Nepa AB

STO:NEPA

Earnings Call Transcript 2023-Q1

[Jesper Henrikson, analyst]

And next up is Nepa with CEO Ulrich Boyer. Welcome.

[Ulrich Boyer, executive]

Thank you, Jesper. Hello everybody. Yes. We published our quarter 1 report this morning. And before I comment on that one, I will go through what we are doing. So -- what we do? We help marketeers, brand builders to understand how to rule that with an optimal investment. We track and measure about 7,500 brands every day, 365 days a year in order to optimize the long and short-term effects of their marketing efforts.

And about the long-term effects, we are one of the few of a few that do that. And we have a very special technology for that. And obviously, as you can see from how many brands we already have attracted and are still attracting, we do that very successfully as well. How do we do this? Well, what we do is that we have really brilliant human analysts that, together with the technology they work with and their technology we supply our clients with, turn this data -- all the data around the consumers into growth opportunities for our clients.

Who do we serve? Well, together with the clients, you see in the picture, which are really well-known brands, global brands, a lot of them. We make an ARR of SEK 169 million a year. And we really work with this global consumer brands all around the globe. So even though we have offices in only a few places in the world we are a global company.

And we have historically have long-term contracts that, yes, make us really proud about what we do. And we also have the relationships with the brands that they trust us, both in the quality of our data and tool delivery but also trust the consultants they have that will work at Nepa.

Our financial performance is, again, SEK 169 million ARR the last quarter, a good cash position and operating cash flow of SEK 5.6 million and then a negative EBIT margin this quarter. The positive -- on the positive is a solid subscription base and the strong cash position of the negative the last quarter.

How do we do it? We gather the data with different -- or from different panel suppliers all around the world. We have systems and tools in place that transform that into automated reports and visualization tools. And on that, we send this -- the data and the reports directly to clients. In parallel with that, our really great analysts and advisers work, we set, within their work environment that is tech augmented, and then they can deliver excellent consultancy. Totally, we have about a little bit more than 300 global brands around the globe.

We are focusing in our growth and our subscribers. And we have, as you can see on this picture, a very stable base of subscribers where we have very little churn and the little churn we have in the subscription revenue is due to our -- is related to when you look in the details of the report, you will find that it's related to the CX part that is not the strategic focus in long term. We also have been very good in growing our subscription revenues per client. So -- and yes, we hope that to do that -- generate some growth also from that in the future. But the main effort is on attracting new clients here.

The last half year, we have been reorganizing us a little bit in order to streamline our organization towards the -- our core focus areas within MO based on brand tracking, MMM and campaign measurements. And therefore, we have created at the sales and marketing department, marketing science, global operations and tech is all over in all our offices. The advantage of that is that we -- it's easier to focus and yes, make and gets an efficient organization.

Our financials, quarter 1. Here, we can see the growth, 0.5% in revenues on the [ prenomination ] base, subscription base, and then when you look at the part of ad hocs we are doing with the subscription clients, this is down 7.7% and with the rest of the client base, which is not subscribing on services from Nepa, it's a much bigger loss of 31.5 million, and those numbers reflect the hesitant market right now. And also for that, it is very important that we really focus on growing our subscription base in order to stabilize the business in the long term.

Yes. Thank you.

[Jesper Henrikson, analyst]

Thank you for that presentation. All right. So if we just start with the focus that you have right now, I mean, you have your subscription business, which is the marketing optimization but also the customer experience part wherein the marketing optimization, it's basically the brand tracker. So could you just elaborate on what you see the need for the brand tracker in this market?

[Ulrich Boyer, executive]

The need for the brand tracker in the market is that if -- when you look at the global brands, I really need to understand how the consumer is reacting on the messaging of the brand, on the core of the brand and how this -- how you can stabilize that long term because if you have a very well-known brand and that customer like and then it makes a big difference against other brands long term.

So what you want to do is that you want to have like booster up the base sales of the brand versus the short-term effects of campaigns because most campaigns, the relative cost of them is higher. And the campaigns contribute to build that base higher and higher. So resilience is there so that the sales are also happening when you are not just advertising.

[Jesper Henrikson, analyst]

All right. And I mean, as seen in your list of clients, you've obviously been quite successful in this. I mean you are competing against big giants like Kantar and Nielsen and so on. So I mean how can small Nepa be a strong competitor in this field?

[Ulrich Boyer, executive]

Well, I think in client relations, Nepa can be much more agile. I think what we sometimes say when we meet clients or when we talk about ourselves, and we say we are small enough to care and big enough to deliver quality. And I think that's where we have our sweet spot as well. And we are focused. We do that, and we don't do everything. And we are really good at it.

[Jesper Henrikson, analyst]

And then going into like your growth plan, you're obviously bringing on -- or wanting to bring on new clients and so on. But once you have that client, can you grow further with that client?

[Ulrich Boyer, executive]

Usually, yes, because most clients, they don't give you all the business at once. Often, you start with some kind of ad hoc project, and they want to feel you a little bit, okay, what are you up to? And then when you have built -- when the relation is there, then you are invited for a tracking pitch, trying to get the brand tracker or ad tracker and then you have a chance to get that and then maybe you get that for a few countries or a few of their markets, and then you grow into that client when you do a qualitatively high and consistent delivery.

[Jesper Henrikson, analyst]

So it's basically growing geographically with the same client but also adding more brands.

[Ulrich Boyer, executive]

Yes, yes, yes.

[Jesper Henrikson, analyst]

All right. All right. And I mean looking at your numbers, as you said, you grew -- or you actually declined ARR by 1% year-on-year. But behind this and also regarding the NRR and churn and so on, you have a decline in the CX business. So how do these figures look like for the -- for your main focus area, the brand tracker?

[Ulrich Boyer, executive]

For the brand tracker, they look positive, but of course, we would wish them to look more positive because as we wrote, they compensated -- the growth in the subscription base compensated not for the loss in ad hocs during the last 2 quarters. And that is, of course, due to the market because yes, so we need -- right now, we need to focus on the cost side, and we need to keep our effort on the sales side intact or even accelerated. So it's all hands on deck when it comes to sales, and it is this focus on cost as well.

[Jesper Henrikson, analyst]

Yes. And on the cost side, you have initiated since -- I think it was a -- December announced cost savings program that you will bring like completed in Q4. So could you just tell us about the thoughts that you have on this? Like what roles are you cutting?

[Ulrich Boyer, executive]

Well, I think we -- when we went out there, we cut part of the roles in the ad hoc part because we knew that, that was the one that is going down. And then we cut like certain levels in the organization. We try to make the pyramid, still a pyramid. So we cut it a little bit everywhere. We narrowed down the leadership group. And so we have cut a little bit everywhere. So...

[Jesper Henrikson, analyst]

All right. And I mean, right now, I think you have 55% of your revenues is like a pure recurring subscription. And then you have some ad hoc from existing clients and then some ad hoc others. But you're saying that you want to move your revenue base so that you can scale with like your subscription base only. Like could you just elaborate on where do you see yourself in 3 years revenue-wise or 5 years?

[Ulrich Boyer, executive]

It's very much up to the market. But if let's say we could build -- we would grow the revenue and the ARR with maybe 10 -- around 10% every year. I think that would be -- if you look at the situation right now in the world, then I think that is ambitious, I would like to see much, much more, but what -- I think it's not really realistic. But -- and we always will have the ad hoc business on top, and that will also grow as soon as we come out of the recession. So whatever you want or not want that is just going to happen.

[Jesper Henrikson, analyst]

Okay. So you still see the ad hoc business as a good like extra revenue on the side...

[Ulrich Boyer, executive]

Well, I think it's not -- the thing is that new clients will often try us with ad hoc. And then we have the existing clients. They will always put some ad hocs into us because, yes, that is what they do. And you need to deliver certain side products as well. Otherwise, it would be like when you go to a restaurant to eat, and you don't get anything to drink, you wouldn't be happy, and customers are the same.

They want the main meal, but they want something as well on the side. So we have to deliver that. And that's why we always will have it. So 100% subscription, that will never happen. We will always have consulting. We will always have a need, this really clever human touch on what we deliver. And even if ChatGPT is getting better and better by the day, yes. So far, my colleagues are clever, more clever than ChatGPT.

[Jesper Henrikson, analyst]

I'm glad to hear. And then also regarding your subscription base and your sales efforts on that, you quite recently started more sales efforts in order to get into more procurement and so on. Are you doing so? Like are you in more procurements? So -- and how are those going?

[Ulrich Boyer, executive]

We are. We are more in more -- we are more because our marketing -- also our marketing efforts are working quite well. Not perfect, but they're working quite well. And we, just 1 year ago, started a real effort about marketing. And of course, that is making companies that not early has been clients seeing us and then inviting us to their RFPs because there are not so many companies that deliver global tracking in the way we do.

So we have a good chance to be invited, but we need to be on the roster. And the only way to get on the roster for RFPs is the brand Nepa for being -- delivering ad tracking or brand tracking. So that's why it is so important. And of course, sales is also contacting people and trying to get us and get meetings and so that they know us a little bit.

[Jesper Henrikson, analyst]

All right. And then quite recently, you also announced that you are entering the Asian market and so on and expanding your efforts there. Could you just elaborate on your ambitions?

[Ulrich Boyer, executive]

Well, I think it's more that what we did is that we have had an Indian office, and the Indian has been -- the Indian office has been the fastest growing for at least the last 2 years. And now, of course, the -- it's interesting in revenue when you go to Singapore and all this. And we already have clients there. So it's more that we made -- we put a label on it. We have done that for the last 2 or 3 years. And now it's more -- that's more official.

[Jesper Henrikson, analyst]

Okay. No additional cost...

[Ulrich Boyer, executive]

No, no, no, no.

[Jesper Henrikson, analyst]

Okay. That's all the time that we have for now, and thank you so much for coming.

[Ulrich Boyer, executive]

Thank you, Jesper. Thank you for listening.