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

Hello, everyone, and good morning, and welcome to Lime Technologies Q4 update. My name is Nils Olsson, right as the CEO of Lime and been in Lime since 2006. And with me today, I have our new CFO, Maria. Welcome.

Thank you so much. I'm really happy to be here at Lime. I joined further November, and I'm really looking forward to being part of Lime's continued future growth journey. Feel free to write any questions in the chat, and we will answer them in the end of the session.

Great. Thank you for that, Maria. So before we jump into the Q4 details, I will give you a short intro about Lime, what we do and what we believe in more or less. So we have always been running Lime with a very long-term perspective. And that has left us with a fantastic footprint, as you can see. In more than 20 years, we've been growing in 19% per year, with an EBITA margin of 25% per year. And I think that's something that we are really, really proud about. But no matter how big we've been, how big our numbers turned out, our goals has always been and keeps being the same. And that is to help customers to become really, really strong in sales and customer care, so they can help their customers in a good way. And we do that by delivering really, really good software, combined with fantastic expertise. Done for many years now, and we have scaled our business into many markets. And since 2020, more or less, we've also entered Europe. We opened up the Netherlands office in 2020 and also went into Germany in 2020 where we also welcomed Userlike as a part of the Lime group. And today, we are present now in 6 markets, we have 10 offices, and we are around 400 employees spread all over Europe. And looking at our user base, and today, we help around 80,000 users on a daily basis. So I would say we have a really big impact on the business society and also the life of many, many end customers. Customer care has always been important, but I would say in a world where services and products are becoming more and more like, but also, at the same time, we see a price pressure, and that is increasing. I would say we believe that customer service is one way to really stand out. So let's start looking into the Q4 and give a little bit of sum up before we jump into all details. I think we closed Q4 in a very positive way. We continue to combine what we've done for many, many years, strong growth and profitability and even now in a turbulent market. We delivered a total growth of 19% and EBITA margin of 25% and an ARR development of -- ARR growth of 15%. And one part that I would say that I'm really happy about in Q4 is that we continue to deliver strong organic growth. And I would say that's a big improvement throughout the whole 2022. In this quarter, but also throughout the year, we've seen a big improvement in expert services. And that, in combination, that we delivered good growth in our subscription, builds up to a really strong organic growth. Looking here at the last 6 months, we have scaled up our engineering department. We are a product company. So of course, it's really important to focus on scaling our products. And of course, when you do that, you want to see the nice effects in the software immediately, but we all know that, that takes some time before you can really see all the nice functions and features in the software and where we can deliver that value to our customers. But today, I really, really feel that we have a strong offering to the market within all our product lines. And I think that is also shown. We improved new sales, and we do that gradually throughout the year. And in Q4, we closed many nice deals in all our markets. Throughout, I would say, also in Q4, we have continued to invest in our employees. Full year, we have recruited around 110 employees, and that's a new record, and at Lime, we'll have new records. We have also, as I mentioned before, scaled up the engineering department and launched our new dev hub in Krakow. And to be able more or less to also reach one of our goals, and that is to become a more international company going forward. We have also invested in our markets outside of Sweden, both when it comes to scaling on the employee side, but also building a stronger brand through marketing. So if we also look in general, a bit here on the -- and zoom out a bit on the market conditions, I would say, still we see that many of our CRM implementations handled many business-critical processes. And as a company, companies need to become more efficient and much, much better in handling their customers' data and communication. And one area where we see that we are growing within is winning self-service. That could be automated flows, My Pages, web forms but also chatbot based on AI. And implementing those kind of processes, I would say, free up time for our customers, but it's also simplified the life as an end customer, which is, of course, our end goal. Looking at the market in general for us, I would say that we don't really see a slowdown in the demand at the moment. But as always, in challenging times, and we've been there a couple of recessions before, I think it's always important to stay very close to the business and remain adaptable and humble in case the situation changes. So looking then at the sum up of '22 and going forward here, I feel very proud that we continue to deliver, as I said, long-term profitable growth and that we improve our organic growth gradually throughout the year. Full year, as you can see, we delivered 21% growth, 26% EBITA margin, and also a new all-time high in number of recruits. And I would say, touching on dividend, despite, I would say, significant investments throughout the year, our profitability for the full year '22 remained good with an EBITA margin of 26%. And that's fully in line with our financial targets of at least 25% in the medium term. Our improved cash flow from operating activities and the overall financial position allows us then to increase dividend. So the Board of Directors proposes a dividend of SEK 2.80 per share, and that's equivalent to SEK 37.2 million. Going forward here, I would say that, as you could see on the first picture, we've always been running Lime with a very long-term perspective. But at the same time, to be able to reach those long-term goal, it's a very important that we are focused on the daily operations. Our profitable business model gives us the opportunity to invest and to continue to invest in our markets, in our employees and in our products, and I really believe that, that will help us to build an even stronger Lime going forward. So in short, our mindset is to continue to focus long-term profitable growth as we've done for now more than 20 years. So let's start looking at the agenda here. We have the order intake as usual, looking at the revenue, Maria will talk about the profit and then we do the sum up of our financial targets before we jump into the questions. So if you have any write them in the chat once again. So looking at the order intake. And as we have communicated many times before, our customer concentration continues to be very low and continues to decrease. Today, our top 10 customers stands for 6.6% of our revenue and the biggest customer stands for 1.3%. And I would say, in a tougher market conditions, it's very low risk in our business. It also means that we're not depending on 1 customer. We are doing deals with many customers throughout the year. And in this quarter, we continue more or less the same pattern as we've done quarter-by-quarter to close many new deals within both new customers and existing customers. And once again, I'm glad to see that we improve our new sales quarter-by-quarter. We have the focus on the verticals. And therefore, I'm happy to see that we continue to close nice deals within the utility vertical Uppsala Vatten and Landskrona Energi. We closed a nice deal in Netherlands, DLV. We also see customers that's been with us for many, many years like Pipe Chain that we are transforming them into our new softwares and really working on the digitalization, and also a really nice deal within the wholesale segment, Båstadgruppen. So many nice deals in various different verticals, but main focus is of 4 verticals with utility, real estate, wholesale and consultancy business. So looking at the revenue part, and we can see the ARR. And in Q4, we can see that we have a growth of 19%. I see that stands like Q3 to Q3, it should be like Q4 to Q4. It's a 19% growth in subscription. We see a little bit declining trend there in service agreements, but that is in line with what we would like to do since we would like to transform those customers into the subscription and the overall ARR development comes to 15%. Looking at the recurring revenue. We have our different revenue streams. And we -- you can see how that revenue streams have developed throughout since we started the transformation more or less from upfront to subscription and going back more or less. We started doing that since '15, and now you can see in the graph below from '16. And we can see that we have a strong development in subscription, growing fastest with 27% in subscription last 12 months. And it stands for 54% of our revenue. This, combined with our old service agreements with 7%, means that we have 61% recurring revenue. And looking at our expert services, today it stands for 37% of our revenue. Looking into revenue. We, as I said, had a growth in Q4 of 19% in Q4 and the last 12 months ended up at 21%. And if we look at the split below there between the segments, Sweden grows by 16%, and I would say that's a big improvement compared to previous Q4. And the rest of Europe is growing 29%. And I would say what I'm happy about, I mentioned it before, but that we see that we gradually improved our organic growth. And in Q4, we delivered 19% compared to 11% organic growth in Q4 2021. On the right-hand side, you can see that the last 12 months, we have 13% growth in Sweden and 45% in the rest of Europe, and this is exactly in line with our ambition to build a more international company going forward. So Maria, what about the profit side?

Yes. Let's start to look at EBITA. EBITA in the fourth quarter reached 25% compared to 26% in the same quarter of the year before. The difference between Q4 '22 and the same quarter the year before, is that we have been able to increase our physical sales activities visiting new and existing customers and investing in employee activities that is needed to strengthen our future growth that we were able to in 2021 due to the pandemic. As Nils earlier shared, we have onboarded around 60 new colleagues in August, which is also notable. On the right-hand side, we have the latest 12-month EBITA development. As you can see, we have reached higher EBITA margins of around 29% during the pandemic. Now we are back to a more normal and lasting level in order for us to support our future growth meaning investing in sales, marketing, staff and our products and so forth. The last 12 months in Q4 '22, we have reached an EBITA of 26% as we are now able to invest in our future growth. Since we have a good growth in subscription revenues, we have a positive underlying pressure on the EBITA margin. As we have already communicated, we will continue to prioritize growth over profitability in order for us to continue to deliver on our midterm targets. Looking at our OpEx development. On the left-hand side, we have our personnel expenses. That is the largest expense we have in our profit and loss. As I just mentioned, we had our largest onboarding program ever in August with over 60 new employees, increasing personnel expenses by 22% in the quarter compared to the previous year. Over the last 12 months, our personnel expenses is quite stable in relationship to net sales and is at 55%. We acquired Userlike end of April 2021. So parts of the increase in the latest 12 months is explained by this acquisition. Looking at the right-hand side, we have our operating expenses. As you can see, our other operating expenses increased by 21% [indiscernible] and by 35% in the last 12 months. The increase during the last 12 months is, to a large extent, exactly related to the acquisition of Userlike. But again, we are investing more in future growth by marketing physical sales events, employee gatherings and product development than we could during 2021 due to the pandemic.

Perfect. Thanks for that, Maria. So summary and looking into our financial targets. And looking at the growth, we reached 21% in the last 12 months and compared to our target of 18%. Looking at the EBITA margin, we had a goal of reaching 25% in the last 12 months, we reached 26%. If we look at the capital structure, we have a goal of having a net debt in relation to EBITDA that should be less than 2.5, and we are at 1.0 today. And looking at the dividend, the dividend should be at least 50% of the net profit, and the Board of Directors has proposed a dividend corresponding to 55% of the net profit in 2022. So this was all for now. Let's look into if there is any questions in the chat.

Yes, we have a question. Would you be able to give us some figures regarding your current order backlog? And maybe split it between new customers and existing ones. Would you say that order intake has been slower in the last weeks?

We don't really disclose the order intake, but I can give you some flavor on that. I would say that we closed Q4 in a good way, where we could see that we, as I said, saw an improvement in new sales and that we delivered many nice deals in many of our different markets. So I wouldn't say if we look at Q4 that the order intake has slowed down. We can see that we have a good development in our order intake in Q4. The split is mainly the same as before. We have new sales and upselling. As I've said, and what I'm happy about what we learned throughout the pandemic was mainly due to that we had to be better of doing upsales since new sales was dropping. What we would like now is, of course, to keep that level on upselling and improve that gradually, but once again, come back to a level where we see that we are doing much better in new sales. And gradually throughout 2022, we are improving the new sales, which is very, very positive for us.

Could you please give us some information on the business in Holland and Germany? And how is the development in Denmark going?

I would say that we have -- yes, I mentioned 1 of the deals here in one of the slides in Netherlands, which is a really good deal and also that we have closed a couple of deals in Germany. From the Lime perspective, it's -- of course, we've been in Germany with Userlike for many years. So there, we have a constant flow of new deals coming in. But when we look at Lime CRM, where we have entered in both Netherlands and Germany, I think that it develops according to plan. And it's important to get those first reference customers in because when you sell this kind of solution, it's complex sales. And therefore, it's a lot about trust. And winning those kind of deals gives you the opportunity to work with reference selling. So I would say that the progress in both the Netherlands and Germany are in line with expectations. And as I usually say, it takes time to build up a really strong, strong market because we do it more or less greenfield on those markets. So the goal here is to really have a positive development gradually year-by-year and that we are long-term in our investments in our countries outside of Sweden. The same goes more or less for Denmark, I think we do better in '22 compared to '21 if we will look into Denmark specific.

Are you still looking at M&A? How would you describe your current pipeline? Have you seen a decrease in valuation asked by sellers?

Yes. Looking at acquisition part, I think, we had M&A on our agenda, and we have that in our strategy. So we have -- I mean, as you're asking about there, how is the pipeline, we are meeting new companies all the time because it's more or less that you have to meet a lot of companies to really find the right fit. At the moment, we don't really stress the part with acquisitions because I think, we already saw that in the end of '21 where you could see the valuations, as you are asking about, was very high. Gradually, throughout '22, we could see that the valuations has dropped. And of course, it takes a while before you can harmonize the expectations more or less from the seller and buyer. But yes, I see that the valuations on the private market has dropped. And at the moment, I don't stress doing acquisitions because I think working with the organic growth is the foundation of our company, and that's very important to get that up and running. And I think that we've done that in a good way. But we have the ability to do an acquisition if we look at our finance position. So if the right target appears, then we can -- then we are ready to strike more or less.

That was the last question.

Okay. So thanks a lot for those questions and thanks for listening in. If you have any other questions popping up here throughout the day or going forward, don't hesitate to contact us. You can contact me. You can contact Maria or our IR, Jennie. So thanks for listening in. Have a good day. Bye-bye.