Nepa AB (publ) (NEPA) Earnings Call Transcript & Summary

Welcome to Nepa Q2 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Anders Dahl. Please go ahead.

Good morning, all of you, and welcome to our Q2 2026 report. I am Anders Dahl. I'm the CEO of Nepa. Joining me on this call today is Edvard Hagman, who is our VP of Finance. The agenda for today is that we're going to give you a short update about who we are. We're going to walk you through the Q2 results and the commercial progress. Edvard is going to give you a walk-through of the financials, and then we're going to say some words about the acceleration phase progress and priorities. We're going to talk a little bit about our products and our AI implementations that we have been working with for quite some time and also give you a summary of our outlook and priorities. And then, of course, as always, I hope that you send in questions for the Q&A towards the end of this call. Nepa is a leading -- we are the leading marketing intelligence company, and we help global brands to make better marketing and growth decisions. We turn marketing data into actionable growth decisions and insights. We track the brand health of close to 7 -- or more than 7,500 brands daily, and we measure thousands of advertising campaigns annually across 50-plus markets. We deliver insights to insights departments, CMOs, marketing teams mostly on global consumer brands across the world, so we serve more or less like the entire globe. Our core offerings combines Brand Tracking, Campaign Evaluation and Marketing Mix Modeling, supported by advisory services, high-end white-glove services to our clients. We combine continuous survey data based on real people examples and on our interviews. We combine that with business data and we analyze marketing investments with technology and expertise to deliver recurring and project-based insights. We are a global marketing intelligence platform that combines data, technology and advisory in a modern way. We have a strong presence in Northern Europe, commercial teams in the U.K. and U.S., and we have our operations center based in Mumbai, India. As you have seen from the previous quarterly reports, we have been growing our recurring revenue base, and we are also complementing that with project-based insights. As you've seen from the last 12 months, more than 60% of our revenue comes from subscriptions. Brand Tracking is the largest platform, the largest product we have. And we've also launched a couple of years ago now the continuous Marketing Mix Modeling platform, and we do ad tracking on an ongoing basis. We also do consumer experience tracking, and we also, in some cases, deliver recurring data deliveries to our clients. Our ad hoc projects are mainly driven by Campaign Evaluation and Campaign Pulse, which is the largest product in that category, and this stands for -- in all the other projects stands for close to 40% of our last 12 months revenue. Marketing Mix Modeling is also served as an ad hoc project even if more and more clients are looking for a continuous Marketing Mix Modeling to be able to use that in an ongoing basis to pace and to work with their marketing investments and match that towards the ongoing reality that goes on outside of the company. We also have brand touch, brand assets and category insights as ad hoc projects that we serve our clients and other key marketing insight products, although the main focus is to continue to grow the subscription and the annual recurring revenue base in order to build a sustainable long-term business. And that is also what we see in the market, the biggest demand from our clients when they see an understanding of combined Brand Tracking with Performance Marketing. Q2 came in with a strong recurring growth and improved results. And on the continued growth in the recurring business, we see that ARR increased by 16.4% year-on-year to SEK 140.9 million. The underlying subscription revenue increased by 14%. And net revenue retention, i.e., we maintained our clients on a very strong base and churn declined also during the quarter. On the commercial development side, we see that ARR bookings came in at SEK 6.6 million compared to SEK 10.5 million for the previous -- for the quarter of last year, the same comparable quarter. And that was a very strong prior year quarter that included one large contract that drove those numbers in that. Q1 came on the other side in stronger than Q1 of last year. Total sales bookings declined by 12.5%, and that is mainly driven by the volatility in the market. The booking shortfall was concentrated in May, with fewer signed contracts that limited -- of course, limiting to some extent the revenue growth. And ad hoc demand remained volatile and continue to affect reported net sales and quarterly earnings. And that is mainly driven by uncertainties in the market. And we see that in many of those cases, we don't have kind of a no to those projects that are still in the pipeline, but there are some -- have been some delays or moved out some of those ad hoc projects due to later this year or maybe even in some cases in the next fiscal year. The hard work we have done and some of the kind of goals we set up more than a year ago to close to 2 years now to improve our earnings and cash flow. And one of those things is, of course, to have a cost base that is manageable based on our revenues. So you can see that clearly in the adjusted EBITDA minus CapEx improved by SEK 3.5 million to minus SEK 1.7 million from minus SEK 5.2 million. Gross margin increased by 3.2 percentage points. And the operating cash flow was positive for the quarter of SEK 1.2 million. Some corporate events, the AGM reelected the Chairman, Dan Foreman, and other Board members, but Eric Gustavsson declined reelection so he's not part of the Board anymore. And CTO, Jakob Kofoed, left to pursue new opportunities during the quarter. So overall, a strong quarter that really shows a proof of the strategy that we laid out now, I think, 1.5 to 2 years ago with a strong focus on recurring revenues, ARR and also cost control or a strong cost base and also a much simplified operating business model. The ARR growth shows very clearly in this picture from Q2 2025 up until now that we have had a strong growth and a larger and better retained ARR base. And you also see that in the yearly ARR bookings that on the last 12 months, we are keeping the same pace as we did for the fiscal year 2025. But you also see the volatility in the quarterly ARR bookings on the slides right -- lower left, lower part that it goes up and down. And in this case, they're very much dependent on one large contract. So I'm happy with the development on the ARR growth. But of course, we would like to build this ARR base to a larger part of our ongoing business in order to be able to mitigate for the volatility in our ad hoc business that is much more sensitive to macroeconomic impact. On the next slide, it shows that the ARR growth is increasingly translating into underlying subscription. And there is, of course, a certain delay. And when we sign an ARR contract, it takes some time before it shows up fully in our subscription revenues. So we continue to build this, will create a much more sustainable and predictable financial model of the business for us as a company. And also from a client perspective, I think being a part of the client's ongoing business, and I will talk a little bit more about that towards the end of this presentation, gives a much more valid position for us in our relationships with our clients. So with that said, I will hand over to Edvard to dig a little bit deeper into the financials. Edvard?

Thank you, Anders. So I will first walk you through the financial progress during our acceleration phase that we have started. So the first point is the shift towards scalable recurring revenue and ARR increased by 16.4% year-on-year during the quarter. And here, it's important to say that the extraordinary churn and contract phaseout from late 2024 and early 2025 have now passed through the comparable ARR base. So the reported and the underlying ARR growth figures are therefore aligned again, which we are very happy with. And Q2 is also the final quarter in which we present underlying revenue growth separately. So from next quarter, it will be reported only. The second point is our structurally lower cost base. Operating expenses adjusted for items affecting comparability declined by approximately 14% year-on-year in the first half of the year and the cost programs completed during last year 2025 are now fully reflected in the cost base and numbers. And at the same time, we have retained capacity to support growth. Our priority is, therefore, to scale revenue approximately within the existing cost base rather than initiate further cost reductions. And this combination of recurring growth and the lower cost base is translating into improved margins and earnings. The gross margin in the quarter increased to 75.9% from 72.7% last year, and this was supported by improved project profitability, better data quality management that we have been working with over the past years and a refined supplier strategy. Adjusted EBITDA less CapEx improved by SEK 3.5 million year-on-year in the quarter. And looking at the rolling 12-month period, adjusted EBITDA less CapEx was positive at SEK 5.8 million. And this is a significant improvement compared with the negative rolling 12-month result reported a year ago. The lower chart also illustrates the remaining quarterly volatility. We delivered positive adjusted EBITDA less CapEx in Q3 and Q4 of 2025 and in Q1 2026, while Q2 now was a negative minus SEK 1.7 million. And this mainly reflects the timing and size of some ad hoc projects and sales of ad hoc projects rather than a change in the underlying recurring revenue trajectory. Our immediate priority is therefore commercial conversion. We need to convert client interest into both recurring contracts and ad hoc projects faster and more consistently. And that is the key step in translating our stronger recurring revenue base and lower cost structure into sustained profitability. So let me now also walk you through the Q2 profit and loss in more detail. Subscription revenue was SEK 34 million, up 14% on an underlying basis, but down 4.2% as reported. And this is a difference between the phased-out contracts and extraordinary churn that we saw in -- was included in the comparative base last year. Ad hoc revenue from subscribers were broadly stable at SEK 12 million and corresponding to an underlying growth of 0.4%. And ad hoc revenue from other clients declined by 4% to SEK 6.8 million. And as a result, total net sales came in at SEK 52.7 million. This represents underlying growth of 7.8% and a reported decline of 3.8%. And the underlying figure better reflects the development of the current business after excluding this legacy contract phaseout and extraordinary churn. But as I said earlier, this will be the last quarter that we present the underlying figures. Gross margin improved by 3.2 percentage points to 75.9%. And turning to operating costs, we have adjusted the OpEx. It declined by approximately 6% in the quarter. Personnel costs were down 12.8% year-on-year and external -- other external costs declined by 32.3%. And part of this reduction was due to items affecting comparability in 2025 during the cost saving programs, and part of it was offset by FX-related items within operating -- other operating costs this quarter that had an unfavorable movement. Depreciation and amortization amounted to SEK 3.2 million, and this is a noncash expense, primarily relating to historical investments in product development. And the current product development expenditure is recognized as an expense as incurred on the P&L, meaning that we are not building up a new capitalized development asset on the balance sheet. Adjusted EBITDA less CapEx improved by SEK 3.5 million to minus SEK 1.7 million from minus SEK 5.2 million. And cash generation also improved. Net cash flow was positive at SEK 1.1 million in the quarter, a significant improvement from minus SEK 18.9 million in Q2 last year, which also included a dividend payment of SEK 9.7 million. And the net cash position at the end of June was SEK 17.3 million. And in addition to that, on the balance sheet, we had an undrawn credit facility of total SEK 20 million. So overall, the quarter shows clear progress in underlying recurring growth, gross margin and cost efficiency and the remaining challenge is to improve commercial conversion and reduce the quarterly earnings volatility caused by the timing and size of ad hoc projects. I will now hand over back to Anders to talk more about product development and our AI initiatives.

Great. This is -- this underlying changes of our tracking platform is definitely one of the key components to being much more lean and standardized and scalable. So we are rolling this out in a successful way internally, still not fully facing on the client side. But it will definitely simplify the technology stack and standardize delivery and improve scalability in a very clear way. And it's also a much more consistent way of delivering not only tracking, but other products. Things that have been released already during this phase of our migration, of course, is new dashboards, new features. So there are a lot of things that are already facing clients in a very positive way. So I think normally, we talk about new business and sales and branding, but I would like to give a very big applause to our product team and our tech team that are doing a great job and our operations team that are seeing all those possibilities to improve the client experience. This will also give us a much better platform to integrate our Trinity offering to combine Brand Tracking, Campaign Evaluation and Marketing Mix Modeling in one unified platform. That is the new standard for delivering marketing insights to the market and will be. And it definitely links brand creative and media investments to commercial outcomes. And we will build the bridge between brand and performance in a way that we have seen so far when we present this to clients is a new way, and it is a very impressive way. We have since 1.5, 2 years, used AI in different steps of our way of automating data collection, automating parts of our work of crunching the data in quality management and in reporting. And we will continue to develop that, but also invisible features to our clients, so they will be able to use AI and agents in their work of exploring the data and working with the data. That will definitely free specialist capacity within Nepa to be a little bit deeper into advisory and client-facing work. We already launched advanced Marketing Mix Modeling through machine learning and automation, and we can see that in real client cases that will impact ROI on those clients' investments. And we just launched, I think, a couple of weeks ago in Amsterdam, a creative AI tool that is used to -- that have already shown the potential for a 40% reduction in cost per acquisition for a named client, and you can read more about that on LinkedIn in our material. So that is a product that we're going to roll out across the board during the fall. All this is based, of course, on the demand in the market. We know that marketers struggle to connect data in regards to brand building and performance. We know that more than 70% of the market has struggled to prove the ROI to have a very clear financial language to talk internally to their internal stakeholders. We will help them in that. We know that close to 70% of the market struggle to balance performance and performance marketing and creative marketing and brand building. We help with our Trinity offer to build a bridge between those sides in the marketing toolbox. We know that more than 60% of marketers struggle to make sense of the data and use it to inform their marketing decisions. And that is also a new take we have taken with our clients. So of course, we have our own survey-based data. We have our own methods and models, but we also use client data and macroeconomic data to help to kind of paint the whole picture of their investments and how to use those investments in a much better way. So combining Brand Tracking, Marketing Mix Modeling and Campaign Evaluation, we have created what we call the Trinity offer to our clients. And this is the picture that I ended with last time. And this picture makes me really excited because this shows that our traditional marketing insight tools, combine them with the business data points from our clients, combine that with our platforms and our products, we do -- we have the opportunity to talk to the clients in a totally new way to not just be a nice-to-have tool that they can present and use once, 2, 3 times during the year, this can be an ongoing platform that clients can use in their ongoing marketing work internally in their businesses. And this will also broaden our network within the clients' organization. But traditionally, they talk to insights, to development and insights managers with a Trinity way of looking at their marketing data, our marketing or our products. We can talk to much more stakeholders within the company, within the client company. We can also bridge, like I said before, between brand and performance, long- and short-term marketing investments. So this is really the underlying engine to create kind of the growth that we are aiming to accomplish within Nepa. So with the outlook and priorities for the next upcoming 6 to 12 months, we enter H2 in 2026 with a strong position in H1 with a growing recurring revenue base, and net revenue retention looks good. And we, of course, continue to work with our clients to make sure that they stay with a good gross margin of above 75%, which also is a good kind of core component in our P&L. Of course, one goal is to sustain recurring growth and to maintain a positive ARR momentum and growth and, of course, deepen our relationship with our priority clients. And that goes kind of both ways. With a strong ARR bookings, strong ARR momentum, we do have the presence with our clients, and it makes it easier for us to kind of show the evidence that we need to stay with the clients, not for just one campaign or one ad hoc project, we need to stay with them for longer time. Like Edvard said before, one other focus that we have been working with for quite some time now is, of course, improved commercial conversion, professionalize the way that we go to market, build our brand, work with sales, conversion, et cetera. And that is, of course, to convert clients' interest into recurring contracts. So we're very focused on that. And drive operating leverage, of course, components are to keep control of the cost, but also to build this new technical platform and launch bits and pieces to be able to move from just operating tech into client tech. Scale Trinity and AI, that's #1 priority for us in all our client discussions. And that is, of course, to accelerate the tracking platform rollouts, which we are on a good way to do. But also to integrate decision tools, like I said before, that we've already to some extent launched in new dashboards, but to continue to develop that and show that for our clients and maintain resilience that ad hoc demand remains sensitive. So with a strong ARR base, to make us less sensitive to the ad hoc volatility in the market and also, to some extent, the macroeconomic uncertainty in some of those decisions. So with that said and with that summary, I would like to say that we have ended the quarter in a good way. We are going into the fall with all these kind of priorities and ambitions. And I'm looking forward to the next phase of this discussion to answer the questions that are coming in. So please come in with questions, and we will be back in a couple of minutes.

[Operator Instructions] There are no phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

So we have received some questions in the chat that I will read out loud so we can take it question by question. So first one, have there been any new signed cMMM bookings in Q2?

Yes, there has been.

Next one. You've had 3 consecutive quarters with NRR above 100%, and these levels are in line with 2021 to 2023. Should we view the current net revenue retention numbers as normal? Or what do we expect without major churn going forward?

We have seen quite low churn, and that is, of course, to some extent or to a large extent, driven by a lot of good work on our side. But then you also go into those cycles where there are RFPs out in the market. And we do -- we have seen some RFPs coming in over the summer and into the fall. So that will, of course, be -- which is good. But there's also, of course, there's also a good chance to win some of those and to lose some of them. So I wouldn't say that we have a new normal, but I would say that the process of working with mitigated churn is fundamentally much stronger now than it has been before. But there is always this kind of RFP movement going on in the market. So it's hard to say, well, it is the new normal. But of course, we would like the new normal to be in these levels.

Has the departure of your VP of Sales affected the Q2 bookings?

No, I can't say that, that is. That's a hard question to answer because what's the chicken and what's the egg? Of course, is it market movement? Or is it just 1 person or 2 persons? I think what we are aiming for now, and we have been aiming for that for the last, say, 8 to 12 months is to recruit -- have an ongoing recruitment of new business team member and salespeople all along the way. So I think we would like to even increase that a little bit more during the next upcoming 6 to 12 months to invest a little bit more in having a bit of a kind of I would like -- I wouldn't say overstaffed, but a little bit more people in our sales and new business department to be able to kind of handle churn and changes in that market, but also to be able to handle leads coming in and the market opportunities that we see in the market. So I wouldn't say that we see a direct impact of departure of VP of Sales in the Q2 bookings now.

Have you had enough sales capacity in Q2 to handle all inbound requests?

Yes.

How should we view the departure of your CTO and VP of Sales? Are departures like this cost savings in the short term? Or does the recruitment process cost as much as the salary?

I wouldn't say that anyone -- always when someone resigns or we do see changes in the position, there is an underlying ongoing discussion in the organization all the time. How can we do better? How can we improve? So every time things like this happen, even before these things happen, we've worked with organizations to see how we can improve. So at this point, we have such a strong team in product and tech. So we don't have a recruitment process ongoing right now for a new CTO, for example, because we see that we have been handling that in a good way. But we are hiring other positions within those departments. So I wouldn't say this is just a cost saving. It's more of a reflection of how can we do things in a different way. How can we empower people within the organization? And how can we hire maybe a different type of talent in the future? So that's an ongoing improvement process that reflects our way of kind of handling those if there is a resignation, for example.

Just a clarifying question here. You're currently hiring a VP of Sales. Does that mean that the VP of Sales who started in June has left Nepa already? Or is it a different role you're hiring for?