Earnings call transcript: Know IT AB faces revenue decline in Q1 2025

Know IT AB reported its first-quarter earnings for 2025, revealing a 10% year-over-year decrease in total sales to SEK 1.6 billion. The company’s adjusted EBITDA also saw a decline, reflecting a challenging market environment. Despite these hurdles, the stock price rose by 0.69% to 145.8 SEK. According to InvestingPro analysis, the company currently appears undervalued based on its Fair Value calculations, though it trades at a relatively high P/E multiple of 37x. Two analysts have recently revised their earnings expectations downward for the upcoming period.

Key Takeaways

• Total sales fell by 10% year-over-year, reaching SEK 1.6 billion.
• Adjusted EBITDA margin decreased to 6.6% from 7.7% last year.
• Stock price increased by 0.69% following the earnings announcement.
• Continued investment in digital transition and cybersecurity sectors.
• Workforce reduced by 337 employees compared to the previous year.

Company Performance

Know IT AB experienced a notable decline in its financial performance during the first quarter of 2025. Total sales dropped by 10% compared to the same period last year, and the adjusted EBITDA margin decreased from 7.7% to 6.6%. This performance reflects the company’s ongoing challenges in a fragmented and competitive market, particularly in the telecom sector.

Financial Highlights

• Revenue: SEK 1.6 billion, a 10% decrease year-over-year.
• Adjusted EBITDA: SEK 104.5 million, down from the previous year.
• Adjusted EBITDA margin: 6.6%, down from 7.7%.
• Rolling 12-month EBITA: SEK 363 million.
• Net debt: SEK 500 million with a leverage ratio of 1.2.

Outlook & Guidance

Looking forward, Know IT AB anticipates salary increases of around 4% and is focusing on recruitment in growth areas. While the company expects slight market improvements in 2025, it remains cautious about large-scale recruitment. The defense sector is highlighted as a key area for growth.

Executive Commentary

Per Valentin, CEO, emphasized the company’s strong position in the solutions business area, stating, "We see a continued positive trend and stable delivery in our largest business area solutions." CFO Marie Bjorklund noted, "Our main challenge and also opportunity for growth and improved margins is our utilization."

Risks and Challenges

• Competitive pressures in the telecom and management consulting sectors.
• Potential impacts of salary increases on profit margins.
• Weak demand in the telecom sector could affect future revenue.
• Challenges in fully compensating for salary increases through price adjustments.

Q&A

During the earnings call, analysts inquired about the company’s utilization rates and order book growth. Management reported gradual improvements in utilization rates and a slight increase in the order book. Concerns were raised about the Insight and Connectivity segments, with discussions on potential resource reallocation in the defense sector.

Full transcript - Know IT AB (KNOW) Q1 2025:

Shari, Chorus Call Operator: Ladies and gentlemen, welcome to the NOWIT Interim Report Q1 twenty twenty five Conference Call. I am Shari, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by Q and A session. The conference must not be recorded for publication or broadcast.

At this time, it’s my pleasure to hand over to Mr. Per Valentin, CEO. Please go ahead, sir.

Per Valentin, CEO, NOWIT: Thank you. My name is Per and with me is our CFO as well, Marie Bjorklund. First of all, I would like to take you through some operational highlights during our first quarter. We continue the trend from Q4 with gradual improved utilization rates. Our largest business area solutions continues to show solid performance and lead the way for the rest of the group.

We are happy that we’ve been able to stabilize the development in experience during the quarter. We have a continued focus on sales and client relationships leading to investing in new interesting and new assignments during the quarter that we have signed. And we maintain of course our focus on cost awareness and efficiency and that is very important to secure a continued positive development in these markets. We can take the next slide please. Take a closer look into our business areas starting with Solutions, our largest business area accounting for more than 50% of our total revenue reported net sales of eight eighty million for the quarter.

The margin increased to 9.1% and we are happy that the utilization rates continues to improve. This is an effect from the organizational work done over the past year. But the geographical differences remains. Norway is a more stable market, but we now see some slow but steady market improvements in Sweden as well. Next slide please.

Our digital agency experience reported net sales of million in the quarter with an EBITDA margin of 6.2%. We still meet challenges, but are we are very encouraged over the stabilization of utilization rates that we have seen in the quarter. This is a step in the right direction. We see an increased client interest in Sweden, but from low levels. And the trend continues from the end of last year which is promising.

The plan for how to continue to improve experience lay firm. We can take the next slide please. Business Area Connectivity. We reported net sales of around SEK $2.00 8,000,000 for the quarter, margin 8.3%. We have had challenging challenges in the quarter mainly due to decreased demand in the telco sector.

This have impacted the business a lot. We have made critical investments in our sales capacity important to move back to organic growth. And we note strong interest from clients in this industry segment and the pipeline looks promising for the rest of the year. Can take the next slide please. Our management consultancy Insight reported around million for the quarter.

The EBITDA margin was close to 6%. In Insight, we continue to work to balance good demand in some areas with need of cost control and optimized organizations in others. And as you have heard before cybersecurity, defense and ERP systems remains areas where we show a really good growth. But we see that the demand for traditional management consulting services remains weak. And with that, I would like to next slide please.

And with that, I would like to hand over to you, Marie. We can take the next slide, please, again.

Marie Bjorklund, CFO, NOWIT: Thank you, Karl. So back to the group as a whole. We delivered sales of approximately SEK 1,600,000,000.0, a decrease of around 10%. There’s a negative calendar effect of the quarter. However, it is small, it’s just one hour.

Also notice that we are at the end of the quarter, three thirty seven employees less than previous year, so the organic decrease in sales was expected. The adjusted EBITDA amounted to SEK 104,500,000.0 for the quarter, a decrease compared to the same quarter last year. This leads to an adjusted EBITDA margin of 6.6% in the quarter. Last year, it was 7.7%. So here we also have a decrease.

We see that the market is still challenging, it’s fragmented and competition is tough, but we do see some signs of improvements. Solutions is improving utilization since the second quarter of twenty twenty four. Experience utilization has stabilized. All in all, the utilization is slowly getting better for the whole group. We’re working on our hourly rates, and we managed to raise prices towards clients also in the first quarter, but not to the full extent to compensate for salary increases.

Despite this, I want to stress that our main challenge and also opportunity for growth and improved margins is our utilization. We have the good potential to continue to increase the utilization. We have the right competences and have done a hard focused work on our cost structure. However, fixed costs are harder to work on. Next slide, please.

This slide shows the development over time and also on a rolling twelve month basis. Our adjusted EBITA for the latest twelve months is at $363,000,000 and revenues at SEK 6,200,000,000.0 at an EBITA margin of 5.8. Next slide, please. This is an overview of our net debt development. We have SEK 500,000,000 in used credit facility and now it has a total credit facility granted of SEK 1.5 Future considerations amount to SEK 18,000,000.

Other liabilities, mainly leasing debt amounts to SEK $470,000,000. This totals a net debt of million and divided with our EBITDA of SEK508 million on a rolling twelve month basis, we are at a leverage of 1.2. We have a stable balance sheet and a good financial position. Also, this means that we are well within our financial target, which is set not to exceed two. Next slide, please.

We have a solid platform and a strong position as a digitalization partner in the Nordic Region. The share from the public sector is stable compared to last year, a positive sign as the share in this sector has decreased during last year. Competition, however, remains tough. We see that the retail sector continued to improve, potentially a consequence of general improvements in the economy. We have a strong and solid position in the industry sector, partly thanks to good development in the defense sector.

The negative development in the telecom sector primarily relates to one significant client. And all in all, clients remain focused on business critical projects also in an economic downturn. And with that, I hand back to you, Per. Next slide, please.

Per Valentin, CEO, NOWIT: Thank you, Marie. Well, to summarize, we see a continued positive trend and stable delivery in our largest business area solutions where both utilization and margin have improved during the quarter. We have also been successful in converting the pipeline and signed several new agreements in the quarter. We see improvements in experience with stable utilization. We maintain our focus on sales and cost control.

And of course we are proud of our very strong position in the Nordic market as a partner connected to digital transition particularly in the fast growing segments like defense and cybersecurity. Well, with that we are now open for some questions. Thank you.

Shari, Chorus Call Operator: We will now begin the question and answer session. The first question comes from the line of Keo Raman, Nordea. Please go ahead.

Keo Raman, Analyst, Nordea: Hi, good morning, Pernemal. A couple of questions from me. First, trying to get some more color on the utilization. Maybe when you look at each month in the quarter, do you see them trending in any direction from January to March across your four segments?

Daniel Gauberk, Analyst, Handelsbank: Would you like to take

Marie Bjorklund, CFO, NOWIT: that Yes. They are continuously improving during the quarter. In experience, they have stabilized and that has been the case also over the whole quarter. We can see slight, slight, slight improvement, but it’s very, very little in March. But it’s going in the right direction.

Keo Raman, Analyst, Nordea: Okay, great. And I recall that in Q4 you said that your order book had grown slightly. How could you comment on how the order book has developed here in Q1 also?

Marie Bjorklund, CFO, NOWIT: Yes. It looks good. We have many deals that we have signed and we’re about to sign. However, it is yet to be seen in the figures. It’s a little bit too early for that.

Per Valentin, CEO, NOWIT: It’s going in the right direction in a way but yes slow.

Keo Raman, Analyst, Nordea: Okay. So it’s up from Q4 or Yes.

Marie Bjorklund, CFO, NOWIT: Yes it is.

Keo Raman, Analyst, Nordea: Okay. Perfect. And just a third and maybe final one for me. The other segment saw its costs increase sequentially from SEK 21,000,000 to SEK 24,000,000 in Q1. Just looking at last year, saw that Q1 had lower group common costs.

So I thought it might be some seasonality pattern, but I’m trying to wrap my head around it. Was there anything unusual in the other segment this quarter that made the cost tick up?

Marie Bjorklund, CFO, NOWIT: I don’t think that it’s anything unusual. It’s a bit sometimes it varies when the costs are coming during the whole year depending on when we do project and such.

Keo Raman, Analyst, Nordea: Got it. I’ll get back in line. Thank you for answering my questions.

Per Valentin, CEO, NOWIT: Thank you. Thank you.

Shari, Chorus Call Operator: The next question comes from the line of Daniel Gauberk, Handelsbank. Please go ahead.

Daniel Gauberk, Analyst, Handelsbank: Thank you, operator. Donojoubar here. And good morning, Per and Marie or perhaps not good morning, but hello anyway.

Shari, Chorus Call Operator: Hello. My

Daniel Gauberk, Analyst, Handelsbank: question is starting off a little bit again on the utilization trend You mentioned a bit that you saw experience stabilizing a little bit, a slight improvement in March and so on. Can you comment a bit more where you have the toughest trends right now? Is it Insight that is harder despite that you mentioned defense and cybersecurity and so on?

Per Valentin, CEO, NOWIT: Yes. That’s right. Insight is shattered. There is one part of Insight that’s developing really good as we were talking about and the other one is not. And of course, we have had a quite tough quarter in connectivity connected to telco as well.

Keo Raman, Analyst, Nordea: Yes.

Daniel Gauberk, Analyst, Handelsbank: And telco, is it more of the equipment and less of the service providers, I guess or? Yes. That’s right. That’s right. And is that a structural phenomenon?

Or is it more of project related?

Per Valentin, CEO, NOWIT: Think it’s been quite structural for a couple of years as you know. We are slightly optimistic for the future though. There is a reorganization in some places and things are starting to pick up during 2025. So but it’s been a tough fall and a tough Q1 connected to that area.

Keo Raman, Analyst, Nordea: Yes.

Daniel Gauberk, Analyst, Handelsbank: May I ask also on the deal between the salary increases and prices? Obviously, just heard from Tietto, for example, that they expect 4% to 5% salary increases for their group and in this year. And so far, we haven’t yet seen the impact, obviously, from Sweden and Norway on pricing or salaries versus pricing. So I guess we are up for a negative yield, but is it possible to scope it? Is it 4%, five % also as a negative yield between those two?

Or can you work on demographic or whatever?

Marie Bjorklund, CFO, NOWIT: Well, I think we will land our expectations are more or less in line with what you talked about, around 4% somewhere there is to be expected. And the hourly rates, I can’t give you any detail from that, but they are lower as of right now and most likely that will continue.

Per Valentin, CEO, NOWIT: So but there is not a yield decrease so we don’t misunderstand this number of 45%. So it’s going to be higher our rates 25% than 24% but they are going to increase less than the salaries. Yes.

Daniel Gauberk, Analyst, Handelsbank: That’s fair enough. May I also sorry.

Per Valentin, CEO, NOWIT: No, sorry. That’s the situation.

Daniel Gauberk, Analyst, Handelsbank: Perfect. Thanks. And may I take the last question On the Easter effect in Q2, I guess it came late in the quarter or in April, should say, not in the quarter. And Stockholm area had the Easter leave, I guess, on the Easter week and not the week after as it is some years. So a little bit on the impact on the Easter would be great, too.

Marie Bjorklund, CFO, NOWIT: Yes. Well, we have a negative calendar effect in April of ten hours, and that is just like the bank holidays. And of course, there’s also the holidays coming after affecting. We don’t know to the full extent how much that is affecting. It’s ten hours less in April, ’3 in May and then all in all in the quarter is minus 8%.

Daniel Gauberk, Analyst, Handelsbank: Perfect. Thank you and good luck in Q2.

Per Valentin, CEO, NOWIT: Thank Thank you.

Shari, Chorus Call Operator: The next question comes from the line of Ramil Kouria, Danske Bank. Please go ahead.

Ramil Kouria, Analyst, Danske Bank: Thank you, operator. Hi, guys. Few questions from my side. Just first off on connectivity, I mean up until now despite quite a weak revenue development you’ve been able to retain margins and then into Q1 margins are coming down quite materially. Then you comment that you’ve been able to reallocate resources.

And now on the call, Pat, you alluded to sales pipe, etcetera. So I’m just trying to square all of these moving parts. Should we expect connectivity margins to continue to remain sluggish at say current Q1 levels? Or are we going to rebound imminently?

Per Valentin, CEO, NOWIT: Well, I think that there are two things connected to this. One thing is of course utilization rate. You won’t get an exact answer to start with. But one thing is that we see a possibility to reallocate resources to other customers, but also to new projects at the same customer. But we see a quite tough situation with the yield connected to some of those.

So I think that we will see a better situation a slightly better situation coming forward. But it’s you have to take in consideration both utilization and those new projects, the yield of those new projects. So it’s going to be better. Okay.

Ramil Kouria, Analyst, Danske Bank: That’s clear. Thank you. And then on topic of utilization improvements, I mean, I can see the line of reasoning and clearly it is supportive to margins. But then again, it’s also on the back of quite hefty headcount cuts. So how should we think of like what’s your business planning in terms of utilization improvements on the back of an aggregate demand improvement across the entire company or the segments as such?

Per Valentin, CEO, NOWIT: Well, we to start what we think is that we have seen now the last three or four quarters is a quite flattish market. It’s not started to bounce back up again. And we have adjusted as you know quite a lot connected to that. We think that we are quite done with those adjustments. We had some in January, but it’s the adjustments connected to headcount is much slower in February, March.

So what we’re trying to do right now is to increase recruitment in the good areas. In some areas connected to Norway, connected to defense, connected to cybersecurity etcetera are there are possibilities. So we’re trying to focus on that as a start.

Ramil Kouria, Analyst, Danske Bank: Okay. Okay. And then on the topic of sort of recruitment another 2% cut quarter over quarter, and you said January there. How should we think of the sort of the progression of the employee base? You did alluded to it, but just maybe a little bit additional flavor, if there’s any.

And then to that point, were there any severance costs that were abnormal in Q1?

Per Valentin, CEO, NOWIT: Well, they are so low now compared to what they were in Q3 last year that we don’t disclose them anymore.

Marie Bjorklund, CFO, NOWIT: No. It was a couple of millions, but it’s approaching normal levels in our business. And on the net recruitment of the quarter, was minus 88,000,000 and it was minus 60,000,000 in January. So January was high, but we have come back to more normal levels in February and March.

Ramil Kouria, Analyst, Danske Bank: Okay. That’s very clear. And then just finally on perhaps sort of positive notes. The France segment clearly demand is pretty big broad based across all sectors really that supplies services or goods to the defense sector. But could you shed some light on your aggregate exposure to defense and maybe sort of opportunities and difficulties that may arise in the reallocation resources to defense?

Is it easy or does it require sort of additional certifications of resources and whatnot?

Per Valentin, CEO, NOWIT: Well, to start with the reallocation, it is we have the sources to do that. It’s not easy, but we have competence and the sources to reallocate but it takes time. It’s around six months or something like that. So that’s a possibility and we’re working with that all the time. And we are growing quite fast in the defense sector.

Still it’s a small part of our business and as you know that’s why we don’t disclose it still. So but sooner or later that will eventually happen depending on the continuous growth of the area.

Marie Bjorklund, CFO, NOWIT: Yes. It requires some work from our side and we are considering disclosing to exact numbers in the report. But as I think we’ve said before, it’s a little less than around 5%.

Ramil Kouria, Analyst, Danske Bank: It’s very clear. Thank you so much both.

Per Valentin, CEO, NOWIT: Thank you.

Shari, Chorus Call Operator: We have the next question from Daniel Thorson, ABG. Please go ahead.

Daniel Thorson, Analyst, ABG: Yes. Thank you very much. Another question on net recruitment here. What are your plans if you can share those for Q3, the important recruitment quarter, but also the second half of twenty twenty five? But also, if you haven’t really set those plans, what signs are you awaiting before you decide if it’s going to be a big positive program or a bit more cautious program?

Per Valentin, CEO, NOWIT: As you know, are a decentralized organization. So the plans are going to look quite different in different countries and different segments and business areas. But if you aggregate that to some extent, think that it’s a little bit early to say that we have a really clear plan of what’s going to happen in Q3. We are ramping up for recruitment in quite a few of the growing areas of know it already. In some of the others where we maybe see flattish utilization, we are waiting a little bit to see that the trend is upwards connected to utilization in Q2 to hit the button for Q3.

So that’s it’s well, of course, it sounds like common sense, but that’s how we are trying to do it.

Daniel Thorson, Analyst, ABG: No, that makes sense. So we will hear some more comments in Q2, guess, on those important segments.

Per Valentin, CEO, NOWIT: And as you know, we don’t exactly know what’s going to happen in the environment right now. It’s quite shattered. Personally, I think that we will see some positive trend connected to sector and public sector is very important for us. We what we are waiting for is to see the development in, for example, the industry segment and some other segments, see what happens there.

Daniel Thorson, Analyst, ABG: Yes. Makes sense. And then secondly, a question on Norway here. It sounds like you are a little bit more conservative than recent quarters on your comments. You say that the market is stable.

When I look at sales, are down 1% year over year. In Norway, I guess it’s affected both by FX and the Easter effect to a large extent than in Sweden. But do you mean that the market is stable in terms of as strong as before? Or has the market weakened somewhat to just be stable now versus last year, for example?

Per Valentin, CEO, NOWIT: No. It has the market has not it’s not weakened since we talked last time. I would rather say that it’s a little bit better. So but maybe we should express it as more as stable than it’s much better because it’s slightly better.

Daniel Thorson, Analyst, ABG: Yes. So it’s stable in terms of still strong?

Shari, Chorus Call Operator: Yes.

Daniel Thorson, Analyst, ABG: Okay. That’s clear. Yes. That’s all for me. Thank you.

Shari, Chorus Call Operator: Thank you. Thank you. There are no more questions

Marie Bjorklund, CFO, NOWIT: All right. We have a couple of questions from the webcast. Actually, think we may have already covered them, but I’ll read them up anyway and then maybe if you want to add some thoughts on that. First one is from Sven. Samsung is wondering if there are any plans on further reductions or is now it’s moving into a growth phase now?

And clearly connected also to a question from Mario Sejerdahl, which is number of employees of course down a lot since peak in 2022. When do you foresee that you will increase recruiting again? You did talk about it.

Per Valentin, CEO, NOWIT: Yes, that’s right. And the start for that process is of course not continue to decrease and that is something that we have stopped. So maybe now it’s a situation where we don’t decrease in a little bit more tougher areas and we start to recruit in the growing areas. So I would like to say that we are in that mode already but it is going to be a little bit shattered depending on the demand in different areas and it’s going to be quite slow.

Marie Bjorklund, CFO, NOWIT: There are no more questions from the webcast.

Per Valentin, CEO, NOWIT: All right. Thank you very much.

Marie Bjorklund, CFO, NOWIT: Thank you.

Shari, Chorus Call Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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