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

Good morning, everyone, and welcome to Lime Technologies Q3 update. My name is Nils Olsson. I run as the CEO of Lime and been a part of Lime since 2006.

And my name is Magnus Hansson. I'm the CFO with Lime 2015. And I would also like to remind you to use the question section in the webinar, if you have any questions throughout the presentation.

Perfect, Magnus. Thanks for that. And before we jump into the financial numbers here, I would like to give you an update about Q3. And first of all, I feel very happy that we finally have opened up our offices. We have now welcomed back our colleagues to the office, and we can also go out and meet our customers and start actually spreading the Lime experience for real. And I would say that this is exactly what we needed, and we really feel the difference now when we can meet in person. We feel that we have a good position in the market. And now when things are opening up again, we feel that we will have an even stronger position. Now when we can go out and meet our customers in person. Now we actually get the chance to be the local supplier for real. We also feel, if we look at our product offering that we have a good product offering that really sees the new normal. During the pandemic, we have seen an increase in the demand, both in the area of automation and in communication. And I would say that, that's an area where we have a strong product portfolio, both with our marketing tech team and our marketing automation offer and also now within communication with our most recent acquisition within Userlike. If we look at the traction in the rest of Europe, we have reported during the past quarters that they have been more affected during the pandemic. And therefore, it feels really, really good to see that finally, the order intake has improved in those countries compared to the same period last year. So a great sign of that market is opening up again. And if we look in the last point, continue to invest in employees. We have recruited a lot in 2021, and we onboarded more than 50 employees in August on the site in Lund. But I would say, as many other companies feel right now, there is a challenge in the labor market. And we have increased mobility in the labor market. And of course, that affects us as well in short term and in our expert services. And to meet that, we, of course, continue to recruit, and we continue to invest, both in our existing employees and in new employees. And looking at the situation right now, we are ahead of our recruitment plan, and we are aiming for an all-time high in general. So if we look at the agenda, we will go through the order intake. We will take a look at the revenue. Magnus will talk about the profit and then we do a sum up and look into our financial targets. And of course, we end up with if you have any questions. So starting with the order intake, and we can see that the customer concentration continues to be low. Today, the top 10 customers stand for 6.8%, and the biggest customer stands for 1.3%. We are not depending on one customer. We continue to close many deals both with new and existing customers, and I'm happy to see that the trend in new sales continue in the right direction. And if we look on the right-hand side, we have closed, of course, deals in all our markets. And we mentioned some of them. We have Junckers in Denmark, a really nice wholesale company. We have utility companies in Norway and Sweden with Midt Energi and Nacka vatten och avfal and Nordic deal with Miele. And then in Finland, we closed Svea Ekonomi and Trelleborgs kommun here in the south part of Sweden. If we look at the revenue, of course, as a software company, our ARR development is a really crucial KPI, and we can see that in Q3, we had a growth of 34%. And if we only look at the subscription part, it has a growth of 46%. Now on service agreements, which you can see in the little bit dark green color has a -- is more or less on a flat level. We have a decrease of 10%, but we continue to be on a stable level. If we then take a look at our 4 revenue streams, we can see that we have highest growth in our subscription, which has grown by 30% in the last 12 months. And today, it stands for 49% of our revenue. As I mentioned before, we have our own service agreement, which stands for 11%. And in total, that ends up with 60% recurring revenue in total. We more or less have stopped selling the upfront licenses and our expert services stands for today at 39%. So if we look at the guidance here, we can see that we have really good speed in our subscriptions, the core contract more or less flat, licenses, going -- licenses upfront, going down. And we can see that we have a slight increase in expert services, but it will decrease as a part of the total metrics going forward. From a revenue perspective, in Q3, we had a growth of 23% and the last 12 months, 17%. If we look split by geographies, we can see that Sweden, 7%. And of course, that's nothing that we are satisfied with. But on the other hand, we have positive signs in the rest of Europe where we have a growth of 89% in Q3. And if we look from the last 12 months perspective, we have 11% growth in Sweden and 42% in the rest of Europe. So Magnus?

So turning to profit. And as you can see, we had an EBITDA margin of 27.5% in the third quarter compared to 32.7% last year. Comparing those to quarters, we now have the acquisition of Userlike included. We have been able to have our trainee program on-site in Lund. And we also, as Nils mentioned, have been able to have physical sales events and meeting our customers face-to-face affecting the expenses in the third quarter of 2021. And as you can see on the right-hand side, looking at the rolling 12 months EBITDA margin, we had a stable level of around 22%, 23% in 2018 and '19. And then at the last quarter of 2019, we could start seeing the effects of the recurring revenue increasing the rolling 12 months EBITDA margin going up all the way to 29% during COVID. And as we've mentioned before, we've had a positive COVID effect on the EBITDA margin. And now we're happy to be able to start being Lime again going to 28.3% rolling 12 months, well above our financial targets. And then looking at the personnel expenses, we've had an increase of 21% in the third quarter of 2021 compared to 2020. Of course, that is to a large extent related to the acquisition of Userlike. But as we've mentioned before, we continue to invest in new employees and also existing employees. And then looking at the rolling 12 months, you can see that as a function of net sales is still decreasing up to 54.4% as a consequence of the increase in recurring revenue. And then looking at other operating expenses, you can see that we've had a increase in the third quarter of 65%, reaching SEK 17.1 million. That is, of course, to a large extent related to Userlike, but again, also related to having -- being able to have the trainee program on-site in Lund, which we are very happy about as an investment in the future, but also having physical sales events and doing -- being more active again.

So thanks for that, Magnus. And if we go for a summary then and look in Q3, we can see that we continue to have a good order intake. We closed deals in all our verticals where we have a really strong position, and we closed deals in all our markets, a positive sign, as I said, that it's opening up outside Sweden again. On a growth level, we are happy about the 23% in Q3 and especially, I would say, the 34% ARR growth in Q3. Profitability-wise, adjusted EBITDA margin, 27.5%. And if we talk about the investments, we continue to focus a lot on the employee side, both hiring new employees and onboarded many employees in August. And we also invest in existing employees, and we would like to strengthen our brand outside Sweden focus on our verticals. We have 2 new markets now, both Netherlands and Germany. So we are increasing the marketing spend.

So looking at our financial targets. We have a financial target of sales growth of 18%. We are at 17% rolling 12 months, so just behind. We have an EBITDA margin target of about 25%, we are at 28.4%. And as we've mentioned many times before, we would like to focus on sales going forward, even though, of course, we aim to achieve targets on the EBITDA margin as well. And in terms of capital structure, we have a target that net debt in relation to EBITDA should be less than 2.5. We are at 1.8%. And the last target is our dividend policy, and we had a dividend of 53% in Q2 this year.

Perfect. Thanks for that, Magnus. And that was all slides for today. So let's see if we have any questions in the chat.

Yes, we do.

You mentioned that activity is picking up. Can you quantify how Q4 has started in which verticals are you seeing most of the demand and which verticals are slower?

I would say that we have -- there are different activities in different verticals. And during the whole pandemic, I would say that the utility vertical has been quite strong, and it continues to be strong. You could see there in Q3 that we have closed 2 really nice deals, and I see a positive trend. If we look at also the same thing with the real estate vertical, wholesale, I would say, is picking up again to have a little bit better pace than during the pandemic, and we still see that we have a bit to go here to reach the levels that in the consultancy vertical where we would like to be.

Do you have an ambition to broaden the number of verticals?

As for now, we don't really have that as an ambition. We are always open for looking for new verticals, but -- and we can see when we enter new markets that we need to be open-minded about if there is any specific vertical that should be more of interest in that specific country. But for now, we think that the 4 ones that we are having is good.

You are accelerating on recruitment. What kind of functions are you adding staff to?

We are more actually adding in all departments, but mostly, we are focusing on sales and sales marketing and in expert services. We have been focusing a lot on the product side, and we will continue to look for more developers going forward as well. So we need new employees in all departments.

Should we see a general growth pickup given a higher recruitment pace?

We -- of course, we would like to, as we said, now we are having that kind of -- when the movement or in the -- mobility in the labor market is there, we are negatively affected of that in short term. So looking especially in expert services, that will have a positive impact going forward.

What is your best guess on the performance of the Nordic CRM market for 2021?

I think that we are not back on the levels that we were before the pandemic, but it's moving in the right direction. Before we have said that before the pandemic, then the CRM market had a growth of around 10% to 12%. And during the pandemic, we were more or less close to 0. We had a growth then at 17%, and I would say that we see positive trends that it's picking up again, but we're not back where we would like to be.

What does the pipeline look like with regards to product launches?

I would say I'm positive about that. And in Q4 now, we will launch our new add-on with Userlike. And I think that will be very, very exciting and meet the demand for the communication part that I started with in this session. I really believe that we have a strong offering and we can -- when we are out now in Germany, meeting customers together with Userlike, we can see that we have a strong offering within that segment. So I really look forward to launching that together with Lime CRM here during Q4.

Given the performance outside of Sweden is picking up, do you feel more confident in increasing efforts abroad?

Yes, we would like to really invest in the countries outside of Sweden. I have said that we would like to be more international. And for me, that's both strengthen our existing markets, Norway, Finland, Denmark, Netherlands and now also Germany. But of course, look into new markets, but especially actually strengthening the markets that we are in because we have great potential taking market shares in those countries.

What is best adding more verticals in Sweden or raising efforts internationally?

I would say that we still have plenty to do in the verticals in Sweden. So raising efforts outside is what I prefer.

Okay. That was the final question.

Thanks a lot. Thanks for many good questions, and feel free to contact me or Magnus, if you have anything on your mind. Otherwise, have a really, really nice day. Thank you.