Heeros Oyj | Company Release | July 13, 2023 at 09:30:00 EEST
Heeros' scalable and resilient SaaS business model proved its flexibility and ability to adapt in a changing market environment.
This release is an unofficial translation of the summary of Heeros Plc's half-year report 2023. The complete half-year report in Finnish, including tables, is available on the company's website at www.heeros.com/sijoittajille/tiedotteet.
April - June 2023 in brief
- The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 17% (4-6/2022: 43%).
- Revenue increased by 2% year-on-year to EUR 2,859 (2,815) thousand.
- Recurring revenue (contract and transaction revenue) increased by 5% to EUR 2,722 (2,584) thousand. Contract revenue increased by 10% to EUR 2,148 (1,951) thousand. Transaction volumes decreased by 5% and transaction revenue declined by 9% to EUR 574 (633) thousand. In addition to the fall in transaction volumes, the fall in transaction revenue was also due to the conversion of transaction volumes into contract revenue in connection of contract reform.
- At the end of June 2023, contract revenue (MRR, Monthly Recurring Revenue) amounted to EUR 714 (662) thousand, representing a year-on-year increase of 8%.
- EBITDA declined by 14% to EUR 397 (461) thousand, which was 14% (16%) of revenue. Adjusted EBITDA declined by 6% to EUR 454 (483) thousand, which was 16% (17%) of revenue.
- New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 150 (290) thousand.
January - June 2023 in brief
- The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 18% (1-6/2022: 39%).
- Revenue increased by 2% year-on-year to EUR 5,666 (5,549) thousand.
- Recurring revenue increased by 5% to EUR 5,367 (5,124) thousand. Contract revenue increased by 9% to EUR 4,237 (3,883) thousand. Transaction volumes decreased by 3% and transaction revenue declined by 9% to EUR 1,130 (1,240) thousand.
- EBITDA increased by 15% to EUR 825 (715) thousand, which was 15% (13%) of revenue. Adjusted EBITDA increased by 15% to EUR 882 (764) thousand, which was 16% (14%) of revenue.
- Operational cash flow increased by 25% to EUR 898 (719) thousand.
- New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 360 (530) thousand.
- Financial outlook for the full year 2023 remains unchanged: Heeros estimates that its combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) will be at the level of 30% during the 2023 financial period.
In addition, Heeros provides more detail regarding the outlook for the second half of the financial year, as follows: We will focus on securing profitable growth during 2023, and we expect the EBITDA margin to increase in the second half of 2023 compared to the second half of 2022.
KEY FIGURES
| EUR thousand | Q2/2023 | Q2/2022 | Change, % | H1/2023 | H1/2022 | Change, % | 2022 |
| Rule of 40, % (adjusted) 1 | 17% | 43% | 18% | 39% | 39% | ||
| Revenue | 2,859 | 2,815 | 2% | 5,666 | 5,549 | 2% | 11,083 |
| Recurring revenue 2 | 2,722 | 2,584 | 5% | 5,367 | 5,124 | 5% | 10,332 |
| Contract revenue | 2,148 | 1,951 | 10% | 4,237 | 3,883 | 9% | 7,854 |
| Transaction revenue | 574 | 633 | -9% | 1,130 | 1,240 | -9% | 2,478 |
| EBITDA | 397 | 461 | -14% | 825 | 715 | 15% | 1,997 |
| EBITDA, % of revenue | 14% | 16% | 15% | 13% | 18% | ||
| Adjusted EBITDA1 | 454 | 483 | -6% | 882 | 764 | 15% | 2,061 |
| Adjusted EBITDA, % of revenue | 16% | 17% | 16% | 14% | 19% | ||
| EBIT | -151 | -91 | -269 | -409 | -230 | ||
| EBIT, % of revenue | -5% | -3% | -5% | -7% | -2% | ||
| Adjusted EBIT 1 | -94 | -70 | -212 | -360 | -166 | ||
| Adjusted EBIT, % of revenue | -3% | -2% | -4% | -6% | -1% | ||
| Profit for the period | -170 | -118 | -323 | -464 | -405 | ||
| Profit for the period, % of revenue | -6% | -4% | -6% | -8% | -4% | ||
| Operational cash flow (adjusted) 3 | 516 | 475 | 9% | 898 | 719 | 25% | 1,642 |
| Equity ratio, % | 58% | 57% | 58% | ||||
| Return on Equity (ROE), % | -5% | -11% | -9% |
1 The revenue growth rate for 2022 includes the inorganic growth derived from the Taimer Ltd acquisition. The adjusted figures for H1/2023 include
an adjustment of EUR 57 thousand for non-recurring restructuring costs.
2 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
3 The adjusted figures for H1/2023 include an adjustment of EUR 57 thousand for non-recurring restructuring costs.
NIKLAS LAHTI, INTERIM CEO
"Heeros made positive progress during the second quarter of 2023 despite persisting challenges in the Finnish macroeconomic environment. Our scalable and profitable business model, and our commitment to improving profitability and focus on improving the quality of our solutions, yielded positive results.
Continued focus on profitability improvements
During the first half of 2023 our focus was on continuing to increase profitability. EBITDA (adjusted) increased in the first half of 2023 by 15% to EUR 882 thousand, which was 16% of revenue.
Revenue continued to grow, although at a slower pace compared to the same period last year, driven by good development in recurring revenue. At the end of June 2023 Monthly Recurring Revenue (MRR) was EUR 714 (662) thousand, which marks 8% growth compared to June 2022.
The prevailing economic situation put pressure on revenue growth. Transaction revenue, which is about 20% of monthly recurring revenue, was negatively impacted (-9%) and Annual Recurring Revenue (ARR) intake also continued to slow down in the first half of the year to EUR 360 (530) thousand. As a consequence, we have already made several changes to our sales and marketing organisation since the beginning of the year: Both in terms of a freeze on new recruitments and organizational change, but also by sharpening our ways of working.
Co-operation negotiations were completed on 8 June 2023, resulting in termination of 8 employment relationships. Whilst always an unpleasant process it was necessary in order to sharpen strategy execution and improve cash flow. The effects of these cost saving measures are expected in Q4 2023 onwards and in full during 2024. Heeros is now self-funded and cash flow positive.
Despite the acceleration in cost inflation the cost level in the first half of the year is at the same level as in the previous year. In addition, we invested more in our personnel than in previous years, as we extended the Heeros employee fund also to Taimer Ltd's personnel from July 2022.
Customer relationships remain long-term
Contract revenue, our most important metric, grew by 10% during the second quarter. Net revenue retention was strong at 107% (109%). Churn was lower than expected. All these three metrics illustrate that whilst our topline might be affected by short-term macroeconomic pressure, our services are sticky and our customer relationships remain long-term.
In terms of major project deliveries, we were already well on track for 2022. Improvements in the Adoption Services' delivery process enabled us to work and communicate more efficiently, better and ensure timely delivery to our customers.
Customer satisfaction remained strong supported by our highly respected support organization based in Jyväskylä. In customer service, we continued to invest in data-driven solutions to further improve customer satisfaction and increase profitability in the coming years.
Modular product suite - always the best possible service package for our customers
What differentiates Heeros is our focus on modularity. Thanks to the modular design of our services, our customers can implement only those solutions that best fit their business and existing systems (ERPs, cash management systems, HRM systems, etc.), integrate them effectively and extend software packages as needed, rather than having to buy everything from one vendor.
The first half of 2023 saw continued sales successes with integration of the acquired PSA product suite into the existing Heeros financial and people clouds. The combined offering, effectively targeting CFO buyer personas, is a key driver of our future sales success.
To support local customers in their international expansion, we signed a key co-operation agreement with Enable Banking. This will help our customers establish a modern and automated connection with banks across Europe, by allowing them, for example, to automate matching of payments to invoices in multiple countries and thus get improved visibility and control over cash-flow across all European entities with less manual work.
We see good demand for a combined offering including our PSA and our financial management solutions. By combining Heeros PSA, purchase invoices, new sales invoices and future open banking functionality, we are able to offer a unique one-stop-shop solution to professional services companies operating in Europe.
In general, our focus in the next quarters will be on improving the scalability of our services, rather than on developing many new products or features. Partly for this reason, we agreed to outsource one of our products, scanning services, to Posti. We will continue to streamline the product suite in the future, focus on our core customer profile and ensure our core product suite remains competitive in the market.
FINANCIAL OUTLOOK FOR 2023
Financial outlook for the full year 2023 remains unchanged: Heeros estimates that its combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) will be at the level of 30% during the 2023 financial period.
In addition, Heeros provides more detail regarding the outlook for the second half of the financial year, as follows: We will focus on securing profitable growth during 2023, and we expect the EBITDA margin to increase in the second half of 2023 compared to the second half of 2022.
FINANCIAL REPORTING IN 2023
Heeros Plc will publish its Business Review for January-September 2023 on 12 October 2023.
Financial reports are available on the company website at https://www.heeros.com/sijoittajille/raportit-ja-esitykset
RESULTS PRESENTATION FOR INVESTORS ON 13 JULY 2023 AT 11:00 EEST
Heeros will hold a Teams meeting concerning its half-yearly report for investors, analysts and the media on Thursday, 13 July 2023, at 11:00 EEST. The meeting will be held in Finnish.
A link to the Teams meeting has been sent to everyone who has registered for the event in advance.
You can access the event materials after the event on the company's website at https://www.heeros.com/en/for-investors.
Heeros Plc
Board of Directors
More information:
Niklas Lahti, Interim CEO, tel. +358 40 774 1777, niklas.lahti@heeros.com
Juho Pakkanen, CFO, tel. +358 40 506 9898, juho.pakkanen@heeros.com
Certified Advisor: Aktia Alexander Corporate Finance Oy, tel. +358 50 520 4098
Distribution:
Nasdaq Helsinki
Essential media outlets
www.heeros.com/sijoittajille
Heeros in brief
Heeros is a pioneer in SaaS corporate software with a mission to develop software for streamlined business management. Heeros seeks to meet the needs of corporate and financial management clients by providing the software suites offering the best user experience for the digitalisation of business-critical financial management, ERP and HR processes. Heeros was established in 2000. The company's shares are listed on Nasdaq First North Growth Market Finland, maintained by Nasdaq Helsinki Oy, under the trading ID HEEROS. www.heeros.com
