Earnings call transcript: Crayon’s Q1 2025 sees growth in sales, profit

Crayon Group Holding ASA reported its Q1 2025 earnings, showcasing significant growth in gross sales and net profit, despite a slight decrease in EBITA. The company’s stock dipped 1.76% following the announcement, though it remains near its 52-week high of $14.13. According to InvestingPro data, the company maintains impressive gross profit margins of 89.6% and has shown strong momentum with a 27.12% return over the past year. Crayon’s gross sales increased by 25% year-over-year to SEK 17.3 billion, while net profit improved to €43 million, marking a €33 million increase from the previous year. The company’s leverage ratio also improved, dropping to 0.4 from 1.2. The market reacted with a modest decline in stock price, reflecting mixed investor sentiment.

Key Takeaways

• Gross sales surged by 25% to SEK 17.3 billion.
• Net profit increased significantly to €43 million.
• Stock price fell by 1.76% post-earnings announcement.
• Continued focus on AI and cloud services.

Company Performance

Crayon’s Q1 2025 results highlighted robust growth in gross sales and net profit, driven by strong performances in its consulting and channel businesses. The company’s international growth was notable, with significant increases in Europe, APAC, EMEA, and the US. While the Nordics underperformed with only a 7% growth, InvestingPro analysis indicates the company maintains a GREAT financial health score of 3.01, with 13 additional ProTips available to subscribers regarding the company’s financial strength and market position. The company’s strategic focus on AI and cloud services, alongside its strong partnership with Microsoft, has positioned it well in the competitive landscape.

Financial Highlights

• Revenue: SEK 17.3 billion, up 25% year-over-year.
• Net Profit: €43 million, a €33 million increase from Q1 2024.
• EBITA: SEK 170 million, a slight decrease of SEK 8 million.
• Leverage Ratio: Improved to 0.4 from 1.2 in the previous year.

Outlook & Guidance

Crayon maintained its full-year 2025 outlook, with expectations of 15-20% gross profit growth and an adjusted EBITDA margin of 19-22%. The company anticipates an acceleration in Nordic performance in the second half of the year. Based on current metrics, including a P/E ratio of 47.64 and revenue growth of 9.61%, InvestingPro’s Fair Value analysis suggests the stock is currently undervalued. Discover comprehensive insights and access the detailed Pro Research Report, available for Crayon and 1,400+ other top stocks through InvestingPro. The pending merger with SoftwareONE, which has received 90% shareholder acceptance, is expected to further strengthen Crayon’s market position.

Executive Commentary

CEO Melissa Mulholland emphasized the company’s strong positioning in the current market environment, stating, "We are very well positioned in this environment." She also reassured customers about the consistent quality of services, saying, "Our customers will experience the same level of quality in the services we provide."

Risks and Challenges

• Slower growth in the Nordics could impact overall performance.
• Market saturation in cloud services might limit expansion opportunities.
• Macroeconomic pressures could affect global sales.
• Integration challenges with the pending SoftwareONE merger.
• Changes in Microsoft incentives could impact revenue streams.

Q&A

During the earnings call, analysts inquired about the impact of Microsoft incentive changes and the transition from EA to CSP. Crayon’s management addressed these concerns, expressing confidence in the company’s ability to navigate these changes and maintain its growth trajectory.

Full transcript - Crayon Group Holding ASA (CRAYN) Q1 2025:

Jelarna Hansen, Head of Investor Relations, Crayon: Good morning, and welcome to Creon’s Q1 presentation. My name is Jelarna Hansen, and I’m the Head of Investor Relations. With me today presenting the results for the quarter, we have our CEO, Melissa Mulholland and our CFO, Brede Husse. After the presentation, there will be a live audio Q and A session. I will now hand it over to Melissa.

Melissa Mulholland, CEO, Crayon: In Q1, our gross profit growth ended at 5%. I’m pleased that we continued to deliver solid international growth. However, I’m disappointed that we underperformed in The Nordics, which consequently impacted our overall results. In addition, we saw the market dynamics in Q4 relating to Microsoft enterprise agreements to CSP transition spilling over into January. This put negative pressure on our Q1 gross margin.

However, we see that the shift is gradually stabilizing as gross margin improved later this quarter. Our adjusted EBITDA ended at 12.1 percentage, down 1.8 percentage points from the previous year. The margin development reflects ongoing investments for future growth. During the quarter, we made significant headcount increases and due to market demand, we hired approximately 200 new employees this quarter. I will go into further details about the gross profit and adjusted EBITDA development in the next slides.

Finally, our net working capital ended at minus $1,400,000,000 which is our best ever and an improvement of $4.00 $1,000,000 compared to Q1 twenty twenty four. I am very pleased to see that we continue to successfully manage working capital and deliver sustainable improvements. As already mentioned, we continue to see solid growth in our international markets. Growth in Europe ended at 19%, and I would like to highlight the exceptional 71% growth in our consulting business. We are also seeing a steady positive development in APAC and EMEA, which grew 12%, including a 16% growth in the channel business.

Growth in The U. S. Ended at 15% with strong performance across both our direct and channel businesses. The investments made in 2024 continue to pave the way forward for continued acceleration in The U. S.

Market. In The Nordics, we unfortunately saw a slower pace than expected and growth ended at 7%. The performance in our direct business was disappointing with a growth of only 3%. In addition, our Nordic consulting business ended at 5% growth. As a reminder, in The Nordics, the consulting business represents approximately 45% of the overall gross profit.

The results in The Nordics is not at the desired level. We have therefore implemented changes in the management team. Alan Jakobsen, previously the GM in Denmark, who’s had a successful track record both in Crayon and outside of Crayon, has taken over as a regional manager for The Nordics. With the current changes, we expect a clear acceleration in performance for h two in The Nordics. The group’s gross profit was furthermore impacted by the development in our HQ line.

The EA incentives and other transactional incentives are booked directly in the markets and businesses, while global strategic incentives from multiple vendors and hyperscalers are booked as gross profit in HQ. The year over year comparison is impacted by an exceptionally high incentive payout in Q one of twenty four, mainly in the form of marketing support in connection with the launch of Copilot of approximately 60,000,000 NOK. Strategic incentives are complex, inherently volatile, and not tied directly to our business performance for the current quarter. We expect to see a steady growth in the strategic incentives from all vendors, but the timing of payout will vary. Looking at our business areas, direct grew gross profit 7%.

As already mentioned, this was negatively impacted by the performance in The Nordics. In addition, the q four twenty four dynamics spilled over into January as the market adapted to the EA to CSP transition. As you may remember, we saw a negative development in gross margin in q four twenty four due to the change in the market dynamics as Microsoft restructured their incentives to drive the change from EA to CSP. This led to unclear rules of engagement and sales execution issues. Microsoft has publicly confirmed there were challenges and have taken corrective actions by restructuring account ownership and segmentation of customers as well as instituting sales incentives.

We did see some of the same dynamics in January, but during the quarter, the development in our gross margin was positive. To clarify, despite the reduction in the EA incentives, we were able to offset this with growth in CSP and services incentives. Our channel business is showing steady performance, growing 12% and delivering a 68% adjusted EBITDA margin, which is at the same level as last year. Our two service businesses, Software and Cloud Economics and Consulting, are also improving, growing gross profit with 816%, respectively, and also improving their profitability. I am pleased to see the improvement in the consulting margin despite the underperformance in The Nordics as increasing profitability has been a focus area during 2024.

With the recent macroeconomic turmoil and the ongoing debate over US tariffs in mind, I think it is important to highlight that we are that we still see a robust and resilient demand environment. The underlying demand drives are strong in both our businesses, and our global presence gives our customers great flexibility within their procurement setup. Overall, our software and cloud business grew 13% on an LTM basis and with a strong margin improvement from 50 to 57%. Our service businesses grew 11 and also saw a strong profit improvement. As part of Microsoft’s broader go to market trans transformation, they are rationalizing the CSP partner ecosystem.

Microsoft is increasingly focused on working with fewer, higher performing partners, those who can combine cloud resell with deep technical capabilities, managed services, and customer success outcomes. Smaller transactional CSPs are finding it difficult to keep pace with Microsoft’s evolving requirements, including the complexity of the new commerce experience and tighter incentive structures. Crayon is very well positioned in this environment. We have the scale, the technical certifications, and the service depth that Microsoft is prioritizing, particularly in the areas like FinOps, AI adoption, and software asset management. As the partner landscape consolidates, we see a meaningful opportunity to expand our market share, deepening our strategic relationship with Microsoft and onboarding new customers who are looking for a trusted value added CSP partner.

Furthermore, as part of this transformation, customers are also reassessing their licensing agreements due to the EA to CSP transition. AI is rapidly evolving and drives growth in consumption and new licensing demand tailored for new customer needs. Crayon Service business benefits from increasing efforts to optimize cloud spend, preparing for AI adoption, and continuous projects relating to digital transformation and cloud migration. Regulatory complexity increases, driving demand for security, compliance, and government advisory. Now turning to a very interesting customer case.

Crayon worked together with a media conglomerate in Singapore to automate media classification and store metadata for its content. The company has built extensive massive media archives since the nineteen seventies. ’5 million images, a hundred and fifty thousand hours of video, sixteen thousand hours of audio, and millions of text documents. Manual editing is slow, error prone, and unscalable. It’s a perfect solution for AI.

They needed data enrichment to enable personalization with content recommendations for better targeting and to grow audience share. Together, Crayon helped build a cloud based AI and GenAI solution to automatically classify media content, generate and store metadata for all its content. Development to be completed within eighteen months to deliver a knowledge graph and platform integration with all the media companies’ internal software apps that will enable it to better target its users, staff, and invite advertisers. This is an exciting illustration of our AI capability, which we expect to continuously grow in the market ahead. Now with that, I’ll transition it over to Brette to take us through the financial section of our q one presentation.

Brede Husse, CFO, Crayon: Thank you, Melissa. I look forward to taking all of you through the financial section of our Q1 presentation. Net working capital ended at minus 1,500,000,000.0, solid improvement of SEK $4.00 1,000,000 compared to the same quarter last year. I’m very happy with the results we have achieved in Kreion over the last one point years. We have successfully turned it around and have now delivered strong net working capital performance six quarters in a row.

And I will characterize that as a sustainable improvement. In percent of GP, net working capital came in at minus 16.5%, which is slightly better than our 2025 outlook. Included in the performance is also a significant reduction in the use of factoring. The underlying improvement in net working capital compared to last year when adjusting for the reduction in factoring is $526,000,000. The focus on net working capital is a continuous effort, and it remains one of the top priorities going forward.

Our gross sales ended at SEK 17,300,000,000.0 in Q1, reflecting a growth of 25%. Our reported EBITA is SEK 170,000,000, a small decrease of SEK 8,000,000 compared to the same quarter prior year. Adjustments in the quarter consist of share based compensation of DKK 2,000,000, DKK 9 million in M and A cost and DKK 6,000,000 related to the close of the call center operations in The Philippine. Interest expenses is SEK 63,000,000, a reduction from SEK 71,000,000 in Q1 twenty twenty four, driven by lower interest on the bond and RCF, somewhat offset by increased cash flow interest as a result of utilizing the currency accounts in the cash flow to mitigate FX risk on the balance sheet. As a result of positive FX movements, other financial impact ended at plus 28,000,000 up from minus 10,000,000 in Q1 twenty twenty four.

Net profit ended at €43,000,000 an improvement of €33,000,000 compared to Q1 twenty twenty four. Moving over to the balance sheet. The highlights worth mentioning are that both the RCF and the overdraft was undrawn by quarter end. And as already mentioned, compared to Q1 last year, factoring was reduced from SEK $247,000,000 to SEK 122,000,000. If we look at our cash flow, we see that our operating cash flow for Q1 ended at SEK 87,000,000.

Our cash position and available liquidity reserve remains solid at SEK 3,300,000,000.0. Our leverage ratio measured as net debt over EBITDA ended at 0.4 compared to SEK 1.2 in Q1 last year. All in all, we remain in a very robust financial position. Our outlook for the full year of 2025 is unchanged with a GP growth of 15% to 20%, and adjusted EBITDA margin of 19% to 22% and net working capital as a share of GP of 15%. I will now hand it over to Melissa for her closing statements.

Melissa Mulholland, CEO, Crayon: Thank you. On May 6, SoftwareONE announced that it had achieved over 90% acceptance from the Crayon shareholders. Pending regulatory approvals, the transaction will close during June. I am very grateful for the support from our shareholders and would like to thank you for believing in Crayon and our next chapter together with SoftwareONE. And the next chapter will indeed be exciting as we build a leading global company to the benefit of all our stakeholders.

It will further enable us to capitalize on our mutual strengths. Not least, our hyperscaler partnerships, including AWS, Google, and Microsoft. And speaking of Microsoft, I met with its leadership team in The US last week, and they underlined the benefits of Crayon and SoftwareONE joining forces to create the world’s largest Microsoft partner. So what happens next in the combination of our two companies? To the extent we have been allowed to at this stage, we’ve already started preparing and planning for the closing and subsequent activities.

We are prepared, and management from both sides are committed to ensure disciplined execution and smooth integration to deliver on the synergies we have promised. However, it is important to highlight that we remain focused on our customers. Our customers will experience the same level of quality in the services we provide, and together with SoftwareONE, a broader service offering. Most importantly is securing, attracting, and retaining our talent. This is the foundation for future success and will be a key priority for me going forward.

With that, we can now transition over to Q and A.

Moderator: Thank The first question, I believe, is from Christopher from DNB Markets. Please go ahead. Your line will now be unmuted.

Christopher, Analyst, DNB Markets: Yes. Good morning, guys. I just want to try to understand better the headwind from incentives in the quarter. I think you noted that there was an exceptional tailwind in Q1 last year, 16,000,000. Can you maybe unpack a bit, like, how the incentive changes on enterprise agreements hit you in q one?

And then when it comes to that exceptional table in q one last year, is there anything of the sort also in the remaining three quarters of twenty twenty four and potential headwinds from that for the rest of the year? And just, yeah, for modeling purposes, that would be helpful. Thank you.

Melissa Mulholland, CEO, Crayon: Thank you, Christopher. It’s a great question. So just to clarify because I know it’s complex, our EA, CSP, and service incentives are booked locally in market. For the EA incentive reduction, we actually made up for that with CSP and services as we planned and communicated and expected in q four. So I’m actually quite pleased with the results that we’ve been able to deliver as an organization in leading the transition from EA to CSP globally on behalf of the Microsoft business.

When it comes to the HQ line, you’re correct. So in q four, sorry. Excuse me. In q one of last year of twenty four, we had a one time effect of a marketing incentive related to the launch of Copilot. As you may recall, Copilot launch was for CSP as well as EA.

And so there was a marketing incentive push forward to drive the launch of that. So clearly, as we remember, the EA or sorry, not the EA. The HQ line is a bit lumpy, and it’s that was specific to that. Any other comments, Breda, from your side?

Brede Husse, CFO, Crayon: Nope. No comments for me.

Melissa Mulholland, CEO, Crayon: I just and to your point around going forward into the rest of the year, we’re quite confident. So the momentum that we saw from the work delivering on over performance in CSP and services will carry forward into the rest of the year. And that’s also, as we mentioned, we have a back end loaded back half of the year.

Christopher, Analyst, DNB Markets: Yeah. Because I think if you look at the growth in the in the geos of without the HQ line, you’re still, like, pretty, you know, below the the guidance for the full year growth and gross profit. So can you maybe take us through some of the key building blocks for for getting that from, like, the low low teens to 15 to 20%?

Melissa Mulholland, CEO, Crayon: Yeah. You’re absolutely right. So internationally speaking, we delivered solid growth. And clearly, as I mentioned in the call, Nordics is the where we were, let’s say, disappointing disappointing in terms of growth. So Nordics alone delivering back to, let’s say, regular seasonality will get us to get us to normal rates.

And I fully expect with the plans that we’ve put in place and also the sales execution I see, specifically in Norway, that we will be on track for the remainder of the year.

Christopher, Analyst, DNB Markets: And finally, just quickly, like, in terms of the mix between, like, historically between EA and and CSPs, it’s fair to assume that it tilted more towards EA and The Nordics than your kind of original whole markets and more towards CSP outside of The Nordics, or is that too simplistic of a generalization?

Melissa Mulholland, CEO, Crayon: Yeah. No. It’s I think it’s a bit too simplistic. I would say in The Nordics, it’s we have a very good balance of EA to CSP. So it’s, you know, we’re as we’ve stated before, we’re one of the largest CSP providers in the world and are growing CSP at a very healthy rate.

So I don’t see that mix shift to be necessarily the impact. This is just about making sure we have sales execution in place. And I think we have, all the right, aspects in in place for the rest of the year.

Christopher, Analyst, DNB Markets: Alright. Great. Thanks.

Moderator: It does not seem like we have any further questions from the telephone line, so I’ll hand it back to the speakers.

Melissa Mulholland, CEO, Crayon: I want to thank you all for attending our call. We are confident in our ability to deliver based off of the headcount growth that we’ve put in for the q one. It is very much a growth focused company, which we’re committed to delivering. And also the improvement around consulting and the business all up. I’m confident that we’re gonna have a great 2025 and together with SoftwareONE, look forward to the combination of the two companies.

Thank you all, and I hope you have a great rest of your day.

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