Heeros Oyj  Press release 21 October 2021 at 8:30 EEST

Heeros Oyj’s Business Review 1 January – 30 September 2021 (unaudited):

Revenue growth accelerated during third quarter -  Strong order backlog supports growth towards the end of the year

Profit for the period improved significantly in January–September and customer order intake (ARR) grew strongly in the third quarter.

This release is an unofficial translation of Heeros Oyj’s Business Review 1 January – 30 September 2021, published today in Finnish.

July–September 2021 summary
• Revenue increased by 7% from the comparison period to EUR 2.3 million (7–9/2020: EUR 2.1 million).
• Contract revenue increased by 14% to EUR 1.5 (1.3) million. Recurring revenue (contract and transaction revenue) increased by 5% to EUR 2.2 (2.1) million.
• Customer orders, in terms of Annual Recurring Revenue (ARR), grew by 236% to approximately EUR 280 (85) thousand.
• EBITDA remained on the level of the corresponding period last year, EUR 0.7 (0.7) million.
• Operational cash flow (adjusted) grew by 57% to EUR 0.5 (0.3) million.
• Combined EBITDA margin and revenue growth percentage (Rule of 40) was 36.8% (36.6%).
• In September, Heeros launched the new Heeros Mobile App for business customers.

January–September 2021 summary
• Revenue increased by 4% from the comparison period to EUR 6.7 million (1–9/2020: EUR 6.5 million).
• Contract revenue increased by 10% to EUR 4.2 (3.8) million. Recurring revenue (contract and transaction revenue) increased by 2% to EUR 6.3 (6.2) million.
• Customer orders, in terms of Annual Recurring Revenue (ARR), grew by 122% from the corresponding period the year before, to EUR 941 (424) thousand.
• EBITDA increased by 36% to EUR 1.4 (1.0) million.
• Operational cash flow (adjusted) grew by 21% to EUR 1.1 (0.9) million.
• Combined EBITDA margin and revenue growth percentage (Rule of 40) was 24.2% (18.5%).
• Heeros’s outlook for 2021 remains unchanged: Heeros is expecting to increase the combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) to 30% level for the 2021 financial period.

Key figures

MIKKO PILKAMA, CEO:

“Last autumn we published our new strategy in which we set the goal for profitable growth and the scaling of services by the end of 2023. After the first year of this strategy, we have found a scalable business model suitable for us, and that the development of our revenue, profitability, and cash flow is heading in the right direction.

Our EBITDA in January-September improved by 36% from the corresponding period. Our EBITDA margin improved clearly from January-September 2020 amounting to 20.6% of our revenue. I’m happy that our operational profitability improved, even though at the same time, we invested in the development, sales, and marketing of our products, to accelerate the growth of our business.

Our revenue in January-September continued to grow steadily, mainly due to accelerating contract revenue. The success of our sales and the new orders we received in the summer are gradually becoming visible in our volumes and revenue. Our contract revenue has grown from one quarter to the next this year, thanks to active new customer acquisition and contract extensions. In July-September, our contract revenue increased by 14% from the corresponding period.

As the restrictions related to the coronavirus pandemic are being lifted, our transaction volumes have also gradually begun to develop in a positive direction. While the transaction volumes in January-September as a whole still lagged slightly behind the corresponding period last year, we did reach the level of the corresponding period during the third quarter. Our transaction revenue, however, still lagged behind the corresponding period. It should be noted that the growth in the number of transactions is not directly visible as a growth of the transaction revenue, as part of the transaction revenue is converted into contract revenue when contracts are renewed.

In our customer orders, we saw clear signs of business picking up already during the second quarter, and the positive development continues. Customer orders, in terms of Annual Recurring Revenue (ARR), amounted to approximately EUR 280 thousand in July-September, growing by 236% from the corresponding period the year before. We expect our revenue to continue to grow steadily towards the end of the year, given that our January-September revenue does not yet reflect the big orders we received in the summer, which will be invoiced from the fourth quarter onwards. Our order backlog, which is not yet recognized as revenue, amounted to roughly EUR 700 thousand at the end of the review period. The strong order backlog supports our growth towards the end of the year.

Profitable growth enables investments in the development of user experience

Our organic growth is based primarily on new customer acquisition and on improving the user experience for our customers. We have been successful in both of these goals this year.

In the spring we partnered up with the technology company Qvik to develop an entirely new kind of financial administration mobile app, which stands out with the best user experience in the industry. We launched the result of this collaboration, the renewed Heeros Mobile App for business customers, at the end of September. Invoice handling in Heeros Mobile, for example, is as easy as mobile banking, and the application also allows a company’s management to manage reporting. The service has been received well among our customers. Our goal is for Heeros Mobile App to be an important user interface for our business customers and, ultimately, they only one an entrepreneur will need.

At the same time, we have been renewing our user interfaces and developing our AI-based automated posting solution in cooperation with our partner Snowfox. The AI posting raises the degree of automation in the processing of purchase invoices to an increasingly high level. Set to be launched during the fourth quarter, the AI-based posting predicts how an invoice should be posted on the basis of historical data, meaning that the user merely needs to check and approve the invoice. The system learns on the basis of users’ actions and makes the process faster, easier and more automated.

We have also automated our own processes and introduced robotics to allow us to provide our customers with even better service. Among other things, we have continued to develop our chatbot customer service. At the moment, more than half of our customers’ tickets are already solved through the chatbot. The number of our end customers continues to grow and to support this, we have introduced a robot to transfer data automatically from ramped down Tikon as well as other accounting systems to Heeros.

Our next step is to invest in the development of the new Heeros Sales Invoicing. The goal of Heeros product development is for the user experience to be the best in our industry. Our investments in product development are significant and we are now recruiting new developers to our R&D team.

Market position strengthened in our target client segment

We have progressed in our goal of strengthening market position in Finland, where our target customers are currently small and medium-sized companies.
The number of our customers continued to grow in the third quarter. At the end of the period, Heeros had more than 16,800 (14,100) end customers. Moreover, it was great to see net revenue retention to strengthen to the level of 108% at the end of the review period.

This year, our new customer acquisition has been particularly successful in companies with 100-500 employees. The highest number of Heeros users is in companies with 4-100 employees, where Heeros is used in around 9% of companies, and in companies with 100-500 employees, where Heeros is used in around 6% of companies (Source: Vainu). We will continue to focus on new customer acquisitions and revenue growth in these customer segments also in the future. Going forward, we will assess our possibility to also serve the very smallest companies, with 1-3 employees, of which there are some 100,000 in Finland and which would expand Heeros’ customer base significantly.

We believe that the market outlook for the rest of the year will be more positive than in the beginning of the year, thanks to the lifting of the restrictions related to the pandemic. The financial performance of the second half of the year is usually stronger than during the first half of the year. The accelerating growth of our contract revenue and our strong order backlog support revenue growth in the fourth quarter, and our financial outlook for 2021 remains unchanged.”

OUTLOOK FOR 2021

Heeros’ outlook for 2021 published in the financial statement release in February remains unchanged: Heeros is expecting to increase the combined EBITDA margin (EBITDA, % of revenue) and revenue growth percentage (Rule of 40) to 30% level for the 2021 financial period.

SIGNIFICANT EVENTS IN THE REVIEW PERIOD

• The new Heeros Mobile App, developed for the needs of business customers, was launched on 30 September 2021.
  
  
• Inkeri Turjanmaa (Director, Customer Services) was appointed to the Management Team as a new member on 6 September 2021. Turjanmaa is in charge of managing Heeros’ customer service organisation. She reports to the CEO.
  
  
• On 25 August 2021, the Board of Directors decided to launch a new stock option scheme at the authorisation provided to it by the Annual General Meeting. The Board of Directors decides on the distribution of the stock options to the personnel annually, in maximum installments of 75,000 stock options. The stock options rights confer a right of subscribing a maximum of 225,000 stocks in total. The subscription period is 2 March 20241 March 2027 for the 2021a option rights; 2 March 20251 March 2028 for the 2021b option rights; and 2 March 20261 March 2029 for the 2021c option rights. In addition, the Board of Directors decided to establish a personnel fund covering the entire personnel, which will be introduced at the beginning of 2022.
  
  
• On 1 July 2021, Heeros announced that Juha Takala (Director, Customer Growth) was leaving the company and the Management Team on 13 August 2021.
  
  
  

EVENTS AFTER THE PERIOD

There were no significant events after the review period.

FINANCIAL REPORTING

Heeros will publish the release dates for the 2021 Financial Statements Bulletin as well as for the 2022 Half-Year Report and Business Reviews in December.

Additional information:

CEO Mikko Pilkama
+358 40 828 3717
mikko.pilkama@heeros.com

Certified Advisor:
Alexander Corporate Finance Oy
+358 50 520 4098

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

As a forerunner in cloud-based solutions for financial management, Heeros’ mission is to make tomorrow’s financial management easy. Established in 2000, Heeros’ shares are listed on Nasdaq First North Growth Market Finland (trading ID: HEEROS). www.heeros.fi

Liite

• Heeros Business Review 3Q21