Penneo achieves 26% year-on-year ARR growth in 2023

Company Announcement No. 7-2024
Copenhagen, 21 February 2024
Annual report for the period 1 January 2023 - 31 December 2023

2023 performance highlights

• ARR increased by 18.4M DKK to 89.3M DKK corresponding to 26% year-on-year (YoY) growth at the end of the year
• ARR increase from Newbiz amounted to 10.1M DKK compared to 8.5M DKK in 2022
• ARR increase from Uplift amounted to 11.4M DKK compared to 9.1M DKK in 2022
• ARR lost to Churn amounted to 3.2M DKK compared to 2.2M DKK in 2022
• ARR from foreign markets increased by 7.1M DKK compared to 5.2M DKK in 2022
• EBITDA amounted to negative 8.7M DKK compared to negative 11.1M DKK in 2022
• Cash flow from operating activities amounted to positive 7.5M DKK compared to negative 7.7 in 2022
• Cash flow from investing activities amounted to negative 22.8M DKK compared to 19.4M DKK in 2022

2024 Guidance 

ARR

Penneo expects continued growth in ARR and guides ARR at the level of 105-112M DKK at the end of 2024 corresponding to an ARR growth rate of 18-25%.

The outlook is based on currency exchange rates per end of 2023.

EBITDA

Penneo expects an EBITDA at a level of 5M DKK to 10M DKK. 

As part of enhancing value creation in Penneo, the board will continue the work of formulating financial goals for Penneo. These financial goals are expected to be announced in the first half of 2024.

Business summary
In 2023, the company continued its growth pattern ending on a year-on-year ARR growth of 26%. ARR increased by 18.4M DKK compared to 15.5M DKK in 2022, reaching a year-to-date total of 89.3M DKK. 

In 2023, there were fluctuations in currency exchange rates, especially regarding the Norwegian krone compared to the Danish krone. This negatively impacted our 2023 ARR by 0.6M DKK, which means that currency fluctuations concealed a slightly more positive ARR development.

For background, Penneo reports its ARR using the currency exchange rates at the end of each quarter. In a constant currency rate scenario, Penneo would have achieved 89.9M DKK in ARR over the last 12 months corresponding to a year-on-year growth of 27%. In other words, currency fluctuations are to some extent masking a more positive underlying trend in our business. 

During 2023, our sales teams continued facing a market that is characterized by cautious buying behavior, which has been persistent since late 2022. This led to smaller initial sales commitments from new customers and, consequently, smaller initial sales commitments. Notably, this trend is more pronounced in our established markets, including Denmark, Norway, and Sweden, whereas our new market in Belgium is showing stronger growth in both customer acquisition and larger initial deal sizes.

In general, however, the trend of lower deal sizes in some markets has been offset by a strong performance in acquiring new customers. For instance, in 2023, Penneo brought on board a total of 584 new customers up from 404 new customers the previous year. In other words, while Penneo is closing smaller deals on average, this is being outweighed by the higher volume of deals, driven mainly by our success in Belgium. Despite lower deal sizes, this is also why Penneo’s new business ARR amounted to 10.1M DKK in 2023, compared to 8.5M DKK in 2022. 

Given Penneo’s low customer churn rate of 4% (year-on-year result in 2023) and its proven track record of uplift, the enhanced capacity to acquire new customers is particularly valuable. Our customers tend to remain with us and increase their purchases over time. As a result, in 2023 alone, the increase in ARR from uplift reached 11.4M DKK, a notable improvement compared to 9.1M DKK in 2022, while the year-on-year ARR uplift in 2023 amounted to 16%.

In 2023, the share of new business ARR from foreign markets continued growing and now accounts for 60% of our total new business ARR. This was driven by Belgium where 184 new customers were acquired in 2023 which is a 171% increase in ARR compared to 2022. Speaking of foreign markets, Penneo is gearing up for our next expansion, targeting Germany due to its large size and attractive commercial potential despite challenges such as low digitalization and eID adoption.

At the end of 2023, Penneo’s cash position was 42.2M DKK. As we move forward, our approach is to invest the cash that is available and continuously ensure that we have a clear path to a cash positive position given the cash available. At the end of 2024, we expect to reach a position where our ARR will exceed our overall cost base, positioning us to achieve at least a cash neutral status on a yearly basis by 2025 according to our current projections.

Presentation
Penneo’s 2023 financials will be presented at an online event hosted on 21 February 2024 at 10:00 CET. The call hosted by Penneo will be conducted in English and can be attended live here. Participants are also able to dial in via ‪(DK) +45 70 71 41 69‬, PIN: 815 087 448‬#. Prior to the event, investors and interested parties can also submit and upvote questions to Penneo’s management via Stokk.io, a Q&A platform found here. During the live event, Penneo will answer questions posted on this platform after responding to analyst questions. On 21 February, Penneo’s financials will also be presented at a webinar hosted by HC Andersen Capital at 13.00 CET. This event is conducted in Danish and you can sign up here.