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

So good morning, everyone, and welcome to Lime Technologies Q2 Update. My name is Nils Olsson, been working at Lime since 2006 and running as CEO the past 2 years. And with me today, I have our CFO.

Hi. I'm Maria Wester, I joined Lime in November of last year. So I've been here for 8 months now. Feel free to write any questions in the chat, and we will answer them in the end of the session.

Perfect. Thanks for that, Maria. Before we jump into the Q2, let me give you a bit of an overview of Lime. And for you that has been following Lime for a while now, know that we've 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 have grown. We have grown on average 19% per year with an EBITA margin of 25% in average per year. And I think that's something to be really, really proud about. But no matter how big we've been, how many customers we had, how many markets we have attended, I think we always more or less have had the same mission, and that is to help our 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 strong software, combined with expertise. Over the years, we have scaled our business step-by-step. In 2020, we opened up our office in Netherlands. In 2021, we opened up our German office and also welcomed Userlike to the Lime Group. And today, we have offices in 10 different locations in 6 countries, and we are around 400 employees. And if we look at our customer base, we have today a bit over 6,500 customers and on average around 80,000 users. So if you look at some of our key success factors over the years, I would say, talking, as I started with, long-term profitable growth combining that for many, many years. I think we have a very sustainable business model. Today, 61% is recurring revenue and we are not depending on one customer. We are doing deals with many customers every month, and our customer concentration is low. So the Top 10 customers stands for less -- for around 6%. And maybe one of the most important part is the strong corporate culture where we really put in energy to build a value-driven organization that has a big, big focus on our customers. So before we jump into the numbers, let me give you a little bit of overview of the Q2. And I would say that we delivered a strong quarter where we continued to deliver profitable growth, still in a tough market. Revenue growth, 17%; EBITA margin, 26%; and the ARR growth, 18%. Looking in the quarter, I'm also happy to see that we continue to be an attractive employer. We have a low employee churn, rolling 12 months, 6%, and we have approximately recruited 50 new employees so far this year. So if we look in a bit into Q2 then and in this type of business climate, I would say that CRM plays an even more important role for companies to both find smarter and more efficient ways to attract new, but also to retain existing customers. As I started with, our mission has always been to help companies to become really good in sales and customer care, so they can help their customers in a good way. And we do that by being a local CRM expert. We can stay close to our customers at all stages, and we can help them succeed with really business-critical processes. So combining software with the expertise, that's when we really create value. And I would say, this allows us to continue to gain market shares even as companies, I would say, in this climate become more -- a little bit more cautious about investing, but also when we see that the competition intensifies. Looking at the order intake, we still see a little bit longer sales processes as we discussed also in the Q1 call. During the second quarter, I would say still that we see a very strong order intake. I'm happy to see that we have an improved ARR growth and also that our consulting business Expert Services continue to grow in a really good pace. One thing that we've also been talking about is I'm happy to see gradual improvements in our German business area Userlike, where we, in the quarter, both see a little bit improvement in both new sales and upselling that they both are moving in the right direction. And looking at all these combined, I think this really shows that we have a sustainable business model that works both in good times, but as for now, also in a tougher business climate. If we look at the order intake a little bit and dig a little bit deeper into that, we have a focus on our verticals. So in line with our strategy, we have won several large contracts in those selected industries in the quarter. And to pinpoint some, I would say [ I'm ] a utility and a real estate vertical. And what we do there is the combination of custom software and value-generating expertise in those industries really helps us to make complex processes simpler. And we also put a bit of like customer focus for the entire organization. So since we've done this year after year and really have a good solution in those verticals, we can deliver cost and time-efficient solutions. And of course, that helps us to win more deals, but it also, I would say, build barriers against our competitors. And in the long run, of course, we are there to get really satisfied long-term customers. Talking a bit about internationalization. And as we mentioned several times, our goal is to become a more international company, and we are working hard to improve the growth in the rest of Europe. I mean, in the quarter, we have won several good deals. And -- but still, I feel that we are not really where we can be actually. And today, we deliver a growth of 20%, and we expect and want to have a higher pace in that area. So we are working hard now with our go-to-market strategy, and I hope to see that we can see gradual improvements throughout the fall. And culture, I think that this is actually one of the really key success factors. And I believe that a strong culture is key to long-term profitable growth. And it has been a part of our DNA for over 20 years. Therefore, we always need to continue to invest in our culture. And looking specifically in this quarter, we launched our second share-saving program. I'm happy to see that we had more than 150 participants. We have done a lot of recruits. And in August, a new onboarding program will start in Lund, and that's participants from all departments and all markets. And we launched, in the beginning of the year, a leadership program, and we will continue to invest in leadership throughout the fall going forward as well. So looking at the agenda, we go a little bit into the order intake, the revenue, profit and then we sum it up with our financial targets. And of course, in the end, we have a couple of questions, hopefully. So looking at the order intake, and as I started with, we have a low customer concentration. And today, our Top 10 customers stands for 6%. And as you can see, our biggest customer stands for 1.2% of our revenue. And going in and being in a little bit tougher market conditions, I think this is very good for us. We are not depending on one customer. We are doing deals with many customers month after month. And as I started with, we had a strong order intake in Q2, and we have won several deals within our focus industries and I think it's really cool that we can welcome Vaxjo Energi, Trollhattan Energi and also the Norwegian utility company Wattn. And in the real estate sector, we have Poseidon, we have Svenska hus, among others, and that they have decided to go with Lime as their CRM system. Another interesting area that is growing quite rapidly is member organizations. And in this quarter, we can welcome Ruter Dam and Lakarmissionen. And I think going forward, this will be an interesting vertical to look into a little bit more in depth. Looking at the revenue, we start with our ARR and as a product company, of course, it's important to look into the development of the ARR. And we can see that our subscription part of the ARR is growing by 23% compared to Q2 '22. Looking at the service agreement a little bit more dark gray, there you can see a decrease of 20%. And I would say that this is in line and what we have communicated before that we have a project that we are running now that we are transforming our own customer base going from the upfront model into a subscription model. So that's something and that's a project that will continue, I would say, until '25, '26, at least. And in total, this builds up an ARR growth of 18%, which I think is a strong number. Looking at our different revenue streams, we can see on the left-hand side, you can see the development since 2016. And I would say that our subscription steadily is growing 20% in Q2 and if you also look, 20% in the last 12 months. And today, it stands for 54% of our revenue. You can see that the service agreement is on a quite flat level, stands for 7%. And as I mentioned just before that we transformed the customer base now into subscription. And looking at that, it means that we have 61% recurring revenue. Upfront is more or less -- or less than 1% today. And on the Expert Services level, which I've said that has had a good pace in both Q1 and Q2, it's growing 17% in Q2 and stands today for 38% of the revenue. And it's an important revenue stream for us. So it will continue to grow, but in the long run, decrease as a part of the total net sales. From a revenue perspective, we can look at the growth where we have 17% in Q2 and the last 12 months, we have 20% growth. And also looking then at the split with -- I've been commenting this a little bit earlier, we have seen Sweden is growing by 15%, which is, I would say, a good number and the rest of Europe by 20%. Looking at a little bit on the right-hand side, you can see the last 12 months, we have 17% in Sweden. And in the rest of Europe, we see 25%. So going forward, a big focus for us is to, of course, continue to grow the business in Sweden, but to put a little bit extra focus on the international markets so we can have a little bit higher pace going forward. And then we go into the profit, Maria.

Yes. EBITA in the first quarter reached 26%, which is in line with the same quarter as the year before. Looking at the latest 12 months, Q2 '23 is at 25.5% compared to 26%. The reasoning is that the latest 12 months for Q2 '22 is affected by the pandemic with lower travel expenses, physical sale activities and employee activities. On the right-hand side, we have the latest 12-month EBITA development. As you can see, we reached an higher EBITA margin of around 29% during the pandemic. Now we are back to a more normal and lasting level to support our future growth, investing in sales, marketing, staff, our products and so forth. The last 12 months in Q2 '23, we have reached an EBITA of 26% as we are now able to invest more in future growth. Since we have a good growth in the revenues, we have a positive underlying pressure on the EBITA margin. As we have already communicated, we will continue to prioritize long-term growth over short-term profitability. And looking at the OpEx development. On the left-hand side, we have our personnel expenses. That is the largest expense in our profit and loss. Looking at the personnel expenses in relation to the net sales, the latest 12 months in Q2 '23 is at 57% compared with 54% in Q2 '22. The increase in our personnel expenses is explained by that we have invested more in our employee activities, staffing and compensation and benefits. The investment in our employees is contributing to a lower churn and better pace, especially in Expert Services compared with previous period. On the right-hand side, we have our operating expenses. As you can see, we have other operating expenses decreased by 1% in the quarter and increased by 14% in the last 12 months. The increase during the last 12 months is due to that we are investing more in future growth by marketing, physical sale events and product development than we could during '21 due to the pandemic.

Thank you, Maria. So to sum it up, let's look at our financial targets. And if we look at the last 12 months, we have a growth of 20%, and the target of growth is that we should be above 18% total growth. If we look at the EBITA margin, we delivered a 26% EBITA margin in the last 12 months with a goal of having above 25%. If you look at the capital structure, EBITDA should be less than 2.5. And today, we are at a level of 0.8. And if you look at the dividend policy that the dividend is expected to correspond at least 50% of the net profit. And in '22, we ended up at 55%. So let's see if there is any questions popping up here.

Yes. We have a question in. What is your expectations on the market going forward?

Well, I think that looking at the market situation, it is a little bit turbulent, of course, with all the macro that is happening. And I expect more or less the same kind of market situation that we have had now the first 2 quarters of '23. So that's what we are preparing for from an organization. And meaning that, in a market situation like this, nothing more or less come for free, it's always that you need to find improvements and how can we do our sales process better, how can we get more from a product point of view, how can we get more features and functions out to the market faster. So it's more or less that we are working with incremental improvements all the time, and we need to be on our toes for Q3 and Q4.

That sounds good. Could you -- what's your expectations on the order level going forward? Could you share a bit about that?

But I think that -- I mean, we saw a strong order intake in Q2, which I'm very happy about. I mean, looking at the second quarter, we saw a little bit -- not that good order intake in April and then May and June turned out to be, I would say, much stronger, which I'm very happy about. So of course, we are -- we have been doing a lot of sales activities now during the spring. So let's see if we can convert those into orders going forward.

What does your prospects say? What is stopping them from using Lime as a CRM system?

But I think what's stopping them from using, I think it's more that we have -- there are many, many systems out on the market. And I think especially from our point of view, we believe that -- we believe in verticalization and to be really, really strong in certain verticals. Looking at our own, we are focusing on 4 verticals. We have the utility, real estate, wholesale and consultancy, where we have really prebuilt products more or less or solutions for that industry. So of course, maybe there are other industries that are better suited for other CRM systems. I would say that's the main thing. But Lime CRM, as our main platform, is a very flexible platform. So that's why we have 60% of our revenue coming from the verticals and 40% of our revenue coming outside of the verticals. So I think that we can cover a quite broad spectra of companies.