Verve Q3’25 flash comment: Results below expectations though customer base remains intact

Source: Source: Inderes & Modular Finance IR (consensus includes 8 estimates)

Verve's Q3 results fell short of our expectations. Organic growth was below our estimate, suggesting that the platform recovery progressed more slowly than we anticipated. Verve emphasized that its SSP and DSP platforms have been running smoothly since mid-August, and that benefits from the unification position the company well for a strong finish to the year, despite somewhat softer market conditions overall. The impact on the customer base appears to remain limited, and even though the retention rate declined from the record high Q2, it remained in line with its historical average. Due to a change in revenue recognition, management raised its full-year guidance to 560-580 MEUR (was 485-515 MEUR) in revenue, while maintaining its 125-140 MEUR in adjusted EBITDA. Due to the change in its revenue recognition (from net to gross), we don’t read too much into the raised revenue guidance. The company will host its earnings call at 15:00 CET.

Slightly slower platform recovery than expected

Verve delivered -3% y/y revenue growth in Q3’25, reaching 110 MEUR, of which FX-neutral organic growth amounted to -4%, which was below our estimate (120 MEUR, flat organic growth). Following the platform unification, the company has changed its revenue recognition in line with IFRS 15, which essentially means that it will report revenue on the migrated platform on a gross basis rather than net. On this basis, revenue in Q3 amounted to 142 MEUR. However, we focus on the net figure in this report for better comparability with last year.

We feel reported organic growth suggests that the SSP recovery progressed more slowly than we had expected, and management noted that while market conditions are clearly softer than the comparison period, which included several seasonal events (e.g. political campaigns), it remains at stable levels. From mid-August, the company has seen notable benefits from the unification materialize and expects a strong finish to the year.

Key KPIs, including the net dollar expansion rate (NDER) and large software clients (LSC), showed a mixed performance in Q3 after the sharp Q2 drop caused by the platform outage, though we assume the unification still had some spillover effects into Q3. NDER declined sequentially to 90% (Q2’25: 92%, Q3’24: 108%) while LSC increased slightly to 983 (Q2’25: 954, Q1’25: 1,152), where the former indicates that customers spent ~10% less than a year ago and the latter remained below previous highs. While below the record high figure in Q2, customer retention remained high at 96% (Q2’25: 98%), which we consider especially important as it shows continued limited customer impact from the outage and suggests maintained strong customer relationships.

Higher one-off costs, D&A, and weaker gross margin behind lower margins than estimated

Adjusted EBIT came in at 15 MEUR (Q3’24: 25 MEUR), corresponding to a 14% margin (22%), below our estimate of 22 MEUR and 18% margin, while adjusted EBITDA was 26 MEUR, corresponding to a 24% margin (Inderes est. 28 MEUR, 24%). The deviation in adjusted EBIT was largely driven by higher-than-expected one-off and D&A costs, as well as weaker gross margin than expected.

Operating cash flow (OCF) amounted to 5 MEUR (Q3’24: 54 MEUR), where changes in working capital impacted negatively by 30 MEUR. After CAPEX of 11 MEUR, free cash flow was negative of -6 MEUR, which was well below our expectations as H2’25 is typically the strongest cash-generating period for Verve. We will investigate this further during the day. Following the acquisitions of Acardo and Captify, as well as paid contingent consideration related to Jun Group, net debt increased by 53 MEUR q/q, and the leverage ratio amounted to 3.5x (Q2’25: 2.7x). On a pro forma basis, leverage stood at 3.1x (Q2’25: 2.5x). With the integration work progressing, operating conditions gradually normalizing, and the bond refinancing earlier this year, we expect leverage to trend lower over the coming quarters, driven by both earnings growth and improving cash conversion.

Increasing FY2025 revenue guidance due to the change to IFRS 15, while maintaining the profitability range

Verve raised its FY2025 guidance (excluding the impact of M&A) to revenue in the range 560-580 MEUR (was 485-515 MEUR) while maintaining adjusted EBITDA of 125-140 MEUR, implying Q4 figures in the range of 203-223 MEUR (213 MEUR at midpoint) in revenue and 39-54 MEUR (47 MEUR at midpoint) in adjusted EBITDA at the midpoint, excluding the impact from M&A. However, we don’t read too much into the increased revenue guidance since it accounts for the updated revenue recognition in line with IFRS 15. If we assume a similar divergence between gross and net, as shown in Q3, implied Q4 figures would be slightly lower on revenue but in line on adjusted EBITDA relative to our pre Q3-estimates.