Release Date: October 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Exsitec Holding AB (OSTO:EXS, Financial) reported a 5% overall revenue growth for Q3 2024, indicating resilience despite challenging market conditions.
- The company has seen a significant increase in recurring revenue, with a 32% year-over-year growth, driven by software subscriptions and in-house developed integrations.
- Exsitec Holding AB (OSTO:EXS) successfully onboarded 115 new employees, including 80 trainees and 20 sales talents, which is expected to contribute positively from Q2 2025.
- The company has a diversified customer base, with no single customer contributing more than 1-2% of revenue, reducing dependency on any single client.
- Exsitec Holding AB (OSTO:EXS) has a strong M&A pipeline and closed two small deals in Q3, indicating a proactive approach to growth through acquisitions.
Negative Points
- The company experienced a negative organic growth of almost 5%, with significant challenges in the Norwegian market due to quality issues and uneven resource utilization.
- Adjusted EBITDA margins dropped to around 4% from almost 8% last year, reflecting the cost impact of hiring new employees.
- Denmark's performance remains underwhelming, with slow market conditions and challenges in reaching scale with new offerings.
- The CEO, Johan Kallblad, announced plans to step down, which could lead to leadership uncertainty during the transition period.
- Exsitec Holding AB (OSTO:EXS) faced delays in project starts post-summer, attributed to customers' lack of readiness, impacting consulting services growth.
Q & A Highlights
Q: Can you explain the reasoning behind the acquisition of M-flow in Finland?
A: Johan Kallblad, CEO, explained that M-flow is a master reseller of Medius software in Finland, which automates accounts payables. Exsitec has been successful with Medius in Sweden and aims to replicate this success in Finland. M-flow, despite being small, has significant customer commitments and a master reseller agreement with Medius, making it a strategic acquisition for Exsitec to expand its market presence.
Q: How do you justify the acquisition cost of M-flow given its small size?
A: Kallblad acknowledged the high cost but emphasized that M-flow has substantial recurring revenue commitments and customer engagements that justify the investment. The acquisition provides Exsitec with a foothold in Finland and the opportunity to grow its consulting services, leveraging existing customer relationships.
Q: What are the quality issues in Norway, and are they the same as previously reported?
A: Kallblad noted that some issues persist, particularly with Visma software, where they underestimated the learning curve and oversold ease of conversion. Additionally, they are phasing out a local software product, affecting a few customers. These issues are being addressed, with some expected to be one-off costs.
Q: Why is there a discrepancy between the growth in software subscriptions and the negative growth in consulting services?
A: Kallblad explained that while new sales have been strong, existing customers have reduced their IT service consumption due to financial constraints. However, they continue using software, leading to growth in software subscriptions. The transition to subscription-based models from perpetual licenses also contributes to this growth.
Q: Can you comment on your decision to step down as CEO and the challenges ahead for Exsitec?
A: Kallblad stated that after 14 years as CEO, he felt it was time for a change to ensure fresh perspectives. He plans to remain involved at the board level. The main challenge will be maintaining growth momentum, but the company is structured with independent business units to mitigate risks associated with leadership changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
