Trifork Group AG (TRIFOR) Earnings Call Transcript & Summary

Welcome to the presentation of Trifork's Second Quarter Results for 2026. My name is Fred Svanholm, Group Investment Director at Trifork. Today, our group management team will be providing a presentation of approximately 30 minutes, followed by a Q&A. We got 1 hour in total. Before we start, a bit of practical information. I would like to inform you that this presentation is recorded and will be made available in its full length on our IR web page later today. Second, I would like to inform you that if you want to download the slides for today's call, you'll be able to find them on the front page of the website. Third, we invite you to ask questions and engage with management after the presentation. Before we get started, we have to present this disclaimer to you. Okay. Let's jump to the presentation, and I hand over to Group CEO, Jorn Larsen. Jorn, please go ahead.

Thank you, everyone. Thank you, Frederik. So I'm actually very happy about what we announced this morning, and we are looking forward to take you through the highlights of our Q2 and also what we can say about the near future. So first of all, we are back into double-digit organic growth. It's still a modest double-digit organic growth. I believe we can do better. And if you remember what I've been saying in the past quarters about that we have an underlying growth of things we want to focus on. But because of the large changes and disruptions globally, there are also things that we have abandoned doing business in. And as you can see and have followed over the past quarters, we have maintained growth and we believe that once we are finished removing the parts that we don't want to continue doing business on, then we will see higher organic growth because at this point in time, I see a lot of market opportunities for Trifork in public, public in Denmark, in Canada, in Spain, in Switzerland, some of our main markets. But of course, we need to be set up for this, and we need to have the right organization to execute on it. I see a lot -- at the same time, a lot of market possibilities for private sector. So I don't want you to overanalyze public/private growth on that because, first of all, Trifork is an organization of people and now also agents. We welcome all our AI agents to the company. But first and foremost, the people we have, we cannot just change them from one day to the next. So if they are in one quarter, very focused on public, and we see also opportunities on private, then we need to grow that organization, the AI organization and the real people organization to take advantage of it. It's not like a switch you can push. So that is the intro remarks. What you see here in the first box is that I'm very happy to see that our growth in products is maintaining. We are still at the very beginning of having a substantial product business at Trifork. We have a number of very promising products. Products we have been able to build because our customers have been willing to co-innovate with us, but also because of AI that now we can build IP and products faster. You can only build the right products if you know what those products should do for the world. Also for the past quarters, we have seen a strong momentum in sovereignty that Europe, Canada, Australia, other places want to take more control. They see that we cannot just leave all our data in the hybrid cloud, in the cloud outside our control. But there's also demand for a lot of new data because AI needs data. So we also see a net growth in data globally. And a lot of that new data will be situated in Europe and in our managed service centers. So operation shows good traction, and I believe it will continue to do for the next quarters. Then we have on top of, you can say, the hardware, the infrastructure, we have Corax data, we have Corax AI, but we also have AI in all our products, such as our Trifork Health platforms and other products. So really strong message for our product, but still early days. Then we saw in Q2 a strong pull in public sector and especially in Denmark. We have a good track record for winning the things we believe we can win. So we also have to be careful not to waste resources because that has a cost effect on P&L. So we choose very carefully what we bid on and we bid on -- and we win a lot of the ones we bid on. And you probably -- so Denmark is still a large part of our market. And there was actually a period where we didn't have a government and where there were election and uncertainty and where the government and the agencies couldn't really put out tenders. So I'm even more happy that we actually were able to win business in that quarter that was quite challenged with these things. Now we also see that we have been able to improve our earnings since last quarter or since second quarter last year. And we believe there is still a good potential. So when we get more scale in products, we also improve margins. And as I said, there are still areas of business that we don't want to be in anymore. And there are still some trailing costs there, but Kristian will talk more about that. And I would also say that you shouldn't expect Trifork to be half in size in people just because we have AI. We'd rather grow and accelerate our revenues because you cannot just send an agent to be an AI consultant at one of our customers and helping them to adopt AI. That needs to be highly skilled people, architects and business developers and people who really know about technology and business. So over the next 1 or 2, 3 years, I still see Trifork grow, but we should grow revenue faster than the amount of people, of course. We have been very thoughtful about capital allocation. So we have committed to our share buyback program that is going at full speed. We cannot deploy more under the rules and regulations that we are in than we do now. So that's also why we have decided to pay out a dividend of DKK 3 per share from the proceeds on the Verdane deal. Okay. Let's move on. So having said all this, here you see in the context of the former years. So as Kristian will go into detail about, I know that some of you are concerned about will we make our guidance for profit and EBITDA this year. But we believe that we are on a good track to do so with the information we have now. And as you can see, it's actually the first time in a long time, we have been, you can say, almost ahead in regards to revenue. So there we are underlying ahead if we compare to H1 the past 5 years, and I've been looking at those numbers. And for EBITDA, it looks more normal. But we still believe that there is more to do in regards of profitability for the future, hence, my comments on the earlier slide. Let's move on. So we're still on the bigger picture, our plan on transforming Trifork to become a product-led company and what we're doing now is to really doubling down on the industries and sectors we are betting on. We believe more than ever that having deep domain knowledge and working very close to -- with our customers that we co-innovate with them. We build products that they really need, and we build them faster than ever before. But we also need to strengthen our leadership. So that is also an explanation for the potential in profitability gain. We're still investing in business development and leadership. This is not something you do from one day to the other. And we need scale of business before you can really see it on the profit line. Going a little bit further ahead, we like to be more active on M&A in the future. We are monitoring the market. We believe that prices are more fair now than they were like 5 years ago. But we also need to make sure that what we bolt on to our company is really high quality and we get the value of it. Let's move on. Then this is a page where we try to tell the story of where we focus. So we have been talking about many times before, digital health, financial services, public aviation and energy. We are doubling down on strengthening the leadership, but also the separation between the other sectors for our company. So we believe -- I believe strongly that by separating the business of digital health and financial service even more, we can scale faster because then there is less organization to synchronize on and small organization can grow faster than bigger one. So we are taking this gear of using the things we know work for organizational growth. On the right side, you can see how we are positioned for the AI agenda. And maybe 2, 3 quarters ago, I was a little in doubt of where AI would take us because back then, it was, oh, if you do software, you don't have a business in the future. But right now, I see a clear path that for us to help our customers to use AI, there is a lot of work that come our way at the moment. So we can see that as also our brand is growing, that more and more larger companies and organizations want our help to guide them through the AI world and to harvest the business value from AI. It's without question that most people in the world who work in a company that they are using AI on a personal level. But we have a case story coming up that Charmaine will talk about is where we use AI in core processes for customers. And those kind of solutions take a little while to build in the right way. And you see security regulations, user adoption, organizing data, reliable networks, cost management, conceptual learning, trusted integration, scalable infrastructure, all of these things are -- that's the craftsmanship of Trifork. That's in our DNA. And we take that responsibility for putting all these things in place. And this we see really the beginning of now and we see a strong market for this. Let's move on. The word over to you, Charmaine.

Thank you, Jorn. So as Jorn said, that's the layer where Trifork works in. And now what I'll do is show you what it looked like within the quarter. So both segments gain differently. In Products, we are growing towards half of group revenue, as we have previously stated, and the engineering capacity to do that is already in place. That is why our incremental revenue -- Products revenue converts to margin. In Services, agentic delivery is invoiced rather than discounted and bundling AI services with products is where the true pricing power sits. The organization is weighted towards senior consultants with business process expertise to truly understand the clients' environment. That is deliberate. And you will see the cost of it this quarter before you see the benefit. Next slide, please. We see 3 drivers and all 3 carry into the second half of this year: cloud operations, data sovereignty and security. Kamstrup extended with Netic for a further 3 years in this quarter and taking that relationship to 6 years minimum. We see increasing enterprise AI adoption, and we have 2 examples there that we mentioned, Swiss and Nykredit. And public sector efficiency, here we have highlighted 3 key examples. These are not 3 separate bets. Sovereignty, AI, public modernization are the same conversations in most of our customer rooms. Next slide, please. As Jorn mentioned, we do have one case study I would like to highlight. And the point about Nykredit is the constraint. There was a hard migration deadline from the Spar Nord merger. But we did not start from scratch. With &money who we partnered with, we built the Credit Rule Engine as a modular add-on to the Engage platform that Nykredit already ran on. 95% of the functionality was delivered fast, a month ahead of that deadline. Over 1,000 advisers have already been onboarded. We have satisfaction ratings of at least 4 out of 5, and Corax provides the AI-assisted layer on top. So that is where the growth comes from. Kristian will now take you through what it did to the numbers. Over to you, Kristian.

Thank you, Charmaine. Yes. So I'll deep dive a little bit more into the results. Jorn already mentioned the organic growth. Detail here is that what was deconsolidated in relation to '25 was the business unit Trifork Security, which roughly for the full year was EUR 5.4 million in '25. So that's what you have to take into consideration how this pan out quarter-by-quarter when we report this in relation to organic growth. So all organic growth excluding hardware, 11%. Hardware in the first half of '26 was just short of EUR 6 million compared to a higher number in '25. Overall, for the year, '25 showed just about EUR 14 million in revenue, and we expect to exceed that in the second half of the year, which I will talk into a little more later. Overall, we saw quarter-by-quarter an increase of 1.4 percentage points in the adjusted EBITDA margin, but I will go more into details in the different segments in a minute. Overall, we're still satisfied with the operational cash conversion of 90%, and we are in a good position in relation to the balance sheet with a 1.1x net debt to adjusted EBITDA. Looking more into the segments, we see into Products and Services. As I just talked about with the organic, inorganic and hardware impact, you see an underlying 23% organic growth. And as the hardware revenue is expected to end the year on top, you could say, of the '25 hardware revenue, then this is a good underlying growth. In the Services business, we saw the past quarters to show at first a decline in relation to the previous years and then stabilizing and now we are back in growth mode in relation to services. So this is also a good development overall. The margins, as said, was increasing quarter-by-quarter. And overall, we saw this 21% increase compared to '25. What is maybe interesting here is that products now generate more than half of the group EBITDA. So here, we see now that it's -- for the quarter, it's 53% and last 12 months, 50% in relation to contribution to EBITDA. Even if we still see that Products is less than half, so 37% in the quarter and 34% LTM. So the movement towards the product-based revenue for us is seen as, let's say, a resilience. It's a good development, and we see that to be stabilized quarter-by-quarter. Overall public-private, you see here the fluctuations in the past quarters. And as Jorn talked into, then this can fluctuate. But right now, we do see a good potential also in the near future in relation to development in the public sector. Looking into a little more details, we here see the margins quarter-by-quarter both in Products and in Services and the rolling 4 quarters EBITDA margins. So quarter-by-quarter, we did see in Products that now we are at just about 21% in margin and see this overall LTM, a very good development, which we also believe will continue when the Products mature, as Jorn talked into. In the Services business, we came from having, say, declining margins, turned around in the business, and now we see improving margins in the LTM. And this is also what we expect to see that the quarter-by-quarter margins is usually higher in the second half, and this is also what we expect in the second half of '26. I'd like to talk a little bit more into the portfolio agreement that we published in relation to the Labs business and tell you a little more details into how that is structured and what kind of partnership that we now have with Verdane as investment fund into our Labs companies. What you see here is that we divided our investments into what is strategic investments and what is LabsX. LabsX is to be seen as investments where we're looking into partnering with other partners, could be more into Verdane, could be others. And then it's also to see where we see potential exits when the company is mature and it makes sense to make an exit. Right now here in the first agreement we made with Verdane was 4 companies. So Axoniq, Dawn, Frameo and XCI. The deal was structured in a way so that we did a full sale of XCI and a partial sale of the other 3 investments, but it's all done in a partnership. So meaning that the development in those companies, Trifork will still be impacted at positive developments in the companies, and I'll come into a little more detail. Overall, you see here, Q2 book value was EUR 80 million. Out of the EUR 80 million, EUR 23 million was then allocated into this deal. This was a little bit above book value and satisfying in relation to this deal with the future potential upsides. What we have remaining after the deal is book value in LabsX of EUR 44 million and strategic investments of EUR 13 million, here already talked into. So this is more for you to study more into the details, but it is to say that we do see Verdane as a partner. We do see Verdane as a partner to enter into potentially some of the investments you already have and also to potentially continue investments into the portfolio that we have agreed on, but also other companies. What does that mean to our balance sheet? So overall, what we see here now is that 6 months '26 is more or less net realized gain, no impact. But the impact of this deal is then set pro forma here so that you have those details. It's a EUR 23 million impact in relation to realized gains. On the balance sheet here, you also see that Q2 '26 had this distribution with unrealized gain of EUR 56 million and the invested cash of EUR 24 million. Invest cash stays more or less in the same as the initial investments we did in cash in the investments that are included in portfolio, but very small. So it's -- the impact will be on unrealized gains that then is converted into realized gains in Q3. Once again here, you see the leverage ratio of the 1.1x I talked about in Q2 and the impact in relation to -- from this investment deal in Q3. Based on this, as Jorn also initially stated, we decided to propose a dividend of DKK 3 per share, which is proposed to be paid out after completion. Overall here, we see that the Labs proceeds are reinvested into the core Trifork. This also goes for the assets, the companies, which are not part of the deal, but where we make future exits. So this is the same strategy as we've shown before, but here reiterate in relation to what we want to do in the coming years. So what you see here is that just about EUR 8 million from the Verdane transaction will go into organic growth, net debt management and majority acquisitions, whereas the other half of the first EUR 16 million received will go to dividends as we already are buying all what we can in our current share buyback programs. This was all for me. So now we go to questions.

[Operator Instructions] We have a raised hand from Wei Zhou from SEB.

Firstly, looking at your cash flow, I realize there's a big CapEx spending in the moment due to the data center expansion. I mean could you please give a bit of guidance on what type of capacity do you have or how much you will expand? And I recall that based on our previous dialogue, I understand a lot of those data hosting capacity is funded by your customers. But now we see a big spending by yourself. So what is my misunderstanding here? Should we expect more sort of refund from your customers? Or why now you still need to invest massively in the data center? And I'll do next question later.

Thank you very much.

Kristian, maybe I can start answering and you come with the financial effects. So thank you for the question. So first of all, you should not see Trifork as a speculative investor in data centers. So nothing changed there. We only build data centers, which we do at an increasing rate if they are backed by current or future customer payments under contract, okay? So that's like the overall thing that we have said all the time, and I don't think you have misunderstood. So maybe then Kristian can talk to your detail in the question.

Yes, that is totally correct. And what is maybe special here in the first half reporting is that we have one agreement where it's in between, you could say. So it's in between going into the operational lease, which is directly connected to a new contract. So in the -- just at the quarter, it stays as, you could say, CapEx in our accounting, but this has then moved away in July. But it's just in between here in between quarters. So the strategy is still the same. And as Jorn said, it's always tied directly into concrete agreements where we have back-to-back with the customer on the agreements so that we can put this into, you could say, the operational hosting and leasing. So overall, for investments like this, we only keep, you could say, CapEx of just about 20% in the current financing model we have.

Okay. And is it -- that contract you mentioned is something already announced or is it something that you will be announcing?

No. The current one is something that is already announced and is delivered in the second quarter, at least a certain sum of that. So that's, you could say, also the reason for the increase in hardware-based revenue in Q2. You can say, that will come more in Q3 and Q4. The exact timing of that, I cannot tell you exactly, but it is, you could say, conditional of hardware delivery, et cetera, but it will be in Q3 or Q4.

Okay. Very clear. And then a second question here on the Services margin. It seems quite confident about improvement. And you mentioned the cost control, pricing [ power ] in AI. I mean, what confidence do you have in your pricing power? I mean, I'm a bit curious to know because now we -- I mean, the major concern here with the AI is discounting. Well, you're talking about the pricing increase, if I understand correctly. Can you elaborate here?

Yes. So imagine that 5 years ago, when we engage with a customer, we would do time and material development. And that means different rates for testers, for designers, for, yes, architects. So it's a broad rate card going from, yes, for us, quite low to quite high. What we see now is that the people we are bringing on board now is the people who can guide the customer and where we then can deploy our products and make sure that they get their data aligned across the whole organization. So as I mentioned before, that today, people take individual gain from AI, but we want to help our customers take organizational value from AI. But that requires a lot of work with organizing the data, the infrastructure, but also how you then build the models on top of your data, et cetera. And those are, you can say, more senior consultants.

Perhaps if I can also add just one thing on that. We increasingly see clients are not looking just to buy hours. What they're looking to buy is an outcome, particularly if it's in a regulated environment, where somebody essentially carries that risk. So where we would get some pushback on would be just classic fixed price work. And that's the work we're more selective about. But where we particularly specialize is being able to deliver a successful outcome. So I think that's part of why you're seeing the confidence we see and the numbers that you do.