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

Hello, and welcome to this Q3 presentation and Q&A with MapsPeople. With us today, we have the CEO, Morten Brogger; and CFO, Christian Laeso. First, there will be a presentation and afterwards, a Q&A with the management team. There have already been pre-submitted questions on stokk.io and the Q&A is still open so that you can submit questions live as well. I will now hand over the mic to Morten and Christian to start the presentation. Morten and Christian, your lines are now open.

Perfect. Thank you so much, Andersen. Let's go through Q3. Here are some of the core numbers in Q3. The first one is comparing to last year and how it was from '22 to '23. And the second line is really how it was quarter-over-quarter compared to last quarter. Now, I think I want to focus on the bottom line on this one, the performance in Q3 versus last quarter. Those of you who follow us knows that Q3 is always our weakest quarter, mainly because customers -- or end customers, employees, everyone is on vacation. And that means we never -- we also never have a lot of contract to renew and upsell on in this quarter. That being said, Q3 was somewhat weaker than what we had anticipated and hoped for, and this is why you see some of these numbers. You'll see our growth in ARR was only 1% in Q3 over Q2. I think the growth underlying from the sales activity was actually somewhat higher. I'll elaborate a little bit more of that in the next slide, but we actually grew not just DKK 0.5 million, we actually sold new contracts around DKK 2.6 million, but we had some churn. And we also had what we call some extraordinary planned churn, which mainly stems from some of the older framework agreements that we forced through to invoicing and usage last year that we knew were not renewing this year. So this took it up DKK 2.6 million and down DKK 2.1 million. So the underlying growth was actually stronger just below the surface here, right? We do not have any additional of this planned reduction or churn in our books going forward. That has all been like settled at this point in time. When we look at our main growth product, which is MapsIndoors, that grew somewhat more like 4%. And you can also see that, that has grown quite nicely over the period of time. Recognized revenue grew 2%. Clearly, that comes if you don't grow your ARR a lot, then the recognized revenue will also not grow. EBITDA was pretty good. It was a DKK 1.8 million improvement in EBITDA over last quarter, so 21% improvement, and it was now at minus DKK 6.4 million, which is a good improvement compared to the last quarter. Christian will elaborate that in his later presentation. Just a couple of highlights here for Q3 because even though I said it was a vacation quarter, I felt we were very busy. We did complete the capital increase that we started over summer and ran through that, and it was completed in September, so late in the quarter, which we are like super happy about, and that is helping us with a lot of stuff going forward as well. As I said before, the ARR booking just below the surface is a little bit better than it looked like on the top line. We did close new business of DKK 2.6 billion, but around DKK 2 million. A little bit more than DKK 2 million of this basically went away again because we had this planned customer reductions here. Recognized revenue is 38% higher than the same quarter last year and 2% better than the previous quarter. And the MapsIndoors, as I mentioned, has grown 79% year-to-date compared to the same period last year. So where our growth is coming from is still working very nice. And EBITDA, as we said, it is -- we have halved our deficit on the EBITDA level compared to the same period in 2023, and you will see that we keep improving it quarter-over-quarter. A couple of our key numbers. Q3 was also extraordinarily weak on the net revenue retention rate. That is linked to what we just said before with these anticipated planned customer reductions that we had. And if we basically normalize for that, it would have been around 106%, not 101% that we are reporting, which is accurate like like-for-like, but we're just explaining a good chunk of that. It is still our clear target and objective that our net revenue retention rate is going to be and get back to 110% or higher, and we feel very comfortable with the type of customers we have that will get back to that level. Another key metric for us is our customer acquisition payback period, meaning how long does it take us to pay back the money we invest in getting a new customer contract. Clearly, that went up again. These are rolling 12-month numbers, and you see it went from 15 to 16 months. That is because we had a low sales quarter in Q3. So that's normal. It's still within the range. We want it to be at 12 to 18 months. And yes, everyone who thinks 12 months is much better than 18 months, both Christian and I agree. And we will -- we do expect to see that going in the right direction again. We did also say that part of the capital raise was to be spent on reinvesting a little bit in our demand generation and our sales organization because we felt that we may have over reduced that spend, and we were suffering a little bit on generating enough pipeline and closing this one. And we have started doing that as well in Q3, and the good news is that we start seeing the positive impact on our pipeline. The main issue is that it takes us somewhere between 6 and 12 months to close a new smart building partner. So the increasing pipeline is something that fundamentally will not help us grow until 2025. These things led us to give an updated guidance for 2024. So let me just go through this in the headlines here. We reduced our annual recurring revenue guidance from DKK 72 million to DKK 80 million to DKK 59 million to DKK 63 million. It's still corresponding to a growth in the range of 14% to 21%. We actually keep our revenue guidance unchanged at DKK 58 million to DKK 63 million. We'll explain some of that on the next couple of slides. And we have also reduced our EBITDA guidance from negative between minus DKK 20 million and minus DKK 25 million to now minus DKK 26 million to minus DKK 30 million in this. Some of that is because of the later -- or a reduction in the annual recurring revenue and some of that is to cost. Let me try and walk you through this. We have, as we said, a lower-than-expected ARR intake in Q3, and thereby, we decided to reduce our guidance to between DKK 59 million and DKK 63 million. The planned productivity increases in demand generation and sales after we reduced the cost made us struggle a little bit in this dimension. And as we mentioned last quarter when we raised the money, we are investing a bit now to basically build out our sales pipeline, and it is growing again. The issue is, again, like in all likelihood, these new opportunities in our pipeline will not close until 2025. And despite the fact that we managed to actually close the first little tuck-in acquisition with Point Consulting, Christian will speak about that, we do not expect any other M&A-related impacts on ARR in the remainder of 2024. You should also just note that on the revenue side, the reason why we can keep the revenue guidance unchanged is that we have -- in the year-to-date revenue, we have included some realized one-off payments from customers or former customers around DKK 2 million. So these will not be recurring. They are accounting in revenue, but they are not in the ARR. To EBITDA, clearly, when we are reducing our guidance on EBITDA, that is going to be a little bit worse than we guided, but we are keeping revenue. The difference can also -- can only be in cost, and that is true. We, as mentioned a couple of times, in the second half of this year, we will have additional spend in sales and marketing of DKK 1.5 million. We will actually also have an increase in our cost of sales compared to what we planned related to our 3D high-definition indoor mapping platform that we are rolling out and upgrading our customers to faster than anticipated, and that will negatively impact our cost of sales -- cost of goods sold with DKK 1.2 million. It should be said that our gross margin for this is still in the high [ 80s ]. So it's still good. And we actually think this is a good idea because we can see that the partners we have, which runs on our new high-definition 3D platforms, they grow higher and their end customers are more loyal and stay with them for longer. So this will have a positive impact on our churn and our net revenue retention in 2025.

And it should say H2 and not Q2 on that line. So it's the second half of '24.

And the third part is that, again, to some of these old agreements, we actually also had to write off some losses where we no longer can expect these payments, and that is basically impacting this line with DKK 2 million as well. This still means that the EBITDA guidance is an improvement compared to last year with more than 50%, right? So we have more than reduced the deficit to less than half of what it was last year. Christian will elaborate a little bit about this and the trends in the next part of the presentation.

Super. Thanks, Morten. I'll take it over from here. Let's dig in to the Q3 financials. But first, I just want to note that this is -- these are actually the best quarterly results or numbers we've submitted since the IPO in 2021 or Q3 '21, was the first quarter we reported. It's the highest revenue recorded and it's the best EBITDA. While negative, it's still the best number we have delivered on. So the Q3 numbers show the same improvements and revenue. As we've seen in the previous quarters, we end at DKK 14 million -- just shy of DKK 15 million in revenue compared to DKK 10.7 million last -- same quarter last year. That's a 38% growth, which is quite nice. As Morten also alluded to, the underlying MapsIndoors revenue stream is actually 79% up year-to-date compared to the same period year-to-date last year. And then included in the year-to-date numbers of DKK 43 million in revenue are the DKK 2 million in one-off, whereof DKK 750,000 is in the Q3 '24 number. If we go one line down and look at the cost of sales, this is where we booked the 3D cost of sales and the change of -- one of the reasons for the change of guidance of EBITDA. But before we analyze [Technical Difficulty] numbers and compare to Q3 last year, just note that the Q3 number last year was understated as cost of sales was not reported in Q3. It was reported in Q4 and thereby caught up there. But when we are looking at the Q3 numbers '23 and comparing, there should probably have been DKK 1 million more in costs in the comparison figure and not this fairly big deviation year-over-year. Staff cost is well below last year, 25% lower than last year. And we can now say that the full effect of all of the restructuring and cost savings that were done in '23 and early '24 are now fully implemented, and included, we have the new baseline. Q3 is historically and also this time, a quarter with vacation where our staff costs are therefore lower than normal. So we will see a staff cost that's going to increase again in Q4 when we have people back on full time and also the increase in spend that Morten commented on in the sales and marketing teams, but the year-over-year comparison here is correct. So there is a large decrease in staff cost. All in all, EBITDA is here DKK 6.5 million negative versus DKK 12.6 million last year, should probably have been DKK 13.7 million or DKK 8 million last year. So a nice improvement of 50% compared to last year. And that leads me to my favorite slide, this rolling graph, as I call it, showing the last 4 quarters' revenue and EBITDA number. So with the last 4 quarters, we've now recorded DKK 54 million in revenue. If we zoom back in 4 quarters, we were at 38% million the previous 4 quarters. So this 38% growth, we've spoken about a number of times, is also showing here. And there's a fairly nice straight line that hopefully will give us some predictability going forward. The same with the purple-ish line. I can see I was not that lucky with my selection of colors here. EBITDA bottomed out in Q2 '23 with minus DKK 66 million. If we compare to Q3 '23, it was DKK 63 million in loss. Now when we're looking at Q3 '24, we're at DKK 37 million in loss and fairly, again, a line that's trending upwards towards our guidance range that we just updated. So with that, let's look a little at the point -- or give a few words to the M&A we've closed. So when we raised -- did the capital increase that we closed in September, one of the reasons for doing the capital increase was to get funds for doing these M&A tuck-in investments as we call them internally. And we did our first one signed on October 23 with Point Consulting, buying their indoor mapping customers and their technology -- right to use their technology. So the plan here is to take the -- what we are going to do and started doing is to take their customers and move them over to our MapsIndoors platform. So it's an asset deal only where we don't take over the full business. They have a nice consulting business on the side, and we don't take over any employees. So we simply take over the customers and the right to use their technology. That brings in -- well, we thought we were buying DKK 2.1 million, but they signed even more customers. So it actually ended up being DKK 2.4 million in ARR that we were able to announce yesterday that we closed the deal yesterday. And these ARR numbers translates into a very nice EBITDA margin as it's simply just tucking it into our existing setup. So an EBITDA margin of 75%. Point Consulting is going to continue being a partner and have signed a reseller agreement. So they will be selling our MapsIndoors platform going forward. We look very much forward to that and not just give them bring in new agreements for us, but also upselling to the customer base that we have bought, which the increase in ARR from DKK 2.1 million to DKK 2.4 million already shows this is possible. I think we got a few more airports in that number. Yes. So we paid what corresponds to 3.8x ARR for the business. And with a 75% EBITDA margin that -- we're happy about that with also the vibrant customer base. So I think that's where we give room for questions.

[Operator Instructions] Thank you, Morten and Christian for the presentation. Let's move directly into the questions here and start with the first question, which is also around the M&A. The question is regarding Point Consulting. As I understand that you're not buying the company, but just contracts and technology. Can you explain the acquisition and also how you can add 75% in EBITDA margin? And can this acquisition be duplicated in the future? Meaning can you handle acquiring more contracts without adding more employees? How scalable is the model at the moment?

Yes. Good complicated question with a couple of layers, right? So this is -- the good part about this tuck-in acquisition, right? Point Consulting, which we bought these assets for, they're like a consulting company that consult a lot of companies around this one. And they kind of developed this product for airports, but it's not the core of their business. And then they agree with us like investing in these new technologies, 3D, high definition and a lot of other things, requiring a lot of attention, efforts and capital, right? So we could agree that we actually bought the customer contracts and the right to use the technology because the major of their business is something else. And that means that we didn't have to take the full cost of a full company over. So this clearly allowed us to deliver higher cost synergies from day 1, you could say it like that, which is nice. And the dialogue with these customers is ongoing, and they will migrate into the MapsIndoors platform, which is like extremely scalable, and we have the capacity to bring these customers on and run and operate them within the current cost. Now clearly, this is not indefinite scalable capacity, right? It's not like -- over the time, as we scale, we will have to add more cost into our organization to manage and handle additional customers, but it scales very, very well because we have all these AI-aided map updates and map digitization capabilities, right? So that scales in an extremely nice way in our platform. And this is one of the things where we are differentiated from our customers in a positive way, we believe. It's a good question. Can we make more of them? We probably have the capacity to make more of them, but not all of them are the same, right? So it's hard to predict exactly how the future is? Will there be more where it could be asset deals? Would there be more where it would be a full company that you need to integrate and then do the same? That we cannot really predict about at this point in time.

Then there's another question around acquisitions. Acquisitions can be an interesting strategy for listed companies, buying companies at a lower multiple outside the public market and increasing margins, et cetera. Can you explain a bit about what you believe is your secret sauce when it comes to acquisitions?

Yes, I don't know if there's a secret sauce that is related to us, right? What we think is relevant is like this is a new market. And there's a lot of development going on in the market and the requirements to invest in the technology to remain the best in the new market is considerable, right? And you can see that in our cost base, but you can also see that the growth is coming. So if there is a chance to basically add more customers very quickly and utilize the scalability of your financial and delivery model, that's a good idea. And I think I've always said like there's 2 kind of synergies that make sense when you make acquisition. One of them is like better productivity, which is we are doing. So we are buying companies who does the same as we do, and we consolidate the platforms into one and the processes into one so that we can deliver more with less than the combined entity, right? That's the cost synergies. The other kind of synergy is fundamentally, do you buy a new product, you can sell to your existing customer base. These are not the kind of acquisition that we are looking for because growing the customer base and growing the number of buildings that will be mapped is still our main target. And we think it's simply too early to think about that kind of synergy. So we focus on how can we bring more scale and more productivity into the core product, which is indoor maps.

I think if there is a secret sauce, it's maybe the word tuck-in investment. I don't think anyone ever used that before.

Then there's a question here. I think you have already addressed some of it, but I will read it anyway. It seems like a quite steep downgrade on ARR, looking at the fact that we only have 1.5 months left of 2024. Can you explain this sharp downgrade?

Yes. I think we did explain some of that stuff and it's where we are, right? We're at a point where we will not get more help to reach the original guidance from additional M&A activities this year. So there's no reason to kind of like hope for it when you know it's not going to happen. And yes, our sales was below. I think we addressed it last quarter and we are working on this. The issue is, again, the deal cycles for us like getting a new lead to closing is between 6 and 12 months. It's a complicated sales for like a smart building application to replace the mapping platform. And this is something that we work on every single day to kind of like make that decision easier for these core customers. So that means that even though I said we have seen positive results in our pipeline, it's not something that will benefit this year. It will benefit next year. Then to the comment, the range starts pretty close to where we are right now. I can probably only iterate on that and saying that we feel very comfortable we will reach that range.

Your EBITDA is developing in the right direction, but still a quite high negative margin. Do you expect to see a quarter of positive EBITDA margin in 2025?

It's too early for us to comment because we haven't sent out guidance for '25. But rest assured, as Christian said, like we want to see improvements on our EBITDA every quarter going forward, not just until we reach 0, but also like after the 0. That line should continue going on. But saying that, we feel that we've done almost everything we can optimizing cost. This gentleman sitting next to me is actually really good at managing our costs. So yes, he will keep fine-tuning it, but it's not the cost that fundamentally is going to drive a lot of the EBITDA improvement going forward. It has to come from growth, which is why, as I said, like we're not happy with the growth results for Q3. They will be better in Q4, and we have invested more and we start seeing pipeline so that we can grow faster next year. So it is really about closing more contracts and getting our partners to grow the engagement they already have with us by being successful in the market and putting that new ARR into revenue, and that will then improve on the EBITDA. That is really our focus now. It has been a big effort to reduce the cost base over the past 12 months with the extent that we've done. We will say that it has clearly required quite a bit of focus. And clearly, you make assumptions like on how much can you increase the productivity or performance where we also overestimated ourselves, which is why we added a little bit of sales and marketing resources back into the business during Q3. I hope that answered the question. It's the best I can do at least.

Yes. And then we are at the final question here. Regarding scalability, your staff cost has declined sharply from Q2 to Q3. Staff cost has decreased by DKK 3 million. Have you now reached the level you need? And how much do you believe you can grow revenue before having to increase staff level again? Can you explain the scalability here to help me understand the trajectory over the next 12 months?

Yes. I can do that. I think there's 2 things here that is super important to understand about our scalability in the nature of our business and the nature of our product. First of all, we have invested a lot in machine learning, AI capabilities, which makes sure that every day, we get more efficient on digitizing a new building, right? We need less and less people time to do this. So this means that the same amount of people can do more. And we are working -- and we continue to working on tools like that, that will allow this. This is no longer being -- like in the very near future, it's not going to be someone drawing buildings and rooms and desks. This will be [indiscernible] it's going to be like IT driving all that stuff. We also use the same technology on the flip side because like having an indoor map is worth nothing if it's not accurate, which is why we've invested in these AI map update automation so that we very efficiently can update the maps at any given point in time. It's part of our core value proposition, right? And that, again, can be done with a lot less resources. We did some time studies where like 80% of the time we spent on updating an indoor map was used on identifying what has changed since the last time. And we've now launched this map update automation, where our AI engine actually detects all the changes for us, and then we just move the rest around. So we just reduced something from like, let's say, 8 hours to 2 hours or 8 minutes to 2 minutes. So this means, again, our staff can handle a lot bigger customer base. So this actually scales extremely well on our internal cost. The other super important thing is our go-to-market strategy, which is really -- we don't make the application. We are a platform that fits into a smart building application, whether that is for a stadium, a shopping mall, an airport or in corporate office for employee experiences, right? And when we sell to that partner, they will have like 10, 50, 100 salespeople who will sell their solution. And every time they sell one of their solutions, they will sell one of our maps as part of their solution. So our go-to-market is scaling, which is why this net revenue retention from our core customer type, which is these smart building partners, is going to continue to be very nice and why we are very comfortable we get it back above the 110% net revenue retention rates again. So these are the 2 great scalable models that's behind our business. Now it doesn't mean that we won't have to be more people, right? We need to do this stuff, but it's going to be like a very moderate growth on something like that. Can we grow 30%, 40%, 50% in our annual recurring revenue with 10% or 15% more resources? Yes, that's more or less in that range as we think about it.

And Q3 was a vacation quarter. So we're a little cautious of using that as a baseline.

And that was actually all the questions that we got for this webcast. So that finalizes the Q&A. But before we end the webcast, I will just hand over the word if you have any final remarks to end with.

No, not really. I think we covered it good. Pipeline is growing. It's going to help us in '25. We're not pleased with our performance in Q3, and we're very focused on it. And clearly, as I said, the EBITDA improvement has to come from growth in ARR and growth in revenue. So this is where we are focused now.

Perfect. Thank you, everyone, for listening in, and thank you for submitting questions. See you next time.