Heeros Plc’s Business Review 1 January – 31 March 2024 (unaudited): Strong growth in profitability despite a challenging environment

Heeros Oyj | Company Release | April 18, 2024 at 09:30:00 EEST

Adjusted EBITDA increased by 35% and contract revenue increased by 3%. Net Revenue Retention at 105%.

This release is an unofficial translation of the summary of Heeros Business Review 1 January– 31 March 2024. The complete report in Finnish is available on the company’s website at www.heeros.com/tiedotteet.

January – March 2024 in brief

• Revenue decreased by 2 % year-on-year to EUR 2.7 (2.8) million.
• Recurring revenue (contract and transaction revenue) decreased by 1 % to EUR 2.6 (2.6) million. Contract revenue increased by 3 % to EUR 2.1 (2.1) million. Transaction volumes decreased by 9 % and transaction revenue declined by 17 % to EUR 0.5 (0.6) million.
• EBITDA increased by 23 % to EUR 0.5 (0.4) million, which was 19 % (15 %) of revenue. Adjusted EBITDA increased by 35 % to EUR 0.6 (0.4) million, which was 21 % (15 %) of revenue.

KEY FIGURES

EUR thousand	Q1/2024	Q1/2023	Change %	Financial period 2023
Revenue	2,746	2,807	-2 %	11,296
Recurring revenue 1	2,605	2,645	-1 %	10,774
Contract revenue	2,144	2,088	3 %	8,578
Transaction revenue	461	556	-17 %	2,195
EBITDA	527	428	23 %	2,478
EBITDA, % of revenue	19 %	15 %		22 %
EBITDA (adjusted) 2	576	428	35 %	2,654
EBITDA (adj.), % of revenue	21 %	15 %		23 %
Rule of 40, %	17 %	18 %		24 %
Rule of 40, % (adj.) 2	19 %	18 %		25 %

1 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
2 The adjusted figures for Q1/2024 include an adjustment of EUR 49 thousand for non-recurring restructuring costs.

NIKLAS LAHTI, CEO

“Heeros’ development towards a tighter focus and improved profitability continued during the first quarter, despite the decline in transaction volumes which weighed in on overall revenue growth during a macroeconomically challenging environment.

Excellent development in profitability and cash flow

EBITDA (adj.) increased clearly again, +35%, reaching EUR 576 (1-3/2023: 428) thousand, corresponding to 21% (15%) of revenue. A particularly positive highlight, the adjusted EBITDA, where investments in tangible and intangible assets have been deducted from EBITDA (so-called EBITDA-Cash) increased by more than 450%, reaching EUR 240 (43) thousand. Additionally, operational cash flow improved by 90% to EUR 726 (382) thousand. I believe that the positive trend in profitability will continue throughout the year.

Contract revenue grew by 3% in the first quarter. Net Revenue Retention (NRR) remained strong at 105% (107%). Success in both indicators reflects our important priorities of building sustainable customer relationships and minimizing customer churn.

Seasonality and low transaction volumes affected negative development of revenue

Seasonality of our business impacted the first quarter of the year, while the second half of the year is usually significantly stronger. At the same time, the already challenging macroeconomic environment deepened and was further impacted by domestic strike waves, pushing economic activity in Finland to record lows. These factors contributed to the continued decline in transaction volumes (-9% in the first quarter, -8% in Q4 2023 and -8% in Q3 2023).

Due to the decrease in transaction-based revenue and the still soft accumulation of new customer intake, EUR 102 (210) thousand, total revenue declined by 2%, amounting to EUR 2,746 (2,807) thousand, despite the positive development in contract revenue.

Journey towards a more focused Heeros continued

Heeros carried out change negotiations during the first quarter, resulting in a workforce of 74 employees (including part-time employees) at the end of period, compared to 83 employees on 31 December 2023 and to 96 employees on 31 March 2023. The change negotiations aimed not only to decrease costs but also to address challenges in sales. Additionally, after the completion of extensive software development projects, it was logical to allocate organizational resources elsewhere.

Positive progress in AP/AR software development continues

Over the past six months, our product development efforts have focused on purchase and sales invoices offerings. This will benefit both of our key customer segments: accountancies and direct mid-segment clients, for whom we solve challenges related to the digitization of financial management processes and business management.

Software development goals for the first quarter in purchase and sales invoices offerings were achieved well. Development velocity increased significantly compared to last year, and especially the Heeros Sales Invoices solution achieved significant milestones during the quarter. We aim to roll out the replacement for the old sales invoice product, improving our offering for the accounting office segment in 2024. The first accountancies have already adopted the renewed Heeros Sales Invoices with positive feedback.

Heeros PSA reporting update nears completion

Development of Heeros PSA reporting progressed rapidly during the early months of the year. The feature, which enables more dynamic handling of reports, saving personal reports, and sharing them with other users, has been developed in collaboration with customers from the initial stages. Piloting has now begun, and the positive reaction to the update has confirmed our belief that the overhaul will enhance PSA reporting capabilities across all areas.

A strategy emphasizing continuity

A new board was elected for Heeros at the general meeting on March 20, 2024. I stepped down from the "dual role," but I am pleased that the majority of the board members were re-elected, and good cooperation with the chairman of the board continues – and that representatives of both of our largest owners are now on the board.

We decided earlier to simplify financial goal setting. Our goals for the year are to increase both revenue (EUR 11.3 million in 2023) and operating profit (EUR 2.5 million in 2023). Overall, our strategy remains the same in 2024 – profitability and our current customers are at its core.”

FINANCIAL OUTLOOK FOR 2024 (PUBLISHED ON 1 FEBRUARY 2024)

Heeros expects that both revenue and EBITDA for 2024 financial period improve from the 2023 financial period.

FINANCIAL INFORMATION IN 2024

In 2024, Heeros Oyj will publish the following financial reports:

16 July 2024 – Half-year Report January-June 2024
17 October 2024 – Business Review January-September 2024

Heeros Plc
Board of Directors

More information:
Niklas Lahti, CEO, tel. [phone], [e-mail]
Juho Pakkanen, CFO, tel. [phone], [e-mail]

Distribution:
Nasdaq Helsinki
Essential media outlets
www.heeros.com/sijoittajille

Heeros in brief
Heeros is a pioneer in SaaS corporate software with a mission to develop software for streamlined business management. Heeros seeks to meet the needs of corporate and financial management clients by providing the software suites offering the best user experience for the digitalisation of business-critical financial management, ERP and HR processes. Heeros was established in 2000. The company’s shares are listed on Nasdaq First North Growth Market Finland, maintained by Nasdaq Helsinki Oy, under the trading ID HEEROS. www.heeros.com

Attachments
Heeros Oyj Liiketoimintakatsaus 1 1 –31 3 2024

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