FormPipe Software AB

STO:FPIP

Welcome to this live queue with Formpipe for the last quarter of last year. I will be back later for the Q&A session, and you can already now post your questions below the stream. And I'm joined today by the CEO, Magnus Svenningson; and the new CFO, Sophie Reinius. Welcome. But now it's time for you, Magnus, with the presentation. Go ahead.

Thank you very much, Fredrik. And thanks and hi to all of you. It's a great pleasure to be here today to present the last quarter of 2024. And if we give it the -- our ordinary way to do this, a short introduction by me on the highlights of the quarter. And then we have our new CFO, Sophie, to dive into the numbers, and then I'll talk a little bit about what I think is important happenings in the quarter and how we progress moving forward. But first, a little bit on the Q4.

So revenues coming in at SEK 141 million, which is really -- it's a good number, and we are trending in a pace where we are continue to build our recurring revenues. And this is, of course, a very important part in our strategy. Really good is also the SaaS growth of 27%. It's totally in line with our strategy to transform our business into more and more recurring SaaS revenues. So a good number.

And then, of course, as you all know, we have our EBIT, where we came out with a profit warning here in January and where we are taking or has taken actions to make sure that we get our costs in line with allowing us to build a more profitable growth going forward. So what I also would like to highlight is the strong ACV. It's SEK 14 million compared to SEK 9 million in the last year. It comes down to good progress in public contracts with a few Danish municipalities, Kompetencesekretariatet, sort of a whale, a really nice test deal and then also more contracts with the Swedish defense sector.

So that's good progress, and we have seen also a very strong quarter in Dynamics ERP. So we take on 23 deals in this quarter, which is in itself a very good number, but we also see increasing ticket size, that is the deals are getting slowly and slowly and getting bigger and bigger, which is a really, really nice trend. Then we have taken some costs in -- we are continuing to transfer our platform in public. So we are taking some costs for competence transfer to build new cloud and SaaS competence. We have recruited 2 persons there and new engineering manager in Denmark and a VP of sales in Sweden. So this is something that we are doing in our transition.

And then as I mentioned, we are calibrating our costs. So we have a dozen of very well appreciated and respected colleagues that are leaving us in the Lasernet business. And this is, of course, a tough step to take, but we also see that it's necessary for us to get in the shape where we want to be when we move on this spring and also in the autumn where we want to see a better EBIT momentum.

As you have read as well, we had a cyber attack here in October when we were attacked by cyber criminals. We now believe that we can put that behind us. It has been a tough experience for us and our team. But I'm very, very proud in how we have handled it as a group, very, very impressing to see the cooperation between the teams. This means that we are accelerating our ISO 27000 actions to get that implemented. More importantly, of course, is also what that means in how we train our staff, how we implement new routines, how we improve our technology stack with more technology to protect us around cybersecurity.

So now we feel that we put it behind us and that we are in a good spot going forward with new experiences leaving this behind us. And then we have the delivery momentum. We have -- for those of you who have followed us over the year, we have been working quite hard to get our delivery up to good levels. And now we can see that we have SEK 27.5 million in delivery, and that is similar to Q4 in 2023, but it's -- if you look at quarter-to-quarter, it's a really good improvement. And also here, I really want to extend my thanks to the teams in Denmark and Sweden who has been working really, really hard to get us here. So really, really good to get that number in place.

So that was some highlights. And with that introduction, I want to give the word to Sophie, who has been now been with us for a bit more than a quarter and it's a really, really nice colleague to talk a little bit -- let us indulge the numbers.

Thank you, Magnus. Hello, everyone, and it feels good to be here. So I will jump straight into our numbers. And as you can see in the slide, we have the quarter comparison. And as we've talked about, it's great to see that our continued growth in SaaS is going strong with 27% compared to Q4 last year, and that's up then SEK 10 million, which is a great number. We are also very proud, as Magnus mentioned, about our delivery. As you can see, we had also a strong delivery back in Q4 2023, and then we had a softer delivery most in Q1, but then we have steadily come back to a number that we now feel very strong about.

And just to mention that we did have some work to be done in the delivery organization in Denmark given the cyber incident. So this is indeed a strong and good number for the overall quarter. And then net sales is up 3%, which is a solid number, I have to say. Bear in mind that we do see a softening in licensing, which is actually going down more than 50% compared to last year, but this is also in line with our strategy.

We are moving to recurring revenue, and we are expecting licensing to continue to go down, which then short term has a negative effect on net revenue and EBIT, but is in line with our strategy and what we want to do. And then, of course, we need to address our operating expenses, our cost base. And as Magnus mentioned, going back to our profit warning in January, it's not in line with our expectations. We have taken costs both on personnel and other operating costs in terms of building on our capabilities for the Essentials launch and campaign.

We have also changed competencies in both Lasernet and in One Public. And just to reiterate, we are reducing about a dozen people in Lasernet, but we have also increased personnel throughout 2024 in Lasernet with more than 10 people. So this is more of a competency shift than anything else, and we are very confident in our continuous growth journey for Lasernet business.

And then also to talk about the one-off costs related to the cyber incident, it's SEK 4.7 million, and we feel that those are the costs related to the cyber incident, and we are now leaving those behind us. So all in all, this has an effect on the total EBIT, which then is SEK 7 million, excluding the one-offs compared to SEK 17 million Q4 2023.

And then moving then to a more positive note and going to the growth in our recurring revenue. So we are continuing the positive trend that we've seen for the past actually a couple of years. We are now at a recurring revenue of SEK 428 million for Q4. This is then more than 80% of our overall revenue, which is a great number. We are also then seeing a 12% year-over-year growth in our recurring revenue compared to last year. And then looking at it from a pure 10-year perspective, we have actually grown consistently more than 10% for the past 10 years.

And then also moving and looking into the past 2 years, we have actually increased 16%. So great and positive growth numbers here. And then it's also then good to see now when we are looking into our cost basis that with the recurring revenue we have today, we are actually covering more than 100% of our fixed operating costs, which is also then great from a cash perspective. So we are quite confident in our operating cash flow, seeing the more than 80% of the recurring revenue coming in and making sure we have good cost structures in place.

And then finally, looking into our ACV. There, we are also then -- first of all, we have a positive FX effect of the ACV with decline of the Swedish krona of SEK 8 million. But then on a more positive note, we have a great net improvement of ACV with SaaS of SEK 12 million and then support and maintenance of SEK 2 million. And this is actually delivered by both business areas. So we have a strong growth both in Lasernet with SEK 8 million and then as well Public with SEK 5 million. So both [ BAs ] contributing steadily to the ACV growth.

And we are seeing some churn and we also know and we talked about this before that the Platina Life Science is a platform that we are discontinuing going forward. So it's natural that we see some churn then, and that was about SEK 1.5 million for this quarter. So overall, a good, strong outgoing ARR of SEK 459 million, and that is then 13% up compared to last year.

And then it's back to you, Magnus. Thank you.

Thank you very much, Sophie. We have been -- sort of a year ago, we introduced what we named Pursue Potential. And if you see the numbers, you see the really, really good and long development of our ARR. And of course, we have a very solid customer base. We have very -- a lot of solid competence in the company, and we have really good technology. But we need to adjust that a little bit, and we call that Pursue Potential.

And then we have in our public business area, where we joined Sweden and Denmark a year ago, we are looking over the product platform to make sure that we can reuse functionality that we can -- and thereby reducing our maintenance costs and focus on developing new functionality, but also adding new functionality. This is something we've been working quite extensively with during the year. And now we see that we are at the point where we, to a selected group of very trusted customer, can start to introduce new functionality to the market.

So this is a milestone where we see that the technology is working, our go-to-market is working, and we can now take the first steps. And as all of you know, with public sector, this is a lot about integrity, data, training of personnel, procurement procedures. So you need to take it step by step. But we are doing this in this quarter, introducing these first functionalities. This also puts some requirements on the organization around knowledge about technology.

So we're also strengthening the leadership team in our public business area, in the engineering area, but also in the sales area. So it's really a milestone we are putting behind us when it comes to the One Public transition.

Then as we spoke about in the Lasernet area, we have done an overhaul of the product packaging with what we call Essentials. It's still a little bit early to see date on this. So it's still here, say. But when I talk to our sales team, when I talk to our partners, we see that the fact that we can now enter the discussions with a premium offering that we call Essentials, it takes off a lot of the uncertainties around price. We get a much more constructive discussions and our partners feel that we deliver value immediately in their discussions with the customers.

So this is sort of so far positive feedback. We will come back during the year with more learnings as we get more data. We see how it pans out in the partner network, but also with the end users. So this is very, very exciting. Then we have the calibrating of cost that Sophie mentioned. We have, during the years, built up a fantastic partner network in Dynamics and around Temenos, which has been very, very useful to build up the revenues we now see. But we also see that we can adjust and calibrate that to reduce our costs and thereby build room to maneuver in the next step of our growth phase.

Now focus is totally the coming quarters on Dynamics and Bank & Finance. But if you want to look a little bit around the corner, we have a very, very interesting example of a deal we made in the last quarter with Munters, the climate company, who have a very sophisticated supply chain. And there, you see how the need of documents that machines and humans can read, how that ties into the various systems in the organization. The ERP system, IFS, of course, the CRM system, Salesforce, the engineering systems like Autodesk, et cetera. There, you need to extract data, you need to get that from one source of information so that it's consistent over your tenders, your manuals, your invoices, your POs and everything. And this is where we see that Lasernet has a very, very unique position in how it makes it possible to create and maintain these documents from one single source of information. So this is a very, very interesting part. We will, of course, develop this over the coming quarters, and there are other options as well. But this is a really, really cool example on Lasernet being a really, really cool product.

So our financial targets, we are checking the box of average annual turnover. Our recurring revenue is up to 80%. So that's great. We have our dividend policy, so we continue to deliver our dividend. And then, of course, we have the EBIT. We have a solid plan to over autumn get into good EBIT numbers tracking on this target. So we are very positive and confident that we have the momentum in the team to deliver this.

And then before I round this off, I want to have -- give you 4 things to bring with you. And it's, of course, as always, the recurring revenues. First milestone on delivering in One Public on the new scalable platform and then the fact that we are addressing the costs, allowing us to deliver on our EBIT target. And then finally, to our deliveries that we have those back on track when we go into 2025.

So that sums up the presentation here and before leaving the word to you, Fredrik, to do some Q&As, if you are ready to get started.

Thank you very much, Magnus and Sophie. And also, I want to highlight the opportunity once again to ask questions below the stream. And we've got a first question from the web. And that is, what is the remaining ARR of Platina Life Science? How much more churn can we expect from the end of -- putting that product end of life?

It's [ digit ] numbers, but it's not that much actually. I think we've taken most of it now. There's still some support and maintenance left, but the bulk has been already churned out.

Okay. Great. We've got another question here. When you say SaaS revenues are growing quickly, isn't it partly an effect of support and maintenance decreasing correspondingly? Or are they independent of each other?

They are absolutely independent of each other, even though we expect a decline in support and maintenance and there is a little -- but we are taking new business all the time, especially as you saw in Q4 here with our really good performance from both public and private, especially in the Dynamics area in Q4.

Interesting. Although one follow-up there from my side. I suppose there could be some examples of a customer moving from an on-prem license to a SaaS license and then you see a little bit churn in support and maintenance perhaps, but larger revenue in SaaS then.

Absolutely. There is a movement. But of course, we have a very good sales momentum as well to build new SaaS revenues, absolutely.

Yes. So it's -- maybe it's a little small part of the growth in SaaS, perhaps, I guess.

Yes, I would say it's quite small.

Yes, quite small.

Great. So let's talk about the less fun stuff first, the costs in the quarter, a bit on the high side. Why was that?

Do you want to start?

I can start. So I mean, not to elaborate too much, right? But yes, we've had higher costs, both in personnel, in marketing and also some in development. We are addressing the personnel side. And as we mentioned, we've had these competency shifts. We have invested in Lasernet in personnel. We have also made some competency shifts in One Public. So that has cost us in terms of personnel. But we're also seeing now in terms of the Lasernet business that we can move away from some of these costs that we are no longer dependent on when it comes to personnel.

And some of the costs will continue somewhat in Q1 and maybe a bit of Q2, but we are also then moving to lower some of our dependencies on our outsourced development in Ukraine, and we have in-sourced that to somewhat of a degree in Lasernet. So that is also a shift that we've been seeing. So we are looking and addressing a lot of the different cost elements without going too much into the details. So we are quite comfortable with looking into a 20% EBIT, but there will be continuous work in our different cost elements.

And then just adding to that, we -- as you saw the good delivery development, of course, there is a little bit of cost attested to that as well because we need to have more skilled consultants coming in as we deliver more delivery revenues.

That's a good point. So you have mentioned that about 12 persons in Lasernet you will reduce your headcount with that, although you increased it in last year. So -- but -- and you touched upon it, but I assume there will be some more stuff initiatives to reduce cost. I mean, could you give a few examples perhaps?

Yes. I mean the big thing here is the fact that we have built up very, very solid partner networks. And when you transfer knowledge and build technical knowledge to this network, it requires competence and resources. And now we can see that we can decrease that. And our partners, they are not self-sufficient, but they require less support. So that is one very important factor.

And then there are also costs in relation to introducing Essentials and getting that up and rolling that we have now and that will decline over spring going forward.

I see. So let's move over to the ACV, which was really strong. I think it was the second best quarter yet actually. So I mean, you touched upon it, but could you elaborate a bit? We have seen a few softer quarters previously during this year. I mean, what happened in Q4?

So what happened in Q4 was that we had sales teams working hard in the market, and that is primarily to our One Public area, where we have had good success in Sweden and in Denmark, bringing in new business. So we saw the one Kompetencesekretariatet was a large deal. So good sales. And then the ERP business, Dynamics showed strong growth. And this is an area where we, of course, focus a lot. We see a lot of potential. We have something -- we have a market penetration in Dynamics of something like 1% or 2%. So there is a lot of potential there. With -- the year was really, really good.

It's still for us, a bit hard to understand exactly how that -- the growth of that market impacts us given that we are a part of the implementation of a Dynamics system. But the year and all the hard work we have put in, in building the partner network has shown results. But then we also see that there is a fluctuation between quarters. And we can see that Q1 also has started strong, which is good. So maybe we are on to something with our Essentials packaging. Let's see.

Secondly, we have also adjusted the packaging, allowing us to tier the offering, which makes it easier to adjust the price and get more value out of the market. So I would say it's sort of these 2 effects.

Interesting. So you already, in this quarter, see positive effect from the new packaging basically then?

From the pricing perspective, yes.

Okay. Interesting.

Not -- it's too early to say around sort of the marketing sort of the lead generation, the market penetration part. That is too early to say. But the packaging is already we can see an increase in the average price tag and average deal size.

Okay. Let's follow up on the feedback from partners. I mean you said it's too early to draw any major conclusions, but perhaps you could elaborate a bit more of what's new since we stood here last time?

The new thing is that we have a solid product and a very solid position in the high end of the document, the output management market. That is totally clear. It's really an awesome product. But then we have also seen over the last years that there is a low-end competition coming into the market with more of sort of open source-like approach, which always means that when we come into a deal, we have to kick something out. And that is -- it's absolutely not impossible, but it is a little bit tiresome because you have to argue around why we are better than something else.

And the positive effect we see when we talk to our partners now is that they can start with us on sort of a greenfield. Start with this doesn't cost you anything. And then when you're ready, we can talk about prices around this fantastic product. And that is a much easier discussion compared to saying you should stop this free of charge -- stop using this free of charge product and pay more for this. Now we start why not get something more and pay a little bit more. And that is much easier. And that is sort of the feedback we get from our partners when we talk to them around this essential launch.

Interesting. And we got another question from the web professional services revenue, I guess that's delivery revenues seem to decrease over time. Do you see a lowest stabilizing level as a percentage of revenues?

No, I think that's hard to say. But I think overall, in professional services, I mean, there are 2 tiers of this since both business areas have delivery. So in the Lasernet side, this is not a main focus for us. So there, we do expect professional services or delivery to decline over time as partner takes on more and more of this. And then for the public sector, we are continuing on a stable basis. I think we will increase somewhat, but I think it will not be the core of our business in that sense, but it will always be an important factor for the public.

Very well said. And of course, for you who have followed us for a while, we have taken in a lot of the delivery works from our previous partner network so that we can do the core delivery ourselves. And that will be a focus area. It's very important in the public sector because it is a lot about regulations, adaptations that you need to be doing. And there, we see a solid, stable demand.

We see that we can increase those, but we also feel that with this SEK 27.5 million, we are sort of -- we are on a level where we are comfortable this is where it should be. So it will be -- still be very important for us going forward, but of course, also working more on our scalable platform in the coming years, which is also sort of a development and focus area for us. So these 2 sort of -- they go hand-in-hand in terms of knowledge building and understanding our customers and -- but also, of course, also financing the development to a certain extent, et cetera.

Okay. And let's stick to the deliveries. You have been quite optimistic about the development in Sweden, in particular, for some quarters, but there hasn't really been any signs in the numbers until this quarter. I mean, why is that? Why do you see an increase also in revenue this time? And should we expect that to sustain into this year?

In delivery revenues or?

Yes, exactly. Yes.

We can say, it takes some time to build up the competence. You need to recruit people, you need to train people and there is a lead time there to get started. And we have been working on those things during the year. And now in third and fourth quarter, people are coming in, people are scaling up, and then we have an impact on the numbers.

I see. So let's get back to Lasernet and the opportunities outside of Microsoft and Temenos. You mentioned the deal with Munters on IFS, for example, and you also mentioned SAP and Infor. I guess those initiatives might be a bit mid- to long term, but still, could you elaborate a bit on the opportunities you see there, the market and the competition in those platforms?

Very good question. And our focus is Dynamics, and it is Bank & Finance around Temenos. But of course, we need to learn now what is around the corner. And if you look at sort of the Munters deal as a role model, it really shows how a sophisticated supply chain needs information in a consistent manner. And then we can start thinking of, okay, what kind of companies are there and you need to have a certain size, you need to be in a certain vertical. And in certain verticals, you need certain ERP systems.

We need now to figure out how do these people search for information. There is an information architect out there for some reason, this information architect found that Lasernet could be a good product and installed it. So now we will -- with the Munters deal, and I mean, also historically, we see that there is a solid demand for Lasernet. It really plays a significant role. So finding now the right verticals with sophisticated supply chains, which ERP system do they use, where -- exactly how does Lasernet add value compared to how they solve this problem today.

There are old legacy products. There are also a lot of manual work going on where you have a team of person doing these kind of reports and documents, et cetera, which is costly. And then there are entrance barriers into these ecosystems because you need to be a part of it, you need to -- might need certifications. And then you need to also find a geography which is suitable. And these are learnings we will do the coming quarters so that when we are back in our -- in the solid profitability where we want to be, we should also be able to start step-by-step penetrate these new ecosystems.

Interesting. And once again, I want to highlight the opportunity to ask questions below the stream. And so let's talk about the One Public initiative. I mean, it's one part of the slightly higher costs as far as I understand. But what about the plans there for this year? What could customers expect from you?

Customers can expect, as always, a solid delivery that is solid delivery of software and competence around their operations. That's what they used to. They are used to a first-class experience in terms of how we support their processes. Now our clients, they live in an environment that is changing as we all do. One driver here is Microsoft. There's a lot of Microsoft usage out there. That's something that's happening.

They are also living under a continuous efficiency requirement. They need to do more with less all of the time. So what they now can expect is that we will support how they interact with other ecosystems like Microsoft, but they will also, over the year, experience how we can help they do more with less with AI. So with our One Public initiative, they can live in the same environment that they are used to. However, they can interact better with other applications, and they will also with integrity, remain the integrity of personal data, et cetera, help making decisions faster. For example, when you make a case, you can sum it up so that the case manager quickly grasps what needs to be done. You can get assistance in making the decision that something stands out as allowing you to make more with less. And these are things we will -- we have a lot of dialogues going on, and these are things that will hit the market over the coming year.

Interesting.

Yes. It is actually extremely interesting. It's a very, very fascinating area to work with where we can -- we, as a company, can add -- are adding but can continue to add a lot of value to our clients.

I look forward to follow up that during this year. That's all from us here today. Thank you very much, Magnus and Sophie.

Thank you.

Thank you very much, Fredrik. A pleasure to be here, and thanks to all of you.

Thank you. Bye.