At the same time, of course, the flip side of the coin is that the customers, they want to cut costs. And on that, then we see, for example, oversubscription levels at a really low level. So, customers are really tight on like having just the right amount of user accounts activated and all that. So, they are really looking at what they are paying for. And that's then, of course, a headwind for us. But at the same time, we are the ones to provide the efficiency. For example, with one of the AI tools, the AI Dialer, we saw a 20% increase at the enterprise customer after taking that into use. So that's the kind of thing that we can then help out with. AI adoption, it's a big topic and AI adoption, especially in contact centers. And here, we see that we can help our customers out with their AI needs. Our customers are relying on us for all their customer communication. We have the strings connected to our system. We have the data, which we can then use to provide these services back to the customers. So, they don't need to go to a separate provider, think about master data and all that. It's all here, easy to take into use, get the efficiency gains and get the benefits. On the flip side, there's a lot of regulation coming -- especially from EU regarding AI, the digital act and so on, which, of course, then makes especially the larger customers hesitant into taking these new features into use. which we can, of course, as a major player now in the European market, we can help with as well, but there's still the hesitance that we see. All in all, to summarize up, we had very good progress in the second half, especially super happy about the profitability. We did a lot of big work on that in 2024. The Zisson acquisition is transformational for us. Norway is our largest market. And now we can address the public sector, health care, even better in all our home market countries. And we can now confidently guide revenue growth of 23% to 33%, together with a nice EBITDA margin of 14% to 19%, which is a clear increase from our previous guidance for '24. So very excited about '25 and happy, especially on the profit development in '24. That concludes this part of the earnings call. We'll continue with a chance for you to ask questions, and we'll have a fireside chat going forward. Thanks, everybody, and see you in a minute.

Fireside chat. My name is Lotta Backlund. I'm here to host this fireside chat and ask my questions and yours from Olli and Kaisa. Some housekeeping to begin with. The webcast that you are watching has a little chat box. So, please deposit your questions there. I will be keeping an eye on the chat room and conveying all of your questions to Olli and Kaisa. But first of all, thank you for the presentation. Congratulations on the strong profitability development. So, you exceeded analysts' forecast in terms of revenue and profitability. Is that correct?

Yes.

Very good. Now in fact, your EBITDA margin target for 2024 was 10% to 15%. But now for 2025, it's up. It's 14% to 19%. Now looking into the future, where is this margin boost going to come from?

Yes. Well, first of all, we're already at 15%, so within that new guidance. And going forward, we're just going to keep doing what we've done so far. And as our revenue continues to grow, we will enjoy the scale benefits. And we will be also benefiting from the Zisson acquisition, helping with the scale from that. Of course, there will be some one-off costs related to that integration, but those are taken into account in that guidance, and we are very confident with that new guidance.

We've done a lot of hard work regarding profitability in '24. And I see that this will keep on benefiting then for '25. And then as Kaisa said, the scaling benefits of Zisson also will help there. So very, very confident in that.

Cool. Lots of questions coming in, in the chat, I can see. But let's talk about Zisson a little bit first. It was a big acquisition. Can you tell me a little bit more about the synergies that you expect, both in product development, in revenue, and cost savings?

Yes. So looking at Zisson, they have a great product, especially in the public sector, health care sectors, where we also have a great product in Finland for the health care sector. And here, I see a good combination happening, and we can really like focus on that area, public sector, the health care sector, especially is going to be a big thing going forward together with Zisson. On the other hand, Zisson had a great product called Socialboards, which not only handles the private social messaging, which we already have on our platform, but also on the public messaging side, which has become more and more popular in the last years. So, including like TikTok and Instagram and all that, we can really leverage that for cross-sell and upsell going forward then as well.

All right. Very good. There's actually a Zisson-related question here. So are you seeing the improved access to health care sector more as an upsell opportunity? Or do you think you can win new clients in that segment with the combined forces?

I think that it's both, of course. So, we can service better and wider. But at the same time, this really like helps us to win new customers. As combined, we have an even better product. So, especially in the Finnish health care sector, callbacks and callbacks systems and the functionality related to callbacks has been a key, while then in Norway, it hasn't yet been and played as big of a role. So, there's great opportunities then for the combination of bringing some of the learnings from Norway, combining that with the learnings in Finland and then also addressing the Swedish market better.

Right. How significant of a revenue contraction are you expecting to see for Zisson still in 2025 due to the product ramp-up is Antti's question?

Ramp down, I guess.

Correct.

So, yes. So as part of the efficiency measures, Zisson has ramped down a product they had, but that was already done some time ago. And now the last customers are leaving or have left that platform already. And we know and we've modeled all that. It's in all our financial calculations. So it's well handled, and it's well taken into account in our guidance for '25. And I feel very comfortable with the guidance there, and that takes all these into account. But of course, profitability measures have the price, and then we are happy to see a stronger Zisson now than it was previously.

All right. We have some numbers questions. The ARR decline in Q4, what was the main reason for this is Jaakko's question? Did you see some large customer or customers leaving? And if so, in which geographic area and what was driving this competition?

So in '24, we've had to work a lot on our profitability, and that includes also more concentration on the profitable customers and modeling our ideal customer profile, ICP, better so that we can really address those customers which are profitable for us and where there's least effort, of course, then for us in the onboarding. And that's something we've really worked on and had to make conscious decisions on like who do we serve in order to get to the profitability levels that we've been able to achieve. And of course, then the profitability levels that we are now guiding for '25.

So, there's a question here. Your revenue grew much faster in Q4 than earlier in the year. What were the drivers behind this? Is that what you were talking about here with more profitable clients?

Yes, more profitable clients who have also the possibility then to -- for more professional services as part of the onboardings and like -- looking at the total dynamic of the customer relationship. So, that's a big item for us and has been a big item for us in the second half, especially.

We've previously talked about some -- the onboardings of some larger enterprise clients. So, those are visible in the H2 numbers.

Right. Some M&A questions. You have some capacity left after Zisson. However, are you ready to make next steps already in 2025? Or do you need to digest Zisson transaction first? And let me just combine it with another question, which -- are you still focused on M&A to gain market share in the Nordics? Or has your focus started to shift towards Continental Europe?

Yes. So looking at '25, the first part of the year, we need to concentrate on the Zisson integration, and we really need to execute fast on that to enable us then to look at more M&A opportunities and to execute on that. Of course, we have to now really concentrate that we get the benefits that we are looking for in the Zisson merger. And after that, we can then start looking at other opportunities. So, I think that M&A for '25 is totally on the table. But we, of course, have to do it diligently, and we have to execute well on the Zisson integration now and get those benefits that we are looking for.

And then there was the other part of the question on whether your focus has started to shift towards Continental Europe? Or are we still looking at the Nordics?

Yes. So looking at that, Nordics is still super interesting for us. It's our home market. And here, we can really excel as we do have already teams both back office, front office in all the Nordic countries, Finland, Sweden and Norway. Also, these integrations are a lot easier, and we do get scaling benefits faster. So, Nordics is very interesting to us in the future as well. And then when it comes to technology, for example, technology acquisitions and product acquisitions, complementary product acquisitions really make sense in the Nordics where we already have that development capability, the product management capabilities and so on. And we have a great customer base to leverage.

There's a quite specific question about continental growth, which is from Jaakko. Your Continental European growth is driven by Spain and Netherlands. How is Germany performing given the legacy of low SaaS penetration?

Yes, that is true. And it's also visible in basically all the like market statistics that Germany is a slow grower in market adoption. But at the same time, we do see that the adoption is heightening. I was just this -- this week, I was visiting the Contact Center World Congress in Berlin together with the Board. And what you see there is that it's changed now. So still last year, you would see hard phones on sales, those traditional hardphones, landlines and all that. This year, I didn't see any of that. And the AI message and the cloud message is like crisp and clear now also in Germany, which is different from last year or a few years back, especially. So with the advent of AI, I think the German market will change as well, and they will adopt more, more cloud.

Well, I'm glad you mentioned AI. Obviously, I don't think there's a single results call this year that doesn't mention AI in any company. Jaakko has a question. Regarding your largest customers who seek efficiency gains via AI, do you see them developing own AI tools to improve efficiency? Or is LeadDesk able to deliver the AI-related efficiency with the features you have created?

Both, both. I see that the very large customers, they are very conscious of AI, and they own their own AI like vision. But then when it comes to executing on that Vision, we see that especially in the customer communication setup, we are then the partners who can provide the technology to support that. For example, with our AI transcriptions included in the packages with our conversational AI and so on, we are a very important part of that. If you think about a customer who runs their customer service on a LeadDesk, they have all their e-mails, all their calls, all their customer interaction on our platform, and we can then help them leverage their own data straight away. So, you don't have to go and train somebody else's conversational AI. You have all the data already in the system. And then it's just about turning features on and doing fine-tuning instead of a large project. So, I think that this is the dynamic that's happening now that we can really help when it comes to the customer interaction part of the AI vision. Then with the midsized small companies is, of course, different. They are asking us and having us then help them gain the efficiencies. And for them, they are not so much buying AI, but rather now the conversations with customers has turned to the benefits and it's just like that it's provided by AI. So the dialogue has changed a bit to talking about the benefits instead of the features.

So, you did mention in the presentation that 5 AI-powered products were in production by the end of 2024 and more were to be launched during 2025. So, what kinds of new product features do you expect to launch in 2025?

So of course, there's going to be multiple. One of the things that I'm very excited about is what we can do now that we have all these transcriptions happening for our customers, what kind of analysis we can build on that. So, now we have the base capability. All our customers have the base capability of textualizing all their conversations on telephone. And through that, then we can provide, for example, agent coaching, AI-based agent coaching, automatic quality assurance and helping them out in the -- summarizing the calls for their CRM, for example. And this is super exciting stuff that really helps our customers out. I actually just heard this week that we were invited to a large customer. It's a large Norwegian customer where they wanted to bring us to the Board to show the great stuff that we've been helping them out with. So, I think this is the kind of message that I'm really happy to hear.

That's really exciting. A very specific question coming from [ Arne ]. What was the churn in 2024?

We haven't given any churn figures per se. But on the ARR growth for last year was...

3.4% in comparable currencies. So, there has been some churn. But as Olli mentioned, we haven't disclosed that specific number, and we are not disclosing it at the moment either.

There's a question about organic growth. So, your organic growth in 2024 was some 5% to 6%. Given that the growth was driven by the European market, could you describe the reasons for muted growth in the Nordics?

Yes. As we've said, so we are focusing our growth efforts and have been focusing the growth efforts in '24 on the continental market. And we've been focusing our profitability actions on the Nordic market. So, that's been the focus, and that's also in line with the results. So the focus point has been quite heavily, as you can see in the great results on profitability, and that's been driven by the Nordic profitability. And then we've been focusing on growth in Continental Europe.

So, geopolitics these days affects everything. [ Jake ] has a question here. Maybe [ Jaakko ], Jake. Will Trump administration have any effect on the business going forward?

So for us, we are focusing on the European market. And this is -- the geopolitics are actually a great point here. There's a huge moat to enter the European market from U.S. due to the high regulation that we have here and the very varied market. We have many countries, many languages and the local laws, regulations, a lot of different tele operators. There's a lot of different competition in different countries. And by being a continental champion and focusing on the European market, we can work with our strengths here. Just in actually, CCW, I was meeting up with a prospect.

What's CCW?

In the Contact Center World that I mentioned. So in the Congress, I was meeting up with a prospect who was anxious to change to us because we know the market, and we have everything they need in the European market. They had a good solution, but it wasn't fitting to their local needs. And this is something that we can really provide for European companies.

All right. Arne has another question, which is the share has a muted interest. And what will you do to increase that interest and increase traded volume apart from doing the good operational work you do?

Yes. I think it all comes down to the operational work. So, showing the profitability, higher profitability now together with the revenue hike, there's going to be more interest because of that being more international. So, Norway being our largest market now having more visibility in Norway and then, of course, Sweden going forward, these very exciting things. Investors, of course, are typically also conscious of their local markets. And for example, after the Zisson acquisition, I've had more interest from these kind of companies that are -- these kind of investors that are more international focused. And this, I think, dynamic that will continue as we are less of a Finnish company. Even though our HQ is here and our DNA comes from here, we are a European company, and that is something that I see having an impact.

So the Continental European growth then, could you open up a bit more of what kind of customers you are winning? And from what type of competition are you winning these clients?

So, we are winning more on the mid and large side. So, that's the market where we're more winning now, and that's due to the conscious decisions of working on the more profitable markets. And I'm happy to say that we are, for example, winning from the U.S. competitors who've managed to win, for example, enterprise customers in Finland. We've been able to win them over to us, partly due to AI and our capabilities there, but also that we know the local market, we know the needs. We have the perfect product for these markets. And that's something that I'm super actually excited about is that we can move up market now, and we are really a credible player with a great product on that market as well.

Okay. Antti here is trying to find out something that I'm not sure you guys are going to be able to talk about. But his question is have [Technical Difficulty]

Phase that we're now in. And that allows us, of course, to work on inorganic means in many ways. But we also see that it's -- the market is transforming, and we have a really good track record of M&A. And that's the other option then like do you want to invest in organic growth in M&A or do you do on share buyback. [Technical Difficulty]

And all the accompanying materials. And then you talked about strategy a lot there. And today, you mentioned that you will strengthen profitability and focus on growth. How is that going to happen? Do you want to talk about that a little bit?

Yes. So that's going to be 2 phased. So now we are looking at profitability and especially like now if we concentrate on '25, we're going to be focusing on the benefits we get from the scale together with Zisson and with the new market focus. So that's something we're now working hard on. And then going forward, once we reach a level of profitability that we are comfortable with that, this is the great foundation we can execute higher organic growth and more M&A on as well, then we'll start investing more highly even on that. Of course, we'll be continuing efforts throughout the first phase as well. But now the focus is really on profitability.

All right. I think those are all the questions that we had in the chat. Thank you so much for being very active and for writing in all of your questions. Now, I hope everyone is just going to go out and buy a bunch of shares. I can say that because I don't work for you. I think you can do that right now while you're at your keyboard. So thank you so much, Olli and Kaisa, for this chat, and congratulations on a great year.

Thanks, Lotta.

Thank you.

Thank you.