AcadeMedia AB (publ) (ACAD) Earnings Call Transcript & Summary

Welcome to AcadeMedia Q3 2026 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Marcus Strömberg; and CFO, Petter Sylvan. Please go ahead.

So good morning, everybody, and welcome to this presentation of our Q4 report, and we will also sum up the full year for AcadeMedia. And this time of the year is really fantastic for AcadeMedia. We have all the school starts in Sweden, and we plan the school start international. And we have never had so many students, children, parents choosing our school. And when you talk about election, there are elections in different countries every fourth year, we have election every year, and a lot of parents choose horoscopes. So I will just give a short summarize of the quarters. You can take the next page. And we can say that this quarter and this year has been a very good year for AcadeMedia. We have increased the turnover. We have increased the profit. We have a lot of organic growth, as you can see in the numbers, and we have a very stable position to continue to grow. And we see improvement when it comes to quality in all parts of AcadeMedia. And they have also been a part of improving the earnings. We see improvement of earnings in all our different segment. And we have also a focus on the international strategy of AcadeMedia. So we've made 3 acquisitions in the period. And after the period, we have continued. And what is maybe interesting to see now that we have opened up 2 new countries, both Poland and U.K., and we have continued to grow and develop in our existing markets. And in Sweden, we have opened up for more sports schools, and that is also something that we really believe in the future. So the first -- the quarter 4, a record quarter for AcadeMedia, driven by quality, driven by investment and a stable and good development. And I started to mention quality is really focused for AcadeMedia. And what we see when people could choose when patent could choose, quality is also a driver for growth. And one thing that is debated a lot in Sweden, not so much in other countries because they have other systems, it's about the grading. And I must say that AcadeMedia has the best rating we are more accurate to grading than the municipality schools. So it's check when it comes to grading. We also developed the numbers when it comes to qualified teachers. So you could say that we have better numbers when it comes to the teachers, qualified teachers in math, Swedish, English and on the overall picture that we are on the same level as the municipalities. And the third area here is something that we are really interested in it, how do we perform when it comes to the socioeconomic weaker students. And we made a report just before the summer and it was a very good result because that we could say that we really outperform a lot of the work that other schools when it comes to these children. So good principles, good teachers. It's possible to have good results even at social weak economic goals. And the number, if you go to the school inspection and see how do we how do we came out from the different inspection that they are doing, we also performed in a very good way. So AcadeMedia outperforms on almost every key quality metric. And I must also mention reading. That is one area that we really have focused on and we keep on improving the number of students, children that could read in early stages. And one question that I could get also is how big is this sector? And you could say that it's around 30,000 children that go to independent schools. We're talking about 1 million parents year after year after year after year. choosing independent schools. And if you look in the bigger cities, we are talking about 50% of the students in upper secondary that go to independent operators. So in Stockholm, Gothenburg, Malmo, Helsingborg, Orebro, a lot of the bigger cities, we have 50% of the share that is private. And in Stockholm, 25% is AcadeMedia's market share. And if we go to primary schools, it's around 25%. So you have to keep in mind when you look at this sector, it's a big sector, it's an important sector, and when the students make their choice, they choose independent scopes. And we have also continued to have this acquisition strategy. So this is illustration of that academia have a long history of making acquisition. So that's a little bit unique with that Kevin that we could grow through small bolt-on acquisitions, bigger mergers new starts, but this picture shows the number of acquisitions that we have done. And we have taken care of the brands. We have improved the brand. We have made them better tomorrow than they were when we made the acquisition. And that is real value creation. And we have also managed to do that international. And if we look at some of the acquisitions that we have done now, we have entered the U.K. market. And we have followed preschools in U.K. for many, many years. We met a lot of companies we think that Chestnut is a very interesting platform. It was reasonable value, but very enthusiastic management. And they really wanted to be a part of us, and now they recommend us to others, and they also have new starts that has been planned. So a good platform to start to learn the U.K. market. And then we also have entered Poland. And Poland, the company, Kids & Co is people that we have known for 5 years. We met them visited the schools, spent a lot of time together. And we think that the right time to take this step into Poland is now. So we will continue to grow in Poland, new starts bolt-on acquisitions. And we also, in September, now start primary school, not just the preschools in Poland. And as you -- all of you know, Poland is an interesting market coming in Europe. And also to make extra bolt-on acquisition. And I think the Netherlands is quite interesting because we started with Winford. It's a company that we've known for a lot of time. We then went to preschools. We entered added dedication. And this is sort of a bolt-on acquisition when it comes to Winford. So schools come to us. We try to make them better, working together with Windford. So this is a small but interesting acquisition. And if you look at the profit, we have a very stable margin, stable profit development and we have really a focus. And the driver here is all of the segments, but of course, the international development and the added dedication is really driving the performance here. And I must say that the transformation that we have done when it comes to asset dedication is quite interesting. And we have also started to have adult education outside Sweden. And one key, what we are working against is that 50% should be the business that is adult education and international business. And here, the development has been really, really good. And if you look into the acquisition, it's even better than these numbers. So you can see that we are now passing 40%, around 41%. And if you look pro forma of the acquisition that we have done, it's even higher. So we have the target of 50%, and we have a lot of possibilities coming in the platform countries that we just acquired.

Thank you, Marcus. I take over, and good morning, everyone. Petter Sylvan here. So I will start to give an update of the regulatory landscape in Sweden. And as we see on this page, the school voucher in Kao has been withdrawn. We have talked about that before. And while the principle of publicity and the profit regulation remain -- or has just been passed as laws. And for AcadeMedia, for both these reforms we estimate that we will have a limited financial impact. However, of course, it will be a significant administrative change and burden for us to manage. We have estimated before that total requirement of the principle of publicity with requirement investments in IT-related system up to SEK 25 million. And at the time being, we have on FTE that is managing to give you a quantified indication of what it means in kind of head count. For the other reform, the profit regulation, it is to be seen, but we think operational changes will be limited for large as us. And we continue to assess that the greater regulatory complexity may contribute to further consolidation in the sector, which could favor larger providers as us with established compliance capabilities. So please go to next slide. So as much as Marcus mentioned, we conclude a great year with a record fourth quarter. Net sales increased by 10.6%, and to SEK 5.7 billion, while adjusted EBITA increased by 16.2% to SEK 552 million. And the adjusted EBITDA margin improved to 9.8% from 9.3% last year. Student numbers increased by 5.2% and organic growth was at 102% in the quarter. All segments contributed to the improvement in earnings with the international operations serving as the primary driver. Free cash flow amounted to SEK 354 million compared with SEK 32 million last year. And this lower cash flow was primarily driven by an acquisition-related payments in the quarter and to a less degree, timing of municipal payments. Okay. Let's continue the next page. We see that the main contributor to the year-on-year earnings improvement in the quarter here. And the Pre-School International delivered the largest positive contribution. We added SEK 43 million in the adjusted EBITDA. And the improvement was driven by increased volumes and revenue in Germany together with improved efficiency in Norway. Compulsory School added SEK 40 million, supported by the annual school voucher revision and acquisitions. Upper Secondary School contributed SEK 12 million, primarily due to lower rental costs and improved capacity utilization. The doubt Education added SEK 10 million, supported by higher education and labor market services. Group costs increased by SEK 10 million compared to the same period last year. We can continue on the next page. Turning to the full year's picture. We delivered both growth and a clear improvement in profitability. Net sales increased by 7% to SEK 2.4 billion, while adjusted EBITA increased by 15.3% to SEK 1.5 billion. The adjusted EBITDA margin improved to 7.4% from 6.9% and was within our financial target range of 7% to 8%, and that's the first year since a couple of years back that we are within our profitability margin. Earnings after tax increased by 19.2% to SEK 1.1 billion Free cash flow amounted to SEK 1.3 billion, up 14.2% year-on-year. And overall earnings growth materially faster than sales, resulting in a margin improvement of 0.5% for the year. So now we move on to Page 17, and we will look at each segment, if you continue. And we start with a Pre-School [indiscernible], the number of children increased by 8.1%, driven by international expansion, while net sales increased by 16% to SEK 2.3 billion. Adjusted EBITDA increased by 24.9% to SEK 260 million and the margin improvement to 9.5% from 8.8%. The improvement in profitability was largely driven by increased volumes and higher school at founding in Germany together with temporarily lower cost levels in Norway. We have 4 acquisitions, which summarized to 30 new units, and this continued to support growth during the period. Next, Compulsory School. The student number is increased by 8.3% and net sales increased by 12.9% to SEK 1.4 billion. The acquisition of Prolympia had a positive impact on student numbers, sales and earnings. The adjusted EBITDA increased by 13.2% to SEK 129 million while the margin remained stable at 9.5%. The quarter, therefore, combined acquisition-driven goals with maintained profitability. We move on to Upper Secondary, and student numbers increased by 0.6% and net sales increased by 3.1% to SEK 5 billion. So by more students and the annual voucher provision. Adjusted EBITDA increased by 6.5% to SEK 197 million the margin improved to 12.7% from 12.3%. The result benefited from lower rental costs following the lower rent indexation, reduced cost for leased computers and improved capacity utilization. And we now move on to adult division. They continue to improve its profitability in the quarter. Net sales increased by 5.3% due SEK 78 million, while adjusted EBITDA increased by 27% to SEK 47 million. The adjusted EBITDA margin improved to 9.8% from 8.1%. The improvement was mainly attributable to higher volumes in labor market services and municipal without indication. On a rolling 12-month basis, profitability has now improved for 12 consecutive quarters with an adjusted EBITDA margin of 13.7%. We -- as previously communicated, the second half of reporting year include more completed courses resulting in lower capacity utilization with a main impact in the fourth quarter. We now move on to the financial positions of the group, and let's start with the free cash flow on Page 22. I emedia maintains a strong cash generation. Free cash flow before expansion investments amounted to approximately SEK 1.3 billion for the year, and this corresponds to 62% of adjusted EBITDA. Increase in other external CapEx is driven by acquisitions that were completed in Q3 and Q4. Maintenance CapEx amounted to approximately 1.4% of net sales, allowing an increase in new openings and expansion units compared with previous years. The strong cash generation support investment in existing operations and continued growth. Larger acquisitions may still require external financing. Let's continue to next slide, the financial position and leverage. And it remains strong despite the acquisitions that we have completed during the year. The net debt, excluding IFRS 16, amounted to SEK 1.9 billion compared with SEK 953 million last year. And the increase is mainly on the effect of acquisitions completed during the year. Leverage, excluding IFRS 16, was 0.9x adjusted EBITDA compared with 0.5x last year. And this remains well below our financial target of a maximum of 3x. Property-related lease liabilities amounted to SEK 12 billion, and the book value of the properties was SEK 1.6 billion at the end of the year. Key message here, the balance sheet retains substantial financial flexibility after a year of active M&A. And finally, if you flip to the next page, our performance against the financial targets. The adjusted EBITA margin was 7.4%, which is, as I mentioned, well within the range target range of SEK 78 million. Revenue grow according to the target definition was 5.8%, and this is also within the target range of 5% to 7%. Leverage excluding IFRS 16, was 0.9%, and well below the maximum level of 3x. And with that, we conclude the presentation, and we open up for questions.

[Operator Instructions] The next question comes from Jonny Jin from SEB.

Yes. A couple of questions from my side. I want to start with cash flow. The change in working capital is negative in this quarter, which, yes, is a little bit unusual given your seasonal pattern. I know that you attribute it to 2 things, partly the acquisition payment completed after balance sheet date. And secondly, the calendar of payments in the international business. So my first question is basically what was the sort of effect from acquisition payments in the quarter? If you could maybe help us quantify that first effect, please?

So the effect on the acquisition related was SEK 140 million. So that contributed to the main difference compared to last year. That's...

As SEK 140 million from the acquisition. And then secondly, the calendar effect in the international business. Can you also yes, quantify that effect as well and also elaborate if this is sort of a pure calendar effect this year? Or is it more of sort of a structural shift, we should expect in cash flow as you grow the international business?

It's directed directly to the Norwegian business. And there they have the majority of the municipality payment, most is play there by municipalities or the significant part but significant sums of their payment is made in the end of quarters. And when we closed the year, we always get a higher degree than the rest of the year. So we used to have this swing effects that differ year-by-year, specifically in Norway. So last -- the difference compared to last year related to this, depending on the municipality pace, on the other side of the quarter or the end of the quarter. The difference this year was minus SEK 70 million. But it could also flip the other way around a bit positive in the next year.

Understood. Understood. So maybe that sort of temporary this year and will normalize coming quarters, I expect.

Yes, exactly. Over the years, it would normalize between the years.

So it's very important to say that there is no change in the way that the cash flow is development in the company. It just depends on these 2 questions and when you get paid.

Yes.

Understood. That was very helpful. And then moving on to a quick question here on the adult business. I mean now we also see some signs of stronger economy in the Sweden here. So do you see sort of signs of lower volumes in that old business now? Or how has -- yes, the new fiscal get started for you in the adult business specifically?

No, we continue to see still strong volume development in the out education. And as you know, Jonny, we had a significant increase of programs that we were allotted in the beginning of the year. Now they are to be signed up in the start of the school year, and we only have positive signs, although we don't finalize the toman students, they actually will apply. But we have a good momentum in the beginning and the start of the year. And we still conclude that the unemployment rate is high, and we don't see any change in that as of today.

So maybe one thing -- Maybe, Jonny, there is one thing that you should look at also its application to university and higher education in Sweden, and that was top level in the spring. We have never seen some an application the number of students that could start were tapering down. So there are a number of students that couldn't stop to university. . So you have a lot of people that want to retrain. And a lot of these people are looking at occasional because they are shorter, and they help you in a better way to job you don't take so much study loans. So the driver, I think, when it comes to agile dedication upskill reskill, it's not just unemployment is the change in the labor market.

Yes. Understood. Sounds promising. We'll see. Then just one final question for me, more of sort of a clarification question. And I think you mentioned in the report that the preliminary student enrollment figures for the upcoming year is up 8% year-over-year. Is that purely organic? Or is it total including M&A?

It's a total including M&A.

Okay, that's clear. And sort of if you would give a proxy to what is organic of that?

We don't disclose that at this time of the year. We used to disclose later June the year that -- no, we don't disclose a number of students. No, no. [indiscernible] as negative figures. I mean we used to disclose how much the value to increase our segment later during the year, but we never used to disclose exactly which given how they...

[Operator Instructions] The next question comes from Karl-Johan Bonnevier from DNB Carnegie.

Just to continue on the last topic, the 122,000, 100 students, you see starting in your school. I understand is Poland included in that? Or is that just the structure awaiting the clearance of the competitive authorities in Poland. .

Poland is not included.