Welcome to Vitec Software Group Q3 2025 earnings call. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to CEO Olle Backman and Head of Investor Relations Patrik Fransson. Please go ahead.
Thank you, and I'm the Head of Investor Relations at Vitec Software Group, and with me is our CEO Olle Backman. In the call, we will first give a short overview of Vitec, as always, followed by comments on the report released earlier this morning. After the presentation, we will open up for questions. With that, I will hand over to you, Olle.
Thank you, Patrik, and welcome, everyone. Okay, let's start off, as usual, with a short overview of the Vitec Software Group. By now, you know this picture, so the dots here represent where we have our feet on the ground, where we have our own offices, which is all in all in 12 different countries. We have sales, actually, in over 50 countries by now, so that's a bit more. We sell our mission-critical software to nearly 26,000 B2B customers. Performance sales are up to SEK 3.6 billion. To my help, I have nearly 1,680 colleagues around the world. It says here 46 business units, but as of October, we're actually 47 with the latest acquisition. Moving over just to show the diversification of sales, which is also a great strength of ours, you can see that we are not dependent on any single country or any single customer.
We have a great risk distribution in this, and you can see also that the distribution throughout the markets is fairly even by now. Talking about growth, how we work with that, we have our sort of dual engine representing this. We are the business units that work with the market leaders in each of their markets, usually a high percentage of recurring revenues. They develop this through our decentralized organization. That fuels the organic growth. Of course, we have the acquired growth, which is the acquisitions which we then fuel this with. Looking at last year, we did a record of seven acquisitions, heavily in the later part of the year. You can see that they come in all shapes and sizes and also in a variety of countries. We opened up a new market last year in Belgium.
So far this year, we have made two acquisitions, one in the Netherlands and also opening up a new country this year with Poland, welcoming NMG here just after the quarter closed in early October. Sales by vertical, that is another way of looking at this. We have nearly 46 business units, but we operate through 22 different verticals. You can see that the bubbles here are the sizes in terms of volume there. Property management, energy, healthcare, auto, and finance are the biggest ones. We also show a picture of the various business units with the LTM numbers on the sales and also the share of the recurring revenue part. You can see here also this is the distribution here, some bigger, some a bit smaller.
That is basically also how our M&A market looks like. By now, Vitec Software Group, with all our 47 business units, is a blueprint of the market. When we work with these business units, one of the great strengths of belonging to a group is the sharing of knowledge across the group. We have a common culture. We have a sharing concept, which we call where we have forums. I think nearly 12 different forums where we have our best practice sharing. This is a very powerful tool because all of these 47 business units, although they operate in different markets, are very much alike when it comes to business models, when it comes to technology, when it comes to utilizing technology and different types of tools, of course, AI tools for that matter. Within these sharing forums, we have a great opportunity to cross-fertilize good ideas to come.
A short note on AI, I thought I'd mention that I wrote about it also in the report here. We have different ways of looking at this, more from an internal perspective, of course, improving our ways of working, efficiency, quality, risk mitigation, for that matter. On the right-hand side, we have a growth perspective, which is the more external perspective where we embed AI functionality in our applications, which we sell to our customers. That gives us, both us and the customers, a competitive advantage. It gives us great scalability and also new revenue streams to come with that. Below there, we have some examples from some of the business units from the internal perspective. A lot of it is around both efficiency in coding, of course, with the tools, but also in customer success and customer support.
The same goes for the external perspective when we have our customer applications, which, for instance, in Vitec Energy, the AI models that we use for energy forecasting, which we sell to our customers in the real estate agents business, we have a powerful tool there to help the real estate agents be more efficient in their daily work. Also in APA, which is in the elderly care, we help our customers to automate some of the regulatory data that they need to report and adhere to. These are just some of the many, many examples that we have across the room. Like I mentioned in the report, this is more of an ongoing evolution. This is something that we have been doing for a long time.
With every new technology shift, we use it, of course, and see how we can work with it to our advantage and also to the advantage of our customers. Moving over to the third quarter report, we have the highlights here. Total sales, net sales was up 6%, 10% on the full year for the first nine months. Recurring revenue share, it is very high, as always, 90% here. Our EBITDA was slightly down 5%. The cash EBIT, which is something that we've been talking in these conf calls throughout the year, is an EBIT margin net of any capitalization or amortization. It is very close to the cash generating. That is also the internal KPI metric that we use with our business units that was up 10%. The difference is there that we write off some of the intangibles quite heavily.
That is the difference between the EBITDA and the cash EBIT. Cash EBIT is really the day-to-day operations and how that is tagging along. 10% up there for the quarter, 5% on the total. Also, something I wrote in the report there, this quarter, again, we have Enova, our Dutch business unit, which was down nearly SEK 50 million compared to the same quarter last year and with a gross margin loss there of SEK 11 million compared to last year. That is something we also wrote about in the Q2 report where the numbers were even greater. It is sort of going in the right direction in that sense. We also have done a lot of measures in the product development and also in the business development there to mitigate the ups and the downs there. We are exposed there to the market conditions of the balancing energy market.
Nevertheless, Enova is still doing great from a business unit perspective. They also operate in quite a volatile market. We will get back to that. Cash flow, quite according to plan and according to the seasonality pattern that we've seen throughout the years, you must remember, we basically have all our cash flows in the first quarter, which is a great thing with these recurring revenue models. We generate all the cash in Q1, and then we are basically quite flattish throughout the rest of the year. This is totally in line with expectations. If you see the, you should really look at the nine-month figure there, which is up by SEK 60 million, roughly, from operations. Net sales, we talked about that, roughly up 6%, like I mentioned, for the quarter.
The EBITDA result is by margin a bit sequentially up, but compared to last year, it's slightly down by 5%. The cash EBIT, which I mentioned earlier, there you can see also the sequential improvements throughout the year from Q1 to Q2, now to Q3. Of course, compared to last year, we're also up with 10%, like I mentioned, for the quarter, which is quite good in this macro environment. Despite that, we had that $11 million less of a gross margin from Enova than we had last year. Overall, fairly happy with the development from the cash EBIT perspective, dragging along quite nicely.
I also mentioned in the report there that we did a bit of a reminder that last year was an exceptionally strong Q4 with both the five acquisitions that came in in Q2 and Q4, which also, of course, contributed highly to the growth, but also the fact that we had a great sort of tailwind from a better general economy. We had three large projects, hospital projects, which finalized. They were three-year-long projects which came through last year. You can see that if you look in the Q4 report for last year, you can see very high numbers on license, other sales, and services for that quarter. Like I wrote in the report, we have a stable environment today. Nothing really is happening, not on the upside, but also not on the downside. We are expecting a bit of a more flattish development in that sense for Q4.
By flattish, I mean compared to where we are at this point. It's not flat against last year, which was all in all a huge record quarter. Moving on to something new, we from this report start to report on the quarterly basis, the organic and the inorganic growth. There are lots of more numbers in the actual report, but in this presentation, I just highlighted here the subscription part, which is the absolute bulk, and the sales fees and the maintenance fees. They were up 6% during the quarter organically, whereas the transaction-based was down 20%. This is, of course, the $50 million which I referred to for Enova is behind that loss. I hope that you will be able to dig into these details. I still think that Vitec is a really long-term company.
You should really look at the LTM numbers and the long-term perspective of everything we do. Of course, there are quarterly things to look at. Just summing up, steady operational improvements for the quarter. Enova is still a bit of a soft market there, but they are doing quite okay from a profit perspective. In October, of course, we added the acquisition of NMG, which we were very happy with and look forward to reporting them in the Q4. With that, I will hand over to the question and answer session.
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 Predrag Savinovic from Carnegie. Please go ahead.
Hi, good morning. Thank you for taking my questions. First off, I'm curious if you could quantify the revenue and EBITDA contributions from the projects that you list benefit to the fourth quarter last year.
Okay, sorry. Now we hear you, Predrag.
Okay. I'll repeat myself then. Hi. Thanks for taking the questions. First off, I wanted to ask if you could quantify the revenue and EBITDA contributions from the projects that you list benefit to the fourth quarter last year.
If you look at the Q4, especially if you compare Q3 2024 to Q4 2024, and then Q1 again, you can see that there is an absolute increase in those line items. Other revenues, services, and the license. There are quite significant sort of changes there. As you know, both licenses and service revenues are very high margin business because we have all the resources. We work with our own staff. I think you can look at, if you compare those three quarters, you will see that the Q4 last year really stood out.
Okay. That makes sense. On Enova, you discussed it already now and a bit in the report, but if you could discuss in terms of when you have large volume reductions and where you have large volume upgrades, what are typically the reasons for this? How much of that is relative to the market? How much of that is relative to your own performance? It looks like there's been some exceptional quarters. What could be reasonable to expect for the coming one now for the fourth?
Absolutely. These two quarters have been really exceptional. I would say, first of all, 100% of it is due to factors that we basically don't control over. The market volume and market pricing depend on the production volume in the market at the moment. Are the big power plants running at full speed, or is it more wind and solar power, for instance, and batteries? We basically just place bids for our customers on their behalf. We win some, we lose some. It is totally up to market conditions. It is not our own sort of performance in any way. The software that Enova sells, of course, that's a pure SaaS model underneath there, roughly EUR 4 million a year. That is progressing according to plan. The rest is a volatile market.
Like I mentioned, we have done a lot of business development, really looking into also pricing models and how we can expand everything to, of course, give our customers the best possible service, but also to, if possible, make that a bit more stable. What we have seen throughout this year, both Q1, Q2, Q3, is a lot less volatile. It was really, yet again, 2024 that had its really peaks and ups and downs. It has been a lot more or a lot less volatile this year. Could something like that happen again? Of course, it could because there are market conditions there that are totally sort of out of our hands. Also, as we grow and become bigger, I think this will be slightly diluted over time.
Like I said, Enova is a bit of a one-off within the group. It is still a very nice company, like I said, and they are really contributing to both volumes and earnings, even in that volatile market.
Very good. Thank you also for the increased disclosure on transactional and recurring and organic growth rates. I think that's very good. In terms of transactional streams, apart from just Enova, based on the growth rates you show here and the history, it looks more normalized when we look at Enova and your other transactional streams. Is that a fair assessment that, yeah, we should probably not expect the same type of year-over-year effects in the coming quarters then, also based on what you just said, Olle?
Yeah, that's what we expect, with, of course, the caveat there that, I mean, should some extreme market conditions appear for Enova. For sure, in the transactional part, roughly 50% of it is Enova, and 50% is spread out through all the other 45, which is a lot more stable. I mean, that's the typical SMS message when you have an appointment, for instance, and things like that. That's a true and fair assessment that you made there.
Okay. Very good. Just a final one, in terms of upgrades to code and new technologies, you discuss AI more here in the report. It's good to see you're on the ball. I know it's early days, but is there any way to quantify the benefits you can get either in some of the divisions? You mentioned energy forecasting, image management, and so on. Even better, if you could reason around OpEx relative to sales a few years in the future.
We don't have any numbers on that yet. Like I said, it's still quite early days. I think both we and a lot of other IT companies, I don't think that the usage of AI, for instance, in development would necessarily mean any reduction in costs. It's more that we will be more efficient. We will produce more with that in terms of coding. Of course, the customer success and the customer service part, we will become more efficient. Also, our customers will become more efficient. Over the years, all of these technology changes have usually sort of been to the benefit of the customers. Of course, some of that will sort of spill over to us. No, I don't have any specific number, but we do see productivity gains, yes, but hard to put a number on them.
Okay, very good. Thank you very much.
The next question comes from Christian Binder from Redeye. Please go ahead.
Hi, and thanks so much for taking my questions. I want to talk a little bit about your most recent acquisition in Poland. Can you talk a little bit more about that market in terms of potential competing acquirers and potential acquisition targets? How does it kind of compare to the other markets where you're active in?
Of course, when we open up a new market for our sense, like we did here in Poland, we have looked at Poland for quite a few years and looked at a number of companies there, but sort of haven't been able to close. We're very happy to be able to close the NMG. For NMG itself, they have a great market position. They have five out of seven of the sort of grid owners in Poland as their customers. The number of sort of meters that they are collecting data from, they collect, of course, from all types of meters, and that's one of their great benefits. The penetration of so-called smart metering in Poland is roughly, I think, 35%-40%. There is a law that says that, I think it's by 2030 or 2031, that should be up to 100%.
Of course, even more data will be collected, and they are also fueling a new data hub that will be implemented in Poland. There are lots of things happening in that space in Poland just for NMG. We really look forward to NMG continuing to grow. Of course, when we enter into a market, we get a lot more attention. We see that already now in terms of the M&A pipeline filling up more with Polish companies. We have a good pipeline all in all. Of course, we get more attention in a country when we are successful there.
Got it. You previously remarked that due to increasing competition, at least in some regions, acquisition multiples have drifted up over the last, let's say, 10 years. It's my impression that Poland may be a market where there's somewhat less competition. Do you think that acquisition multiples there will be a little bit lower than in your previous core markets, or do you think it's quite similar?
For now, they are a bit lower in the Polish market than they are, for instance, in the Nordic and the Netherlands, probably due to, like you mentioned, the competition. They are still a bit lower, the multiples in Poland. Of course, we try to benefit from that.
Understood. Thank you so much. That was all from my side.
The next question comes from Daniel Thorsson from ABG Sundal Collier. Please go ahead.
Yes, thank you very much. A follow-up here on the Q4 comment that you said. You said flattish earnings versus Q3. Is that on EBITDA or cash EBIT? Was that statement including the NMG contribution or not?
No, the flattish towards the Q3. When I meant that, that is according to the cash EBIT because that's what we talk about when it comes to internal operations.
Okay. I lost a little bit of the response there. A flattish cash EBIT, you said quarter -over -quarter. Was it including NMG contribution, or will that be on top of it?
No, that is compared to excluding the acquisition.
Okay. Clear. On OpEx in the quarter, Q3 was slightly lower than I thought, at least. Have you made any structural actions in OpEx in Q3 that we should have in mind ahead, driven by increased efficiency or lower other OpEx, for example?
First of all, we haven't really hired anyone. I think we talked about that early in the year. Of course, we have not sort of reduced headcount per se, but of course, we have a staff turnover. When someone leaves, of course, now we really question, do we really need to replace them here and now, or can we think of both efficiencies or other ways of working? I think that OpEx compared to volume will gradually go down. Also, the part of the OpEx is some of the COGs, that is the bought energy, for instance, for Enova with the lower volumes on subscription that also lowers the costs, of course.
Yeah, that's clear. A question on the new good table here on organic growth in subscription-based recurring revenue. We clearly see that you have done around 6% organic growth during this year, which is a number you have talked about over many, many years. That's a sustainable level longer term. Looking into 2026, moving parts like price increases, upselling potential, how should we think about this 6% organic growth in subscription-based recurring revenues? Is that a fair assumption for 2026 or anything to flag here?
To flag, of course, in those 6%, roughly 3% is due to pricing, and then the rest is upsell and more selling of that. We are expecting the pricing component to go down because, I mean, for good or bad, a lot of our subscription revenues are connected to some sort of CPI, which makes it very sort of mechanical, the price increasing. At least if you take Sweden, Finland, partially Denmark, I mean, CPIs are trending downwards from last year. There might be 1% or 2% down on the pricing component. Of course, if we start to get some tailwind from the macro environment, then the upselling part could increase. That has been sort of the case throughout the years. On average, I think we have been around 5%, 6%. In higher inflation markets, it's more price and less upsell and vice versa.
Yeah, very clear. Final question on M&A headroom. You stated 1.7x net debt/EBITDA here in Q3. We know that you have some earnouts going out in the coming 12 months. How large do you view your financial headroom for acquisitions over the coming four quarters or so?
We have always said that we are comfortable if we can go up slightly on the net debt/EBITDA. The 1.7x there, if we are at 2x or 2.5x, I will still sleep very well at night with our recurring revenue model behind us. In that sense, I still think that we have a bit over SEK 1.5 billion easily in that sense. You also must remember that we buy profitable companies, so that should add some as well. I think we have enough sort of firepower for now and for the near future anyway.
Excellent. That's very clear. Thanks for increased transparency in the report as well. That's all for me.
The next question comes from Thomas Nielsen from Nordea. Please go ahead.
Thank you for taking my call. When it comes to AI, could you perhaps talk a bit about the fear that if AI makes your customers more efficient, would they then be buying fewer seats, as like one concern that's in the market right now? I think you perhaps answered this question before, like how much of a headwind will the three projects in Q4 2024 make in the coming quarter? Thank you.
Hi. I take the AI question there. Of course, there is a risk for us and everyone in the IT industry that if our customers become more efficient and we have a pure pay-per-seat model, we might get hit by that on the margin-wise there. That is also why we have, for the last, I would say, two, three years, really been thinking and experimenting and finding out other pricing models that correspond to the value that we actually create. It's usually a mix. We're not going fully over to, let's say, for instance, in the financial industry, such as a lot of you guys are in. There's asset under management, that's one thing. Or you can have the number of transactions, or if you are towards the insurance companies, the number of policies, or if you're in the healthcare regions, the number of inhabitants.
If you're in real estate, you have by square meter instead. There are lots of different components that we could add to that correspond to the value because it's all down to what value are we creating for our customers, and we should be sort of fairly compensated for that. That is something that we have really worked with for years already. That was before any AI hype because software, in a sense, that should make our customers more efficient. That has always been the case.
Okay. Thank you.
Thanks.
The next question comes from Daniel Lindkvist from Danske Bank. Please go ahead.
Hi, guys. Can you hear me?
Hi, Daniel.
Yeah, perfect. Hi. Just one quick question on the same subject that we had from ABG earlier. On the continuum considerations, how much is related to Enova and how is the setup? When are those evaluated? If you could just give some comment on that.
We have two years left of the earnout period for Enova. Given the volatility of the business itself, we entered into an agreement with the sellers, and they thought it was only fair because from their perspective, they could not sort of guarantee us the volumes as well. We have a four-year-long earnout for Enova. We're just halfway into that. We will, at the end of the day, have paid a fair price for Enova given its performance. I can't go into the details of that because that's a bit sort of sensitive information. We are only halfway into the earnout period there.
Okay. There's nothing due within the one-year period, and everything is related to the $350 million between one and three years out.
We have estimated roughly SEK 300 million for next year for all of the acquisitions in total. Enova is, of course, included in that total, but there are more companies in there, so to speak.
Okay. Perfect. No further questions from my side.
Okay. Thanks.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Okay. I think that was all of the questions for now. Thank you for listening in, and I hope that you have found the report and the increased disclosure helpful. Thanks for listening.