Penneo achieves 27% year-on-year ARR growth in Q3-2023

Company Announcement No. 31-2023
Copenhagen, 21 November 2023
Quarterly financial report for the period 1 July 2023 - 30 September 2023

Q3-2023 performance highlights

• ARR increased by 3.3M DKK to 82.5M DKK corresponding to 27% year-on-year (YoY) growth at the end of the quarter
• ARR increase from Newbiz amounted to 2.1M DKK compared to 1.1M DKK in Q3-2022
• ARR increase from Uplift amounted to 1.7M DKK compared to 1.0M DKK in Q3-2022
• ARR lost to Churn amounted to 0.6M DKK compared to 0.7M DKK in Q3-2022
• ARR from foreign markets increased by 1.7M DKK compared to 0.7M DKK in Q3-2022
• EBITDA amounted to negative 7.4M DKK compared to negative 4.7M DKK in Q3-2022
• Free Cash Flow (FCF) amounted to negative 6.4M DKK compared to negative 7.3M DKK in Q3-2022

Guidance
ARR
Penneo assumes an ARR level of 87-92M DKK at the end of 2023 corresponding to an ARR growth rate of 23-30%. This is a narrower ARR guidance range within the previously communicated range of 87-95M DKK at the end of 2023.

EBITDA guidance
The assumed EBITDA level for 2023 continues to be in the range of negative 10M DKK  to negative 15M DKK.

The ARR outlook is based on currency exchange rates at the end of 2022. 

Business summary
In the third quarter of 2023, typically a low season for Penneo, the company continued making good progress achieving a year-on-year ARR growth of 27%. ARR increased by 3.3M DKK compared to 1.5M DKK in Q3-2022, reaching a year-to-date total of 82.5M DKK. This marks Penneo’s best Q3 ever.

In Q3-2023, there was an improvement in currency exchange rates, especially regarding the Norwegian and Swedish krone compared to the Danish krone. This positively impacted ARR by 0.2M DKK, compared to a significant negative impact observed at the end of H1-2023. For the remainder of 2023, we expect continued significant fluctuation in both NOK and SEK against DKK, that will impact our ARR result.

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 observed an increase of 18.2M DKK in ARR over the last 12 months corresponding to a year-on-year growth of 28%. In other words, currency fluctuations are to some extent masking a more positive underlying trend in our business.

During Q3, 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, reduced deal sizes. Notably, this trend is more pronounced in our established markets, including Denmark, Norway, and Sweden, whereas our new market in Belgium is showing robust 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 Q3-2023, Penneo brought on board 113 new customers up from 78 in the same quarter last year, and looking at the first three quarters of 2023, Penneo welcomed 366 new customers compared to 279 during the first three quarters of 2022. 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 2.1M DKK in Q3-2023, a significant increase compared to 1.1M DKK in Q3-2022.

Given Penneo’s low customer churn rate of 4% (year-on-year result as of the end of Q3-2023) and its proven track record of uplift, the enhanced capacity to acquire new customers is particularly valuable. This is because our customers tend to remain with us and increase their purchases over time. As a result, in Q3-2023 alone, the increase in ARR from uplift reached 1.7M DKK, a notable improvement compared to 1.0M DKK in Q3-2022, while the year-on-year ARR uplift by the end of Q3-2023 amounted to 18%.

In Q3-2023, the share of new business ARR from foreign markets continued growing and now accounts for 63% of our total new business ARR compared to 36% in Q3-2022. This was driven by Belgium where 44 new customers were acquired in Q3-2023 compared to 28 in Q2 and 29 in Q1. Speaking of foreign markets, Penneo is gearing up for our next expansion, likely targeting Germany as we have also reported earlier this year. While we are still in the process of preparing our go-to-market approach, Germany’s size and business potential makes it an attractive option despite challenges like low digitalization and eID adoption.

At the end of Q3-2023, Penneo’s cash position was 34.9 M DKK. As stated in our H1-2023 report, and according to our current investment plan, we have the ability to reach a position by the end of H2-2024, where we expect our ARR to exceed our overall cost base.

Penneo's guidance for 2023 has been updated as part of the announcement of its Q3-2023 financial results. The company now assumes an ARR level of 87-92M DKK at the end of 2023 corresponding to an ARR growth rate of 23-30%. This is a reduced guidance span that lies within the previously communicated ARR range of 87-95M DKK at the end of 2023. The guidance is based on continued cautious buying behavior in 2023.

Presentation
Penneo’s Q3-2023 financials will be presented at an online event hosted on 21 November 2023 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 24‬, PIN: ‪668 715 032‬#. Prior to the event, investors and interested parties can also submit and upvote questions to Penneo’s management via Stokk.io, a QA platform found here. During the live event, Penneo will answer questions posted on this platform after responding to analyst questions. On the 21 November, 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.