Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 10.2% in constant currencies in Q2 2024.
- Gross profit increased by 19.3% in constant currencies, with a gross margin improvement of 2.2 percentage points.
- Adjusted EBITDA grew 38.7% in constant currencies in Q2 2024.
- Netcompany Group A/S (NTCYF, Financial) won several significant new contracts, including a GBP 120 million contract in the U.K.
- The company increased its share buyback program for 2024 from DKK500 million to at least DKK700 million.
Negative Points
- Revenue in the U.K. declined by 16% compared to the same period last year.
- Churn rate in Denmark was 24% for the last 3 months, indicating higher employee turnover.
- Netcompany-Intrasoft's margin declined by 0.8 percentage points due to lower license revenue.
- Free cash flow improvement was partly due to the timing of Easter, which may not be sustainable.
- Revenue visibility for 2024 is lower compared to the previous two years, partly due to prolonged decision-making in the Danish public sector.
Q & A Highlights
Q: I realized that the [PK] attrition rate was 24% and it seems that it is quite high over the last 3 months. Could you maybe elaborate a bit here? And in relation to that, could you also confirm that there was in Q2 cost of the service? There was not a lot of severance payments included here in Denmark.
A: The churn in Q2 was more of a technical matter, with no significant severance payments related to it. The 24% churn rate in Denmark over the last 3 months is due to timing in terms of when people leave and when they don't.
Q: Could you elaborate on the U.K. profitability and the impact of discontinued contracts due to price setting?
A: In Q2, a few contracts in the U.K. were discontinued, but it did not have a significant impact. The discontinuations were in both the private and public segments.
Q: Could you give us an update on the current tender market and the pipeline in the Danish public segment?
A: 2024 is a better year than 2023 in the Danish public market, with more larger tenders and cross-selling opportunities to existing customers. Larger tenders are being bid on, and there is an overall cross-selling mechanism happening to existing clients.
Q: Could you talk about the U.K. and the delay in contract ramp-up? When do you expect that to start coming through?
A: The DALAS framework agreement is complex, and we expect more people to roll on over the next quarters, continuing into 2025. The timing is difficult to pinpoint exactly, but progress is being made.
Q: Could you talk about the free cash flow and the increased buyback program? How do you think about that for the rest of the year?
A: Given the strong performance on cash flow for the first 6 months and the continued expectation of trade receivables being paid, we feel comfortable increasing the share buyback program from at least DKK500 million to at least DKK700 million.
Q: Should we expect the strong growth in Netcompany-Intrasoft to continue in the second half?
A: We expect Netcompany-Intrasoft to continue growing between 5% and 10%, with some fluctuations between quarters. The overall expectation remains within this range.
Q: How is the progress of adding people in Norway and the U.K.? Are you getting the right people?
A: We are progressing according to plan, attracting the right people with the right qualifications. Both Norway and the U.K. are in a better shape in terms of delivery and building up competencies.
Q: How does the order backlog look for the second half of the year, excluding larger public tenders?
A: The backlog situation is comfortable, with a good development across the group. We have strategic, long-term relationships with private clients and are involved in more strategic dialogues with public clients.
Q: Is it a fair assumption that your revenue visibility for this year, which is lower compared to the previous 2 years, is a result of prolonged decision-making in the Danish public sector?
A: There are technicalities that impact revenue visibility, including the proportion of longer-reaching contracts and the high growth in Q1 and Q2 of 2023. The comparables are tough, but the assumption is not completely wrong.
Q: Does the negative growth in the number of client-facing employees in Netcompany-Intrasoft reflect your expectations for upcoming growth?
A: Not necessarily. It can also indicate that we are becoming more effective. The main drag on margin in Intrasoft is the revenue mix, with a lower proportion of license revenue in Q2.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
