Vitec Software Group AB (publ) (VITB) Earnings Call Transcript & Summary

Welcome to Vitec Software Group Q3 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Olle Backman; and IR, Patrik Fransson. Please go ahead.

Hi, and welcome to today's conference call. I'm Patrik Fransson, Head of Investor Relations. And with me in the room is our CEO, Olle Backman. As always, first, we'll give you a short overview of Vitec and then followed by our report released early this morning. After the presentation, we open up for questions. So Olle, with that, I hand over to you.

Okay. Thank you, Patrik, and good morning, everyone. We will just jump back in that fast, if you haven't seen us before. But moving over to the introductory pages, which we usually use here, the Vitec in brief here. So basically, not anything changed there. We had a few more customers, but we're still 49 business units because this is from the Q3 report. As you know, we added 2 other acquisitions, which I will get back to a bit later on, but that's for Q4. So roughly SEK 3.7 billion in pro forma sales and the sales distribution is fairly the same as previous quarters. Same here with the exposure here on the diversification of sales from the largest business units to the smaller ones and also from a customer perspective. So the 10 largest customers only account for 7% of sales. So that gives us a great risk distribution. And moving over to this year's acquisitions. We did 2 in Q1 here, Dutch Autonet and Swedish Infometric. So they have been with us since Q1. We didn't sign anything specifically in Q2 or Q3, but in the early days of Q4, I think it was just on October 4, we signed Dutch -- first small add-on in Finland, ZMartek and then Dutch AtermIT software. And these are 2 good examples of what we've been working on throughout the summer period, of course, ZMartek being an add-on acquisition. We do usually 1 or 2 a year. They don't really end up in the big press releases and also in the statistics and the BU schedule, which we will show later because that is an add-on acquisition to one of our Finnish operations, Tietomitta. But it's a nice addition, adding a good new product line to our same customer segment there in the waste-to-energy market in Finland. And then AtermIT, which is basically the holding, name of Atermes, it is the product name for the company. It's in maternity and postnatal care in Netherlands, roughly 16 people. It's a really nice operation there that is really a good example of both mission-critical software, but also very critical to society. So very much appreciated both of them, and they are super welcome to the group, both organizations. This is, of course, leading over to the positioning of the group. We have our 22 different verticals. So these 2 latest acquisitions, they end up in either healthcare or in waste-to-energy. So they are existing niches from our part. But every now and then, we add another acquisition that adds also another vertical to the group, but not in this case. So here, we are strengthening already existing groups. And as I mentioned, these are the business units that we have had during Q3. It's roughly the same, and this is a pro forma rolling -- some not pro forma, sorry, rolling 12 months of the sales and the distribution there between recurring revenue and nonrecurring revenue. And this is, as we have said before, roughly an average of also the pipeline for acquisitions, what it looks like in terms of size and so because we have sort of become the mirror image of the VMS market in Europe by now. How we work together with the business units, it's a lot about sharing knowledge, which is really sort of the superpower of being added to a group from a new company perspective. So here, you will sort of tap into the big knowledge pool of companies that are doing the same thing, but directed towards different verticals. So this is a fantastic way of cross-fertilizing knowledge and also speeding up the development, but also trying to avoid mistakes, of course. So this is working super well for us and very much appreciated amongst the staff as well. I would like to describe a bit on what we see is the really value that we bring across to our customers in our vertical software niches. There's lots of discussion about the code that is being -- you can speed up the development cycles, you can do much more on less time and of course, at a lower cost. Yes, that is absolutely true, and that, of course, goes for us as well. But that is only one part of the offering of a true vertical software SaaS offering. So the core code is, of course, a super important part of it. But then all the layers on top of the code is equally important, all of them. So I would say, integrations, APIs and being part of an ecosystem. Sometimes we are part of an ecosystem. Sometimes we are the ecosystem or at the very core of the ecosystem, depending on our positioning. Then we are usually also the system of records that others would like to access, and you can do that through APIs, and we are increasingly sort of finding the business models, how to monetize that as well. Of course, the workflows, the business logic, it's all built into these niche specific solutions. That's what makes them better than the more generic horizontal solutions. Of course, compliance, security, auditability, super important, especially in this day and age. So that's also a layer that is sort of embedded into the product offering. Trust, governance, and accountability, both on our terms, we want to be that trusted partner for our customers and for the whole industry as such. And then not the least in the sales and support in local language. And by local language, I don't just mean the language that you normally speak, whether it's Swedish, Dutch or Finnish or whatever. It's also the business language within your specific niche. So we know the lingo, we know because we are an integrated part of it. We have been here for a long time. We know the processes. We know what you mean and usually, you know what we mean when we have sort of put in a functionality there. So business language as well as the actual spoken language is super important, which also sets you apart from a more generic solution. I think it's important to keep these layers in mind because they are part of the moats, of course, around it. You may be able to do parts of it or so, but it's very hard to do all of it, and it takes a lot of time, a lot of effort and especially a lot of knowledge and the domain-specific knowledge, which is not something that you can just invent or be trained at school. So this is part of why we think that adding together nice vertical market softwares that are niche in their respective and the best of breed in their businesses makes good sense, and we can also sort of learn a lot from each other on the how we do things, but not -- perhaps not learning from the various niche logic because that is very specific to each of them. Moving over a bit to some examples here of what is I'm not going to go through all of it. You can read that also on the web pages of each and every business unit, but I can just take DocuBizz, for instance, in Denmark. As an example here, it is a purchase-to-pay system. You might think, okay, that has been around for quite some time and it has been automated, yes. But earlier, the automation was built on strict rules that the suppliers' invoices had to follow in order to be automatically matched. Now with the new AI functionality they have built in, it's much more intelligent. So we can basically handle any type of invoice in a very automated way. And that, of course, the system is also learning if you have corrected it once, you get a really good and precise suggestion the next time that supplier invoice comes up. So it's just increasing value to our customers by still doing the same thing that we have done all along. And there are lots of other examples that we will post on and off, both on our group website, but also on the various business units website. So please look into that and see all the development that is going on. Coming over to the financial metrics and the report as such. I think the highlights for the quarter, of course, continued to grow at 15% in total sales. EBITDA also up 15%. Cash EBIT, which is our sort of internal metric close to the cash generation, was up 13%. And all in all, a very solid quarter, continued to grow for the third consecutive quarter this year. So these small incremental steps that we take each and every day are paying off. So we are fairly happy with that. And on the year-to-date basis, we're 13% up on sales and -- or 14% up on cash EBIT. So that's also very encouraging. Looking at cash flow, of course, important, a bit better than the corresponding quarter last year, also roughly SEK 60 million up on the year-to-date. And here, of course, you need to remember that we basically have all of the cash flow in our first quarter, and then they are pretty flattish on both Q2, Q3 and Q4, which is, of course, a result of our fantastic model where we have a large degree of recurring revenue that is prepaid usually. So all in all, a solid cash flow quarter as well. In terms of growth, like we mentioned, if you see the red bar there, which is the rolling 12 months on a yearly basis, it's a very nice linear development. We're keeping the pace. So we're very happy about that when you look at it quarter-by-quarter. Same here, as I said, 15% up compared to the same quarter last year. And the CAGR growth there, as you can see over the past 10 years, it is an impressive 19%. Of course, profit improvement is even nicer. So you can see that as well on the consecutive quarters. We are a very stable organization and a stable performing on these metrics as well. And you can see the rolling 12 months there on the left-hand side, really up because we're really fond of these longer-term metrics, not necessarily quarter-by-quarter. So it's really looking at the long-term development of the group. And the cash EBIT, as you've seen in the third consecutive quarter, really sort of ramping up. You can see from the previous years, it's usually the same picture and a fairly strong sort of ending. And that is, of course, this is inclusive of acquisitions. So you have to remember the years where you made some really substantial acquisitions in each and every quarter, so it can be a bit distorted for that. But other than that, it's a solid improvement quarter-over-quarter that we are quite happy with. Organic growth, very important. So it's still when we look at the subscription base, which is the really solid and super important part where everything -- all other things sort of emanate from, it's another 4%, the same as last quarter, which is also in line with expectations given that we have the fairly low or low help in terms of price increasing from the CPIs of last year. So 4% still there. If you look in the report, there's also a schedule there where we have measured the pro forma organic, and that is actually encouraging up to 6%, which then says that the latest acquisitions are growing a bit faster than the rest of the group. So that's good to remember. Another 15% increase in the transaction-based, also the same as last quarter. So all in all, summary-wise, I think we did a very solid growth, both in sales and in profitability, a good organic contribution, fairly roughly in line with our own internal expectations, increased M&A pace with the 2 acquisitions that we posted here in October. So that's really nice to sort of finally get some results from the hard work there. And we continue to be ready to acquire. We have a good amount of cash and the funding is available, and we are continuing to explore new opportunities there. So that's about it what we had on the presentation, and now we will open up for Q&A.

[Operator Instructions] The next question comes from Viktor Hogberg from Danske Bank.

So starting with the transactions revenue, a bit higher than expected. I would assume this is by Enova. Is that right? And anything you would like to highlight in terms of drivers for that in Q3 so that we don't or should extrapolate something from the numbers in this quarter? That's the first one.

It's based on a lot of things actually, both we have lots of transaction based, especially in the real estate agent market. So both in Sweden and Norway, real estate -- sort of the real estate market really picked up. So that's also contributing. We also had contribution from one of the latest acquisitions, which is Autonet. They also have sort of a variable part that they offer to their clients in the spare parts. So there are actually lots of different aspects to that. But Enova as well, yes, given the high energy prices and the volatility in the energy market, so they are up compared to last year. And all the others are fairly easy to extrapolate, but Enova is always depending on the energy market where that is going, we are an integrated part of that.

Okay. And just want to discuss the non-Enova part of the uptick in transactions, which seems to be broad-based improved demand.

It is broad-based. It's really sort of across. And that's part of what we discussed in seeing an increased sort of activity in the general economy, then our sort of transactional base usually follows that.

Okay. And also on -- you said that the pro forma organic growth was higher than the reported organic. What assets are driving that? If you could disclose anything on that would be interesting and also the drivers for the better performance in those. Is it generally higher organic growth rate in the acquired assets or the market that is picking up in those pro formas?

Well, the difference between the 2 are, of course, accounting-wise, the standard definition is the same business units, which was we had in Q3 last year. So all additions since then is part of the pro forma package. So yes, so that means that NMG, Infometric and Autonet are sort of included in the pro forma and those 3 are growing sort of above the group average, yes.

Would you say thanks to better demand or improving demand? Or do they have a structurally higher growth rate in those assets?

They operate in 3 totally different areas, but all 3 are growing. They are both NMG is energy utilities in Poland, Infometric is housing in Sweden and Autonet is car dismantling business in the Benelux area. So it's super different. But yes, they are all growing. And it's really nice that we have been able to spot and to buy and to integrate really nice growing companies.

The next question comes from Thomas Nilsson from Nordea.