I.A.R Systems

Healthy Q1 beat: 1) 3% organic sales growth YOY despite deal slippage from Q1 to Q2e (4% net sales beat versus our forecast), with +46% organic growth in APAC (partly from a large deal win but also fuelled by RISC-V) slightly offset by a 21% organic drop YOY in North America amid a tough comparable, deal scrutiny from indirect tariff headwinds, and slower project starts; 2) forward-leaning pipeline commentary with lower churn, a ‘three-fold’ rise in the number of new customers and a ‘substantial part’ attributed to its full launch of its new SaaS offering on 1 April, while noting that SaaS onboarding entails longer sales cycles; 3) adj. EBIT was 18% above our forecast (23.2% margin, -16% YOY) despite head count growth of 10% YOY; 4) the soft points in the results were its deferred revenue (-3% YOY) and FCF (23% cash conversion) from accounts receivable build-up, although it cited adequate payment ability among its customers; and 5) its key competitor announced in Q1 that it plans to phase out its compiler, which should allow for some low-hanging fruit customer wins for IAR Systems.

2025–2026e adj. EPS lowered by 15–5%, to factor in FX headwinds (of 24–34%) slightly offset by higher organic growth and incremental margins (up 9–28%). We forecast -1% organic sales growth and -51% adj. EPS growth in 2025 to factor in the SaaS transition. That said, our estimates could prove too conservative, as IAR Systems cited a greater value proposition offered through its SaaS platform (1.5–2.5x higher revenue potential over three years, an upsell opportunity not reflected in our model).

Fair value lowered to SEK150–260 (160–265), where the low-end is based on a 2025e EV/EBIT of 20x (SaaS shift-pressured earnings) and the high-end on a DCF that captures IAR Systems’ targeted ‘rule of 40’ financials beyond 2028–2030e.

Best regards,

Joachim Gunell | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: joachim.gunell@dnb.se | www.dnb.no