NNIT A/S ($NNIT)

At this time, I would like to welcome everyone to NNIT Investor Presentation for Q1 2026. Today's call is being recorded. [Operator Instructions] I'll now turn the call over to your speakers. You may now begin.

Thank you very much, operator. Please turn to the next slide. Good afternoon, and thank you for joining NNIT's webcast. My name is Lars Petersen, and I'm heading up the Communications Department at NNIT. With me today at the headquarter in Copenhagen, I have our newly appointed CEO, Claus Rydkjaer; and CFO, Carsten Ringius. In a minute, we will present the first quarter results for 2026 we released a couple of hours ago. Please turn to Slide 3. In the presentation, Claus will go through the key business highlights, and then Carsten will follow with the regional performance, group financial highlights and elaborate on the financial outlook, which we updated on May 7. But before heading into the next slide, please do pay attention to the disclaimer in the bottom of the slide. So let's turn to Slide 4, and Claus, please.

Thank you, Lars, and good afternoon, everybody. My name is Claus Rydkjaer, and I am, as mentioned, the CEO of NNIT. First of all, I just want to mention that I'm very pleased to have joined NNIT, where I see my experience from the consultancy industry match very well with the aspirations of the company. I had my first day on April 7. And since then, I've spent a lot of time meeting the people and establishing a deep understanding of the organization. And so far, I've been -- I've had a very good and positive impression of our people. They're highly skilled, motivated and very engaged across functions, regions and departments. Based on the first quarter results, which we will go into in more details later, it's clear that we need to act to change the current trajectory. We need to restore growth and lift profitability while we're launching initiatives to support top line development. Together with the leadership team, we are assessing our operating model and what our value proposition is towards our customers to ultimately increase the impact of our sales efforts. My priorities for the rest of the year are to return to profitable growth. We're currently leaving no stone unturned, meaning that we are applying a holistic and analytical mindset on how we are going to take action to break current momentum. We're also sharpening our strategic focus and what our service offering should be in the short term as well as in the long term. With all due respect to the complexity of the company, this analysis phase will not be done overnight. We need to conduct an exhaustive analysis to ensure we make the right choices, and we owe that both to our employees and our owners. The conclusions and actions that will come out of this effort will also enable us to strengthen our go-to-market approach. And I will assure you that you will hear much more about this later in the year. Please turn to Slide 5 for the group figures for the first quarter. We expected the first quarter results to be modest. However, the financial performance was below initial expectations, reflecting geopolitical turmoil and sustained customer caution impacting worse than planned. Revenue came in at DKK 422.5 million, equal to a reported revenue growth of minus 9% and constant currency revenue growth of minus 7.3%. The lower revenue generation had a material impact on group EBIT, excluding special items, ending at DKK 1.1 million, corresponding to a margin of 0.3%. Clearly, we are not satisfied with the results while we are taking action to improve. Please turn to the next slide. Last week, on May 7, we updated our financial outlook for 2026. Beyond the first quarter financial performance, the order entry did not materialize as planned, meaning the backlog for the rest of the year is not looking as strong as we had expected. Therefore, we updated our constant currency revenue growth outlook from previously 0% to 5% to now being single-digit negative. Despite cost savings materializing as planned, we continue to scrutinize the cost base to partly offset some of the revenue shortfall to protect profitability. However, the group EBIT margin, excluding special items, has been updated from 6% to 9% to 4% to 7%, reflecting the lower revenue outlook. Special items have changed from significantly below last year's level of DKK 83 million to below last year's level of DKK 83 million. Carsten will share some more details on the outlook later in the presentation. Please turn to Slide 7. Let me begin by saying that we have some strong building blocks to leverage at NNIT. Firstly, we are well represented with big pharma having 19 of the 20 largest companies as customers in our portfolio. Secondly, existing customers stay as customers with NNIT for long periods due to high quality of project deliverables. And lastly, our customer satisfaction is high with a score of 4.6 out of 5, which truly underpins the customer loyalty. As a company, we need to leverage these building blocks to restore growth. To further support those building blocks, we have launched two AI platforms during the first quarter. We launched the AI-enabled software delivery framework named Lumina. And Lumina is a scalable platform positioned for deployment across the Public sector and life science. The second platform, Alera, is the name of our validated AI platform for regulated collaboration. It addresses the growing gap between rapid AI adoption and strict regulatory requirements across highly regulated industries such as life sciences, finance and the Public segment as well. We've received very good feedback from customers validating the proof of concept and the focus is now to market and scale the AI platforms to a broader number of existing customers and potential customers. During Q1, we've continued to improve the operational metrics such as utilization and we've progressed well on the cost-reducing initiatives. The efficiency gains and uplift seen in Q1 were insufficient to offset the impact of the significant revenue decline on profitability. As mentioned earlier in the presentation, we are leaving no stone unturned. Our focus is to launch initiatives around our sales effort to improve the top line in the short term. And to support profitability, we're taking out cost and capacity to align with the current market demand. We expect positive impact from the initiatives towards the second half of the year. We're also taking the next steps in terms of assessing our operating model, how we go to market and ultimately revisiting and sharpening our strategic focus. The analysis phase is currently ongoing. Please turn to the next slide. Now I will hand over to Carsten for the next section. Carsten, please.

Thank you, Claus, and good afternoon. Please turn to Slide 9 for an update on our life science regions. The life science industry has been affected by the broader slowdown we have seen in the past quarters. This leads to customer hesitation impacting project scope and size and has weakened the Q1 order intake. In Region Europe, the financial performance was below expectation. In constant currency, revenue declined 15.3%, heavily impacted by aforementioned customer hesitation. On a more positive note, the region has continued to expand its presence to the lower-tier segments as strategically outlined last year. Moreover, we have started to see traction with our AI offerings where we signed a larger contract with a mid-tier global pharma company. The regional EBIT decline compared with the same period last year, driven by the revenue decline. This was partially offset by the materialization of cost savings and capacity adjustments. Region U.S. had a very challenging quarter on the back of the unexpected -- slowdown that occurred in Q4 last year. The slowdown affected the backlog entering the year, resulting in a constant currency growth of minus 15.8%. Despite the slowdown, U.S. has closed several small- to medium-sized contracts. However, some larger projects continue to be delayed. From a commercial perspective, U.S. has been part of the National Drug Code 12 Pilot Program now progressing into its second phase. We believe that the NDC-12 is an interesting business opportunity. However, it is too early to conclude on the revenue potential. U.S. profitability materially declined compared with last year due to the contraction in revenue and fewer closed deals within the supply chain area where IP revenue can be recognized by signing. We are unpleased with the financial development in U.S. for the first quarter, but we do see and expect to see a gradual improvement through the coming quarters based on the pipeline bringing U.S. back to previous levels. In the first quarter, Region Asia was significantly impacted by the decline in revenue from an existing large Tier 1 customer that was not possible to offset from new contract signings. As a result, the constant currency growth was minus 7.8%. The macroeconomic situation in China continues to be impacted by the trade policy conflicts. However, Region Asia has continued to expand its customer base towards local companies during the quarter. The region's EBIT margin declined year-over-year due to the lower revenue. But on cost savings materializing as planned, Region Asia has continued to reduce its cost base by merging two business areas to leverage commercial and cost synergies. Please turn to the next slide where I'll go through Public DK and SCALES. In connection with the release of our annual report for 2025, it was announced that we would report on Public DK and SCALES separately instead of one region, known as the former Region DK. On 24th of April, we released the restatement of the former Region DK. The Public DK segment delivered solid growth of 4.8% in Q1, mainly driven by existing contracts from 2025. Two of the larger contracts that we won in Q4 last year, we have ramped up and started to deliver on the projects. These contracts are with the Danish Health Data Authority. In Danish, it is Sundhedsdatastyrelsen and with the Danish Agency for IT and Learning, also known as Styrelsen for It og Læring. In Q1, the order entry has been lower than normal, mainly due to the Danish general election taking place in March, affecting decision-making on tenders. As mentioned on the previous slide, we launched our AI framework Lumina, which has been demoted to a number of customers with strong feedback, and we believe that we have a role to play with Lumina going forward. Revenue increase, operational efficiency gains and cost savings materializing positively contributed to the regional EBIT margin that increased compared with the same period last year. SCALES has continued its growth momentum into Q1, delivering constant currency growth of 10.8%. The growth has mainly been driven by the backlog from last year. SCALES won two large contracts in Q1, which will start to have impact on revenue in 2026 going into 2027 as well. During the quarter, SCALES has also integrated the former Microsoft service offering team from the former Region DK to drive a stronger and more coherent offering towards our customers. Even though the margin development was flat compared with same period last year, SCALES continued to have a very solid profitability with a regional EBIT margin of around 25-plus percent. Please turn to the next slide. The first quarter results were below our initial expectations. Of course, we are not satisfied with the performance on both revenue and profitability. Revenue amounted to DKK 422.5 million, resulting in a 9% negative reported revenue growth compared with the same quarter last year. The constant currency growth was minus 7.3%. Operational efficiency gains, capacity adjustments and materialization of cost-saving initiatives could not offset the revenue decline. The group EBIT, excluding special items, ended at DKK 1.1 million, equal to a margin of 0.3%. Special items amounted to DKK 8.3 million, which was significantly lower than last year. The amount is fully related to restructuring costs. This lower cost than last year is driven by lower earn-out payments in 2026, finalization of new IT platforms and integration and lower restructuring costs. Free cash flow was DKK 41 million for the first quarter, which was DKK 114 million better than last year. This is mainly due to a lower cost base, improvement in days sales of outstanding and that we have completed earn-out payments related to prior acquisitions. Turn to the next slide, please. Last week, we updated our financial outlook for 2026. The background for adjusting the constant currency revenue growth outlook was due to the worse financial performance in Q1 than initially expected and due to lower order entry negatively impacting the rest of the year. As Claus alluded to, we are initiating short-term levers to regain growth momentum. However, the impact from those is expected to be towards the second half of the year. Group EBIT margin, excluding special items, was adjusted due to the constant currency growth update. However, we do expect to offset some of the lower revenue through further cost savings and capacity adjustments. Special items was updated to reflect a potential need for more structural changes and costs related to capacity adjustments. In the updated financial outlook, the market unrest is assumed not to further deteriorate and no M&A activity has been assumed. Please turn to the next slide. Now I'll hand it back to Claus for some closing remarks. Claus?

Thanks, Carsten. And please turn to the next slide for my closing remarks. At NNIT, we do have some strong building blocks to leverage. We are very well represented with the 19 of the 20 largest pharma companies being our customers. Customers stay with us for long periods and the customer satisfaction is high. Furthermore, we've launched our AI platforms, Lumina and Alera to accelerate our AI journey. With these two offerings, we believe we have a role to play in this space, and we are now focusing on scaling. Based on the current financial performance and the trajectory of the past quarters, we must act. We are launching initiatives to restore growth and to reduce our full cost base to lift profitability. This will not have an impact overnight, but we expect to see positive implications during the second half of 2026. We're also sharpening our strategic focus where we are assessing our operating model, go-to-market approach, value proposition and service offerings towards our customers, amongst others. We will include you in our findings along the way. Lastly, we adjusted our financial outlook, which we communicated on May 7. Despite a year with negative constant currency growth, we expect to reach a margin in the same area as last year. This concludes the Q1 2026 presentation for today. Now we will open the line and take your questions. Operator, please turn to the next slide and open for questions.

[Operator Instructions] And the first question will be from the line of Yiwei from SEB.

I have three questions for now, do one at a time. Firstly, when we're looking at your regional performance, I mean, I realize that some of your large peers, international peers claim that their Life Science segment was a positive growth contributor in Q1, but you are experiencing double-digit decline here. So what are the market dynamics? And do you think you have lost some of the business to the large players? That's my first question.

Well, thank you for the question, Yiwei. As you know, we have different customer bases if you compare Region Europe with Region U.S. And if you look at our region Europe, we believe that we are, you can say, having a strong foothold with our Tier 1 customers. And as you also know, we have strategically launched last year a dedicated focus towards Tier 2 and Tier 3 customers. We do believe that we have a significant potential with the Tier 2 and 3 customers that we still need to expand our footprint with. But with our Tier 1 customers, we experienced that we see some hesitation in proceeding with the projects that we are engaged with. As you know, we are not a full service life science provider. We are a niche player, and we are experiences within the areas that we normally do projects in that we see some hesitation leading to this revenue shortfall, especially if you also look at our highest business, where we have impacts of the tariff decisions in the U.S. causing some of our customers, specifically in Ireland to consider moving, for example, to the U.S. So I think you cannot -- you can say, weigh NNIT against the general growth trajectory in the Life Science business, but really look at how we are positioned towards the specific customers. In U.S., what is impacting us specifically in Q1 is the lower signings of business with industrialization business, which is coming with a relatively high profitability, thereby impacting both the top line and specifically the profitability in Q1. And we see that merely as postponements and not linked to some overall declining trend within this business area. So it is more of a mixed picture than what we see you describing there.

Okay. And then can I just follow up here? Maybe looking at your service offerings, do you see any a conventional business are at risk because of the Agentic AI? And have you seen any customers switching to the AI solutions that you are not engaged with today?

I think if we look at it from a short-term perspective, then we are not seeing an immediate threat in the short term as a result of customers moving to AI solutions taking away our work. However, I do strongly believe that when we look at the longer term we really need to continue to build on top of our current AI platforms to have a strong response as AI becomes more dominant also in our areas of expertise. I think in the short to medium term, what we are really zooming in on when we look into our offerings portfolio is to make sure that as we see an increased need for specialist capabilities, we want to sharpen our capabilities within our the niche fields of play in a stronger way compared to what we've done in the past. So this is where we will focus going forward. So you could argue that we will have a dual focus. In the short term, it's really about strengthening our capabilities further in the niches in which we play. And on the mid- to long term is really making sure that we have strong AI responses as AI becomes even more dominant in our field of work.

And then my last question here, and then I'll jump into the queue. Some of your peers are also talking about the benefits from AI where they could do automation in the corporate function, the back office. And where are you in that journey? And do you also have some initiatives here?

Yes. So as you're aware, I joined roughly four, five weeks ago. And one of the things that we're pushing forward now is a deep analysis of how we also leverage AI, not just for customer-facing purposes, but also how can we go even further in leveraging AI internally, both as an enabler of our internal functions and to drive efficiencies there, but really also in the way that we work on a daily basis and how we deliver our services. So AI will impact our business in multiple ways. And as a tool to further automate our internal work is definitely high on the agenda.

The next question will be from the line of Poul Jessen from Danske Bank.

I also have two questions. Just reflecting on the last answer you had. When you say you have to internally drive efficiencies and deliver models on AI -- as you see it NNIT being behind the curve and not be as forward-looking as we should have assumed that the company would be in this industry?

No, no. We believe that we are actually very well positioned and have been working with AI for several years to be able to leverage this both into our -- you can say, in our production, but also in our enabling functions. So we don't believe that we are behind the curve, actually, not at all.

So it's more acceleration?

Sorry, Poul, could you repeat?

So it's more an acceleration of what you're already doing?

Yes, yes, exactly. We are scaling up. We see still modest, you can say, revenue generation from AI towards our customers, but it is really now scaling, and we are putting massive efforts into scaling it extensively over the coming quarters and also internally expand the use of AI. Just to mention a few examples, we have replaced the IT internal helpdesk with AI supported guidance, thereby also saving you can say, external costs, for example, in an area like this, and we're currently applying Agentic AI across different functions. We have also established a center of excellence internally focusing on the supporting functions to put AI into operational tasks to leverage that technology to save cost.

Okay. Then to Claus, you said that point one is to restore growth. You also said that actions has been taken already. Can you just give some examples of what actually has already been changed to drive growth?

Yes. What -- as I have come in we're working with what I would call a Horizon 1 and Horizon 2 perspective. The Horizon 1 is really to identify the immediate and short-term actions that we can execute already basically where we've already started now. And Horizon 2 is more related to the analysis work where we're turning every stone to really understand how we can ensure the right setup of NNIT going forward. If we look at the short-term actions, what we are doing is that we have implemented on the CRM side of our company, a more detailed and disciplined follow-up of the full pipeline to give us much more clarity on how quickly the pipeline moves from stage to stage, enabling a much more detailed follow-up with the regions. And that's one example. Another example is that then from my seat I'm now doing weekly follow-ups on pipeline and all variations to plan with each of the individual regions. So we are getting, I would say, much stricter governance applied across the organization. In addition to that, we also have a number of concrete activities in the sales area that we're pushing out where we're looking into upselling, cross-selling potential on top accounts, both across the Life Science business and the Public business. We're looking into contracts that are not meeting the margin ambitions and then laying out the individual strategies for each of these contracts. So it's a relatively wide array of very short-term operational actions that we are basically implementing immediately. And then with the longer -- a slightly longer effort to really analyze the organization in depth running in parallel. So we hopefully already by the summer holiday, we will be able to also communicate to the organization more details about where we go from here and with an ambition to really provide much more clarity when we get to the second half of the year, closer to the beginning of Q4.

So when should we expect a comment or an outcome of that analysis? Is that the Q2 results in August or when you announce it in February?

I think you should expect something in Q4, something very, you can say, more details, but already a direction in -- after the summer vacation.

Okay. The last one for now is on the guidance. If I take your high-low on the guidance, I assume that, let's say, SCALES continues at the rate you had in the first quarter and a little more and you had Public Denmark at some 4% to 5% growth. Then implicitly you are guiding some 10% to 20% decline in Life Science, where you had 14% or so in constant currency in Q1. Does that mean that the guidance you have given by now does not assume a material impact of the initiatives?

Well, I can – I cannot confirm you can say that it's minus 20%. But the initiatives that we are launching here on the very short-term basis, as Claus alluded to, is both initiatives to take out cost, of course, to safeguard our margin, but also upselling on existing accounts. So it is something that will both, you can say, short term, fill some of the pipeline gaps that we have seen coming from Q1 with the lower-than-expected order entry, but also long term, as we have more, you can say, structural changes to our go-to-market approach build more pipeline later in the year. But on the short basis, it's both cost and short-term revenue get those activities we are looking into on existing accounts. And then as mentioned, I think the more detailed plan for returning to long-term growth is something that we will share after the summer.

[Operator Instructions] And we have a question from Poul Jessen from Danske Bank.

I have a few one. I think, Carsten, on the full year numbers, you guided a very soft first quarter you had. But you also guided that -- or indicated that the Public sector should see a ramp-up on deliveries from the contracts you won last year, accelerating in the second quarter. Should we see a higher growth rate for the rest of the year in the Public sector than what we saw in the first quarter?

No, we're not delivering specific guidance on the regions, but we -- you are correct. We are expecting some improvement in the Public sector from these larger contracts that are now live in Q2. So it is something that will increase our revenue and growth going forward within Public.

Okay. And there has been no talk whatsoever about SCALES looking forward or [any initiatives] today. Can you give any, if you want, update on where you are in the strategic review or when we should see a conclusion on it?

Well, strategic review, we have so far, you can say, changed our external segmentation in how we report. I think most, you can say, people following NNIT also look at the stand-alone annual report for SCALES and have an idea about how they have been performing. What we have done now is make a more transparent reporting for SCALES, including moving the Microsoft offerings we had in region Denmark to SCALES to allow them also to establish a broader offering towards the customers once that they have completed implementation. So the idea with this is really to also enable SCALES getting a larger proportion of recurring revenue in their business. So that is still the plan to win large implementation projects and then extend the offerings of what has been transferred from Region Denmark, thereby fueling further growth.

And then a final one. Can you explain what's going on in the SCALES numbers that if you take the public numbers with the report for '25, then if we assume a flat gross margin, then they should have had growth in 10%-15%. And when you consolidate and you report SCALES as private growth last year of 27%, more or less double than what the indications in the SCALES report were. And then this year, you're back to the growth where SCALES has been more or less for a number of years. Anything I missed on why you were close to 30% last year and that deviates significantly from the recorded SCALES [indiscernible]

Yes, that is a very good question, Poul. But it is really because what you see here is the consolidated SCALES reporting numbers. And here, we have to take out internal revenue. And as you maybe recall, SCALES had a big implementation in NNIT, where they rolled out a global ERP solution across the full NNIT business. So in this reporting, we eliminate, you can say that internal revenue, but you will see that as external revenue in the stand-alone SCALES reporting.

Okay. I think it should be the other way around on where the growth would be highest. We can take that later on. But thank you for now. Thank you.

As we have no further questions in the queue, I'll hand it back to the speakers for any closing remarks.

Thank you for the questions and for attending and listening in. And please do not hesitate to reach out to Carsten or me if you have further questions. And with that, I want to wish you all a good evening.