Bambuser AB

STO:BUSER

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to Bambuser Q2 2024 Report Presentation. [Operator Instructions].

Now I will hand the conference over to CEO, Maryam Ghahremani; and CFO, Jonas Lagerstrom. Please go ahead.

[Maryam Ghahremani, executive]

Good morning, everyone. Welcome to our Q2 earning call. My name is Maryam Ghahremani, and I'm the CEO of Bambuser, and I will hold this presentation together with our CFO and COO, Jonas Lagerstrom. For those who might be new to our story, let's start with a quick introduction to Bambuser. We have been leading the way in mobile live streaming and video commerce since 2007. We're a global company with offices around the world and recognized with multiple awards for our innovation in this space. Today, we proudly serve over 250 clients in more than 40 countries.

Now let's talk about the future. In today's fast-paced world, it is crucial to understand where your consumers will be tomorrow. Gen Z is the generation to watch. They're on track to become the wealthiest generation ever surpassing baby boomers by 2030. And by 2045, they'll control a significant portion of global wealth. But there is a huge challenge. Gen Z's attention span is incredibly short, just 1.3 seconds. Apps like Snapchat and TikTok, have shaped their expectations. This means traditional one-way communication just won't cut it anymore. Brands needs to adapt.

The new playbook calls for immersive content, both live and on-demand. It needs to be educational, but also entertaining. Brands needs to establish authority and build community, and crucial, all of this has to translate into sales. That's where Bambuser comes in. We offer a single unified virtual commerce platform with 2 core solutions. Social commerce, which includes live and Shoppable Video, and Digital Clienteling, featuring video consultation and chats. Our platform enables merchants to connect with customers at every stage of the sales funnel using interactive 2-way communication. But we're more than just a platform. We offer access to whole ecosystem of partners to help our clients succeed. This includes everything from production support to strategic guidance and integrations with e-commerce platforms and third-party apps.

We are operating in a massive and growing market, projected to reach USD 8.5 trillion by 2030, and as we expand our product offerings, our potential market grows even larger. We are very pleased to report that we've returned to growth in Q2 2024 with a 7% quarter-over-quarter increase in ARR at constant exchange rates.

Let's take a moment to highlight some key wins and developments from the quarter. We expanded our relationship with LVMH and welcome exciting new clients like Hy-Vee, Elemis and Luisaviaroma. We are incredibly proud to announce our partnership with Audi Sweden. Audi is embarking on an exciting journey with plans to launch several new car models in 2024, including a major focus on electrical vehicles. This marks a significant shift in their business model. By teaming up with Bambuser, Audi will leverage the power of Shoppable Video to create a more immersive and interactive digital customer experience [indiscernible] driving electric car sales.

We are also very happy to welcome Hy-Vee, a new logo to the Bambuser portfolio. Hy-Vee is a well-known U.S. retailer with a strong reputation for its customer-centric approach. They offer a diverse range of products and services, including grocery stores, dining options, health services and wellness programs.

We are thrilled to announce a major enhancement to our platform, Shoppable Video. This powerful tool allows our client to turn any video into an interactive shopping experience. Now Bambuser clients can take videos from anywhere and transform them into shoppable videos that can be embedded anywhere under e-commerce sites. It is incredibly easy to use. With Shoppable Video, clients can simply upload their content, add interactive shopping elements, then seamlessly edit, manage and distribute those videos across their entire site. And the best part about it is that no developer assistance is needed.

This is all about maximizing the value of video content. By repurposing existing videos into shoppable experiences, clients can drive higher engagement, increase sales and get a fantastic return on their investments. Every video becomes an opportunity to connect with customers and drive revenue.

We're also very happy to introduce the app framework, a powerful new tool that allows our clients to create custom apps directly within the Bambuser platform. This opens up a world of possibilities for personalization and engagement from interactive elements and real-time collaboration to data collection and augmented reality features. The app framework is a true game changer, and we can't wait to see the innovative ways our clients will use it to drive their business forward.

I'm now leaving over to CFO and COO, Jonas Lagerstrom, who will take you through the financials.

[Jonas Lagerstrom, executive]

Good morning, everyone. Let's start by diving a bit into our financials. We're back to growth with a 7% quarter-over-quarter increase in ARR at constant exchange rates. Part of this is due to the acquisition of the HERO solution that had a positive contribution to the ARR bridge. The organic growth was negative by 2% quarter-over-quarter which is still a significant improvement compared to the last quarters.

ARR by customer is also showing positive momentum quarter-over-quarter. Year-over-year comparison is still negative, primarily due to churn, negative net expansion and the introduction of lower-priced Shopify plants. However, we're particularly focused on growing our up-tier enterprise accounts, which demonstrates strong net retention.

Let's take a look at the ARR by region. The development is in line with previous quarters. EMEA remains the largest region, accounting for close to 60% of the ARR, followed by the Americas and APAC. We believe that every market has tremendous untapped potential and the overall negative growth does not reflect our positive outlook of the market's future. While our overall NRR is at 63%, or, as I just mentioned, top 20 accounts have a promising future with an NRR of 104%. This indicates that they're not only [indiscernible] with us, but also expanding the usage of our platform. We're laser focused on growing this segment of high-value enterprise clients.

Turning to net sales. We're now solely focused on SaaS revenue in these reports as we divested our professional service business end of last year. Net sales are currently aligning with our ARR trends, and we anticipate a return to growth, mirroring the positive trajectory of ARR. Our gross margin was temporarily impacted this quarter, primarily due to the acquisition of HERO. As we fully integrate HERO into our tech stack, we expect to realize cost efficiencies and see our gross margin improve.

We are pleased to report continued improvement in adjusted EBITDA. This is a direct result of our disciplined cost control measures. It's worth noting that we achieved this despite a year-over-year decline in net sales. So imagine the potential when we combine this cost efficiency with a return to top line growth.

Our operating expenses consequently continue to decrease, reflecting our commitment to managing cost effectively. The underlying performance is actually even better than what's shown on this slide as we had some one-off costs this quarter, including garden leaves and cost for 2024 long-term incentive program.

Finally, let's look at free cash flow, a true measure of our financial health. We're pleased to report that our free cash flow burn is at its lowest point since our pivot. We ended the quarter with a strong cash position of SEK 220 million which provides us with ample runway to reach positive cash flow.

Thank you for listening. We are now welcoming any questions.

[Operator]

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

[Nikola Kalanoski, analyst]

Just a few questions from my end. So the first one is on the Americas. You mentioned that the decline in ARR per customer group is mostly driven by Americas. Could you perhaps give us some more flavor as to why the Americas is particularly affected?

[Maryam Ghahremani, executive]

Nikola, this is Maryam. I can start. So I would say that the retail market has been much tougher in the Americas than looking at EMEA. And then the second reason I would say is that we do within the top 30 clients, the larger conglomerates, most of -- I would say, most of them are headquartered here and they have had a stronger performance than looking at an enterprise client in Americas, where we have seen a lot of, I would say, bankruptcies and a lot of companies struggling. So I think that's why there is a quite big difference within EMEA and Americas. It's more the markets that are driving rather than, I would say, customers. I don't know if Jonas wants to add anything to that.

[Jonas Lagerstrom, executive]

No, I think that's quite fair view of it.

[Nikola Kalanoski, analyst]

Yes. Indeed, that sounds fair, yes. And secondly, and that's my final question, I hope I understood this correctly in the report that you mentioned that the new pricing model has an adverse impact on average ARR. My impression previously was that the new pricing model would enable a more value-based pricing opportunity, rather it appears now that the pricing module perhaps reflects maybe a different type of economics that is more variable in nature. And so my question here is, is this a transitory effect as clients migrate from the old to the new pricing model? Or is there something else that we should be aware of?

[Jonas Lagerstrom, executive]

So I'm just trying to understand the question. I mean, there's nothing material that has changed when it comes to the new pricing model, which is -- well, it's over a year actually, so it's not that new anymore, but in compared to our legacy pricing. So what -- I just want to understand, so I can answer properly. What part did you perhaps think was different?

[Nikola Kalanoski, analyst]

Yes. So I mean, the new pricing model would enable perhaps a more, as I mentioned, value-based pricing. So if the client uses the Bambuser service more, they would pay more. That's the more variability nature that I was speaking of. But now perhaps that you've gone from the old model, which was a little bit more fixed revenue nature to the new model, which is more variable in nature, perhaps there's a change here, but perhaps that is driven by temporary demand cycle, a trough in demand.

Have I understood that correctly that this new variable pricing model is largely macro-driven rather than idiosyncratic for Bambuser?

[Jonas Lagerstrom, executive]

Okay. So I mean it's not -- how should I put it, it's -- I would not say its macro driven by that, that it's an instant feedback of how much the customer uses it. I mean in that sense, it's a quite classical SaaS pricing, where you as a customer commit to a certain usage of any kind could be, for example, if we take the most simple one, could be a number of video calls that you would do in a year. And when you exceed that, well, then you need to move up to another tier and pay more.

So it's not the dynamic pricing that will fluctuate month-to-month. It's more about that you have annual allowances and once you reach a limit, you can either choose to pay for overage, which is -- could be one option or you move up to a higher commit which then would obviously be an upsell.

[Nikola Kalanoski, analyst]

Yes, I think I understand. That makes sense because I was thinking that the previous pricing model would provide more or less a little bit of a cap on the upside, but the new model would allow, of course, for more upside as you mentioned. And perhaps given that I was thinking at least given that maybe the environment for retailers has not been perfect, that this, of course, would not enable the upside just yet, but that -- when that turnaround is around the corner, you could start seeing the upside that you wouldn't with the old pricing model. Have I understood that correctly?

[Jonas Lagerstrom, executive]

That's 100% correct. Yes. So I mean, totally, I mean, the -- if you want [indiscernible], we are at [indiscernible]. So that is correct. And I mean, we are also still rolling out this to existing customers [ for say ] longer contracts and when they're up for renewal, that's when they move over. So we still have a portion of legacy price customers. But more and more of our client base are moving over to this variable pricing. And to your point, as their adoption increases, which did [indiscernible] due to both macro but also, we are building a much more stickier product. That's where we will see upsell. So the future -- so the potential lies in the future, and we have absolutely not sort of maxed out that sort of potential.

[Operator]

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

[Maryam Ghahremani, executive]

Thank you so much for joining us and have a great day. Bye.