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

[Technical Difficulty] Sorry, I have some technical problems here. So let's see now. Okay? Is this is better, Magnus?

Yes, this worked.

Perfect. And then after the revenue and profitability, we will talk about the strategy going forward. And last but not least, a short summary of the second quarter. So let's proceed then. The COVID-19 impact, as I mentioned during the first quarter and my comments in the first quarterly report, we have an ambition to handle the crisis like a tiger with a growth mindset and growth strategy. That means that we will continue to invest in sales and marketing. We'll recruit people. We'll look for acquisitions. And we will launch new products. During the second quarter, I'm very, very proud how we have handled the crisis so far. I'm impressed by the activity levels and the engagement level we have had in our organization in total. We have invested in sales and marketing. We have recruited 45 new employees, and the majority of them will start in the beginning of August. We have launched new products. We have had new campaigns to gain new revenue. And as I mentioned, we have had a high activity level. I'm impressed how we handled the crisis so far. However, we are not done yet. The crisis isn't over. I don't know if it will be a second phase or a third phase during the second half and 2021. However, what I know is that we are ready to handle the crisis in the same way as we have done during the first and second quarter, also the second half of the year: with a growth mindset. With that said, we have had an impact, and we have -- we are affected of the COVID-19 situation. We have customers that suffer. And we have helped many of our customers with better payment terms and also reduced the number of licenses to help them handle the crisis in a better way. We have given customers better payment terms. We have seen a small increase in customer losses and also a small increase in customer churn, not much, but are small. And the order intake from new customers has been low since mid-March until end of May. However, the order intake, both in June and July, has been better than last year, and we see improvement in the business situation around all our markets day by day, week by week, when the markets open up again. The market is getting better. That's our feeling today. If you look at the order intake during the second quarter, as I have said earlier, the customer concentration going down. Today, the 10 biggest customer stands for 8% of our revenue. And the biggest one stands for 1.1%. We have a low risk. We're doing deals with many customers. We have a low customer dependency. Also, when we look at the different verticals, the different industries with their deal suite, they are many different and some of the industries are less affected than others. And we try to look and do deals with customers not so much affected by the COVID-19 situation. For example, utility companies, Göteborgs Stad Kretslopp och vatten, Skara Energi AB, are 2 utility companies we have done new deals with during the second quarter. Membership organization, software companies with a lot of recurring revenue and other industries that are not so much affected. We have closed 2 new bigger deals after we have closed the second quarter, Upplands Motor in Sweden and Dansk Skoleidræt in Denmark. And they -- we'll help them with implementation during the second half of the year. Let's proceed to the revenue then. And our most important KPI, annual recurring revenue growth. We had a growth during the second quarter of 17%. If you look at the support contracts, a decrease by minus 3% and the subscription revenue growing by 24%. We are not satisfied with 17% growth in annual recurring revenue. We have -- as I said earlier, we have helped our customers with reducing number of licenses, better payment terms, and we have also seen a slightly higher churn during the second quarter. And of course, that's affect the annual recurring revenue growth. However, we expect this growth going up when the COVID-19 situation is over. If you look at the revenue streams, subscription revenue had a growth of 24% during the second quarter. That front, licensed money, 1%, more or less, over the transformation. And then we have the support contracts, 14%, on a stable level. And we had a really good growth with high [ short-term ability ] in our expert services department. We expect, however, as a percentage of total turnover, this one going down going forward, but we had a really good month. Good quarter. If you look at the sales numbers, 21% growth during the second quarter and 17% organic. And during the last 12 months, 21% growth in total and 16% organic. If we look at the split between the segments, Sweden and the rest of the Nordics, 21% in total, 23% in Sweden. A really good growth in Sweden as a segment. And in the rest of the Nordics, 15% and they are much more affected because of the countries have been closed down until May. Now that when they open up again, it's getting better and better day by day. If you look at the last 12 months, 36% in the rest of Nordics and 18% in Sweden. Let's proceed to the profitability and Magnus.

Thank you. And if we start at the left-hand side, you can see that we reached an EBITA margin of -- adjusted EBITA margin of 25.6% in the second quarter compared to 19.8% in 2019 and 26.4% the last 12 months. And this is, of course, driven by -- the increase in the margin is, of course, driven by the increase in recurring revenues. But to some extent, also driven by a decrease in expenses during the second quarter due to the COVID-19 situation. And on the right-hand side, you can see the last 12-month EBITA adjusted. And you can see we have had a stable EBITA margin of around 22%, 23% during the last couple of years. And as the recurring revenue increased, you can see that we've had an increase in margin during the last couple of quarters. The EBITA grew by 44% last 12 months compared to the second quarter of '19. And if we then turn to our expenses. Of course, the personnel expenses is the most significant expense in the line. And personnel expenses grew by 9% in the second quarter. But as a function of sales, it decreased to 57%, again, relating to the increase in recurring revenues. And if we look at the right-hand side, you can see the operating -- other operating expenses grew by 13% compared to the same quarter in 2019, decreasing as a function of sales. We have, as Erik mentioned, we've had a decrease in expenses related to travels and other physical activities, reducing expenses in the second quarter. But we've also had an increase -- slight increase in provisions regarding bad debt.

Perfect. Thanks, Magnus. Let's proceed to the strategy going forward then. Capgemini did a market study in '18 about CRM market in the Nordics, and they expected that the market will have a growth, 12% growth per year annually until 2023. Now because of the COVID-19 situation, we expect and believe that the growth will be less than that during 2020, less than 12% then. However, in the medium and long term, we believe that companies will increase and keep the trend to invest in digitalization, invest in software and also the behaviors we have seen in this crisis with more remote work and also less travels and conferences. We believe that companies need CRM softwares to keep the collaboration between employees and also keep track on what the employees do with the customer around prospects, and that will be positive for the CRM market in overall. And we believe we can be a winner in the long term and the medium term on that market. The strategy, as I said, the CRM market will not grow 10% to 12% during 2020. However, we keep our financial targets and that means that we will keep our pace in growth and probably we will win market shares on the CRM market in the Nordics. If we look at -- on the markets, we continue to invest in Norway, Finland, Denmark, and now we also have opened up our office in Netherlands, the first new market outside the Nordics. We have a large customer base with many existing customers. We have compensated some of the lack of new order intake from new customers during the second quarter with sales towards existing customers, both new licenses, expert services and add-ons. And we will continue with that going forward. Platform expansion, we will continue to invest in our platforms, Lime Go and Lime CRM, with new functionality. We have new releases planned during the second half and will also add new add-ons to improve our product portfolio. We will also continue to look into acquisitions. And we believe there will appear opportunities during this crisis, and we would like to evaluate those opportunities. It could be add-ons to improve our product portfolio, but it could also be platforms in new markets. And we will continue to focus on our 4 verticals: utility, real estate, wholesale and consultancy. In short then, we keep our growth strategy. We would like to keep our strategy to be tigers. And we will continue to invest in sales and marketing. We will continue to recruit people. We will continue to look into acquisitions and keep on investing in our markets, our markets in the Nordic, but also in Netherlands. In short, we will prioritize growth before profit going forward. Let's proceed to the summary then. Sales growth. Lime's objective in the medium term is to achieve an annual organic net sales growth above 15%. The last 12 months, we have reached 16%. We are above the target. Regarding the EBITA margin, I have said earlier that we'll be somewhere between 23% and 25%. Now we've had 2 quarters, both the first and the second, with higher profitability than that. We expect this one because we have done a lot of investments during the second quarter and the cost from those investments will affect the second half of the year. We believe that the profitability will go down a little bit, and we should be annually somewhere between 23% and 25%. We would like to use our profitability to invest in growth also going forward. We will prioritize growth before profit, as I said. The capital structure, the net debt in relation to the EBITDA should be less than 2.5. We are at 0.3. And this is good because then we have the possibility to do acquisitions with debt going forward. And the dividend policy is to pay out 50% of net profit. We have paid out 51% of net profit this year. And all our targets are above or in line. The performance is in line with our targets. If we look at the second quarter, the COVID-19 impact, we are affected. But with our growth strategy and high engagement and the high activity levels among our employees, we have reduced the impact so far. We have had a growth of 21% during the second quarter, a good growth. And we have improved our profitability, 26% compared to 20% last year. And our strategy going forward, we keep our strategy, we keep our growth strategy. We keep on investing in sales and marketing and recruitments. We keep on investing in our offices in the rest of the Nordics and Netherlands. Thank you for listening, and let's go over to the questions then, Magnus.