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

Good morning, everyone, and welcome to our Lime Technologies Q4 update. My name is Nils, and I've been at Lime since 2006 and running as CEO since 2021.

Hi, I'm Maria Wester. I joined Lime in November '22 as the CFO. So I've been here for a little bit more than a year now. Feel free to write any questions in the chat, and we will answer them in the end of the session.

Great. Thanks for that, Maria. And before we jump into the Q4 update and the sum up of '23, let me give you a little bit of overview of Lime as a company. And we've always been running Lime with a long-term perspective, and I think that has left us with a fantastic footprint over the years. In more than 20 years now, we have been growing Lime in 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 of. But no matter how big we've been, how many customers we had and so on, I think that our goal has more or less always been the same, and that is to help our companies to become really, really strong in sales and customer care so they can help their customers in a good way. And as a supplier, we are the strongest when we can combine really good expertise with great software to solve business-critical processes and become a natural part of the company's core processes. So when the customer feels that they have -- that we have really fully understood their business and package that with a great solution that match their needs, we know that we have succeeded. We've been scaling now Lime for a couple of years. And if we look back the most recent years, we've been opening up our office in Netherlands in 2020, in Cologne with -- in 2021, where we also welcomed Userlike. And also now in the beginning of this year, we also welcomed SportAdmin to the Lime Group. Looking at this, we have a little bit more than 400 employees. And from a customer perspective, we have around 80,000 users with 6,500 customers in 2023. And if we look at some of our key success factors, I will say that, of course, the long-term profitable growth to have a steady development, both on the growth side and on the profitability side. We have a sticky business model, so 60% are recurring revenue, which means that it's a predictable model and a stable revenue stream. We have a sticky customer base, so the top 10 customers stands for around 7% of our revenue, and the biggest one stands for around 1%, which means that we are not depending on a couple of few bigger ones. And something that has really built Lime to what it is today is the culture where we are looking at 2 really big important topics. That's performance and care and, of course, always putting the customer in the center. So that's something that we are working with continuously year after year and to really build on a successful culture going forward. So let's look into the sum up of Q4 and 2023. And if we look at Q4, we have a sales growth of 14%, and we continue to deliver, I would say, a good quarter with profitable growth in a quite tough market. EBITA margin, 26% and an ARR growth of 16%. And something that I think is positive in the quarter is that we see an increased subscription revenues growing with a good percentage. And I would say that is also in line with our strategy. If we sum up then '23, we see that we reached a growth of 18% in the full year, with an EBITA margin of 26%; ARR growth, 16%. So in general, I would say that we have a very good full year in 2023, where we also see that the organic side is 100% organic on the growth side. If we look at our position when it comes to our improved cash flow, we see overall that we have a strong financial position, which allows us actually to increase dividend with 25%. So the Board of Directors proposes a dividend of SEK 3.50 per share, which is equivalent to SEK 46.5 million and 56% of net profit. If we zoom out a bit and look at the general market, we can see that demand for CRM is growing steadily, though a little bit more slow in the business climate, I would say. The trend, which I would say that we have played an important role in, is that CRM is moving a little bit away from being only sales and customer management to an approach where we're actually managing the entire customer journey and becoming more of a hub for the organization. Specific solutions are more and more asked for, and we can see an increased focus on industry-specific functions. Looking at this from a Lime perspective, I would say that we are well equipped for the current development, and we offer great solutions, which are industry-focused in real estate, in utility, in consultancy business and wholesale, where we are now actually adding the fifth focus industry for membership organization. And to further strengthen that, it's really nice to welcome our new acquisition here in the beginning of January, SportAdmin, where we did the acquisition of the market-leading, really fast-growing and profitable SaaS company. SportAdmin delivers a business-critical solution tailored for sports clubs. It also helps the club in itself, the team and, of course, its members. And just like us, they help their customers throughout the customer journey. I think the acquisition, in general, is very exciting and where we see a continued high growth potential, both on the local market in Sweden, but in the long run, also moving that to an international expansion. And I've been talking about this for some quarters that we are looking into new segments. And our position in the membership organization, I would say, will even further strengthen in Q4 when we welcome 2 really nice customers, and I'm really happy that it's also on the Danish market, Danske Cyklistforbundet and Rådet for Bæredygtigt Byggeri as new customers during the quarter. And I think that we would see more or less the same pattern as we see with our utility companies or -- and our -- and real estate companies that we add really significant value to their organizations, where we help them to manage business-critical processes, with a strong focus on adding actually high value for the member itself. So looking at that, we are automating the member registration, simplifying invoicing processes, optimizing websites and created target communication for the members, with the goal of helping our customers to make their members' lives easier. From an international perspective, we've done several deals during the quarter, which I'm really, really happy about and also in our focus industries. Examples of wholesale sector, I would say, the Finnish company, Componenta; the German company, EDEKA. And going forward here, we -- and I've been saying that we -- and we will continue to focus on this, that we will continue to build a more international company. And looking at the full year of 2023, we can achieve actually more than what we did last year. That's my belief. And also that all of our markets has a potential of actually growing faster. So we will continue, as I said, to have a big focus on the internationalization in 2024. And last bullet point here, looking at the recruitment, and we are always looking for very talented people. And what we are looking into, and as I said in the start, is employees that can balance performance with care, where we always have the customer in the center. The other side is, of course, about retaining and developing existing talents. And I will say that this, of course, is equally important to actually attract new ones. And we see positive effects here from our efforts in both '22 and '23, where we have extended the average length of the employment, resulting in a low employee churn, which has actually gradually decreased there from '22 and forward. And in an industry where we see that competition for really, really skilled employees is tough, we are proud to see that we have a very attractive company, which is reflecting in more than 7,000 applications during 2023. And looking at the final rate, we can see that we are hiring 73 new employees in '23, where we have recently actually completed the first onboarding period in Lund. And as always, this is a fantastic way to kick off the new year. So the recruitment now is started for '24, and we will continue to look for more talent in '24 and recruit in a high pace. So looking at the agenda, we have the order intake, the revenues, profit and, of course, a bit sum up. So of course, you have a possibility then to ask questions moving on. So starting to look at the order intake. And I said it in the beginning that we -- the low customer concentration, top 10 customers stand for 7%; the biggest one, 1%. And in a market situation like this, where it is a little bit tougher, I would say this is a good -- very good for us because we are not depending on one or a few big ones, but we are making deals with many customers in different geographies, in different industries. And in the quarter, we see that we continue to close nice deals, all markets. And I'm really happy about the membership deals on the Danish market, which is really, really strong. The wholesale, as I mentioned, that we get both in Finland, Componenta, but also that we start doing deals in Germany from a Lime perspective, but also to see Userlike doing really nice deals with nice brand. Dr. Oetker is one of those. And you see also on the top right corner there, European Labor Authority is a really important customer moving on. And also that we are doing nice deals on our other platform, which is Lime Go, where we closed Delicato, which is, of course, a nice brand and also have really nice snacks. So I think that's a good thing that we are doing deals with all our platforms and in all our geographies. Looking from a revenue perspective, we can look into the ARR. And in this case, we see that we have a good development in -- on the ARR side. We are doing a subscription increase of 21%. We see a decline in the service agreement, which is exactly in line with our strategy. And we are transforming our customers from the old on-prems and service agreements up to subscription and cloud, which is in line with our strategy, and that is a project that will be going on here, both in '24 and in '25 as well. And in general, then we end up on growth on the ARR side with 16%. Looking from a recurring revenue perspective, and we see our different revenue streams and the development from more or less 2015 when we started to transform the price model from upfront to subscription. And subscription, I would say, is growing steadily, 21% in Q4, 20% last 12 months and stands for today, 55% of the revenue. Service agreements, as we said last slide, is a little bit declining and stands for 5% today, and we will continue to do the transformation, more or less no upfront payments, and we also see that Expert Services has had a good growth full year and in Q4 is growing 13%. And today, they stand for 39% of the revenue. And it will continue to grow but, in the long run, decrease as a part of the total net sales going forward. So looking into the revenue, 14% growth in Q4 and the last 12 months, 18% growth and 100% organic. If we look at the split between our segments, Sweden growth in Q4, 12% and the Rest of Europe, 19%. And looking there at the full year of '23, we see that Sweden is growing 16% and 22% in the Rest of Europe. And I think that looking into the year, I think 16% on the Swedish market is a good growth, but we have more potential of growing faster in the Rest of Europe, and that will be a focus area going forward so we can have a better continuity closing deals on a regular basis in all our markets. Moving on to profit, Maria?

Yes. Thank you, Nils. EBITA in the fourth quarter reached 25.9% compared with 25.1% for the same quarter as the year before. Looking at the latest 12 months, the Q4 is at 25.7% compared to 25.5%, so in line with the last quarter's margin and our financial targets. On the right-hand side, we have the latest 12 months EBITA development. As you can see, we reached a 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 Q4 '23, we have reached an EBITA of 26% as we are now able to invest more in future growth. Since we have good growth in our revenues, we have a positive underlying pressure on the EBITA margin. As we have already communicated, we'll 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, latest 12 months in Q4 '23 is at 57% compared to 55% in Q4 '22. The increase of 21% is -- in our personnel expenses for the latest 12 months is explained by that we have invested more in employee activities, starting compensation and benefits. The investment in our employees is continuing to increase the lower churn and better pace, especially in Expert Services compared with previous year. On the right-hand side, we have our operating expenses. As you can see, our operating expenses increased by 0% in the quarter and 7% in the latest 12 months. The increase during the latest 12 months is due to that we have invested more in future growth by marketing, sales events and product development.

Thanks for that, Maria. Let's then look into the summary and our financial targets. And looking then at the last 12 months in 2023. As you can see, we reached a growth of 18% in the last 12 months compared to the target of 18%. We have reached an EBITA margin of 26% compared to the goal of being above 25%. And the net debt in relation to EBITDA should be less than 2.5 where we today in last 12 months are 0.5. And in 2023, the Board has proposed an increased dividend of SEK 46.5 million, corresponding to 56% of net profit. So now 2023 is now closed, more or less, and '24 is well underway. And at Lime, we are always looking ahead, and we will continue to develop our focus industries, have a focus on the internationalization, recruitment and, of course, on our product offering. And I will say that doing this, that allow us to do what we've always done best, and that is to help our customers become the heroes and making life easier for the end users. So thanks a lot for listening in. Let's see if there is any questions in the chat.

Yes, we have some questions. Nils, how is the acquisition strategy looking? What is Lime looking for a -- or do you prioritize the organic growth?

I would say that we have M&A in our strategy. So that is something that we are always, more or less, investigating and talking to a lot of companies. But of course, the organic growth is still very important for us. And I really believe that it's a measurement on, okay, how well is all our different geographies and the core business functioning. Now we did SportAdmin here in the beginning of January. So I think that we will not be -- become a company that do 5 or 10 acquisitions on a yearly basis, but it is in our strategy. So of course, we will continue to look for interesting companies.

Thank you, Nils. Could you give some flavors on how the different countries is performing in Rest of Europe?

I think if we start with the German market and from a Userlike perspective, and I've communicated this in more or less on a regular basis on quarters. So I think that Userlike has steadily done an improvement in 2023, which I'm very happy to see. We had a tough year in '22. So both closing more these, keeping customers, but also from an organizational perspective, I think that we can really see an improvement. We have had a couple of launches in our product portfolio, which is, of course, one that was really good timing was the AI automation hub for Userlike, which I think has contributed to a better product offering in 2023. In general, if we -- I think the Norwegian market for -- has done a good job in a couple of years now, steady growth and has really grown up to be a company in itself. We could also see that we've been struggling a bit on some markets where I expect more in 2024, both if we take the Danish market and the Finnish market as an example.

Could you give some flavor to the different verticals and how they are performing?

If we look into the verticals, I think it's very interesting to see that we continue to have a very good traction, both on the real estate and the utility segment, which is really nice to see. I talked about this in the Q3 update that we were building a good pipeline in the segment of utility. And also now that we can see that we closed quite many new deals in the utility segment, we had a picture on Solör Bioenergi Cinode, Nacka Energi, Telge Återvinning. So I think that's really nice to see that we have done and a couple of new deals here in Q4. Also in the real estate segment, as I said, I think we've had a little bit tougher situation on the consultancy segment. Wholesale is generally our bread-and-butter deal, which is a big focus on the Finnish market. We can see that this quarter, we closed a really important one in Finland. And also interesting to now look into the fifth focus vertical with membership, where we have, I would say, good traction. And as I said, I'm especially happy to see that we have a good traction of that in the Danish market because that gives us a possibility to really scope the market. It gives us a chance to build a strong brand in one of our verticals, and that's something that we will continue to focus on.

What do you believe the main growth drivers in 2024 will be? And how do you plan to approach the recruiting this year?

Starting with growth, I mean, what we would like to see is that we would like to have a continuous good growth in -- and development in our subscriptions, of course. That's the main driver that we are really keen on seeing an improvement and also keeping up the levels. The goal here, of course, is to increase, over time, the recurring revenues. So today, we are at around like 60%, but moving that up upwards. So that's an important point. The second part of the question, Maria, what was that?

How many do you -- how do you feel about the recruiting plan?

Looking into the recruitment plan, I think it's important for us to continue to recruit because we see that doing the recruit will help us to grow in a long-term perspective. So it's not what we recruit this year or this summer that will help us, especially with the growth, but it will help us to grow -- continue to grow Lime in the long-term perspective. So what we see, I think, of course, depending on how we perform on the employee churn and so on, but I think that we will at least recruit in the same pace as we've done in 2023.

How do you look at the trends in -- sorry, how do you look at the trends in the order intake in Q1?

I think -- I mean the trend so far, I think that it's no big difference looking into the market. I think always January is quite -- I don't like the January month in general, and I've never done that throughout my 18 years at Lime. So it's no difference this year because I think the deals that you probably looked into close in Q4, some of them, of course, spills over to the start of January and Q1, but it takes a while before all our customers and prospects are back at work and so on. So it's hard to say in this kind of short period. But I think that in general, it's more or less the same type of climate that we've had in Q4. So no difference in that sense.

What is so attractive with the vertical membership organization?

But I think the membership is, in one way, quite similar to how we help our customers in both utility and real estate. And it's about -- it's a very like targeted market. So it's also that we really end up in the core processes of these organizations. And when we do that, it becomes a really business-critical system for those kind of companies and organizations, which means that they get the high value for our -- from our offering, both from the expertise since we've done many deals within that segment before, combining that with a packaged solution. And that combined gives us a really good segment where we know that these customers will stay for a long time, and we can help out developing them over time. So I like -- I really like the membership segment. And I think that over the last couple of years, we actually improved our offering. The same type of software and add-ons that are used both in the utility segment, in the real estate segment are used also in the membership segment, which means that you have forms, you have portals, you have marketing communications. So that -- those things are acquisitions that we've done, both in '18, '19 and so on.

Why such strong underlying growth for SportAdmin? Doesn't those sport clubs have an administration system? And what is the underlying market growth?

Looking at SportAdmin, they are the market leader today. And as you said, I think that the majority of customers or clubs today, they are starting to have a system, but it's also an untapped market if we look into the segment that is a little bit underneath what SportAdmin is targeting today, but also where you can really build on the segment where we have the market-leading position, where we can add more value and add-ons to existing customer base. And the big difference, I would say, from SportAdmin compared to the competitors is that they really come from helping the club instead of many of the competition as the starting point from the members. So for us, we are, I would say, have a really, really strong offering from -- for the club and has, over the years, built up a great solution for both the teams and the members itself.

Thank you, Nils. When you talk about the aim to accelerate growth in 2024, is this without the impact of SportAdmin?

Of course, I mean, I think that we are looking into keep on an organic growth. And I think if I look from an international perspective, I think we can have a higher pace. I think -- but combining that with SportAdmin, we are still keeping our financial target of reaching an 18% total growth with -- as a financial target with combining that with a strong profitability of above 25%. So I think the combination here.

There is a slowdown in growth in Expert Services from 25% growth year-on-year in Q3 to 13% in Q4. Is there a tougher comparable quarters in 2024? Or is this a fair level to assume going forward?

I mean I think it's a very relevant question when it comes to looking into Expert Services. And we actually need to go back before -- a little bit in 2021, where we made the choice where we -- the market was opening up after COVID, we saw a big fluctuation on the labor market, and companies that didn't recruit that much throughout the pandemic were really eager to get new ones. And that was driving the wages up. And we felt that, though, we cannot actually do that because that will not be a sustainable business model over time. So meaning that we started to do a lot of recruits, and we got that -- we did a big recruitment from -- in '22 in January and even bigger one in August in 2022. And of course, it takes a little bit of time to get all of those employees up to speed. And I would say, Q4 2022 is where we really see the effect of all the recruitments that we've done in both January and August. So looking into now what we need, what kind of numbers and quarters and so on, we, of course, meet much tougher numbers compared to what we did in '22. And I think that's an explanation of that you see that slowing down a bit. But it's also an important to look into historically where we've seen that Expert Services, the years both in '22 and in '23, are really, really high on the growth side compared to historical numbers. And what we are looking for is to have a higher growth on the subscription revenues and balance that with a good growth on the Expert Services side.

The SEK 0.9 million one-off related to the acquisitions, is this impacting Sweden? And what is this one-off? I can answer that. That is a cost that we have incurred -- occurred to the acquisition of SportAdmin, so it's impacting Sweden. So let's see if there's any more questions. One -- how significant or large is the new vertical that you now add? Can you reason a bit around its importance?

We don't disclose any like specific numbers in the amount of revenue in our different verticals. But it's -- I would say it's a significant value for Lime because over time, we have built up a great customer base in that segment. So it's not only in '22 or in '23. We have done many deals over the years in that segment, but we see that we have a better offering now. We see that we have good traction. And I think instead of -- what we have been discussing is that, okay, should we open up a new geography? Or should we instead open and broaden our scope when it comes to verticals? And I feel the timing for opening up a new market, we have plenty to do in our existing markets where we have both Germany, we have Netherlands, and as I said, there's still much potential to do better on the existing other markets as well. So it meant that for me, I think it's more reasonable to broaden the scope where we have good references to start with, and it's a lot about reference selling in these kind of verticals and also where we see that we have a good product fit where we actually can help these companies with the digitalization and all the processes I discussed earlier. So for me, going forward, I think the membership segment is equally important to expand, to grow as the other [ tall ] ones that we are already having today.

Thank you, Nils. That was the last question.

Thanks a lot. And if you have any other questions that you think of, don't hesitate to reach out to us. Either just give us a call or e-mail us. So thanks a lot for listening in. Have a great day. Bye-bye.

Thank you. Bye.