Knowit AB (publ) (KNOW) Earnings Call Transcript & Summary

Hello, and welcome, everyone, to the Knowit Interim Report Q2 2026. My name is Becky, and I will be your operator today. [Operator Instructions] I will now hand over to your host, Per Wallentin, CEO, to begin. Please go ahead.

Hi, everyone, and a warm welcome to this presentation of Knowit's report for the second quarter. With me today is our CFO, Marie Bjorklund; and also Fredrik Ekerhovd, who will take over as acting CEO from 1st of August. First, some operational highlights in the quarter. We are very pleased to report improved adjusted profitability and margin compared to the same quarter last year. Our operational efficiency continues to deliver results with actually six quarters after each other of improved utilizations. At the same time, the market remains mixed. Customer activity is improving, particularly within the public sector in Sweden. However, decision-making processes are still slow, which especially affects businesses with shorter project cycles. As reported in previous quarters, demand remains strong in areas such as cybersecurity, defense, ERP, and digital transformation. After a long period of investing in further future growth areas and at the same time running efficiency measures in areas where we have been shrinking, our focus is now gradually shifting towards profitable organic growth. AI is a key driver to the next phase of Knowit's development. We are integrating AI into all our client offerings, making them even more relevant going forward. In addition, we are using AI internally to improve both productivity and quality. And with that, I would like to officially welcome Fredrik Ekerhovd, who will take over as acting CEO 1st of August. Fredrik and I have worked closely together for many years, and I know him to be a strong leader with a deep understanding of Knowit, our business, and of our culture. I feel very confident that he will guide the company successfully through this exciting and probably quite long period of transition towards AI in the future. Fredrik, I will hand over to you to say some words. Next slide, please.

Thank you very much, Per, and also thank you for the collaboration over the past few years or more than a decade, maybe. I have great respect for what we have built together, Per, and I look forward to build on that foundation going forward. Having worked closely with both Experience and Solutions during more than a decade, I have a clear view of where our greatest strengths lie. First and foremost, it's our people and our culture. The way we collaborate, take ownership, and work closely with our clients is a real competitive advantage and something I want to continue to build on. Second, we have strong capabilities in areas such as AI, data platforms, defense, and cybersecurity, areas where demand is growing and where we are well-positioned to create value for our clients. During this transition period, my focus will be on helping the organization build on those strengths while continuing to improve our operational performance. We will continue to focus on creating long-term profitable growth by being the leading digital transformation partner for both Nordic companies and public sector organizations. My role is to ensure a stable and focused transition while continuing to execute on that strategy. With that said, I will be available for questions both today and going forward. Next slide, please. We will now take a look at our business areas in more detail, and since I'm currently the business area manager of Solutions, I will take the opportunity to present the first of our five business areas. Solutions is the largest area, accounting for nearly 50% of total revenues. We report a net sales of SEK 693 million for the second quarter. The EBITDA margin was 6.9%, in line with the same quarter last year. We are able to maintain our margins through improved operational efficiency and continued focus on utilization and cost discipline. Our operations in Norway performed very well, while we are still faced with some challenges in Sweden. We have continued to strengthen our position in strategic growth areas, particularly data platforms and cloud, where demand remains solid and we continue to win new business. As the organization become more efficient, our focus is increasingly shifting from operational adjustments to profitable growth. We are well positioned to capture opportunities as market conditions gradually improve. Currently, the market remains mixed. We see increased client activity, a healthy pipeline, but decision-making processes are still slow, and price pressure remains. Overall, we believe the underlying trend is moving in the right direction. Next slide, please. Back to you, Per.

Thank you, Fredrik. Going into our digital agency, Experience, reported net sales of SEK 270 million in the quarter with an EBITDA margin of 6.1%, a significant improvement compared to last year. I am really happy to see Experience returning to positive organic growth this quarter, driven by higher utilization in Sweden, a more stable price environment, and also continued improvements across the business. In Norway, as you remember from Q1, the measures implemented during that quarter have had intended effect, and the business has returned to much stronger performance. Looking ahead, we see significant continued and opportunities in the intersection of AI data and customer experience. Note that this area was the area where we first struggled with AI connected to UX development three years ago. As our clients prepare to create new digital business models, Experience is really well-positioned to support that transformation. And AI is becoming an increasingly important part of both our client offerings and the way we work internally. It will strengthen or already strengthen our competitiveness, enabling new services and creative, attractive growth opportunities for the future. Next slide, please. Moving over to business area. Connectivity reported sales of SEK 144 million for the quarter, EBITDA margin was 5.7%, a strong improvement compared to last year. Another strong quarter with positive organic growth and a significant improvement in profitability. The business continues to benefit from a good momentum, particularly within the defense sector, where we have continued to win strategically important contracts. At the same time, we remain focused on broadening our customer base. Reducing dependency on individual clients creates a more balanced business and strengthen our resilience over time. In Sweden, market activity is gradually improving, and we managed to create a stronger pipeline than earlier during this year. While pricing pressure remains in certain segments, the overall trend is positive, and we believe Connectivity is well-positioned for continued profitable growth. Next slide, please. Moving to our management consultancy, Insight, reported sales of around SEK 235 million and an EBITDA margin of 3.7%, slightly below last year. Insight had a weak quarter reflecting continued cautious customers' behaviors and slow decision-making, particularly within traditional management consulting. This has resulted in lower utilization and profitability. Demand remains strong in areas such as ERP, cybersecurity, and defense, where we continue to invest in growth during the quarter. This quarter, we have actually also secured some strategically important ERP transition projects, strengthening our position in this area for the future. And I think it is worth noting that our business mix has changed significantly over the past few years. Since 2023, our traditional management consulting business has declined by 25%, that's a lot, while cybersecurity and defense business has grown quite a lot. In addition, ERP has become a new strategic offering that was not part of our portfolio at that time. So during this recession, we have been able, with tough results, to transit into new growth areas. We continue to adapt our cost base to current market conditions, while investing in capabilities needed to support further growth. Next slide, please. Moving to our newest business area, Products, reported sales of around SEK 100 million for the quarter. EBITDA margin was 10.4%. While Products deliver another strong quarter with solid organic growth driven by good performance, demand remains particularly strong within defense and security and mobility. During the quarter, we secured several important new contracts, which even further strengthens our pipeline. Profitability was somewhat impacted by delayed project start within bank and finance. But these are timing-related effects rather than a change in demand, and we continue to see good long-term opportunities. With that said, in just the last few days, we have secured another significant contract within the bank and finance area supporting this. Looking ahead, the journey of profitable growth continues for Products. Next slide, please. Over to you to elaborate a little bit on the financials, Marie.

Well, thank you, Per. We can take the next slide, please. Back to the group as a whole, we delivered sales of SEK 1.43 billion in the quarter, a decrease of 3.8% compared to last year. Excluding the effects of acquisitions and divestments, sales were down by 0.9%, while currency had a positive impact of approximately 2 percentage points during the quarter. The number of working hours did not have a material impact compared to last year, and the average number of employees during the quarter was down by 6%. This means that the underlying revenue development was supported by continued improvements in utilization despite lower capacity. The adjusted EBITA amounted to SEK 61.5 million, compared to SEK 54 million last year. The adjustment this quarter relates to SEK 38.5 million of costs associated with the CEO transition. The improvement in the underlying earnings was mainly driven by higher utilization together with continued operational efficiency improvements across the group. We do still experience pricing pressure, and it has not been possible to fully compensate for salary increases through higher billing rates. However, the continued improvement in utilization enabled us to increase the adjusted EBITA margin to 4.3%, compared to 3.6% last year. Next slide, please. This slide illustrates the development over the last couple of years. And as you can see, revenues declined as the market weakened during 2024 and into 2025. However, the trend has become much more stable over the last few quarters. In the second quarter of '26, the underlying revenue development was close to flat when adjusting for acquisitions and divestments, supported by improvements in utilization. On the profitability side, the picture is more encouraging. During the past year, we have focused on improving operational efficiency, increasing utilization and adapting our cost base to the market. Those actions are now clearly reflected in the quarterly adjusted EBITA, which has improved despite continued challenging market conditions. While the rolling 12 months adjusted EBITA is still below historical levels, it continues to reflect the weaker quarters from last year. Our ambition is to continue improving the underlying quarterly performance, which over time should also be reflected in the rolling 12-month figures. Moving on to our financial position. We currently have SEK 166 million of our committed credit facilities utilized. Knowit has total committed credit facilities of SEK 1,050 million, with maturities in '29 and '30. Other interest-bearing liabilities, mainly related to IFRS 16 lease liabilities, amount to SEK 531 million. As a result, total net debt amounts to SEK 528 million. This also illustrates that virtually all of our reported net debt relates to IFRS 16 lease liabilities rather than financial borrowings. Our net debt to EBITDA ratio is 1.1, which is well within our financial target of a maximum of 2. Excluding IFRS 16 lease liabilities, our net debt to EBITDA ratio is 0, highlighting the strength of our underlying balance sheet and financial position. Overall, we continue to maintain a healthy balance sheet with significant financial flexibility. I see that the slides are jumping a bit, but we can take the next slide now. All right. On our sales per client segment, it shows that we have a solid platform and a strong position as a digital transformation partner in the Nordic region. And having a broad customer base across industries continues to be a clear strength in today's market environment. The share of revenue from the public sector has increased to 42% compared to 37% last year. This is mainly driven by continued positive development in Norway and large framework agreements. Retail and industry remain relatively stable, somewhat decreased, but providing a solid foundation in the current market. At the same time, we continue to strengthen our position in areas where customer demand is strongest. And as Per mentioned, we see especially strong demand within AI, data, cloud, cybersecurity, defense, and we continue to invest there and build our capabilities. Last, but certainly not least, the defense sector continues to grow and now represents 6% of group revenues compared to 5% last year. We continue to see good opportunities within this strategically important market. Overall, our diversified customer portfolio provides resilience, and it also leaves us well-positioned as market conditions gradually improve. With that, I hand over to you, Per, and we can take the next slide, please.

Thank you, Marie. Well, to conclude, we made good progress during the quarter. We delivered improved adjusted profitability and margin. The operational measures implemented over the past years continue to deliver results. While we remain disciplined on cost and operational efficiency, our focus now gradually shifts towards profitable growth. During the quarter, we continue to invest in areas where we see the strongest long-term opportunities, including defense, AI, data, and cybersecurity. That's very important to continue to invest. The market remains mixed. Client activity is improving, and we see a healthy pipeline, but note that we have invested heavily in sales the last years in connection to that. With that said, decision processes are still slow. This affects Insight, where projects are shorter and more sensitive to delays. And finally, 1st of August marks the beginning of a new chapter for Knowit as Fredrik assumes the role as an acting CEO. For me, personally, this marks the end of an era. It has been a privilege to lead Knowit, and I'm really proud of everything that we have accomplished together during all of these years. I really have to say that I will leave the company in confidence that the team will continue to build on that foundation. I think that the next years will create really interesting opportunities. AI in combination with the end of the recession will create a lot of creativity, both within Knowit and especially connected to what our customers are aiming to do in the future. And with that, we are now open for questions.

[Operator Instructions] Our first question comes from Jesper Stugemo from Handelsbanken.

I hope you can hear me. I have a few questions. So if we could start with just Products, and I'm a bit more curious around it then. Could you give some more color on the use cases that you see, how generic the platform is, and how wide can it be deployed throughout the organization and your divisions, et cetera?

Well, within Products, we have around 7 or 8 different quite narrow segments of deliveries where we, as you know, since before, combine our own assets with consultancy. And that is -- that way of working is something that will continue to evolve, of course, during the years, connected to AI. For one example, the business case is really good for the future connected to that. The cost of creating that own asset, the cost of that is going down, and the need for personalization -- specific personalization towards different customers is increasing. So I think that more and more of our other business areas are looking into those possibilities of creating own assets. Maybe some of them will be as structured as we have in Products, and some of them will more be some sort of a small add-on.

All right. And on the product margin that is slightly down, I think this was mainly related to some project delays you were writing in the report. But do you expect this to be visible to come back already in Q3? Or could you say something around the magnitude of the delay?

Well, our thought is that -- at least if we look at the full year '26, it will be better than the full year '25. There are a lot of possibilities in the pipe when we are taking new contracts. But I think that we, and probably you as well, need to look at Products a little bit differently due to that it is quite big projects and long-term projects. So they will shift a little bit more. But long term, they will be more stable. So we are confident going into the autumn.

Yes. I guess to add to that, Per, just to say that we really see the potential in this business area to have higher margins to be maybe the highest in Knowit. And as Per, you're saying as well, we think that it will improve during the fall compared to the first half of the year in '26.

Okay. Great. That is clear. And how much was the restructuring in ERP capacity in the Insight segment in Q2 here? And is it expected to have an impact on H2 as well?

Well, we don't disclose details in restructuring cost. Of course, we have restructuring costs within the whole group in Q2, as we had the last year. And I think that if there is something significantly special, we will talk about it. Otherwise, we will just continue to restructure where it's needed. As we said, the traditional management consultancy is coming down and will probably continue to come down a little bit in the future, at least in H2, and we will continue to grow ERP and cybersecurity and defense. I think that, that trend will continue for a while. And I think that's really healthy.

And the difference in restructuring costs, it's not material in this quarter, and that's the reason why we did not mention it. There's no material difference compared to the same quarter last year.

That's fair. And looking at the public sector, it looks like it was some 5% growth year-on-year. Is this mainly related to Solutions? Or is it broad-based by regions? Or is it more tilted towards Sweden or Norway?

I didn't catch the part, did you say the revenue increase in the public sector?

Yes, exactly. It looks to be up 5% year-on-year.

Yes, I would say it's mainly driven from Norway and large frame agreement.