Mapspeople A/S

CSE:MAPS

Earnings Call Transcript 2024-Q1

[Michael Friis]

Welcome to today's event, where we have the pleasure to present MapsPeople. So today's presentation, we are joined by you, CEO, Morten Brøgger; and CFO, Christian Laeso. Today's -- the topic of today is here on the front page, your Q1 '24 update released yesterday, the results. As always, you're very welcome as a viewer to ask questions in the box down below, during the presentation, but I think we will take the primary Q&A in the end of the presentation. But for now, I'll hand the call over to you, Mort.

[Jens Brøgger, executive]

Thank you. We'll try and split the presentation evenly between us. I get to start, and Christian gets to go through the exciting numbers as well. So Q1 was just a continuation of our business. I'm tempted to say. We've been here a couple of times. There are some things here. We are very pleased about showing. And I know some investors been eager to actually see in the hard numbers. And there are some things that we think we need to do a little bit more and faster going forward, right?

So let me just take you through some of the hardcore financial KPIs, how they're going. The first one is our total annual recurring revenue. which over the past year, has grown 52%. We are needed to say, still like extremely happy about that, and it is above the benchmark. The quarter-over-quarter growth was actually only DKK 1 million, some of it because we had a contract that got reduced from one of our partners. I'll get back to that a little bit later. But it is one of the areas where we are expecting to sell more and accelerate in the coming quarters, naturally.

If we break it down into our MapsIndoors, the core product that is generating most of the growth, we're still in close to 100% growth, 93% year-over-year, and it is growing. You can see that fundamentally delivering all the growth we had in the quarter-over-quarter numbers as well. That is exactly as we've planned, and that trend is continuing.

Now what -- we know that a lot of investors have been eager to actually see in the hardcore numbers. It's like, okay, can we please see this annual recurring revenue materialize itself and first, the recognized revenue. And we are actually seeing this doing exactly as supposed to be right now. On a year-over-year basis, our recognized revenue is up 65%. And it is now up to DKK 14.5 million in the quarter, which is also a fairly significant growth. It's around 35% quarter-over-quarter growth that we have here. And that is really all these new contracts and ARR that we got started during the second half of 2023 that now is fully materializing itself into the recognized revenue we have.

And if you combine that, of course, that's a good thing when it comes to like a positive development on the EBITDA level and the profit level. Revenue growth is clear to do that, but the other part is as people who's been following us knows we did trim our organization. We did optimize. We did simplify our organization during last year and reduced the cost. And you can also see that this is now materializing into the EBITDA. It's still a negative EBITDA we have, but it's 41%, almost 50% improvement. So we halved the deficit on a year-over-year basis. And you can see on a quarter-over-quarter basis, it's also a 41% improvement. So you can see that the revenue growth and that we now almost have all the cost reductions fully materialized in the first quarter, that the EBITDA level is following exactly as we have planned and outlook up until so far, right?

So these are the results we are like super, super pleased that the revenue is growing up. We are super pleased that you can see this in the EBITDA, and you can see the EBITDA improvement is bigger than the revenue growth. You can see that the cost is 100% taking its toll on that as well. So that's really a good thing. The guidance we gave in the beginning of the year with the annual report, we stick to that.

The ARR is guided to be in the range of DKK 72 million to DKK 80 million at the end of the year. That means we have around 20 -- at least DKK 20 million, but ideally DKK 25 million to go, right? And that is still the plan that we're working according to. It will be better in Q2 and 3. But the way our business is fundamentally built, a lot of that will come in Q4. Those who followed us will know that Q4 is always a big quarter, you know that our net retention rate -- net revenue retention is 111%. That is normally associated to when contract runs out, and most of our contracts are renewed in the fourth quarter.

So there's a lot of growth from existing customers and partners in that quarter. It's also where we have all our contracts indexations that when they renew. So a lot of growth coming there. And then the fourth quarter in our business is always the biggest quarter for some reason. The end of the year is where a SaaS enterprise SaaS business assigns most of their deals. It's not just us. It looks like it's everyone, right?

So a good chunk of that growth we're expecting to come in the quarter, but you should expect the ARR to grow faster in the -- as of Q2 and Q3 as well. But the guidance we stand by the guidance, DKK 72 million to DKK 80 million at the end of the year and a recurring revenue. Revenue we guided that recognized revenue should be somewhere between DKK 58 million and DKK 63 million. The smart listener with the calculator will understand that 14.5 times 4 is actually 58. So that looks good. We expect that recognized revenue will continue to grow as we put more ARR live.

So we feel fairly comfortable that we'll get within the guided revenue range here as well. EBITDA we guided between negative DKK 20 million and negative DKK 25 million, and we are very pleased that the quarter-over-quarter, you've seen the improvement in our EBITDA. And as the last tiny bit of the cost reductions will have full impact in Q2. Most of it already have impact in Q1. And as our recognized revenue growth over the year, we feel that this is within reach, and the guidance is unchanged from our point of view. So that was a little bit the highlights and the numbers.

Christian will go in a bit more details about these. If I should add a couple of like qualitative comments around this one, especially about Q1, we wrote that in the report as well. The new sales booking was at DKK 3.4 million. We only grew around DKK 1 million. You saw that in the numbers. We had one extraordinary customer contractions one of our existing customers, actually one of our five largest customers. But they had one value-added services that got disconnected. That was absolutely planned because they have paid for that, and that's now part of our standard product. It just came like a quarter earlier than we anticipated.

And then some of these contracts need to be put live as well. So that was a little bit live, we would have wished that we sold more in the first quarter. We'll be happy to say that, but we did close the business. we had this contraction and everything is kind of like planned. I think the good news is that we manage and we even put out a company news about this. We managed to close a super interesting contract for us for a very large U.S. real estate company, where we expanded that contract with the -- beyond the 3 months that has already left in the contract, we added 3 years to it, but there was quite a significant growth in that 3 years and 3-month contract is now DKK 5.2 million.

I was actually agreed that this customer would pay the entire contract upfront when they start going live, which is planned to be early Q3. That was a super nice contract. We're very, very happy about that one, and it's generated quite a bit of attention from similar types of customers. As I mentioned, the ARR growth in 2023 is now starting to show in the growth in our recognized revenue that is as it's supposed to be, but it's good to really see it in the numbers.

And on top of that, the cost reductions from '23 is also positively impacting the EBITDA. So the EBITDA improvement is bigger than the growth in recognized revenue. So we're very pleased about that. And despite this contract, customer contraction of the DKK 900,000. I mentioned here in bullet 2, we actually had a net revenue retention rate at 111%. And those 900 actually counts negative here, but clearly, that large U.S. customer contract was pulling it up. So despite we had this contraction, that was extraordinary and unplanned, we kept a very high net revenue retention rate. We're very, very pleased about that, to be honest.

We are working hard to make sure it stays at that level and even see if we can improve it in the time to go forward. This one is what we mentioned. It just shows that our other licenses are relatively flat, and the year-over-year growth in ARR is really coming from our corporate MapsIndoors. It's exactly as planned. And we are very pleased to say this. I will however, add one comment in it. We have started a couple of initiatives because we feel that we have time and energy an opportunity.

So we are starting to look into how can we in the second half of this year, try to accelerate our other licenses business, whether it has a significant impact in 2024 or whether we will start seeing some of that impact into the coming year. It's a little bit too early for us to say, but we have -- we've started a couple of initiatives with a clear purpose to also grow that one a little bit as well. So that will be interesting to follow from our point of view. But the plan is our core product, MapsIndoors, indoor maps is the main growth engine of Mapspeople, and it is developing exactly as we planned and as we have hoped for.

Now I'm going to change topic a little bit. I'm actually going to talk about the product because numbers are numbers, and it's clearly a result of like good people and a good market. But in the end, you need to have a strong product. That definitely helps a lot in this one. So I want to talk a little bit about that one because we've been working pretty hard on it. I just want to summarize or resummarize what I call like the free like base value proposition than when we are guiding ourselves according to when we have our product. We deliver indoor maps.

And those of you who've followed us, just the picture I put on this place. The first one is we want to have the best looking Maps, because we are a visualization component and visualization layering in all these smart building applications. And clearly, end users like to look at something that looks great and not at something that looks less great or even ugly, right? And these have been this big bet in 3D map and high-definition Maps and the partnership with Mapbox that we've added into this one as well that is driving this one, right?

And it's clear then we see that this is now the adoption of this is absolutely accelerating with our existing customers, and there's a clear interest in this, which fundamentally means it works not just for us but also for them by having a good-looking map visualization layer in these smart building maps allows our partners to attract more new customers. So they are growing faster. And every time they grow, we grow a little bit.

It reduces churn and thereby, it increases the net revenue retention rate, right, for the partners and thereby for us. And actually even on our business by making sure that we have good looking maps, our churn gets reduced. Our growth gets faster and it's easier to attract and win new customers and new partners into the business as well. So it has like a positive impact, and we're starting to see that.

That's one thing. That's the history. You can see that. It's going to continue that. It's being increasingly important. The second value proposition we have is what we call deliver our Maps really fast. Using our machine learning capabilities, our automation tools to make sure when an end customer or a customer or an end customer, one of our partners needs a new Map, like our partner wins a new customer, we win a new customer, they need a new Map.

No one wants to wait to get delivered what you have bought. So this means like being able to deliver that relatively fast and having technology that does this automatically and not by adding more people into it, right? Clearly, being able to deliver a fast positively impacts our net revenue retention rate, it clearly positively impact the partner, customer and end customer satisfaction that we're generating here, but using our automation, machine learning capabilities also makes us capable of doing this in a very cost-efficient way.

And thereby, we have a very cost-efficient growth scalability in producing new maps to our customers. There is something we've been working on a long time. You've heard automation and stuff like that from us for a long time. The third thing which I'll elaborate a little bit on the following slide is that whenever you have an indoor map in your smart building solution, they need to be constantly updated because if you have a desk booking solution and you have changed the desk or you have changed the room, if the Map is not accurate to how the world -- the real world is, no one wants to use it, right?

So actually updating your maps whenever you have changes is extremely important, right? And this needs to be fast, it needs to be cost efficient, it needs to be seamless to make this update. And this is where we have invested quite a lot in lately, and we're seeing this is panning out really, really well for us. This is becoming a differentiator for us to grow fast. We can add that you have more map updates included in your service as well because we can do it automatically. This helps the partner grow. It helps them take care in a more cost-efficient way their end customers. It helps them retain their customers and thereby, it also retains our business.

So this has some very positive like fundamental impact on customer acquisition on revenue retention, churn reduction and all these good stuff for our partners, but thereby also for us. We did have -- we worked a lot on this, and I'll dive a little bit into the 2 slides. One of the things that we have launched and working with internally is what we call MapsIndoors AI because we're now taking these machine learning algorithms, and we are taking them to the next level, and we are developing more of them how to identify objects, how to replace objects, how to identify what is the door?

Just give you an example. There's approximately 5,000 different ways to make a door in a CAD drawing, right? So the machine needs to be able to recognize this is a door and it has to replace it with a door in the indoor map, right? How to make routes work and say, hey, if someone has moved the desk, then the route has to be automatically updated because you cannot walk through a desk, you have to walk around it. Like how to use these algorithms to do this and building that into a real indoor tool on how we maintain and constantly update these maps. And we started training that on the 25,000 buildings that we already map. And very few in the world is doing this one.

So this is becoming like super, super important for us. One of the first thing where we had a soft launch very recently is a new value-added services that we put in the market, which we call map update automation. So spot into this third value proposition I spoke about, how do we seamlessly fast and very cost efficiently maintain and update the maps every time there's a change. So we launched this into the market right now for some of our customers, they are early access to it. We've granted early access to it. So we're playing around with it. They are playing around with it. And during the summer '24, this will be generally available as a value-added services to both existing and new customers and partners.

This is some of the stuff that we work with on our very, very large customers. And now we are calling what I say, [ democracising ] this and bringing this into the midsize segment as well. So they get these advantages. And that's what we can do through for these machine learning and AI capabilities we have. Just a quick. These are some of the pretty nice logos. We had 107 companies who listened in to our webinar, and some of them are like a super interesting logo. So it is absolutely starting to resumate that when you have indoor maps, a big important task that is often a headache if it's not handled probably is how do we actually update these maps.

And I think the logos that we are attracting to this is showing that there's a real interest for this out in the big world. So this, I just wanted to give a little bit of insight too. And I'm going to hand over to Christian to go through the numbers in a little bit greater detail.

[Christian Laeso, executive]

Yes. So I'll try to avoid saying the same thing that Morten has gone through on a high level, but just dig into some of the specifics that might explain or detail a little better. This is our P&L statement, our profit and loss statement for the first quarter with the comparison figures for the same quarter last year.

And as Morten spoke into, revenue grew quite significantly with 65% from these just below DKK 9 million to just below DKK 15 million. And this is the effect of all the increase in ARR that we've reported over the last many quarters, that is now starting to be materialized as actual revenue. And that's really nice to see that this has happened now. Especially as Morten also said, Q4 is a big quarter in our business, in our sector.

And therefore, the Q1 revenue jump should be on this level to kind of support that implementation and operation is now in progress on these customers. You can also see that if you look at our expenses, so other external expenses and our staff costs compared to last year, both have dropped quite significantly as Morten alluded to, the organization changes, the cost saving initiatives, the efficiency projects that we've worked on Mapspeople's worked on in 2023, are now starting really to show effects, and they're not fully implemented, but they are far ahead during Q1.

So we will see a little bit more in the next quarters, but the majority of it is now in place. And as you can see, staff cost, for example, is DKK 3 million lower compared to a year ago and other expenses it's too small for me to see, remember, but just below DKK 2 million lower than in the quarter before. So all of this increase in revenue and decrease in cost is -- ends up being a really nice improvement of EBITDA from minus DKK 16.6 million to minus 8.5%. And underlying that increase of DKK 8 million, also noticed that our own work capitalized is actually lower.

So during the first quarter, we actually put into production a lot of work we've done the last year. So in financial terms, we have this -- we have our development projects that we put on the balance sheet because they have value over a longer period of time. But in Q1, we actually said we are now finished and ready to use a lot of these projects.

And that's why you also see increase of the depreciations from Q1 '23 to Q1 '24. But in the quarter, we actually only capitalized DKK 1 million in own work, so development work compared to DKK 3 million the quarter before. So when you net that out as well, the improvement of EBITDA is before this line is actually even more significant.

So yes, a good quarter for the profit and loss account. And when we add that, so this is a new chart our new way of showing our numbers that we -- I don't think we've had this in our presentations before. But this is what we call a rolling chart showing the green line, and I'm sorry, I chose those 2 colors, by the way, for those who are color blind. But the top line is our revenue. And every bullet or point on the graph is the last 12 months or the last 4 quarters of revenue.

And what you can see is that since some time, actually, when Morten joined in Q4 '22, that's the low point on revenue. Since then, it steadily increased quarter-over-quarter. So when you -- when we do Q1 '24 we replaced Q1 '23 numbers with the newest quarter, Q1 '24. And that brings our last 12-month revenue up to DKK 46 million. And for those of you who remember our financials for the year 2023, we had a revenue of around DKK 40 million.

So a significant increase in our traction. So this is a little similar to our ARR number a way of calculating that. And the same on EBITDA. When you look at the EBITDA for the last 12 months or 4 quarters, that kind of bottomed out in the summer '23 before all of the cost initiatives, et cetera, were taking the effect. And then it's steadily increased, and it's the slope of the increase here in Q1 is greater than the other quarters because of the revenue also picking up on a recognized level. So where we ended 2023 with a negative EBITDA of just below DKK 60 million, we now have DKK 51.5 million in the last 12-month EBITDA.

So I mean, you can kind of look at the lines and the slope, et cetera, and see where our numbers should be going as we replace Q2 '23 with the Q2 '24 number when we can release that. So I hope that makes sense. And then looking at our cohorts we are building on as we've done in the last quarter, our last 3 years of '22, '23 and cohorts and also '24 are looking very strong with growth and healthy NRR. So additional revenue from existing customers signed in '22 is more than doubled and the same with '23 already more than tripled.

So healthy cohorts, especially on the last few years after MapsIndoors really started to take effect. And that brings us to this net revenue retention of 111%. So same customers that were here a year ago, they purchased 111% from us compared to 100% a year ago. And the industry standard here is around 105%. And so well ahead of that, just like we were when we measured last quarter, it was also around 111%, so pretty stable. As Morten mentioned, we had this large U.S. customer helping, but also this partner who contracted because of this feature that we now have as a standard product.

So those 2 things, of course, have a material effect on NRR. But good traction on NRR. We're very happy with that development over the -- yes, a longer time. And then the last information or breakdown is that I don't think Morten mentioned actually. So I get to say something new is that our CAC payback is still performing very well. I think it's on 14, if I remember correctly, in months. So the marketing and sales efforts we do on new customers.

It takes us around 14 months to pay that back based on the ARR they provide. And it's -- our target is to be below 18 months. That's where we kind of find our sweet spot. And I think stable around 14, 15 is a good place for us to be and where we expect it to continue during the rest of the year. We have changed our set up a little bit around lead generation and when that curve takes full effect, we -- well, it's starting to take effect, it might improve a little bit, but it's a good level to be on. And we're very happy with that. So I think that was the words around the numbers.

[Michael Friis]

Shall we jump into some questions then?

[Michael Friis]

I had one. You talked about this contraction. And if I understood it, it was because you have now given more of your product and of course, then the customer shouldn't pay anything of that. And when the contract runs out, should we see more of that in the coming quarters? Or was that the only customer, if you understand, when the contracts run out and you start negotiating and if this gets a standard product, they no longer pay more for are other customers or effects we are going to see in the coming quarters.

[Jens Brøgger, executive]

No. This was a special extraordinary thing where this particular partner needed something particular, and we developed that, and they paid for it. But fundamentally, there's a demand for that around the market, and that is becoming a standard, right, into the product. But I don't think to the best of my knowledge, we don't have any similar contracts. So the answer to that is no, Michael.

[Michael Friis]

And then secondly, you did the math for us, you said that 4x your revenue, that would be DKK 58 million, but I can also divide 4, 14 by -- sorry, the 52 you have in ARR by 4, and that doesn't get to 14. So was there any extraordinary thing, I should say, you have DKK 52 million in ARR year-end, and you actually get a revenue that's a little bit higher than if you divide this one by 4%. So was there anything extraordinary, something built some customer build here or is that just the lagging effect we can't see.

[Jens Brøgger, executive]

It's the lagging effect. There's no extraordinary one-offs or anything. Of course, there are one-offs, but nothing extraordinary in our Q1 numbers at all, I would even say. So it is the lagging effect that we're seeing here.

[Michael Friis]

And then there's a question. Our cost reduction fully shown in Q1. And I think you alluded to it on more a little bit, but I don't know whether we can get more specific than that mostly are now impacting, but there's a little more to come.

[Jens Brøgger, executive]

There's a tiny bit more to come, right? I think they all effect now. And the last one came into effect during Q1, right? So it's just like the full value. It's pretty close.

[Michael Friis]

Then there's a question. Do we expect that CAC will continue to fall when ARR growth pick up in speed?

[Jens Brøgger, executive]

No. Because it's not really ARR. It's a growth in ARR, right? It's a new ARR we're having. It's what it costs to get new business that we're measuring. And so we're not measuring out against the full ARR. We're measuring about the incremental new business that comes into the business, right? So how much does it cost to grow this? And the reason why we're saying we're super happy if we can be between 12 to 18 months.

Clearly, I get it financial 12 months is better than 18. That's about being efficient. But since our average contract is around 5 years, and some of them like longer, that's a pretty good payback in that one. So we should invest in our growth as long as we can do it within that cost level. I would even claim that if we would ever get below 12 months, I'll look at my sales team and say, now it's time to invest even more in growth.

Because then since our customer pays us upfront, that we will actually have a positive cash impact of selling more if the CAC payback period gets on the 12 months because we spend less and we get it in cash. And that will be like a pretty amazing in an enterprise SaaS company. But if we can be within this range of 12 to 18 month payback on our sales and marketing investment into the growth of our business, we are in a good spot and in a good benchmark.

We should be worried if it's below because then we are investing too little. And we should be worried if we are above 18 months because then we're not efficient enough in our sales and marketing efforts.

[Michael Friis]

So that's the line where we should be. And the last order you mentioned in your report, is that booked as ARR in Q1? And what is the total ARR effect, I guess, the length of it was. So whether it's booked in Q1 and what is the ARR effect, meaning the yearly effect of this.

[Jens Brøgger, executive]

Yes, the license went live at the end of Q1. It had...

[Christian Laeso, executive]

It was included.

[Jens Brøgger, executive]

Yes, it did not really have any revenue impact because it was late in Q1, but the ARR is booked as the licenses went to dive in towards the end of Q1. And you asked -- what was the second part of the question?

[Michael Friis]

And second part is the yearly ARR effect. I guess it was the 39 months.

[Jens Brøgger, executive]

If you take DKK 5.2 million divided with DKK 39 million multiply by 12 and you get effect.

[Michael Friis]

Yes. I will not ask you to do that why do you have paper out there. But it was just to understand that it was not 5.2% in ARR...

[Jens Brøgger, executive]

Around 1/3 of that, yes, a little bit less than a 1/3, yes.

[Michael Friis]

Then do you still have -- do we still expect to have enough cash to take you cash flow positive on the operational level?

[Christian Laeso, executive]

Okay. So we're still operating under the operational plan and the fully funded plan that we've already announced. And that's -- yes. So the answer to the question is, yes, fully funded to reach cash flow positive. We are also opportunistic about whatever, yes, opportunities that come up. And of course, if something is attractive, we might change that plan. But the current plan is fully funded.

[Michael Friis]

So this Q1, where there's a pretty large cash flow, and I know that, that's normally. So if I should bridge it, you have raised new capital, this order is also prepaid for a long period. And then I guess the last part that maybe not is that if you expect a lot of the ARR in Q4, a lot of that will also be prepaid. Is that how you bridge it?

[Christian Laeso, executive]

Yes. Yes.

[Jens Brøgger, executive]

Yes, exactly. And the working capital business from a licensing business, which doesn't count as much in the ARR. It's like the margins for when the Google business is 12%, but customers are paying us upfront, and we are paying Google on a monthly basis.

Just standard business, but that actually does have a positive impact on our cash flow. And if we manage, as I said, the initiatives we have to see whether we can start growing that one instead of keeping it flat, will actually also positively help.

It is our plan to keep it flat this year. So if you manage to make it growing just slightly on that side, it will have a positive impact on our working capital.

[Michael Friis]

Is that new activities or price increases on the existing product, is that the time to increase the...

[Jens Brøgger, executive]

These are new activities. Yes. We focused on our strategy, which is MapsIndoors. And sometimes when you focus, it means you cannot focus on everything at the same time. That's the kind of like the definition of focus. You do more [indiscernible]? And now we have a little bit of extra energy, and we're going to see whether we can help this business grow a little bit and give it a little bit of love and a little bit more resources.

[Michael Friis]

And then there's a question, how do you work with partners to improve implementation? You talked a little bit about it, but you also mentioned in your report that, that might still be a little bit of the Achilles' heel you will know that you are that you already bought the partner, you're dependent on onus implementing it for it to be sold on to their customers. So any thoughts about? That's -- I think the kind of the downside by the partner strategy is very, very scalable, but you're also dependent on them.

[Jens Brøgger, executive]

Beauty is the scalability that we spoke about every time we talk about our business. And the dark side of that is that you kind of lose control because the partners would set the priorities and it's very hard to impact the right? And something unforeseen at the partner side can happen and that will change their priorities.

And there's nothing you can do about it except being frustrated and see whether you can help them get it back on track. That is -- you're correct, that's the downside. And we are working on that, but it's not -- this is not a simple thing, right? Is there something we can do in our product because we are a platform that needs to be integrated in someone else's app.

Can we make that easier and faster? Are there tools available now that makes it easier, faster and cheaper for the partner to do that? And can we deploy these kinds of tools. These are some things that we are working on. is the element where we can invest more in supporting the partners getting live faster. That is something we're looking into. And that also means some of the processes around that can we optimize them from the partner point of view, can we handhold them more in this process. That's what it is.

Clearly, a lot of the contracts we have right now is also structured in a way that we incentivize the partner to go live as fast as possible. So this is a super -- I agree, it's a super complex thing, and it's something that we will never ever stop working on improving.

[Michael Friis]

Just to understand in the new business, are you trying to follow it and take reactions when you can see maybe there is something being pushed and going into, what do we say hand take you put one first on and try to identify what is the problem and so on.

[Jens Brøgger, executive]

Every single day, Michael. Every single day.

[Michael Friis]

I think that was the questions we had. Thank you, Jens Brøgger and Christian for taking us through your presentation answering our question, and thank you for the audience listening in.