Oneflow AB (publ)

Okay, good morning to all of you, 10 o'clock, and welcome to this update of our second quarter interim report. My name is Anders Samnes, I'm the CEO of the company, and Nathalie Hjelve, CFO of OneFlow, welcome. Welcome and please as always use the Q&A function in Zoom and not the chat and we'll get back to your questions at the end of this presentation. First thing first, as I guess most of you have seen by now, we sent out a few press releases yesterday. After the close of the market yesterday, we started a book building with Danske Bank and we raised a total of 90 million kronor. Of these existing board members, took around 56 million. And then we had several, both existing as well as new Swedish and Norwegian investors joining in. RP2 or RP-fonden as we say in Sweden, Framtidsbanken, Cicero Fonder and DNB Asset Management. So I guess the first question would be, what do we need the funds for? And what I can assure you is that this is not to enter any new markets or to continue to hire a lot of people. Our priority number one, two, and three is still to become profitable. So why did we raise money? I would say mainly because of two reasons. First, for the last two years, the market has been a little bit, I would say tougher. It is a downtime in the economy and every month we are kind of selling a little bit less than what we have planned for. And of course this number accumulates. So the buffer that we plan to have has become very small. So we need, I mean, we are quite a big company with the size that we have as a company, we need to have some buffer, we need to have some flexibility. So this was the money is mainly gonna be needed to have a more comfortable buffer going forward. So we can still be proactive and keep the momentum that we have in the market. The second reason has to do with AI. AI has come very fast, even on us. And I guess everybody are kind of surprised what's happening in the market at the moment. So we started this kind of race spring last year and have been doing several investments since then within AI. We have hired AI developers. We have even done a partnership with a company and kind of some stuff that would have taken us years to build that you already can give to the customers today. So this has added some costs that we did not plan for a year ago. It is moving so fast now, and we need to be in the front seats, and we are. But we have decided to take on some more costs than we planned for a year ago within the AI space. That's kind of the main two reasons we decided to raise the money at this point in time. Then to some highlights of the quarter. We closed in at 152 in total ARR. End of July, we had 153.3. The ARR is still growing very fast, even in a tough market. We have 37% growth year over year. I would say it is very impressive. The All net new ARR for the quarter came in at 11.4. And it's an all-time high second quarter. And we even had all-time high in new ARR. But it is the second best quarter overall. So Q4 last year was slightly better. ARR to net sales, 130%. We are an ARR first company of our revenues, 98% is recurring. Net and gross retention came in at 107% and 94%. It's a little bit lower than before, but still considering the market and considering competition and the benchmark, we are doing quite good. Paying customers is a new KPI. I'll get back to that more later in the deck, but this is a total number of paying customers, 3,800 at the moment and 29% up since one year ago. First, for those of you that are new to OneFlow, we have just two slides on the concept what we do so we are a platform for handling contracts all kind of contracts sales procurement, HR, legal, and you can do every step in the process with OneFlow. You can create powerful web-based responsive templates. You can collaborate in real time, make changes, audit trail, and so on. Of course, you can sign the contract and then post-sign, you can manage your contracts. You can do stuff with the contracts. You can filter, summarize, aggregate. And since we work with with an open format, HTML contracts, basically. You can do a lot of stuff with the data in the contract, which is not possible when you work for vendors working with PDF, which is the picture format. So you can build, you can do stuff, you can push data back and forth between OneFlow and your ERP or CRM or whatever tool you have. We analyze the process, we give our customers insights during the process, both before and after design, and we have launched several very powerful AI features within the product as well. So one of the great benefits with using one flow versus not using one flow is obviously that you will save a lot of time. And this is an illustration of the magnitude of how much time you can save by using Onflow compared to how we used to work before when you're sending Word files and PDF files by mail back and forth between parties in the process. It's very cumbersome, very messy. So this is kind of contracts on Rails. To a few of the feature highlights for the quarter, we launched in second quarter what we call AI review and AI review plus. So this is features where AI review will analyze your contract and highlight risks, highlight improvements you can do with the contract and even make suggestions for what you can write instead. So this is a, and it's, is working amazingly good. The plus version is that then we can do a bulk analysis of your contracts. You will have dashboards where you can see, for example, how many of your contracts based on life cycle, duration, one year, two year, three year notice period. You can filter on show me all contracts where we are missing an index relation, show me all contracts where we have the old index kind of GDPR version. Show me all contracts which are legislation or from like a UK. You can do a lot of analysis across all your contracts with the plus version. Approval flow. makes it possible for our users to include not only signers, but different level of approvers during a process, very powerful and very useful for especially big companies with several stakeholders involved in the process. Suggestions slash redlining is what you are used to from working in Word, for example. You can make your comments and suggestions to, for example, copy in the contracts. So we moved this from alpha to beta release during the quarter. This is a huge, huge feature. Spent a lot of time developing this one. We also had a lot of improvements within our integrations and onboarding improvements for self-serve. So we have a high focus on making our sales process easier. And the number of self-serve customers is growing and we are constantly making it easier for users to just sign up themselves and buy OneFlow themselves without a sales rep involved in the process. After the quarter, and now we are in the third quarter, also made a few releases already. So Slack and Power Automate integration has seen a lot of improvements. We even have launched a redesign of our complete contract editor and the guest view, which makes it very much more intuitive, modern, and even more mobile-friendly than before. And we have also launched what we called a one-floor marketplace. So this is a place, some features are not included in the plans. They are sold as add-ons, for example, the AI features and more. So this is a marketplace where customers can themselves buy stuff, upgrade, activate integrations, activate add-ons and so on. And this is obviously something that can have the potential to increase our expansion ARR and then the net retention numbers. We sent a press release about this a few days ago. We have been working on the ISO project since last summer. It's been a huge, huge project, involved dozens of people in the company. It has been important for us to kind of open up, to unlock new markets, especially in the enterprise and government segments. And within these kind of categories, ISO is highly, highly important, I would say. So this is a huge benefit for us when we approach bigger companies across Europe. Net new ARR came in at 11.4 in the quarter. Actually, we had, if you break it down and zoom in at the new ARR, that was an all-time high. So all-time high was, so new ARR was all-time high, but we had somewhat slower expansion ARR during the quarter than we actually had thought ourselves. of the law is kind of a need to have product you need to have you need to have a crm you need to have an erp and you need to have a contract platform so that's why we kind of still are keeping up the pace in the new business but where we feel where we feel the kind of the pressure on the don't side it is when it comes to the number of seats that the customers are buying and And to upgrade customers to buy more seats in these days with the increase and with increasing employment rates and so on, it is harder. So the expansion part of the ARR is kind of more cyclical with the market. But still, we're growing 37%. ARR 152 end of the second quarter. If you look to the graphs in the right here, then it's kind of a falling trend. And two comments to that. We've said this before as well. 2021, we saw the pandemic. So then it kind of slowed down for a couple of months business-wise. So that's why if you look at 2022 here, the growth is kind of maybe a little bit higher than it would have been in a normal market because it was kind of kicking back compared to the pandemic numbers. And now, today, where we even have crossed the 40% growth rate, threshold. It has to do with the economy. We'll talk more about this in a few slides, but it is somewhat more challenging at the moment. But we are going to stay with our long-term goal of 500 million SEG by 2027, which implies that we have to stay very close to 40%. year over year going forward. So this is our goal. We have launched a few new KPIs in this report and ARR per full-time employee is one of them. So we have a very high focus now on becoming profitable. And almost all of our revenue is recurring. We love recurring revenue. The gross margin is 94%. 94%, that's super high. And our main cost is salary and employee related expenses. So the ARR per full-time employee metric gives kind of a very good indication on our progress towards becoming profitable as a company. End of Q2, it was 808,000 SEC up 41% year over year. And we had at the end of the quarter, 163,000. employees plus additionally 26 people in Sri Lanka, which are kind of legally not employed, but we consider them and treat them as employees. So total, including Sri Lanka, 189, 189. And obviously this metric is something that we follow very, very closely internally across the whole company. This is going to continue to go up a lot. Net and cross retention, a few other KPIs that SaaS lovers want to talk about. A little bit lower net retention in the quarter than we were hoping for. As I said earlier in this deck, expansion at the moment is tougher. We're doing good in Nubis. But customers are kind of a little bit reluctant on buying more at the moment. Gross retention, for OneFlow, we include downgrades. I know that. I think most US companies also include downgrades in gross retention. This is how you should do it. But I know that in the Nordics, for some reason, a lot of the SaaS companies out there take out downgrades. They only report shown. And that's, in our opinion, not right. So if you, the mix here for us, when it comes to churn and downgrades, roughly 50-50. So if you take out the downgrades from the equation here, then we have a churn of, or then the gross retention would have been 95, 96%, if you should compare it to other companies in the Nordics. And net retention is a catch-all number. It includes, obviously, churn, downgrade, and expansion. As we've said, market sentiment is tough. We have a higher churn now than we used to have. Expansion is lower. And as we've said before, It is still the small companies with a weak balance sheet that we churn and large companies are typically kind of laying off seats still. Every quarter we have a couple of bankruptcies. Competition is constant. We haven't kind of felt any change when it comes to competition over the last few years. And the main reason for losing ARR is because of recession. Most of the lost ARR is due to recession. We used to before the pandemic and before the recession, we used to be kind of in the 94, 95% range cross and net around 115, 120. This is where we consider to kind of to be like a normal market for one flow. And this is where we aim for. And this is where we believe we're going to see again when the economy goes back to a more kind of balanced state. We have, as I said before, we have launched a few new KPIs in this quarter, and here are two more. We have even sunset two old KPIs. We are not anymore reporting on paying users and ARR per user. And the reason for that is that we feel that the user count is less relevant. to the customer ARR. And sometimes it's even misleading. And this has to do with how we package our product. So I can give you one example. There are more, but I can give you one example. For example, if a customer are sending contracts through our API, that might be a huge customer, a lot of contracts through the API. There are no seats involved. So the seat count we think is less relevant. And then we decided to launch the paying customer number and even the ACV or the average customer value. which we think are far more interesting. So at the moment, we are slightly north of 3,800 paying customers, 29% growth. And the average customer value at the moment is slightly north of 40,000 SEC ARR. uh up six percent and obviously with the one for marketplace all the add-ons we are we are launching um we are working on uh increasing the acv and we believe this is going to continue the trend with the price increase here

Looking at our net sales, as you can see, we are steady increasing our net sales. And that, of course, goes in connection to us increasing our sales growth. We ended Q2 at 32.5 million, which is an increase of 36% comparing to the same period last year. If you look at our net sales, the majority of that comes from software recurring revenue, which stands for 98% of our net sales. And the remaining 2% is connected to professional services, which we also offer our customers. If you look at the shares of net sales coming from other regions than Sweden, we also see a positive trend here where we quarter by quarter more or less increase that percentage. And this is a percentage that we want to see increase. especially as we become more established in our newer markets outside of the Nordics. We went into three new markets by the end of 2022, UK, France, and the Netherlands. And we do see bigger deals. We see more deals coming from these regions. We also have quite strong regions in Finland and Norway. which will also contribute to us estimating that the percentage of the shares of net sales coming from other regions in Sweden will increase going forward. We also continue to have quite high ARR net sales ratio. We ended up at 130% by the end of Q2. Our gross margin continues to be quite high. We ended up at 94%. As you can see, we have been between 94 and 95% historically, and this is something that we estimate will continue going forward. If you look at our largest cost of service, so expenses that is related to our commission, SEALs commission to our partners. And as mentioned before, we do believe that our gross margin will continue to be high going forward. EBIT and EBITDA, we ended EBITDA at minus 15.6 million, which is corresponding to an EBITDA margin of minus 48%. Now, as mentioned in our financial report, we did have one time cost affecting our Q2 numbers on approximately 3.1 million. And that is connected, as Anders mentioned, to our ISO certification, which we are very proud of having, which will, as Anders mentioned, open door for us, more doors within the enterprise sphere and internationally. We also had a one-time expenses connected to legal work that we had in combination to us and negotiating our partnership agreement with a specialized AI company that we signed during the quarter. But the majority of the 3.1 is connected to our redemption of one of our employees stock option program, which stood for 1.4 million. And the reason for that occurring is that more options were exercised to shares than estimated. And we can actually look at this at some sort of a positive thing that basically means that we have more engaged and invested employees in one flow. One thing that is important to understand when it comes to the cost related to the employee stock option program is that this is an accounting technicality, which basically means It has effect on our equity, but it has no effect on our cash flow. EBIT ended up at minus 24.5 million, which is corresponding to an EBIT margin of minus 76%. Now, if you would take away the one-time expensive 3.1 that we had, we actually would have had an EBIT margin of minus 66%. As mentioned before, and Andrew mentioned in the beginning of this presentation, our main focus is to drive OneFlow towards profitability. We are committed to lowering our cost. and stabilizing our cost base. And it's important to understand that we do this without any effect on our product development, our international expansions, and in combination with continue to deliver strong space sales growth, we do believe that we gonna reduce our losses going forward. If you look at the EBIT margin, we ended up at minus 76%, which is a little bit bigger loss comparing to last period where we had 70%. However, as mentioned, if we take away the one-time expenses that hit our Q2 numbers, the 3.1, we would have had an EBIT margin of minus 66%, which actually is... smaller loss than last quarter. However, if we compare ourselves to where we were one year ago, you can see that we have made significant improvements in our losses. Last year we ended up at minus 106% and today we are at minus 66% if you reduce that one time effect. The same goes if you look at EBITDA, the EBITDA margin ended up at minus 48%. But again, let's compare ourselves to where we were one year ago, minus 77%. We have made significant improvement on our losses. And as mentioned before, our main goal and focus is to strive one flow towards profitability. We are aiming to reduce our losses And this without any effect on our product. We still will deliver the best product out there for our customers.

Yes, we're kind of trying to balance weight between growth rate and and and costs obviously and we could obviously move quite fast to to to kind of the water line here if we want to do but then that would impact impact uh the the top top line growth so this is a balance work but but but obviously this is this is a trend that you're going to see it's going to move uh can take a jump now in q3 and kind of Quarter by quarter, quarter by quarter, steady, steady. No fast kind of directions in any way.

And our financial goals. We are maintaining our financial goals. We do believe that we're going to hit 500 million ARR by the end of 2027. We also believe we're going to have an EBIT margin on 20% by the end of 2027. Again, main focus is to drive OneFlow towards profitability, delivering the best product out there to our customers and continue to grow.

Thank you. That was the last slide. So then I guess we are at our Q&A session. You can open the Q&A box here. When and to what extent do you expect the AI initiative to contribute to the AR? So we actually launched our first AR product more than a year ago. This was AI Assists that helps our customers to write content in contracts. If you need a template for whatever, you can just ask for it. It's going to give you the template, kind of chat-gippity kind of feature. This is included in the plan, and we don't sell it as an add-on. But we have had a soft launch or a beta launch of two add-ons this quarter, which we talked about, AI Review and AI Review+. So this comes with a price tag. This is an add-on or add-ons. And we have been running a book or a proof of concept with a dozen customers during June. And we are kind of gradually ramping up our our effort here during the third quarter, but I would say a full blown to the market, every sales reps in one flow can sell this stuff. That's more kind of in the shift between the third and the fourth quarter. So it's going to be now in the third quarter, gradually we're going to spend more and more time, effort on this. We are getting feedback from the customers and we are adjusting and so on. These are new products. I mean, the market haven't seen this stuff before. So it takes some time to do it right, and we do want to kind of do it. We want to do some, learn, do some, tweak, learn, and then we go full force. So I would say this is going to contribute to the expansion error, obviously, and we hope and we believe that you will see an effect on that even this year.

So I think the next... So the next question is, given ARR intact in the past quarters, how come sales didn't exceed 32.5 million? What is the average time for clients coming into ARR and then starting to generate net sales? So basically the way ARR is calculated is that as soon as we sign a contract, we take in the full contract value in the ARR. However, we have cases where customers, we have a different type of agreements with customers. Some customers get a discount. Some customers start off with a smaller number of licenses and increase. We have... contracts that is more than one year and so on. But when calculating ARR, we take the long-term value of the contract into the ARR. However, that is not what we are invoicing the customers. So basically, if a customer gets a discount, we will invoice the discounted value, and that is what is hitting our net sales. Also, net sales, we do sell licenses, which basically accounting-wise means that we only can take into the net sales the actual utilized period of a license. which basically means that net sales will never be in line with the AR long-term perspective. It will, but on the short-term perspective, it will not. Also, signing a customer will take in the AR as soon as it's signed, However, it may be that the start date is later, and that also means that it will not hit our net sales until the start date has started and we actually have invoiced our customer. Again, ARR will never be fully in line with net sales in the short-term perspective. It will in the long-term perspective. So that's why you can't compare it that way.

I can try to sum up in a different kind of wording. So what Natalie is saying is that in tough times, I mean, not only in our sector, I guess in every software sector, CRM or whatever, sometimes you have to use some of the tools from the toolbox. And that could be to give a discount for the first year or to kind of agree on the later start of the invoice and so on. You're doing kind of these kind of tricks to kind of get the deal across the line. This has been a slightly increasing trend over during the recession. And this is typically what you see across all companies in tough times. You need to use all the tools to get in the box to get the deal across the line. And then you have a question on working capital. I guess it's for you. I can read it. How come working capital did not add more to cash flow in Q2 or the past year as many clients prepay?

Yes, correct. Many clients do prepay. However, we have a credit day of 30 days in our invoices, as many companies do. However, we do see, especially as we have more international clients, the... The 30 days is not always, you know, applied. Sometimes it takes longer for clients to pay. We have taken measures towards that, as many companies do, debt collectors and other type of measures. And we do see a decrease when we look at the DCO. So all the work that we are doing is actually paying off and we are decreasing the number of days in the DCO KPI. So we will see a better flow going forward. But it's tough with international clients, that's the way. It is for many businesses.

Yeah. Does the SEC 90 mil equity raise affect your hiring and investment plans in the context of you not saying OPEX will be rather fixed through 24 and also 25? Could you detail the plan in terms of hiring and OPEX increase in this period? So obviously... And 90 million is not enough money to kind of hit the pedal and go really, really, really fast. And those days are not now. So I think I addressed this maybe also earlier in the deck, but we are... not going to do any new market entries with boots on the ground for the next year, obviously. And we might of course do some hires, but it's not going to be any kind of significant. So we have to have a comfortable buffer. We will never allow ourselves to have a buffer again, which is not comfortable. we have to kind of stay rather fixed on the costs, on the OPEX. Some slack, but not any significant, because we will never kind of put ourselves in a position where the buffer is not comfortable. So, but still, and then to the next question, which is maybe a little bit related. In the report, you introduced a new framework with the goal of becoming a Rule of 40 company and reach profitability by the first half of 26. Does this mean profitability on the bottom line? Yeah, that's a good question. So, of course, rule of 40 is an interesting framework or maybe rule of X, even for some companies. What I can say is that it's not that hard to be profitable. It is really hard. I mean, growth is harder. the top line. And that's, I guess, why Bessemer introduced the rule of X concept. So when you have momentum in the product, you have a really, really, really fast growth. And it is more important to kind of keep that ball rolling. a sacrifice on really, really high markets if you can afford it, if you have to make a choice. So we have not guided on when we are becoming profitable. We have guided on a 20% EBIT margin, which of course implies that we have to be profitable before that. So actually we have guided on it, you could say. But the rule of 40 is something that we talk about internally or rule of whatever. I mean, it's always a balance between growth and margins. And you have to balance it smart. Anything you want to add, Natalie?

No, I think that's conclusive. Yeah.

When should we expect OneFlow to reach positive cash flow from operations? We haven't given any guidance on it. still have a comment on it?

No, I mean, as mentioned, our goal is to drive OneFlow towards profitability. We have our financial goals that we still believe in them and we're working towards that. That is what we can say.

But it's not that hard to make this kind of assumption yourself because we have guided on the costs for this year and next year. And we have also guided on that we need to be kind of in the high 30, close to 40% growth rate to be able to reach our ARR goal in 27. So then you can kind of do the math. I think that was the last question. Yes. Okay, man. So thank you all for joining in.

Thank you.

And wish you a wonderful weekend. Have a good weekend. Thank you. Bye.