Fortnox AB

STO:FNOX

Earnings Call Analysis

Fortnox Reports Strong Quarter Amid Headwinds

Fortnox sustained growth this quarter with a net increase of 10,000 customers, mirroring last year's pace despite economic headwinds. Organic growth reached 25% and the firm reported its second-highest EBIT margin. They're nearing their ARPC goal of SEK 300 by 2025, with just SEK 40 to go. Notably, they preserved their Rule of 40 status, exceeding 60 for the 10th consecutive quarter. Over 10% of Swedish private sector employees now receive their pay slips through Fortnox, demonstrating platform strength. The introduction of new products, including an expenses approval tool, financial consolidation, and a Business Card, signifies their commitment to bolstering both service offerings and user engagement within their ecosystem.

Expansion and Monetization of the Monto Platform

The company is seeing increased connection of financial institutions to its Monto platform. While the possibility of sharing their credit scoring system with these institutions hasn't been ruled out, currently, the main offering is access to ERP data. The decision on whether to leverage this as a competitive edge or to open it up to the market has yet to be finalized. However, the company sees potential business opportunities in sharing their real-time credit scoring capabilities, considering they are at the forefront in this area.

Strategic Shift in Research and Development

There is a noticeable strategy change concerning R&D spending, with a preference for in-house over outsourcing. This shift is facilitated by the current market climate, which is favorable for hiring talented individuals directly. This approach reflects in the company's financial report and aligns with the overarching goal of building long-term R&D capabilities internally.

Learnings from Acquisitions and M&A Outlook

The company has learned to balance its own R&D efforts with strategic partnerships and acquisitions. Past acquisitions have enhanced their platform with valuable products, experiences, and knowledge. With a robust financial standing and the M&A market shifting in favor of buyers, the company sees valuations dropping and more acquisition opportunities on the horizon.

Efforts to Attract Larger Customers

The company acknowledges the different sales approach required for large clients, a process that may take longer, especially in the current economic climate. However, the higher revenue per large customer justifies this approach. An example of their upmarket success is the opportunity to compete head-to-head with major players like SAP for a significant client.

Transparency in Lending Revenue

The executive addresses confusion regarding the income reporting from lending, suggesting it solely falls within the financial segment. The complexity of tracing loan stock revenue demands detailed discussions beyond the call, indicating the company's openness to clarify these aspects in individual meetings.

Future Challenges and Investor Misconceptions

A primary challenge is the prioritization of numerous opportunities and initiatives. The company is well-positioned to craft its destiny, not heavily reliant on external parties. There is a hint that the business has many unexplored avenues which could be revealing an underestimation of potential by investors.

Hopeful Prospects for Next Year

Looking ahead, there's excitement around novel offerings like the Fortnox Card and the integration of insights and AI bookkeeping, which thus far have not been monetized. The upcoming year is poised to see these innovations coupled with new business models, providing fresh avenues for growth.

Earnings Call Transcript 2023-Q3

[Joachim Gunell, analyst]

Good morning. I'm Joachim Gunell. I cover technology at the DNB Markets. I'm very glad to be back in the studio here in Vaxjo to moderate Fortnox's seasonally strongest results. And of course, I have a laundry list of questions, but a few in the audience should want to raise any questions, please feel free to use the chat function here in the webcast.So without further ado, I have the great pleasure to present Fortnox's CEO, Tommy Eklund. Go ahead, the stage is yours.

[Tommy Eklund, executive]

Thank you, and great to having you here. So yes, let's start. And as always, we'll keep it kind of short the presentation. Briefly, I guess all of you listening in have already read the numbers. So I will not dig into numbers. It's more like just to comment the numbers, and then we'll focus on Q&A, which I think is the highlight.So again, overall, a solid quarter. So net growing with 10,000 customers, in line with last year's growth. So as we have reported, there are some headwinds in the growing customers, fewer started companies and bankruptcies are going up a bit. So of course, that has some impact, but to be able to deliver the same growth as we had last year is kind of solid. So all in all, a solid number on that. And as all of you know, the ARPC is just the net growth divided with a number of customers. And since the net growth has acquisitions in it from last year, there are some difference in the growth of the ARPC from last year, but still a solid number, all of all. And again, the growth rate, 25% organic growth, a solid number. And the comparison number there includes acquisitions. And as we have reported less activity in the [ side ] society also has an impact on that number, of course. But still, there are some headwinds in society and then still being able to deliver increased growth is a really good number.So with that, this is the second highest EBIT margin that we have had. So again, all in all, a quite solid and predictable numbers in quarter 3. Yes. And if you look on the numbers in our historical context, nothing has changed that much. So this is, again, a solid quarter, as I said, even if you look at historical numbers, this is a good number. And for you who don't know that, quarter 3 always has a seasonal impact regarding number of customers since it includes Swedish vacation. And it includes July and half of August. So that's why it's normally much lower customer intake in quarter 3.And just a fun reminder, our 5-year target on the ARPC is SEK 300. So we have only [ SEK 40 ] left now. We started with SEK 150 at the beginning of this business plan period, which is the business plan period up until -- the 5-year business plan up until 2025. So we aim to go from SEK 150 to SEK 300. And now roughly halfway through it, we only have [ SEK 40 ] left. So delivering quite good on the ARPC.And yes, net sales, yes, again, a solid quarter, as I said. And also just to note that it's actually all-time high regarding EBIT. So I think that is also what we're really good at independently on what kind of growth we have. We are really good at showing scalability. That's the DNA of Fortnox. So we always want to push scalability because that's the DNA of Fortnox. And we not necessarily push cost, but we are really into making sure that we're not adding any cost to growth. So that's what we're investing in. And with growth, then we cannot show that we can also expand margin.Yes. And this is something that we communicated at the beginning of this business plan period that we have. So this is not guiding. We have said that internally, this is the international definition of Rule of 40, which is when you're adding growth and EBIT. If you're over 40, that's some kind of quality mark on your company. So we said that during this business plan period, we want to be healthy over 60 on an annual basis. And now just as a fun note, we have actually been over 60 now for 10 quarters in a row.And for you guys that have listened in before, you know that I normally pick up a couple of fun facts from the platform. Even though that we're trying to be quite transparent and explaining how we're doing, of course, we're just releasing a fraction of all the data that we have in the platform. So that's why I'm here on a quarterly basis, just sharing some fun facts from the platform. And one is that we have an internal KPI that we're following. So we have an internal goal of a percentage of employees in the private sector, how many of those people get their pay slip in Fortnox. And now we actually reached a milestone there. So now it's over 10% of employees that gets their payslips in Fortnox. So quite a massive number there.And also the product invoice data capture, which is one of those newer products. So this is also showing how we are really good at making up new product and also upselling and cross-selling new products. So this is a new product that we have had limited investments in and almost no marketing cost. But still now, there is more than 100,000 customers that is using these products, and it's a SEK 100 million business, and it's growing like 50%. So it's quite impressive what we can do inside the platform now with just digital sales.And also another fun fact is that year-to-date, Fortnox has actually started like 20% of all started companies in Sweden. So I would say that we are the biggest entrepreneur in Sweden. So we now -- every fifth company in Sweden are started by Fortnox, and then we're reselling them to other entrepreneurs. But it's kind of found that we have started 20% of all companies in Sweden year-to-date.Yes. And then as always, a couple of highlights from the portfolio. We have released a new product, which is an approval product for expenses. So now we have the ability to also have workflow management to -- in the back when you are both smaller and bigger companies in the back where you can maintain and keep track of all your expenses at them very easy to use approval mechanism. So that's really good for management and back-office people and also for accounting firms, of course, because some companies also use accountants as part of their approval flows. So it's really easy when you are smaller companies or if you have corporations with your accountant or if you are a bigger company that handles everything of this inside your company.So easy to use and quite scalable product that we released this quarter. And of course, this is also another example of more features that are addressing all employees at all companies. So when you're using these products, then you automatically onboard all your employees at your company. And you know that I have talked about this many times before that a lot of R&D investments are now focusing on making sure that you automatically onboard all your employees when you start to take advantage of the Fortnox platform. So this is another example of where we're investing our company in that direction because we think that the ecosystem becomes even bigger if all employees at all companies are engaged in the platform. And of course, then we can give back even more value to the customers if more users are active in the platform.So that was product #1. We actually released another product in the quarter as well, which is financial consolidation. So the product name is called Fortnox Group, but it is for financial consolidation. So we have had a lot of interest in this area. So now we have released a product for that. So this is for group consolidation for both smaller and bigger group companies, and you can have entities in Sweden, but you can also have entities outside Sweden. And of course, it's connected to the Fortnox platform, but it's also connected to accounts and taxes. So accounts close and taxes, which is the other product that is addressing the things that happens after bookkeeping, so to say. So now we are also growing into being able to offer value to bigger and bigger organizations.And we also released a third product in the quarter. So quite a big quarter when it comes to new products. We released the Business Card. You have heard me announce that before that we have started to work on it. But now it's generally available to all customers. So we released that last week, last Wednesday. And it's a card that's for free for you, so you can buy that or just order it for all your employees and the cost is nothing. And then you can also, if you want, have automatically bookkeeping and then you just take a picture on your receipt and then you pay like SEK 5, and then we do all the things for you. So quite an impressive product in all aspects because this is what both accountants and also organizations have asked for.We have been really good at all other types of invoices, in the supplier invoices, customer invoices, payroll and all that. But we have not been that much into expenses. You could have had other companies handling your expenses and then connect that to Fortnox, but now we have an in-house solution, which we think will simplify both for all entrepreneurs but also for accountants. So this will save a lot of time, and of course, gives back a lot of value to all entrepreneurs.So looking forward to release that one. The first card was actually released just -- was actually distributed to an entrepreneurial just a few minutes after we launched it. And purchase was done 40 minutes after release. So quite impressive because we can distribute digital cards in real time, and you can start to use that already when you ordered the digital card. So quite impressive onboarding sequence there.And then we released in quarter 1 that we have integrated a Cling into our document management platform in Fortnox. Now we have also integrated Cling, which is the offer and quote and signature product that we acquired last year. Now it's also fully integrated in the Offerta platform, and we have replaced the older version of the quote and signature product that we had in Offerta. So now that's fully integrated, which gives a lot of value back to all the customers that are using the Offerta platform, and also gives them an ability to have more dialogue with their customers. So again, we're moving ourselves closer and closer to the core of our customers.And then finally, on the business and product highlights, we also announced that our new Nordea integration is now live and kicking. So now we have also have connection -- a new connection. We have already had connections to Nordea, of course, but this is the new integration that we have worked on for like 4 years, which gives us the ability to also enabling payments and AI bookkeeping with Nordea, which wasn't the case with the old integration. So I think that we are unique here. I don't know any other vendor in the Nordics that has an integration like this with Nordea. So we are quite unique in this sense. And of course, this gives back a lot of usability for our users because then they can manage all their things in the Fortnox platform. They don't need to move in between platforms. So this gives a lot of value back to our customers. And of course, a lot of customers are asking for AI bookkeeping and payments. So this is also something that a lot of customers are asking for.So that was a short intro for the quarter. Thank you.

[Joachim Gunell, analyst]

Lovely. And once again, for people in the audience listening in, I firmly encourage you to use the chat function in the webcast, should you want to raise any questions.But to kick things off, Tommy, if you take a step back, can you talk a bit about how you believe the market for -- starting with accounting software has developed over time and how you are almost providing an ERP-like platform today and how that basically helps you differentiate versus the competitors?

[Tommy Eklund, executive]

Yes. So as you're referring to as a starting point, you almost try to replicate the on-prem software feature-by-feature, so to put feature-by-feature online, that was kind of the goal as a starting point. But that didn't give that much value back. So that was kind of a struggle, Fortnox started like 23 years ago. So Fortnox was almost a bit early in those days. We're struggling a bit because the market wasn't there and it was kind of sensitive if you can put bookkeeping online because it's a lot of sensitive data there. And it was not that much value because feature-wise, the old products, they were quite good.But then when things started to pick up and then you started to see that, okay, yes, you can have an updated software and you'd get a lot of ecosystems uplifts by just having everybody in the same platform with the software. And I think that is what we're showing now. So the last couple of years, there wasn't that much value. It was more like if you move online, then eventually, you will have more value. And I think that is what we're seeing now, both for our customers, but also for us because we become more and more efficient by adding more and more features because we have this platform and everything is updated in an online.

[Joachim Gunell, analyst]

And another recurring question is the one of what normalized growth rates looks for a business like Fortnox as you have reached this quite large scale. So can you talk us through how you're able to add 12% new customers year-over-year despite this weakening economic climate you cited?

[Tommy Eklund, executive]

Yes. So it is kind of a tricky question because if you're just looking at the number of customers, that's one thing. And that was something that the investor community, they were kind of worried about that when we entered into the business plan. So that was why we communicated that we think that we can go from 350,000 to 700,000 organizations in the platform during this business plan period. So if you think that is enough, that is what we believe is doable. Then that is not -- that don't automatically has a connection to revenue because the demographics of these companies, of course, has a bigger impact to revenue, I would say.But what we are communicating is that we're not saturating the market in that sense. So we think that during this business time period, what we see in our data, we can keep up the growth. Then we will come back to what will happen after the business plan period. So right now, we think that we're doing better and better regarding explaining to companies how they can benefit from being in the platform, and more and more of that is done digital. And as I said, we started 20% of all companies in Sweden right now. So more and more entrepreneurs are coming to the Fortnox website to start their customer journey, so to say. So that's where you start your company nowadays. And we're helping them to start their company.

[Joachim Gunell, analyst]

And are there any specific demographics that you would like to highlight when it comes to today's quarterly net adds intake?

[Tommy Eklund, executive]

No, nothing specifically. The customers that we have taken right now are pretty much the same as we have had historically. We have said that we are investing in the smaller segment. This is 4 to 0 employees. We think that -- even that, of course, those entities are smaller with our ARPC and the portfolio we have, we think that, that will drive ARPC and revenue still. And in a number of companies, it's a lot of numbers there. It's a lot of companies in that sector. So we think that we can bring back value there. And those companies, many of them will also be bigger companies. And we want to meet with the entrepreneurs as soon as possible. So we're becoming better and better at giving back value to really small companies. But if we were only to do that, then we will probably have a pressure on ARPC. But then we're also investing in taking on bigger organizations.We don't -- we already have quite a good market share on bigger organizations, but we have not supported them at all. And that is what I have talked about earlier that we are now building up our own sales force. It's not like -- it's not many people, but we -- at least we have people that are working with bigger organizations. Our own support people just for that segment and also partners for services, because if you are a big company, you would like to have someone to talk to about services and training and integrations and configuration, all of that. And that is not something that we necessarily want to do in-house because it's a lower margin business, but we have a lot of partners now that we can point that, that we can say that this is a really good partner if you want to configure or if you are a big company, then maybe you cannot use everything in the platform as is because you maybe you have an old system that you want to integrate. You have an old, really big HR system, and you have 2,000 employees, and you want to keep that, but you want to integrate everything else in the platform. Then that is something that we need to offer to be able to take on that market in something that we're doing. But regarding number of customers, that investment has no impact because it's so few, but it has a really big impact on ARPC. So as I said before, by investing in both directions, we think that we keep -- can keep up both net growing our customers and ARPC going forward.

[Joachim Gunell, analyst]

Perfect. We'll come back to the upmarket opportunity later on. But on my numbers, historically, I get to a figure of roughly 10% to 15% annual sales growth stemming from the upselling from existing clients at the Fortnox platform, and that has been regardless of the macro environment. So with today's results, you cited, okay, there is some shift in terms of economic activity. So can you just help us to what extent do you believe that there is still room to deliver on that, call it, 10% plus upselling opportunity against weaker macro?

[Tommy Eklund, executive]

Yes, I think that we're showing that we're doing that now. Without that capability, we wouldn't have the growth that we're having because there are headwinds. Everyone can see that there are headwinds in the society, but still being able to deliver these numbers, I think that we're doing quite good. But of course, if the society were in full spin, of course, the revenue would be even higher. That's kind of obvious. But I think we're doing quite good. And again, more and more of the sales is done digital. So we're moving more and more of our sales and marketing spend into actually R&D spend because that becomes more and more important to digital explain to customers how they can benefit from using more features or more products or onboard themselves into other flows and all of that. So that's a much better investment for both our customers and us. It's better to invest in R&D than to spend marketing to explain to customers how they can benefit in the platform.

[Joachim Gunell, analyst]

And as I understand it, you have fairly loyal customers to say the least. And typically, your older customers tend to have as they become more, call it, familiar with the platform, they tend to adopt more and more solutions. So all else equal, older customer cohorts will most likely have adopted more products from you. So can you help me/us just understand taking today's ARPC number, dividing that by the price of a traditional module would get you to roughly 2 modules, somewhere above that. So just help us how a typical customer journey would look for a customer that have been with you for, say, 5 years.

[Tommy Eklund, executive]

It's a really good question. And one might think that that's the case, but it's not obvious that, that is the case because if you are an old customer, then you have had your ways of working in Fortnox platform. And 5 years ago, we didn't have the portfolio that we have right now, and you have your own ways of working. So of course, we're pushing them, training them, the account firms are helping them to onboard more customers or more products. So of course, that is happening. But we're also becoming so much better to make sure that you're using all the products that you need initially instead of adding one product per product. So that is also something that we're doing.So if you look at the onboarding sequence like 5 years ago, it was not that impressive. But now we're actually really good at understanding you already quite early in your journey to make sure that you are benefiting from the platform from day 1 instead of having the platform for 3 years. So it's not obvious that the cohorts 5 years ago are using more products. We see that more and more new customers are actually adopting the right products from start rather than waiting 3 years.

[Joachim Gunell, analyst]

And since you also already highlighted now that you're almost tracking close to the 2025 target on ARPC. Would it make sense to, call it, educate the investment community more about how basically a customer journey would look for the, call it, older cohorts and that you call it, long-term potential is most likely to adopt more than the current 2 products?

[Tommy Eklund, executive]

Of course, you're right. So that is something that we should do. But then again, we have also hesitated a bit because we know that we want to explain what we're doing and why we're doing and how we're doing and all of that. And right now, if we were to send out even more data regarding products and customers, I think that, that will raise more questions than explanations right now. But we're working on it, and we think that we will release more data, both about our customers, which is, in some sense, of course, interesting for the investor community, but I think also about our products. Because if you really want to understand where we're heading in our strategy, and we are still have to start up. We've got started, if you look at the market opportunity here.And if you really want to understand where we're heading and why we're doing things, you need to understand our portfolio. You should understand all our products because that's where we're doing investments and that's where you will find all the opportunities that we're working on. But then we're not releasing enough information for you guys to understand that. So I think that is something that we will do more and more going forward, explain more and more about our portfolio.

[Joachim Gunell, analyst]

Perhaps just a capital market slide would be helpful. You don't need to provide it regularly. That being said, there's actually a question here from the audience related to macro, and I think that we can touch upon the macro questions since we have one foot in them already. Transaction lending volumes, obviously, less insulated from weaker macro. Can you talk about basically what volumes -- how you saw them pace throughout the third quarter and what to expect here going into quarter 4?

[Tommy Eklund, executive]

I don't want to speculate on the future because I think there are other people better at speculating about the future. I'm really good at running Fortnox. So I think that's what I do. But up until now, I think that no major changes. It's something that we have reported quarter 1, quarter 2, quarter 3. So the transaction-based revenue and the lending-based revenue has some impact. Customers are a bit more cautious, and we also said that subscriptions, it's kind of hard to verify that in data. But of course, there are some impacts on the subscriptions as well.There are longer sales cycles. The customers are a bit more cautious. So all of the revenue streams have some impacts, of course, then exactly how much the impact is kind of hard because you don't have a reference. But we have said it now for all -- for quarter 1, quarter 2, quarter 3, that we definitely have an impact, and we think that the revenue would be higher if it wasn't for the financial climate that we are in. So we are kind of preparing for it to change. We are still investing in and we released 3 new products. And so I think that we're preparing now for the market to change. And I think that we will come out of this market even stronger.

[Joachim Gunell, analyst]

Understood. One thing that I think it's encouraging to track is basically a monthly activity and engagement on the platform and the web traffic is the -- where we could do that. And I mean you capture almost 90% of the market when it comes to activity versus competitors. So can you just talk a bit about the competitive lead that you have, the update on how you expect to maintain that lead when it comes to new product development and what steps needs to be taken to ensure that you stay on that path?

[Tommy Eklund, executive]

Yes. So besides, of course, when you are logged in the platform, that activity increases all the time. But as you're referring to, I cannot comment about the 90%. But yes, we're becoming better and better also when you're not logged into the platform to give that value back. So more and more persons are actually going into our website and find out what they should do to improve their business, so to say, and we're helping them on taxes and everything that you need to do when you're running a business. So that becomes more and more the natural place for everyone that runs a business. So we're guiding them. We're helping them. We're encouraging them and all of that. So that is -- becomes more and more important to us and of course, also our customers.

[Joachim Gunell, analyst]

And just on the competitive side, based on the data I track, we saw a spike up here when a competitor of yours repackaged their offering to say. Is that something that you can confirm into this net adds figure that you have seen a boost from, call it, competitive shifts in Q3?

[Tommy Eklund, executive]

Yes, we have seen that. Yes.

[Joachim Gunell, analyst]

Understood. And you've been optimizing your pricing strategy for 2 years now to better basically align price with value. Where do you believe you are in terms of that strategy?

[Tommy Eklund, executive]

I think that it's good that you're calling it's strategy because if you're talking about the price optimization and strategy, I think that we have yet started. So these just raising price is one thing, but also optimizing the price to connect price to value. I think that we have so much more to do that. So I think that we can improve pricing even more on that. And now we also have this. We have been really good to have this subscription model, which is access, so customers can pay for access on a monthly fee. And then we added transactional based because it's usage, so you can either pay for access or usage or both. And this model is something that we can have per product. And then after that, we introduced lending-based revenue. So then we also have the ability to take shares of the revenue, percentage of revenue. And it's really powerful when we're mixing these things, because now we also added the card, which is another business model because it's transactions in the back, so to say.So then now we have 4 business models that we can optimize. And I think that is, of course, a really good value for us, but it's also good for our customers because then we can always connect price to what gives value the most because then it's so much easier to explain why we're having this price, yes, but you're giving back so much more value, so of course, because sometimes you may feel that to just get access to this product doesn't give me anything. But if you start to use the product, it's a great value, of course.And regarding lending base, I don't understand why I should pay access to a factoring product. And I don't want to pay per invoice. But of course, I can pay a share of my revenue when I get the money 30 days earlier. So that is really good to have that flexibility. And since we have yet started with that, I think that we will now quarter-by-quarter, be better and better at optimizing the price and connect that well.

[Joachim Gunell, analyst]

Very clear. You've finally gone live with the card. Highlighted, obviously, early indications of traction here, just minutes into the launch. But I mean, there are -- I mean, as I said, some industrial logic in why customers would want this and why accounting firms also want to push their clients to adopt it, et cetera. Barriers for adoption appear low from my standpoint. But talk us through to what extent you believe that you've actually found the right product market fit for the card now and how we should think about, call it, adoption from, call it, more midterm perspective?

[Tommy Eklund, executive]

It's kind of funny. I think what's in the management team like 4 years ago maybe. And we said no, because we thought that the technology wasn't there. And then we revisited that decision like 2 years ago saying that, yes, we really want to be able to deliver a better solution for expense management for our customers. So we came back to that and again, invested if we are -- are we going to do it ourselves, should we find a partner, should we buy a company. So we really did our homework regarding that. And now I think that we have a really good partner. We also have done quite good investments ourselves in the platform. And this will give back so much more value, because now we're actually doing this expense management in a really efficient way, like I haven't seen anyone else doing that inside the ecosystem in the way that we're doing it. So it's -- and we have yet started. So this is the starting point of this.So I think this is the start of something really good. But to be honest, I'm also quite surprised that the customer interest has been so big, not just with the release now, but we have so many customers asking for the cards since we announced that we are going to release one, which is not always the case when we're releasing new products, but this is has been asked for product, I would say. So there is obviously a need for it.

[Joachim Gunell, analyst]

And remind us again, I think I know, but do you remind us how the revenue model here works since it's -- you have this partnership with Mynt?

[Tommy Eklund, executive]

Yes. So we have not revealed the exact share that we have in the back. But the exact business model is that if you are a company, you can go online and you can order either a virtual card directly in your Apple Wallet and you can start to use it in real time automatically after you have done your KYC and all of that. So that's quite an impressive way of working or you can order a plastic card, and you will get the plastic card in a couple of days, and you can order it for all your employees, and it's for free. So you can order it for free and you can use it for free. Then if you also want AI bookkeeping then you pay like SEK 5 per receipt. And then we automatically do all the bookkeeping for you. And you don't need any private expenses or anything like that. So it's quite powerful. And then now when we also announced that we will have expense approvals, then we have the support to also support bigger organizations and also if you want to have corporations with your accountant. So it's not just a card. It's an expense management platform, I would say.

[Joachim Gunell, analyst]

Yes. That makes sense. But can you say anything just to -- for us to flirt with the ambitions here? How much does a typical call it -- you mentioned earlier, okay, you target some 0 to 4 employee businesses. How much would a business like that spend using a corporate card on a monthly basis?

[Tommy Eklund, executive]

I don't know and I don't know if there are any typical customers in the Fortnox platform, I actually don't know. I think that you guys are even better doing the math around the card regarding that.

[Joachim Gunell, analyst]

But there are some similarities. We have seen how Bill.com did something similar with Divvy. They are 2 years something into that strategy have been early success, of course, with some 15% of their customers. And just without -- I mean, providing some sort of indication here, this is where we will end up. But can you just talk about why that wouldn't be aspirational for Fortnox from a like long term time frame as well?

[Tommy Eklund, executive]

Yes. And I guess to me, I don't understand why any customer wouldn't use it. So for me, it's like 100%. So it's 15% sounds kind of modest.

[Joachim Gunell, analyst]

They want to go for 15%.

[Tommy Eklund, executive]

Yes. But to be honest, it's a really good product. It's for free. And I haven't seen any product like that in the market. So why shouldn't you use it?

[Joachim Gunell, analyst]

Sure. And for the first time here in the results, you actually highlighted that you have things cooking when it comes to B2B payments from your CMD 2 years ago, I think you were clear that, yes, some 25% of Swedish GDP flows through the platform in terms of invoices and transactions. So help us here. What is the opportunity to Fortnox in providing a payment solution here? And then how does it work?

[Tommy Eklund, executive]

Yes. So we started actually by again developing something out of the customer perspective because it is today kind of cumbersome when it comes to paying things in the platform. So normally, you need to move into some kind of other bank or payment product or something like that, which is kind of annoying. So we started there saying that we would like an easier way to pay supplier invoices, taxes and salaries in one place, and it should be very easy. And we should give the ability for you to use any payment provider that you want, but of course, or payment rail, I would say, not provider. So that's where we started.And we have -- as I have been transparent with that we had something that we have developed now for quite some time. So this is one of the bigger R&D projects that we're doing with the ambition to move all payments inside the platform, so to say. So that's also why we're investing in integration to all the banks. And you cannot do that without having these deep integrations that we have in the banks. So we want the ability. So if you want a direct payment to your banks, that should be able to do in the platform, and you should be able to sign that payment in the platform. But also if you want to use our virtual account because you also have a virtual account in the platform, which you can tap up with money with factoring or any other of our credit products. So you can either use your connection to your bank account or you can use our virtual card, but it's very easy to use. So that's what we're developing. And since as you noted, we just mentioned it in the platform. We're feeling more and more comfortable now to releasing that product. So we have no release date, but we're getting there. And I'm following that product now every development sprint and it looks really promising.

[Joachim Gunell, analyst]

Encouraging. Let's say. You talked about the AI opportunity long before it became mainstream. In your case, basically AI bookkeeping and the insights you can provide. And we have seen how intuit have been quite successful here in packaging their gen AI-powered assistant. So based on basically the real-time financial data you possess, talk us through how you can see the AI opportunity manifest at the Fortnox platform.

[Tommy Eklund, executive]

Yes. So this has been a natural part of our development for many years. So we're not talking AI now because it's kind of trendy because we have done it for many, many years. But what is more complicating than the actual technology channel -- challenge is actually providing the right data, legal aspects, making sure that you have data in real time and all of that. So it's not a coincidence that we're investing in expenses because then we also get expenses in real time. We have invested in digital digitizing the supplier invoices, making sure that all customer invoices are distributed in the platform. So making sure that we get all transactions in real time, that is more complicated than to actually develop the AI technology around the data. And that's why we're focusing there.And also making sure that you have all your legal aspects intact, because that's not easy questions either. So to take care of all of that, that is important to us. So again, you can imagine how much interesting things that we have in the development department in this area. But again, if you should be able -- if you can deliver back value to our customers, then you need all transactions in real time that is necessary. And of course, you need to keep track of the legal aspects. And that is something that we're doing in parallel as well.

[Joachim Gunell, analyst]

Understood. There are some more Q3 specific questions here. A more recurring one. You've gotten that before, but in the 25% growth rate here, can you split up the growth constituents? We already have 12% from new customers. So for the reminder, how much of that is price driven? And then can we expect more price hikes here into next year?

[Tommy Eklund, executive]

We don't share the exact percentage in, but we have said that it's kind of 3 buckets right now. So yes, price increases are improving their growth, but also new customers are improving growth and uplift on existing customers. And they have been roughly the same, then it can go vary on single percentage from quarter-to-quarter, but they are roughly there. Those are the 3 main drivers right now, and that has been the case for many quarters and that's the case for this quarter as well.

[Joachim Gunell, analyst]

Understood. And there are so many questions on pricing here. So I can just come back to -- yes, we can just to sum it up into one. So given basically what you have commented here into better align price with value, is it fair to assume that this is more of an annual event, call it, in early into next year?

[Tommy Eklund, executive]

You have heard me talk about this many, many times because -- and I understand why it comes a lot of question because the price opportunity, the pricing power is really big at Fortnox. But then again, I don't want my organization to be driven by it because it's kind of easy because we have a sticky platform, low price, sticky platform. And you can -- I can easily do a 5-year business plan with just price increases, nothing else. But that doesn't create that much value, not to Fortnox and not to our customers. So I want my organization to be driven by more customers, more products. More usage, more customers because that's a quality mark that we want to achieve.But then, of course, we have raised prices, but the inflation rate has been high also, and we have -- we thought that, that has been good. We'll see. Again, we will not put that in budgets because I don't want the organization to be driven by it, but I cannot light you, we see and understand that we have an opportunity to raise prices. But to me, again, I would be even more satisfied if we on the overall platform raise prices, but the customers felt like, yes, it's connected to value. So they don't even know this because it's so much value where we're raising price. So that's my vision regarding price. So not in general has raised prices on everything, you can do that, but I would like for us to be even better at raising prices where we're creating value.

[Joachim Gunell, analyst]

When I took a first glance at a report this morning, something that stood out to me was that cash flow looked a bit soft, to be frank. But delving into the details here, it appears to be some calendar effects when it comes to receivables. So is there any way that you can just quantify roughly that impact? I think that you report SEK 43 million headwind from accounts receivable. Is that fair to assume that the bulk of that would relate to that calendar effect or...

[Tommy Eklund, executive]

Roughly all of that actually. So all of that SEK 43 million that you can find in the report was actually into our account Monday after. So, yes, you're right. You found the seasonal impact on that.

[Joachim Gunell, analyst]

But we are still in a phase where this -- I mean, once again, a stellar free cash flow profile of parts of your business is [ to ] -- you can call it diluted by your lending business. So update us again on whether you think that the current setup is the best way to go or just certain -- you want to hit certain milestones before you basically shift that and optimize the free cash flow.

[Tommy Eklund, executive]

Yes, of course, some of the money that we earn are we using as loans to our customers. And this quarter was, as you saw, quite good growth in our core business, which is the factoring business, the loan stock grew with 72% in the quarter. So I'm quite satisfied with that. Then if we are continue to have that on our balance sheet or not, we'll see going forward. The lending business, the factoring business has about 2%, 2.5% interest rate per month. So that's like 30% annual interest rate. And the loss rate -- the annual loss rate is about 2%, 2.5%, and it's actually going down now month-by-month. So -- because I get a lot of questions, is the losses going up? But it's actually going in the other direction. But that's because we're becoming with AI now better and better at maintaining the risk. So less and less manual decisions connected to the risk levels and more and more is done automatically in the platform.And since the platform is -- we have so much data regarding payments and all of that. So the platform is also improving itself as we go. So I think that we're starting to see the benefits from having that inside Fortnox now. So yes, of course, one can say that we're -- the working capital is going up a bit with this business model. But then again, if you get 30% ROI on your money, that's also a good deal. So we'll see. But of course, we have a lot of partners that wants to help us to remove that -- those money from our balance sheet. But we haven't taken the decision yet. We'll see. We think it's quite a good business now. And I think that you can see with the growth rate we have now that it's both growing and we're earning money. And it's not as high as the software business, but the factoring business is almost as high as the software business. So it's almost as the transactional business. And then subscriptions are always a bit higher, but they are in the same region now. So all our 3 revenue streams, we can see that the gross margin is really good. So I think it's -- we're getting there.

[Joachim Gunell, analyst]

So on that topic or on a perhaps as a side note because it's slightly different, but it appears that Monto has had some quite impressive customer win momentum as of late. So can you talk a bit about the -- yes, update us on what is going on with Monto. We have seen -- I mean, just looking at it from the outside, shaker markets obviously improves the business case to basically understand the financial well-being of your counterpart. But take us through how Monto is feeling.

[Tommy Eklund, executive]

Yes. So for financial institutes, Monto, is a really good product because I would guess that you cannot, in the future, run a financial institute without having a connection to real-time ERP data. So I guess that is the direction of the market. So everyone needs that to be able to be competitive in the financial landscape. So that is what the amount of platform is about. That is helping financial institutes to get real-time data. So yes, you're right that it's more and more of the financial institutes that are connected now to the Monto platform. But then we have not decided if we are going to share our credit scoring. So what they are paying for is more or less the ability to get the ERP data. And then we're waiting a bit if we are also going to share our ability around credit scoring.But right now, what you're buying is a connection to the ERP platform. And then we -- if we are going to -- because we're quite good at credit scoring out right now. And if we are going to keep that as a competitive edge compared to other financial institutes because we're also offering credits. So if we are going to keep, keep that as a competitive edge or if we are also going to share that with the market, we haven't decided yet, but it's -- for us, it's good anyway because you can imagine that it would be a good business to start to share that because, I guess, we are one of the best regarding real-time credit scoring right now, but then it's also good for our lending business if we have that as a competitive edge.

[Joachim Gunell, analyst]

And the question from the audience related to the summer campaigns, how much discounting have been done in this quarter? And did that have any material impact on subscription growth?

[Tommy Eklund, executive]

We have campaigns on a regular basis. The summer campaign that you referred to is not available anymore. So there are no discounts connected to that campaign. And I don't think that we right now have any campaigns right now.

[Joachim Gunell, analyst]

Great. So there is some seasonality here when it comes to your cost base. But there appears to be some shifts in terms of the R&D spend, what comes from in-house versus outsourced. So help us here understand, is this an ongoing strategy where you want to do more and more in-house as supposed to be reliant on third parties?

[Tommy Eklund, executive]

I think it's more like -- and again, this is not something that we -- it's not important to us to have exactly the right R&D spend every quarter because this is kind of long-term R&D investments that we're doing. But the climate that we have right now, it is actually easier to hire really good talents. And then when we have the opportunity to do that, then we're preferring to hire them instead of hiring them as a consultant. And again, as the climate is now right, it's easier to hire. So yes, we're shifting out consultants for -- and hiring them in step and that can be seen in the report as well.

[Joachim Gunell, analyst]

Clear. So when it comes to M&A, you have done some since 2020. You've been, to my understanding, very successfully in some, Capcito, Lagerbolag, Bolagspartner. And one could argue that [ Fortnox ] yet to be proven. So what have you learned from these acquisitions thus far and how they have added value for your customers? And perhaps also what is your appetite towards M&A going forward as you will start to accumulate net cash?

[Tommy Eklund, executive]

No, I think that both regarding adding more experience and knowledge and, of course, products to the platform. It's something that we see. We -- I think it's a good way to have our own R&D. We're really good at that. But also to have partners that can improve our portfolio and also buy companies. And we meet a lot of companies right now and investigate if we are to copy something that they have done or go into corporations or by company. And it's really good for us to have all those tools when we're working on expanding our platform. So for us, we're becoming better and better at evaluating on what we should do in-house or what we should do partnering or what we should acquire. So in that sense, it's really good.And you may saw that we also paid back the last SEK 100 million on the SEK 500 million revolver that we have. So we're quite solid going forward. And the M&A market tends to be better and better now for buyers. So we'll see. But we see that the valuation on the companies that we are interested in is definitely going down. So we think that there are more and more opportunities on the acquisition side going forward.

[Joachim Gunell, analyst]

Great. And we touched upon going upmarket earlier, but I have a follow-up on it. So what tangible proof points would you want to share with us where you are actually successful in capturing those larger fishes, especially when it comes to what you see as the main differentiator to use a platform like Fortnox for a medium-sized business as well.

[Tommy Eklund, executive]

Yes. It's another way of selling, but -- and it takes a bit longer. And also in this climate, it takes a bit longer. But of course, the revenue is many, many times higher per customer. So we think it's good to have our core business. It's good to go for smaller companies. It's good to go for bigger companies because we have the platform for it. The platform is scalable to go for all these segments. And I ask this is just a fun anecdote, but right now, we're participating in a deal. And we normally not participate deals because customers come to use our products. But if you want to go for the bigger fishes, then you need to purchase in a formal way of acquiring software. So we are participating in that now. And we are 1 out of 2 companies left and the other one is SAP. So we're head-to-head to SAP on a larger client. So I think -- we'll see if we win. But independently, if we win or not, we are a competitor to SAP now, which is quite encouraging.

[Joachim Gunell, analyst]

To say the least. And perhaps you would be a competitor also here. It was quite of an odd question, but similar web traffic shows 5% traffic is from India. Any color on what that is related to?

[Tommy Eklund, executive]

I actually don't know.

[Joachim Gunell, analyst]

You're already competing with them there. Great. Where is the income from the lending booked doesn't add up with the interest income. So I would assume it goes into the financials segment, but...

[Tommy Eklund, executive]

Yes, exactly. So we don't have lending business outside the financial segment. So all of that ends up there. But again, I agree with you, it's kind of hard to follow loan stock with revenue. So if you have detailed questions around that, you should probably call us in another meeting so that we can explain that because it's kind of hard to follow.

[Joachim Gunell, analyst]

Great. And what do you see as the biggest challenges here going forward? And what aspects of your business do you think are the most misunderstood by investors currently?

[Tommy Eklund, executive]

I think that going forward, again, the most important thing that I'm doing right now is prioritizing all the initiatives that we have. If you were to have the -- if you were to look inside the factory right now, you would say, "Oh, you have a lot of opportunity". So even that you might think that we're sharing a lot with you guys. We still have a lot of opportunities that we're not going for. And to be able to share to pick -- to pick the right new ones, so to say, that is kind of a challenge. But it's in -- it's our challenge. So we are not that dependent by other companies. It's more of we have the ability to our write our own future, and that is encouraging to see. So that is where I'm spending my time right now prioritizing the right things going forward.

[Joachim Gunell, analyst]

And with one minute to ago, as we think about Fortnox into next year, what would you highlight as the thing that you are the most excited about?

[Tommy Eklund, executive]

We talked about payments. You tend to be excited about new things and payment is a new thing. It would be interesting to see the Fortnox Card. But also we have announced insights and AI bookkeeping, something that we have done now, but we have not had any business model connected to either insights or AI bookkeeping. I think that will be interesting going forward to connect business models to those initiatives.

[Joachim Gunell, analyst]

Perfect. With that, we're out of time. Thank you all for joining into today's session, and I look forward to hopefully do this again in Q3 next year. So thank you, Tommy.

[Tommy Eklund, executive]

Thank you, Joachim.