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Thank you. So good morning, good afternoon, everyone. It's LiveChat Software here. I'm Lucja Kaseja and Marcin Droba, both from Investor Relations team are here today to discuss quarter 2 preliminary results. We published them yesterday, and I'll give you a guide through for the newest numbers.
But before that, just a very quick introduction is not everyone on the call knows us. So our vision is that there should be customer communication without barriers. And our mission, as a company, is to help people and businesses communicate better and fully express themselves.
We are a global -- as a software business. We operate in most of the countries in the world, whereas over 40% of our business is in the United States and only less than 2% is actually in Poland. We operate in a business-to-business subscription model. So that means we sell to businesses. And the model for them is to buy the product on a subscription basis. No matter what the country our customer is from, we -- the pricing of our services is in USD.
Actually, the model that we operate is allowing us to have quite high and sustainable margins. This is mainly because we have quite unique acquisition model, which is mostly inbound -- driven by inbound marketing.
We still have the co-founders with us on the company. So actually, the consortium -- the biggest shareholder is a consortium of the co-founders and key managers of the company. We pay out net profits in form of dividends and the policy is to pay the highest possible part of net profit in the form of a dividend and we sustain that.
And more into business, we have 4 products: LiveChat being our flagship; we also have ChatBot; HelpDesk; KnowledgeBase and I'll try to discuss now the Q1 data for most of these products.
So actually, we're going to start with quarterly revenues. We reached almost USD 15.5 million in revenues. As you can see, it is an increase over the last quarters. If you compare it with the increase year-on-year, actually, you would see that in Q2, we had quite exceptional growth. That was because part of the revenues we got for that period a year ago was due to annual payments. So actually, it slightly distorts the picture. But it is more visible if you look on the monthly recurring revenues. So these are the revenues that are actually directly attributed to a particular month.
So it is more of a picture at the end of the month of how many customers, how much they pay for our services. And if you look at monthly recurring revenues, those increased almost 2% quarter-on-quarter and over almost 8% year-on-year currently reaching USD 4.9 million.
We do not provide the geography for September, but this picture of how it was at the end of June, actually summarizes where we get the revenues from. So it's mainly U.S. with 36%. Also U.K., Australia, Canada, so English-speaking countries. And the rest are many different countries with Poland just having 1.5% of our monthly return revenues.
And now we go more into the numbers for particular products. For LiveChat products, the number of customers at the end of September was over 37,000 customers. It actually meant not a high addition quarter-on-quarter. You've seen that -- on the graph, you can see that the summer months didn't actually bring that many clients and also, we had a little drop at the end of September.
But if we go to the next slide, I'll talk about -- briefly about the -- what has driven these numbers. So actually, we have introduced the pricing changes at the end of August. They applied only to new customers. And as you can see, that resulted in an increase of ARPU. However, it's not only the pricing -- the change in the pricing that has led to an increase in ARPU, but also the mixture of clients that we were getting during the last months.
More importantly, this change in pricing is visible if you look on initial ARPU, it actually increased by almost 50% from end of August to end of September, reaching USD 88 -- almost USD 89. But it's -- again, it's both a mixture of the price changes and also the customer mix. So actually, in September alone, it allowed us to add USD 2.5 to ARPU.
With ChatBot, we also see an increase in the number of customers. We have 2,613 customers at the end of September, so we crossed 2,600 customers in August. But again, more interesting graphs are -- our lines are shown on this graph. So on ARPU, again, similarly to LiveChat, we introduced new -- well, price increases for new customers at the end of August. And you can actually see that it led to an increase of initial ARPU to over USD 165 and also that increased the ARPU for that period altogether.
And when we look at the key events for this quarter, first of all, the revenues increased by 7.9%, but it's a year-on-year growth. But if you look at MRR, the monthly recurring revenues, which, for us, are a better measurement of how our business grows, MRR grew by 11.8% year-on-year to almost USD 5 million. Still, we have ChatBots, the second biggest product outpacing LiveChat growth and we will be seeing the effect of this change in pricing during the following quarters, especially because of the fact that we will also apply the changes to existing customers.
When it comes to customer acquisition, we are -- we have advanced talks with some new partnerships. We hope to talk about them by the end of the year. Also, we acquired KnowledgeBase domain that was already a quarter ago. And although we see slightly lower demand and slightly higher churn rates in terms of new customers, we are pretty happy with the financial results that the quarter has brought. And more on where the company is or the other events of the company, we paid out recurred dividend.
We obtained a new U.S. patent and some more should be coming. Also, I think we already have said that, but we are not recruiting that much now. We are slowing down with the level of 305 to 310 people on the team being our -- the level that should last for a slightly longer. Also, we are having quite a few entries into LiveChat incubator. We're talking with companies from Poland, from U.S. and some other places. So we hope to have some cooperations -- to have some corporations there.
And the last thing, although right now, we are not able to talk that much about it, but we are working on new products, and we should be able to tell you more by the end of the year.
This is a very brief presentation of what took place this quarter, but we'll be very happy to answer any questions you have. It will be best either to write them in Q&A chat box or you can raise hands and just ask them loudly.
Before we start Q&A session, maybe we should also say more about why we decided to raise prices right now at this very moment. It's not only because and maybe not entirely because of the situation around. And of course, you know that inflation is very high, not only here in Poland and U.S. but worldwide. But it's the very first raise of the prices of LiveChat since some 9 years. So it's extremely long time without any price changes and the problem looked change significantly.
So during the last 3 years, we added like 40 -- 40 crucial new features to the product. Now it's a completely different product than 9 years ago. We adopted new -- a new back end to this product with so-called LiveChat 3.0. It's completely different. The value for the customer is now completely different. So we really believe that's very justified move. At this moment, we may be more active in the future when it comes to adjusting pricing to the situation, but we're definitely convinced that was the right thing to do at this very moment.
I think that, we can start a Q&A session.
The first question that we got is whether we are satisfied with the number of customers of ChatBot at the end of September? Whether it's in line with our expectations and that it seems that dynamic is slowing down?
Well, the dynamic is slowing down. But again, we are satisfied with the number of ChatBot customers, especially that it is the bigger clients that are more willing to use ChatBot. And sometimes, this process is slightly longer. And also, we constantly improve the -- because ChatBot itself is a product actually a builder for a ChatBot scenario. So we are improving the ways to build those chats. And we are actually quite happy with the outcomes.
So also I think it's worth to add that ChatBot will learn along the time. That's ChatBot is, of course, ChatBot can be used by any customer, big or small one. But definitely now, we can see that it brings most value, much more value to the big customers because it's about automatization. So it fits to the needs of customers who have a lot of communication, who need automatization.
Also it's not so easy to adopt a LiveChat. So LiveChat product is, I would say, extremely easy to adopt, to start to work with and to learn -- even learn much -- much more advanced features are quite easy to learn along the time. In case of ChatBot, it's not so easy. You have to jump in. You have to build your own scenarios even if you buy some pre-made scenarios, if you use some pre-made scenario, is still perhaps you need some modifications. So it's not so easy, even if we did a lot of good job in making that as easy as possible.
So it's definitely, I think that the future is the ChatBot, the growth path for the ChatBot is rather in on ARPU side. I'm not saying that ChatBot is not going to grow in the terms of the number of customers, but the ARPU is -- I think is the more important source of the growth. And...
Actually, the very first question was about initial ARPU for ChatBot. I missed it. So the question is initial ARPU for ChatBot increase -- increased significantly. Is it mostly due to the change in prices or something change in sales structure for ChatBot? USD 165 is very high amount. Is it sustainable?
So what is important when you think about ChatBot? You are not paying for the number of agents, like in the case of LiveChat. So actually, it's not a situation when this price is multiplied about some number of agents. So this initial ARPU is more about how many customers is buying cheaper or more expensive plan, but it's nothing as much about how big is that customers.
In fact, as we already told, we have also this additional payment in ChatBot for the number of interaction above the limit in each pricing plan. And it's not included in MRR. So actually, it's possible that some customers can pay a lot more for ChatBot. And it's not will be visible in a matter for time being.
So actually, directly responding to this question. In case of ChatBot, initial ARPU for September is a mix of both the price increase and also of some larger clients that bought the product this month.
The next question is, can we describe a bit more about future changes, the prices for existing customers? Are we expecting increase in trend because of that in the near future?
So maybe the very first summary because I have not mentioned that whether I was doing the presentation. At the end of August, we did price increases, they were plus 25% for the clients paying monthly, both for ChatBot and LiveChat. And we wanted to start with the new clients first to see how this goes. And actually, one thing that took place because of the price changes was, first of all, we got an increase in churn, but maybe that was not necessarily due to the price changes. But part of it was due to the fact that we get quite a lot of returning customers. So the ones who already use the product stopped using and want to use it again.
And because of the price increases, we have not seen that many returning customers this month. So it's not that the price changes do not change anything. But I wouldn't say that this is the single most important thing behind the churn.
I think if we discuss churn, actually, we have 2 kinds of churn. Customer churn, it's about number of the customers. And yes, unfortunately, but honestly, it's reasonable to expect somewhat higher customer churn in the coming months. But of course, we are not forecasting. We don't have forecast. So that's not forecast. But that's something we can expect without going into details.
But at the same time, we have so-called the revenue churn. We describe net revenue churn. So that's actually, I think it's reasonable to expect that but there is a high chance to witness a negative revenue churn. A negative revenue churn is a very positive thing. And actually in January and actually in the September, we had a negative net MRR churn.
So actually, it's very easy to discuss a number of the customers. But if we discuss money, if we want to discuss MRR, we have 2 very weak months in the last quarter and into one quite a good month in the quarter, and September was that good month because that new customers bring more ARPU, because better retention among existing customers. So that's something we should expect. We're not going into details because we can't go into too many details without a forecast.
And talking about the future price changes, we want to apply them to all customers, and that will be happening this quarter and you should get exactly the same magnitude of price changes. So the new customers and the old customers will be having exactly the same pricing.
So we have one raised hand from [ Daniel ]. Maybe we can now let Daniel speak and then we go back to the -- Yes. Okay. So that's -- Hello, Daniel. Good to have you here. You are mute.
Here we go. Can you hear me or not? Okay. I think Lucja just answered one of them. I think maybe the other one that will be -- you talked about the churn a little bit here, but if I understood you correctly, when we spoke previously today, you said that, it was around 3.2%, and your normal, you should say it's 3%. So in my book, it's almost no difference? Is that correct? Or was there a bigger difference than the sort of 0.1% or 0.2% on the margin here?
We are quite harsh when we discuss churn. We are quite harsh for ourselves actually because we actually discuss usually, we discuss churn without mentioning the returning customers. So actually, we have some -- a quite significant number of returning customers each month usually something around 100 in [ depth ]. It's something like that.
And actually, it is -- and actually, that was interesting. When you look at this quarter, we had like July and it was -- churn was like 3.2%. It's then like 2.8% if you count returning customers out, the very same situation in August, September, we have like no returning customers. And I would say that's the direct price on the changing of prices.
Okay. So one more follow-up on this. You said that you will introduce the new pricing also to existing customers this quarter. Was there a reason? Did you want to see what was the reaction -- initial reaction of this increase? Or was there a plan to do this gradually or did something give you confidence to say, okay, we are going to introduce the prices also for current customers? Like how was that decided?
So first of all, this price increase was the first one in 9 years. So we wanted to make it smoothly. So the new customers were, first of all, a little test, how well that goes. And we were saying that we'll see about -- like we'll see what are the effects and then decide on the remaining customers. So as of now, they were satisfactory. So we went with the price changes for the -- for all customers.
However, we also grant some legacy plans. So for example, the customers that are currently on subscription, if they switch to annual payments instead of monthly payments, they can secure the existing prices. So although it looks like we're changing the pricing completely, there will be some legacy plans as well. So not the whole customer base will be affected.
Perfect. Got it. And yes, just the last question I talked them out in the Q&A chat. I don't know if that's visible. But you said LiveChat ARPU is USD 2.5 higher in September. So higher than what? And how was the actual number in September?
So the ARPU for LiveChat was USD 121.5 which was USD 2.5 higher than the number for August because you could actually see...
Exactly USD 2.4.
USD 2.4.
So it's versus end of the previous month so as to why we have drop in ARPU in July. We had dropped -- a very small drop of ARPU in August. And [ 10 ] in September, we have a rise of [ 10 ], we add that USD 2.4 to the ARPU of LiveChat. It's a very good result, very optimistic, but it's not only a result of the price increase.
Right. And same question for ChatBot. What was the September ARPU for ChatBot?
Okay. We have it here. And as you can see, it was like something around USD 100. It's in the report. I don't want to be mistake what are you [ adding in it ].
Yes, the initial ARPU was high, obviously, but maybe the same question for ChatBot that we had on LiveChat.
Our ARPU was USD 110.4. So also increased over the -- over last quarter.
Right. But the USD 110.4 was for the full quarter, like what was the price increase?
Actually, the numbers we give, they are based on MRR. So they are based on the last day of the month or a quarter. So actually, this is for end of September.
Okay. Thank you. So we have also raised hand by [ Jorge ]. So Jorge. Hello, you are mute?
Good to see you. Just a follow-up question. You said that your churn increased, but your revenue churn, yes, it was negative. So I just want to clarify that. That means that it went down? Or...
So actually that means that if you look at the customers, if you look only at the customers we had at the beginning of the month, this growth, including churned customers, the revenue from this group rose at during the month.
It was very symbolic. It was [indiscernible]. It was like minus 0.5%, something like that. So but still, but that's too good. So that's something we really want to achieve on the -- that would be great.
So just to be clear, if I remember correctly, historically, that number was like 1%, right on the multiples?
Exactly.
So stable as customers churn.
Okay. Understood. And then the second question is, so just remind us by how much you will be increasing prices to existing customers?
It will be by 25% if they pay on a monthly basis and slightly lower so 18%, 19% if they pay or on an annual basis.
So actually it takes to get the very same prices.
As the new customers.
New customers.
Sorry, I miss -- for the -- for those who choose a 1-year subscription, what happens to them? I mean, is that part?
They also -- the prices for them will be also increased but by slightly lower rates. So 18%, 19%.
18%, 19%.
And what can be important, we also now -- we are offering the possibility of the annual payments at the old price. So as our customers now, you are getting the possibility to pay old price for the annual contract.
Okay. Perfect. But if I -- then I'm confused. If you told me 18%, 19%, that's for the new customers, if you choose a 1-year subscription?
Exactly. So if you're using LiveChat, any -- annual contracts, and you do nothing, then the next annual bill that you will have to pay will be increased by 18%, but you have an option to -- before your contract ends or before your subscription ends, you can -- will bring you it with the old prices, so without the price increase.
If you get the annual subscription?
Exactly. And same applies to those customers who are on monthly subscriptions. So they also -- if they do nothing, their next bill paid monthly will be increased by 25%, but they have an option to switch to annual payments, and then they will secure the old prices.
All right. That's clear. And then just lastly, if you can remind us what percentage of your costs are denominated in USD? Just to have an idea of the benefit of margins from the depreciation in the PLN.
Of course. So roughly half of the costs are in USD. So these are the costs related to servers, the cost of their partner program, while the whole team that is paid in PLN, almost all team.
Thank you. And we can...
We can go back to questions, although some of them were answered. So the question from Jorge on the churn and price increases, I think that was answered.
The next one, when we plan to raise LiveChat, ChatBot prices this quarter?
Yes, yes, that process should be finalized in this -- in the current quarter, yes.
The next question comes from [ Michael Shen ] and...
Actually that's 3 questions.
Three questions, exactly. So have we already applied the new pricing for existing customer?
It's on the way.
What are the assumptions we are working with -- for revenue elasticity?
So we gave this option for the clients who are price-sensitive to secure the prices by buying annual subscriptions. And of course, we are also aware that there might be some increased churn because of the price increases. But as Marcin said, for example, September looked very good in terms of revenue churn. So we hope actually to see better numbers, better results in many terms.
The second question is for the customers who churn due to higher prices, do we have the color on which services they are now using?
I don't think that the reasons for churn have changed that much. We have now...
But along the time, of course. So probably, yes, we actually we are in the process of introduction of new prices. But here from a longer time, some of our customers churn and some of them because we are -- we are not expensive when you compare us to whether our premium services to other premium products. But yes, we have some free or premium services on the market. We believe not so...
We will be able to answer that in a couple of months' period actually because now -- currently, the price increases were only applied to new customers.
But yes, we can see that [ store ] very small portion of our customers who are churning because of the price, not now, but along the previous quarters are choosing some free or premium services but that apply to small customers actually. Not applied for very small customers with relatively low traffic.
The third question is, is the large customer who made an annual payment in 2Q 2002? So a year -- same quarter a year ago, no longer making an annual payment this quarter.
So actually, we have this customer, but they made the payment for half a year now.
Okay. So the next question from Jorge, which is already answered about rollout of the prices and Daniel about the question about ARPU, which was answered and now series of the question from to [indiscernible].
A very interesting question, quite new topics. So maybe could you make a point on salary inflation?
So in case of -- well, first of all, the inflation in Poland is currently at the level of 16%. So that indicates more or less the -- not intention, but the assumptions people make on salaries. And you should more or less expect similar inflation on salaries. However, the IT sector is -- has much higher, maybe not inflation, but the increases on this market are much higher. So we, as a company, we actually have to go like be hand-in-hand with what happens on the market.
But I would say that we, as a company, we're after the increases that we're equalizing the salaries with the market range. And currently, we are closely monitoring it. So it will be going exactly with the market.
Yes. And did the price increase had an impact on conversion rate of trials?
Good question, not so easy to answer because we have like 100 or more sources of trials, each month. So, so that -- and all of this -- I would say, all of them are somewhat fluctuating each month.
Lucja, do have some hard data on that?
Actually not. What we've seen actually kind of related to this question was a lower number of trials. This is what we've seen, maybe not a lower conversion but lower number of trials. That was August and September partially as well. So -- but that took place already before we have changed the prices.
Actually, of course, conversion rate is extremely important for us. So in the case of the huge drop, we probably -- we would be discussing now how we retreat from the decision of introduction of new prices because that would be a good move in that case.
And three, what is the timing of the implementation of price increases?
One for new customers was end of August. Actually, in the last days of August, and this quarter, we were already communicating this topic to existing customers.
In the case of LiveChat and ChatBot, in the case of the HelpDesk, it was May. In the case of the KnowledgeBase, it was in July.
And the last question from Arthur is what is the dynamic in September?
And -- not sure to which KPI, we are.
So actually, September was the best month of the quarter, if you accept or the number of customers, which is definitely not something we'd like to see. We definitely don't want to see contraction here, but that has happened. But we witnessed a best results in the terms of MRR, definitely actually July and August was better week.
As you can see on this slide, we saw contraction in ARPU of LiveChat in July and August, which is definitely not something which we would like to see. And as we claim the ARPU in -- that was better strong rebound for the ARPU in the September.
And as I said, not only because new -- one thing is that new customers bring more value, but also a very good tension we had in that mode.
So I hope that is part of the answer for your question. If not, feel free to precise and we go back to that question. And the next question is from [indiscernible]. The development of new product, I mean the free cash flow growth at a slower rate than net profit? Or do you believe both profit and free cash flow should grow approximately at the same rate?
It's just a fact question because we capitalize some new work. But actually a new product -- a new products -- to work on new products for us don't means building a whole new team at this moment. So actually yes, we have more people working on development, which means that yes, we capitalize the work, some part of the cost related to their work, but it's not a huge change because actually we don't have like new big team, which worked on some new product.
So I'm not sure if profit and free cash flow will grow at the similar level, but you shouldn't expect something...
Extraordinary thing.
Extraordinary. Maybe -- maybe it's not excluded that we can buy some domain. It's kind of we don't like acquisition, but that kind of investment we like because we really believe that it pays off. So actually we have domain reserve for one of these products, but maybe we can -- we may look for some interesting internal domains because of the new product.
But a part of that, and that's not something sure, we really shouldn't expect something extraordinary, as Lucja said.
So we answered already the question from Max on the price changes. That's just...
How big the price changing consent? Yes, I believe we did.
The next question, again from Max, how did Asia perform this quarter?
Altogether, the share of Asia in our MRR is now stable. So the growth that we get, for example, from the U.S. is more or less similar to the one in Asian countries. So it looks like there is maybe not a slowdown, but we've seen better quarters than this quarter.
Definitely previous 2 quarters was much better here in that area, yes.
And the next one from [indiscernible]. For how long weeks are you offering the old prices to current customers for the yearly subscription?
It's one-time offer actually, I believe. Maybe we can -- maybe -- I don't know, maybe we can decide to repeat somehow. We are very flexible. So we can host that in the future, it's not like to exclude that. I mean, we are very flexible as the company. But now it's one-time offer for this change.
And I mean if you are now on the annual subscription, you have like 6 months to expiration date, definitely, you shouldn't be excluded from that offer. You should be offered to -- you should be able to extend that.
And the very last question for now which is almost the same one as the previous one. So from Daniel, for how long will current customers secure their old price if they change the annual subscription now for life or for 1 year?
So it depends on the duration of the contract. So if they sign 2-year contract that before 2 years. If they -- if it's annual then for just 1 year.
Definitely, an interesting place, we -- in the -- in the -- in our history, when we are selling LiveChat, we used to offer some lifetime value -- lifetime-long offers, some bonuses, some discounts lifetime for the customer's lifetime. And for some years, we are not doing that. That part was a mistake. We are not doing that anymore.
We're waiting for a question from [ Martin ].
And there is new from Daniel.
And have we disclosed current split of annual versus monthly subscribers? Is it primarily monthly?
Indeed, most of our customers, only a couple of persons' plans are on annual contracts.
And Martin has raised their hand. So if you can...
Can you hear me? Just a quick follow-up on the comment that Martin just has made that later will be likely offering an extension of annual contract to clients that already have an extension -- that already have an annual doing. So if you would offer them an extension of the annual contract and to the clients that have a monthly billing will offer an effective decrease of the price for the next year because the annual billing is around 15%, 17% cheaper than the monthly billing.
So are you still certain that you will increase the ARPU -- effective ARPU over the 12 -- the next 12 months in the first year of the price hikes?
Okay. So yes, in theory -- in theory, it's possible that -- that's the effects you described is -- will take place, but I would say that it is most unlikely.
Well, because I don't really see a scenario in which client will actually have to pay more over the first 12 months within your price increases in the scenario. So maybe I doesn't understand something in this logic, right?
You understand it and you pointed out to actually the right thing. However, our current experience with the customers is that they do want -- they do not want annual contracts. So as we mentioned, only a couple of percent of our clients are on annual contracts. So actually, for us, this move is better to secure a client for longer period, even though he will pay lower prices.
But it will be not that many clients -- it won't change the picture of the business.
Yes. So maybe can you comment perhaps that an average client that is a monthly billing, how much month of the year is subscribed to the business and to subscription?
You know that churn is 3% monthly -- 3% monthly. So it's 36% annually. So it's, of course, and now, of course, we can go slightly deeper into that process. So of course, LiveChat is highest at the beginning of the customer life cycles. So -- I think that's part of -- a part of what we are doing is, actually well thought.
That's all actually. We don't have more questions.
And thank you very much for listening to the presentation and asking interesting questions. If you have more, or if you want to contact us directly, and we are available on chat, first of all, and you can also write e-mails to us or we can have a call later on. Thank you very much, and have a very good day.
Thank you. Goodbye.