Checkin.Com Group AB (publ)

Hi, and welcome to today's webcast with Checkin.com Group, where we have the interim CEO, Christa Karlsson, and CFO, Martin Boimu, presenting. If you have any questions, please use the form located to the right. And with that said, please go ahead with your presentation.

Thank you, Martin. Welcome and good morning. Great to see so many people listening in. My name is Christian Karlsson and I'm the Acting CEO. Together with our CFO Martin Bojermont I will walk you through our report for the third quarter today. I hope you had a chance to review the report in the morning and also that you've read our previous market update that we communicated three weeks ago. The plan today is for me to start by discussing the company's general development followed by Martin, who will go over the financial parts. After a brief summary, we will also open up for Q&A. The third quarter has continued to be challenging for us, much like the rest of the year has been. At the same time, we continue to see strong demand for our products and for our company, which we hope to capitalize on in 2025. Our revenue in the quarter amounted to 18.6 million Swedish kronors. It makes it to the lowest quarter in terms of revenue this year. If we compare it to the last year, the loss is primarily driven by lower revenue in the travel segment. If you compare for the quarters during 2024, the quarter is mainly affected by the loss of revenue from Datacorp with 3.3 million Swedish kronors. As I said in the beginning, we had a tough start of the year. We see 2024 as a lost year for us in terms of growth. which we are, of course, extremely disappointed with. This is primarily driven by our significant investments in product and marketing in the travel vertical, which has not been paid off yet. However, we are looking forward with great optimism into this vertical as we remain serious investments through the year. And we are in many discussions and ongoing procurement processes with many leading global airlines around the world. As we previously communicated in our market updates, there is some concerns around regarding our collaboration with this large Swedish fintech company, meaning that we currently have no revenue from this customer. However, we hope that this agreement should be up and running again. We have significant opportunities to capture market share in emerging Brazilian regulated IGME markets, which is expected to be regulated start from January 2025. We've also previously announced a partnership agreement with Cracio and are now live on their marketplace. That means that over 7,000 companies globally can use our products through a simple configuration on the creation platform. This allows us to reach new industries and regions where we haven't had any previously business. As I talked about in the beginning of the call, Datacorp is a company we acquired in the beginning of 2022, specialized in advanced technology, particularly in image analysis and facial recognition. And it's now fully live as part of our software offerings. With the acquisition of Datacorp, it was included revenue from a client called RingCentral, which was about 1.1 million Swedish krona per month. It was, however, also associated personal costs at the same levels. It's been difficult to scale this opportunity together, and we have, for that reason, agreed with Rikscentral to end the partnership. As a result of that, we recorded a negative net revenue of 3.3 million Swedish kroners in the quarter, while it also reducing the cost by the same amount. This has led to a reduction in the number of employees in the group, decreasing from 63 to 55 in the third quarter. Over the last year, we've made heavy investments in both product and marketing, especially targeting the travel vertical. Although this investment has not paid off yet, we are convinced that they are the right steps for the future. This industry is by much longer processes compared to other sectors, especially regarding procurement and regulatory compliance. which makes it to take considerably longer for us to close deals. Today, I feel there's a strong interest in the products through the entire vertical, particularly from airlines. And I'm happy also to announce that during the quarter, we signed an agreement with Flytab, which is a leading online travel agency in North America with over 5 million customers annually. This also demonstrates the broad uses of our technology within the travel vertical. So it's not only targeted, for example, to airlines and so on. We remain engaged in multiple serious discussions with several global airlines where we have made some really good progress. And we hope that we are approaching daily closures. In parallel, we are involved in several global procurement processes. iGaming industry has been a quite lean year for us, both due to challenging markets for existing clients and perhaps a little bit reduced focus on this industry on our part ourselves. However, we are now starting to see some demand rebound with a higher influx of customers and greater interest than before. I want to highlight the agreement with stake.com, the world's fastest growing iGaming company, which has already led to additional contracts for our products, even though they have not been going live yet. We also see great opportunities in the upcoming regulation in Brazil, which is expected to take effect on the 1st of January 2025. As part of this, we have already signed an agreement with Superbet, one of the operators that are expected to be one of the market leaders. With the current regulatory momentum and a general focus on enhancing customer knowledge, we feel really well positioned for additional opportunities going forward. As we have previously announced, we will not meet our goal for the full year to reach 80% of this classic stats metric, rule of 40, which combines the growth per share and the EBITDA margin. However, the goal remains in place going forward, and our ambition is to exceed 80% on an annual basis in 2025 as well. And with that, I will hand over to Martin to summarize the financial patch.

Thank you, Christian. Um, as we've done previously quarters, uh, the, the report itself has all the numbers you can think of, but in this presentation, uh, my thought is just to go through the financial highlights. Um, so starting with revenue, it fell 38% compared to the same quarter last year, uh, landed on 18.6 million Kroner. That growth was not affected by any acquisitions or disposal, so organic growth was also minus 38%. The gross margin was 73% in the quarter, lower than what we've experienced previously. And as we mentioned previously, it's due to the capacity that we are building to meet future demand. And despite continued depressed revenues, especially compared to Q3 and Q4, as you saw on Christian's earlier slide here, combined with lower gross margins, EBITDA still lands at plus 4.3 million kronor for the quarter, corresponding to a margin of 23%. And the cash flow from operating activities was plus 2 million kronor. And we ended the quarter with a cash position of 30.2 million and an equity ratio of 87%. So going into the details on net revenue here, for those of you who followed us before, you recognize this format. We've added another block, 18.6 million kronor in the quarter. And that's 38% lower as we already discussed compared to last year. And the decrease from last year was primarily driven by loss in the travel or lower revenues, I would say, by lower revenues in the travel segments, and especially our largest customer. And if you compare to the sequentially to Q2 this year, the loss or the loss in revenue compared to Q2 is primarily driven by the loss of or reduction of the revenues from DataCorp and RingCentral that Kristian already covered. Going to gross profit and gross margin, gross profit landed at 13.6 million in the quarter. That's lower than last year, driven by decreasing revenues, as we already mentioned. And the margin of 73% is also lower than what we've experienced previously, around 80 to 85%. This is either for full year 22 and 23. And this is because of the investments that we are making in expanded capacity in the systems to handle to be able to handle higher volumes and higher demand from our customers, and especially costs for server capacity and similar. So when our larger customers push through more volume and use our software more, just like Q3 and Q4 last year, we are ready to handle it, and the margin will go up again. The gross margin will go up again. And the reason behind this is that Many of our direct costs, especially servers and capacity related direct costs, are not completely variable with the underlying volume. So it's more like incremental capacity steps is probably the best way to describe this. And then you have this dynamic with a lower gross margin when revenues fall. And on the flip side, when revenues grow again, we expect the gross margin to go up. Going to sales and marketing, we have increased these investments slightly compared to last year. We invested 4.3 million in sales and marketing during this quarter, corresponding to 23% of revenues. And we are at 21% of revenues so far this year, as you see on the right hand chart there. Going to EBITDA, it decreased a bit from last year, landed at 4.3 million kronor in the quarter, corresponding to a margin of 23%. And the decrease from last year is driven primarily by falling revenues and gross margins. But it's also partially offset by lower personnel costs, as we were able to reduce the personnel associated with DataCorp and RingCentral, which Christian also already covered. And then finally, if we're looking at the cash position and equity ratio, we ended a quarter with a cash position of 30.2 million kronor and an equity ratio of 87%. And with that, I'll hand it back to Christian for some closing remarks and Q&A.

Thank you, Martin. To summarize, we view 2024 as a lost year in terms of growth. In the short term, our investments, especially in the travel sector, has not paid off. but we have a strong belief in this vertical going forward. It's a really big interest of our software. As we also previously communicated, there is some uncertainty around our future collaboration with a large Swedish fintech company, meaning that this partnership is currently not revenue generating, but the contract remains intact. The contract tied to our prior agreement with Datacorp has ended, which has a negative effect on the revenue and growth in Q3. We are in several discussions with global airlines where we see that we could close deals quite soon. We see substantial opportunities for capturing market share in the upcoming regulated Brazilian iGaming market. And despite the challenges this year, we continue to feel that we are in a strong position and that we should be able to scale up going forward. And before we move to the Q&A, I would like to thank those of you who's following us and listening in. Or if you feel anything is missing or you want us to clarify certain points in future presentations, please feel free to email us at ir at checkin.com. And with that, I will hand it over to Finwire for the Q&A.

Thank you for that presentation. And yes, let's jump right into the Q&A section here. We'll start with the first question. How does the payment model with Croatia work? Is there some type of revenue share?

So we classify Croatia as this type of like platform deals. The platform deals can work in different type of commercial setups, revenue share, reselling and so on. In this particular case, it's more of a reselling deal, which means that we're selling to them and they're adding a market on top that they're selling to their customers. That means that it's really scalable and it's also more attractive for them that they can sell this directly to their customers.

in previous reports you have referred to seasonal variations in terms of travel volumes why does traffic not return if these are seasonal variations it is a seasonal variation industry normally quarter three

especially in Europe, it is always the strongest, followed by quarter four. I think that was what we saw in end of 2023. But at the same time, we also have reduced traffic from what is called OTAs, online travel agencies. So the information that has been communicated before has been based on the fact that we had that.

Both in the market update and in the CEO letter, you communicate an uncertainty regarding the fintech customer. What has happened and what is the status there?

Yeah, we touched base on that in the presentation and the agreement is still valid, but they passed the rollout out until further notice. That means that we currently have no income from this customer. So let's see what will happen. I can't say much more than that, but we hope, of course, that this contract and the rollout will continue.

understand thank you for clarifying that you have also recently told us that you will not be able to meet your financial goals for 2024 what can we expect from checking now in q4 but also for 2025 yeah we see that the we see continued challenging quarter four or end of the year um our

We continue, however, to feel that 2025, our financial goals are still the same. We have a lot of opportunities coming up. So what you can see is that We will try to get as much business as we can in all the different verticals that we are active into. And with the amount of discussions we are into, I feel that 2025 could be really good.

At the IPO, your business model was to sell fixed packages. Does this still apply now that your target large customers or has it been adjusted and become more tailored for your customers?

No, but the main business of us is to fix packages. That's the default part of all our deals, basically. But obviously, sometimes we also need to be flexible in certain deals, if it's specific regions or specific

verticals and so on uh but but but in in all majority of the cases it's it's fixed packages we are selling i understand and you have told us that your software helps ryanair identify customers who bought book tickets through otas are these otas they have an agreement with or only those they do not have an agreement with

Jone Peter Reistadler, regarding the large island we work with it's we have several different types of use cases is both coming from OTAs and from like like usual bookings. As we also communicated before, we have built some new software together to be able to attract all type of bookings. And one example of that is today live in the Irish market, and we hope to be able to scale that to more markets going forward.

And as you mentioned, the growth has stopped. How big is the risk of needing a new share issue looking ahead?

Jone Peter Reistadler, And Christian maybe I can take this and I think potential share issues is is more of a board and ownership question, but maybe can explain a little bit our. Jone Peter Reistadler, Financial position and cost base and as, as we mentioned a lot through the IPO and after in our presentations the beauty of our model is that we have. Jone Peter Reistadler, Ongoing income from or ongoing revenues from from existing contracts with high gross margins and a large part of our. costs today are related to stuff that is happening in the future. We invest a lot of money in sales and marketing and also product development to build future products that does not really affect the existing revenues that we have today. So we have a quite flexible cost base and can adjust our cost as needed. Then it's If we require a new share issue, that's more of an ownership question.

And you mentioned for some time now that the market for M&A has stabilized, but still you have not made any acquisitions. What's behind that?

I think that's for me as well. M&A is very binary. It has to feel just right, be a good team, good technology and so on. We made two acquisitions within a short time period, about two, three years ago, and those have been very successful. And since then, we have continued to look at many interesting companies throughout the years. And it wasn't that long ago that we were very far along with contracts drafted. But in the end, we chose not to go through with it because it didn't tick all the boxes. So the short answer is that we continue to look at acquisitions, but it's very hard to say anything about this until we have a signed agreement in place.

can you tell us something about your longer term r d and where you think the market is going yes um yeah i would say the last year as we earlier talked about uh we've invested heavily especially in in the travel vertical. And we see it's a really big interest around that. We see that many companies in this particular industry want to more streamline their checking process, they want to get away with the queues from the airport and so on. It's a really hot topic right now with both like biometric and facial recognition. And we know that many travel organizations has like this on the roadmaps for 2025. So where we are right now, we will continue to invest, especially in the travel vertical. And that's where we see the market is going right now with more of the streamline of the checking processes and so on.

In this quarter, there will be a significant difference between EBITDA of just over 4 million SEK and a total reduction of cash of almost 5 million SEK. What is driving this?

Yeah, that's for me. I think this is something that applies to all companies, including us, and not just this quarter. It's usually called cash conversion, which is the difference between EBTA and the change in cash. And without going through too much detail, there are a few big drivers behind this. And especially for us, I would say the first or the most significant one for us is investments or the investments we do in R&D. which is the capitalized R&D expense that we show in our reports and numbers. And if you compare it to maybe an old-fashioned company like a sawmill, they need to buy machines to be able to saw the wood. We instead build software that will generate income over time. and those investments generate income or revenues over time and that's why we put them on the balance sheet through this capitalization process so obviously those costs need to be paid in this period and that's why we kind of have a reduction in cash in this period from EBTA and I think It was around 5 million kronor we invested in our software this quarter. Then maybe the most classical one is the change in working capital. So if we are getting paid from our customers or if we are paying our suppliers. And I think in this particular quarter, we had a few larger invoices from our customers that were paid in October rather than during Q3. So that's why we We lost a little bit of cash flow there as well. And then the last one is, or the last big one that I can think of right now, at least, is financial cash flow, which is in our case, we have loans, bank loans, and we are amortizing on those every quarter. And I think it's 1.1 million approximately every quarter that we pay back to the bank. So that obviously reduces the cash position as well. So I would say this is not something strange that is happening just this quarter and it's not something strange that we are doing as a company. This is pretty straightforward kind of accounting rules that applies to every company.

I understand. Thanks for clarifying that. It appears that neither the airline nor the fintech company follows the previously communicated rollout plans. How come?

Yes. No, but but historically, it's like this, that I will say almost all components to start to work with those normal, especially the enterprise ones, they normally start in with a little bit less of traffic, maybe they, they go ahead with one market or one type of device type of testing out before the scaling to other markets and so on. And sometimes it's hard for us to know, like when the further rollout will happen. We can only make sure that we are ready from our side. And I would say the larger the company is, the longer time it normally takes for them to scale this out. It can also be like operational challenges on their side or regulatory ones. So, yeah, it normally takes a little bit longer time than we hope. hope and believe. Yes, that's my answer around that.

Thank you, Christian, for that answer. Don't you think you overestimated EBITDA by capitalizing a lot of your costs?

I think this one is for me as well. This is a classic question, and I think we discussed it a number of times during the IPO process and afterwards. And I think I touched on this also in the previous question here. But the short answer is we are a product-driven company that invests a lot to build our software. And building software takes time and costs money. and you don't get revenues until it's complete. And then you can start selling it and it generates revenue over significant time after that. So when you have, you know, when it works like that, the accounting rules kind of forces us to capitalize those investments that are relevant for this, which is the R&D costs. And And the principle behind this is the matching principle, where the accounting rules say that you should match revenues and costs. And by capitalizing these costs now and then depreciating them in a future period, then we have that matching between the revenue that happens in the future with the depreciation that is also happening in the future. So that's that's kind of the the main reason that we're doing this. Of course, you can you can argue that deferring costs to the future, but it also gives a fair picture as you match this. So that's why we're doing this.

And you talk repeatedly about the airline and the fintech company. Are there no other major projects or clients that you believe in?

I think we already in the report talked, for example, about Gratial. We talked about the opportunities in Brazil and so on. But other than that, we are in discussions with many, many large enterprise companies, especially in the travel vertical. But before something is signed out, there's basically not much more to say about that.

I understand. Thank you for that answer. The income is decreasing. What are you doing on your cost side to parry the loss of income?

I can take this one too. already touched on this in a previous question where i where i talked about the cost base and the flexibility that we have um and um so yeah i'm not sure there's so there's so much more to add than than we have a flexible cost space that that we can adjust accordingly and uh how are things going in the in the us for you guys um yeah uh

We feel it's increased interest for us as a company. We hired a new country manager this spring in 2024. We have said that before we are in many interesting conversations, mainly related to the travel vertical. And one example for that is the agreement we signed now with with flight hub. But it looks positive. It's a massive market. And I really hope and believe we should be able to get the higher market share there.

Okay, we take one final question here. You have long talked about focusing on larger customers. Has it had any effect yet? For example, how has the average revenue per customer developed?

It's not really a KPI we measure, but as everyone knows who's been following us this year is that it's probably has not been on the positive side, especially with our largest customer. For us as a company, it's more important to get many of these companies. So we're not having this volatility in the revenue. But the revenue per customer is not that super important for us right now. It's more a focus on to get more of these customers up and running.

Thank you very much for your presentation, Kristen and Martin. And also thank you for answering all of the questions we got from our viewers. And thank you everyone who followed this webcast with Checkin.com. And I hope to see you next time. Thank you very much and goodbye.

Thank you.