Heeros Plc: Heeros Plc's Business Review 1 January- 30 September 2024 (unaudited): Solid profitability and order intake, with contract revenue increasing by 4%.

Heeros Oyj | Company Release | October 24, 2024 at 09:30:00 EEST

The strong momentum in new sales will be reflected in revenue starting from the final quarter of the year.

This release is an unofficial translation of the summary of Heeros Business Review 1 January- 30 September 2024. The complete report in Finnish is available on the company's website at www.heeros.com/tiedotteet.

July - September 2024 in brief

• Revenue was at the level of comparison period at EUR 2.8 (7-9/2023: 2.8) million.
• Recurring revenue (contract and transaction revenue) was at the level of comparison period at EUR 2.7 (2.7) million. Contract revenue increased by 3% to EUR 2.2 (2.2) million. Transaction volumes decreased by 6% and transaction revenue declined by 16% to EUR 0.4 (0.5) million.
• EBITDA increased by 42% to EUR 1.2 (0.9) million, representing an EBITDA margin of 44% (31 %). EBITDA was positively affected by Business Finland's cancellation of EUR 0.5 million in loans related to Taimer Oy's product development projects implemented in 2018-2019.
• Adjusted EBITDA decreased by 10% to EUR 0.9 (1.0) million, representing an EBITDA margin of 31% (35%) of revenue.
• The combined adjusted EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 31% (41%).
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 122 (130) thousand.

January - September 2024 in brief

• Revenue was at the level of comparison period at EUR 8.5 (1-9/2023: 8.5) million.
• Recurring revenue (contract and transaction revenue) decreased by 0.2% to EUR 8.0 (8.1) million. Contract revenue increased by 4% to EUR 6.7 (6.4) million. Transaction volumes decreased by 7% and transaction revenue declined by 16% to EUR 1.4 (1.7) million.
• EBITDA increased by 52% to EUR 2.6 (1.7) million, representing an EBITDA margin of 31% (20 %).
• Adjusted EBITDA increased by 26% to EUR 2.3 (1.9) million, representing an EBITDA margin of 28% (22%).
• The combined adjusted EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 27% (25%).
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 560 (480) thousand.

KEY FIGURES

EUR thousand	Q3/2024	Q3/2023	Change %	Jan-Sep/ 2024	Jan-Sep/ 2023	Change %	2023
Revenue	2,826	2,820	0%	8,470	8,486	0%	11,296
Recurring revenue 1	2,684	2,695	0%	8,048	8,061	0%	10,774
Contract revenue	2,243	2,171	3%	6,656	6,407	4%	8,578
Transaction revenue	442	524	-16%	1,392	1,654	-16%	2,195
EBITDA	1,242	872	42%	2,585	1,697	52%	2,478
EBITDA, % of revenue	44%	31%		31%	20%		22%
EBITDA (adjusted) 2	877	973	-10%	2,331	1,855	26%	2,654
EBITDA (adj.), % of revenue	31%	35%		28%	22%		23%
Rule of 40, %	44%	38%		30%	24%		24%
Rule of 40, % (adjusted) 2	31%	41%		27%	25%		25%

1 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
2 The adjusted figures for Q3/2024 include an adjustment of EUR 524 thousand for extraordinary income and EUR 159 thousand for non-recurring restructuring costs. The adjusted figures for Jan-Sep/2024 include an adjustment of EUR 524 thousand for extraordinary income and EUR 270 thousand for non-recurring restructuring costs.

NIKLAS LAHTI, CEO

"Heeros' third quarter went as expected, with progress according to our plans. We met our sales targets, and profitability improved, even though continuing decline in transaction volumes continued to impact revenue growth.

Adjusted EBITDA for January-September grew by over 26%

For January-September, adjusted EBITDA increased by 26% compared to the previous year, reaching EUR 2,331 thousand (1-9/2023: EUR 1,855 thousand), which represented 28% (22%) of revenue. For July-September, adjusted EBITDA decreased by 10% compared to the previous year, amounting to EUR 877 thousand (7-9/2023: EUR 973 thousand), representing 31% (35%) of revenue.

The decline in third quarter EBITDA was mainly due to a higher performance bonus provision and a smaller release of holiday salary provisions compared to the previous year.

Operating cash flow grew by 110% during January-September, reaching EUR 2,526 thousand (1,206). According to our estimate, the positive profitability trend is expected to continue throughout the year.

Contract revenue grew by 3% in the third quarter, and net revenue retention (NRR) remained strong at 102% (106%).

Cancellation of multiple loans strengthened net debt position

EBITDA benefited from a positive impact due to Business Finland forgiving EUR 524 thousand in loans related to product development projects carried out by Taimer Oy in 2018-2019. This one-off item increased the July-September EBITDA to EUR 1,242 thousand (compared to 872 thousand the previous year), representing 44% (31%) of revenue. As a result Heeros is now clearly net debt positive.

Revenue growth materializes later this year as implementations move into the invoicing phase

The revenue growth trend continued during the third quarter, with contract revenue increasing by 3% compared to the previous year. Economic activity in Finland slightly improved compared to the record-low start of the year, but remained subdued. This contributed to the continued low transaction volumes (Q3/2024: -6% compared to the same period last year, Q2/2024: -6%, Q1/2024: -9%). The decline in transaction volume is particularly evident with paper sales invoices, which has a relatively lower impact on profitability due to higher associated costs.

Although contract revenue grew positively, overall revenue in the third quarter remained at the 2023 level, amounting to EUR 2,826 thousand (2,820), due to the decline in transaction revenue. At the end of the reporting period, the annual recurring revenue (ARR), calculated as the sum of the annualized September contract revenue and the transaction revenue of the previous 12 months, was EUR 10,923 thousand (September 30, 2023: EUR 10,952 thousand). According to our estimate the revenue not yet recognized from won customers during Q2 and Q3 (worth EUR 27 thousand monthly contract revenue) will begin contributing to revenue starting from the last quarter of 2024.

Signs of positive momentum in new customer acquisition

New customer orders during the quarter remained on par with last year, totaling EUR 122 thousand (130). For January-September, orders grew by 16%, reaching EUR 560 thousand (480). This is a positive outcome, especially considering the major changes made to the new sales team at the beginning of the year.

Sales momentum continued to be strong. The number of leads, meetings, and new sales deals increased significantly compared to the same period in the past two years.

Product development on track

During the quarter, the efficiency of our extensive product portfolio and organization was demonstrated by successfully updating all software and third-party integrations to support the new Finnish VAT rate. This update received praise from customers and partners. Despite the need for this sudden adjustment, progress on the planned product development roadmap continued effectively.

Customer-focused development also advanced, particularly in purchase and sales invoice automation. Integration capabilities of the sales invoice solution were expanded, and a new automated feature for supplier prepayment register checks was added to the purchase invoice solution. For the PSA product, the focus was on enhancing the already modern user experience to make it even more intuitive and user-friendly."

FINANCIAL OUTLOOK FOR 2024 (PUBLISHED ON 1 FEBRUARY 2024)

Heeros expects that both revenue and EBITDA for 2024 financial period improve from the 2023 financial period.

Heeros Plc
Board of Directors

More information:
Niklas Lahti, CEO, tel. [phone], [e-mail]
Juho Pakkanen, CFO, tel. [phone], [e-mail]

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