CEO update with notice of update on prognosis, announcement of cost cuts, sales progress, issue of new shares and market outlook
TargetEveryone has been through a significant turnaround over the last months. Coming out of 2018 it was very clear to us that we had to take some fundamental steps to ensure the survival of the company. Our legacy platform saw declining revenues throughout 2018 and we lost several key customers. In parallel, the market for 1-1 dialogue solutions matured and we faced stiff competition from online subscription solutions. We have reduced most efforts towards development on our legacy platform in order to commercialize on our new software platform, SpectrumOne. This is where the future of the company now lies. For SpectrumOne we see a fast-growing pipeline with frequent signings of new customers from a range of different industries. The reception is very good, our go-to market plans are working, and we are fueled by an accelerating Martech market.
Unfortunately, the time it has taken us to be able to commercialize SpectrumOne has been slower than we expected due to both internal and external factors, and this impacts on our estimated sales in 2019. Combined with an unexpected event in our financing, we need further funding until we reach the total amount we asked for in the IPO last June.
We admit that this has been even more of a turnaround case than we expected, and should have been more careful with our expectations of the work required to complete SpectrumOne and change the organizational focus. Still, it is now very satisfying to see that the signings we have made in Q1 proves our product in the market.
Cost cuts
As a result of the clear strategic focus, we have now been able to reduce costs substantially across the whole operation. TargetEveryone had a lot of different product and sales initiatives that demanded too much resources to handle, without generating sufficient revenue or profitability. Contracts with non-value adding partners are now terminated and the legal group structure is reduced. By directing our efforts towards SpectrumOne, we have discontinued the direct sales and new product development of our legacy platform. This led to the previously announced staff reduction of 3 FTEs. Furthermore, we have also terminated our responsibilities towards our Indian Subsidiary, leading to a reduction of 22 FTE´s.
TargetEveryone founder and former CEO, Björn Forslund, is a very creative and dedicated person. To pursue this interest, Björn will leave TargetEveryone and continue with his own company with immediate effect. Björn´s new company will onwards be responsible for maintenance and support of the legacy platform as well as software updates. This will generate a cost reduction in TargetEveryone by approximately of MSEK 0,7 per month whilst TargetEveryone maintain approximately 90% of legacy revenue. As compensation for this, Björn’s company will be granted a free and perpetual license to utilize the legacy platform for its own needs and customers. TargetEveryone will keep all intellectual property rights of the legacy platform and the outsourcing will not affect our ability to deliver towards existing customers. Björn and his company will also be a close partner of TargetEveryone, both within sales and product development.
Björn says:
I consider this as a good solution for both TargetEveryone and my own company. My passion is to develop great products, and I will now have the opportunity to do this in a way that benefits both companies, by being a close partner. I am also one of the biggest shareholders in TargetEveryone and I feel strongly committed to help develop solutions that benefits the company.
Additionally, we have reduced staff with one further FTE, which after the discontinuation of our Indian operation now gives a total reduction of staff from 40 to 12 FTEs without impacting our ability to deliver on SpectrumOne. Remaining staff is now focused on sales, operational support and product development. New software development is done in close cooperation with our 30% owned strategic partner Cloud Explorers. Total effect of the initiatives described above is a 30 % reduction of ordinary running fixed costs (personnel, opex and net finance) from MSEK 4.0 to MSEK 2.8 on a monthly basis. The majority of these savings take effect from April, and all savings are included from July.
Sales and 2019 revenue prognosis
Development of deep technology software requires highly skilled people and significant time. Compared to other companies we are proud of what we have created for our customers in such a short time. In 15 months, we have developed SpectrumOne with a total cost of approximately MSEK 15. We launched our first version of SpectrumOne in January, but experienced that there still were some adjustments that had to be done before it was fully shippable. Parallelly, we also experienced that the sales process of our SaaS platform required longer lead time than expected. SaaS sales cycles are longer than typical product sales of our legacy platform, and we now anticipate typical sales cycle to be 2-6 months.
The consequence of this is that we are four months delayed compared to our 2019 revenue prognosis. Thus, the 2019 full year revenue forecast is reduced as the last four months was the most revenue generating, due to the effect of accumulated customers and high consumption. We will publish a new prognosis after Q2, when the ARR from signed customers gives a more predictable future.
Capital increase
In June 2018, when we listed on Oslo Stock Exchange Merkur Markets, we sought MNOK 80 in new funding. The excessive MNOK 30 from the minimum amount of MNOK 50 was assigned to finalize the development and introduce SpectrumOne in the market. The outcome of the IPO after all expenses was a MNOK 52 (MSEK 56) funding, that left us with a MSEK 30 deviation. MSEK 41 of these funds were earmarked for repayment of convertibles from previous round. As such, we did not have enough financing to complete the SpectrumOne delivery, and this has since had a negative impact on our finances. Nevertheless, we saw the great opportunity for SpectrumOne in the market and the competitive advantage that this platform could give us. Thus, we decided to continue the development and seek new financing along the way.
The convertible loan rights issue in February brought MSEK 17. The temporary financing after the IPO and convertible right issue has been expensive with approximately MSEK 6 in total costs. This is only the direct costs, and the indirect costs associated with the funding has also been significant as it slows down the development of underlying business. In summary, this leaves us with a deviation of MSEK 19 compared to our original request.
In January, we expected the MSEK 17 convertible loan right issue, to be sufficient to reach break-even. This was less than the previously announced funding request, because we expected the sales take immediate effect in 2019. The delay described above had a significant impact on the need for funding. Parallelly, we had an unexpected withdrawal of a bridge loan that aggravated the situation.
In order to continue developing and taking SpectrumOne to the market, the Board will suggest a new rights issue, to be decided at the Annual General Meeting in May. The rights issue will raise up to MSEK 43 with a MSEK 21 guarantee, which is MSEK 2 higher than the MSEK 19 we are still missing. The details regarding the rights issue will follow in a separate press release. There are two reasons why we now seek a solid funding for TargetEveryone.
Firstly, we want to solve this once for all. Funding processes are very resource demanding for small companies, and we have spent too much time on these process that could have been used on customers and development. Temporary financing is also expensive for the shareholders, without generating any value.
Secondly, we parallelly want to seek funding for further growth and development. We estimate that the guarantee will cover the necessary funding to reach a positive cash flow. The excessive amount will be allocated to accelerate this growth. We have a cutting-edge product and it is important to keep time-to-market short, to take advantage of this position. By combining these two funding processes, we will save time and ensure our efforts are directed towards increasing shareholder value. We can also ensure that this funding will be used carefully, as our recent actions shows that we have taken control over the costs and reduced it significantly. The funding will not be spent on acquisitions or larger one-time investments without consulting with major shareholders.
Customers and general pipeline
Even though the sales have been delayed we were proud to sign 7 customers in Q1. We are very close to signing 2-3 additional customers, and expect to announce these contracts very soon. For the next quarters we expect customer acquisition to increase steadily as our product reaches increased acceptance in the market. As anticipated, our software can be applied to a number of different industries with customers coming from Auto, Insurance, Banking, Advertisement Agencies, B2B and B2C. This spread proves that the market sees the value of our marketing platform, and only in the Nordics we are presented with a potential of + 1.000 customers. The pace of the sales also accelerated towards the end of the quarter as SpectrumOne became fully shippable and we have managed to build up the pipeline.
We currently have a strong pipeline built up after only three months of concentrated work on our new SaaS solution. Several offers are sent, many successful meetings have been held and almost 200 active leads are started. The customers with monthly licenses below the expected TSEK 50 average have shorter lead times than the customers with higher licenses. Thus, the medium customers are dominating the customers closest to signing, but we expect this to even out through the second half of the year. Since SpectrumOne is a brand-new software, we have reduced the duration of the contracts to ease the entrance into a business relationship. This affects the ARR, but we see low risk in this since the feedback on the platform an it´s value to the users is solid. As we proceed into Q2 and second half year, the contract lengths will be normalized with twelve months duration, and the ARR will increase swiftly.
We have also strengthened our total sales capacity, by redirecting 1,5 FTEs from delivery and administration towards sales, and established a sales partnership with our board member Erik Fagerlid. Erik has strong knowledge and an extensive network within the Norwegian retail industry. We are also pursuing similar opportunities in Sweden. More than 50% of our headcount is now dedicated to sales, which we believe to be an important shift in our scale up period.
It is also satisfying to see that we have managed to sign three advertising agencies with Foll, Schjærven and Createurene, out of two reasons: Firstly, these are leading advertising agencies in Norway and Sweden, in the front of the development of the marketing industry, who knows what´s generating value to their customers. Secondly, their portfolio of strong brands will give a quick entrance to customers that are very suitable to SpectrumOne.
TargetEveryone´s future
This has been even more of a turnaround case than expected, with the introduction of a brand-new SaaS platform, traversing from product to enterprise sales, shut down of several initiatives, significant cost cuts and organizational changes - with the ever-present financial situation hanging over us.
In essence, TargetEveryone now is a brand-new company ready for the future with only two value pockets; SpectrumOne and online subscription sales of our legacy platform. With our unique software offering, a strong pipeline, new management group and trimmed organization we are now extremely positive about the outlook. The recent – and upcoming customer signings combined with cost cuts shows that we are on the right track. We daily see examples that the Martech market is an attractive spot for investors with high growth rates, a lot of opportunities and consequently high valuations. Analysts such as Gartner predicts that the market for marketing software will grow tremendously over the next years, with expected investments from close to all medium-large companies, regardless of industry. We in TargetEveryone have now been through some challenging months, but are more motivated than ever to go ahead with our state of art Martech platform, generate value for both our clients and shareholders, and then look beyond our Nordic home market for future growth.
Oslo, April 11, 2019
Torkel Johannessen
For further information contact:
Vegard Brattum
CFO
+47 977 00 338
vegard@targeteveryone.com
Certified Adviser:
Mangold Fondkommission AB (556585-1267)
Box 55 691 102 15 Stockholm
Telefon: +46 8 503 015 50
ca@mangold.se
www.mangold.se
TargetEveryone AB (publ) is obligated to publish this information under the EU Market Abuse Regulation. The information was provided by the above contact person's auspices, for publication on April 11, 2019 at 10.30 p.m. CET.