Spir Group ASA (SPIR.OL) Q2 FY2025 Earnings Call Transcript & Summary

Welcome to the presentation of the second quarter 2025 for Spir Group. I'm Per Haakon Lomsdalen, the CEO of Spir Group and our new CFO, Line Cecilie Stenseth, will join me in a few minutes. We have many exciting things to talk about today and the streamlining of the group following the successful divestment of Sikri is an important milestone for us. The transaction gave an enterprise value of NOK 1 billion and was closed in July. Spir is now a pure-play real estate data and software company. Let's get back to that in a minute. But first, I will give you the highlights from the quarterly results. Note that all the numbers in the presentation are focused on real estate only, the new group structure. The second quarter was another very strong quarter for Spir with 11% revenue growth with strong contribution from all our segments. ARR is now at NOK 216 million, up 5% compared to the same period last year. After the divestment of Sikri, our revenue consists of close to 70% transaction-based revenue, while subscriptions have a bit more than 20% of the revenue. The rest is primarily consulting. Our gross profit grew with 22% in the second quarter, providing a gross margin of 53% and cash EBITDA increased with 67% to NOK 25 million, producing a margin of 9%. Although the development is positive, we have higher ambitions and clear plans to strengthen our growth profile and profitability. We'll come back with more about this in a few minutes. But let me now show you a short film showing you what Spir Group is today after the divestment of Sikri. [Presentation]

The simplified and sharpened Spir is now an attractive partner, vendor and employer in the real estate ecosystem. With our new profile, we also think the share will be an interesting investment for a broader audience. Our unique products, real estate and geoinformation data are a solid foundation for strong growth. We have up to 90% market share in important areas and are involved in 9 out of 10 real estate transactions. With new solutions and enhanced sales capabilities, we have the ambition to grow revenue per transaction. In addition, we have the opportunity to broaden our customer base. We are targeting increased profit, and we are already in the process of executing on a NOK 10 million cost reduction program initiated in January. You will see us focus on scalability and further streamlining and reorganization of the organization. We will prioritize to grow profit and cash EBITDA in the years to come. And finally, the divestment of Sikri provides us with a very strong balance sheet. Following a special dividend of NOK 324 million or NOK 2.44 per share, we have limited debt and muscle to execute on our strategy and bolt-on M&As. Let me summarize the journey up until today. Spir was established in 2019 with Sikri as the only asset. During the first few years, we made several acquisitions, including Ambita and Metria, key assets today. Then during the last 2, 3 years, we have consolidated and trimmed our portfolio, made certain divestments of noncore assets and paid down debt. In parallel, we have made some very targeted bolt-on acquisitions, bringing in new critical capabilities into the group. Most importantly, iVerdi, the market-leading software provider for appraisers. And then this summer, we sold Sikri for an enterprise value of NOK 1 billion. It is a landmark transaction that allows us to streamline and double down on real estate with focus on growth and improving profit. We now have the financial position to pursue an active M&A strategy, targeting bolt-on M&As going forward. As a pure-play real estate software and data house, we offer a unique combination of attractive data, many years of experience and domain expertise from this sector and a broad suite of software solutions for the whole ecosystem. We are trusted by all players in the industry. And in Norway, our data and solutions are involved in 9 of 10 real estate transactions, as earlier mentioned. Some of the most important customer groups are real estate agents, banking and insurance companies, construction companies and land developers. Time does not allow to go into all of these solutions and services, but let me point to some examples. The Infoland Meglerpakke is essential for real estate agents when producing their marketing materials and documentation for property sales. We are offering property condition reports, automated prospectus, production solutions and digital maps. Banking and insurance. Banks and insurance companies need property data, regulatory data, climate data and market analysis. We're their provider. Construction companies; in addition to some of the services just mentioned, they need property documentation and appraisal software. Land developers; digital maps, geo-data information, infrastructure planning software, forestry valuation software. As you can see, we are now go-to house for everyone in the real estate sector. Going forward, we see fantastic opportunities for leveraging the unique data we process to develop new services and sell our existing products to a broader spectrum of customers. So with these remarks, I would like to hand over the word to Line, who will run through the financial aspects and consequences of the Sikri divestments as well as Q2 in more detail. Line, please, the floor is yours.

Thank you, Per Haakon, and good morning, everyone. I'm very happy to be here for the first time to present our financial results. As a reminder, we use Norwegian kroner as reporting currency, and Sikri is now kept out of the equation and recorded as profit from discontinued operations. I'll start by taking you through some more details on the Sikri divestment, use of proceeds and our updated capital allocation framework and dividend policy. As mentioned, the divestment of Sikri to STG Partners implies an enterprise value of NOK 1.900 billion was paid in cash at closing on 24th of July this year, and the remaining NOK 100 million will be settled in 2028. We are also entitled to an earn-out payment of NOK 50 million contingent upon Sikri's performance in 2025. This means that our balance sheet is significantly strengthened and our financial profile altered. We are taking a balanced approach with regards to use of proceeds, and the Board has proposed a dividend of NOK 2.44 per share, equaling NOK 324 million. In addition, we will reduce our debt by NOK 475 million to NOK 141 million in the third quarter, down from NOK 616 million at end of June. This means that we are leaving headroom for an active but prudent bolt-on M&A strategy. The Board has also resolved an updated dividend policy targeting a payout ratio of 40% to 60% of cash EBITDA, provided that the group's capital adequacy is at a satisfactory level and that net debt to adjusted EBITDA ratio should stay below 2.0. Let's move on to the second quarter and first half results. I am pleased to report yet another quarter of double-digit revenue growth and improved profitability as key KPIs, like total revenues, adjusted EBITDA and cash EBITDA, all continued to improve both for the second quarter and first half of the year. Keeping the focus on the second quarter, Spir Group's revenues increased by 11% to NOK 268 million, driven by improvements for all Spir subsidiaries. The revenue increase is 6% organic growth and NOK 11.7 million new revenue from iVerdi. As for the first half of the year, revenues increased 18% compared to the same period last year, reaching NOK 515 million. Margins and profitability across the group are increasing. Spir Group achieved solid EBITDA growth as adjusted EBITDA increased by 28% to NOK 42 million for the second quarter and by 46% for the first half of the year. High market activity and increasing revenues is also materializing in strong growth in cash EBITDA, up 66% for the quarter to NOK 25 million. Let's look into more details in the revenue development. The 18% revenue growth in the first half is driven by continued positive development in the Norwegian real estate market, a Swedish real estate market in recovery and also including NOK 21 million in new revenue from iVerdi. Both Ambita and iVerdi are positively impacted by the high activity in the Norwegian real estate market with 13 more properties put up for sale in the first half compared to same period last year. Boligmappa continues its steady growth, while revenue growth in Metria is flat in local currency, negatively impacted by the implementation of Open Data in Sweden from February. However, with significantly higher gross profit and data costs as data costs are lower. Overall, we delivered increased operational profitability across the group and with all companies delivering solid growth in cash EBITDA. The development in cash EBITDA in segment Other is impacted by new costs in Spir Data, previously known as Unbolt, mainly related to new initiatives to consolidate data and drive synergies and innovation across the group. Other is also affected by the divestment of Sikri and historical numbers are restated. In the second quarter, total revenues in Ambita were up 8% to NOK 165 million. A major part of the revenues correlates with the development in the Norwegian real estate market and number of properties put up for sale, which was up 4% in the quarter. As for the first half of the year, Ambita's revenues increased 7%, in particular, driven by extraordinary high activity level in the real estate market in the first quarter this year. This led to transaction-based revenues growing 5% in the second quarter and 16% in the first half of the year. Commencement of new homes is still at a low level and was down by 14% in the quarter, negatively affecting Ambita sale of digital maps and digital real estate information. Ambita solutions for building applications and neighbor notifications still grew 20% in the quarter. Gross profit in the second quarter reached NOK 63 million and is up 6% from second quarter last year. Adjusted EBITDA came in at the same level in the quarter as last year. However, cash EBITDA increased 12%. In the second quarter, revenues in Boligmappa were up 19% to NOK 16 million. Run rate of annual recurring revenue from B2B was NOK 55 million, which is up 10% from the end of second quarter last year. In addition, transaction-based revenues, primarily from B2C products introduced late 2023 and sold as monthly subscriptions adds NOK 2.5 million to total revenue. It is positive to see that the profitability in Boligmappa is increasing. Adjusted EBITDA of NOK 3 million this quarter is up from zero in the second quarter last year with an adjusted EBITDA margin of 21%. Cash EBITDA is also improving compared to last year. Moving on to Metria. Revenue in second quarter was flat in local currency, primarily impacted by the implementation of the EU Open Data Directive. This change negatively affected revenue within geo-data as large parts of COGS disappeared, but it had a positive effect on gross profit, which increased by 25% in the quarter. Subscription revenue declined by 10% and run rate annual recurring revenue fell 16% to NOK 101 million, both due to Open Data, but again with improved profitability. On the other hand, transaction-based revenue increased by 16% to NOK 29 million in second quarter, driven by a rebound in the Swedish real estate market and higher end user volumes in banking and finance. Consulting revenues also showed strong growth, up 14% to NOK 22 million in the quarter. Profitability improved significantly with adjusted EBITDA reaching NOK 16 million and cash EBITDA climbing to NOK 11 million, up from just NOK 1 million in same quarter last year. These gains reflect both increase in gross profit and the impact of cost initiatives that are showing results. IVerdi is a new segment in Spir from September last year. IVerdi owns the software Ivit, which is Norway's most used professional software for valuation engineers. The software offers effective process support, data-driven quality assurance and a variation of different valuation reports. It allows direct interaction and sharing of information between real estate agents and valuer systems for increased security and efficiency. In the second quarter, iVerdi's revenues increased by 13% to NOK 12 million and by 25% looking at the first half. Gross profit for second quarter reached NOK 10 million, making a 13% increase from the same quarter last year. While adjusted EBITDA in the quarter declined by 31% to NOK 4 million, profitability still improved as cash EBITDA increased 23% to NOK 2.4 million. For the first half of the year, adjusted EBITDA was down 19%, but cash EBITDA climbed by NOK 3.3 million, reflecting stronger underlying performance. As an innovative software house development of new functionality and new features on existing products to strengthen our market-leading positions and expansion of the product portfolio is vital for future growth. We expect our investments in product development to materialize in improved margins and improved cash flow yield over time. Total CapEx in the second quarter was NOK 13 million, down by NOK 1 million from last year. We have an increased focus on return on investments and optimization of investments across the group. The level of capitalization of development costs for financial year 2025 is planned to be in the range of NOK 55 million to NOK 60 million, down from NOK 81 million last year with full effect of the CapEx from iVerdi and Spir Data. This is in line with guidance from previous quarters, excluding Sikri. Free cash flow ended at negative NOK 70 million in the second quarter, but by positive NOK 68 million for the first half of the year. As illustrated on the left-hand side of this slide, you can see that our free cash flow is impacted by seasonal fluctuations. First quarter is historically always a strong quarter in terms of free cash flow, as Sikri invoices a large part of its customers in advance on a yearly basis in January. Moving on to the illustration on the right-hand side, you can see that we generated NOK 126 million in operational cash flow in first half. Investment cash flow amounts to NOK 49 million in first half and consists mainly of capitalized development costs. Financing cash flow amounted to NOK 105 million and consisted of repayment of the revolving credit facility and installment on borrowing, paid interest and payment of the principal element of leases. Spir Group's cash balance at the end of June was NOK 15 million. However, note that NOK 900 million was received in July due to the divestment of Sikri. And with that, I'll leave the floor for Per Haakon, who will comment on the business development in the quarter.

Thank you, Line, and very good numbers. Let's look at the outlook. Looking ahead, we are committed to improve our margins, cash flow and prioritizing ROI. We are already executing on NOK 10 million OpEx reduction plan, which is on track for this year. In addition, we are planning organizational measures that will underpin further OpEx reductions in the future. We will come back to more details regarding this in due time. We also made CapEx savings. And for this year, we expect NOK 55 million to NOK 60 million of CapEx, down from NOK 81 million last year. Looking at the second half, we have a solid foundation for continued growth in our software business for the year as a whole. Now let me take a minute to walk through our strategic direction, which we kept very simple. Spir's ambition is to be the trusted partner shaping the future of real estate by providing the digital infrastructure our customers rely on. To do this, we will focus on 4 things. First, unify. Spir will more and more operate as one company, which makes us more focused, more efficient and better at delivering broader and more bundled solutions to our customers, becoming a one-stop shop supplier of real estate data and software. Second, connect. Our unique advantage is our data. We are connecting the group's data and software into one digital infrastructure platform that becomes the foundation for analytics, AI and the services our customers use every day. Third, innovate. On top of that foundation, we're building new solutions. This is where AI plays a big role, helping our customers work smarter now and preparing them for what's coming next. And finally, expand. We're driving growth by strengthening our products, solving more problems for existing customers, expanding products into new markets when it makes sense and adding on smart acquisitions. So in short, unify, connect, innovate and expand. That's our road map to shaping the future of real estate. With that, we have reached the end of the presentation. Please reach out to Line or myself if you have any more questions. Have a great day. Thanks.