Addnode Group AB (publ) (ANODB) Earnings Call Transcript & Summary

Hello, and welcome to the presentation of our Q4 report for 2023. I'm CEO, Johan Andersson, and with me, I have our new CFO also, Kristina Elfström Mackintosh, that I would like to introduce. So maybe let's start with Kristina, who is new on the company. Maybe a short introduction before we move on with the Q4 report.

Yes. Thank you, Johan. I've joined Addnode in December. So I've been there almost 2 months. Kristina Elfström Mackintosh. I'm not new to this type of roles. I have over 20 years here as a CFO for listed, nonlisted companies, scale-up, startup, et cetera. And I came recently from ChargeAmps, which is one of the Swedish leader manufacturer of EV chargers, both software and hardware. And just before that, I was CFO for Lagercrantz Group and I have also a background as a charter accountant, little bit private. I got 3 kids that just left the house. I got a husband and a dog that is still with me in the house. So that's short from myself.

Thank you, Kristina. And hopefully, you will be able to meet Kristina more going forward. So with that an introduction, let's move on to our Q4 report. And as today, we'll talk about Addnode Group in brief, talk a little bit short about 2023 before we move into Q4. Remind you and ourselves what we're doing within sustainability, and then we will open up for questions. So what is Addnode Group for you who are new to us? We are an international group. We are providing digital solutions for sustainable design, product data management, digital twins, also for efficient management of real estate facilities and effective public administration. We are a highly decentralized structure with 2,700 employees in 20 specialized companies. Our business is supported by global trends such as digitalization, automation, urbanization and sustainability driving the demand for our digital solutions. Looking at our geography. Big regions for us are Sweden, U.S.A., U.K., Germany and then we are also active in some -- in totality, some 20 countries predominantly in Northern Europe and U.S. is where you will find us. So looking at 2023. We continued to invest in new companies, software and employees, we implemented cost-efficiency measures and we merged operations. At the same time, we noted some major changes in the world around us that we had to handle. And looking at net sales, an increase with 19% to SEK 7.4 billion. We continue to increase our recurring revenues, which amounted to 70% of net sales. Addnode Group became an even more global company with the acquisition of Team D3 and U.S.A. is now our biggest geography compared to net sales. We started 2023 strong, but Q2 and Q3 was tougher [Technical Difficulty] So looking at Q4, Addnode Group ended year with growth, stable earnings and cash flow. Net sales increased by 16%, of which minus 1% was organic. Currency-adjusted organic growth was minus 2%, EBITA amounted to SEK 196 million. Cash flow from operating activities amounted to SEK 228 million. The Product Lifecycle Management reported growth of 10%. The structured program initiated in Q2 has had the intended effect and the EBITA margin has improved. [Technical Difficulty] adjusted organic growth of 3% and an improved EBITA margin. The Design Management division reported growth of 24% with currency-adjusted organic growth amounting to minus 6%. The acquisition of Team D3 has had a positive impact on earnings. While demand in Europe was stable, demand from the construction and real estate market in the U.S.A. remained weak in the quarter. To respond to this weaker demand, staff reductions have been implemented in Symetri U.S.A, which has had a positive effect. And with that, I would like to hand over to our CFO, Kristina Elfström Mackintosh.

Thank you, Johan. And we are going to look at the breakdown of the revenue. We have 3 graphs that I would like to take you through and we start at the bar graph from the left, you can see the breakdown on the net sales for the fourth quarter over the last 5 years. And [Technical Difficulty] rather substantial growth, which mainly consist of the last 2 years. And the current quarter amounts to SEK 2.1 billion compared to SEK 1.8 billion from previous year. And Johan also mentioned that it's a 60% growth. You can also see that the part -- the major part of the revenue consists of recurring revenue and that increased by about 21% from last year, mainly driven by acquisitions. And the organic growth of recurring revenue was minus 1%. And that is relating mainly to the lower sales of 3-year agreements. We can also mention that we are meeting strong comparatives from last year, which was the strongest quarter in the history of Addnode. Going to the middle graph, the pie chart in the middle, we can see also that recurring revenue can continue to form a stable foundation of our business model and now amounts to 70% on net sales. Our service revenue grew by 12% in total this quarter and consists of both services relating to [ software ] and customer-specific solutions. The organic growth was slightly lower than last year by minus 1%. And then the last graph all the way to the right, we can see that presents a breakdown of sales by geography. And also, we can see now this is the second quarter in a row America has become the best market with 32%; followed by Sweden, 27%; U.K. and Germany above 10% each. And we can also continue now and we're going to look at some of the performance of the 3 divisions. I'm going to hand over to Johan again.

Thank you, Kristina. [Technical Difficulty] Net sales increased by 24% in the Q4. Adjusted for currency effect, organic growth was minus 6%. EBITA was SEK 98 million and the EBITA margin declined to 7.9%. Operations in the divisions. Looking at it, you can see that Symetri providing design, BIM and product data began to note weaker net sales for Autodesk solution in the second quarter of 2023 already, mainly to the construction industry customers and particularly in the U.S.A. This trend continued throughout the year and it seemed to be a result of uncertain economic conditions and a lower volume of 3-year [ agreements ]. Although net sales improved compared with the second quarter, sales cycle remained longer and its 3-year subscriptions are lower than in the same period last year in terms of both new sales and renewed volumes. However, the comparative figure for the division are high following a record-breaking sales of 3-year agreements in 2022, mainly driven by U.S.A. and the U.K. However, the number of customers and the annual value of the underlying contract database, which is the basis for future contract renewals are continuing to increase. We still see great potential for selling Symetri's proprietary software growing customer base. Symetri's European operations reported a stable volume for the quarter and sales in line with the previous year. The cost reduction made in U.S. operations, which were announced in the third quarter of 2023 have had an effect. Team D3 acquired in July 2023 have had a positive impact on earnings. Service Works Global, which provides digital solutions for facility management; and Tribia, which provides collaborative solutions for construction and civil engineering delivered stable growth driven by the acquisition of FAST2 in the first quarter of 2023. So as we have discussed earlier on, there are some changes being made in the business model for our Symetri business that are a world-leading partner for Autodesk, and we thought it would make sense to spend some time and walk you through the changes that are expected to happen going forward. Autodesk who is a partner Symetri has announced a transition from current retailer model to an agent model. The new transaction model will be introduced gradually starting 2024 and is expected to be fully implemented by the end of 2025. We continue to work with customers to identify a solution that best suits their business, and we'll continue to drive quotes, implement the Autodesk solutions and provide support. Also going for Symetri [Technical Difficulty] own software and associated services, but an agency fee from Autodesk for reselling the Autodesk software. We think that the move to an agent model will demonstrate the strength of Symetri service offering and its broad portfolio of proprietary complementary products. So looking at how will this change -- just to stress, it is something that is going to happen in 2024. What will happen is that now that this is an illustrative example, it's not the P&L for Symetri, but it's an example showing you the changes going from the reselling model to the agency model. That means that today when Symetri sells an Autodesk subscription, we sell it to the customer. We collect the money. And we get a cost of sales from Autodesk and we provide them with that. And then we saw is gross profit is what ends up and then we get an EBITA. What will happen going forward is instead of invoicing the customer and getting a cost of sale from Autodesk, we will get an agency fee from Autodesk for selling the same volume. We expect that the agency fee will be at the same amount as the gross profit that we are generating from existing book. Having said that, we're also saying that we will continue to sell our own technologies and services and there are some other third-party and that will be conducted and transactioned in the same way. That will happen starting 2024, we don't know the exact date. This is something that will happen going forward fully in 2025 is that our gross profit margin will go up as a result, and as a result, our [ EBITA margin ] is expected to increase [Technical Difficulty] we are expecting the same gross profit, but net sales will go down. So looking at Product Lifecycle Management in Q4. The Product Lifecycle Management division reported net sales of SEK 499 million, a growth of 10%. Organic growth was 8% and adjusted for currency, 4%. EBITA we adjust for [Technical Difficulty] SEK 59 million, the margin was [Technical Difficulty] weak compared to the other organic growth [Technical Difficulty] systems in the U.K. and Germany. Customers are continuing to demand time to meet licenses instead of the previous license purchases with perpetual right of use. As previously communicated, [ structuring ] message has been carried out within the Product Lifecycle Management division in order [Technical Difficulty] organization and cost structure. The previously communicated estimated structuring cost for implementation ended, as we said, at SEK 20 million, which was recognized in the second quarter, finally in the third quarter and in this fourth quarter. [Technical Difficulty] For an expected [Technical Difficulty] The Process management had a solid performance this quarter. The Process Management division increased net sales to SEK 346 million, it's a growth of 3%. EBITA increased to SEK 67 million and the EBITA margin improved to 19.4%. Municipalities and public authorities continued to show some restraint in terms of new investments. The number of tenders decreased compared with the preceding year, but the division's good and well-established relationships with the large public sector customer base frequently present opportunities for recurring sales and the expansion of current assignments. Demand for divisions [Technical Difficulty] specific business systems remained favorable in the quarter. The division is [Technical Difficulty] offering. So [Technical Difficulty] major changes within the structure that I would like [Technical Difficulty] Swedish municipalities an uninterrupted digital urban development process and better conditions to sustainable urban [Technical Difficulty] to collaboration with partners as [Technical Difficulty]. As part of this, we also created a new company, Icebound. Operation was previously part of [Technical Difficulty] digital solutions for the forest sector [Technical Difficulty]. Based on its existing product portfolio as well as the competence and experience in geographic information systems, Icebound will offer digital solutions that streamline processes and business flow for the foreign industry and base industries. In January 2024, Icebound also made its first acquisitions of Efficture. It's a proprietary software for forest and timber management with net sales of SEK 2 million. And on top of that, we made another acquisition to process in Q1. The acquisition of Jetas, it's a Swedish supplier case management system for issues and work orders, public transport and property management. It's an add-on to our company, Forsler & Stjerna, that will strengthen the offer to Sweden's public transportation sector. That's a net sales of roughly SEK 6 million. So with that and the introduction of the business in Q4, I will hand over to our CFO, Kristina.

Yes. Thank you, Johan. And I would like to continue with an overview of the consolidated cash flow. And the way I'm going to do this, I'm going to start with the cash from operating activities first for the quarter and the year and then going down to investment activities for the quarter and then the year. So I hope you will follow that. So looking at the fourth quarter cash flow, it remained strong, SEK 228 million compared to SEK 261 million in the previous year. And the decrease from last year is mainly related to the lower operating profit together with some increases in paid interest in the fourth quarter. And if we look at the full year cash from operating activities, we generated SEK 485 million in operating cash flow and this was a decrease from the year before and it was mainly due to the decrease in operating profit by SEK 117 million and also the negative change in the working capital of SEK 125 million. Going down the cash flow, we are looking at the cash from investing activities. And for the fourth quarter, it's mainly consist of investment in development -- the development of proprietary products around software. And for the 12 months ending 31st of December, the cash flow from investment activities was SEK 672 million. And about -- out of that, about SEK 460 million into the 3 acquisitions during the year and also include the consideration to sellers for acquisitions made in previous years, that is the earn-out payments. And also important to know that we invest a substantial amount in the future products and services and approximately SEK 152 million is relating to investments in proprietary software during 2023. And then looking at how we're financing our investments and operations. Looking at the fourth quarter, the financing activities is mainly relating to leasing. And for the 12 months, we had [Technical Difficulty] reflected in the full year and the borrowings for the acquisitions in the 3 [ lines of business ] through the revolving credit facility. And noticeable that the dividend of last year SEK 153 million was distributed in 2023 in May. And I would like to pay attention to that you might have read the report that the Board also proposed a dividend of SEK 1 per share even this year, the same as last year and that will be paid to shareholders in May 2024. And looking at the balance sheet of the group, we're looking at the balance sheet from the operating view to what you find in the report, which is the legal statutory balance sheet. And we can here see that we are continuing to operate by a resilient balance sheet, which is very important for our type of business for continued growth, both organically and through acquisitions. You can see also that we have access to additional funds of SEK 1 billion from June 2023. And the major changes in the balance sheet is relating to the 3 acquisitions that we have executed during the year. You can also see that net working capital is negative and our business model enabled us to work at a negative working capital and that amounts to minus SEK 543 million. And including in the line item provisions, taxes and other debt, it includes earn-out for the sellers of the acquired companies. And as of 31st of December 2023, the earn-out amounted to SEK 481 million. And we also had other liabilities to sellers of about SEK 56 million. Net debt now at SEK 999 million was increased by SEK 536 million as we continued to execute acquisitions. The cash position was SEK 667 million, which was an increase of SEK 67 million. And you can also notice that the dividend SEK 133 million has an impact on the cash position. We have available facilities of SEK 2.6 billion and we have not utilized SEK 1.1 million of those, which can be used going forward for acquisitions and growth. Lastly, I would also like to mention that we now have repurchased shares, no more repurchases since last summer 2023 and now holds 1,210,000 own shares in custody. And by that, I will -- we will now continue to have an overview of our sustainability agenda and also looking to 3 sustainability cases. Johan will talk about that.

Thank you, Kristina. And with Addnode Group, we are long term and we continue to do what we do so the sustainability agenda is the same, and we are still pushing for it. And we believe that the digital solution that we provide to our customers are enabling them to be more sustainable in how they do [ wise choices ] of the materials to be used in buildings and products and et cetera and how you create the urban environment that we are all living in. So we think that we can provide the digital solutions to make that happen. Of course, we care for our people and we -- with our people, it's in the environment where we are active, of course, Also the way we work with our partners and suppliers, we want to work with a good guys. And we believe that part of sustainability agenda is to make sure that we have a long-term financial solidity, so we can make right choices at our own choosing. And we need to have the government to make that happen. So it's the same agenda, and we are pushing for it. So looking at what we are doing for our customers, we have the 3 examples here that we are highlighting, and you can also find them at our website. Looking at the left, you can see an example from the Design divisions where the company, SWG, are providing 3D models and digital drawings for the Nordic Museum in Stockholm and enabling them to have digital documents to facilitate repairs and maintenance in order to ensure that the building will stay in their historical profile. They also help the Nordic Museum to improve the quality of its building data and the digital format also enables building information to be updated one place. Looking at the middle of the slide, you will find an example from the company, TECHNIA, in the PLM division. It's a digital twins' vehicle for last-mile deliveries. TECHNIA has helped the German startup, Mocci, with a virtual twin of it's Smart Pedal Vehicle for last-mile deliveries of goods in urban environments. Looking to the right, you will find an example from the Process division, it's a company, Decisive, in Norway. More efficient for the railways. Decisive has supported Norwegian infrastructure company, Bane NOR, who is responsible for Norway's railways in implementing a new European rail traffic management systems. The project is Norway's largest public utilization initiative today. By investing in new system, Bane NOR has helped to strengthen the competitiveness of the railway system as a logistic solutions. Having more people travel by train and more goods transported by rail helps to reduce CO2 emissions and increase energy efficiencies. So 3 good examples of what we're doing in Addnode Group. So finally, looking at Addnode Group. We have a strategy of both organic- and acquisition-led. We believe that the structural and underlying demand for the digital solutions offered by our companies extend beyond and across economic cycles driven by customer needs for utilization, automation, urbanization and sustainability. However, short term, the current economic situation is dominated by uncertainty and restraint among our customers. And our group strategy still with a sound risk-taking capitalize on these trends by continuously acquiring new businesses and actively supporting our subsidiaries to generate sustainable value growth and drive organic earnings growth. In 2023, we have continued to invest in new companies, software and employees. In addition, we have implemented efficient measures and merged operations to strengthen our positions. And the group has become a more global company and the acquisition of Team D3 meant that the U.S.A. became the group's largest market in terms of net sales. The strength of our companies, their ability to act quickly in a changing world and Addnode Group's strong financial position and strategic advice provide a good foundation for continued sustainable value creation. And with that, we would like to open up for questions. And thank you for taking this time. It took a little bit longer with some technical issues, but I think we are past that. So let's open up for questions.

[Operator Instructions] The next question comes from Daniel Djurberg from Handelsbanken.

Congrats to a stable report. A few questions from my side. Starting off with Design Management. Obviously, we will focus more on the gross profit growth going forward. But the question is if you have decided how you will report the top line for Design Management in '24 and '25 time frame. Will you divide it into the VAR and the agency model so we can keep them separate and see the development more or less and then calculate backwards to see or -- any thoughts on how to get away from the uncertainty that mix would create?

We are looking into that. We haven't made any decisions on that. But there would probably be some changes in how we do report. But we would like to come back to directly how we do it. However, there are some guidance that I would like to highlight in the report. For example, we are writing there, for example, that if you look at the Symetri business, you will find that today half of the gross profit generated by the Symetri business is from own services and own proprietary products. And the other half is from the -- what you would call the VAR business, selling the Autodesk business, the gross profit. And then you need to figure out how much of the Design division that is not the Symetri business. And I know you are really good, so you probably will find that from public figures looking at how much is the net sales of the Tribia and SWG.

Yes. Fair enough. And may I ask you on the -- I should know this, I guess, but the new transaction model. Will it also change Symetri's relationship with existing clients? Or is it merely new signings, i.e., will Autodesk invoice all clients also existing?

If you -- when we make the transition, what will happen is that there are -- for example, it will be a mix from a relationship perspective. As we have, for example, 3-year contracts that are ongoing, there are installments that are going to be made. That existing contract will go on going forward. But that should not be confused with our reporting on net sales because as we will still have the same revenue recognition principles, that means that when we do the switch, we will report any new sales according to the new transaction model. So if you understand my answer on that.

Yes, I think so. Yes, and we will come back to it, obviously, later on. And may I ask you also on -- you have seen in the U.S. a certain weakness in construction segment throughout '23. And I was thinking you also mentioned in the report that it was seen in Q4, obviously. But entering '24, I don't -- I know you don't give guidance, but should we expect it to stabilize in first half or will it accelerate? Or -- and also, if possible, ballpark, how large part of the U.S. Design Management business is dependent on the U.S. construction segment?

Starting with first -- the last question, looking at how much of the business is dependent on the construction market. In the U.S., it's probably I would argue almost half the business in the U.S. are addressing what we would call the AEC market. It is not just pure construction, the architecture is sort of depending on that. And then looking at the growth in the market, you will then -- we also need to look at from 2 perspectives. The underlying market growth, it seems like it's not getting worse. It's more stabilizing and then let's see how much it will continue to grow. That's one thing. And then the other thing it has to do with our revenue recognition principles is that we also, this year, as we were selling at a mix with less 3-year deals moving to 1-year deal that affected this year, so when we are coming to Q2 and Q3 next year, then that means that the 3-year deals that hopefully were not sold that year that we will be able to sell them next year. And that was sort of how with the net sales compared to Q2 there. But it still means looking at the growth, we are not expecting high growth in the market going forward. And hopefully, it will stabilize.

Yes. That's fair. And I have a last question on PLM, TECHNIA. And Dassault reported yesterday, they saw growth level of some 8% to 10% in '24, while double digit again in '25 and onwards. Can you comment a little bit on how you see in your crystal ball? Is it fair to assume similar levels? Or should -- is it something impacting [ process, cons ] versus.

We are a little bit boring. We don't make any prognosis for the future, but we try to give some flavor to that anyhow. And what you can see is that in what we would call a tough year for the PLM division, we still had organic growth of around -- I think if you adjusted here in Q4 for currency effects and all things, but it was 4% growth. And at the same time, we managed to do a major cost-reduction program increasing margins. And hopefully, we don't have to spend 2024 on cost reduction and be more focused on growth. So if we are able -- I always guide and say we can do 5%. That's as expected, of course. And if we do more, I'm happy with that, but we never plan for more than 5%.

The next question comes from Fredrik Nilsson from Redeye.

I want to start with the PLM. I mean you had a quite strong third quarter as well, but then you had quite a lot of licenses compared to the same quarter last year. However, this quarter, we see that the licenses are about the same, still you make a really strong margin compared to what you have done historically. Have the PLM find -- found its place? Or how are you happy with the performance?

Thank you. Looking at the PLM, there is a seasonality in PLM. So Q4 should be the strongest quarter for the PLM businesses. And that has to do with -- it's still the division where we actually have the business model with more of the classic licenses. That means that you spend a year sort of talking with the customers, discussing with them and they are probably big OEMs. And by the end of the year, they already sort of pushed the button for a bigger investment in licenses. So that sort of falls in PLM. In a normal year, it should be the strongest quarter. And I guess we can see the effect now of looking at the cost of this is a Q4 that they should be able to deliver going forward.

Okay. So then Design Management, I mean you had a negative organic growth in this quarter, but it was a lot better than seen in the last quarter. So could you elaborate a bit what was the main driving factors behind the improvement compared to last quarter?

The -- compared to last quarter, you will find in the U.S. market as we were sort of -- as we described in the earlier -- in Q2 and Q3, we were hit by lower market demand in the U.S. and also we had the big effect of the 3-year deal transition from a mix of 3-year deals to more 1-year deals. That was also -- it's those 2 were heating up in the U.S. market. And now as the U.S. market is probably, I would say that it's stabilizing, but still not sort of a growing market, that's a good effect. And then we were also able to do some cost reduction in the U.S. market as we were reducing -- the number of people reduced, that also helped on the profit side. So I think you will find the biggest change compared to Q3 to Q4 is that the U.S. is doing a little bit better. And also on the profit side, as we said in Q3, that was the first quarter where Team D3 was part of us and we probably had more focus on making the transaction happen there. And now in Q4, they are contributing as they should with regard to profit. And all that, together, makes Q4 a better quarter than Q3 for our Symetri business.

Okay. So that's the U.S. market outside of construction then getting better, I suppose, or how should I...

Looking at organic, yes -- no, no, I think -- it's not from the market side, it's more than Team D3. They're looking at the profit side. There were more -- I guess, it was sort of what can happen sometimes when you are part of a transaction, you get more focused on the management team to make the transaction happen rather than focus on business. It's quite normally in the entrepreneurial businesses. And now they are able to focus on the business and then you get to profit-wise. So market-wise, nothing big changes. It's more that you're able to sort of during the final part of the business, making sure that you are generating the profit that you should and that is a more of a profit side for Team D3. Market-wise, it's sort of still the same stable market with regards to manufacturing. What has changed is that the construction business stabilized and we also see the effect of -- I think it's more of that, if you look it from a market perspective.

Okay. Great. And about Process. You mentioned fewer procurements. All those things that you have done quite well, relatively speaking. But what about the solid demand for customer-specific systems? What are the reasons for the divergence in your view between those two?

No, I think the reason is that -- okay, we have a very -- starting with the first one, we have a very strong market position at local municipalities, providing software for helping them with building permits, environmental permits, creating -- and everything that has to do with that. So that means that it's a very sticky business. So when we say that there are fewer tenders, still means that we can do business with them and growing from the business that we have. So that's the first thing. And the second thing, when we say the tailor-made solutions is that we have an offering to our customers who -- there are customers in the public sector they want to build their own systems, and we can help them, build them from scratch and then take responsibility for those going forward and helping them out to support that. In that sector, with the tailor-made solutions, we have had a very strong order book this year. So we are lucky with sales. And if you combine that with a slower labor market, meaning that we will be able to keep the same people in the projects during the year, that creates a better sort of sustainability in those projects, and that helps from a margin perspective as well because you don't have to teach new people going to the projects. You don't have to replace them at the same rate. So that supports that business.

The next question comes from Erik Larsson from SEB.

I have a few quick questions on Design. So first off, my understanding is, obviously, that the 3-year deals are down significantly versus last year, but you're still selling some of it. So would it be possible for you to give a ballpark figure here on how much 3-year deals are down these last few quarters versus 2022? Are we talking 25%, 50%, 75%? Any color?

So far, we haven't given you any exact guidance on that and we will not be able to do that this quarter as well. And it's more that we're looking from that from a competitive perspective to our other partners that we are fighting with. But it's down significantly in the mix. It's both, like we said, affecting the new sales of it and the mix of it. The good thing is that we will be able to sell -- if we sell a 1-year contract instead of 3-year contracts, we will be able to sell that next year as well. So we don't have to wait 3 years for that, but it's down significantly. And that's what we are trying to help with addressing and saying that the underlying contract base and the number of customers are still growing. We hope to get -- I had a question earlier on, do you want to -- are you going to change your reporting in any way? We'll see how we can help address that. I don't have any good answers today, but the only thing I can say is we're looking into how we can do things a little bit different going forward with regards to reporting.

Okay. Fair enough. And then as you mentioned, the underlying contract base, some encouraging numbers there. Would you say that, that growth, is that attributable to market share gains? Is it driven by upselling to existing customers? Do you have any drivers you see there? Any specific ones?

It's a mix. So we're not saying that we are having a high growth, but there's a growth. And like you said, it's a mix both that we are able -- like the underlying there's some growth in the market, but also that we are able to gain new contracts because we are also competing against other partners in the market. So the customers are wanting to work with us because they see that we have a broader offering, we can help them with services. We have complementary products that will enhance their investments in the Autodesk platform. So yes, we are gaining some market share as well.

Perfect. And then last question on the -- again, Design Management and their pretty resilient numbers here. Obviously, it's very difficult to predict where 3-year licenses end up, but it was quite a beat to consensus figure. So I'm just curious, were you surprised yourself on the numbers? And heading into the quarter, would you have guessed this outcome?

Not as good as we ended up. But there are always -- we can see that you're always a little bit worried when you have a Q3 like we reported, how will Q4, there was some possibility. And we have -- we are able -- this is a business model where if we are able to sell a little bit more than expected, then you will have a good outcome on the final report because we don't need to hire more people to make that happen. So you have a good sort of leverage on that.

There are no more questions at this time. So I hand the conference back to the speakers for any written questions.

Yes. We have a few written questions and I'm going to take the first one from [indiscernible]. The question is, you have been active in the M&A space lately when in the big picture [indiscernible] how you see the M&A market and also comment on why you have been successful in completing acquisitions?

Good question. We are continuing to be active in the M&A market. Normally, you don't see everything that we do. We're comfortable with paddling under the waterline and then sometimes we pop up and make an acquisition and then it could be silent for a few quarters, but then we do 3 deals in a quarter. And so -- and for us, it's more we acquire companies from entrepreneurs who want to be part of Addnode Group and continue to grow, that's sort of our thesis. It means it's very much relationship-driven and I think that's a success for us. It'll probably take some time, but we are able to -- when we sort of meet and were able to finalize the deal, we know that the people are sort of the right from a culture perspective as well. And hopefully, what we are seeing now from a bigger perspective, that the price in the market are reaching more of a level now where buyers and sellers both think that we are sort of approaching the right numbers. Going back a year, the sellers still thought that the price level was as it used to be a couple of years ago and we were saying that we were not willing to pay that. But I think we are reaching more of a level there. So hopefully, we will see some more acquisitions this year.

Right. Thank you. We have a few more questions to you, and this one is from -- I hope I pronounce your name correctly. [ Emily ] [indiscernible] and the question relates to earn-outs. Is the risk with earn-outs that managers are solely focused on them instead of the long term?

It's always a risk, but we try to make sure that the earn-outs are aligned what we both would like to do and that is continue to grow our operating profit going forward. And then we need to be smart about them to make sure that we have a constant discussion. Sometimes, there could be decisions that need to be made that are of a long-term perspective. And then we have to adjust the earn-outs. So you need to be a little bit flexible about them and be -- there's always a risk, but we try to handle it and we have 20 years' experience as an organization to handle those type of things.

Right. And here is another one from the same writer. How is succession planning [ event ]?

It's a constant ongoing. We do believe trying to [ post ] internal leaders because there is -- we have to appreciate working in a decentralized environment. And if you haven't worked in one decentralized environment, it could be sometimes hard to understand because we give the authority to our leaders to drive the businesses, but we also expect to drive the businesses. So that means that they are expected to do probably a lot more than you're doing in other businesses, and you need to embrace that. So that's very much part of it and how do we do that. It's a normal thing, make sure that they are able to take on new responsibility. There are some internal training, fostering, be part of Boards within internal. So it's a constant thing, but it's definitely something that we address.

All right. Thank you. And one more question from the same writer. How do you make sure that you make good acquisitions from return on invested capital perspective instead of chasing these?

We are quite prudent on what we are expecting to pay for our acquisitions. That means then if you go back to like 3 years ago when interest rates were low and it was possible to borrow a lot of money and pay a lot of money for your acquisitions, we were losing out on a lot of these because we were not with those high [ multiples ]. So we are -- historically, we have big, around 6x, 7x operating profit and these type of companies don't have any assets. So there are no amortization or depreciation so it's operating profit. And sometimes, we have -- I think with the maximum sort of multiples we have paid is up to 10x have been high-growing, high-margin software businesses. So I think we're quite prudent on how much we pay because you can never change how much you paid, but you can always change operations.

Right. And then I got the last question from the audience and this is how do you manage key person risk in the company?

The first thing is that you've got to make sure that they find it fun and then be part of Addnode Group and work with it and it's rewarding to create new opportunities and also make sure that you embrace being part of a growing in it because looking back historically over the last 20 years, you will find that Addnode Group, on average, has roughly 15% growth. And you need to make sure that you have the people who like that and you also need to provide the opportunity for that. And I think that's sort of the major part of it. We need to continue to grow, so they can grow.

Right. That was all the questions that I had to the call.

Thank you. And thank you all for listening into this. And -- yes, thank you.

Yes. Thank you.