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Nepa Interim report Q1 2023
May 16, 2023
gomo_dev
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Q1 in summary
- Annual Recurring Revenue (ARR) decreased by 1.3 percent to SEK 168.6 (170.9) million compared to the same period last year.
- Subscription revenue increased by 0.5 percent to SEK 42.8 (42.5) million.
- Net sales decreased by 9.0 percent, or 10.3 percent in local currencies, to SEK 72.7 (79.9) million.
- Gross profit decreased by 14.9 percent, or 16.5 percent in local currencies, to SEK 52.9 (62.1) million and the gross margin amounted to 72.7 (77.8) percent.
- EBIT decreased to SEK -3.9 (8.9) million and the EBIT margin amounted to -5.3 (11.1) percent.
- Net profit amounted to SEK -4.5 (7.9) million.
- Earnings per share amounted to SEK -0.57 (1.00).
Business highlights
DURING THE QUARTER
- Sonja Thorngren assumed the role of CFO on February 6th, 2023.
AFTER THE PERIOD ENDED
- Nepa India leads sales efforts in APAC.
- Nepa aggressively accelerates its actions to fully realize the targeted cost savings of SEK 31.2 million to an annual cost base (personnel and other external costs) of SEK 220 million by Q4 2023.
- April sales development, especially ad hocs, still mirrors the weak demand in the market.
Key financial overview
| Numbers in SEK million if not stated | Q1 2023 | Q1 2022 | Rolling 12 months | FY 2022 |
| Annual Recurring Revenue (ARR) | 168.6 | 170.9 | 168.6 | 170.9 |
| ARR growth | -1.3% | 16.1% | -1.3% | 1.0% |
| Subscription revenue | 42.8 | 42.5 | 170.1 | 169.8 |
| Subscription revenue growth | 0.5% | 16.3% | 10.5% | 14.8% |
| Net sales | 72.7 | 79.9 | 305.0 | 312.1 |
| Net sales growth | -9.0% | 11.6% | 0.4% | 5.6% |
| Gross profit | 52.9 | 62.1 | 226.9 | 236.2 |
| Gross margin | 72.7% | 77.8% | 74.4% | 75.7% |
| Adjusted EBIT | -3.9 | 11.9 | 13.6 | 29.4 |
| Adjusted EBIT margin | -5.3% | 14.9% | 4.5% | 9.4% |
| EBIT | -3.9 | 8.9 | 6.9 | 19.7 |
| EBIT margin | -5.3% | 11.1% | 2.3% | 6.3% |
| Net income | -4.5 | 7.9 | 5.1 | 17.5 |
| Profit margin | -6.2% | 9.9% | 1.7% | 5.6% |
| Operating cash flow | 5.6 | 10.7 | 10.8 | 15.9 |
| Net financial position | 62.7 | 88.7 | 62.7 | 63.8 |
| Earnings per share, SEK | -0.57 | 1.00 | 0.65 | 2.22 |
| Average number of shares outstanding | 7,863,186 | 7,863,186 | 7,863,186 | 7,863,186 |
Comments by the CEO
LAUNCH OF A NEW QUARTERLY REPORT FORMAT
Today, we launch a new version of our quarterly financial report to increase the transparency of our journey. An important new element is the reclassification of the segment reporting. Now, we distinguish between subscription revenue (recurring revenue less repetitive campaign tests in previous reporting format) and ad hoc revenue from subscribers versus other clients.
In addition, we disclose key performance indicators such as:
- Annual Recurring Revenue (ARR)
- Net revenue retention (NRR)
- Churn
- Average revenue per subscriber
We have also abandoned the market-specific segment reporting and instead increased the focus on our product and solution segments. We consider these changes giving a better depiction of Nepa.
THE QUARTER IN SHORT
Net sales in the first quarter declined by 9 percent or SEK 7.2 million compared to the same period last year. SEK 6 million of the decline was attributable to fewer ad hoc projects with clients not enrolled in any subscription contract. Such revenue was down 31.5 percent and mirrors the weak market the industry currently experiences.
On the positive, we have a stable base of subscribing clients with a churn in the quarter of 1.6 percent. Subscription revenue grew by 0.5 percent and ARR (Annual Recurring Revenue) declined by 1.3 percent. Ad hoc revenue from subscribers decreased by 7.7 percent.
The gross margin is under pressure from fewer ad hoc projects, lower revenue from the Customer Experience segment, and negative FX effects.
THE COST SAVING PROGRAMS
The previously announced cost saving programs were projected to save SEK 31.2 million of personnel costs and other external costs on an annual basis from the cost base in place before the programs, in October and November 2022. But, given the weaker than expected market in the short-term, the savings are materializing too slowly. Therefore, we are aggressively accelerating actions to fully realize the targeted cost savings and reach an annual cost base (personnel and other external costs) of SEK 220 million by Q4 2023.
In addition, we are pushing our sales efforts more intensively to restore profitability.
FOCUS ON SALES
Average subscription revenue per subscriber has grown from SEK 0.97 million in 2019 to SEK 1.27 million in the last 12 months, every year with low churn and steady NRR. This is the result of good work in scaling and upgrading existing clients with increased scopes of tracking solutions. Now we need to increase the focus on adding new clients.
The newly established sales organization that took effect at the start of the quarter has already shown positive pipeline development and has been able to secure several new marquee brands as clients. As they adopt our subscription model, revenue from these clients will grow over time.
OUTLOOK
Our effort in building a more effective sales organization amidst a challenging market climate is demanding and will take some time, but we believe it is the right strategic step to take to create long-term and lasting shareholder value. Currently, we experience prolonged sales cycles and hesitant clients. The April sales development, especially ad hocs, still mirrors the weak demand in the market.
Ulrich Boyer
Founder and CEO
