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

Welcome to the Addnode Group Q2 presentation. [operator instructions] Now I will hand the conference over to the CEO, Johan Andersson; and CFO, Kristina Mackintosh. Please go ahead.

Welcome to this report presentation for the second quarter 2026. We will guide you through the quarter. With me, I have Kristina Elfstrom Mackintosh, CFO of Addnode Group; and myself is the CEO of Addnode Group, Johan Andersson. We will -- the agenda for today is that we will talk about Addnode Group, our divisions, the cash flow and balance sheet, and we will end with a Q&A where you can ask your questions to me and Kristina. And you will also find an appendix in this presentation. So we start by describing the quarter. During the quarter, our business continued to develop steadily, and we have executed cost savings. So what are the key highlights in Q2 2026? Adjusted organic growth was minus 5%. Reported growth and earnings of Design Management were affected by the renewal cycle of 3-year Autodesk contracts. As expected, this affects comparability between periods, but does not impact the underlying stable development of the business. The underlying organic growth for Design Management was flat in the quarter, as Kristina will explain later more in detail. Acquisitions made in 2025 in Brazil, Canada and Norway continue to perform well. The Process Management division continues to improve. EBITDA is up 26% and EBITDA margin has now improved 8 consecutive quarters. The Product Lifecycle Management division continues to deliver improved profitability and EBITDA was up 24%. Cash flow from operating activities improved to SEK 62 million, primarily driven by a positive development in Design Management. To increase focus on new sales and fully realize synergies from our expansion, we have done an efficiency program that is expected to reduce annual cost by approximately SEK 100 million. Excluding costs for the efficiency program mentioned and early renewals in the comparative period, EBITDA amounted to SEK 176 million this period compared to SEK 168 million last year. I will come back to more details on the performance of each division, and Kristina will give you more details on cash flow and balance sheet.

Thank you, Johan. I'm going to take you through the net sales development from Q2 last year to Q2 this year. And net sales amounted to SEK 1.449 billion in Q2 2026, and that compares to SEK 1.457 billion last year. And the organic growth, as you just heard from Johan, amounted to minus 11% and the decrease was mainly related to division Design Management. And I will come back into more details regarding the organic growth in Design Management. Also important to see here on the graph is that early renewals of SEK 80 million is included in this graph. Contribution from acquisitions amounted to SEK 158 million and the integration is performing well and the acquired businesses are delivering in line with our expectations. And currency effects in this quarter amounts to minus SEK 7 million, and that's mainly related to U.S. dollar and also lies within Design division where the majority of the USD-denominated business resides. So I will now hand back to Johan for net sales by category.

Why do I believe that Addnode Group has a solid business and a strong position to grow? Addnode Group provides mission-critical digital solutions with high customer retention. We are positioned in a market where digitalization, AI and increasing demands for efficiency are driving demand among our 40,000 customers. We have long-standing customer relationships, deep domain expertise and a high level of trust from our customers. Let me remind you that the majority of our net sales is owned software and services, representing the value we bring to our customers. 62% of our net sales last 12 months was from recurring revenue. We have significant opportunities to deepen our engagement with existing customers and gradually increase the share of recurring revenue. We are already seeing how AI creates value, both internally and in the solutions we deliver. And our partners are also investing substantially in AI capabilities. I would like to highlight 2 customer examples. They illustrate how we support customers in their digital and AI transformations. The first example comes from Symetri and how they support the hospital of the University of Pennsylvania. The hospital was looking for better ways to handle compliance and ensure quicker patient call response times. And how did we do that? We did that by upgrading the system IBM Maximo and developing an AI-driven portal with a customized chatbot. This made operational information more accessible and actionable. And it's a good example of how we help customers use AI in a practical way. The second example comes from Technia. We supported Rosenxt to connecting its PLM and ERP systems with our own technology. Rosenxt is a developer of robotics, sensors and physical AI. The integration improved data sharing and standardized product structures. It also created a scalable platform for future growth enabling cloud-based upgrades. Both of these examples reflect a broader trend across our businesses. Customers continue to invest in solutions that improve efficiency, increase transparency and support long-term growth. Addnode's strong customer relationships, our deep domain expertise and the data embedded in our solutions position us well to develop and deliver new AI-enabled services. A recent Look into our broader shareholder base. Two things that I would like to highlight. One thing is that we can see that the number of shareholders has increased during the quarter. We have moved from roughly 8,000 to 10,000. We also had a change in our top 10 shareholders. As we can see, if you compare the graphs is that Robur is now no longer part of our top 10 shareholders as they have sold the majority of their shares during the period. So going through our 3 divisions, Design Management, Product Lifecycle Management and Process Management. As you can see in this graph, our 3 division is that the biggest contributor this quarter is Process Management. So division Design Management. Symetri is the biggest company in the division. It is the world's largest Autodesk partner and a leading global provider of design and asset management solutions. We are serving more than 30,000 customers across Europe, Latin America and North America. What are the key highlights in Q1 -- in Q2. Net sales decreased by 11% to SEK 560 million compared to SEK 627 million. Sales of partner software were affected by the timing of Autodesk contract renewals and also by the new incentive model. Our own software and services continued to generate positive organic growth, plus 7% in the quarter. The big acquisition of Autodesk Partners in Brazil and Canada continued to perform well. What are we focusing on now? Symetri has had a strong and rapidly grow since 2021. It is now time to set the foundation for the next step in our growth journey. We are deploying a new organization in Europe and U.S. with even more focus on new sales. We are realizing operational synergies of SEK 100 million in a cost reduction program. To make these synergies happen, we have one-off costs in the quarter of SEK 28 million. No additional costs related to the program are expected. The cost savings will have effect from Q3 2026, and we will have a full run rate effect in 2027. I would now like to hand over to our CFO, Kristina.

Thank you, Johan. And I'm going to take you through the Design Management, the movements of the net sales from Q2 2025 to Q2 2026. And why also explain a little bit why the underlying business remains stable in Design division, while the reported net sales is substantially impacted by the renewal patterns of multiyear Autodesk contracts. And that pattern includes the timing of the renewals and also the mix between 1- and 3-year agreements. So this slide describes how the reported net sales has evolved comparing to Q2 '25 to Q2 2026. And in Q2 2025, net sales amounted to SEK 627 million. And now this year, Q2 amounted to SEK 560 million. And I will describe the 4 parts, the organic and the adjusted early renewals after the acquisitions and the currency effect. In summary, organic growth was negative by approximately SEK 145 million for the period. However, the year-on-year comparison is significantly affected by approximately SEK 80 million of early Autodesk contract renewals. And a number of contracts that was originally scheduled for renewal in Q3 last year were renewed earlier already in Q2 last year, and that creates a favorable comparison base in the prior year period. And excluding this timing effect, the underlying business development was more stable than the reported growth figure suggests. And I'm now going to explain the minus SEK 65 million that you can see in this graph. And the negative organic growth of minus SEK 65 million consists of 2 major parts. Firstly, we have a positive organic growth for our own software and services. And secondly, we have negative organic growth from third-party software. And the SEK 17 million positive organic growth equals the 7% organic growth quarter-by-quarter. The remaining minus SEK 82 million is relating to organic growth for third-party software. And that minus SEK 82 million consists of 3 main parts. Firstly, we have a margin effect on the Autodesk partner, the new incentive model that amounts to minus SEK 20 million. We also have minus SEK 12 million coming from a product mix change where we have more 1-year contract compared to 3-year contracts. Also other third-party sales is included in this amount. And the additional SEK 50 million is regarding the renewal effects from a 3-year cycle. So that means that contracts renewed 3 years ago can only be renewed 3 years later. That is minus SEK 50 million the effect. And we can also see that the big transformative acquisitions, Brazil and Canada mainly added SEK 86 million to net sales. The currency effect was minus SEK 8 million, mainly relating to U.S. dollar. To summarize, our assessment is that the underlying performance of Design Management remains stable with flat organic growth, looking into the own, our own software and services. and considering the timing effect excluded from that. And I will now hand back to Johan to talk more about the PLM division.

Thank you, Kristina. Division Product Lifecycle Management. Technia, the company in the PLM division, is one of Europe's largest providers of design and PLM platforms to the engineering community, and North America is also a growing market. The portfolio consists of our partner Dassault Systemes, market-leading platform and our own unique products and services. What are the key highlights in Q2? Net sales decreased by 1% to SEK 438 million compared to SEK 444 million last year. Organic growth decreased by 4%. We have had a clear focus in the division the last 12 months to improve margins. This has been successful, and we have improved EBITDA. Sadly, 8% of the people in the organization has had to left us as part of the process. This has affected service net sales as planned. Strategically important customer segments such as aerospace and defense remain strong in demand. We had a solid quarter for Nordics, Benelux and U.S. German market is still stagnant. EBITDA increased by 24% to SEK 41 million, and EBITDA margin increased to 9.4% compared to 7.4% last year. Last year's cost savings has contributed to a higher operational efficiency and leaner cost structure. So looking forward, the aerospace and defense industry is emerging as an increasingly important growth market where Technia's deep domain expertise, comprehensive offering and global service capabilities position us strongly to capture expanding opportunities. Process Management. Process Management compromising 16 subsidiaries is a leading provider of digital solutions to the public sector in Sweden and Norway, holding strong market positions in urban planning and development, case management and geographic information systems. Key highlights in Q2. Net sales increased by 18% to SEK 463 million compared to SEK 394 million last year. Organic growth increased by 2%. There is a solid demand from the public sector. We have strong market position in the public sector, long-term experience and solid references helped us win new contracts. EBITDA increased by 26% to SEK 93 million compared to SEK 74 million, and EBITA margin increased to 20.1% compared to 18.1% last year. Acquisitions and improved operational efficiency contributed to the improved margin. The EBITDA margin has improved for 8 consecutive quarters. The strength of the division is a highly efficient business model driven by recurring revenue and resilient demand from the public sector. So with that, I would like to hand over to our CFO, Kristina.

Thank you, Johan. And I'm going to take you through this graph about the cash flow and the operating activities. And what you can see in Q2 now is 2026 cash flow from operating activities improved to SEK 62 million compared to minus SEK 33 million last year. And this increase was mainly attributable to changes in working capital and also mainly from Design division. And this graph illustrates -- you've seen it before, it illustrates the cash conversion over the past decade, which is calculated as free cash flow in relation to EBITDA. And the pink trend line show the average cash conversion around 70% up to 2023 when we know that Autodesk changed the payment terms. Before that time, all the 3 years under sign a 3-year contract, we were paid also upfront for all the 3 years. That changed in 2023. So now even if you sign up for a 3-year contract, we take the income or the revenue for the full 3 years still upfront, but we only get paid 1 year at a time. So after that temporary headwind caused by the shift in the payment terms, we are now seeing a clear upward trend in cash conversion in line with what we have previously communicated. And I would also like to remind you, it's typical for our business that working capital movements and cash conversion fluctuate between quarters. and we expect this seasonal pattern to continue with Q2 and Q1 typically generating the strongest operating cash flow and where Q2 and Q3 are historically been the weaker quarters. And let's have a look at the balance sheet. So in this graph, we are showing our balance sheet, the net debt and the leverage. And we can see that as of 30th of June 2026, net debt, including leasing amounted to SEK 2.45 billion, which is supported by around SEK 700 million in cash bank. The leverage amounted to 2.5x, which is a result of the acquisition activity and the leverage remains within the group controlled range, about 2.5x ceiling. During 2025 and into 2026, we completed 11 acquisitions, which have resulted in a temporary increase in leverage. And we are focusing on integrating these acquisitions in the business as well as deleveraging and on our balance sheet resilience. We also expanded the facilities and currently have around SEK 800 million in available unutilized capacity. And also to add on to that, liabilities related to acquisitions amounted to SEK 620 million, of which contingent considerations are around SEK 540 million. And I would just like to hand back to Johan now for one of the final slides.

Thank you, Kristina. Addnode Group's growth journey. What is the strength of our business model, making it possible to deliver a compounded annual growth rate of 19% over a 10-year period. Addnode Group's business model is based on a strong combination of recurring revenue, organic growth and strategic acquisitions. We work constantly to boost efficiency and the profitability of our companies. Our financial target is to improve EBITDA with 15% yearly over time. Comparability between periods is affected by the renewal cycle of 3-year authorized contracts, but it does not impact our underlying performance year-over-year. We have proved that we can double our EBITDA every 5 years. Anode Group is well positioned. We have a solid foundation for continued growth and long-term value creation, supporting our 40,000 customers. With that presentation of Q2, we would like to open up for Q&A.

[operator instructions] The next question comes from Erik Larsson from SEB.

I have 3 questions. So first off, just a clarification on the SEK 100 million in savings. When you say that half will be realized in 2026, does that mean SEK 50 million of savings in '26 or rather that the run rate heading into '27 will be SEK 50 million?

Yes. We expect about half of that as the program now was implemented now in Q2, we expect about half of that being realized from the H2 2026. And then the full effect will be from 2027.

All right. Perfect. And then this SEK 20 million in negative impact on net sales from the changed compensation from Autodesk, is it fair to assume a similar number roughly in the coming quarters? I understand you want to close the gap, of course, but can we roughly expect a similar number?

As I stated, the impact in Q2 is SEK 20 million, and that number is affecting our ability to do new sales and also to reach certain targets. So I think that is the best estimation as we have today. We don't really see it going up. It's rather -- so it's the best estimation that we have today.

Okay. And then just a final general question. I mean I appreciate the color you gave here in the presentation, and you're right in the report that Design has a stable underlying business with a growing customer base, et cetera. But obviously, it's very difficult for the market to digest that when you're just seeing top line and earnings. So how are your discussions in terms of increasing transparency here more -- even more like sharing the share of 3-year deals or number of customers, et cetera? Just any thoughts would be interesting.

Very good question. Yes, we will continue to work on that. And part of that we provided you with a flow chart today to see what the components were to make it available that we have a flat development in the comparison here. So we will definitely work with that going forward.

The next question comes from Daniel Thorsson from ABG Sundal Collier.

I also had a question on the SEK 20 million lower sales in design. I understand the mix between 1- and 3-year contracts, the timing of renewal and so on. But this changed incentive model, did this happen in Q2? Or was this known before?

The changes is from February because it follows the sort of the Autodesk year, so it starts in February. And going back to -- so we had 2 months in the first quarter. But as that was a new model, we needed another quarter to see the full effect of the program. So now we are in a position to provide you with a fair number.

Okay. And the practical effect is what -- is it a lower kickback fee? Or what is the practical effect?

Yes. It's a lower kickback. And it's dependent on several factors. It's not just a percentage. It's our ability in new sales, reaching different targets and then you get certain kickbacks, it's a [indiscernible] model.

Yes. Okay. I see. And then also on Design, comps get much easier now, of course, in Q3. But do you still stick to your CMD comments from September last year that '26 will deliver low single-digit organic growth in Design in '26? Or should we see that as history now?

I think we discussed this the last event as well. Yes, we still believe that we're going to have organic growth in Q4, and we're going to see that in Q3, and we're going to see that going forward. That has not changed with this change in margin. So we still believe that we are in a low point with regards to renewal cycles, meaning that from now, it should become better. And you will see that in Q3, and you will see effect in Q4. And you will also see that in 2027 as this is sort of a low turn in renewal rate. That means that 2027 we will see ourselves in a better position as well.

Okay. But there is a risk that '26 full year will be a slightly negative number, I guess,.

That might be, yes, for the full year. But going forward from now, you will see organic growth in [indiscernible].

Okay. clear. And then also the final one on the design, customers buying more 1-year licenses same as Q1. Is it because there is an Autodesk push pushing them to do it? Or is it because they want to do it for different reasons?

There are 2 reasons. One is that if you remember the discussion about the early renewals, that was driven by that the customer can't renew certain contracts as a 3 year. They must renew it as 1 year. So 1/3 of the 3-year contracts cannot be renewed as 3 years. So it will automatically be renewed at 1-year contract. So that's the driving force. I think that's sort of the most predominant force that we can see. who drives it. And then you don't have any sort of incentives. Historically, you have the financial incentive for renewing as a 3-year contract, basically meaning a discount. There are no discounts on 3-year contracts compared to 1-year contract. The benefit that you get is that you lock the price for 3 years.

The next question comes from Daniel Djurberg from Handelsbanken.

A couple of questions from my side as well. Starting off a question on design. Have you seen any implication on the revenues by any changes in revenue model from Autodesk going away a little bit from seat-based into more value-based models? Or is it too early to see anything from that?

We have a part of the -- when we sell to our customer, we sell subscriptions and we sell consumption-based tokens. So we already have that mix in our net sales. And percentage-wise, we can see a higher growth in the consumption-based token model. So that means that basically customer -- a normal customer buys a certain amount in a subscription and then they top it up with tokens, basically the consumption base for the less users of the systems. We had a good mix for them.

Okay. And would you say that the net effect there year-over-year is with regards to total revenues? Is it like down, flat or up or just to understand it.