Trifork Group AG (TRIFOR) Earnings Call Transcript

Welcome to the presentation of Tri Fox's Third quarter results for 2026. My name is Fredrik Svanhom, Group Investment Director at Trifork. Today, our CEO, Jan Larson; CFO, Christian Wulfanesen; and COO, Xiamen Kamigo will provide a presentation of approximately 30 minutes, followed by Q&A. We got 1 hour in total. Before we start, I have some practical information. This presentation is being recorded and will be made available on our investor web page later today. Second, if you want to download the slides for today's call, you'll be able to find them on the front page of our investor website. Third, we invite you to ask questions and engage with management after the presentation. Before we get started, we have to present this disclaimer. All right, let's jump to the presentation. I now hand it over to Group CEO, Jorgen Larsson.

Thank you, Fredrik. So welcome to today's call. I have really been looking forward to reporting on our progress this quarter as well as our ongoing transition to becoming a product-led company. So over the past 12 months, a lot has happened at Trifork and some of it we can talk a little bit about today, and we can talk more about it at our Capital Market Day in December. So over the 12 months, we have seen a lot of movement at Trifork, we have leveraged AI alongside our deep knowledge into our domains and the selected industries that we are operating and providing software for. And we have built an impressive portfolio of products, something we will give more transparency on when we go into our Capital Markets Day in December. So Trifork today is quite different from Trifork 5 years ago. We have invested a lot also in market development. So not only have we built a product portfolio that is second to none compared to where we were 5 years ago. The market development investments, we already see the return of. We see an increased pipeline for the various industries where we have products for and what I also want to say with this is that it is up to Trifork management to decide how much we invest in market development, and we are monitoring carefully in our CRM systems and business intelligence systems and AI platforms to see the result of this investment. And of course, we have an eye on the margins, and we have promised the market to deliver reasonable margins and higher growth. So going forward, I want to make sure that our growth increases and still deliver a reasonable margin. But also, we will explain this more on our Capital Market Day. So here, we describe it in 4 pillars. So first of all, we really see that the product focus is succeeding. We see a product organic revenue increase of 96% compared to same period last year with a very strong momentum for managed service and infrastructure. But you can say more and more of our products also runs within the scope of our operation, maybe in our data centers, maybe in somebody else's data center, but the responsibility for the applications is within Trifork. We see continued traction with public sector. And as you know, Europe Canada and other countries, Switzerland included, are really ramping up and focusing on bringing data and control of data, control of AI into their own territories, and this lead to a rapid increase in investments in public sector, and we are well positioned for this uptake. 3 out of 4 public tenders in the last period, we have won, and then, of course, there are a lot of wins also on the framework agreements that we already have at Trifork. I want to mention this one, which we were really focused on winning and that is a strategic project around how to implement AI for the people of Denmark, so they can use AI in a safe way. You probably all know people that takes confidential data of their own, ask AI about it. And we don't feel that, that is a safe way to to use your own data. The government sees the same in different countries. And Trifork can be a company that can implement systems where you, in a safe way, can use AI but inside a safe environment, protected by the law and the government. Also, I want to mention that in the period and also over the whole year, we have hired a number of senior leaders, you can say the next generation of leadership of Trifork, then we can also see significant earning improvements to last year, so last year, we were tuning the organization. So we were keeping the people that were on the product journey, and we were retraining others, so they could become a part of the product journey. So we see a 40% growth in EBITDA compared to the period and 9 months growth is 31%. So really good traction there. 69% growth in EBIT for the 9 months, 73%. And so this also pays off. If you compare to a lot of companies around the world that are doing SaaS or products or this and that, a lot of them, they don't show the same margins as actually, a lot of them invest so heavily in revenue growth that they don't even have a profit. We want to continue to have a profit. And also we have thoughtful capital allocation. So we did announce the Verdan deal a few months ago. It's now completed. We have the funds. We have -- we are in the process of paying out dividends. We are also taking proceeds from this deal to invest in Trifork overall. So once again, the Trifork lapse is giving Trifork segment and with funding the growth, which I'm very happy for, let's move on. And here, you see it in an overall perspective, the development since 2017. You see that now the curve start looking better. We still like to see more revenue growth in the future, so we can continue the growth from earlier days into double-digit growth. We also see that margins are in control. They are at a reasonable level. They can still be higher, but we also want to make sure we are investing sufficient capital into market development and product development. But we are in a much better place than in '24 for sure. Lets move on, and I'll give the word over to Sam.

Thank you, Jon. I'll take the next 2 slides. Firstly, AI. We report in 2 segments: products and services, -- for our customers, however, it is 1 track walk, the same teams, the same platforms and often the same contract. AI strengthens how we work on both sides of both product and services. As you've heard from Johan, he described the investment we are making to become product-led in both our teams and in development. AI makes that investment to go further. Our development cycles are materially faster, and we released new functionality with the engineers that we already have. So the engineering capacity to grow our products is already in place. More of the investment can go into broadening our already extensive portfolio and taking that to market. AI also needs somewhere to work. Banks, utilities, public bodies cannot simply connect a model to their core systems. Their data sits in many systems behind security, behind regulatory boundaries. Our platforms led data and AI move across these organizations in a controlled way. And this matters for AMEX. Products carry a higher margin and lower risk than fixed price work because we build once and sell many times, often on recurring terms. Our product margin was 25% over the last 12 months, and products are growing towards half of group revenue. In the third quarter, they were 45%, up from 37% in the second quarter. AI also makes our people more valuable not less. To put AI to work, a client needs people who really understand how the business actually runs, how a credit decision is made or how a public agency can handle a case. And that is where our senior consultants work alongside our platforms. AI makes our work faster. Clients get working systems sooner and our people spend their time where it matters most, on judgment, and on really knowing the clients business because this is what clients value, and we do not discount it. Where our products and our people come together in 1 offer, it supports our pricing and you can see that in the numbers. Services revenue was down 1% this quarter, but services earnings were up 18% at a 16% margin. AI makes us faster. Our products and our people together support our pricing. And we have 2 examples at Nitride under a very hard deadline from the Spano merger, we built a credit rule engine on the End Money Engage platform. We delivered 95% of it a month early, and Corex provides the AI layer on top. Our platform, our people and AI all delivered together. And in the public sector, John mentioned that Trifork had been selected to implement strategic AI at government level. Nine, which is a triple company has won the contract with the Dish Agency for digital government to develop a shared digital assistant for the public sector and the infrastructure underneath it. This first phase brings AI-based chat, Denmark's National Citizen Portal and National Health Portal. And it is built to other public websites can add it later. And that infrastructure underneath it brings me to our next slide. Johan also mentioned our strong momentum in managed services and infrastructure. And that is what this slide is about. Trifork does not only build systems, we also host and we run them. We provide Danish sovereign hosting operations and application management with our contained platform at the core. We run customer systems in our own data centers, in the customer's own infrastructure or in the public cloud. The customer chooses. Wherever the system runs, they keep control and they are not locked in to 1 supplier. And this completes what we offer. A customer can come to Trifork, to build a system, put AI to work in it, have it run securely all with the same partner throughout. The demand we're seeing is structural. European data sovereignty has become a top priority for public bodies and for companies alike. They want to own their digital infrastructure, and they want to take responsibility for it. We expect that to continue for several years. Revenue and earnings from our hosting and operations has more than doubled in the last 2 years. We expect them to be about 1/4 of group revenue this year, and Christian will talk more about that. Contracts typically can run from 5 to 10 years at first, and are usually extended. A word on hardware because it affects how products figures are read. When a customer comes onto our platform or expands, we install equipment to run their workloads. We recognize that hardware as revenue at the start at a lower margin than licenses or support. That makes quarters uneven, which is why we report product growth, both with and without hardware. Without hardware, products grew 25% organically this quarter. The third quarter had high hardware sales as we onboarded new large, long-term hosting and operations agreements, and that is good news. Hardware is not a one-off sale. In the first step in the long-term, it is the first step in a long-term contract, and hardware is a leading indicator. Recurring license revenue follows when operations go live typically 4 to 6 months later. So this quarter's hardware supports further growth in operations licenses in 2027. Onboarding new operations customers lowers our margin in the short term because the hardware comes first. Once operations goes live, the recurring license revenue will lift it. It dilutes the margin now and adds to it in the medium term. Christian will talk to you about the effect on margins. To sum up both slides. AI helps us build faster and makes our people more valuable. Our hosting and operations lets customers run what we build securely. Customers can come to 1 partner trial for all 3. We build it, we put AI to work on it and we run it with the customer in control. Christian will now take you through the numbers for the quarter.

Thank you, Jamie. Yes. So you already heard a lot of numbers, both from yarn from Chami, but now I'll put it here on some slides so that you get the overview here in one go. As already talked about, Q3 '26 was a strong quarter or growth of 24%; organic growth of 28%. The difference there is the deconsolation we did from the traffic security organization. So that's why we have a higher organic growth in the total growth. Organic growth, excluding hardware, was 6%, all in relation to EBITDA, the margins improved for the full company. I will deep dive a little bit more into how that is distributed in between products and services. We still have a good cash generation but as you maybe recall from last quarter, then this is a little lower. That said, we did have some special cases where -- so if we normalize for that, the cash conversion actually was 94% also in Q3. Overall, we saw the 0.6x net debt to adjusted EBITDA, which was an improvement compared to the half year. Going a little bit more into the details in relation to products and services. Then here, you see the difference on the growth. So as in the previous quarters, we see also the highest growth in the product-based business. For the quarter, 96% organic. And once again, this is the same reason in relation to the difference to the total growth with the deconsolidation of traffic security and 25% was the organic growth, excluding the hardware. Right now, the hardware-based total for the year, is higher than it was in '25, as we also previously has communicated that this was our expectations. Margins now in relation to adjusted EBITDA and products is total 23% for the quarter which is 50% higher overall NOK 6.3 million compared to last year. Now you also see that products actually contribute more than 50% of the adjusted EBITDA in the group. Going to services, we see or saw a flat development. It's all organic. And since we pitched most of our new engagements in the product side, then actually this is a good situation here to have services just being flat because it's being done based on a lower effort into sales where sales push towards products. You see the margin improvement, 18% year-over-year coming from all the efforts we've done in relation to cost savings, but also into a different type of a case we would go into, plus having higher margins on the services that are connected to the products. Overall for the group, EUR 10.4 million in adjusted EBITDA and $61 million on group revenue. Deep diving a little bit more into the details. Here, we see products, services revenue, we see product services contribution from EBITDA, and we see that the mix in between the public and the private sector. In relation to the product revenue in the quarter, we saw a very high contribution with the 45%. Overall, I want you to take notice of the development in LTM, so 38%. And our target, as we have communicated, is to reach 50% revenue split in between products and services. So everything is going in the right direction here. In relation to the contribution and margins, as already talked into that by 54% in Q3 was EBITDA coming from products. Overall, in the quarter, we saw a higher part of revenue being into the public sector with that 56%. But LTM is 49%, which is exactly the sweet spot where we want to be with equal distribution in between private and public. Deep diamond, even more into the margins and the development in margins. Here, we see the continued trend of being able to improve the margins in the product-based business. At the same time, we also see the trend line going up from second quarter in '25 and until now with a slow improvement on the margins on the sales pace business. In the third quarter, we saw realized gains of $21 million. This is connected to what was already talked about in relation to the exit or part exit of some of the investments in our minority investments, and communicated earlier as well in relation to the impact overall. Since the IPO in '21, we've realized $42 million. So as Jan said initially, it's actually contributed quite a lot in relation to the positive cash flow in the company in relation to new investments and investment investing in the core or other areas. Book value now end of Q3 was EUR 57 million. Well, the distribution in between cash investment is more or less stable, and then the unrealized gains is down because of the realized gains in the period. We also now see a strong flexible balance sheet. We see an improvement in the leverage. So now the leverage is 0.6x on net debt compared to adjusted EBITDA. And this is even in a period where we -- in the third quarter, acquired traction shares of EUR 4.6 million. So now we have a balance of with a value of more than EUR 10 million of structure shares. And as announced earlier, we are in the process of canceling shares. So 2.5% is expected to be canceled within the next month. The proceeds that we have gotten in plus the cash flow, the free cash flow generated in the charter business, we prioritized to new investments in organic growth in the core business. Of course, we also have more cash on the balance sheet, meaning that the net debt and management can be handled and savings on interest rates. But we also allocate capital to do new M&A. So we always investigate to see if we can find new targets within the focus points we have on supporting the product-led journey. That said, we also communicated today that we will pay out a dividend of EUR 8 million, equal to DKK 3 per share, which will be paid out on Monday next week. We continue our share buyback program until the end of the year, up to this EUR 10 million overall. And we are also still looking into make minority investments into into new companies where we have a clear synergy into the core business of Trifork. This is all in relation to the details. We encourage you to ask questions. But I also want here to just announce that we had our Capital Markets Day on the 11th of December in Copehagen. So you are all invited to participate there. I will move on to the questions.

Thank you, Christian. That concludes the presentation part. Let's open up for questions. [Operator Instructions] It seems like a quiet day on the question front today. Okay. I think we can conclude. There are no questions today. I think that's the first time that has ever happened. But we will, of course, meet you guys individually in the coming days as well and can follow up there. At 12:30 today, we will be on a Danish call with Jose Anderson Capital with CEO, Jan Larsen, so you can also find the link in the company announcement this morning and ask questions and Danish there. Thank you for your interest in Trifork, and have a good day.

Thank you all. Thank you so much. Have a nice day. .