The total ARR (S&M and SaaS) was SEK426m (383m), up from SEK405m in the last quarter. While the total q/q growth was strong, note that FX positively affected SEK14m q/q. The total FX-adjusted ACV was SEK6.4, below our forecast of SEK11.0m. Total sales came in below our forecast of SEK133m and amounted to SEK125m (128), corresponding to -2% growth y/y. Recurring revenue, S&M and SaaS grew by 15% y/y, largely matching our expectations. Deliveries in Public came in significantly lower than we expected due to the new deal with Landburgsstyrelsen – which impact we likely underestimated – and temporary peaks in R&D in TAS. EBIT was SEK4.0m (7.1), corresponding to an adjusted EBIT margin of 3.2% (5.5). Our forecast was SEK16.4m and 12.3%. Despite the soft EBIT, free cash flow was relatively strong at SEK15.1m, thanks to a solid contribution from working capital.

In conjunction with the Q1 report, management presented new initiatives to improve growth within the Dynamics ecosystem. So far, Lasernet has mainly targeted larger enterprise customers with substantial needs. While Lasernet has done well within that category, management believes that strategy has left a lot of potential sales on the table – which we find reasonable. Formpipe believes that companies – outside of the current core enterprise market – implementing Dynamics will opt for the free and cheaper tiers rather than using a custom-built or simpler solution – and then upgrade to a higher tier as they see the benefits of Lasernet. We look forward to seeing the impact of the new tiered offering, which, if successful, could occur in late 2024. We believe adding product-led growth elements to the offering makes sense, and the potential market is substantial.

Despite making a rather substantial cut to our 2024 and 2025 EBIT forecasts, we only lower our Base Case slightly to SEK32 (33). We believe the issues in Public Deliveries are temporary. While the lower ACV within Dynamics is somewhat worrying, we believe the repackaged Lasernet has a good chance of accelerating growth in late 2024 and beyond. Although it will take longer than we previously thought, we believe strong growth in recurring revenue fueled by strong ACV and margin expansion will provide solid profit growth over the next few years.