Exsitec Holding AB (publ) (EXS.ST) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this year-end report for Exsitec. Presenting today will be group CEO, Niklas Ek; CFO, Carl Arnesson; and me, Hampus Strandqvist. [Operator Instructions] And with that, I will leave the word to Niklas.

Thank you, Hampus. Hello, everyone. This is Niklas Ek speaking. I am the CEO and has been that for almost a year now. I will start off by making a short recap about our business, as a reminder, what we do. After that, we will cover Q4 financials and a short market update and also our priorities going forward. We are Exsitec, making IT work together, and we exist to deliver digital solutions that improve our customers' businesses, and we aim to be a one-stop shop to the customer. We do this by selecting different softwares and develop in-house integrations that can be reused. By implementing different software and provide long-term support, we aim to be a single point of contact for our customers. The digital tools that we use can address areas like reducing financial administration through automation or use data for better decision-making. Our customer base today is around 5,500 organizations and our target market is medium to large-size companies in the Nordics. No 1 customer typically is more than around 1% of our revenue, so very low risk in the individual accounts. We combine the software packages we work with to fit different industries, and we have customers in many different industry sectors, as you see in the slide. These are the primary software providers and partners that we work with at this time. We are resellers of softwares and the selection has grown to just over 20 software components. We combine these softwares with integrations that we develop in-house and we have a revenue share partnership with these software providers, where we market and sell their software to new accounts and make customers successful in using the software over time. The business model is built on 3 revenue streams. The sales and marketing is focused on selling software together with integrations. This is sold on a subscription model where you pay as you use. And this revenue stream has grown to 25% of our net revenue. Just under 2/3 of our revenue is from professional services, where we implement the software and make the customers successful in using the software over time. We also do custom development and custom integrations when needed. The third revenue stream is our business model is that we offer a customer a single point of contact support on a recurring fixed price model. Exsitec is a Nordic company, started out from Link�ping, Sweden. Today, we are around 600 employees with Sweden being the biggest segment. We have been successful in the last 10 years with growth, both organic and from M&A. Our EBITDA has followed our growth nicely with an exception in 2024. Exsitec runs 1 of the largest trainee programs in the Nordics and has been doing that with scale since 2015. We are very proud of this and almost 40% of the employees working at Exsitec started as trainees. Our trainee program is the main source for recruiting new people and an important addition for future growth. So let's dive into specifics for Q4. I will start off with the highlights and then leave the word to Carl Arnesson, our CFO, for the financial details. We delivered a strong finish to the year with an adjusted EBITDA of SEK 43 million and a margin of 18%. This is a clear step up compared to Q4 last year when adjusted EBITDA was SEK 30 million with a margin of 13%. The improvement is broad-based with positive contribution from all segments and Carl will come back to the segment performance in more detail shortly. I'm also pleased to see that we delivered organic growth of 2% during the quarter. Our recurring revenue from software continues to develop well and have reached SEK 225 million on an LTM basis, corresponding to a 22% increase year-on-year. This remains an important driver of both growth and profitability, and Carl will cover this in more detail shortly. The growth in recurring revenue is driven by a combination of new sales momentum and our continued focus on developing existing customer relationships over time. Lastly, I want to briefly cover an update that refers to focus on our core business before moving on to the financial details. So in December, we signed an agreement to divest our subsidiary, Zedcom to InfraCom Group, a specialist within IT infrastructure. We acquired Zedcom in 2021, where part of the business was related to Visma Net, which remains within Exsitec today. The other part of the acquisition consisted of infrastructure, hardware and connectivity services. Over time, this infrastructure focused part of the business has become less aligned with Exsitec's core focus on digitalization and business-critical applications. We have not been able to integrate this part of the business with our core offering in the way we originally intended. As a result, we decided to evaluate alternatives for Zedcom where InfraCom stood out as the best long-term owner. We believe this transaction is the best solution for all parties involved. We will continue to cooperate closely with InfraCom to ensure a smooth transition and to take good care of our shared customers. It is currently pending approval from inspectorate of strategic products, and we expect to finalize the deal during the first quarter. I leave the word to you, Carl.

Thank you, Niklas. Starting with our net sales. We report a 6% growth in Q4 versus Q4 2024, where the organic growth summarized to plus 2%. Following a stronger Swedish krona, we actually delivered stronger numbers locally in both our segments, Norway and other Nordics, and I will come back to that shortly. During this quarter, we also saw stronger net sales performances in all our segments, and I will get back to that as well. Our growth comes from all our revenue streams where professional services and software are the main ones, where the growth in recurring revenues from software stands out also in this quarter. But the overall market sentiment is still that customers tend to push decisions for mining system updates and standard adjustments into the future, while new projects driven from our sales department are developing more positively. Also, looking at the trend last 12 months, we see a 10% growth where year-on-year, where the majority 8% is related from acquisitions. Moving over to our adjusted EBITDA. We report a SEK 43 million profit, which is a 42% uplift versus the fourth quarter last year. Main drivers behind the uplift is continuous growth in recurring revenues, as mentioned, slightly stronger professional services but also by a solid cost control. However, and also previously mentioned, we still feel that we can deliver even stronger performances almost across all our segments. On a full year basis, the efficiency, especially Sweden and Norway can be improved. And this is also something that we prioritize in our daily operations. Year-to-date, the adjusted EBITDA of SEK 158 million is a 31% growth versus last year. So let's continue with the net recurring revenues from software that for 2024 and also a few years back has been a highlight for us. For the last 12 months, we see a growth of 22%, in this revenue stream that made up 25% of our total revenues last year. The growth is driven both through M&A, new sales and also to a certain degree also from price increases. Overall, the organic growth in recurring revenues as per Q4 summarized to approximately 50% of the LTM growth. This development is, of course, a very important contributor to our earnings and also strength with our business model, but it's also a good indicator for us that we have a strong offering and that our customers continue to use and deploy the software that we deliver. So moving over to our different segments. Starting with Sweden. Sweden delivers a 4% growth year-on-year in Q4, where the organic growth was flat. The adjusted EBITDA margin also developed positive in this quarter and ended up at 21% versus 17% last year. So we continued the margin uplift trend also from what we saw in Q3. The higher margin year-on-year can mainly be explained by stronger recurring revenues, slight uplift in consulting revenues, but also as mentioned by a solid cost control. Norway, reported a 5% growth in total net sales in Q4, however, highly affected by a weaker Norwegian krona. In local currency, the growth was approximately 11% year-on-year. It's also satisfying that we continue to increase our adjusted EBITDA and margin. In Q4, we go from 9% to 15% year-on-year, where an improvement in efficiency was the main driver behind this uplift. Here, we also maintained the margin of 15% from Q3, which was also the highest level that we have had for Norway since the acquisition of the Norwegian business back in 2021. Even though we are happy with the improvement in Q4 and for the full year, we still feel that we have more opportunities going forward, and as I mentioned previously, an improved margin in Norway is 1 of our key focuses. So a stable and strong margin over time is important for us to build a stronger business ready for future growth in Norway. Finally, our third segment are the Nordics that covers our offerings in Denmark and Finland, reported a growth of 20%, where 12% of the growth was organic. In local currencies, the organic growth was 18% for the total segment. And by that, I hand over to you, again, Niklas.

So thank you, Carl. I will continue with a short update on the market conditions and our priorities for 2026. The market environment remains broadly unchanged where the demand for consulting services from existing customers continues to be cautious, which is consistent with what we have seen throughout most of the year. At the same time, we have seen strong order intake in new sales during the year, which confirms that our offering remains attractive and the trend with shorter sales cycles compared to 2024 continues. Over recent years, we have seen customers delay investments in their IT platforms, and this has led up to pent-up demand. And when customers feel more confident about the direction of the market, we believe there is a need to start addressing those postpone investments. And M&A. M&A continues to be an important part of exit strategy. Activity in the market has increased recently, and we will continue to focus on identifying selective acquisitions that strengthen our offering and long-term growth. So our business priorities in 2026. Business NXT is a key priority for us across Sweden, Norway and Denmark. Exsitec is Visma's largest partner and Business NXT gives us a strong opportunity to both migrate existing customers to the cloud and drive new sales. Microsoft is an area where we see increasing potential. Our ambition is to take a clearer position as a partner delivering a broader part of the Microsoft platform, which allows us to scale both services and customer relationships over time. Organic growth remains a key focus. This is primarily driven by developing our existing customers, while at the same time, continuing to invest in new sales to bring new customers into Exsitec. This is a reminder about our financial goals. We have a goal to increase our net sales by at least 15% per year over time, and our performance target is to increase our EBITDA per share by at least 15% per year over time as well. Our stability measures is that our net debt must not exceed 2x our EBITDA. And the last 1 is that our policy is to distribute 20% to 40% of the profit after tax. This concludes the presentation. Are there any questions for us, Hampus?

Yes, we have a question from -- which states, could you elaborate on your COGS, which increased from SEK 1 million to SEK 5 million this quarter? What is the driver behind this?

Carl here. I can elaborate a bit on that. As you know, we have some IT-related business where we also sell IT hardware. And during this quarter, we saw especially an uplift in this -- in our Danish operation, which was a bit higher than we usually have seen during similar quarters. So that's the reason behind the uplift in Q4.

Great. The second question we have is, what type of companies are you looking to acquire? Niche, country, size, et cetera? Are you seeing multiples coming down for targets?

Yes. We are looking -- we're looking broad, you can say. So we are looking at all our markets that we are present in today. And as always, if we can find a customer base that's a perfect match for us, but we are looking at different kinds of companies. So it could be a smaller company that gives us a new offering. It could be a bigger 1 that's already working with the offering that we have today at Exsitec. So we are not that narrow in just looking for specific companies. So we are looking pretty broad, but for sure, it's better for us if we can add something that we're already good at. And what was the last -- multiplies?

yes. Multiples for the targets, are they coming down?

Well, as I mentioned before, we do see more activity now in the last quarters compared to the beginning of 2025. But a bit down maybe, but not that clear sign for us now.

Okay. We have another question, which is, earlier you talked about expanding your geographical footprint with the same go-to-market model. What's the status on this expansion?

Yes. We -- geographical footprint. Yes, we did that in -- if we just look back on where we are right now. So now we are in 4 countries. So we started out from Sweden. And then we made an acquisition in Norway, and then we have the same model basically in Norway as in Sweden. And before that, we did Denmark. So Denmark in 2018, Norway in 2021. And in the summer 2024, we added Finland. So that's what we've done in our geographical footprint. So we work pretty much the same with the go-to-market model, but then it's a bit different in different countries with our offering. Some of our offerings are stronger in some of the countries. For example, in Finland, we have a sales office. So we are focusing on selling them invoice system Medius. So that's all that we do in Finland right now. But in the future, we'll probably do other things in Finland as well. So that's the status now. We are not actively looking to expand to a new country now.

Great. And then we have Jacob Benon has raised his hand. Jacob, you're welcome to ask your questions.

Yes. Hell guys, can you hear me?

Yes, go ahead.

Perfect. Congrats on a solid quarter. I just wanted to start with -- you talked a lot about that your existing customers are still kind of cautious, which has been the case now for many quarters, I believe. And I suppose that this creates sort of a backlog for your customers? I mean the pent-up demand that you talk about that the customers maybe want to or have to do eventually. Is it possible that you can maybe provide some additional color on your customers' backlog? Like for example, how long do you think they can continue to push investment's decisions into the future before it starts to have a negative effect on their business? Or is this kind of backlog more nice to have features that the customer wants to do? Or is it more need to have?

Yes. Good question. I think if you sum it up and put it all in 1 pile, I think it's more need to have in the future. We are working more with systems that is need to have more than nice to have. But it's different from different offerings, of course. But what we have seen over the years is that the customers, they tend to push decision. And it can be just a small decision to make a small configuration or an additional integration or change a report. It could be that the small things that they are not doing so they can actually live with a manual process for another year or for another quarter or something like that. So that we have seen. But we have also talked over the last year that new sales is good for us. So I think that you asked how long can they do it before they build up too much debt. And I think it can't be that long because they need to be ahead of their competitors as well. So I think that we will see that in the future that they need to address those postponed investments. But what we see now, it's pretty much the same as it's been in all 2025. So there's no real difference.

Okay. I appreciate the colorful answer there. And you state that 1 of your main priorities now during 2026 is to increase organic growth, and I have 2 questions about this. So maybe we can take it 1 by 1. And firstly, like what is it specifically that Exsitec can do to boost organic growth? I mean, you mentioned to develop existing customers and invest in new sales. But I mean, in my view, you're already doing a lot of that with your sales trainee program and so on, for example, and still like organic growth is in the low single digits, which is really good considering the market conditions. And that is why I'm thinking like isn't this more of a market environment questions? Or how much is in your own hands to say, when it comes to organic growth?

Yes. Yes, good question. I think, of course, the market is out there, and we can't really affect how the market is. But we still think there's room for improvement in how we do things. So we are not totally satisfied with our organic growth. We still think there's more to do. And if we can invest more in new sales and if we can do even more on existing customers, always being the part that suggests new solutions or suggest changes in their IT environment. I think that we can do more and we can still be more efficient in our professional services as well. So it's not all up to the market. I still think that we can do better. So I guess it's twofold. Of course, the market is out there. We can't really do much about it, but we still have room for improvement on Exsitec as well.

Okay. Still things to do then on your own. And the second question I had on organic growth is like in your financial goals that you stated here in the end of the presentation, again, your ambition is to grow by 15% per year. Like roughly what level of organic growth over time, do you estimate that you need to achieve to reach your goals? I, of course, understand it depends on the M&A market, but what would you be satisfied with over time?

Well, I guess I would really like to have 2 digits on the organic growth, but I think it's reasonable, maybe like 50-50. If we can do it like that and do it that consistently over the years, that would be good for us. So if you need an answer, maybe 50-50, something like that.

Perfect. I appreciate it. And also, it was interesting you stated here on the M&A market, you have seen some increased activity recently. And like could you provide any more color here? Are there any specific acquisition targets you're looking for verticals? I'm thinking maybe Microsoft as you have entered that segment recently?

Yes. No, it's quite the answer I gave just previously here. I think that we are looking pretty broad to all our countries. So what we have seen in the activities that we are getting more questions, we are talking to more companies. So that's what we've seen. And especially if we compare it to like Q1, Q2, 2025, now we see more activities. So I think that's positive for us. But we are not that narrow only looking at Microsoft companies. We are looking pretty broad to all our offerings.

Okay. And can you provide maybe an update also on M-flow and how it's developing in Finland with Medius? Like is it developing according to your expectations? And I'm also curious if you expect to start selling more softwares than Medius in Finland in the short to midterm.

Yes. Yes, M-flow is -- we're pretty happy with M-flow. So we ended up the year strong new sales. So -- and a reminder, M-flow is our sales office in Finland. So we're focusing on large companies selling Medius. So we are pretty happy with M-flow, and it's as expected, I would say. So I think -- and an important addition to the M-flow part, if we look at the numbers and the other Nordics is that we do the services from Sweden. So we sell implementation Finland to our larger customers using Medius, and then we do the actual implementation with the Swedish consultants. So that's not anything you see in the numbers when we look at the segments. But going forward, we are looking into to expand that to add more offerings. But as you know, the economy in Finland has not been that great over the years. So we are not rushing into anything and taking big risks. So we are doing it bit by bit. But we are looking into it for sure. And in the future, I'm pretty confident that we will have more offerings in Finland than just Medius.

Okay. Perfect. And I'll continue with the question on Norway here. You -- I think you talked a lot about that you see a lot of potential for like further margin improvements in Norway and I think we have touched upon this subject on previous conference calls as well. But I mean, Norway has a much higher share of software with you than Sweden, for example, but still a lower margin. Like would be nice with a refresher, like is there anything structurally that Norway cannot reach the same margins of Sweden? Or why does the numbers look like this?

No, it's not really any structural thing going on in Norway that we don't have in the other countries. So what we have been working on in the last year is to work with our professional services and the consultants over there to be more efficient. And a reminder, when we did the acquisition of Vitari in 2021, the margins was much lower than compared to now. So we are taking step by step to be more efficient and to be more aligned with the margins in Sweden. So we are getting there, but it takes some time. And if we look at 2025, I think that we find a level of stability that's much, much better than compared to '24 and '23 and so on. So I think we are in a good place. But with that said, there's still room for improvement when it comes to efficiency and when it comes to new sales and so on. So we have a large customer base, and we have been in the past, good in taking care of the customers, but we have not been that good in new sales. So that's also something that we have been working on for several years now. And I think that with the business mix that we talked about as a priority for 2026, I think that the potential is still higher. So we -- I hope that we will see more from Norway in the future here. And I think that we are in a good place now.

Yes. I fully agree. I mean I believe you have had like flat sales development in Norway for the past year, but the margin has still doubled, I think, was the last figure I saw, so it's very impressive what you're doing there. So I was just curious to see how you look in the future there as well. But a final question for me before I let you go here. There's a lot of talk in the market around the software companies at the moment and you work with a lot of them, and it's regarding the potential threat from AI. And here, I'm a bit curious about 3 different revenue streams for you and if there's any risk to this? And maybe we can start with the first one. Like do you see with AI that there's a risk that customers start building its own softwares, such as like an in-house CRM system, for example?

Well, in the short term, no, I don't think so. Not our customers, are midsized companies in the Nordics. They are not there yet, maybe in the future, but I don't really think that they will focus on building their own software where they are focusing on how they can find new customers to them and so on. So we actually did a customer survey here in the last year talking about AI because there's a lot of buzz around AI, and we would like to know what our customers to think about it and what they are planning to do in 2026. So for us, at Exsitec, our customers, they are not focused on AI and especially not building their own software, they are not there yet. So in the short term, no, I don't see that threat. And especially when it comes to critical software as ERP or the BI system and so on taking care of data, data warehouse, data lakes, that's a complex business. So I don't think there will be a threat in the short term there. But in the long term, I don't know. I don't think anyone knows really. So we will see what happens there.

Yes. And the same question then, but regarding -- I mean, the integrations you make between software. Do you see any risk that customers are going to start making their own integrations with the use of AI?

No, we have not seen that yet. But we are -- at Exsitec, we are working actually with AI as a tool. So I think for us, the combination with our consultants using AI tools, that's really powerful. And then, of course, the question is, can we still have the same model with like ours. And is that something that's going to change in the future? Yes, I think that will change if we can be more efficient, but we still provide the same value to the customers, we need to be on our feet and to maybe change how we do that. But that part of the business we have seen already that we can be more efficient using AI for sure. And for Exsitec, we are working in the whole group with the AI initiatives. So we're doing it how we can be more efficient in-house, but also how we can help the customers that want to do anything to today.

Okay. Interesting. And finally, here on AI, the risk on -- I mean, the very important ring sales that you are talking a lot about. I mean -- do you see that AI has a risk here as well that customers like start to do small fixes or updates on their own with the use of AI. Is there anything you have seen like now for the couple of past quarters where the ring sales maybe have been a bit lower than you're used to?

Yes. No. The short answer is no. We have not seen that the customers are doing it by themselves because of AI. We are experts on what we do when we provide complex solutions for IT. So -- and our customers, they have not that competence on doing that. So not really. If it was that we will work with much simpler systems, maybe then you can just replace consultants. But with the simpler IT systems, you usually don't need that much consultants help either. So I guess, that just what it is. But for us now, we have not seen that.

And we have 1 more question here to the Question function. You haven't done any M&A during 2025. Could you reflect upon this and also talk about your expectations and pipeline for 2026?

Yes. That's right. We have not done any M&A during 2025. But still, this is a part of our strategy at Exsitec. So nothing's really changed about M&A. We are still working with it, and we are building pipeline and talking to companies out there. So we are working actively with it. And I think the pipeline looks pretty good for 2026. But as always, the timing needs to be right and it needs to be right for both the seller and for the buyer. But nothing's really changed from the past when it comes to M&A. We're still working with it just as before.

Great. That concludes our -- all the questions. And I thank you all for listening in to this report. And I wish you a good continuation of 2026.

Thank you, everyone.

Thank you, everyone.