Exsitec Holding AB (publ)

Welcome to Excitex presentation for the second quarter. Presenting today will be CEO Niklas Ek, CFO Carl Arneson, and me, Hampus Lankvist, Head of M&A and Investor Relations. If you have any questions, please use the raise hand function or the chat function in Zoom. And with that, I leave the word to Niklas.

Thank you, Hampus. Hello, everyone. This is Niklas Ek speaking. I am the CEO and has been that since the beginning of March this year. I will start off by making a short recap about our business as a reminder what we do. After that, we will cover Q2 financials and a short market update and also a recap of our priorities going forward. We are Excitec, making IT work together and we exist to deliver digital solutions that improve our customers' businesses and we aim to be a one-stop shop to the customer. We do this by selecting different softwares and develop in-house integrations that can be reused. By implementing different software and provide long-term support, we aim to be a single point of contact for our customers. The digital tools that we use can address areas like reducing financial administration through automation or use data for better decision making. Our customer base today is around 5,500 organizations and our target market is medium to large sites companies in the Nordics. No one customer typically is more than around 1% of our revenue, so very low risk in the individual accounts. We combine the software packages we work with to fit different industries and we have customers in many different industry sectors as you see in the slide. These are the primary software providers and partners that we work with at this time. We are resellers of softwares and the selection has grown to just over 20 software components. We combine these softwares with integrations that we develop in-house and we have a revenue share partnership with these software providers where we market and sell their software to new accounts and make customers successful in using the software over time. The business model is built on three revenue streams. The sales and marketing is focused on selling software together with integrations. This is sold on a subscription model where you pay as you use. This revenue stream has grown to 24% of our net revenue. Just under two-thirds of our revenue is from professional service, where we implement the software and make the customers successful in using the software over time. We also do custom development and custom integrations when needed. The third revenue stream in our business model is that we offer customers a single point of contact support on a recurring fixed price model. In this engagement, we can also take care of infrastructure, internet access, IT security, and such things. Excitec is a Nordic company that started out from Linköping, Sweden. Today we are around 600 employees, with Sweden being the biggest segment. We have been successful in the last 10 years with growth, both organic and from M&A. Our EBITDA has followed our growth nicely, with an exception in 2024. Excitec runs one of the largest trainee programs in the Nordics and has been doing that with scale since 2015. We are very proud of this and almost 40% of the employees working at Excitec started as trainees. When it comes to the class of 2024, they were profitable now in Q2 as expected. We are planning for a large program this August where we welcome around 60 new colleagues. Our trainee program is the main source for recruiting new people and an important addition for future growth. So let's dive into specifics for Q2. I will start off with the highlights and then leave the word to Carl Arneson, our CFO, for the financial details. Last year, we reported a strong Q2 and we still act in a market with a passive customer sentiment. So we feel good about our stable margin of 19.4% and adjusted EBITDA over 44 million SEC this quarter, which was in line with the second quarter last year. Our total growth comes entirely from acquisitions. We are not that happy with the development in organic growth in Q2, something that we are continuously working on. One important factor for future growth is our new sales and therefore it's satisfying to see our strong order intake in Q2, which was around 40% up compared to Q2 last year and the best quarter ever for Excitec. So with that, I leave the word to you, Carl.

Thank you, Niklas. Starting off with our net sales, we report a 8% growth in Q2 versus Q2 last year, where as mentioned, Niklas said, the organic growth was summarized to minus 2%. Following the weaker Norwegian and Danish kronas, we actually delivered slightly stronger numbers. In fixed currency, the total growth was plus 10% and the organic almost flat year on year. During the quarter, we saw strong net sales performances in especially other Nordics and Sweden, mainly through our acquired businesses. And I will also come back to the development per segment shortly. Our growth comes from all our revenue streams, where professional services and software are the main ones, as mentioned. And the growth in recurring revenues stands out. But the overall feeling is still, and as mentioned in the previous report as well, that our customers tend to push decisions for minor system updates and adjustments into the future. while bigger projects such as new investments and system migrations are developing more positively. Also, looking at the trend the last six months, we see an 11% growth year-on-year where the majority comes from acquisitions. Moving over to our adjusted EBITDA, we report a 44 million SEK profit, which is 1% up versus Q2 2024. However, and as mentioned, we still feel that we can deliver even stronger performances almost across all our segments. The efficiency, especially in Sweden and Norway, can be improved. And this is also something that we're working continuously with. And year to date, the adjusted EBITDA is plus 7% versus last year. For the entire year and also a few years back, the net recurring revenue from software has been a highlight for us. And for the last 12 months, we see a growth of 28% year on year in this revenue stream that made up 24% of our total revenues. This growth is driven by both M&A, new and cross sales, and to a certain degree also from price increases. Overall, the organic growth in net revenue from software summarizes to approximately one-third of the growth for the last 12 months. This is of course a very important contributor to our earnings, but it's also a good measurement to see that we have a strong offering and that customers continue using and deploying software that we deliver to the customers. Regarding our different segments then, looking into our different segments, we have Sweden that delivered 11% growth year-on-year in Q2, where the organic growth was slightly positive. The adjusted EBITDA margin did not develop in the same manner, but ended up at 24% versus 27% last year, although an uplift versus previous quarters, and the delta versus last year is better than in Q1. The lower margin year on year can mainly be explained by a lower efficiency that we're not completely satisfied with, as I mentioned. It can also be noted that despite a lower efficiency, the margin in Q2 is our second best Q2 margin in Sweden since the IPO. Norway reported a minus 10% in net sales year on year in Q2. However, affected by a weaker Norwegian Krona in local currency, the decline was minus 5%. Despite this, it's satisfying that we managed to increase our adjusted EBITDA and margin from 5% to 11% year on year. where an improvement in efficiency was the main driver behind the uplift. Even though we're happy with this improvement year-on-year in Q2, we still feel that we have more opportunities going forward in Norway. An improved margin in Norway is one of our key focuses going forward. A stable and strong margin over time is important for building a stronger business ready for future growth. Finally, our third segment of the Nordics that covers our offerings in Denmark and Finland reported a very strong growth of 48% in Q2, where the majority of the growth was acquired. Especially the professional services business in Denmark developed strongly during April and June, while May was slower in relation to other months, 2025, which also affected the margin for the total segment. We have been able to serve the customers acquired from ECIT well, also during Q2. And we see further potential also in the coming quarters related to this. Worth mentioning is also that we in Q2 had a slight negative one-off in Finland that affected the margin for the segment. Regarding the margin, as we had 33% in Q1, we still believe that it should be significantly higher than last year. But it can also vary a bit from quarter to quarter when it comes to the Nordics. And by that, I hand over to you again, Niklas.

Thank you, Carl. I will continue with a short update on the market conditions and our priorities for 2025. Our existing customers are still passive, just as we've been talking about in the last 18 to 24 months. And we still do not see that trend switching when it comes to invest more in existing systems and solutions. We do not see a trend towards churn on the other hand. So our customers are using the solutions and systems provided by us. But the small things like adding a new report or change something in the ERP is not on the same level as a couple of years ago. M&A is an important part of Excitec, but so far in 2025, the timing has not been right for us. We are still building pipe and searching for companies that are a good match for Excitec. We had an increase over 50% in leads compared to Q2 last year. So we see good traction for our offering and we feel optimistic about both Visma and Microsoft when it comes to ERP solutions for new customers. So our business priorities in 2025 sales execution is important for us, especially when we struggle a bit with our professional services to existing customers. To be able to have organic growth, we need to be successful with new sales. We feel good about our sales force since we reported a strong order intake in Q2 and also the increase in leads from potential customers. The second one is about operational excellence. We have talked about the challenge with passive existing customers. And since around 80 to 85% of our professional service comes from existing customers, we need to keep working with our efficiency and our operational excellence. And one thing that we do is to work actively to move people around where we see a bigger demand for our professional services to match our capacity. The last priority for 2025 is about M&A and integrating acquired companies. Brightcom was our biggest acquisition in 2024 and we are on the right track. As mentioned, we see good traction for the offering around Microsoft and we closed several deals in Q2. We are also looking forward to welcome new trainees in August to Brightcom. And about M&A, as mentioned, we continue to build pipe and keep looking for selective acquisitions when we have the opportunity. This is a reminder about our financial goals. We have a goal to increase our net sales by at least 15% per year over time. And our performance target is to increase our EBITDA per share by at least 15% per year over time as well. Our stability measures is that our net debt must not exceed two times our EBITDA. And the last one is that our policy is to distribute 20 to 40% of the profit after tax. And this concludes the presentation. Are there any question for us, Hampus?

Let's see, if you have any question, please use the raise hand function in Zoom. Yeah, we have a question from Thomas Nilsson. You can now unmute yourself, Thomas.

Okay, yes. Thanks for taking my question. Recurring revenues from software now accounts for 25% of your total revenue. How do you see this mix develop in the coming two to three years, especially with the business next cloud migration in mind?

Yeah, it is 24% right now in the revenue stream. We see that we are very happy with the development when it comes to recurring revenue from license. And if it continues like now that we have... customer sentiment with the passive customers, existing customers. It might be that the share of recurring revenue from software is increasing, but that's not really the important thing for us that it continue to increase. The important for us is that the actual numbers from from recurring revenue from software is increasing. So I think it will depend on how our existing customers will behave in the future. But of course, Business Next is an important software for us to continue to work with. And we do see that customers migrating from on-premise systems to cloud solutions, that increased the license for the customers and that increase our share of that revenue as well. But yeah, we will see. Probably it will go to maybe a few percent more in the coming year. But sometime I think with professional service will take off again as well.

Okay, thank you. And a second question, if I may. You talk about a strong order intake, which was very positive in the report. Could you talk a bit about how this order intake, what it looks like in your three different geographic markets?

Yeah. So if we go back to actually look at Q4 in 2024, we also reported a really strong order intake. That was a really good contribution from Norway. And if we look now in Q2, the majority of the strong order intake is in Sweden this time. So we've had really good numbers in Sweden. And it's a bit of a mix when it comes to our different offerings. So the product mix is good. And so the biggest contribution is from Sweden and then from Norway and then from other Nordics in that order. And when it comes to Norway and Denmark, we see that Business Next is the one that we are selling the most. And in Sweden, it's a mix with Visma solutions, Microsoft solutions, e-commerce solutions with lithium, for example. But the short answer is Sweden is the biggest one in this quarter.

Okay, interesting. And just one final question for me, if I may. When it comes to organic growth this year and next year, how much of the organic growth do you think will come from existing customers? as compared to new customer wins this year and next year, if you were to guess.

That's a good question. I think that there are more to wish for from our existing customers since we still see that they are passive. We do work actively with our efficiency in the professional services. So I think we have some to gain there. But then, of course, for from new customer, if you can continue with strong order intake, we should be able to have organic growth for new customers. But as I mentioned, around 80 to 85 percent of our professional services comes from existing customers. So that's still the biggest part. So we need to get better efficiency from that.

OK, thank you. That was all for me.

Thank you, Thomas. We've gotten some questions through the Q&A as well. We have a question that says 7% negative full-time employees development in Q2 versus Q1. Any comments? What is driving the lower headcount?

Yes, I would say, Carl here speaking. First of all, as we highlighted in our Q1 report, we made a reduction in our trainee program from 2024 in early 2024. at early q1 sorry so so that affected slightly but also when it comes to q2 normally our staff turnover is slightly higher in q2 and so looking at that the trend also q2 from q1 to q2 last year it was pretty much the same development so so this is not an an an unsignificant change from quarter to quarter. And also, it's part of our business model. We have the trainee program that will provide us with more people here now starting in August. So it's not a significant change in Q2. I wouldn't say that.

Oh, I agree with Carl. It's a natural process that we accept trainees in August. And then we do have some small trainee program also in January. But meanwhile, during the rest of the period, we do not hire extensively. So we do have employee churn all over. So this is mainly what's driving the negative FT development, I would say. We have a question from Vincent Edholm. I have permission to talk, Vincent.

Hello. I hope you can hear me. But thanks for answering the question I posted in the Q&A. But I was also wondering about the strong order intake we've seen now for a couple of quarters in a row. And if you might be able to Give us any comments on what to expect here going forward for Q3 and Q4 in terms of organic growth and when these orders can actually materialize in growth on an organic basis, given the positive development in Q1 and now slightly negative development in Q2. Is it reasonable to assume that you will post positive organic growth for Q3 and Q4 this year?

Well, first of all, it depends a bit on what offering that we are selling and in how long time it takes for us to actually see the results from the strong order intake. We looked into that in Q4. As I mentioned, we had a strong quarter when it comes to order intake in Q4. And for some customers, we... We still don't see a big result from that since it could take time to actually start the project. For smaller projects, we can actually start the project right away and we can see some revenue from professional services. But for the bigger projects, sometimes we need to do a pre-study and it takes time from the customer as well before we actually start the project. And when it comes to support and revenue from From software, it might take up to a year sometimes because that's when the customer is live with the new system and we can actually start invoicing support and software providers can start invoice the license. So it depends a bit on when we can see it. But of course, strong order intake is several quarters in a row. That's a good thing for us. But again, as I said, 80 to 85% of our professional services comes from existing customers. So if they are still passive, we need to have strong sales. And then you might ask, how strong sales? And that depends on the different offerings. But I think that we can see good numbers in the coming months if we continue with the strong sales. But it's hard to say, and we don't leave any forecast in how the order intake will affect organic growth.

All right. So if we were to assume sort of markets still being passive, as you've seen during the last 24 months and also here in Q2, there is still a chance of organic growth driven by new sales from new clients in H2.

Yeah, that might be possible. Yeah.

All right. Perfect. Thank you very much.

Thank you, Vincent. We also have another question. Could you elaborate a bit on what trends you see in your rim sales? I assume that's referring to say existing customers and they calling in and asking for help.

Yeah. Well, we see the same trend as we did in the last 18 to 24 months. So it's really nothing new. So still we see that the small things are pushed forward. We do not have that RIN as we talked about on the same levels as a couple of years ago. So, and that's why we are struggling a bit with the professional service on existing customers. So it's not on the same levels as a couple of years ago, but the trend is not switching in any way. So it's quite the same as been in the last 18 to 24 months.

Good. We have another question. There is a similar trend with cautious current customer in several software and consulting companies. Could there be a structural change in current customers' willingness to invest as they are getting more and more digitalized on average, or do you see it as a pure cyclical thing?

I think it's more of a cyclical thing than a structural change. We still see when we talk to customers and what we hear is that they are more pushing the decisions forward and not doing things rather than solving it in other ways. So more of a cyclical thing.

The next question we have is what are the expected size of this year's trainee program?

Around 60 new colleagues in total spread over Sweden, mostly in Sweden. And then we have people in Norway and Denmark. So that's around half of what we did last year.

Great. We got a follow-up question on the RIN sales. How can you influence the RIN sales compared to how much you can influence the new sales?

Well, I think for us with a lot of customers, we have around 5,500 organizations. We need to actively work with them and they need to know all the things that we can offer to them. So, for example, if we do a good solutions for one customer using a software, it is we can probably use the same solution for for other customers in that sector or industry or something like that but those customers may may not know that there are those solutions out there so so that's something that we really need to work actively with so so that's something that we can influence and We need to take care of our customers. That's what we can do. So I think we can influence it. Yes. But new sales, of course, we can do that as well. And that we are working actively with increasing our sales force and working with marketing and so on.

Next question is, when you say that your trainee program from 2024 is now profitable, what do you mean with that?

We mean that the revenue from the trainee program is now more than the costs for them. So we are looking into that data and we have data from all the years that we have been running this training program. So that's what we mean.

So we do the, when we, when they start, we start calculating how much they cost. And in the beginning of the training program, they, they use the crew costs, but over time they also contribute with the revenue. And now we have, uh, they are now, uh, uh, positive. Yeah. Um, that was the last question. Is there any other questions? Please raise use the raise hand function. Um, It does not seem that we have any more questions. And then we say thank you for everyone who's listening to this report. And we'll see you next quarter, hopefully.