Leaddesk Oyj

OMXH:LEADD

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Olli Nokso-Koivisto, executive]

Good morning, Europe, and welcome to our earnings call for the first half of 2023. So glad to have all of you participating in our earnings call. And as usual, we have the agenda. First, we have the introduction to LeadDesk just to get everybody on the same page. We have some new joiners on the call as well. Then looking at the highlights for the first half, key figures, take a look at the outlook as well, and then the investment case. And finally, we have the chance for Q-A and a chat on the fireside with, then, Henri Palomaki from Sijoittaja.fi hosting that, and myself and our CFO participating.But great to have you all on the call. We have a great agenda coming on and a great call. As said, on the call with me is myself. I'm the CEO of LeadDesk, I'm Olli Nokso-Koivisto. And then we have some parts also covered by our CFO, Kaisa Ronkko, who joined the company in this first half of the year, this being her first official call then where she's participating. So great to have her also on the call and get you guys to know her.So firstly, let's take a recap for those who participated before and read all about the company. And then for the newcomers some new info here. So what do customers actually do with LeadDesk? We talk about contact center as a service software, but what are the actual use cases. And on that, we have a large variety of use cases where our customers rely on our software and our platform. We have anything from health care to electricity to pay-TV to home security, basically, a very wide range of industries relying on our software for their mission critical activities.And our target on this market, the contact center as a software market is to lead the market and really make a difference to the 4 million people working in the contact center industry across Europe. So that's our target. There's some 4 million people working in contact centers. Whether it's outsourced or in-house, but there's 4 million people working in this kind of setting in Europe, and we really want to make a difference there. And of course, the 1 billion people, they are then serving from these contact centers.And we see our future as being the -- by far the largest player in the European market and we've set the target of EUR 100 million now as our target with 20% then EBITDA. I have to say that we're doing it efficiently. That's our target. So we want to reach out for EUR 100 million in revenues with a good profitability level of 20% plus EBITDA then in the future. And that's the yardstick that we are racing towards.Then going deeper into the actual software, what does our software do? What's the justification for us to win? So our justification to win is that we've got a large range of channels we can bring together. So we can take traditional phone calls, SMS, WhatsApp, social media channels and so on. We can take all these channels combine them into one pipeline, our system, we bring it all into one system, where we then provide tools for our customers to interact with these conversations happening with their customers on these channels. So a large variety of channels connecting into one system, where our software is then used by our customers to interact with these conversations.And this is a great value, it's a large value and it's a persistent value even in a transformation such as now with AI augmenting the tasks at hand. So bringing all these channels into one system, one harmonized system and being able to manage and interact with those discussions is our right to win.On the other side -- and then just having those discussions with the customers is not enough. You have to be able to interact with the back-end systems, get the customer data, actually do the changes and so on. So the integration part then bring in together. So LeadDesk, in essence, is taking conversations with customers on the other side and integrations on the other side with the customer data, and then our platform is used by the agents in contact centers, in customer support and sales to have the actual conversations. So that's our place in the system landscape.And this is basically the workhorse. This is the the paper mill of our business. Then on top of that, our customers, of course, need to optimize their processes, optimize how they interact with their customers, have leadership tools, have engagement tools for the employees and so on. So then what we provide is workforce engagement, whereby our customers can then really light up the energy in the contact centers and get the best possible performance out of their contact centers through our workforce engagement tools.So on the top -- that's the fundamental. We have to have this machine working. It's a great machine and it brings a lot of value in itself to our customers, being able to talk with any channel with the customer, having the integrations to support those discussions, and then on top of that then, the workforce engagement tools helping out then in optimizing the workflows.Now of course, nowadays with the changes happening in the market being so enhanced with AI, we've had the Jenny for quite a long time already, and we've had other data and AI tools. But now the market is clearly in a turmoil, where then there's a lot of changes happening, and we can also bring a lot of value to our customers through enhanced AI with the new capabilities. So more about that a bit later on in the call.We are very [indiscernible] and our business is also varied. So we have some 60% of our revenues coming from outside of the domestic Finnish market. And we've got offices spread across Europe. And that's where our growth also happens. So we are growing in Europe, in the Continental Europe and Scandinavia. And we are a truly European company, setting us apart from many other software companies.At the same time that we do focus on these geographies, and we have the people to support this. We do have an infrastructure that spans the globe. We've invested a lot into security. ISO 27000, SOC 2 Type 2, very strict certificates. We've done a lot of big work to be able to call ourselves compliant. And we've done this also already for quite a few years. So this clearly is something where we can outstand in our investments from quite a bit of the competition we see in Central Europe.So then, of course, that's the background. But then most of you want to hear about the first half of the year, how did that go? Firstly, we said in the beginning of the year that our strategy for this year would be focusing on organic growth, maintaining and improving profitability, tightening AI integration and then executing on nonorganic growth. And now, these are the things that we set as targets for ourselves in the beginning of the year and also communicated.So where are we here? After the first half, we see on the growth side that we've got very good SME growth side. So SME is performing even a little above our own expectations, while at the same time, we do have struggles in the enterprise side, where the customers -- we're not losing any cases, but the customers are not making decisions for any investments. And that's the kind of place where we are now at on that side. But of course, we are now working on then smaller cases on the enterprise side then to be able to ramp up at a -- like a phased approach where the customer doesn't need to make such big investments to take over what we can maybe separate into smaller batches that deployment.Then looking at profitability. So first, we -- of course, you have the revenue and then profitability. And on the revenue side, SME is performing well. But we had hiccups in the enterprise side, taking our revenue to the low end at the moment. But then at the same time, we have managed to work on our profitability, which is, of course, a great thing considering even that then if revenue has been a little lower, we've still managed to increase our profitability well, making really the investment case stronger on the profitability side.We have invested quite a bit on AI. And just to bring in some flavor, I'll go into that on the next -- next then after this. But before that, I just want to comment on the nonorganic side. So the nonorganic market has opened up significantly during this year. The private market valuations have come to toleratable level. And we can see the pipeline really picking up in a different way than it did, for example, last year. And one example here is the acquisition of Lansilinkki, our long-time partner in Finland for the telecoms here.But then without further ado, let's jump into the AI. And here, we've asked ourselves that how can we make contact center work more enjoyable, twice as efficient and enable 50% more revenue generation from the contact center-related activities? So we've asked ourselves, how do we make it more efficient and enjoyable in the future for all the contact centers across Europe? And one specialty here is also that we see that with the help of good customer service and a great customer experience offered by the contact centers, the contact centers can actually become profit centers in many cases instead of just being cost centers. So it's really a revolutionary endeavor that we are embarking on.And here looking at then expanding the use of AI at LeadDesk. We are broadening now the use of our AI capabilities, as said earlier. We have got already quite a few AI features, for example, the JennyBot as well as then other features. But we are now really broadening the use of AI. And this is, of course, helped by the large language models that have become available and arms race between the global [ colleagues ] on the AI field. And we are and have been taking now new technologies into use in the AI field, especially around large language models, so text generation, text understanding, but also then on the audio side and voice side.And what we actually are doing on the voice side is really phenomenal. So what we are doing is that we've got a lot of data and a lot of enthusiastic customers to support us in developing our own fine-tuned models, especially for contact center work being done in a contact center setting and with the phone quality audio. So we are building our fine-tuned models to support better AI models for voice recognition, for example, in the Nordic languages, which has been problematic earlier.And to support this, we've also invested in our own infrastructure so that we can run our own fine-tuned models, but also so that our customers who are many times in industries where data security is of super high importance, then we can provide the safety that we are running the AI on our own infrastructure instead of then sending it over to somewhere else. We are here in a hybrid model where we have both options available just to keep in the race the best.But as said, this is a massive transformational opportunity. And as you see here, these pictures of the AI [ says all ] generated by Midjourney just to highlight like the capabilities of AI nowadays.As said, we are not doing this on our sales only. So we do have we've recruited very knowledgeable people on the AI field, but we do see ourselves as building on the shoulders of the large multinational giants and then adapting for the use case in customer service, sales and especially the European markets and the European languages. So we have an approach where we try to take the best of all the different worlds and not just rely on a single ecosystem, but choose the right ecosystem for the task.The increased value we provide our customers is, of course, better customer service, more customized and more personal service, better agent experience. So taking away those menial tasks from agents and let them concentrate on the really important things. Easier reporting, maintenance and setting up. All these makes into really a great package for customers where they can easily then take a ready, sort of, made solution for the contact center vertical and start benefiting from AI without a lot of investments on their end. We are the experts in both software and contact centers and contact center software, of course. And now with the AI, we can really bring a lot of benefits to this market.And as said, we have some 20 pilots already ongoing with new technology enabled in the last 6 to 9 months. So we are very fast on track. And here are just some of the things that we are concentrating on at the moment.The final word here is that our target is to have all our customers benefiting from AI in the next 24 months. That's the target we are striving towards, that all the 2,000 customers should benefit from AI in the next 24 months. And that's really like a really nice target to strive towards and really motivational to see it through.But this was the backdrop on AI. Let's move then to the other big topic of today, so the financial progress. And I'll hand it over to our CFO, Kaisa, to shortly introduce herself and then dive into the financials with you. See you in a bit.

[Kaisa Ronkko, executive]

Thank you, Olli, and good morning on my behalf as well. My name is Kaisa Ronkko, and I'm the CFO of LeadDesk. And today, I will shortly present to you the key figures of the first half of this year. And then we probably will dive into a little bit deeper into the figures in the fireside chat after this presentation.But first, let's have a look at the numbers. We generated EUR 14.5 million of revenue during the first half of this year, generated by our roughly 2,000 customers across 8 countries. And as Olli mentioned earlier, 57% of our revenue comes from outside of Finland. We currently employ 199 employees, and this includes the 14 new LeadDesk members that we added to our personnel from Lansilinkki at the end of the first half. Our annual recurring revenue amounted to EUR 25.6 million and EBITDA margin was 13%.Now our most important KPI, financial KPI is revenue, and we've had some great progress over the years. And this progress has been done both organically and non-organically. During this first half, our growth was purely organic as the Lansilinkki deal closed at the end of this period and it's not in the sales figures yet.Our revenue grew by 5.2%, which was quite heavily impacted by the currencies. Roughly 40% of our revenue come from Sweden and Norway, and since the currency rates have been rapidly declining, this has had an impact on our revenue figures. If we calculate the revenue growth with last year's currencies, the growth would have been 9.2%. And most of our best-growing markets at the moment are Spain, Germany and Finland.Other important KPIs that we monitor is the annual recurring revenue and profitability measured as EBITDA margin. ARR grew 10% during this period. And we see that the ARR is, at the moment, the best measure of our sales efficiency since this figure is not as sensitive to currency fluctuations. EBITDA grew from 10% to 13%. And in euros, that's a 35% increase.And now back to you, Olli.

[Olli Nokso-Koivisto, executive]

Thanks, Kaisa. And then looking at the rest of the year, we continue on the same strategy. As for the first half, we focus on organic growth. There is a focus especially on the enterprise side. Maintain and improve profitability: very important for us looking at the profitability especially in this market.Tightening integration with AI. That's, of course, as heard previously on the call a very big topic for us at the moment. And lastly then, non-organic growth: we see that this is something -- we see that we probably can execute then later this year on. So these are the same things that we saw in the beginning of the year being important for this year, and we continue on the same track for the second half as well.The outlook for 2023, we keep the same. So we still expect 6% to 14% of annual recurring revenue growth and 11 to 16 profitability as measured by EBITDA. Also, the investment case, we see keeping strong. We have great product, leadership. And we see that with the coming of AI, we can invest and get the benefits of AI better than many of the other players on the European market as they are significantly smaller than us and cannot innovate and move on this initiative on the same scale.We see our revenue mix being very positive. Of course, it means that then we are -- also, in some areas, we have more risks related to small amounts of the revenue such as we see now in the currencies. But on the other hand, if we didn't have the risk of the Swedish and Norwegian krones, that would mean that then naturally we didn't have the market either. So it's a great thing that we can leverage the risk and have it spread across industries and European geographies.Go-to-market model, we've been successful in opening up new markets in Europe, and our ambition is to grow even further.This is the formal part of the earnings call. I would like to thank you for this part now, and we'll continue in a short moment on the fireside chat. Thank you for participating so far. See you soon.

[Henri Palomaki]

Welcome to LeadDesk's earnings report and fireside chat also on my behalf. My name is Henri Palomaki and I'm from Sijoittaja.fi, which is an information service for private investors. I'm here to ask some questions from Olli and Kaisa. [Operator Instructions]First of all, Olli, LeadDesk had quite a solid performance in the first half. As a CEO, how happy you are about the performance of the company overall in the first half?

[Olli Nokso-Koivisto, executive]

So I'm particularly happy on 2 fronts. On the SME, we've managed to grow a little bit even above our expectations there. And we had a new VP of Sales starting in the SME segment in the turn of the year roughly. And he's been able to perform tremendously well and everything moved smoothly.Also, I'm very excited about the AI pilots that we are running. So some 20 pilots running. We started the project in the beginning of the year, and now we have managed to really run solid pilots. And now we have the first prioritization going on. So turning those pilots into products. As it is on the AI market, it's, say, like super easy to get something done, but it's super hard to get actually a solid product that can be then like taken from one customer to the other without a project or any like external work needed. And we see that we are progressing well there. And I see that we are progressing there well.

[Henri Palomaki]

Okay. Let's talk about AI and SME a bit later. But let's dig into the numbers first. So only the revenue was affected by exchange rates and it slowed down a bit on the revenue development. On the other hand, your ARR contract base was growing good. So in general, how was the performance revenue-wise?

[Olli Nokso-Koivisto, executive]

So I think there's good distinction, because the revenue is always calculated with the running exchange rates, whereas then for ARR, basically, you see the exchange rate changes when there are contract changes. So it's more stable on that front. And that's where you can see the most like of the organic -- like how we are performing organically and how our sales is performing.The revenue development driven by enterprise sales and then also this exchange rates declining, those have been like the biggest worries on my back and things that -- of course, you can't do anything for the interest rates. But then for the enterprise side, we're working hard on mitigating all those effects. But it's clear that the enterprise side is lagging behind now. But on the positive side, then the SME side is a little bit at least compensating for it.

[Henri Palomaki]

And your guidance is still same than before. So the guide for revenue growth is 6% to 15%. So you're expecting more growth in this second half this year?

[Olli Nokso-Koivisto, executive]

Yes. So we see that we can perform into the guidance this year. And it's not any wishful thinking on the exchange rates turning back. We're always taking exchange rates. I believe and we believe that the markets are always correct. So that means that the current interest rate is then what we are projecting for the rest of the year.

[Henri Palomaki]

Okay. Let's move to profitability then and to you, Kaisa. So since last year, LeadDesk has been focusing a bit more on profitability, and it has paid off. Last year at this period, you had 9.8% EBITDA margin and now 12.6%. Which were the main causes for improved profitability?

[Kaisa Ronkko, executive]

So last year -- during the latter part of last year, we started some cost-saving initiatives, and these are now paying off. And it's also very typical to our business that the profitability is slightly better during the latter part of the year. So now we expect the profitability to improve towards the end of the year again. So the cost savings and the scalability of our operations -- of course, we don't need to increase the cost base as much as we get revenue. So scalability is the other factor.

[Henri Palomaki]

And then we have the first question from Jaakko Tyrvainen from SEB.

[Jaakko Tyrväinen, analyst]

I could -- I'll start with the ARR growth of 10% that you have now. Could you talk a bit how that splits between pricing and volumes if you compare the situation a year ago? So how that 10% splits between those?

[Olli Nokso-Koivisto, executive]

There is like -- on the ARR side, so we've executed on price increases. That's quite typical before the summer for us. And our -- like, typically, we try to, of course, account for all the inflation that's happening. But of course, it's impossible to fully account for inflation in the price increases due to contractual problems, of course, market conditions. So we always have to plan these on a market-to-market basis as well. And other items that then hinder our possibility to reach the inflation levels completely. But then, of course, we try to account for that, but then end up short a bit on the -- but still looking at clearly higher figures than previous years.

[Jaakko Tyrväinen, analyst]

Okay. Then regarding the price hikes before the summer, what has been the take up on the customer side here? Did you experience any additional churn because of the pricing initiatives you made?

[Olli Nokso-Koivisto, executive]

Churn per se was minimal. But what we did see is that the customers, they've optimized their usage already before, but this was really like -- they really like turned that [ knob ]. So they were really looking at everything they are actually then paying for and trying to then decrease the usage if they have like too many licenses, for example, for their current operations. So try to save whatever they can.I think this is like not only relating to price increases. It is the cost saving initiative Kaisa was talking here. I think this is something going on in all the companies. But of course, when you do hike the prices, that gives an added incentive then and motivation to the other side.

[Jaakko Tyrväinen, analyst]

Good. That's helpful. Then a bit technical one on ARR. Did Lansilinkki have some recurring revenue? And is that booked in your year-end or quarter-end ARR?

[Kaisa Ronkko, executive]

It's not included. And yes, what do you say...

[Olli Nokso-Koivisto, executive]

It's -- like based on the ARR, it was not something that is significant, that -- we are, of course, then looking at the whole picture of Lansilinkki now in the second half and based on recurring revenue that we would account, but it's insignificant in our scale.

[Jaakko Tyrväinen, analyst]

All right. Then perhaps on the strong sales or healthy sales on SME side that you are mentioning, but at the same time, the enterprise customers remain cautious. Has there been any changes lately in this enterprise segment activity? And in your own analysis, what should change in order to -- the enterprise demand to pick up again?

[Olli Nokso-Koivisto, executive]

I think that the enterprise side are hesitant. One thing was the financial situation. But I think one that might be also now making them hesitant is like the AI possibilities of the future as well. The large deployments we have done at this time because, of course, it's not everything that we publish. So on the large end, the projects have included now AI parts already like in the midsized customers as well.So that might be one thing that when we do have a clear solid offering to make a difference there, that might also then helping the decision-making in the future. But I think the investment budgets for this year have been super tight. And then now that the interest rates have settled quite a bit, it's hopefully easier. And here, one must remember that like Sweden, for example, the economic situation is quite a bit worse than what we are seeing in Finland, for example. So it's not just like the economic pickup in Europe, but more so like a pickup in, for example, Sweden.

[Henri Palomaki]

Okay. Let's dig into SMEs then. So you said that SME side was covering quite good the enterprise segment slowness. Is there some specific sector where you thrived? Or was it a wide good performance in that side?

[Olli Nokso-Koivisto, executive]

Yes, we actually managed to secure quite sizable SME customers, while we didn't manage that on the enterprise side, get the largest ones. But we did manage to get quite a large Swedish customer that actually has operations also in other countries. And then also one in Germany, which is a significant customer as well in the SME scale, not in the enterprise scale. And I see that we had actually quite solid performance across the markets this time. So there was no clear like #1. Of course, Finland being the largest market like percentage-wise, then grew euro-wise most. But like looking at percentages, then it was quite solid performance from all the countries.

[Henri Palomaki]

Yes. And you also mentioned Spain and Germany in the earnings report. Any updates on that, why you are succeeding there?

[Olli Nokso-Koivisto, executive]

So the Spanish market has been very good for us from the beginning. We see even in the -- like looking at the industry analyst figures, we see that the market is expanding. There's a cloud transformation happening, which is then making it faster. So compared to Nordics, for example, Scandinavia, where our cloud transformation is on the -- like the last effects. Then Spain is on the first steps in the mid-journey kind of phase. And then -- and that's why Spain is going so well. And Germany was helped by this one significant case on the SME side, and also then very good -- like solid performance from quite a small team. And this has been -- like I can't remember when Germany has behaved so well, but it's going very well at the moment, yes.

[Henri Palomaki]

And then we have next question [ Fransmika Rosdath ] from Inderes.

[Unknown Executive]

Yes, [ Franmika] has written it in chat. So there are 2 questions. The first question is, your gross margins improved quite clearly compared to last year. Could you describe the main drivers behind this improvement?

[Olli Nokso-Koivisto, executive]

So basically, working on our cost base. We've been working quite a bit on our cost base. And also if you look at how our employee -- the cost of employment has stayed stable while we have been at the same time increased our revenue. So basically, efficiency gains and synergies are the key. And that's where it comes from. So working quite a bit on that.

[Unknown Executive]

And then the second question is, of course, it's very early still, but could you describe the gross profit profile of your new AI products?

[Olli Nokso-Koivisto, executive]

So at the moment, we basically want to get good reception from customers, and we fine-tune those before then monetizing largely. But looking at the different products -- this is one of the reasons why we also have invested in our own infrastructure. As for example, the amount of audio and voice data we have in our systems in different language is phenomenal. So there's the 300 million calls handled every year kind of thing. It's a lot of audio.So in no way could we find a way where we could actually then like utilize only externals here. But we must build our own efficient models fine-tuned to our business case in order for us to then bring down the cost down enough for the required quality and then provide that to our customers with a margin, justifying all the investments we have done as well. So it's something that we are looking at. And we're not to like going all in on any one ecosystem as we see that there's not that much profit margins to be made with that strategy.

[Henri Palomaki]

Okay. Let's stick still a bit in AI. You are now -- you said that 20 customers are piloting your new AI product or AI tool. What has been the feedback for that for now?

[Olli Nokso-Koivisto, executive]

Yes. So there are quite a few like different use cases. So one of them is with reporting. So of course, there's a lot of data generated in a contact center. And with this tool, you can have AI help you figure out what's important and build on that data. So that's been one of the like most successful ones for now, like in the name of how many customers are using.We have voice recognition-based systems. So we are piloting keyword detection, automatic quality assurance. We have around there some semantic analysis and agent assistance. So that's working on the voice side. And then automatic message generation, so basically -- for example, for customers doing a lot of e-mail on our system, we have now a few customers piloting, that they can actually generate or reply to the customers' e-mail straight away for the agent then to approve and modify if they wish.And these are the kind of things that we can already now like provide and have pilots on. And on top of this, of course, then we have other things that we're working on. But those will then form into pilots after we get now these productized then more to the market.

[Henri Palomaki]

Okay. Let's then change to -- okay. There's one question from Antti Luiro.

[Unknown Executive]

Yes. Antti Luiro has written in, in chat. So there are 2 questions. The first is, your June recurring revenue grew clearly faster than overall revenue in H1. As for other revenue items, what was the slower overall growth more about, project revenue or usage-based teleservices?

[Olli Nokso-Koivisto, executive]

So if we look at like -- when we're talking about enterprise -- so basically, when we talk about enterprise slowdown, it's not just the licensees, which I think the license fees grew by 8-- the recurring license -- or the recurring invoice items grew 8-point-something percent to my recollection. And the thing is that with enterprise, the services are a much bigger part of the whole. And as we didn't execute on new enterprise sales but we did execute on SME sales, for example, that meant that our like professional services revenue is very much behind the budgets. And that's one part.And then the other part is some on the telephony side as well because it's the same kind of dynamics a bit there, not to the same extent. But anyways -- but it's -- that is the difficult part about enterprise. It's not just the licenses, but it's the services. Before we had the enterprise segment years ago, I remember our like share of revenue for services being somewhere like 5% plus/minus. And after we embarked on the enterprise side, it grew to some 10%. And that was all like then from the enterprise side pretty much. So this is just like the effect that things are on the enterprise side. But very well -- actually, I took a note of that as well myself.

[Unknown Executive]

And there's a second question from Antti, which is, in H1, you were behind your guided revenue growth for full year at 5% versus full year guidance of 6% to 14%. In what scenario do you see the upper range of 14% as realistic given your H1 performance?

[Olli Nokso-Koivisto, executive]

The upper range would -- I think would require some M&A, a small M&A to be fulfilled. Or on the other hand, of course, then the rebound of the exchange rates. But we don't look at the interest rates when we think about -- sorry, exchange rates. We don't make predictions on the exchange rates moving anywhere when we look at our guidance. So we always take like the best prediction of the rest of the year of what the exchange rate is today. And then we look -- so executing on the high end would mean then a smaller M&A to augment our organic growth.

[Henri Palomaki]

Okay. Let's continue M&A then. So last time, half a year ago, we're sitting here and we were waiting and expecting something to happen in the first half. And we put some question also on Paul. And now in the last days of 2, you published this news about Lansilinkki. Revenue-wise, it's a small purchase. But can you said the rationalities behind the purchase and what does it bring to LeadDesk?

[Olli Nokso-Koivisto, executive]

Yes. And Lansilinkki has been a longtime partner for us, providing for quite a bit of the telephony services we provide in Finland. Lansilinkki's history as one of the large operators in Finland, the interconnect operator for the Finnet Group back in the day. And we see them as having like a great technology. They have a great platform and great technology, especially on the telephony side. And that's -- some 20% or even like 22% of our revenue is connected to telephony. Having more opportunities and really working on the core telephony like with the core telephony operators with direct interconnects to everybody is a key to providing quality service.And we see like working more tightly with Lansilinkki will enable us then to be more competitive, especially now first in the Finnish market, but then taking these learnings also to the other markets later on through either acquisitions or through organic growth is then a great possibility for us. And we see ourselves as being quite a large operator now in the Finnish scale with all the traffic we're operating. And we published some numbers as well. It was like over 4 -- what was it?

[Kaisa Ronkko, executive]

I don't remember.

[Olli Nokso-Koivisto, executive]

400 million something...

[Kaisa Ronkko, executive]

Yes. It's a huge figure...

[Olli Nokso-Koivisto, executive]

A huge number of telephony that we together transport every year.

[Henri Palomaki]

Yes. So what about the future in M&A side then? Is this just the beginning? And can we expect something more to happen? And how does the market look in general at the moment?

[Olli Nokso-Koivisto, executive]

So the market is still completely different from half a year ago, from a year ago. So before this GetJenny, our last acquisition, and that was 3 years previous -- I think it was also June but 2 years earlier that we then acquired Jenny. And these 2 years, we saw that the market was just not like in line with our expectations on M&A targets. And now things have changed a lot. And now we see the private market and very good companies being open to discussions. And we are having many discussions, which seem to be quite fruitful. So we are positive on that side. But of course, it's always -- like we have very strict like levels that we want to go through and we want to be really diligent in this. So let's see. I'm very hopeful for the rest of the year.

[Kaisa Ronkko, executive]

And now that we have separated the roles of the CFO and the Corporate Development, we also can put more focus into building that pipeline.

[Henri Palomaki]

Yes. That's helpful. Good. And then there's another question from Jaakko.

[Jaakko Tyrväinen, analyst]

If I could continue on AI, where you target that all your customers should use at least one AI solution by '25. How should we think the commercial side of this? How much more you are able to charge with the AI expansion with your product portfolio? So any thoughts on the kind of revenue per user or a metric like that?

[Olli Nokso-Koivisto, executive]

At the moment, we are in the productization phase, of now the first parts of the products. And one of them is a key question of pricing, which is -- I now asked a question in quite a few tables with people from different SaaS companies, and nobody yet has a clear like answer on how will this be priced. We see that they are not something to give out for free for certain. But the pricing models and the ranges are still a bit open, and, of course, depending on the value provided to the customer.So looking at like the guidance on getting to EUR 100 million, so how do we get to EUR 100 million? I see that AI supports that in 2 ways. One is that it can generate a lot more users in the long run when we are able to make an agent a super-agent that double the efficiency. When we can make them twice as efficient, then we can, of course, charge for that value.But the other thing is then taking over the market from the players who are not able to execute on AI effectively. And that I see in the short term will be the solution. And then in the midterm, charging for those features. So it's a twofold as the market is moving so fast.

[Jaakko Tyrväinen, analyst]

Then back to Lansilinkki, perhaps. You provide some sales guidance for the full year '23 impact there. But how fast do you expect the profitability to be turned around in Länsilinkki? Will it still burn money in Q4? Or what should we think about it?

[Olli Nokso-Koivisto, executive]

Of course, as you can read in the newspapers, we act quite fast on getting the profitability to the expected level. So we see that there will be -- so the profitability will not be at expected level until start of next year. But it won't be in the Q4, it won't be impacting our profitability significantly.

[Kaisa Ronkko, executive]

Less, of course, when we go further down next year.

[Olli Nokso-Koivisto, executive]

So some effect still in Q4, of course, these are not fast processes. But then looking at the beginning of next year, we should be in the shape where we expect ourselves to be.

[Jaakko Tyrväinen, analyst]

Then a final bit technical one. Did you have some M&A-related costs in the second quarter regarding Länsilinkki? And was that meaningful?

[Kaisa Ronkko, executive]

No, nothing meaningful. No, not that wouldn't have been taken into account in the goodwill. So not on the cost side.

[Henri Palomaki]

And then there's one more question from [ Sven ]. And this is the last one.

[Unknown Analyst]

So I have a pretty basic question on gross profit margins and why they are actually quite low for a software company?

[Olli Nokso-Koivisto, executive]

So our gross profit is...

[Kaisa Ronkko, executive]

Bit over 70%. And it's a bit lower because we have the teleoperator margin there, which is lower than our usual software margins.

[Unknown Analyst]

What's the teleoperator business?

[Olli Nokso-Koivisto, executive]

So we provide contact center software and still some 80% of all contact center work is done over telephony. And when you operate in the telephony market, it's like you have to have interconnects and you have to -- actually, if somebody -- like if you have your mobile and you call out to another operator, your operator has to actually pay per minute to the other operator, and those kind of costs. Then and of course, we are in the wholesale business. Our customers use a lot of telephony. That means that the margins can't be too high.

[Unknown Analyst]

And you mentioned Enterprise versus SME and you're doing well in the SME part, who are you coming up against in terms of competition in Enterprise versus SME? And what's the split roughly for you?

[Olli Nokso-Koivisto, executive]

So if we look at the competition on the SME side, it's mostly small local competition. Now there's been consolidation on the market. So they might be under an umbrella of some other umbrella. But basically, it's the local software where most typically, they haven't been able to expand across geographies. We don't really see good examples of that apart from ourselves, working on the SME segment. So being able to go to and open up other countries. So that's where we have excelled in the SME market clearly over all the competition there. The larger players that work on the Enterprise markets, which are quite a few are U.S.-based, and there are a few traditional players also in Europe. Then separate and typically don't offer to the SME segment at all as the offering is not competitive in that market. They are typically not cloud-native and cannot operate as efficiently as we can.

[Unknown Analyst]

And the split?

[Olli Nokso-Koivisto, executive]

The split, you can get some kind of an idea on the split based on our acquisitions. So we've acquired quite a bit of the Enterprise business to start it off, and then we've grown on that, I think interests who also publishes their report in English has been calculated the split.

[Henri Palomaki]

Now we are running out of time. Thanks for the great discussion. Thanks for the audience for the great questions. Is there still some words you want to add in the end?

[Olli Nokso-Koivisto, executive]

It was great having you all listening in. Great to get his chance to open up our first half and really expecting towards the second half now and working hard on bringing the good results to you.

[Kaisa Ronkko, executive]

Thank you on my behalf as well.

[Henri Palomaki]

Yes. Thank you from my side also, and the recording will be published in the website later. Have a wonderful day.

[Olli Nokso-Koivisto, executive]

Thanks, everybody.