Checkin.Com Group AB (publ)

Hello and welcome to today's broadcast with Checkin.com where CEO Kristian Karlsson and CFO Martin Bäumel will present a report for the second quarter of 2024. After the presentation there will be a Q&A and with that said I hand over the floor to you Kristian.

Thank you Ludvig and good morning my name is Kristian Karlsson and I'm the acting CEO of Checkin.com group since end of May this year. So even if I'm the new CEO, I have probably previously worked six years in the group as chief commercial officer. And today I have with me our CFO, Martin, and we will go through our latest quarterly report. what i mainly will go through myself is is my comments from from the ceo letter uh i hope that you have been reading the report um but also about the business in general and the development in our main verticals i will then hand over to martin to go through more today financial parts and we leave it of course with a lot of room for questions Just as in Q1, we have continued to see weak travel volumes through the quarter. We have also had a breakthrough into the fintech industry after the quarter. As you obviously can see on our net revenue for quarter two, we have revenue that's gone sideways compared to Q1, but also year on year. Obviously, we had a really challenging first half of the year, but I feel we are really well positioned for the upcoming year. On the upside, though, even if we have a strong enterprise focus, which means that we focus on the largest companies on the internet, we still signed a double digit number of new contracts in the quarter. As I mentioned, we also had a breakthrough in the fintech industry after a quarter. I will follow up a little bit about that later in the presentation. We have a strong belief in our new travel product, which is now live in Ireland with Europe's largest airline. A little bit about our verticals, our main verticals for those of you listening for the first time or travel in Pintech and iGaming. So I will go a little bit into our current development around our verticals. But first of all, travel. As you all have seen, we are facing some challenges around the travel vertical, which is mainly related to a less amount of bookings through third quarter bookings, where the volumes are down like 38% year on year. um the last year we as a company has continued to invest heavily product wise and also in the sales and marketing part just around the travel industry uh so far it's not been paying off not either with our current customers or not with like potential new customers but we see a strong demand of an interest of our product We have EQ2 released together with Europe's largest airline, our new travel product that should cover all type of bookings and I'm happy to announce that it's also now live in the Irish market and we hope for an expected rollout on key markets going forward here. Also, as I was a little bit into, we have a lot of interest around the products in travel. We have many several discussions going on and where a few of them feels like they are in the ending stage. On the fintech vertical, we have been speaking about the last quarters about this big Swedish fintech company. I'm happy also to announce that we have been growing that business quite a lot. So we are live now in more markets than before, including the US market. And they also now become our second largest customers in terms of revenue now in August already. We've been working really close with the product development together with this company and we see that now we are in a good stage with our product to be really competitive against other banks, fintechs and insurance companies. iGaming was before one of our most important verticals, but has been decreasing a bit once we had been focusing more of our resources into travel and fintech. Even though we still see a lot of interest of our products in iGaming, the conditions has changed a bit in the regulated markets. We see that many of our current customers are operating in less markets. We see that many have like harder time to make money basically, which has also affected our revenue a bit in the iGaming market. Except that, I'm also happy to announce today that we sent a press release this morning about that we have signed an agreement with stake.com, which is the fastest growing iGaming company in the world at the moment. I'm super happy that they would like to work with us and then use our software. Upcoming, we see great opportunities from the new regulations coming in Brazil end of the year. It's with a lot of interest of our product and we have already started to work with one company in Brazil and basically help them with the regulation. And I feel that we are in a really good position to gain more momentum there. Our financial targets remains. The financial targets are like a variant of classic SAS metric, which is called rule of 40, which measures the profitable growth. And the target is to maximize the sum of the revenue growth per share and EBITDA margin. The target stays firm and our vision is still to exceed 80% of our annual basis. Year to year, in the last 12 months now, we are at 55%, which makes it that we need to have a rollout now in common market, especially in the travel industry, two key markets to be able to reach our ambition for the year. But the goal stays the same and ambition stays the same. But to reach the ambition, we will need to have a rollout to the key markets now in the common market. And then I'll leave it over to Martin for some financial highlights.

Thank you, Christian. So the quarterly report itself is packed with a lot of numbers. And my goal here for this presentation is to go through the financial highlights. So as we already mentioned, net revenues fell with 3% in the quarter compared to the same quarter last year. And we had revenues of 20.4 million kroner in the quarter. The organic growth was also minus 3%, given that there were no impacts from acquisitions this year. The gross margin was 75% in the quarter. That's lower than we've had before. And as we mentioned earlier, it's due to the capacity expansion that we have invested in and in order to meet future demands. I can come back to that a little bit later. And despite the continued kind of lower revenues compared to Q3 and Q4, especially last year, and the lower gross margin, gross margins we still have an ebda of 2.7 million kroner in the quarter and that's a margin of 13 and the cash flow is somewhat improved compared to last year and the cash flow from operating activities lands at 2.2 million kroner and we ended the quarter with the cash position of 35 a little bit more than 35 million and an equity ratio of 87 percent So if we jump into the details with the net revenue, for those of you who have listened before, you recognize these building blocks where we now added the latest yellow building block here, 20.4 million of revenues in Q2, as we mentioned, and that's the corresponding growth of the minus 3% compared to last year. And as Christian already mentioned, that's a lot of impact from the travel industry, especially when comparing to Q3 and Q4 last year. If we jump to gross profits, the gross profit in the quarter went down to 15.3 million kroner. And that's mostly driven by the fall in or the decrease in revenues. And the gross margin of 75% is lower than we previously had around 85%. And I think the story here is the same as what I told you in the Q1 report. It's because of the investments we've taken in the capacity expansions in order to meet our largest clients or our largest customers' future rollout plans. We need to be ready when that comes. And we have optimized the systems to be able to run with higher volumes and meet that higher demand. when when the when those volumes haven't really materials yet then the by definition the gross margin will be lower for a while um and that's a little bit um driven by that even the direct costs are not completely variable um with the underlying volume and they are rather you know um incremental capacity steps if you will and um and and that is uh that is what's happened now when we've actually invested in a few more steps uh i.e increasing costs and uh we are so we're ready to to meet the demand when that comes um if we go to sales and marketing And we have increased these investments and put a 4.5 million kronor into sales and marketing in the quarter corresponding to 22% of revenues. And for the first six months of the year, we are at 21% of revenues. And if we go a little bit further down the income statement, we reach EBTA. It is down a bit, as we mentioned before. Jone Peter Reistadler, Compared to last year, if the land that 2.7 million kroner for in the quarter corresponding to a margin of 13% and and similar to what I mentioned in the gross margin, you can say that we optimize the company. Jone Peter Reistadler, To meet high demands and to be a big company and. Jone Peter Reistadler, When we have slightly lower revenues and we had hoped for this is what happens to the margins, but as Christian mentioned, we have, we are in a very good position with high leverage to increase these margins when the when the when the net revenue is coming in. And finally, we ended the quarter with a cash position of just over 35 million kronor and an equity ratio of 87%. And with that, I can pass it back to Christian for some closing points.

Thank you, Martin. Just to summarize, we have continuously low volumes in the travel segment through the whole half of the first year of 2024. We have our new travel product live in Ireland and for all type of bookings not just related to third party bookings through Europe's largest airline. We have a breakthrough in the fintech vertical of the quarter where now in August they are our second largest customer in form of revenue. And as Martin just talked about we are really well positioned for leverage when we're increasing our volumes and traffic from our largest customers. And with that I'll lead back to Ludvig for the Q&A.

Thank you so much for the presentation here and we have received a lot of questions so I think we go straight into it here. You have gone from high growth to lower growth and now to negative growth. What is not working here?

yes uh as i just talked about we have seen like a decrease especially in the volumes from from our travel segment uh we have invested heavily the last year in the travel industry both on the product side and on the sales and marketing side unfortunately This has not paid off and it's related to less amount of third-party bookings where our volumes has been decreasing quite a lot. It's mainly around that. Still, we hope that this should be up and running soon, especially in the key markets, and then we hope to get back to the real growth again.

In previous calls, you believed that travel volumes would return during the summer. Why hasn't that happened?

Yeah, it's almost that I need to repeat my answer from from the previous question, but, uh, we had, like, strong belief that that it should come. Uh, unfortunately, the. The new product we've been developing together has just been released in 1 market so far and we waited for a. like some key markets to be released um in the combination of course that our online travel agencies uh has like decreased amount of volumes thank you Christian you're now the CEO at check-in how will your employees notice that you have become the new CEO yes so um that's correct um i i don't think they will feel uh a big difference uh i've been with the company for six years so obviously i know everyone and christopher is still active like chairman part and chairman in in the company uh but obviously since i coming more from my from my commercial background it's like i believe that people probably should feel that it could be a little bit more commercial, both in the sales and marketing focus going forward.

Thank you. If you look at the development over the past six months, the venture towards enterprise feels a little bit like a failure. Why are you sticking with it?

Yeah, I think it can, of course, looks like a failure when you're looking into the revenue. For myself, I don't feel it's a failure at all, especially in the steps we're taking on the product development side together with those enterprise customers. So I feel like, especially from the product side, we've been taking big steps, both in the travel and in the fintech industry. Unfortunately, right now, yes, it looks like a failure in form of revenue but i'm convinced once we grow together with our partners and with potential existing signings as well we should see this as a successful um success successful opportunity in in the enterprise for the future thank you will you reach your financial goal of 80 for 2024 martin do you want to

Yeah, sure. I think, first of all, we need to clarify the goal or the top financial target that the board has given us. It's to maximize the revenue growth per share plus the EVDA margin. And the reasoning behind that is that We as a company can choose a little bit to invest more in growth, driving activities to grow faster and maybe less profitable or focus more on profitability and maybe at the expense of slower growth. As Christian said on the slide, I think it's a variant of the classical rule of 40 target that many scale-up companies or venture-backed companies are using. We have an ambition level to reach 80% on an annual basis. And given a kind of slow start in 2024, it of course looks a little bit tough to reach that target or not that ambition for 2024. But if we get the rollout that Krishna has talked about here from our largest customers, then we believe that is still doable this year. And so the target remains to maximize the growth per share plus the EBITDA margin and the ambition level is still to reach 80%.

Thank you. Many iGaming companies have done well during the Football Euros. Is that anything that check-in has noticed?

Yes, we have seen, of course, increased activity in the iGaming vertical. For Q2, I think Q championship is like 17 days. So obviously, we've seen a little bit of spike. But since iGaming is like a less important vertical for us compared to what it was for a few years back, revenue-wise, we don't see that as a big spike like that but of course we we see that it grows like in general but but it's nothing really we believe that or will be a big chunk of the revenue thank you you told us that the software has removed some travel bookings which has caused the volumes to drop is there a risk that the same thing will happen with within several verticals other than travel I believe that this, what should I say, this OTA bookings is like one case, use case of many. It's the only place we're using this today with specific customers as well. So I can't see that it's a risk at all going forward that we should see this decrease going forward in either in travel or in other verticals.

Thank you. What potential do you see in the collaboration with Klarna?

uh we have never announced any any deal with clana but uh what we have said is that we're working with a swedish international fintech company uh and where the potential is huge uh we work in daily together with them um to to to increase the amount of markets we arrive with um it's also really fun to say that we also now have the last launched in the united states uh and also now in august they are becoming our second largest customer in form of revenue and uh yeah i'm really excited for the future with this partnership

Thank you. For several quarters you have talked about strength and collaborations with your biggest customer, but at the same time growth has largely stopped. How should that be interpreted?

I think this question has been coming up already a few times, and I think I've already answered that in the beginning of the Q&A, but as we said before, it's related to the rollout of our biggest customers. I think we can after that go to the next question.

Yes, thank you. Equity analysts believe that sales will be strong in your Q2 here. What do you think about that?

Of course, our ambition is to have a much more stronger numbers than we have in Q2 and even in Q1, of course, obviously. I don't have so much more to comment about that, but of course, we'll be working everything as hard as we can to grow this business. But otherwise, I don't have any other major comments around it.

Thank you. How can NRR continue to be positive when you lose revenue compared to last year?

Should I take that? So it's a little bit technical here. The NRR number that we report or that we have in our quarterly report, it's a net revenue retention LTM over the last 12 months is what that means, which means it's the average NRR over the last four quarters. So that's why it can be like this where we actually lose revenue, but the and our ltm is actually positive and so it's a little bit kind of counterintuitive here and it's something that we need to decide on whether we should make this clear but this is the way we have reported it since we started reporting nrr and we have defined this and we follow the definitions um In a similar way throughout every quarterly reports and so. But, but, but the question is fair, given that we actually lose revenue. In total, of course, by definition and our arm must be below 100% and and. if you compare Q2 last year with this year's Q2 and that is kind of by definition it needs to be below 100% which it is. But the 103% that we show in the report is actually the average over the last four quarters. So that's the explanation.

Thank you. How close are you to signing new large clients to reduce dependence on a few?

Unfortunately, that's a really difficult question to answer. We're having a lot of discussions with many companies in different types of verticals all over the world. But as long as nothing is signed, I have nothing to announce here.

thank you the rollout plan for the fintech customer sounds really good how much do you trust that the plan will be followed yeah i agree with that and

everything has been followed so far uh we're having ambition and an ambitious rollout plan together and to with more use cases and more markets so i have nothing um to i feel that i worry about that that the rollout plan should not go as as we have planned um i got really good feedback and especially feedback around the our software so um yeah it looks really promising

Thank you. Since the software has reduced volumes from your largest customer, have you considered a changed building model, for example based on reduced unwanted traffic?

Not right now. We have no plans like that. So we have been like a good invoice model in general, I feel. But of course, if some opportunities will come up in the future, we're willing to look into that, but not where we are today.

Thank you. Have you gained any new customers through the collaboration with Creatio? And if so, in which industries?

No, not yet. Croatia is not live yet and we're still working together with them to get us live and get out on the first customers, but no revenue so far.

Thanks. What can you tell us about the new travel product?

most important thing is to tell like the product is built in mind to to to cover all type of bookings not just third party third party bookings like otas of course we we hope a lot about this product and we've been working together with this major airline we mentioned a lot about but also i think it's just say it's also like a testament for us like that we as a company can deliver on the next level on for this type of travel products uh not just in the airline industry but also in other industry in the travel vertical where we see a big interest right now we are right now live on the on the irish market but we hope to get live in or say in key markets in the short term

Thank you. Can you tell us about the EBTA development during the first half of the year?

Yeah, that would be me. So if you look at EBTA for the first six months this year compared to last year, it's kind of the same revenues and it's also pretty much the same margins. which means that the kind of cost base in between is the same. Of course, when we look at the revenue that we had in Q3 and Q4, our margins were a lot higher than we have right now. But that is kind of driven by the revenue increase. And since we don't have that strong revenues right now, since we're kind of waiting for further rollouts, the EBITDA margin is a little bit lower than what we have seen, especially in the Q3 and Q4 last year.

Thank you. Is the check in rocket out of fuel?

No, I will say that we're recharging right now, at least if you're looking into the revenue. Obviously, our last report is weak and our last report was weak in form of revenue. But we are at a really good stage in the company. We have closer partnerships than ever. We have also today signed stake.com, which is a major iGaming operator. I think it's the fastest growing one in the world at the moment. We also see that we're getting more invites to international RFPs and so on. We're part of more potential deals going on. So no, the feeling internally is not like that at all. But I can understand if you see the numbers from an external point of view, it looks like that. But my feeling is not that at all. We have a lot of power left. We will continue to drive that.

Thank you. You talk about continuing to look for acquisition, but it was a long time since we saw one. What can the market expect here?

Yes, we've been doing two acquisitions so far, GetID and Datacorp. We're always out there talking to a lot of companies in the same way as we're talking to a lot of companies to start to use our software. Obviously, this process takes a bit more time. It should be the right timing. It should be the right multiples. It should be especially the right type of technology and team we're buying. We're always out there. We're talking to many companies, but like this today, I have nothing more to add.

Thanks. The gross margin is historically low. Is it price pressure due to enterprise customer or what is it due to?

Yeah, that is, it's easy to make that conclusion, but I would rather say that it's what we will discuss in this call right now is the increased capacity investments that we have taken in order to be better prepared for for the future expected increase in demand from our largest customers. So I would rather say it's driven by that, by ourselves kind of increasing the capacity of the systems that is pushing down the gross margin at the moment.

Thank you. Moving on here to the last question. It looks like you made a new rights issue during the quarter. Can you tell us a bit more about that?

Yeah, I can take that too. Yeah, that's correct. We did a small rights issue, as I guess someone saw in the press release that we issued in June and also in some of the figures in the cash flow statement in the report. And it's fully linked to employees and using their stock options to buy shares in the company so exercising options from from from mps essentially so and in total a few employees a few key employees that has been with the company for a long time invested a total of six million kroner in the business here in june

Thank you. We received a lot of questions here today. Unfortunately, we don't have the time to take them all. But thank you all for presenting and answering questions today. And I wish you all a pleasant week.

Thank you, Ludvig.