Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales increased by 22% in Q2 2024, reaching SEK880 million.
- Recurring revenue grew by 27%, highlighting the company's strong focus on stable income streams.
- EBITA margin increased by 17%, maintaining a healthy level of 30%.
- Organic growth in subscription-based revenues was near 10%, demonstrating robust internal growth.
- Cash flow for the first half of the year was strong, up 37% to SEK783 million.
Negative Points
- EBITA margin for the quarter was 1 percentage point lower than the previous year, partly due to the mix of income.
- Transaction-based revenues, while growing, have a lower margin compared to subscription-based revenues.
- New sales remain challenging, although upsell and additional sales to existing customers are strong.
- The company's margin in Enova was lower this quarter due to higher transaction revenues.
- Salary inflation and price increases are both around 4%, potentially impacting future profitability.
Q & A Highlights
Highlights from Vitec Software Group AB (FRA:7VS, Financial) Q2 2024 Earnings Call
Q: Can you elaborate on the margin in Enova for this quarter? Revenues were up significantly year-over-year, but the margin seems lower due to more transaction revenues. How should we think about this?
A: (Olle Backman, CEO) The profitability in absolute terms is up due to the model, and we are making money on every euro sold. However, the margin is lower when energy is activated because of the direct costs involved. The margin for Enova on a full-year basis is still in line with the rest of the group.
Q: Regarding the transaction-driven recurring revenues, especially with the acquisition of Bidtheatre, should we expect a higher share of transaction-driven revenues over time?
A: (Olle Backman, CEO) While Enova and Bidtheatre have a higher proportion of transaction-driven revenues, other acquisitions like LDC and Taxiteknik follow the traditional model with 85-90% subscription-based revenues. We encourage transaction-based revenues as they add value and increase our share of the customer's wallet.
Q: How do you see salary inflation versus price increases playing out for the rest of 2024?
A: (Olle Backman, CEO) Both salary increases and price adjustments have been completed for the year, and they are roughly on par with each other at around 4%.
Q: Can you elaborate on the consolidation of some of your business units? It seems contradictory to your philosophy of decentralization.
A: (Olle Backman, CEO) Consolidation happens when it makes sense from a product development and market approach perspective. It is always driven by the business units themselves and is done slowly. For example, the Norwegian insurance companies WIMS and NICE merged because it was beneficial for both.
Q: The sellers of Taxiteknik will retain minority ownership. Is this a unique situation, or do you plan to use this approach more often?
A: (Olle Backman, CEO) We have done this a few times before. It is a way of handling earn-outs, especially for fast-growing companies. We will eventually buy 100%, but sharing the risk and potential initially makes sense.
Q: Can you provide guidance on Enova's future sales and margins, given the strong performance this quarter?
A: (Olle Backman, CEO) Enova's margins are in line with our targets on a full-year basis. There is seasonality, with Q2 typically being the strongest quarter. We expect similar distribution this year, with lower volumes in Q4 and Q1.
Q: How should we understand the dynamics between insurance premiums and activated energy in Enova's margins?
A: (Olle Backman, CEO) Comparing COGS between quarters should give a good proxy for understanding the margin dynamics. The rest of our transaction-based revenues are quite stable, so the changes are primarily due to Enova.
Q: What is the impact of the new acquisitions on the overall group mix of revenues?
A: (Olle Backman, CEO) While Enova and Bidtheatre have shifted the mix towards more transaction-driven revenues, other acquisitions like LDC and Taxiteknik follow the traditional subscription-based model. We do not actively seek transaction-driven revenues, but they are a natural evolution in some cases.
Q: How do you see the future of transaction-based revenues within Vitec?
A: (Olle Backman, CEO) Transaction-based revenues are encouraged as they add value and increase our share of the customer's wallet. However, the majority of our business units still follow the traditional subscription-based model.
Q: Can you provide more details on the new CFO, Peter Lidström, and the transition plan?
A: (Olle Backman, CEO) Peter Lidström will start as CFO on September 1. Sara Nilsson, the current CFO, will stay on as Head of Group Reporting and Controlling. We are excited to welcome Peter and are pleased that Sara will continue with us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
