Earnings call transcript: Nepa Q2 2025 reveals ARR growth, stock drops

Nepa AB reported its second-quarter 2025 earnings, highlighting a 13% year-over-year increase in sales bookings. Despite this growth, the company’s stock price fell by 17.08% in pre-market trading, reflecting investor concerns over financial performance and strategic challenges. According to InvestingPro data, the company maintains a healthy balance sheet with more cash than debt, though its gross profit margins remain weak at 17.59%. The company’s efforts to transition to a more predictable recurring revenue model were underscored by a modest increase in Annual Recurring Revenue (ARR) and significant cost-saving measures.

Key Takeaways

• Sales bookings increased by 13% year-over-year in Q2 2025.
• Annual Recurring Revenue (ARR) grew by 1.4 million, ending the quarter at 121.1 million.
• Nepa’s stock price dropped by 17.08% in pre-market trading.
• The company completed an extensive cost-saving program, targeting 22 million in savings.
• Nepa is focusing on scaling its marketing mix modeling capabilities.

Company Performance

Nepa demonstrated a strong performance in sales bookings, achieving a 13% increase compared to the previous year. However, the company’s financial results were tempered by a net revenue retention loss of 5.2, highlighting ongoing challenges in maintaining customer retention. The company’s strategic shift towards a recurring revenue model is evident in the modest ARR growth of 1.4 million, reaching a total of 121.1 million by the end of the quarter.

Financial Highlights

• Revenue: Not explicitly detailed, but sales bookings increased by 13% YoY.
• Annual Recurring Revenue: Ended Q2 at 121.1 million, up from 119.3 million.
• Adjusted EBITA CapEx: Negative for the quarter.
• Cost Savings: 22 million expected, with 19 million from personnel and 3 million from headquarters relocation.

Market Reaction

Nepa’s stock price experienced a significant decline of 17.08% in pre-market trading, dropping from a last close value of 20.2 to a new level closer to its 52-week low of 16.75. InvestingPro analysis suggests the stock is currently undervalued, presenting a potential opportunity for value investors. This movement reflects investor apprehension about the company’s financial health and its ability to achieve projected cost savings and ARR growth. Discover more undervalued opportunities at Most Undervalued Stocks.

Outlook & Guidance

Looking ahead, Nepa plans to concentrate on increasing ARR sales and enhancing marketing efforts in the coming quarters. The company acknowledges uncertainty in surpassing last year’s adjusted EBITDA CapEx of 4.3 and aims to mitigate client churn through strategic initiatives. Nepa’s projections for fiscal years 2025 and 2026 include EPS forecasts of 0.32 USD and 0.4 USD, respectively, with revenue forecasts of 33.02 million USD and 35.21 million USD.

Executive Commentary

CEO Anders Dahl emphasized the importance of marketing mix modeling, describing it as "probably one of the hottest topics right now in the market intelligence space." He also noted the company’s strategic shift towards a more predictable and consistent recurring revenue model, stating, "Higher on is good quality and predictability is, of course, what we are aiming for."

Risks and Challenges

• Client Budget Constraints: Delays in proposal approvals due to cautious client behavior.
• Market Saturation: Soft ad-hoc sales market impacting revenue growth.
• Cost Management: Ensuring the effectiveness of cost-saving measures.
• Competitive Pressure: Maintaining a strong presence in Northern Europe amidst competition.
• Revenue Model Transition: Successfully shifting to a predictable recurring revenue model.

Q&A

During the earnings call, analysts inquired about the inclusion of Swedish reorganization costs and the departure costs of the CFO, both of which were confirmed to be accounted for in Q2. These questions highlight investor focus on the company’s cost management and strategic initiatives.

Full transcript - Nepa AB (NEPA) Q2 2025:

Conference Moderator: I will hand the conference over to CEO, Anders Dahl. Please go ahead.

Anders Dahl, CEO, NEPA: Thanks a lot, and welcome all to this 2025 report presentation. I am Anders Dahl, and I’m the CEO of NEPA, and I will walk you through this agenda. So first, an introduction to NEPA, and then second quarter brief overview, and then I’m gonna walk you through the annual recurring revenues highlights and some words about scaling up marketing mix modeling, the product that we introduced late twenty twenty four, 2025 that we now see good interest in the market, and therefore, we are increasing that organization or improving that organization with a new head of that team. I will also walk you through the transition or the transformation we are doing on our on our tech platform that impacts especially our brand tracker and then an overview of the financial results and an outlook for the remaining part of the year, and then we end up with a q and a as a wrap up for this session. Nearby is a leading marketing intelligence company, and the mission is to deliver insights that grow your business fast and every day.

We track brands across the globe, and we track close to close to 8,000 brand or 7,500 and and counting daily and measure thousands of advertising campaigns annually across more than 50 markets. We deliver insights to CMOs and to to to c level executives, but also, of course, to to insight departments, marketing teams, and marketing departments. We normally deliver our our reports and insights in in in storytelling and in presentations, in PowerPoint presentation, but, of course, also via dashboards that is always on, especially for our trackers that that our clients use in the in the in the day to day decision making regarding marketing and media investments. The business model is based on both recurring and ad hoc insights, and and the core offering is is brand tracking, which is our biggest product, campaign evaluation where we track campaigns on an ongoing on an ongoing basis, and also that we both have as an ad hoc marketing mix modeling product, but also as a continuous marketing mix modeling platform. That that was the one we introduced or launched earlier this year.

We combine market survey data, which is real real interviews with real people to track brands, track campaigns, and and track marketing activities from our clients. But we also have a high end consultancy that on top of our dashboard and data deliveries do the storytelling, explain, give insights, but also work very, very closely with our clients and within their organization. We have a strong presence in Northern Europe, and we have sales offices in The UK, US, and and also in Finland and Helsinki, and, of course, in Sweden as well. We have a fairly large large research lab in Mumbai in India where we do a lot of our base work, and and that that kind of feeds into the deliveries to our clients. A brief overview of q two that we sustain a good momentum when it comes to sales booking and especially on the ARR side and you that have been with us with for a time for a while, you’ve seen that we are really trying to change our business model into being more predictable and and consistent recurring revenue company.

We have previously or historically tend to move back a lot to ad hoc projects, but now we’re really trying to push the the business into an and recurring revenue business. So sales bookings grew by 13%, more than 13% year over year, marking marking this quarter the third consecutive quarter with the growth, especially driven by ARR. And that also shows and is a good testament to the strategy that we presented earlier this year that we are now focusing much more on ARR and focusing much more on our core products and have really slimmed down our product portfolio to deliver within the brand campaign and categories. What we are seeing and what what has been a bit challenging during this quarter is a cautious client behavior in q two. We’re seeing budget constraints.

We have seen prospects or or ideas or proposals that we have sent out to be moved into the second half of this year due to uncertainties or budget restrict restrictions within their the client’s organization. We did we did also internally a fairly large reorganization with a client to Teams earlier this year, and, of course, that might kind of cause some momentum or or stop or lack of momentum for a short period. But now we are through that, so we will see kind of a full effect of this new organization. We’ve already seen that in q two, but we will see that even more into q three. We we launched a pretty extensive cost saving programs that is program that is completed now, and it kind of ran through the entire organization, but especially focused on The UK and the Swedish organization.

And that that has taken place, and it’s completed, but you will see the full impact on that in q three and going forward. We have also moved our head office in Sweden to a much more cost efficient office that will reduce the cost of of of lease, etcetera, and also create a much better environment for our employees and and and also, of course, for our clients coming to our office. And like I mentioned earlier, we’re also scaling up our marketing mix modeling team, and that is not so much adding a lot of people. It’s more about transforming some of our internal resources into taking more actions into our marketing mix modeling team. So it’s an increase of data scientists.

We’re also building a more stable platform to be able to deliver marketing mix modeling as a continuous product in a more efficient way. Marketing mix modeling as such is probably one of the hottest topic right now in the market market intelligence space. So that’s even if we are still growing and we don’t separately report those numbers, we will most likely do that going forward or later on. But it definitely leads to to more of a high end discussion with our clients because marketing modeling encompasses everything that the client touches with sales, margins, profitability, distribution, supply chain, and, of course, their marketing and media activities. And all those things goes together and give gives the client a very good basis or a very good understanding for how to make decisions, educated decisions, and good insights to drive the client’s growth.

Q two, we also had an annual general meeting in on June 23 where we where the AGM reelected the whole entire board, and then Formal was reelected as chairman. And the AGM also decided on a dividend of 1.23 Swedish kronas per share that was executed and done in the month of June. As as we previously announced in in a press release more than a month ago, Philip Tarte stepped down as the as the CFO, and we are con we’re still evaluating the scope of the CFO position together with the board. But the management along with the board and support from a very, very strong finance team are of are, of course, continuing to drive the strategic transformation effectively and brings a wealth of support to the organization when it comes to support for the business and making good decisions. This is a slide to explain the annual recurring revenue highlights during this quarter, to explain the underlying impact of the churn that we have preannounced earlier this year or late last year.

So as you see, we went into the quarter with an ARR in March 31. We We had a preannounced churn that we have preannounced previously of 16.5, and that ends on a net of after the preannounced churn of 119.3. And now we had a net net net revenue retention loss of 5.2, and then but then we had a new sales of ARR of 7,000,000. That ends the quarter on 121.1. And that gives kind of an underlying ARR growth of 1,400,000.

And an even better thing and a better view of this is that we actually had our ARR bookings of 10,000,000, but 3,000,000 out of those 10 are being moved into the next quarter because that that ARR business or that ARR contract is is being executed on in in q three instead of q two. So we’re not reporting that in in the q two. And, again, that shows that the strategy that we implemented early this year, late last year, is is paying off. The investments we have done in marketing, the investments we have done in the new business and sales team, and the clearliness of of the the way we have communicated to the market of that we would like to be a long time continuous recurring partner with our clients to be able to really help them to make educated decisions on the on the insights that we provide. We’re scaling up the marketing mix modeling team, and and we we have we are introducing a couple of new or at least one new employee next week or within the next upcoming weeks, and we will, of course, press release those things when when when we see some traction in in this team.

But this is a very important area for us and one of our core areas for the future. We’ve done marketing mix modeling for for quite some time as an ad hoc product. Now we are we are transforming that into a continuous marketing mix modeling product that will give us recurring revenues, but also for the clients to really be able to see the change in changes in their investments and their landscapes landscape over time. So this is a very exciting kind of forward looking growth initiative that will that we hope will pay off in a very visible way for the next upcoming quarters. We have mentioned before that we have done, I think, in the last quarterly report that we have done some some first initiatives in order to transform our old legacy platform into a new tech stack for brand tracking.

And that has been on its way now during this the first half of this year. We have done proof of concepts, and we have done some pilots with some clients and run-in parallel on a new tech platform, and we do see very promising results. So this will this will this will make us much more predictable when it comes to the tech investments we have to do going forward, but it will also reduce our total cost of ownership for the tech stack. And, of course, a better client experience. Dashboards and client tech will be easier to maintain and develop together with our clients depending on our clients’ needs.

And on top of this, it’s all fueled and supported by AI within our products, within our way of working in our organization. So we will talk more about this, and I will most likely invite Jacob, our new CTO, that’ll be spearheading this project during next or the upcoming quarterly report to give a little bit more details about this. But this this is a big big shift and a big change in our way of operating. Like I mentioned before, it had been a challenging quarter when it comes to to ad hoc sales. And, of course, the previous churn that we have that we have informed about impacts the revenue in this in this quarter.

So even if we have proven strong new sales in ARR, our overall revenue were negatively affected by softer ad hoc sales and previously churned clients. So this revenue mix, of course, also impacts the gross margin because we know that ad hoc business is is is delivering a higher gross margin. But, of course, like I said before, this change in strategy will impact our net profitability by selling more recurring revenues because at the end of the day, that gives us a more sustainable and more predictable net profitability and and and revenue over time. Have seen an OpEx decline if you look at the comparable comparability relating to the Swedish cost reduction, but the big impact on the cost reduction will be visible in q three and q four. And the main the main the main changes is, like I said before, UK, Swedish organization, and the Swedish lease and the Swedish headquarter.

So unfortunately, the adjusted EBITA cap less less CapEx is negative for this quarter. And, of course, we are not happy with that. So our aim is, of course, to push even more for for for ad hoc sales. But, again, constantly be on par with the strategy that we have planned out and mapped out, which is driving more sustainable ARR sales over time. So the outlook for for the the second half of this year is that we, of course, gonna continue to we see momentum in our in our in our in our growth focus on on the sales side and especially on the ARR side.

So, of course, we’re gonna continue to push for that. We also gonna we also hire, then there will be new salespeople and more marketing activities going on now in q three and q four. So that will help and support our aim to to put some pressure on our on our growth ambitions. But you will also see a full impact of the personnel cost reductions of close to 19,000,000 in total and then 3,000,000 on on the on the relocation of the headquarters in Sweden. So now all in all, 22,000,000 in savings to mitigate and meet the churn we are seeing over time, but, of course, also to put together an organization that is better suited to fit into the strategy that we have laid out.

So it’s it’s both kind of a cost reduction, but it’s definitely more of a transformation than just a pure cost reduction. So we have still hired new people. We are still kinda made make make that kind of competence change in the organization to have an organization that is better prepared to sell our ARR, deliver on ARR, but also deliver on high end consultancy. Higher on is good quality and predictability is, of course, what we are aiming for, but the software ad hoc market is still the caveat when it comes to the second half of this year. In what way and how that will limit our ability to to exceed last year’s 4.3 adjusted EBITDA CapEx.

So that is kind of the caveat and of of the red flag, but it’s still something that we’re gonna work with and try to kind of compensate for as much as possible and push for the for for the recurring revenue and, of course, the adult projects. So that was my fifteen minutes when it comes to giving you all a full overview of the reports. The report is sent out, so I hope we can go right into the questions and answers and also have some good questions that we can have a discussion about. So, please, I’m handing it over to you guys for questions and answers. I think I have

Conference Moderator: no more phone questions at this time. So I hand the conference back to the speaker for any written questions and closing comments.

Anders Dahl, CEO, NEPA: So I have some questions on the feed. I think I see them. Yeah. There is someone asking is all the costs for the Swedish reorg taken in q two including the CFO payoff? Yes.

They are. So so that is already taken care of, but the full impact on the p and l will, of course, be seen in in the later part of the year. Did you adjust any cost related to that the CFO did step down? That is already taken taken into to to the the q two numbers. So that is already taken care of.

I don’t really see any more questions than these few questions. I hope that we gave you the information that you were looking for, and thank you all for listening in. And, of course, you are more than welcome to reach out to our investor relation contact or to me directly. My my email and phone number are in the presentations or in the reports. So I’m happily taking taking questions and hope we can have a kind of an ongoing dialogue.

So so thanks a lot for listening in, and talk to you in a quarter again or before. Thank you very much.

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