Earnings call transcript: Risk Intelligence’s strategic shift boosts 2024 outlook

Risk Intelligence reported a significant improvement in its financial performance for the full year, with total revenue increasing by 30% and EBITDA rising by 56%. According to InvestingPro data, the company’s revenue growth of 29.83% in the last twelve months validates this strong performance, though its EBITDA remains negative at -$0.43M. The company has introduced a new business segmentation strategy to drive future growth, operating with a market capitalization of $4.01M. Despite a negative net result, the company’s strategic initiatives and improved cash flows have positively influenced its market position. The stock price saw a notable increase of 12.5%, reflecting investor optimism about the company’s future prospects.

Key Takeaways

• Revenue increased by 30% for the full year.
• EBITDA saw a significant rise of 56%.
• Stock price surged by 12.5%.
• New business segmentation strategy launched.
• Aiming for positive net cash flow and breakeven in 2025.

Company Performance

Risk Intelligence demonstrated strong annual growth, with a 30% increase in total revenue and a 56% rise in EBITDA. The company’s focus on recurring revenue streams contributed to a 21% growth in this area, reflecting a successful shift towards more predictable income sources. The operational cash flow improved by over 4 million compared to 2023, indicating enhanced financial health.

Financial Highlights

• Total (EPA:TTEF) Revenue: Increased by 30%
• Recurring Revenue: Grew by 21%
• EBITDA: Increased by 56%
• Operational Cash Flow: Improved by over 4 million compared to 2023
• Net Cash Flow: Improved by 1.2 million

Market Reaction

Following the earnings announcement, Risk Intelligence’s stock price jumped by 12.5%, reaching a new high in its 52-week range. InvestingPro data shows the stock has maintained relatively low price volatility, trading between $0.12 and $0.17 over the past 52 weeks. The positive market response is attributed to the company’s strong financial performance and strategic initiatives aimed at future growth. Get deeper insights into Risk Intelligence’s valuation and 12+ additional ProTips with an InvestingPro subscription.

Outlook & Guidance

Risk Intelligence provided a positive outlook for 2025, targeting an ARR growth of 15% to 30% and aiming for breakeven with positive EBITDA and net results. The company expects to achieve a system ARR target of 27-30.4 million DKK and maintain positive net cash flow. The strategic focus will remain on implementing the new business segmentation strategy to enhance growth.

Executive Commentary

CEO Hans emphasized the importance of the difference between revenue growth and cost growth, stating, "The most important driver is the difference between the growth in revenue and the growth in costs." He also addressed misconceptions about the company’s growth drivers, clarifying, "It’s a misunderstanding that our growth primarily comes from price increases."

Risks and Challenges

• Customer Acquisition: Slow new customer acquisition could impact growth targets.
• Market Segmentation: Successfully implementing the new business strategy is critical.
• Cost Management: Balancing cost increases while maintaining revenue growth.
• Economic Conditions: Broader macroeconomic pressures could affect market demand.
• Competition: Increasing competition in the maritime risk intelligence sector.

Risk Intelligence’s earnings call highlighted a strong financial performance and a clear strategic direction for future growth. The company’s efforts to enhance its market position through a new business segmentation strategy and improved financial metrics have been well-received by investors, as reflected in the stock’s positive movement.

Full transcript - Risk Intelligence A/S (RISK) Q4 2024:

Anders, Moderator: Good afternoon and welcome to this Q4 twenty twenty four presentation and Q and A with Risk Intelligence. With us today, we have the CEO and the CFO. First, there will be a presentation and afterwards a Q and A where the CEO and CFO will answer questions submitted via Stock.io. We have already been pre submitted questions on Stock.io and the Q and A is still open so that you can submit questions live as well. I will now hand over the mic to risk intelligence to start the presentation.

So, Hans and Jens, your line is now open.

Hans, CEO, Risk Intelligence: Thank you very much, Anders. And thank you for being with us today for this presentation of Q4 and end of the year. Maybe you say a few words, Jens?

Jens, CFO, Risk Intelligence: Yes. Thank you for us letting us in today and presenting this just released report from last week.

Hans, CEO, Risk Intelligence: First, this one. Some of you know it quite well. Yes. So the agenda for today is a quick overview of the Q4 main activities, then the Q4 report highlights by Jens and then the 2025 outlook and then we go to the Q and A session. The main activities in Q4 is that we focused on the renewal process with some churn compared to what we had.

As you may remember, we’ve had down to 0% in some of the quarters. That was, you can say, unnatural and we had three licenses churned in Q4 and we had the reduction of one other license two licenses actually due to mergers. One of these churned licenses is expected to return in 2025 and that had to do it’s a government client and it had to do with government budgets to do. We also had two new clients for the risk intelligence system on the maritime side. We had some limited restructuring and refinancing and rollover of long term loans.

That’s something we did at the end of the year. We also kicked off the new commercial business segmentation strategy in the early December. So that was an internal kickoff where we are going to work with five business segments, Commercial Maritime, which is the classic business segment for British Intelligence with tankers and containers and bulk carriers and flag states and ship owners associations. Then energy, which is oil and gas, so the classic energy, but also renewables with offshore wind farms. Then insurance, which is entirely maritime as well.

And then government and defense, which is both government organizations and defense and intelligence. And the last one is land based logistics with land risk logistics. Then at the end of the year, we also look into new resources for government and defense because this is not a new area as source, but as a segment, it’s a new area. Then over to Jens.

Jens, CFO, Risk Intelligence: I will unmute so you can hear me. Thank you, Hans. Yes, looking at the fourth quarter report in a glance, we highlighted actually four points that we want to look further into or at least highlight. Total revenue increased for the full year 3031% in Q4. Our recurring revenue or total recurring revenue grew 21% for the full year.

Our EBITDA increased 5635%, respectively in Q or in the full year and in Q4. And then our cash flow CFFO actually improved 52% full year compared to 2023. Our revenue for the full year increased 30% less the recognized revenue and our invoiced revenue increased 24%. And that should be seen together with a cost increase of only 7%, which of course gives an EBITDA increase of 56%, still negative, but in our terms, a huge improvement. Our operational cash flow, as I just said, 52% off, that’s more than 4,000,000 better than 23,000,000 for the full year.

And then, the bottom line on this net cash flow, many % better, than the year before. But again, 1,100,000.0 or almost 1,200,000.0 better than than, 23. Yes. In terms of churn, hence, has been his way around it, but 1.4% for the full year. Total AR growth, 21%.

System AR growth, which is purely system licenses growth 20% on our NRR, which is the increase in the current customer base, is 24% up. And as you can see, it’s, well, it’s a graphic, the right side. So it’s just the numbers I mentioned. Yep. Back to you, Hens.

Hans, CEO, Risk Intelligence: Yeah. Thank you. And then in 2025, the main focus will be on the implementation of the business segmentation strategy and kind of each of the five areas that I mentioned before has very specific price sensitivity and very specific decision making levels depending on which segment it is. It’s also very different areas, their operations, you can say, or their main challenges, which means that we will further direct communication, marketing, lead generation, but not the least, actually, some of our staff will be covering one, two, three one, two, three business segments each and will thereby have a higher specialization, for each segment. This means that, if you are a new prospective client and you go to our web page, you will immediately find where to go to, which you cannot at the moment if you are not commercial maritime.

So that’s like one of the examples on how we are going to do this. It will also be used to prioritize resources, both financial resources but also human resources in which areas the commercial department is going after. Obviously, we’re going to service all five, But if the ARR, so the ARPU is also different between the five segments and the decision making is different and the price sensitivity. So these three elements would be part of the prioritization of where to use the resources going forward. And the guidance, we have a guidance saying an ARR growth of 15% to 30%.

A system ARR will then reach almost DKK 27,000,000 to DKK 30,400,000.0 with a positive EBITDA and net result zero. So that’s breakeven basically. And then net cash flow positive. That leads us to the Q and A session.

Anders, Moderator: Perfect. Thank you, Jens and Hans, for the presentation. Let’s jump directly into the Q and A where it’s divided into two categories. So first, financial results and the next, sales and growth. And the first question is, in 2024, you improved your results before taxes with 3,400,000.0 Danish kronor from minus 14.3 to minus 10,900,000.0 Danish kronor.

In your guidance, you suggest reaching zero in 02/2025. How do you plan to achieve a more than three times larger improvement of the bottom line in 02/2024 than two in 02/2025 than 02/2024 where the 20% price increase provided a considerable benefit?

Hans, CEO, Risk Intelligence: Yeah. Two things. First of all, as explained, I think at the several of the previous quarterly presentations, the 20% price increase only applies to renewals that are not part of multi year agreements. These are predominantly with larger clients, meaning that they have two to five year agreements with set price increases. This means that the impact is not 20% on all system revenue during 2024.

Secondly, the above numbers that you are referring to are the recognized figures. And if the 20% is applied at the time of renewal and if this is just for as an example, first of October, then the revenue will be distributed over the following twelve months and only four will be allocated to 2024 and eight will be allocated to 2025. So there are two items at play here. One is that not all is 20%. Secondly, with the recognized revenue is distributed on the license length and thereby, only part of it will actually belong to 2024.

And thereby, if it’s at the end of the year, some of it will be pushed into 2025. But if we go in one step back, then the diff the most important driver is the difference between the growth in revenue and the growth in costs. In this case 307% which in 2024 percent led to a net increase of 23%. As we expect lower growth in costs for 2025, lower than 7% and reduced financial costs because of the refinancing package that we made public the other day, this will lead to zero or breakeven even at a lower top line growth than in 2024.

Anders, Moderator: And then the next question, could you elaborate on the nature and size of the one time costs in Q4?

Hans, CEO, Risk Intelligence: Yes and no. We cannot share the actual figures because if we had to do that, it had to be shared to the market first, so we can’t do this in this presentation. But the nature is restructuring at a part of our business and where according to reporting legislation, we have to assign to the year the restructuring is implemented. And on top of that, we have one time costs related to financing in Q4, costs which will not be repealed in 2025.

Anders, Moderator: And then we jump

Hans, CEO, Risk Intelligence: Basically, we are going to have a cost reduction from this in 2025 and much less financing costs in 2025.

Jens, CFO, Risk Intelligence: Yeah.

Anders, Moderator: And then we jump on to the next category, sales and growth. And the first question here is, can you elaborate on why you only had 1% growth in invoice revenue for Q4?

Hans, CEO, Risk Intelligence: Yeah. In Q4, we had a growth in system ARR of 20%, which is within guidance. And this is a result of new sales, which was lower than usual, as we already discussed. And it is an offset to existing clients. It is minus the churn of the three licenses as well a reduction in license value primarily due to mergers between two times two clients.

Unfortunately, it would be great if they merged with others, but he has four licenses becoming two licenses. So that’s a reduction as well. Some of this will return in 2025. We actually already got one of them from one of the mergers and this will be implemented in most likely in this quarter. But it is still unknown when and how much will come in in return in total.

And as I also mentioned, one of the churn licenses will like to return in 2025. So this means that the net increase in invoice revenue is actually a result of all of the above because the advisory services actually delivered on par with the year before.

Anders, Moderator: And then we arrive at the final pre submitted question. Can you explain the new commercial strategy you talk about? How do you believe this will help increase revenue and acquisition of new customers? At the moment, most growth comes from price increase and the speed of new customers is very slow. So what is your plan to increase this?

Hans, CEO, Risk Intelligence: Yes. As mentioned before, it’s a misunderstanding that our growth primarily comes from price increases. But it’s correct that the number of new clients in Q4 is lower than usual. However, upsell on the year is 24%. So that’s very key to us and is part of our strategy to have an increased offset to our existing clients.

The business segmentation, as mentioned earlier, will drive growth as each segment has its own particular profile on price sensitivity and decision making level. And the strategy will adapt a commercial approach, communication, marketing, and lead generation, and sales process to fit fit each profile rather than most of what we’ve done the last five years, which is have a a more general model and then adapt as we got the the leads in. Then we’re going to do it much more segmented and much more according to the profile and the language of the individual business segments.

Anders, Moderator: And that was all the presubmitted questions that we have received from the audience and we have not received any live questions. So that finalizes the q and a for now. But before we end the webcast, I will just hand over the word for you again if you have any final remarks to end with.

Hans, CEO, Risk Intelligence: Jens, do you want to start?

Jens, CFO, Risk Intelligence: Yeah. I can. Well, it’s always a pleasure. How can it not be to to present this way? So thank you for listening in and, yeah, see you next time, as you could say.

Hans, CEO, Risk Intelligence: Yeah. Thank you. And also, I would like to thank both those who are listening in, even if you’re listening in later and downloading the stream, but also to Anders for running this for us. I think it’s very effective and people can hopefully get useful replies to their answers. Thank you very much.

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