Mapspeople A/S (MAPS) Earnings Call Transcript & Summary

Hi, and welcome to this Q2 '24 presentation with Mapspeople, represented by CEO Morten Brøgger, and CFO, Christian Laeso. Before we begin, I'll remind all of you listening in that this presentation is recorded and will be uploaded afterwards, shortly afterwards the presentation. I will also remind all of you that you can submit your questions in the chat. Then I will make sure to ask all the questions to Morten and Christian after their presentation in the Q&A session. And with that said, I will now hand it over to you, Morten.

Perfect. Thank you, [ Casper ]. Welcome to our Q2 presentation here at HCA Capital. I'm going to go through a little bit of this, and I'm going to be helped by my good colleague, Christian Læsø, who's our CFO. So let's dive straight into the core KPIs, the SaaS metrics for the first quarter of the business, which again was a pretty okay quarter for us. You can see that our annual recurring revenue has grown 19% compared to the end of Q2 last year. Note that in Q2 last year, we acquired the Point Inside. So that was a big jump in our business that quarter. But yet we managed to grow 19% quarter-over-quarter. It's grown 5%, about 19% year-over-year, and it's grown 5% quarter-over-quarter. So our ARR is up 5% compared to the end of Q1. You can see that, again, the majority of the growth comes from our focus product, our core product, which is MapsIndoors. 20% growth in the ARR of MapsIndoors year-over-year and again around 5% since the end of Q1. Recognized revenue continues to develop very nicely. We are up 35% compared to same quarter last year. It's more or less the same as in the first quarter this year. That has something to do with timing of new contracts and timing of [ churn ]. But we're on a good track on growing this one, and we're very pleased with that. EBITDA it's still negative, but it's twice as good as it was last year or half as bad depending on which way you want to basically discuss this. And you can see that it was 8 -- minus DKK 8.2 million in this quarter, more or less the same, a little bit better than in the first quarter of the year. The guidance is the same in terms of our ARR, somewhere between DKK 72 million and DKK 80 million at the end of the year. Revenue guidance between DKK 58 million and DKK 63 million and EBITDA before special items, Christian will explain this, is negative between minus 20 and minus 25. So again, all of these extremely good improvements over where we ended last year. Let me try and go through some of this in a little bit detail. So I picked out a couple of things. You will see that ARR from new bookings, selling more to existing customers and selling more to new customer, actually was much higher than the growth we had in the ARR, almost DKK 7 million. The majority of that DKK 5 million was selling more to existing customers, and that leaves around DKK 2 million of selling new contracts to new customer, all according to plan. The reason why this number is higher, and that's the underlying truth and the performance of our growth is that we've had what we call little bit of extraordinary churn in the business. Let me try and explain. Those of you who have followed, Mapspeople know that we had a lot of framework agreements where customer has committed to buy something within a certain point in time. We also know that we moved away from that and you buy something when you need it. Some of these framework agreements ran out during last year. And if the customer had not used it, we decided to invoice what we had, a contract with that customer to do. And a few of these customers were not actually deploying our system. So we knew that there was a high risk that these contracts would not be renewed this year, and that's the case that we have this year. I think that the real underlying churn in the business, excluding this is where it's supposed to be. And again, we had these extraordinary churns planned in our budget. So this is actually according to our plan. Recognized revenue, 35% up. So we are tracking extremely good on this one. And clearly, with the growth we have also in this quarter, we expect that the recognized revenue will continue to grow over the year. And EBITDA, the 48% improvement. A few comments on that one. The EBITDA improvement here is partly due to the growth in ARR and recognized revenue and partly due to these cost reductions we carried out, mainly during last year, then little bit in the beginning of this year. The cost reductions are at an end. We're done with this, and we have the cost base that we're supposed to have. So the growth and improvement in EBITDA going forward will mainly come from our growth in ARR and thereby, the growth in recognized revenue. NRR, the underlying net revenue retention of our business, selling more to existing customer remains at a pretty decent level of 110% in the quarter, compared to same quarter last year. One thing that we changed here as well in the reporting, it's actually one of the most important internal SaaS metrics that we use to steer our sales business with is the customer acquisition payback period, which fundamentally means, the money we spent to get a new contract with a customer, how long does it takes to get that back. And since our customer pays 12 months upfront, we want to [ lie ] that it takes like somewhere between 12 months because then it's from a cash point of view relative neutral and 18 months. And we think that's a good place to be. That's the gray area in the middle. Now what we changed here? Because the standard definition says, when we talk to, I don't [Foreign Language] I'm not sure what that is in English. Someone can help me later. Hopefully, most of the Danish will know it. Their definition is that you calculate your customer acquisition cost for new customers. But since we have a business that is driven through partners, many of the new customers or the new Maps that we produce is actually not a new customer because it's our partner, which is an existing customer, getting new end customer. And thereby, it would give a wrong picture to keep the overview on how we run the business. So this definition is how much money is matched people spending on getting new ARR in, both from new partners, new customers and through selling more for existing partners. Because that's how we spend the money. So we feel that this is how we measure it internally, and it's a more accurate way of describing this customer acquisition payback period for us. You can see that it's a little bit bumpy. That's because like Q1, there was a fairly little sales. Q2, there was more sales, but we had some of the cost reduction in our sales and marketing organization coming through. And you can see that that's where our payback period in Q2 was actually lower than, shorter than what we aim for. And you can see in the capital raise, we also said we need to spend a little bit money here. We have data to draw a trend curve. That's the purple curve, for the last three quarters. And you can see that its trending in the right direction. Again we're okay with quarters going little bit up and down. Q3 is always low because the case in Q4 is always high because it's the end of the year. So we want to keep a track on that with the trend curve. So this is how we're going to do it going forward. And this is also how we measure ourselves internally. A few words about the capital increase that is currently going on. Christian will go through the time plan on this one. As some of you, hopefully, most of you have heard, we are currently having a preemptive rights capital increase going on where we can raise up to DKK 36 million. We are so fortunate and good and attractive that when we announced this, we actually have 96.5% of the possible amount or DKK 34.8 million that has been committed or guaranteed. It has been guaranteed by underwriting a consortium, which is led by Spar Nord. And it has also existing shareholders of BankInvest, EIFO, Bladt Invest and also the -- along with the Board and management team who's been shareholders contributing and committing here. So in my work, concluding this one, I feel that we will be fully subscribed or extremely close to fully subscribed at the end of this thing. And in a period where this is difficult over a summer vacation, I'm extremely proud of the team and what we have been able to do. I think it indicates a little bit the journey that we are on. Why did we do this? The first part of this one is that the cost reductions we've carried out over the past 12 months, we probably were a little bit too optimistic in the productivity gains that we expected in our sales and marketing. We are more or less half the number of people in sales and marketing compared to last year at the same time. And we were probably a little bit too optimistic on how could we make that smaller team produce so much more, meaning that we are under-investing a little bit. And we want to invest a little bit more into that, it will still be like measured like the CAC payback ratio, all that stuff stays the same. So we're going to do it like very smart, very thoughtful. But we do not want this high-growth market to run away from us. We need to make sure we have the right level of investment to grow at least as fast as the market that we enter, that's the ambition. So part of that is to go into this. The other good chunk of this one is, we wanted to have a war chest to do what we call small M&A tuck-in investments. Sometimes we get approached, and we've talked to some of them. And we figured out that these small companies, sometimes you need a little bit of cash. They are not happy to just be paid in MapsPeople shares like we did with Point Inside. And we wanted to have that war chest ready because we need to be flexible. We need to send the right signals and we need to be able to move very quickly. Just to comment the type of M&A transactions we're looking for are like small companies that look very much like us. So they produce and operate indoor maps, which means that you can migrate that into our platform and you get some platform synergies. And we have very clearly stated that the transactions we are looking for, we should be able to achieve at least 25% cost synergies in the combined entity, the M&A target and Mapspeople, not 25% of the combined, 25% of the cost in the target but measured on both sides, right? The savings can come from both sides. And that can be achieved within 6 months, which means that not only will we get an accelerated annual recurring revenue, that will also be accelerating our revenue and thereby, it will accelerate both from a revenue point of view, but also from a cost point of view, our EBITDA and thereby also our cash. And we will achieve that within 6 months of closing these transactions. Again, we feel that this is happening in the market, and we don't want the market to run away from us. So sometimes my job is not just to focus on this quarter, next quarter. It's also the mid- to long-term space and making sure that we maintain or maybe even build out this global -- leading industry position that we have. So both these initiatives is to make sure that we are playing both and that we are not just focused on this in the next quarter, but we're also focused on next year and the year after that. Just a little bit about how are we doing this? Around, this is around 50% is intended to go into this war chest for M&A transaction, 30% of it over the next 18 months to spend a little bit more in sales and marketing. And 20% is to continue this AI-driven R&D that we're doing in our maps right now. And this is one of the places where we absolutely are industry-leading. So we're now using -- it used to be like automation, and machine learning. If you have enough of that, then it becomes AI. And the aim is that we can produce a new map for a new customer, faster, equals cheaper than anyone else. We want to be in a position where we can be very competitive on price if we have to. And the other part of that one is also when we update maps on behalf of our customers and our partners because the map needs to be updated, otherwise, the end-user experience will deteriorate. We can do that extremely, effective and fast and thereby be very competitive on the map parameter as well. So we don't want to slow down on that on our product because it's where we are really ahead of the industry. That being said, I want to hand over to you, Christian.

Thank you, Morten. So just one step back to the capital increase and the timeline. We've opened now for trading the subscription rights, so the right to get part of this DKK 36 million in shares. And that opened on August 15 and you can trade shares. So if you're an existing shareholder, and you don't want to buy more shares in Mapspeople, you can sell them until August 28. The window for actually subscribing to new shares goes from, well, Thursday -- no, Monday this week to the 30th of August. Your bank may have a shorter deadline in the 30th. So be aware, maybe do the trade by the 28th to be sure that you stay within the window. And just one thing, just for clarity. So we started out by saying that we have 96.5% secured. But the way this works is that a lot of these money are guaranteed. So you as a shareholder, still have the preemptive rights. So the right to come upfront and get your pro rata share of the new signings. So it's not too late to go in and subscribe new shares in Mapspeople. And the price is DKK 2, which is very, very close to what the share has traded in right now. On the third of September -- between the 3rd and the 5th September, the bank is going to count all of the shares that come in and allocate who gets how much so that the big institutional investors that have guaranteed they will then know what they get exactly the amount they have subscribed for or less because there are more people who have subscribed of more than DKK 36 million are subscribed. But you as a shareholder has secured your portion, pro rata portion. So, that was just closing off the capital increase. Let's jump to the Q2 numbers. So back to the Q2 numbers as Morten has been talking to. So this is my favorite slide as you have heard, if you've seen these presentations before, this is the rolling chart that shows the last 4 quarters or 12 months of performance. So when we closed our books the 31st of December, we had a revenue, recognized revenue of approximately DKK 40 million. Now if we roll that and now don't take the 4 quarters in '23, but the 2 last ones in '23 and 2 first ones in '24, then we get to DKK 50 million. So we've increased our run rate from DKK 41 million to DKK 50 million closing in on the ARR as we usually reported here in SaaS or PaaS businesses. This is really great. It's always nice to be able to draw a straight line. Well, you can almost draw a straight line here on how revenue is progressing. And the same with our EBITDA. Morten spoke into that a lot of cost savings have been done in 2023 and a little here in the beginning of '24. That's why the slope of the EBITDA is higher or aggressive than the revenue slope. And when we -- again, comparing to end of year '23, we had lost DKK 60 million in the previous 4 quarters. The last 4 quarters now, we are at minus DKK 44 million. So we're targeting up towards the guidance of minus DKK 20 million to minus DKK 25 million for the last -- for the 4 quarters when the year 2024 ends. More standard way of showing the numbers here is our EBITDA for Q2 '24 and compared to last year. And as Morten said, we grew the top line, the revenue of -- with 35%, and we improved our EBITDA from minus 16% to minus 8%. And as Morten mentioned, we now have a new line or 2 new lines in our reporting called Special Items. And that's due to the management restructuring that we did in early Q2, where we changed our management team, the one-off cost or the cost for that has been booked, a one-off and are shown here on the line Special Items. We don't expect any more special items for the remainder of the year. And we are guiding before special items to the market. So the [ DKK 8.2 million ] in negative EBITDA, is the guidance level. I also highlighted 2 other areas here. One is the staff and own work capitalized. That's due to the fact that we've not been reporting in the quarterly report our staff and own work capitalized in the same way as the annual report that's now been corrected. So both numbers are a little bit higher than you usually seen them but they have been corrected across and are now in line with the accounting principles as we do them on an annual basis, still approximately 20% cost reduction of staff cost reduction year-over-year, as we have had the last quarters. And the last purple #3 here is depreciations. And just wanted to highlight that we've finished a lot of the development work, we've been working on for a number of years. And this -- as we finished development work, we start depreciating them as we recognize that they have value for our customers and ourselves. And that's why there's quite a big jump in depreciations from last year, DKK 2.5 million to this year's DKK 3.8 million for the quarter for the quarter. Yes. So that was the quick journey of the financial numbers from us.

Thank you, Morten and Christian. We have a lot of questions, so let's move to them. First of all, let me start with a broad question. Across many SaaS companies, we hear that companies still have better growth outlook in U.S. compared to Europe. In '24, you expect the growth will be evenly split between EMEA and U.S. or North America. Is that driven by your existing customer base? Or how is your view in your markets and partners across U.S. and Europe?

It's still around 50-50. Maybe actually this year-to-date, a little bit of an overweight on the North American market compared to the European market. So it may go a little bit faster. It's -- again, it's a mix because we have this partner strategy, where we are growing through. So we expect to grow both from new customers, so new ARR for new customers, but we also expect to grow quite a bit of new ARR from existing partners like the net revenue retention rate. So all these elements are fundamentally helping us.

Okay. Then we have a question about customer expansions. Here it stays positive with the significant customer expansions of approximately DKK 5 million in Q2. What is the potential of your existing customers? Are you confident that you can continue increasing ARR significantly from the existing customer base? So a little bit of, you can say, introduction to your existing customer base in terms of the potential here? Is it fully saturated or what you can say? Or there's still a lot of potential for you?

There's still a lot of potential. It's not going to go away. It's clearly important that we keep adding new customers and new partners that can go into the base, right? But this is absolutely not tapped out. Like we have a lot of partners who continue to grow their business. And even customers in this year who has grown, we still see more expansion with them like even direct customer, right? So this is absolutely not tapped out. We have a clear expectation that on an average basis, our net revenue retention rates, which is then how we measure this, will continue at least at the same levels as they are right now.

Okay. So approximately 10%? Yes. All right. Then a question here about the sales and marketing spend. Are you able to track what is working in your efforts? So maybe in terms of different things you have tried, how can you reach the customer partners best? Do you have the golden formula, so to say of what's working for you?

We have the same golden formula as anyone else in SaaS, who has like good demand generation and demand capture people, right? Yes, we measure this. We know exactly what does it cost to get what we call a marketing qualified lead. We know exactly what it costs to get a sales-qualified lead. And we know exactly what conversion rates we have from there to there. We also know exactly what it costs us to get a new contract won. And we know that per marketing channel, inbound, outbound and even bigger differentiation behind that, and we know it for geography as well. So we're actually pretty good at steering this. We also know it's a little bit more expensive in America than it is in Europe.

Yes. All right. Okay. So regarding your acquisition plans, can you tell us about the acquisition of Point Inside?

We might -- do we -- recapping it...

Yes, I guess so, yes.

Yes. I can do my best on recapping that. Back, I think it was in May last year, we acquired Point Inside, which was an asset deal. So we bought all the customer contracts and some technology that we can migrate them over with. And when you do that, we protected ourselves by saying I think we kept half the purchase amounts. And by the way, we paid with shares. We kept half the purchase amounts, which equals around 1.5 million shares. We kept that in escrow, and they will be released contingent to all the customer renewing their contracts. Mainly one large North American contract did not renew, which is why we got back that purchase amount. So we still paid the same multiple as such, and we got that back. So -- that was still a pretty good business because it was very synergetic because there was not really a lot of costs associated with it. That integration of everything is almost done. There's a few little nitty-gritty stuff that we're doing. A good interesting part of that acquisition was fundamentally that we also acquired the ownership of 1,872 indoor maps of shopping malls, mainly in the U.S. and 238 airports, both in the U.S., Europe and a few other places as well. And we've been able to grow the monetization of these maps with quite a bit actually. So they are actually helping us grow that business almost, I think almost $200,000 of our growth in Q1 came from that part of the business.

Okay. So maybe it comes back to the question about the potential of the existing customer base, there's still room to grow there, yes.

Yes. Absolutely, yes. I hope that was a good decent summary that answered the questions. Really understand the purpose.

Yes, yes. And you lost 3 million of some of the customers associated from the clawback, while in ...

One last, after that -- customer that was in there, we knew that there were risks, which is why we made the contract what we did right.

Yes. All right. Then there's a question here. What is behind the expected acceleration in the second half based on your guidance. Does the current guidance range include acquisitions?

So the nature of our SaaS, PaaS business here is that we build on top of revenue. So we took quite a big jump from Q4 to Q1 in our recognized revenue. We've sustained it here in Q2. The increase of ARR from Q1 to Q2 was fairly limited. So there's a delayed effect on that. So we expect to see that our revenue will increase the second half of the year and thereby, bring up our EBITDA because our cost structure is fairly fixed. We have a very high gross margin, as you can see on the screen up top, so DKK 3.1 million on half out of DKK 28 million in revenue for the year. So a lot of the additional revenue simply trickles down and improve EBITDA. So we will see an acceleration. Our guidance was made before our change in strategy, but I don't think we're changing our guidance. It's still DKK 72 million to DKK 80 million. We are expecting over the next 15 to 18 months, 2 to 4 tuck-in investments, as Morten says, but we haven't -- we don't know yet, just to be frank. If it's going to be '24, '25, they start landing on.

But we do not have a guidance that include or excludes these tuck-in acquisitions. So you can answer yes to that question. I think, [ Casper ], to be honest.

Yes, yes. So if you make some a lot of your potential acquisitions here in '24, there could be some positive effects, actually then exceeding the current guidance range.

All ending nicely within it.

Yes, yes, yes. Okay. Perfect. Then there's also a question here. When do you expect to have positive cash flow and positive results? So it comes back to maybe something you have been asked for before but also giving to questions who -- to grow focus right now.

So we haven't given guidance for 2025 yet. We are getting closer, as you can see from our guidance on the EBITDA going from minus 60 to minus 25 to minus 20 in '24. And if we jump back to the slide with the curves. It's free to draw your own extensions of the lines and come with I guess, based on that. But we don't guide on that yet. The only thing I want to say is that cash flow positive actually comes before profit -- before profitability because of the nature of our business with prepaid contracts. So we should become cash flow positive before we become profitable.

Yes. And then we also -- final question here. Do you have enough cash to run the business without new money from shareholders? I guess maybe -- I'm not sure whether the question here is, before this capital raise or after, but I guess it comes taking at least at DKK 34.8 million into account.

Assuming the 96.5% already secured, we have a fully funded case, yes. Of course, if some if some -- if one of the M&A deals we land is significantly higher than we have planned for, then that could change it. But with the current plan, we are fully funded.

Perfect. Let me see. I think that was it from me and from the audience here. So yes, let's finalize it. Great. Thank you very much, Morten and Christian, for your presentation and also for answering all the questions. May everybody, have a nice day.

Thank you. Thank you, guys.