Upsales Technology AB (publ) (UPSALE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this earnings call for Upsales for the fourth quarter of 2024. My name is Daniel Wikberg, I am the CEO and Founder of Upsales, and I will be responsible for this presentation today together with Elin Lundström, our CFO. So feel free to use the Q&A feature in your Zoom toolbar. You can ask questions throughout the presentation and we will answer the questions in the end at the Q&A section. So the agenda for today, if you're unfamiliar with Upsales, I will do a short company introduction and presentation. And then I will talk a little bit about our growth initiatives and an update on our growth and our expectations for 2025. We will continue talking a bit about what we're doing on the product side, especially the investments we're doing in AI. And then Elin will cover the financial highlights from the fourth quarter. So introducing Upsales. Our mission is to build the best AI model to help CEOs and executives create revenue growth. We're coming from a legacy from 20-plus years, building sales tools, sales and marketing tools to help management teams and sales organizations to drive revenue. And we are now doing a pivot and focusing increasingly on AI, which is a very exciting area for us at Upsales. And the problem we want to solve is that it's very hard to execute sales in an effective way. It's actually the top reason why B2B businesses fail. So all companies start out with high ambitions. You have an ambitious business plan, you have a growth plan and so on. But in reality, if you look at the data, of all the companies founded 10 years ago, only 9% ever reached a revenue of as little as SEK 10 million. And the #1 reason is sales. It's very, very hard to execute sales in an effective way and this is where we come in. So we are a Software-as-a-Service company with a long track record of profitable and organic growth. Our ARR currently stands at slightly below SEK 142 million. We are a very pure -- purist SaaS company with more than 95% of revenue being recurring. We're a net cash company currently around SEK 30 million in cash. The company is management-owned, almost 43% is owned by management. And trailing 12 months, we had an EBITDA margin of 24.6%. So one of the reasons our customers love Upsales is we have a very scalable product which requires very little, almost 0 customization and implementation. And this is not typical. If you look at most of our competitors, if you're a customer in one of their businesses, you typically spend a lot of money and time on getting started, customizing the solution before you start to get the value. So this is very appreciated by customers that you can buy something off the shelf, which solves very complex problems out of the box. And looking at our positioning and the competitive landscape, you have a lot of providers for the really small clients. So if you're a startup, if you're a 5 or 10 man company, you can do a Google search and you can find thousands of options. But as you start to grow as your needs become more complex, you need something more sophisticated. And typically, you end up -- if you don't go with Upsales, you end up with a very large American-based provider, which is typically very costly and time consuming. So our offering is to be able to solve the complex problems you have, even if you're a company of several hundreds or even thousands of employees without the need for these long and costly and complex projects. These are some of the examples of companies using Upsales. So the typical Upsales customer is a B2B company between 50 up to around 2,000 employees that need something to run their sales organization. So the typical Upsales customer have some sort of sales organization that they want to improve. All right. Short update on the growth from the fourth quarter. So if you've been following Upsales for some time, you see that we are coming from a period of slower growth, which we're very happy to report that it continued to accelerate in Q4. It was driven by actually an all-time high in new sales, new customer acquisition. Also a continued positive development in terms of churn, which continues to decrease. And all of this, I would say, is the continued results from the strategic positioning we've been working on for quite some time now, together with the investments in the product. So we're very happy to see that it starts to bear fruit, and we expect this to continue in 2025. So we expect continued acceleration in 2025. We expect growth to really take off. And this is, by a large part, driven by our AI offering because most of our existing customers are expected to upgrade to the new product we have, which contains all of the AI features. And we decided, when looking at this, to not make AI an add-on or something that's optional. We don't believe that in 2025, anyone should be using software that's not powered by AI. So we did a new pricing structure called Upsales Accelerate, which will replace all the previous legacy offerings. And we include the AI in this new product, together with a lot of other stuff that previously was also as add-ons. So we really simplified our pricing and with the goal of making it super competitive and to deliver a lot of value to all of our customers. And the feedback we hear is very positive. It's early feedback, but it's very positive from both new and existing customers. All right. So let's talk a little bit about the product. So I first wanted to just talk a little bit about how I see SaaS companies being affected and in a way, disrupted by AI. So I think it's -- obviously, it will be easier and cheaper to build software. That's the long-term trend. So I think, if you're a software provider, you need to make sure that you have a strong niche, you have relevant data. And I think that most, if not all, very basic tools will be, in the next 5 or 10 years, be replaced by AI. And I think it's -- I see a lot of SaaS companies considering AI to be a feature. And I think that's a very dangerous thinking because you need to build -- you need to build your product basically from scratch with AI in mind. So that's what we are doing at Upsales. And I think you need to think a lot about what use case -- in what use cases, can AI actually deliver value? Because I think a lot of SaaS companies will just add AI with a lot of AI costs, that will be difficult to just add on top of the bill to their existing customers. So our first conclusion, when running the AI project, was that the basic use cases are not enough. I mean we've all by now seen the -- try to use ChatGPT and other tools to help write e-mails and summarize meeting notes and so on. I don't see that's the place where you find the biggest value to save a minute here or there. So we've been trying to think about what could be a use case for AI, where we can deliver massive value, where we can really help customers to transform their way of doing business. So our focus has been to, how can we help the CEO, the Board and the executive team to use AI as a strategic tool to help with positioning and to really be a strategic tool for everything you do, when running your day-to-day business. So we're building a financial model where we are collecting huge amounts of data every day. And we automatically matches this to all of our customers' data, enabling them to literally know everything, every single thing that's happening about every single customer they have in their customer base. And what you can do with all of this data is that you can position your company much faster and much smarter in real time as things happen in the marketplace. I mean it's impossible to read 1 million news articles every day, right? But for AI, it's possible. So that's one of the examples we're doing. We're essentially monitoring everything that goes on, on the Internet for each and every company in Europe. And if you're an Upsales customer, this will really give you an advantage and an edge. So that's the main use case. Of course, we're building a lot of basic stuff as well, which I believe will be considered to be hygiene factors in all software like to build smart AI triggers and agentic workflows and the basic stuff, writing e-mails and personalizing e-mails to customers and stuff like that. But I don't think that's where you will see the edge. I think everyone will build those use cases. So we have been trying to focus on building something a little bit more sophisticated that can actually have a big impact for our customers. So we're very excited about this. The customers are also very excited, and I look forward to see now in Q1, as customers start using this stuff, to see the impact it will have. All right. Now I will hand over to Elin some of the financials from Q4.

Thank you, Daniel. Good morning, everyone. Let's start looking at our ARR and our revenue. So annual recurring revenue grew by SEK 3.5 million in Q4 and was SEK 141.9 million at the end of the quarter compared to SEK 140.4 million in Q4 2023, which corresponds to a growth year-on-year of 1%. Net sales was SEK 36.4 million compared to SEK 36.3 million in Q4 2023. And looking at revenue, we divide our revenue between the recurring revenue from our subscriptions and one-off revenues such as onboarding and consultancy services. And in Q4, recurring revenue accounted for 95.7% of total net sales. . Let's continue to the next slide and look at our profitability. We had an EBITDA of SEK 5.5 million, compared to SEK 9.2 million in Q4 2023 and EBITDA margin was 15.1% compared to 25.3% during the same period last year. We had an EBIT of SEK 3.3 million and a net income of this quarter of SEK 2.6 million. And as Daniel mentioned in the CEO comment, we've seen lower margins, due to that we have had slower revenue growth, while we have continued to invest in our product. And looking forward, we're seeing improved margins due to improve operational efficiency and on top of that, annual revenue growth as well. Let's continue to the next slide and look at our cash flow. During this fourth quarter, we had an operating cash flow of SEK 20.8 million compared to SEK 9.8 million during the same period in 2023. And as you can see in the cash flow statement, the increase in operating cash flow is due to changes in working capital. And net cash at the end of the quarter was SEK 47.4 million, and we do not have any debt. And I can also mention that for the Annual General Meeting, the Board has proposed a dividend of SEK 1.5 per share. That was all of the financial highlights. Thank you. Let's continue to the Q&A section.

All right. So again, if you wish to ask a question, you can use the Q&A feature in your Zoom toolbar. All right. First question from Rikard Engberg at Carnegie. Will the changes in your pricing model lead to a growth in ARPU, higher revenue per user? Yes, we expect that. So the new product is at a higher pricing point but contains a lot more value. And we are increasingly moving toward a consumption-based model. So based on how much data you use, based on how much you use the marketing tool, et cetera, will impact the price you're paying. And of course, looking really long term, I mean the idea of AI is to make all of us more effective. So I mean, I think we and as probably all SaaS companies are thinking about, I mean, what's the option to a seat-based model when you don't have as many seats as you used to have. We're not seeing any trend like that yet. But in the years to come, I expect us to see that, that's the trend. Let's see if we have any more questions. Again, just use the Q&A button in your Zoom toolbar to ask a question. All right. No further questions. So thank you, everyone, for joining us today, and I hope to see you next time.