Operator: Report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing #five on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to CEO Anders Dahl. Please go ahead.
Anders Dahl: Good morning, and welcome to Nepa's Q3 report. My name is Anders Dahl, and I am the CEO of Nepa. Together with me today is Edvard Hagman, who is our VP of Finance. Today's agenda, we are going to talk a little bit about Nepa, who we are and what we are doing. We are going to walk you through the Q3 results and the first nine months of this year, and then mention a little bit about the acceleration phase and progress and priorities. Then walk you through more in details about the financials, talk a little bit about the product and our AI development, and then look into the outlook and priorities. As always, towards the end or after this presentation, there will be room for questions and answers. Please come in with questions if you have any.
Anders Dahl: At Nepa, we turn marketing data into actionable growth decisions. With Nepa today, we are a leading marketing intelligence company helping global brands across the globe making better marketing and growth decisions. We track the Brand Tracking of 7,500 brands on a daily basis, and we measure thousands of advertising campaigns annually across 50 plus markets. We deliver insights to CMOs, marketing teams, and insight departments of global consumer brands across the globe all the time. We are a global marketing intelligence platform where we combine data, technology, and advisory. Our core offering combines Brand Tracking, Campaign Evaluation, and marketing mix modeling, and also continuous marketing mix modeling, which we launched more than a year ago. These are all supported by high-end or white glove advisory services.
Anders Dahl: We combine survey data, business data from the global business data and from the client side, and also marketing investments with technology and expertise to deliver recurring and product-based ad hoc insights. We have a strong presence in Northern Europe. We have commercial teams in the UK and US, and we have an operation center in Mumbai. As you have seen from the last quarterly reports, we do have a growing recurring revenue base, which is complemented by project-based insights. On the subscription side, we have Brand Tracking, continuous marketing mix modeling. We have ad tracking, we have consumer experience tracking, and we have recurring data deliveries. That stands for about 64% of our last 12 months deliveries to our clients' revenue. On the ad hoc side, we have Campaign Evaluation, Campaign Pulse.
Anders Dahl: We do marketing mix modeling as ad hoc services as well. We have Brand Touch and Brand Assets also as ad hoc and product-based deliveries. We do category insights, and we have other key marketing insight products that we deliver to our clients, and that stands roughly at 36% of our last 12 months revenue. For Q3 2026, we have a subscription growth and higher earnings, but we see a little bit of a weakness on the bookings. Subscription growth, but contraction late in the quarter put ARR lower than in Q2, and subscription revenue increased by 14.8%. ARR increased by 9.7% year- on year to 135.8 million. Net revenue retention was 95.8%, churn of 1.6%. Commercial development, we have seen ARR bookings increased by 11%.
Anders Dahl: Total sales bookings declined, and we have seen the same pattern for the last quarters, and that is entirely due to lower ad hoc bookings. Few large ad hoc projects towards the end of the quarter put also some pressure on net sales that declined by 2.6%. On the positive side, on the very positive side, we see improved earnings. Adjusted EBITA less CapEx improved by 1.9 million, and gross margin increased by 1.4 percentage points. Net income improved. On the corporate event side, as you have seen from the press releases, I will leave Nepa during Q1 of 2027. The board is actively now recruiting my successor. For the first nine months, we see an underlying growth and a positive adjusted EBITA CapEx, which is very positive.
Anders Dahl: The underlying growth in recurring revenue, which is the focus area that we have been working hard with during the last three years, really focused on ARR and recurring revenue. The subscription revenue grew by 14.2% underlying. Net sales grew by 2% underlying. Ad hoc revenue from other clients declined, which is also a trend, by 27.8%. On the commercial development side, you have seen that ARR bookings increased by 1.4%. On the improved earnings side, the adjusted EBITDA less CapEx for the last nine months improved to 1.1 million, and gross margin increased by 1.6 percentage points to 75.9%. Net income improved to -9.5 million SEK. I will hand over to Edvard to talk a little bit about our ARR development over time.
Edvard Hagman: Thank you, Anders. ARR was up 9.7% year on year. However, it declined from Q2 due to weaker retention during the quarter. Net revenue retention was 95.8% compared with 99.8% in the same quarter last year, while churn increased to 1.6% versus 0.2% in Q3 2025. Looking at the chart, ARR development has been solid over the past year. We have generally had high retention, low churn, and quite good contribution from new sales in previous quarters. This quarter was weaker. The churn in the quarter mainly relates to one discontinued contract in our legacy CX business, while the contractions came from very few contracts in our core business. ARR bookings still increased by 11% year on year, but in nominal terms, Q3 normally offers quite small figures compared to other quarters.
Edvard Hagman: It is a quiet period sales-wise, particularly in the Nordics because of the summer period. That means that there were fewer expansions and new sales to offset the negative contract movements. After a particularly strong quarters, retention is closer now to normal levels year to date, including Q3. Our priority is to improve conversion and return ARR to sequential growth. Subscription revenue presents a stronger picture. It grew by 14.8% in Q3 and just to over 35 million Swedish kronor. We are now back at roughly the same quarterly subscription revenue we had in Q2 2025, and that was before all of the phased-out contracts and extraordinary churn have fully affected the numbers. Ad hoc revenue, however, continued to decline and held back total net sales. This reflects lower business volumes, partly in the UK, which previously have contributed quite good in the quiet Nordic summer period.
Edvard Hagman: It also reflects a more focused ad hoc offering that we have today, and in general, lower sales activity. As a result, the strong subscription revenue growth was not enough to fully offset the decline in ad hoc revenues. In Q3, we continued to make good progress in the acceleration phase. First, recurring revenue has returned to year-on-year growth. Second, the cost actions taken in 2025 have established a structurally lower cost base, particularly in personnel and in other external costs. Together, these developments are driving a clear improvement in both margins and earnings. Adjusted EBITDA improved by 1.9 million in the quarter to 2.3 million, and on a rolling 12-month basis, it has improved in each of the past four quarters and now stands at around 7.7 million compared with -9.6 million 12 months ago.
Edvard Hagman: This is a significant improvement, but we need stronger commercial execution to maintain this momentum going forward. The priorities are therefore quite clear. Improve conversion, expand our client relationships, and continue to build on the ARR base. To summarize the quarter, subscription revenue grew by almost 15%, but net sales declined by 2.6% because ad hoc revenue fell around 30%. In local currencies, the net sales decline was around 1.7%. The gross margin did improve during the quarter by 1.4 percentage points. Our core marketing optimization segment had a strong contribution to this, with its gross margin improving by 3.3 percentage points. Personnel costs were 7% lower than last year, and other external costs were 13% lower. This reflects the structurally lower cost base following the measures that we implemented during last year. We are also seeing the benefits of improved delivery efficiency and the use of AI.
Edvard Hagman: Internal product margins are at very good levels, which gives us room to grow recurring revenue within the existing organization. As a result, despite lower total net sales than in previous year, both earnings and margins improved. Operating cash flow was -9.1 million during the quarter, mainly due to a negative working capital movement. Q3 is normally seasonally weaker for cash flow, and this quarter, the timing of customer receipts and current liabilities both had an impact. The net financial position was 8.1 million at the end of September, excluding the unused credit facility of 20 million. I am handing back over to Anders.
Anders Dahl: Thank you, Edvard. We know for sure that marketers around the globe are struggling to connect data, brand building, and performance. We know that 70% or more of marketers struggle to prove the ROI of their marketing efforts. Close to 70% of marketers struggle to balance performance marketing and creative branding. 65% of marketers struggle to make sense of the data and use it to inform their marketing decisions. We know that the Trinity offer, where we combine marketing mix modeling, continuous marketing mix modeling, Brand Tracking, and Campaign Evaluation, is a great fit in the market, and we see that. We see that also reflecting in the numbers with higher recurring revenue, higher ARR sales over time. We see that there is definitely demand in the market to show the bigger picture.
Anders Dahl: This is the view that I think is very exciting, and I think that we get a lot of the good feedback from the market where we turn complex marketing into clear business decisions across brand creative assets and media investments. With our core products, Brand Tracking, Campaign Evaluation, continuous marketing mix modeling, combined with the sales data, media investments, and current performance from our clients, and also other internal information and external information. We do have the tools and the platform to help brands to analyze and improve their brand strength, the brand positioning, and the targeting, but also to help them in the campaign work with creative assets, audience and context fit, and brand platform fit, and also in a more tactical way when it comes to media spend and media allocation, pacing and in-channel optimization.
Anders Dahl: We have a totally different relevance in the marketer's toolbox than we have had ever before. Talking to CMOs and marketing and leadership agencies, media planning and performance marketing teams, it is much easier when we have the full view with our Trinity offer. That has moved us during the last three years from just being a Brand Tracking company and a marketing research company to more of a fully equipped partner to our clients and being able to help them on an ongoing basis. We enter Q4 with greater commercial focus, improved profitability, and an operating model with a capacity for growth. The sequential ARR decline and weaker ad hoc bookings make the priorities very clear for the entire organization. Improve sales executions with clear priorities, structured account development, and closer coordination between sales delivery and specialists is one of our core priorities for Q4.
Anders Dahl: Continue to build ARR, improve conversion, win more clients, and return ARR to sequential growth. Expand client relationships to cross-sell to clients that only have Brand Tracking, for example, or campaign measurements, and to grow priority accounts across brand, campaign, and CMM with the Trinity offer. Also continue to drive operational leverage to grow within the existing organization. Like Edvard said before, we see good efficiency targets or efficiency numbers in the organization. Revenue growth translates into earnings growth. As we informed earlier in press releases that I will leave during Q1 of next year and the recruitment of the next CEO is underway. With this, we will wrap this up and leave over to the questions and answer section. Thanks a lot for listening in to the first phase of the presentation, and looking forward to the questions and discussions after this presentation. Thanks.
Operator: If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Alice Beer from ABG Sundal Collier. Please go ahead.
Alice Beer: Hi, good morning. Thank you for the presentation. Starting off on the ARR bridge, could you just give us some more color on which segment or client caused the decline from Q2? Is more of the legacy CX base that you talked about at risk?
Anders Dahl: The legacy CX part is quite a small part of our business now, and we have very few remaining clients on that platform. One of those clients churned during the quarter, which was part of the sequential ARR decline. It was also a very small handful of other clients in our core segment that contracted for the next 12-month period during the quarter.
Alice Beer: Okay, thanks. You commented on a few large projects towards the end of quarter. Could you just tell a bit more about this? Are these projects we should expect to see come back in another quarter or just where they?
Anders Dahl: Yes, I think definitely we will see them coming back in the following quarter or quarters. They are not lost.
Alice Beer: Okay, great. You mentioned this, but personnel costs were down 7% in the quarter. I think they are down about 11% year to date. Should we expect a further decline in Q4 and onwards? When do personnel costs start growing again?
Anders Dahl: I think you will see the same trajectory we have been seeing, but maybe flattening out a bit. We have not done any major changes to the personnel side, and all changes we are doing are mainly the most important and prioritized replacements. We are not, in the overall personnel base, focusing on growing that. That is not the priority at the moment, but we see rather that we have quite good room for growth within the existing personnel base.
Alice Beer: Perfect. Just on Q4, since Q4 is a quarter for ad hoc, should we view the ad hoc revenues of Q3 as sort of the state of the current market? Will any of the bookings that should have come in Q3 instead come in Q4?
Anders Dahl: Like I said before, I think the ad hoc bookings that we are seeing, one thing is that we are seeing from previous quarter is a bit of a weakness in the market, but there is definitely also a lot of wait and see during this entire year. We are expecting a lot of them coming back in Q4.
Alice Beer: Okay, good to hear. Ad hoc from subscribers declined year over year. The subscriber count is up in the last 12 months. Is this lower project spend per client or is it strictly due to the strategic shift towards recurring contracts?
Anders Dahl: It is part strategic shift to recurring contracts, but also the general activity in the market that we have seen suggests an effect of that and lower spend per clients.
Alice Beer: Great. Just a final question from me, since you are leaving, Anders, could you say anything more about the timeline for naming a successor? Does the board expect the Trinity strategy and the commercial agenda to carry over unchanged?
Anders Dahl: When it comes to the Trinity strategy, it is definitely there to stay, and I think we see good traction in the market. Of course, I cannot really talk for the next CEO and then if the board will change their minds in the future. But right now we see a very strong product market fit or offer market fit. Like I said in the press releases, I will stay at least until the end of Q1, and that is my timeline.
Alice Beer: Okay. Understood. Well, thank you. That is all from me.
Anders Dahl: Thank you.
Operator: As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speaker for the written questions.
Edvard Hagman: Right. We have received some questions in the chat as well that I will read. First question: What does the SEK 4.9 million in other receivables consist of? This is the change here of SEK 4.9 million reflects a reclassification of VAT and similar items in mainly our Indian subsidiary that was previously offset against current liabilities on the balance sheet. It is nothing new, but a reclassification. Next question: Was the decline in ad hoc order intake driven by campaign measurements or by large projects? I think as we wrote in the report, we saw quite good resilience in our core products. It is rather by larger projects, for example, projects that we previously had in the UK that did not come this Q3. It is more another effect of that.
Edvard Hagman: Next question is: Should we view the lower level of ad hoc activity as a new normal, or was Q3 a one-off?
Anders Dahl: No, I wouldn't judge it as a new normal. I think Q3 is always a bit of an iffy quarter because we know that summer, especially in the Nordics, so I don't think we should see this as a new normal. No.
Edvard Hagman: You posted around seven job openings in October while order intake was weak. Are these replacement hires or net additions, and how do they fit within current utilization?
Anders Dahl: As I said previously, it is mainly replacements, where we see priority to replace, and no net additions in that regard. We said that it fits with the current utilization levels that we have. The hiring process in the Nordics takes some time.
Anders Dahl: You have to be proactive and put out job ads in the market to actually some further months down the line, get new hires and new talent into the company. So that is part of that explanation as well.
Edvard Hagman: The report gives no update on marketing acceleration and CMM. How is this area developing in customers and ARR?
Anders Dahl: We don't break that out separately. We can't really give you the details. But overall, I think that the biggest leader in, like I said in the presentation before, talking about Trinity in general also leads into talking about CMM. So I think opening up discussions with clients, that is probably one of our most important tools right now. The pipe and the expectations and the expectations in the market looks very good for the entire kind of Trinity offer.
Anders Dahl: That will, of course, reflect on marketing exploration and CMM as well. So positive signals in the market, but we don't give specific details.
Edvard Hagman: What activities and actions do you have for the sales activity to pick up?
Anders Dahl: We have, of course, increased on marketing, and we did that already earlier this year. We are restructuring. With restructuring, we are working more focused in really closing the deals, building the pipeline. The pipeline build has been good over the year, but we are seeing the delay in making decisions. We just recently hired a new VP of sales. So both on a personnel perspective or personnel level, the structured way of working and increased marketing are those things that we continue to develop and increase in order to, of course, improve our conversion and sales.
Edvard Hagman: On the same lines, if there is a good product market fit, what is hindering sales?
Anders Dahl: What we have seen this year, and I think I said it already in Q2, that we see a bit of a wait-and-see. We are building pipeline. We have a lot of expectation. We are not losing that many deals, very few, actually. Most of the lack of the conversion is more wait-and-see and move it to the next quarter. I think there is a reflection in the market that reflects new businesses, that reflects ad hoc from not existing subscribers. So a bit of a wait and see.
Anders Dahl: We think and what we see in the budget discussions with our clients, there is still money to be spent. Hopefully, we will see that coming through in Q4.
Edvard Hagman: I see that there are a lot of forward-looking questions in the comments, and questions that we cannot really address. After that, I don't think there are any remaining questions. So I hand it back to you, Anders, for some final remarks.
Anders Dahl: Yeah, no, I think this quarter again, points out the stability and the strategy that we are moving forward in regards to improving the growth of ARR and continuous subscription. Subscription revenue is growing. Of course, the big disappointment for us as well is that we don't really see the full impact on the ad hoc sales. We are now focusing entirely in this quarter to make sure that whatever is left in the budget from our existing clients and new clients, that we should be able to close those deals in Q4. So commercial execution is definitely number 1, and I think you see that also in the way that the people we are hiring are all client-facing or people that are able to close deals. So I think we are definitely in a very good position when it comes to internal operational efficiency.
Anders Dahl: I am really proud of the work we have done, and we see that in the improvement in profitability. Thanks a lot for listening in to this call and see you soon.
