Earnings call transcript: Zalaris ASA sees mixed Q1 2026, stock rises 0.41%

Zalaris reported mixed Q1 2026 results, with Managed Services revenue up 8% year-on-year to NOK 296 million and new contracts adding NOK 75 million in ARR, while Consulting revenue fell 18% and dragged EBIT lower. Net profit was broadly flat at NOK 25.8 million versus NOK 25.5 million last year, and net interest-bearing debt fell NOK 26 million to NOK 191 million. The company guided to more than 6% Managed Services growth in 2026 and reiterated a 10% organic growth target through 2028, but shares were only up 0.41% pre-market amid the mixed print.

Analysis

The key takeaway is not the quarter itself, but the mix shift. A business that is now overwhelmingly recurring is de-risking near-term cash flow while also quietly making the remaining consulting book more cyclical and more volatile to execution missteps; that tends to widen the valuation gap between “quality recurring” and “project” revenue inside the same equity. If management keeps converting pipeline to ARR at this pace, the market will likely re-rate the multiple on the service annuity rather than the consolidated earnings stream.

The second-order effect is on margins and capital allocation: every incremental managed-services win appears to come with upfront commercial cost, so the market should expect a lag between ARR headlines and reported EBIT inflection. That creates a classic two-quarter window where headline growth can look strong while operating leverage is temporarily muted; investors who chase the print may be buying the most expensive part of the transition. The cleaner tell will be whether cash conversion and leverage continue improving despite continued sales investment.

The most interesting contrarian angle is that the market may be underestimating how much of the apparent growth is already embedded in the backlog, while overestimating the speed of consulting recovery. If management’s growth targets are met, the bigger upside is not from faster top-line expansion but from mix-driven multiple expansion as the business increasingly resembles a subscription software/services hybrid. For now, the risk is that any slowdown in deal signing or a few large implementation delays can flatten the ARR narrative for 1-2 quarters and pressure the stock sharply given the still-elevated earnings multiple.

Key Decisions for Investors

• Long SAP as the structural beneficiary of services vendors shifting spend toward its ecosystem; use a 3-6 month horizon and look for pullbacks on any post-earnings digestion in adjacent services names as a better entry point.
• Avoid chasing the equity after a strong contract-announcement tape; if expressing bullishness, prefer buying 3-6 month call spreads rather than stock to capture the ARR re-rating while limiting downside if consulting weakness persists.
• Pair trade: long SAP / short a listed European IT services name with higher project exposure and weaker recurring mix over 2-4 quarters, targeting multiple compression in the short leg if recurring mix continues to win.
• Set a catalyst watch for the next two reporting periods: if operating cash flow and net debt keep improving while ARR additions stay positive, add to the long; if ARR stalls for one quarter, reduce exposure quickly because the market will likely punish the stock before consulting recovers.