Lime Technologies AB (publ) (LIME) Earnings Call Transcript & Summary

Good morning, and welcome to Lime's Q4 update. The highlight for this presentation is long-term profitable growth before, during and after the pandemic. My name is Erik, I'm the CEO at Lime; and also our COO, Nils Olsson, will be our presenter today.

Yes. Thank you.

Perfect. Let's start then. We have accomplished 17% growth during 2020 and 29% EBITA margin. That means that we reached SEK 339 million in turnover and SEK 99 million in EBITA. During the last 20 years, we have performed long-term profitable growth. In average, 90% growth per year with 25% EBITA margin in average per year. We are a SaaS company and -- with our subscription price model. And today, more than 50% of our revenue are recurring, low risk. And we have a low customer dependency with more than 5,000 customers, a sticky customer product, creating a lot of value for our customers and the 10 biggest customer stands for less than 8% of the revenue. When you talk about Lime with people in the market, they probably and hopefully say that we have a strong corporate culture, high engagement among employees. And in total, we have 300 employees in the Nordics and since last year, also in Netherlands. The agenda for today, first, I will talk about the investments we have done during 2020 and also during the fourth quarter. After that, we will talk about the business climate and order intake in Q4, the P&L, both the sales, but also the profitability. And during the fourth quarter, we have also updated our financial targets. And in the end, we will give you a short summary of the quarter. So let's proceed then to the investments. Early in the COVID-19 situation, in the pandemic, we decided to be -- act in the crisis like a tiger, attack when the danger appears, and we try to use all the opportunities that appears in the crisis. During the whole year, we have recruited a lot of people. We have invested a lot in sales and marketing. We have opened up a new office in Netherlands. We have invested in new product releases, product development. And I'm very proud how we have handled the crisis so far. And I'm very, very sure that all the investments we have done will pay off, especially when the crisis is over. And then we will have a high speed and high pace going forward. As I said, we have recruited a lot of people. And during last quarter, we have recruited 25 new employees. And they started their onboarding, their trainee program in early January. Actually, it's the first time in the Lime's history, we do the onboarding, the trainee program, digital. We have received good feedback from the new employees. I think we have done it very good, with good quality and also efficient. However, for me, it's very, very important to meet in person. That's how you build a strong corporate culture, a great team spirit among the employees. So I personally can't wait before we can meet again. So when the society open up, then we will gather all the employees and meet and do something -- time together as a team. During 2020, we have had more than 5,000 people applying for the job at Lime. We've recruited 75 new employees. We had 45 who began in August and 25 now in January. Almost everyone has a university degree, and more than 50% of the people we have recruited are women. We've put a lot of effort into recruitment process, but also the onboarding. The onboarding, almost everyone participate in our trainee program during 10 months. A combination between practical work and theory and lessons. And both, when we do the recruitments and also the onboarding, that's how we keep and develop our core values, our corporate culture. And this is how we keep and increase our engagement levels within the organization. Today, we always measure employee Net Promoter Score and today, the score is 37, a small decrease compared to last quarter, and the reason behind that is that most of our colleagues and the employees are getting a lot of tired to work remote and not being together and meet the customers and meet their colleagues. So we can't wait until we can meet again and work from the offices and meet our customers. And then I'm pretty sure that the score will go up again. We are affected by COVID-19, the company. The order intake during the spring when the pandemic came to Europe in the mid-February, actually 1 year ago, went down, especially to new customers. We had a pretty tough business climate from Spring until May. Then, in June, we felt that the business climate got a little bit better, and became better and better month by month. During the summer, many of our customers decided to have extended holidays. And we saw the same trend now in -- during Christmas. And of course, that affected the growth. During the whole year, we saw that sales to new customers, the processes were longer and also some of the processes were paused. However, in overall, the business climate is getting better and better and we have had a good profitability during the whole year. So our overall feeling is that we have handled the crisis in a good way. We are proud about our strategy to see the crisis as a opportunity. We have had good growth, have had good profitability, however, we can do more. Let's look into the business climate in Q4 and order intake. Nils?

Yes. Thank you, Erik. And as Erik mentioned, our customer concentration is low, and we continue to decrease it. And today, our top 10 customers stands for 7.4% and our biggest customer stands for 1.3% of our revenue. And we are not depending on one customer. We are doing deals with many customers and many companies. And we have continued the same pattern, the last quarter, and closed many deals with both new and existing customers with a slightly increase towards our existing customers within our 4 verticals.

Perfect, Nils. Thanks for that. And let's look into the revenue then. If we're looking into the annual recurring revenue growth, we can see that the subscription had a good growth during the fourth quarter, growing by 20%. The service agreements are slightly decreased, down with 4%. But in overall, a good growth in annual recurring revenue despite the COVID-19 crisis. Also when we look into the revenue streams, we can see that the subscriptions have had a good growth, 23% during the last 12 months. We also see that the service agreements on a stable level, more or less flat. The upfront, the blue one, we're not selling any upfront licenses anymore, and that means that the transformation from upfront over to subscription is more or less over. And then we have the expert services. As I have said before earlier, approximately 60% to 70% of the expert services revenue coming from existing customers. A stable revenue stream, really good to have in a crisis like this and we have had a stable growth during the whole year. If we look at the total growth, 14% in Q4; organic 13%; and in total, the whole year, 17% total growth; 14%, organic. If we look at the split between the market, we can see that Sweden had a good pace, 15% growth in Q4. However, Norway, Finland, Denmark, Netherlands, they are more affected by the restrictions and the lockdowns in those countries, only growing by 8%. We are pretty sure that the growth will take off again when they open -- when the society is open up again. So we look forward to that. Also during the last 12 months, we can see Sweden, good growth, 17%. However, the rest of Europe, only 16%. We can do much better than that. If we look into the profitability, we have seen an improvement in the profitability since Q4 last year, quarter-by-quarter. And during 2020, we reached 29.3%. And also during the quarter, the fourth quarter, we see a good improvement from 24.3% last year, up to 31.4% in Q4 2020. We have a good scalability in our business. And we can see that when we look at the personnel costs -- expenses or personnel costs compared to net sales, the percentage going down, 52.3% in Q4 compared to 56.9% in Q4 last year. And we see the same trend the whole year. If we look at the other operating expenses, we can see also the same, a good scalability. And also in numbers, if the expense is going down. And here, we can see that we have a slightly positive COVID-19 effect because we're not doing so many travels, not so many conferences and we see a positive effect on that one, approximately SEK 8 million during 2020. But of course, that's also if we do more travels, meeting more customers, that will also take the top line. In percentage, 15.6% in Q4 in other operating expenses. And you see that SEK 52.6 million compared to SEK 54.9 million in total during the whole 2020. During last quarter, the Board of Directors have decided to update our financial targets. The first one, when we look into the sales growth, we used to have organic growth as targets. We have done acquisitions in the past. And we plan to do acquisitions going forward. And we think it's better to include acquisitions in the target going forward then. However, this is very important to say, the main growth driver for us at Lime will still be organic growth. So we raised the target, adjust the target from organic to total growth, from 15% up to 18%. The EBITA margin, Lime's objective in the medium-term is to achieve an annual EBITA margin above 25%. We used to have 23%. So we increased this one. The capital structure, the net debt in relation to EBITDA should be less than 2.5x. We achieved that one. And we also achieved the dividend policy to pay out 50% of the net profit. If we compare our new financial targets with our performance 2020, so we should have a total growth above 18%, and we reached -- we accomplished 17% during 2020. We are not satisfied with 17%. It's a okay level because we have a COVID-19 situation, we have a crisis. However, in the mid and long term, we should achieve more than that. The EBITDA margin, Lime's objective in the medium-term is to achieve an annual EBITDA margin above 25%. We reached, during 2020, 29.3%, high levels. We would like to use our profitability also going forward to invest in growth, to invest in organic growth. That's why we're not expecting the same levels going forward as we have had during 2020. The capital structure, the net debt in relation to EBITDA, should be less than 2.5x. We are at 0.1x. We have a strong, strong cash flow, good profitability, a great, a good balance sheet. We can do investments here. We can do acquisitions, and we can invest in organic growth going forward. And the dividend policy. The dividend policy is to pay out 50% of the net profit. The Board of Directors has proposed to pay out 53% of the net profit, an increase from SEK 1.50 per share last year, up to SEK 2.50 per share. Let's do a summary then. Investments. We continue to invest in growth. And during the fourth quarter, we invested in sales and marketing, we recruited a lot of people and we invested in product sales development, more product releases than ever before. The growth, a good growth rate, an improvement compared to Q3, 14% in total growth in Q4 and 17% total growth 2020, despite COVID-19. The profitability and adjusted EBITA margin of 31% in Q4 and 29% during 2020, 24% and 23% same period last year, a good improvement here. And we have updated adjusted and raised our financial targets, and we have also raised the dividend and our proposal to pay out dividend, up to SEK 2.50 per share. Thanks for listening. Any questions?

Yes, we have a few questions. So very open-ended question, but how should we reason on growth in 2021, from me.

We have new financial targets. And we would like to achieve our financial targets in the medium term. Of course, that depends on how the COVID-19 situation develops. But we're not satisfied with 17%. We would like to be above 18%, and that's why we have updated our financial targets, and the main growth driver will be organic growth.

Should we accept -- expect export services revenues to be weakened by the pandemic in H1? Subscription sales should you see some pent-up orders?

We expect the same conditions and the same market conditions as we have seen during the second half year, slightly improvements, better, we think, and hope that the business climate is getting better month by month, but we expect the same business -- the same conditions and we expect the same development, both in subscription and expert services.

How do you think cost will develop in 2021 when the pandemic ease, 29% EBITDA margin is very strong. Is it representative for 2021 and 2022 as well?

Let's go back to the new financial targets then. As we said, we have raised the financial targets for the EBITDA margins from 23% up to 25%. We will not expect the same high levels as we saw during 2020. We would like to use the profitability to invest in organic growth. So not up to 29%, but an improvement compared to the financial targets.

In terms of M&A, what kind of functions do you feel you're lacking on your platform?

We're looking to add-ons acquisitions to improve our product portfolio, both to existing customers, but also new ones. Right now, we're looking to functionality like chatbots, forums and that kind of functionality. We're also looking into document handling, e-signing functionality and better reporting and that kind of functionality. Additional to that, we also evaluate the possibility to acquire platforms in new countries. Maybe there are a lot of local share and vendors in all countries in Europe and maybe one of them could be a platform for Lime in a new country. It could be Germany, it could be U.K., it could be Belgium, for example. That's something we're looking into the possibility in that one.

Could you give us an update on the Netherlands?

Yes. Nils, maybe you can do that?