Oneflow AB (publ) (ONEF) Earnings Call Transcript

Okay. So welcome to this meeting where we will walk through the highlights of the second quarter '25 for Oneflow. So my name is Anders Hamnes. I'm the CEO of the company. And next to me, we have...

Natalie Jelveh, CFO of Oneflow.

Thank you. And please use the Q&A function and we'll get to your questions in the end of this deck. So first, some highlights for the quarter. ARR closed in at SEK 171.2 million. This is a growth of 19% year-over-year. We ended July at SEK 173.2 million. Net new ARR was down 33% during the quarter and closed in at SEK 6.6 million. And the main reason for that is related to churn and expansion that you can see from the retention rates below. Net ended at 97% and gross retention at 87%. ARR per full-time employee, up 22%, 936,000, and we had 15% more paying customers end of second quarter compared to last year. So getting close to 4,500 paying customers in Oneflow. So first, 2 slides to those of you that are new to Oneflow, just to give you some idea on what we are doing. Oneflow is a platform for handling contracts, all your contracts, sales, procurement, HR, legal. And this is an end-to-end solution for all the steps in the process. We work pre-sign, sign and post-sign. You can build templates in Oneflow, you can collaborate in real time with your participants, making changes, audit trail, suggestions and so on. So you don't have to jump between word, outlook and so on. You can do it all on one slate. Of course, signing is a part of the application as well, a small part. And post sign where you can manage your contract, you can be notified on key events along the time line, you can summarize, filter. We have a set of really powerful AI features where you can analyze your contracts, you can get advice on improvements for your -- you can scan through all your contracts and find contracts that have some kind of deviation from whatever. So a lot of really powerful AI features, both in the pre-sign and in the post-sign stage. And obviously, contracts is a part of every company's workflows. So integrations are a very, very key area for us. We have more than 20 developers in Sri Lanka working full time only on building integrations and maintaining our APIs. So this is one of our cornerstones in the company. So we have tons of really good integrations to CRM, HTS, HR and API middleware, a lot of different tools. Time is the most precious thing we have in life. And if you can save time, that has a lot of value, and this is what Oneflow is about. Contract is a part of every department, every company across the globe. That's why companies exist to buy and to sell and to hire people and so on. It's all about contracts. So if you can save time, that has a huge impact for companies. That's what we do in pre-sign and post-sign. And if you go for one of the more simpler e-sign solutions out there, there are tons of those vendors. You're only going to save the purple bar on top of the sign stage. So you can see that it's a very, very small part of the potential. The magic happens in pre-sign and post-sign. E-sign is a commodity. That's not what we do. We have it. It's a wheel on the car, but that's not where we put the focus. Then to some product highlights for the quarter. We added what we called signature fields on imported PDFs. Those of you that know Oneflow know that we are not a big fan of PDF. But still, a lot of companies are trapped in all ways of working, so we have to support this. So we are definitely on top of the line when it comes to PDF as well, even though that is not the core in what we're doing. New content tab. This is a very powerful way for people to work with templates to drag in whatever data field section you need. So this is helping to increase the happiness and the ease of use in Oneflow. Before, we only had a marketplace for admins. Now we have it for all users. So you can see all the powerful stuff you can activate to do even more contract magic in Oneflow. We have a lot of eIDs. We have a lot of QES. Actually, we had a discussion yesterday if we had most in the market, we're not sure, but definitely on the -- in the top league there. And if companies should need something that we don't have, it takes a very short time for us to activate it. So we have a really, really powerful suite of advanced and qualified signature capabilities. We support today 12 languages in the application, and we have made several improvements to how the language behaves through the application. We have launched new integrations with Heartpace HR and SwedeTime, 2 big HR tools. And we continue to make improvements to HubSpot and SuperOffice and Power Automate. Main events during the quarter. After the quarter, during the summer, we have many developers working during the summer as well. We continue to work on HubSpot. And those of you that have followed Oneflow for some time have seen that HubSpot goes again and again and again. A lot of consulting firms working with helping companies to integrate HubSpot have told us that we have, by far, the best integration in the market. We already knew that, but it's always fun to hear it from external companies as well. We are definitely a big, big step ahead of competition when it comes to HubSpot. And even for Salesforce dynamics, we are definitely in the top 3 league globally when it comes to powerful integrations. This is a key area for us. New integration with Lime. We have had a Lime integration for years, but we decided to just remake it totally. And also we launched with an HR tool called Tellent Recruitee. I think it's Benelux based in the Netherlands, quite big there. Notes to documents before you only had the possibility to make comments between participants, but now you can even make notes in the documents as well. We have launched a lot of new and really powerful capabilities when it comes to AI Review, more concepts. So you can do -- you can decide how you want us to scan through your contracts and what kind of information data you want us to look for in a much, much more powerful way than you could during the spring of this year. And since Oneflow is a contract life cycle management tool, we have made a lot of really powerful add-ons to our folders and how you can archive and manage your contracts. This is just some of the big highlights. We also launched or opened a new office in the North America. The office is up and running, and we are starting selling in the beginning of September. First day 1, only one guy, but we have a pipe of more people. So we expect this team to be somewhat bigger relatively soon. Location will be in Chicago. And the person that is going to be responsible for this company is not just somebody. This is the person that built up Oneflow North America for Pagero, another Swedish company that was bought and unlisted last year. So he's been living in Sweden -- sorry, in the U.S. for a long time. He's actually from Gothenburg in Sweden and -- but he has done this journey before. And also, I could add that this is not something we do as an experiment. We have actually been selling in the U.S. for quite some time. Around 40% of all business we closed in the U.K. has been from the U.S. And we also have partners in the U.S. So we have a lot of data. We have a lot of customers. So we know what we are going into. So this is going to be -- we are super excited. It's going to be really, really fun to start playing in that little bit crazy land, I would say. Yes, we kind of like it and hate it.

With great potential.

Yes, with great potential. So let's dive into some more numbers. Net new ARR closed in at SEK 6.6 million in Q2 for the first half of the year, SEK 12.2 million, which is down 45%. We had some headwind from currency, SEK 2.6 million to be accurate. So if you adjust for that, we were down 36% year-over-year first half. Around 40% of the ARR is foreign currency. New ARR was actually very strong for the quarter. We had the best second quarter ever when it comes to new ARR. And we also had the second best quarter ever across all quarters when it comes to new ARR. So what pulls the numbers down is churn and expansion, which has been the case for roughly a year now, I would say. So the market is sluggish. It's not the most fun market at the moment, and it's been like that for some time. Do we see some sign of improvements? I would love to say yes, but actually, I would say no, but not the other way either. It's still quite tough out there. And we can also add that we have also signed contracts for SEK 8.1 million that will be recognized after the quarter. So what we report here is the live ARR. So still, there are SEK 8.1 million in deals that will fall into the following quarters, not yet reported. ARR, SEK 171 million, up 19%. If we adjust for the currency, the growth would have been 21% and not 19%, but still, the trend has been declining, which is something that most software companies experience at the moment. It is a different climate. It is tough out there. We have communicated 2 goals to the market. That is to have an ARR growth of more than 30% year-over-year and to become profitable with the current funds. We also said to the market some time now that we are going to prioritize to become profitable. Obviously, we have to do that. So we will not be able to reach our growth market during that phase. So that is still the case. We focus on becoming profitable. And after that, we will work on getting the growth up again at 30% plus, which is our mid- to long-term goal. How to get there? Obviously, there are different factors there. We need to see some kind of underlying market improvements. At some point, that's going to happen. When? I don't know, obviously. We do have a lot of stuff in the products that we are working on that we need is going to have an impact on our hit rate and our customer happiness. So we have a really good picture of what we need to do in the product, obviously, to make customers more happy and to increase the hit rate. And it's not like we're going to continue to do what we have done in the past and expect to see a different result when it comes to go-to-market and how software companies operate. That has changed a lot over the last few years. I would say, if you go back 5, 10 years, how -- ways of working were quite the same year after year. But now for the past few years, things are changing really, really fast. And you have to adopt and change your whole go-to-market motion to adjust to this more challenging market. But this is something that we obviously -- not only we, I guess, all software companies are having kind of the same situation. We don't call it a problem. It's more like a challenge. We think that's also what makes it really fun to work in software because it is hard. It is tricky. This is like playing chess. There are a lot of combinations. But we have a really good idea on how to get through the storm, how to get ahead of the 30% mark again. So we are very excited to see how this is going to play out. Net new ARR -- sorry, that was the wrong button. This is another key metric we love to follow and talk about ARR per full-time employee, up 22% year-over-year, SEK 936,000. Why is this so important? Obviously, because we are an ARR company. 99% of our business is recurring. 99% is recurring. That is beautiful. Gross margin is 93%. That is also beautiful. It's super high gross margin. So we have basically one cost, it's salaries, salaries, salaries and salaries. So that's why this is a key KPI to follow. The beauty of SaaS is that the revenue is recurring. But the challenge with SaaS is that you have to make the investment upfront to have something to sell. And that's why this curve has been increasing from quite low numbers. We -- after the funding we did when we IPO-ed the company, we needed to really, really staff up in the tech teams and so on to get ahead of competition and to maintain the strong position we have with the product today because it's all about the products. It's all about having a really, really good product, and we do. So -- but now we can steer gradually over to becoming profitable. We also did some big changes in the first half of the year when it comes to headcounts. So we have reduced headcounts during the first half of the year. So this line, this curve is not going to follow the same trend as you see on this picture. There's going to be a really big bump in Q3 and Q4. And we look forward to show you that in a few months' time. Retention rates. Net retention, 97% and 87% for gross. This is honestly below our internal expectations. We know the market is sluggish, but this is not where we want to see it. Gross retention is about churn or includes churn and downgrades. And if you add expansion ARR, then you get the net retention. So downgrades, obviously, are included in the gross retention. I know that not all companies do that, but we think that's the way it should be. First half of the year, we had a churn, including downgrades, obviously, of SEK 13.1 million, and that is up from SEK 6.2 million first half last year, is a really, really big bump in churn started to hit us in Q3 last year. And if you look at the mix between downgrades and churn, it's around 50-50. Actually, we had slightly more downgrades than churn in the second quarter, which is, of course, better because downgrades mean that the customer is still, in most cases, happy with the product and it's going to stay with you in the product, but it's more that they are downscaling headcount. So at some point in time, when the market comes back and people, companies start to hire again, we believe that this is going to hit the net retention and pull it back up where we like to be. So drivers for increasing net retention, obviously, the market fundamentals is going to be an important factor. We are, as I said, working on new features, new product enhancements to meet our customers' needs, to make customers more happy and to increase the hit rates. And we are changing how we work, both in the go-to-market motion, but even in the product. So it's a lot of really, really, really big and exciting moments that is going on in the company at the time, which is super, super interesting and inspiring because it's really challenging and it's hard, but it's -- we have a really good plan on how to get there, get where we want. Paying customers increased 15% year-over-year. We ended at 4,400. I guess it's quite 4,500 quite soon customers. It's a lot of customers, a lot of customers. The ACV or average customer value is around 39% -- sorry, SEK 39,000, and this is up 3% since the last year. We are constantly, as I said, adding more features. We are also -- we opened up the Marketplace now for all users to showcase all the stuff that you can add on and buy more in Oneflow. So I'm also working on renegotiation of contracts and so on when customers have had discounts. So it's a lot of different movements that we are doing to increase the average customer value, and we expect, obviously, this to continue to grow going forward. And with that, maybe I should leave the stick to you.

Yes, please. Thank you. More than happy to take over. So I'm going to start to talk about our net sales. So we closed Q2 with SEK 42 million in net sales, which is a 28% improvement or increase comparing to the same period last year. If we look at the year-to-date numbers or the first half year of 2025, we closed net sales at approximately SEK 81 million, which also is a 28% improvement comparing to last year. As Anders mentioned, that almost all our net sales comes from software recurring revenue. So we really are ARR-driven revenue. 99% actually is software recurring revenue, and 1% is connected to professional services. So very much an ARR-driven company. If you look at the shares of net sales coming from regions outside of Sweden, that is also a percentage that steadily are increasing quarter-by-quarter, closing at 41% by the end of Q2. Also, if we look at the net sales by country for the first half year, as you can see, Sweden is having a 63% of the net sales comes from the Swedish region. We're quite strong in Sweden. We've been the longest in Sweden as well. But we're quite strong in the Nordics. So you can see Norway, 14% of the net sales comes from Norway and almost 10% from Finland. And then we have the 14% remaining coming from the rest of the world. And as mentioned previously, we have paying customers in 48 countries. So 48 countries or minus 3 is representing the rest of the world. So quite a lot of countries. If we take a look at our gross retention -- gross margin, sorry, that remains to be quite stable and high, ending up at 93% by the end of the quarter. However, you can see it's quite stabilized in the last 4 quarters. If we look at the largest cost of service sold expenses, that's related to sales commission to our partners. That's, of course, something that we want to see increase because that means that we are establishing more strategic partnerships. Of course, also, we have hosting expenses as part of the cost of service sold. So that's part of that -- in those numbers as well. But again, the gross margin have been quite stable, and we do expect it to continue to be quite stable around 92%, 93% going forward. EBIT and EBITDA. So we closed EBITDA at minus SEK 8.4 million in Q2. That's actually SEK 7.2 million improvement comparing to the same period last year. So we are reducing our losses quarter-by-quarter. If you look at the first half year of 2025, we have an EBITDA at minus 17.1 million. So that's actually a 40% improvement comparing to the same period last year. So really reducing our losses quarter-by-quarter, 40% is a really good improvement comparing to the first half year of 2024. We had an EBITDA (sic) [ EBIT ] margin at minus 20% (sic) [ SEK 20.7 million ] in Q2.

EBIT.

EBITDA -- sorry, EBIT margin. Anders, thank you for correcting me. And the EBITDA margin, exactly, sorry.

EBIT margin.

The EBIT margin, exactly. If you look at the numbers, so EBIT, we closed at minus SEK 20.7 million in Q2. That's approximately a SEK 40.1 million improvement comparing to the same period last year. If you look at the year-to-date numbers, we closed EBIT at minus SEK 40.1 million, which is approximately a 13% improvement comparing to the last year. However, one thing that's important to highlight is that we, during Q2, had a onetime cost of SEK 3.6 million impacting our quarter numbers, and that's related to a reorganization that we did during the quarter that resulted in a workforce reduction. And accounting-wise, we need to take in that full cost as soon as it's finalized. So SEK 3.6 million have affected the numbers in Q2. Now if we would adjust the EBIT was at SEK 3.6 million, we actually would have had an EBIT of minus SEK 17.1 million and EBIT margin of minus 41%. So important to highlight that for Q2. If you look at the EBIT and EBITDA margin, I really like this presentation or this slide because this is really visualizing how we are reducing our losses quarter-by-quarter. Our main focus, as Anders mentioned, is to steer Oneflow towards profitability. We always review the way of working. We review the organization. We make sure that we have the best talent in place. We work as efficient as possible. I mean the reorganization is part of that. And also with increasing in ARR and ARR growth, that combined with a stabilized cost base, we are driving Oneflow towards profitability, and we are reducing our losses quarter-by-quarter. Again, if we would adjust EBITDA for Q2, the SEK 3.6 million that we have in onetime cost, we would have, of course, a better EBIT margin of minus 41%. Our financial goals are not changed. So as Anders mentioned in the beginning of the presentation, we have a year-over-year ARR growth that should be above 30%. But also, as mentioned, in the short time, we are focusing on profitability. In the current market situation, we understand that we will not reach the above 30%. However, this is a mid- or long-term goal. And our aim is, of course, after reaching profitability to focus on accelerating growth and reach the 30% or above 30% in ARR growth. Our second financial goal is to reach profitability with current fundings, and that is something that we actively are working with every day. All right. So we move on to the Q&A, and let's see if we've received any questions.

Okay. I can read the first one here. So could you elaborate on the FTE for the quarter? Last quarter, you ended with 157 FTE, and now it's 161. Have you hired during the quarter while still incurring restriction costs? And what should we expect to see in Q3?

All right. I can answer that question, if that's okay with you. So of course, I mean, when we look at the FTEs, we look at all the active employees that we have contractually. And then there could be cases where, as mentioned, this workforce reduction, those people that have been affected are still included in our numbers. And as Anders mentioned, we will see an improvement in ARR per FTE in the upcoming quarters because, of course, we are growing in, but also we are lowering number of headcounts. So the difference between Q1, as you mentioned here in Q2, that is due to the fact that we -- yes, sometimes we are hiring because we realize that we need specific talent to join our journey. So that may happen. However, we are quite restricted with recruitments. And our ambition and aim is to have the top talent in our organization to make sure that we drive Oneflow towards profitability and growth. That's the main focus.

Yes. So the FTE curve is definitely heading down. But obviously, it's not a straight line, and it's always a little bit up and down. Some roles you need to replace, some roles you just need to have. But overall, this number is going to are going to go down now on a floating basis, so to say. I can read the next one as well. So this is -- could you just clarify exactly how the ARR with this new method? Is it last month's recurring revenue times 12?

All right. So I can take that one. So clarify exactly how the ARR with this new method. So basically, with the new method that we are doing, so as soon as our contract is activated, so basically, when we start to deliver service to the client, that is when that is activated as ARR. So compared to how we did it previously, that was as soon as the contract was signed. So as soon as we had a signed contract with a customer, then it was activated as ARR. Now it is actually when you can say the invoice is starting. So when we start to deliver -- the license period is starting, that is when we activate the contract or the value of the contract as ARR. So that's the big difference, and then when it leaves ARR. So basically, when we get the churn, it's on the contract end date, that is when it leaves the ARR. So that's the big difference between how we did it and how we -- what we are doing right now. Now the next question if the new method -- so is the month recurring revenue multiplied by 12. No, not really because we take in the full contract value in our ARR. So basically, as an example, we sign a 2-year contract, they get 50% discount the first year. We're still taking the full contract value. So it will never be 100% equal to the revenue. However, in the long term, it should be. But in the short term, it's not because we take in the full contract value. However, we only invoice the first year 50%, right? So that's the difference. Did that answer the question?

I think so. Yes. But that's only the case when it's kind of discounts. So it's not like exactly a big impact, but still. So what we actually reported before is what is also commonly known as CARR, where C stands for committed or contracted. But this KPI is not so kind of, I would say, known, not so many companies talk about it. But it is quite common. We've seen for SaaS companies to -- sometimes they report ARR. Sometimes they report CARR, but they still call it ARR.