Zalaris Stock

Good morning. I'm Hans-Petter Mellerud, the CEO and Founder of Zalaris. And joining me today for this webcast presentation of Zalaris 2026 Q1 results is our CFO, Gunnar Manum. Please note that the presentation is being recorded, and you can access the recording in the Investors section of our website. In today's presentation, I will first walk you through the key highlights of the quarter. Gunnar will then provide a detailed review of the financial performance. And after that, I'll return to discuss the outlook for our business before we conclude our regular Q&A session, where you can submit questions through the chat function. So let's start with the highlights.

We are seeing continued strength in Managed Services, while Consulting slowed temporarily this quarter. That Consulting slowdown is the main driver behind the lower EBIT and margin versus last year. Managed Services revenue was NOK 296 million, up 8% year-on-year in constant currency and now maintains its revenue share of 80% from last quarter. Adjusted EBIT was NOK 42.3 million with an 11.4% margin. We are focused on restoring Consulting utilization as activity normalizes.

We also signed new long-term Managed Services contracts in Q1, totaling approximately NOK 75 million in annual recurring revenue, and we continue to strengthen the balance sheet. Operating cash flow was NOK 11.5 million, and net interest-bearing debt is down NOK 26 million quarter-on-quarter to NOK 191 million.

In Q1, we signed deals that increased ARR, as mentioned, with NOK 75 million, and we are delivering on the sales target required to sustain 16% growth in Managed Services. Momentum is improving because customers are prioritizing digital transformation, increasing focus on core activities and cost reduction, exactly where our managed offerings create measurable value.

We also have strong confidence signal from the pipeline. Agreements are in contracting and signing phase. We are seeing more deals with targeted signature within the next 3 months. And we have a clear proof point from some of the larger wins we secured in the quarter. NAV, public sector SaaS payroll and HR for 24,000 employees in Norway. U.K. headquartered customer with multi-country outsourced payroll for 6,000 employees across EMEA. Swiss MedTech, 5-year outsourced payroll for 6,000 employees in Switzerland and Germany and a German carve-out 5-year global payroll time and absence, travel expenses and HR for 1,200 employees. Next, we will convert the near-term pipeline, deliver these contracts and build ARR consistently throughout the year.

On the 13th of March, we announced a voluntary cash offer for Zalaris. The offer was launched on 15th of April, and the offer period runs from 16th of April to the 30th of April, that is this Thursday. The Board of Directors has unanimously recommended the offer. The key terms are NOK 100 per share with a minimum acceptance condition of more than 90% of the outstanding shares. As a result of the offer, the Board intends to propose that no dividend is paid for the financial year 2025. Shareholders should refer to the offer documentation and related stock exchange releases for full details. And if you have not received information directly, then you will find a link to the offer and a description of how to accept it on the Zalaris website, that is the IR pages, ir.zalaris.com. And we will continue to keep the market updated as the process progresses.

So those were the highlights. Let's have Gunnar going through our financials.

Thank you, Hans-Petter. Our Managed Services revenue grew by 6.5% year-on-year, reaching NOK 300 million and accounting for 80% of our total revenue. When adjusted for currency effect, the growth was 8%. We achieved a net revenue retention of 104% year-on-year in constant currency, and we saw good growth in all regions with Germany growing by 9%, Northern Europe by 5% and U.K. and Ireland by 57% in local currency. Managed Services adjusted EBIT for the quarter was NOK 48.8 million, down NOK 5.9 million from last year, mainly due to higher business development costs, including sales commission from securing NOK 75 million in annual recurring revenue in the first quarter, expanding market presence into BeNeLux and other growth initiatives.

Zalaris Consulting had a weak quarter with revenue down 18% year-on-year and 15% in constant currency. This reflects lower activity in Germany and Poland following the completion of several large projects last year. With lower volume, adjusted EBIT was slightly negative at minus NOK 0.7 million, also impacted by the continued business development investments that we are maintaining to support the pipeline and ensure future growth. Zalaris Consulting continues to support Managed Services growth, especially in Germany, and most regions are experiencing high utilization since reduced revenue has been offset by relying less on external consultants.

The condensed profit and loss slide provides a detailed overview of our financial performance, highlighting our key cost components. The increase in license cost is attributed to higher revenue from our payroll and HR solutions, which incurs license costs, including SuccessFactors. The increase in personnel costs was mainly due to annual pay increases from July last year, less costs capitalized to customer projects of NOK 5.6 million and a small increase of 12 FTEs. Other operating expenses decreased by NOK 8 million and was mainly due to less use of external consultants in Zalaris Consulting.

The EBIT was NOK 29.3 million for the quarter compared to NOK 41.7 million last year. Net financial expenses were NOK 3.6 million, which includes a currency gain of NOK 9 million. Interest expenses were reduced by NOK 5 million year-on-year, mainly due to the improved terms after refinancing in Q4. Net profit for the period was NOK 25.8 million compared to NOK 25.5 million last year.

Our net operating cash flow was NOK 11.5 million for the first quarter, which was approximately in line with the figure last year. During the quarter, we reduced the amount drawn on the revolving credit facility, which replaced the bond loan in the fourth quarter last year by NOK 34 million. The net interest-bearing debt as of 31 March decreased by NOK 26 million during the quarter to NOK 191 million, which converts to a leverage ratio measured by the interest-bearing debt divided by the adjusted EBITDA of 0.7, down from 0.8 in the previous quarter.

Now that concludes the financial section, and I hand over to Hans-Petter to present the outlook.

Thank you again, Gunnar. So let's now turn on to our positive outlook for Zalaris. So we continue with strong revenue visibility for '26 and onwards. These graphs show our expected Managed Services revenue growth based on signed contracts under implementation, excluding known churn with strong visibility and a projected increase of more than 6% versus fiscal year '25. The gross ARR effect from new agreements under implementation is NOK 119 million. Due to a large customer scope reduction referenced in our Q3 '24 report, the net effect is an ARR increase of NOK 53 million.

On top of recurring Managed Services revenue, change orders are approximately 12% of recurring revenue. Zalaris Consulting delivered NOK 337 million in revenue over the last 12 months, supporting an estimated minimum future annual revenue of NOK 1.59 billion. Looking ahead, there is an upside from higher Zalaris consulting revenue versus '25 and additional new contract signings in Managed Services in the coming months.

Our communicated target is 10% organic growth, driven by Managed Services of 15% and consulting 5%. That takes us to about NOK 2 billion in annualized revenue by end of '28 with an EBIT margin of 13% to 15%. As we scaled, Managed Services increased from roughly 80% of revenue today to around 85%. Growth won't necessarily be linear because contract sizes vary. But based on our track record and our constantly improving market position, supported by industry analysts coverage, we see this trajectory as both realistic and beatable. Our strategy remains anchored in 3 pillars: multiculture payroll for the mid-market and enterprise customers, HR services and our global capability center offering and a full suite of SAP Consulting run as a global business unit with a strong base of recurring and reoccurring revenue from application maintenance services.

To deliver, we are balancing new logo wins with account expansion while extending into new geographies. Our ambition is a footprint across all G20 countries with full Western European coverage as the first milestone. Setting up our business in BeNeLux in this quarter is another step in this direction. On the financial path, 2025 revenue landed at NOK 1.5 billion and around NOK 100 million is already secured for '26.

Combined with expected net additions beyond contracted churn for '27 and a strong pipeline, we believe the target is well within reach. We did experience project execution challenges and cost overruns in APAC in Q4. Corrective measures are in place now in Q1, and we are back on plan with additional improvements in the coming. Looking ahead, margin improvement is driven by AI and automation, continued shoring and scale, hitting 13% to 15% EBIT implies NOK 260 million to NOK 300 million by 2028. And as I'll outline next, our ambitions go beyond that range.

For '26 to '28, we are targeting 10% annual productivity improvements driven by digitalization, process standardization and a structured AI deployment across our delivery model. We have already started adjusting capacity in parts of the organization to reflect this trajectory. These efficiency gains are expected to more than offset the incremental cost of migrating our SAP infrastructure to SAP cloud. Our objective remains clear: deliver profitability within our communicated 13% to 15% EBIT margin target with potential for margin expansion beyond this range over time as productivity and operating leverage continue to build.

To execute, we have launched a company-wide program to make AI a daily productivity tool, supported by mandatory training and clear governance under our CTO. In Managed Services, all core processes are under review for AI-enabled automation with several already digitized and partially automated. And AI is being applied across sales, support, software development and project execution.

Our shared services model lets us leverage AI investments across a multi-customer base, increasingly positioning our delivery model as a services as a software. All initiatives are governed by defined business cases and strict oversight, and we operate fully within GDPR and EU AI frameworks with data governance and security embedded by design. Finally, we benefit from SAP's embedded AI in SuccessFactors and S/4HANA, allowing us to capture ecosystem innovation with efficient allocation of capital.

Let me conclude with the key takeaways for Q1 '26. First, we had an all-time high Q1, maintaining Managed Services momentum. With Consulting temporarily underdelivering on revenue and margin, the overall result was on the lower end of our target. Managed Services revenue was NOK 296 million and represented 80% of quarterly revenue, underlining the strength of our recurring model. Second, our commercial momentum and visibility continue to improve with new long-term Managed Services contracts adding NOK 75 million ARR, securing NOK 53 million increase in ARR after no churn when fully implemented. Third, we remain firmly execution focused with AI deployment supporting our 10% annual productivity target, and we are working toward the ambition of a NOK 2 billion run rate revenue and adjusted EBITDA of 13% to 15% by Q4 '28.

We do, of course, remain attentive to the Zalaris Consulting slowdown that hit revenue and EBIT this quarter, and we will continue to bring that back on track. And lastly, we have exciting days ahead with a voluntary cash offer of NOK 100 per share, which is concluding on Thursday, the 30th this week. And with that, I will stop here and open for the Q&A.

Gunnar, do we have any questions?

We do not have any questions, Hans-Petter. So maybe you could just -- on the final note, just remind everyone of the details around the voluntary cash offer.

Yes. So well, details, I think the key element is you should all read the offer material that you'll find on our website unless you have received it. And if you like the offer, you should be sure to read how to accept it. And if you're an investor located in Norway, there's also a link on our website that will make it easy for you to accept in a digital process.

So I think with that, yes, thank you for your attention, and have a great day. Thank you.

Good morning. I'm Hans-Petter Mellerud, the CEO and Founder of Zalaris. Joining me today for this webcast presentation of Zalaris Q4 and full year 2025 results is our CFO, Gunnar Manum. Please note that the presentation is being recorded. You can access the recording in the Investors section of our website.

In today's presentation, I will first walk you through the key highlights of the quarter. Gunnar will then provide a detailed review of the financial performance. After that, I will return to discuss the outlook for our business before we conclude with our regular Q&A session, where you can submit questions through the chat function.

So let's start with the highlights. We closed 2025 with another quarter of solid performance, extending our all-time high revenue streak and delivering a year of profitable growth and strong cash generation. Fourth quarter revenue reached NOK 396.5 million, representing 8.7% organic growth year-over-year or 9.6% in constant currency. For the full year, revenue totaled NOK 1.5 billion, corresponding to 12% organic growth.

Adjusted EBIT for Q4 was NOK 50.6 million with an adjusted EBIT margin of 12.8%. For the full year, adjusted EBIT increased to NOK 194 million with a margin of 12.9% compared to NOK 147 million and 11% in '24. Managed Services, now accounting for 80% of our revenue, delivered a robust 22% adjusted EBIT margin in the quarter, reflecting scale and operational discipline. Consulting experienced a temporary setback in APAC, combined with reduced capacity in some regions, resulting in a quarterly loss. We have identified corrective actions and expect normalization through this quarter.

Operating cash flow remained strong, reaching NOK 68 million in Q4 and NOK 162.5 million for the full year. This solid cash generation underpins both financial flexibility and shareholder returns. The Board will propose a dividend of NOK 2.5 per share for 2025, reflecting confidence in our financial position, cash generation capacity and long-term outlook.

Let's take a closer look at our financial performance in Q4 marked by strong growth and improved profitability. As you can see, last 12 months' revenue, that is 2025, reached NOK 1.5 billion, representing a 33% increase over the past 8 quarters. Adjusted EBIT for '25 was NOK 194 million, up 31% from last year and 103% 2 years ago. Our adjusted EBIT margin continued improving to 12.9%, up 4.5 percentage points over the 2 years.

Operating cash flow for the last 12 months totaled NOK 163 million, demonstrating strong cash generation. Net interest-bearing debt was reduced to NOK 217 million with a net interest-bearing debt to adjusted EBITDA ratio of 0.8. These figures reflect solid financial momentum and our ability to deliver consistent growth and profitability. We are well positioned to continue this positive trajectory in the coming quarters.

As we closed '25, we saw strong performance with new signings increasing our annual recurring revenue or ARR by approximately NOK 80 million since Q3. We are delivering on our sales target required to sustain a 15% growth in Managed Services. The positive market situation driven by digital transformation, focus on core and cost reduction, has contributed to our success. We have a strong pipeline with an increased number of deals expected to close within the next 3 months.

Some of our notable wins include agreements with the Norwegian Labor and Welfare Administration for SaaS payroll and HR for over 24,000 employees. A UKI headquartered customer for outsourced multi-country payroll and a Swiss medtech company for outsourced payroll and last, a German carve-out customer for global payroll and HR services. These achievements position us well for continued growth and success in the coming years.

Our Managed Services revenue grew 15.4% year-over-year, reaching NOK 317.6 million and accounting for 80% of our total revenue and Managed Services now soon is a NOK 1.3 billion stand-alone business. When adjusted for currency effects, the growth was 14.9%. We achieved a net revenue retention of 110% year-over-year in constant currency, which we are also very satisfied with. We saw significant growth in all regions with DACH growing by 17%, Northern Europe by 12% and U.K. and Ireland by 48%. These figures demonstrate the strong performance and growth potential for our Managed Services segment.

Consulting experienced a temporary setback in APAC, as I previously mentioned, driven by one-off cost overruns on fixed price SuccessFactors projects finalized in Q4. This was compounded by reduced capacity in certain regions and lower application maintenance services volumes from a large customer in Poland, resulting in a 9% year-over-year revenue decline for the quarter. We have identified corrective actions and expect gradual normalization through Q1 and are continuing monitoring the situation closely. Also to remember that significant Zalaris consulting capacity was utilized to support Managed Services in implementing new customers or delivering change orders. While the revenue decline is a concern, it's important to note that our consulting capacity is being effectively utilized to support other critical areas of our business.

So those were the highlights. Let us have Gunnar going through our financials. Gunnar?

Thank you, Hans-Petter. This slide highlights our 8.7% year-on-year revenue increase for the quarter, marking our strongest quarter yet with revenue of NOK 396 million. When measured in constant currency, the increase year-on-year was almost the same at 8.6%. Revenue in Managed Services grew by 15%, while Zalaris Consulting saw a reduction of 11%. The increase in Managed Services was mainly driven by revenue from new customers that have gone live since the fourth quarter last year and additional services and increased change orders from existing customers. The change order volume was particularly high in the quarter, contributing 17% of total revenue in Managed Services, up from 12% in the previous year.

As Hans-Petter mentioned, Consulting experienced a temporary setback in APAC driven by one-off cost overruns on fixed-price SuccessFactors projects finalized in Q4. This was compounded by reduced capacity in certain regions and lower IMS volumes from a large customer in Poland.

Looking ahead, we continue to have a strong revenue visibility going forward with a projected revenue increase of more than 6% compared to full year 2025. The chart illustrates our anticipated growth based on signed contracts in Managed Services that will be implemented after the fourth quarter, excluding known churn. The total net additional annual recurring revenue is NOK 68 million. The annual recurring revenue figure reflects the impact of a top 3 customer who, as mentioned in the third quarter 2024 report, will not renew part of its services starting in January 2027.

The top graph illustrates the annual run rate for recurring revenue from Managed Services as of the fourth quarter of NOK 1.05 billion. Additionally, NOK 68 million net new annual revenue from signed contracts and expansions will come in future periods. And the bottom graph shows the estimated timing of this additional revenue. In addition to the projected recurring revenue from Managed Services, change orders comprised approximately 12% of recurring revenue, while Zalaris Consulting has generated NOK 337 million in revenue over the past 12 months. This equates to an estimated minimum future annual revenue of NOK 1.589 billion, calculated using the average currency rates for the fourth quarter. Any increase in Zalaris Consulting revenue relative to 2025 as well as new contract signings in Managed Services in the coming months will contribute to further growth.

Now this slide presents our adjusted EBIT for the fourth quarter. The adjusted EBIT was NOK 50.6 million, an increase of 7% year-on-year with an adjusted EBIT margin of 12.8%, which was marginally lower than last year. The adjusted EBIT for Managed Services was NOK 65 million, which was NOK 7.8 million more than last year, mainly due to the increased revenue. The adjusted EBIT for Zalaris Consulting was minus NOK 1.3 million compared to positive NOK 5.8 million last year. The main reason for this -- for the decrease in EBIT was the low revenue and the one-off cost overruns on fixed-price SuccessFactors projects finalized in Q4, as explained earlier.

The condensed profit and loss slide provides a detailed overview of our financial performance, highlighting our key cost components. The increase in license cost is attributed to higher revenue from our payroll and HR solutions, including SuccessFactors. The increase in personnel costs was mainly due to annual pay increase from July, less costs capitalized to customer and development projects of NOK 7.3 million and a small increase of 12 FTEs compared to last year.

Other operating expenses decreased by NOK 9.4 million and was mainly due to less legal costs related to the Argon process last year and less use of external consultants. The EBIT was NOK 40.9 million for the quarter compared to NOK 37.7 million last year. Net financial expenses were NOK 37.1 million, which included the redemption premium on the bond loan of NOK 19.1 million, along with NOK 6 million in associated issue costs for the old bond loan written off. Now these are both one-off items.

Net profit for the period was negative NOK 1.9 million compared to positive NOK 13.4 million last year. Our net operating cash flow was NOK 68 million for the fourth quarter compared to NOK 57.4 million last year. The increase was mainly due to the higher EBIT and less interest paid. The operating cash flow for the full year was NOK 162 million, NOK 31 million higher than last year's figure of NOK 131 million.

During the quarter, we refinanced our EUR 40 million bond loan with a EUR 40 million revolving credit facility with Nordea. EUR 35 million was drawn on the facility at year-end. For the early redemption of the bond loan, we paid a redemption premium of NOK 19 million, but switching to the new facility will reduce annual interest expenses by minimum NOK 16 million to NOK 18 million. The net interest-bearing debt as of 31 December decreased by NOK 28 million during the quarter to NOK 217 million, which converts to a leverage ratio measured by the net interest-bearing debt divided by adjusted EBITDA of 0.8.

And that concludes the financial section, and I hand over to Hans-Petter to present the outlook.

Thank you, Gunnar. Let's now turn to our positive outlook for Zalaris. Over the past 2 years, our average annual growth has been approximately 18% or 14% adjusted for currency effects. This growth has been driven by both expansion and winning customer relationships and new Managed Services contracts. Building on this trajectory, we have set a target to grow Managed Services by 15% annually and Consulting by 5%, delivering NOK 2 billion in revenue by '28 with an EBIT margin of 13% to 15%. Achieving this growth will take share of Managed Services revenue from about 79% to 80% as it's been in -- today to approximately 85% of total revenue.

Our growth strategy remains anchored in multi-country payroll for mid-market and enterprise customers, HR services and our global capability center offering and a full suite of SAP consulting services now operated as a global business unit with a strong foundation in recurring and reoccurring revenue from application maintenance services. To support this strategy, we are sharpening our land and expand approach, deepening relationships with existing accounts while expanding into new geographies.

Our ambition is to establish a presence in all G20 countries with full coverage across Western Europe as the first milestone. With the '25 revenue landing at NOK 1.5 billion and approximately NOK 100 million already secured for '26, combined with net additions beyond contracted churn for '27 and a strong pipeline, we believe this target is well within reach. As previously communicated, we experienced project execution challenges and cost overruns in APAC in Q4 and corrective measures have been implemented, and we are back on track in Q1.

Looking ahead, further margin improvements will be driven by AI and automation, moving us closer to fully automated payroll, continued offshoring to enhance cost efficiency and scale and productivity gains. Delivering on our communicated EBIT target of 13% to 15% implies an EBIT of NOK 260 million to NOK 300 million by '28. However, as I will outline on the next slide, our ambitions extend beyond this range.

Artificial intelligence remains a central topic in our investor dialogue. In '25, we moved from experimentation to structured implementation with AI increasingly embedded in our operating model to improve scalability, enhance quality, support margin expansion and build structural capital. For the period '26 to '28, we are targeting 10% annual productivity improvement, driven by digitization, process standardization and AI deployment across our delivery model. These structural efficiency gains are expected to more than offset incremental costs associated with migrating our SAP infrastructure to SAP cloud. We are -- our target is to deliver profitability within our communicated 13% to 15% target.

Over the following years, continued productivity improvements and operating leverage are expected to support margin expansion beyond this range. We have implemented a program equipping employees to use AI as a daily productivity tool, supported by mandatory training and governance under our CTO. Within Managed Services, 15 key processes are under review for AI-enabled automation with several already digitized or partially automated. AI is also actively used in sales support, software development and project execution. For example, our -- a client-specific solution was developed and delivered in less than 3 weeks using AI-supported methods at a significantly lower cost than what we otherwise would have had. The objective is clear: increase productivity, shorten implementation time lines and scale without proportional headcount growth.

Our payroll and HR outsourcing services are structured and repeatable, making them well suited for automation. AI supercharges our digitization efforts through helping improve data accuracy, reduce manual handling, combined with enhanced process consistency. Through our shared services model, AI investments are leveraged across our multi-customer base, enabling clients to access advanced capabilities without being standalone -- having standalone development costs, increasingly positioned our delivery model as services as a software.

All AI initiatives are governed by defined business cases and strict oversight. We operate fully within GDPR and EU AI Act frameworks with compliance, data governance and security embedded by design. We also benefit from SAP's substantial investment in embedded AI within SuccessFactors and S/4HANA, allowing us to leverage the ecosystem-driven innovation efficiently combined with disciplined capital allocation.

So let me conclude. We closed 2025 with another quarter of solid performance, extending our all-time high revenue streak and delivering a year of profitable growth and strong cash generation. For the full year, revenue reached NOK 1.5 billion, representing 12% growth. Adjusted EBIT for Q4 was NOK 50.6 million, corresponding to an adjusted EBIT margin of 12.8%. For the full year, adjusted EBIT increased to NOK 194 million with a margin of 12.9% compared to NOK 147.5 million in '24.

Managed Services delivered a robust 22% adjusted EBIT margin in Q4, reflecting scale benefits and continued operational discipline. This underscores the strength of our recurring revenue model and the structural improvements we have implemented across our delivery platform. Operating cash flow remains strong, reaching NOK 68 million in Q4 and NOK 162.5 million for the full year. This solid cash generation supports financial flexibility, continued investment in technology and AI and shareholder returns. The Board will propose a dividend of NOK 2.5 per share for 2025, reflecting confidence in our financial position, cash flow capacity and long-term outlook.

And looking ahead, we see continued structural demand for outsourced payroll and HR services. Increasing regulatory complexity, cost pressure and digital transformation initiatives are accelerating the shift towards scalable specialized service providers. Over the next 3 to 5 years, we expect AI-driven efficiency gains to strengthen our operating model and support further margin expansion. For most organizations, developing proprietary AI capabilities remain costly and complex. Our multi-customer operating platform allow us to share development investments and deliver scale compliant solutions out of the box.

While payroll delivery will always require human oversight due to regulatory complexity and compliance requirements, AI materially reduces manual processing, improves quality and enhances scalability. We see significant opportunities in combining AI-enabled automation with deep payroll expertise, strengthening both our competitive position and long-term margin profile. And with solutions and services delivered in Europe, we believe Zalaris is well positioned in geopolitical environment where data sovereignty, compliance and regional delivery capabilities are increasingly important.

So with that, Gunnar, let's go to the Q&A. What questions do we have?

Yes, Hans-Petter we have some good questions, actually, several. First one, do you expect the Polish customer to increase activity heading into 2026?

No, we do not do that. That is for now a permanent reduction, and we are looking to find, of course, sell to new customers to compensate for that.

And then we have several questions relating to AI, not surprisingly. And I combine the first one. So do you see any potential of lower FTE base in Zalaris during -- driven by implementation of AI? And how do you assess Zalaris internal AI capabilities versus your competitors? And do you have any examples?

First of all, over time, clearly, with a 10% productivity improvement target, the number of FTEs in Zalaris as -- or the revenue per employee then will go up and the number of employees, if not going down, will definitely -- our aim is to keep that stable or slightly downward trend, but definitely not increasing linearly with growth because that's what productivity is about.

Where we are in terms of our competition, it is a tough question. We focus mainly on ourselves. Don't look too much what the others are doing. I think we are very, very far advanced. We see very concrete -- we have very concrete tangible projects where we already see results. So I think that's also where our focus is going to be for now. And in terms of internal capabilities, I think starting with the top, it helps being a tech nerd and a computer scientist from background to see the benefits of this technology and see it as a true advantage for a company like ours.

And also going back to when I founded Zalaris, my goal then was to use information technology to drive efficiency out of business processes. And I must admit I've never been as excited as I am now when I see the potential with AI and what our team under our CTO is capable of doing. So I think we are doing really well with a combination of tech talent, but also with a deep understanding of the business processes as well as the ability to roll that out to our organization.

Thanks, Hans-Petter. And another AI-related question. How do you assess the AI threat to Zalaris business e.g. agentic AI could over time replace some of Zalaris' repetitive analytical managed services business? And cloud code decrease the need for consultant hours as it brings massive efficiency to integration projects.

First of all, surely, I understand why you're asking. And well, if there is agentic AI that can replace payroll, first of all, I think we're already fairly highly automated. It's not -- our solution that the customer typically buy from us is a quite complex setup with tens and maybe even hundreds of integrations to our solutions, lots of historical data, lots of users. So it's not just like to replace one part of it with, say, some agentic AI. But to the extent that there is room to use agentic AI, that's exactly why I'm so excited because we are providing that agentic AI and we'll have -- see some of the benefits from that.

So we see agentic AI is definitely one of the -- it's very interesting opportunity for Zalaris, but it's also an interesting opportunity for us from a marketing market perspective because we can set up and deliver agentic AI solutions that we can sell to all our customers instead of all customers investing in that themselves. So for us, we see that both as an opportunity to reduce our own costs, but also to develop new revenue streams to support our customers, reducing the total cost and improve the total quality of the HR processes.

Are there any wait-and-see signs among clients looking to outsource HR and payroll as they look to see how much positive cost impact they can handle themselves with the new AI tools from their current suppliers?

Not that as far as we can see, to be honest, we do not see that. And again, coming back to it, payroll, in particular, is made for computing. I think even computers have almost been designed to do payroll processes. So it's not like payroll has lots of room to say that you need AI in the first place to actually operate an effective payroll process because we already have almost fully automated payroll processes. But what AI helps us with is to both analyze opportunities to improve further, analyzing log data, analyzing user patterns such that we can improve our solutions as well as you also correctly asked in terms of cloud code and other solutions, it definitely helps us implement new customer-facing solutions and even tailor those solutions more to customers' needs.

That can latch on to our rock-solid backbone of transaction processing. And that's an example that I also made -- I briefly talked about, but we had like a pharma customer in Germany that have a process to compensate the trial patients for their -- the fees they incur. And within a period of just 3 weeks, we built an application using AI tools that could latch on to our travel expense processing solution and have a -- where we can combine the solid foundation that we do in terms of payments and security, data privacy, et cetera, with a modern, flexible interface tailored to the customers' needs. So that's where we see AI in the first place for now.

And do you see increased price pressure in process now as you and other suppliers anticipate increased internal efficiency over the coming 2 to 3 years?

No, we do not see that as of yet. I think we should also be aware of also, AI is not coming without -- it's not for free. There are lots of investments for everyone involved in this in terms of time, licensing, et cetera. And I think currently, we as well enjoy a period of where potentially some of these tools are priced more favorably than what it actually costs to provide them. So over time, I think this will be a balance. But for now, we just see AI as a positive tool and development for Zalaris that will help us drive efficiency out of our processes and help customers get higher quality services.

And then we move on to some other subjects. So can you give some color on the potential in public sector in Norway now that you have secured Nav as a customer?

Yes. So I mean, everyone living in Norway now is one of the largest public institutions in Norway and it's also quite a complex customer. So we think that when we deliver Nav successfully, that definitely will be opening up the public sector as such for -- to deliver definitely SaaS-based payroll services. We still are quite -- or somewhat neutral in terms of the opportunity to fully outsource payroll processes for the public, but the public needs modern, efficient SaaS solutions like the ones that we now will be delivering to Nav.

And there are lots of opportunities in both the municipality space with a number of large municipalities also currently out there in RFP processes, and we're part of that as well as other large state or government-based institutions with tens of thousands of employees. And as you probably all know, the state and government is one of the biggest employers in Norway with more than 50% of our GDP coming from that sector. So it's a pretty good opportunity for us that we have not explored at all in the past.

And then we have a question related to our revenue target. So your NOK 2 billion 2028 target looks somewhat aggressive when accounting for your current backlog. What makes you confident on how good is your visibility in the order intake through 2026 and H1 '27 to support this NOK 2 billion target?

Yes. To be frank, if you look at our historic growth, as I mentioned, we've been in 18-ish percent over the last years, 14% in constant currency. We see no reason why we couldn't do that. In the market, I think the numbers that you see now with the backlog is reflecting also some churn in the higher end of our normal trend line.

So with the pipeline of opportunities that we are currently working on as well as we constantly see also bigger deals now landing on our sales teams, we are quite confident that we will close business to reach this NOK 2 billion annualized revenue target for '28. And again, let me remind you, it was NOK 2 billion annualized revenue by the end of '28. That's what the target is. It's not delivering NOK 2 billion for the full '28. So we think that's well within reach and we'll just continue the hard work that we're doing. And there's a huge optimism in our sales force with the potential that we see based on also the increasing -- the improved positioning that we also have in the market where we experience customers look to us as one of the leaders in the space.

And then we have a couple of questions related to our license costs. So is the migration of PeopleHub to RISE increasing the license cost line item? Or is the cost accounted for in other line item? Will the license cost versus revenue fluctuate on a quarterly basis? Or is it somewhat sticky reflecting the equally sticky revenue mix contracts?

That's a lot of questions. I'll try to answer...

I should first start off and say that they are both on the license cost line and under other operating expenses. But the cost increase, you will not see that -- we didn't see that in Q4 because we don't go live on RISE before July this year.

Yes. But I think it's also important to also understand the absolute, say, size of licensing to our revenue stream. And I think you could easily say that the pure payroll license for a normal pay slip that we process is more in the 2% to 3% of the total revenue or say, between 2% and 5% depending on the size of the customer. So it's not a huge cost. So we will be doing well with the increased cost. Yes, it will increase somewhat, but we have through our SAP RISE deal, got also much more capacity such that we probably can double the volumes without increasing linear costs compared to where we will be starting off as well as we have a safe -- we have a solution that will last up until 2040.

So it's -- and in addition, access to more of the developments that SAP does on the AI front. So for us, we think this will be -- this -- overall, even though costs increase slightly, we will be compensating that with the efficiency gains and additional volumes that we'll have on the platform. So we are very confident and happy about the choice that we made.

Thank you, Hans-Petter. I think that concludes the Q&A session this time.

Okay. Thank you all for listening in, and feel free to contact us on [email protected], if you have further questions, and we'll do our utmost to respond to you. So have a great day.

Good morning. I'm Hans-Petter Mellerud, the CEO and Founder of Zalaris. Joining me today for this webcast presentation of Zalaris Q3 '25 results is our CFO, Gunnar Manum. We are using Teams for this purpose, and hope that you will find it informative and engaging. You can use the Q&A function to ask questions, which we will answer at the end of the presentation. Please note that the presentation is being recorded. You can access the recording in the Investors section of our website.

First, we'll look at some of the highlights of the quarter. Q3 '25 marked another record milestone for Zalaris. We delivered all-time high quarterly revenue of NOK 375 million, up 10.3% year-over-year, demonstrating solid organic growth across regions and the continued scalability of our business model. Our adjusted EBIT reached NOK 47 million, a 27% increase from last year, resulting in our strongest Q3 margin to date at 12.6%. This reflects ongoing efficiency improvements and the success of our operational optimization initiatives.

In Germany, we continue to build momentum, signing new long-term contracts and expanding existing agreements to provide HR and payroll services for more than 8,000 employees. This strengthens our footprint in one of Europe's most important HR outsourcing markets. Financially, we secured a EUR 40 million revolving credit facility to refinance our existing bond loan. This move will reduce annual interest expense and enhance our financial flexibility going forward.

Finally, we renewed our strategic partnership with SAP, ensuring that people have continues to evolve on SAP's S/4 HANA cloud platform with platform support guaranteed through 2040. This positions us at the forefront of cloud and AI-driven HR innovation for the years ahead.

In short, Q3 delivered record results, operational strength and long-term strategic alignment that ensures Zalaris remains a leader in cloud-based HR and payroll solutions globally.

As already touched upon, Q3 once again proved our strong financial momentum with continued growth, increased profitability and solid cash flow. Last 12 months, that is LTM revenue grew 37% compared to 2 years ago, reaching NOK 1.47 billion. During the same period, LTM EBIT increased by 146%, now standing at NOK 191 million. And naturally, our next milestone is within sight, reaching NOK 200 million in LTM EBIT. Our adjusted LTM EBIT margin has strengthened by 5.8 percentage points, moving from 7.2% to 13%, reflecting the scalability of our operations and continuous improvement in efficiency. LTM operating cash flow has also seen impressive progress, rising from NOK 27 million in Q3 '23 to NOK 152 million this quarter, a little down from last quarter, primarily because of some timing effects from payments received just after quarter end. At the same time, net interest-bearing debt has come down from NOK 337 million to NOK 245 million, a significant improvement. And finally, our debt-to-EBITDA ratio has strengthened from already acceptable 2.5 to a conservative 0.9, underscoring the company's financial resilience and flexibility. In short, Zalaris, today, is stronger, more profitable and more cash generative than ever, positioning us well for the next phase of growth.

Q3 was not just a strong financial quarter, it was also a quarter of wins that strengthened our growth foundation going forward. We signed a new agreement with Eurowings, which is partially a renewal, but also includes a significant upsell, expanding both the solution scope and geographical coverage. This reinforces our position as a trusted multicountry payroll partner in Europe's aviation sector. We also welcomed a new client, Hip, one of Europe's leading baby food producers where we'll deliver DACH payroll services with the potential for further expansion across additional markets.

Our relationship with long-term clients also remain strong. We secured a 5-year renewal with Storebrand, covering full Nordic payroll and HR services, and another 5-year renewal with [indiscernible] for Nordic payroll and transactional HR. In the U.K., we achieved a significant consulting win with Nottingham City Council, delivering payroll and time solutions, a strong testament to our growing consulting capabilities in the public sector. And finally, we have several ongoing discussions with both existing and new clients, many of which are expected to materialize in the upcoming quarters, further supporting our growth trajectory. In summary, these wins underline the strength of our offering, customer trust and our ability to grow both organically and through deeper client relationships across Europe and beyond.

Our Managed Services division continues to be the cornerstone of Zalaris success, representing 77% of total revenue this quarter. Revenue grew 14% year-over-year, reaching NOK 289 million or 13.7% in reported terms and 12.1% when adjusted for currency effects. This reflects both new customer implementations and expanded service volumes with existing clients. We maintained a strong net revenue retention rate of 103% in constant currency, showing that we are not only retaining our customers, but also expanding with our organizations through upselling and other services.

We maintained the -- growth was broad-based across all regions, highlighting the scalability of our business model. DACH grew 4%, continuing its solid improvement trends. Northern Europe delivered 14% growth, driven by strong managed services performance and operational efficiency. And the U.K. and Ireland region achieved exceptional 63% growth supported by customers that went live in Q2 and expanded project deliveries. Altogether, these results reinforce that Managed Services is performing strongly across geographies, continuing to drive both recurring revenue and long-term profitability for Zalaris.

Turning to Zalaris Consulting. Revenue grew 1% year-over-year or 2.5% adjusted for currency effects. This is lower than our target of 5%. Growth this quarter was driven primarily by increased sales in APAC, where we continue to see strong momentum following the Regis expansion and new client wins. This was partially offset by lower activity levels in DACH and Poland, where we completed several large projects in the previous periods.

A key point to note is that a significant portion of our consulting capacity is currently being used to support managed services, especially in transformation projects and changed our deliveries as we onboard new customers. This is particularly true in Germany, where the teams are heavily engaged in implementation, supporting our strong managed services pipeline. In summary, consulting continues to play a strategic role not just as a revenue generator on its own, but as a critical enabler of managed services growth and customer success.

With this, I hand over to CFO, Gunnar, who will take you through the financial part of the presentation.

Thank you, Hans-Petter. This slide highlights our 10.3% year-on-year revenue increase for the quarter, marking our strongest quarter yet with revenue of NOK 375 million. When measured in constant currency, the increase year-on-year was 9.5%. Revenue Managed Services grew by 14%, while Zalaris Consulting grew by 1%. The increase in Managed Services was mainly driven by revenue from new customers that have gone live since the second quarter last year and third quarter last year and additional services and increased change orders from existing customers in the Nordic region. In Zalaris Consulting, revenue compared to last year was higher in APAC, partly offset by a reduction in Germany and Poland. Net retention in Managed Services was approximately 103% for the quarter.

Looking ahead, we continue to have strong revenue visibility through the rest of 2025 and 2026 with a projected revenue increase of more than 16% compared to the full year 2024. The charts illustrate our anticipated growth based on signed contracts that are yet to go live. The total net annual recurring revenue from these contracts is NOK 72 million. The top graph illustrates the annual run rate for recurring revenue for Managed Services as of Q3 of NOK [ 115 ] million. Additionally, NOK 72 million in net new annual revenue from signed contracts and expansions is expected to have a full effect from the end of Q4 2026. The bottom graph shows the estimated timing of this additional revenue.

In addition to the established recurring revenue for Managed Services, we have change orders totaling approximately 12% of recurring revenue and the revenue from Zalaris Consulting for the last 12 months of NOK 347 million. This resulted in an estimated future annual revenue of a minimum NOK 1.564 billion based on the average currency rates in the third quarter.

Now this slide presents our adjusted EBIT for the third quarter. The adjusted EBIT was NOK 47 million, an increase of 27% year-on-year, with an adjusted EBIT margin of 12.6%, up from 10.9% last year. The increase is a result of higher revenue, especially in the Nordic region, along with certain operational improvements.

Adjusted EBIT for Managed Services was NOK 59.3 million, which was NOK 13.9 million more than last year, mainly due to the increased revenue and some improvements in customer margins. The adjusted EBIT for Zalaris Consulting was minus NOK 1.1 million, NOK 5.9 million lower than last year. The main reason for the decrease in EBIT was higher cost in APAC which we had to invest to support a strong revenue growth in that region. These costs are of a one-off nature.

The condensed profit and loss slide provides a detailed overview of our financial performance, highlighting our key cost components. The increase in license cost is attributed to higher revenue from our payroll and HR solutions and was marginally higher than last year as a percentage of revenue, but in line with last year, year-to-date.

Revenue per FTE in constant currency grew by approximately 11% year-on-year, and personnel costs decreased marginally as a percentage of revenue. The increased personnel costs year-on-year was mainly due to less costs capitalized to customer projects and development projects and higher share-based payment costs. Other operating expenses decreased by 2.8 percentage points as a share of revenue year-on-year, and these costs were marginally lower than last year. The EBIT was NOK 39.6 million for the quarter compared to NOK 31.1 million last year.

Net financial expenses were NOK 9.3 million, which included an annualized currency gain of NOK 2.5 million related to the euro-dominated [ bond line. ] Net financial expenses last year were NOK 21.1 million, which included an unrealized currency loss of NOK 8 million. Net profit for the period was NOK 18.9 million compared to NOK 8.3 million last year.

Our net operating cash flow was NOK 10.9 million for the third quarter compared to NOK 48.4 million last year. The reduction was caused by increased net working capital [indiscernible] from the timing of significant cash inflows and outflows. Notably, the cash balance recorded 2 days after quarter end was NOK 18 million higher than on 30 September. The chart details the movement in our cash position since the previous quarter, reflecting a decrease of NOK 28 million following the settlement of expiring employee share options. The net interest-bearing debt as of 30 September increased by NOK 28 million during the quarter to NOK 245 million, which converts to a leverage ratio, measured by the interest-bearing debt divided by the adjusted EBITDA of 0.9. Net interest-bearing debt rose primarily because cash decreased after settling the employee share options.

Yesterday, we signed an agreement with Nordea for EUR 40 million revolving credit facility to replace our current EUR 40 million senior bank loan. The facility has a margin of 185 basis points on top of the euro interbank rate based on the leverage ratio as of 30th of September, compared to 525 basis points for the bond loan. Switching to the new facility will reduce annual interest expenses by 16 million to 18 million. The closing is expected by mid-November, and bondholders will receive a redemption notice in due course.

Now that leaves the financial section, and I'll hand it over to Hans-Petter for the outlook

Thank you again, Gunnar. During the quarter, we have firmed our long-term strategic partnership with SAP by entering into a new agreement to migrate our people platform to SAP's S/4 HANA Cloud. This marks an important milestone in our technology road map, ensuring that people continues to evolve through 2040, fully aligned with SAP's innovation strategy. The migration will leverage SAP's advancements in AI, cloud and connectivity, positioning Zalaris at the forefront of HR and payroll innovation and ensuring we continue to meet the evolving needs of our customers and markets. This investment strengthens the stability, scalability and future readiness of our core infrastructure, enabling continued global growth and digital transformation.

The agreement secures 3 key benefits: one, continued access to our platform supported by SAP until 2040; closer alignment with SAP's global sales organization; and expanded access to SAP's AI innovations and integration capabilities. Implementation will be carried out in close collaboration with both SAP and Microsoft with our new upgraded release targeted for go live in Q2 '26. While the transition will bring a modest increase in operating costs, this will be more than offset by efficiency gains from accelerated digitization and by revenue growth through stronger collaboration with SAP's global sales teams. In short, this partnership ensures that Zalaris remains a global leader in cloud-based HR and payroll solutions well positioned for the future.

In Q3, we achieved a major milestone, reaching our NOK 1.5 billion annualized revenue target more than a year ahead of plan. Importantly, nearly all of these above-target growth has come from managed services, highlighting the strength of our recurring revenue model and scalability. Over the past 2 years, our average annual growth has been around 18% or 14% when adjusted for currency. This growth has been driven by expansions with existing customers and the addition of new managed services contracts. As we shared in our last quarterly presentation, we have now raised the bar. Our new ambition is to reach NOK 2 billion in [ annualized ] revenue by Q4 '28 with an EBIT margin of between 13% to 15%. Managed Services has grown from 71% to 77% of total revenue over the last 8 quarters. And we expect to reach at least 80% as we deliver on the NOK 2 billion goal, meaning that the share of high-quality recurring revenue continues to rise. Our growth strategy remains clear and focused built on multi-country payroll for mid-market and enterprise customers; evolving HR services and expanding our global capability center offering; and a full suite of consulting services now operated as a global business unit.

We are sharpening our land-and-expand approach, growing within existing clients and entering new geographies, aiming for presence in all G20 countries with full Western European coverage as the next step. With customer churn at historically low levels, our growth trajectory is solid. Further improvements will come from AI and automation, continued [ ex shoring ] for cost efficiency and scale-driven productivity gains. When we achieve our NOK 2 billion target, an EBIT margin of 13% to 15% will translate into NOK 260 million to NOK 300 million in EBIT. And with ongoing automation and digitization, we see clear potential to exceed that margin over time.

So to sum up, Q3 '25 marked another record milestone for Zalaris. We delivered all-time high quarterly revenue of NOK 375 million, up 10% -- 10.3% year-over-year, showing strong organic growth across regions and proving the scalability of our business model. Adjusted EBIT reached NOK 47 million, a 27% increase from last year, resulting in our strongest Q3 margin to date at 12.6%. Our LTM EBIT now stands at NOK 191 million, putting the NOK 200 million target clearly within reach, effectively doubling the ambition we communicated back in '23 to become NOK 100 million EBIT company.

In Germany, momentum continues to build with new long-term contracts and expanded agreements covering over 8,000 employees, strengthening our position in one of Europe's largest HR and payroll markets.

Financially, we secured a EUR 40 million revolving credit facility, replacing our previous bond loan. This move will lower annual interest expenses and enhanced financial flexibility to support continued growth.

We also renewed our long-term partnership with SAP, ensuring that people have evolved on SAP S/4 HANA cloud supported through 2040. This keeps Zalaris at the forefront of cloud and AI-driven HR innovation for the years ahead.

In short, Q3 delivered record results, operational excellence and strategic progress that solidifies the largest position as a cloud leader -- as a global leader in cloud-based HR and payroll solutions. And as we look ahead, our plans are clear: to achieve our '28 ambition of NOK 2 billion in revenue and 13% to 15% EBIT powered by net promoting customers and an engaged team Zalaris driving our success together.

So thank you for listening. And then if you have questions, we are ready to take them now.

Yes. Someone [indiscernible] Should we expect Zalaris to deliver an adjusted EBIT margin in the 2020 target range in 2026, 2027, as well, given that you are already there or are there any short-term obstacles that you ought to overcome that we should be aware of?

I think as we currently see it, we do not see any obstacles as you alluded to. We believe we can continue on the journey that we are currently at, and had put the 13% to 15% squarely in sight.

Next question. Could you provide more color on the higher cost in APAC? Will there be further ramp-up in Q4? Or will growth start to scale these operating expenses again soon?

Yes. I think, as also Gunnar have mentioned during his presentation that some of the costs in APAC has more of a one-off -- is more of a one-off nature. So we do not expect to see that level of negative performance in the next quarters.

Next question. Will you reduce gross debt as much as possible upon refinancing? Or are there any reasons to keep -- to maintain a cash position above 200 million.

And I can answer that, and that is no. We will not keep a cash position of 200 million. And we will reduce the debt as much as possible. So the plan is that we will not draw on the full 40 million on the facility, which again will obviously then reduce debt and the cash balance.

And just to comment on from my end, I think that's one of the benefits of also the RCF versus the bond is that we will also pay interest only for the amount that we draw down at [indiscernible].

Any other...

We have some more questions.

Okay.

Do you still consider future M&A? And in that case, in what country or region? And why would you see that as a superior capital allocation to dividends or buybacks?

We constantly evaluate the M&A when opportunities come and also look at it as a way to expand particularly in the geographic -- to cover more geographies and covering the white space that we have communicated that we are looking at establishing ourselves, particularly then covering Western Europe.

In terms of capital gains, that as capital allocation versus paying the money out. I think clearly, we are still in this business to grow. We think it's a huge upside. And one of the key reasons for also wanting to close European white spaces, we see that we have lost some deals where we haven't had presence in large countries as Benelux and France. And I think if we are present there, our growth will also increase further, and we'll get access to larger deals. So we believe that is in the best interest for shareholders, of course, subject to that the price to pay is accretive to our EBIT.

And another question. Could you elaborate on the current dynamics in Consulting segment? We've seen some slowdown. Is that a leading indicator for managed services or just a temporary dip before consulting reaccelerates once recent contract wins start to ramp up?

I think I have been mix, say, the speed of growth in consulting with the managed services because but rather the reflection that we've seen in the past, if you see slowdowns in consulting because customers are -- take longer time to decide on launching new projects, which I think is somewhat the case. I think everybody sees at the moment that customers all over the world are in generally more cautious on adding new costly projects.

The contrary is somewhat on the managed services side were typically triggers for outsourcing decisions is looking at cost, wanting to save costs and implement more efficient delivery model. So in general, we have seen in the past that also tough markets drive growth in outsourcing decisions.

And one final question. On PeopleHub and the SAP's S/4 HANA Cloud, as mentioned, could you explain why this migration actually -- what this migration actually entails for Zalaris? And should we expect any related costs? And how does this impact customer lifetime value and potential migration risk?

That's a big question. I think first of all, I think the key value that it gives customers as a step 1 is that we are then moving to an infrastructure that SAP warrants is going to be updated and maintained and further developed up over the next 15 years. And normally, as I said, say to everyone, what supplier is able to actually warrant that you will have a solution that you don't need to do any major upgrades on for 15 years ahead. To my knowledge, basically no one. So that gives us a lot of predictability moving forward, which also will allow us to also invest -- continue investing in PeopleHub building services and solutions around than the current infrastructure.

In terms of what customers will see, I think in short term, they won't see much of a difference. But over time, I think it will help us or we hope it will help us roll out AI and automation initiatives faster because it will be easier to access those also from SAP than on our current infrastructure.

In terms of cost, yes, as we mentioned, it will be somewhat higher costs, but we expect to then recover those costs through the further automation and the cost reduction initiatives. And of course, we believe that the overall value of this way overstated what extra costs will be for us.

And I think that concludes the Q&A session.

Okay. Thank you for listening, and have a great day and a fantastic weekend.