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

So hello, everyone, and welcome to Lime Technologies Q2 Update. I hope you are enjoying the summer. My name is Nils Olsson, been at Lime now since 2006, so 16 years and run as the CEO. And today, we also have...

Magnus Hansson, CFO. I've been with Lime since 2015.

So before we start digging into the report, let me give you a quick update about Lime. So at Lime, we have always been running Lime with a long-term perspective. And that has left us with a fantastic footprint, as you can see. In the last 20 years, we've been growing in average 19% per year with an EBITA margin of 25% in average per year. And that's something that we are really, really proud about. No matter how we looked or how big our numbers have turned out, our goal has more or less always been the same, and that is to help customers to become really, really good and strong in sales and customer care, so they can help their customers in a good way. And they do that by -- that we deliver spot-on software and on-point expertise. We have done this for many, many years now, and we have scaled our business into 6 countries and in 9 offices. And the last 2 years, we opened up The Netherlands in 2020 and in Germany, where we also welcomed Userlike in 2021. And in total, we are approximately today 400 employees. So looking at the amount of users, and today, we help around 80,000 users on a daily basis. And so, we really have a big impact on the business society and also, if we look at the impact actually on many end customers. Customer care, where we focus has always been important. But in a world where we can see that services and products are becoming more and more similar, and there is a price pressure, to deliver great customer care is something that can make your company really to stand out. So when our customers like Malarenergi, Volvofinans Bank, when they are awarded for the best customer service in their industry, that's exactly in line with our ambition. So then we, not only make our customers successful, but we also make life as an end customer much easier. So jumping into the report and let me give you here a sum up before we jump into the details. First of all, I'm very happy how we present and how we closed the second quarter. We delivered a total growth of 20% and EBITA margin of 26%, and we delivered a strong organic growth of 17%. And that's something that we've been working on for a couple of quarters now, and we have seen the progress going from Q3 '21 from 8% organic growth up to 11% in Q1 and Q4 and then we had 13.5% in Q1 '22 and now 17% organic growth. So I'd say, we delivered strong numbers in a tough market. Looking at some -- if we scope it out a bit, we can see that the last quarter, the general market climate has been a bit turbulent, especially if we look in the tech sector, where many -- we have seen many companies been forced to let people go, and it looks like that we are heading into a recession. At Lime, as a company, we've been through 3 market prices before, we had IT crisis in 2000, we had the financial crisis in 2008, and then we also had the COVID crisis in 2020. So we have experience from tougher markets before. And when there is a crisis coming up, we, as a company, need to decide on a tactic. And at Lime, we often talk about the metaphor of a hedgehog being the one that close up and really look inwards in the case of danger or being the tiger, the one that gives all it got and really attacks when the danger appears. And if we look historically, our profitability and our forward thinking that we are really, really customer-focused and have a culture for that makes it possible for us to chose the tiger's mentality. And history shows that that has been the right way to go. In all crisis, we have come out bigger, and we have continued profitability. If we nail down a little bit to the CRM market, we can see that it has continued to be quite stable in the second quarter. We can see a little bit longer sales processes, but we have continued to close quite many deals, especially in our verticals. And in the quarter, we have also seen a great improvement in our business area, expert services. And that has also been something that we've been struggling with and been discussing in the reports since, I'd say, Q3 2021. So I'm very glad to see that we are improving the growth in the expert services area. Last quarter, we also announced that our Lime Go should be a separate business area, and we have continued to recruit and fill up the team. And we have now also adjusted the software. So it's ready for the Norwegian and Danish market. And we have a big focus at Lime, and that is to grow our business in the rest of Europe. And having Lime Go outside of Sweden is definitely a step in that direction. And we can see the growth during 2022 are improving outside of -- in the rest of Europe. And finally, I'm very glad to see that we continue to be a very attractive employer. In Q2, we have continued to build a strong team. And after summer, the 1st of August, we will welcome more than 60 new employees, one of the biggest onboarding programs in history. And, of course, it continues to be quite tough competition attracting talent, but I hope now when we can see that in a little bit more turbulent market situation that that will help us recruiting more talent going forward. So for us, we are going to continue to invest in our employees and in our culture to really keep and develop our attractiveness as an employer. So the agenda. Looking at -- to start with looking at the order intake. We dig into the revenue. Magnus will talk about the profit and then we sum everything up. And if you have any questions...

Please ask them in the chat or in the question at write them in the chat.

Yes, and we will close this call with answering those questions, of course. So starting with the order intake here. We can see that -- and we have communicated that before that our customer concentration is very low and it continues to decrease. Today, our top 10 customer stands for 6% and our biggest customer stands for 0.8% of the revenue. And I'd say that going into a little bit tougher market conditions, this is very good for us since we are not depending on one customer. We do deals with many customers. We have a large existing customer base. And I will say that in this quarter, we continue to see the same pattern more or less as Q1. There, we have continued to see and close many deals within our verticals. But the difference maybe is that, we see a little bit longer sales processes, which I think is an effect of a little bit more turbulent market situation. As you can see on the right-hand side, we closed to mention some utility companies, Nordic Green Energy and Karlskoga Energi & Miljo, a really strong reference in the -- in Norway and Norges Idrettsforbund, a real estate company, Corem Property Group and 2 nice wholesale companies, Thalhofer in Germany and Hydroscand in Sweden. So continue to deliver within our focus verticals in Q2. Looking at the revenue side, and we start with the ARR, we can see that the subscription revenue is growing with -- since our ARR is growing with 18% in the quarter, which is quite strong. We keep the old services agreements on a quite stable level. And the total ARR growth is 14% in the quarter. Looking at our different revenue streams, we can see that subscription is growing fastest, 41% in the last 12 months. And today, it stands for 53% of the revenue. Service agreement is quite flat. And today, it stands for around 8%. We more or less don't sell any upfront licenses, so less than 1%. And we continue to have -- around 37% of our revenue comes from expert services. So we can see that, of course, as I said, subscription is growing fastest, but we also see growth in expert services. But going forward, that will decrease as a part of the total net sales. Looking at the revenue in Q2, we had a growth of 20% in the last 12 months, we grew 23%. And if we look at the split between our segments, we can see that Sweden is growing 13%, a big improvement if we compare to Q1, we were at 9% and the rest of Europe by 43%. And as I mentioned, the last couple of quarters, we haven't been satisfied with the organic growth, and I'm very happy to see that we are improving that and delivered a strong organic growth of 17% here in Q2 '22. And looking at the last 12 months, Sweden is growing 9% and the rest of Europe 74%, which is also in line that we have a focus on scaling the business in the rest of Europe. So Magnus, what about the profit?

Yes. So EBITA in the second quarter reached 26% compared to 27% in Q2 last year. Compared to the second quarter last year, we have once again been able to carry out physical sales activities, travel to new and existing customers and invest in employee activities. On the right-hand side, we have the last 12-month EBITA development. As you can see, we have reached an EBITA margin of around 29% during the pandemic. And the last 12-month EBITA in Q2 2022 reached 26% as we are now able to invest in future growth again. And since we have a good growth in our subscriptions, we have an underlying positive pressure on the EBITA margin. However, we will continue to prioritize growth over profitability. And looking at personnel expenses. Personnel expenses is, of course, the largest expense item in our P&L. As you've heard from -- Nils mentioned, we continue to recruit. And hence, the personnel expenses increased. Of course, a large proportion of the increase is related to the Userlike acquisition. In the second quarter, personnel expenses increased by 15%. However, decreased to 54.2% in relation to net sales. On the right-hand side, we have our operating expenses. As you can see, our other operating expenses increased by 49% in the quarter and 54% in the last 12 months. The increase is, again, to a large extent related to the acquisition of Userlike. But we are, as I've mentioned several times now, investing more in future growth by marketing, physical sales events, travels, employee gatherings than we could during 2020 and 2021.

Thank you for that, Magnus. And if we sum everything up here then, I'd say that, as I started with, I'm happy about our performance here in Q2 and that we continue to deliver strong numbers, 20% growth, 26% EBITA margin and organic growth of 17%. And on top of that, I think that it's good that we continue to invest, and we have the all-time high in our onboarding program starting in August. We -- even if it takes a little bit longer time, we continue to see that we have a strong position within our verticals even if the sales process are a little bit longer now. And most important, which I think when we are heading into a different market situation than we have had the last couple of years, I think it's really, really important as an organization to have the right mindset. And as we mentioned, and as I said, having the tiger mentality to continue to invest and continue to build a stronger company going forward. That's what we are aiming for. So looking at the financial targets, Magnus.

Yes, as you can see, we reached 23% growth compared to the 18% in the financial target. We reached an EBITA margin of 26% in the last 12 months. We have a EBITA in relation to -- sorry, net debt in relation to EBITDA at 1.5, and we paid a dividend corresponding to 59% of the net profit in 2021.

So perfect. Thanks for that, Magnus. Let's see if we have any questions from the attendance here.

I think we have one question. Perfect. So what do you think of the growth for the coming quarters in absolute figures? Could we expect the subscription base is relatively stable, meaning that we could even see growth of 20% organically for the remainder of the year?

I mean, we have our total growth target of 18%, which is our financial target. And that is both organically and with acquired growth. But I think that we have an increase now going up to 17%, I think that I hope that we can be on a much higher level than we have had in the last couple of quarters. But yes, so that's -- yes, so I think that's what to expect more or less.

Do you see a shift in buying behavior now in this weaker economic climate?

Historically, we have quite often been quite early to be affected when there is a downturn coming in, in the economy and also that because when the market is unstable, people are like waiting and you can see longer sales processes because they are pushing the decisions until they know when or where the market is heading towards. At the same time, when the market has been more or less into a more stable situation, I would say, then we are quite early out from the downturn. So I expect a little bit longer sales processes in the coming period and that we need to have -- yes, do more activities to win the deals and also, of course, to also win the type of investment because we are not only competing towards other CRM vendors, we're also competing towards if the company should do investment A or B in a tougher market situation.

What was the CapEx in this quarter? It looked a bit high. So the CapEx is our development in our software. And we have increased our efforts into the engineering and development. So it is a bit higher. But yes, it's our development of the software. Okay. And that was the final question.

Perfect. Thanks a lot for listening in. And I wish everyone a really, really nice summer, and talk to you soon again.

Bye.

Bye-bye.