Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vitec Software Group AB (LTS:0RDI, Financial) reported a 23% increase in net sales, reaching SEK880 million for Q1 2025.
- Recurring revenue increased by 28%, demonstrating the company's strong focus on stable income streams.
- The company maintains a diversified sales distribution across multiple geographies, reducing dependency on any single market.
- Vitec Software Group AB (LTS:0RDI) completed a strategic acquisition of the Dutch company Intergrip, enhancing its portfolio with mission-critical software.
- The company has a robust pipeline for future acquisitions, indicating continued growth potential.
Negative Points
- The EBITA margin decreased from 31% to 25%, indicating a decline in profitability.
- Operating margin fell from 21% to 17%, reflecting challenges in maintaining cost efficiency.
- There was a mix shift in revenue with less services and license sales, impacting the overall margin.
- The company experienced delays in project rollouts due to market turmoil, affecting short-term revenue growth.
- Cost per employee increased by about 6% year-over-year, potentially impacting overall cost management.
Q & A Highlights
Q: How much should we read into the comment around the mix shift? Is this an isolated event for the quarter, or will it continue throughout 2025?
A: The mix shift is expected to stabilize as projects start rolling out. We haven't missed any opportunities, but external turmoil has delayed some projects. We hope to see these projects resume, impacting the mix positively. - Olle Backman, CEO
Q: Can you elaborate on the transition around services and its impact on margins?
A: Services and licenses are a smaller portion of our revenue, with services being larger. The service department uses internal resources, offering a 100% gross margin impact. R&D efforts have decreased slightly, and transaction-based revenue, which has a lower gross margin, has increased. We expect project rollouts to pick up, stabilizing revenue and margins. - Olle Backman, CEO
Q: Should we expect OpEx to decrease in the second quarter, and can you provide more color on margins for Q2 and Q3?
A: We don't provide specific quarterly guidance, but Q1 typically has higher OpEx due to seasonality. We expect OpEx to decrease in Q2 and Q3, with margins stabilizing as transaction-based revenue normalizes. - Olle Backman, CEO
Q: Can you explain the increase in amortization of intangible fixed assets and its future outlook?
A: The increase in amortization is due to larger acquisitions with intangibles on their balance sheets. Q1 is a good proxy for future amortization levels, as these are planned amortizations that will persist for years. - Olle Backman, CEO
Q: What is driving double-digit organic sales growth in a tough market, and how does pricing factor into this?
A: Organic sales growth is driven by upselling to existing customers and transaction-based products. Price increases last year were higher, but this year they are expected to be lower, around 3-3.5%. Despite this, we continue to see decent activity and upsell opportunities. - Olle Backman, CEO
Q: How is the M&A market affected by economic uncertainty, and have you seen any changes in seller behavior?
A: The M&A pipeline remains strong, but discussions are taking longer due to increased uncertainty. Despite this, our strategy and criteria remain unchanged, and we continue to be a stable partner with available funding. - Olle Backman, CEO
Q: Are there any specific subsidiaries with earnings declines, particularly Enova?
A: We don't comment on individual business unit profitability, but overall, there were no surprises this quarter. Operationally, margins are stable, and we remain cautious on costs while monitoring market activity. - Olle Backman, CEO
Q: What is the outlook for earn-outs in 2025, and how many employees work on service-related projects?
A: We expect to pay out over SEK100 million in earn-outs, with related companies performing well. It's difficult to measure employees working on service-related projects due to the varied roles in smaller business units. - Olle Backman, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
