Upsales Technology AB (publ) (UPSALE) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to the earnings call for the fourth quarter for Upsales. My name is Daniel Wikberg, I'm the CEO and Founder of Upsales, and I will be doing this presentation today. [Operator Instructions] So I will start to talk a little bit about Upsales. I will do a short company presentation for those of you listening who are not familiar with the company. Then I will do a specific update from the fourth quarter regarding the growth and what we're doing on the product side. And we will end with some financial highlights from the last quarter. All right. So at Upsales, our mission is to build the best AI agents to help CEOs and sales leaders create revenue growth. And we are a Software-as-a-Service company. We've been in business since 2003. We have a long track record of profitable organic growth. Our ARR is currently SEK 153 million. We have a very scalable business model with 95% recurring revenue. We have 0 debt on the balance sheet. So we're a net cash company. Company is 45% management owned and trailing 12 months, we have a 25% EBITDA margin. So that's a short introduction to Upsales. And we are right now in a strategic pivot that we have been working on tirelessly for the last 2 years. So our -- the history of Upsales is we have been delivering sales and marketing tools, so CRM software and marketing automation software since 2003. And when the AI boom started a couple of years ago, we realized that this is very important. It's a crucial thing for any software company. And we believe that in -- specifically in sales, there are a lot of very valuable use cases where you can use AI to solve a lot of problems that were very difficult to solve in the past. So our way of addressing this and what we are doing, so our internal mantra is AI is not a feature. So what I see, I see a lot of companies having delivered software for years or decades. And you address AI like adding a small feature here and there. So we have a different approach. We believe that we need to reinvent the entire product and the entire way of how our customers will be using the product in the future. And I think we are very well positioned to capitalize on this and solve important problems for our clients, specifically because we have a long history of delivering a lot of valuable data to clients together with the software. So if you are familiar at all with these kind of products, you know that -- if you've seen any CRM implementation or a CRM software in a company, they are typically filled with poor data. So you don't really get the value you were looking for as a customer when you bought the product. So we have been focusing a lot on trying to solve that issue for more than 10 years by including B2B data, company data, financial data with the product, which reduces the need for manual data entry. And this enables us to create these AI agents and AI use cases a lot more easy than what would have been the case if we didn't have access to all that data. So that's a short introduction. I'm going to talk a little bit about growth and what I see in the market. So in the last quarter, we saw the largest ARR increase in a single quarter in 3 years. So we're very happy with that. So the trend of accelerating growth, which we have seen now for 6 or 7 quarters in a row continues, which is very, very positive to see. We also started focusing a little bit more than we have been doing in the past in investing in our services team because we saw an increasing demand from especially larger clients that they have a strong need for expertise and assistance when it comes to implementing AI and getting value out of the software. And we already see that is also contributing to revenue in a meaningful way in Q4. Looking at the market. So the last 3 years, I often get the question, how are you affected by macro and the general market conditions. So I think Upsales is in a very good place since we are profitable. We have always been profitable. So we have a model, we have a culture of doing things effectively. We have no debt, so we are not affected, at least not directly by increasing interest rates and the general macro environment. And we actually see churn rates going down. This is a trend we have seen now for quite some time. So when I look at the data we have, we have not yet seen any clear negative macro impact on Upsales. And on the other side, we see a strong -- very strong demand from both new and existing clients on AI-related services, building agents, using agents and just finding ways of growing faster and get value from AI. And I think we're very well positioned to capitalize on this. And the third item I want to mention is the general sentiment from European companies to U.S. software providers. So pretty much all of our competition comes from the U.S. And we continue to see -- we have seen for some time now, we continue to see an increasing trend in -- when talking to customers that it's not as clear and as obvious as it was a few years ago that, of course, you buy American software. So I think that could be something very positive for companies like Upsales. And in the last few weeks, there's been a lot of talk about AI and vibe coding and then people are talking about SaaSmageddon that all software companies will die and disappear. My view is quite different. So what we're seeing is that it's easier to build prototypes. That goes extremely fast. But getting a prototype to a production-ready system that works every day in and out for more than 1,000 users, that's something completely different. And that doesn't get so much easier with the use of AI. I think another point is that the obstacle of building a software business in the past was not that coding was too expensive or coding was too complicated. That's a small part of the problem. The problem is to reach a lot of clients, understand them, get their needs and do these hundreds and thousands of iterations to get to product market fit. So I think it's a little bit exaggerated. And on the other end, I see that AI is driving demand. So I think AI is a catalyst for digitalization in general. And what I see when I'm out there, I'm still out there talking to customers on a regular basis, I still see that the vast majority of digitalization is still undone. So it's still yet to be implemented in all categories. And I think AI is a driver to a lot of companies to kind of realize that, okay, we need to start working in smarter ways. So I think this is the biggest opportunity I have seen since I started the business almost 25 years ago. I will talk a little bit about the product, what we are doing on the product side. So as you might have seen, we sent a press release in December where we reorganized our product team. So we phased out around 14 positions. And we didn't do this because of cost cutting or we want to hire margins or anything like that. We still have a very ambitious road map and ambitious plans of investing in the product. We are still hiring. But what we're seeing is that when you're working with these new tools powered by AI, you need a different kind of profile. So the typical niche engineer or the typical niche designer or project manager, those roles are starting to disappear. And you're seeing more broad roles emerge. And those are the kind of people we are hiring to the team. And what we are doing, I talked a little bit about this. We are building a model, an AI model based on all the data we have been using for more than a decade now. And we're building a model that enables clients to better understand existing customers and also find new opportunities. And there's a lot of talk about agents. So a while back, we launched the Upsales agent platform, which customers are already using very enthusiastically to build agents that automates what used to be done by humans. So a few examples. We have several sales agents that does research before client appointments. It records appointments and makes notes and takes actions and stuff like that. It can also reduce a lot of the administrative work that is part of a sales role, such as writing proposals and presentations and all the material and communication you have with your existing and potential clients. We also see a lot of use cases in finance. And since we have a history of building a lot of integrations, that's maybe the most appreciated part of the platform is the ease of integrating to your ERP or accounting system. So we already have a lot of clients, hundreds of clients who are integrating Upsales with their financial software. And that enables us now with AI to reduce a lot of the manual work that's being done in a typical finance team. So we are seeing a lot of use cases there, which is very exciting. And the platform also enables our customers to build their own agents, which can be in any category. And as you know, the pace of development is very high. So you can already do this without being a coder or without writing a single line of code. And it's just very -- it's very exciting to see what customers are already doing with this platform. All right. So some short highlights from the last quarter on the financial side. So we ended at an ARR at SEK 153 million. ARR changed by SEK 5.3 million during the quarter, quarter-over-quarter. Year-on-year growth was 7.8%. Net sales was SEK 40.4 million. So we are back in double-digit revenue growth, which is very exciting to see. And the subscription revenue was still very high, 93% of total revenue in the quarter. Looking at profitability, we almost doubled our EBITDA year-on-year to SEK 10.4 million. We had an EBIT of SEK 7.4 million and SEK 5.8 million in net income. And finally, looking at cash flow. So operating cash flow was SEK 21.9 million compared to SEK 20.8 million last year. Net cash was SEK 37 million. And the Board is proposing a dividend of SEK 0.75. So we are investing, we have invested more in the product, but we are proud and I'm proud of the fact that we are able to accelerate growth, invest in the product, run a profitable business and still pay a dividend. So that was it. Let's continue to the Q&A. [Operator Instructions]

The first question comes from Fredrik regarding the number of employees. Yes, if you look in the -- if you look at the number of employees in the quarterly report, you see that the decline was by 2 quarter-over-quarter. And that is because the majority of the people who is leaving the company had their notice in December. So their contract expires in Q1. So that's why you don't see it yet in the data. And the next question is about the B2B data. What kind of data is that? And is it publicly available data? The answer is no. It's not publicly available data, and I think this is one of the edges we have. So a lot of AI use cases is based on scrape data. So you go on the Internet and you find publicly available data, which is usually not good enough to run these agents in production. So we have several contracts with several different providers. So we buy financial data, we buy news data. We buy all kinds of data from different providers. I give it a few more moments [Operator Instructions] Okay. We have a question about -- we have been promoting on LinkedIn a new product called Aira. The question is what is the purpose of this and what are the goals? So Aira is an innovation project. It's a mobile app. So it's basically a mobile app, a sales agent, which will be connected. It will be integrated with Upsales. But it's one of the many innovation projects we are running. So the reason I haven't talked about that in my quarterly report is because it's very early stage and it's 0 revenue. So it's an innovation project. Okay. Next question. You were phasing out 14 roles. What 14 roles are you recruiting to replace this? So no, we are not recruiting 14 new roles to replace the 14 who left. That's not at all what we're seeing. So of course, we are seeing a significantly higher productivity in our engineering team, and that's one of the drivers why we are reducing the team. So when building the team going forward, it's more about finding very specific people that can have a very broad responsibility. So next question is what's the main driver behind the large increase in ARR compared to earlier in 2025? So I think what has been most successful in the last 12 to 18 months has been the new sales team, which is part of a strategy shift we did around 2 years ago to focus on other kind of verticals and increasing deal sizes. So we're really seeing that strategy paying off. So new sales is contributing very successfully. Churn has continued to go down. And we see -- I mentioned this in previous report, the biggest opportunity still, I think, lies within the existing customer base because we're seeing a big demand there from existing clients to start using these AI agents. [Operator Instructions] All right. So we have no further questions. So that concludes the earnings call. Thank you very much for joining, and have a good day.