LeadDesk Oyj (LEADD) Earnings Call Transcript

Welcome, everybody, to LeadDesk's earnings call for the first half of 2025. My name is Oli Nokso-Koivisto. I'm the Group CEO, and I'm happy to be able to here present to you our results for the first half of the year. A big focus here on, of course, the Zisson integration, which is now proceeding well, which we are happy to be able to report. Looking at today's agenda. So firstly, we'll have a short brief introduction to LeadDesk for those of you who -- the company is more new. Then we'll look at the first half key takeaways, moving on to the deeper financials and then returning more to the top level to our strategy and outlook going forward to the rest of the year and beyond. At the end, as usual, there will be a fireside chat and a chance also for you to ask questions then at the end. Today, on the call, we also have our new CFO, Teemu Rautiainen, and he'll be hosting the financial part of the call. Without further ado, then jumping in on LeadDesk. So LeadDesk, we provide software for customer service and sales, mainly to contact centers, and that's contact centers focused on the European market. So, software for customer service and sales across Europe, that's our thing. And then on that, going more deeply, we have 2 separate markets in Europe. We have our home market, which is the Nordics, Finland, Sweden, Norway. That's our home market where we are very strong. We have a wide product portfolio. We are profitable and able to grow profitably. And that's our home market. So, the Nordics, our home market. Then we have the continental market. So, on the continental market, we have a more tight focus on less of an offering and more narrow segment of ICP, ideal customers, which we target. And the idea is to gain disproportionate growth in this big, big market. It's a huge market. Continental market is huge, and that's where we want to grow disproportionately then going forward. We are well on our way there already, and this is the path for us going forward. AI transformation, of course, a large thing in contact centers. AI brings a lot of benefits to efficiency, a lot of new services that can be offered by our customers, to their end customers. So, AI offers a lot of opportunities to then innovate on how everybody interacts with the service providers, their own service providers, and we are helping companies do exactly that.  Then, on the financial side, a brief introduction here. So, looking at our financials from the past. So, since 2014, we've been able to achieve 20% CAGR. And we've been able to also, especially in the last 4 years, we've been able to develop our profitability in line and then reach for that EUR 100 million of revenue and 20% EBITDA goal. More on the financials then a bit later. I want to steal the thunder from Teemu, who's coming on a bit later.  So, some key takeaways, then summing up. We had a strong financial performance in H1. Very happy about that. We have a big transformational integration ongoing, and we were able to really nail that, and we are able to proceed on that, to plan. And on the profitability, I must say, of course, that we don't report adjusted EBITDA. That's the EBITDA, that's the real EBITDA, and that's including all one-offs, for example, from the integration, but also then our large ERP project, which is helping us then support scale going forward up to that EUR 100 million in revenues.  Breaking down to then the Nordics. So, in the Nordics, we have a strategic transition more upmarket, meaning that we are targeting more larger and more complex customers. Of course, those are very good for us as we have a strong product, but also then financially in the long term, these offer us great net retention and great opportunities to work strategically together with our customers, thereby also providing shareholder value. Then on the continental market, especially Spain, has been good for us. There was a regulation change in Spain during the first half. But despite that, we've been able to grow, and the market looks good for us. And of course, as you know, the Spanish market, it's a huge market. So, it's great that we're proceeding well there and really happy about that.  I've mentioned the Zisson integration. So that continues. Of course, we've been managing to work on the timeline we set for ourselves, and I'm very happy about the progress there. But the synergies will be realized only then, going forward in the second half, and by the end of second half, and more fully actually on '26, just due to the fact of the timing, even though we've executed a lot, of course, there's one-off costs there, and also some changes just take time. And that's the dynamic that's going on there. But I'm very confident that this will be finally then fully visible in '26. On AI, I'm happy to say that over 1/3 of our customers, roughly 1/3 of our customers use our AI services. So, we have a lot of AI services already, and these are used by our customers quite widely. So, this, of course, upsell potential for us, but it's also a way to differentiate from the very fragmented European market, where most of the competition is much smaller and is not able to invest in these products. So, us providing a best overall AI contact center software is a great value add to our customers. Just to top this off and sum it up. So, for the first half, 14% EBITDA at our target level also for the year, and we are expecting the second half to be stronger than the first half. And we've been able to grow nicely, of course, much supported also by the Zisson acquisition.  Just want to highlight some things about Zisson. So, as you saw from the title, Zisson has been a big item for us for the first part of the year. And I'm super happy to say that while, of course, the integration is going well, we've managed to cut that decline in their revenues that they had before the acquisition. As you remember, they ran down a product in order to gain profitability. And now we can see that we've been able to track on the process that we set for ourselves at the time of the deal. So, we've been able to cut that decline, and we are on a stable ground with the Zisson revenue and development going forward. And also, we've been able to cross-sell actually, which I'm super happy about. So, we've been able to sell the Zisson product with the LeadDesk sales team, the original LeadDesk sales team in Finland. And that's a great, great achievement on cross-selling. And of course, there are other cross-sells in Norway and so on. But I think this really shows the power of being united that we could, in such a short while then also sell now with the original retail sales team in Finland.  Also, as a more stable and a more trustworthy partner that we, together with Zisson, now Zisson has been able to reactivate a lot of their partner network and especially with this in Sweden, where we have a strong pipeline through partners with the Zisson product and the enhanced offering now and then their partner network. And this partner network is something new for us. So, LeadDesk traditionally hasn't sold through partners, but now we are really learning our ways here. And decision partner network is bringing a lot of value to us, especially now in Sweden. We are, of course, working to harmonize not just the offering, but also the culture and the organizations. And these are some things that are ongoing and have been quite a bit already done, and this will help us excel our growth in the future. And lastly, as I said, those growth figures are one thing. But then on the cost synergy side, those will be fully visible next year and partly already, of course, slowly up until the end of the year then. But that's for the more Zisson part. And then I know everybody is very anxious on AI, of course. And our AI offering, what are we doing there? What's our target? What's our goal? What's our current offering? So, we prepared a short video for you to check out our -- some of our AI offering. [Audio Gap] So, as you see, we have a strong momentum in our AI offering. We've done a lot of innovation, and this will be a game changer for us going forward. And some things that maybe have come up that I want to deep dive on. So firstly, like looking at the broad spectrum of what we are doing with our customers, we are basically the conversational platform that they are relying on for their customer communication. And as the communication platform for their customer communication, we are the natural partner and the natural place where our customers can provide these AI services. And that's what we are utilizing here. So we are the conversational platform for our customers who then rely on our software to have those conversations, whether it's with humans or through AI, and that's the position we are looking at. As that kind of a partner, we are looking forward to being the best overall CCaaS player in the AI field. So, with us, the customers -- our customers get the best overall conversational platform for them to host those conversations and utilize AI. This year, we've set out some key projects, one of which is AI Insights, which then provides conversational analytics. It provides support for the agents. It supplies support for the team leaders, the managers to have those human-to-human discussions. On the other side, we're also then investing in AI Voicebot, whereby then there's a fully automated AI having those discussions instead of a human on the other side. And naturally, then marrying these two ends, so the human-to-human to human-to-machine interfaces and discussions, we allow for a seamless experience for the end customer. And we truly believe that AI is going to be enhancing the end customer experience, whether it's in customer support or sales. As I earlier said, there's many customers -- a lot of our customers are already utilizing our AI products, and we're already monetizing on quite a bit of that. But this is, of course, something that now evolves together with the products going forward. Super excited about the AI development. There's going to be great stuff happening. We have a lot of things already in production used by our customers, and there's great things coming going forward as well. That's it for my first part. I know everybody is anxiously waiting for the deep dive into financials and getting to know our great new CFO, Teemu. So, I'll give off to Teemu then for the deep dive to financials.

Hello, everybody. My name is Teemu Rautiainen, and I started as the LeadDesk CFO in the beginning of April. I'm happy to present here our first half results to you. And our results in the first half were strong, as Olli already indicated. Our revenue grew by 26%, and we reached EUR 36 million threshold in our last 12-month revenues and a great sump from last year already now. The revenue growth was driven by -- mainly by the acquisitions. So, we did the Zisson acquisition in February, and that's the main contributor and then also the eDialog, a smaller eDialog acquisition in April. Organically, we continued growing in the Continental Europe and especially in Spain there. The growth in Continental Europe and Spain was mainly driven by new logos. So, we won new customers there. In the Nordic home market, we continued growing, especially in Finland and where I'm happy that we have been able to win bigger customers and move upmarket, which is in line with our strategy. And why is this important? It's important because that bigger customers give us a better base to grow our net revenue retention going forward. And that then broadens our organic growth platform we are having. For example, upselling and cross-selling products to bigger customers that usually buy more from us. In the ARR contract base, our growth was 28%, slightly higher than in revenue, and that was driven by the eDialog acquisition that is in full in the ARR numbers. And also, like Olli said, we had some positive wins both in the LeadDesk product side and on the Zisson product side in the first half. Like revenue, also the profitability was driven by our acquisitions, mainly the Zisson acquisition and we delivered 15% EBITDA in the last 12-month period and 14% jump by 1 percentage point from Q1 in the first half overall. Like I said, this was driven by the acquisitions. So, we are currently integrating Zisson and expect the integrations to main extent to be taking place by the end of quarter 3. And then we are also improving our operational efficiency already in '24 and continuing that work in '25. One example of that is the new ERP that we have implemented and are currently onboarding Zisson into the ERP. We have also improved our process efficiency, reviewed our headcount and continued our strict cost control that we have had also earlier. There have been some one-off costs in the first half relating to these measures. So, some related to people, some related to consultants, some related to, for example, combining our rental agreements. And we have also reviewed our vendor agreements between LeadDesk and Zisson. We are not yet seeing all the synergies and the benefits from these actions. As Olli said, we will see those mainly in Q3 -- after Q3, so mainly in Q4 and the beginning of '26. And this is related to the timing of those actions, even they are to high extent already completed. What I'm also happy about is that we were able to convert our EBITDA into cash flows and increase our operations cash flow -- operating cash flow by EUR 400,000 in the first half. And this is something we aim to continue also in the future. This came from EBITDA, but also by managing our working capital well and releasing some cash from there. And this puts us in a good position in continuing to execute our growth strategy and also our balance sheet is in good shape to continue the execution and do some selected investments where we see fit. Our equity increased by EUR 2 million. That was driven by the directed share offer -- share issue to Zisson owners. And then also the Zisson acquisition impacted on our external debt by EUR 7.5 million and some of those repaid already. Our net debt to EBITDA is still at roughly 2 and even though the Zisson is not fully included in the EBITDA. So, I would say and recap that we are well-positioned to continue our strategy execution also in the future. And that's something Olli will continue more about in the next -- the following slides.

Thank you, Teemu. So now briefly looking at our strategy and the focus for 2025 and beyond. So firstly, our target remains the same. We want to be the leading European provider and an alternative for customer service and sales. So, in the CCaaS market, we are reaching for 1 billion customer interactions annually. That's a great number, 1 billion interactions on our platform annually and EUR 100 million in revenues together with 20% EBITDA. So, a big target, a big heavy goal, as they say, how do we get there? We get there by steadily and profitably growing in the Nordics. We are moving more up market now, as been said. Then on the second phase of our strategy, we are looking to accelerate growth, and that's going to be especially focused on the continental market, where we are looking for disproportionate growth then going forward. And that's the second pillar then to reach that EUR 100 million. Lastly, it's a really fragmented market across Europe. These small players are not able to invest in AI. There needs to be consolidation, and we see that there's a big opportunity there, and it's happening. So, we are one of the drivers in that consolidation across the fragmented European CCaaS space. Finally, there's a lot of AI opportunities that can open up then even more revenue growth in the strategy period beyond EUR 100 million. As we've communicated, so we have a 2-staged approach here. So firstly, we're highly focusing on profitability. We're reaching for higher profitability and cash conversion so that we can then invest more in growth as per the plan just presented. So now it's the time for us to look at profitability. And then when we reach certain threshold, then at that point, we are good to go on then investing more in the growth, but we'll be still doing it wisely, maintaining a suitable profitability level. So that's the thing that we're now also looking at. So first, profitability, then growth and organic growth and disproportionately in the continental market. The North Star being here, EUR 100 million and 20% EBITDA. Looking at the market generally and what's happening on the market and where are we on the market. So, the CCaaS market, here, you have, of course, the SME companies using CCaaS solutions and the enterprise companies. And what we are doing now is that we're shifting, especially in the Nordics towards more the enterprise side, and that's where the Nordic growth is happening for us. And then on the continental market, we're approaching the customers who make the faster decisions, which is then more on the SME side. On the other hand, in the Nordics, we are offering a very wide solution for all the customer communication needs. Whereas then in the continental market, we have a more narrowed approach and offering a subsegment of our capabilities for that fast sale, that fast growth in continental market. There are some short-term and mid-term tailwinds, headwinds. So just to name a few here. So, we see an increased activity level in the large enterprise segment and the larger customers. And there's been some investment debt due to the economic situation and the macroeconomics, but we see that now things are more putting -- now the box are going to the right places and the larger companies are starting to invest slowly. Of course, there's still the economic uncertainties, as everybody knows. And those do, of course, then have some effect on these -- especially these larger, more complex customers and their decision-making. That being said, there's a big need for operational efficiency. So, companies are seeing that the labor costs are increasing, the complexity that they need to provide in services is increasing, and they need to drive for the operational efficiency. And they are curbing costs, and this is both a headwind and a tailwind for us in the sense that we can provide a very cost-efficient solution for them to optimize their own customer conversation operations. Lastly, on the tailwind side, AI, we are one of the few who have enough scale in Europe to invest in CCaaS AI. And that is, I see as a tailwind for us. Then again, regulation, that's what we are good at in Europe, and that is always a risk and does have then effects as there's so much regulatory burden even with these AI solutions, there's a lot of red tape that needs to be crossed. And these are headwind for us, but also it is an opportunity as we are the European alternative, being able to invest here, being able to really nail this regulation down. It's also then a tailwind from that regard. Our guidance for the year remains unchanged, so 23% to 33% on growth and 14% to 19% in profitability. And as you saw, we are happy in those numbers now going forward to the second half. To summarize this part of the call, so good progress, happy with the first half of the year. There were some seasonality, of course, and one-offs that you've seen also in the previous years, taking that profitability down a bit on the first half, but still well where we expected it to be and the second half as with previous years has been higher on us on profitability. We are transitioning, especially in the Nordics up market to larger, more complex customers, which is good for us in the mid-term. And Zisson integration is proceeding well, and there are significant new opportunities, for example, around this partner network that we are exploring now. And most importantly, of course, well within our guidance and happy with our guidance for the rest of the year. That concludes the earnings call part, the first part here. We'll be having a Q&A session now and a fireside chat with Lotta Backlund and myself and Teemu. See you in a minute.

Hi, and welcome to the LeadDesk H1 Results Call fireside chat. My name is Lotta Backlund. I'm thrilled to be your host today as we dive into the highlights, the challenges and the strategic direction of the first half of the year. I have the pleasure of posing your questions and mine to CEO, Olli Nokso-koivisto; and CFO, Teemu Rautiainen today. And how do you ask your questions, you post them in the chat in the very window that you are watching right now. I'm going to try and pick up your questions as quickly as I see them in the chat box. So, whether you're turning in as an investor or a partner or a team member or someone just curious about the future, you are in the right place. All right. So, let's go ahead and dive into LeadDesk's H1 performance and what's ahead. Your revenue growth has been impressive overall, congratulations. But organic growth has been a bit overshadowed maybe by the acquisitions. Can you talk a little bit about that? And how do you see it evolving?

Yes, yes, of course, like -- especially Zisson has been a big part of our first half. It's taken a lot of focus. It's a big transformational M&A for us. And I'm very happy that it's going so well, and we see that we've been able to curb the decline they had in revenues last year, and we are proceeding with our plan. And this now then enables us to concentrate more on, for example, organic growth going forward to the later part of the year and then the next year. So, at the moment, and especially now in Q3, I see that the integration is in a state where we can shift company focus more to organic growth from the integration. And then this is, of course, supported also by the fact that there's -- we've been able to cut that decline in Zisson revenues that they saw in previous years. So, I think that's like the perfect thing that we got now in first half and then we can -- from this stable ground, we can then look at organic growth more in the second half and going to '26.

All right. Well, let's talk about the one-off costs in just a moment, but one really quick, very concrete question. You report EBITDA, Teemu. Why not EBIT?

We report EBITDA because we believe that that's operationally better indicator to our performance. And why is that EBIT includes the amortization of goodwill, which are big since we have done acquisitions. So, we believe that, that's one reason. And then also our peer companies, software companies, I think there are many of them are reporting EBITDA, so we are following them.

On top of that, also now that we are reporting EBITDA, and we are not reporting adjusted EBITDA or anything, we're reporting EBITDA, whereas then, for example, if you look at EBIT, when the analysts analyze our EBIT, they always do adjustments to it. And that's something at least I'm quite allergic to always when we're reporting numbers, then we're reporting the headline numbers and not explaining ourselves with adjustments.

All right. Teemu, you mentioned a strong profitability despite some one-off costs. You mentioned a few, but can you talk a little bit about these one-off costs?

Sure. So, there are 2 sources of the one-off costs. One is the Zisson integration. So, as we do integration, we combine organizations, we combine rental agreements. There are one-off costs related to those. So that's part of it. And not all of them had yet materialized, but some will materialize in later mainly in Q3. Then the other part is then our operational improvement related to basically the same cost elements. So, organization and using consultants for one-off projects or one-off work. So those one-off costs, we had like more of that in H1 than we have had before.

Anything else you want to say about the Zisson -- that's a terribly difficult word. Zisson acquisition.

Yes. So Zisson has been very strong traditionally in, for example, the health care sector, public sector, which then supports our offering as well. We have been active on the Finnish public sector, of course, but not so much in the other Nordic countries. And now combined, we can really provide good services to health care providers and the public sector across the Nordics. And then on top of that, the partner network that Zisson has been able to utilize before, which is something new for us. We've not been able to utilize or haven't concentrated on utilizing a partner network before, but this now, of course, opens up and has opened up the opportunity to offer the wider product portfolio through the partners, which is a great opportunity for us.

All right. You've talked about moving upmarket, focusing on larger, more profitable clients. What does that actually mean in practice? And also, how has your sales approach changed?

Yes. So, looking at like the more wider offering that we have. So, as I had in my slide, previous slides, we offer a very comprehensive solution for contact centers. And of course, to be able to use and utilize that whole suite of products and services, the customer needs to be of a certain size and complexity in order to be able to utilize the full power and gain the efficiencies of our system. And that's why we are now moving more and focusing more on larger, more complex customers who can really benefit from the whole suite of having their sales and customer service in one platform, utilizing those AI services, automating work. All those channels, social media, all traditional telephony, e-mail, WhatsApp, all these different services. I think it's a great opportunity for us now that we are able to move up market as we have a significant market share, especially in the Nordics already in the SME segment.

And from the financial point of view, I would add that then the larger customers usually, since they buy more, they are usually more sticky. So, the retention increases and that then puts us in a better place to grow organically also going forward.

[Operator Instructions] You guys have talked about your strategy being like a 2-phased rocket. First, profitability, then growth. So where are we now on that trajectory? Has the focus started to shift more aggressively toward growth?

So we're steadily still on the profitability side. So, we're still working on our profitability to comfortably lift that to a higher level. On the other hand, of course, we've done quite a lot of work there already, and we can see the projection and the results already happening and see where we'll be landing. So, we are -- what we are doing now is that we are doing these targeted small tests. So we're doing small investments, testing certain things in certain markets in order to then validate the next phase and what we are going to be doing in the next phase of our strategy when we can put the pedal to the metal, but do it, of course, wisely. So we're still firmly on the profitability phase, but at the same time, doing small one-off tests on the targeted investments and then seeing the results and then a bit later on being able to press the pedal to the metal.

And that's one reason why we are doing these operative investments like the ERP. So that increases our scalability. And when we enter the growth phase, we can further increase our profitability through the scale we are gaining.

All right. You said in your presentation, like everyone is waiting for this. We're talking about AI. So, it is obviously a strategic focus for you and every single other company probably in the universe right now. Can you talk a little bit about the AI Insight initiative? And also, how is it starting to turn into actual business, either in revenue or customer impact?

Yes. So basically, we've got a lot of already like other products that are already in the market, and those are succeeding very well. For example, our AI that beats all the divers of the market like Fair and Square, which I'm happy to say, and that's helping us win some customers in certain segments that is critical. And then we are providing, for example, transcriptions as part of the normal package and so on and so forth. So, we have a strong offering already. And now this AI Insights, for example, is then building on top of these fundamentals that we've already got correct. So, AI Insights is all about analyzing your data in order for you to then increase the productivity in your contact centers to provide better opportunities for upsell, coaching the agents and doing the quality analysis on the work in the contact center. So, this tool is going to be greatly helping out then the contact center team leaders and managers and agents to work better and more efficiently. On the other hand, then we have, for example, the AI Voicebots, which we are now doing projects with. So, piloting this, for example, for taxi ordering, for financial services, and this is another big thing. And these are like the 2 complete other ends of the spectrum, fully automated AI Voicebot and then on the other hand, then supporting traditional contact center to be more efficient and then everything in between. So, we have a wide best of world approach to CCaaS AI.

I got good news for you. Your presentations have been very clear because there is no questions in the chat so far. Okay. So, you've tripled revenue since the IPO. And the Contact Center as a Service market is forecast to grow significantly in both the Nordics and Continental Europe. So firstly, that's cool. Not a lot of markets are growing. What are some things that you guys are excited about for the rest of the year and also looking into the future?

Well, I'm very excited about this, like the combination of AI with CCaaS. We have all the data. So, the CCaaS providers such as us, we have the data, we have the means, we have the interfaces already with the end customers, with the businesses, and we are to go between there. And now adding AI to our stack really enables our customers to rocket the AI initiatives. And this is something that will be driving the CCaaS market growth. And looking at the analyst reports, basically, AI is going to be fueling this segment's growth. And that's going to be the key here. And I'm happy about the position we are currently there. We can't be content, of course. The market is moving very fast, and we need to be on the edge all the time. But at the moment, I'm very excited about the opportunities going to next summer and beyond of what kind of a transition we can be doing. To be honest, it's such a fragmented market that the small players have no chance in investing enough in AI. So, I think it's going to be providing us even bigger opportunity going forward then to take over market even just with the basic AI packages we are providing.

I can very much echo that. So, the AI transformation in the industry is obvious, and it's important that our balance sheet is in a good shape so that we can act in this. And there are opportunities for us then to invest internally, but also then acquisitions, and we need to be ready then to act when there is such situation.

Great. I thought CFOs aren't famous for being excited about stuff. So, I'm happy that you had something you were.