Bambuser AB

STO:BUSER

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to Bambuser Q2 Report Presentation 2023. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Maryam Ghahremani; and acting CFO, Jonas Lagerstrom. Please go ahead.

[Maryam Ghahremani, executive]

Good morning, and welcome to Bambuser Q2 2023 Report. I'm 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 over to Q2 highlights and finish off with SaaS KPIs and financials. Bambuser is the world-leading video commerce company. We were founded in 2007 by offering a video technology that let users stream live video from their mobile phones. We pivoted into video commerce in 2020 and have since then attracted over 350 brands across 45 countries.

We have a global presence in New York, London, Paris, Tokyo, Turku, Dubai and Stockholm, where we have our HQ. We have since the start delivered a strong ARR momentum. We're currently facing a tougher market with some SME retail customers churning and enterprise customers with twice as long sales cycles as we have seen before. This has slowed down our ARR momentum.

As we said before, the transition to the focus on enterprise accounts will result in volatility between the quarters before we have reached a critical mass of enterprise customers, representing our ARR. We are very positive about the long-term growth of our ARR.

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

Video commerce -- sorry, Bambuser offers shopping experiences that taps into today's behavior around video. With Bambuser, our merchants can 10x their conversion, repurpose the content by using snippets from the show in social media, on product landing pages or even use existing videos and make them Shoppable.

We also reduced returns. 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 already has a significant presence in China. The Western part of the world is 5 years -- 5 to 7 years behind China, where we noticed a massive GMV growth and general adoption.

We have addressed the market opportunity and estimate that the global 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 over time.

Bambuser is present across the globe with over 350 brands, and we're proud to have some of the best-in-class merchants using our video commerce platform. We are thrilled to launch Bambuser as a unified video commerce platform, combining our One-to-One and One-to-Many products. This platform powers analytics and incorporates AI and machine learning features.

Being e-commerce platform agnostic, we seamlessly integrate with leading platforms like Salesforce Commerce Cloud, SAP Hybris, Magento, Shopify, Commercetools and more. Our customers can ultimately stream to top social media apps. Merchants can now connect with their customers through browsers or custom apps using our SDK.

We aim to build an entire ecosystem around this platform with other services connecting to us. It's a game changer for video commerce. Our product suite offers 2 key products. With One-to-Many, our flagship driving over 90% of our ARR. It enables seamless interaction between hosts and multiple viewers, effortlessly starting from your smartphone or external cameras. Viewers can actively engage through chat and likes during the show.

The One-to-Many includes full support in terms of promotion and add to cart functionality. Our core strength lies in using the merchants native checkout, a crucial step in achieving the highest conversion rates. One-to-Many seamlessly integrates with the customer journey.

Our other product is One-to-One, enabling face-to-face conversations between end consumers and brand representatives. It's ideal for verticals like beauty and consumer electronics, where personal advice drives purchase decisions. We also see a demand in complex purchase journeys like automotive and luxury. One-to-One features an in-traffic shopping layer, seamless integration with native add to cart and various booking and CRM systems.

Okay. So now please let me walk you through some of the Q2 highlights. We successfully acquired new customers, such as Lego and Kosé, and renewed and expanded customers such as Shiseido, Sisley and Bloomingdale's. We are very excited to launch our new One-to-Many player. We have taken all of our learnings since our start and developed the next-generation player that drives 3.5 higher click-through-rate in the Shoppable videos.

We have designed it for enhanced product interaction and conversion and with a mobile-first approach. Our customers can now reuse videos on their product detail pages by jumping straight to the relevant products. Bambuser can finally allow our customers to multi-stream the One-to-Many content on Instagram. The merchant can now amplify the engagement by reaching a wider audience. By this, we are now covering all the top social media platforms, including TikTok, Facebook, to name a few.

We are very proud to welcome Kosé as a customer. Kosé is one of the largest beauty groups in the world and their brand addiction is first out to try One-to-Many. They are in good company with the rest of the world's leading beauty conglomerates. This truly cements Bambuser as the industry leader.

We continue our initiatives to become a more efficient company with a leaner cost base. As a part of this transformation, some of our colleagues have left the company. The annual cost savings amount to approximately SEK 32 million. Due to these changes, we are sunsetting Bambuser Plus, the function of production, strategy and education are being integrated into our customer success teams and our growing network of partners who will support us globally at scale.

The remaining part of Bambuser Plus influence marketing will begin operating as an independent company under the name, Relatable, during the third quarter. During Q2, we introduced a new pricing model that acting CFO, Jonas Lagerstrom, now will talk you through.

[Jonas Lagerstrom, executive]

Good morning, everyone. The reason why we introduced the new pricing model was because the previous model was flat. Many customers felt that the price was too high before trying out video commerce, meaning that it was harder for us to land new customers. Once the customers' adoption and value start to grow, we had difficulties growing our ARR.

Now by introducing the new pricing, our customers commit to an annual usage allowance such as number of videos or calls, we can land them for a low allowance and by that, a lower price. And as they grow their adoption and value, we can also grow our ARR by moving the customers to a higher allowance tier, which over time will be great for our net revenue retention.

We will basically capture more opportunity in both the land and expand phase. We believe that this will be a game changer for our future growth and retention. The initial feedback has been very positive. Pricing is less of a concern in customer negotiations, and we have also won back several churn customers. So that means that our SaaS business model now looks like this.

Onboarding and setup is a onetime fee and not included in the ARR. We estimate that this will decrease over time as we start to work with system integrators and agencies who will take care of this part, allowing us to scale more customers with less FTEs.

The customer then pays a price for the video commerce platform. The price is dictated by the service tier, for example, Pro or Enterprise, which is mainly differentiated by service levels, access to our SDK or other typical enterprise-grade features. This is included in the ARR.

Then the customers commit to the annual usage allowance, which can be calls, viewers or videos. When they burst their allowance, they have to move up to the next allowance tier and pay a higher price or pay an overage. It is in the license for committed usage where we will see the ARR growth over time. The overage is charged in arrears and not a part of the ARR.

Okay. So now we have gone through the pricing. I will now get you through the SaaS KPIs and financials. The ARR growth was minus 2% year-over-year at constant exchange rates. The quarter-over-quarter growth was minus 12% and new business was slower due to a challenging market with longer sales cycles.

APAC saw small churn but higher downsales, whereas Americas and EMEA saw equal large churn amounts during the quarter. The churn is not satisfying and actions have been implemented to improve churn over time, including the new pricing, enhanced customer success and better ideal customer profile mapping. But as pointed out earlier, it is important to stress that we expect volatility in the ARR as we build up critical mass of enterprise customers.

Our net revenue retention was affected by the weaker quarter, but we see a strong momentum amongst the larger enterprise customers, which is a very good indicator of what our ideal customer profile looks like and where we should play going forward. The number of customer groups declined quarter-over-quarter due to churn has already been addressed. The average ARR per customer group was up 14% year-over-year.

It is, however, reasonable to believe that the average ARR will go down in the short term, but return to growth long term due to the new pricing.

Now let's look at the ARR by region. APAC grew 11% year-over-year with traction in consumer electronics and fashion. EMEA and Americas experienced a more challenging quarter even though Americas contributed to most new business for the entire group. Our product mix is more or less the same quarter-over-quarter. One-to-Many had a tougher quarter due to challenges in Americas and EMEA, but APAC demonstrated growth by 13% year-over-year. One-to-One had strong support from EMEA this quarter.

Moving over to net sales. The overall net sales were down 1% year-over-year, but most importantly, the net sales for SaaS was up 5% year-over-year. As we are making changes in our Professional Services by sunsetting Bambuser Plus and let the influencer marketing division operate more independently, it's fair to believe that the contribution from professional services will increase over time.

The SaaS gross margin decreased with 1 percentage point year-over-year. As we allocate our technical support teams and parts of the customer success teams in the cost of revenue, this quarter was affected by some of the onetime costs associated with the efficiency measures that we took during the quarter.

The same goes for the gross margin of the professional services that was affected by the same onetime costs. The adjusted EBITDA continues to develop well and is the result of several initiatives that we have taken in the last 9 months. We continue to focus on cost control this quarter, and have taken further efficiency measures resulting in annual cost savings of SEK 32 million that we expect to reach full effect in Q3.

That has resulted in onetime layoff costs that have been recognized in Q2 by SEK 6 million. If we exclude these costs from adjusted EBITDA, adjusted EBITDA is even better showing a margin of minus [ 44.6% ].

And finally, the cash flow. Our free cash flow continues to improve and even if the coming quarters may come with some volatility, the underlying trend looks positive, a direct result of our cost control and approved ability to charge customers upfront. The cash balance was SEK 324 million, which we consider sufficient taking us to positive cash flow. Thank you for listening. We're now moving over to the Q&A session, where we are ready to answer your questions.

[Operator]

[Operator Instructions] The next question comes from Nikola Kalanoski from ABG Sundal Collier.

[Nikola Kalanoski, analyst]

I would like to dig a bit deeper into the sales cycle and the business climate. And my first question is, did the length of the sales cycle increase gradually during the quarter? Or was any particular month, especially challenging?

[Maryam Ghahremani, executive]

Nikola, this is Maryam. I would say that we have been seeing longer sales cycles, I would say, from the end of last year into the beginning of this year. And I think what we -- it's hard to summarize one quarter because it's too short to say like we saw longer sales cycle in Q1. But I think when we saw them continuing into Q2, we now have them -- I'd say, now we can see a slight trend, I would say, after 6 months that are sales cycle that before was around 5 to 7 months have gone from 7 to around 12 to 14 months, I would say. So gradually, starting by the end of Q4. And I would say by now looking at H1, we see twice as long sale cycles, almost.

[Nikola Kalanoski, analyst]

Yes. So the consensus has sort of changed that customers are not necessarily willing to invest themselves out of a recession, but rather perhaps more cost conscious, if you will, as the quarter has passed through even as this half year has passed, if I understand that correctly?

[Maryam Ghahremani, executive]

Yes. Yes, I would say that's correct. I can just add to as we also about a year ago, focused more on enterprise accounts, we know that even with the not longer sales cycles that we didn't have a year ago, we still saw longer sales cycles because it's larger companies and more people, more stakeholders, more or less taking decisions. And we see that now when even have a further focus on enterprise that we, of course, have longer [indiscernible]. And what I would say they still want to invest but it takes just a longer time, more stakeholders that need to be involved and sign off the investments than before.

[Nikola Kalanoski, analyst]

Yes. That's fair. And my second topic, I guess, is churn. If you could perhaps give us some additional color, which types of customers did you experience churn in during the quarter?

[Jonas Lagerstrom, executive]

I would say that we saw across -- I mean, most verticals, but obviously, retail, where we have most of our customers stood for the highest percentage. It was still mainly smaller customers churning than we are in sort of price negotiations with some bigger customers, meaning that their services have been put on hold, but there is a great intention for them to continue. And the way we sort of treat our ARR is that then they are posted as churn because they are no longer billable. So I would say that mainly within the sort of bigger verticals that we're in, predominantly by smaller customers, but we also have some of those -- some influence of the bigger ones where we are in negotiations with.

[Nikola Kalanoski, analyst]

Yes. All right. Understood. So it could perhaps be at least partly a timing effect on enterprise accounts rather than unwillingness to invest, so to speak, to understand that correctly?

[Jonas Lagerstrom, executive]

Yes, that is correctly understood. So we have, for example, there will be customers that will return in Q3 that we already know will return. But the way we look at the ARR is that if they are billable, they are in. If they're not, they're out. So in this particular time, it's in our disadvantage, but for sure, will be in our advantage as we start to roll them in again.

[Nikola Kalanoski, analyst]

Yes, that makes complete sense. And finally, just a small clarification on the new pricing model. How long would you estimate that it would take to roll over the customers from the old pricing model to the new pricing model, as I assume that it will take some time for the old fixed-term contracts to roll over gradually into the new ones.

[Jonas Lagerstrom, executive]

Yes. That is correctly understood. I think it's fair to estimate it will take roughly 1 year because it will be like during different agreement anniversaries where we will have these discussions. With some customers, we may introduce these discussions sooner because it will be actually more beneficial for them to move over to the new pricing. But -- and then there is -- obviously, there will always be an element of custom pricing with some really, really big customers. But I would say a year is a fair sort of time line to move over existing customers. All new customers are obviously being exposed for the new pricing as of now.

[Operator]

[Operator Instructions] The next question comes from Forbes Goldman from Pareto Securities.

[Forbes Goldman, analyst]

I would like to follow up on the churn question. And -- well, we see that churn of nominal SEK 18 million in the quarter and has sort of accelerated in the last couple of quarters. So to just understand a bit where this is heading perhaps in H2 of this year, I mean, within your pricing model, is it fair to assume that you should see less extreme fluctuations in churn and the other ARR components as well. If you could start there, please.

[Jonas Lagerstrom, executive]

Thank you for the question. We don't give any future-looking statements. But it's fair to say that the new pricing will -- should create some more stability. On the other hand, we do expect the upsell and potentially downsell also part of the ARR bridge be a bit more volatile because there would be more of that element in the pricing model. But again, the new pricing will just cover a fairly small percentage of our existing customer base the year out. So I think that's very important that we look at the new pricing with sober eyes. And I'm not sure if that answers your question.

[Forbes Goldman, analyst]

Yes, that's fine. That's fine. I'll move on to my second one. And it's about the partner channel we heard in your previous most recent report that the partner channel contributed with 6% of new deals. So has that sort of continued into Q2? And also -- yes, some comments regarding what you expect the partner channel to achieve this year and now that you are kind of retiring Bambuser Plus, will you be relying to an even greater extent on the partner channel compared to previously?

[Maryam Ghahremani, executive]

I can start and then move over to Jonas. I mean Bambuser Plus was, I would say, if we exclude in terms of partners that drive you the leads and pipeline that was not the type of partners, it was more in terms of production and strategy. I think when it comes to the partner strategy, we are really investing both time and also we've worked with less few partners. And what we can say about H2 is that we are doubling down on partnerships. So we see that one continuing and growing. And then Jonas maybe can give some more details on the partner end.

[Jonas Lagerstrom, executive]

Yes. So I would say that the partner-sourced deals that were won this quarter were pretty much in line with the last quarter. We do believe that partnerships can be a substantial part of our customer sourcing. We have been focusing very much about Salesforce previously. That is still a key partner, perhaps the most important one, but we are also extending the partner network to system integrators and agencies, and that is the ones that typically do integrations for customers. For example, if you are a Salesforce customer, you have a system integrator who is doing all the job of integrating and setting up the system. We want to be a part of their corner, too, because they have their direct customer relationships and they can also be quite sort of agnostic adviser when it comes to new technology. So we are currently building up a quite extensive partner network with key system integrators and agencies. Obviously, not only within the Salesforce world, but for other platforms, too.

And then as we know sunset Bambuser Plus, we are, at the same time, having and building up a partner network of production companies but we also see a growing number of specific agencies coming up only focusing on professional services around video commerce, including strategy. And it's great for us because then we can sort of support our customers more locally and more globally at the same time. But they will also be a great pipeline generation for us. So I cannot give you a number of how much partnership will stand for. But the kind of business model and the product we have, it suggests that it should be substantial and let us figure out what substantial is, but it's far, far more than we see now.

[Forbes Goldman, analyst]

Okay. That's great. Really appreciate it. And on to my final question then. It's about the net cash position, which is quite substantial. And I mean, I would really appreciate if you could give some comments on when you expect to reach breakeven? And what sort of ARR or net sales level you expect to have in order to reach breakeven with the existing cash position?

[Jonas Lagerstrom, executive]

Thank you. I understand your question. It's a very valid question, but we will not give sort of outlooking view -- future outlook view on this. And the reason for this is, as you can see, we do expect some volatility, and we are entering a new space. We are not entering a mature market, say that if we would sell ERP systems or CRM systems, it's more -- we could do more math, we could say we should take x amount of share of this market, and this is the playbook how to get there. We are still exploring video commerce as a new category together with our customers and partners, making it quite difficult to do very predictable forecasts. So if we -- so that's why we want to be a bit responsible, not only a bit, very responsible not forecasting at this stage. I'm sure we will come to a point where we will be confident and say that the business has reached the critical mass where we can have more confidence in our forecasting. So for that reason, I will -- I cannot give you that answer today. And I hope you understand that.

[Forbes Goldman, analyst]

Yes. Fair enough. It's worth to give it a try anyway.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Maryam Ghahremani, executive]

Thank you for listening, and have a good day.