Welcome everyone to Itera's interim report for the second quarter. We have the same agenda that you have seen before. I will start with the highlights of the quarter, then a deep dive into the business review section. Then we have our new CFO, Bjarte Petersen, that will go through the financial review and also outlook. We also will have a joint session at the end with Q&A. If you have any kind of questions, please use the chat to post your questions. I am very happy to see Bjarte in a new position. The transition from Bent Hammer has been very smooth. Bjarte started actually before he entered formally from August 1. He and the team has also worked very well together in order to make sure that Bjarte is already up and running fully.
Thank you, Bjarte, and looking forward to your presentation as soon in the financial section. Let us go to the highlights for the second quarter. There are three main messages in this quarter that I will follow. He will also go more into details in terms of the financial part of it. The first message is actually that we have improved the growth and profitability of Itera. That is really connected to the operation improvement program that we launched in 2025. We see now a revenue growth in local currency of 7% in this quarter. We have high utilization, we have lower overhead cost. We have also because of this implementation of the program, we have also decided to divest recruitment business that we acquired two years ago because we find it not that connected to the growth of the Itera in this region.
We saw some synergies in the customer side and also to having a strong recruitment link in part of Itera, but now we define that as a non-core business. That is why we in this quarter also had some divestment. Totally the margin and operating performance has improved. We are also in this first quarter also talked about some customer receivables at Iceland. What we have also done in the second quarter, we have also written off these customer receivables. Totally, we will also show you the no recurring. What do we call it? The one-offs for this quarter is actually something that we will go deeper into in the financial review section. One of the message is actually improved growth and profitability. The second message is actually that we see AI-driven demand all over Itera, across Itera is shifting from experimentation to implementation.
That is also opening larger opportunities for modernization, cloud data, and managed services. That is the second topic for this presentation. The third topic I will say is about we have a very strong growth platform in the Cloud and Application Services that continue to show a growth trajectory with 28% gross profit in the second quarter. This growth is we have shown as a gross profit, not only a revenue growth because in this business, there are some cloud consumption. The margin of some of this cloud consumption might be also challenged by big players that offer very small margins. That is why we focus on the gross profit growth when we measure the growth of Cloud and Application Services. That continue to show a very strong growth for Itera and also strengthening the profitability and margin expansion going forward for Itera.
All together, I think we have a very disciplined execution, and we see also now AI-led demand that also provides a quite strong second quarter for Itera. If I deep dive into the business review section, just show you the figures in brief. Bjarte will go more into details. As I told you, we have 7% growth in constant currency, but the reported is 4%. About 50% of our revenue or business are in Sweden, Denmark, and EUR and U.S. So these currencies is impacting also the revenue growth of Itera. So reported revenue is 4%. We delivered NOK 210 million in the second quarter compared to NOK 203 million in the same quarter 2025. If you look at the adjusted EBIT margin in this quarter, it was 6.8% compared to 2.3% in the same quarter 2025.
That's an improvement from 2.3% - 6.8% in terms of adjusted EBIT margin. We also have a quite good operational cash flow of NOK 18.6 million in this quarter. Also, the number of employees is down by 30 people. We are 672 people, but the majorities of this reduction is also connected to, I will say, non-billable functions. So it doesn't have the impact on the growth of Itera. So we are growing by 7% in local currency, while the number of employees is down by 4%. In totally, that will also provide a stronger EBIT. So that's the figures. Bjarte will go more into all kind of details there, so I leave the figures until he deep dive that in the third section. If I look at the market view, as I told you, AI is really moving from experimentation and pilots to enterprise-wide business transformation.
I guess you also are using AI in your business more and more every day, and we see quite maturing interest for using AI through all the services that Itera provide, from the business consulting guys, to the designers, to all the developers, and not at least the operation. So there's really coming a real need for this kind of technology or this approach through whole Itera, and also we see the same at the customer. AI, in the past, we talked about digital transformation and business transformation, and we see that AI is also really coming into the business. So the AI is also driving the business transformation for our customer. One of the key area that we see is actually modernization, because the customer have a lot of legacy depth.
That is where we see that AI is very suitable today in order to start modernizing this kind of legacy depth or this technology depth. We also see a faster transformation into cloud and also what we call a digital core renewal. So looking at the system that has been the core of the business, now is actually the opportunity to start transforming or modernizing this kind of application. Agentic AI is actually gaining momentum, through whole the value chain of Itera from the developers is much more productive than in the past, and also operation. That's something that we see along the whole value chain of Itera. As you also heard about, we have all this kind of geopolitics or cyber risk, of course, that also are stressing the value chain for a lot of the industries.
We also see that digital sovereignty is also something that is a key focus in every sector. We also have this experience from Ukraine, because that is where we have vulnerabilities all over the place. That is something that we bring in the discussion with the customer. That is also a really strong topic. We also see that there is a lot of customer that do not want to be that connected to the U.S.-based global tech giants. There is also opportunity to build a European data and infrastructure industry. We are also more robust if there are any kind of threats from the West also. That also has impact on the consulting. A lot of the people are also talking about, will the consulting business be really radical reduced?
We don't believe that because we see there is a shift in terms of also how we deliver service, I come back to that, but also focus more on outcome. The complexity of this AI is something that are coming all over the place, and not at least also it also has a lot of impact of how the business will transform into a more agentic business going forward. That is the market view. If you look at Itera, we have a position, as you know, in the Nordics. We have European presence. By European presence, we mean in the Central and Eastern Europe. We consist of business divider, designer technologies, and not at least also AI agents.
That is also something that we see from all over the places of Itera, where AI are implemented, and these AI agents are also something that we try to reuse across the Itera group. The AI implementation is really group wide, and I also see very strong position in terms of how we adapt our offerings, how we are using proof of concept much faster, et cetera. That is something that are impacting Itera and the industry quite well, and it is very interesting to see the higher productivity that we can deliver to the customer. Before I deep dive even more in this section, I just mentioned that if you look at the sector, we have a strong growth in the financial services.
That is also connected to the modernization because there is a lot of the financial, the banking, and insurance companies, as you might also be a part of by yourself. There is a lot of legacy there, in the core banking or in the core insurance system. We see there is also opportunities now to utilize AI to really start to modernize this kind of depth that has been there for many years. It costs a lot, and now maybe it is the time to really go into it and transform it into a more modernized platform. The energy and industry is some percentage share down.
That is also connected to renewable. We don't have that exposure in oil and gas, which is growing, but we see some opportunities in oil and gas. We also believe that both renewable and oil and gas will also increase the energy and industry going forward.
The rest, public and organization and others, are more or less at the same level. Going back to the AI transformation, we see some we call the new growth engines. We are showing a stage model. The largest volume is on step one, is actually about legacy transformation or modernization. Because of this, the customer would like to reduce the technology depth. They would like to element the data silos. There is a lot of data silos. So in order to use the right data into the model, they would like to see how they can tap into the silos and also utilize the data in a more efficient way than in the past. That also applies to the integration complexity, because they integrated a build workaround solution around this core system.
That also have a lot of depth that might be removed when you actually move into a more AI technology stack. In the first step, there is a really larger opportunity that we saw in 2025. So we will see a quite good pipe building up and some of the projects are already started. So I expect that the legacy transformation will really mature going forward, during the next two, three quarters. It will take some time before you see the full effect of it, but we have already seen and started on project in the second quarter that is also reflecting in the revenue growth for Itera. The second one is actually the AI enablement, agentic enablement, that we help the customer to establish the AI agents via establishing governance and security, and also make sure that they are using AI responsible.
We are also looking at how they should change the software development process or the operating process in order to really utilize the new technology. Then we have the third stage, which is what we call the AI factory and the intelligent operation. Then you have all the agents that are running. You need to orchestrate it. You need to make sure that you reuse this kind of workflow. You can also make it fully fledged into the integrated operation. So software development and operation will really be seamless, integrated one. You have the humans and agents that are working together. Then you have the improvement of your business in terms of new products and services, and not at least also that you are transforming the business transforming and the digital transformation into more agentic, AI agentic enterprise going forward.
That is a lot of culture, a lot of new processes that need to be changed. So this is a strong momentum for doing changes along your business, but not at least also along the value chain that you are part of. A lot of you have discussed, I see a lot of reports here and there that talks about the reduction of the technology partners of the service industry. I do not believe in that because as I said, there is a value for the customer in terms of faster modernization, lower operating costs, higher productivity, and better resilience. Of course, what does it mean for the customer? They can really, because AI is the engine for growth and efficiency, productivity all over the place, not only IT, the digital part, but also the business part.
If you look at the value for a service provider like Itera, we can utilize agents together with the people. It is not only providing people as in the past, you are providing competencies, but also that are connected to a lot of agents that you bring in or that the customer already have in place. We are talking about, as we discussed earlier quarters, we talk about the human agent ratio. For each human, there is also a lot of digital agent that support and increase the productivity. The increasing productivity for Itera is also creating opportunity for more recurring revenue because you have the people and you have the agents, and then it is more effective to also establish new service line or new revenue line, revenue streams. It is also a possibility to establish IP and the workflows that we can reuse.
We can also discuss, as we also showed you, that the revenue was growing 7%, but the reduction in FTEs was 4%. A major part of it, as I said, was some kind of non-billable. Of course, we will also have a growth trajectory that is less dependent in a linear matter with the FTE growth. Cloud and Application Services is really structured in that way. We have seen that we are growing the top line without increasing the number of FTEs in a linear fashion. This is something that we will see along all Itera going forward. In order to also showcase what we are doing, we are saying that the future of consulting is agentic.
As you see, when we have engagement deliver, we capture the knowledge in terms of AI agents that we are using. When we capture these agents, because in the past it was only the people, now it is also a lot of agents that we have developed, and these agent, we can look at how can we reuse these agents across customer. When we start a new project, we really have a more effective way. We have higher productivity. There might be some services that are recurring, et cetera. That is the way we are changing the business model. When we are looking at the value chain on the first row, you will also see that we have also started to build capabilities. We started for more than one year ago to invest into three products.
One is actually Code Compass, which actually is, we call it code intelligence, where you actually look at any kind of legacy system and get full analysis of all the dependency, all the code, whatever, what code is working, what code is needed, what we would like to continue with, whatever. When you have a very precise documentation, used by AI, then you have also the opportunity to take the next step to use AI agents to really rebuild or restructure or modernize or build a totally new application. In the past, it took a lot of time. It cost a fortune to do this one. Now we are using the AI to really have a precise documentation. When you have the precise documentation, you can use the Digital Factory at Scale with the agents. For each developer, you might have five, six, seven agent that are working alongside.
Increasing the productivity. The last part is also how we migrate data from the old system to the new system. These products are really increasing the efficiency, and that is also something IP that we have developed. When we go to a new customer, we can also charge either higher hourly rate or have some kind of recurring subscription-based revenue stream alongside with the consultants. All these are actually based on our Cloud & Application Services. That is the foundation that these products are built on. When we meet a client, we connect into the agents that the clients are using, and we are also adding value where we have knowledge across customer that we have delivered before. Not at least also looking at all kind of open source of functionality that are available in the market.
We bring this knowledge when we meet the clients. What is also important is actually that we are very proud of that being the first company in Norway that was certified according to ISO 42001, which is the first certification for AI management system. We took that position in Norway, and we are amongst the first in Europe to achieve that certification. That is extremely important for Itera. That support the strategy fully. We had the ambition to be the first, and we managed to be the first. That is actually verifies that Itera utilize the AI in a governed development, deployed, and monitored according to the standard. These are also combined with other certification we managed to complete in the second quarter in terms of ISO 9001, 14001, and also 45001, connected to quality environment and working environment.
Through this certification, we are really having competitive advantage when we are going into more regulated industries. Not at least, AI are increasing the importance of having standards in place, because now we also need to have control of all the dimension of how we deliver this in a responsible way, but not at least also with high quality, so the customer reach the goals. That is also something we achieved in this quarter. I just want to mention that one. Regarding, I talked about the digital resilience, or resilience in the broad sense. Of course, we all see from Ukraine that, for example, energy's infrastructure or energy system has become a part of the battlefield. We see the same threat in terms of all kind of cyber attacks towards Norway because of the agreement between Norway and Ukraine.
These threats we are seeing all over the place. What is nice that actually that Itera really have a strong position because of the position we have been in Ukraine for 18 years. We say that Ukraine is really the real-world laboratory for energy resilience and digital transformation and innovation under extreme conditions. That is what we are doing, Arendalsuka and also now ONS in Stavanger this week, really having a lot of discussion with clients in different industries to see how we can increase the resilience of the companies. What they tell us is actually they would like to learn more from Ukraine.
That means the interest for also looking into not only the support but also getting the learning from Ukraine and also see how to jointly bring the solution that they are working in Ukraine to Norway or the part of the region where we have the same threat. This is actually really connected to the future preparedness across the industry, really very interesting, unique position that Itera have. The resilience is nothing that only a paper now. Now it is a threat. Also there is also a lot of opportunity that we need to develop. This is something that also raises the demand for our services. Before I end up my part, I just want to talk about the order intake. As we show you quarter by quarter, we focus on the share of new customer.
It was 9% of the revenue last 12 months, is new customer that we did not have for 12 months ago. If you compare to other competitors, that is a quite large number. We are quite happy with this share of new customer revenue of the revenue. Because we like to grow, we have also, if you look at the opposite, actually 91% of the revenue is coming from the existing customer. As you also see, 71% of the revenue is coming from the top 30 customers. In Itera, it was compared to 73%, so it was down 2%. For me, that is okay, actually, because I also would like to develop new customer to make sure that we have a growth potential going forward. But the figures here are quite strong, and not at least also, as you see, when the market has been some kind of challenges.
Of course, we do not have the same growth rate, but we are quite stabilized the growth. We also see the demand coming from AI. We are really looking at the next quarter, how we as a company, but also the industry actually maturing into growth pockets going forward. If you look at the number of employees, we were 672 at the end of this quarter compared to 702. As I told you, most of these people are connected to non-billable functions. We have a nearshore ratio. That is the ratio of the people in Central and Eastern Europe with about 50% of the business. That is a part of the operation improvement program. But we are also recruiting, so some people are leaving, but we are also continue recruiting in pockets where we see the demand is very strong. That was the first part.
Then I think we can go into the financial review, Bjarte, so please have your place here.
Thank you so much. First of all, pleasure to be here and first quarterly reporting from my side. Happy to join the Itera team and I am very looking forward to work with all of you, and also with you investors and your analytics. As mentioned by Arne, Itera delivered a good quarter with 7% underlying growth and improvements in profitability. Our adjusted EBIT for second quarter reached 6.8%, 4.5 percentage points up from 2025. Adjusted EBIT for the second half year and the first half year reached 7.9%, which is up 1.9% from 6% last year. For our consultancy business, the growth is, to a large extent, within the financial sector, where we historically have our biggest footprint. We also have a strong profitability development in our Cloud & Application Services, CaaS, with 28% gross margin improvements.
Our improvement program has delivered on target, and our billable utilization has increased last four quarters in a row. It is actually also the highest level in eight quarters. We have some non-recurring item this quarter and also for the first half year. These are related to our strategic decisions, or there are two matters, actually. One is the strategic decision to divest Mosaique Headhunting AS, which was acquired in 2024. The second one is writing off additional customer receivables on Iceland. These are all described in the report, also in the notes four and five. Total EBIT effect on non-recurring for the second quarter was NOK 8.6 million, and for the first half year was NOK 11.7 million. Looking at the last 12 months revenue, they are quite stable also in respect of type of revenue. But we had, in the second quarter, an uplifting 5% reported growth on consultancy revenue.
Revenue from subscription, third party service, and other revenue were stable. Reported revenue per employee were up 7% in second quarter. Q2 marks a positive shift both for 12 months rolling revenue and adjusted EBIT. Going forward, we see opportunities that customers are moving from AI pilots and testing to deploy and utilize agent at scale. Given our investments in AI capabilities with the Code Compass, Digital Factory at Scale, and Atlas Data Fabric, we are well-positioned on these areas, and Arne covered these product areas well. These are really agnostic platforms which enable us to deliver value to the customers even faster. Other key drivers in the market are digital sovereignty, security resilience demand across sectors, and we have unique knowledge through our big footprint and experience with Ukraine, especially on the resilience demand that are emerging.
On the cost side, we will continue also to focus on improving cost structure and have a cost discipline. We had a solid cash flow from operation in the second quarter with NOK 18.6 million. Looking at cash flow from operation last 12 months, this is in the lower end and explained by higher working capital from changes in timing of employee tax payments, but also on timing of payments from a couple of fixed-price projects. Cash flow from investing activities are stable, and we have paid out dividends to our shareholders of NOK 16 million in the quarter, which are reported under financial activities. Looking at our cash conversion, it is the working capital that has giving us a temporary dip in the conversion when we look at the last 12 months EBITDA to cash conversion. These are temporary effects, of course.
The change in employee tax rules and payments in Norway, it has a permanent lift in the working capital. But in terms of cash conversion, they are temporary. So are the payment terms from within the projects that we are talking about. Our dividend policy remains the same. We will have a consistent high distribution of earnings to our shareholders. We paid out NOK 0.2 per share in the second quarter, amounting to NOK 16.2 million. Now for the outlook. Market and demand remains cautious, but we also see improving pockets of activity. As mentioned, these are driven by modernization, data platforms. It is within cloud transformation and also managed services where we have a good footprint now with CaaS and its own digital sovereignty and resilience, as we have also mentioned. AI and agentic AI are emerging as key growth drivers and enabling and accelerating in every open pocket.
Operational improvement program is delivered on plan, but we will also continue to embrace the opportunities in the technology to work smarter and keep high cost discipline and utilization. We will also continue to look at our cost structure going forward, but not in a formalized program that we will report on. On the currency effect, we have a large footprint abroad, in Ukraine, in Denmark and Sweden, Poland and also, in Czechia and Slovenia. Given that the NOK has strengthened during this year, we have an effect on the top line. This amounts approximately in the second quarter to 3 percentage points, where we can see that our reported growth is 4%, while our constant currency growth and underlying growth is 7%. We will see this effect continue also in the third quarter and probably also in the fourth quarter.
This is, of course, dependent on the currency development. Profitable growth, it will remain our main focus. This will be supported by enhanced commercial capabilities that we are building into our companies in all our regions. Thank you. Then I invite Arne back for our Q&A session.
Yeah, I guess there might be some questions.
Yes, we do have some questions. This came in Norwegian, so I will translate. When does management expect the one-time costs to be fully completed, and will you confirm that the margin target will be achieved this autumn?
Yes, in terms of non-recurring items, we do not have any plan to continue with non-recurring items, so this is completed this quarter, right?
Yes.
We do not guide on either revenue growth or EBIT. Of course, ambition is actually to increase, as you said,
both the revenue and also the profitability going forward.
We see the AI demand is actually there already. But as you said, there is some cautious about the currency impact of the revenue top line, right?
Yeah.
That is what we are telling you. But of course, we believe that the foundation of Itera also, not at least also the demand we see from AI, is something that we are quite positive for the future.
Yes.
But of course, we need to take some quarter in order to see that it materialize in all sectors. So it always takes some time before you have the full effect of AI. But from my first quarter to the second quarter, I see quite a fantastic improvement, I will say.
Yeah. We don't expect any significant one-offs in Q3 and Q4.
In respect of Iceland, we think now we have taken what should be taken in the P&L in this quarter based on the information that we have. So, no further one-offs. We will benefit from our improvement program
also in the third quarter and going forward.
It has been executed on plan during second quarter, and most of it has full effect in second quarter, but we also have a tail in third quarter.
Also the divestment of Mosaique Headhunting
will give us an uplift in the margin, a slightly reduced top line. It was NOK 5 million in revenues last year, but a couple of million in losses.
We are positive on the margin side, but of course it's a pressure on the top line and especially from the currency.
Thank you so much. The answers were so good that you did answer two other questions as well in that.
Yeah.
We do have one last here. Cash flow from operations was solid in Q2, but cash conversion for the last 12 months declined to 58%. What are the main drivers behind the lower cash conversion, and what should investors expect for working capital and cash generation in the second half of 2026?
Well, last question first. Usually the second half is stronger when it comes to cash flow.
That we expect to continue. When it comes to the low cash conversion, we, as we explain also, these are working capital related, not profitability. Profitability is good last 12 months. The first item, the change in timing of employee taxes was implemented in the start of the year for whole Norway. This has an approximate effect on the Q2 numbers of NOK 10 million.
That will be a permanent effect on the working capital. But in terms of cash conversion going forward, it will be washed out during a 12 months conversion view. If you look at the second part, the two projects or a couple of projects as I described, these are also temporary. We have one that we will expect payments for now during third quarter or early fourth quarter, depending on the third party delivery. This is a part of the Enter Ukraine program. On the second one is a fixed price project, where we have payment milestones at the end of the period that will be delivered during second quarter 2027. That is at least what is scheduled.
These are temporary, but it has effect on totally approximately NOK 20 million, so it is quite big. Yeah.
Thank you. That was all.
That's all folks.
The questions.
Yeah. Thank you. This was your first quarter.
Yes.
Good to see you here, and we will come back. What is the time? The 4th of November we have the third quarter, right?
Yes.
Yeah. If you have any kind of questions, please reach out to Bjarte or me. We will be always available 24/7 for you if you have questions. Please reach out and we can see what we can do. Okay? Thank you for this this morning.
Yes.