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NNIT (NASDAQ:NNIT) reported its Q1 2025 earnings with revenue holding steady at DKK 464 million, reflecting no growth compared to the same period last year. The company’s operating profit decreased to DKK 18 million from DKK 24 million in Q1 2024. Despite these results, NNIT’s stock price fell 1.73%, closing at 69.2, amid broader market challenges and sector-specific uncertainties. According to InvestingPro analysis, the company appears undervalued at current levels, with a market capitalization of $259.54 million and trailing twelve-month revenue of $257.11 million.
Key Takeaways
- NNIT’s Q1 2025 revenue remained flat at DKK 464 million year-over-year.
- Operating profit declined to DKK 18 million, down from DKK 24 million in Q1 2024.
- The company secured a significant contract with EnergyNet and expanded in the U.S. and Denmark.
- NNIT revised its 2025 organic growth guidance down to 0-5% from 7-10%.
- Stock price dropped by 1.73% following the earnings report.
Company Performance
NNIT’s performance in the first quarter of 2025 reflected stability in revenue but highlighted challenges in maintaining profitability. The company’s operating margin decreased to 3.9% from 5.2% a year earlier, largely due to restructuring costs and market uncertainties. Despite these hurdles, NNIT managed to secure new contracts, particularly with EnergyNet for a four-year DevOps engagement, and continued its focus on Life Sciences and Public Sector IT solutions. InvestingPro data shows the company maintains a healthy financial position with a current ratio of 1.4 and an overall Financial Health Score of "GOOD". Subscribers can access 5 additional ProTips and comprehensive financial metrics through InvestingPro’s detailed research reports.
Financial Highlights
- Revenue: DKK 464 million (flat year-over-year)
- Operating profit: DKK 18 million (down from DKK 24 million in Q1 2024)
- Operating margin: 3.9% (down from 5.2% in Q1 2024)
- Workforce reduction: Approximately 100 employees
Outlook & Guidance
NNIT revised its organic growth guidance for 2025 to 0-5%, down from the previous 7-10% range, citing significant market uncertainty and cautious investment behavior in the Life Sciences sector. The company maintained its operating profit margin outlook at 7-9% and does not anticipate any mergers or acquisitions in 2025. Despite the lowered guidance, InvestingPro analysts expect the company to remain profitable this year, with positive net income growth projected. The company’s historical revenue growth of 7.12% in the last twelve months suggests potential for recovery once market conditions improve.
Executive Commentary
"There is no doubt that the first quarter did not unfold as we expected," said Peer Schatz, CEO of NNIT. He emphasized the rapidly changing environment in Life Sciences and the company’s strategic focus on navigating these challenges. Carsten Ringus, CFO, noted, "We have maintained our margin outlook due to all the initiatives we have carried out in the first quarter."
Risks and Challenges
- Market Uncertainty: Ongoing geopolitical tensions and cautious investment in the Life Sciences sector could impact future growth.
- Restructuring Costs: Continued restructuring efforts, particularly in Europe, may affect profitability.
- Sales Pipeline: Slower development of the sales pipeline could hinder revenue growth.
- Supply Chain Issues: Geopolitical tensions may disrupt supply chains, affecting delivery timelines and costs.
- Industry Competition: Intense competition in IT solutions for Life Sciences and the Public Sector could pressure margins.
NNIT’s Q1 2025 earnings call highlighted both the challenges and strategic initiatives the company is undertaking amid an uncertain market landscape.
Full transcript - Nnit AS (NNIT) Q1 2025:
Operator: At this time, I would like to welcome everyone to this NNIT q one twenty twenty five results presentation. Today’s call is being recorded. If you have any objections, please disconnect at this time. All participants will be in listen only mode throughout the presentation and afterwards, there will be a question and answer session. I would now like to turn the call over to your speakers.
You may now begin.
Peer Schatz, CEO, NNIT: Thank you, operator, and good afternoon, everybody, and thank you for joining this webcast. My name is Perfors, and I’m the CEO of NN IT. With me today, I have our CFO, Carsten Ringus. And together, we will present our results for the first quarter, which we released yesterday morning. Please turn to Slide two.
I will walk through the key business highlights included in the regional update. After this, Karsten will go through the group results, including our financial outlook for 2025, which we adjusted in a company announcement yesterday. Before heading to the next slide, please pay attention to the disclaimer in the bottom of the slide. We expect so let’s turn to Slide three. And we expect that the first quarter performance should be dampered.
However, the quarter turned out to be affected more by deterioration of the market condition than firstly anticipated. That resulted in the flat total revenue growth compared with last year and organic growth of minus 0.8%. We have seen fragmented performance across our regions, both negative and positive. I will come back to this later in the presentation. The revenue reduction has been balanced by lower number of people, but there has been some latency in adjusted capacity, most notably in Region Denmark and Region Europe.
However, we could not offset the lower revenue generation, thereby the group operating profit, excluding special item, ended below last year’s level with a corresponding margin of 3.9%. Please turn to Slide four. We strongly believe that N and IT is well positioned across its core areas, being life science and the public sector in Denmark. We continue to see solid traction with our customers and the feedback we receive, and we continue to expand our business with development in public being at a very good level. When the current situation stabilizes, we are certain that we will regain momentum as there continues to be a strong demand for Life Sciences IT Solutions.
As previously mentioned, the further elevation of the macroeconomic and geopolitical uncertainty during the quarter has impacted our business more than we firstly anticipated. This is most evident within our Life Sciences segment as pharma companies are holding back on investment not only related to IT solutions, but also in the expansion of manufacturing facilities. The whole supply chain in pharma is very uncertain due to the potential introduction of tariffs and pricing structure. As the ongoing geopolitical unrest is impacting our customers, it has indirectly impacted N and IT. We do see some less demand for larger IT transformation projects, especially within the R and D area, and the current projects or ready to start projects are being postponed.
Region Europe has been the region that has been mostly exposed to this. In general, we do also see that the sales pipeline is developing at slower pace than we normally see due to that customers are being more cautious at the moment. As we are navigating to our best ability within this environment, we have taken several actions during the quarter to adapt to this reality. The structure of N and IT’s cost base is predominantly salaries, wages and other employee related costs as we are a consultancy business built on people. With the pressure on top line, it has been necessary to calibrate our manning capacity to fit the current demand.
It is never pleasant to say goodbye to good people around the world, but it has been a mandatory measure for us to protect our profitability. During the quarter, we have adjusted our capacity by around 100 employees. After we ended the first quarter, we have won important contract with new customers in Region U. S. And Region Denmark.
We are pleased to see that large pharma companies are choosing us for IT solution and that we continue to expand our presence within the public segment. Referring to the public segment, we just announced this morning that we have engaged in a four year contract with EnergyNet to provide DevOps specialists for the development of EnergyNet’s component based ITOT platform with possibility to be extended. This is a strong testimonial to our strategic choices to expand our presence within the Danish public sector. Please turn to Slide five for a regional update. In the first quarter, we have seen a fragmented performance across our regions impacting our operations.
As we mentioned, the overall organic growth was negative by 0.8%, but there were positive development in Region Asia and Region DK, but offset by market slowdown and uncertainty, most notably in Europe, but also a decrease in U. S. Speaking about Region Europe, that is where the geopolitical uncertainty has been most evident with organic growth of negative 5.9%. The behavior of our customers has been hesitant, entailing that several projects has been postponed and engaging in new contract has been slowly developing. We are sharpening our sales effort by expanding our scope in terms of our deliveries.
After the appointment of our new Head of Region Europe from the January, we are currently doing a transformation of the region. We are restructuring our organization and streamlining our ways of working to become more efficient in the way we go to market, how we execute and how we deliver on projects. With the capacity adjustment made last year and this year, including the cost initiatives ongoing, we are now in a much better place. Even though the regional operating margin contracted from 11.2% in Q1 last year to 10% this year, we do see opportunity to expand the margins for the rest of the year. For sure, we will continue with our transformational efforts in the second quarter and structurally lower our costs.
Turning to Region U. S. We do see solid development within our Manufacturing and Supply Chain business, both in terms of growth and profitability. In that area, we have also just won an important contract with a large pharma company. However, the organic growth for the first quarter was not where we wanted it to be, being a negative 9.5% due to decline in the data migration business, which has recovered slower than anticipated.
Also, the moderate market slowdown has continued to impact the R and D area. Despite the revenue decline, regional operating profit margin materially increased compared with last year as there was significantly less spend on external subcontractors. We did some capacity adjustment made adjustment, and we continued to focus on our cost management. Regional operating profit margin was 30.4% in Q1 compared with 19% in the same quarter last year. On an overall level, we do see that Region U.
S. Is well positioned to return to growth as we are getting more traction with larger pharma companies. However, returning to growth require a material improvement within R and D and the data migration business. Region Asia continued to grow its business with 12.6% organic growth. The material improvement compared with last year is due to initiatives carried out during 2023 and the beginning of twenty twenty four, where Asia rightsized its capacity, making sales function as part of delivery units and having an enhanced commercial focus on project execution and pricing.
We are pleased to see that these measures have taken us and have resulted in a stronger performance. Regional operating profit margin was 7.6% in Q1 compared with a negative 5.3% last year. Although things have turned out around the positive, we are cautious for the upcoming quarter due to the uncertainty around the trade war affecting not to lease China. We currently see that many large international pharma companies have a hesitant approach for further investment in China, which could indirectly impact M and IT. During Q1, Region DK continued to grow its business, although on a more moderate level than before.
Organic growth was plus 4% due to the public segment and the scales delivering solid results. Revenue growth from the other areas was flat to slightly negative, which was unplanned. Furthermore, the region was affected by losing a larger public tender and a postponement of a large project. As a result, Regent DK had had more resources on the bench than normal. As a result, the regional operated profit margin declined from 22.6% in Q1 twenty twenty four to 15.1 in the this quarter this year, including the reallocation of costs for corporate of around DKK 5,000,000.
By the end of the quarter, capacity adjustment has been carried out, including lower regional overhead, which will have a positive impact for the second quarter. For the rest of the year, we expect Region Denmark to regain growth momentum and increase its profitability as a consequence of the initiatives carried out. Please turn to the next slide. Yesterday, we announced the full year outlook for 2025 that was adjusted given the macroeconomic and geopolitical unrest. We do see that our regions are focusing on Life Science solutions, are navigating in an environment that are rapidly changing more than before.
I will briefly go through the figures. And later in the presentation, Karsten will go through the detail and assumptions behind it. As several projects have been postponed and the sales pipeline is materializing at a slower than expected level, we have adjusted our organic growth to between 0%, which was previously 7% to 10%. We have maintained our margin outlook due to all the initiatives we have carried out in the first quarter and also the ones remaining. We are materially lowering our cost base through capacity adjustment and less overhead costs.
Please turn to the next slide. This concludes my part of the presentation. I will now hand over to Carsten for the group financial performance and the details around the financial outlook. Carsten, please go ahead.
Carsten Ringus, CFO, NNIT: Thank you, Pierre. Please turn to the next slide. As Peer alluded to, the financial performance for the first quarter was dampened by the market uncertainty. Revenue amounted to DKK464 million, in flat revenue growth compared with last year. The organic growth was negative by 0.8, which was driven by the customer hesitation observed in Region Europe and the data migration business and R and D in Region U.
S. This was almost offset by growth in Region Asia and Region Denmark. As a result of lower growth than expected in sailing overcapacity, the group operating profit excluding special items was DKK18 million compared with DKK24 million in the same quarter last year. Margin was 3.9% in Q1 twenty twenty five versus 5.2% in Q1 twenty twenty four. To protect profitability in this uncertain environment, we have taken cautionary actions reducing the workforce by around 100 employees and taking further actions also to reduce our regional and corporate overhead costs.
Please turn to the next slide. Before going into the adjusted financial outlook for 2025, I want to highlight the special items. Special items in the first quarter unfolded as internally planned, at million. DKK20 million was related to restructuring costs, DKK3 million related to earn out payments and DKK2 million related to finalization of integration in our new IT platforms. However, given the current situation, NLIT expects to increase its restructuring cost for the rest of the year.
As mentioned in connection with the release of our annual report for ’24 in February, earn out payments are expected to be DKK20 million for the full year, implicitly entailing around DKK17 million for the rest of the year. Based on this, special items are now expected to be up to last year’s level, which was DKK69 million. Please turn to the next slide for the financial adjusted outlook for ’25. Yesterday, we adjusted our financial outlook for 25%. The organic growth is now expected to be 0% to 5% compared to previously communicated 7% to 10%.
The lower and widened range is a result of the elevated uncertainty and how it has impacted our customers and therefore indirectly in IT. The organic growth adjustment can therefore mainly be attributed to the observations made within the Life Science segment as we do expect that our public segment in Denmark will be somewhat less affected by the current turmoil. We have maintained our group operating profit margin excluding special items outlook, which is 7% to 9%. This is based on the initiatives already carried out in the first quarter with more to come in the second quarter. Of larger drivers to maintain the margin are run rate savings from the capacity adjustments, structurally lower overhead costs and the full year impact from the initiatives executed during last year.
As mentioned on the previous slide, special items are now expected to be up to last year’s level of DKK69 million as a result of higher restructuring costs. The adjusted financial outlook continues to assume no M and A activity in 2025 and that the macroeconomic and geopolitical environment will not further deteriorate. Please turn to Slide 11. Before we head into the Q and A session, Peer will provide some closing remarks. Peer, please?
Peer Schatz, CEO, NNIT: Thank you, Karsten. There is no doubt that the first quarter did not unfold as we expected. However, the headwind we have faced driven by external factor had a larger impact on the business than we firstly anticipated. Therefore, we have taken the necessary action during the quarter with more to come in the second quarter to rightsize our business to protect profitability. We expect that the future will remain uncertain, which is reflected in the adjusted financial outlook for 2025.
On a positive note, we have won important contract after the first quarter close, which strongly indicate that NN IT is well positioned within its core areas. This concludes our presentation for today. Thank you for joining the call. Now we will open up the line and take your questions. Operator, can you please turn to the next slide and open up for questions?
Operator: Yes. Thank you. Our first question comes from Paul Liesen from Danske Bank. Please go ahead. You are now unmuted.
Paul Liesen, Analyst, Danske Bank: Yes. Thank you for taking the question. First of all, now you have lowered the guidance to zero to plus five. The zero, does that reflect that you are well confident that that would be the low end, which would gonna happen? Or can there be anything happening in the next eight months that could let you miss that one?
Carsten Ringus, CFO, NNIT: Well, thank you for the question, Paul. Well, this is based on how we assess the situation now. So we feel that we within the range of 0% to 5% can see our business developing. Of course, we do not expect further deterioration of the uncertainty in the market. So hopefully, we will have some clarity that could take some of this uncertainty out of the market.
But this is what we expect to be realistic currently.
Peer Schatz, CEO, NNIT: And maybe add on to that, Paul. I mean, I think the whole world are awaiting what will be the final outcome of this tariff war. It’s still an unknown, right? And of course, that outcome carries a wide range of scenarios, right? And our guidance is kind of hitting somewhere in the middle of that scenario.
But potentially, there is a worst case of that scenario that no one maybe around this table and around the call can anticipate. So there is an increased uncertainty. But we do believe in this guidance, but it’s a very uncertain environment around it.
Paul Liesen, Analyst, Danske Bank: You have also private clients in Denmark, which are non pharma clients. Do you is it your clear assessment that pharma customers have been much more pushing the brakes following the turmoil than other sectors?
Peer Schatz, CEO, NNIT: Yes. I mean, I think it’s quite obvious. If you look on our business side, I mean, the public sector in Denmark has developed pretty okay in terms of growth. Then there is some explanation for the profitability. But on the growth side, we can see stability in the Danish public sector.
So they are not affected. On the private clients in Denmark, I mean, has been developing nicely, and they are addressing basically all the private clients. But there has been some effects on the private clients in Denmark, but less so because we are addressing not the global clients in Denmark on the private sector. It’s primarily what we call Tier two clients. In pharma, on the contrary, we have a quite big customer base on the big pharma top the big pharma companies, the top 20 pharma companies, who are truly global companies, who are operating on a global level.
And of course, the whole supply chain disruption that is ongoing, where they need to kind of rethink the way they are actually operating as a company. All those uncertainties, how long they bring that means that for the pharma companies, they are more hesitating due to these uncertain times.
Paul Liesen, Analyst, Danske Bank: Okay. When to bookkeeping, the restructuring costs, which you are now raising in the guidance, the SEK 25,000,000, is that a Q2 issue?
Carsten Ringus, CFO, NNIT: Well, we have some further actions ongoing in Q2. And I’m not saying that we will hit the same number as last year, but it could be up to last year’s level. And we are taking further action in Q2.
Paul Liesen, Analyst, Danske Bank: But the bridge you showed said that there would be another $25,000,000 in restructuring coming beyond So question is, is those coming in Q2 and then nothing in the second half?
Carsten Ringus, CFO, NNIT: We expect the main part of our restructuring activities taking place in Q2.
Paul Liesen, Analyst, Danske Bank: Okay. Can you then explain the reallocation of cost where you add cost to the Danish, the regional cost? There’s a similar reduction in The US. So is The US cost moving to Denmark or what’s happening here?
Carsten Ringus, CFO, NNIT: No. The reduction in U. S. Is a result of some optimization done in The U. S.
Where they had closed down an office location and taken out some overhead costs. So that’s not related to the increase in Denmark. The increase in Denmark is related to Regent Denmark taking the cost of the OHMs they have in OHMs and also a share of the cost in our Leidligamskir headquarter office. So that will be a, you can say, a corresponding drop in the corporate overhead cost.
Paul Liesen, Analyst, Danske Bank: Okay. And it’s also going to happen in the coming quarters, so it’s a rebasing?
Carsten Ringus, CFO, NNIT: Yes. It is.
Paul Liesen, Analyst, Danske Bank: Okay. And then I have one final one. The pass through revenue from Aden, how how material is that the the headwind that you get there? Is it just something you mentioned, or is it because it’s a larger headwind for the Danish operation that to wind down the the parts area?
Carsten Ringus, CFO, NNIT: No, it’s not something which is a main driver. We mentioned it here because it’s a year over year effect, hence dampening the positive growth in Q1. So it is part of the explanation for that we don’t, a total in Regent Denmark, have a higher positive growth than what has been reported now. So it pulls some of the positive growth out of the region.
Paul Liesen, Analyst, Danske Bank: And what would it have been if you didn’t have that headwind? We
Carsten Ringus, CFO, NNIT: haven’t disclosed that information, but it could be between 68% if we adjust for the headwind on the pass through.
Paul Liesen, Analyst, Danske Bank: Okay. Thank you. Thank
Operator: you, Paul. As no one else is lined up for questions, I’ll now hand it back to the speakers for any closing remarks.
Peer Schatz, CEO, NNIT: Okay. There’s no further question. I would like to thank you, everybody, for participating in this call, and thank you for your questions. Please do not hesitate to reach out to either me or Carsten if you have any further questions. Have a good afternoon and have a good evening.
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