BASWARE INTERIM REPORT Q1/2013 Esa Tihilä, CEO Mika Harjuaho, CFO April 11, 2013
Contents Business review of Q1/2013 Financial review of Q1/2013 Future outlook
Key events in Q1/2013 Market conditions, ongoing transition of the business model and renewal of the product and service portfolio impacted the first quarter: Net sales grew from services in line with our strategy 43 percent more significant Purchase to Pay deals than during Q1/2012 The amount of significant e-invoice and SaaS deals was lower than expected; the decrease in license sales continued Integration process of the business acquisition of the leading e-invoice operator in the Benelux, Certipost, started Global sales organization strengthened, focusing on buyer, supplier, and partner organizations Reseller agreement with Cintas, supporting Basware s access to the small and mid-market in North America Share of recurring revenue increased to 61.9 percent (57.1%)
Q1/2013 in brief: Net sales increased amidst difficult market conditions and transition from software to service business Net sales EUR 29 828 thousand (EUR 27 435 thousand) EBITDA EUR 233 thousand (EUR 3 188 thousand), 0.8 % of net sales EUR thousand 33000 30000 27000 24000 21000 18000 15000 12000 9000 6000 3000 0 Operating profit/loss (EBIT) EUR -1 569 thousand (EUR 1 822 thousand), -5.3% of net sales Earnings per share EUR -0.07 (EUR 0.11) Q1/10 Q1/11 Q1/12 Q1/13 Q2/10 Q2/11 Q2/12 Q3/10 Q3/11 Q3/12 Q4/10 Q4/11 Q4/12
Q1/2013 in brief: Net sales increased amidst difficult market conditions and transition from software to service business Growth in Automation Services continued, net sales up by 41.0% Market conditions & longer sales processes than usual resulted to less amount of significant e-invoice and SaaS deals than expected Share of recurring revenue (Customer Support and Automation Services) of net sales grew, totaling to 61.9% of net sales (57.1%) The transaction volume increased significantly compared to the corresponding quarter in 2012 Certipost s restructuring expenses related to employment relationships of approximately EUR 1.2 million booked in Q1/2013 Transaction volume amounted to 12.7 million, up 62.7%.
Q1 transition in numbers Q1/2013 Q1/2012 License sales # of new P2P deals 31 15 SaaS* # of new P2P deals 2 8 Total # of new P2P deals 33 23 Growth in # of new P2P deals +43% *The SaaS deal numbers exclude renewals & InvoiceReady
SaaS versus license sales dynamics 2007-Q1/2013 100 % 90 % 80 % 70 % 60 % 50 % 40 % SaaS License Sales 30 % 20 % 10 % 0 % 2007 2008 2009 2010 2011 2012 Q1/2013
Growth of transaction volumes 2010-Q1/2013 Million transactions 13,0 12,0 11,0 10,0 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 2010 2011 2012 2013 Q1 Q2 Q3 Q4 The transaction volume grew significantly during the quarter: the volume processed by the Automation Services business was 12.7 million, growth of 62.7%.
Share of recurring revenue, rolling 12 months average EUR thousand 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 60,0 % 55,0 % 50,0 % 45,0 % 40,0 % 35,0 % Recurring revenue (Customer Support and Automation Services) continued to account for an increasing share of net sales, totaling 61.9 % of net sales in Q1/2013 Net sales Share of recurring revenue, rolling 4 quarters average
Integration of Certipost s e-invoice business The business acquisition of the leading e-invoice operator in the Benelux, Certipost was closed on January 2, 2013 Synergy benefits through the combination of business operations and technologies, joint infrastructure and support functions: One-time restructuring costs of approximately EUR 1.2 million have been booked in Q1/2013 (previously estimate EUR 2.3 million) The annual potential for cost-savings approximately EUR 2.3 million (previous estimate EUR 3.0 million). The operating profit of the acquired business is expected to be approximately EUR 1.3 million negative in 2013 (previous estimate slightly positive)
FINANCIAL REVIEW Q1/2013 Mika Harjuaho, CFO
Reporting (IFRS) As of the first quarter in 2012 Basware Corporation reports one operating segment: Purchase to Pay, P2P. Basware reports income for products and services as follows: License sales, Professional Services, Customer Support, and Automation Services (previously License Sales, Professional Services, Maintenance, and Automation Services). Customer Support comprises of previous Maintenance and Extended customer support previously reported under Professional Services. Extended customer support agreements are continuous service agreements spanning several years. Customer Support and Automation Services together form the recurring revenue reported by the company. Q1/2013: Change in recurring revenue classification License Sales consist of the Purchase to Pay product family together with payment, financial planning and reporting solutions sold only in Finland. Automation Services include e-invoicing, scanning services, printing services, catalog management, purchase message exchange, activation services and Software as a Service (SaaS) services. Basware reports the estimated revenue to be recognized for current Automation Services agreements that are in production as well as for new, signed agreements in the next twelve months. Automation Services agreements typically expand several years or are valid until further notice. As geographic information Basware reports geographical areas Finland, Scandinavia, rest of Europe and Other. In the geographical information net sales is split by customer s location. Net sales and operating profit are also reported by the location of the assets. In annual financial statements the geographical information of non-current assets is reported by the location of the assets.
Development of quarterly net sales & profit EUR thousand Q1/13 Q1/12 Q2/13 Q2/12 Q3/13 Q3/12 Q4/13 Q4/12 Net sales 29 828 27 435 28 718 27 119 30 427 Growth % 8.7% 5.3% 5.3% 12.1% 0.7% Other operating income 58 58 58 55 57 Materials and services 2 542 2 061 1 957 2 313 2 715 Personnel expenses 20 518 16 072 17 282 15 415 16 820 Depreciation and write-offs 1 801 1 366 1 495 1 809 1 823 Other operating expenses 6 594 6 171 6 745 5 376 6 199 Operating profit -1 569 1 822 1 298 2 261 2 927 Net sales Net sales 2012 35 000 2013 2012 27% 24% 28 000 21 000 Q1 Q2 Q3 Q4 24% Q1 Q2 Q3 Q4 25%
Net sales by operation Q1/2013 EUR thousand 3 195 7 676 8 172 10 785 Automation Services, growth of 41.0% License sales, decrease of 21.6% Customer support, growth of 5.5% Professional Services, growth of 6.2% Customer support Licenses Professional Services Automation Services Licenses = License sales of software products Professional Services = Consulting services Customer support = comprises of previous Maintenance and Extended customer support previously reported under Professional Services. Extended customer support agreements are continuous service agreements spanning several years. Automation Services = e-invoicing, scanning services, printing services, catalogue management, purchase message exchange, activation services, SaaS services and opening fees
R&D in 2013 R&D expenses amounted to EUR 4 622 thousand (EUR 4 251 thousand) Increase of 8.7 percent, 15.5 percent of net sales (15.5%) EUR 1 258 thousand (EUR 1 162 thousand) of R&D expenses capitalized R&D expenses 15.5% of net sales R&D costs included in the P&L totaled EUR 3 364 thousand (EUR 3 089 thousand), or 11.3 percent (11.3%) of net sales. R&D unit personnel 356 (325) 24.2% of personnel Including 153 people in India; units also in Finland and Romania
Personnel Geographical location of personnel 1 486 employees at the end of Q1/2013 Number of personnel has grown fastest in Indian office, and due to acquisition of e- Invoicing business of Certipost in Belgium Average age of personnel is 34.2 years; 52.9% have an academic degree India Other Finland 1400 1200 1000 800 Rest of Europe Personnel groups Admin Scandinavia Sales & Marketing 600 Products 400 200 0 Consulting & Services
Q1/2013 in brief EUR Million Q1/13 Q1/12 Net sales 29.8 27.4 Growth of net sales, % 8.7% 5.3% Operating profit (EBIT) -1.6 1.8 Change of operating profit % -38.4% % of net sales -5.3% 6.6% Net profit/loss -1.0 1.5 Share of recurring revenue, % 61.9% 57.1% Earnings per share, euro -0.07 0.11 Change of earnings per share, % -38.2% Fixed costs 27.1 22.2 Growth of fixed costs, % 21.9% 11.5% EBITDA amounted to EUR 233 thousand (EUR 3 188 thousand), a decrease of 92.7% Personnel expenses include EUR 1.2 million of one-time restructuring costs Personnel, March 31 1 485 1 241 Growth of personnel, % 19.4 26.9 Personnel costs 20.5 16.1 R&D expenses 4.6 4.3
Finance & investments Total assets on the balance sheet EUR 151 489 thousand (EUR 136 033 thousand) Cash and liquid assets EUR 23 276 thousand (EUR 34 450 thousand) Cash flows from operating activities EUR 9 718 thousand (EUR 10 634 thousand) Equity ratio 63.7 percent (70.5%) Gearing -13.2 percent (-35.2%) Total gross investments EUR 19 219 thousand (EUR 13 682 thousand) includes capitalized R&D expenses and acquisitions
Share & shareholders Number of shareholders 14 200 (14 964) at the end of March 2013 Share price development during January March 2013: Highest EUR 21.69 (EUR 19.95), lowest EUR 19.30 (EUR 16.70) Closing price EUR 20.20 (EUR 19.26) Average price of the share EUR 20.43 (EUR 19.04) Traded shares 312 873 (444 503) 2.4% (3.5%) of all shares Market capitalization EUR 259 540 124 (EUR 247 418 756)
FUTURE OUTLOOK Esa Tihilä, CEO
Basware outlook 2013 The market conditions were more difficult than before in the first quarter. Customers decision-making was slower than before. The negotiation times of large international deals in particular have been prolonged because the customers requirements are higher in the service business than in the software business. In spite of net sales growth falling short of the targets for the first quarter, quantitatively speaking, the company closed 43 percent more significant Purchase to Pay deals than during the corresponding period the previous year. This proves that the fundamental demand for the company s products and services has remained at a good level. The next-generation Alusta software has not yet contributed to the growth of the company s net sales as targeted, which is due sales and delivery ability being reached slower than planned. The maturity of the product is continuously improving with new features and updates. Basware Match Plan was launched during the first quarter, and it will be complemented with Basware Match Order, which will be launched during the latter half of the year. The first versions of new Basware Purchase and Analytics products will be launched during the second quarter, and they are expected to improve the company s competitiveness further. The improved maturity of Alusta and new products are expected to enable the leveling off of the decrease in license sales during the rest of the year. The delivery ability of Alusta will improve while the number of customers put into production will increase. The improvement of delivery ability and shorter production lead times contribute to accelerating growth in net sales. We expect the company to grow more strongly during the rest of the year than in the first quarter, with the decrease in license sales leveling off and the growth of Automation Services continuing. The company s fixed expenses will grow at a more moderate rate during the last three quarters than in the first quarter. We have increased the number of personnel during 2012, and we expect improvement of productivity to decrease the need for recruitments in our different functions in late 2013. In order to achieve our objective of accelerated global growth and maintain our product leadership in Purchase to Pay processes, the development of Alusta software and services will continue strongly this year as well. The share of R&D expenses of net sales is expected to decrease during 2013 compared to the level of 2012. The emphasis of R&D expenses will shift gradually from Alusta product development towards the service development of Automation Services. The company s transition process is expected to reach a point where the investments will begin to pay themselves back in the form of increasing net sales and improved profitability during the latter half of the year.
Basware outlook 2013 Basware expects its net sales for 2013 to grow by more than 15% and operating profit (EBIT) to grow compared to the previous year.
Basware s updated strategy 2012-2015: cornerstones The world s largest Basware Commerce Network Focused go-to-market approach Maximize transaction volumes Drive consolidation of e-invoicing operators Maximize customer loyalty Ensure profitability in everything we do Leading product and service offering
Next steps Growth in net sales is supported by the focusing of our global sales efforts on buyer, supplier, and partner organizations Product and process improvements accelerate the entry of SaaS and e-invoice deals into production To build accelerated global growth and maintain our product leadership in Purchase to Pay processes, the development of Alusta software and services will continue Targeting different customer segments with Better Buying - Better Selling - Connected Commerce customer promises
Significant growth triggers Organization aligned with strategy and customer types Increased focus on activating customers suppliers and buyers Alusta readiness ramped up to customer expectations More comprehensive customer offering i.e. offering coverage Increased capabilities in delivery and support to increase customer satisfaction High growth through acquisitions Strong underlying market demand for P2P and e-invoicing
Objectives for the strategy period until end of 2015 Basware s long-term objective to grow annually 15-30 percent in net sales boosted by over 50 percent growth in Automation Services which is intact compared to the previous strategy period. The long-term objective for operating profit margin continues to be 15-20 percent of net sales which is expected to improve towards the end of the period. The share of recurring revenue is aimed to grow to 70 percent compared with current 55 percent, with Software as a Service (SaaS) and electronic invoicing contributing most to the growth, thus improving the profitability.
NEXT REPORT Q2 Interim Report on July 10, 2013