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

Good afternoon, and welcome to this Annual Report 2024 presentation and Q&A with MapsPeople. With us today, we have the CEO, Morten Brøgger; and the CFO, Christian Laeso. First, there will be a presentation and afterwards, a Q&A where the CEO and CFO will answer questions submitted via stokk.io. 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. So Morten and Christian, your lines are now open.

Thank you very much, Andersen, and thanks for giving us the opportunity to present our 2024 annual report. And just to kind of like start it out with, I think 2024 and the financial report shows some very good progress in the company from a financial KPI point of view. And I think both me and Christian and the entire management team in MapsPeople is kind of proud of what we have delivered on behalf of the whole company. But let's try and go through a little bit, Christian, if you would be okay to take us to the next page. I think to start this off, I think it's like super important for me to say that 2024 and 2023, to a large extent, has been 2, what I would call like abnormal transformation years, right? In 2023, we focused a lot on making sure that our business was rightsized in terms of the costs and in terms of the staff that was in the company. We transitioned the way we were operating our business and moved away from like what was called like contracted annual recurring revenue framework agreements into firm contracts and invoiced ARR, which was prepaid by the customers, right? So a lot of the transformation that went through that one in 2023. So a lot of like let's get things right, let's get down mainstream on how you run a SaaS company like that. That transformation then basically formed a foundation for 2024, where we work a lot on our organization, making sure that the organization is efficient, well structured, good progress, good processes between the different functions in our organization and thereby also the opportunity to work on productivity for every function and every employee in our company. And during 2024, there was also like a lot of shift in our ARR, which fundamentally means that we are exiting 2024 with what I call a higher quality annual recurring revenue. I saw one of the questions and one of the questions was particular about this one. Let me try and explain it. In 2023, we had these framework agreements, which was a contract where a partner had committed to spend a certain amount of money with MapsPeople. And at the end of the contract, if they hadn't done it, previously, it had been extended. And in 2023, we decided to ensure that both MapsPeople and the partner honor that contract. And some of these contracts was then invoiced, which gave a nice jump in the annual recurring revenue. But if the partner wasn't really live, we understood that there was a high chance that they would leave MapsPeople during 2024, and that happened for at least a handful of millions in the year. But they have been replenished by new healthy partners in it. That's why the ARR has a higher quality, and that's why the underlying ARR growth is higher than what we can report for these maps, right? But with that into account, this is why we, Christian and myself and the management team, when you look at the financial performance on these core KPIs for MapsPeople, we actually recommend that you look at an average improvement over the last 2 years, because it is a more correct picture in our opinion on the performance of the company. And that's where you can see on ARR in the first graph we're showing here since 2022 and into 2024, the average growth in ARR has been around 35%, which is pretty decent, and we think that is an underlying correct picture based on the performance we have in the company. And you can see that the revenue actually also took a good jump up. And you can see that the average growth in the revenue is actually around 45% on the revenue in the last couple of years. That has also a lot to do with the shift in how we manage contracts with partners as well. So like fundamentally like pretty decent growth rates here. And if we go one more down, Christian, you will see that these elements also have the impact on the EBITDA, and you will see that we've reduced the EBITDA from minus DKK 60 million to minus DKK 30 million, so a 50% improvement in that one. I wouldn't go back to 2022 on that one, but it is a pretty decent picture on that one. So as we looked at that and we take one more slide forward, Christian, this is also why we have chosen to show this based on our guidance, like what was the last 2 years average growth rate. And if we add the guidance of 2025 going in the middle of the range that we've guided for, what is then the growth. And you can see that we are expecting somewhat similar growth rates for the company going forward. You can see that on ARR, it's 33%, so more than 30% growth that we have for the middle of the range. Revenue is down also just above 30% in these growth rates, and that's because like a lot of the ARR growth that we're expecting this year, very traditional comes towards the second half of the year, and it will as well. So a lot of that revenue will not take full impact until next year. You'll see that the EBITDA, we expect again an improvement somewhere between 30% and 50% improvement in the EBITDA as well. So you see the guidance that we have is actually fairly well aligned with the historic performance, and we think that's the shape that the company is in, and that's why we have tried to draw attention to that. The good thing for us is again looking at what is the market that we're operating in. And this is -- these are relatively new reports from Gartner towards the end of 2024. And there's 2 areas in this one. First of all, this whole spatial computing is a very interesting market with a lot of growth and one of the highest growth IT markets that is in there. AI is probably pretty high as well, but I think it's also embedded AI into this one. And there's 2 areas where we are operating. One is what we call spatial mapping, how do we actually map the indoor. It's a fairly large market. It's growing to $19 billion in 2032 and it's growing with just shy of 31% year-over-year. So a little bit less than what we are guiding on. The other thing is what they call advanced location-based services. And this is definitely where AI is coming in and where I think the way we experience everything indoor is going to change a lot in the future. And clearly, the indoor mapping and the platform that maps people have is also going to play in this area. And you can see this is like -- this is a crazy large market, right, growing to $1.3 trillion in 2033 and growing with more than 31%. So clearly, a super interesting market that justify that we can grow. And you can see that we've guided our growth based on not only our historic performance, but also how the market is growing as well. If we take one more, Christian. This one is questions that we've traditionally gotten during these investor calls. So we basically took them in and tried to visualize them here. And it's just to basically prove it the reality is shaping up exactly as we said in the past, right? On the left side, we always get a question like how much of your growth is in North America and how much is in other parts of the world. And here, we split up into North America, MapsPeople Inc. And you can see that, that has grown. You can reverse calculate the numbers. But you can see that has grown from like 2023, around probably 31% was in North America, now it's 40%. So you can see the majority of our growth is coming from North America, just as we said it would. And on the right-hand graph is really the revenue type we have where the dark green one is MapsIndoors. And you can see that has grown to constitute 70% of our overall revenue in 2024 versus 30 -- 63% in 2023, right? And that actually means that all our growth has actually come on the MapsIndoors platform, just as we said it would. If we take the next slide, one of them that I think is most important and is definitely helping us guide on where we are going. That's really our growth KPI. And the top right-hand corner is showing what is our -- the payback period on our customer acquisition cost, meaning how much money do we spend in sales and marketing to win a new customer contract? And then how long of that customer contract does it then take to pay back those sales and marketing costs. And we've always said that needs to be between 12 and 18 months. It is in that consistently since we've done that. It went up a little bit to 17 months in Q4, and that's because as some may recall, we decided to invest a little bit more in sales and marketing in the last part of the year, and that has resulted in a good strong pipeline and also growth in our bookings as well. Now just to make sure everyone understands behind this one. So the sales and marketing cost, it takes 17 months before we have recouped that money of a new contract, so just shy of 1.5 years. Our customers have an average lifetime, right, the lifetime value of the contract, it fundamentally goes at least 5 years, right? So this means when we paid back our sales and marketing costs, there is at least 3.5 years left that will pay -- will fundamentally the contract and that customer will pay into everything else in MapsPeople. And that to me is actually a very healthy construct that we have. And these are something that we will continue to look on. We'll continue to optimize this, making sure that we continue to grow this efficient as we're aiming to do and having a payback period of less than 18 months. But also if we have capacity to grow faster, but keep it under 18 months, we should probably spend a little bit more money because that will then grow the company going forward, and that will drive equity value for all shareholders in the company. So this is why this is super important to me that we manage this like almost on a daily basis, don't spend too much money, spend them wisely. But if we can spend more money and get this profitable growth, then we should also do that. So this was a little bit how I would like to basically tell a little bit the story about the numbers, what we went through in both in 2023, but definitely also in 2024 and what's behind the numbers and the pretty solid progress that we made during 2024. But I want to ask Christian to go through the numbers in greater details because he is pretty damn good at that.

Thank you, Morten. So as you may have noticed, we actually updated the graphics, the layout of our financial report. So we have now not just numbers that are looking better and better, but also a layout that is 2025 worthy. I've chosen to zoom in on the profit and loss for this first section of the review. We -- as Morten has already alluded to, we grew revenue from DKK 40 million to DKK 62 million, which is a nice increase of 54%. Of the DKK 62 million, approximately DKK 5 million are one-off revenue that we should not expect to see as our base for the next year related to these change in contract types and framework agreements and one-offs that Morten mentioned as well. So still really nice growth, well within our guided range for the year. If you go a few lines further down to other external expenses and staff costs above EBITDA. The 2023 aggregated number of those 2 was DKK 108 million. So that was kind of our cost base in '23. In '24, we've reduced that to DKK 92 million based on all of the changes we made in '23 and the beginning of '24 to our organizational setup and where as Morten said, we might have cut a little too deep on marketing, et cetera, and therefore, invested a little bit heavily or that is baked in here. But a very nice decline in our fixed cost base that enables us to grow -- still enables us to grow, but at a more profitable rate. And then if you add on the fact that we have actually capitalized less development cost, which is you can see in the own work capitalized line, then the improvement of our cost base is actually even stronger with approximately DKK 5 million more. All of this ends up with EBITDA improvement from minus DKK 59 million to minus DKK 29 million. So we more or less halved our loss and are in good shape for the periods to come. Now we have a new item this year, a new line called special items, and this is related to the management restructuring we did back in April '24, where we had this one-off fee related to this change. IFRS wants us to show this in a separate line. But still after these costs, it's a very nice material improvement on that line. So you'll probably also notice that our depreciations have increased quite a bit from DKK 8.5 million to DKK 14 million this year. And that actually brings us over to a look at the balance sheet, where the balance sheet in total is approximately the same level as last year, growing from DKK 82 million to DKK 84 million. But what you might notice up in the top left-hand corner is the fact that we've really completed a lot of our development works. So where in 2023, we had DKK 18.9 million in development projects in progress. These projects have now -- a lot of them have been completed and therefore, we start to depreciate on them. And then we have new projects or still ongoing projects only in brackets, DKK 4 million more. Still a lot of development going on, still a lot of development left on our platform, even though it is more and more finished. And -- but more -- yes, a new better level to start. The third line on our balance sheet that I have highlighted is our acquired intangible assets. So you might recall that we invested in the contracts from a small company called Point Consulting in November. We took over approximately 20 customers within airports and other really nice logos that are now -- that we've purchased. And they've -- the purchase price for these have been put on the balance sheet as we expect them to stay with us the same 5 years, as Morten mentioned before under marketing. So a little bit more of our balance sheet is tied up in this. On the liability side, we have a balance sheet also of approximately the same size. Otherwise, it doesn't work. And this -- what's changed here is that we've lent a little more money in the bank in EIFO as they are called, our long-term lender. So our debt has increased with approximately DKK 9 million in total over the year, with including -- taking the short-term and the long-term part of our debt into consideration. So that leads me to my favorite slide. This is our rolling graph, as I call it, in probably not English, but at least a nice Danish. So the graph shows for the green line, the top line, the revenue for the last 4 quarters or 12 months. So we ended the year at DKK 62.4 million, up from the DKK 40.5 million-ish that we ended last year. This is a nice line. And if you remember when Morten joined the company, which was in Q4 2022, you can see when our revenue started to have this nice pretty straight line increase of growth. A few quarters after Morten started, we saw the same development on the bottom line. We did a lot of restructuring in 2023, early years and early quarters, and that's the effect of that combined with the revenue growth is what's shown on the rolling line for the EBITDA, which has now improved from, I think it says minus [ DKK 66 million ] down where it bottomed out to now minus DKK 29.7 million. So also a pretty nice straight line to help predict what's probably going to happen going forward. It's at least nice to see 6, 7, 8 quarters of continuous improvement. So that's actually what we chose to bring. We thought we'd leave room for questions and show these slides that show our development over the last period and what we expect to happen. But Andersen, have we received some questions.

Yes. Thank you, both of you for the presentation, and let's jump directly into the questions here. So the first question, in your Q2 presentation, you explained that by the end of 2025, you expect it to be EBITDA and cash flow positive. Can you explain what has changed in the meantime and why you are now expecting a DKK 10 million to DKK 20 million loss in EBITDA?

Well, first of all, we are a SaaS business with a very large Q4. So a lot of what we're going to do in 2025 won't impact the full year. So we're not guiding on quarters, but if you kind of imagine, if I go one slide back here that the improvement of EBITDA will happen quarter-by-quarter. And therefore, the full year of 2025 will not end up with a positive EBITDA. So I don't know that much has changed since Q2. Maybe we're a little bit delayed in some of our new sales and some of the investments where we had cut a little bit too deep, but we still believe we're on the same trajectory.

Yes. No, no, it's -- if you draw the line, you can see that it's still going to -- it's still going to end 2023 very close to 0 on the EBITDA side, right? And I think had anything changed, as Christian said, we didn't grow as much as we wanted in Q2 and Q3. And we think one of the reasons were that we've cut back too much on our sales and marketing, which is why we added a little bit of sales and marketing in Q4, and that will also carry through the year. But fundamentally, going from like minus DKK 60 million to minus DKK 30 million on the EBITDA, you draw the line. And you can see that, that means with the projections that we had, then it must be fairly close to 0 towards the end of 2025 on EBITDA.

And then the next question, you state in your report the following on ARR growth. While ARR growth may appear lower in 2024 compared to 2023, the underlying improvements are more substantial than the final 2024 ARR suggests. Can you explain a bit more what you mean here?

Yes, I can try. But I know it's complicated, right? So it takes a positive mind. But we had in -- prior to 2023, the company operated with like framework agreements, meaning like a partner committed to spend a certain amount of money within a certain amount of time with MapsPeople. And if they haven't done that, it will be renegotiated. And that's also when we reported our ARR as contracted ARR, meaning like these commitments that was in there, but not necessarily invoiced. And I changed that in the beginning of 2023 because I wanted like hard numbers. I want to focus on making sure that we get stuff delivered and that we are growing our company and we can send invoices and collect them to pay our bills, right? So we changed that. And there was a bunch of these framework agreements that ran out with partners who hadn't stepped up to their commitments, and we decided to enforce the contracts we had, meaning we invoiced what we have agreed, whether they've used it or not. And we knew that, that might cause a little bit of like with some of these partners. But if they haven't really done anything they promised to do, why would they do it in the future. So this also meant that we knew that when we forced invoice these contracts, there was a risk that they would churn away 12 months later, which was in '24. And that also happened. And you can also read that in some of the annual reports. So this means we knew that some of the growth we delivered on ARR in 2023 would drop out in '24. And clearly, we have -- how do you call it, replenish that with new contracts below it. That's why I said, the underlying performance of our sales-driven growth in '24 is better than what it looks from the surface. But it is also why me and Christian think if you want to look at ARR, have an average between 2023 and 2024 and this growth rate -- this average growth rate of 35% is a better and more correct picture on the performance of the company and thereby a better indication on the future performance of the company. This is why we tried to visualize this and put words around it. I hope that answered the question, Andersen.

Yes. Perfect. Then we have our third question, which is divided into 2. So let's start with the first one. First, I recognize the progress you have made while revenue has grown by almost DKK 22 million in 2024, EBITDA was improved by DKK 28 million, meaning that all new revenue came directly to EBITDA and more. Do you expect this to be the case in the next 3 years, meaning that you can add another DKK 20 million, DKK 30 million in revenue without increasing costs?

The guidance slide that we're on here shows our expectations for the next year. So we are from DKK 62 million to probably DKK 66 million to DKK 75 million next year in revenue because of the revenue being skewed towards the end of the quarter. We do expect we can grow and grow significantly as these slides also show and that we can keep our cost under control, but we cannot grow without cost. We are expecting to add more headcount to the team over the year. But we have a pretty good cost indication on where we are in the Q4 on staff at least. So it's -- we're not going to grow our cost level that much in 2025, but it will grow a little and onwards, right?

And I think a good question, these are important question, right? As I said, on the customer acquisition payback period, I think it's important, like here's let's see, if we can spend more money in sales and marketing and contain like the payback period less than 18 months, it is something we should consider, right, because it will drive growth and drive future equity value to all shareholders in the future. That's one point. The other point is there is a lot happening from a technology point of view in this whole spatial computing, spatial mapping that you saw from Gartner. It is AI-driven. It is new functionality. It's going to fundamentally redefine how we all enter and access and use and utilize our indoor spaces. And we must make sure that we invest enough in our product and technology to do this because we do not want to end up being like the #4 or #5 or 6 in the world on this one. We need to be like #1 or #2 up there. So we need to make sure that we invest in the right thing because if we're not up amongst the global leader in this one, again, it will definitely damage the future equity value and the valuation of the company. So we cannot like just like, oh, we're not going to invent something new for the next 4 years. I think that will be a wrong strategy. So I think this is also an area where we will have a good look into seeing does it make sense and can we find headroom within this guidance to make sure that we invest sufficiently in our technology and our product.

Yes. And then the second part of the question, your EBITDA margin is still minus 50%, which is a quite high negative number, looking at the fact that you are a SaaS company, what is driving up the cost to such a negative margin?

Well, I think we started out at a much higher level with 150% negative EBITDA margin. I think we've listened to the market all the way back to when Morten started and have adjusted our growth focus to being sustainable growth, and we are definitely closing in on a loss that's more on the market level or the expectation from the current market. So I think we're on the right track. And I think we -- there's a lot of SaaS companies out there that are burning a lot of money who are just not publicly listed. I think it's more something you see with nonlisted company, venture-backed companies, et cetera, that once you get economics of scale, then you get a high profit, but you have to invest in getting there, and that starts out with a period of losses. And it looks like we are decreasing the losses year-over-year.

I think where we are in our journey, I think EBITDA margin is the wrong thing to look at. It will follow. Let me try and explain. We still have gross margins of around 90%, right, more or less 90% of there, meaning that for every DKK 1 million we grow, DKK 900,000 of those comes in gross margin that fundamentally goes into financing the stuff, right? So this means that the fundamental -- and as long as we can grow more in revenue than we need to grow our cost, that gross margin will go all the way down to the bottom line, right? So that's what I mean. As Christian said, like, yes, EBITDA margin was like minus 150% and then it was like minus 125% and now it's minus 50%. And we -- one of the questions was earlier, when will it cross the line and probably close towards the end of this year. And it's going to be 0, but that is driven by this high gross margin, and it's driven by the growth in ARR that then becomes growth in revenue, right? So I think please focus, we have gross margins of 90%, which means it's very profitable growth that comes in that will help take this down because we will grow faster than our -- on the revenue side than our cost side, right? So this will cure itself, and it's about making sure that we have the most optimal investment in this growth. That's why this KPI of customer acquisition payback period is super important to us.

Then there is a live question and elaboration question. You explained a customer lifetime of around 5 years. Does that correspond to a churn rate of 20%? Or is 5 years an estimation you use internal to calculate lifetime value?

It's an estimation. It's probably longer than 5 years.

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

No. Thanks for giving us the opportunity to do this. Thanks for asking us like a sharp precise question and giving us a chance to explain this business. As again, I said, we've been proud of the work that we've done in the last couple of years on behalf of ourselves and everyone in MapsPeople. And you can see that, that journey is going to continue going forward, right?