Exsitec Holding AB (publ)

So welcome to this quarterly update for the second quarter of 2024 for Excitec. Thank you for joining. Talking now is me, Johan Kallblad. My voice is a little sore today due to a nasty summer cold. And I know many of you have a lot of earnings calls to attend to today. So I will try to make this brief. 15 minutes should cover it. It's possible to ask questions via the hand raise function in Zoom or via the chat. And we'll do our best to answer them. I will start off by making a short recap about our business. And after that, we will cover Q2 financials and a short market update and a recap of our priorities going forward. So we help medium sized businesses in the Nordics use digital tools to improve their operations and digital tools can address areas like reducing financial administration through automation or use data for better decision making and forecasting or managing a sales force or adopting e-commerce. We help our customers with an offering that consists of several software components where we allow the customer to do a step-by-step implementation where they don't have to change everything at once. So we are the single point of contact, meaning that we take full responsibility for the entirety of the solution. And we work with the customers over long times where we gradually can extend the solution to cover more business use cases. So we sell and implement software from around 10 software vendors. These are the primary software vendors at this time. And we have a revenue share partnership with these software providers where we market and sell and implement their software to new accounts and make the customers successful in using the software over time. So the business model for us has three revenue streams. We have the software revenue from the selection of third-party software together with integrations between the software that we develop in-house. This is on a subscription model where you pay as you use. And this revenue stream is 20% of our net revenue. Just under two thirds of our revenue is from professional services, where we implement the software and we make the customer successful in using the software over time. We also do custom development and custom integrations when needed. The third part of our business model is our single point of contact support, which is on a recurring fixed price model. In this, we can also cover things like IT security, infrastructure, internet access, and so on. So I've been the CEO here since 2010. And during this time, we've had 10 consecutive years of growth with increased profitability the last 10 years here. Last year and a half, we've prioritized reducing risk in what we perceived as an uncertain macro environment by focusing on our profitability and cash flow. And now in 2024, we are slowly getting back into growth mode again. Historically, our growth is from a balanced combination of M&A and organic growth, and this is also what we expect going forward. I've shown this slide many times before. Next time, you will also see Finland as a geography, as we did a smaller acquisition there just after this quarter ended. Sorry. Our primary target is mid-sized companies with at least 50 million SEC in revenue. We have around 4,000 active customers. Typically, in a year, no one single customer is more than 1% of revenue. There is no size limit upwards on where our model works, and we do have quite a few large corporations as active clients, but we don't actively target the enterprise segment in our sales and marketing. We can combine our software components in a modular way, and we've created packages to fit different industries. And these packages are often made up of the same foundational components with some industry-specific add-ons. All in all, the customers are spread through many different industries. So let's dive into specifics for financials in Q2. The super short Q2 summary. It's not a great market for growth, but I'm happy to report double digits top line growth with improved margins. The market is still quite passive overall with long sales cycles increasing. We do, however, feel that many of our customers are expecting things to get better. So we had strong sales numbers in the end of the quarter. We ourselves are getting back into an M&A agenda. We've been working on that for months. for the entirety of this year and we're leveraging the finance agreement we finalized last quarter. We have several ongoing discussions and we think the M&A market is functioning well right now and it's relatively stress-free. We get the time we need to take good decisions for financials. Overall growth, 13% with organic growth of around a bit over 5%, 211 million SEC revenue compared with 186 last year. Exactly. The first quarter this year was negatively affected by an early Easter, but this quarter we got two extra working days compared to the same period last year, which translates to around 2% more revenue for us. We feel pretty good about this. We know the market has been slow in general, so we do feel that the market is a little bit more optimistic and we see larger average deal size this quarter, even if closing deals take longer time than even what it did a year ago. Year to date, we're up around 9% in revenue. Profitability, I think, is the financial highlight of the quarter. EBITDA up from 34 to 44 million SEK, which means a margin improvement of almost 3%. Somewhere around 1.5% to 2% came from the extra working days. It's satisfactory in general to improve. Margins in these market conditions, even when taking out the effect of the extra working day. So we are at 21% margin in the quarter and 20% year to date. I must also say I like the quality of our income statement in general. It gets better the further down you go. Ending in earnings per share that has improved really, really well, plus a really strong cash conversion with operating cash flow being up more than 40%. I'm getting some questions sometimes around the adjustments we do to EBITDA. We think that the adjusted EBITDA is the most relevant measure because the difference in the adjustments are due to some conditional payments resulting from M&A activities being reclassified as personnel costs. After we did the conversion from K3 to IFRS as accounting standard last year, we're not doing deals in the same way now. So the adjustment on the EBITDA should be very small going forward. And you see that the adjusted EBITDA and the true EBITDA is similar levels now in Q2. Moving into the segments in some detail, we had a really strong performance in Sweden with exceptional margins. Norway has good growth due to the acquisition of Integrationspartner that's been performing well all year. We took some one-off costs due to a real organization this quarter where we had to lay off some stuff to improve efficiency. And that cost is taken in its entirety over the result in the quarter. Denmark is underwhelming in a slower market, but the key thing for us is reaching scale over time in our new offerings here. And it has been one step forward and one step back the last year, but we think we are moving in a direction that we want over time. Again, recurring revenue stream from software shows solid growth with the LTM numbers being up 29% year over year. The increase in the quarter was actually 39% up from Q2 of last year. The increase in growth rate is due to the acquisition of Integrationspartner that accounts for around half of the growth. But as you can tell, we also had really good organic growth there. So recurring revenue is growing a lot faster than the revenue from professional services. This shows the value of our balanced business model with with several revenue streams. So short update on the market conditions and our priorities going forward here. This quarter, we didn't find a single true answer from our sales KPIs. They are pointing in different directions, to be honest. So it's a mixed story. On the top end, we see good KPIs with average order size being up almost 20% in our large system sales compared to last year. Shows some willingness to invest. On the other hand, we still see really long sales cycles around twice the historical average and longer than the same period last year. It does seem to me that we're spending too much time on deals that won't close. This is not strange in a slow market because salespeople tend to want to fill their sales funnels with deals that are based on hope more than that they actually will close. So sales management is very important in a slow environment. This is a priority for us internally for Q3 and Q4. Overall, though, we think we are in really good shape. We've spent, like I said, a year and a half on actions to improve margins, and we have improved, and we've kept them at really solid levels despite the challenging market. There are no changes in terms of strategy. We're executing on a business model that we've implemented and refined for over 10 years, so the plan is to continue on a long-term profitable growth journey. with, like I mentioned before, an increased focus on M&A activities also the coming quarters. All in all, a solid quarter. We think we are in really good shape financially. Lastly, I want to share an update on one of the prides of our organization, our trainee program. We were a little bit hesitant in committing new costs early on this year, and we were considering running a scaled-down version of the trainee program, but we do feel that we are moving into more of a growth mode, and we will be adding around 18 new colleagues this fall. A bit of a reminder here also to all of you that Q3 is our toughest quarter of the year financially due to the holidays first and due to this investment that we always do in the fall. However, this is an investment for future growth. We have a 10-year track record with really exceptional results. So I'm very much looking forward to meeting all my new colleagues in August. That concludes the presentation. If there are any questions, please feel free to ask. Hampus is not joining me today, but Hanna is joining me. Hi, Hanna. Did we get any questions on the call today?

Yes, we have Tom. I'm sorry. I'm letting him speak now. Perfect.

Thank you, Kim.