Oneflow AB (publ)

Good morning to all of you and welcome to this presentation of the highlights for our third quarter 2024. My name is Anders Hamnes and I'm the CEO of the company and next to me we have Nathalie Hjelve, our CFO.

Yes, big welcome.

As always, please use the Q&A function in Zoom. I will get back to your questions in the end of this deck. And don't use the chat because it's going to be easier for us to walk through the questions in the end. First, as always, some highlights for the quarter. We closed in with an ARR of 155.8. And at the end of October, we had 160.8 in total ARR. ARR is growing 34% year over year. We had a net new ARR of 3.8 for the quarter, which is down 29% from last year. And we will walk through or break down these numbers in a few slides. ARR to full-time employee was up 42%, closed in at 829,000 SEK. And net and gross retention, 106, and 90% end of Q3. We are now very close to 4,000 paying customers, and this number was up 25%. year over year and of Q3. First, to those of you that are new to OneFlow, we would like to just include two slides to describe what we do. So OneFlow is a platform for handling contracts, all kind of contracts, sales, procurement, HR, legal. And it's the whole process from start to finish. So you can build your templates in OneFlow. You can collaborate with the counterparties and make changes in real time. and of course you have the signing part and then post sign you can manage your contracts you can you can work with the contracts and since since we embrace html based contracts and not so much pdf you can do stuff with the data inside the contracts which is not as easy to do if you work with pdf based contracts and throughout this process we support our users with a lot of insights we give them we analyze the contracts there is also now some really powerful ai features and more ai stuff is coming also very shortly by the way so this is a high focus for us at the moment and since we work with HML based contracts, you can you can build very powerful integrations between one flow and your and your CRM, ERP or whatever system you use in your company. So to push data back and forth from the contract into whatever system you'd like. There are, of course, many benefits with OneFlow versus how we used to work with contracts in the old days. Today, most companies have taken the step into at least eSign. But eSign is just a very small piece of the process. It's replacing the scanner and printer. It takes two minutes. So that's why you can see in the middle here, we have the sign bar. So the problem you solve if you go for an PDF slash e-sign vendor is actually a very small problem. So the big potential is when you go with the whole process, pre-sign and post-sign and not only sign, like we work with here in OneFlow. And the pink bar is the time you can save by using OneFlow instead of using Word and PDF and email back and forth and so on. We push out a lot of features all the time. This is just a snapshot of some of the improvements to the product that we made during the quarter. The focus or the keywords I would say for our launches could be intelligence and experience. This has been the keywords throughout this year, and this is also going to be the keywords for at least next year. We have launched a lot of stuff in our AI assist function that will help our users to work, to create content to your contracts. And we're also launching more AI stuff within a few weeks. Actually, we have a very big AI launch within a few weeks from now. And we also have redesigned our editor. So now it's even more modern, and the navigation is much better. So experience is a big focus. We also launched in Q3 suggestions, or also called redlining. So you can really work with negotiation with the counterparties in real time inside the contract. And we always make a lot of improvements to our integrations. And the maybe most important integrations for us is Salesforce and HubSpot, a big focus on those. And we also launched a marketplace in the third quarter. where we now are selling add-on features to our customers. And one such example could be AI capabilities. So to the numbers, net new ARR was down 29% in the third quarter from last year. We also had some headwind from currency in the quarter. So we had a loss of around or close to 800,000 sec in the quarter due to the currency. It's also worth to mention that third quarter is a little bit tricky since you have the holiday season. And it's a very few weeks where you close the deals. So it's a little bit complicated. sometimes arbitrary if a deal fall inside or outside the quarter. But still, this was for us a disappointment. It's a weak number. It's worth to mention that the gross new ARR was actually all time high. We did a very good quarter on gross new ARR. It was actually up more than 7% despite the currency headwind. So the reason for the low net new ARR was churn. And we had quite stable churn for a long time, I would say. And in the second half of the third quarter, it picked up a lot. And we know exactly, of course, what kind of customer profile that churned. We don't see any increase among enterprise or mid-market customers. It's small businesses. Small businesses with a low volume of contracts that is churning. But what happened in... in September, we can't see any kind of indicators internally that explain this uptick because we didn't do any changes to the product. So we believe that it has to do with the market at the moment. It's external factors. We follow, we have a lot of health metrics and we really dig deep into our customer health score and we can't explain it internally why the churn picked up in September so much. So we believe it has to do with the market sentiment. It could also be that in September people start to look at the budget for 2025 So they kind of walk through the costs and so on. But again, in the mid-market, large and enterprise segments, the churn is stable. It's in the small customer segment. We have a very good pipeline for the fourth quarter and also started good in October with a gross new of 5.7 million. Looking at the total, ARR end of Q3, 156, end of October, 161. We have a growth rate at the moment of 34%, And of course, if you look at the graph to the right, it might look kind of depressive, but still, we are growing 34% in a tough market. It's a very high growth compared to other SaaS companies and competition. But still, the trend is going down. And how can we turn this trend? How can we make it go up again? This is, of course, our goal. um first we we know that the the churn today is higher than normal this is this is not normal we also know that expansion is lower than normal so the market sentiment at some point will turn and that of course will have a huge impact on our growth rate another thing is has to do with the product itself because Of course, we are in kind of a product race. Competition is tough, and the customers are very demanding. We have a lot of features in OneFlow. It's a very powerful platform. And sometimes you don't win all deals. And we log everything in OneFlow. We have a very high focus on data. So we know exactly when we lose a deal. We know exactly why. And we know also, of course, the cost for building those improvements that we have to do to the next time win that deal. So we have a very, very, I would say I'm very comfortable with our roadmap, we have a very smart roadmap, we have an analytics team working only with data, analyzing what to do and what we will do in the future. So it's about, we have to make improvements to the product, and we know how much that will impact our growth. Third, We launched a marketplace last quarter, third quarter, where we now are adding more and more add-on services. This is going to have an impact on expansion ARR going forward. Today, we have 188 people working in one floor and that also includes 25 people in Sri Lanka. So ARR to full-time employee was up 42% since last year and they closed in at 829,000 SEK for the third quarter. This is a very important KPI to us because for OneFlow, 98% of our revenue is recurring. We are an ARR company. And the gross margin is in the range 29 to 24%. And our main cost is salary. Salary, salary, salary. And the two most important kind of numbers for us is ARR and salary. Internally, we don't talk about salary. We talk about employees, which is kind of the same thing. So this KPI comprise both those two numbers that are most important to us. profitability. So why did we allow this important KPI to be so low back in 2022 2023? We went public, we raised a lot of cash, we opened many new offices, we hired a lot of developers to, to be in the in the top of the product, it come among competition. So this was a decision that we made and it was always according to plan. The plan was to have a log KPI because the beauty of SaaS is that business is recurring, but it also takes a lot of cash upfront to build an amazing product. But now we are slowly turning towards profitability. Uh, we will still keep a high growth base and balance the growth and, uh, our cash reserve. Um, yeah, so this is a very interesting indicator that will show you the when, when, when it's realistic to, to reach the water surface. net and gross retention, 106% in net and 90% in gross. We in OneFlow include downgrades in gross, which I think is how we should do it, but I know that not all companies do. And the mix for us between churn and downgrade is roughly 50-50. So if we should compare our gross retention to companies that don't include downgrades, it would be maybe in the range 94 to 95%. And net retention includes, of course, everything, including expansion, ARR. The macro is still challenging. We have a high pressure on churn, and we don't do that much expansion as we used to do. And we know that... Big companies, they don't churn so much. Our churn rates among enterprises and large companies is very low. But we don't have that much expansion either at the moment. But the churn we see, again, it is among small companies, typically small companies that don't have high volume of contracts. And this is the reason, the explanation for the increase. We do see some bankruptcies also at the moment, and large companies are stealing of people and downgrading seats. So very much the same story as we actually had for the last, I would say, six, seven, eight quarters. Competition is constant, so it's always there, not kind of worse or better than it used to be. But the main reason for when we lose customers is not competition. Drivers for increase. How can we improve these retention rates? Again, at some point, the underlying market fundamentals will improve. Another factor is that we are working heavily to make those improvements to the product that we know will have an impact in our sales meetings. And third, we have now a marketplace and we will work to upgrade our customers, not only to make them buy a more kind of comprehensive and expensive tier, but we also can do add-on sales to our customers within the tier that they are in. Paying customers increased 25% year over year, getting very close now to 4,000. And the average customer value is slightly north of 40,000 sec per month, also up 7% since a year ago. We believe that this trend is going to continue, that we will be able to still increase our average customer value. And again, it's about more features, more value, higher price. We do a lot of renegotiation also with customers, old customers, and we have the marketplace to work with smart add-ons to increase the price as well. So maybe I should give the word now to Natalie.

Thank you, Anders. We ended the quarter with net sales of 35.7 million, which is a heavy improvement of 40% comparing to the same period last year. If you look at the year to date numbers or the first nine months of the year, we ended up at 99 million in net sales, which is a 39% improvement comparing to last year. If you look at our net sales in general, the majority of our net sales is connected to software recurring revenue, which stands for 98%. As Anders mentioned, we are an ARR-first company. And if you look at the ARR net sales ratio, it continues to be strong and high level at 122% by the end of the quarter. As you can see on the slide on the right, we continue to increase the net sales coming from other regions outside of Sweden. It's a steady increase quarter by quarter, ending up at 37%. And we do see, as we become more established, especially in the markets outside of the Nordic, UK, Netherlands and France, we do see bigger deals coming in, more deals coming in from those regions. And in combination with our strong markets in Norway and Finland, our expectation is that the percentage of the net sales coming from regions outside of Sweden will continue to increase going forward. We still have a high gross margin, ending up at 91% by the end of the quarter. However, you can see a slight decrease, comparing from where we've been historically, around 94%. But if you look at the cost of service sold expenses, it's mainly two parts. One part is hosting, which is a relatively stable part, and then we have sales commission to our partners. Now, as we establish more agreements and more collaborations with partners, the sales commission to our partners will and have increased. But that also goes in line and basically means that the ARR from our partner channels are also increasing. Now, going forward, we do expect that the gross margin will be around 91-92%. As you can see, we've made a significant improvement when it comes to our EBITDA and our EBIT. We ended up EBITDA at minus 6.1 million, which is corresponding to an EBITDA margin of minus 17%. However, I want to highlight one thing. Usually Q3 is connected to lower cost accounting wise due to vacation accruals and vacation period. However, still, if we take that out of the equation, we have still continues to deliver strong sales growth. And with a stabilized cost space, we have made improvements in our EBIT and EBITDR, and we expect those improvements to continue to happening as our main focus right now is to continue to deliver strong sales growth, but also to drive OneFlow towards profitability. If you look at the year-to-date numbers of the first nine months of the year, we ended up at EBITDR of minus 51 million, which is a 39% improvement from where we were one year ago. EBIT ended up at minus 15.5 million by the end of the quarter, which is corresponding to an EBITDA margin of minus 43. Looking at the first nine months of the year, we ended up at minus 61.6 million. which is a 14% improvement from where we were one year ago. As you can see, we have steadily improved our EBIT and EBITDR margins quarter by quarter. And as mentioned, we ended up at minus 17% on the EBITDR margin by the end of the quarter and minus 43% on EBIT. As mentioned, our focus is to continue to deliver strong state growth. We have stabilized our cost base and our expectation and aim is to make sure that we reduce these numbers and to reach probabilities. Our financial goals have been revised and this is to be more in line with the management's current priorities. We of course continue to have a strong focus on growth at the same time being cautious with our investments decisions. especially considering the current market conditions, but also keep a close eye on our cash flow. So our financial goals is to have a year-over-year ARR growth rate above 30%. And we aim for more than that. Yeah. But over Oh, yeah, of course, we aim for the skies. But yes, over 30%. And to reach profitability with our current fund funding. All right, we'll move on to q&a questions.

Stop sharing. Where are the Q&A questions now? Yes. Okay. You have lowered the financial targets a number of times the past year. What is your level of comfort with the new targets and what needs to happen for you to reach them? Yeah, it's a good question. And of course, it's a valid question we have. First, we had one target, and then we then we kept the same targets and just moved it one more year. And now we just changed the framework. And it doesn't mean we haven't said that don't that be that we this is this is not a downgrade of the old target we haven't actually commented on that so because these two targets doesn't kind of contradict them they might kind of still live side by side but but internally we have a more kind of short-term focus considering how the world is at the moment and we have a cash reserve of X and we need to kind of bring this boat to harbor without having to fuel more out on the sea. So I would say that we understand that changing the target a lot of times is not good. So we try to kind of also has to have some buffer on our side. So we don't have to do that kind of the next spring, for example. So we are comfortable at the moment that this target can at least live for some time. And obviously, our goal internally is not to meet the target. Our goal is to exceed the target. Yeah.

Okay, so the next question, what do you do to mitigate churn and how much of the ARR is smaller companies?

Yeah. So we haven't actually shared that number before or how much share is smaller companies. But what I can say is that by far the most of our ARR is from mid-sized, large, and enterprises. The small companies is, I would say, a very small part of the total. And we do a lot to mitigate churn, actually. We have a cross-functional team working on it at the moment. And since this happened in September, of course, it's an extra focus. It is about filling feature gaps. It is about continuing to do actually more of what we currently do. And again, we believe the main reason for the increase we saw in the end of August and September is not related to OneFlow because we have overall very good health indicators in our customer portfolio. We do. So we have a lot of tactics, a lot of initiatives internally on what we can do to improve the churn. Yeah, but I don't think we can be more detailed than that, actually. No.

It's a good answer to the question.

For how long can you keep this cost base or headcount before it affects growth ambitions? When will you start to recruit again?

Yes, of course. I mean, we do have the organization needed today to make sure to reach the goals that we have set. We have a really talented team with a great experience. We have a great structure, great collaboration within the organization. So, of course, recruitments will always need to happen. Most of them is... replacement recruitments that we do. But we do evaluations along the way and depending on, you know, any investments that you want to do in the future, of course, that could entail recruitments. But based on where we stand today in the organization that we have, we do believe that we have the right organization, the right structure to make sure that we continue to grow as an organization, but also to reach our financial targets.

Yeah, I mean, it all depends, of course, how Q4 and the next year is going to develop. But with the kind of the or far we can see right now, based on where we are today, we are not planning to increase the headcount a lot next year. There might be. small changes, but not any significant changes for the next year, uh, depending on what we know, know, know, know today. But again, this is an kind of headcount kind of, um, uh, or companies. I mean, we could easily become profitable if you want it. So we're going to balance this nicely, try to balance it, keep the high growth rate because 34% is a really, really nice growth rate in, in, in this market market. And at the same time, have a buffer that will make our investors still sleep good at night. So before we turn this kind of cashflow development. okay so can you detail the marketplace plan what will be included and what does customers say okay this is uh actually a very big topic it's uh it's it's um uh i mean for big companies do you have a team working on on pricing and and and um and marketplace and so on and but i would say that a general, or to just give a very short answer to the question, typically features that would be used by maybe less than 30% of the accounts in a tier will not be included in the tier, but sold as add-ons. And features that might be kind of a little bit on the outside also is typically on features features that most companies buying a tier want will most likely be included in the tier okay so what are the main differences with one flow and competent competitors Should I take it or? Yeah. Okay. So this is, I mean, it depends who you compare us against, because this is, it's a very crowded market. It is actually turning into a red ocean out there. E-sign is by far a red ocean, but if you include the whole pre-sign, post-sign stuff, it is also getting more and more red. And the reason for that is obviously because it is a very big market. Think about it. I mean, CRM is for salespeople. for companies having a sales team, but contracts is for every department in every company in every country around the globe. So this market has the potential at some point to be bigger than much bigger than CRM. So that's why obviously the competition is tough and in different markets you have different players. In Finland, you have player ABC, and in Norway, you have DEF and so on. I mean, different players in every market. And every player has kind of their unique selling point. We are strong against competitor X in one market on some features, and we are lacking some features. This is a product race. It's very complicated. And so it's hard to kind of give a very short answer to that question. But obviously, we have a team internally, actually more than one team, we have several teams that knows everything about our competition, our mapping, we know what we have to do in the future to kind of fill gaps and make our offering more attractive than competition. Yeah, in what industries is OneFlow having the most success? Obviously, we have a lot of customers. Actually, it's a very broad. We have in everything, actually. But the highest penetration, I would say, would be within consulting companies, business service companies, and tech companies. I think we have been through all the questions. Okay, so then we can actually wish everyone a great weekend and a happy Friday. Okay.

Thank you so much for joining.

Thank you. Cheers. Bye.