Spir Group ASA

OSE:SPIR

Earnings Call Analysis

Spir Group Reports Strong Q3 Growth and Strategic Acquisitions

Spir Group showcased solid growth in Q3, with total revenues up 7% to NOK 282 million and annual recurring revenue at NOK 525 million, reflecting a 10% increase. Gross profit increased 9% to NOK 169 million, while adjusted EBITDA rose 14% to NOK 59 million, improving margins to 21%. The company’s success is bolstered by its acquisition of Unbolt, enhancing its real estate data offerings. Notably, real estate revenue surged by 15%. As demand for IT solutions rises, Spir Group anticipates continued growth in subscription revenues and remains focused on cost control and product development.

Solid Revenue Growth and Profitability

In the third quarter, Spir Group demonstrated robust performance with total revenues increasing by 7% year-over-year to NOK 282 million. This growth was driven primarily by the real estate business, which saw a significant uptick of 15% in its revenue streams. The company not only achieved organic growth of NOK 14 million but also contributed NOK 4 million from the acquisition of Unbolt's subsidiary, iVerdi. Overall, this solid growth resulted in an impressive adjusted EBITDA increase of 14% to NOK 59 million, translating to an improved EBITDA margin that rose from 19% to an encouraging 21%.

Key Business Segments Performance

Delving into Spir Group's main business segments, Ambita saw revenues rise by 10% to NOK 127 million, largely attributed to the upsurge in property sales activity in Norway. The transaction-based revenue alone climbed 12% to NOK 116 million. Additionally, Boligmappa achieved remarkable success, with revenues soaring by 28% to NOK 14 million, driven by subscription sales as more consumers opted for premium offerings. Meanwhile, Sikri recorded steady growth, with revenues increasing by 4% when adjusted for prior election-related income.

Acquisition Strategy Strengthening Market Position

A pivotal moment for Spir Group this quarter was the strategic acquisition of Unbolt. By securing the remaining 57% shares, Spir Group now holds full control over Unbolt, enhancing its real estate service offerings. This acquisition not only simplifies operational structures but positions Spir Group to leverage Unbolt’s unique insights and analytics about property conditions—critical data that fortifies its standing in the real estate market.

Improved Financial Health and Capital Management

Spir Group reported net income of NOK 40 million, a significant increase from NOK 6 million in the previous year, reflecting improved operating dynamics and finance management. The cash balance at the end of the quarter was NOK 54 million, supported by a liquidity reserve of NOK 50 million. Interestingly, the company transitioned to quarterly debt repayments, optimizing cash flow while maintaining an interest-bearing debt of NOK 700 million. This shift indicates a proactive approach to managing financial liabilities.

Outlook and Future Growth Opportunities

Looking forward, Spir Group maintains a positive outlook. The company anticipates continued growth in its subscription revenues bolstered by stable long-term contracts and an improving real estate market in Norway and Sweden. Plans for product development and integrating generative AI technologies are underway, aiming to enhance operational efficiencies. However, cautious optimism is warranted due to potential challenges posed by open data initiatives in Sweden in 2025, which could temporarily affect Metria’s revenue streams.

Earnings Call Transcript 2024-Q3

[Per Lomsdalen, executive]

Good morning, and welcome to the presentation of the Third Quarter Financial Results for Spir Group. My name is Per Haakon Lomsdale. I am 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.

Cecilie will cover the financials as usual, but let's kick off this presentation by looking at some of our key KPIs at the end of the third quarter. We are a company, doing mission-critical software for our 2 main business; real estate and public administration with a high share of recurring revenue.

Spir Group's annual recurring revenues are at record high level, increasing 10% compared to Q3 last year to NOK 525 million. Total revenues reached NOK 282 million in the quarter, up 7% from last year. Our scalable business model has also resulted in stable and high margins. Gross profit was up 9% to NOK 169 million and adjusted EBITDA ended at NOK 59 million in the quarter, increasing 14% from last year.

Before I leave the word to Cecilie, I want to highlight the most important development in the group during the third quarter. In August, Spir Group through Ambita fully acquired Unbolt. Unbolt, the Nordic ecosystem around property condition data, providing unique insights and analytics about the building stock.

By taking control of Unbolt, we strengthened our position within the real estate transactions, complementing the group's property data offerings with unique property condition and energy data. We are very happy to welcome new colleagues into Spir Group. And with that, I'll leave the floor to Cecilie, who will give you some more details into our financial numbers from the quarter. Cecilie?

[Cecilie M. Hekneby, executive]

Thank you, Per Haakon, and good morning, everyone. I will take you through the financial results for the third quarter, starting with the highlights for the quarter. I'm pleased to report a quarter of solid revenue growth and improved profitability as key KPIs like total revenues, gross profit and adjusted EBITDA all continue to improve.

We have a strategy to grow through a combination of organic growth and bolt-on acquisitions. In August, we acquired the remaining 57% of the shares in Unbolt, taking full control of the company. Revenue increased by 7% to NOK 282 million in the quarter, driven by strong development in the real estate business area.

The NOK 18 million revenue increase is attributable to organic growth of NOK 14 million and NOK 4 million in new revenues from Unbolt with its subsidiaries, in particular, iVerdi, which are fully consolidated with 1 month. We have steady growth in our SaaS revenues and annual recurring revenue had an increase of 10% to NOK 425 million compared to 1 year earlier, including NOK 11 million in annual recurring revenue from iVerdi.

We had double-digit EBITDA growth as adjusted EBITDA increased by 14% to NOK 59 million and adjusted EBITDA margin increased from 19% to 21%. Net finance of NOK 20 million, up from minus NOK 13 million in the same quarter last year was positively impacted by a noncash one-off financial gain from the consolidation of Unbolt. Net income was NOK 40 million, up from NOK 6 million in Q3 last year.

The revenue increase in the third quarter is highly impacted by the strong development in the real estate market in Norway and a market recovery in Sweden with 15% growth in the real estate business area, and we are pleased to see double-digit revenue growth in Ambita, Boligmappa and Metria in the quarter.

Boligmappa continues its growth journey with 29% revenue increase. The Unbolt subsidiary iVerdi, is consolidated with 1 month in and adds revenue of NOK 4 million to the real estate business area.

Within public administration, Sikri has steady growth of 4% when adjusting for biannual election revenue in the third quarter last year. The gross margin is up 1 percentage point compared to last year. I've touched on some of the drivers of the quarter's results.

I will now dive into more details in the key segments of Spir Group. In the third quarter, total revenues in Ambita were up 10% to NOK 127 million. A major part of the revenues correlates with the activity in the Norwegian real estate market and a number of properties put out for sale, which were up 3% in the quarter.

Following the strong development in the real estate market, transaction-based revenue was up 12% to NOK 116 million. Commencement of new homes has started to show positive signs and was up 7% compared to third quarter last year. An increasing number of municipalities require digital building applications, although still a small contribution to total revenue, we see a growth in opportunity in the product Byggesøknaden, which was up 27% compared with 1 year earlier.

Operational costs in the quarter compared to same period last year were impacted by annual salary increase, inflation and increased sales and marketing activities. Adjusted EBITDA was NOK 22 million with 18% adjusted EBITDA margin and revenue year-to-date is up 7% to NOK 389 million with 18% adjusted EBITDA margin.

In the quarter, revenues in Boligmappa were up 28% to NOK 14 million, with subscription revenues up 25% and steady growth of 24% in annual recurring revenue. Revenues in Boligmappa are still primarily from B2B sales, but with a steady increase in B2C sales and consumers choose to upgrade to the premium offering. Last year, Boligmappa received grants from Forskningsrådet related to projects. The grants have been substantially reduced this year according to plan, impacting other revenue.

Gross profit in the quarter is up 27% to NOK 14 million, with 98% gross margin. It is positive to see that the profitability in Boligmappa is increasing. Adjusted EBITDA of NOK 4 million is up from NOK 0.6 million in the third quarter last year and adjusted EBITA margin is up from 5% in the third quarter last year to 31%.

Revenue year-to-date is up 19% to NOK 38 million with 6% adjusted EBITDA margin. We are pleased to see double-digit revenue growth and increased profitability in Metria this quarter. Revenue of NOK 72 million is up 16% from third quarter last year. Subscription revenue showed an increase of 10% in the quarter compared to 1 year earlier, and annual recurring revenue increased by 5% to NOK 117 million mainly driven by the 8% increase in Metria's SaaS products like Metria maps and Markkoll with the energy and forestrial industries as important customers.

Transaction-based revenue constitutes about 30% of total revenue in Metria and is highly correlated with the real estate market and the volumes of properties sold and sizes of mortgages taken out within banking and finance. The real estate market has started to show signs of recovery and transaction-based revenues were up 7% compared to same period last year, NOK 22 million.

There is a solid demand for Metria's consulting services and consulting revenues were up NOK 5 million from third quarter '23 to NOK 17 million. Gross profit was up 14% to NOK 44 million with 60% margin. Adjusted EBITDA of NOK 15 million is up 32% from third quarter last year and adjusted EBITDA margin is up from 18% to 20% following increased gross profit and cost initiatives starting to show results.

Sikri continues its steady growth with NOK 64 million in revenues in the quarter. Revenue from subscription sales increased by 6% to NOK 50 million. Annual recurring revenue also increased by 6% to NOK 204 million at the end of the quarter. The decrease in revenues from consulting and other revenues of NOK 13 million is mainly related to biannual election revenue in '23. Biannually, Sikri provides solutions for municipalities in relation to general and municipality elections in Norway.

In the 2022 election, Sikri solutions were used in 100 municipalities and counties. The election is biannually with the next election in 2025. In the third quarter last year, Sikri had NOK 12 million in revenue related to election. Adjusted for election revenue, underlying revenue in Sikri is up 4%. The gross margin is higher for subscription revenues than for consulting revenues and gross profit of NOK 56 million is at the same level as 1 year earlier despite lower revenue.

Adjusted EBITDA was NOK 20 million in the quarter with 32% adjusted EBITDA margin. We have 3 main revenue streams in the group; subscription revenue, transaction-based and consulting revenue. Subscription revenue have grown at a steady pace during the past few years as we have continued to shift our business towards scalable solutions and they're up 10% following steady annual recurring revenue development across the companies, both in the quarter and year-to-date.

Transaction-based revenue is up 7% in the quarter, impacted by a strong development in the real estate market in Norway and market recovery in Sweden. Revenue year-to-date was hampered by a weak first quarter. [indiscernible] revenues are stable following Sikri's success with cloud migration of existing customers. There are a fewer upgrade projects in the quarter than 1 year earlier, impacting consulting revenue, but there is increased demand for Metria's consulting services within climate and sustainability.

As an innovative software house development of new functionality and new features on existing products to strengthen our marketing positions and expansions of the product portfolio is vital for future growth, and we are focused on optimizing the investments across the group.

Capitalization of development cost was NOK 22 million in the quarter, which is NOK 2 million lower than in Q3 last year. The CapEx level in Ambita and Sikri is fairly stable, but will vary with type of ongoing development projects. CapEx in Metria in the quarter was stable, but has increased year-to-date due to investments in new product offerings and core products.

CapEx for 1 month for iVerdi and Unbolt are related to solutions to optimize the interaction between real estate valuation and inspection companies more effective and efficient. CapEx in Boligmappa is stable this quarter, but total CapEx in Boligmappa is estimated down by NOK 10 million for 2024 compared to full year 2023, following a less need for new development.

Looking at the income statement for the third quarter, we had double-digit EBITDA growth and increased margins. The year-to-date numbers are hampered by a slow first quarter, but it is satisfying to see the positive development, especially in Metria.

Financial income of NOK 34 million is boosted with NOK 38 million in a noncash IFRS adjustment related to the acquisition of the remaining shares in Unbolt, offset by a charge loss of NOK 7 million on interest rate swaps following changes in [indiscernible]. Interest on borrowings of NOK 12 million is down NOK 1 million from Q3 last year.

Net income was NOK 40 million in the quarter compared to NOK 6 million in Q3 '23, following increased operating profit and increased net finance. Year-to-date free cash flow increased from NOK 42 million in the first 9 months to NOK 59 million.

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.

And as we move into the fourth quarter, this is also historically a quarter with positive development in free cash. Moving on to the illustration on the right-hand side, you can see that we have generated NOK 156 million of operational cash flow in the first 9 months of 2024. Investment cash flow amounts to NOK 135 million year-to-date and consists of capitalized development costs and acquisition of shares in Unbolt and Prosper Ai. Financing cash flow amounted to NOK 22 million, and it consists proceeds from borrowings and repayment of borrowing, paid interest and payment for the principal element of leases.

Spir Group's cash balance at the end of September was NOK 54 million. Our financial position as of September shows that assets to a large degree, consists of intangible assets, where of NOK 1.2 billion is goodwill. And the remainder is capitalized development cost, customer contracts and trademarks. Equity is close to NOK 1.3 billion, giving an equity ratio of 52%.

Net interest-bearing debt is NOK 700 million at the end of September and is up NOK 49 million from the end of 2023. This includes lease liabilities of NOK 39 million. Reducing interest-bearing debt has been and still is a priority for us. In the third quarter, however, we increased debt to finance the strategic acquisition of the remaining 57% of the shares in Unbolt with subsidiaries and make a fully owned company and we are confident that this will strengthen our real estate offering.

We have 2 interest rate swaps at favorable terms of 3.24% and 3.25%, covering 57% of the interest-bearing loans. Starting this quarter, we switched from semiannual installments of debt with installments of NOK 44 million in hitting the second quarter and fourth quarter to quarterly installments of NOK 22 million.

The cash balance at the end of September was NOK 54 million, and we have a liquidity reserve of NOK 50 million. Summing up the financial results for the quarter. There are 4 key areas I would like to highlight. Firstly, double-digit revenue growth in our real estate business area drives revenue growth in the quarter in addition to steady growth in subscription revenue and annual recurring revenue.

There is a pressing demand for secure and efficient IT solutions across both of our business areas, and we are entering the fourth quarter with a positive outlook. Secondly, we have a continued focus on cost control across the group, and I'm pleased to see the effects from cost initiatives have started to materialize and that profitability is increasing.

Lastly, I would like to highlight the add-on acquisition of Unbolt that was successfully implemented during the quarter. We truly believe that this strategic acquisition will strengthen our real estate offering and make our #1 position even stronger. Now Per Haakon will give a comment on the business development in the quarter.

[Per Lomsdalen, executive]

Thank you, Cecilie. It's great to see that the initiatives we have implemented during the past year really are starting to provide improved results. Let's look at the main reasons behind our improved financials during the quarter explained by the operational development of our 2 core business areas. Spir Group is a software house with market-leading positions within real estate and public administration as our companies deliver mission-critical software and data to our customers.

Based on our extensive real estate and geoinformational data set, combined with our deep domain knowledge, we deliver software data and consulting services within 5 key real estate processes. Our digital solution drives transparency, efficacy and sustainability in the real estate market in Norway and Sweden.

Looking at the real estate business area, we saw several positive signs during the quarter. First of all, the number of properties put up for sale increased in Norway in Q3 compared to the same period last year, positively affected Ambita.

The Swedish market is also improving with a higher number of properties sold. This is positively affecting Metria. We have already touched upon the Unbolt acquisition as we are strengthening our real estate offering through acquiring a major player with software for real estate appraisal.

However, our product portfolio has also strengthened through the acquisition of shares in Prosper Ai earlier this year as we secured an exclusive distribution agreement for the AI-driven services with -- which will generate detailed property prospects.

We now also have an AI pilot program towards real estate agents launched in partnership with Prosper Ai. Demand for digitalization is rising. This is exemplified by Ambita's digital building application, Byggesøknaden. That has seen a 27% growth compared to Q3 2023. In Q3, Metria won a tender with Svenska kraftnät. The contract, which extends to 7 years, has a total value of SEK 12.7 million with the possibility of additional options worth SEK 12.6 million. We also strengthened the management team in the quarter as Raymond Vaaler-Hansen joined as Chief Executive Officer of Boligmappa in August. He brings a clear commercial profile and extensive experience in the tech industry from huge heavyweights like IBM, Microsoft and Salesforce.

Sikri known for its domain knowledge and tech is supporting public sector with insight control and digitalization of low regulated processes. We see good progress through Sikri. We are increasing sales to new customers in addition to upsales to existing customers. Sikri has long-term contracts with low churn and a steady high win rate on public tenders. And in Q3, Sikri won all its public tenders, continuing to gain market share and attracting new customers as also illustrated by the Stavanger, a 3-year contract worth roughly NOK 17 million.

We are also pleased to report that Sikri has entered a new partnership with Telenor with an ambition for elevating the value of IoT tech. The partnership combines Telenor's expertise in telecommunication, with Sikri's advanced tech for data collection and analysis.

Then we look at the outlook. Let's wrap up the presentation with an update. 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 markets of Norway and Sweden will boost transaction-based revenues while demand for consulting services remains strong. We expect our subscription-based revenue is to continue to grow steady with low churn as they are primarily based on long-term customer contracts.

Ongoing investments in product development with the aim to strengthen margins and cash flow are developing positively. We are also actively pursuing bolt-on acquisitions to strengthen our market positions. In 2025, open data will be implemented in Sweden. Revenue Metria is expected to be negatively affected, but large parts of data cost within geodata will disappear and Metria's aim is to further improve the company's gross profit during 2025.

Cost control improvements remain a continuous focus and are now beginning to positively impact on the group's profits. We have initiated research and analysis on how generative AI solutions can optimize and streamline our operational way of work. Overall, we have solid building blocks in place and foresee continued growth in our software business for the remaining part of 2024 and for 2025. With that, I would like to thank you all for watching this presentation. I wish you all a great day.