Welcome to Nepa Q3 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to the speakers, Interim CEO, Ferry Wolswinkel, and CFO, Sonja Thorngren. Please go ahead. Good morning, everyone, and welcome to Nepa's presentation and conference call for the Third Quarter of 2023. My name is Ferry Wolswinkel, and this is my second earnings call since my appointment as Interim CEO of Nepa as of the June 1st, and currently still acting as Head of the commercial organization. And today with me, I have our CFO, Sonja Thorngren. It's a pleasure to presenting for you our third quarter results. So for those of you who are new or less familiar with Nepa, I'll give you a very brief background to what we do. So we help marketers with their brand-building initiatives and measure the impact of their marketing investments. So we optimize short- and long-term effects of their marketing efforts to continuously lower customer acquisition costs and improve our clients' ROI. In effect, we turn data into growth opportunities by combining technology with brilliant analysts and researchers. Every day, we track and measure the impact of marketing activities for 7,500 brands across 60 markets. Our history of long-term client tenures are evidence of the great value we deliver to our clients. We have quite strong relationships with world-leading brands who continuously search for unique insights and recommendations that will boost their brand equity and marketing investments. We have a long-term growth subscription base and with an annual recurring revenue of SEK 172 million, but have in the past year and a half had a challenge to optimize our cost base to lower volumes of consultancy projects contributed by the economic headwinds. Given the measures we have taken in the past quarters, and especially now in Q3, we are in a much better position to restore profits. So Q3 in summary, despite it being a low activity quarter due to the summer period and vacations, I believe we made good progress in Q3, where we accomplished many things that I shared with you all in our Q2 earnings call. More on that shortly. Our recurring revenue grew by 2.3% YoY, to SEK 172.4 million, and net sales grew by 1.6% to SEK 70.5 million. This marks a record-breaking third quarter in terms of net sales. However, in local currencies, net sales declined by 0.8% due to a weakened SEK currency compared to last year. Adjusted EBIT amounted to SEK 0.6 million for a margin of 0.9%, excluding SEK 1.1 million in restructuring costs. Reported EBIT amounted to -SEK 0.5 million. While we still have a lagging effect to our cost base, but as communicated in the last earnings call, we will reach the targeted cost base in Q4 2023, and beyond that by Q1 2024. On average, we were 281 FTEs during the quarter. This is approximately 40% down from the peak in Q4, where we reported 325 FTEs for the group. During the quarter, I appointed Anders Dahl as Interim COO and Robert Beatus as CPO. Anders is an experienced leader with lots of experience in change management and efficiency improvement, and we have, in a short period of time, created a solid teamwork together. Robert, on the other hand, who's been with Nepa for almost eight years, has been a great source of inspiration for the organization, and he's been highly involved in creating our product strategy. So his progression to Chief Product Officer comes as a natural step, where we will increase focus on our offering and standardization of services. Both Anders and Robert have been important in driving the initiatives we've launched during the autumn. For example, our increased focus on our go-to-market approach, spanning all the way from stronger alignment between product, marketing, and sales, as well as pricing and packaging. This resulted in a consolidated offering of our largest revenue generators and profitable solutions moving forward. Additionally, the clarity that comes from our newly packaged offerings make it a lot more understandable, both for our clients and for our employees who sell and deliver. We have also been looking at our project management and project profitability, emphasizing all essential parts of the process that drive efficiency and profitability while retaining the value we deliver. This includes a more thorough scoping and planning before a project starts, to a continuous review and follow-up on profitability and how we are tracking against our targets. With a reduction in staff, spanning all departments, we have recent improvement in future cost position. The company is now set to beat the targeted cost base for other external costs and personnel cost of SEK 220 million in 2024. As we're increasing our efforts in AI developments, we just launched a new module, our AI Trend Boost. This is a revolutionary machine-learning-led solution, which serves as an enhancement of our Brand Tracking offering, that I will share a bit more on later during the presentation. Lastly, on September 18th, an extraordinary general meeting was held that decided on 0.67 SEK per share dividend. So we've seen experienced robust growth in our subscription revenue this quarter. Our subscription-based model continues to be a strong driver for our overall revenue, reflecting the value by our products and services we bring to our clients. YoY subscription revenue grew by 9.6%, but we are starting to see a slightly lower net revenue retention of 99.5%. That historically has averaged out on 100%, so it's a minor, minor decline here. Our renewal rates, deterioration of 1.1% in the existing subscription base. So, this is explained by budget cuts at some of our clients, it has slowed down the growth pace, but does not pose any concerns, as of yet. It's within our expectations, and it's being cautiously monitored as we address retention efforts simultaneously. Demand for consultancy projects from our subscribing clients have picked up compared to last year and increased by almost 60%, albeit from low figures. Much of these are projects within our large client segment. We continue to service our subscribers with value-adding projects to maintain and nurture our strong client relationships. This trend is a testament to the depth of our client relationships and the quality of our offerings. Conversely, as we stated in the outlook of our reporting Q2, we observed continued weakness among non-subscribing clients. While we acknowledge the challenging market conditions, we are actively exploring opportunities to address and reverse this trend. This is especially true for our clients in the U.K., which has been a strong contributor during previous years. We have, however, started seeing some of these deals coming back and an increase in new business coming through our U.K. office. Long term, we focus on expanding our subscription base by adding new subscription services, such as our media mix modeling subscription offering, which we are currently piloting with a number of clients, as well as strengthening our sales team to boost client acquisition. Our annual recurring revenue has shown positive YoY growth, and it amounted to SEK 172.4 million at the end of the quarter. However, we've observed a slight decline from the last quarter. This is primarily attributed to lower retention rates compared to the historical averages, and as I said, we're actively monitoring and addressing this development with targeted initiatives aimed at improving client retention. But as stated earlier, there's no reason for concern. Our major accounts segment continue to show strong retention despite these economic headwinds. Even though QoQ retention rates dipped, the trends for average subscription revenue per client remains positive, demonstrating continued success of our efforts to enhance the value, the value proposition of our clients. In the last 12 months, we've served 130 subscription clients with an average of SEK 1.34 million per client, and an average ad hoc revenue of roughly SEK 500,000 per client. To improve our financial performance, we have initiated a few key initiatives to restore profitability. These initiatives encompass both operational and strategic measures to optimize our resources and enhance customer satisfaction. These initiatives span from price increases, close monitoring and actioning on scope creep, as well as streamlined processes and team structures. As part of our commitment to efficiency and effectiveness, we are undergoing a strategic restructuring process. This will ensure that our organization is well-aligned with our goals and client needs. We believe this will position us for a sustained success, and as mentioned in the beginning of the call, we now put a lot more focus on our go-to-market approach, project management, and product development. Firstly, we are strategically re-evaluating and refining our go-to-market approach to ensure it aligns with current market dynamics and client needs. This involves a comprehensive analysis of our sales and marketing strategies, customer acquisition channels, and pricing models. We are working to identify and target new market segments while optimizing our outreach to existing clients. This initiative includes enhanced market research, competitor analysis, and the development of targeted marketing campaigns to strengthen our brand presence and also attract new clients. Also, it spans all the way to our product offering to make sure we remain competitive with a solid portfolio offering our dynamic marketing intelligence suite. Secondly, to optimize project management and increase operational efficiency, we are implementing initiatives that streamline processes and workflows. This involves a thorough review of our project management methodologies, tools, and systems. By optimizing our project management practices, we aim to enhance client satisfaction, reducing costs, and ensuring timely project delivery. Lastly, our project development initiatives are focused on innovation and responsiveness to market needs. We keep investing in research and development to bring new features, functionalities, and products to market. This includes a dedicated effort to address feedback from clients and incorporate their insights into product enhancements. This proactive approach to product development aims to not only meet our current client expectations, but also anticipate future market needs. By staying ahead of the curve, we aim to position our products as one of the industry leaders, driving sales and ensuring long-term sustainability. In summary, our initiatives to restore profitability encompass a holistic approach that addresses our go-to-market strategy, product project management efficiency, and product development. By strategically implementing these initiatives, we are confident in our ability to adapt to market changes, improve client satisfaction, and ultimately enhance our financial performance. For the past months, we have diligently reviewed our organizational structure to identify and eliminate redundancies. This involves a comprehensive assessment of roles, responsibilities, and workflows across departments. By streamlining the operations, we aim to enhance efficiency and ensure that our resources are allocated in the most optimal way. This process has been conducted with sensitivity, and we have been, and will continue to be, highly committed to support affected employees through this transition. All of this has led to restructuring costs of SEK 1.1 million in the quarter, and we are now set to beat the targeted cost for the external costs and personal cost of 220 million in 2024. Although we reported a negative EBIT of SEK 0.5 million, the operating profit is blurred by the capital expenditures. Looking at operating cash flow deducted by the capital expenditures, we made a significant improvement from Q3 last year, from -SEK 17.1 million to SEK 2.2 million. We are excited for our product roadmap aimed at driving new sales, retaining existing clients, and increasing scalability. These launches are strategically designed to meet evolving market demands and offer innovative solutions to our clients. We've continued to build upon our three phases: automation and benchmark, predictive capabilities and integration, and prescriptive capabilities, where all of them fit perfectly into the building of our dynamic marketing intelligence suite. In line with our commitment to cutting-edge technology, we're thrilled to introduce a groundbreaking AI tool, and this AI Trend Boost is sold to our clients as an add-on to tracking modules. So obviously, a very good upsell opportunity for our 130 clients who are currently subscribing with us. It's a revolutionary machine learning-led solution that makes the data sample go further. It effectively gives the accuracy of a sample size that is five times the size, while it increases the depth and granularity of the data by five times. We can now enhance low-incidence target groups for meaningful insights and give the smoothness of a moving average, while the responsiveness of near-time data. I'm really excited to bring this to market. In summary, we had a record-breaking net sales for our third quarter, thanks to the strong development in the subscription client base. This quarter did offer offset the lagging cost base, hurting profitability, but the actions taken during the autumn have set the company on a promising path back to profitability. We will, as previously communicated, meet the targeted cost base for other external costs and personal costs of SEK 220 million by Q4 this year, and even beat the target going into next year. Having said this, the slightly higher drop in retention impacts overall growth and is being addressed with client retention initiatives. This is not unusual in times like these, and nothing we haven't seen before. Some clients cut back in their spending and reduced scope or paused trackers for a while, while we're not seeing any noticeable shifts to our competitors. This was all from us. Thank you for your time, and I now welcome any questions. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Jesper von Koch from Redeye. Please go ahead. Good morning, guys, and thanks for a very good presentation. I really like the visualizations and, yeah, well thought through. All right. So let's just start with the subscriptions, where, yeah, as you say, some increased churn here. So could you just, like, elaborate a little more on, like, what measures you do to kind of prevent increased churn? Absolutely. So, yeah, we as I said, we've noticed a trend of clients cutting costs and scoping down their spend with us, but it's rather a negotiation of scope or pausing some of the trackers rather than switching to competitors. So, one thing that we do that we put a lot of focus on is our contracting. So we used to have more contracts that are on an sort of evergreen base. So that means that our customers could cancel their contracts with one-three months’ notice. So of course, that increases the risk for us with short-term cancellations. We have moved over a lot of these contracts into contract terms of 12 months and longer, so therefore, obviously, we have a positive effect. We also work with the team to put Ask at 90, what we call it, initiative in place, where we basically review in our quarterly meetings with our clients, if clients would continue and renew with us at this point in time. When positive, we continue and actually try and set new contracts already, when possible, and not waiting until it's renewal date and basically leaving the risk until the very end to lose customers. So I think that's alongside, of course, a strong client focus, and you've seen that in the growth of the existing client base. So, growing clients obviously is also a sign that retention will improve, and this is particularly true for the larger client segment. So the churn is more visible in the smaller client base. So we, as you know, we have a long tail of smaller clients where churn is slightly higher. All right, good. And then, I mean, you started some of your, like, outbound sales efforts, like, I don't know, like one and a half years ago. So I guess that sales pipeline is like becoming increasingly mature. So could you just talk about the status of the pipeline? Yeah, absolutely. So, you're right. We started that just about a year ago. It did mean that we were still in the early days, setting up the team, onboarding the team, and that took some time in the first couple months, but since then we significantly did grow our pipeline. What we did notice is that the sales cycle, the length of the sales cycle has increased a bit this year, and then again that I put a lot of that on the economic situation that we're in. But we have seen a lot of these new clients come to fruition, and again, we've been focusing in our outbound efforts a lot on larger clients that tend to take longer as well. But the good thing is, is now we have one, a significant number of them, that they offer a lot of potential for upside. Whereas historically, we focused on any client, and yeah, hence the long tail, where our upsell potential is a lot smaller. So the initial results are coming through. Having said that, we do need to invest in a different profile of our sales force that is more experienced in hunting for new business. So I do believe that we still have a way to go when it comes to it. We've definitely seen improvements, but we still have a way to go, I think, to reach the potential that we have. All right. And then, I mean, as you say, focus on larger clients where there is an upside in ARPU. So, could you... And now you, like, for instance, you launched the AI Trend Boost. Mm-hmm. How do you view the dynamics of, like, increasing ARPU, both in terms of, like, new markets, like new additional product and so on? So, of course, in Sweden, we are quite a mature player, and a large part of our revenue and clients are based here. We have been putting a lot more focus this year on global clients, even if they were led from our Swedish office, but also from our U.K. office and others. So we focus more on global clients that means that we don't necessarily need to physically move into new markets like the U.S. until we have built a more mature and a number of clients that are already generating revenue before taking that step. In terms of focus outside of the Nordics, though, where we do believe the bigger revenue potential and jumps will come from, is we are putting more focus on our UK presence. As said, there has been a turnaround in Q3 and into Q4 with the business coming in there, and that's where we will strengthen most of our sales efforts. It's in a region where our brand is not as strong, and we're not as well known, so we need to put more effort in that into the new year. And in terms of our products, AI Trend Boost is an excellent product to, yeah, to go to all of our existing clients and, with quite a strong proposition, generate additional revenue into the new year. We just launched it, so it's not really shown yet in the current figures, but I do expect that to be the case in the following quarters. And in addition to that, I mentioned in the last earnings call that we are exploring different AI initiatives, both to further optimize processes internally, as well as developing new products for our clients that, yeah, offer exciting possibilities. So we are still kind of in the exploration phase and off, and evaluating different use cases, but yeah, that's kind of where we are right now. All right, good. Regarding the AP, because you say that you expect a boost from the AI Trend Boost in the upcoming quarters. And just, I get, because then I guess you have already, like, started some discussions with existing clients about this product and, yeah, so how is the response? Yeah, sure. Initial response has been very good because most of our clients, and I think this is typical in the industry, always want more sample. Unfortunately, that comes with an associated cost, so now we can show our improved effectiveness through AI Trend Boost, not requiring a lot of additional sample to achieve the same result. So the initial feedback has been positive, but we have been cautious in kind of selecting a number of key clients to have these initial discussions with, also to take in their feedback and making sure that when we do roll it out and go to market, we take into account any things that we haven't considered. But overall, the reception has been very positive. One other thing- Okay I think I should mention is that, at the moment, our brand offering is our only or our key ARR product. So soon we are launching, or into the next year, we're launching our subscription on marketing mix modeling. So that just brings an additional revenue generator that wasn't available up until now. Okay. Good. And then, I guess, like, considering that the AI Trend Boost, like, does not really require any more data, I guess that would be like growth from there would be a boost for the gross margin. Exactly. Absolutely. Yeah. Yeah. Good. And then, because regarding the U.K., I mean, you say that the U.K. market is improving, but... And first, I interpreted this as kind of the U.K. market for ad hoc projects to non-clients. But it appears that you're talking more broadly, or could you just like elaborate on what products you mean there? Yeah. So, so you're right, mostly, for the most part. So we historically have been selling these very large ad hoc projects to global clients. The very good thing is that they come back, they come back to do these projects, so we're very differentiated and strong in doing these projects. The challenge is that they are projects that our clients tend to do once every two-three years. So of course, that leaves us vulnerable in times that they don't do them. And as well, some of them simply have been on pause at the first half of this year and are now kind of, as I said before, sales cycles just were a little bit longer than normal, which is part of the reason as well. But yes, on the other hand, we've also of course focused on a lot of new business generation being part of some events, and we've managed to also win new logos. Again, I would say that this is a smaller portion of the overall cake, if you will, but that is something that I expect to take on a larger part heading into the new year. Okay, good. And then, I mean, you talked some about, like, pricing and packaging. Is there anything there that you have not mentioned so far? Because that's an interesting point. Yeah, we just maybe to put some context, we've done a number of initiatives. So we've done an analysis also on our RFP performance, and yeah, deep dived into areas where we especially the ones where we do not win, understand why. When it comes to pricing, we tend to be extremely like client-centric when it comes to customization, when it comes to making sure that we onboard new clients as well as we can, so putting a lot of effort into that. I believe that comparing this to others, we could be perceived as more expensive in some cases because of it. But I think by offering a clearer package and deliverables that are clearer, rather than quite custom and as they have been so far, it makes it easier for us to be more competitive from a pricing point of view. It makes it clearer what is included in our packaging. We've looked at our clients, and we've looked at the needs and looked at how can we capture 90% of our client needs, fit that into a package that makes it more standardized for ourselves to deliver and to make it easier for our teams to deliver in a standardized way? As well as packages that also boost our gross margin by adding features and modules from the start, as opposed to adding them once they become a client and try to upsell later on. Okay. Sounds promising. So less customization. And I guess this is also. I guess both more clear for the customers, but also helping you become a more like slim organization, in terms of like product delivery, not needing as many like onboarding specialists as well. Exactly. Also for our marketing and sales, it's more focused. It's hard to get your head around 20 different solutions and become an expert at positioning those in on comparing that to yeah, a slimmer key core focus of products, both on product investment, selling and marketing them. Okay, good. And then moving on to, like the ad hoc sales to existing clients. I mean, looking at like the Q1 and Q2 were practically like identical figures or almost identical to the 2022 figures, but then came a big jump. So could you just, like, explain what was behind the strong Q3 figure? And is that kind of like sustainable or mainly like some one-offs? Yeah, I think of course it came from relatively low numbers, so it was a big jump nevertheless. The reason for it is again the sales focus we did put on our largest clients from the start of the year already. It just didn't materialize yet until Q3. Yeah, of course we know we are in difficult times where we've put a lot of focus on working with our existing clients. They offer a lot of potential, especially our larger clients. So it's been a combination of existing expanding scopes, scoping to new markets, new categories, but also yeah adding added value services. Yeah, that's again have already started in the first half of the year, just hadn't materialized to an extent. Okay. But considering that, I mean, the ad hoc sales to existing clients, I mean, it's at least some of it is like semi-recurring. So would you say that the increase is that like much from the semi-recurring or more from the like the one-off sales to that segment? I would say it's a combination of both. We also, as mentioned, the negative impact a lot on the ad hoc sales has been driven by the larger ad hoc projects from the UK, and as mentioned, they've been coming back, so they will also contribute to the net positive effects on that. And yeah, they can really move the needle by quite a bit, but overall, I'd say it's a combination of both. Yeah. All right. And then, like for the, like, ad hoc to non-clients, as you say, they can really, like, move the needle in terms of profitability. And you say that, so it appears that the market has bottomed out. Like, what do you expect here? Because, you still put very little, like, outbound efforts here. So is it only like incoming? It's not only incoming, but I think it's partly a resource and focus question as well. So of course, our sales focus on our larger existing clients; they typically have shorter sales cycles, whereas our new business focus on companies where we are new and kind of need to prove ourselves and work with on a smaller scale is something that will take more time to show significant growth there. But also it requires some additional investment in that strengthening of the new business sales, both from a marketing and sales perspective. Additionally, if you look at tracking as a product, for example, it's a commoditized market where clients are very resistant to change. It's same as in CRM business or others. So those transitions, especially in markets where we are fairly unknown, it takes more time and effort to win this over. So I think it's going to be a big transition once we start increasing in awareness, when we start bringing in more of those clients, then I believe that will accelerate more rapidly. All right, good. And then just a reminder for me, what you said about the MMM to be added to as a subscription module. When was this? So this is something we're currently piloting with a number of our clients, so it's not fully rolled out yet. But again, initial results are very promising and full rollouts of this while we are able to also sell it in a larger scale, it's more likely to be Q2, early Q3 next year. Okay, good. Perfect. And then, yeah, and also just last, regarding your cost, obviously trimming that quite much, like the sequential decrease of the number of employees from 303 to 281. So, like, by how much more do you expect to trim the organization? Yeah, the 281 was actually the average during the quarter. So at the moment, we are around 270. So, again, as you say, it's a significant reduction in our workforce, and we've been working hard on redefining processes and teams to kind of cope with a smaller workforce and still deliver the same value to our clients. So we've already exceeded the 281. But yeah, of course, we are now consolidating and looking more ahead into back into growth mode. Not necessarily from an employee base, but a focus of the business is the last quarter has been very much focused, of course, on cost savings and finding a better way to run the business. Yeah. Yeah. And also, I mean, you have some capabilities already in India working for you. So how do you view the responsibilities they have, and if you're able to move any more like qualified work to there, and like lower the cost for that kind of delivery? Yeah, absolutely. So we have already started moving more responsibility and more tasks to our teams in India. So that's already been part of the exercise during the summer, and we continue to do so. So we really want to increase the high-value adds consultancy and client support and keep that in our Stockholm and local offices here, where we work directly with the clients, while we are moving more and more responsibilities to the teams in India. So yeah, this is ongoing, and this will continue to be the case. All right, good. And, do you have like regarding the efficiency measures that you're taking, when... Do you have like a date that you expect, like now we should be having like a slim and trim organization in place? No, I would say we are pretty much there. So it's not that those initiatives are necessarily done, because of course, many of these initiatives are continued, but that's more a new way of working, where we are more efficient and better in the process than before. But we, yeah, we have completed the cost savings that we set out to do, and as I said, next year will be more focused on revenue and profitability growth from a sales side. Yeah. All right. So basically, I know that you said it just shortly before, but like almost fully completed cost savings in Q4, but seeing the full effect first in Q1? Correct. Good. Perfect. Thank you so much for taking time to answer all my questions, and a big good luck going forward. No, you're welcome, and thanks for the questions, Jesper. Pleasure. As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments. So concluding, thank you all for listening. It's been a pleasure. In a nutshell, this last quarter has been a lot on getting us back to profitability, saving costs. The next call we'll have, I'm planning to talk to you more about our growth initiatives and results coming from that. But for now, thanks a lot, and until the next time.