Heeros Plc’s Business Review 1 January– 30 September 2023 (unaudited): EBITDA grew by 38% and contract revenue by 10% in the third quarter of the year.

This release is an unofficial translation of the summary of Heeros Plc’s Business Review 1 January– 30 September 2023. The complete report in Finnish is available on the company’s website at www.heeros.com/sijoittajille/tiedotteet.

July – September 2023 in brief

• The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 41% (7–9/2022: 41%).
• Revenue increased by 7% year-on-year to EUR 2,820 (2,640) thousand.
• Recurring revenue (contract and transaction revenue) increased by 4% to EUR 2,695 (2,583) thousand. Contract revenue increased by 10% to EUR 2,171 (1,970) thousand. Transaction volumes decreased by 8% and transaction revenue declined by 15% to EUR 524 (613) thousand. In addition to the fall in transaction volumes, the fall in transaction revenue was also due to the conversion of transaction volumes into contract revenue in connection of contract renewals.
• At the end of September 2023, contract revenue (MRR, Monthly Recurring Revenue) amounted to EUR 723 (664) thousand, representing a year-on-year increase of 9%.
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 130 (190) thousand.
• EBITDA increased by 38% to EUR 872 (631) thousand, which was 31% (24%) of revenue. Adjusted EBITDA increased by 51% to EUR 973 (646) thousand, which was 35% (24%) of revenue.

January – September 2023 in brief

• The combined EBITDA margin and revenue growth percentage (Rule of 40, adjusted) was 25% (1-9/2022: 39%).
• Revenue increased by 4% year-on-year to EUR 8,486 (8,190) thousand.
• Recurring revenue increased by 5% to EUR 8,061 (7,707) thousand. Contract revenue increased by 9% to EUR 6,407 (5,854) thousand. Transaction volumes decreased by 5% and transaction revenue declined by 11% to EUR 1,654 (1,854) thousand.
• EBITDA increased by 26% to EUR 1,697 (1,346) thousand, which was 20% (16%) of revenue. Adjusted EBITDA increased by 32% to EUR 1,855 (1,410) thousand, which was 22% (17%) of revenue.
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 480 (720) thousand.
• After the reporting period, on 18 October, Heeros announced that it was lowering its financial guidance for 2023: Heeros estimates that its combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) will be 23-27% during the 2023 financial period. We will focus on securing profitable growth during 2023, and we expect the EBITDA margin to increase in the second half of 2023 compared to the second half of 2022.

KEY FIGURES

1 The revenue growth rate for 2022 includes the inorganic growth derived from the Taimer Ltd acquisition. The adjusted figures for 1-9/2023 include
an adjustment of EUR 158 thousand for non-recurring restructuring costs.
2 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
3 The adjusted figures for 1-9/2023 include an adjustment of EUR 158 thousand for non-recurring restructuring costs.

NIKLAS LAHTI, CEO

“Heeros continued to make positive progress during the third quarter of 2023 despite continued challenges in the Finnish macroeconomic environment.

Our scalable and predictable SaaS-business model combined with a commitment to improving profitability continues to bring certainty in delivering results even amidst a deteriorating market situation.

Focus on profitability continues
Heeros’ key focus area during the quarter continued to be increasing profitability, a goal where we succeeded well.

January-September EBITDA (adjusted) increased by 32% to EUR 1 855 (1-9/2022: 1 410) thousand, which was 22% (17%) of revenue. July-September EBITDA (adjusted) increased by 51% to EUR 973 (7-9/2022: 646) thousand, which was 35% (24%) of revenue.

Revenue continued to grow, although at a slower pace compared to the same period last year, driven by good development in recurring revenue. At the end of September 2023 Monthly Recurring Revenue (MRR) was EUR 723 (664) thousand, which marks 9% growth compared to September 2022.

The declining macroeconomic situation slowed down revenue growth. Transaction revenue, which is about 20% of recurring revenue, was more negatively impacted in third quarter (-15%) than in second (-9%) or first quarter (-8%). Annual Recurring Revenue (ARR) order intake was lower than a year ago at EUR 130 (190) thousand. These two factors, despite positive developments in contract revenue, affected total revenue development negatively.

We now see the effects of cost savings measures enacted during April-May 2023 more clearly. Headcount at the end of September was 81 FTEs (94 FTEs at end of June 2023). At the same time, OPEX base continued to fall. As a result, operative cash flow was rather positive during the third quarter at EUR 304 (259) thousand.

As noted earlier in our Half-year report 2023, the effects of these cost saving measures are expected to be visible Q4 2023 onwards and in full during 2024.

Long-term customerships, low churn
Contract revenue, our most important metric, grew by 10% during the third quarter. Net revenue retention was 106% (109%), especially strong with direct customerships both on Financial cloud and ERP cloud sides. Churn, especially churn measured in customers not contracting but completely leaving Heeros continued to be low. Continued success in these three metrics show that our services are bought for the long term with great customer relationships.

New customer care and segmentation model
In order to focus on those customers who are on the growth journey with Heeros, during the quarter we decided to update our customer care model. The first step in this path was to resegment our customers. This brings us enhanced capabilities in automation-based activation and engagement as well as efficiency gains in customer care. With this in mind, during the third quarter we introduced a new role called Digital Customer Success Manager. Digital CSM's at Heeros will focus on data, automation and customers. We're excited to start engaging our customers more broadly with this new approach.

For quarters to come, our plan remains to be focused on expanding current customerships rather than putting a lot of effort into gaining new logos.

Updated brand now on web as well
Just after the end of the quarter, the last step in the integration between Heeros and Taimer was finalized. With the launch of Heeros' new website, the brands Taimer and Heeros were merged, leading to the termination of Taimer as a distinct product brand. In this broad project, we succeeded in standardizing the customer experience as well as unifying and modernizing the brand experience of Heeros.

During the quarter we also successfully outsourced one of our products, scanning services, to Posti, and reduced costs without affecting customer service level – an effective example of streamlining our product suite to focus on our ideal customer profile.

Finally, Heeros announced on 26 September 2023 that I was appointed as CEO of the company. I would like to take the opportunity to thank the board of directors for the trust placed in me, and hope to help guide Heeros in a more profitable and more focused future.”

FINANCIAL OUTLOOK FOR 2023 (UPDATED ON 18 OCTOBER)

Heeros estimates that its combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) will be 23-27% during the 2023 financial period. We will focus on securing profitable growth during 2023, and we expect the EBITDA margin to increase in the second half of 2023 compared to the second half of 2022.

CONTINUATION OF THE STRATEGY PERIOD

Heeros published an updated strategy for the period 2021-2023 on June 8, 2022. The strategy, which focuses on the best user experience in the industry and profitable growth - both in Finland and abroad - has proven its effectiveness. Heeros will continue to implement this strategy in the coming years, with emphasis on supporting the digitalization of medium-sized companies through its product portfolio of automated business solutions.

RESULTS PRESENTATION FOR INVESTORS ON 26 OCTOBER 2023 AT 11:00 EEST

Heeros will hold a Teams live event for investors, analysts and the media. At the event, Heeros management presents the company's January-September financial performance and business development. The meeting will be held in English.

A link to the Teams meeting has been sent to everyone who has registered for the event in advance.

You can access the event materials after the event on the company’s website at https://www.heeros.com/en/for-investors.

Heeros Plc
Board of Directors

More information:
Niklas Lahti, CEO, tel. +358 40 774 1777, [email protected]
Juho Pakkanen, CFO, tel. +358 40 506 9898, [email protected]

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