Earnings call transcript: Salaris Q2 2025 reports strong revenue growth

Salaris reported its second quarter earnings for 2025, showcasing a robust 10-14% year-over-year revenue growth, reaching $362 million. Despite missing the revenue forecast of $374 million, the company reported significant operational improvements. According to InvestingPro analysis, the company maintains strong financial health with a current ratio of 1.38, indicating solid liquidity. The stock of Zalaris ASA, Salaris’ parent company, saw a modest increase of 0.25% in pre-market trading, reflecting a positive, albeit cautious, investor sentiment. InvestingPro analysis suggests the stock is currently undervalued based on its Fair Value estimates.

Key Takeaways

• Salaris achieved its strongest second quarter to date with a 15% growth in managed services revenue.
• The company revised its revenue target to $2 billion by 2028, expecting to reach $1.5 billion by 2025, a year ahead of schedule.
• Net profit doubled from the previous year, reaching NOK 10.8 million.
• The company is expanding its market presence, targeting full coverage in Western Europe.

Company Performance

Salaris demonstrated solid performance in Q2 2025, with revenue climbing to $362 million, marking a 10-14% increase from the previous year. The company’s focus on expanding its managed services, which now account for 77% of total revenue, has been a key driver of growth. InvestingPro data reveals impressive metrics, including a healthy gross profit margin of 40.66% and a strong Piotroski Score of 7, indicating robust financial strength. Salaris is positioning itself as a top three global provider in the multi-country payroll sector, leveraging its strong brand and leadership to capture larger opportunities in Europe. InvestingPro subscribers can access 7 additional key tips about the company’s financial position and growth prospects.

Financial Highlights

• Revenue: $362 million (10-14% growth YoY)
• Adjusted EBIT: NOK 44 million (12.1% margin)
• Net Profit: NOK 10.8 million (up from NOK 5.3 million last year)
• Net Operating Cash Flow: NOK 62 million
• Net Retention in Managed Services: 103%

Earnings vs. Forecast

Salaris’ Q2 revenue fell short of the $374 million forecast. The $12 million shortfall represents a 3.2% miss. Despite this, the company’s performance reflects positive operational improvements and strategic growth initiatives.

Market Reaction

Zalaris ASA’s stock price increased by 0.25% in pre-market trading following the earnings release. The stock is currently trading near its 52-week high of 88, suggesting investor optimism about the company’s future growth prospects. The modest gain indicates a balanced market reaction, likely due to the revenue miss being offset by strong operational performance.

Outlook & Guidance

Salaris has revised its revenue target, aiming for $2 billion by 2028 and projecting to achieve $1.5 billion by 2025, a year ahead of its previous target. The company expects a revenue increase of over 15% in 2026, driven by its expansion strategy and enhanced service offerings.

Executive Commentary

CEO Hans Peter Mallerud expressed pride in the company’s achievements, stating, "We are all proud of these achievements and the entire team Salaris is committed to keeping up the momentum." He highlighted the company’s growth potential, noting, "Our current customer base alone represents a TAM of four to five times our current revenues."

Risks and Challenges

• Market Expansion: Expanding into new markets poses risks such as regulatory compliance and cultural adaptation.
• Competition: The payroll sector is highly competitive, with pressure from established players.
• Economic Conditions: Macroeconomic factors could impact client budgets and spending.
• Technological Advancements: Keeping pace with technological changes requires continuous investment.

Q&A

Due to technical difficulties, there was no Q&A session during the earnings call. Stakeholders are encouraged to direct their questions to ir@salaris.com.

Full transcript - Zalaris ASA (ZAL) Q2 2025:

Hans Peter Mallerud, CEO and Founder, Salaris: Okay. Good morning. I’m Hans Peter Mallerud, the CEO and Founder of Salaris. And joining me today for this webcast presentation of Salaris Q2 and First Half twenty five results is our CFO, Gunnar Manon. We have some had some slight issues this morning, so sorry for being somewhat delayed and reducing Teams.

We there is a Q and A function that you can use to ask questions, which we will answer at the end of the presentation. And please note that the and you can access the recording in the Investors section of our website. So first, we will look at some of the highlights of the quarter. Q2 marked our strongest second quarter to date, reflecting the continued strength of our strategy and business model. We delivered revenues of $362,000,000 for the quarter and NOK $732,000,000 for the first half, representing 1014% growth respectively compared to the same periods last year.

I am being told that we have some slight delays in how the slides are being presented. So you also for your info you can find a copy of the slide deck on our website. Moving on, so profitability and high with adjusted EBIT of NOK44 million in Q2 and NOK96 million for H1 corresponding to margins of 12.113.1%. These results keep us firmly on track to achieve our communicated adjusted EBIT margin target in the range of 13% to 15%. Cash generation strengthened correspondingly pressures of CHF62 million in Q2 and CHF84 million in H1, further underlining our ability to combine growth with solid financial discipline.

New long term agreements and expansions were closed with an annual contract value of more than SEK 30,000,000. This robust performance reflects the continued expansion of our customer base, successful cost optimization initiatives and scalability of business model. In May, we paid a dividend of NOK0.90 per share. Our strategic review initiated at the start of Q2 twenty twenty four was concluded in June. The review focused on addressing the following perceived key issues lower than peer market valuation, limited share liquidity restricting growth through capital markets, increasing exposure to large complex deals where faster market prices could enhance win rates, particularly in Benelux and France where we currently lack direct operations.

Despite the review, we constantly delivered on our targets. This execution contributed to a significant increase in our share price, effectively raising the bar for potential proposals. As a result, none of the proposals received matched the board’s value aspirations. As a listed company, we will remain open to external interest. However, our full attention is now directed towards executing our strategy of delivering on our targets of becoming a top three global provider of multi country payroll and HR transformation.

With our European developed and hosted solution, we are well positioned to drive further growth in both revenue and profitability. I’m looking at this slide, I think it’s fair to say we promised and we delivered. Back in spring twenty three, we launched our group EBIT improvement program with a goal of raising EBIT by 40,000,000 to 50,000,000 within the following months. One year later, after successfully achieving that, we announced an additional ambition to improve EBIT in our German operations by another CHF40 million and again we delivered. These improvements kept implementing our Salinas four point zero operating model with a balanced mix of onshore and leisure and offshore resources and leveraging automation.

We also benefited from higher margins driven by revenue growth and scalability of our organization and infrastructure. On top of that, new customer sales implementations and migrations from legacy platforms onto our multi tenant people solution added further impact. Importantly, over the past year our FTE levels have only grown moderately while revenue has expired. This demonstrates clear efficiency gains. As a result, we now see a fantastic trend over the last twelve months in revenue, EBIT, margin and cash flow.

In fact, the only downward trending glass on our charts are net interest bearing debt and leverage. Gunnar will speak more about our capital structure optimization later in the presentation. The key takeaway is this, we are all proud of these achievements and the entire team Solaris is committed to keeping up the momentum and continuing to deliver at these levers in the quarters ahead. Our market success continues to support our growth targets for the next twelve to twenty four months. We are seeing both an increase in signings and a stronger pipeline of opportunities.

In The Nordic, customers supporting revenue growth and long term. Finland was added as a new country for one of our large banking clients. In addition, our consultants secured major success factors projects with a Baltic University and a large Swedish security company. In DACH, as communicated yesterday, things expanding from payroll processing on their platform to help full people have solution covering their operations across Europe. This is geographic coverage to an existing client.

We also closed a payroll outsourcing deal with a leading baby food plan for their DAF operations and have won a full suite success factors implementation with one of Germany’s largest insurance companies. For UK Ireland, growth continues with recurring managed services revenue from contracts moving into production this quarter. We also won a major SuccessFactors project now under contracting. On top of that, our Ryanair payroll transformation spanning 13 European countries mandate transformation project of the year by the Global Payroll Association. In APAC, momentum continues with wins at St.

Vincent de Paul Society and Bayer Reff, representing almost two and a half thousand employees. We also went live with Heinemann and Campari. So, yes, it is time to partner. Our pipeline of new prospects and into new geos remains strong. Our strengthened brand and leadership are helping us capture a larger share of multi country opportunities out of Europe.

Importantly, our current customer base alone represent a TAM of four to five times our current revenues through geographic expansion. And as an example, if we fully serve them in UK and Ireland, it would add almost 50% to our total managed services revenue. Overall, we’re in a strong position delivering today. So managed services revenue continued to grow 15% year over year, showing the continued strength of our core offering. Over the past eight quarters, managed services has grown from 71% to 77% of total revenue, shifting our mix toward more long term recurring revenue.

We also achieved a net revenue year on year in constant currency as existing customers functionality on our platform. Growth was broad based across all regions with that at 14%, Northern Europe 12% and UK Ireland leading with 26%. This performance highlights the resilience of our model and the ability to scale with our customers. Revenues in our consulting grew 2% year over year. This growth was primarily mainly driven by stronger sales in APAC and Poland, part very much UK consulting engagement.

A key challenge remains talent. Building and retaining skilled consultants is still a limiter to further growth. We therefore renewed our focus on strategic workforce planning to make sure we recruit, develop, and keep the right resources going forward. It is also important to note that the significant share of our consulting capacity is supporting our managed services business through customer transformation projects and change order execution, in particular relating to our German and UK consulting businesses. With this, I hand over to our CFO, Gunnar Malen, who will take you through the financial part of the presentation.

Gunnar Manon, CFO, Salaris: This slide highlights our full percent year on year revenue increase for the quarter, marking our strongest second quarter yet. Typically, the second quarter has lower revenue and EBIT than other quarters, and this is particularly the case for Salaris Consulting. The revenue for the second quarter was 362,000,000, an increase year on year of 10% when measured in constant currency. Revenue in managed services grew by consulting grew by 2%. The increase in managed services was mainly driven by revenue from new customers that have gone live since the second quarter last year and additional services and increased change orders from existing customers.

The primary reason for the increase in Salaris consulting revenue compared to last year was higher revenue in APAC and Poland, partly offset by a reduction in The UK and Germany. The reduction was primarily attributable to the delays in some large projects in Germany, as well as the partial completion of a significant consulting project in The UK. Net retention in managed services was approximately 103% for the quarter. Looking ahead, we continue to have strong revenue in 2026 with a project revenue increase of more than 15% compared to full year projected revenue increase of more than 15% compared to full year 2024. The chart illustrates our anticipated growth base.

The total net annual recurring is 75,000,000. The top graph illustrates the annual run rate for recurring revenue from managed services as of q two of 998,000,000. Additionally, 75,000,000 net new annual revenue from signed contracts and expansions is expected to have a full effect from Q3 twenty twenty six. The bottom graph shows the estimated timing of this additional revenue. In addition to the estimated recurring revenue from our services, we have change orders totaling approximately 12% of recurring revenue and the revenues from Sanverco Consulting for the last twelve months of 346,000,000.

This result in an estimated future annual revenue of minimum NOK4.5 billion based on the average currency rates in the second quarter. This slide shows our adjusted EBIT for the quarter, reflecting the increased revenue and operational improvements achieved particularly in Germany. As noted earlier, revenue and EBIT in the second quarter is normally lower than in other quarters, hence the decrease from the first quarter. This particular this is particularly the case for SLIRIS Consulting. The German improvement initiatives announced in the second quarter last year are yielding positive results with EBITDA increasing by approximately 60,000,000 compared to the prior twelve months period.

This improvement is significant significantly exceeds our previously communicated target of 40,000,000 in EBIT improvements. The second quarter adjusted EBIT was NOK43.9 million, an increase of 55% year on year with an adjusted EBIT margin of 12.1%, up from eight. The adjusted EBIT for managed services was NOK47.7 million, which was NOK14.3 million more than last year mainly due to the factors just mentioned. The adjusted EBIT for Salares Consulting was NOK4.6 million, million higher than last year. The increase is mainly due to higher utilization of internal consultants and less use of external consultants on customer projects.

The condensed profit and loss slide provides a detailed overview of our financial performance highlighting our key cost components. The increase in license cost is attributed to higher revenue from our payroll and HR solutions and was marginally lower than last year as a percentage of revenue. Revenue per FTE in constant currency grew by approximately 9% year on year. However, the significant revenue growth led to a year on year increase of 11 FTEs contributing to higher personnel expenses. A majority of the new FTEs has come from near shore and offshore locations and personal expense as a percentage of revenue decreased by 4.2 percentage points.

Hans Peter Mallerud, CEO and Founder, Salaris: The reduction was partly due to

Gunnar Manon, CFO, Salaris: a lower share based payments cost compared to the previous year. Other operating expenses decreased by 2.8% of the share of revenue year on year and total costs were approximately in line with last year. The EBIT was 36,600,000.0 for the quarter compared to 12,300,000.0 last year. And then realized currency loss of 9,500,000.0 related to the euro denominated bond loan contributed to a net financial expense 21,400,000.0 compared to 6,200,000.0 last year, which included an unrealized currency gain of 6,600,000.0. Net profit for the period was 10,800,000.0 compared to 5,300,000.0 last year.

The total comprehensive income for the quarter was 24,100,000.0 compared to a loss of 200,000.0 last year. Net operating cash flow grew significantly in the quarter. Million to reach 62,000,000 for the quarter. The chart illustrates the growth in our cash balance from the prior quarter, which increased by 28,000,000. Strong earnings combined with a reduction in working capital were partially offset by a dividend payment of CHF19.6 million.

The decrease in net working capital can be attributed in part to a reversal of timing effects highlighted in the first quarter presentation. The net interest bearing debt as of thirty June was during the quarter to 17,000,000, which converged to a leverage ratio measured by the net interest bearing debt divided by adjusted EBITDA. As shown by us better, over the past four months, EBIT and cash flow has increased significantly leading to reduced net interest bearing debt and leverage. The current capital structure and debt financing options are presently being reviewed to reduce financing costs, allow for and secure funding for future growth. The goal is to maintain a stable financial foundation and support long term shareholder value.

The first call date for the existing bond is at the September 2025. And that concludes the financial section and has the 29% of our outlook.

Hans Peter Mallerud, CEO and Founder, Salaris: Thank you, Gennar. So let’s now turn to our positive outlook for SAARA even as we navigate in the landscape shaped by macroeconomic uncertainty. So at our Capital Markets Day in the ’23, we set a growth target of 10% annually aiming for 1,500,000,000.0 run rate revenue by ’26. We now expect to hit that milestone in 2025, one year early. Most of this growth is evolving even more favorably than expected.

Over the past two years, our average annual growth has been about 18%, 14 adjusted for currency. Growth has been fueled by both expansions with existing customers and new managed services contracts. Given this trajectory, we have updated our targets to deliver 2,000,000,000 of revenue by ’28 and an EBIT margin of 13% to 15%. Managed services revenue has grown from 71% to 77% of total revenue in the past eight quarters, and we expect it to reach at least 80% once we achieve the 2,000,000,000. As such, the total share of high quality recurring revenue is increasing significantly.

Our growth strategy remains anchored in multi country payroll for the mid market and enterprise customers, evolving HR services and our global capability center, a full suite of SAP consulting services now run as a global business unit. To support this, we’re sharpening our land and expand approach, growing with existing accounts and expanding into new geographies. The goal is presence in all three twenty countries with full Western Europe coverage as a first step. Currently, Q2 annualized revenue is approaching billion with more than NOK75 million contract recurring revenue already secured for with churn at historical levels, our growth trajectory remains solid. Looking ahead, further improvements will come from AI and automation moving us closer to fully automated payload.

Continued extraing to boost cost efficiency, scale and productivity gains. When we deliver on our 2,000,000,000 revenue target, EBITDA of 13% to 15% translate to about $260,000,000 to 300,000,000 per annum, and the technology driven efficiencies we see potential to exceed this margin over time. Then it’s time to sum up. Q2 twenty twenty five marked our strongest second quarter to date, reflecting the continued strength of our strategy and business model. We delivered revenues of NOK $362,000,000 for the quarter and NOK $732,000,000 for the first half, representing 1214% compared to the same periods last year.

Profitability also reached new hold all time high with adjusted EBIT of CHF44 million in Q2 and CHF96 million for H1 corresponding to margins of 12.113.1%. These results keep us firmly on track to achieve our communicated adjusted EBIT margin target of 13% to 15%. Cash generation strengthened correspondingly with net cash flow from operations of NOK62 million in Q2 and NOK84 million in H1, further underlying in growth with solid financial discipline. New long term agreements and expansions were closed with an annual contract value of more than SEK30 million. We are working on optimizing our capital base to reflect our strong cash flow and ability to raise debt at lower rates.

This also relates to our ambition to deliver on our dividend policy, a dividend payment of 50% of profit before tax. Plans are being laid to reach our 28 ambitions of being at 2,000,000,000 company delivering 13% to 15% EBIT with net promoting customers that are supported by an engaged team salaries. So with that, thank you for viewing us today. And yes, I understand we have some technical issues with also the q and a function. There is something with teams not supporting our great results today.

So we encourage to send them to irsalaris dot com and we will do our utmost to then come back to you as soon as possible with a good response. So with that, thank you so much again and thank you for your trust and have a good day.

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