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Proact IT Group reported a modest revenue increase of 2% for Q1 2025, reaching SEK 1.2 billion. Despite the growth, the company’s stock price fell by 2.05% to close at SEK 116.8, reflecting investor concerns over decreased annualized recurring revenue and a lower-than-targeted EBITDA margin. According to InvestingPro analysis, the company appears undervalued at current levels, with strong financial health metrics and a compelling free cash flow yield of 16%. The company remains focused on AI infrastructure and cloud services as key growth areas.
Key Takeaways
- Revenue grew by 2% to SEK 1.2 billion in Q1 2025.
- EBITDA margin fell short of the 8% target, recording at 6.5%.
- Stock price dropped by 2.05% following the earnings report.
- Annualized recurring revenue decreased by 2.8% to SEK 1.7 billion.
- Proact emphasized AI infrastructure and cloud transformation as strategic focuses.
Company Performance
Proact IT Group’s performance in Q1 2025 was characterized by a slight revenue increase and a focus on strategic acquisitions and technology advancements. The company acquired Blackhawk, a UK consultancy specializing in cloud transformation, to bolster its offerings. Despite these efforts, the decrease in annualized recurring revenue and challenges in achieving the targeted EBITDA margin indicate areas needing improvement. The company’s strong presence in AI infrastructure and hybrid cloud solutions continues to position it favorably within the competitive landscape.
Financial Highlights
- Revenue: SEK 1.2 billion (up 2% year-over-year)
- EBITDA: SEK 80 million
- EBITDA Margin: 6.5% (targeting 8%)
- Annualized Recurring Revenue: SEK 1.7 billion (down 2.8%)
- Net Cash Position: SEK 101 million
Outlook & Guidance
Proact IT Group is targeting a 5% organic growth rate and aims to achieve an 8% EBITDA margin. The company plans to enhance cost efficiency across its operations, particularly in the UK, West, and Central regions. Continued investment in cloud and AI technologies is expected to drive future growth, despite market turbulence and geopolitical challenges.
Executive Commentary
CEO Magnus Lund highlighted the company’s role as a "local European trusted partner" and emphasized the importance of cybersecurity and AI infrastructure. Lund stated, "The best solution for cybersecurity is actually to have a good backup of your data," underscoring the company’s focus on data management solutions.
Risks and Challenges
- Macroeconomic conditions in Germany pose challenges to growth.
- Customer churn is a concern, particularly in the West and Central regions.
- Market turbulence and geopolitical impacts could affect future performance.
- Achieving the targeted EBITDA margin remains a challenge.
- The company must navigate competitive pressures in the AI and cloud sectors.
Proact IT Group’s Q1 2025 performance reflects a company in transition, focusing on strategic growth areas while addressing operational challenges. With a strong emphasis on AI infrastructure and cloud solutions, Proact aims to leverage its expertise to drive future success, despite facing current market headwinds. The company’s solid balance sheet, with more cash than debt, and consistent dividend payments for 19 consecutive years demonstrate financial stability. For deeper insights into Proact’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, covering detailed analysis of the company’s competitive position and future potential.
Full transcript - Proact IT Group AB (PACT) Q1 2025:
Magnus Lund, CEO, ProAct: Good morning, everyone, and welcome to ProAct’s q one report 2025. I am Magnus Lund. I’m president of ProAct, and I’m here. For you who have been listening in to this meeting before, you see that we have a new do here to present our q one report. It’s me, Magnus, and Nora, our CFO.
And I myself, I took over as CEO for ProAct first of March this quarter, but I have a long background in the company in in the sense that I have been leading our Nordic and Baltic business for the last three years, and I’ve also been deputy group CEO for the last year. So I’m well aware about our company and our potential and our business foremost. So it’s really glad to have you all on the call here to walk you through, this quarterly report. And as usual, I will give you a short, introduction to ProAct as a company for you who new to the call, and I will give you a short overview of the market that we are operating in. Of course, we will dig into the quarterly highlights, and then Nora will guide us through our financial results.
And then I’m more than happy to take questions at the end of this session. So let’s get started here. So ProAct, we are a leading expert when it comes to provide critical business infrastructure to our customer, and and this we have been doing since over thirty year as a company. And we were founded in Sweden Three Decades ago. And what we are really, really good in is exactly this around IT infrastructure.
I will go a little bit more into detail around this later on. But this is actually something that that every customer in today’s society has a critical need of because all our businesses may more and more digitalized, and and this is the area where we are in. Today, we are operating in 12 different countries, and you can see them here on the map. So we are very Europe centric. We serve around 2,000, customers on an active basis, and we have a yearly turnover of roughly SEK 5,000,000,000.
We have stock listed since ’ninety nine, so a well established company. And as you can see to the right here, over the past five years, we have actually done a good growth session, growing our revenues and also EBITDA foremost. Today, we are around 1,200 experts across our countries, and I would say that we are really we are a local trusted trusted partner. And and nowadays, I’m also very proud to say that we are local European partner because this is given the last turbulence in q one, it’s something that that we experienced that our customer are are valuing more and more, I would say. So that is us in short.
Take next slide here. From an operational standpoint, we have divided our business into four different business units, and this is also how we report our financial numbers. The red one here is Nordic and Baltics, and this is roughly half of our company in size when it comes to revenue. Then we also have business units in UK, and we have one business units called West, which consists of Belgian and Netherlands. And then we have our business unit Central that consists of Czech and Germany.
Out of these business units, we are also delivering we have located our service hubs, and I will go into more details around that. But that is actually where we produce our services that are supporting these 2,000 customer that we were talking about with our own produced services. If we look into our revenue stream as a company, I would say that we have a really good spread when it comes to how we generate revenue here. We have the two to the left here, our system and support services. And this is actually the the core of ProAct where we were started thirty years ago, and now we have, you know, expanded out this.
So there hence, there is a different size of it. But our system is that we are helping our customer with designing, providing, install system that are taking care of their critical infrastructure. It can be service. It can be storage. It can be NVIDIA infrastructure that are enabling AI, for example.
And it could be on prem, and it could be in our data centers. Then to all the the systems that we are selling, we are very often providing our own support, meaning that if a customer gets a critical failure or something in their environment, then our team are there to support and help and fix it. And and this is something that are, you know, really working well, and it’s really appreciated by our customers. And then we, as a company, also have the possibility to provide what we are selling also as a service, meaning that we owns the hardware and and we operate the hardware on behalf of the customer. And this is something that we are actually seeing and growing more and more, and this is what we call managed cloud services, MCS.
And, of course, we, as a company, we are a tech company. And at the end of the day, that means that we are experts in in what we are doing. So we are also selling our competence in form of consultancy services. And I would say that all our consultancy services related to the competence that we have. It could be designing a new data center.
It could be cloud native service. It could be around public cloud and things like that. So we have a really skilled team. And for you who follow other tech companies and and also in general, I would say that cybersecurity and and finding solutions for them, this is on top of every company’s agenda. And if you think about it, the best solution or protection for cybersecurity is actually to have a a good backup of your data.
If something happened to your primary site, then you could restore your data, and then you can get back to business again. And this is something that more and more customer actually realize. They can invest enormous amount of money into cyber protection, but at the end of the day, the ability to restore and back up your data is probably the best protection that you can have, in in in the environment that you’re operating in. AI is, of course, a super important driver, and and we see more and more of that coming. And we are the experts in building the infrastructure around AI, and that is important to point out.
If you look into the market, I was talking about that we are in a very good position. So if you if you can see here down into the left in the graph here, this is the society that we all are living in. That’s the amount of data that we are consuming both as private person, but also as company are generating is actually growing. And this data needs to be stored somewhere, and that means that then there is a need for services and and taking help from a company like us. And if I would bet, I would say that the amount of data beyond 02/1926, it will just continue increase because this is is how we see it.
You also see, unfortunately, that this cybersecurity trends and the spend in the market, that will just become more and more because the the it’s like an an an a war against, you know, criminality that are becoming more and more sophisticated and then ways of finding and to protect it. At the end of the day, I think we, Pruvat here, are are actually super good positioning because we can help and design so that when, and I say when because the likelihood is very high that that you get attacked by a cybercriminal team, but then that you can restore your data and that you can get up and run your business again. And this is some of the key, want to say, experience knowledge that Pruvat persists. Hybrid cloud, this is also something that we see more and more coming that many of our customers, especially, I would say, the last year, have really rethought what they think about where to store the data. Maybe it’s not the best thing to store your critical business data in an an cloud that are operated by American company.
This for two years ago, this was not a question. But given the last hundred days and what’s happened in The US, now many customer are really rethinking this. And here, we are actually there to help our customer designing the most optimal solution for them to help and store and protect the data. I was mentioning that, we see an increased, of AI, and this is a sort of, customer case that we were working with during, q one, and that was that Jotter Boys in the street, really science focused environment. They were building up an environment for their researcher to to, you know, test and apply new methods.
And we enable them with adding NVIDIA card in order to test and use AI to their data. And this was something that we developed over past couple of months here together with Jot Boris and Erstekt. So this is a concrete example that that how we can use our competence and and what we are you doing on a daily basis together with our customer. This picture is actually something I really like, and I and I will guide you through it because this, in essence, describe what Pruvak is doing. So if you look into the blue part here, there’s a data management, and it says on premise, private cloud, and public cloud.
This is actually how every company is built up. Because if you have a tech infrastructure, you need to store your data somewhere. Either it can be on prem, meaning that you have your own hardware and things within your company, then we can help you with that. Either you outsource and have your data in a private cloud provider like us, then we can help you with that. Or you take help of Microsoft, Google, or Amazon and and have your data stored in their public cloud, then we can help you with that.
And this blue part is actually the core of what Pruvat has been doing for thirty years. We are experts in this field, and it doesn’t really matter if your data is located on prem or in the cloud. We are there to help you. And in today’s society, every customer have this setup and structure, and this is how we design IT infrastructure today. And then, of course, you see the yellow part here.
Of course, we want to do something with our data. We are using AI to to extract more data and do things more quicker. Then you need to have a foundation that your AI are operating on, this is what we are helping you. And today, also, some of the hardware are moving into more into software with cloud and native and container technology, and this is a way to develop applications quicker. Here, we also have experts that are doing this on a day to day basis that can help you.
And, of course, all of this, happens around the key value for the customers, protect the data. Make sure that you have a backup or recovery. Make sure that your data is secure. And if something happened, then then we are there to help you. And to the right here, you see this is also how we can deliver it.
Either we can help you and sell only technology, or we can sell technology with premium support, or we can sell it as a service. It doesn’t really matter. So this is really a flexibility that we have as a company. And at the end of the day, we have super skilled 1,200 people that that that are here for helping our customer. So I think ProAct as a European trusted local partner, we are in a really good position to be in.
So I’m really feeling excited about this, I realize, when I talk to you. So with this, that was both a short background about ProAct and also around our market. So going over to some key highlights here. As I mentioned in the introduction, I’m a successor of Jonas Hassebe, first of March. And I’ve been working with Jonas since the last three years, so so I have a good understanding of our business.
But even more exciting was that we acquired Blackjawk, which is a British consultancy company based in UK that are experts in cloud transformation and Azure technology. So it’s fantastic to have them on board and joining the product family. Their cutting edge knowledge will, for sure, help us going forward. And for us, UK is in super important market. So with them on board, we also feel confident that we have strengthened our UK position.
What was also really, really great during the quarter was that we was named enterprise partner of the year by NetApp. NetApp is a global expert company within data storage. We have a super long relationship together with NetApp, and we’re we’re helping a lot of our customer with NetApp technology. But just to be named this and the best in Europe, I think that is a testimony to our skills foremost for our own staff that are working on this with a daily basis. So this is good.
And when it comes to the financials, and Nora will guide you through here very shortly, but we had a revenue of $1,200,000,000 and our EBITDA landed around $80,000,000 And Nora, would you be so glad to walk us through, the more details around this?
Nora, CFO, ProAct: Thank you, Magnus. So turning to slide 10. Revenue in the first quarter, as Magnus mentioned, reached 1,200,000,000.0 Swedish krona, an increase of 2%, largely driven by good performance in Nordic and Baltics, offset by lower sales in business units UK, West And Central, with the Black Yawks acquisition contributing positively with 0.6%. Organic growth reached 1.5%. System sales increased with 7.8% to 688,000,000 Swedish krona, and sales from services business decreased with 4.8% to 524,000,000 Swedish krona, driven by higher system sales in Nordic and Baltics, offset by lower sales in UK, West And Central.
Cloud service revenue decreased with 6% to 271,000,000 Swedish kroner due to contract terminations and higher customer churn, mainly in West And Central. Improvements in Nordic and Politics partially offset the decline, but could not fully compensate. On slide 11, annualized reoccurring revenue amounted to SEK 1,700,000,000.0 in the first quarter, a decrease of 2.8% compared to q one twenty twenty four. New cloud service agreements amounted to 122,000,000 Swedish krona in the first quarter compared to 182 last year. Onboarding of cloud contracts are typically between three to six months, hence, revenue effect will come over time.
Next page, please. Adjusted EBITA amounted to 79,000,000 Swedish krona, mainly due to lower revenue in the services business and reduced gross margin. Business unit Novo and Baltics stands out this quarter with an EBITDA increase of 15,100,000.0 Swedish krona. We have initiated cost efficiency measures in UK, Western Central to create a more sustainable cost base over time. Further to cash flow and net cash position on the next slide.
Our net cash position at the end of the quarter amounted to 101,000,000 compared to 330,000,000 at year end to 2024. Changes in working capital had a negative impact of 57,000,000 on cash flow, partly due to low tougher terms from both customers and suppliers, including timing effects and revised payment conditions. Despite this, our strong financial performance enabled both M and A activity and share buybacks during the quarter while maintaining a solid financial position. Now some details starting with business unit, Nordic and Baltics. Revenue landed at 717,000,000 Swedish krona in the quarter.
EBITDA increased with 20% to 80,000,000 Swedish krona, resulting to an EBITDA margin of 11.2%, being well above the group target of 8%. System revenue increased by 28% to 500,000,000, driven by several large deals in Sweden. Service revenue grew by 5.4% to 217,000,000. Business Unit Nordic and Baltics continues to deliver impressive results in the first quarter. Further to business unit UK.
In The UK, revenue decreased with seven with 13.7% to 159,000,000 Swedish krona, primarily driven by lower system sales. EBITDA declined to SEK 1,000,000 corresponding to an EBITDA margin of 0.6, mainly due to lower system sales volumes and continued pressure on gross margins. Black Yachts contributed positively to adjusted EBITDA with 2,000,000, achieving a strong EBITDA margin of 28%. Business Unit West on this slide. Revenue in West decreased with 21.3% and landed at 181,000,000 Swedish krona in the quarter, reflecting a downturn in both system and service revenue, primarily due to lower activity levels and churn.
EBITDA decreased to minus SEK 4,200,000.0 with an EBITDA margin of minus 2.3%. The decline in EBITDA is primarily due to lower revenue with efforts underway to create a more adaptable cost structure. And finally, business unit central. Revenue decreased to SEK 183,000,000 in the quarter, mainly due to lower system and service sales in a tough market climate. EBITDA landed at minus 1,000,000 Swedish krona, corresponding to an EBITDA margin of minus 0.6%.
The EBITDA decline is primarily due to lower revenue, particularly in the cloud services segment. And on this slide, our financial targets. As mentioned, organic growth in the quarter was 1.5. Coupled with the recent acquisition of Black Yachts, we reached a total growth of 2%. We still have a way to go to reaching our target of 5% of organic growth and additional 5% growth via acquisitions.
EBITDA margin in the quarter was 6.5, and last twelve months sum up to 6.8%. We are moving towards the, like, long term target of 8%. As I previously mentioned, we are in a net cash position, meaning that our leverage is well below the set level of two times EBITDA. And ROCE is up 15.9% for the last twelve months. And this concludes the financial overview of this quarter.
Back to you, Magnus, with some final comments.
Magnus Lund, CEO, ProAct: Thank you, Nora. So trying to wrap up here. So as you can see, I mean, we we have a continuous strong performance in the Nordic and Baltics. Of course, super happy with that. And I’m also really pleased that we, during the quarter, made the acquisition of Blackhawk because this really strengthen our UK position.
And, also, this expertise with cloud native services is an area where we also see we’ll continue to grow going forward. So it’s really glad to have them onboard. It’s as you also can see in the report, I mean, we are having challenges in Western Central. And as Norah explained, it’s mainly relate related to customer churn, and we have had experienced contracts. But I would also say that, especially in Germany, we have a tough, let’s say, macro financial situation.
So the market there is extra challenging. And, of course, there then there will be even more competition when it comes to sales and things like that. But we have initiated cost efficiency measures across the board here. So I believe that over time, we will also work with address them. And and, I mean, as an example, when when going back, Nuba have doing great now for time, but we also had some challenges.
So it takes time to get this, in the right position. But overall, I would say that, when we look into the market contact, it has been, q ’1, especially turbulent and things like that. But I think we, as, I believe strongly that we, as a company, really stands out as a local European trusted partner, and that is what we see that our customer are really valuing and and appreciating. Of course, this turbulence that are in the market with tariffs and things like that, it might make an impact our customers’ decision, but this is something that we are really closely watching in the coming quarters here. So with this, I I, am opening up for questions, to all you, and thank you a lot for listening in.
And we see here, Daniel, please go ahead. I learned out that Yes. That you’re first out here.
Daniel, Analyst: Yes. Thank you very much, Magnus, and welcome to to ProAct and and these calls. Thank you. So the first question is on Nordics and Baltics and the strong system sales here in the quarter, up SEK 110,000,000 year over year. Is that driven by the market performing well?
Or you mentioned the large a couple of large deals, especially in Sweden. And what type of deals, customers, end markets do these relate to?
Magnus Lund, CEO, ProAct: Yeah. It’s a super good question. I I think in The Nordics, 1 of the big drivers here is, unfortunately, the uncertainty that we are experienced in in the surroundings. We are working with both public, customer and also private customer. And I would say that every customer in Nordic Region are now really revisiting.
How are they storing the data? Do they have a backup? How are they protected? And and, of course, that drives investments because many have probably taken these questions around cybersecurity, data intrusion, and so a little bit too light. But but with the market condition, that has changed.
I would say many are experienced with that. But then also, are a long term partner, meaning that we are having long term relationships with our customer, and and that also builds trust. And and as you saw, we were also able to increase our revenue during the quarter. So I would say that is the main drivers.
Daniel, Analyst: Yes. I see. And does it also mean that it looks promising for the rest of the year? Or do you expect any short term hiccups here in Q2 in The Nordics? Or do you expect that to be the outperformer in 2025?
Magnus Lund, CEO, ProAct: I will answer like this that I would say that Q1 was quite turbulent and things and the macroeconomic, I think that impacts everyone. So I mean, it’s really hard to predict what will happen in the future. We are, of course, focusing on what we can impact, and and that is what we are doing on a day to day basis. But I will not either promise or commit to anything. So I’m really looking forward to talk more in the coming quarter here.
But we have a yeah. I’ll stop there.
Daniel, Analyst: Fair fair enough. Fair enough. And then the second question on the services development in q one here in general, down quite significantly year over year, minus 6% to historically quite stable grower grower line. Anything to keep in mind here for the for the rest of 2025? Is it the low utilization on the consulting side or any any large lost deals behind this?
Magnus Lund, CEO, ProAct: No. I mean, it’s some as you can see also, we we have challenges in especially in West And Central that that we are addressing. And and we have had, in my opinion, too high churn in our customers. And, of course, that accumulated over time then gives us this decrease. But worth mentioning is also that during the quarter, we were signing 120,000,000 in new contract deals, and that will, of course, materialize over the coming quarter.
But but we had we had some more work to do in in in our other business units before I am happy at least.
Daniel, Analyst: Yeah. I see. And and you touched upon it already here, but cloud revenue is down, I think, 7% year over year in q one here, and order intake lower than last year even though you mentioned hundred 20,000,000 here. But any reasons for that to pick up this quarter or that the customer churn picked up in this quarter specifically? Or was it an expected development driven by, for example, contract expirations where customers have already hinted that they will not extend the contracts with you?
Or is it only a sign of a weak market?
Magnus Lund, CEO, ProAct: No. I mean, to some extent, it is related to bigger uncertainty in the market, especially outside the Nordic, I would say. And in Germany, the market there is extremely tough. They are really struggling with their financials in the country on the macro level. And, of course, that means that some decision in in deals that we have been working with for a very long time might have been pushed into the future.
So I would say, I would expect that, especially outside the Nordics, this will continue at least at least one quarter and and before we know more what’s happening.
Daniel, Analyst: Yeah. I see. I see. And just to follow-up there on on the German weak development and some, customer churn, do you understand that they have left for another partner or solutions provider or another solution, or they have just decided to reduce their investments in this area?
Magnus Lund, CEO, ProAct: That’s a super good question, and we have really digged into this. And then the of the customer that we have lost, we have lost due to price because some other vendors have really, you know, lowered their price expectations, things like that. And for us, we are not in that game. I mean, we are not racing to zero because we think we are delivering value and and value, then then it should be well worth paying for. And as I said, it’s very easy that you end up in a situation, especially when when it’s tough in in the climate that that there will be raised to zero, but but we are sort of looking into that.
And then, of course, some customer, if you have had a long relationship, maybe they want to, you know, test another partner and things like that, but our doors are always opening. So, we are, for sure, making sure that we are building long term relationships here.
Daniel, Analyst: Okay. That’s that’s fair. And then I have a separate question here. As the new CEO of ProAct also having heading up the Nordics business, Are there any structural reasons for why Nordics and Baltics should bear a higher profit margin than the other segments over time? Or do you see a journey where you can drive these other margins up to the Nordic levels by implementing a new
Magnus Lund, CEO, ProAct: kind of thinking that you executed in The Nordics? Yeah. Otherwise, I wouldn’t have signed up for this new work, of course. So I I think we have done a great job here in The Nordics. We have a good momentum.
I have a good team. And, of course, my ambition is to to spread that to to rest of our team, and and we have a fantastic management team. So we have some more works to do, and I’m really looking forward to to continue to develop product going forward. Yeah.
Daniel, Analyst: Sounds sounds good. And then the final question on m and a and the ones that you have been involved with so far before the Black Yaks acquisition, what type of acquisitions do you think fit best for ProAct and comes with lowest integration risks and, obviously, highest possible return?
Magnus Lund, CEO, ProAct: Yeah. Our that’s also a super good question. Kunoa, who we acquired four years ago, I think that is a super good example. We are working super good together. We are doing business together, and all of the founders are still in the company, and that is what I think it should be.
We are considering Blackjack as the same thing. I mean, we we are allowing both them to do their business, and then we are focusing on strengthening each other. And that is, what I think how m and a should be done. Focus on on value creation. And then over time, you implement the integration and synergies that you need, but don’t rush it.
That’s my philosophy. Very
Daniel, Analyst: good. Thank you very much for for the replies. Speak to you next time.
Magnus Lund, CEO, ProAct: Yeah. Looking forward to it. Do we have any more open questions here? Then I would like to thank you all for listening in, and, Nora and I are really looking forward to report coming quarters and talk and see you soon, and have a great continued day. Thanks a lot from us.
Bye bye.
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