Modelon AB Interim report Q3 2021

Q3 Highlights

• Annual Recurring Revenue at constant currency increased to MSEK 34.1 (28.7), with annual growth of 19% and continued quarter-to-quarter growth of 8%. Modelon Impact ARR grew 13% compared to the previous quarter and was the major contributor to overall ARR growth
• Net revenue amounted to MSEK 14.1 (24.7), of which software revenues were MSEK 9.2 (8.8)
• EBIT amounted to MSEK -11.0 (1.4)
• Net result amounted to MSEK -10.9 (1.4)
• Earnings per share amounted to SEK -0.99 (0.18) before dilution
• Financial result for the period reflects the ongoing investment phase for accelerated growth

Comments from the CEO
Sustaining ARR growth
Third quarter sequential ARR growth at constant currency rates was 8%, unchanged from the level reported for the second quarter, with our cloud platform Modelon Impact driving the growth. This growth rate for the third quarter, which is typically the weakest of the year due to summer holidays, gives us confidence that we remain on track to meet our financial targets of 35% ARR CAGR and MSEK 100 ARR in 2024.
Lead generation for Modelon Impact remains healthy and balanced across our four core sectors: Automotive, Energy, Aerospace and Industrial Equipment. Americas stands out as the strongest region for new business, and we are adding sales team capacity in the U.S. to meet demand. The high content marketing activity level continues with blogs, webinars and conferences. Leads from these activities are expected to generate new business over the coming two to six quarters, roughly in line with the typical sales cycle in our industry.

Demonstrating Land-and-Expand
We continue to implement our “land-and-expand" sales strategy for Modelon Impact, which was described in the second quarter report. New accounts still dominate the sales mix, but existing accounts are increasing their contributions. One example of the latter is a rapidly growing U.S. renewable energy company that is developing innovative concentrated solar power solutions. During the quarter, the customer added more seats to its Modelon Impact installation, less than six months after the initial purchase, resulting in a 29% ARR upsell-driven growth for this account during the first year. We are also seeing adoption of Modelon Impact among our long-term multi-platform product customers, notably with a large U.S. aerospace company that purchased its first seats of Modelon Impact during the quarter — just one of many active opportunities for migration to Modelon Impact and revenue growth.

Supporting the Clean Energy Transition
At the International Conference on Power Engineering (ICOPE-2021) held October 17-21 on-line, Modelon and Xi’an Thermal Power Research Institute published an article that describes our joint work during the period to model a conventional Chinese power plant owned by China Huaneng Group, which is one of the five largest state-owned electricity companies in China, for the purpose of adapting its design to an increasing volume of fluctuating renewable energy generation on Chinese power grids. This project is a bridgehead that provides excellent visibility into the dynamic Chinese energy industry with its fast-growing renewable sector.
We are proud that our modeling and simulation solutions are used broadly in the global transition to increased renewable energy production and reduced CO2 emissions, as exemplified by selected past and recent engagements highlighted below. Our customers are active in a variety of renewable energy segments, including solar, wind, and wave power. An excellent example is our recent ENGIE customer story describing how our tools are being employed for predictive maintenance of solar photovoltaic plants.
The global clean energy transition requires new technologies in national electric power grids to manage the intermittent nature of renewable energy sources. Modelon solutions are uniquely capable of simulating these complex power management systems and have for many years been deployed globally to facilitate innovation, product development, and operations. For example, Modelon has been working with energy industry leaders such as Vattenfall and Siemens to simulate and enable the combination of renewable and conventional power generation in public grids. Alternative and emerging technologies manage variations in renewable energy production by absorbing the variations in energy storage, e.g., chemical, thermal or electro-chemical, where the use of Modelon solutions is demonstrated in the recent customer stories from Malta and MAN Energy.
Additionally, Modelon has been working with energy companies in Europe on Carbon Capture and Storage (CCS) applications to reduce the carbon footprint from conventional power plants — a technology that is gaining renewed interest. For example, a leading European automotive company is using Modelon Impact for related and emerging applications in Direct Air Capture. The global clean energy market segment is a significant long-term opportunity for Modelon, where we offer mature, unique solutions and expertise.

Investing for Growth
The investment pace and EBIT now fully reflect the previously communicated strategic shift from customer co-funded development in which a U.S. enterprise customer contributed significantly to service revenues, to fully self-funded product development with all product development costs expensed. This shift is reflected in the 70% increase in development costs of MSEK 11.7 (6.9) in the quarter compared to Q3 2020. Service revenues from funded development are estimated to decline by approximately MSEK 40 for the full year 2021 compared to 2020. Modelon’s self-funded development is advancing product functionality at a robust pace, delivering a steady stream of new platform capabilities that meet customer requirements. We are also scaling up our sales and support teams to manage larger volumes of customers.

We are charging forward into the fourth quarter with growth momentum and pride that our solutions are instrumental in driving the innovation and development of novel, clean technologies that will transform industries and improve society.

Magnus Gäfvert, CEO Modelon
Lund, November 16, 2021

Investor presentation
Modelon invites to presentation of Q3 interim report at 10am CET on November 16, 2021. CEO Magnus Gäfvert and CFO Jonas Eborn will present the Q3 earnings in an audiocast: https://tv.streamfabriken.com/modelon-q3-report-2021/register.

Complete Q3 interim report is attached to this press-release and is also made available on the company webpage: www.modelon.com/investor-relations.