Upsales Technology AB (publ) (UPSALE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the conference call for Upsales for the second quarter of 2026. My name is Daniel Wikberg. I'm the CEO and Founder of Upsales, and I'm joined today by my colleague, Kristina Fridheimer, the CFO of Upsales. So our agenda today, I will begin with a short introduction, if you're unfamiliar with Upsales. Then I'll cover some of the important events related to growth and the growth strategy of the company. Then we'll move in to look at the second quarter financials. We'll talk a little bit about the spin-off that was completed in the second quarter from -- of the company, Aira and then finish off with the future of Upsales and what's ahead of us, and then we'll end with the Q&A. And please note that you can ask questions throughout the presentation by using the Q&A feature in the Zoom Toolbar in the Zoom window and we'll answer all questions at the end. All right. So a short introduction to Upsales. If you're not familiar with Upsales, we're a Nordic SaaS company. We've been in business since 2003. We are building and selling a revenue platform, sales and marketing software for B2B companies, mostly SME clients. We work with around 1,000 customers across the Nordics. And we have a very long track record of profitable growth. We have been growing the company with profit for more than 20 years with no external capital. And what we sell, why do customers come to Upsales? So Upsales is in the business of helping clients to find new opportunities to win more deals and to sell more to existing accounts, all the while doing this while increasing the effectiveness in the sales organization. So our product supports the selling process, the marketing process, the support process, everything you need to grow your revenue in an effective way. And we usually highlight 2 things that are very popular and our differentiation and competitive advantage since we are not alone in this market. So the first one is that in these systems, a lot of clients struggle with getting the data right because historically, the data is feeded into the system manually by sales rep, which usually doesn't lead to high quality or correct data. So we offer -- together with the software, we offer licensed company and credit data, so financial data and other types of data for all registered companies in 14 European markets. And there are tons of use cases that when you have this quality-certified licensed data, it's a lot easier to succeed with the use cases you have as a customer. The second one is we spend a lot of time and effort to make sure that we have the absolute best integrations to the most common ERP and accounting systems that our clients use. For the Nordics, these include Fortnox, Monitor and Visma, among others. And if you have these integrations and you use them in the right way, it's the same -- you end up in the same situation as you do when you have the right kind of data. So the use cases you're looking to solve, growing revenue, finding new clients, selling more to existing clients is a lot easier if you connect your system to the other systems you're using. We also position us as an alternative to most of our competitors are U.S.-based. And these days, European data sovereignty and data privacy is increasingly important. So I think Upsales has a good positioning in that regard. All right. So a short update related to the growth. So this marks the third consecutive quarter of double-digit revenue growth year-over-year. And I'm especially proud about this number because when we do benchmarks, we look for the first quarter, we found 70 listed software companies in Sweden and the median year-over-year growth was negative 2%. So I think Upsales performing double-digit revenue growth in this market with the kind of profitability we're doing. I'm extremely proud of the team that are able to accomplish that. So the growth is driven by both the new customers joining us, starting using Upsales. And again, if you saw, if you've been following us for a while, you saw that ARR growth was quarter-over-quarter flat in the first quarter, and it returned to growth as we predicted in the first quarter, which is also encouraging to see. So the revenue growth is driven by, foremost, just good sales execution and strong sales momentum carrying through from last year. We also did a big product launch inside of the second quarter. So on May 12, we launched the AI Agent Workspace, which allows customers without any technical knowledge to build agents to do the kind of things that previously used to require deep technical knowledge or buying tech services. So we are -- with the feedback on this feature and product is very good, and we're already winning new customers and deepening adoption and solving more problems for existing clients. So again, the strategy is just to continue investing in the product, continue investing in the sales team to make sure that we stay competitive. So looking ahead, we believe in focus. So we will continue investing in making sure that we are the best provider for our clients, the Nordic B2B mid-market, where we have a product and pricing advantage. And we have communicated before that our full year 2026 revenue growth is expected at 10% to 15%. So this guidance is unchanged. And looking ahead, when we enter the third quarter, we have lower churn going into the third quarter. So we are in a good place to accelerate ARR growth in the second half of 2026. All right. So I'll hand over to Kristina for a financial update.

Thank you, Daniel, and good morning, everyone. I'll take you through the numbers for the quarter. So if we. Yes. Thank you. Net sales came in at SEK 41.4 million, up 10.8% year-over-year. And as Daniel mentioned, that's our third consecutive quarter of double-digit revenue growth with services revenue growing alongside the subscription base. A quick note on ARR versus net sales. Services revenue lifts net sales immediately, but doesn't flow into ARR, which is why net sales grows faster than ARR in a quarter like this. Recurring revenue stands at 93.4% of net sales, reflecting the quality and predictability of the revenue base. ARR at period end was SEK 154 million, up 5% over the last 12 months and ARR grew by SEK 1.1 million during the quarter, returning to growth after the flat Q1. If we go ahead. This is a slide I want to spend a moment on because this quarter, the real profitability of Upsales is finally visible. Reported EBITDA was SEK 10.9 million, a margin of 26.2%. But excluding Aira and the one-off separation costs, adjusted EBITDA was SEK 15.3 million, a margin of 37%, and that's ahead of our greater than 35% guidance. And this is not a one-quarter effect. Two things landed at once, the full run rate benefit of last year's reorganization and the removal of the Aira cost base. So this is the new normal for Upsales approaching an annual EBITDA run rate of SEK 60 million. EBIT came in at SEK 7.6 million and 18.3% margin. Net income was SEK 5.4 million. And then finally, the balance sheet and cash. Net cash at the end of the period was SEK 32.5 million, and we remain debt-free and net cash positive. The decrease from Q1 reflects cash transferred in connection with the Aira separation. So it's not due to underlying business performance. Operating cash flow for the quarter was SEK 8.9 million and free cash flow was SEK 6.6 million. And that was all from the financial highlights. Thank you.

Thank you, Kristina. So we will finish off by talking a little bit about the Aira separation and the -- what's ahead of us. So the spin-off of Aira was completed during the second quarter. So Aira is now traded as its own listed company also on NASDAQ First North Growth Market. So all shares was distributed to Upsales shareholders as a Lex Asea dividend, which replaced the previously proposed cash dividend since Upsales has a track record of paying a dividend every year. And we are already seeing the effects of the benefits, not only in the numbers, but also the focus in the organization. So we have a full focus on the core business, and we just continue doing what we should do best for our group of customers. So what's -- if we're looking ahead, what are we seeing? So as you may have -- if you have been following Upsales, you know that I'm stepping down. So I'm handing over to Johan Kallblad, which will be the new CEO of Upsales. He joins on July 31. And I've known Johan for quite some time. Exsitec used to be a customer of Upsales back in the day. So Johan spent 15 years building Exsitec, which is another software company from around 30 people into a profitable listed B2B software group of more than 650 people. And this is exactly the journey we see ahead of us for Upsales, scaling the company, looking at ways to grow, just turning Upsales from what it is today into a much bigger company. So I couldn't be more happy and I couldn't think of anyone better suited for this task than Johan. So we're very grateful that he'll be joining shortly. As for myself, I sold a big part of my shares, but I still remain one of the biggest shareholders of Upsales with slightly more than 10%. And I will continue sitting on the Board. So this marks a transition in leadership, not in my direction or conviction of Upsales. So our guidance is unchanged. Again, we predict revenue growth of around 10% to 15% for the full year. We believe we will continue to have the EBITDA margin, as Kristina mentioned, above 35%, which is now fully realized. And the -- again, the drivers of this increased profitability is the continued revenue growth as we have still an overhead and a cost base that we can grow into. The run rate savings from the reorg we did in Q4 and the removal of the Aira cost base. So I just want to mention briefly about the strategy related to AI in Upsales and what I see going forward. So I think that Upsales has a very good positioning in relation to what's happening in the market. So our clients, they are super excited about starting using AI to improve their sales use cases. And I'm extremely impressed by the product team and what they have been able to build in a very short period of time. So this -- we started rolling out this new AI Agent Workspace in the second quarter, but the big upside is ahead of us. And a quick note on services revenue since Upsales is and will always be a very high recurring revenue company. So we've been able to report over 90% recurring revenue for a long time. And when you look at the competition, the typical scenario you see is a client paying as much for services as they are paying for the subscription. So I think Upsales has a very competitive offering there, which is highly scalable. However, when we are talking to larger clients, we see the need for more services. They want more help. And our philosophy here is not to build a consulting company within the company, if you will. Our philosophy is rather sell the kind of services that creates more value for clients because that will also increase ARR growth. It will improve retention. It will lower churn. So I think if you're running a SaaS company, there are good services revenue and there is bad services revenue. So we are focusing on the good ones. And I will also mention we call to an Extraordinary General Meeting, which will happen on August 7. The main reason for this is to put to a vote a warrant programme for the incoming CEO. The program is proposed on market terms. So it's a fair program. And we think it's extremely important to have a strong alignment between shareholders and the new CEO. At the EGM, we also added an item related to giving the Board a buyback mandate since there was a change in Swedish law, which will be effective in December, which allows companies listed on NASDAQ First North to do buybacks, which was not possible earlier. So the Board has not any plans of doing buybacks. So this is just a standard buyback mandate, which most listed companies have. So to summarize, Johan Kallblad will join as our new CEO on July 31. On August 7, we will do the EGM. And apart from that, we will have full focus on continued execution of the pipeline, building the organization and continue investing in the product to stay competitive. All right. We will move on to the Q&A. Let's see, we have a couple of questions.

Okay. So what's my view on the new CEO's thinking about acquisitions going forward? So there is no communicated agenda or strategy related to acquisitions. However, Upsales being a highly profitable company with no debt, a super strong balance sheet. Of course, we are very well positioned to do smart acquisitions. So that might be an opportunity for Upsales, but we will see the future will tell us. Okay. Next question. Are there any extraordinary churn during the first half year? And why do you expect lower churn for the second half year supporting growth? So as we mentioned in the first quarter, it was more a timing effect of renewals that made ARR growth in the first quarter flat quarter-over-quarter. And when we talk about reducing churn and lower churn, that is a long trend. It's a long trend we have seen for more than 2 years now. So both actual churn and the leading indicator, which is cancellations or incoming churn has been increasing if you look at it from a rolling 12-month perspective. So I think why we are predicting or seeing lower churn going into the third quarter, it's just a result of the strategy and just the hard work that is starting to pay off. All right. Next question, do you expect Q3 EBITDA margins to come in higher than Q2, in line with previous years due to personnel costs? So if you look historically at Upsales, you see some seasonalities in terms of cash flow and in terms of profitability. In the third quarter, the third quarter is always slightly more profitable historically because of the summer months and vacation, which is lowering the personnel cost. We haven't communicated anything more specific than the guidance we have said of more than 35% going ahead. Okay. What will be the short-term guidance for Johan? Will Upsales keep the current level of profitability? Or will you need to invest more to continue growing? So I mean, the guidance we have communicated now is the result of the entire management team of me and Kristina and that is -- and the Board as well, and that is what we see. And I mean, if Johan or the Board of the company intends to change anything, we will communicate that. But there's nothing more communicated. But what we do see when we talk about this is a new normal, it's that the effectiveness that we see now in Upsales, that is also a long-term strategy starting to pay off. So again, we see a cost base that can support more revenue. So we still believe there's an overhead for the company to grow into, if you will. Okay. Then we have a question from [ Amir ]. What type of services are the most common? So when we talk about services, we have 2 categories. The first one is business services, which is typically onboarding projects for new clients or different types of adoption projects going out to clients, helping them use the product more. And the second part is tech services, which is typically building integrations, doing data migration projects, building custom reports and increasingly building AI agents and different kind of AI use cases. So again, we see a huge opportunity to increase this revenue since it's extremely small compared to all of our competitors. But we want to do it in a smart way to continue to be scalable. And next question, any idea how big market share you have in your segment, Nordic SME? So we've talked about this in the past. There's no real reliable market data specifically for the Nordics, in my opinion. The data I've seen, I think it's not very accurate. But when we look at the typical Upsales client, the demographics of those companies, the size of those companies, and we look in the available databases for how many of them are there out there. We estimate that Upsales has in Sweden 3% to 5% of that market. So we are not in any way in a hurry to go international or to broaden our geographic focus because the runway in Sweden alone is very, very long. Okay. Then we have a question. Is it harder for new sales ARR compared to a year ago? I mean we see -- we continue to see a good market and a demand for the kind of products and services we sell, especially relating to AI. I think when we are out talking to our existing clients, every one of them has a list of use cases they want to solve and they are willing to invest in. Having said that, I mean, the market is tougher for the entire industry. So again, almost no Swedish software companies were growing in the first quarter. So of course, the market is tougher because customers are more picky, if you will, in the terms of investments they do. But the need to invest and need to become more effective is still very present. So I think the opportunities are still there. It might demand slightly better execution to be able to capture these opportunities. Okay. Then maybe my favorite question, this last 12 months related to what are your customers and prospects saying in general when it comes to building their own AI solution and choosing another supplier due to competition has intensified. So I think people are kind of waking up from the dream of everyone will build their own software. I have not encountered one client that wants to build their own software. I believe that most companies will focus on their core business. Because if you're selling industrial machinery and your competitors is starting to use AI to become more competitive, then you have to start using AI to become -- to stay competitive. And the most obvious thing to do is to buy something from the shelf from a company like Upsales and not try to pivot from an industrial machinery manufacturer to a software company. So I think this kind of fear of all customers replacing all their enterprise apps and just build them in Claude. It's a huge simplification of how this stuff works. And again, the success stories of companies doing that, they aren't out there. No one is doing it. So it might happen in a few years, who knows. But right now, that's not at all what we're seeing. Next question, why are potential customers more cautious when you try to acquire them? Can you elaborate? So I think new sales is unchanged. I think it's slightly harder when it comes to existing clients. And this is just in general, if you compare it to 2021 and 2022 on the back of COVID, everyone was throwing money at anything that was related to digitalization and IT. And then when the market tightened, the inflation came up, the interest rates came up, the war started, all companies are slightly more cautious with all of their costs, not only related to software. So I think we were coming from a market where you -- maybe you didn't question the ROI as much as you do today. But our customers or potential and existing clients still have a lot of problems they need to solve. It's just that the market is more wary of cost in general, not only in the software space. Okay. So one more question. Last year, you added SEK 5 million in ARR in the first half year and this year, SEK 1 million. Is this all due to a harder market? I think it's due to a combination of 2 things. I think the main thing is timing effects. So it's a timing effect in terms of renewals in our client base and timing effects related to how we are growing the team. And the second part is probably related to a harder market. But I mean, when you look at a company like Upsales, we're a small company, SEK 150 million in revenue. I mean, it's impossible to say how many percentage points were due to this or that effect. But of course, we are in some way affected by the market. But I still believe -- I mean, when we are talking to clients, the opportunities are out there, the market is there. It's just a matter of executing properly. That was all the questions we have. So that concludes the conference call, and this will be my last one as CEO for 23 years. So I'd like to thank you all for joining us today. I'd like to thank all the investors and shareholders who have been with us throughout the years in the good times and in the tough times. Thank you for your trust. And then above all, I want to thank the entire team at Upsales for doing great work every day. Thank you, and have a nice vacation.