Earnings call transcript: Kano Group sees 5% growth in FY 2024

Kano Group, with a current market capitalization of $2.2 billion, reported a 5% growth in full-year 2024 net sales, reaching SEK 2.6 billion, driven by strong demand for its AI solutions in the legal information sector. According to InvestingPro analysis, the company appears to be trading near its Fair Value, with analysts maintaining optimistic growth projections for the current year. The company's Q4 net sales grew by 4% organically, with an adjusted EBITDA margin improvement of 5 percentage points. Despite the absence of specific earnings forecasts, Kano Group's strategic focus on AI and operational synergies contributed to its positive financial performance.

Key Takeaways

• Full-year 2024 net sales reached SEK 2.6 billion, marking a 5% increase.
• Q4 adjusted EBITDA margin improved by 5 percentage points.
• AI solutions adoption increased among major law firms and courts in Scandinavia.
• Subscription-based sales made up 86% of total sales.
• The company achieved EUR 14 million in annual run rate synergies.

Company Performance

Kano Group's performance in 2024 highlights its strategic focus on AI-driven solutions and operational efficiency. The company's net sales grew by 5% for the full year, with significant contributions from its AI adoption across legal platforms. The Nordic and Southern European markets have shown robust demand, bolstering Kano's competitive position in these regions. The company also maintained its leverage ratio at 3.0x, aligning with its financial targets.

Financial Highlights

• Full-year net sales: SEK 2.6 billion (5% growth)
• Q4 net sales: SEK 691 million (4% organic growth)
• Adjusted EBITDA margin: 24% (5 percentage point improvement)
• Adjusted free cash flow for Q4: SEK 210 million (+SEK 61 million YoY)

Outlook & Guidance

Kano Group aims to continue enhancing its AI features throughout 2025, with optimistic expectations for growth in the French and Spanish markets. InvestingPro data reveals analyst targets ranging from $19 to $25 per share, with a consensus recommendation reflecting cautious optimism. The company's growth trajectory is supported by seven key ProTips available to Pro subscribers, including insights on earnings growth potential and market positioning. The company is targeting EUR 10 million in annual run rate synergies by 2026 and expects profitable growth in its Southern European operations. The focus on strengthening its commercial team and marketing initiatives is also anticipated to drive future performance.

Executive Commentary

• "AI is transforming our industry," stated Pontus Bodelson, CEO, highlighting the strategic importance of AI initiatives.
• "We see that legal professionals are very enthusiastic about AI solutions," added Bodelson, emphasizing the positive reception from the market.
• Magnus Hansson, CFO, expressed optimism about the future in France, noting, "We are quite optimistic of the future in France."

Risks and Challenges

• Market Saturation: As AI solutions become more prevalent, competition may increase, potentially impacting market share.
• Regulatory Changes: Shifts in legal regulations could affect the demand for Kano's products.
• Economic Uncertainty: Macroeconomic pressures may influence spending in the legal sector.
• Technological Advancements: Rapid changes in technology could require continuous innovation to maintain competitiveness.

Kano Group's strategic focus on AI and operational efficiency has positioned it well for continued growth. The company's proactive approach to market expansion and synergy realization underscores its commitment to long-term success.

Full transcript - Openlane Inc (KAR) Q4 2024:

Conference Moderator: Welcome to the Karnaugh Group q four twenty twenty four report presentation. For the first part of the presentation, participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing 5 on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now I will hand the conference over to CEO Pontus Bodelson and CFO, Magnus Hanssen.

Please go ahead.

Pontus Bodelson, President and CEO, Kano Group: Welcome, everyone, to Kano Group's earnings conference, where we will present the outcome of the fourth quarter of twenty twenty four. Please go to Slide two. I am Pontus Bouluson, President and CEO of the company. With me, I have our CFO, Magnus Hansson and our Head of Investor Relations, Erik Bergen. Magnus and I will present the outcome of the quarter using a few slides and then we'll open up for questions.

With that said, let's get started with the presentation of the fourth quarter. Please go to Slide three. We achieved strong results in the fourth quarter. Margins improved significantly as synergies are coming through according to plan. Moreover, we advanced our AI sales providing added value to our customers.

Net sales grew to SEK691 million in the quarter. The organic growth was 4% driven by strong online sales including new AI solutions. The adjusted EBITDA margin improved to 24%, which is an improvement of almost five percentage points compared to previous year. Thanks to a strong operating cash flow, leverage is now three point zero times, which is in line with our financial targets. Let's move over to Slide four.

In 2024, we advanced Kano Group's position. The market demand for legal information solutions is strong and increases due to more regulations and increased complexity in legislation. We have generated value for the stakeholders during the year. We launched AI solutions generating value to our customers while in parallel achieved cost synergies to improve margins. In Region North, our AI assistant has been adopted by some of the largest law firms in Denmark and Sweden, including Paul Schmidt, formerly known as Kameradkel, which is the largest law firm in Denmark.

All legal professionals at this firm are now using our AI assistant. In Sweden, we see strong interest from the public sector. Many of the courts have bought our AI solution. In Region South, we have launched new versions of our three flagship products in France, all with AI and launched enhanced AI add ons in Spain. The AI solutions have been sold to all customer segments in both countries.

We will continue to launch additional AI features during 2025. While being deeply focused on customer value and innovation, we are equally focused on costs and achieving our synergy target. We reach the annual run rate synergy target of at least EUR 7,500,000.0 by the end of twenty twenty four. Next (LON:NXT) slide, please. The combination of our locally authored content and AI technology brings significant proven value to all legal professionals.

Development is progressing rapidly and we need to be both decisive and agile to meet our customers' needs. We have taken the next steps in fulfilling our AI ambition by combining our European innovation capabilities and local market expertise into a group AI product organization. Adopting best practices from across the group will benefit all our customers as we will leverage the strength of being a European player to create scalable AI products with local customer value. Next slide, please. We are pleased to have achieved the annual run rate synergies target of EUR 7,500,000.0 for 2024.

The annual run rate synergies amounted to EUR 8,000,000 at the end of the year as we have continued to deliver on all work streams. We reiterate our ambition to achieve annual run rate synergies of EUR 10,000,000 by the end of twenty twenty six. This will be achieved through operational excellence, meaning we expect the cost to achieve for the region's South integration to decrease from 2025. Next slide, please. In February 2024, we launched our group wide acceleration initiative.

The synergies have been harvested in Region North and group in the first phase, while synergies in Region South are part of the second phase coming from 2025. Our ambition is to generate cost efficiencies of EUR 10,000,000 with full effect on run rate basis at the end of twenty twenty six. At the end of the year, the annual run rate synergies amounted to EUR 6,000,000. Next slide, please. In this slide, you can see our two cost efficiency initiatives running until the end of twenty twenty six with the ambition of harvesting efficiencies of EUR 20,000,000 in total and that we now, at the end of twenty twenty four have harvested annual run rate synergies of EUR 14,000,000.

Next slide, please. I will now comment a little on our segment performance starting with Region South. We are pleased to see stable sales in both Spain and France in the quarter. Through our integration programs in Spain and France, we have laid the foundation for profitable growth going forward. In Spain, we have initiated the next phase with greater external focus, highlighted with the launch of our first external marketing campaign as Arantar de la lei, Hola futuro, Hello Future.

It is a campaign focused on the significant customer value from transitioning to our AI solutions. During the spring, we will add more features to the AI solutions, reaping the full benefits of our strong local proprietary content. In France, we launched our new product suite in the quarter, three flagship products all with AI to the benefit of our customers. We have been active in the market promoting the new product at conferences and head on events with strong attendance from the legal industry. The sales team, which has been strengthened during 2024, is working dedicated promoting the new solutions.

Next slide, please. Region North continues to perform well both in terms of growth and profitability. The growth is driven by increased subscription based online sales, including AI. As mentioned earlier, some of Denmark's and Sweden's largest law firms have adopted our AI assistant in the quarter. The acquired carved out Schulz legal information business has contributed with SEK26 million in net sales in the quarter.

The margin improvement is a result of synergies coming through from our acceleration initiative and operational leverage from the increased net sales. Next slide, please. With that said, I will now hand over the floor to our CFO, Magnus Hornsom. He will tell us more about the financial results. Magnus, the floor is yours.

Magnus Hansson, CFO, Kano Group: Thank you, Puntus. So let's start with an overview. Switching to Slide 12. In 2024, we achieved net sales of SEK2.6 billion, a solid net sales growth of 5%. The growth is driven by increased online sales, including selling more licenses to existing customers and attracting new customers.

Currency FX had a negative impact on net sales of 0.3%. The acquired car brought Schulz legal information business has contributed with SEK 50,000,000 in net sales in 2024, mainly relating to our acquired customers on the Danish municipality market. Please go to Slide 13. Breaking down net sales on segment level, we see continued strong organic growth in Region North and modest growth in Region South in the quarter. Organic growth is driven by online sales within the public sector supported by our EHS businesses and Tax and Accounting business.

We are pleased to see Spain and France both growing and we are entering the next phase of the integration to achieve profitable growth going forward. Revenues from AI sales is limited in the fourth quarter as the subscription revenues are recognized over the contract period. Next slide, please. On Slide 14, you see the net sales development within online and offline split into segments. In Region, North of the online sales increased by 20% compared to Q4 last year and accounted for 92% of net sales in the quarter.

In Region South, the online sales increased by 5% compared to Q4 last year and accounted for approximately 76% of net sales in the quarter. Please change to Slide 15. Subscription based sales increased during Q4 and represent 86% of sales in the quarter. In Regions South, subscription sales decreased by 2%. However, online subscription sales grew by 7%.

Please change to Slide 16. The adjusted EBITDA amounted to SEK162 million in the fourth quarter. This corresponds to an adjusted EBITDA margin of 24%, which is an improvement of close to five percentage points. Synergies are coming through as expected, meaning COGS and personnel expenses are decreasing. Items affecting comparability amounted to SEK63 million during Q4 and are related to the integration of Regionsoft as well as the group wide acceleration initiative.

At the end of Q4, we have achieved synergies within the group of EUR 14,000,000 on an annual run rate basis. The effect in the quarter amounted to EUR 2,800,000.0. As earlier we announced, we are delivering on our plan to achieve synergies of EUR 20,000,000 with full effect on an annual run rate basis by the end of twenty twenty six. Let's move on to Slide 17 please. In Q4, net sales amounted to SEK322 million.

Organic growth was 8%. The growth is driven by online sales. We continue to strengthen our market position and attract new customers as demand for legal tools are increasing. Adjusted EBITDA reached SEK133 million in Q4. This is an increase of SEK80 million compared to last year.

The adjusted EBITDA margin amounted to 41%. The improvement is due to two main components: efficiencies from the acceleration initiative as well as operational leverage from increased net sales. The effect on EBITA level from the acceleration initiative amounted to EUR 1,000,000 in the quarter. Please move on to Slide 18, which is the Region South segment. Net sales in Region South increased by SEK 5,000,000 compared to Q4 of last year.

Although growth is modest in the quarter, we have launched the next phase of the integration and are confident in our ability to deliver profitable growth going forward. The adjusted EBITA margin was 16% in the fourth quarter. The effect on EBITA level from the Readiness South integration amounted to €2,800,000 in the quarter. On an annual run rate basis, the harvested synergies amounted to €8,000,000 by the end of the quarter. Moving to Slide 19, which presents the segment group functions.

Group functions consist of functions taking responsibility for group wide tasks. Expenses in Q4 was SEK30 million compared to SEK23 million in the third quarter. Exploratory AI projects for future customer value are included in the operating expenses. Please go to Slide 20. The adjusted free cash flow was SEK210 million in the fourth quarter, which is an improvement of SEK61 million compared to Q4 of last year.

Adjusted free cash flow during 2024 was SEK77 million stronger than last year. Our colleagues have made a strong effort renewing customer contracts during Q4 and we are pleased with the improvement. The leverage was three times EBITDA last twelve months by the December. I'm now handing over to Pontus again, who will present our last slides.

Pontus Bodelson, President and CEO, Kano Group: Thank you, Magnus. Please switch to Slide 21. It's been a successful year for Kallen Group and I'm very pleased with our achievements. The demand for our legal information services and software is strong and growing. We are both advancing sales of our AI solutions benefiting our customers while achieving synergies across the group, improving margins and generating value for the stakeholders.

AI is transforming our industry. We have taken new steps in our AI ambition, combining our European innovation capabilities and local market expertise into a group AI organization. Adopting best practices from across the group will benefit all our customers as we will leverage the strength of being a European player to create scalable AI products with local customer value. Despite globally turbulent times, Kano Group stands strong and has exciting opportunities ahead. Please go to slide 22.

And by this, I'll end our presentation. And we are now ready to take questions. So I'll hand over the conference again to our

Conference Moderator: The next question comes from Thomas Nilsen from Nordea. Please go ahead.

Thomas Nilsen, Analyst, Nordea: Thank you for taking my questions and congratulations on a strong quarter. When it comes to the AI subscriptions, I'm curious as to what percent of the annual contract value is now on the AI version of your products? And what are expectations for uptake for AI products for 2025 and 2026? Thank you.

Pontus Bodelson, President and CEO, Kano Group: It's, of course, an interesting and very relevant questions, although we do not usually comment on specific products. And of course that's for competition of competition reasons. However, I would like to underline the fact that you could say that or might think that the legal industry is conservative and therefore are hesitant in taking on these opportunities. But we see on the contrary that they are very enthusiastic. We have tried to develop these services, so it taps into the way a lawyer, for example, works.

So, so far, we've seen great development also in terms of market development. We see that some of the biggest law firms in Sweden and the biggest law firm in Denmark, as I mentioned, is now among the customers on our AI solutions. And also, which is we are really proud of the fact that many of the courts in Sweden already have adopted it. However, we don't comment on specific numbers. I'm happy to say that as we mentioned last quarterly report that we see an uplift, the price uplift of at least 30%, well, it holds true.

So that's at least one number I can give you.

Thomas Nilsen, Analyst, Nordea: Okay. Thank you. And my second question is what's the outlook for Regions South returning to growth in 2025 and 2026? And are the French operations closer to showing growth in 2025?

Magnus Hansson, CFO, Kano Group: Well, that would be a forward looking question. As we've said before, we have invested quite a lot in the French business. We talk about the French acquisition as being a top line case. And we have now invested in a much stronger commercial team in the French business with a strong commercial focus throughout the business. We have launched the three new versions of the three flagship products in France.

So we are quite optimistic of the future in France. In Spain, we have focused on the integration. We have, as we said in Q3, sort of done the technical part and have removed the technical risk in that integration. And we're now then turning focus on growth. So we're investing, for example, as Pontus mentioned, in a marketing campaign now starting just about now, launching the first versions of our common company in Spain, Avanza De L'Ave.

Thomas Nilsen, Analyst, Nordea: Okay. Thank

Pontus Bodelson, President and CEO, Kano Group: you. Thank you.

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