Gofore Oyj (GOFORE) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Gofore's Q2 and First Half Results Presentation. Today, in typical fashion, it will be me, Mikael Nylund, the CEO of Gofore Group; and our fresh-ish CFO, Saara Ukkonen, who will be presenting the results, and we will start by that. Then we'll have a little bit of a special segment in today's program with an update of Gofore's Defense & Space business, where we will be joined by Markus Asikainen and Timo Latvala, who are the responsibles of respective business areas at Gofore. And then we'll round off by looking at targets outlook and some H2 priorities for us. We will have time for questions at the end of the presentation or today's stream. So you can already whenever you feel like it, you can post those questions on the streaming platform. And Emmi from our Investor Relations here will be screening your questions and looking into those, and we'll be taking them at the end. But without further ado, let's go and let's start with a short overview of what has happened. Profitability-wise, it has been steady at adjusted EBITA at 7.2% in Q2. On the one hand, it's a clear signal that we made an improvement year-on-year. We have successfully implemented a lot of measures, including integrations of our recent company acquisitions, restructuring, our skill profile and also improving the customer delivery that were burdening the result a year ago. On the other hand, it also means that there's still room for improvement. We know we can, we know how to do it. We know that a bit brighter outlook with the market will help us do that, and we can improve the profitability further. Growth continued two consecutive quarters with organic growth now, very important signal that we can grow, that the market allows for growth, even though it's been a little bit toned down. And our strategic choices have been correct, have been functioning in the market. I mean that we have growth drivers like simulator technology. We have cybersecurity expertise that is especially wanted in the market right now. And today's topic, Defense & Space is, for sure, also one of the growth drivers in the portfolio right now that drives the growth. We have the stickiness with the customers. We have long-term customer relationships, and that's what, of course, keeps the basis of the business going. Overall growth was over 30%, very strong. This makes us a very different company from a year ago. And what we want to today also point out is that it not only makes us bigger, it makes us stronger and stronger for the better market situation that we are expecting to start hopefully now, but at some point in the future. Lastly, sentiment looking forward. We, of course, will have net sales growth in the future as well, because of the, and thanks to the company acquisitions that have been made, the investments that have been made in '25 and start of '26. We have also the first divestment that we will be talking about today a little bit more, and that will have effect starting September '26. A solid start to Q3 in all in July and also the start of August. So we feel quite good about this right now. Some of the highlights for the first half. Net sales, plus 31%. Organic growth for both quarters in '26. We are quite happy with that. And again, it goes to show that we have the ability to grow in a difficult market. We have been making very fundamental and big investments that have changed the company. Synergies support the profitability at 7.3%, so almost doubled from a year ago, 7.3% adjusted EBITA. And at this time, it's quite clear for us that we have needed to spend also to make this growth happen. So short-term growth investments, of course, are visible also in the profitability, but we believe that the growth as such is the most important thing right now and are happy that we can now show that we have been able to grow. We have a lot of business happening both in Finland and the DACH area with a lot of wins, especially the public sector big wins that are, of course, always the public knowledge. So we can talk about those. We have City of Espoo, Information Technology Center of the German federal government, ITZBund. We have CSC in Finland. We have the Patent and Registration Office and National Land Survey of Finland that we were able to report in June, a very big win for Gofore and an opportunity to grow in those important big customers that are covered by that framework agreement. We have worked with integration, of course, 400 Huld employees joined the group in autumn '25, and we have now operationally almost completed the integration. So big work, big push from the team making that happen. And in the DACH, they have been focusing on the integration of the, a little bit more recent Esentri acquisition. As mentioned, we will look a little bit more deeply into the first divestment that we have as Gofore made when we sold the Huld-originated product design and technical documentation business to a Finnish buyer, CoE Group. Growth-wise, this is an important year, of course. It's an investment-driven growth, but it's clear that we are now pulling away from the non-growth years of '24 and '25. And that's super important for us as a company. This is not only about making us bigger, as I said, this is about making us stronger in the key customer segments where we have wanted to develop. And those are especially the Intelligent Industry, Strategic Industry, where we have gained new capabilities via the Huld acquisition, especially and also strengthened the existing ones. But then there's also -- and that's the topic of today, the Defense & Space industry where also Huld acquisition has played a very key part in making that strategic choice that we made in '24, making that a reality, and now we are a player in the Defense & Space industry, which we will, as I said, dig into a little bit more today. It's been a tough and competitive market. It's been that for some years now. So it's -- these results with our customers with a good customer satisfaction with a growing amount of big customers goes to show that Goforeans have made a good job again with the customers and are appreciated by the customers. It's also about the strategically chosen strong customer relationships, strategic partnerships that we want to be involved with our customers based on the complete offering that we have, the end-to-end offering that Gofore can offer our customers for transformations that are either big or a little bit smaller, which is, of course, a key topic now that all of our customers are talking about how to enter AI, how to make that AI transformation reality in their organizations. Defense & Security business area and wellbeing business area have been the biggest growers now in H1, not surprising, Defense & Security for obvious reasons, wellbeing being a business area where we have been able to capture some market share in the Finnish market with -- especially with the public sector clients in that customer segment. As said, number of big customers is again up from 45 last year to 53 now, partly driven by the acquisitions that we made, but a development that we have been aiming at very strongly. People-wise and culture-wise, we've been, of course, focusing quite a lot on acquisitions and the integration of those acquisitions, 400 Huldians, around 100 Esentris in Germany have been joining the organization. So a big push, as said, and thanks to the organization for taking them with open arms and being able to do this integration in a good fashion. The divestment that we have mentioned already several times is reducing the amount of employees from 1st of September, about 110 people that will be transferring to the Finnish buyer, the CoE group. Upskilling AI, big topics during the first half of the year. Priorities is always upskilling, making sure that the skills of Goforeans are up to date and are answering to the demands of the customers. But there's also a little bit in first half and probably will be like restructuring component in the attrition graph that you see here on the right-hand side on the below chart. So a little bit over 10% attrition for the first half, which is kind of also taking into account the restructuring measures that we, in this difficult transformation time have been doing. Last year, it was much higher. You might remember that, that was around spring last year, we had a big restructuring operation with change negotiations and laying off 80 people from Gofore. So that's, of course, even a bigger one. But the transformation we expect will be visible in attrition numbers for the foreseeable future. But right now, we are quite happy, especially with the unexpected leavers, a percentage of 8%. So that's a good place to be in. And also the restructuring measures that have been taken that Saara will be talking about a little bit more also are visible in the profitability adjustments that have been made during the -- especially the second quarter. Lastly, before Saara takes over, some words about the divestment that we have made. In June, we announced the sale of the product design and technical documentation business to CoE Group, a business that was acquired with the Huld acquisition. This is about strategy. This is about strategic focus. Gofore's core is about digital technology, and that's what we want to focus on. We have been looking for a buyer that we feel is good from a customer point of view, but also, of course, from the transferring employees' point of view. And for us, we have a strong feeling that CoE now is that buyer for this business and a good home for this business. Our customers are continuing to get the full service of Gofore because we have also entered into a cooperation agreement with CoE and we'll be serving them with the full service portfolio as we have up until now. So that's important for us that customers will get the same service portfolio also in the future. September 1, around 110 employees will be then transferring to a new employer, and this is about EUR 8 million in net sales, the effect at that point. But now Saara, a little bit of a deep dive into the financial highlights.

Yes. Thank you, Mikael. Good afternoon from my behalf as well. So let's start with the key figures for Q2. Net sales increased by 32% to EUR 58.5 million, and organic growth was 1.8%. The adjusted EBITA margin improved to 7.2%, up to 4.6 percentage points year-on-year. And the increase was resulted by higher sales, acquisition synergies and better management of fixed-price projects. EPS increased to EUR 0.11, and that's an improvement of EUR 0.17 year-on-year. Then the headcount was around 1,900, up to around 500 people, and this is largely reflecting the acquisitions. And the adjustments, what Mikael also mentioned, mainly relate to restructuring, then the integration and the M&A activities, so meaning Esentri and the sale of product design and technical documentation business. And overall, this is clearly a step in the right direction, but we are not fully satisfied yet. So our focus remains on closing the gap to our profitability target. Then on moving to the sales mix. The share of international sales increased during H1 due to the Esentri acquisition. Then you can see in the graph that the split between public and private sector customers also moved to -- closer to an even balance. Not visible in the chart, but the product sales grew as well. And at the same time, the share of own work increased. And overall, the conclusion is that the sales mix is gradually becoming more diversified. Then a little bit more about the profitability. So the profitability clearly improved compared to the comparison period, then remained stable compared with the beginning of the year results. The year-on-year improvement was supported by higher net sales and integration synergies and better control of fixed price projects. Then about the comparison period that was impacted by some projects exceeding their estimated workloads and the write-down on one fixed-price project. Then when we look at the profitability in the short term, the margin was impacted by targeted growth investments in sales and marketing and in the DACH region, which we expect then to result in also revenue growth. Customer prices increased by 1.7%, and the average salary change was minus 1.3%, which also supported the overall cost balance. The increase in other operating expenses, there you can also see the investments to M&As. Then there are targeted investments also in OpEx and obviously, the business growth also impacts other operating expenses. So the direction is positive year-on-year, but then the near-term growth investments kept the profitability roughly at the same level as earlier in the year. Then our liquidity and balance sheet, those remain in excellent shape. So equity ratio was 50%. Cash was around EUR 27 million and interest-bearing net debt was EUR 21.5 million. So what this basically means that this gives us flexibility to continue investing in growth through further M&A and investments. Then still our cash flow. So what you can see from this chart is that the cash flow from operations was positive. At the same time, we continued investing in growth and returned capital also to shareholders. And the total net change was minus EUR 15.5 million. But basically, the decline in cash reflects acquisition activity, debt repayments and then profit distribution. And that was everything from my side.

Thank you, Saara. And as I said, Saara is a little bit fresh with us, fresh-ish, started in, I think, in March this year, and we have had a good cooperation so far. So looking forward to working with you also in the future, of course. But now as I promised, the next topic, like, let's say, a quick deep dive, maybe not that super deep, but some dive at least to Defense & Space business at Gofore. And to do that, I will be joined here by Markus Asikainen, who is responsible for our Defense & Security business; and Timo Latvala, who is responsible for the Space business. So welcome, Markus and Timo.

Thank you.

Thank you.

I'm going to lead a little bit into this topic by giving a short introduction, and that will start by showing this, which is the strategic industries that Gofore is focused on. And since 2025, Defense & Space has been the third strategic industry that we have been focusing on alongside the more mature Digital Society and Intelligent Industry businesses that have been there for a longer time. And for individual customer segments that we count into the Defense & Space part, we talk about national security. So mostly public sector customers that work with internal and to some extent, external security topics. We have the defense part with Defense industry, defense players in the public sector, and we have space players, which Timo will talk about in more detail afterwards. And the decision to make this strategic focus was taken during the strategy process of 2024. And back in 2024, it was clear for us that we needed more growth drivers. And when we looked at the world, we looked at the external forces driving change in the world. Of course, we saw that there was a increased volatility of the geopolitical landscape and there were full-scale war in Ukraine. There were demands for European strategic autonomy and Finland joining also NATO back then. And these are, of course, forces that continue and acceleratingly influence our operating environment. We also considered like Gofore's existing strengths. And looking at the right-hand side, you can see that what we found there is that, of course, we have the comprehensive offering and skill portfolio, which we felt that is applicable to a lot of different customer scenarios, including the Defense & Space part. We have experience in delivering mission-critical systems, software, projects on a national level, and that's something that is directly applicable also to the Defense & Space business. And we have, of course, a strong track record of supporting new growth with M&A -- with successful M&A. So what we saw as a combination of these external and internal factors is that we have the means to be successful in the Defense & Space industry. We also did quite an extensive discussion internally about the ethics of going into this kind of business and secured kind of the support of the Gofore community by that way. So conclusion was that we will be able to break into the Defense business, and that's what we set out to do. We released this new strategy at the end of '24 and then moved quite swiftly to the acquisition of Huld, which happened in summer of '25 and was actually executed then in, I think, 1st of September in '25. And that was, of course, something that further strengthened the capabilities, introduced the space capabilities that we will look into now and, of course, also took a big step in, let's say, delivery processes about how you deliver software and solutions in very security-sensitive context. And that's something that I think took us forward a couple of years with one blow, so very important in that sense. With that background, let's go into the more detailed discussion here, and let's start by looking at the market position and the individual markets that we work in. And we talk about the unique market position. I don't think we use that word very lightly. So I think there is a certain level of uniqueness here. But let's start with Markus, can you a little bit explain about the Defense & Security business area? What are we actually doing? What are we working on?

Of course, thank you, Mikael, and good afternoon from my behalf also. Our Defense & Security business is going towards our strategy, as you mentioned, and it has been quite a journey so far, really interesting times we are living. We are serving customers on both sectors, as you mentioned, from public sector, those internal and external security authorities. But of course, there is this other side, private sector, mainly Defense & Security industries, industry companies and especially there are a couple of bigger global companies that we are really proud of to work with. And also, there are a couple of certain amount of smaller technology companies that are kind of more or less start-ups, but building something completely new to the market, and we are part of that development also. So very proud of having this kind of combination of different kind of customers. And what we do actually basically especially in the industry sector, we are mainly involved with development, R&D. And of course, we are doing also some services there. But of course, our kind of core competence areas like cybersecurity, quality assurance, embedded software development and so on, those are the areas that we are working with right now with our customers. Also integrations to mention some of those.

And I think it's quite clear that there aren't any products, there aren't any solutions for the Defense industry that don't include in some way the digital part also. So that, of course, makes the...

Of course.

Position quite good for us.

Yes. And we are also helping our customers to kind of refactor or renewing their ways of developing different kind of capabilities. That's something that we do also a daily basis.

And then Timo, you have been working quite long with the Space industry. You know it, I think, inside and out. So could you kind of give the same insight into that? What do we do there and what's happening?

Sure. Thank you, Mikael, and good afternoon to everyone. So in the Space industry, we have been focusing on three main segments that we've been working very hard on. One segment that we have been working for a long time on is the institutional Space industry where we have a lot of heritage. And this includes customers like the European Space Agency, the big prime contractors and large space integrators like Airbus, Thales and Leonardo. And this is a segment that is really being impacted by the things that you mentioned earlier, the drive for sovereignty, the drive for the geopolitical tensions and so forth. That has had a big impact on this segment. The second sector that we're working with is the private Space industry, which has been on quite a tear in the last years as we can see. And here, what we've been able to do is take our existing expertise and apply that to our -- both our Finnish customers and also international customers. And we think that this is going forward that this is a significant growth opportunity for us. The third segment that we are working on is end users of space data. This is still sort of an application area, which is still maturing. There are -- all of our customers are not sort of experts in how they can use space data in their daily operations. But we think that we are already sort of helping different kind of companies here in terms of delivering space data. So there are good Finnish examples of that, but we're also working with sort of other companies and authorities that are sort of trying to understand how to navigate this complex world of applying space data.

Good. Thank you. And I think especially in this time, it's good to be a Finnish company with this expertise because the Space industry is so blooming also here in Finland with good examples of companies that have burst into the scene in the last years. But when we talk about uniqueness, especially in the market position, I think what really makes this unique is when these areas, when defense, security and space technology, which you already a little bit alluded to start to like combine and the needs start to combine. And what we see in the world right now, of course, already supports this quite a lot. How do you see this, Markus, the convergence part?

There's a quite big change at the moment, meaning that space data has become more or less kind of available for different kind of actors in the Defense & Security industry also. And I see that it's a crucial part of modern digital battlefield that's coming from the defense forces and kind of being able to combine on making some kind of modern integrations and also fusion of data. So meaning that enriching your kind of existing situational awareness data or other operational data with space data, that's something that you will kind of get to the next level by combining these different kind of data sources. And that's what we are doing at the moment, especially together with Timo's team. So we are collaborating quite tightly together on a daily basis. So trying to find those agile ways to make different kind of integrations and also serve customers in a new way. And I see that when we talk about AI in this area, it's a huge opportunity to also enhance the decision-making. And of course, at the end of the day, it is quite obvious that the human is making the decisions. But still, we can go a little bit further with assistant decision-making by AI and using this space data as a little part of that big process.

Yes. Just let me add to that. So from a space point of view, of course, space data, there's always been an aspect of defense when it has come to the space environment. I mean it has always -- this dual use aspect has always, to some extent, been there. But of course, this has really exploded now in the last year. And I think we're really well positioned to benefit from this. We can both work with the companies that sort of are in the business of both providing and selling space data and we are also sort of well positioned to help the customers who are taking space data into use in both in terms of understanding the data, how to apply it and how to integrate it into their systems.

And what we, of course, maybe sadly see is that if we have learned to think of this as a superpower capability to use space as one part of, let's say, warfare and defense. It's now available for others as well and that the sovereignty push is driving that, of course.

Exactly.

Luckily also, for example, Ukraine has these capabilities to use that data. But more importantly, I think for the future, what we hope is happening is that also civilian applications would be more commonplace because there are so many for that. But if we continue then to looking at some, let's say, more concrete things that happen in the industry. We already talked about the convergence, how the blending of sectors happens. But if you look at the middle box on this slide and on the phenomenon and the trends that we see, how would you, Markus, start by talking about the dual use part?

Yes, it's a really interesting topic. We see that the need is rising for sensor data from civil sources. So meaning that this kind of sector barriers are blurring. And we can see that even defense force type of actors or other security actors need more data from those quite isolated environments that are existing in the civil side. So there is a huge potential for being integrator between these different kind of, I might say, silos in a way. So at the same time, we see that there is lots of data that can give benefit also to creating kind of national awareness of resilience and so on. So we are now developing also our own concept for dual use, meaning that we work quite closely with different kind of companies for finding solutions for, for example, having the crucial data out of the intelligent machines or devices. That's one example. So we have kind of taken the bold to create something new in the market and be one of those first ones who will take the kind of a step forward how to integrate agile different kind of actors and different kind of technical environments.

Yes. And that's, of course, something that also our understanding of the intelligent devices of the machinery, intelligent machinery helps us in doing it.

Exactly. And this is in general, this is really huge potential for us because this enlarges our potential customer portfolio. We are not talking about anymore kind of only defense or security customers. We are talking about, for example, Intelligent Industry customers. We are talking about retail and services customers and so on.

Yes. So next, Timo, expanding core expertise. I guess, with core expertise, I think we can talk about the 15-plus year experience in software and space, which is a very specific area. So how would you?

Yes. I think this is sort of -- it's important to understand that why we are able to do all of these things is that we really have deep expertise in certain areas related to development of space systems and understanding of space data. And in order so that we can continue growing and expanding into new domain areas, we do need to deepen that knowledge in certain specific areas, perhaps in things like, for instance, analysis of synthetic aperture radar data, which is very fashionable these days. But it's also, of course, about making sure that the strategic asset that we have in this deep expertise area remains relevant and fresh.

Yes. And the third one, we already talked about a little, but the space data part, we have seen that the kind of available data is exploding and what you can use for different applications is the opportunities are there. What do we see here?

So just like you said, the amount of data is really growing quickly, and we can see it from the number of launches and the number of announced launches in terms of different sensors and satellites that are being launched. So there's really going to be a lot of opportunities for data there. And in terms of sort of being able to really help our customers here, what it sort of requires, of course, is that we, first of all, have deep understanding of our customers and their domains because that is a key prerequisite for applying that data. Then, of course, we need data analysis expertise and AI expertise so that the data can be fused with different sources. And we can get the best out of that data, the most value, if you will. And then finally, we also need to make sure that we understand the space-specific dimensions of the data. So we need to be have a good understanding of Earth Observation technology so that we understand the instruments, et cetera, and sensors that are actually producing the raw data that we are then using in these different applications.