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

A warm welcome to our Q2 call. My name is Tommas Davoust, and I've been at Lime since 2017, started as CEO the 1st of January this year. And with me, I have Anders.

Hello, everyone. My name is Anders and I'm the CFO at Lime and I have been at Lime since September 2024.

Feel free to write any questions in the chat, and we'll try to answer them at the end of the session. Looking into the agenda, we will have an overview of Lime and the sum up of Q2. We'll talk about order intake, revenue, profit and we'll end up with a summary. So let's get started. We have always been running Lime with a long-term perspective, and that has left us with a fantastic footprint. 25 years now, we have grown on average every year 18%. We've had an EBITA margin of 25% as an average as well each year. And that's, of course, something that we are really proud of. The biggest reason, I would say, why we have managed with this year after year is our people and our great corporate culture. And we know that in order to win in the competitive environment where we operate, we need to be a little bit better in everything we do. And we believe in creating a culture that has a -- great at combining high performance with a lot of care. And no matter the times, if it's been good or bad, our goal has always been the same. And that is to help companies become really, really good at sales and customer care so they can help customers in a really good way. We create value by being a true partner to our customers. We do it by being local, close to our customers, and we combine our software and expertise. And we have 2 revenue streams, which is the software and the services, the expertise. The ARR or annual recurring revenue, that stands for 68% today and the services for the remaining part. And we've done this for many years now. We started in Sweden. We've grown into the Nordic countries and also taken one leg down in Europe, Netherlands since 2020, Germany since 2021. And now we are present in 7 markets. We have 12 offices and almost 500 employees. Across our products, we have more than 7,500 customers and over 1 million users. So let me give you a sum up of Q2. Looking at the number, we have 10% ARR growth, 25% adjusted EBITA margin and also EBITA margin is the same and 12% organic revenue growth. And on the first bullet, I'm glad that we have been moving in the right direction, basically on all levels. We are now on 10% ARR growth, which can be compared to 9% in Q1, 7% in Q4 last year. The adjusted EBITA margin is 25.4%, which can be compared to 25.0% in Q1 and 24.6% last year in Q2. Organic revenue growth, 12% now compared to 8% in Q1. So I'm glad we're trending in the right direction. However, we are not satisfied, and I believe we still have more to give. On the second bullet, we continue our traction in Germany, and we grow deeper into the utility vertical. During the quarter, we have expanded with some existing customers. We have started cooperations with billing system providers. We've closed a nice deal with Netz Leipzig Stadtwerke. That's one of the biggest Stadtwerke in Germany. We have also fully integrated the acquisition of [ E.ON ] One Portal and moved the customers to our Lime solutions, which opens up new possibilities to grow with them over time. On the third bullet, we continue to make investments in our AI offerings. During the quarter, we launched workflows, an AI platform where users can build integrations and AI agents directly within their CRM environment or take help of IT services department to do the same. The customer reception has been very positive, and we have had record attendance when we have had webinars and customer events and so on. Our Connect AI offering, that is now driving the growth in Lime Connect. We see a much higher win rate compared to our last AI offering, and we are expanding both on new customers and on existing customers. And one thing that I'm really excited about is Lime Go Agentic. It's a brand-new product. It's built from scratch with the latest technology. It has 30-plus years of European CRM know-how behind it. We shouldn't mix it up with Lime CRM. That's a much bigger and more complex platform. But this is more comparable to Lime Go, has the same DNA as Lime Go with -- prospecting with real-time company data, but now it's agentic. So instead of just assisting, the AI agents actually to do the work. They could research accounts, they could prep meetings, log calls, write follow-up. And the salesperson, well, they should just focus on selling. Of course, human always got the final call if you want to make the acceptance and so on. And now we are in beta, and we're rolling it out. We will roll it out step by step, running alongside the current Lime Go as we see it. Speaking of AI, the world of SaaS is changing faster than ever. That brings, of course, a lot of challenges. And more than anything, a lot of opportunities, especially for the ones that have a business that fit well in the new environment or are able to change with the new situation. And I dare to say that I believe that we really are built for this moment. And let me explain what I mean. Three shifts are reshaping the entire SaaS market right now, all at the same time and all 3 play in our favor. First, we have the geopolitics. European companies are rethinking their dependence on American software. Gartner, the research firm, they expect that 75% of European companies will choose software based on sovereignty by 2030. That number is around 5% today. We are one of the biggest and largest European players out there. So of course, that is a real opportunity for us. And we're already having a lot of these conversations in our customer dialogues and deal processes. Second, we have generic. Generic is not enough anymore. Companies, they want to verticalize, they want customer-specific solutions that are built around how they actually work. And we've got a flexible platform. We always have that, which makes it very easy to make customer adaptions and vertical-specific solutions. And we've also had a bet on the vertical offerings for a long time now where we build our core offerings. Utility, real estate membership and wholesale, that is more than 70% of our revenue. So also fits us very well. Third, we have our AI offering and how we develop together with that. Everyone knows that they need AI, but few know how to do it in a great way. And we have always guided our customers through every tech shift before, if it's Internet, mobile, cloud, SaaS and so on. AI is no different. We are the partner who can help them hold their hands and we help them to use it. We do it in their industry on their terms. Add to all of this, our size and our mindset and culture. We are not the global conglomerate. We are not a startup. We are an established European partner with a track record. We have thousands of customers, a lot of experience, and we're small enough so we can still move fast, thanks to both our size and our culture. And that's exactly the supplier or partner that can stand out in these times. All right. So let's move into order intake. If we look at our customer concentration, you can see that it's really low. Our top customers stand for 1% of our revenue, our top 10 for less than 7%. And we've also done some nice deals. So let's talk a little bit about them. If we start in Lime CRM, apart from Stadtwerke Leipzig that I've already mentioned, we can also say welcome to Kjellberg & Moller in the real estate segment. We are expanding our solution together with FALCK to support them even better in their customer journey. In Lime Go, we have welcomed [ Handiday ] during the quarter, and we have both Skelleftea Kraft and Jonkoping ENERGI who have chosen to integrate their Lime Go solution with a Lime CRM solution, which they also have, so they can work even more seamlessly. In Lime Connect, I would like to highlight AXA as a new customer. They are a big Cologne-based insurance company, and they have more than 1,300 branches, and we are just starting with some of them. So of course, here, a big opportunity to also expand together with the customer. For Lime Sportadmin, we can also say welcome to one of Sweden's most iconic sports clubs, Brynas [ IF ] which we, of course, are very proud of. All right. Let's have a look at the revenue. Looking at overall growth, we reached 12%, as we've said, same organically, 8% if we look over the last 12 months, which is 9% organically. But if we break it down by geography, let's see how it looks like. Sweden grew 9% in Q2 and 6% in the last 12 months. If we look at the rest of Europe, here, we grew 19% in Q2 and 14% last 12 months. So of course, it's a development also from Q1 and so on, which I said, but also development of the differences here. And as I said before, I'm happy to see that we are trending in the right direction and also that we grow faster in rest of Europe compared to Sweden. It demonstrates that our vertical strategy and our product offering resonate beyond Sweden, and that is critical for our long-term growth ambitions. So with that, handing it over to you Anders.

Thank you Tommas. So I'll go over the profit. So adjusted EBITA increased by 16% to SEK 52.1 million in the second quarter, compared to SEK 45 million last year. The adjusted EBITA margin improved to 25.4% from 24.6% last year. Then looking at the last 12 months figures, the adjusted EBITA increased by 9% from SEK 179 million to SEK 194.7 million with a margin improving to 25.2% from 25.0%. And now moving on to our cost development. Personnel expenses, which is our largest OpEx category, amounted in the second quarter to SEK 118.4 million, an increase of 9% compared with last year. The increase was mainly driven by a higher average number of FTEs and normal annual salary increases. On a last 12 months basis, personnel expenses amounted to SEK 443.5 million, an increase of 7%, reflecting the same underlying drivers as for the quarter. Personnel expenses as a share of net sales decreased to 58% in the quarter and to 57% on a last 12 months basis reflecting a positive operating leverage. Moving over to our operating expenses. Operating expenses in the quarter amounted to SEK 36.6 million compared with SEK 32.1 million last year, corresponding to an increase of 14%. On a last 12-month basis, other operating expenses amounted to SEK 143.2 million compared with SEK 123.7 million. The increase, both in the quarter and on a last 12-month basis primarily driven by higher product-related costs and growth-related items, including cloud and hosting services and product licenses. It also reflects continued investments in AI across our products and operations as well as other investments to support continued growth in Sweden and in our international markets. Back to you, Tommas.

Yes. So moving into the summary and turning to our financial targets. So as you know, by now, we have reached an ARR growth of 10% compared to the target of 18%. Happy with the trend in the right direction. At the same time, we are not where we want to be. We reached an EBITA margin of 25.4%, which is lower than the 27%, which is our target. As we said on our Capital Markets Day, this margin expansion will come gradually over time, and we expect full impact in the medium term, which we -- is around 2 to 4 years. The net debt in relation to EBITDA is 0.4 compared to the target of being below 2.5, and that gives us significant financial possibilities to invest in growth going forward. And we are growing earnings per share. And for 2025, the dividend has been set at SEK 4.5 per share, which is around SEK 60 million or 54% of the net profit, and that's above our target of at least 50%. So to sum it up, we keep moving in the right direction, both on revenue and profit. And with that positive trend and a stronger relevance than ever, we will continue to give everything we got to keep the momentum going through the rest of the year to start with, and then hopefully continuing. And with that, we are happy to take any questions you might have.

All right. Let's see. So first question here. Can you elaborate on the drivers in, I think, I should say, ARR, which grows well in absolute terms?

Absolutely. I would say it is very similar to what we have seen before, where Lime CRM continues to deliver in a good way and it keeps being the engine of our growth and going forward. But also, what I'm really happy to see is that we have a positive trend in all the other 3 business units that are taking right steps. And we see that in leading metrics, but we also see that reflecting the ARR. So I would say it's a combination of many different parts. And if we break it down to the countries, I mean, Rest of Europe are growing more than in Sweden, as we were saying. And if we want to say something there, I want to highlight Germany and Norway, who are the 2 countries that are contributing most to that. All countries are growing, but that's where we get the highest growth. So that's also really nice to see.

Okay. Next question, in terms of margin, when can we see higher margin expansion and improved operating leverage.

Yes, should you or I on this? I can start. We -- I mean, as we said, we believe that this expansion will come over time. We see it as a natural thing, and it is driven by the fact that -- I mean, we see the software being a higher part of the total revenue and that has a high gross margin. So that will help the leverage of the margin. And then we also have AI who is helping us being more and more effective, and we don't need to have the same growth in the personnel expenses. And yes, we are still growing. We're still investing, especially on the commercial side on recruitment, but not in the same pace that we've done before.

Okay. Next question then. Expert Services, which tends to be early cycle is growing at a good rate, but your market comment is relatively pessimistic. However, the comments focus on the last year rather than the present. What is your current market view?

Okay. So current market view. Well, I stated in the comment that we see a little bit of longer sales cycles in Q2. We don't see a difference in demand, and we don't see a difference in the win rate. But we have had a little bit longer sales cycle where it's -- the decisions has dragged out a little bit longer than usual. And yes, that's maybe reflecting the market a little bit, but it's nuances. So I would say the market for me, very similar as it's been in the last years. So, yes, not better, not worse. But I should say, we have been better staffed in our Expert Services department. But it's more related to also a lot of things that we have done internally and that we worked on when we saw that we had a little bit lower staffing, okay, what can we do to change personnel around and change focus and so on. So market rather similar to sum it up.

Yes. Next question then. Did I get it right that Skelleftea Kraft and Jonkoping ENERGI have integrated Lime CRM and Lime Go. If so, how does that work?