Fortnox AB

STO:FNOX

Earnings Call Analysis

Fortnox's Solid Quarter Amidst Macro Headwinds

Fortnox reported a solid second quarter with a net addition of 16,000 customers, surpassing last year’s 15,000. Average Revenue Per Customer (ARPC) grew by SEK 9, contributing to 27% revenue growth with 26% of it being organic. Despite macroeconomic challenges, the company maintained an EBIT margin close to 40%, achieving over SEK 200 million in EBIT for the first time in a single quarter. They are on track towards their 2025 goals, having reached 572,000 customers. Financial services, particularly lending and invoicing, now contribute significantly to ARPC at SEK 39. They emphasize their strengths in cross-selling and price optimization strategies.

Solid Customer Growth Amidst Challenges

In the latest earnings call, Fortnox reported the addition of 16,000 new customers, bringing the total customer base to 572,000. This growth is commendable given the ongoing macroeconomic challenges. Despite these headwinds, the company showed resilience, achieving organic growth of 26%. The management emphasized that while the target of reaching 700,000 customers by 2025 is ambitious, they are confident in their strategy to get there.

Revenue Growth and ARPC Performance

Fortnox’s Average Revenue Per Customer (ARPC) has increased to SEK 285, just SEK 15 short of their 2025 target of SEK 300. The company's ARPC growth was further supported by improvements in its financial services segment, particularly lending and invoicing, which contributed SEK 39 to the ARPC. Notably, the product Invoice Factoring saw a staggering growth of 79%, indicating strong demand in their offerings.

Strong Profitability Metrics

Fortnox delivered over SEK 200 million in EBIT (Earnings Before Interest and Taxes) for the first time in its history, translating to an impressive EBIT margin of nearly 40%. The combined performance of revenue growth and profitability is reflected in the company’s Rule of 40, which they exceeded significantly with a 67% score. This metric, vital for investors, denotes a healthy balance between growth and profitability.

Strategic Focus on Financial Services

The company's strategic pivot towards enhancing its financial services platform has proven effective. The CEO stated that the financial services contribution is growing, which speaks to their ability to cross-sell products effectively. This diversification not only boosts revenue but also positions Fortnox as a more comprehensive financial solutions provider, particularly for small and medium-sized businesses in Sweden.

Q2 Challenges and Future Outlook

While Fortnox is performing well, the management acknowledged potential challenges to achieving their 2025 goals, particularly due to uncertain macro conditions. They indicated that in order to reach their growth target, they might need some favorable conditions or 'tailwinds' in the market. However, they remain committed and have laid out a plan to strengthen their position, particularly by improving relationships with accountants and targeting the micro business segment.

Operational Efficiency and Technological Upgrades

Fortnox continues to invest in technology and operational efficiency, focusing primarily on product development and customer service functionalities. The CEO mentioned ongoing recruitment, primarily in tech roles, with a view towards maintaining exceptional customer support even as the company scales. They are also integrating AI technologies to enhance efficiency further.

Market and App Rankings

The Fortnox app has achieved notable recognition, ranking as the #1 business app in Sweden, a position it gained from being #6 earlier. This rise in rankings reflects both increased user engagement and the utility perceived by customers. The management views this enhanced visibility as a significant driver for future growth, particularly in implementing new features.

Legislative Changes Supporting Digital Transformation

Fortnox is poised to benefit from recent legislative changes that eliminate the requirement for physical storage of receipts and records. This shift aligns perfectly with their digital platform, which allows businesses to handle all documentation electronically. As this law comes into full effect, it could streamline operations for their customers, creating further demand for Fortnox's digital offerings.

Earnings Call Transcript 2024-Q2

[Josefin Ceder]

Good morning, and welcome to the Fortnox investor forum. My name is Josefin Ceder, and I will be your host and today I will also act as your moderator once again. Our guest in the studio is of course our very own CEO, Tommy Eklund.

This stream will be about an hour long. The first part is dedicated to the presentation of the quarterly reports which will be presented by our very own Tommy, and then this will be followed by a question-and-answer session.

Today, we're also introducing something new. We're introducing phone calls to the stream. Anyone that's interested can call in starting now to our phone number 0046 8-559 313 37 and ask your question live after our question-and-answer session or after our presentation. That's phone number 0046 8-559 313 37. We will also display this during the stream in case you missed it.

Be aware that we have only one person manning the phone line, so there may be a waiting period, and we really appreciate your patience while waiting.

We will, of course, also read questions from our chat. Our chat is also open now, and you can ask your questions there at any point during the stream.

Here is Tommy Eklund with the presentation of quarter 2.

[Tommy Eklund, executive]

Hi, everyone, and thank you Josefin. Yes, so as we normally do, we keep my presentation kind of short and then we're focusing on Q&A. But anyway, just to give you some intro regarding the numbers, let's dig into the results.

Yes, head KPIs is number of customers and ARPC as you may know. So we increased the number of customers with 16,000 compared to 15,000 last year, so solid growth in the net adds of customers. The ARPC grew with SEK 9, also a very solid number, SEK 11 last year. And that has, of course, the connection to the 27% growth. Out of 26% was organic growth. So even though there are some headwinds in the macro environment, we're still being able to deliver solid growth, and especially on the organic side.

And although we hired more than usual in quarter 1 and also did an acquisition, we managed to keep up the EBIT level in line with last year. So almost 40% EBIT margin. And also, like, a fun fact, we were able to deliver more than SEK 200 million in EBIT for a single quarter for the first time in the Fortnox history. So that's worth celebrating.

And if you combine these growth and EBIT, that takes us to the Rule of Fortnox, which is this definition of -- the international definition of Rule of 40, which when you add growth and profit, it should exceed 40%. Now we're delivering 67% on that. So all in all, stable and good quarter.

So if you just look at the numbers out of a historical context and looking at our goals for 2025. So now we have reached 572,000 customers in the quarter. So really good quarter because it's better than quarter 2 last year, although there are definitely continuing headwinds in the macro environments. So I think that we're showing that the underlying business is delivering better than we have done before.

So yes, it will be challenging to reach the 700,000, but we have a plan to get there. And I think that the business is delivering in that direction right now. Of course, we probably need some kind of tailwind at the end to be able to reach the goal, but we have a plan to get there. So all in all, a good quarter regarding net adds.

ARPC is delivering a bit better than what we have in our goals, so now we have reached SEK 285, so it's only SEK 15 left for our 5-year target, which is SEK 300 by the end of 2025. So this is, of course, driven by the growth that we have, but especially the growth in financial services are now contributing more and more. So I think this is also showing our cross selling abilities is improving all the time right now.

So now financial services, which is lending and invoicing service, is now contributing with SEK 39 to the SEK 285. So this is really showing us how powerful the Fortnox platform is when we're taking something which was a bit out of the scope before. Now we have made that as a core product. And we're showing that we're really good at helping our customers to use what they need. And in this case, lending services and invoicing services. So yes, it has been kind of small historically, but now it's also contributing to the ARPC.

Financial performance, organically, 26%. Quite a solid quarter, I would say. So I think that we're trending quite good now. And just like a fun anecdote, the product Invoice Factoring actually grew with 79%, a product that I have spoken about many times before. It's one of those products that we're going for. We think it's a really good offer for our customers.

So often, especially in the small mid-sized sector, when you run a company, your cash flow is always a challenge. And with this product, we can really, in an easy way, help our customers to improve their cash flow. And all of that is done inside the product, so it doesn't take any marketing spend or anything like that. It's just a button. When you're distributing invoices, do you want the money now or do you want to wait 30 days?

So we're taking something that is something that we are really good at because it takes technical capabilities to develop something like this. So we're taking something from a traditional business like factoring, but we're taking it in our context, and now it scales really good and it's a lot of customer value. So you're never satisfied, but when a product is growing almost 80% in a quarter, it's quite solid and with really good margin as well.

Yes. And if you put the Rule of Fortnox, which is this Rule of 40 in a historical context, it's kind of a fun anecdote that we have achieved now over 65%. If you measure your business in that way for 13 quarters in a row, which is quite impressive. You may know that we have an internal target that we want to be healthy over 60% on an annual basis. And now we have been over 65%, 13 quarters in a row. So that's quite impressive.

And for you guys that have heard me talk about Fortnox before, we normally pick up a couple of things from the platform. And in this quarter, we want to spread that, we're actually quite active in the school environments as well. So this is high school and higher degrees where we're supporting both teachers and students. So right now, it's actually more than 27,000 user accounts. So that's people that are assigned for using Fortnox Skola, which is a really good stepping stone for using Fortnox later. Either you start your own business or you can use that competence when you go into work for a financial department or at an accountant. So it's an investment that we do, which we think it's an investment for the future.

And also, we reported in quarter 1 that was the quarter 4 reports that was reported in quarter 1 this year, we reported that we were actually on the #6 regarding business apps in Sweden. Now, we're -- it's a bit -- as you know it's a bit volatile, but right now, we're actually #1, so from quarter 1 up until now we have actually been #1 now. So quite impressive growth regarding ranking of our app, which is, as you know, very important for many of our products because that's where we're developing more and more features. So more and more of your business is handled now in the app. So of course, this is really good that we are ranked so high in the app store as well.

Yes. And a couple of products and business highlights from the quarter. The whole Fortnox platform has been developed in a way where you don't need physical receipts or physical records of any kind like invoices and all of that. So we have supported the government and authorities to update also that so that the laws and regulations are supporting that. So right now, there has been approved a new law from 1st of July where you don't need to store physical receipts, physical records, physical invoices of any kind.

So when you have put that in the Fortnox platform, that's seen as an original so you don't need to store anything, which of course is a huge improvement. And the Fortnox platform has already been developed for that purpose, but now also the law is on the right level. So now entrepreneurs can just be in the platform and don't need to worry about any physical things at all.

So we think that it's a really good administrative burden that is removed from all the entrepreneurs. But of course, this is also maybe really good opportunities for us going forward because the Fortnox platform will be used more and more as an archiving platform for your business. So all in all, good for our customers and good for Fortnox, something that we have been waiting for. We have been working on this law for many years, so it's something that is positive.

And especially, regarding the business card because now when you're using the Fortnox Business Card, you can just take a receipt on -- you can just take a picture on the receipt and then toss the receipt away because the digital copy of that receipt is all you need to store.

So a few more words about the business card. So as you know, we released the business card, like, in quarter 3, so it's been out now for 9 months, and the response has been really good. But we have just distributed it in our direct channel. As you may know we have indirect channel, sage channel through accountants and we have direct channel through our website. Up until now, we have mainly focused on the direct channel, so customers that wants to use the card has been able to do that. But there has not been any expense approval processes, which you need to be able to promote that through your accountant because the whole workflow with accountant is that they are involved in what happens, and then you need expense approval process connected to your expenses.

So we have now developed that product. So now it has been released in quarter 2. So that's kind of the last piece in the puzzle, so that now we can push the business card also through the accountant. So that's kind of the first stepping stone now to also push that through accountants. So really looking forward for that. And a lot of accountants have been asking for this. So this is a change that includes also a lot of customer value. So I'm looking forward to that going forward.

Yes. We also did a change in how we, or we did an intent to change how we run marketplaces. So we have signed a letter of intent to merge 3 marketplaces, our own Offerta, IPIS, Dorunner. And we think that will definitely be a really good place where -- which -- because it will be the leading marketplaces for services. So we think up until now, we think it's a lot of opportunities if you combine the Fortnox core platform with a marketplace, because then you're moving businesses into the Fortnox platform. So that's still our main, but we think that Offerta can be developed even faster in a new suit, so to say. So together with IPIS and Dorunner and Offerta, we're creating a really interesting marketplace that also have a lot of synergies with Fortnox going forward. But it's still a letter of intent and we think it will -- according to the intent, we will sign that in quarter 4. So we think it's a good change for everyone involved.

Yes. And we're growing in all our cities. So besides our headquarters in Växjö, we have opened a new office in Stockholm. We had 2 offices before. Now we have combined that into 1 office in Stockholm. We have extended our office in Malmö and we have moved to a new office in Linköping. So we're growing all over and we think it's really good to be situated in several places, also connected to really good universities to be able to attract the best people all over Sweden. So with this, we will be even better at attracting the really good people.

Yes. And we also had a Capital Market Day during the quarter, as many of you probably know. So we had, like, 80 people here in our headquarters attending this event, it was a really appreciated event. So a big thank for everyone that participated. And of course, all employees at Fortnox that were contributing to this day and also evening. So it was a really good day, and I appreciate the event, and I'm looking forward next year where we will have a Capital Market Day and communicate 2030 goals. So sometime during next year, it will be a new Capital Market Day explaining where we're heading in the 2030 direction. So, thank you.

[Josefin Ceder]

[Operator Instructions] So I would like to welcome Simon Granath from ABG to the studio.

[Simon Granath, analyst]

Initially, could you talk about the momentum in core transaction-based products? They saw a significant sequential bump here in Q2, and indeed price hikes have contributed by some, but could you talk about the drivers here in terms of price and general activity?

[Tommy Eklund, executive]

Yes. So it, of course, depends on how you compare. But yes, this is part of the price optimization that I've talked about a couple of times before now, that we're continuously improving our ability to price in the right way. So that sometimes means that we're moving from subscription to transaction-based or lending-based revenue. So we have 3 ways of charging our customers -- charging for our products, either you pay for access, which is subscription-based revenue, or you pay for usage, which is transactional-based revenue, or you pay interest rate, which is lending-based revenue. And then these can be combined, so you can pay both for access and both for usage, and you can only pay for access, or only transaction, or only interest rate. So this is a way for us to optimize things to always connect value with price.

And what we have done during this quarter is that we're moving a bit of the subscription-based revenue in payroll from subscription to transaction-based revenue. And that has an impact on the different revenue types. But it's pretty much the same revenue because we recurring -- if I'm calling them recurring transactional based revenue, like pay slips, you normally have pay every month. So those revenue that are connected to those workflows are almost as stable or are as stable as subscription-based revenue. So it's just a way for us to optimizing that. So that has impact on that.

Then we also, as you know, did a price increase in -- that had impact that come in effect from 1st of April. And this year, we had higher increases on the transactional-based revenue compared to the subscription-based revenue. So if you compare year-by-year, you will see that now that also has an impact. So the price increases were higher on the transaction-based revenue compared to the subscription-based revenue, which is just a way for us to optimize price. Yes. good question.

[Josefin Ceder]

Moving on to the chat though for now. Our first question is, do you expect the new customer pace to pick up as the current run rate is below the 2025 target?

[Tommy Eklund, executive]

Yes, that's in our plan. Then, as I said, there are some headwinds now in the macro environment. And if those headwinds are there all the way up until the end of 2025, it will be an even bigger challenge. So I guess we need some kind of tailwind at the end. But we have a plan to get there. So right now, we're delivering on that plan. So yes, in our plan, we're supposed to pick up the net adds at the end of the business plan period, both because we have improved our way how we work with accountants. So now it's more and more natural that you put all your clients in the Fortnox platform, which was not the case before. So now, we have improved our digital bureau product, which is the workflow management system that we do for accountants. And if you really want to be efficient, you need to add all your clients and we're becoming better and better at explaining that for the accountants, and of course, that has an improved net adds -- that improve our net adds but then also, we have said that we're becoming better at the micro segment.

And in numbers, the micro segment that is 0 to 4 employees is so much -- in numbers, so much more than the other segments. So that should also have a positive impact early next year. Yes.

[Josefin Ceder]

The next question is, can you provide more color on the new customers? Are they incrementally more sole traders or more on the bigger side of SMBs?

[Tommy Eklund, executive]

We haven't seen anything in any direction, I would say. So the demographics of the customer base is pretty much the same. So we haven't changed that. But they're becoming more and more active, which is seen in the ARPC. So they are pretty much the same, but they are more active and that has a positive impact on ARPC.

[Josefin Ceder]

We're actually going to take another phone call. So thank you for calling in. And then I got a no, we're not going to take a phone call. We're going to go with a chat question again.

It looks like the ARR growth excluding Offerta was about 25%, is that correct?

[Tommy Eklund, executive]

We don't report ARR excluding Offerta. But Offerta has the same revenue as it had last year. So no growth in Offerta.

And when you're looking at ARR, you should also understand that ARR is just subscriptions. So when we are optimizing price, so for instance, moving revenue from subscriptions to transactional based revenue, that will have, so to say, a negative impact on the ARR, but it's the same net revenue anyway. So especially on these recurring transactions, that has a negative impact on ARR, but it doesn't have a negative impact in our P&L. But you should be aware of that, that when we're optimizing price, and sometimes we're optimizing by moving revenue to subscription-based revenue, but what we have done in this quarter is actually moving revenue from subscription to transaction-based revenue. And that also has an impact on ARR. So when you're looking at the ARR numbers, just be aware of that. And regarding Offerta, it's flat.

[Josefin Ceder]

Now we have a phone call. I'm assuming there was some technical difficulty. But now we want to welcome Alex Nguyen from Jefferies.

[Hoa Nguyen, analyst]

I'm noting the statement that the segment margin of the financial service was lower year-over-year due to lower revenue recognition of unplaced payments. Could you please elaborate on this? And what has been the change in terms of accounting policy here?

[Tommy Eklund, executive]

Yes, so nothing has changed. It's just that when we -- because we have developed an entirely new financial platform, which we distributed like 2 years, 3 years ago. And in that platform, we're becoming better at making sure that we don't get that revenue because it's actually people paying into our account and we're not sure why they're paying into our account, so it's actually wrong payments. And when we cannot pay them back after 12 months, that is recognized as revenue because -- but we don't want that revenue because that's why it's not part of the net revenue. And in the new system, we have becoming better as making sure why did that came in and also paying the money back. So that was one reason for the lower margin in the Pengar segment, but we also allowed ourselves to push on the marketing and sales button a bit in the quarter, because as I showed, the factoring is growing with almost 80%. So we thought it's a really good product and we should talk about that even more. Yes, so that was the reason. So a bit higher marketing and sale cost, which I think it's good with the growth rate we have right now.

[Josefin Ceder]

Then moving on to another chat question. Back to the ARR. Your ARR per subscriber quarter-per-quarter growth was negative 1% despite subscriber revenues increasing 10%. Is it right then to interpret that a lot of your new customers are added are mainly taking up only the lending product?

[Tommy Eklund, executive]

No, that was more connected to my previous answer. So no connection to that, actually. So it was more connected to that we have higher subscription and higher transaction-based revenue than -- because we have optimized price in that direction. And since that is not part of the ARR, that has an impact on that. So that's the explanation for that.

[Josefin Ceder]

We have another call, actually. I'd like to welcome Barrett from Cantor to the studio.

[Unknown Analyst]

Just had a question on the ARR for subscriber quarter-on-quarter growth. That was negative 1% despite subscription revenues growing like 10% quarter-on-quarter. So is it right to interpret then that some of the -- most of the new subscribers or customers you're adding are mainly picking up the lending product and most of your cross-sales has come from the lending product?

[Tommy Eklund, executive]

No. And I guess you didn't hear my answer because you were on the call, but I actually answered your question in the chat. So no, that's not the right interpretation. It's more connected to that we have higher transactional-based revenue, and since transactional-based revenue is not connected to the ARR, then that is the impact. So we have raised price more on transactional-based revenue this year compared to last year. So last year we mainly raised prices on subscription, and this year it was more tilted towards transactional-based revenue and that was the reason for the ARR was a bit low in this quarter. So it has no connection to the other thing.

[Unknown Analyst]

If I may ask just one more. In terms of all the new hiring that you're doing, there -- what department are they being hired into? And what are your plans? I'm not sure if you answered this as well while I was waiting on the call.

[Tommy Eklund, executive]

No, no. This is a new one, so it's good. No. Yes, as you can imagine, when we're hiring in the pace that we're doing, we're hiring 3, 4 people every week. And in average actually has been doing that for now almost 5 years. So of course, we're hiring all over. But the main portion of the hiring is done on the product development side. So we are still a tech company and we will be a tech company forever. And that's where we're mainly hiring. So the main portion of our hiring is done on the tech side.

[Unknown Analyst]

And in terms of the size of your customer service department, is that like a very large department? And is there any potential impact from AI? Sorry, last question. I'll hang on.

[Tommy Eklund, executive]

No worries. It's a good question. Yes, we have been able to scale that department, so we don't hire in the pace that we attract customers. So it has been a really good, scalable department as it is. But of course, we also see an opportunity going forward with AI to be even better. So we have been able to be operationally efficient historically. But of course, with technology and especially AI, we think that we can scale that business even better going forward.

[Josefin Ceder]

And the next question in the chat was actually going to be about the hiring. So we'll skip that.

And we'll move on to given the growing importance of lending related revenues for Fortnox, how many of your customers are taking up your lending products today? And what is the average ticket size?

[Tommy Eklund, executive]

Yes. So we haven't answered that in details. Maybe it's a good feedback that we will start to share even more around who is using what in the platform. But right now, we have not shared that. But what we have communicated is that roughly 10% -- so if you're all customers, pretty much all customers are one way or another directly or indirectly taking advantage of our bookkeeping product, then roughly 30% of those are using our customer invoicing product. So they are distributing invoicing to their customers with the Fortnox customer invoicing product. And about 10% of those are doing it through our invoicing distribution service, so 100% bookkeeping, 30% invoicing, and about 10% of the 30% are using our invoicing distribution service.

And then I would say that it's still a very small portion of those that are using factoring. So if you just look at the Factoring product, it's a really good product, it's a lot of customer value, and it's also probably the product that has the biggest market opportunity of everything that we do. Because we showed that in the Capital Markets Day that the revenue from factoring is more counted in several thousand Swedish kronor per customer compared to, for instance bookkeeping which is SEK 100 or SEK 200, so it's many times higher those customers that are taking advantage of the factoring solution. But still quite a small portion, but it's growing almost 80%, so we're getting there.

[Josefin Ceder]

[Operator Instructions] But for a chat question, how many people do you have in your customer service department? And is there any reduction with AI coming?

[Tommy Eklund, executive]

Yes. So I answered that pretty much. So we have not communicated the exact number of people, but again, it's not growing in the pace that we're adding customers, so we're continuously being more and more efficient. Although, we're still measuring so that we want to keep up service level and customer satisfaction. So we're actually being able to increase customer satisfaction, but not increase the customer support in the same pace. So that's good. So it's good operations. And it's the second biggest in personnel. So tech is, of course, the biggest, but after tech, it's support. And yes, we have a lot of ongoing projects in the area right now in the support, and it looks promising.

But it's also about customer value. We really need to make sure that we're delivering customer value on the level that we have done historically. And we want to improve in this area. So it will probably happen. But I think many of our customers also like the personal meeting that we have with our -- but we still respond a lot of things via email and chat and all of that. And of course, that can easier be replaced with AI chats and AI bots answering emails and all of that. So we're getting there. So it looks good.

[Josefin Ceder]

Good. And the next question is, can you quantify how much revenue in Q2 was shifted from subscription to transactional-based revenue versus the prior year period?

[Tommy Eklund, executive]

Not in details. We cannot share that, but since I'm mentioning it and explaining it's something that can be seen in the numbers, so it's quite substantial, but we have not shared the exact percentage.

[Josefin Ceder]

Then we'll move on to, can you update us on how the [ Betalt ] service is progressing?

[Tommy Eklund, executive]

Yes, so it's in piloting right now. It will be released later this year and it looks really good. So we're taking bits and pieces. So I don't know, maybe I should explain just how it works. So what we have had before is [ Betalt ] service was a payment service, which was mainly for smaller organizations where you paid one invoice per invoice. So it was not scalable for the bigger purposes that you need in the Fortnox core product. So you could pay your invoices via that payment product. But to really scale that up, we needed to put that into the Fortnox context. So we have had that, but we also have the ability to pay your invoices in the platform via your bank connections. So it's not really a payment product, but our customers felt like they were using a payment product inside Fortnox, but we actually did it through a bank connection.

So what we're doing now is putting all that together. So now you will be able to do all your payments inside the platform. And it will be done through our account, which gives us also an ability to handle things like credits or FX, like currency changes and all of that. So with that solution, we will be able to deliver so much more customer value to our customers. So it looks really good. And I think you can hear me when I'm talking about it, that it's a lot of customer value in that product. And when you run a company, you send out customer invoices and you pay things like pay slips and supplier invoices, and all of that should be easily done in the platform, of course. So it looks promising, but we're just in pilot right now, and it will be released later this year.

[Josefin Ceder]

And the next question is a sort of 2 parter. It's, what do you make of the second article by the Financial Times? And what are your plans in terms of communication with them in the future?

[Tommy Eklund, executive]

Yes, we still think that it was a discussion with some kind of misunderstanding. So what we showed in that slide was that we, during this business plan period, are going from -- we're mainly focused on the biggest accounting firms. So what we're doing now is that we saw an opportunity to also become really good at the smaller accounting firms. So what we're investing in is also being able to deliver value to them. And since we are really good at small companies historically, so we think that we have the ability to also deliver really good value to the smallest accounting firms. But for us to be able to show to ourselves if we have taken steps in that direction, we think that accountants should start to use our digital agency product, which is the product that you receive when you go into our partner program. So when you go into our partner program, you pretty much decide that, yes, I'm going to use the Fortnox platform to handle all my clients. So you can handle endless clients, number of clients. So it's kind of a process or workflow management system for an accountant to handle all your clients. But it doesn't connect -- it doesn't have any connection to revenue in that state, so to say. But we think it's a good stepping stone because then you have decided that, yes, I'm going to use the Fortnox platform for this sake. So I think we thought that was a good way of measuring that.

Then, of course, we have more accountants that use the Fortnox products just for their own sake or maybe handling a single client or something like that, so. And you can measure those, of course, as well. But to us, when we're talking about if we're taking steps in the right direction, you need to start to use our Fortnox digital agency product, because then you have taken the decision that, yes, I'm probably going to use the Fortnox platform to handling all my clients.

[Josefin Ceder]

Then we're going to move on to Offerta and a question about that. Given the very strong marketplace's growth and your earlier comments that Offerta did not grow year-on-year, it seems like integration or e-sign is growing extremely fast. Could you elaborate?

[Tommy Eklund, executive]

Yes. So yes, eSign is growing really good, better than gross -- better than group level. So that is going really good. The integration market is also there. So all the integrations is growing really good. But we also have changed a business model for our expense management products. So we have had -- we have communicated this before, so you may be aware of this, but we have had an expense management product from -- white-labeled from a third-party product. So you -- if you wanted to handle personal expense management, you needed 2 apps. What we have done now is that we have developed our own version, so now you can handle expenses inside the Fortnox app instead. But we still have that white-label product as an offering for more advanced needs. When you're, for instance, traveling abroad and you have advanced, complicated expense management needs, then you should still use that product.

And we have as we normally have a really good product for many of our customers, not for all of them, but for many of our customers. And what we have done is that we are now using our own product as the kind of the de facto offer. So this is what we think customers should use the business card and our expense management abilities in the platform. And with that, we have also changed the business model, so now that is an app in the integration market. So that also has impacts on the revenue in the integration markets, so because it's another business model so that also has an impact on that.

[Josefin Ceder]

[Operator Instructions] Moving on to, in quarter 1 '23, roughly 20% of the accountants had signed up the Insight products. How was the ratio developed in quarter 2 this year?

[Tommy Eklund, executive]

So yes, that was just a fun fact. So it's not any of our public recurring KPIs, but it's going in the right direction. And we have, as you know, changed the business model. We just worked with usage the first 2 years, and then we changed that in quarter 1. So now we have a business model connected. So accountants can still use Insights for free. But if a client, if you want to share Insights with your client, that client needs to have access to bookkeeping one way or another. So we think that's a really good scalable business model, and it connects value to price in a really good way. We haven't seen any impact. So one might think that pricing this product in that way would have impact on usage. We haven't seen that. So the growth that we have had before is pretty much the same, although now we're charging customers for it. So that looks quite promising, but it's still kind of an early stage product for us. But it looks really promising.

[Josefin Ceder]

Then the next question is, could the new law for digital accounting information spill over in higher upselling across other modules or verticals?

[Tommy Eklund, executive]

Yes, we think so. And I guess, it's kind of hard to even speculate on that in this early stage. But the whole Fortnox platform has been developed for the purpose of this. So, yes, we think it will spill over time because now you will have your whole company in the Fortnox platform. And I think you also would like to store even if you end your company, you would like to store it somewhere. So I think it will also be a tale of businesses even when you don't run your company anymore, because it's just good to store your company somewhere.

[Josefin Ceder]

Someone in the chat is asking if we're looking for a banking partner for the factoring or lending business.

[Tommy Eklund, executive]

We have said that up until now, we use our own cash because we have cash and we think the return on investment is quite good. So the Factoring product that I talked about, roughly the list price on the interest rate on that is 2.5%, but that's per month. So it's roughly 30%. So 25% to 30% interest rate and the loss rate is about 2%. So that is a really good margin. So when we have the money for it, we think it's good use for the money because it's the difference between 30% interest rate and the 2% loss rate. So we think it's a really good scalable business and good use of money because it's also only 30 days, so we use the same money for 12 times a year. So when we have the money, we think it's good use of the money, but of course, we also understand that it has an impact on our working capital. So over time we might change that. And if we are going to change that and move away from our own balance sheet, I think we would start with the corporate loans and then we move our way to factoring. And I'm not sure that we are actually going to go away from our own balance sheets regarding factoring, because it scales really good right now and it's good use of the money. But we'll see.

It's good anyway, because if we take in an external partner, yes, it will have a positive impact on our working capital, but maybe a bit lower margin. And then if we're using our own balance sheet, it's a good decision anyway. But we haven't decided in the long run. We just keep track of it right now. And of course, have a continuous dialogue with potential partners.

[Josefin Ceder]

Then the next question is, if you have increased pricing for transaction-based revenues more than subscriptions, help us understand why would a client take more transactions this year as you were indicating?

[Tommy Eklund, executive]

I don't know if I said that it will take more transactions, but when we're talking about transactions, I don't think that our customers takes decisions based on price anywhere in the product, I would say. So if we're increasing e-invoicing from SEK 3 to SEK 4 to distribute an e-invoice, yes percentage-wise it's 33%, so percentage-wise it's quite a big number but, it's SEK 1. So as always when we're increasing it might look like a big increase because it's good, it's big in percentage but in absolute money. It's -- I haven't heard about a customer that is saying, no, I'm prepared to pay SEK 3 to this my -- with my invoices, but now I will do it manually and post it through the ordinary mail instead, because it's going from SEK 3 to SEK 4. I don't think that is happening. So I don't see that has no impact on the usage right now.

[Josefin Ceder]

Then the next question is, you generally have a lot of add-on costs to the core product. Is that a good strategy in the long run?

And then follow-up question, will this not annoy customers at some point if they have to pay for every add-on?

[Tommy Eklund, executive]

We don't see that in the platform. When we see that, we normally change. So as I said, sometimes it could be annoying to pay for just get access to a product. And sometimes it could be annoying to pay for usage. But we haven't seen it in the platform, and we did quite fundamental changes regarding prices this year, and we didn't receive any feedback on it, so I think it's still on a very low level that people don't even notice. If we're raising, like, we did in the invoicing product now, like SEK 20. That's SEK 20, that's $2 a month. So what kind of company you run if you even notice $2 a month. So I think all in all, the price optimization that we're doing, yes, if that is the case that if you are a really big business, then maybe your transaction is going up, then we're working on that. So that is a way of always optimizing price. So I would say that the price structure and the price model that we have right now give us the ability to optimize that, so that customers aren't annoyed because our price point is so low. So they should never be annoyed.

[Josefin Ceder]

And the next question is, what is your most up to date TAM for the core bookkeeping product?

[Tommy Eklund, executive]

You mean -- do they mean number of customers in Sweden? Is that the case?

[Josefin Ceder]

That is the question.

[Tommy Eklund, executive]

Yes. So we did an update in the Capital Market Day number of organizations in Sweden, and as I said, pretty much all the organizations in the platform right now are using the bookkeeping product. So I guess the TAM for going forward is all businesses in Sweden, more or less. It was roughly 1.7 million, like, a couple of months ago and we just rounded up and said it's like 1.6 million organizations that in Sweden are addressable one way or another and with that they are also addressable with the bookkeeping product.

[Josefin Ceder]

The next question is, cash conversion looks really strong this quarter and driven by a reduced in capitalized development costs. Should we think about this new level as indicative of future levels or should it continue to fall as a percentage of revenue as you scale?

[Tommy Eklund, executive]

I think in general, I don't think you should read too much into a quarter result of any number. But yes, it's a normal level. But I think you should do your 12 months on all numbers and then speculate on the future. So if you do that on any of our P&L line, I think that is better than to do your prognosis based on 1 quarter. So if you do your prognosis based on 12 months, it's normally better.

[Josefin Ceder]

The next question is, how much pricing potential do you see in the long run as you shift more subscription to transactional-based?

And then a follow-up question, how should we of the mix be of the 2 in the long run?

[Tommy Eklund, executive]

Again, it doesn't matter for us, and that's the beauty of the model. To me, it's not important if you, in the payroll product, pay for access to it or you pay per pay slip. If the customer likes pay per pay slip more than access, then we should use that. If they want to pay a bigger amount for access and then distribute pay slips for free, then we should do that. If they understand the value of both access and distribution, we should charge them for both. So I think it's just a way of optimizing and again, connecting price with value. And that's, again, I've said it many, many times. I think that we can do even so much more here and we're investing to becoming better and better and better here. So I think it's CEO should not set endless, but I think it's endless opportunities here to optimize price so we can do so much more here. And this is just an example of what we have done the last year, I would say.

[Josefin Ceder]

We're getting closer to the end of the stream, but we have a few final questions. One is, can you confirm if the impact from pricing at the group level was in line with the previous year?

[Tommy Eklund, executive]

Yes. But then be aware of the ARR impact, since the ARR impact was bigger last year because it was more tilted to subscriptions last year. But if we're talking about net revenue contribution, so with net revenue growth contribution, we think it has been now in line with each other both 2 years ago and 1 year ago and this year.

[Josefin Ceder]

Then unless there are new questions coming in very last minute, this is our last one. And that is, can you break down the 26% organic growth by customer growth, pricing and increased usage?

[Tommy Eklund, executive]

No, we don't normally do that, but in our plans, set aside price increases, we do plans and have been delivering on those plans that 50% of the growth comes from new customers and 50% of the growth comes from existing customers. That is in our 5-year business plan, that has been in our yearly budgets and that has been in our outcomes. So we have been able to do that now for quite some time. So roughly, that's the case. But then, of course, you have another bucket, which is also price increases. And what I've seen in the market is that the market thinks that the price has had a bigger impact than what you might think. So that's what I'm just giving you guys. Price impact is lower than you think. So that is just something that I want to distribute to the market

[Josefin Ceder]

We do actually have 2 more questions, one chat question and one per phone, which is on the way in. So the last chat question is, do you expect your annual price optimization in 2025 to be more focused on subscription or transaction revenues?

[Tommy Eklund, executive]

Again, we'll see. That's the beauty of the optimization. It might be that we're moving everything to subscription, if that's the better way, or we're moving more to transactions, if that's the better way. We are -- we also have interest rate, which more or less, we have transaction fees on the business card. So the business card, the access is for free in the business card, usage is for free. There is no interest rate if you're paying on time, you pay a transaction fee, which is also a business model which looks you know quite promising. So yes, we have the ability to optimize and exactly how we are going to optimize we have not decided.

[Josefin Ceder]

And the person that was on the phone hung up, so I don't know if they changed their mind or not. But that is it for today. So thank you, Tommy, for being here, for presenting. To everyone that's asked a question today, especially you that called in and made us try this new thing. And of course, thank you to all of you watching.

Our next investor forum will be on October 24 at 10 a.m. Central European Summer Time. Hopefully, then we'll have one of our actual moderators here in the studio with us. And we will once again answer your questions via phone or chat. But that is it for today. Thank you so much.

[Tommy Eklund, executive]

Thank you.