Jan Häglund: My name is Jan Häglund, and I am here to present the interim report for July to September 2026 for Modelon. I will be joined by Jonas Eborn, our Chief Financial Officer. We will be together giving the highlights of Q3. Jonas will give a deeper financial update, and I will be coming back at the end with a summary and outlook for the quarter. As Jessica mentioned, there is an opportunity to ask questions at the end. Q3 2026 was a quarter of progress. Progress on many fronts, progress on new customers, progress on new offerings, and also financial progress. I am very happy to see that our ARR, annual recurring revenue, came back to sequential growth after a year of negative development. We had a +1% quarter-over-quarter ARR in Q3, yielding SEK 47.2 million of ARR.
Jan Häglund: That translated into a net revenue of -2% that we are hampered by previous quarters' negative ARR development. We were helped by a very solid growth of our services business, +31% in the quarter. That is evidence that we are now able to provide value-added services to our customers that are well-aligned with our product offering. For the period, net revenue was down by 13%, which is the consequence of previous quarters' falling ARR and license revenue. ARR was also down year over year as a consequence of previous quarters. Our profitability and profit margin operating income continued to improve. Thanks to lower operating expenses than last year, -5% in the quarter and -18% in the period, we generated an adjusted EBIT of SEK -3.1 million, which is an improvement of SEK 0.9 million since last year.
Jan Häglund: We have now improved the operating income of Modelon seven quarters in a row. For the period, adjusted EBIT came down at SEK -14.7 million, an improvement of SEK 7 million since last year. I mentioned that it has been a quarter of bringing in new customers, and we have here three prestigious new customers that have chosen to buy Modelon's both products and services. Starting from the left here, Munters' American branch and company have selected Munters for system simulation of data center cooling solutions. Munters is a global leader in climate solutions and air treatment control, and they are heavily into data center solutions, and I am really happy to see that they selected us after a thorough process of evaluation. We have both licenses and services, so we will be working together with Munters to develop their solutions for data centers.
Jan Häglund: NCBR is Poland's National Centre for Research and Development agency, and they are launching a project around heat pumps for climate-friendly heating. They selected Modelon for both licenses and services for that project. Also a very important win that I am very proud of, and we really look forward to working with NCBR on this important project. Going east, we have one business with a Japanese industrial engineering company. This time, the application is in hydrogen fueling, also an important technology for climate-friendly transportation. Again, it is about licenses and services with this Japanese company, and I am really happy to see the development here. This adds, in fact, to other business we have had during this year in Japan and Korea, where we see an annual growth in revenues year to date.
Jan Häglund: We are expanding our reach for Modelon, and we of course have offices in key markets in North America, Europe, and Asia. Australia, we do not have an office, but we now have a reseller for the Australian and New Zealand market. It is Simetrix Digital Technologies, which is a digital engineering firm in Sydney, Australia. We have closed a reselling or partnership deal where Simetrix will be acting as value-added reseller of Modelon's full portfolio. The initial focus is on the data center market. Again, data center is a rapidly evolving and growing market, not the least in Asia, where there is a lot happening and a lot of growth in that area. Together with Simetrix, we will be targeting that using Modelon's suite of platform simulation platform and Data Center Libraries to add value to customers in that region.
Jan Häglund: Talking about data center, we had added data center customers in the couple of quarters. One of those, Resulta, an Eastern European engineering company, came back and provided a report on how they have been using our products and tools during the last couple of quarters. It is quite astonishing the results they have been achieving. In this case study, which you can find on our homepage, modelon.com, Resulta reports how they have been modeling a particular configuration of data center. In this case, it is actually a gas turbine-driven data center, where the excess heat from the gas turbine is used in reverse to cool the IT equipment. That is an interesting setup. It is actually highly relevant because for many data centers, it is difficult to get enough energy from the electricity grid, and that is why this case is of relevance in many markets.
Jan Häglund: What Resulta have been able to do is, thanks to Modelon, the libraries, and the fact that you can model both the energy production as well as the cooling system, to try out different configurations in a much, much shorter time than would have been possible before. Resulta here report that they can do things in a week that took them more than a month before. The results are very favorable. What they have come up with here are solutions where you can save more than 80% of the energy for the cooling system, with the right configuration and the right setup. I think this is a very telling case, showing the power of simulating the solutions before you start to build or prototype them. I look forward to other case studies and other customers achieving results in line with this.
Jan Häglund: During the quarter, we have also continued our development in the data center space, and just a few days ago, we launched a new version or an updated version of our Data Center Library, one of Modelon's now flagship offerings, where we have ready-made models and systems that you can simulate, use to design, build, and optimize data centers. The new thing driving our development here is the continued growth of energy consumption in data centers, and specifically, the energy density per rack. Before, the energy density was perhaps a couple of kilowatts per rack. Now, the energy density is surpassing 100 kilowatts per rack, and the projections are that this soon will pass more than 200 kilowatts per rack. That is an enormous amount of energy to cool, and new type of technology is needed.
Jan Häglund: Technology here in this area has moved from air cooling, where you basically blow fans to get the heat out. That has its limitations, which is why the dominant solution right now is liquid cooling. You have liquid that passes through the entire rack and on the chips in order to get the heat out. That will not be enough at the densities that are projected here, which is why the two-phase cooling is entering the scene. Two-phase is where you combine liquids with vaporized liquids, and that kind of both technology and underlying physics is something we are very good at at Modelon. We have now, in fact, included that in our libraries. We have models for that, and we are working with leading customers on using these new models to project and design their solutions.
Jan Häglund: We have been working with some leading external parties in this, specifically the University of Maryland in the US, and we are really happy and proud of that collaboration also. So I expect that this will make us even more competitive and hopefully help us win new deals in the data center market going forward. The other big focus area this year for Modelon has been to strengthen our AI capabilities. Our tool is now fully equipped with a very capable AI agent. Customers are already across the board using this AI agent to get more done, to increase their productivity, and we see quite astonishing and amazing results coming out. We also use it internally to increase our own efficiency, for example, in service delivery and product development.
Jan Häglund: One thing with AI is that it helps you to do more, but it also means that you can consume more compute resources. You can do more in parallel. That is why we are now launching new packages for our customers, add-on packages to the standard license. These add-on packages give you the opportunity or give customers the opportunity to work more in parallel to get more compute power, memory, and storage capability. We call these packages Boost and Scale, and customers can use them to get an up to 12x increase in capability, which can be translated into much higher productivity. You can get more done. So this is good for our customers.
Jan Häglund: It is also going to be good for us because it will add potential revenue for Modelon as we use our underlying cloud platform to Scale this offering to customers. A lot of progress in AI, and this is tuned to continue into coming quarters. With that, I will hand over to Jonas Eborn for a financial update and details on the Q3. Welcome, Jonas.
Jonas Eborn: Thanks, Jan. I will report on the financial highlights. First, the ARR. In Q3, we reported an annual recurring revenue of SEK 47.2 million, which is a sequential growth over the previous quarter by 1%. This is thanks to a high rate of renewals and, of course, the new Modelon Impact sales, the 3 accounts that we have heard about. Year-over-year, the development is negative, -12%. This is primarily due to the accumulated effect of the churn that we saw at the end of the, or the H2 2025, and some of the smaller accounts that were reported lost in the H1 2026. We report the ARR at constant currency, at the current quarter's average rate.
Jonas Eborn: In this quarter versus Q3 2025, there is actually very little adjustment, -SEK 0.2 million, although the currencies have shifted a lot over the year-to-date period, but they happen to be the same, more or less, in the third quarter. Looking at the revenues, our net revenue in Q3 is roughly stable, SEK 15.9 million, which is a 2% decrease over the previous year. Our software revenues were SEK 12.2 million, which is a decrease of 9%, while we see a slowly growing trend in 2026, as you can see, from SEK 12 million to SEK 12.2 million. Our services grew by 31% over the third quarter in 2025. All in all, our EBIT has improved by almost SEK 1 million, -SEK 3.1 million, which is a margin of -20%.
Jonas Eborn: Development costs were SEK 6.2 million in the quarter, and we note that this is 19% below the previous year's development cost, and we have also been stable around SEK 7 million for the past 5 quarters. This is a level that we expect to continue working at. Looking at the financials costs, we see lower costs. Operating expenses are SEK 19.3 million, down SEK 1 million over last year. Primarily, this is lower personnel costs, which decreased by SEK 2 million in the quarter to SEK 13.1 million. Adjusted EBIT, as I said, improved by about SEK 1 million. Cash flow in the period was -SEK 10.6 million, which is also an improvement, -SEK 16.9 million in the Q3 2025. We can note that the third quarter in our yearly cycle is typically the lowest cash quarter.
Jonas Eborn: We have a lot of renewals now towards the end of the year, so end of the year and the beginning of next year is the strongest cash flow quarters in the yearly cycle. The cash at the end of the period is SEK 21.8 million. That is everything from me, we will go over to the summary by Jan.
Jan Häglund: Thank you, Jonas. I will just wrap it up at the end. Q3 was a quarter of progress. We came back to sequential ARR growth, 1%, versus the previous quarter. We had a strong development of service revenue, the second quarter in a row now with growth. We continued for actually the seventh consecutive quarter to improve our adjusted EBIT. Note here that the adjusted EBIT is the same as the EBIT. We did not have any adjustments in this quarter. We brought in new customers, 3 new customers, all very important. We have brought in a new reseller that gives potential to grow in the Australia-New Zealand market. We see now positive results coming out from customers that we won in previous quarters, especially in the data center space.
Jan Häglund: We are positive about the potential in data center, which is why we have continued to invest into new data center solutions and technologies. AI is a focus area for us, and we see a lot of interest from customers. We expect that this will drive productivity increases and demand for more capacity, which is why we have launched these add-on packages called Boost and Scale. Looking forward, we had positive ARR development in the quarter. We see opportunities for continued positive ARR development, thanks to new revenue streams driven by AI, new libraries, platform capacity, albeit with quarterly variations as usual. The financial target, the long-term target of ARR above 20% stays the same. Profitability will be driven by continued ARR growth and cost control. That combination is what drives continued profitability. I believe that the long-term target of a profit margin above 20% is fully realistic.
Jan Häglund: In terms of cash flow, we have also improved that consistently with higher EBIT. We do not capitalize anything in Modelon, which means that the cash flow follows the operating profit very closely, although with quarterly variations, because we have prepaid licenses, which makes that the H1 of the year is typically stronger than the H2 in terms of cash flow. We predict a free cash flow positive from the beginning of 2028, and we hold that projection. Just at the end, as Jessica mentioned at the beginning, we are actually calling for a Capital Markets Day on 10 November 2026. There are so many things happening in our industry, especially driven by the new opportunities of AI. We want to spend some more time with you to explain those trends.
Jan Häglund: We will show also how we have developed our product to capture the opportunities of AI-driven product innovation. We also want to show how we are applying that to some of our application-specific packages, not the least in data center. All of this opens up for new business models and revenue streams that we both have launched and will be launching from Modelon's side. With that as a teaser, I welcome everyone to listen in either on site at Redeye premises in Stockholm or live via a live broadcast on the web. 10 November at 1:00 PM Central European Time. Welcome. With that, I will hand it over to Jessica, the moderator, for any questions that you may have. Thank you very much.
Operator: Thank you very much, Jan and Jonas. Let's move on to the Q&A session. I figure we'll start talking a bit about the ARR, which grew quarter-over-quarter in Q3. However, ARR was down 17% year-over-year due to federal account churn and other smaller account churning last year and this year. Given that the federal account will be going out from the books in Q4, when do you expect to return to year-over-year growth in ARR?
Jan Häglund: Well, thank you, Jessica. It's a good question. As you point out, the decrease in ARR that we've been experiencing since a year now, is primarily triggered by a couple of federal accounts at the end of last year, specifically NASA, Jet Propulsion Laboratory, which were big accounts for us on a relative scale. Due to budget limitations that I think several American federal institutions had, they unfortunately, at that time, decided not to continue. That could still be changing for the future, but right now, we don't have them on our customer list. Then we have also reported that we have had higher volatility with smaller accounts. So one seat accounts, customers coming in perhaps for a project or time-limited projects or perhaps just trying out the tool.
Jan Häglund: We've seen higher volatility with those customers than with customers that have more licenses and that have worked with us for a longer time. Now, I think it goes without saying that quarter-over-quarter growth for a couple of quarters will generate year-over-year growth. As you point out, the bigger churns we had in Q4 last year. I can't really give a projection on when we return to year-over-year growth. I'm happy to see that we start with quarter-over-quarter growth.
Operator: You mentioned that you see a high renewal rate in Q3. How does this translate into your view on the big renewal cycle that usually happens in Q4, and do you expect upsell amongst your logged customers here in Q4?
Jan Häglund: You are right that the bigger part of our renewals, it is give or take half of our revenue base that is renewed in Q4, and that is happening right now. We are in discussions with many customers. In general, we have a lot of good discussions where customers see continued value of Modelon Impact. Some of them are also looking to do more. I will be reporting on that progress once we have closed Q4. It is ongoing right now.
Operator: What can you tell us more about the Munters deal? How large is it, and can we expect more revenue from the same deal? What does this put in, what kind of situation for other data center suppliers?
Jan Häglund: Well, Munters is an important deal for us for many reasons. Munters is a well-respected global company, and they have a lot of traction in their own data center business. Thanks to their legacy in climate control and air treatment solutions, they have been able to be very successful with a new business unit in data centers. It is of course important for us that they selected Modelon Impact as a platform. They will be using our libraries, and they are also using our expertise to get going because they are in a hurry as everyone else is in data center industry. Munters have evaluated Modelon quite thoroughly, probably with competitor alternatives also, which is why we are happy that they selected us. They do like most other customers, they start small. They start with a few engineers and a few licenses, and let us see where that takes us.
Jan Häglund: I think our tool has the capability of being relevant for many more engineers and many more applications, not only in the early design phases, but also in the engineering and operation phases. We see that with other customers, so we will be working with Munters as well as other customers to see how we can help them to be and be relevant in more domains.
Operator: Was this order from Munters in Sweden, or was it from Munters in North America?
Jan Häglund: It is Munters in North America that is our primary contact point. That is where this kind of development happens for Munters, at least our project. So the contract has been closed with Munters' American branch. They are a global company and their initiatives go across the globe.
Operator: We have a couple of questions from the audience as well, and this one is from Johan. Has AI changed Modelon's value proposition in terms of business model?
Jan Häglund: Yeah. Thank you for the question. AI changes a lot for our industry, it changes things for our customers, and it has created opportunity for Modelon. I think it is really good news. AI is good news for Modelon. The main reason is that AI makes it so much simpler to deal with system simulation, which is what we do. System simulation traditionally has been a little bit difficult. It has been a task mainly for experts who have the knowledge in either physics or simulation to be able to get the full value. With AI now, you can, in clear text, in clear language, ask questions not only on a detail level, but actually on a high level. You can ask engineering questions. So it really does change the opportunity. From a business model point of view, this will drive several potential revenue streams.
Jan Häglund: The obvious one is that we can be more relevant to our customers, which means that more people can get access and can get value out of our tools and libraries. That is the first step. We are obviously looking into other revenue models, for example, usage-based models, and this is one of the topics we will be coming back to, in fact, at the Capital Markets Day on 10 November. I think I will leave it as a cliffhanger for now.
Operator: Another question from Johan, who is the customer among neocloud operators?
Jan Häglund: Sorry, I did not get that question. Who is the customer, say again?
Operator: Among neocloud operators.
Jan Häglund: I am not sure what that refers to.
Operator: All right. Let us move.
Jan Häglund: I do not think it is something we wrote in the report, so.
Operator: Yeah. Let us move on. We have a lot of questions here from the audience. Q4 is your main renewal quarter. What share of ARR comes up for renewal this Q4, and what is the status of the two-year data center contract signed in Q4 2024?
Jan Häglund: As I mentioned before, roughly 50% of our software business is up for renewal in Q4 of every year because that is just the way our customers buy and acquire our system. It is correct that we closed a deal 2 years ago, that was a 2-year deal that was with a North American social media provider. It is correct that that then is a deal and a contract which is up for renewal now in Q4.
Operator: You mentioned growth opportunities mainly in the data center sector. What about the more traditional sectors such as the automotive or aerospace? Can you gain market share thanks to your new product development?
Jan Häglund: My ambition is to gain market share in all segments. I think I mentioned that there are two main drivers right now for growth. One is data center, which is a very fast-growing market where we are investing into new library solutions. In all other segments like automotive and aerospace, in energy, in HVAC, we have established libraries and offerings since many years, and we have a solid customer base also. One of the key drivers for growth and market share increases is AI, because thanks to the integration with AI, we can broaden the value, we can broaden the use of our tools. The feedback I am getting is that we are well-positioned versus competition also. Our ambition is definitely to win market share in other segments also, including the ones you mentioned.
Operator: Another question from the audience here. How many customers have taken the Boost or Scale packages since the September launch, and what uplift per seat do they bring?
Jan Häglund: I don't have the numbers, and it's early days. We only launched these a couple of weeks ago. I expect that this will be driven in conjunction with the increased usage of AI, because again, I tie the need for this to our AI offerings, where customers, as they become more mature in AI, learn to work with agentic AI, learn how to work more in parallel, get more done, and perhaps use high-level engineering questions as the driver for their job. They will see a demand for more capacity. I think this will be a stepwise increase, and where our productivity packages then will become more and more relevant as we go forward.
Operator: A last question here from the viewer. You attribute the 1% to a high renewal rate plus three new accounts. Could you quantify gross retention in Q3, and how much of the three new contracts is not yet in the 47.2 ARR then, because they just started?
Jan Häglund: Yeah. Thanks for the question. I think this points out that the calculation of ARR depends on a few things. It depends on, for example, when in a quarter you close a deal. That also means that part of the ARR increase we saw in this quarter actually came from the tail of contracts we closed in the last quarter. As the question points out, the tail of contract in this quarter will be visible in the next quarter. I cannot quantify that, and we do not publish also the net retention rate as Modelon. What we publish is the annual recurring revenue, and we're happy to see that we're back to quarter-over-quarter growth now for the first time in a year.
Operator: Thank you so much, Jan, and we look forward to see you on the 10 November here.
Jan Häglund: Yeah. I look forward too. Thank you very much. Thank you for the questions.
Operator: Thank you.
