Risk Intelligence A/S (RISK) Earnings Call Transcript & Summary

Good afternoon, and welcome to this Q4 2024 presentation and Q&A with Risk Intelligence. With us today, we have the CEO and the CFO. 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 Risk Intelligence to start the presentation. So Hans and Jens, your line is now open.

Thank you very much, Anders, and thank you for being with us today for this presentation of Q4 and end of the year. Maybe you say a few words, Jens?

Yes. Thank you for us letting in -- letting us in today and presenting this just released report from last week.

First, this one, some of you know it quite well. Yes. So the agenda for today is a quick overview of the Q4 main activities, then the Q4 report highlights by Jens and then the 2025 outlook, and then we go to the Q&A session. The main activities in Q4 is that we focused on the renewal process with some churn compared to what we had. As you may remember, we've had down to 0% in some of the quarters. That was, you can say, unnatural, and we had 3 licenses churned in Q4, and we had the reduction of one other license -- 2 licenses actually due to mergers. One of these churn licenses is expected to return in 2025, and that had to do -- it's a government client, and it had to do with government budgets to do. We also had 2 new clients for the Risk Intelligence system on the Maritime side. We had some limited restructuring and refinancing and rollover of long-term loans, that's something we did at the end of the year. We also kicked off the new commercial business segmentation strategy in early December. So there was an internal kickoff where we are going to work with 5 business segments: Commercial Maritime, which is the classic business segment for Risk Intelligence with tankers and containers and bulk carriers and flag states and shipowners associations. Then Energy, which is oil and gas, so the classic energy, but also renewables with offshore wind farms. Then Insurance, which is entirely maritime as well and then Government & Defense, which is both government organizations and defense and intelligence. And the last one is Land-based logistics with LandRisk Logistics. Then at the end of the year, we also looked into new resources for Government & Defense because this is -- it's not a new area as such, but as a segment, it's a new area. Then over to you, Jens.

I will unmute so you can hear me. Thank you, Hans. Yes, looking at the fourth quarter report in a glance, we highlighted actually 4 points that we want to look further into or at least highlight. Total revenue increased for the full year 30% and 31% in Q4. Our recurring revenue or total recurring revenue grew 21% for the full year. Our EBITDA increased 56% and 35%, respectively in the full year and in Q4. And then our cash flow, CFFO, actually improved 52% full year compared to '23. Our revenue for the full year increased 30% less the recognized revenue and our invoiced revenue increased 24%. And that should be seen together with a cost increase of only 7%, which, of course, gives an EBITDA increase of 56%, still negative, but in our terms, a huge improvement. Our operational cash flow, as I just said, 52% up. That's more than DKK 4 million better than '23 for the full year. And then at the bottom line, our net cash flow, many 100% better than the year before, but again, DKK 1.1 million or almost DKK 1.2 million better than '23. In terms of churn, has been his way around it, but 1.4% for the full year. Total ARR growth 21%. System ARR growth, which is purely system licenses growth, 20% and our NRR, which is the increase in the current customer base is 24% up. And as you can see, it's -- well, it's a graphic the right side. So it's just the numbers I mentioned. Yes, back to you, Hans.

Yes. Thank you. And then in 2025, the main focus will be on the implementation of the business segmentation strategy. And kind of each of the 5 areas that I mentioned before has very specific price sensitivity and very specific decision-making levels, depending on which segment it is. It's also very different areas, their operations, you can say or their main challenges, which means that we will further direct communication, marketing, lead generation, but not the least, actually, some of our staff will be covering 1, 2, 3 business segments each and will thereby have a higher specialization for each segment. This means that if you are a new prospective client and you go to our web page, you will immediately find where to go to, which you cannot at the moment, if you're not Commercial Maritime. So that's like one of the examples on how we are going to do this. It will also be used to prioritize resources, both financial resources but also human resources in which areas the commercial department is going after. Obviously, we're going to service all 5. But if the ARR, so the ARPU is also different between the 5 segments and the decision-making is different and the price sensitivity. So these 3 elements will be part of the prioritization of where to use the resources going forward. And the guidance, we have a guidance saying an ARR growth of 15% to 30%. System ARR will then reach almost DKK 27 million to DKK 30.4 million with a positive EBITDA and net result 0. So that's breakeven basically. And then net cash flow positive. That leads us to the Q&A session.

Perfect. Thank you, Jens and Hans for the presentation. Let's jump directly into the Q&A, where it's divided into 2 categories. So first, financial results and the next sales and growth. And the first question is, in 2024, you improved your results before taxes with DKK 3.4 million from minus DKK 14.3 million to minus DKK 10.9 million. In your guidance, you suggest reaching 0 in 2025. How do you plan to achieve a more than 3x larger improvement of the bottom line in 2024 -- in 2025 than 2024, where the 20% price increase provided a considerable benefit?

Yes. Two things. First of all, as explained, I think, at several of the previous quarterly presentations, the 20% price increase only applies to renewals that are not part of multiyear agreements. These are predominantly with larger clients, meaning that they have 2- to 5-year agreements with set price increases. This means that the impact is not 20% on all system revenue during 2024. Secondly, the above numbers that you are referring to are the recognized figures. And if the 20% is applied at the time of renewal, and if this is, just for as an example, 1st of October, then the revenue will be distributed over the following 12 months and only 4 will be allocated to 2024 and 8 will be allocated to 2025. So there are 2 items at play here. One is that not all is 20%. Secondly, with the recognized revenue is distributed on the license length, and thereby, only part of it will actually belong to 2024. And thereby, if it's at the end of the year, some of it will be pushed into 2025. But if we're going one step back, then the most important driver is the difference between the growth in revenue and the growth in costs, in this case, 30% and 7%, which in '24 led to a net increase of 23%. As we expect lower growth in costs for 2025, lower than 7% and reduced financial costs because of the refinancing package that we made public the other day, this will lead to 0 or breakeven even at a lower top line growth than in 2024.

And then the next question, could you elaborate on the nature and size of the onetime costs in Q4?

Yes and no. We cannot share the actual figures because if we had to do that, it had to be shared to the market first, so we can't do this in this presentation. But the nature is restructuring at a part of our business and -- where according to reporting legislation, we have to assign to the year the restructuring is implemented. And on top of that, we have onetime costs related to financing in Q4, costs which will not be repeated in 2025. Basically, we are going to have a cost reduction from this in 2025 and much less financing costs in 2025.

And then we jump on to the next category, sales and growth. And the first question here is, can you elaborate on why you only had 1% growth in invoiced revenue for Q4?

Yes. In Q4, we had a growth in System ARR of 20%, which is within guidance. And this is a result of new sales, which was lower than usual, as we already discussed. And it is an upsell to existing clients. It is minus the churn of the 3 licenses as well as reduction in license value primarily due to mergers between 2 times -- 2 clients. Unfortunately, it will be great if they merge with others, but the 4 licenses becoming 2 licenses. So that's a reduction as well. Some of this will return in 2025. We actually already got one of them from one of the mergers, and this will be implemented in most likely in this quarter. But it is still unknown when and how much will come in return in total. And as I also mentioned, one of the churn license will likely return in 2025. So this means that the net increase in invoice revenue is actually a result of all of the above because the advisory services actually delivered on par with the year before.

And then we arrive at the final pre-submitted question. Can you explain the new commercial strategy you talk about? How do you believe this will help increase revenue and acquisition of new customers? At the moment, most growth comes from price increase and the speed of new customers is very slow. So what is your plan to increase this?

Yes. As mentioned before, it's a misunderstanding that our growth primarily comes from price increases, but it's correct that the number of new clients in Q4 is lower than usual. However, upsell on the year is 24%. So -- and that's very key to us and it's part of our strategy to have an increased upsell to our existing clients. The business segmentation, as mentioned earlier, will drive growth as each segment has its own particular profile on price sensitivity and decision-making level and the strategy will adapt a commercial approach, communication, marketing and lead generation and sales forces to fit each profile rather than most of what we've done in the last 5 years, which is to have a more general model and then adapt as we got the leads in, then we're going to do it much more segmented and much more according to the profile and the language of the individual business segments.

And that was all the pre-submitted questions that we have received from the audience, and we have not received any live questions. So that finalizes the Q&A for now. But before we end the webcast, I will just hand over the word for you again, if you have any final remarks to end with.

Jens, do you want to start?

Yes, I can. Well, it's always a pleasure, how can it not be to present this way. So thank you for listening in. And yes, see you next time, as you can say.

Yes. Thank you. And also, I would like to thank both those who are listening in, even if you're listening in later and downloading the stream, but also to Anders for running this for us. I think it's very effective and people can hopefully get useful replies to their answers. Thank you very much.