Earnings call transcript: OneFlow’s Q1 2025 sees 27% sales rise amid market challenges

OneFlow reported a notable 27% increase in net sales for Q1 2025, despite a challenging economic climate impacting sales cycles. The company’s stock price reacted positively, rising 4.91% to 29.9 NOK in pre-market trading. According to InvestingPro data, the company’s current market capitalization stands at $83 million, with an overall Financial Health score rated as "FAIR." The stock has seen a challenging period, down nearly 23% over the past year. While the company did not disclose specific EPS and revenue forecasts, its financial performance showed improvement in key areas, including a stable gross margin of 92% and a reduced EBITDA loss.

Key Takeaways

• Net sales surged 27% year-over-year.
• ARR grew by 23%, reaching nearly NOK 165 million.
• Stock price increased by 4.91% pre-market.
• EBITDA loss narrowed, demonstrating improved cost management.
• Focus shifted towards achieving profitability in the short term.

Company Performance

OneFlow’s Q1 2025 results highlighted significant growth in net sales and ARR, despite market hesitancy towards technology investments. While reported margins appear strong, InvestingPro data shows a more nuanced picture with trailing twelve-month gross profit margins at 9.45%. The company’s EBITDA loss improvement to -NOK 8.6 million reflects ongoing operational adjustments. InvestingPro subscribers have access to 6 additional key insights about OneFlow’s financial position and growth prospects. The company’s strategic focus on reducing its workforce and optimizing costs has contributed to its improved financial position.

Financial Highlights

• Revenue: Increased by 27% year-over-year.
• ARR: Grew by 23% to nearly NOK 165 million.
• EBITDA: Improved to -NOK 8.6 million from previous levels.
• EBIT: Narrowed to -NOK 19.4 million, a NOK 2.3 million improvement.

Outlook & Guidance

OneFlow is prioritizing profitability in the short term, aiming for EBIT profitability before refocusing on growth. The company plans to maintain its product enhancement strategy while targeting long-term ARR growth of over 30%. According to InvestingPro analysis, the company holds more cash than debt on its balance sheet, providing financial flexibility for its growth initiatives. Analyst consensus shows a "Strong Buy" recommendation, with a target price suggesting potential upside from current levels. Despite the current economic challenges, OneFlow remains committed to accelerating growth post-profitability.

Executive Commentary

CEO Anders Samnes emphasized the value of time-saving innovations, stating, "Time is the most precious thing we have in life. So if you can save time, that’s worth a lot." CFO Natalie Jelven expressed confidence in achieving long-term ARR growth, adding, "We do still believe in the long run that we’re going to achieve ARR growth over 30%."

Risks and Challenges

• Prolonged sales cycles due to economic uncertainty.
• Market reluctance in technology investments.
• Potential impact of reduced workforce on operations.
• The need for continuous innovation to maintain competitive edge.
• Dependence on recurring revenue amidst shifting customer demands.

Q&A

During the earnings call, analysts inquired about growth projections and cash flow management. The company indicated comfort with its current cash flow and emphasized continuous monitoring of its cost base. The focus remains on EBIT as the primary profitability metric, with no significant one-time expenses reported.

Full transcript - Oneflow AB (ONEF) Q1 2025:

Anders Samnes, CEO or Executive, OneFlow: Okay. Welcome to this meeting where we’ll walk through the highlights of the first quarter twenty twenty five numbers for OneFlow. My name is Anders Samnes, and next to me we have Natalie Jelven, our CFO. And please also use the Q and A function in Zoom and not the chat, and we will get back to your questions in the end of this presentation. So before we dive into the numbers, we would just like to say a few words about ARR, because we have made a change to this formula as of January.

As maybe some of you have seen, we also reported a slightly higher ARR numbers in our press releases from January, February, and March this year. And the reason for that is that we initially planned not to change our historical numbers, But we realized that, this gave a slightly skewed or wrong picture, of our performance when it comes to growth and retention and so on. So we decided, the last few weeks to just update all numbers back in the history, to give you a more correct picture of how we are doing as a company. So the changes in the formula is that we before, when it comes to churn, we, used notice date, and now we log churn on termination date. And also when it comes to to new and expansion ARR, before before, we logged that on contract sign date, and today, we log it on contract start date or subscription date, invoice date, that is the same thing.

This is, kind of a more live ARR. Yes. So highlights. ARR was up 23%, year over year, ended at, almost 165,000,000. And for the April, we had NOK 166,200,000.0 in ARR.

We also had a quite heavy headwind in the quarter on the currency. So we lost around NOK 3,400,000.0 on our portfolio due to a very strong kroner in Sweden. So the net effect was NOK 5,600,000.0 in net new ARR, 5 point 6 million in net new ARR for the quarter. ARR per full time employee, up 28% and closed in at slightly north of 900,000. Net and gross retention rates, 10189% end of the quarter.

And we had 4,300 paying customers at the March, which is up 17% year over year. So first to those of you that are new to Onflow, we’d just like to share two slides on what we do. And so we are a platform for handling contracts. All kind of contracts for all departments, HR, sales, procurement, legal, and this is an end to end platform for all the steps in the process where you can create create very powerful templates in OneFlow. You can collaborate in real time, make changes, audit trail, inline comments, suggestions, and so on.

So you don’t have to jump back and forth between Word, PDF, Outlook, and a more simpler e sign tool. In Mopflo, you can do it all on one slate in a very interactive experience. Post sign, you can archive your contracts, you can manage your contracts, you can have full control of your obligations and liabilities and so on, which is, of course, very, very important. And throughout the process, we also offer a suite of very powerful AI services to help our users write better contracts and to also be more, at the highlight risks and so on. And also since we have an open format, we not we don’t lock lock contracts down into PDF pictures.

It’s HTML experience. You can you can have very powerful integrations between OneFlow and your CRM, ERP, HRM, ATS or any other system that you use in your workday. Time is the most precious thing we have in life. So if you can save time, that’s worth a lot. And that’s what you do at OneFlow.

We make you more effective. You can save a lot of time throughout this process. And this pink status is the time you can save if you use OneFlow compared to using what still most companies do, making your contracts in Word and PDF and mailing back and forth and maybe upload it to an eSign tool, which is a very, very crowded space these days, and that’s the staple in the middle here. So if you go for an eSign tool, you can of course, you replace the scanner on a printer, but but that’s only saving a few minutes. So the big potential for saving time is not in a sign sign space stage.

It’s of course, before and after you sign the contract. Highlights when it comes to feature improvements for the quarter. As those of you that knows us well know, we put a lot of effort into integrations. This is very, very important, unique selling point for OneFlow. Back in the days, if you go back five years, ten years, it was enough to just have an integration.

Today, customers are more demanding, and they require really, really deep and powerful integrations with two way sync and so on. And we have a team in Sri Lanka, around 23 people at the moment, just building integrations and maintaining our public API. We have a top notch integration to a lot of the big CRMs, in the market, and we continue to just build and and and improve. So for the quarter, we put a lot of effort into HubSpot and even the Swedish CRM, sales, upsells, and also a, an HR tool called Hybob, which is super big at the moment. We even launched an integration to Talent Tech ReachMe.

This is one of the biggest Nordic players in the application tracking space. Last year, we launched a more extensive signing order, where we can have approvals and so on, build very powerful flows. And in the first quarter of this year, we even extended those capabilities to the counterparties. So even counterparties can add different kind of participants in the contract process. Some can be signers, some can be improver be approvers and so on.

This is a very highly appreciated feature in in OneFlow. We put a lot of effort into the post sign experience and we also added some more bulk action capabilities so you can you can be more, effective when you organize your contracts, move, delete, and so on in bulk, not only one by one. And since contracts is a part of other processes in the company, we even added what is called redirect of design internally. What it means is that you can you can connect one flow to a bigger flow. So what’s gonna happen when the contract has been signed?

Then you can trigger different kind of of actions. The beginning of the second quarter, we launched AI Extract. So this is also a highly, appreciated feature where customers can upload all their old contracts into OneFlow. And by AI, we extract key data, so you can actually make them alive and do stuff with the data. It can be participants, it can be amounts, date fields, and so on.

So you can actually get notifications and and play with the data, and you can you can build reports and so on on on this key data. So if if it’s locked down, if you a lot of companies still, actually, most companies still have their contracts on in a folder, on a drive, as a PDF for an image, then it’s dead data. So we can make that data alive. More concepts, within AI review and AI insights. This is something that we launched last year and we’re just building, building, building.

Now we we would give our users a lot of powerful insights when it comes to how they write contracts. We can highlight risks, we can suggest improvements and so on, and we can also do that across all the contracts. We can highlight contracts that deviate from something, a standard or a template. So you can for like if you have a due diligence process, this is a really, really powerful way of just scanning through all your contracts. And even we launched, a simple version of AI review and AI insights for customers with the enterprise tier also in the quarter.

So, just as a t shirt, so if you want to to to customize and so on and do more stuff, then you would have have to buy buy, this as an add on, but but just as a teaser, we launched it for all enterprise customers. And we continue to build deeper and deeper integration with HubSpot, which is one of the key CRMs in the market. So net new ARR for the quarter was 5.6, and then we also had a currency headwind of 3.4. So if you take out that currency component, it would have been 9,000,000 in net new ARR. We have roughly 40% of the ARR is in foreign currencies.

We do I know this is an old kind of record, but still the sentiment is not fun. Sales cycles are quite quite long, and it is quite the market is quite reluctant when it comes to into investing and so on. And and this is not this is something that, I guess, most companies in the software space experts at the moment. If we look at how we reported the ARR before, so we had gross new ARR signed for the first quarter at 12.9, but only 6.9 was recognized during the first quarter. And the remaining NOK 6,000,000 will be included in future periods.

We closed in at 165,000,000 in ARR end of Q1, ’1 hundred ’60 ’6 million for the April. The growth trend has been declining, and we ended at 23% end of Q1. If we take out the currency effect, the growth would have been 25. As many of you know, we do have some goals or targets and that has been to have a growth more than 30% and to become profitable with the current funding. What we do see is that we will not be able in the short term maintain a growth rate at more than 30% because now we are so focused on becoming profitable.

And that will impact our investments. And so but mid term and long term, we stay put, with our, growth, goal of 30% plus. So that’s gonna happen. We will focus refocus back on the growth when we become profitable. Obviously, what will also improve our growth going forward, underlying market fundamentals will at some point get back to normal.

That’s gonna, of course, help when the investment, when when when people are more open to to to do investments and so on. We do have a lot of, features, a lot of product enhancements that we know our customers and prospects would like and even sometimes require. So we are filling the gaps in the product. And also we are constantly working with our go to market motion. We are going to rebalance our ICP.

We are making changes to our ICP. We are even making changes to where we put the focus in the product to meet new needs and so on. So we have a lot of data and a very good picture of what we should do to position ourselves better. This is always, of course, something that takes time, but we do have a very solid plan and we are internally confident that we will get back to and we’ll break this downward growth trend as soon as we as we can can can see that now now we are we are at least almost profitable. ARR for full time employee ended at SEK 905,000 for the first quarter, up 28% from last year.

And why is this so important KPI to us? Obviously, because this is a very good indication on when we will become profitable. We have a recurring or revenue of around 98%, ninety eight % recurring and the gross margin is in the range typically 91% to 94%. For the last quarter, it was 92 percent. So our main cost is salary, salary, salary.

And when we went public in 2022, we raised a lot of money to make some investments. And that was to to scale up our r and d units and even to open up offices outside The Nordics. We have kind of offices now in, as you know, in London, Paris, and Amsterdam on top of the offices in Helsinki and Oslo. So obviously, we planned for having a kind of low ARR per full time employee, but now the focus is to bring this up and to become profitable. Net and gross retention.

Net closed in at 101% in Q1, down from 109% same quarter last year and gross around 89%, which is almost same level as it’s been for the last kind of six quarters. Gross retention includes a churn and downgrade. And if you add expansion sales on top of that one, you will get the net retention. Churn has been quite high. And it started to pick up in the third quarter last year, and then it has stabilized on a higher level.

So in the first quarter, we had a churn of 5,800,000. And the first quarter last year, we had NOK 3,100,000.0. Obviously, we are now a bigger company, so it should be higher, but still it is up. The mix between downgrade and churn for the first quarter, downgrade was around 41% and churn in terms of termination 59%. And if you go back a year, the downgrade share was 44%.

So it is kind of downgrade is typically between 4050% every quarter of the total churn. And the biggest churn is also in the what we call internally the bronze segment, the lowest tier, the lowest the smallest companies, typically between 5060% of all the churn that we’ve had this and the last two quarters has been in the low tier segment. What we call gold and platinum, the biggest accounts with big potential and so on, we see a very stable churn and not an uptick or downtick, and it’s typically between 1520%. So it’s a it’s at a more decent level. If you look at the churn reasons, there is one reason that is dominating across across all segments and all industries, and that is the economic climate.

This is what we get from the customers. They lay off people, and they have to save cost and so on. So this is reason number one, number two, and number three. So if you go further down on the list, you will find reasons like bankruptcies, inefficient payment, some companies get acquired, and so on. And of course, yes, we do also sometimes lose because of competition, but that reason is not kind of growing or declining.

It’s it’s always been there. It’s a part of kind of business, so that’s not on the kind of top top five list, so to say. So how can we increase, the retention rates going forward? Obviously, as we already said, the market fundamentals will help. And at some point, we expect it to be more normalized.

We are filling the gaps in the product. We have a very good understanding of what products and customers need. And we are also rebalancing our product strengths into different ICPs and so on. This is a work that have been going on for some time, but but it’s gonna take some time to get, like, full effect. But but we we know where where the ocean is red and where the ocean is blue.

So we are rebalancing and we have a very good plan for how to make the growth kick back again. Paying customers increased 17% for the quarter. We had 4,300 customers end of Q1. And the ACV or average customer value was stable from q q four, but up 5% since q one last year, slightly north of 38,000 per account. So, we are planning to increase this, going forward, by adding more features, more value, and increase the prices.

We do renegotiate prices with, old customers. And we also have launched a marketplace where we’re gonna add where some features will not be included in the standard tiers and only sold in the marketplace. So there are many ways to for us to increase our ACV. And then I’m gonna think I’m gonna leave the word to you, Natalie.

Natalie Jelven, CFO, OneFlow: Thank you. So our net sales ended up at million by the end of Q1, which is a 27% increase comparing to the same period last year. And as you can see presented here, our net sales are steadily increasing quarter by quarter, and that’s of course connected to our ARR growth. We are an ARR first company, which we are very much focused on ARR and ARR growth, that is also something that is shown when looking at our net sales. If we look at the software related recurring revenue, 98% of that is the net sales consist 98% of software recurring revenue.

If we look at our shares of net sales coming from regions outside of Sweden, that is also a percentage that is steadily increasing, ending up at 40% by the end of q one, and this is something that we estimate will continue to increase, of course, as we become more established in our regions outside of The Nordics. But as you all know, OneFlow is sold all over the world, so we’re also increasing our net sales from regions that we don’t have a market presence. Our gross margin is quite stable like the last quarters at 92%. We can see a slight dip in Q3 between Q2 and Q3 twenty twenty four, and that is connected to us establishing new partnership. If you look at our cost of service sold, the majority is connected to commission to our partners.

And we do look at if you look from a future perspective, we do believe that our gross margin will continue to be at a quite high level around 92% going forward. EBIT and EBITDA, as Anders mentioned, we do have a strong focus on driving one flow towards profitability. As you can see shown here, also, we are decreasing, or improving, our results. We’re going towards profitability. In q one, we ended up, EBITDA at minus 8,600,000.0 and EBIT at minus NOK 19,400,000.0.

If we look and compare it to the same period last year, EBIT have actually improved by 2,300,000 and EBITDA at NOK 4,400,000.0. Now the reason for this is, of course, our focus to drive one flow towards profitability. We have stabilized our cost base in connection with an ARR growth. This is shown in the numbers. And one thing worth mentioning here, we did have an effect of 1,000,000 in currency, which actually lowered our numbers.

So if take away that EUR 1,000,000, we actually would have had an EBIT at minus EUR 18,000,000 in Q1. EBIT and EBITDA margin, I love this slide because it is really showing how we are improving our results. We are lowering our losses. We ended up at EBITDA margin at minus 22% and EBIT margin at minus 49%. That is actually improvement by 21% comparing to the same period last year.

Again, we have stabilized our cost base. We continue to grow in in ARR. And also, we are doing all of this, you know, working more efficiently, stabilizing our cost base, and this is without any effect on our product development. That would always remain a focus to make sure we deliver the best product possible for our customers. Our financial goals are not changed.

We do still believe in them. We have a financial growth of having an ARR growth above 30% and to reach profitability with current funds. And as Anders mentioned previously, our ARR growth in Q1 was 23%. So in the short term, we will not reach above 30% with current market the current market environment. And as mentioned before, we prioritize right now to become profitable.

And once we achieve this milestone and, of course, in connection to the market segments being, improving, we will accelerate again the ARR growth and focus on growing the ARR. But we do still believe in the long run that we’re going to achieve ARR growth over 30%.

Anders Samnes, CEO or Executive, OneFlow: Okay. Then we are at the q and a session. ARR grew 33% in Q1 and slightly higher adjusted for FX. What was the growth rate in April? I haven’t checked that.

Natalie Jelven, CFO, OneFlow: No. Actually, we haven’t checked that.

Anders Samnes, CEO or Executive, OneFlow: No. But we can get back to you on that offline. Given current pipeline and macro, do you think you can keep the current growth rate for the rest of the year? We don’t provide that exact guidance. I think we shall keep it at the level that we already have done actually.

Were there any non recurring items in OpEx or cash flow besides the CHF1 million in FX for staff redundancies, etcetera, in Q1 to be aware of?

Natalie Jelven, CFO, OneFlow: No. I mean, there’s always smaller, of course, onetime cost in the results, but nothing significant or nothing bigger worth mentioning here. So beside the SEK1 million in FX, there was nothing else that we need to highlight here.

Anders Samnes, CEO or Executive, OneFlow: No. Did the Q1 FTE reduction result in any savings in Q1, or will that be seen ahead?

Natalie Jelven, CFO, OneFlow: So the Q1 FTE reduction, as you mentioned, is not really a reduction in that matter. I mean, we will do of course, we will see that in upcoming quarters in the results. We have less employees by the end of Q1 comparing to the end of last year. So of course, that will also be shown in the numbers in the upcoming quarters.

Anders Samnes, CEO or Executive, OneFlow: Yes. So upcoming quarters. How comfortable are you with cash flow given the current cash position and the aim to become profitable?

Natalie Jelven, CFO, OneFlow: I mean, we do monitor our cash flow quite in details, of course, but also we do monitor our cost base, and we always make adjustments to make sure that we are quite comfortable with the cash flow based on the expenses that we have. That said, this is something that we do continuously, I mean, monitor. So based on where we stand today, we are quite comfortable.

Anders Samnes, CEO or Executive, OneFlow: Yes, we are comfortable. What is the timeline to becoming profitable and cash flow neutral? Again, we have not disclosed that kind of information before, and I think we’re gonna keep it at the current level. Yeah.

Natalie Jelven, CFO, OneFlow: Definitely.

Anders Samnes, CEO or Executive, OneFlow: What does the current strategy mean for your international expansion? What markets are in focus? So the focus is still on the markets where we do have a presence, a physical presence. We do some spikes outside these markets as well, but but that’s not kind of on a very low level, so to say. So So the focus is to increase our unit economics in the markets that we are currently covering, six markets.

Other expenses was quite high this quarter compared to last year Q1. Is there any one offs for this quarter? Or what has caused the increase?

Natalie Jelven, CFO, OneFlow: I mean the FX currency effect, that is something that will be in the other expenses. So that’s one of the things that differs from previous quarters or previous quarter last year. But there’s no other bigger cost that we that could have I mean, generally, all costs do increase year by year. That’s way the world looks like. So besides that, no other significant expenses.

Anders Samnes, CEO or Executive, OneFlow: And full time employee are down this quarter compared to last year. Can the effect from the lower FTE base be observed in this quarter personal cost, or can we expect to see personal costs to come down further for the rest of the year?

Natalie Jelven, CFO, OneFlow: I think we I had this question earlier and we answered it. Yes, we will see that in the numbers upcoming quarters.

Anders Samnes, CEO or Executive, OneFlow: Yeah. But what what we can say is that we have, in the last few months, make made changes on several things in the company that will have an effect in the future that you haven’t seen yet. What is your definition of profitable EBITDA, EBIT or cash flow?

Natalie Jelven, CFO, OneFlow: All three super important, of course, but we are looking at EBIT. That is our measuring point.

Anders Samnes, CEO or Executive, OneFlow: Exactly. I think that’s all questions. Okay.

Natalie Jelven, CFO, OneFlow: Good questions. Thank you

Anders Samnes, CEO or Executive, OneFlow: for your time, and wish you all a wonderful Friday. Upcoming weekend.

Natalie Jelven, CFO, OneFlow: And Friday. Thank you so much.

Anders Samnes, CEO or Executive, OneFlow: Thank you. Thank you. Bye bye.

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