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Nepa Interim report Q3 2023
November 17, 2023
gomo_dev
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Q3 in summary
- Annual Recurring Revenue (ARR) increased by 2.3 percent and reached SEK 172.4 (168.4) by the end of the quarter.
- Net sales increased by 1.6 percent, -0.8 percent in local currencies, to SEK 70.6 (69.5) million.
- Subscription revenue increased by 9.6 percent to SEK 44.7 (40.8) million, and ad hoc revenue from subscribers increased by 59.7 percent to SEK 15.3 (9.6) million.
- Ad hoc revenue from non-subscribers declined by 44.5 percent to SEK 10.6 (19.1) million.
- Gross profit increased by 0.1 percent, to SEK 51.9 (51.9) million and the gross margin amounted to 73.6 (74.7) percent.
- EBIT decreased to SEK -0.5 (4.9) million and the EBIT margin amounted to -0.7 (7.1) percent.
- Excluding items affecting comparability of SEK 1.1 (0.0) million, adjusted EBIT amounted to SEK 0.6 (4.9) million.
- Net profit amounted to SEK -0.7 (5.5) million and Earnings per share amounted to SEK -0.08 (0.70).
9 months in summary
- Net sales decreased by 7.4 percent, or 9.4 percent in local currencies, to SEK 218.5 (235.9) million.
- The decline in net sales was mainly driven by ad hoc revenue from non-subscribers, which declined by 44.0 percent to SEK 33.6 (60.0) million.
- Subscription revenue increased by 3.5 percent to SEK 132.3 (127.8) million, and ad hoc revenue from subscribers increased by 9.6 percent to SEK 52.6 (48.0) million.
- Gross profit decreased by 11.3 percent, to SEK 160.6 (181.0) million and the gross margin amounted to 73.5 (76.7) percent.
- EBIT decreased to SEK -14.1 (23.4) million and the EBIT margin amounted to -6.5 (9.9) percent.
- Excluding items affecting comparability of SEK 8.0 (5.2) million, adjusted EBIT amounted to SEK -6.1 (28.6) million.
- Net profit amounted to SEK -14.1 (22.3) million and Earnings per share amounted to SEK -1.79 (2.84).
Business highlights
DURING THE QUARTER
- Anders Dahl was appointed as interim COO and Robert Beatus was appointed as CPO.
- The EGM decided on a SEK 0.67 per share extra dividend.
- Additional cost-saving measures entailed restructuring costs of SEK 1.1 million.
AFTER THE PERIOD ENDED
- Continued implementation of cost-saving measures.
Key financials
| Numbers in SEK million if not stated | Q3 2023 | Q3 2022 | Change | YTD 2023 | YTD 2022 | Change | FY 2022 |
| Annual Recurring Revenue (ARR) | 172.4 | 168.4 | 2.3% | 172.4 | 168.4 | 2.3% | 170.9 |
| Net sales | 70.6 | 69.5 | 1.6% | 218.5 | 235.9 | -7.4% | 312.1 |
| Of which subscription revenue | 44.7 | 40.8 | 9.6% | 132.3 | 127.8 | 3.5% | 169.8 |
| Gross profit | 51.9 | 51.9 | 0.1% | 160.6 | 181.0 | -11.3% | 236.2 |
| Gross margin | 73.6% | 74.7% | -1.1 | 73.5% | 76.7% | -3.2 | 75.7% |
| Adjusted EBIT | 0.6 | 4.9 | -4.3 | -6.1 | 28.6 | -34.8 | 29.4 |
| Adjusted EBIT margin | 0.9% | 7.1% | -6.2 | -2.8% | 12.1% | -15.0 | 9.4% |
| EBIT | -0.5 | 4.9 | -5.4 | -14.1 | 23.4 | -37.5 | 19.7 |
| EBIT margin | -0.7% | 7.1% | -7.8 | -6.5% | 9.9% | -16.4 | 6.3% |
| Net income | -0.7 | 5.5 | -6.1 | -14.1 | 22.3 | -36.4 | 17.5 |
| Profit margin | -0.9% | 7.9% | -8.8 | -6.4% | 9.5% | -15.9 | 5.6% |
| Operating cash flow | 6.3 | -11.4 | 17.7 | 4.3 | 6.6 | -2.4 | 15.9 |
| Net financial position | 41.8 | 62.5 | -20.7 | 41.8 | 62.5 | -20.7 | 63.8 |
| Earnings per share, SEK | -0.08 | 0.70 | -0.78 | -1.79 | 2.84 | -4.63 | 2.22 |
| Average number of shares outstanding | 7,863,186 | 7,863,186 | 0.0% | 7,863,186 | 7,863,186 | 0.0% | 7,863,186 |
Comments by the CEO
Q3 IN BRIEF
In the third quarter, net sales grew by 1.6 percent to SEK 70.6 (69.5) million. This marks a record-breaking third quarter revenue-wise and is attributed to the strong development in our subscribing client segment. Subscription revenue rose by 9.6 percent to SEK 44.7 (40.8) million, and ad hoc revenue from subscribers increased by 59.7 percent to SEK 15.3 (9.6) million. Most of the increase stems from the ever-increasing focus on our Marketing Optimization offering, where we over the years have built a great product market fit.
The results are, however, not increasing across the board. We have in the past quarters experienced a tougher market climate for certain high-margin ad hoc projects, predominantly in the UK. In the third quarter, ad hoc revenue from non-subscribers declined by 44.5 percent to SEK 10.6 (19.1) million. However, this business started picking up again during the later part of the quarter, resulting in some important wins yet to be realized. As a result of lower levels of ad hoc business and a continued weak currency development, the gross margin amounted to 73.6 (74.7) percent.
Albeit a topline record for the third quarter, the full effect of our recent cost savings is not yet visible in the results. EBIT for the third quarter amounted to SEK -0.5 (4.9) million. Excluding restructuring costs of SEK 1.1 (0.0) million, adjusted EBIT amounted to SEK 0.6 (4.9) million.
RESTORING PROFITABILITY IS A TOP PRIORITY
We have in the third quarter stuck to our plan and addressed the major challenges on the path to restored profitability. One of the bright spots has been the improved future cost position, and we are now set to beat the targeted cost base for other external costs and personnel costs of SEK 220 million in 2024. The work has been focused on rightsizing the organization while simultaneously driving efficiency improvements and a new way of working to ensure continued capacity to deliver outstanding customer value. By integrating global resources, all with broad industry experience and research methodology expertise, we can unlock previous locally focused or idle capacity much better. In addition to that, we put more focus than ever on project management, staffing, and follow-up.
Simultaneously, we have made a comprehensive review of our go-to-market approach, pricing, and packaging strategy, and put increased emphasis on business-driven product development following the recent appointment of a new Chief Product Officer. This should not be regarded as a sign of a ramped-up investment level, but rather the review and formation of a more market-driven approach. For example, Sales and Product are currently repackaging our current offering, making it easier for both clients and our employees to understand what we sell and what our scope of delivery is.
RECENT ACHIEVEMENTS
I want to take the opportunity to celebrate some recent achievements of the brilliant team at Nepa, showcasing the quality of our market insights built on our excellent research design and employees. At the ESOMAR industry congress, Nepa was awarded Dynata’s 2023 RISE “Recognising Innovation in Survey Engagement” award and one of our data scientists won a silver medal for an outstanding pitch on AI and digital consumer profiles. This shows that we are on top of the latest developments in the market research industry.
OUTLOOK
In the preceding quarters, we have observed a negative sales trend that bottomed out in Q3. However, we have during the later part of the fall experienced an elevated cost pressure among our clients, resulting in slightly lower retention rates than normal. At the end of the quarter, the Annual Recurring Revenue (ARR) amounted to SEK 172.4 (168.4) million, representing a growth of 2.3 percent year-over-year, but 1.1 percent lower than Q2. Addressing churn remains a top priority, and we are actively implementing strategies to reduce attrition and enhance customer retention. Historically, Nepa has focused on expanding existing clients but lagged in attracting new ones. The change in sales focus this year has already led to several wins of major global brands with promising growth opportunities, but not enough to offset the overall decline. This sales focus will increase in 2024.
As we look ahead, we are dedicated to delivering improved profitability, and we remain firmly committed to executing our strategic plan while adapting to the ever-evolving business landscape.
Ferry Wolswinkel
Interim CEO and CRO
