Net sales amounted to SEK15m (13m), corresponding to a 15% y/y growth, missing our expectations of 7%. Total ARR amounted to SEK 57.4m compared with SEK61.8m in Q3 2023, meaning a 26% annualized q/q decrease. This was c.13% below our expectations of SEK65.8m.

On a positive note, the solid growth rate in the construction segment continues (112% y/y) despite the overall challenging industry conditions. Partly, we believe that it is explained by Hoylu’s possibilities to grow on existing (and large) construction clients which focuses on effectiveness. On a weaker note, Hoylu’s Agile tool decreased 41% y/y, i.,e dropping 7m in ARR sequentially, which mainly represents the deviation from our estimates. We understand that Hoylu has lost a larger customer to competitors which impacted the Q4 figures.

ARR-SaaS (which includes Hoylu’s construction segment) amounted to SEK26.4m compared with SEK31.3m in Q3 2023, corresponding to a c49% annualized q/q decrease. This missed our expectations by 14%. ARR-Mobile products reached SEK31m versus SEK30.5m in Q3 2023, corresponding to c7% annualized q/q growth and 6% above our expectations of SEK29.1m.

The gross margin came in at 67% (66.6%), one pp. below our expectations of 68%.
Actual OPEX (development, sales, and administrative costs) amounted to a negative SEK16m (-13m), missing our expectations of negative SEK13.7m. All in all, EBITDA and EBIT amounted to negatives of SEK6m and SEK10m, respectively – missing our expectations driven by lower sales and higher costs. Furthermore, the cash position at the end of the quarter was SEK6.3m, compared with SEK9.1m in Q3 2023, we expect an additional need for a capital injection of around SEK20m in the near term.

Looking ahead, Hoylu remains optimistic about the growth potential in its construction segment in 2024, despite the current challenging market conditions. The company also highlights tougher competition and price pressure driven by competitors.

Q4 2023 ARR amounted to SEK57.4m compared with SEK61.8m in Q3 2023, which resulted in a 26% q/q annualized decrease. The negative ARR development was driven by a sequential churn of SEK7m in the Agile segment, leading to a decrease of 41% y/y. The company mentions growing competition and price pressure as reasons behind the significant drop in Q4 2023. Also, it's important to highlight that the company has allocated most of its growth resources toward the construction segment, which likely impacts the organic growth in the segment.

The construction segment continued to develop nicely seeing efforts bearing fruit, as the segment continued with stellar growth of 112% y/y. We believe that Hoylu’s construction segment is the most important for investors to keep track of, as management has stated it as its core business area. The reports offer low details on the underlying performance but we believe that the growth within construction derives from both new and existing customers, while the company aims to increase the average sales per project. Within the construction segment, we understand that the penetration rate on current customers is low, as an example Hoylu has several large construction companies using its platform in one to ten of its projects, with a potential of expanding its usage tenfold. We believe this offers attractive growth prospects at lower CAC, as the customer already is onboard.

The ARR from the mobile segment, (stemming from the Carnival Corporation & plc agreement) continued with stable development while beating our expectations somewhat, delivering an annualized q/q growth of 7%. The customer concentration risk remains high, while we are encouraged that the progress continues, most likely with considerable switching costs.

The ARR and its growth rate are among the most important metrics to follow in Hoylu. ARR is a leading indicator of SaaS revenue growth, the main driver of profit growth, and is thus essential to the investment case and Hoylu’s road to stable profitability.

Net sales amounted to SEK15m (13m), corresponding to a 15% y/y growth, missing our expectations of 7%. The sales came in below our expectations driven by churn in the Agile segment while the construction segment continues to perform well.

The gross margin came in at 67% (66.6%), one pp. below our expectations of 68% as we had expected a smaller share of sales to the mobile segment. As Hoylu has moved away from its Hoylu-Wall offering in the most recent time and has focused entirely on its SaaS business, the gross margin outcome nowadays is mainly a result of the ARR mix. The ARR-SaaS/ARR-Mobile product split in Q4 2023 was 46%/54%. Going forward, we expect the ARR-SaaS segment to be Hoylu’s primary growth driver despite the short-term setback, where we foresee a larger share of the ARR-SaaS segment ahead and, thus, gross margin improvements.

Q4 2023 OPEX amounted to SEK16.2m and grew 18% y/y, despite a reduction of the workforce by three employees. As such, we believe that a part of the increase could be temporary. Going forward, we expect Hoylu to be able to grow ARR significantly without any major increases in its cost base. The company is working towards a more effective sales process to bring in new leads. We appreciate the general cost control, especially given the accelerated ARR growth. We argue this indicates the scalability of the business model, as it seems that ARR growth can occur at low incremental costs.

EBITDA and EBIT amounted to negatives SEK6.1m and SEK10m in Q4 2023, respectively, with significant deviation from our estimates. This stemmed from lower sales, ARR, and gross margin, while OPEX increased beyond our expectations. The cash position in Q4 2023 amounted to SEK6.3m compared with SEK9.1m in Q3 2023 and we expect an additional need for a capital injection of around SEK20m in the near term.

Following Hoylu’s Q4 2023 report, we decrease our ARR forecasts by 14-10% for 2024e–2025e while we lower our gross margin driven by a more unfavorable product mix. We expect Hoylu’s ARR-SaaS segment to remain the primary growth driver, which gradually will improve the gross margin ahead. In addition, we raise our 2024e–2025e OPEX forecasts by 1% driven by a few more employees. All in all, this leads to a decreased EBIT forecast for the period which is mainly derived from lower sales levels.

The changes push the expected breakeven point to 2025 from previously 2024. As such, we believe external financing challenges continue as the largest risk before the company reaches stable profitability, considering our current estimates, Hoylu’s cash burn, and current cash position. We thus anticipate a future share issue in our model, which we discuss further in the valuation section below.

On the first of February, Hoylu announced a directed share issue of ~SEK14m at 1.76 (VWAP), which was at higher share price levels than we anticipated. We are encouraged by the interest in the transaction and the absence of dilutive terms. The transaction needs to be approved at the extraordinary general meeting, but we foresee no obstacles to reaching approval. We expect the new cash to provide one year of runway.

The adjusted growth curve adds around SEK10m to the total financing need. As the issue also was ~6m less than our previously expected need, we added another share issue in 2025, totaling SEK15m. All in all, the effects mitigate each other, leading to an unchanged fair value range with a Base Case of SEK1.8, and a Bear respectively Bull Case of SEK0.5 and SEK7.5. The share trades in line with our base case, at low valuation multiples like 1.5-2x sales for 2024e-2025e and we believe that the company has become increasingly attractive from a risk perspective as the near term financing situation is settled.