Qliro AB (publ)

Thank you and hi everyone and welcome to our Q1 presentation for Criro. I'm Kristoffer Rutgersson, CEO of the company and with me today I'm very happy to also have our new CFO Carl Lövgren that's joining us from Investor. And for today's agenda, I will walk through a quick strategic update and then hand over to Carl for our kind of financial update, talk about the outlook, and then come back to kind of a Q&A at the end. So regarding the strategic update, we still see a large opportunity to build a new European leader in what we call composable payments and to deliver a world-leading experience for merchants and their customer journey. We see that that is now kind of making a mark in the Nordic market where We have accelerated momentum with more than 39% growth in new volumes signed with merchants that are expected to go live on the platform during the year. We see a significant contribution from our SME segment in relation to our operating income, which is now representing more than 8%, up from 1% last year. And that is driven by a strong merchant-based growth of more than 200%. We expect that, or our expectations on our Nordic launch is now higher than before. We are above expectations. In Norway, we assigned more than 500 million in volume only in the last kind of eight months since launch, which is a great achievement and more, I think, than we signed in a whole year of 2023 in all of Cliro. And that volume in itself will take Norway to profitability when it's fully live, and we'll come back to that. We also see that Scalable missed this model and the sales model is now working. On the expected profitability from new contracts that was signed in the first quarter, we see an expected lifetime value over CAC of a ratio of 5 to 10x, which is a strong proof that the growth investments is working. And if you go back to the first topic of our vision to build a new European leader in Composable Payments. We are starting in the Nordics, but we're building it with global capabilities so we can support our merchants across the globe and through their volume kind of get more volume into other European markets and then expand kind of step by step. But we have now started on that expansion journey, going from historically only focusing on Swedish merchants to establishing a sales office in Norway in August last year. And we launched in Finland in April this year. So quite new in Finland. And we will also come back to that in the presentation. Our mission is to deliver a world-leading experience for merchants and their customer journey. I've been in the payments industry for more than 10 years. I think there's no one that does this really well, and I think this makes Klido unique that we can handle the customers of the merchants in a good way and send them back to the merchant they came from to build loyal consumer relationships for our merchants. That's a strong driver for the growth of merchants that is shifting to us from other players in the market. and our short-term ambition is to ensure we become a local market leader in the nordics within the three to five years and if you take the growth we shown in new volume signed so far with around 40 if you extract extrapolate that forward we will be a market leader within three to five years in the nordic market so to reach that why are leading merchants choosing clero so first of all Our mission makes us quite unique that we focus in both on the merchant experience and the consumer experience of our merchants. We invest a lot in this experience if you compare to the niche banks. We're quite different from some of the other pay later providers that are moving more into building their own consumer experience with the marketplaces, price comparisons, kind of their own shopping experience, more competing with the merchants. While we're not competing with the merchants, the merchants are our customers and we We developed their consumer journey to kind of guide the consumers back to them. And we do this through our product strategy, Composable Payments. And that is leading to that the new product offering we launched last year with the Clio Checkout 0.0 that was launched during last summer. We now see a leading conversion in Nordics for our checkout. When new merchants changed us, they typically A-B test our solution, what they had before. And we see improvements, everything from 4% to more than 30% in conversion increase for the merchants, which means more sales for the merchants. Secondly, we have upsell features that will help the merchants sell more. Our solution is modular and we've now built integrations to more and more platforms in the Nordics, which means that more merchants can come live with us quicker and easier than before, and that's expanding our addressable markets. We're doing that also with a very partner-driven and performance-driven approach. So we spend a lot on analytics and product improvements to maximize the performance of our solution, not only on conversion, but also uptime, upsell, as well as driving a good consumer experience that guide the consumers back. And fifth, on that consumer experience, with our premium consumer experience, we see that that is building more loyalty with consumers, which is also driving the customer lifetime value for our merchants and reduce their cost of acquisition. And sixth, if you combine all of these factors, when new merchants moving out with us, they typically see a positive business case of 10 to 20x return on investment on the cost of changing supplier. And that is what leading to that we now see a big step up in volume. Volumes kind of 2023 and 2024 was fairly flat. But since the new product launches we did last year, we now have contracted new merchants with an expected growth of around 40% when all of that volume is coming live on the platform if we compare to last year. And what's very good now is we also see that volume now materializing for real. So in Q4, we had a 16% growth. Q1, we had 20% growth. But if we look at March and April, we're trending more than 30% growth, also including the kind of the Easter period. So we are seeing that contracted volume now kind of materializing into real processed volume on the platform. And SME is a big driver of the new volumes and also expected income and profit in the future. In Q1, we see the income from SME going from 1% last year to 8% of our income in Q1. And that's driven by the large growth in the merchant base. And we expect that growth to continue with the growth in the merchant base on the SME side. And the reason... Cliro is now very well positioned to win the Nordic SME market is first of all our kind of great checkout performance and that we packaged all payment methods into unified payments this is something we've been working on for three years we continue to develop the offering but that means that all new merchants can very easily go live with Cliro with all payment methods without working with multiple providers. We handle all the currencies, all the conversions, all the payouts, all support. So it's very simple to work with Cliro, which leads to that it's a great experience for SMEs working with Cliro instead of other providers. We are now quicker on onboarding, and quick onboarding is important both for us to generate revenue earlier, but especially for the merchant to have a simple experience. And with plug and play integrations to more and more SME platforms, we see that not only the onboarding getting easier, but it's also getting easier for merchants to choose to upgrade to Cliro. And we do that through partners. We're partnering both with the e-commerce platforms, but also different kind of agencies and kind of partners within the e-commerce ecosystem that is helping the merchants to kind of develop their web or their platform or their ERP and so. We have plug-and-play integrations, not only to the e-commerce platforms, but also to CRM systems, BI systems, and ERP systems. That means that Clido fits well into the modern technology stack for SME merchants. That is leading to the growth in merchant base. We will see a big step up from kind of during last year. We started to see accelerated growth with the new product launches. So we're still trending more than kind of 200% growth in merchant base. And that's still mostly driven by our solutions and kind of teams in Sweden. Norway is taking off, but we expect Norway and Finland to be able to contribute as much as Sweden when they fully up and running. If you look at it from a kind of a product perspective, we also made a few product launches and partnerships in the quarter. So we announced that we launched two as a payment method in our checkout, which is a B2B pay later method. So historically, Cliro have been very strong on pay later for consumers, but we haven't spent that much effort on B2B, which typically is a bit more complex, a bit more risk, and then quite different from kind of consumer kind of credit. So we're now making a kind of international partnership with two, which is one of the leading players in this area with a global solution that support us in all our current markets. So that is strengthening our offering and basically kind of expanding our addressable markets to segments of merchants where we haven't been a perfect fit before, but now we can address those merchants as well. And that's also been a clear requirement for some of the kind of enterprise merchants that joined Cliro recently. Then we also launched an integration in our onboarding with Bits Technology, basically a solution to streamline, optimize our KYC processes. We also made a lot of product investments in improving our onboarding and configuration of new merchants in general. So we see an improvement of onboarding times by more than 50%. since we launched this. So we see a big step up in kind of improvements on getting merchants live quicker with a better experience. And if we move on to the topic of our Nordic expansion, our sales team in Norway started in April, sorry, August. Finland was in April. But the Norwegian team that started in August and now have had eight months. Typically the sales processes are or longer, especially for enterprise, but we have already made merchant contracts with expected volume of more than 500 million Swedish krona. And if you take our kind of average profit on volume, which is more than 2%, then only with this volume, when that's live and mature, we will be at the kind of break even in Norway, which is very positive and a strong sign that the investments to expand in Norway is kind of a very positive investment. And we see also now that we live in Norway for a time that our hypothesis that the technology stack we built for Sweden is scalable also for kind of Norway and Finland and other markets. So even if we kind of expanding into Norway, Finland, we're building for Europe and many of the partnerships we do is scalable in multiple markets. For Finland, the team started up fully in April, so it's quite new, but our country manager has been preparing for a few months. So we already signed an onboarder, our first local Norwegian or Finnish merchants, and we see the product and experience is working. So now we're scaling up the sales effort to four people in Finland. And on the European ambitions, we see when this model is fully working in the Nordics, we could also take it to new markets. But our approach is to grow with our Nordic merchants and their European volumes to get more experience in more markets and then kind of taking the steps into new markets after that. But we have opportunities with larger European merchants that sell a lot into the Nordics where we have our own pay later offering. So we also kind of fit in some interesting discussions on those opportunities. If you take all of this combined, we Within Q1, we signed more volume in new contracts than 1.5 billion or 1,500 million Swedish krona in the first row here. And we spent around 15 million on sales, marketing and expansion, if you include every sales and marketing cost. Which means that if you make the calculations on this, we have an average gross profit too over volume, which is more than 2%. But we have also announced previously when we look at the business model that we have a ramp up of gross profit or income generation from the volume. of around 50 to 60% first year, 85 to 90% last year or second year, and then 100% third year. And that is driven by the kind of the build up of the loan book, because most of the revenue is driven by part payments and part payments are split over time. So we don't get all the loan book and all the value kind of day one. So you can see kind of the The example of the loan book kind of build up here, going up to full run rate in kind of year three. And if you look at also the other angle of it, kind of gross profit of a loan book, we're trending at around 14% the last year, which means that only the first year this volume is processed. we expect more than 15 million in gross profit. So the first year of the volume is live, the sales output will have paid off itself. Then there is some onboarding time and so on, which means we expect a payback of less than one and a half year. But if you look at the full lifetime, we expect more than kind of 5 to 10x if you take the lifetime value over CAC, which is very positive. So more than 5 to 10x return on investment in the sales efforts that we now do. And that is one of the big things you need to understand from a logical perspective to say, why is Cliro expanding so quickly? We think we can establish ourselves as a market leader in the Nordics. We see good economics in it, and that's where we're going all in on expansion. If you look at the summary of this, we We are reiterating our guidance of 15 to 30% income growth in the second half of this year, when more of the volume is live and we see that building up the loan book. We see a significant volume growth momentum with this more than 39% volume from signed deals. So that's a step up also from previous. So we see the momentum from a commercial perspective is increasing month over month. We also see a strong merchant-based growth, more than 3x compared to last year. So I think it was around 220% growth in the merchant base. Of course, mostly driven by the SME. But you can also see how the SME is both taking a larger share of number of merchants, volume, and leading to income. And the Nordic expansion is above expectations. and we have a potential to accelerate further we're still very new in Norway and we're just starting up in Finland so overall I think with Norway and Finland we have around double kind of addressable market than Sweden alone with a bit kind of less competition in the local markets given that the e-commerce ecosystem in Finland and Norway is not as international as it is in Sweden And we've seen improved operational efficiency and digitalization, enabling our scalability primarily in the onboarding area. So we're now onboarding much more merchants and quicker than before. And we are capitalizing on our enhanced product offering. We now see we have market-leading capabilities on the topic of checkout performance and the consumer experience. And that is primarily what is driving a lot of merchants to upgrade to our solution. And with that said, I will hand over to Carl, our new CFO, to walk us through the financial update. And I will then come back for the Q&A. Perfect. Thank you, Christopher.

Well, first of all, it's a pleasure to have joined Christopher and the Clearo team. I'm very excited to share some of the details of my first quarter, the Q1. Starting off with the overview of the quarter, As Kristoffer mentioned, the underlying business momentum is very strong, with a TPE growth of 20% in the quarter. Operating income grew by 2%, driven, as Kristoffer mentioned, by SME sales, while the back book enterprise contracts were headwind. And I'll get back to you with some more details on that that we're disclosing to give you a little bit more color on operating income growth. Moving to credit losses, these were 11% higher than last year. We see that underlying credit metrics are improving in our business, but this effect is offset by a number of reserve adjustments, both in this quarter and comparison quarter last year. And as we mentioned in the Q4 report, we expect that these improvements that we have made to the credit policies will also lead to lower reported credit loss ratios over time. Moving on to variable costs, these grew by 29%, driven primarily by TPV growth, but also impacted by payment mix. As a result of that, the GP2 decreased by 4.3% versus last year to 64 million Swedish crowns. Fixed costs increased by 18% or 12.6 million crowns versus last year, a change that's driven by our investments in expansion, which I'll get back to in some later slides. So in summary, in the quarter, we made an operating loss of 15.1 million sec, which is lower than Q1 last year, but roughly flat sequentially versus the Q4 on an adjusted basis. So moving on to our operational KPIs. So starting with merchants, as Christopher mentioned, a number of merchants, our strong sales momentum is evident in the merchant growth of more than 200% year on year or 23% versus Q4. which is evidence of the traction that our offering is having with merchants. As I mentioned, TPV growth was 20% year on year in the quarter, but as a result of more merchants choosing to also upgrade to Clearo as a provider for PayNow solutions or PayNow volumes, as well as the increased availability of Swish, Vips and MobilePay in our checkout, our pay later share declined to 41% versus 48% last year. And this can also be seen in the BNPL volumes to the right, which declined by 9% year on year. Our blended take rate is also impacted by the shift in the payment mix, where we see a 14% decline year on year to 3.1% take rate. And the payment loan balance as a result of all of this was roughly flat year on year. Now, we want to share some more details on the operating income growth to clarify some of the key drivers. So this slide is new and we're disclosing a little bit more. And it shows a bridge for operating income in Q1 versus the same period last year. And what you can see from this slide is that the first gray box shows the impact of our enterprise back book, i.e. contracts we've had for a long time, where the reduced share of pay later volumes from one major enterprise merchant, as well as a negative price impact from certain enterprise agreements, were a headwind to growth, with a year-on-year headwind on operating income of around 5 million SEC. But as we mentioned in the report, this impact will dissipate after the summer as it's fully phased in in comparative quarters last year. More importantly, what's clear and evident in this view are the green boxes, where the strong impact of our new sales and new merchants signed since the beginning of last year contribute 7 million SEC to operating income growth year on year. One from Enterprise and 6 million SEC from SME, as Christopher mentioned. We believe that this view can provide a little bit more clarity on why we're confident in reiterating our guidance for operating income growth for the second half of the year, as the headwind from the enterprise back book will subside and we'll see the full impact of the strong sales traction. Moving on to some details on SMEs. So this graph shows the contribution of our SME sales to operating income overall. And as Christopher mentioned, we're now seeing the impact of the sales effort towards the segment with 8% of operating income in the quarter coming from SME merchants versus just 1% last year. And most of these new SME merchants are signed over the past six to 12 months. And we know that we only get 50 to 60% of the GP2 contribution in the first year. So going forward, we expect to see the contribution from these recently onboarded merchants to grow further. Diving into costs, our cost base has increased by 14.8 million sec, and the main driver are the continued sales and expansion investments we're making. Sales and marketing increased by more than 6 million to 15 million crowns in the quarter, as Christopher mentioned. DNA also increased by 5 million to around 20 million in the quarter, driven by increasing amortization of CapEx investments, primarily in IT platforms. Other operating expenses increased by 3.4 million, driven primarily by variable cost increases of 2.4 million, but also partially by investments we're making into risk compliance and credit functions. And last but certainly not least, moving on to our capital position. As you know, we successfully issued a new tier two bond of 70 million SEC in March on terms that we're very happy with. This can be seen in the graph to the left as a 3.2 percentage point increase to our available capital base, which now stands at 22.3% on a total capital owned funds level. This gives a headroom to our total capital requirement of around 8.2 percentage point or 182 million SEC. When including the Pillar 2 guidance from the Swedish FSA, the available buffer is in excess of 5 percentage points or more than 100 million crowns. And looking at our funding base to the right, it remains strong and diversified. We're drawing on deposits in both Sweden and Germany, as you're aware of. And our liquidity position is also well above the requirements with a liquidity coverage ratio, the LCR of 316, and a net stable funding ratio of 126%. With that, I'll hand back to Christoffer for some closing remarks.

Thank you, Karl. So if you look ahead, we will continue to focus on our growth acceleration. We are reiterating the forecast of 15 to 30% income growth in the second half of this year. And the reason for the range is that it depends a lot on exactly when the merchants are going live. What is very positive is now that many of the larger merchants in the pipeline are coming live quicker and quicker. We also went live with Some of the largest merchants we signed like Skrivvatet went live actually this week and also two of the three brands within the Pet Power Group that we signed in January is now also live on the platform. And we are expecting more than 39% volume growth compared to 2024 with all the contracts that we have signed so far. And we are increasing kind of sales momentum month to month. So we expect this to grow also going forward. We are accelerating both in SME and enterprise and building this into kind of a repeatable sales engine that we can take into more markets. So we are now setting up Norway and Finland based on the learnings and the successful model we set up in Sweden. We're also kind of prioritizing growth, obviously, to capitalize on these opportunities. And we see a very strong economics in that, as we showed. So we see more than kind of 5 to 10x in lifetime value expected from the merchants we sign compared to all the costs we spend on kind of sales and marketing investments. and we are also continuing to investing into our platform and our payment capabilities we see great success from a commercial perspective from the product launches we did last year and also some of the new enterprise merchants come with new requirements so we continue to invest in kind of improving the platform like we also showed here in the quarter with adding for example two as a payment method to kind of expand our kind of addressable market even further and if you take our addressable market in in total if you look at clear two, three years ago, we were only focusing on enterprise merchants in Sweden. We've gone from that focus to also expanding into SME, also expanding into Norway and Finland, adding new partners. And if you take all of these factors combined, I think our addressable market today is probably more than 10 times as large as it was three years ago, which is also a reason we see the accelerated growth momentum where we reach a better product market fit with more merchants in more segments in more markets. So our ambition is to continue to deliver a market-leading experience for our merchants and their customer journey. And we think that will lead us to establishing a market-leading position in the Nordics within the next three to five years.

thank you very much and we open up for for the q a to ask a question please dial pound key 5 on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key 6 on your telephone keypad the next question comes from airman carrick from carnegie please go ahead

We can't hear you, Ermin.

Hello. Question comes from Ermin Carrick from Carnegie. Please go ahead.

Hi, do you hear me now? Yes.

Hey, Ermin.

Hi. Nice. The first question I had was just on the kind of guidance for the income range, 15 to 30%, because it sounds like some of these larger merchants have actually maybe been onboarded a bit ahead of expectation. Should we expect it to come more kind of the upper end of the range? And for 26, I believe you said something about acceleration of the income growth. So would that be to the upper end or how should we think about 26 income growth?

Maybe if we start with the, Of course, everything builds around the business model. So when we process new volumes, that volume is in turn building up the loan book. So if you take more than 90% of our income or gross profit comes from pay later. So if you take our longest part payment, which is 36 months, Then if you process that transaction today, we get the first revenue next month, and then we get revenue over 36 months from that loan book. So the more volume we process, that volume builds up a loan book over time, and we get a full run rate after three years. We get around 50% to 60% value in the first year of that kind of maximized run rate, and then we get up to 85%, 90% the second year and 100% the third year, which means that we expect our volume growth to turn into income growth over time. And that's why we say it will accelerate during the autumn and it will accelerate also into 2026. And that full kind of volume we are expecting onto the platform will turn into kind of income over time. So that's why we think we will kind of accelerate income in the second half of the year and that will continue to accelerate into the 2026.

Thank you. And just thinking generally about the e-commerce market, if we just focus on Sweden, it's been quite sluggish if we look on market data year over year. How much do you see that impacting your merchant base? Or do you feel that you have any mix that kind of the overall market isn't really indicative?

We have certain segments in the portfolio that's growing very well, but we have also certain merchants that is not growing as well. And also as Carl showed before, we have in a quarter roughly 5 million impact on operating income from the back book enterprise portfolio, partly driven by pricing on certain merchants, but also partly driven by volume, especially on a few larger merchants or one large merchant. So that is definitely hitting us in some segments, but we also see that kind of that of more growth in the existing portfolio than we've seen in kind of the market in general so um we're not that worried about the kind of the market momentum we also expect kind of the consumer demand to to kind of stabilize and increase when we see kind of the economy kind of also kind of stabilizing a bit more than than before that's very helpful and uh on that enterprise pressure from the back book you so could you give us any more uh

caller on that what's what's driving that decline in volumes is it just that the merchant has less sales or is it anything with regards to the contract with with clero and also on the one where you're you're commenting about the pricing has have you changed pricing generally when you're trying to win new contracts is that something we should factor in on new volumes to an extent um no we haven't changed pricing or pricing model in in general and

We are onboarding new merchants with expected profitability in line with or above the BackBook portfolio in general. However, we had a couple of large merchants that have been with us for a very long time that had quite favorable pricing going back, which was renegotiated last year, which have an impact in the portfolio. Secondly, one of our large merchants, the portfolio have been kind of declining in volume in general which is also kind of impacting us but we see both of these factors will impact the kind of the comparability until the summer and then we get into kind of a more more stable phase going forward in the backlog which is kind of hiding a bit of the kind of the growth in from from new volume got it thanks and then moving over to uh quality if we look on the of breakdown you give us it looks like you have fairly high write-offs in q1 which are just what's driving that and how should we think about that going forward uh so what happened in in q1 is that we what's actually happened started before we have we're always kind of optimizing our kind of the depth collection and solution rate agreements and we changed the provider last year which gave us the kind of more favorable pricing overall than we had before But some of the debt sales that we're doing when, so what's happening is when a consumer go to debt collection, we own the contract for three, four months. And if the consumer haven't paid by then, we sell it off to kind of a predefined price. So we already know when consumers go into debt collection, what we expect in losses from that portfolio every month. But given that we changed provider last year, we had some of the debt sales that were supposed to happen in Q4 for practical or operational reason, got delayed over new years and instead happened in early January. So if you look at the kind of the depth sale, kind of quarter over quarter, that was very low in Q4. And that ended up in more or less a double portfolio that was sold in Q1.

And this is also, I mean, partially driven by the kind of challenging secondary debt market last year with the turmoil in that market, which, you know, where we limited our debt sales for a while. And that resulted in kind of written off losses being lower than normal for the kind of second half of, or for the rest of 2024, should we say, you know, following the turmoil in the spring.

Okay, that's very helpful. And then just on the capitalization, the REIA is outpacing lending growth. Is there anything specific that's driving that? Sorry, could you say the question again? The risk exposure amount that you have is outpacing the lending growth. I can't really break down the risk exposure amount that much, but if I would just put it in relation to kind of the lending book. There, the relation now, you have much higher READ than what the lending book growth would suggest, just all of SQL, if I would model it that way.

Yeah, it's not, to my knowledge. You can take it offline otherwise. Yeah, yeah, we can take that. Let me get back to you on that one. I think it's a good question. There's no fundamental change in risk weights or anything like that. So let me get back to you on that one, Armin.

Makes sense. Thank you very much.

Thank you, Amy. More questions at this time. So I hand the conference back to the speakers for any closing comments.

Great. Thank you for today. And we look forward to accelerate our growth going forward. And we'll be back for this topic next quarter.