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Welcome to this live Q with Formpipe. I will be back later for the Q&A session and you can already now post your questions below the stream. But now it's time for a presentation with CEO, Magnus Svenningson; and later will also be joined by CFO, Joakim Alfredson.Magnus, you're welcome.
Thank you very much. And it's a pleasure to be here at Redeye as always. And we will -- I will start talking a little bit about the quarter, a little bit about our business and then I hand over to Joakim to dive into our numbers a bit and then I'll be back with more information on what we're doing within Formpipe.So first of all, a short summary of the quarter. Net sales came in at SEK 125 million. And that is, of course, something we are not happy with. We -- this is related to Landbrugsstyrelsen, which we have elaborated previously in our reports, but it's also related to some consultancy delivery delays in our Danish operations.ARR is up 11%. And this is something we are -- we see is good. It's a good feature of our business model to see this annual recurring revenue continue to increase. So that's something we are pleased with. Then if we look at the ACV, SEK 6 million, there are some -- we're not quite happy there. There are a few things and I will elaborate a little bit more in detail around ACV later on in the presentation.But I would like to highlight the SaaS revenues that are up 36%, which is again good business model. And then, of course, with decrease in net sales, it trickles down to the profitability and this is of course, something we are not happy with. But I would like to highlight the fact that the private revenue increase is trickling down to the EBIT line, which is a good sign of the scalability that we are now starting to see in the private business area.I also would like to talk a little bit about business because I think it is very interesting to see how we are developing. It was a bit of a slow quarter. However, some new businesses, then Utbetalningsmyndigheten has chosen to go with us. That's really sweet. Sametinget, we have Lunds University extending for a long time and that is sort of one of these very nice things with the public business model. We have a very solid footprint in the public sector in Sweden and DenmarkThen if we look at our private business area, the Lasernet platform, ACV from bank and finance, very good. We took in 6 banks this quarter and this is approximately where we want to be with the ACV intake or the number of deals. Microsoft Dynamics, there we did 13 new deals and that is not really what we want to see. We want to take in more ACV there.And again, I'm coming back to the things we're doing to accelerate the number of deals we will be doing in the Dynamics ecosystem. I just wanted to talk about one cool deal. It is Madisa CAT. It's a caterpillar company and we now have [ Pograsbrerd ] and caterpillar excavators as clients to Lasernet. And I think this is sort of a cool example of how widely, how horizontal the application of Lasernet is and shows the potential in that product.And with this little introduction to the quarter, I would like to hand over to you, Joakim, to give us a little bit more details on the numbers and more flavor to that.
Yes. Well, as Magnus already pointed to, this quarter sees some decrease in the delivery revenues, which, of course impact the profit lines quite drastically also. The delivery levels are down 40% compared to previous years. A lot of that is attributable to the new agreement with Landbrugsstyrelsen in Denmark and we talked about this before. But of course, in comparable numbers it's a big difference.But we also see that we have had a bit of a soft start in the delivery side in the Danish side of the business in particular. This is not a consultancy that we've lost or customers we've lost. It's just a sort of a temporary delay in that revenue stream, so it will come back, but it hurts us in this quarter.What we do see on the positive side is continued strong growth in the recurring revenue line which is up 15% and now covering as much as 80% or above 80% of our total revenue, which is very positive and is driven, of course, by the SaaS line that you can see is up 36%.Looking at the cost side, we see that the costs are on similar levels as last year. However, diving into the specific lines, we can see that the sales expenses are down SEK 2.5 million and that is coming from 2 things. First, the delivery organization in Sweden is now doing more of the delivery themselves, which means that we use less and less subcontractors in those -- for those revenues.So Sweden is working better and better and now are at sufficient levels of billability rates which is very nice to see. And it's also attributable to the fact that we have a phased kickback model with the partners to Lasernet for subscription and SaaS deals. And now a couple of years in, they are down on a lower percentage level on kickbacks which is now visible in the sales expenses line which is good.Next line, other costs are up. This line is, of course, hit a lot by the cost inflation we've seen in the overall market. But also, we can see cost inflation coming through very much in the offshore expenses we have. The personnel costs are on similar levels as last year even though we have quite a few heads fewer. And of course, also here, the salary inflation has been impacting us as well. What can be said is that the reduction in staff is primarily in Sweden and then Denmark, while we have increased our number of employees in the U.K.And yes, the British pound is the currency that has strengthened the most against the SEK over this time frame. So we're hurting a bit there, but hopefully that will come back. But U.K. is where we have built up resources around the Lasernet product basically. We also have in this quarter some restructuring costs with the formation of the one public business area.So a bit of one-off cost there, not as much that we will put them on a specific line, but there are some one-off costs in there. Summing this up, of course, as Magnus already pointed to, we're not very happy with this profitability in this quarter. However, we see it as a temporary hiccup and that much of it will come back already next quarter.Looking at the business areas, it becomes very evident here that the reduction in delivery revenues in the public side is quite drastic as you can see. But what I really want to point to is the fact that private is growing the revenue only through the SaaS line. The other revenue lines are actually contracting. So we're strengthening the revenue mix here quarter-by-quarter and it looks really, really stable and good going forward.And the profit is now coming within the private business. Last year, we just broke into black figures. And this year, we're having a margin of 11% in this business area. So we see the scalability shining through there, which we're really happy to conclude.This slide you have seen before, I've actually now changed that figure to about 80% from about 70% last quarter. So that is good news. The graph pretty much looks the same as always, but we are updating this, I can assure you. But we are continuously growing the recurring revenue at a good pace, 20% comparing revenue rolling 12 months periods over the year. And we have been growing this at a good rate for quite some time now. And comparing those to the operating costs, we see that we are also scaling here.Yes. Turning to the ACV. Magnus has already discussed it a bit, but we can see that with this quarter again has a positive effect from the currency fluctuations. So our ARR has grown SEK 40 million only by the currency. But the net ACV is summing into SEK 6 million positive where SaaS is what has driven that number. As Magnus already mentioned, we see that we continue to have good traction in the banking side of the private business with 6 new banks in this quarter and we pointed to this already last quarter and now we see it again.So we are hoping that this will continue and its terminals primarily driving this for us. So private clocks in at SEK 5 million in ACV compared to the SEK 4 million last year and public clocks in at SEK 2 million positive ACV compared to the SEK 7 million last year when Denmark had a really good run and when upgrading their customer base to the new frame agreements in Denmark.We also have, in this quarter, a bit of churn in the private side. And this is -- SEK 2 million of this is attributable to older systems from the life science and the legal side system that we now have in maintenance mode and not focusing so much on. But as of course, it shines through here in the ACV. So SEK 2 million negative this quarter on those older systems.Summing this up, we can see that the ARR has grown to SEK 426 million when we're exiting the quarter, which is up 11% from last year. And that was it for the numbers side for now. Yes.
So as mentioned in the last report, we are launching what we call Pursue Potential program and it's around building one public business area and also overhauling the customer journey in the private business area. We tend to say that it should be easy to find, consume and use our products. And I'll elaborate a little bit on the progress in these 2 transformation tracks.And if we look at the public business area, we are now since 4 months operating with one organization to serve the market. And we are analyzing the product portfolio. And we are doing this in a sort of pragmatic and fast to succeed. I'm not using the word fast to failure, I'm using fast to succeed approach. And it is a -- as you know, we are delivering operating applications that is mission-critical to governmental entities in Sweden and Denmark.And this means that these tasks needs a fair bit of respect. It is mission-critical applications, a lot of data, a lot of critical data that we are handling. This opens up for a lot of business opportunities on how to analyze the data, how to protect the data, et cetera, et cetera. So this has to be used -- this analysis has to be done with care so that we end up right in the new offering that we will bring to our customers.I also want to emphasize the fact that primarily, we are, of course, operating the business as usual to deliver -- to make this transaction -- transformation with good profitability in our business, I say. But one example here is sort of a very cool product we have had some success with in the Danish market, which is called Adoxa, which is a GDPR product. It's a product that help organizations to apply to GDPR regulations.So if I'm about to handle personal data, e-mail addresses or personal identification numbers, I get a warning and it is a good thing. So now we're trying out. We're making a little fast succeed to test to see how we can implement that product in the Swedish market. So that is one little small example of how we are attending to this and I will be back in the next quarter with some more information on the progress here in the one public transformation.One other area that is of importance here is our go-to-market. We are very well-established in Sweden and Denmark and we have a very good customer dialogue. So this is from this recent quarter where our one public area had about 180 persons visiting us in Stockholm to talk about the challenges of digitizing the public sector.And we do similar things in Denmark in an event called [ Impulse ] that we have in the autumns. And of course, here is another area where we see that we can contribute and facilitate discussions on how public sector should develop in the future. So this is also one interesting area of the one public business area.Now coming back to private. This is where we said we should do a business sort of a customer journey overhaul. And first of all, a little bit easy to find. We are looking at the ACV numbers I spoke about in the beginning. We saw that this is -- we can probably do that better. So now we are doing 2 things to make us easier to find primarily. It is a head of marketing for Dynamics in the U.S. and it is launching a new products packaging, where we have a freemium business model that will make it much easier for our users to find Lasernet in Microsoft Marketplace.We have also seen, I think I said this last time as well, that most of our deals is done in one go. That means that most customer buys fairly similar offerings, which means that we are sometimes a little bit seen as a little bit expensive and sometimes customer gets quite a lot of value from our products. So now we are tiering our products with -- so that we have a starter, professional and enterprise level. I'll talk a little bit more about that in the next slide.But again, we are moving to getting more value out of the market. And then we said that we should accelerate our partner-based presence in bankings and the bank and finance ecosystem. And we are doing this by acquiring a very small team of persons in France called [ Dichtomatik ]. But they bring some cool things. They are very well-established in the output management market. They are based out of France.And we won the French bank. One of these 6 banks we spoke about is Bank Algeria in France. And they said that we need French implementation resources. And with this team on board, yes, we have a solid team that can deliver output management. So it's a really good add-on to what we do.They have long experience in the business of Lasernet, but more to it, they are also into SAP and INFOR. And we are very focused on bank of finance and dynamics. But now we can make a good estimation on a contained market whether is SAP, for example, is the next ecosystem where we should dip our toes. So we get some IP on connectors and stuff for SAP, so that will also be interesting to see where that leads.Now coming back to our tiered product portfolio. With the start of -- within Q3. So we're starting the launch here in the second quarter. But in Q3, Lasernet will be available in Dynamics marketplace. That means that anyone using Dynamics can download a version and get started and to try out the offering, et cetera. This means that we will get totally new way of generating leads to our partners.And from my previous roles, I've had a lot of experience from open source business models and I know that sort of when you do a bottom up sell, getting out to the users is crucial to sort of initiate the sale cycles. So we are very optimistic about what this freemium business model will do for one, our customers, of course, because it will be easier for them to detect that Lasernet is there.It's very good for our partners because our clients will be well-served by our partner network, but will also help our partners to grow because we will generate leads for them and help them grow their business. And then, of course, finally, with this tiered approach, we will get a better value out of our product and from the market. So really exciting things from private.And then, of course, coming back to our financial targets. Just want to say that Formpipe, I and the team are continue to work towards these targets, some of those working out well. And as I said, we have this bump in the road this quarter, but we continue to work hard towards these targets.And then before I round off here, a few key takeaways. I see the slowdown on the Danish markets as temporary. I would like you to think about the how private is now showing scalability, the revenue increases are trickling down to the bottom lines, also the good traction, the banking and bank and finance ecosystems.And also the good plan for ERP, more marketing, new geographical expansion into France, Spain, Italy. Potentially also in the longer perspective into dipping our toes into new ecosystems. And then the new Lasernet offering where freemium will be a lead generator that will nurture our ecosystem in the Dynamics areas.And with that said, I'm coming to an end of the presentation and I think it's time for some Q&A.
Thank you, Magnus and Joakim. I think we should start with the headline sales and EBIT numbers. And as you mentioned, they are a bit on the soft side. You touched upon the Danish market and so on. Could you elaborate a bit what -- why is this temporary?
It is, one, it is around the Landbrugsstyrelsen agreement. And I think we have sort of elaborate that quite a bit that we are moving delivery revenues up to maintenance. And now that effect is sort of clearly visible in the P&L. When the clients are using the application, there will be need for new deliveries, but that is a transition that takes a few quarters.And so we're starting that journey. And it will take few more quarters before that really is happening. And then we -- in our deliveries, our deliveries are tightly connected to our applications. Our applications are mission-critical for our clients.This is an advantage because we are sticky, we can have good hourly rates on our consultancy, but it also means that consultancy needs to go hand-in-hand with product releases because if certain functionalities are missing in a product release, then you can't build new functional on top of it.And this is what has happened in this case that product releases is getting little bit delayed because you need to be thorough with testing et cetera given the environment and then we lose some momentum in the delivery of consultancy services. So this is why I see this as a temporary bump in the road.
I see. So let's look at the Swedish market, the public Swedish market and the deliveries there. I mean, you have been ramping up that organization. What's the status right now?
So Sweden is -- we are having good momentum in the Swedish business and we have started to recruit personnel. We have already recruited handful. And of course, again, coming back to our, what we -- the applications and the services we are delivering to our public customers, it is a bit of a handcraft. You need to learn the applications, you need to know -- learn the environment in which they operate because it is lot of legislation, the rules, et cetera. So we are ramping up these people.We also see a good billability in the Swedish delivery organization. We also see hourly rates ticking up more and more towards a level where we are sort of -- where we are pleased. We have a bit of more work to do there. But again, the [ trajection ] there is really looking promising.
Just want to add there that we're now in Sweden starting to see the effects from actually terminating those partner agreements back in last year. So projects are coming in and we are having an easier task to plan our work and plan our staffing in Sweden now, so it's good news.
Interesting. And I know that some of the more generalist IT consulting firms targeting the public sector in Sweden have had a quite pessimistic picture about the market environment. It's not really the same market as you are targeting, but in some ways, it's the same budgets and so on. What's your outlook?
No. We don't see that right now. We see a still a good demand for our services and of course we are a very small subset of the large governmental IT services markets, so from that perspective what we see right now these changes and adaptations needed to do to our platforms, there is still sort of a demand to perform those.
And we are in the beginning of building up this delivery capacity in Sweden, so it's a long way to go before we hit the roof and start to going in variance with the market at large. So we have some growth to do there.
I see. So let us move on to the private segment. And I think the ACV was actually slightly stronger than the same quarter last year, but it's still, in my view, below where you need to be to reach your targets. I mean, what's your view? Are there anything you can do better? Why aren't you growing at a even higher rate in this quarter, if you know what I mean, in ACV terms?
I think there are a few things. Joakim pointed to one there. We do have our core offering is Lasernet, but we do have some sort of some adjacent offerings to the health care sectors as well. We have some surrounding products, which we are now churning out because we want to focus on Lasernet.So there we see a bit of a drop. And then I believe that we have a -- primarily for the Dynamics ecosystem, we rely on a partner model and that is fantastic because it gives our clients a very good service package that brings our product into context, fantastic.But it also puts us a little bit in the back seat in how the deals are closed because if you buy a new ERP system, maybe output management is not the most crucial thing for our partner. Now we want to change that and this is why we are recruiting -- we have recruited a head of marketing in the U.S. to drive this demand from the end user, which will support our partners to grow their network.And it's also why we are introducing the freemium business model. As I said I have a lot of experience in those kind of business models and I see that it's a good way to keep your customer acquisition costs decent yet getting a good penetration out there and of course when all Dynamics users has the ability to find us at marketplace, of course and you don't need to pay to get going, of course, you had reduced the threshold to get started with a fantastic product quite significantly.And then again, geographical expansion, now the Latin American -- the Latin countries, of course, we can do more there and with language, cultural skills combined with deep and thorough output management skills, of course, we have a little kernel to grow and expand there as well, so sort of 3 roads forward there to accelerate the ACV buildup.
I see. So let's continue with the new versions of Lasernet. I mean, as far as I understand, your current offering is closely related to what you now will call enterprise. Is that correct?
Yes. It is sort of -- it is a very sophisticated product, which everyone -- and that, of course, ideally, of course, I mean, you want to make the threshold as low as possible and you want to be able to do a land and expand approach to the customers.And again, as you said, yes, our offer -- we are selling now a very sophisticated product to all of our clients and this is what we want to change because that product itself for a lot of clients it has a much larger value and of course we want to harvest that value.But again, if you don't want to drive a Rolls Royce, maybe you should have something simpler to drive as well. So we need to have some tiers there to get the maximum value out of the market and again, getting into the new accounts simply. You don't want to pause the critical CFO just to get started with a new fantastic product. Yes.
I see. So you've touched upon a lot of the possible benefits of the new model. But I mean, there might also be negative sides of it, cannibalization, both to the professional solution or even the freemium solution. What's your view about that and those risks?
It's a very good question and I have a lot of experience on working with open source softwares and that kind of models. And I've seen how fantastic it is and how a good open source software takes into account that you could never dream of if you were to take them sort of in a way with sort of an ordinary sales staff, et cetera.Now what's important here is to work with a delta, the delta between freemium, between professional, between enterprise. And the good thing here is that we are in total control of the delta.So of course, we will limit that in a way so that the freemium software makes sense to get a good understanding. You can do stuff that are important to you, but of course the things we do with Lasernet is also critical for the customer.It's invoices, it's delivery notes, it's all of these sort of documents that keep your value chain going. So of course, after a while you want support, you want more features, you want to be supported by partner networks and of course, these then forms the part of the delta. So I'm not too concerned about that, but of course it's something that we give -- pay a lot of attention to.
Okay. So in short, you can put it like you're quite confident in the capabilities and the value of your product. You just want to get the companies to try it out.
Yes. And I mean this is one of the amazing things with Lasernet. It's been around for 25 years and if you worked a lot with software, there is one thing which is coding and it has its challenges. But what is really challenging in software development is to thoroughly and fully understand the problem we are solving and we have had a chance to do that for 25 years. So we are very confident in sort of in the product itself, how it's built up in the team around it because we genuinely know this little niche of the market.
Interesting. So once again, I want to highlight the opportunity to ask questions below the stream and I think we got one question from the web here. Could you describe the importance of Lasernet for future earnings?
Oh, absolutely. It's a good question. And we said -- when we talk about this, we say that private is now 40%, something like 40% of our total revenues around there and of course, this is where we see that we can do much more and the Lasernet platform and how that can expand geographically and in other ecosystems as well is very important for us.It's -- also and I think when -- I spoke a little bit about some customers in the beginning, the fact that Pograsbrerd or Carlsberg, the brewery or the Caterpillar excavator company, they all use Lasernet. It says something about the need for it and the demand that is out there for us to work with. So yes, it is important.
It's a rather large question, of course. But I mean Formpipe is basically 2 legs. One is the public side, which should be a stable business, a huge customer base, high level of recurring revenues, cash generative. Then we have the Lasernet business, which we view as a scale-up business that has just broken into profits and now are scaling for real. So profit generation going forward will be very important and something that we are looking forward to.
Okay. So the new suite of products for Lasernet, I mean it's, of course, hard to say, but when do you expect to see some kind of positive impact in the numbers from this? I mean, is it 1 year, 3 years?
No, I would say 1 year because, again, penetrating, I see that this will help us penetrate the Dynamics ecosystem much faster. So I am optimistic that we could see something in the numbers a year from now.
As shown by the name there, freemium is, of course, not generating a lot of income. But these are customers that we're not really touching today. So they're not in play for us. So if we can get in on those customers and they will soon understand that they need what they can do and what they want to do with the product. And therefore we can scale with them as well, so it's customers that we weren't really touching before.
I see. We got another question from the web. When acquiring the partner EFS a few years ago, it really added an extra gear to the sales of Lasernet. Even though the new company is smaller, would you expect a similar positive effect on new sales now?
It is significantly smaller. So no, I would not. I see it as a core from where we can build because if you have the cultural skills, you have the output management skills, of course, then you can recruit very sales, tech sales resources and you can start to build organically.So it will -- there you need a little bit more patience there. But again, it is a low-risk way to scale into a new market and into new ecosystem that is sort of promising and it will take some time to really harvest -- to see that in the numbers.
I see. But it's still kind of the same type of acquisition, I suppose, you can say?
Yes. I don't -- yes, it is. I mean we are acquiring a thorough solid competence around what we do. And of course, with that in place, you can then -- you can scale much easier to a much lower risk.
What the EFS acquisition gave us was, of course, the entry ticket to Temenos because they had really long relations with Temenos and we're part of that. What we have done there is develop that relationship. So we're now included in the Temenos road map and we're included in their offerings, et cetera. So we're much closer to Temenos now than EFS were before us acquiring them, but it was the entry ticket to Temenos, so it doesn't really hold the same thing with this acquisition.
I see. Thank you very much, Magnus and Joakim.
Thank you.
Thank you. And thank you to all of you out there.