Oneflow AB (publ)

Okay, good morning. Good morning and welcome to the first quarter of 2024 earnings call. My name is André Samnes and I'm the CEO and founder of the company and next to me we have Nathalie Hjelve, our CFO. And also please use the Q&A function in Zoom and not the chat. And we'll get back to the questions in the end of this presentation. First, a few highlights of the quarter. ARR came in at 140.6 million, which was a growth of 41% year over year. As you know, we also report on a monthly basis. So end of April, we had 144 million in total ARR, and still the growth rate was 41%. And net new ARR all time high for the first quarter was up 25% at 11.2%. The ARR to sales ratio was 129%. We are an ARR first company. We do have some one-offs, but that's only a very small percentage of what we sell. In the first quarter, recurring revenue was 98%. 98%. Net and gross retention rates for the first quarter was 110 and 91%. And we had 43,500 paying users by the end of the quarter, up 27% year over year. Just one slide on our concept, what we do for those of you that are new to OneFlow.

We're in a practice session. I will start the webinar now. So we'll need to start from the beginning. Okay. Okay.

Okay.

Start the webinar now. Okay.

Should I mute? Go back to your first slide.

Okay. Sorry for being a little bit late this morning. We had some technical issues, but now we are good to go. Welcome to the first quarter of 2024 Interim Report Update. Next to me, we have Nathalie Hjelve, our CFO, and my name is Anders Hamnes. I am the CEO and the founder of the company. And as always, please use the Q&A function in Zoom and not the chat. And we'll get back to you all the questions in the end of this presentation. Just some highlights for the quarter. The ARR. ended at 140.6 million, up 41% year over year. And as you know, we also report the number on a monthly basis. End of April, we had 144 million in ARR, which also was a growth of 41% year over year. We had the strongest first quarter in terms of net new ARR all time, 11.2 million. And this was a growth of 25% year over year. ARR to sales. ratio, 129%. We are an ARR first company. We do also sell some one-offs like training and so on, but that's a very small part of our revenues. In Q1, recurring revenue was 98% of the total. So we focus strongly on the recurring parts, of course. And net gross retention for the quarter came in at 110 and 91%. And we had 43,500 paying users and of the first quarter up 27% year over year. For those of you that are new to OneFlow, we just like to take one slide and give you a highlight of what we do. So we are an e-contract platform. We work with all departments, sales, HR, legal, procurement, and you can do all the steps in the process in one single application. from start to finish. You have the pre-sign parts where you can collaborate and create templates. You have the signing part, obviously, and then you have post-sign features to manage your contracts. And throughout this process, we analyze and I can assist our users, helping them doing a better job. And of course, since we work with Html based contracts, mostly, you can do very powerful stuff with integrations to other systems like sending data back and forth between one flow. Yeah, that's just in a nutshell what we are all about. We had a lot of interesting feature releases for the quarter. First off, before we used to have a third party doing the ceiling for us. And now we brought it in. So we have an in-house. We do it in-house now. We don't have any variable cost on it anymore. Inline Commons was actually launched last year in an alpha and beta release, but now we had a full-blown release to all our customers in the first quarter. This is a very powerful feature where you can discuss the contracts more context-based inside the text, inside the document, so to say. Suggestions was released in Alpha the first quarter, and we work hard to also release to customers now in the second quarter, which allows our users to even make suggestions on the comments so the counterparty can approve or decline suggestions and so on with an audit trail. Customizable user permissions. This is also one of the, I would say, very, very strong things that you have in OneFlow, which we a lot of time beat competition on. You can, on a very fine grade level, customize permissions in OneFlow. So you can control who's allowed to do this or that. They can see this and that and so on. So we had a lot of improvements on the permission stuff. in the quarter as well. As always, lots of integration improvements. We have a big team in Sri Lanka working on integrations, 25 heads in total. That's a big focus for us to be very strong on integrations. It's normally a very strong sales argument. We win a lot of deals. So this quarter, we had great improvements on Power Automate, up sales and pipeline integrations. And in the beginning of 2020, sorry, and beginning of second quarter, April, May so far, we launched a very powerful AI platform. This is a pre-trained suite of products that can help our users to write, review, and analyze contracts at scale and at speed. And I know that a lot of people or companies talk about AI these days. It feels like everybody talks about AI. I even bought a new electrical toothbrush a few days ago. And even that one had AI on it. So it has gone inflation in this term. And most of the stuff is quite lightweight, I would say. And it might be hard for people to kind of separate between what is the real deal and what's the noise. But I can promise you that this is not the noise. This is actually some really, really strong stuff coming out from OneFlow. So I'm going to talk more about that on the next slide. Approval Flow was also launched in alpha release now in April, a very strong feature for enterprises especially. And we did a lot of improvements on integrations in April, HubSpot among one of them. So, AI. With OneFlow AI, you can manage risks and analyze contracts at scale. We launched AI Assist about a year ago. This is a feature that helps our users to write contracts and messages, you can ask for a template for whatever, you can ask for a clause, you can improve a template or improve clauses and so on. This has been highly appreciated by our users. and we constantly make improvements on AI Assist. What is new now in May this year is AI Review and AI Review Plus. I'll get back to that in the next slides. And we also have a lot of other AI related features coming out in the short and midterm future. So this is a high focus for us at the moment. AI Review. So what can you do with it? You can summarize contracts and get kind of the essence of it. You can identify risks. You can get recommendations. In the picture to the right, you can see an example of where the red text here is at risk. This is something that you should look into. What is yellow may be at risk. What is blue is also something that you should pay attention to. And we're going to explain what is the risk and give recommendations what you can do to mitigate this risk. And the AI is based on a pre-trained model, but our customers can also create their own rules for their own specific needs on top of it. And obviously, the time to review a contract is going to go up a lot, and it's also going to remove human errors with contracts. AI Review Plus is a relative to the first one. So what you can do now is to, across, for example, a workspace, you can analyze all the contracts in the archive and get insights in, for example, how the payment terms are looking like, governing law, Again, this is pre-trained algorithms that can give you these recommendations and filters, but you can also set up your own rules on top of it. An example of a playbook that you can make is, for example, if you want to find all contracts with or without an index regulation or where the index regulation is, for example, more than X percent, you can make a playbook for finding contracts with this or that condition in the GDPR terms and so on, all kind of stuff that you want to filter out and highlight. So from a compliance standpoint, this is actually groundbreaking, super, super powerful. Doing a due diligence process is going to take just a fraction of the time like it used to be. Net New Year R, 11.2 for the first quarter, up 25% since one year earlier. you can see to the to the right is a quite clear seasonal uh fluctuations uh where the first sorry where the second and the fourth quarter is normally the strongest um and now we are in the second quarter obviously and um the goal now is to set a new all-time high net new year um ARR ended at 141 million first quarter, up 41%. End of April, 144, up still 41%. And the high growth that you can see from 2022 was also related to quite weak sales numbers one year earlier because of the pandemic. So that kind of explains a little bit why we had such a high growth back then. And today we are still in the recession. It is tougher to sell now than it used to be. So that also partially explains why we are why we have had this kind of falling trend in the year-to-year growth graph. We expect this trend to stabilize, and as we will get back to in the last slide of this deck, we're going to still stay with our 2027 target of 500 million in ARR, which implies that we have to keep the growth rate around 40% to get to that level. Net and gross retention, also very, very important KPIs that you follow closely at OneFlow. 110 net retention for the first quarter and 91% on gross retention. In gross, we include not only churn, but also downgrades. And I know that a lot of companies... We think that's wrong. We think it should include downgrades. But what I can say is that we have roughly a 50-50 mix between churn and downgrade in that number. So if you take out the downgrades and only keep the churn, then the gross retention would have been 95-96%, which is actually super, super strong. Net retention is a catch-all, includes also expansion ARR. We... do still feel the pressure of the sentiment. Churn is higher than it used to be and expansion sales is lower. And the reason for companies churning or downgrading is still the same as it has been for the last few quarters. We see that small companies with a weak balance sheet are at risk. And also typically we see that large companies laying off people, they also lay off some seats in one flow. So it's not competition that it has increased. That's quite, I would say, constant. And it's not often we lose the competition. And what we also can say is that around 50% of the lost ARR is due to the recession. Around 50% is due to the recession. We expect retention rates to pick up again as soon as the underlying fundamentals improve. Where it used to be, if you go back a few years, then gross used to be around 94, 95% and net in the range between 150 and 120. And that's where we expect it to go back to when the market normalizes. If you zoom in on the gross retention on a monthly basis, then you can actually see that we had some kind of bottom in Q1 last year, and it has increased. a little bit since then. And now when we have released these AI features, which is gonna be sold as add-ons in OneFlow, we do expect the net retention to increase even in the short term window. And also, we do expect net retention to increase even further when companies start adding more seats again after the recession. Paying users increased 37% over the last 12 months. We had a dip, as you can see, in Q4 last year, and that dip was related to actually one international major company that we had a special deal with. They bought and they got a lot of seats for a smaller kind of seat price due to some reasons. But the trend is still clear. We do increase our ARR per user and we also believe that this is going to continue to increase going forward. and paying users increased 37% over the last 12 months up to 43.5 thousand end of Q1.

So, Sorry, you have to mute. Thank you, Anders. The net sales for the first quarter of the year ended up at 31 million, which is representing a growth of 42% comparing to the same period last year. If you look at our net sales, the majority is connected to our software recurring revenue, which stood for 98% of the total net sales, and the remaining 2% is connected to our professional services. Looking at our net sales, our ARR net sales ratio, it still continued to be high, ended up at 129% for the quarter. Now looking at our sales or our net sales coming from other regions outside of Sweden, we ended up at 33%. And this is a percentage that we foresee will continue to grow, especially as we see bigger and bigger deals coming from those regions as we become more established. And as Anders mentioned in the previous slide, we have 44,000 paying users in 39 countries by the end of the quarter. Yes, and just one second, sorry. And looking at our gross margin, it continues to be high, ended up at 95% for the end of the first quarter. And if you look at the largest cost of service sold expenses, the majority is connected to our sales commission to our partners, which stood for approximately 3%. Now, this is a percentage that slightly has decreased comparing to previous quarters. However, sales commission to our partners also have seasonal variances, and therefore, we do predict that this percentage will increase in the upcoming quarters. Now, looking at gross margin, our expectation is that gross margin will continue to be relatively high going forward. Our EBITDA ended up at minus 13.1 million, which is corresponding to an EBITDA margin of minus 43%. We actually improved our EBITDA by approximately 5 million kronas comparing to previous quarter. Now, one of our main focus right now is to steer the company towards profitability. We have a stabilized cost base and a continuous growth, both in revenue and growth in our regions and our markets. We also do see a significant improvement in both efficiency and performance in our optimized organization. Now, if you look at EBIT, EBIT ended up at minus 21.5 million for the first quarter, which is corresponding to an EBITDA margin of minus 70%. And if you look at the depreciation, the majority of that is connected to our continuous investments in capitalized development work. Now, as you can see in the graphs, we have significantly improved both our EBITDA and our EBITDA margin. The EBITDA margin have actually improved by 38% comparing to the same period last year. And we have an improvement on EBITDA on 37%. We do have a stabilized cost base, but this has been done without any impact on our continuous investment in both product development and our investments in international expansions. We've done several improvements, such as improving our way of working, speeding up releases, enhancing our product experience, and this all with continuous of delivering strong sales growth. Now, given the investments that we've done, our primary objective right now is to enhance the profitability of the company. We do closely monitor our expenses and continue to strive to improve both our operational efficiency and productivity, and that in connection to continue to deliver strong sales numbers. If you have not used OneFlow, as always, I strongly recommend you to do that. You will realize that OneFlow is a need to have product sold at a low cost with a high return of investments. We do provide a critical product that have been proven both to reduce costs and increase efficiency in connection to high or a rapid payback. Now, we will never compromise our financial position, and we always, always strive to make sound and long-term business decisions. We do believe and will maintain our financial goals of reaching an ARR of 500 million and EBITDA margin on 20% by the end of the fiscal year of 2027. All right, let's see if we have received any questions in our chat.

Yeah, if you could please talk a little bit about our capital.

Of course. So our working capital, as you know, as we grow as a business, our accounts receivable also grows. And this is something that we are truly happy about and something that we strive towards, you know, increasing our client base. But what we also see as we get bigger and bigger companies joining us is that often in bigger companies, big enterprise companies, the payment processes takes a bit longer as they become a bit more complex within those companies. We always have 30-day payments on our invoices. However, we do see that for bigger companies, it takes a bit more than the 30 days for them to get the invoice throughout their payment processes. However, we do always have a tight dialogue with our customers and making sure that they have anything necessary and all the information necessary to make sure that they will be able to process the payments as soon as possible.

And then we have one question on the global expansion. Do you intend to open any new offices? And the answer to that obviously is no, not now. Focus at the moment is to get more traction in our current offices and not any plans for new market entrance this year or the next year. with boots on the ground. That said, we do of course do different stuff with partners and from a marketing standpoint in different markets, but no more boots on the ground this or the next year.

There was another question connected to the cash flow and if we see the cash flow to increase the upcoming quarters. I mean, we do everything in our power to have these type dialogue with our customers and making sure they have anything necessary and our support to make sure that they can, you know, process our payments as soon as possible. If you look, we have a handful of bigger customers that we have a tight dialogue with. And yes, we do believe that those payments are coming in the upcoming quarter.

Yeah, I think that's all. Yes. Okay, since this time. So thank you for being with us. Thank you. Have a nice Friday.

Or Wednesday.

Wednesday. It feels like Friday. I know. I'm taking vacation tomorrow. I'm going to Germany.

I'm jealous.

Yes.

All right. Have a nice Wednesday and talk to you soon. Thanks. Bye-bye.