During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to CEO Pontus Bodelsson and CFO Magnus Hansson. Please go ahead.
Welcome, everyone, to the Karnov Group's earnings conference, where we will present the outcome of the third quarter of 2025. Please go to slide two. I'm Pontus Bodelsson, President and CEO of the company. With me, I have our CFO, Magnus Hansson, and our Head of Investor Relations, Erik Berggren. Magnus and I will present the outcome of the quarter using a few slides, and then we'll open up for questions. With that said, let's get started with the presentation. Please go to slide three. In Q3, we achieved strong margins improvement with continued traction in sales of AI-supported services. Customers are confirming productivity gains, and our AI assistant is becoming a daily collaborator. We are advancing our positions and are now accelerating development of our AI-powered workflow tools. Net sales grew to SEK 654 million in the quarter.
The organic growth was 4%, driven by online sales growth, including AI uplifts. The adjusted EBITDA margin improved to 26%, which is an improvement of 4 percentage points compared to Q3 previous year. Leverage was 2.5x , well below our financial target. Last week, we divested our EHS business for approximately SEK 1 billion. I will comment more on that transaction later in this presentation. Please go to slide four. We are pleased with the achieved margins improvement in Q3. Our efforts in Region South are giving the expected returns. The legal landscape is changing as AI is providing new opportunities to serve legal professionals in their tasks. Our AI assistant is a leading AI solution for research, and we continue to capture AI uplifts with high customer satisfaction. In the quarter, we launched a new AI-based solution specifically targeting municipal caseworkers in Denmark and Sweden.
The new solution integrates local regulations and Karnov's expert-authored content in a unified solution, making it an efficient and reliable tool for local caseworkers without legal training. It is a good example of how AI expands to addressable user markets for content plus workflow. The margins improvement in Q3 is achieved by decisive actions in Region South. We progress with rationalization of unprofitable products and the synergy execution. In the quarter, we divested the Spanish training business, which was unprofitable. We are preparing to launch our common AI platform in Region South in the first half of 2026, which will lower development expenses and generate more value for our customers. Next slide, please. We are close to our customers in the development of our AI solutions.
We have launched the next generation of our AI assistant in Denmark and Sweden, and the same AI assistant is prepared to be launched in France and Spain in the first half of 2026, as I mentioned previously. Customers can now upload their own legal documents for analysis, reviews, risk identification, and mitigations. That is our first step towards serving our customers with AI and content-powered workflow tools. Seamlessly integrating knowledge with workflow tools results in more precise and efficient work for legal professionals. Our ambition is to serve customers in all phases, from order intake to customer delivery, with our workflow tools and with our trusted content as the anchor in all phases. This broadens the scope of legal work we support and generates more value for our customers, while also creating new revenue streams on an expanding market.
The target is to launch our content and AI-powered workflow tools in 2026. Next slide, please. Karnov is ongoing a transformation to an AI-supported legal knowledge and workflow solution provider, and we are concentrating our investments in the businesses where we have the best prospects for long-term profitable growth. We have recently signed an agreement to divest our EHS division, comprising Notisum, Echoline, and QSE Conseil, to Infopro Digital Group for EUR 92 million, which corresponds to approximately SEK 1 billion. Closing of the transaction is expected during 2025. The transaction generates a high multiple on invested capital. The allocation of the net proceeds will be determined using our capital allocation framework. Next slide, please. In this slide, you can see our two cost efficiency initiatives running until the end of 2026, with the ambition of harvesting efficiencies of EUR 20 million in total.
At the end of Q3, we have achieved annual run rate synergies of almost EUR 20 million, so we progress ahead of plan. Next slide, please. I will now present our segment performance, starting with Region North. Region North continues to perform exceptionally well, both in terms of organic growth and profitability. The organic growth of 8% is well above our financial target and driven by higher subscription-based online sales, including AI uplifts. The carved-out Schultz business is now part of organic growth. As our focus has been on onboarding the municipal customers, the financial performance of Schultz is in line with the previous year and hence has a dilutive effect on the organic growth in Region North. Excluding Schultz, the organic performance was similar to the second quarter. By the end of the third quarter, we launched our AI solution for municipalities in Denmark and Sweden.
We've already sold it to several municipalities and onboarded them. Margins are continuing to improve, primarily due to operational leverage from higher net sales, but also thanks to positive synergies effects from our acceleration initiative. Next slide, please. We are pleased with the margin improvement in Region South in Q3, and we progress with rationalization of unprofitable products. Both our French and Spanish businesses generated organic online growth in the quarter, while books and training sales were weak also in the third quarter. We have divested the Spanish training business and are progressing with adjustments to the product portfolio both in Spain and France, with a constant focus on improving profitability. The margin improvement in the quarter is thanks to synergy execution as well as positive impact from the divested training business.
We are preparing to launch our North AI platform in France and Spain in the first half of 2026. Next slide, please. With that said, I will now hand over the floor to our CFO, Magnus Hansson. He will tell us more about the financial results. Magnus, the floor is yours.
Thank you, Pontus. Let's start with an overview, switching to slide 11. In Q3, we achieved net sales of SEK 654 million, which is SEK 6 million higher than Q3 of last year. The growth is driven by increased online sales, including selling more licenses to existing customers, higher tier packages, AI uplifts, and attracting new customers. Currency effects had a negative impact on net sales of 2.4%. The online sales grew by 5% in local currency. Last 12 months, group net sales grew by 5%. Next slide, please. Breaking down net sales on segment level, we see continued strong organic growth in Region North and flat growth in Region South in the quarter. Region North had organic growth of 8.1% thanks to strong online sales performance, while Region South declined 0.3% due to weak transactional offline sales, in particular book sales in Spain and training courses in France.
Negative FX effects are further contributing to the decline in Region South. Revenues from AI sales are increasing quarter by quarter as the subscription revenues are recognized over the contract period. Next slide, please. On slide 13, you see the net sales development within online and offline split into segments. In Region North, the online sales increased by 7% compared to Q3 of last year and accounted for 91% of net sales in the quarter. In Region South, the online sales declined by 1% compared to Q3 of last year and accounted for approximately 84% of net sales in the quarter. Organic online sales grew by 2% in Region South. Next slide, please. Subscription-based sales increased during Q3 and represent 90% of sales in the quarter. The negative development in subscription-based sales in Region South is relating to negative FX effects.
The online subscription sales in local currency grew by 2% in Region South. Next slide, please. The adjusted EBITDA amounted to SEK 172 million in the third quarter. This corresponds to an adjusted EBITDA margin of 26%, which is an improvement of 4 percentage points. Last 12 months, adjusted EBITDA increased by SEK 117 million and reached 25%. Synergies are coming through as expected, meaning personal expenses are decreasing. Items affecting comparability amounted to SEK 28 million during Q3 and are restructuring costs in Region South. At the end of Q3, we have achieved synergies within the group of EUR 19.6 million on an annual run rate basis. The effect in the quarter compared to baseline amounted to EUR 4.3 million. We're ahead of plan to achieve synergies of EUR 20 million with full effect on an annual run rate basis by the end of 2026. Next slide.
In Q3, net sales amounted to SEK 342 million in Region North. Organic growth was 8.1%. The growth is driven by online sales. We continue to strengthen our market position and attract new customers. In the third quarter, we have seasonally higher book sales due to school starts. Also, in the third quarter, Schultz became part of the organic growth. Schultz is currently being integrated into Karnov Denmark, and the financial performance is in line with previous years. Organic online sales, excluding Schultz, was 12%, like in Q2. Adjusted EBITDA reached SEK 158 million in Q3. This is an increase of SEK 17 million compared to last year. The adjusted EBITDA margin amounted to 46.1%. The improvement is due to operational leverage from higher net sales and efficiencies from the acceleration initiative. Next slide, please. Which is the Region South segment.
Net sales in Region South declined by SEK 40 million compared to Q3 of last year. Currency effect had a negative impact of SEK 9 million in the quarter. Both our French and Spanish businesses had growth in subscription-based online sales, while the transactional offline sales declined in both France and Spain. In France, the decline is driven by training courses, while the decline in Spain is driven by lower book sales. The adjusted EBITDA margin was 12% in the third quarter, which is an improvement of more than 4 percentage points. The margin expansion is thanks to synergies coming according to plan and positive impact from the divested training business. Compared to baseline, the cost base has decreased by SEK 25 million in Q3. Next slide, please. Which presents the segment group functions. Expenses in Q3 was SEK 23 million. Next slide, please.
Q3 is typically a weaker cash flow quarter, reflecting the timing of the group's online contract renewals and invoicing cycle. The adjusted free cash flow was minus SEK 36 million. We are now entering renewal season in Q4, and Q4 and Q1 is typically a high cash generative for Karnov Group. The leverage was 2.5 x EBITDA last 12 months at the end of September, well below our financial targets. Allocation of the proceeds from divesting EHS will be handled within the capital allocation framework. I'm now handing over to Pontus again, who will present our last slides.
Thank you, Magnus. Please switch to slide 20. In Q3, Karnov Group delivered strong margin expansion thanks to margins expansions in both Region South and Region North. We have solid AI sales traction, and customers are confirming productivity gains and upgrades to our AI packages.
In Region South, we are reshaping the portfolio for profitable growth, and the margin improvement in Q3 is a step in the right direction. In the first half of 2026, we will operate with one common AI platform on all markets. We are also accelerating the development of our seamless AI-powered content and workflow tools, which also will be launched during 2026. After the end of Q3, we have entered an agreement to divest our EHS division to Infopro Digital Group for SEK 1 billion. The divestment generates a high multiple on invested capital. Please go to slide 21. By this, I'll end our presentation, and we are now ready to take questions. I'll hand over the conference again to our host.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Thomas Nielsen from Nordea. Please go ahead.
Thank you for taking my question. Now, excluding Schultz, organic growth in Q3 would have been more similar to organic growth in Q2 in Region North. Could you explain the mechanics of this in a bit more detail? Do I understand it right that excluding Schultz, organic growth was 12% or 13% in Q3? Is this effect impacted by shifts between online and offline products to some extent in Region North? Thank you.
Hi, Thomas. You're absolutely right. Excluding the Schultz acquisition, the online growth in Q3 would have been 12%, just like we did have in Q2. We have been focused on integrating the Schultz customers into the Karnov databases and solutions and not so much focused on growth up until now. Yeah. By that, of course.
Okay, thank you.
Yeah.
Yeah. Also, final question from my part. Can you provide some more detail on your AI monetization strategy? Would you be ready to say what percentage of your customer base in Region North are now using AI solution and what the typical uplift in revenue per customer is like?
Hi, Thomas. Yeah, of course, we are growing, and it's not only a specific customer segment, but in fact, all customer segments, and not only law firms thereby, but also courts, for example, and municipalities and so on. We can see that they are not only buying it, but also using it to a greater extent. Actually, we can see that it grows from month to month, and we often start out by selling to part of a corporation like a law firm, and then happily we see that they buy more licenses when they have tested it for a couple of months. Yes, really positive figures, but as we do not disclose other services and the levels of those, we do not disclose this either. I can guide you and say that we are seeing traction.
It's material to our growth, but we are still early in the adoption curve. That's more to come.
Okay, thank you very much.
Thanks.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions, so I hand the conference back to the speakers for any written questions and closing comments.
Okay, thank you very much then. Thank you for listening and for the questions. We will disclose our Q4 report on the 11th of February and, of course, hope to hear from you then, if not earlier. Thank you and have a good day.
Thank you.