Nepa

Q1 in summary

• Annual Recurring Revenue (ARR) decreased by 0.7 percent to SEK 167.3 (168.6) compared to the corresponding period last year.
• Net sales decreased by 7.1 percent, or 7.6 percent in local currencies, to SEK 67.5 (72.7) million.
• Subscription revenue decreased by 1.6 percent to SEK 42.1 (42.8) million, and ad hoc revenue from subscribers decreased by 17.8 percent to SEK 13.9 (16.9) million. Ad hoc revenue from other clients decreased by 11.2 percent to SEK 11.5 (13.0) million.
• Gross profit amounted to SEK 50.7 (52.9) million and the gross margin to 75.1 (72.7) percent.
• EBIT increased to SEK -1.5 (-3.9) million and the EBIT margin amounted to -2.2 (-5.3) percent.
• Excluding items affecting comparability of SEK 1.3 (0.0) million, relating to lagging restructuring costs, adjusted EBIT amounted to SEK -0.2 (-3.9) million.
• Net profit amounted to SEK -0.6 (-4.5) million and Earnings per share amounted to SEK -0.07 (-0.57).

Business highlights

DURING THE QUARTER

• Substantial improvements to the cost position. The company now has a solid platform in place to start focusing on profitable organic and inorganic growth.
• Weaker end market demand from last year is persisting, with longer sales cycles and cautious spending.
• An extraordinary general meeting decided to elect Eric Gustavsson, Fredrik Lundqvist, and Ashkan Senobari as new board members, and re-elect Ulrich Boyer and Dan Foreman (chairman).
• The Board appointed the interim COO, Anders Dahl, to permanent CEO.
• Ferry Wolswinkel, previous interim CEO and Chief Revenue Officer, resigned from the company.

AFTER THE PERIOD ENDED

• Sara Davidsson Nyman was appointed as new Chief Revenue Officer.

Key financials

Comments by the CEO

A SOLID PLATFORM TO GROW FROM

In my first report as CEO of Nepa, we present substantial improvements to the cost side accompanied by stronger cash flow. A solid platform is now in place from where we can focus on profitable organic and inorganic growth.

Net sales in the first quarter decreased by 7.1 percent or 7.6 percent organically compared to the same period last year. The decline was primarily driven by the previously communicated shutdown of Nepa APAC, as well as the increased churn during the last quarters. Subscription revenue decreased by 1.6 percent, and ad hoc revenue from subscribers by 17.8 percent. While we managed to drive a sequential 2.0 percent increase in ARR, the demand for our ad hoc consultancy continues to pose challenges to the top line. During the quarter we observed a cautious behaviour among our clients due to reorganizations and cost-saving activities. Yet, we see an underlying demand for research which we believe will be realized in the later quarters of the year. The 11.2 percent decline in ad hoc revenue from other clients was entirely attributable to Nepa APAC.

Our concerted efforts on the cost side have been successful. First, through better internal control, we have managed to stabilize the gross margin at a satisfactory level. In the quarter, the gross margin amounted to 75.1 (72.7) percent. Second, the full effect of our cost-saving initiatives is now visible in the results. Excluding restructuring costs, personnel costs decreased more than 21 percent year-over-year following the significant reduction of our workforce. Over the past months, the team at Nepa has demonstrated exceptional dedication in enhancing project margins, reaching record levels towards the end of the quarter. Now, we need to increase the topline to see the full effect on our results. In the quarter, lower net sales and capitalized expenditures impacted the adjusted EBIT, which amounted to SEK -0.2 (-3.9) million. The adjusted EBIT margin amounted to -0.3 (-5.3) percent.

THE NEXT PHASE FOCUSES ON PROFITABLE GROWTH

We are moving on to the next phase focusing on profitable growth, both through organic initiatives and acquisitions. Since I assumed the role as CEO in late March, we have been working to optimize the organization to its fullest extent. In May, we will be joined by a new Chief Revenue Officer, Sara Davidsson Nyman, who brings extensive sales leadership skills and deep industry knowledge that is valuable when organizing our organic growth initiatives. Simultaneously, we are strengthening our marketing platform to enhance our market presence.

On the product side, we move forward with closer alignment between product teams, sales, and marketing to strengthen our go-to-market. The forthcoming product launches underscore our commitment to meeting evolving client needs and maintaining our competitive edge.

Later this year, we launch a new subscription product, an always-on solution to help clients optimize their media spend. It is closely connected to our existing products and will be a great offering for clients seeking actionable insights based on both media and brand data. Additionally, we are planning to revamp some of our existing consultancy solutions based on client demand, making them easier to offer in a product environment. In short time, we have made notable progress on the product roadmap and sped up our time to market.

OUTLOOK

Nepa is in a stronger position now than a year ago. Our primary focus has been on operational profitability, and we will now align it towards the long-term growth prospects the market research industry offers. This will entail sensible investments geared towards future success and restoration of a sustainably profitable business. We are optimistic that the market will recover over the longer term and grow, however the current market conditions remain difficult.
The groundwork laid through our cost-saving initiatives, strategic workforce optimization, and enhanced supplier relations positions us favourably for future profitable growth. With a robust foundation, a talented team, a competitive and streamlined product portfolio, and a clear strategic vision, we are set to capitalize on the emerging opportunities.

Anders Dahl
CEO