Upsales Technology AB (publ)

everyone, and thank you for joining the UpSales conference call for the third quarter of 2024. My name is Daniel Wikberg. I am the CEO and founder of UpSales. And I will be doing this presentation today together with my colleague Elin Lundström, who is the CFO at UpSales. If you wish to ask a question, you can use the Q&A button in the Zoom toolbar, which you find at the bottom of your Zoom window. You can ask questions throughout the entire presentation and all questions will be answered in the Q&A section. All right. So our agenda for today looks like this. I will do a short company presentation introducing up sales for those of you who are unfamiliar with the company. An update on the growth and the initiatives we are pursuing there. We will also do a short product update talking about what we are doing on the product side. And then Erling will cover all the financial highlights from the third quarter. And then we will end with a short Q&A. So introducing up sales. So the problem we want to solve is this one. So sales is the number one reason why B2B businesses fail. And pretty much all companies start out with... with a big ambition to grow the business, to find a lot of customers and to create a successful business. But in reality, when you look at the data of all the companies, this is data from Sweden, of all the companies founded 10 years ago, less than 10% ever reach a revenue. of more than 10 million kronor. So most businesses do not reach their goals. And the number one reason is the poor execution of sales. So what we at Upsales do is we give companies the tools they need to turn their business and their idea and the business plan into a revenue engine. We have been doing this for a little bit more than 20 years. The company was founded in 2003. So we are a software as a service company with a long track record of profitable and organic growth. We have always been a SaaS company, so we don't have any legacy products or a huge consulting business or anything like that. So 95% of our revenue is recurring revenue that comes from subscription licenses. Our ARR is currently 138.4 million. We do not have any debt. We are a net cash company with around 30 million SEC in net cash. The company is still management owned 42.7%. And trailing 12 months, we have a 24.6 EBTA margin. So continuing to look at the product to give you a feel for what are the problems we want to solve for our customers. So the first one is to help companies generate pipeline to find leads, to generate leads and to create business opportunities. We do this in numerous ways. We buy data from a number of data sources to help our customers find potential prospects. We also help our customers to... to utilize digital marketing, to generate leads online. And if we continue, when you have starting to put stuff into your pipeline, you generated some opportunities. In the next step, we help our customers to make sure that you follow a systematic approach when you are pursuing the deals you have in your pipeline. So you have to make sure you have a very effective sales process and high win rates. And the third area is taking care of the existing customer base. I think a lot of... A big part of our industry, a big part of the CRM industry has overlooked this area, in my opinion. So this is an area where we've always been... been good at this, but we've invested more into this area in the last years to help customers take care of existing clients, but also find upsell opportunities and ways to grow the existing customer base. And the final area is where we use all the data available in up sales to help management CEOs and sales managers to make better decisions and to get control and understanding of everything that's going on in the sales team and also in the customer base in general. And our positioning, I usually talk about these three areas, how we are different from our competitors. So we have a very strong focus on Nordic medium-sized B2B organizations. And we spend a lot of time investing in the product to make sure that we have the most relevant features for these customers. So we try to find the problems and... Use cases that has been overlooked by a larger international competitors. And the third thing is that we have always been a full service business to our customers. So a lot of our competitors work with partners. to do implementation and to take care of existing customers. We've never done that because we believe that if you want to have extremely satisfied, successful and happy customers, you have to work with them very closely. And when doing that, you get a lot of feedback, which makes the product better over time. And this is the feedback we hear from customers, why they choose to buy up sales instead of another system. So we have spent a lot of time to make sure that the the launch of sales, the implementation is as quickly as possible. So typically in our industry, when you implement the CRM or sales software, you have a project. It's typically several months, sometimes years. You have a consulting company coming in. doing a big complex project, and it rarely works. You rarely find a customer who spent like a year implementing a CRM with a consulting agency that's happy with the result. So we spent a lot of time making the product quicker and faster to get started using. And continuing to talk about positioning, this is how I view the market. So you have a lot of very simple solutions out there. If you do a Google search for CRM software, you find thousands and thousands of results. Most of these products are suitable for very small teams, for companies with two or three sales reps that just stopped using a spreadsheet and want to have something that's slightly better. And if you need anything more complex than that, typically you end up by... talking to a huge American company, there are a couple of them, that they solve a lot of complex use cases, but the cost is very high and the speed to get started is very low. So our positioning is about We support quite advanced use cases for companies with hundreds of sales reps, but we can still launch them in a matter of weeks as opposed to months, quarters or years. So that's how we position up sales when we talk to new clients. And the product is used by several hundred companies throughout the Nordics and also throughout Europe. And the typical company is a mid-sized B2B company that has some kind of active selling process or sales organization. So looking at the growth drivers, what does the runway look like and how do we view the market? And so we still believe that there's a huge upside in our existing customer base. We've invested a lot in the product in the last few years and expanded the product and broadening the offering, which enable us to solve more problems for our existing clients. And in doing so, increasing the value of their contracts. And looking at the market in general, if we look at the typical up sales customer and then just doing an analysis of the market to figure out how many of them are there out there, we estimate that we still only have between 3% and 5% of the total market in Sweden. So there's a very long runway of growth ahead of us. So growing existing accounts can happen in several ways. The most typical one is the customer buys more seats because they hire more people or they have another department that that wants to start use up sales. The second way is that, as I mentioned, the customer has a new use case or another problem they need help solving. And then we have several products in the portfolio, products and modules that the customer can add to their contract. And the third one is some of our products are usage based. So the marketing product is one example of that. So As the customer use the product more and has more data, it also slightly increases the price in the contract. Looking at the new customer acquisition side, there are a couple of ways to do that. The strategy is quite simple. So some new clients come from existing customers who have subsidiaries or other companies in the industry. Same customer group. Of course, like any SaaS business, B2B SaaS business, if you want to grow faster, you have to invest in the sales force and in the marketing. So we are doing that by hiring more sales reps and attending events and doing different kind of marketing campaigns. And a big driver has also been integration partners. So we typically the typical up sales customer wants to connect up sales to to other softwares they are using. So the most common one. Here, you want to connect your CRM system to your ERP to make sure that the invoices you are sending in your ERP, you can see the sales numbers in your CRM. But also vice versa, when the sales rep makes an order in the CRM, you want it to become an invoice in the ERP. That's one way we get customers. Another area of partners in the ecosystem, if you will, are providers of e-signature tools. So we integrate with quite a few e-signature tools, which also gives us leads and new clients. So this is kind of, of course, there's a hundred more details to talk about here, but this is kind of the new customer acquisition strategy in a nutshell. All right. So a short growth update from the third quarter. So if you've been following up sales, you saw that we had almost 20 year track record of ARR growth. And then we had a flat or slightly negative growth last year. And we have been doing a lot of updates. and reorganizations and stuff to get back to growth. So we started growing again in Q2, quarter of a quarter, and the ARR continued to increase in Q3. The growth is still at a quite modest pace and we are still not at the pace where we want to be, but I'm happy to see a positive trend and we continue to focus on this, of course. And the result, I think, is basically the strategy we've had for quite some time now, focusing even more on customer retention. And we really see in all of the operational KPIs that everything's improving, customer satisfaction, cancellations, and then all of the important kind of early stage KPIs. As I mentioned, we focus a little bit more on ecosystem partnerships that can help us to access new interesting customers. And we saw some traction from that in Q3, which is very interesting. And we... Yeah, we have hired a number of people to the sales team and we continue to have an ambitious hiring plan for this quarter and going forward. Okay, so now to some more exciting stuff, which I'm very excited about. I spend a lot of time together with the... product team, looking at what we are doing for the future to make sure we are relevant and solving important problems for our customers. So we have a very ambitious AI project, which we have had for some time now. And we are investing quite a lot of resources into this area. We hope to release something in December or after the new year. So we are very close to releasing these features. And looking at AI, I think that the typical way of working for... a sales rep, but also a sales manager, there are very, very big, the potential for automating this with AI is very big. And there are quite a lot of very interesting use cases that can be not like 10 or 20% improved, but 1000% improved by using AI. So I'm very excited about this part of the product. And I think that When I look at what the competition is doing, I think the stuff we are focusing on will be more relevant for the kind of customers who want to drive revenue using a CRM. So this is a very exciting part of the product, and I hope to be able to share more in the next report. And we've also continued to invest in the service and support and product management part of up sales. So customers can now manage all of their customer interactions inside of up sales. So you can manage your support tickets, your delivery projects, your service you provide to your customers. And this is important because in a lot of organizations, you still have a disconnect between sales and after sales. So to get that into the same system, into the same user interface, really helps sales reps understand what's going on with their customers. And it really helps companies just deliver better customer service in general. And the third item I want to mention, we continue to invest in, we see that legislation such as GDPR and Schrems II and all of these laws that's coming from the EU. More and more companies are wary of using American-based or American-owned web services or software. So we continue to win customers specifically because of this, because we're hosting everything in Sweden since a few years back. And specifically when talking about AI, if you want to use AI for sales-related use cases, you cannot use ChatGPT or OpenAI without violating GDPR. Not all companies understood this, but more and more companies are starting to understand this. So I think this is really... It's something that helps our positioning and we get that feedback also from our customers. um all right and just a short comment on the market uh so as you understand from what i said previously i continue to see a massive opportunity and a long runway for for up sales and and sales effectiveness continues to be a high priority we we see when we're talking to customers that uh It's of high importance to get cost of sales down and to make sure that you get an ROI of your sales investments. And since we are a provider where you can get started in a number of weeks without having a huge capex investment into an IT project, we are a very attractive alternative for companies who need to do something now, but might not have the same appetite for IT investment as they used to have a couple of years ago. And in times like these, being net cash profitable with zero debt makes me sleep well at night. All right. So I will hand over to Elin for some financial highlights.

Thank you Daniel and good morning everyone. So let's look at the ARR and revenue. Annual recurring revenue grew by 0.8 million in Q3 and was 138.4 million at the end of the quarter. compared to 141.2 in Q3 2023. Net sales was 35.7 million compared to 36 million in Q3 2023. And looking at revenue, we divide our revenue between recurring revenue from our subscriptions and one of revenues such as onboarding and consulting. And in Q3, recurring revenue accounted for 97.7% of our total revenue. Let's continue to look at profitability. We had an EBITDA of 11.0 million compared to 12.2 million in Q3 2023. And our EBITDA margin was 30.8% compared to 33.9% during the same period last year. We had an EBIT of 8.8 million compared to 10.1 million in Q3 2023. And net income of this quarter was 7 million. And during Q3, we had an operating cash flow of negative 1.9 million compared to positive 1.8 million during the same period in 2023. And net cash at the end of the quarter was 29.9 million. And as Daniel mentioned, we don't have any debt. Yeah, that was all from the financial highlights. Let's continue to the Q&A section.

So if you wish to submit a question again, you can use the Q&A toolbar in your Zoom window. Okay, so we have a question from Fredrik Nilsson. Although you are not satisfied with the current ARR growth, are you satisfied with the internal changes you have made? And do you believe the changes made are enough to support solid ARR growth going forward? Or is there more to do? So as I wrote in my CEO note, I really see a much stronger company compared to one or two years ago. So I'm very pleased with where we are in the organization and our ways of working and what I see in all of our operational KPIs. And I think there's an element of timeliness If time passes, our ARR growth will continue to increase, is my firm belief. Then, of course, as a company, we're a very performance-oriented company, so we always try to challenge everything, basically, and improve all the time. So I think we will see improved growth over time as a result of the actions we've taken, but we continue to just try to make everything better every year. every single week. Okay, we have a question from what level has the churn moved from now when cancellations have normalized? I'm not sure. I mean, first of all, we don't report the churn numbers. But we have continued to see for one year now a positive trend with churn going down and overall improvements in retention rates. So I think I'm very happy. with the work that the customer success team is doing and also the product team and the feedback we're getting from customers. Having said that, I think that there's still an upside to get churn to even lower levels. But I think I've said this before also in previous presentations that The main problem, why the growth was slower and negative last year, the main problem was sales, not churn. So that's where we put most of the work. Okay. We have one more question from Fredrik Nilsson. The OPEX is roughly flat year on year, despite quite an uptick in head count. Why is that? I don't really have a good answer to that. I don't think there's a, I mean, Q3 is the, There's an element of seasonality where a big part of the staff is on vacation because of the summer months, which lowers the personnel costs. So that might be the explanation. But there's no major change in salary levels or anything like that with regards to OPEX. Let's see if we have any more questions before we wrap up. Okay, we have a question from Johan Martinsson. Any comment on Q4 so far? No, we have nothing to share right now. We didn't write anything like that in the report either. So it's just a matter of continue pursuing the strategy we have and continue focusing on building sales capacity, making sure to take care of all the customers to increase the growth. Let's see if we have any more questions. All right. So as we have no further questions, thank you everyone for joining us this morning and hope to see you next time.