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

Hi, everyone, and welcome to this web presentation of the Exsitec Q1 (sic) [ Q2 ] report. My name is Carl Oberg, and I will be moderating this presentation. Presenting today will be Group CEO, Niklas Ek; and Group CFO, Carl Arnesson. [Operator Instructions] With that, I hand it over to you, Niklas and Carl.

Thank you. Hello, everyone. This is Niklas Ek speaking. I am the CEO at Exsitec, and I will start off by making a short recap about our business, as a reminder what we do. After that, we will cover Q2 financials and a short market update and also our priorities going forward. We are Exsitec, making IT work together, which is 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. Exsitec is a Nordic company started out from Linköping, Sweden. Today, we are around 700 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 EBITA has followed our growth nicely with an exception in 2024. Best-of-breed is how we approach our customer solutions. Many of our deliveries are centered around the ERP and finance system, which act as the core. By selecting the right components and ensuring they work seamlessly together through our in-house integrations, we can take full responsibility for the entire solution. 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. This revenue stream has grown to 26% of our net revenue, and just under 2/3 of our revenue is from professional services, where we implement the software and make the customer successful in using the software over time. We also do custom development and custom integrations when needed. The third revenue stream in our business model is that we offer our customers a single point of contact support on a recurring fixed price model. Our customer base today is around 7,000 organizations, and our target market is medium- to large-sized companies in the Nordics. No one customer typically is more than around 1% of our revenue, so very low risk in the individual accounts. We combined 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 over 20 software components. We combine these softwares with integrations that we develop in-house. And we have shared revenue partnerships with these software providers where we market and sell their software to new accounts and make customers successful in using the software over time. Exsitec runs one of the largest trainee programs in the Nordics and has done so at scale since 2015. We are very proud of this. And today, almost 40% of our employees started their careers with us as trainees. The trainee program is our primary source for recruiting new talent and an important driver of our long-term growth. Looking ahead, we plan to welcome a new group of trainees in August as usual, and the size of 2026 program will be in line with 2025. So let's dive into specifics for Q2. I will start off with the highlights and then leave the word to Carl Arnesson, our CFO, for the financial details. Overall, I'm pleased with the second quarter. We delivered a good balance between improved organic growth and continued high profitability. Organic growth reached 8% year-on-year, which is a clear improvement compared with previous quarters and an important step forward for us. One of the major events during the quarter was the acquisition of Amesto Solutions. I will come back to that in just a moment. Our recurring software revenue continues to develop well, reaching SEK 246 million on a last 12-month basis, up 19% year-on-year, providing a stable and predictable revenue base. And finally, despite a strong comparison quarter last year, order intake from new customers increased by 8%, which gives us confidence as we move into the second half of the year. Amesto Solutions is the largest acquisition Exsitec has made to date. This acquisition is not primarily about size. It's about strengthening our position in the areas where we already have a proven business model and strong market positions. Like Exsitec, Amesto Solutions is a long-term partner to Visma and SuperOffice with a business model built on recurring software revenue and long-lasting customer relationships. That makes the strategic fit very strong. And the key strategic rationale behind the acquisition is Norway. Around 2/3 of Amesto's business is based there, making us the clear market-leading Visma partner in Norway. It's also giving us a stronger platform for future growth across the Nordic region. Beyond the stronger market position, we also see opportunities from combining the 2 businesses. Together, we have a broader offering, a larger customer base and increased local presence, creating opportunities for both stronger growth and improved profitability over time. The integration has started according to plan, and we expect to provide more details on the expected cost synergies during the third quarter. With that, I will hand over to you, Carl.

Thank you, Niklas, and hi, everyone. Looking into our net sales. As Niklas mentioned, we report a 12% growth in Q2 versus last year. And if we exclude both the divested and acquired operations, the organic growth was plus 8%. As we've seen a relatively low organic growth in the recent quarters, it's very positive to see the uplift in Q2 and also that we see organic growth in all our segments. And I will come back to the development per segment shortly. Our growth comes mainly from recurring revenues from software that stands out also in this quarter. But in this quarter, we also saw an uplift in the professional services, especially in Sweden. Despite the uplift in organic growth and that we see positive signals, the general market sentiment is still that customers are a bit cautious and tend to push decisions of minor updates and adjustments into the future. Meanwhile, new projects driven from our sales department are developing more positively. Moving over to our adjusted EBITA. We report a SEK 50 million profit, which is a 12% growth versus Q2 last year. Main drivers behind this uplift is the continuous growth in recurring revenues, also a growth in professional services, but also by a continuous cost control. Also worth mention is that we report one-offs of totally SEK 13 million, covering both transactional costs for the Amesto Solutions acquisition, but also restructuring costs for our Norwegian development department, and I will come back to this shortly as well. Despite the growth in adjusted EBITA, we still feel that we can deliver even stronger performances and profitability almost across all our segments. And even though we've seen organic growth in Q2, the efficiency can be improved, and this is something that we also prioritize in our daily operations. Year-to-date, the adjusted EBITA of SEK 99 million equals a 10% growth versus the same period last year. Here, we see a consolidated view of the net sales and adjusted EBITA margin for the Exsitec Group. The adjusted EBITA margin of 20% in Q2 was slightly higher than the same quarter last year. In addition, it's also satisfying that we continue to see a general increase in the net sales per employee across the board. Let's continue with the net recurring revenues from software. For the last 12 months, we see a growth of 19% compared to the LTM revenues last year in this revenue stream that made up 26% of our revenue year-to-date. The growth is driven both through new sales and price increases, but to a certain degree also from M&As. The organic growth in net recurring revenues summarized to approximately 70% of the total growth, so 30% acquired and 70% organic. This development is, of course, a very important contributor to our earnings and also the strength with our business model, but it's also a good indicator for us that we have a strong offering and that our customers are continuing to use and deploy the software that we are delivering. Regarding our different segments. First of all, Sweden delivers a 2% growth year-on-year, although that the organic growth was 6% if we exclude divestment of the Zedcom business that we divested in Q1 and also the Amesto acquisition now in Q2. The adjusted EBITA margin also developed positively and ended up at 24%, slightly above last year. So we delivered a stronger growth and maintained the margin trend from last year, which is positive. Sweden continues to develop well with a gradually stronger demand in combination with an improved efficiency in the professional service operation. Norway reported a 40% growth in net sales year-on-year, but excluding acquired businesses, Amesto here, the organic growth in local currency was 7%. It's also satisfying that we continue to increase our adjusted EBITA and the margin in Norway. In Q2, we reported 15% EBITA margin compared to 11% last year, where the recurring revenues and good cost control were the main drivers behind the uplift. We maintain the margin level from recent quarters, which is a sign of stability that we've experienced in this segment. Even though that we're happy with the improvement, we still feel that we have even more opportunities in Norway going forward. And therefore, we have also conducted a restructuring of our development department in Norway. This gives us the ability to strengthen the margin even further going forward. The one-off of approximately SEK 7 million related to the restructuring has been excluded in our adjusted EBITA. Finally, our third segment of the Nordics that covers our offerings in Denmark and Finland reported a growth of 24%, where the organic growth in local currency was 11%. Our Danish operation had a very strong Q2 in 2025, but we are nevertheless not satisfied at all with the margin in this quarter. The order intake and the customer demand have not been at the level that we are aiming for during this quarter. So therefore, we have adjusted the capacity in relation to the demand, and our ambition is to come back to a higher margin level ASAP. In addition, it can be mentioned also that our Finnish operation delivered solid revenue development also during this quarter. And by that, I hand over to you again, Niklas.

Thank you, Carl. I will continue with a short update on the market conditions and our priorities for 2026. Overall, we see gradual improvements in the market compared with a year ago. Although the picture still differs across our markets, Sweden continues to develop the strongest, Norway is moving in the right direction, while Denmark remains more challenging. Sales momentum continues to improve. As mentioned earlier, we delivered another quarter with strong order intake. At the same time, we continue to see shorter sales cycles from lead to signed contract, which is an encouraging indicator for the coming quarters. We still believe there is a pent-up demand after several years of postponed IT investments. As market conditions continue to improve, we expect more of these investment decisions to move forward. Finally, AI continues to generate growing interest among our customers. While adoption is still at an early stage for most companies, we see our software providers rapidly introducing new AI capabilities into their platforms. At the same time, we help customers complement those capabilities with tailored AI solutions where they create real business value. These remain our 3 strategic priorities for 2026, and I'm pleased with the progress we've made so far this year. Starting with BNXT from Visma, we continue to see high activity both among existing and new customers. The acquisition of Amesto Solutions further strengthened our position through increased sales capacity and a larger customer base for future growth. Our Microsoft offering also continued to gain momentum. During the quarter, we saw a positive development in both Business Central ERP and PowerBI with several new projects. And finally, increasing our organic growth remains a key priority. We improved from 1% in the first quarter to 8% in Q2, which is a strong step forward. We are pleased with the progress while continuing to see good opportunities for further growth over time. 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 EBITA 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 EBITA. And the last one is that our policy is to distribute 20% to 40% of the profit after tax. So this concludes the presentation. Are there any questions for us, Carl?

Yes, there is. First of all, we have Thomas Nilsson at Nordea, who has asked 3 different questions. But to start with the first one, organic growth accelerated to 8% in Q2. How much of the improvement reflects a stronger underlying market versus internal execution? And how sustainable do you believe this growth rate to be in H2 and beginning of 2027?

Yes. So the organic growth here, it's really a combination of the market and internal execution. Especially in Sweden, we see a better market. So it comes from several different areas in our business. For instance, we continue to see strong growth in recurring revenue from software. We have a better utilization, especially in Sweden compared to last year and we have more activity among existing customers. So it's a combination of those. And then the question was about 2027 or the future, right, about organic growth?

On how sustainable do you believe the growth rate to be?

Yes. And we do not give out any forecast about that. But I think that we are in a good place for the second half of the year since our order intake is still strong and a little bit better market, especially in Sweden. So I think we are well prepared for the second half of the year.

Perfect. And the second question was, you described increasing customer interest in AI and growing internal productivity benefits. Do you see AI becoming a meaningful revenue driver over the next 2 to 3 years or primarily a margin opportunity?

Both. I think that we will see new opportunities with AI and areas where we do not help our customers today. But also when it comes to efficiency using the AI tools, especially in development and integrations, I think that we can deliver more value with the same effort as before, and that over time should increase our margins. So it's both on that question.

And the third question was Denmark continues to lag due to weak demand and lower consulting efficiency. What actions are you taking to improve performance there?

Yes. We have already been taking actions during the spring. So we have made a reduction in headcount, and we have reallocated consultants into other areas with higher demand. And another priority for us is to keep on building the pipeline for BNXT since BNXT is an important part for us in Denmark and even more so now with Amesto coming in with a customer base using Visma Business, the on-prem version. So that's really important for us to keep on talking to the customers, so they are ready to migrate to the cloud.

We just got a question from Henrik Carlman regarding Denmark, and he is asking, why do you think demand differs so much in Denmark compared to Sweden?

Well, I think that if we look back to the fall when we acquired ECIT, the customer base in Denmark, we saw pent-up demand for those customers. And at the same time, we have had this new law that really demanded for almost all customers to upgrade their on-prem systems. So we had a really good year in 2025, where we could capitalize on those opportunities. And after that, we saw that the customers were a bit passive since they invested quite a lot in that in 2025. So that's a difference in Denmark if you compare to Sweden or Norway.

Okay. Let's move on to Carl Svensson, who has asked 3 questions as well. The first one being, how much were the restructuring costs in Denmark and Sweden during the quarter in addition to Norway?

I can take that one. We have no material restructuring cost in Denmark or Sweden during the quarter. Nothing like the restructuring that we've carried out in Norway. As a consultancy company, of course, we reorganize more or less all the time. It's part of the ordinary course of our business. But this one-off in Norway was a bit special, both in terms of the amount and also in its really one-off nature. So that's the difference here. So no material amounts in Denmark or Sweden.

Then the second question was, is the restructuring in Norway related to excess capacity following the Amesto acquisition? Or what is driving it?

No, it has nothing to do with the Amesto acquisition. This is our develop department. And as you probably remember, we acquired IntegrasjonsPartner in Norway, and we have merged the development team from Exsitec and IntegrasjonsPartner. And after doing that, we saw that we have more capacity than the customer demand. So it's completely related to that.

The margin last Q3 in 2025 of 14% was well above your historical Q3 numbers. Was this a onetime effect? Or do you see a structural better Q3 margin now? Maybe he means Q2, but yes.