Karnov Group AB (publ) (KAR) Earnings Call Transcript & Summary

Welcome to the Karnov Group H1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Pontus Bodelsson and CFO, Magnus Hansson. Please go ahead.

Welcome, everyone, to Karnov Group's earnings conference where we will present the outcome of the second quarter of 2026 . Please go to Slide 2. I am Pontus Bodelsson, President and CEO of the company. With me, I have our CFO, Magnus Hansson, our Head of Investor Relations, Erik Berggren. Magnus and I will present the outcome of the quarter using a few slides, and then we'll open up for questions. With that said, let's get started with the presentation. Please go to Slide 3. In the second quarter, the core online legal growth was 7% and the adjusted EBITDA margin improved to 25%. Growth is driven mainly by AI uplifts across all geographies. The financial performance is strong in Denmark, Sweden and Spain, where Karnov is the market-leading provider of legal content. The financial performance in France, where [indiscernible] #3 is below expectations due to weak noncore off-line sales. The organic growth was 2%, driven by online legal. Online Legal grew 11% in Region North, consistent with previous quarters. The corresponding number in Region South was 2% and continuing the positive trend from Q1. Leverage was 2.0x, well below our financial targets. The increased leverage compared to Q1 is due to our buyback program. During Q2, we have repurchased shares for SEK 159 million. Please go to Slide 4. During Q2, we have continued the accelerated growth trajectory in online legal. Customer satisfaction is on a high level and the retention rates on the same high level as previous years. We continuously upgrade customers to our AI-supported solutions and the number of users in all customer segments and the monthly usage is increasing quarter-by-quarter. In Q2, online Legal grew 7%, driven by our legal businesses in Region North, which grew 11% and Region South, which grew 2%. Our market-leading Spanish business is accelerating growth, thanks to a stronger product portfolio and deep expert authored local content. Our new AI products launched in March have become the most important sales contributors in Spain in Q2. At the end of June, we launched our new AI-driven workflow solution on all our markets, a very important milestone for Karnov, which expands the company's position in the legal landscape. Our #1 market position in 3 European countries stem from our proprietary legal content authored by 7,000 local legal experts. For more than 150 years, we have been the partner legal professionals rely on for legal knowledge and doctoring and we have sold AI-supported legal research for the past 2 years with great success. Now our trusted content will be seamlessly at hand through every step of their work. By adding an AI work for a layer on top of our trusted authority to content, we become an even greater partner to our customers. Quite a few customers on all markets have already upgraded to the solution and customer satisfaction is on a high level. Next slide, please. Over the past 7 years, Karnov has evolved from a leading Scandinavian knowledge provider into a leading European provider of mission critical knowledge and work will solutions. We have expanded our user base from 60,000 to more than 400,000 users -- sorry, from 60,000 to more than 400,000 users. The number of legal experts has increased from 1,500 to more than 7,000 and net sales has increased by more than 3x. We have created shareholder value through value-accretive acquisitions and divestments and generated accelerated growth through development of AI solutions with strong customer testimonies. Today, more than 75% of our net sales come from market-leading positions, thanks to our ever evolving proprietary content base, we stand strong in a legal malandscape in transformation. Next slide, please. So a quick reminder of our value proposition. To the left is our legal knowledge sources, both public sources and proprietary sources. Our authored content is written by our 7,000 local legal experts. The proprietary author content is what makes kind of a unique supplier of legal information solutions, helping our customers to make better decisions faster. This content is crucial also for our trustworthy AI solutions. To the right is our customers. The largest customer segment is the public sector courts, universities, authorities and local municipalities, among others. The second largest customer segment is cities, mainly law firms. And the third largest customer segment is corporates, mainly legal counsels. Next slide, please. In the civil law markets where Karnov operates, legal precedents are based on 4 different types of legal sources, legislation, preparatory works, Kaslow and legal doctrine Karnov provide legal content gives the doctor in shaping the legal interpretation. For example, in 2025, close to 50% of the decisions made by the Supreme Court in Sweden referred to CA content. This is different from common low markets such as U.K. and the U.S., where case law is more important. Next one, please. Our core value proposition is local legal knowledge authored by our experts, trusted by more than 400,000 legal professionals across Europe. Our competitive moat is the proprietary authored content itself, solidly available by our solutions. AI serves as an interaction platform that delivers our content in increasingly valuable ways. We cross-sell our solutions into this 400,000 user base with great success. Late June, we launched our new content-driven workflow solution, which is powered by AI. By adding an AI workflow layer on top of our authorities of content cannot trans the value proposition from a legal knowledge source into an execution layer seamlessly connected to our knowledge content across the entire cycle of legal work. As legal workflow and legal research converge customers will put a premium on output anchored in authority resources. Karnov is uniquely positioned to capture this because we embed our authority to deliver content directly into AI-enabled workflow services. Since the launch, several customers across our geographies have purchased a workflow solution. The customer satisfaction is at a high level, and it looks promising for the coming sales cycle. During the autumn, we will enhance the solution with more features, creating even more value for legal professions. Next slide, please. Karnov rights to win in legal AI stems from our trusted proprietary content for more than 150 years. we have been the partner legal professions rely on for legal knowledge and doctrine. And we have sold AI-supported legal research for the past 2 years with great success. Now our trusted content is seamlessly at hand through every step of their work. Customers are now assisted by Karnov from assignment to finished document. The legal validation follows every step of the workflow and switching between tools is not needed anymore as our trusted content is seamlessly integrated. Legal knowledge exists where the work happens. Next slide, please. Up until September 2024, Karnov had on online legal product layer divided into different packages, the core legal databases. In September 2024, we launched the AI layer interacting with our content as a second product layer. Customers upgrading to the AI layer generate a net uplift of at least 30% for Karnov. Now with our workflow solution launched, we have added the third product layer. Every customer uplift to the workflow layer generates an uplift -- a net uplift of at least 50% compared to the AI layer and doubles the annual subscription value compared to the core legal database list price. Growth potential is driven by the pace of upselling to the existing customers and pace of acquiring new customers. AI and AI-driven legal workflows are great enablers for a company like an with unique proprietary content. Next slide, please. Over the past few years, Karnov has transformed and grown into a trusted and leading European legal solutions provider through value-accretive acquisitions and divestments. The company has introduced AI-enabled legal research and workflow tools to deliver clear customer value, and at the same time, achieve solid organic growth with a substantial margin improvement. Built on a strong foundation of legal expertise, Karnov's deep proprietary content provides existing competitive advantage in legal AI. As the market leader in 3 countries, the company is uniquely positioned to leverage the seamless integration of differentiated content and workflow tools. Customer adoption of the new AI solutions is strong and continues to accelerate the company's growth trajectory. Karnov is aware of recent take private speculation concerning the company in financial media and has received related questions from shareholders and research analysts. The Board of Directors has, and will continue to evaluate all options available to maximize shareholder value. Such options may include, but are not limited to a sale of the company, divestitures, strategic partnerships or business combinations or other transactions as well as continued execution and enhancement of the operating plan and capital allocation. The Board of Directors has appointed Goldman Sachs as a financial adviser to the company, and we will not make any further comments to this evaluation at this stage. Next slide, please. And by this, I'll now hand over the floor to our CFO, Magnus Hansson. He will tell us more about the financial performance and the second quarter. Magnus, the floor is yours.

Thank you, Pontus. So please go to the next slide. In this quarter, we introduced a new term online legal. In this term, we include our LIS, our Legal Information Solution, our AI layer and our newly launched workflow tools. In the second quarter, net sales amounted to SEK 619 million, a slight increase adjusted for the divestment completed in 2025. And Online Legal grew by 7%, driven by continued AI uplift, increased number of users and annual price increases. The organic growth was 2.4%, a slight decline compared to previous quarters. This is explained by weak noncore off-line sales, mainly books and legal training in France. Next slide, please. Breaking down net sales on segment level. We see continued strong growth in Region North and modest growth in Region South in the quarter. Radian North had organic growth of 5%, thanks to strong growth in online legal while Region South grew 0.2%, thanks to online legal growth in both Spain and France. In Region North, excluding the acquired carved out thus business, online Legal grew 11%. And in Region out online Legal grew by 2%. Next slide, please. The adjusted EBITDA amounted to SEK 153 million in the second quarter. This corresponds to an adjusted EBITDA margin of 25%, which is an improvement of 2 percentage points. The improvement is driven by operational leverage, product mix and lower cost base. During the quarter, we have launched our workflow solution and the cost base includes extra expenses relating to that launch. Synergies from our cost saving programs are coming through as expected, meaning personnel expenses are decreasing. Items affecting comparability related mainly to restructuring and integration amounted to SEK 31 million during the second quarter. We are ahead of the plan in costing programs and in line with the expected cost to achieve. The programs will be completed by the end of 2026. Next slide, please. In Q2, net sales amounted to SEK 210 million in Region North. Online Legal grew by 11% and the organic growth was 5%. The online legal growth is due to strengthened market position as we upsell and attract new customers, especially in the public sector in Sweden. During the quarter, we have upgraded several customers in Region North to our AI solutions. In Q2, we have a slightly larger decline in off-line sales than usual as we had one-off sales of school cruculoms in Sweden in Q2 of 2025. The effect on the organic growth is approximately 1 percentage point in Q2. We are expecting this trend to continue into Q3. The adjusted EBITDA was SEK 155 million. This is an increase of SEK 25 million compared to last year. The adjusted EBITDA margin amounted to 5%. The improvement is due to operational leverage from higher net sales and lower cost base. We completed the Schultz integration at the end of 2025, and this lowers the cost base in Region North going forward. Next slide, please. In Region North, online sales accounted for 97% of net sales in the quarter. Please note the divestment of HHS. Subscription-based sales represent 98% of sales in the quarter. Next slide, please. In Q2, online Legal grew by 11%. The growth is driven by AI sales, pricing and additional seats. Our Tax & Accounting business, Disco, has improved its financial performance and grew by more than 6% in the quarter. The carved-out shuts business performs in line with the business case. Next slide, please, which is the region South segment. Net sales in Region South was SEK 309 million in the quarter. Online Legal grew by 2% and the organic growth was 0.2%. Our Spanish business continues its positive momentum. In Q2, the organic growth was 5%. The French business had solid performance in subscription-based online sales, while legal training sales continued to be weak, leading to a negative organic growth of 4.5%. The Inbred and South, the group's common AI platform was rolled out in Q1 of 2026. This means that we have a growth opportunity through upselling AI and now AI workflows into the legal customer base. The adjusted EBITDA margin was 11% in the second quarter. The Spanish business had meaningful margin improvement, thanks to growth in a decline due to the weak legal training sales. Depreciation have increased by SEK 5 million, mainly due to completed development projects and catching up on lease agreements in office relocation in Spain. The latter is a onetime effect. Next slide, please. In Region South, the online sales increased by 2% compared to Q2 of last year and accounted for approximately 83% of net sales in the quarter. Online Legal grew by 2% in Region South. Next slide, please. Breaking down the adjusted EBITDA margin in Region South on country level. We see strong margins improvement in Spain and the decline in France. The Spanish business had an adjusted EBITDA margin of 18%, well above our medium-term target of 16%, while the French business declined 2% in Q2 due to the negative organic growth. We expect this trend to continue in the third quarter as the market demand for legal training courses has a temporary dip. Next slide, please, which presents the segment group functions. Expenses in Q2 were SEK 35 million. As mentioned before, Q2 includes expenses primarily for consultancy in relation to the launch of AI workflow solutions. Next slide, please. In Q2, the adjusted free cash flow was minus SEK 14 million. The cash flow from operating activities increased by SEK 11 million, driven by higher operating profit while CapEx increased compared to Q2 of last year. During the quarter, we have allocated SEK 159 million to repurchase of shares. I'm now handing over to Pontus again, who will present our last slides.

Thank you, Magnus. Please switch to next slide. This quarter marks a milestone in Karnov's history, thanks to the launch of our new AI-driven workflow solution on all our markets. Karnov's #1 market position in 3 European countries stem from our proprietary legal content, authored by 7,000 local legal experts. For more than 150 years, we have been the partner legal professionals rely on for legal knowledge and doctrine. And we've sold AI-supported legal research for the past 2 years with great success. . Now our trusted content will be seamlessly at hand through every step of their work. By adding an AI work for layer on top of our trusted authoritative content will become an even greater partner to our customers. Quite a few customers in all markets have already upgraded to the solution and customer satisfaction is on a high level. Karnov continues to grow its core online legal business. In Q2, online Legal grew 7% and the group's adjusted EBITDA margin improved to 25%. The financial performance is strong in Denmark, Sweden and Spain, where Karnov the market-leading provider of legal content. Across all markets, customer retention levels are unchanged on a high level. and we see strong customer satisfaction. AI is a great growth driver for a company like Karnov with unique proprietary legal content. Due to this fact in an industry in transformation, we received a lot of interest from third parties regarding potential strategic transactions. The Board of Directors has, and we continue to evaluate all options available to maximize shareholder value. Goldman Sachs has been appointed financial adviser to the company. Next slide, please. For those who would like to know even more about our business, I recommend our investor video. You can find it on our website or by clicking the link in the Q2 presentation available on our website. Next slide, please. Yes. And by this, I'll end our presentation, and we are now ready to take questions. So I'll hand over the conference again to our host.

[Operator Instructions] The next question comes from Simon Jonsson from Berenberg.

Could I start with the group of SEK 11 million Q-on-Q and SEK 50 million year-on-year -- how much of this is due to the additional consultancy costs?

Well, in group functions, the cost increase close to SEK 10 million, and a majority of those are related to the launch of the workflow solution.

We should expect that number to be at least below SEK 30 million here in the next quarter. Is that right?

Yes. I'll avoid prognosis. But yes, in Q2 26 this one-off related to the launch.

All right. And then my second question would be on the legal growth and online growth in South, it went from 3% in Q1 down to 2% here in Q2. Could you provide some more color on what caused that, please?

Well, yes, it's a very little changes in growth, we do see a great momentum in Spain, in particular, and that growth has been quite stable. So it's very limited movements, and we still see, as I said, the momentum in Spain, slightly slower in France.

Okay. Very good. And then talking about France, another tough quarter, and it seems like we should be prepared for Q3 to be quite similar. Could you maybe a little bit bigger picture to provide some more information on when we should expect that to turn?

It's a tough one. It's difficult to say exactly when we will see the turnaround. We are dependent on the market for training. So the training business in France, in general, not only for our company, Lakeland is struggling. And it is set to change in the quarters to come. However, we are we are careful, but we hope to see some changes in a couple of quarters. And the training business, this off-line training business is definitely important in the general no turnaround for our French business. That's one part of it. A part that we -- it's difficult to control. We can launch new training courses, but if the underlying demand is weak, it's difficult to turn that business around in just a quarter. So I guess that will take a couple of quarters. And when it comes to the other part that is doing quite well, it's the new AI solutions. We launched new AI solutions, both for Spain and France late in Q1 in late in March, and that is actually the best selling product we have both in Spain and France for the time being. And then late in Q2, we launched the workflow product, which also has had great interest among lawyers, French lawyers in connection to the launch. So we see that, that is the part that we actually can control. The underlying demand for training business is more difficult, but we see growth in the AI parts and hopefully also, as I said in a couple of quarters in the training business.

Understood. And then finally, I'm trying to bridge the organic growth in Region North. Would it be possible to quantify how much should decline in the quarter?

Schultz is quite stable, and it follows the same logic as before. So we continue to follow the business case that we reported on in connection to the acquisition, and that still holds quite true. So -- and we talked about SEK 80 million in sales and about SEK 50 million in EBITDA, and that still holds quite true.

[Operator Instructions] The next question comes from Predrag Savinovic from DNB Carnegie.

So on the topic of divestments, if I put my question this way, what part of your products and services in your portfolio do you see as core and indispensable?

What we now call online legal, which could be considered core then is the legal information solution the AI layer on top of that and then the newly launched workflow.

Okay. That's very clear. Do you still believe that the positive margin trajectory in South can continue to deliver further year-over-year margin expansion also in the coming quarters?

That's bordering on give prognosis, Predrag. And it's quite difficult. We have some great thoughts on the launches. We have talked about positive momentum in Spain, and we have still have the positive momentum overall in the online legal. And if we consider that the operational leverage should of course look good.

Okay. That's very good. And then on the market level in North, I think it's really reached some extraordinary margin levels. Are these sustainable for the long term, reach even higher? I mean I guess you can apply the same organs to what you said for [indiscernible] even higher growth here. So should we think of this really?

Yes. I agree. It's reached really, really nice and impressive levels. To me, all businesses, not only Karnov, it's about finding plateaus. And now we've found one, but then we also need to invest in future growth. So we need to balance growth and margins going forward. And so it's a balancing act.

Right. And then finally, how do you view of letting businesses? Is this important? Is it increasing the value of the digital offering? What is the relation here?