Heeros Oyj: Business Review 1 January–30 September 2022: Recurring revenue grew by 20% and profitability continued to improve from the beginning of the year, increasing the Rule of 40 in July-September to 41%

This release is an unofficial translation of the summary of Heeros Plc Business Review January–September 2022. The complete Business Review in Finnish is available on the company’s website at www.heeros.com/sijoittajille/tiedotteet

July-September 2022 summary

• The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 41% (7–9/2021: 37%).
• In September 2022, contract revenue (MRR, Monthly Recurring Revenue) amounted to EUR 664 (499) thousand, growing by 33% year-on-year (yoy).
• Recurring revenue (contract and transaction revenue) increased by 20% to EUR 2,583 (2,159) thousand. Contract revenue increased by 36% to EUR 1,970 (1,453) thousand. Transaction volumes grew by 12% and transaction revenue was EUR 613 (706) thousand.
• Revenue increased by 16% to EUR 2,640 (2,274) thousand.
• EBITDA was EUR 631 (689) thousand, or 24% (30%) of revenue. Adjusted EBITDA was EUR 646 (684) thousand, or 24% (30%) of revenue.
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 192 (280) thousand.

January-September 2022 summary

• The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 39% (25%).
• Recurring revenue increased by 21% to EUR 7,707 (6,349) thousand. Contract revenue increased by 41% to EUR 5,854 (4,163) thousand. Transaction volumes grew by 13% and transaction revenue was EUR 1,854 (2,186) thousand.
• Revenue increased by 22% to EUR 8,190 (6,704) thousand.
• EBITDA was EUR 1,346 (1,378) thousand, or 16% (21%) of revenue. Adjusted EBITDA was EUR 1,410 (1,418) thousand, or 17% (21%) of revenue.
• Operational cash flow (adjusted) was EUR 913 (1,146) thousand.
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 722 (941) thousand.
• The financial outlook for 2022 remains unchanged: Heeros is expecting to increase the combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) to over 40% for the 2022 financial period.

KEY FIGURES

1 The adjusted figures for 7-9/2022 include an adjustment of EUR 15 thousand for non-recurring restructuring costs. Adjusted figures for 2021 include an adjustment of EUR 72 thousand for non-recurring expenses related to the assessment of inorganic growth.
2 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
3 Adjusted operational cash flow for the financial period 2021 includes an adjustment for tax and earnings-related pension payment arrangements as well as non-recurring restructuring costs.

The merger of the software company Taimer Ltd with the Heeros was completed on 1 January 2022. Reported comparison period figures do not include Taimer.


MIKKO PILKAMA, CEO:

“The implementation of the updated Heeros strategy, published in June, has started swiftly. Over the summer, we have continued to develop services to expand our portfolio. The goal is to further strengthen Heeros' position in supporting business-critical processes of small and medium-sized companies. We are proud of the fact that now during Q3 we have introduced a completely new offering to the market, Heeros Small Business, which automates and speeds up the business operations in 1-10 employees' companies. Today we announced another completely new solution, Heeros HR, to support the automation of personnel management. We expect both solutions to have a growth impact on Heeros’ recurring revenues next year.

Business development – recurring revenue growth as estimated with improved profitability

As in previous years, our profits have improved well in Q3. In accordance with our forecast, we reached the 41% level (Rule of 40), thanks to the improved EBITDA margin.

Recurring revenue increased by 20% in July-September, being 21% in January-September. The cyclical nature of Heeros' business operations is reflected in the Q3 figures, as the summer holidays in our customer base have traditionally been quiet period in terms of business activities. The growth of Heeros' total revenue was slowed down by the high project revenue recognition that occurred in Q3/21 (EUR 115 thousand in Q3/21 vs EUR 57 thousand in Q3/22). Because of this, cumulatively in January-September Heeros' organic revenue was growing by about 9%.

Our net revenue retention (NRR) stayed at a high level, being a strong 109%. This means that we have been successful at selling our expanded portfolio to current customers. Due to packetizing of transactions with subscription service, Heeros' transaction revenue declined from last year. However, transaction volumes continued to strengthen during Q3.

New customer orders were still below the level of last year. The order backlog for the end of the year is strong and due to new product launches we predict an improvement in new customer orders in Q4.

Expanded product portfolio brought to the market - strengthen Heeros’ offering for SMEs

In the future, Heeros will combine all its products under the unified Heeros brand. We launched our new brand together with the Heeros Small Business offering on 22 September. The renewed brand will appear gradually both in Heeros' communication as well as unified user experience in Heeros services.

New Heeros Small Business offering provides comprehensive support for the operations of small businesses. It includes support for invoicing, sales quotes, proposals to billable hours and expenses. During Q4, we will focus on scaling it first in Finland and next year also internationally.

Today we have launched another new solution, Heeros HR. It is intended for personnel management of SMEs and integrates with Heeros payroll solution. Our solution is suitable for companies that do not yet have an HR system or whose current system is too heavy and rigid to use and maintain. Employers can offer their employees a modern channel to handle matters related to employment, regardless of time and place. Heeros HR is also well suited for accounting offices, which want to offer their clients an effortless way to handle all payroll-related tasks.

Outlook for the rest of the year

Heeros' business outlook appears good for the rest of the year, although it is difficult to predict the Finnish economic development especially for the SME segment customers. Neither the war in Ukraine nor the COVID-19 pandemic seems to impact the development of Heeros' business operations this year. Finland's rapidly deteriorating economic environment can however impact our business growth.

The nature of SaaS business is recurring and therefore we are confident in the stability of our customer base despite the economic situation. We will continue to invest in product development and recruitment to strengthen the conditions for future growth.”

FINANCIAL OUTLOOK FOR 2022

Heeros keeps the financial guidelines for 2022 it provided in the financial statement release of 3 February 2022 unchanged:

Heeros is expecting to increase the combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) to over 40% for the 2022 financial period.

FINANCIAL REPORTING

Heeros will publish the release dates for the 2022 Financial Statements Bulletin as well as for the 2023 Half-Year Report and Business Reviews in December.

Additional information:

Mikko Pilkama, CEO, tel. +358 (0)40 828 3717, [email protected]

Certified Advisor:
Aktia Alexander Corporate Finance Oy, tel. +358 (0)50 520 4098

Heeros briefly

Heeros is a Finnish software company specializing in cloud-based business management solutions. Heeros solutions meet the changing needs of SMBs that are looking to invest in integrated, user-friendly systems used across the organization. Heeros portfolio covers solutions to digitalize key business processes from financial and human resources management to enterprise resource planning. Established in 2000, Heeros’ shares are listed on Nasdaq First North Growth Market Finland (trading ID: HEEROS). www.heeros.com