Bambuser AB

STO:BUSER

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to Bambuser Q1 Report 2023. [Operator Instructions]

Now I will hand the conference over to the speakers, CEO, Maryam Ghahremani; and Chief Strategy Officer and Acting CFO, Jonas Lagerstrom.

[Maryam Ghahremani, executive]

Good morning, and welcome to Bambuser Q1 2023 report. I am Maryam Ghahremani, the CEO, and I will hold this presentation together with acting CFO, Jonas Lagerstrom. Today's agenda will cover a short company introduction for people new to Bambuser. We will then move to Q4 highlights, and finish off with SaaS KPIs and financials.

Bambuser is the world's leading video commerce company. We were founded in 2007 by offering a video technology that lets users stream live video from their mobile phones. We've pivoted into video commerce at the end of 2019, and has since then attracted over 350 brands across 45 countries. We have a global presence in New York, London, Paris, Tokyo, Turku and Stockholm, where we have our HQ.

We have, since the start, delivered a strong ARR momentum. For this quarter, we faced some headwind due to weaker macro, churn and delay in deal closing as we are in conversations with more Enterprise customers who typically have a more complex procurement process.

The world is changing and it's changing fast. Today, most e-comm sites are static, meaning that they only have text and images to describe the products. However, we are all interactive more and more with video today. I'm sure that in the last 24 hours, you have already consumed some sort of video with FaceTime, Zoom, YouTube or any other services. These consumer trends will turn into business, and it is only a matter of time before [ videocon ] becomes standard in e-commerce. The evolution to video is unstoppable.

Bambuser offers a shopping experience that taps into today's consumer behavior around video. With Bambuser, our merchants can 10x their conversion, repurpose the content by using snippets from the shows in social media, on product landing pages or even use existing videos and make them shoppable. The customers are making more informed purchases, and as a result of that, we see decreased returns among our customers.

Video commerce is the future and something that has a significant presence in China. The Western part of the world is 5 to 7 years behind China, where we noted massive GMV growth and general adoption. We have assessed the market opportunity and estimated that the global total addressable market is over SEK 250 billion and growing.

The market is wide open with low penetration. Our core market opportunity is estimated to be over SEK 9 billion. It consists of larger companies being present in the regions and verticals we currently serve. Bambuser is the leading SaaS company in the video commerce space and well positioned as demand grows.

Our product suite consists of 2 products. One-to-Many is our flagship products and stands for over 90% of our ARR. This is the solution when one of multiple hosts is interacting with many viewers. It is very easy to get started. You can basically start from your smartphone or use external cameras. The viewers can interact through chat and send likes during the show. The One-to-Many solution has a full product promotion and add-to-cart functionality.

One of our core strengths is that we use the merchant's native checkout. This is important as the checkout is very often the most important step in the customer buying journey that the merchants have spent most time iterating in order to achieve the highest conversion. One-to-Many integrates seamlessly with the customer journey. Our solution is also platform agnostic, meaning that we can work with more or less all e-comm platforms such as Salesforce Commerce Cloud, Shopify or Magento, to name a few.

Our other product is One-to-One. This is our solution that allows the merchants to have a face-to-face conversation between the end consumer and the brand representative, either in the form of a drop-in or a scheduled meeting. Our solution is very strong in verticals such as beauty and consumer electronics. We also see demand in verticals that have complex purchase journeys, such as automotive and luxury.

Our One-to-One has an interactive shopping layer that integrates with the merchant's native add-to-cart function and checkout. We also have integration to several booking and CRM systems. Bambuser is present across the globe with over 350 paying customers, and we're proud to have some of the best-in-class merchants and partners using our video commerce platform globally.

Now please let me walk you through some Q1 highlights. We successfully acquired new customers, such as Sonos and Cybex; and renewed and expanded customers such as [ Saks ], Net-a-Porter and DICK'S Sporting Goods.

We launched our own booking system for One-to-One, which was a feature that our customers had to have with another service provider before. It is still possible for our customers to integrate their preferred booking system with our platform, but the fact that we now offer our own booking system really sharpens our offering. Our booked One-to-One call has an average duration of 50 minutes, and the average order value is plus 65% versus unassisted, unassisted e-commerce sales.

We are proud to welcome Sonos as a customer. Sonos is a perfect example of our ideal customer profile, the kind of customer we are pursuing. This was a lead through our Salesforce partnership channel, and we're excited to see what other opportunities our partnership channels will present.

We released our One-to-Many SDK that allows our customers to integrate our technology into their own consumer-facing apps. Our customers can now offer their end consumers a customized journey with full control. This is a product that our customers have asked us to offer and it creates a strong stickiness as we integrate quite deep into our customers' tech stack.

With that, I'm now leaving over to our acting CFO, Jonas Lagerstrom.

[Jonas Lagerstrom, executive]

Good morning. I will now guide you through the SaaS KPIs and financials. We have restated our ARR as we have updated our ARR definition to include discounts. We will therefore use this updated ARR definition when we communicate ARR going forward.

I would also like to remind you that we start to account for ARR when a license period begins and we post ARR as churn when the license period ends, even if we are in discussion with the customer about renewals. If the customer comes back at any time after the churn, we will post it as new business.

The ARR growth was 26% year-over-year at constant exchange rates. The quarter-over-quarter growth was flat, and it was a challenging quarter with a weaker macro that delayed several new business discussions, and we were also impacted by churn in the quarter. EMEA represented over 60% of the new business and we also saw strong growth in APAC.

We are not satisfied with the growth, but notice that the customer churning have a lower average ARR profile than the group average. We are working to refine our ideal customer profile to onboard customers with better retention opportunity and also setting up tactics to reach that customer group as effective as possible.

We are introducing a new pricing model in Q2 that would allow the customers to grow with us as they increase adoption of our video commerce platform. And we're also refining our time-to-value customer journey, so our customers get as much value as possible from our platform in the shortest amount of time.

Our net revenue retention improved slightly quarter-over-quarter for all accounts, and we remain strong in our Enterprise segment. This somewhat weaker quarter-over-quarter NRR amongst the Enterprise and top 20 accounts come from that we have been very successful upselling our current Enterprise accounts in the past 12 months.

For a good portion of the Enterprise accounts, our current pricing model limits us to grow at the same rate this quarter. As mentioned earlier, we are introducing a new pricing model that would allow us to continue to grow our accounts over time as they increase adoption and get customer value.

The number of customer groups declined quarter-over-quarter due to churn has already been addressed. However, we see a 5% growth year-over-year, and we are pleased to see that the average ARR by customer group continues to grow with 30% year-over-year. We see this as evidence that our focus on Enterprise accounts is paying off.

Let's move on to ARR by region. APAC demonstrated high growth and now represents 13% of the total ARR. Beauty and electronics were strong verticals. Our more mature markets, Americas and EMEA, did not see the same growth, but it was still successful in growing verticals such as fashion and home and garden for EMEA, and accessories and jewelry for Americas. EMEA remains as the largest region with 51%.

If we look at the product mix, it is similar to the previous quarter. One-to-One has taken approximately 1 additional percent of the total ARR share with strong growth in APAC and Americas. One-to-Many saw growth in all regions led by APAC in percentage growth. However, Americas and EMEA accounted for the growth in monetary terms.

We are pleased to introduce a function-based income statement this quarter. We are, as of now, breaking out the expenses by function, namely, S&M, R&D and G&A. This also means that we are presenting our gross margin that reflects our business model. We believe that this will give better transparency and improve benchmarking with other listed SaaS companies.

If we look at the net sales development, it grew 1% year-over-year, mainly impacted by weaker Professional Services. As mentioned in previous reports, we are focusing our Professional Services around our SaaS offering. Hence, it is expected to see a decline year-over-year until the transition is completed. Most important is that we are growing our SaaS net sales with 25% year-over-year.

The SaaS gross margin improved 10% year-over-year -- sorry, 10 percentage points year-over-year. The margin improvement was driven by better scale of our fixed costs. The gross margin for Professional Services is equivalent to adjusted EBITDA margin, meaning that we recognize typical OpEx costs, such as staff cost, assignment costs, subcontractors, but not amortization and depreciation as cost of revenue. We saw a 3% improvement -- excuse me, 3 percentage point improvement year-over-year for the Professional Services.

For the adjusted EBITDA, we noticed a small decline quarter-over-quarter due to increased spending in marketing and IT and to weaker net sales from Professional Services. Most importantly, the underlying trend is positive and we improved adjusted EBITDA margin with SEK 13 million year-over-year. We continued our initiatives to become leaner and more efficient as an organization. We are continuing this work in Q2 by reallocating capital where it truly moves our business forward in terms of improved ARR and free cash flow.

And let's finish with the cash flow. We noticed a similar trend in the free cash flow as with adjusted EBITDA. This quarter was a bit affected by negative working capital, but we see the same underlying trend that points in the direction of our positive cash flow target. Our cash balance was SEK 348 million, which we consider sufficient, taking us to positive cash flow.

Thank you for listening. We are now moving on to the Q&A session, where we are ready to answer your questions.

[Operator]

[Operator Instructions] The next question comes from Erik Karlsson from CapeView Capital.

[Erik Karlsson, analyst]

Thanks for your hard work for shareholders, first of all. I have a few questions, if you don't mind. I wanted to start with asking about the various pieces of the ARR puzzle. Perhaps we can start with the new business. New business was a bit weak. You mentioned macro weakening, consumer sentiment and so on. Probably also seasonality, Q1 is not where you strike the biggest new contracts. But how do you see the pipeline for the rest of the year? It would be interesting to understand what you're seeing there in terms of new business prospects for the rest of the year.

[Jonas Lagerstrom, executive]

Thank you. We are a bit reluctant to give you any forecast at this stage, but what we do see is that we are working hard to build that Enterprise pipeline, which is something that obviously takes slightly more time than working with more SME accounts. But we have a quite positive view in general terms. But we also, as we said in the report, we believe that the report -- sorry, that the closings may have some volatility because these Enterprise accounts are a bit unreliable when exactly we can close them.

Sometimes we have very long discussions with them. It can take 6, 9, even 12 months before we can close those accounts. So that's why we also want to be quite frank in that there will be some volatility between the quarters. But to -- but in general terms, I would say that the Enterprise pipeline is being built up, and we see positive going forward.

[Erik Karlsson, analyst]

That's very helpful. I wasn't looking for an exact number, just a little bit of understanding how it looks. And then maybe moving on to churn. Churn has been relatively high in Q4 and Q1. I think you lost about SEK 25 million of ARR if you add up the 2 quarters. Presumably, it's related to some customers who took in due to COVID when everyone was excited about this, and not all clients are fortunately invested enough in everything around it to make it work.

My question is really, if we look at the ARR, the book you have today, the SEK 140 million left, do you have any sense how much left there could be that could turn that isn't really using the product or have invested enough in live video shopping, that would be interesting to understand?

[Maryam Ghahremani, executive]

So thank you for the question. I think that is also numbers that we don't give any forecast on. But I think what we see in the churn, and of course we're not satisfied with the churn, is that, as you yourself has said, is a lot of customers that jumped into this during COVID. And then also with the macro we see, there is a lot of retailers undergoing quite tough challenges today. So I think we see a lot of SMEs that are churning. And I would say in those numbers, we really don't see any of the ICP clients.

Once again, we're really looking for Enterprise clients and moving away from the SMEs, which I would say is mostly the part of the chunk churn we see. And I would say there is 2 reasons for churn. One is due to lack of internal resources. And we know all companies are letting go people, and they're not investing in a lot of new technologies or adding more FTEs. So I think that is the first one. And the second one is that we -- they have a hard time adapting. I mean this is a new way of working and I think adoption takes time. So I think those are the 2 main reasons we see.

[Erik Karlsson, analyst]

That's helpful. And maybe on the last piece of the puzzle, the down-selling. I think you changed the name, I forgot what it is now, but that kind of like-for-like sales to existing client base. It hasn't really generated so much extra ARR growth. I looked over the last 12 months to take out any quarter volatility, added SEK 8 million, SEK 9 million to ARR.

Given the client base you have, LVMH, you have a large furniture retailer, et cetera, et cetera, I would have thought that the rollout within these accounts would have generated more upselling over time. How should we think about upselling going forward? And is there anything I'm missing in my logic there in terms of what's going on within that piece?

[Jonas Lagerstrom, executive]

No, I think that's a very valid question. So I think it's important to understand where we come from. Our current business model is license-based and we mainly charge the customer by market. So if you take a global company, that is quite perfect for our current pricing model because they have multiple markets, so we can basically grow by market with them. However, there is a there is sort of ARR ceiling on each market because it's more of a fixed license fee.

What we have done now or are doing right now is that we, in this quarter, Q2, we are implementing a new pricing model that we can talk more about next quarter. But in an essence, it's more usage based. So it's more based how they utilize and work and use our product. And it will also -- so that means that if you are a customer that have multiple markets or only one market, we have the opportunity to grow with them, because then we can land the customer and perhaps we will lend on slightly lower in ARR terms, but we have the opportunity to grow with them over time and by that also grow the AAR.

So this should, over time, be great for ARR growth and, of course, NRR metrics. And we also believe it will be better for retention because that means that we may not go in so high with certain accounts before we have proven our value to them, and we can sort of tie that ARR growth with the improved value to the customer. So -- and then going back to why have we not expanded so much. Well, that is because -- for the last 12 months, that is because the last 12 months, actually, we did expand really well. But this quarter, we sort of hit a kind of a ceiling with some of our accounts where we had kind of outgrown their geographical markets. So that's why we see a little less appealing expansion this quarter. I hope that explains.

[Erik Karlsson, analyst]

That's very helpful. Moving on to the cost side. You -- your headcount was down, I think, 168 now. It's sort of down, I think, around 25% from the peak in Q2 last year to 26 people, and you reduced it quite meaningfully during this quarter. If you could just help us understand how do you think about the headcount from now, your 168, for the rest of the year. Just directionally, do you think it will go up from here, be relatively flat from here or could it go down further? Just to understand the trend.

[Maryam Ghahremani, executive]

So we would say that -- I would say the trend is going towards that -- like all other tech companies, we are going down in headcount as [indiscernible] in a more sufficient way. And yes, that's where we're looking at. So I would say, rather down than up. And then we have -- we are really focused on talent density, so I think there will be some replacements in areas where we need to grow and in areas where there are less focus in the company right now.

[Jonas Lagerstrom, executive]

I can also just add to that, but I think it's important to recognize that the company has been in this new space since the period for roughly 3 years now. That may represent perhaps 10 years for any other company. So that we have to sort of change the sort of pool of talent depending on which phase we are in the journey. So right now, we are looking to moving more into our marketing team, and it's also important for us to deploy more cash into marketing and demand gen also as the market is more competitive. So that's what we mean when we want to reallocate cash.

And -- but we rather don't really speak to a specific headcount because we think that is perhaps the wrong way of measuring it. It's more about the general cash allocation, how we redeploy that to attract best growth and, on the long term, cash flow.

[Erik Karlsson, analyst]

Understand. That's helpful. And maybe tying it a little bit to costs. I look at sort of absolute costs between adjusted EBITDA and sales, so as a total math -- cost math of the company. So it was SEK 95 million in Q1 and Q2 of last year, and then it sort of dropped. And it's been SEK 80 million to SEK 86 million in the last 3 quarters, so relatively stable. Given that headcount fell in Q1 and you talk about rather down-than-up headcount, is it fair to assume that, that total cost base will, if anything, come down further? Or is there anything I'm missing there when I add it up?

[Jonas Lagerstrom, executive]

Again, I think we are -- it's reasonable to say that there will be a more efficient cost base, but that must not necessarily mean in absolute numbers. It's rather that we can redeploy that cash to fuel better growth. So even though we are incredibly concerned and cautious with the cash and we have our eyes on the cost base, we also understand that we need to spend to grow. But you could expect a more, how should I put it, attractive OpEx rate to net sales in the long term, I would say. So I hope that sort of gives you an indication of where we want to -- how we want to sort of run the business going forward.

[Erik Karlsson, analyst]

That's very helpful. My last question is more big picture, strategic, after all these number-related questions. Given it's a kind of a fast-changing market, and you said 3 years for you is probably 10 years for any other company, and you have to be agile. If you could help us understand what do you see changing in the market and how you play in the market going forward? It seems to me like you -- there's a bit more general video focused in terms of your product focus. And then in terms of how you sell the product, a little bit more channel focused. But if you could just elaborate a little bit and help us understand how it's changing your business model. That would be helpful, I think.

[Maryam Ghahremani, executive]

So I can start a bit. So we released a live video shopping product 3 years ago. And I would say that, today, we're selling more of a video commerce platform to our customers where video is shoppable, and interactive video is in the focus rather than the live video shopping part of it as -- I mean, of course, it's a big part of what we sell. So I think in a strategic way, it has moved a lot the past 3 years. Then we cannot forget that we have 2 products. Strategically, we see a huge potential in the One-to-One. Once again, it's only 7% of our ARR today, and we see that one being a strong contributor to growth going forward as our focus has been the One-to-Many products and not the One-to-One.

Not going very much ahead of time, but I think more and more, we are seeing ourselves as a partner to our customers when it comes to really being ahead of the curve when it comes to innovation, to commerce and also how you connect digital and digital stores, like how do you really make that connection, which I would say both One-to-One and One-to-Many is a great example of, with many of our customers who really do use the products, to really build that digital experience that we're talking about today. So I think a very different, how I'd say, product suite we're selling rather than a feature and market changing very fast. I don't know if you want to add something to that.

[Jonas Lagerstrom, executive]

No, I think that's a very good point. I think what we also see is that how we can sort of -- how our customers can utilize the outcome from the digital that they are producing on our platform and use that in other areas, and really try to help them repurpose that content, whether it's in different Facebook ads or other advertisements or to use them as a part of the product landing pages. But also how we can help customers make existing videos shoppable that did not -- from the beginning, have the purpose of being a shoppable video.

These are all capabilities that we have had for some time in our platform. But as adoption grows amongst the customers and interest grows, this is something that we see will start to generate more actual value to our customers. And I also think that, that will give us a wider customer base and adoption in general going forward. And that's also one of the main reasons why we want to refrain from using the word live, because live is such a small part of this ecosystem that we are building. So we think video commerce is a more suited description of this space.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any questions from the web.

[Maryam Ghahremani, executive]

So we have a question from Forbes from Pareto Securities. Where are you seeing the most ARR growth potential, install-based, new customer groups?

And I think we see a mix of existing customers. As I just said, we have 350 customers. Of those, there are very few that are using the One-to-One products. So we see a huge upsell opportunity amongst the existing customers for One-to-One. And we're very focused on that product for this year. So I believe that, that one will grow. So once again, we're focusing on the customers we have, where we can grow. And then, of course, new customer groups, we're looking into adding. And we have identified a very strong ICP. And as you see in the numbers, we are strong in the Enterprise segment.

And then there was a question on what are our typical deal cycles now in terms of months?

And I would say also due to macro and how the market -- how retail is looking, I mean, the deal cycles are a bit longer than what they were a year ago. So I would say, if you take an Enterprise client, we've been talking about this before also, we see it can go -- I mean, I would say, between 6 to 12 months, and sometimes it's even longer than 12 months depending on the RFP cycle. So I would say, typical deal cycle is 6 to 12 months. That is what we see today.

[Jonas Lagerstrom, executive]

And I can also just add to where we see the most ARR growth potential that we are now seriously exploring the partnership channel opportunity. As you know, we have Salesforce as a partner that we have spoken quite frequently about. They have an excellent customer base that fits perfectly into our customer profile. However, we are also, obviously, exploring other partnerships that we expect to be announced in the near future that we believe will also supercharge the growth opportunities.

[Maryam Ghahremani, executive]

That was all questions from the web. Thank you for listening in, and have a good day.

[Jonas Lagerstrom, executive]

Thank you.