Axactor ASA (ACR) Earnings Call Transcript & Summary

Hello, and welcome to the Axactor ASA Q3 2025 Results Presentation. My name is Alex, and I'll be coordinating today's call. [Operator Instructions] I'll now hand it over to Johnny Tsolis, CEO, to begin. Please go ahead.

Good morning, and welcome to Axactor's third quarter presentation. By my side, I have Nina Mortensen, our CFO. This presentation will be divided into 4 parts. First, I will take you through Q3 highlights, then Nina will present the financials before I give an updated outlook. We will round off with a Q&A session. Let us move to Slide 3 and have a look at the highlights for the quarter. In Q3, Axactor delivered double-digit revenue growth with solid contributions from both segments. Gross revenue grew by 11% year-over-year and total revenue growth was 12%. It was also positive to see that the contribution margin increased by 2 percentage points. The numbers are adjusted for the divested portfolios in Spain, and a positive one-off effect from court cash bookings that we have in Spain in Q3 last year. EBITDA ended at EUR 33 million, up from EUR 37 million last year. The 23% EBITDA growth is driven by increased revenue in combination with strict cost control. Annualized return on equity to shareholders was 11%. We now see the positive effect from both changes in the IBOR interest levels and reduced net debt, resulting in a 23% year-over-year reduction in financial expenses. One last item to mention is that we have secured the option to utilize our RCF to refinance the residual outstanding balance on our bond, ACR03. This gives us high flexibility in terms of refinancing when it matures in September next year. Let's move to Slide 4 for more comments on the collection performance. Q3 ended on the soft side regarding collections. Both July and September were good months, but August was slower than anticipated. The collection performance landed at 98% for the quarter and 100% year-to-date. Going forward, we expect collections in line with forecast. Moving on to Slide 5 and more comments on the strong development in the 3PC segment. The 3PC segment continues to deliver impressive results. NPL is still the largest part of our business, but 3PC is a very important part of Axactor's business model. 3PC, which is a capital-light model, offers lower risk and generates strong cash flows at healthy margins. In Q3, the revenue growth ended at 19% year-over-year. We saw growth in all markets, but still, it is Norway and Spain where we can observe the strongest trend. In Spain, the growth is fueled by a successful partnership with a major investment fund. We see a clear trend that the customers are more willing to pay for high-quality collection services and the growing pipeline with solid prospects gives a very positive foundation for further growth and margin expansions for 3PC, not only in Norway, but to the total group. Let us move on to the next topic, refinancing on Page 6. As you are well aware, 2025 has been a year where Axactor has focused a lot on the balance sheet. The RCF is extended and matures mid-2028. Given normal circumstances and the long-lasting relationship we have with our RCF banks, renewal processes are doable at fair terms. In Q2, we placed our last bond, ACR05, at more than 3 percentage points better total interest rate than the previous one. And as mentioned earlier, we can use our RCF to refinance the remaining part of ACR03. Axactor has now full flexibility with regards to the refinancing of the last EUR 65 million outstanding in ACR03. This means that we don't have any substantial maturities before towards the end of Q3 2027. We are continuing to work on our maturity profile and the target is still to have more frequent and smaller bond placements than we have had historically. With that, I'll leave the word to Nina for the financial update.

Thank you, Johnny. So now I'll take you through the Q3 financial performance, starting with our overall figures and then a bit more context on what is behind the numbers. Gross revenue for the group ended at EUR 78 million in the quarter, down 9% compared to the third quarter of 2024. The decline was mainly a result of the sale of portfolios in Spain last year and a low investment level during recent quarters. Excluding the portfolio sold and a positive one-off effect from court cash bookings in Spain last year, the underlying like-for-like growth year-on-year was 11%. The NPL segment reported a gross revenue of EUR 63 million, excluding the sale of the Spanish portfolios last year and the positive one-off. The gross revenue increased 9% compared to Q3 2024, driven by improved collection performance. The 3PC segment continued to deliver a strong top line of EUR 15 million, up 19% from the third quarter in 2024. Let's look a bit more into details on each of the business segments, starting with NPL on the next slide. The NPL segment delivered an increase of 10% compared to the third quarter of 2024 with total revenue of EUR 46 million. Collection performance continues to fluctuate around 100% and ended up at 98% for the quarter. Year-to-date, the collection performance is at 100%. This affirms the collection forecast we provided after the Q4 revaluation last year with adjusted ARC curves. Improvement in total revenues was also supported by lower net negative revaluations and a lower effective NPL amortization rate. The amortization rate was reduced to 22%, down from 33% in the third quarter of 2024. The contribution margin ended at 79% for the quarter, up from 76% in the third quarter last year. The margin is supported by both rising total revenues and lower operating costs. Total operating expenses for NPL segment decreased 5% compared to the third quarter last year. The decrease in cost level reflects the impact of our ongoing cost reduction and efficiency improvement initiatives. Please turn to next slide for comments on the development in the 3PC segment. The 3PC revenues ended up EUR 15 million for the quarter, equal to a growth of 19%. All countries with 3PC business delivered solid growth with Norway and Spain being the main contributors. The 3PC growth is tightly linked to the quality of services we provide. During the third quarter, Axactor won approximately 80% of benchmarks they participated in. The solid benchmark performance means that Axactor is allocated a high share of volumes going forward. Axactor's quality focus confirms the company's intention to continue investing in competence and improved solutions. The contribution margin was 36%, down from 37% in the third quarter 2024. The decline in margin year-over-year is related to implementation and buildup phase of new contracts. Further expansion in the 3PC segment is expected going forward based on the strong momentum across all 4 geographies, supported by a solid pipeline for new business and the implementation of recently signed contracts. Let us move on to the next slide, where we present more details on the reported financials. Total revenue at group level ended at EUR 62 million, up from EUR 55 million in the third quarter in 2024, up 12% year-over-year. The reported EBITDA ended at EUR 33 million with a strong EBITDA margin of 53%. So we continue to see results from a cost reduction and revenue growth initiatives. Cash EBITDA ended at EUR 49 million for the third quarter compared to EUR 59 million in the corresponding quarter in 2024. The reduction is mainly due to the sale of the Spanish portfolios last year. Now on to the next slide to look at the development in return on equity. The annualized return on equity for the first 9 months reached double digits, coming in at 10%, increasing to 11% when excluding NRIs. This result was mainly achieved through improvements in total revenue and lower financial expenses. With lower interest rates, improved NPL collection performance, strong 3PC growth and a continued focus on costs, Axactor expects to maintain a healthy return on equity. With that, I'll now hand it back to Johnny for the comments on the outlook.

Thank you so much, Nina. As I've already mentioned, regarding refinancing, Axactor is well positioned with no major maturities in the next 2 years. We expect the collection performance to continue to be around 100% going forward. And we will now shift focus from refinancing to investments, and we expect a pickup in accretive NPL investments going forward. We believe, however, that the Q4 investments will be a bit moderate than normal, and we expect to invest EUR 50 million to EUR 100 million in 2025. The reason for the relatively modest investment level is that we were holding back on investments in the first half of the year as we were safeguarding until we had the refinancing of ACR03 in place. We continue to see strong momentum in the 3PC segment with several large new 3PC agreements secured during the quarter, and we will -- that will ensure continued double-digit growth for the next 12 months. One last point to mention is that we are in advanced discussions with regards to a smaller sized portfolio backlog sale. We will revert with more details in due course. With that, we open up for questions.

[Operator Instructions] Our first question for today comes from Ulrik Zürcher of Nordea.

I have a couple. First, I was just wondering if you are guiding or indicating that 100% collection performance, but I was just wondering, have the uncertainty increased in any sort of like fundamental way? And by that, I mean, like is there any regulation, cost of living budgets or stuff that was challenging last year maybe that's on the horizon? Or is it a stable operating environment?

The only thing that comes to mind is that in Finland, we were expecting a reversal of -- or at least a partial reversal of payment-free month, I mean we're expecting new legislation from January. That has been postponed. It's uncertain when and if that will happen. That is the only thing that I could say in regards to regulations. Yes, I think that at least is the most important one.

Okay. That's great. And then just 2 questions on the NPLs. Do you have any indication of our expectation for the investment target range for '26? And then also, I'm just wondering how the IRR that you're seeing on available volume compares to your back book?

So I think the target range, it should be the EUR 100 million to EUR 200 million that we also have in our financial targets. I think that is the best estimate that we have for 2026. And regarding IRRs, I think it's fair to say that there is some pressure on IRRs in the wrong direction for us, but not substantially, but compared to the back book, it's still accretive.

Okay. And the last one. I was just wondering about the potential sale of the small back book portfolio. Is that to release some RCF capacity for potential refinancing? Or why are you doing it?

No, it's just a smaller one. If we do this, this is a mature old back book in one of the countries, and we will only do it if we get a good price for it. So it's just more like normal a adjustment of the portfolio basically. It's not going to be anything near the size that you saw last year, for example.

I now hand it over to the management team for any written questions.

Thank you. And then we have the first question here is, could you elaborate on how covenant would have looked if we adjust the Q3 figures for the positive impact from the Spain sale in Q4 '24? To be honest, we haven't done that calculation, but I would expect that we would have been compliant. Next question is bond spreads have tightened significantly recently. Do you have any comments on what your spread required to issue a new bond prior to September? I don't have a fixed number, but I still think that even though we have tightened, I think there's still potential. If you compare our spreads to others in the industry, we are still paying way more. So I think that by delivering a few good quarters, hopefully, that our spreads could be even more fair. And I think that could lead to our bond placement during next year before it expires in September, the ACR03. And then the next question here, how will the smaller back book sale impact covenants? I don't have a separate calculation for it, but obviously, it will impact positively.