Nepa AB (publ) (NEPA.ST) Earnings Call Transcript & Summary

[Audio Gap] 2025 report presentation. [Operator Instructions] Now I will hand the conference over to CEO, Anders Dahl. Please go ahead.

Thanks a lot, and welcome all to this second quarter of 2025 report presentation. I am Anders Dahl, and I'm the CEO of Nepa, and I will walk you through this agenda. So first, an introduction to Nepa, and then second quarter brief overview. And then I'm going to walk you through the annual recurring revenues highlights and some words about scaling up Marketing Mix Modeling, the product that we introduced late 2024, beginning of 2025 that we now see good interest in the market, and therefore, we are increasing that organization or improving that organization with a new head of that team. I will also walk you through the transition of the transformation we are doing on our tech platform that impacts, especially, our brand tracker, and then an overview of the financial results and an outlook for the remaining part of the year. And then we end up with the Q&A as a wrap-up for this session. Nepa is a leading marketing intelligence company, and the mission is to deliver insights that grow your business fast and every day. We track brands across the globe, and we track close to 8,000 brands or 7,500 and counting daily and measure thousands of advertising campaigns annually across more than 50 markets. We deliver insights to CMOs and to C-level executives but also, of course, to insight departments, marketing teams and marketing departments. We normally deliver our reports and insights in storytelling and in presentations, in PowerPoint presentation, but of course, also via dashboards that is always on, especially for our trackers that our clients use in the day-to-day decision-making regarding marketing and media investments. The business model is based on both recurring ad hoc insights. And the core offering is brand tracking, which is our biggest product; campaign evaluation, where we track campaigns on an ongoing basis; and also MMM that we both have as an ad hoc Marketing Mix Modeling product, but also as a continuous Marketing Mix Modeling platform. That was the one we introduced or launched earlier this year. We combine market survey data, which is real interviews with real people to track brands, track campaigns and track marketing activities from our clients. But we also have a high-end consultancy that, on top of our dashboard and data deliveries, do the storytelling, explain, give insights, but also work very, very closely with our clients and within their organization. We have a strong presence in Northern Europe, and we have sales offices in the U.K., U.S. and also in Finland in Helsinki and, of course, in Sweden as well. We have a fairly large research lab in Mumbai in India, where we do a lot of our base work, and that kind of feeds into the deliveries to our clients. A brief overview of Q2 that we sustained a good momentum when it comes to sales booking and especially on the ARR side, and you that have been with us for a while, you have seen that we are really trying to change our business model and to be a more predictable and consistent recurring revenue company. We have previously or historically tend to move back a lot to ad hoc and projects, but now we're really trying to push the business into a recurring revenue business. So sales bookings grew by 13%, more than 13% year-over-year, marking this quarter the third consecutive quarter with growth, especially driven by ARR. And that also shows and is a good testament to the strategy that we presented earlier this year that we are now focusing much more on ARR and focusing much more on our core products and have really slimmed down our product portfolio to deliver within the brand campaign and MMM categories. What we are seeing and what has been a bit challenging during this quarter is a cautious client behavior in Q2. We have seen budget constraints. We have seen prospects or ideas or proposals that we have sent out to be moved into the second half of this year due to uncertainties or budget restrictions within the client's organization. We did also internally a fairly large reorganization with our client teams earlier this year. And of course, that might kind of cause some momentum or stop -- or lack of momentum for a short period. But now we are through that. So we will see kind of a full effect of this new organization. And we have already seen that in Q2, but we will see that even more into Q3. We launched a pretty extensive cost-saving program that is completed now, and it kind of ran through the entire organization, but especially focused on the U.K. and the Swedish organization. And that has taken place, and it's completed, but you will see the full impact of that in Q3 and going forward. We have also moved our head office in Sweden to a much more cost-efficient office that will reduce the cost of lease, et cetera, and also create a much better environment for our employees and also, of course, for our clients coming to our office. Like I mentioned earlier, we're also scaling up our Marketing Mix Modeling team, and that is not so much adding a lot of people. It's more about transforming some of our internal resources into taking more actions into our Marketing Mix Modeling team. So it's an increase of data scientists. We're also building a more stable platform to be able to deliver Marketing Mix Modeling as a continuous product in a more efficient way. Marketing Mix Modeling as such is probably one of the hottest topic right now in the market intelligence space. So that -- even if we are still growing and we don't separately report those numbers, we will most likely do that going forward or later on. But it definitely leads to more of a high-end discussion with our clients because marketing modeling encompasses everything that the client touches with: sales, margins, profitability, distribution, supply chain and, of course, their marketing and media activities. And all those things goes together and gives the client a very good basis or a very good understanding for how to make decisions, educated decisions and good insights to drive the client's growth. In Q2, we also had an Annual General Meeting on June 23, where we -- where the AGM reelected the whole entire Board. And Dan Foreman was reelected as Chairman. And the AGM also decided on a dividend of SEK 1.23 per share that was executed and done in the month of June. As we previously announced in a press release more than a month ago, Filip Tottie stepped down as the CFO. And we are still evaluating the scope of the CFO position together with the Board. But the management, along with the Board and support from a very, very strong finance team, are, of course, continuing to drive the strategic transformation effectively and brings a wealth of support to the organization when it comes to support for the business and making good decisions. This is a slide to explain the annual recurring revenue highlights during this quarter, to explain the underlying impact of the churn that we have preannounced earlier this year or late last year. So as you see, we went into the quarter with an ARR in March 31 of SEK 135.8 million. We had a preannounced churn that we preannounced previously of SEK 16.5 million, and that ends on a net of -- after the preannounced churn of SEK 119.3 million. And then we had a net revenue retention, a loss of SEK 5.2 million. And then -- but then we had a new sales of ARR, SEK 7 million. That ends the quarter on SEK 121.1 million. That gives kind of an underlying ARR growth of SEK 1.4 million. And an even better thing and a better view of this is that we actually had our ARR bookings of SEK 10 million, but SEK 3 million out of those SEK 10 million are being moved into the next quarter because that ARR business or that ARR contract is being executed on in Q3 instead of Q2. So we're not reporting that in the Q2. And again, that shows that the strategy that we implemented early this year, late last year is paying off. The investments we have done in marketing, the investments we have done in the new business sales team and the clearness of the way we have communicated to the market that we would like to be a long-time continuous recurring partner with our clients to be able to really help them to make educated decisions on the insights that we provide. We're scaling up the Marketing Mix Modeling team, and we have -- we are introducing a couple of new or at least one new employee next week or within the next upcoming weeks, and we will, of course, press release those things when we see some traction in this team. But this is a very important area for us and one of our core areas for the future. We have done Marketing Mix Modeling for quite some time as an ad hoc product. Now we are transforming that into a continuous Marketing Modeling Mix product that will give us recurring revenues but also for the clients to really be able to see the changes in their investments and their landscape over time. So this is a very exciting kind of forward-looking growth initiative that we hope will pay off in a very visible way for the next upcoming quarters. We have mentioned before that we have done -- I think, already in the last quarterly report that we have done some first initiatives in order to transform our old legacy platform into a new tech stack for brand tracking. That has been on its way now during the first half of this year. We have done proof of concepts, and we have done some pilots with some clients and run in parallel on a new tech platform, and we do see very promising results. So this will make us much more predictable when it comes to the tech investments we have to do going forward, but it will also reduce our total cost of ownership for the tech stack and, of course, a better client experience. Dashboards and client tech will be easier to maintain and develop together with our clients, depending on our clients' needs. And on top of this, it's all fueled and supported by AI within our products, within our way of working in our organization. So we will talk more about this, and I will most likely invite Jakob, our new CTO, that is spearheading this project during next or the upcoming quarterly reports to give a little bit more details about this. But this is a big shift and a big change in our way of operating. Like I mentioned before, it's been a challenging quarter when it comes to ad hoc sales. And of course, the previous churn that we have informed about impacts the revenue in this quarter. So even if we have proven strong new sales in ARR, our overall revenue were negatively affected by softer ad hoc sales and previously churned clients. So this revenue mix, of course, also impacts the gross margin because we know that the ad hoc business is delivering a higher gross margin. But of course, like I said before, this change in strategy will impact our net profitability by selling more recurring revenues because at the end of the day, that gives us a more sustainable and more predictable profitability and revenue over time. We have seen an OpEx decline if you look at the comparability relating to the Swedish cost reduction, but the big impact on the cost reduction will be visible in Q3 and Q4. And the main change is, like I said before, U.K., Swedish organization and the Swedish lease and the Swedish headquarter. So unfortunately, the adjusted EBITDA less CapEx is negative for this quarter. And of course, we are not happy with that. So our aim is, of course, to push even more for ad hoc sales but, again, constantly be on par with the strategy that we have planned out and mapped out, which is driving more sustainable ARR sales over time. So the outlook for the second half of this year is that we're, of course, going to continue to -- we see momentum in our growth focus on the sales side and especially on the ARR side. So of course, we're going to continue to push for that. We're also going to -- we also hired, and there will be new salespeople and more marketing activities going on now in Q3 and Q4. So that will help and support our aim to put some pressure on our growth ambitions. But you will also see a full impact of the personnel cost reductions of close to SEK 19 million in total and then SEK 3 million on the relocation of the headquarters in Sweden. So all in all, SEK 22 million in savings to mitigate and meet the churn we have seen over time but, of course, also to put together an organization that is better suited to fit into the strategy that we have laid out. So it's both kind of a cost reduction, but it's definitely more of a transformation than just a pure cost reduction. So we have still hired new people. We have still kind of made that kind of competence change in the organization to have an organization that is better prepared to sell our ARR, deliver on ARR, but also deliver on high-end consultancy. Higher earnings quality and predictability is, of course, what we are aiming for, but the softer ad hoc market is still the caveat when it comes to the second half of this year in what way and how that will limit our ability to exceed last year's 4.3% adjusted EBITDA-CapEx. So that is kind of the caveat or the red flag, but it's still something that we're going to work with and try to kind of compensate for as much as possible and push for the recurring revenue and, of course, the ad hoc projects. So that was my 15 minutes when it comes to giving you all a full overview of the report. The report is sent out. So I hope we can go right into the questions and answers and have some good questions that we can have a discussion about. So please, I'm handing it over to you guys for questions and answers.

[Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speaker for any written questions and closing comments.

So I have some questions on the feed. I think I see them. Yes, there is someone asking is -- are all the costs for the Swedish reorg taken in Q2, including the CFO payoff? Yes, they are. So that is already taken care of, but the full impact on the P&L will, of course, be seen in the later part of the year. Did you adjust any cost related to that the CFO did step down? That is already taken into the Q2 numbers. So that is already taken care of. I don't really see any more questions than these few questions. I hope that we gave you the information that you were looking for. And thank you all for listening in. And of course, you are more than welcome to reach out to our Investor Relations contact or to me directly. My e-mail and phone number are in the presentations or in the report. So I'm happily taking questions and hope we can have a kind of an ongoing dialogue. So thanks a lot for listening in. And talk to you in a quarter again or before. Thank you very much.