Karnov Group AB (FRA:3UA) Q1 2025 Earnings Call Highlights: Strong Online Sales Drive ...

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Thu, May 15, 2025, 1:03 AM 5 min read

Net Sales: SEK673 million in Q1 2025, with a growth of 7%.
Adjusted EBITA Margin: Improved to 26%, an increase of more than 3 percentage points from the previous year.
Leverage: Improved to 2.4 times, below the financial target.
Adjusted Free Cash Flow: SEK455 million from Q4 to Q1, compared to SEK265 million in the previous year.
Region North Organic Growth: 7.7%, driven by strong online sales.
Region South Sales Decline: 1.7% decrease due to weak offline sales in Spain.
Online Sales Growth in Region North: Increased by 19% compared to Q1 last year.
Subscription-Based Sales: Represented 88% of sales in Q1.
Annual Run Rate Synergies: EUR17 million achieved by the end of Q1.
Adjusted EBITA in Region North: SEK157 million, with a margin of 46.6%.
Adjusted EBITA Margin in Region South: 12% in Q1.
Adjusted Free Cash Flow in Q1: SEK245 million, an improvement of SEK138 million from the previous year.

Warning! GuruFocus has detected 9 Warning Signs with FRA:3UA.

Release Date: May 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Karnov Group AB (FRA:3UA) achieved solid growth in Q1 2025, with net sales reaching SEK673 million, driven by strong online sales and customer upgrades to AI solutions.
The company reported an improved adjusted EBITA margin of 26%, an increase of more than 3 percentage points compared to the previous year, due to achieved synergies.
Strong operating cash flow in Q1 led to improved leverage, now at 2.4 times, well below the company's financial target.
The AI assistant has been widely adopted, increasing customer efficiency and leading to significant usage growth, with notable customer wins such as Deloitte's Swedish branch.
Karnov Group AB (FRA:3UA) is progressing ahead of plan with synergy initiatives in Region South, achieving annual run rate synergies of EUR9 million by the end of Q1.

Negative Points

Region South experienced a decline in net sales by SEK3 million compared to Q1 of the previous year, primarily due to weak offline sales in Spain.
Currency effects negatively impacted net sales by 0.4% in Q1.
The Spanish business faced challenges with a complicated merger and weak offline sales, requiring actions to address performance issues.
Despite growth in France, the Spanish market remains a bottom-line story, focusing on cost reduction and product rationalization.
Items affecting comparability amounted to SEK28 million in Q1, related to integration efforts in Region South and group-wide acceleration initiatives.

Q & A Highlights

Q: Congratulations on a strong report. You report strong customer adoption and positive feedback on your AI assistant. Could you elaborate more into how this translates into upsell rates or new customer wins? A: Yes, thank you for the question. The AI assistant has seen significant usage growth, with a price uplift of at least 30% across markets. As usage grows, we are optimistic about maintaining this price uplift. We recently launched additional customer value in Denmark and Sweden, which we believe will sustain the adoption of AI services.

Q: When it comes to France, it was exciting to see that the French business grew now in Q1. What level of top line growth can we expect from France in 2025 and 2026? A: We are pleased with the growth in France, which aligns with our financial targets of 4% to 6%. We have launched new versions of our flagship products, and we anticipate continued growth without any foreseeable obstacles.

Q: Could you discuss the margin synergies in South in more detail? Will they land evenly in every quarter? A: Yes, the synergies are expected to come through evenly across the quarters. These are structural synergies, and once achieved, they should consistently reflect in the financials moving forward.

Q: On the organic growth in North, can you discuss pricing, new clients, upselling, and overall expectations for the next two to three years? A: We have a financial target of 4% to 6% growth, and Region North has been exceeding this. We are optimistic about our recent launches and upcoming products, such as a new AI service for municipalities, which should support continued growth.

Q: Regarding Schultz, how does this acquisition benefit your position in Denmark and expectations for the longer term? A: The Schultz acquisition strengthens our position in the Danish municipality segment. The combination of Schultz's content with our offerings enhances our AI services, providing a strong foundation for delivering valuable solutions to our municipality customers.

Q: What kind of growth do you see Spain delivering going forward, and what actions are you planning in terms of growth or cost in 2025? A: In Spain, we are focusing on profitability by rationalizing products and addressing the decline in offline products. Our efforts are concentrated on the most profitable products, and we are taking actions to address the decrease in offline sales.

Q: Do you still think that South will deliver margins of 17% to 18% in a steady state, or is there potential to bridge the gap between South and North? A: We have a target of 16% for Region South, with additional acceleration initiatives. Our ambition remains unchanged, and we are working towards achieving these targets.

Q: What's your take on doing more near-term M&A, and do you see any exciting opportunities? A: M&A is part of our strategy, focusing on geographical expansion or add-ons to existing products. We have a strict approach and a good pipeline of opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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