Earnings call transcript: Columbus sees growth in AI, faces Nordic challenges in Q1 2025

Columbus A/S reported a mixed Q1 2025 performance with notable growth in its Data and AI segment, while facing challenges in the Nordic markets. The company’s EBITDA margin improved significantly, but cash flow from operations saw a decline. Despite these mixed results, Columbus maintained its full-year guidance, projecting organic growth between 7% and 9%. According to InvestingPro data, the company has demonstrated impressive financial health with a GOOD overall score and maintains an impressive gross profit margin of 88.78%.

Key Takeaways

• Columbus’s Data and AI segment grew by 28%, showcasing strong performance.
• The company’s EBITDA margin improved to 10% from 7.9% in Q1 2024.
• Cash flow from operations decreased by 27%, though improved when adjusted.
• Nordic markets remained challenging, while the UK and US showed positive growth.
• Full-year guidance remains unchanged, indicating confidence in recovery.

Company Performance

Columbus experienced a mixed quarter, with a slight decline in overall revenue but notable improvements in profitability metrics. The company saw a 32% increase in EBITDA when adjusted for a legal case, reflecting successful cost management and operational efficiency. However, cash flow from operations decreased by 27%, although it improved by 3 million when adjusted. The company is expanding capacity after a period of cautious headcount management, signaling a strategic shift towards growth.

Financial Highlights

• Revenue: Slight decline compared to the previous year.
• EBITDA: Increased by 32% when adjusted for legal case.
• EBITDA Margin: Improved to 10% from 7.9% in Q1 2024.
• Contribution Margin: Increased from 23% to 25%.
• Cash Flow from Operations: Decreased by 27%, but improved by 3 million when adjusted.

Outlook & Guidance

Columbus maintained its full-year guidance, projecting organic growth between 7% and 9% and an EBITDA margin of 10% to 12%. The company expects gradual growth and market recovery, focusing on pipeline development and project execution. Future EPS and revenue forecasts for FY2025 and FY2026 suggest moderate growth, with EPS expected to reach 0.06 USD and 0.07 USD, respectively.

Executive Commentary

CEO Sam emphasized the company’s strategic decision to expand its workforce, stating, "We are starting to add size to the organization again." CFO Brian noted ongoing market uncertainties, particularly in the Nordic region, but expressed confidence in the company’s outlook, saying, "We still have a trust in that so we keep the current outlook."

Risks and Challenges

• Nordic Market Challenges: Continued market hesitancy in Sweden and Norway could impact growth.
• Cash Flow Decline: A significant drop in cash flow from operations may affect liquidity if not addressed.
• Market Uncertainty: Global economic conditions and customer hesitancy present ongoing risks.
• Competitive Pressure: Maintaining efficiency and profitability amid competitive pressures remains crucial.
• Strategic Execution: Successful execution of growth strategies and project management is essential for meeting guidance.

Q&A

During the earnings call, analysts inquired about the minimal impact of the Easter effect and the company’s growth visibility in key segments. CFO Brian addressed these concerns, confirming positive signs in the US, M3, Dynamics, and Digital Commerce segments. However, details on the strategic review were limited, with no additional information provided. For deeper insights into Columbus’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available exclusively on InvestingPro, covering detailed analysis of the company’s financial health and market position.

Full transcript - Columbus A/S (COLUM) Q1 2025:

Peter, Conference Moderator: Good day and welcome to the Columbus Interim Report Q1 twenty twenty five Conference Call and Webcast. At this time, all participants are in listening only mode. All the speakers after the speakers’ presentation, there will be a question and answer session. To ask questions during the session, you’ll need to press 11 on your telephone keypad and you should hear an automated message advising you that your hand is raised. To withdraw your question, please press 11 again.

Alternatively, you may submit questions via the webcast. Please be advised that today’s conference is being recorded. I would now like to hand you over to your speaker of today, Krakenusen. Please go ahead. Your line is open.

Sam, CEO, Columbus: Thank you very much, Peter, and good afternoon to all of you. Welcome to our Q1 financial results report. Today is slightly different from those that join us on a regular basis. I’m in The US. So the technical setup we’re using today differs a little bit from our normal one, but I think this will this will work just fine, and we will we’ll go through it in in the usual way.

As always, I’m joined in by Brian, our CFO, who sits in Copenhagen today, and he will take us through parts of the presentation as well. Following the presentation, there will be a Q and A session as the present as the webcast supervisor said. So that will come at the end of the conference. So, let’s please go to slide four, where I will start with some of the commenting on some of the financial highlights. In Q1, revenue ended with a slight decline or resulted in a slight decline, mainly driven by continuous challenging conditions in the Nordic market, whereas The UK and as you’ll see later on, also The US were on a positive trend, UK being up 17% in the quarter and is one of our big markets.

EBITDA increased by 32% when we adjust for the extraordinary gain or income of million from the one M3 CS legal case we had in Q1 last year. I think this confirms the robustness of our Columbus’ strategy and our business model, as well as our EBITDA 15 plan. This means that the EBITDA margin was at 10% compared to 7.9% in Q1 twenty twenty four, again, when adjusted for the M3 CS legal case. The contribution or the raw performance of the business, if you will, increased by two percentage points to 25% in Q1 this year, compared to 23% in Q1 last year. And this is primarily due to our improved project execution and I would say a fairly strong cost discipline, which we’ve exercised in the past quarters.

The cash flow from operations decreased by 27%. Adjusted for the extraordinary gain in Q1 twenty twenty four, the cash flow actually improved by 3,000,000 in Q1, going to 17,000,000 in Q1 of twenty twenty five, which again is underpinning the soundness of the business. And then I would like to go to slide number six, if you could just confirm that. Good. So three things to to comment on, the the earnings quality and then something that drives our ability to generate growth onwards.

And then finally, a comment on the strategic review. I think it’s clear from the results that we have been able to continue our journey towards the EBITDA 15 despite a relatively flat development of our top line. And this is driven by several factors. As I said on the previous slides, the project execution is a key part of that, but also the overall efficiency, which is sort of the vocabulary we use to describe how much of our delivery capacity we’re able to deploy to customers, but also the price point we sell that at. So we are very content with the development of these points.

That leads me to number two, which is what is also necessary to drive our future growth. If you look to the graph on the right on the slide, you’ll be able to see sort of in indicative terms what we would describe as a hesitant market in the past fifteen months has resulted in a really cautious approach to the workforce. So we’ve seen a flat to slightly declining size of headcount in our organization. We see the bottom point of that development now, and we are starting to add size to the organization again. So, we’re going to do that whilst we still maintain the high efficiency level and the same price point just before those being the three key indicators that we look for.

What leads us to this decision about adding growth to the organization is a combination of the current backdrop that we’re working against, but also the sales pipeline where we are starting to see some pickup in some of the markets that have not developed favorably in the past quarters. The churn, as indicated by the lower part of that slide is not going to come super drastically, but more like a groundswell where we start to add slowly to selected area of the business and integrate that, deploy that to customers and then gradually gaining pace as we go through it. And then the final point, there’s already been a question also I could see about the strategic review. There is not so much we can comment on at present time. But just to say that we are going carefully through that process as we described from the very outset, evaluating both the long term, but of course, also the consideration offered.

And I think we as the executive team are managing that just fine whilst still being very focused on executing the day to day operations. And with that, I would like to hand over to you, Brian. And then I will be available for questions towards the end of the call.

Brian, CFO, Columbus: Thank you, Sam. And let’s move into the finances with more detail. If we can have slide eight, the service revenue per business line. As Sergeant mentioned, we experienced a slight decrease in Q1 and if we see the split on the slide here Dynamics, which is by far the biggest business line actually had a flat to minus 2% slowdown in revenue quarter over quarter. It’s basically the Norwegian market saw a slowdown within the dynamics business and Denmark came out fairly flat.

M3 had a slightly bigger decline of 9% compared to the same quarter last year, primarily because we had so over the year and we also spoke to that during last year, they shifted some major project or finalized some major projects last year in Q1, which then ended pretty strong. And then saw the shift over some quarters and is slowly regaining momentum on new and also very big projects that starts up. This project process can take some quarters actually, even though we would love them to jump from the one to the others. But then it’s not always like that. Digital commerce also mentioned earlier, saw major restructuring last year.

They are slowly recovering, still seeing a decline on top line. We also adjusted the capacity significantly during last year, but we actually do start to see some pickup. And one of our key points here is also to regain the profitability in the business. As you remember from last year, they were pretty low, almost as zero and come back to that. But still they declined.

They’re also heavily in Sweden and the retail market, which is basically to hit areas, both Sweden and the Swedish economy general, and then the retail up there. Finally, data and AI continue a strong growth, 28% in the quarter. And it’s basically all over we see a solid request and here we are looking for more people to support the growth and the request that we get within this area. So, it looks very positive, although on a minor size than our other businesses. Good.

Let’s move to the contribution margin slide, slide nine. That’s where we look at what is then the profitability in our different business lines. And I think here, as Sorn also mentioned, we move combined for all business lines, we increased the profitability from 23% to 25%. That’s what we call the contribution margin, which is a very strong move and also what we have been working really hard to look at the bottom line and make sure that we have a profitable setup. If we look on each business line Dynamics three sixty five, which is the new name since they merged with or we merged them with our CXE business, they saw a slight uptake of 1%, which is basically not a slight.

That is a lot of work in just moving this 1% in average up to 26% and we are very happy with that development in a market where they do see some headwind on the top line. Entry declined with 1%. As I mentioned before, they had a very strong quarter back 2024. And if you remember the full year, they made 19%. So we are happy that they sort of regained the momentum and are back in an acceptable level on the contribution margin.

Digital commerce 11% same as last year, although they are up compared to full year last year. They are also we do see some regaining and profitability in this business line after this major restructuring we made during last year. And finally, data and AI, probably a very bad quarter or at least a good increase of 21%, but they also had some headwind into Q1 last year. So, I would not celebrate that as even though it looks very impressive. They are just up on a level on the plus 20% that we would expect them to be on.

The overall strong uptake in our contribution margin, which is the basis of the uptake you have seen in the EBITDA margin. This is where the bulk part of the business, the cost and the management lies. So we are very happy to see that and especially when this has been one of our key focus areas to the past quarters in this turbulent market. Good. Let’s move to the next slide that is slide 10, market units.

We are not as such measure our market unit profitability. We measure that on our business lines as mentioned earlier, but still we look at how is it going into different geographies we are in. Sweden, a decline of 11%, the biggest one from 148,000,000 to 131,000,000 DKK revenue Again, we continue to see some uncertainty, some hesitant from our major customers in starting. We don’t feel like they are closing or abandon projects or whatsoever, but many of our customers need to think twice, just wait and see if there’s something used around the corner and so on.

Eventually they do tend to start maybe with a bit smaller bites in the first round, but still it’s moving. And we follow that very closely and every time we ask our businesses how it’s going, what does it look like, there is some positive sign. But still in the figure for the quarter, it’s minus 11%. Denmark, a decline of 6%, actually for the first time in many quarters, a slight slowdown here. Again, roughly the same activity, but a small decline over the quarter.

UK continued to move upwards, plus 17% as Sven also mentioned. We have a very strong base and then consultants over there. They are also extremely good in involving rest of the delivery setup we have from India, especially in some of the major projects, so we are happy to see that. And so they continue on a good momentum. Norway is also hit like Sweden with a lot of nervousness up there and reduce the decline of the 18%.

U. S, although a smaller amount, we’re happy to see that they are slowly turning over there and a 50% increase, it’s 9,000,000 still, but it’s good to see and we expect them to have hit some kind of a button in the revenue side. You might remember that there was a slowly decline during the past years, but they also seem to regain some momentum over there. So, overall 2% decline in the quarter, which is okay in the tough market out there, but we also certainly expect that to slightly turn the coming months. Third, then I will just move to the outlook slide that is slide 12.

Very briefly, we maintain our full year guidance, organic growth of 7% to 9% and our EBITDA margin expectations guidance of 10% to 12%. We are, of course, in the current market and then we also look at how is it going and our colleagues out there, etcetera, are monitoring that very closely and have also increased the constant follow-up on our pipeline, projects and how it’s going. But we still have a trust in that so we keep the current outlook. Yes, I believe that’s all from my end. Then it’s over to questions if there is any.

Peter, Conference Moderator: Thank you very much. So, at this time, we’re gonna conduct a question and answer session. And as a reminder, if you want to ask a question from the phone, you need to press 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press 11 again. If you wish to ask questions from the web, please do so now.

We currently don’t have any questions from the phone conference at the moment. So I’m gonna hand it back to, SIRN and see if there’s any questions from, the web.

Sam, CEO, Columbus: K. Thank you very much. I’m just giving a second here. So far, I’m not showing any questions. I do appreciate we had the one from the beginning regarding the strategic review, but at present time, there’s that there’s no further information to be shared on that.

Alright. So with that, I think we’ll close the the call down here. It’s 04:20 where I am in The US, so it’s been a a good early start. Just see if there was one question coming in here. Can you give an is an estimate okay.

So there’s one question that has just come in, which is can you give an estimate of the Easter effects on the margins? So just to explain that question to everybody, that means that the the Easter the Easter alternates between being part of q one results or q two every year for all consult well, for all companies, I guess. And this year, it was part of the Easter hits Q2, so the quarter that we’re currently working in and is is not in in the Q1 results. And that means, to Michael’s question, that Q1 is positively impacted by the Easter effect. And from a margin perspective, we don’t really do a detailed calculation on that.

It’s roughly two working days. Brian, can you comment on that? Do you have an estimate on that? Yes.

Brian, CFO, Columbus: Not a specific number, but I can say that for the full quarter, we had one day more because we also have to take into consideration how the New Year ends. So, the quarter is not two, but one day. The month So, I would say it’s minor. It’s minor. It’s not we cannot blame this day for a big jump.

Then you are down to these details where you could bring in other pluses and minuses, extraordinary terms. But of course, will hit us again in Q2 somehow to one day or whatever holiday stays. And then for the full year for the half year, it’s a plus and minus.

Sam, CEO, Columbus: Yeah. Okay. Then we have a question from Jonathan Sharpe here. The full year guidance implies a pickup in growth. What visibility do you have on improving demand?

Okay. Let me try to talk a little bit to that one. So clearly, we do have some visibility of that now. So as I’m in The US now, I will start here. So we have a very good visibility of our US business compared to that it’s a relatively small business unit.

And as you could see from before, we saw a 50% uptick on a quarter over quarter in this quarter, and we have closed some contracts that have not yet gone into full delivery, which gives us a positive indication on The US. From a, I would say, from an M3 business division, the second largest business division, as Brian was just talking to before, we have also seen a very strong pipeline and many of them have now been signed and will during Q2 and Q3, Q4 go into full delivery mode. Dynamics, we are seeing a stronger pipeline in some of the countries. I would say, particularly Sweden as a country where we have developed a strong pipeline. We still need to close some of them, but they are in final stage.

And then the final one I will just mention on is the commerce one, which has been one of the harder hit business units for some quarters now. As Brian was saying before, we’ve done a capacity rightsizing of that business unit late last year. Again, as Brian was saying, it’s very driven by the Swedish economy and by Swedish retail in particular. And we are seeing a big uptick in some of the pipeline and sales activities we have there. And that’s some of the visibility we have now in combination with the current stock of work and the current business performance as measured by efficiency, has sort of been crawling up slowly in the last few months.

Okay. I show no further questions. So with that, would like to thank you all for joining us, and we will be back with the q two results. Or if we have anything to share earlier, we will, of course, do that. Sorry.

Did we show one last question in the start of q two? Alright. So we we show one last question, which I will discover here. Can can the start of the q can the start of q two reassure you that Columbus can still grow by at least 7% for the full year? So we’ve obviously taken the start of Q2 into consideration when presenting these results.

I don’t think I can answer just yes to that question. It also takes, of course, a successful Q3 and Q4 to deliver on those results. Okay. Good. Thank you very much for joining, and I’m looking forward to seeing you or talking to you again when we present results next time.

Thank you.

Peter, Conference Moderator: Thank you. So this concludes the today’s conference call. Thanks for participating. You may now disconnect.

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