Proact IT Group AB (publ)

Good morning everyone and welcome to PROACT's Q1 report 2025. I am Magnus Lönn, I'm president of PROACT and I'm here for you who have been listening in to this meeting before you see that we have a new duo here to present our Q1 report. It's me Magnus and Nora our CFO. And I myself, I took over as CEO for Proact first of March this quarter. But I have a longer background in the company in the sense that I have been leading our Nordic and Baltic business for the last three years. And I've also been deputy group CEO for the last year. So I'm well aware about our company and our potential and our business foremost. So it's really glad to have you all on the call here to walk you through this quarterly report. And as usual, I will give you a short introduction to Proact as a company for you who are new to the call. And then I will give you a short overview of the market that we are operating in. Of course, we will dig into the quarterly highlights and then Nora will guide us through our financial results. And then I'm more than happy to take questions at the end of this session. So let's get started here. So Proact, we are a leading expert when it comes to provide critical business infrastructure to our customer. And this we have been doing since over 30 years as a company. And we were founded in Sweden three decades ago. And what we are really, really good in is exactly this around IT infrastructure. And I will go a little bit more into detail around this later on. But this is actually something that every customer in today's society has a critical need of because all our businesses are more and more digitalized. And this is the area where we are in. Today we are operating in 12 different countries and you can see them here on the map. So we are very Europe centric. We serve around 2000 customers on an active basis. And we have a yearly turnover of five, roughly five billion Swedish kronor. Been stock listed since 99. So a well established company. and as you can see through right here over the past five years we have actually done a good growth session growing our revenues and also EBITDA foremost. Today we are around 1200 experts across our countries and I would say that we are really We are a local trusted partner. And nowadays, I'm also very proud to say that we are a local European partner, because this is, given the last turbulence in Q1, is something that we experienced that our customer are valuing more and more, I would say. So that is us in a short, but take the next slide here. From an operational standpoint, we have divided our business into four different business units and this is also how we report our financial numbers. The red one here is Nordic and Baltics, and this is roughly half of our company in size when it comes to revenue. Then we also have business units in UK, and we have one business unit called West, which consists of Belgium and Netherlands. And then we have our business unit Central, that consists of Czech and Germany. out of these business units we are also delivering we have located our service hubs and i will go into more details from that but that is actually where we produce our services that are supporting this 2000 customer that we were talking about with our own produced services If we look into our revenue stream as a company, I would say that we have a really good spread when it comes to how we generate revenue here. We have the two to the left here, our system and support services. And this is actually the core of Proact where we were started 30 years ago. And then we have expanded out this so that hence there is a different size of it. But our system is that we are helping our customer with designing, providing and install systems that are taking care of their critical infrastructure. It can be service, it can be storage. It can be NVIDIA infrastructure that are enabling AI, for example. And it could be on-prem and it could be in our data centers. Then to all the systems that we are selling, we are very often providing our own support, meaning that if a customer gets a critical failure or something in their environment, then our team are there to support and help and fix it. And this is something that are really working well and it's really appreciated by our customers. And then we as a company also have the possibility to provide what we are selling also as a service, meaning that we own the hardware and we operate the hardware on behalf of the customer. And this is something that we are actually seeing and growing more and more. And this is what we call managed cloud services, MCS. um and of course we as a company we are a tech company and at the end of the day that means that we are experts in what we are doing so we are also selling our competence in form of consultancy services and i would say that all our consultancy services related to the competence that we have it could be designing a new data center it could be cloud native service it could be around public cloud and things like that so we have a really skilled team and For you who follow other tech companies and also in general, I would say that cybersecurity and finding solutions for them, this is on top of every company's agenda. And if you think about it, the best solution or protection for cybersecurity is actually to have a good backup of your data. If something happened to your primary site, then you could restore your data and then you can get back to business again. And this is something that more and more customers actually realize. They can invest enormous amount of money into cyber protection, but at the end of the day, The ability to restore and back up your data is probably the best protection that you can have in the environment that you're operating in. AI is of course a super important driver and we see more and more of that coming. And we are the experts in building the infrastructure around AI and that is important to point out.

If you look into the market, I was talking about that we are in a very good position.

So if you can see here down to the left in the graph here, this is the society that we all are living in. That's the amount of data that we are consuming both as private person, but also as company or generating is actually growing. And this data needs to be stored somewhere. And that means that then there is a need for services and taking help from a company like us. And if I would bet, I would say that the amount of data beyond 2026, it will just continue to increase because this is how we see it. You also see, unfortunately, that this cybersecurity trends and the spend in the market that will just become more and more because it's like a war against, you know, criminality that are becoming more and more sophisticated and then ways of finding and to protect it. At the end of the day, I think we at Proact here are actually super good positioning because we can help and design So that when, and I say when, because the likelihood is very high that you get attacked by a cybercriminal, but then that you can restore your data and that you can get up and run your business again. And this is some of the key, what to say, experience and knowledge that PROAC posses. Hybrid cloud, this is also something that we see more and more coming, that many of our customers, especially I would say the last year, have really rethought what they think about where to store the data. Maybe it's not the best thing to store your critical business data in a cloud that is operated by an American company. For two years ago, this was not a question, but given the last 100 days and what's happened in the US, now many customers are really rethinking this. And here we are actually there to help our customer, designing the most optimal solution for them to help and store and protect the data. I was mentioning that we see an increase of AI, and this is a sort of a customer case that we were working with during Q1, and that was that Göteborgs Universitet, a really science-focused environment, they were building up an environment for their researcher to test and apply new methods. And we enabled them with adding NVIDIA card in order to test and use AI to their data. And this was something that we developed over the past couple of months here together with Göteborgs universitet. So this is a concrete example that how we can use our competence and what we are doing on a daily basis together with our customer. This picture is actually something I really like, and I will guide you through it, because this, in essence, describes what Proact is doing. So if you look into the blue part here, there it says data management, and it says on-premise, private cloud and public cloud. This is actually how every company is built up, because if you have a tech infrastructure, you need to store your data somewhere. Either it can be on-prem, meaning that you have your own hardware and things within your company, then we can help you with that. Either you outsource and have your data in a private cloud provider like us, then we can help you with that. Or you take help of Microsoft, Google or Amazon and have your data stored in their public cloud, then we can help you with that. And this blue part is actually the core of what Proact has been doing for 30 years. We are experts in this field. And it doesn't really matter if your data is located on-prem or in the cloud. We are there to help you. And in today's society, every customer have this setup and structure. And it is how we design IT infrastructure today. And then, of course, you see the yellow part here. Of course, we want to do something with our data. We are using AI to extract more data, do things more quicker. Then you need to have a foundation that your AI are operating on. And this is what we are helping you. And today also some of the hardware are moving into more into software with cloud and native and container technology. And this is a way to develop applications quicker. Here we also have experts that are doing this on a day to day basis that can help you. And of course, all of this happens around the key value for the customer is protect the data. make sure that you have a backup or recovery make sure that your data is secure and if something happened then we are there to help you and to the right here you see This is also how we can deliver it. Either we can help you and sell only technology or we can sell technology with premium support or we can sell it as a service. It doesn't really matter. So this is really a flexibility that we have as a company. And at the end of the day, we have super skilled 1200 people that are here for helping our customer. So I think Proact as a European trusted local partner, we have a really good position to be in. So I'm really feeling excited about this, I realized when I talked to you. So with this, that was both a short background about Proact and also around our market. So going over to some key highlights here. As I mentioned in the introduction, I'm a successor of Jonas Hasseberg, first of March, and I've been working with Jonas since the last three years, so I have a good understanding of our business. But even more exciting was that we acquired Black York, which is a British consultancy company based in UK that are experts in cloud transformation and Azure technology. So it's fantastic to have them on board and joining the Proact family. Their cutting edge knowledge will for sure help us going forward. And for us, the UK is a super important market. So with them on board, we also feel confident that we have strengthened our UK position. What was also really, really great during the quarter was that we was named enterprise partner of the year by NetApp. NetApp is a global expert company within data storage. We have a super long relationship together with NetApp and we're helping a lot of our customers with NetApp technology. But just to be named this and be best in Europe, I think that is a testimonial to our skills, foremost for our own staff that are working on this with a daily basis. So this is good. And when it comes to the financials, and Nora will guide you through here very shortly, but we had a revenue of 1.2 billion. And our EBITDA landed around 80 million. And Nora, Would you be so glad to walk us through the more details of this?

Thank you, Magnus. So turning to slide 10. Revenue in the first quarter, as Magnus mentioned, reached 1.2 billion Swedish kronor, an increase of 2%, largely driven by good performance in Nordic and Baltics, offset by lower sales in business units UK, West and Central. With the Black Yorks acquisition contributing positively with 0.6%, organic growth reached 1.5%. System sales increased with 7.8% to 688 million Swedish krona, and sales from services business decreased with 4.8% to 524 million Swedish krona, driven by higher system sales in Nordic and Baltics, offset by lower sales in UK, West and Central. Cloud service revenue decreased with 6% to 271 million Swedish kronor due to contract terminations and higher customer churn, mainly in Western Central. Improvements in Nordic and Baltics partially offset the decline, but could not fully compensate. On slide 11, annualized reoccurring revenue amounted to 1.7 billion Swedish kronor in the first quarter, a decrease of 2.8% compared to Q1 2024. New cloud service agreements amounted to 122 million Swedish krona in the first quarter, compared to 182 last year. Onboarding of cloud contracts are typically between three to six months, hence revenue effect will come over time. Next page, please. Adjusted EBITDA amounted to 79 million Swedish krona, mainly due to lower revenue in the services business and reduced gross margin. Business unit Novo & Baltic stands out this quarter with an EBITDA increase of 15.1 million Swedish kronor. We have initiated cost efficiency measures in UK, Western Central to create a more sustainable cost base over time. Further to cash flow and net cash position on the next slide. Our net cash position at the end of the quarter amounted to 101 million compared to 330 million at year end to 2024. Changes in working capital had a negative impact of 57 million on cash flow, partly due to tougher terms from both customers and suppliers, including timing thefts and revised payment conditions. Despite this, our strong financial performance enabled both M&A activity and share buybacks during the quarter while maintaining a solid financial position. Now some details, starting with business unit Nordic and Baltics. Revenue landed at 717 million Swedish krona in the quarter. EBITDA increased with 20% to 80 million Swedish krona, resulting to an EBITDA margin of 11.2%. being well above the group target of 8%. System revenue increased by 28% to 500 million, driven by several large deals in Sweden. Service revenue grew by 5.4% to 217 million. Business Unit Nordic and Baltics continues to deliver impressive results in the first quarter. Further to Business Unit UK, In the UK, revenue decreased with 13.7% to 159 million Swedish kronor, primarily driven by lower system sales. EBITDA declined to 1 million Swedish kronor, corresponding to an EBITDA margin of 0.6%, mainly due to lower system sales volumes and continued pressure on gross margins. Black Yorks contributed positively to adjusted EBITDA with 2 million, achieving a strong EBITDA margin of 28%. Business unit West on this slide. Revenue in West decreased with 21.3% and landed at 181 million Swedish krona in the quarter, reflecting a downturn in both system and service revenue, primarily due to lower activity levels and churn. IBITDA decreased to minus 4.2 million Swedish krona, with an IBITDA margin of minus 2.3%. The decline in IBITDA is primarily due to lower revenue, with efforts underway to create a more adaptable cost structure. And finally, Business Unit Central. Revenue decreased to 183 million Swedish krona in the quarter, mainly due to lower system and service sales in a tough market climate. EBITDA landed at minus 1 million Swedish krona, corresponding to an EBITDA margin of minus 0.6%. The EBITDA decline is primarily due to lower revenue, particularly in the cloud services segment. And on this slide are financial targets. As mentioned, organic growth in the quarter was 1.5%. Coupled with the recent acquisition of BlackYachts, we reached a total growth of 2%. We still have a way to go to reaching our target of 5% of organic growth and additional 5% growth via acquisitions. EBITDA margin in the quarter was 6.5% and last 12 months summed up to 6.8%. We are moving towards the long-term target of 8%. As I previously mentioned, we are in a net cash position, meaning that our leverage is well below the set level of two times EBITDA. And ROSE is up 15.9% for the last 12 months. And this concludes the financial overview of this quarter. Back to you, Magnus, with some final comments.

Thank you, Nora. So trying to wrap up here. So as you can see, I mean, we have Continuous strong performance in Nordic and Baltic. Of course, super happy with that. And I'm also really pleased that we, during the quarter, made the acquisition of BlackYacht because this really strengthened our UK position. And also this expertise with cloud native services is an area where we also see will continue to grow going forward. So it's really glad to have them on board. As you also can see in the report, I mean, we are having challenges in Western Central. And as Nora explained, it's mainly related to customer churn and we have had experience contracts. But I would also say that, especially in Germany, we have a tough, let's say, macro financial situation. So the market there is extra challenging. And of course, then there will be even more competition when it comes to sales and things like that. But we have initiated cost efficiency measures across the board here. So I believe that over time, we will also work with address them. And I mean, As an example, when going back, NOBA have doing great now for time, but we also had some challenges. So it takes time to get this in the right position. But overall, I would say that When we look into the market contact, it has been Q1, especially turbulent and things like that. But I think we, I believe strongly that we as a company really stands out as a local European trusted partner. And that is what we see that our customers are really valuing and appreciating. Of course, this turbulence that are in the market with tariffs and things like that, it might make an impact on our customers' decision. But this is something that we are really closely watching in the coming quarters here. So with this, I am opening up for questions to all of you. And thank you a lot for listening in.

And we see here, Daniel, please go ahead. I learned out that this is your first out here.

Yes, thank you very much, Magnus, and welcome to PROACT and these calls. So the first question is on Nordics and Baltics and the strong system sales here in the quarter, up 110 million year over year. Is that driven by the market performing well? Or you mentioned a couple of large deals, especially in Sweden. And what type of deals, customers and markets do these relate to?

It's a super good question. I think in the Nordics... One of the big drivers here is unfortunately the uncertainty that we are experiencing in the surroundings. We are working with both public customer and also private customer. And I would say that every customer in Nordics region are now really revisiting. How are they storing the data? Do they have a backup? How are they protected? And of course, that drives investments, because many have probably taken these questions from cybersecurity, data intrusion, and so a little bit too light. But with the market condition that has changed, I would say many are experienced with that. But then also we are a long term partner, meaning that we are having long term relationships with our customer. And that also builds trust. And as you saw, we were also able to increase our revenue during the quarter. So I would say that is the main drivers.

Yeah, I see. And does it also mean that it looks promising for the rest of the year? Or do you expect any short term hiccups here in Q2 in the Nordics? Or do you expect that to be the outperformer in 2025?

I would answer like this, that I would say that Q1 was quite turbulent and macroeconomic, I think that impacts everyone. So, I mean, it's really hard to predict what will happen in the future. We are of course focusing on what we can impact and that is what we are doing on a day-to-day basis, but I will not either promise or commit to anything. So I'm really looking forward to talk more in the coming quarter here. But we have, yeah, I'll stop there.

Fair enough, fair enough. And then the second question on the services development in Q1 here in general, down quite significantly year over year, minus 6% to historically quite stable. grower line. Anything to keep in mind here for the rest of 2025? Is it the low utilization on the consulting side or any large lost deals behind this?

No I mean some as you can see also we have challenges in special invest and central that we are addressing and we have had in my opinion too high churn in our customers and of course that accumulated over time then gives us this decrease but worth mentioning is also that during the quarter we were assigning 120 million in new contract deals and that will of course materialize over the coming quarter but we had some more work to do in our other business units before I am happy at least.

Yeah I see and you touched upon it already here but cloud revenues down I think seven percent year-over-year in Q1 here and order intake lower than last year even though you mentioned 120 million here but any reasons for that to pick up this quarter or that the customer churn picked up in this quarter specifically or was it an expected development driven by for example contract expirations where customers have already hinted that they will not extend the contracts with you or is it only a sign of a weak market

No, I mean, to some extent it is related to a bigger uncertainty in the market, especially outside the Nordic, I would say. In Germany, the market there is extremely tough. They are really struggling with their financials in the country on a macro level. And of course, that means that some decision in deals that we have been working with for a very long time might have been pushed into the future. So I would say, I would expect that, especially outside the Nordic, this will continue at least one quarter before we know more what's happening.

Yeah, I see. And just to follow up there on the German weak development and some customer churn, do you understand that they have left for another partner or solutions provider or another solution, or they have just decided to reduce their investments in this area?

That's a super good question. And we have really digged into this. And many of the customer that we have lost, we have lost due to price, because some other vendors have really, you know, lowered the price expectations, things like that. And for us, we are not in that game. I mean, we are not racing to zero because we think we are delivering value, and value then it should be well worth paying for. And as I said, it's very easy that you end up in a situation, especially when it's tough in the climate, that there will be a race to zero, but we are sort of looking into that. And then, of course, some customer, if you have had a long relationship, maybe they want to, you know, test another partner and things like that. But our doors are always opening. So we are. For sure, making sure that we are building long-term relationships here.

Okay, that's fair. And then I have a separate question here. As the new CEO of Proact, also having heading up the Nordics business, are there any structural reasons for why Nordics and Baltics should bear a higher profit margin than the other segments over time? Or do you see a journey where you can drive these other margins up to the Nordic levels by implementing a new kind of thinking that you executed in the Nordics?

Yeah, otherwise I wouldn't have signed up for this new work, of course. I think we have done a great job here in the Nordics. We have a good momentum, a good team. And of course, my ambition is to spread that to the rest of our team. And we have a fantastic management team.

we have some more works to do and i'm really looking forward to to continue to develop product going forward yeah sounds good and then the final question on mna and the ones that you have been involved with so far before the black yaks acquisition what type of acquisitions do you think fit best for product and comes with lowest integration risks and obviously highest possible return.

Yeah, that's also a super good question. Konoa, who we acquired four years ago, I think that is a super good example. We are working super good together. We are doing business together. And all of the founders are still in the company. And that is what I think it should be. We are considering blackjack as the same thing. I mean, we are allowing both them to do their business and then we are focusing on strengthening each other. And that is what I think how M&As should be done. Focus on value creation. and then over time you implement the integration and synergies that you need but don't rush it that's my philosophy very good thank you very much for for the replies speak to you next time yeah looking forward to it do we have any more open questions here Then I would like to thank you all for listening in and Nora and I are really looking forward to a report coming quarters and talk and see you soon and have a great continued day. Thanks a lot from us. Bye bye.