Spir Group ASA

OSE:SPIR

Earnings Call Transcript

[Per Lomsdalen, executive]

Good morning, and welcome to the presentation of the Second Quarter and First Half '24 Financial Results for Spir Group. My name is Per Haakon Lomsdale, I'm the Chief Executive Officer of Spir Group, and I'm very happy to be here together with our CFO, Cecilie Hekneby, to present our results.

Spir Group is a software house with leading positions in 2 attractive business units in Norway and Sweden. Firstly, our business is centered around real estate data. Our primary customers are real estate agencies, homeowners, constructors, engineers, banks, insurance companies and telcos. Secondly, we deliver mission-critical software within public administration. Our primary customers are local governments, government agencies and other public organizations.

We have 3 types of revenue streams, recurring revenue, transaction-based data and software sales and consulting services. These are our core companies within our 2 main business units as well as an overview of our other controlling and noncontrolling brands. Ambita on the left side is the leading provider of real estate data in Norway, with a high and sustained market share. Ambita is a supplier of mission-critical software, real estate and financial institutions with a long history and deep domain knowledge and offer services that cover 9 out of 10 processes in a real estate transaction.

Boligmappa is a digital platform for property documentation. Boligmappa has more than 1 million unique users with high potential paired with Hjemla, which offers automatic property values, price and market information. These platforms empower users to make data-driven decisions in the housing market.

Metria is the leading real estate data and geoinformation provider in Sweden. Metria's revenue comes from a mix of transactional SaaS and consultant services with transaction-based income tied to the volume of loans and property sales. Our focus is to develop Metria's core business and increase margins. We expect to see effects from this transformation later this year.

Within public administration, Sikri is providing mission-critical software for case management in Norway. Sikri has a strong #1 position, delivering high annual recurring revenue through long term, SaaS agreements and a solid loyal customer base. We also have an active M&A strategy to strengthen our portfolio, and we have acquired several companies during the last few years. One of them is AIoT, a company with an improved product offering towards our customers within AI. We are also investing in energy and appraisal to strengthen our PropTech portfolio.

And now I will walk through some Q2 highlights in our 4 companies. See, first of all, Ambita. In second quarter, Ambita saw a positive effect from a 3.9% increase in properties put up for sales in the quarter. The number of properties put up for sale in Norway has historically been very stable with about 100,000 properties each year. Q2 tends to be a quarter with the most properties put up for sales and a high season for Ambita.

Products portfolio is strengthened through the acquisition of shares in Prosper AI and secured an exclusive distribution agreement for their AI driven services, which will generate detailed property prospects, despite tough market conditions with new construction down by 6%, demand for the utilization is rising. As an example, Ambita's digital building application, Byggesøknaden has seen a 21% growth compared to second quarter 2023.

Then we have Boligmappa for second quarter. In the second quarter, Boligmappa reached a milestone of 1 million users with 10,000 active users on its Boligmappa plus and nearly 5,000 on Hjemla Premium, which is only half-an-year old. The platform has got significant attention from media and industry leaders, including a feature on national TV. Boligmappa strong interest from the insurance and banking sectors, leading to 2 commercial partnerships with IF and SpareBank 1 Sørøst in July, which we expect will increase the number of Boligmappa users. We now also have a new CIO for Boligmappa in place, with a strong commercial leadership background.

Then we go to Metria. In the quarter -- this quarter, Metria saw a strong customer demand for its Metria Maps solution and Markoll, driving on an 8% growth in our SaaS solutions. Metria is still highly impacted by the challenging real estate market in Sweden, while the number of properties put out for sale is the main driver for transaction-based revenue in EBITDA. The driver for transaction-based revenues in Metria is the number of properties sold and the size of loans taken out. The number of homes sold in Q2 showed an increase of plus 14% compared to Q2 last year, indicating that the Swedish real estate market shows signs of picking up. Metria also secured a new project with Naturvårdsverket to develop the next version of Sweden's national land cover data using AI technology. Additionally, 2 new banking and finance customers adopted Metria Klimatindex in second quarter.

Then we have Sikri. Sikri has achieved significant milestones with 124 closed deals, including winning key tenders with Norsk Tipping, Nasjonal ID-senter and Trygderetten. The company has been selected as 1 of 3 providers together with Skatteetaten in developing AI prototypes. Also in the quarter, Sikri launched Pixedit office featuring AI functionality.

Before I leave the word over to Cecilie, let's look at some of the key numbers from the second quarter. Spir Group's recurring revenues are at a high level and ARR increased 6% compared to Q2 last year to NOK 406 million. Total revenues reached NOK 308 million in the quarter, up 6% from last year, which also represents an all-time high for Spir Group in the second quarter.

Our scalable business model has also resulted in stable and high margins with an EBITDA margin of 18% in the quarter, up from 17% in Q2 last year. EBITDA ended at NOK 54 million in the quarter, increasing 10% from last year. And with that, I'll give the floor to Cecilie who will give you some more in-depth look into our financial numbers from Q2 and first half.

[Cecilie M. Hekneby, executive]

Thank you, Per Haakon and good morning, everyone. I will take you through the financial results for the second quarter and the first half year, starting with the highlights for the second quarter. We use Norwegian Krone as reporting currency. Spir Group's key KPIs as total revenues, EBITDA and net profit all improved in the second quarter to all-time high. The second quarter is high season for our services related to a number of houses put out for sale. In addition, we had a positive effect related to Easter. Revenue increased by 6.3% to NOK 308 million compared to second quarter last year. We had steady growth in our SaaS revenues and annual recurring revenue had an increase of 6% to NOK 406 million compared to 1 year earlier.

EBITDA adjusted for nonrecurring items classified as other income and expenses increased by 5.6% to NOK 56 million. There were nonrecurring items of NOK 2.4 million in the second quarter this year compared to NOK 4.5 million last year. Net finance improved from minus NOK 11 million in the second quarter '23 to minus NOK 9 million in the second quarter this year and is positively impacted by the interest rate swaps entered into last year.

Net income in the quarter was NOK 9 million, up from NOK 3 million in second quarter '23. We have a strategy to grow through a combination of organic growth and bolt-on acquisitions. And in the quarter, we acquired 15% of the shares in Prosper Ai with an exclusive distribution agreement.

Moving on to the results for the first half. Revenue increased by NOK 20 million to NOK 571 million, implying organic growth of 3.6% since first half '23. Adjusted EBITDA was NOK 91 million compared to NOK 98 million 1 year earlier. There was higher operating cost in the first half 2024 than in first half 2023, following general wage increases and inflation, some new positions on group level and a higher cost base in Metria in the first months of 2024 than 1 year earlier. Initiatives to optimize cost across the group started to show results in the second quarter, but are offset by a slow start in the first months. We expect initiatives to materialize further during the second half of 2024.

Net finance improved from minus NOK 23 million in the first half of '23 to NOK 16 million in the first half this year, positively impacted by the interest rate swaps. Net income for the first half 2024 has improved and was NOK 4 million, up from minus NOK 4 million in the first half of '23. Overall revenue has increased by 6% in the quarter and by 4% for the first half. The revenue increase in the second quarter is highly impacted by Ambita's 11% revenue growth following high season for properties put out for sale and Easter effect. In the first half year of 2024, Ambita's revenue increased by 6%.

In Boligmappa, revenue increased by 23% in the quarter and by 15% in the first half of 2024, driven by a steady growth in subscription sales to new customers. Metria's revenue was flat in the quarter and up 2% in the first half 2024. The real estate market in Sweden is still challenged and impacts Metria's transaction-based revenue since the number of properties sold and level of mortgages taken out is lower than in 2023. The decrease in transaction-based revenue is offset by higher demand for consulting services and a steady increase in subscription revenue.

In Sikri, revenue is up 1%, both in the quarter and in first half 2022. Sikri's steady growth of 6% in subscription revenue is offset by lower consulting revenues in the period. The gross margin on group level in the quarter was 57% in the second quarter and 59% for the first half, slightly lower than 1 year earlier due to product mix with higher share of consulting revenue. I've touched on some of the drivers of the quarter's results. I will now dive into more details in the 4 key segments of Spir Group.

Starting with Ambita. In the second quarter, total revenue in Ambita was up 11% to NOK 153 million. The major part of revenues in Ambita correlates with activity in the Norwegian real estate market. In the second quarter, transaction-based revenue was up 14% to NOK 140 million. Spring is peak season for Ambita with a high number of properties put out for sale. In addition, Easter was in March this year, leaving April with more workdays than last year. Properties put out for sale was up 4% in the quarter compared with second quarter last year.

Commencement of new homes, however, was down 6% compared to second quarter last year. Despite the lower volume revenue from Byggesøknaden was up 21% as an increasing number of municipalities require digital building applications, indicating a growth opportunity when the market for new home turns. Operational costs increased by 5% in the quarter, following annual salary increases and inflation, but Ambita is continuously working on initiatives to improve operational efficiency. Adjusted EBITDA was up 10% in the quarter to NOK 33 million with 21% adjusted EBITDA margin. And in the first half of 2024, revenue was up 6% to NOK 262 million with adjusted EBITDA of NOK 46 million.

In the quarter, revenue in Boligmappa was up 23% to NOK 13 million, with subscription revenue up 35% and steady growth of 7% in annual recurring revenue. Revenues in Boligmappa are still primarily from B2B sales with 3 new products directed towards the consumer market were launched at the end of last year, and there is a steady increase in consumers choosing to upgrade to the premium offering. Other income decreased by NOK 0.7 million. Last year, Boligmappa received grants from Forskningsrådet, the Research Council of Norway related to a project. The grants have been substantially reduced this year according to plan.

Gross profit in the quarter is up 23% to NOK 13 million, with 98% gross margin. There have been increased operational costs following focus on sales and marketing and stabilizing of the platform to leverage Boligmappa's substantial volume of homeowners, now slightly about 1 million registered users. Adjusted EBITDA, minus NOK 1 million is at the same level as in second quarter last year. And in the first half of 2024, revenue is up 15% to NOK 25 million with adjusted EBITDA of minus NOK 2 million.

In the second quarter, revenue in Metria was NOK 74 million, which is the same level as 1 year earlier. Subscription revenue, however, showed an increase of 6% in the quarter compared to 1 year earlier, and annual recurring revenue increased by 6% to NOK 119 million, mainly driven by the 8% increase in Metria's SaaS products, [indiscernible] Metria Maps and Markoll with the energy and forestrial industries as important customers.

Transaction-based revenue constitutes about 34% of total revenue in Metria and is highly correlated with the real estate market. The real estate market in Sweden has been challenging since 2022, and decreasing volumes of properties sold and lower sizes of mortgages taken out have been affecting end-user volumes within banking and finance.

In the second quarter, transaction-based revenue decreased by NOK 3 million compared with 1 year earlier. The decrease in transaction-based revenue is offset by higher demand for consulting services with consulting revenues at NOK 5 million from second quarter '23. Other revenue is lower than 1 year earlier due to invoicing of services to a new owner of divested business in a transition period in 2023. Adjusted EBITDA was NOK 9 million in the quarter compared to NOK 11 million in the second quarter '23. The decline is mainly explained by higher COGS following the higher share of consulting revenue and reduced gross profit.

Revenue for the first half year was NOK 149 million, up from NOK 146 million compared to first half '23. Adjusted EBITDA was NOK 21 million compared to NOK 27 million in first half '23. Metria has the last year focused on building a new structure for the organization to streamline the business and has implemented measures to improve profitability. Operating cost was NOK 1.3 million lower in the second quarter than 1 year earlier, with effects expected to further materialize during the autumn.

In the quarter, Sikri had revenues of NOK 66 million, up 1% from 1 year earlier. Revenue from subscription sales, however, increased by 6% to NOK 50 million with a steady increase in annual recurring revenue of 6%, but was offset by NOK 3 million in reduced consulting revenues. Following Sikri's success with cloud migration of existing customers they have fewer upgrade projects in the quarter than 1 year earlier. The gross margin is higher for subscription revenues than for consulting revenues, impacting gross profit positively for Sikri and gross profit increased by 5% to NOK 59 million.

Operational costs have only increased by NOK 1.4 million compared to 1 year earlier, despite annual salary increases and inflation due to measures to increase efficiency in the organization. Adjusted EBITDA increased by 7% to NOK 19 million, implying an adjusted EBITDA margin of 29%. Revenues in Sikri grow steadily with increasing annual recurring revenue following a high win rate on public tenders. The third quarter last year stands out, as you can see on the illustration on the right-hand side, due to revenues from the biannual election project, where Sikri provides solutions for municipality elections in Norway.

In the 2023 election, our solution were used in more than 100 municipalities and counties and the next municipality election is in 2025, that is next year. Revenue for the first half year was NOK 134 million, up from NOK 132 million in the first half of 2023. Subscription revenue increased by 6%, which was partly offset by reduced revenues from consulting with higher COGS, impacting gross profit positively. Adjusted EBITDA for the first half year increased by 5% to NOK 38 million with an adjusted EBITDA margin of 28%.

We have 3 main revenue streams in the Spir Group, subscription revenue, transaction-based revenue and consulting revenue. Revenue from subscription had a growth of 10%, both in the quarter and in the first half year, following steady development in annual recurring revenue. Transaction-based revenue is up 8% in the quarter, following high numbers of properties out for sale in Norway, partly offset by the challenging real estate market in Sweden.

In the first half of this year, transaction-based revenue is up 2%, hampered by lower volumes in the first months of the year. Consulting migrated to cloud with increased demand for Metria's consultant services within climate and sustainability. There is overall organic growth across the revenue streams, but lower other revenue than 1 year earlier due to revenues in 2023 impacted by invoicing of services to the new owner of divested business in Metria in the transition period and grants received from Forskningsrådet to a project in Boligmappa.

Capitalization of development cost was NOK 23 million in the quarter and NOK 47 million in the first half of 2024, which is at the same level as 1 year earlier. As an innovative software house development of new functionality and new features on existing products to strengthen our market-leading position and expansion of the product portfolio is vital for future growth. We have, in the last year, made significant investments in Boligmappa to scale the platform to cater for higher volume growth. Now there is less need for new development, estimating total CapEx down by NOK 10 million for full year '24, compared to full year '23.

CapEx in Metria has increased during the quarter and first half due to investments in new product offerings and core products to capitalize on growth potential, but is expected to be lower in the second half of 2024. For Ambita and Sikri, CapEx will vary with [ hype ] of ongoing development project, but is expected to be fairly stable.

Looking at the income statement for the second quarter and first half year, we had organic revenue growth across the main revenue stream, driven by steady growth in annual recurring revenue. Transaction-based revenue had a strong growth in the second quarter, but is hampered by lower volumes in the first months of the year.

The increased share of consulting revenue impacts gross profit due to higher COGS, but gross profit is up 4% in the quarter and 3% in the first half. We do have increased costs related to general salary increases, inflation, some new position on group level and a higher cost base in Metria in the first part of the year, but cost focus across the group starts to show results, and we had positive EBITDA development in the quarter. Higher depreciation and amortization expenses related to increased booked amount on capitalized development costs following the increased level of investment in Boligmappa and Metria during last year. The interest swaps entered into last year had positive impacts on net finance and net income has improved compared to 1 year earlier, both in the second quarter and in the first half of 2024.

In the first half year, free cash flow increased from NOK 77 million in the first half last year to NOK 88 million in the first half of this year. As illustrated on the left-hand side of this slide, you can see that our free cash flow is impacted by seasonal fluctuations. First quarter is historically always a strong quarter in terms of free cash flow as Sikri invoices, a large part of its customers on a yearly basis in January.

Moving on to the illustration on the right-hand side, you can see that we generated NOK 150 million operational cash flow in the first half of 2024. Investment cash flow amounted to NOK 55 million in the first half this year and consists of capitalized development costs in addition to the NOK 5 million acquisition for 15% of the shares in Prosper Ai. Financing cash flow amounted to NOK 114 million in the first half this year and consist of repayment of borrowing, interest and lease payments.

Spir Group's cash balance at the end of June was NOK 36 million. Assets consist of a large degree of intangible assets, of which NOK 1 billion is goodwill and the remainder is capitalized development costs, customer contracts and trademarks. Equity is close to NOK 1.1 billion, giving an equity ratio of 50%. Net interest-bearing debt is NOK 597 million at the end of June. This includes lease liabilities of NOK 45 million. It is a continued priority for the group to maintain a healthy capital structure and net interest-bearing debt has been reduced with NOK 54 million during the first half year.

Spir Group has 2 interest rate swaps at favorable terms covering 69% of the interest-bearing loans. Starting in July, we will switch from semiannual installment of debt to quarterly installment. The cash balance at the end of June was NOK 36 million and Spir Group has a liquidity reserve of NOK 127 million.

Summing up the first half of 2024 financial results, there are 4 key areas I would like to highlight. Firstly, we have steady growth in annual recurring revenue and increased revenue across all the 3 main revenue streams despite a still challenged real estate market in Sweden. There is a pressing demand for secure and efficient IT solution across both our business areas, and we entered the third quarter with a positive outlook.

Secondly, we have a continued focus on cost control across the group and expect effects from cost initiatives to materialize further during the second half of 2024. Thirdly, we have positive development with all-time high results for the second quarter and improved profitability for the first half of 2024.

And finally, our operational cash flow for the first half is strong and interest-bearing debt is steadily reduced. We continue to improve our financial position and are eager to capitalize on our growth potential going forward. Now Per Haakon will give some final comments on strategy and outlook.

[Per Lomsdalen, executive]

Thank you, Cecilie. Let's wrap up this presentation with an update on our strategy and outlook. Our strategy is to simplify and solve mission-critical business processes with scalable B2B SaaS products. We invest in companies with a Nordic footprint as Spir Group has a growth strategy, both through organic development and M&A. For us, it's important to become a preferred partner in the green transition. Spir Group has a long-term ambition to be a preferred partner in the green transition. We facilitate data and solutions managed by law, which previously has been manual and time-consuming. We ensure the use of data and near 100% digital solutions.

Through Boligmappa, we are storing data and documentation with the intention to prevent uncleared work. Spir Group follow international frameworks and best practice and meet all requirements related to social issues and corporate governance. The increased focus on ESG in public tenders are key drivers for our long-term success and value creation. Spir Group's outlook remains positive. We're growing demand for secure and effective IT solutions across both business units and steady growth in subscription revenues.

Improvements in the real estate market of Norway and Sweden will boost transaction-based revenues while demand for consulting services remains strong. Ongoing investments in product development with aim to strengthen margins and cash flow. We're also actively pursuing bolt-on acquisitions to strengthen our market positions.

Overall, we are eager to see what second half of '24 brings. With that, I would like to thank you all for watching this presentation. I wish you all a great day.