Modelon AB Interim report Q2 2021

Q2 Highlights

• Annual Recurring Revenue at constant currency increased to 31.6 MSEK, with quarter-to-quarter growth of 8%. Modelon Impact ARR grew 29% compared to the previous quarter and was the major contributor to overall ARR growth
• Net revenue amounted to MSEK 18.4 (30.3), of which software revenues were MSEK 8.8 (8.7)
• EBIT amounted to MSEK -9.7 (1.5)
• Net result amounted to MSEK -9.9 (0.6)
• Earnings per share amounted to SEK -0.90 (0.08) before dilution, and SEK -0.88 after dilution
• Financial result for the period reflects the ongoing investment phase for accelerated growth

Significant events during the second quarter

• IPO on Nasdaq First North Growth Market was substantially oversubscribed. Modelon class B were listed on April 28 with ticker symbol MODEL B. In the IPO 3 409 090 new shares were issued, which raised 150 MSEK gross proceeds to the company before costs related to the transaction
• Annual general meeting on May 31 resolved to appoint Mark H. Shay from Accendo Capital and, Magnus Thell, independent, as new board members

Significant events after the end of the period

• No significant events

Comments from the CEO
ARR growth on track
The second quarter shows continued high activity in our software business with quarter-to-quarter growth in Annual Recurring Revenues (ARR) of 8% at constant currency, with our cloud platform Modelon Impact contributing with 29% quarter-to-quarter growth. Modelon Impact is rapidly growing its share of the total ARR, albeit from low levels, as the platform was first released to the market in July 2020. With this growth we are on track to reach our target 35% ARR CAGR and 100 MSEK ARR in 2024.
Lead generation for Modelon Impact is healthy with a good spread over regions and sectors, building a solid pipeline for continued growth in the coming quarters. The high content marketing activity level to generate leads and awareness continues with blogs, webinars and conferences. Leads from these activities are expected to generate new business in 2-6 quarters, as the sales cycle from a qualified lead in our industry is in the 6-18 months timeframe.
In this early phase of our land-and-expand sales strategy for Modelon Impact, growth is driven by winning new accounts to position us for future follow-on sales. These initial transactions are typically moderate in size (<0.5 MSEK) with a handful of users, while the growth potential on each account is often a factor ten times or more. As the installed customer base evolves, the contributions from new accounts and follow-on sales are expected to be similar in size. Synergies between our software sales and our solution services business create a unique differentiator: our teams of subject matter experts support the onboarding and ramp-up of our new platform customers, while helping existing customers to expand the use of our solutions.
During the period this strategy is illustrated by a new European enterprise customer onboarding with three Modelon Impact seat licenses for connected clean energy applications, and with an estimated long-term growth potential on the order of 100x as this customer is a global leader in sustainable transportation and energy. In a related application domain of microgrids, another European customer that we onboarded in 2020 has during the quarter started to purchase additional seat licenses.

Strong activity in Clean Energy and increased activity in Automotive
The high activity level in the clean energy sector reported in the first quarter continues and we are again proud to present an exciting success story with Modelon Impact from a leading global customer. ENGIE, headquartered in France, is a €56bn revenue multi-national utility company specialized in low-carbon energy and with a growing solar capacity. Using Modelon Impact, a complete and accurate digital twin of an ENGIE solar power plant was deployed to improve operational efficiency and saving time and money. We are pleased to see Modelon Impact being deployed with such success in digital twin applications, which is an emerging application area with significant potential.
In the period we also saw increased activity in the automotive sector, with new customers for Modelon Impact in segments covering EV, trucks, motorsport and tier-1 suppliers, including migrations from our multi-platform solutions. From this industry we are also proud to present a customer story from the global automotive OEM leader SUBARU, who are successfully deploying Modelon solutions in the development of electrified drivetrain systems, leading to improved efficiency.

Modelon’s journey to the cloud – Modelon Impact release 2021.2
The 2021.2 release of Modelon Impact was announced on June 21 and includes new features and improvements such as 3D animation support, improved multi-simulation capabilities, improved code editor, FMU import, and many other enhancements. The model libraries are updated with significant new features exemplified by CO2 separation, microgrid controls and realistic storage for energy applications, modular electric powertrains and updated tire models for automotive applications, and digital twin examples and improved fuel system models for aerospace applications. Several of these improvements are driving immediate sales.

Modelon Impact development focus
In the second quarter the strategic shift from customer-funded to self-funded development of Modelon Impact using IPO proceeds was completed, allowing full focus on our market-driven roadmap and our ARR growth target. As discussed in previous reports and in the IPO prospectus, this planned strategic change is expected to temporarily put pressure on our service revenue and EBIT.

In transition
Modelon is in the midst of an exciting and accelerating transition of our business from service dominated to recurring software centric. We introduced our subscription-based cloud platform Modelon Impact to the market in July 2020 and are now seeing the software revenue growth picking up as planned. Modelon Impact is our strategic growth engine for the years to come and while we plan for the multi-platform portfolio business to remain for the foreseeable future, we also expect a significant portion of our existing customer base to migrate to the new platform over the next years. At the same time, we are accelerating our investment pace in commercial and product development activities to aggressively capture the exceptional market opportunity with a pioneering cloud-based simulation platform, which drives cost. We are also shifting the source of our growth financing as the customer co-development project 2018-2021 recognized as service revenue is being phased out and replaced by self-funding, resulting in decreasing service revenues in 2021 vs 2020. Altogether, we are taking firm steps to realize our growth strategy.

Talent and teamwork
In the period we stepped up our recruitment activities to secure the world-class talent needed for our growth. The career pages on our website list multiple exciting positions around the world in our commercial and product development teams. As a related effort we are also increasing our activities with graduate students and interns from top universities to build a long-term talent pipeline. In June, all of Modelon gathered for our annual summer event – this time virtually. Our global teams connected for alignment, team building, collaborative working sessions, and leadership training.

We enter the second half of the year fueled with energy and confidence. Our transformation towards cloud and SaaS is in full swing. Our growth journey is on track.

Magnus Gäfvert, CEO Modelon
Lund, August 20, 2021

Investor presentation
Modelon invites to presentation of Q2 interim report at 10am CET on August 20, 2021. CEO Magnus Gäfvert and CFO Jonas Eborn will present the Q2 earnings in an audiocast: https://tv.streamfabriken.com/modelon-q2-report-2021/register.

Complete Q2 interim report is attached to this press-release and is also made available on the company webpage: www.modelon.com/investor-relations.