ARR returns to sequential growth in Q3
Quarter, July - September
- ARR amounted to MSEK 47.2 (53.4), a sequential increase of 1% and an annual decrease of 12%.
- Net revenue amounted to MSEK 15.9 (16.3), of which software revenue was MSEK 12.2 (13.5).
- Cash flow from operations amounted to MSEK -10.6 (-16.9).
- Adjusted EBIT amounted to MSEK -3.1 (-4.0).
- Operating expenses were MSEK 19.3 (20.4), including development costs of MSEK 6.2 (7.6).
- Net profit amounted to MSEK -3.0 (-3.9).
- Earnings per share amounted to SEK -0.17 (-0.22) before dilution.
Period, January - September
- Net revenue amounted to MSEK 47.8 (55.2), of which software revenues were MSEK 36.4 (43.0).
- Adjusted EBIT1 amounted to MSEK -14.7 (-21.7).
- Operating expenses were MSEK 64.4 (83.2), including non-recurring items of MSEK 0.5 (5.2).
- Net profit amounted to MSEK -15.1 (-27.6).
- Earnings per share amounted to SEK -0.83 (-1.59) before dilution.
Comments from the CEO
Business update
In the third quarter, ARR returned to sequential growth for the first time in more than a year, services continued to grow, and adjusted EBIT improved further. We also strengthened our position in data center cooling and launched new products that increase our customers' simulation capacity.
Annual Recurring Revenue (ARR) increased to MSEK 47.2 at the end of the third quarter, up 1 percent from the second quarter, driven by new software licenses and subscription contract renewals. New software contract wins in Q3 2026 included Munters, a global leader in energy-efficient climate control and air treatment solutions, which will use Modelon's simulation tools and libraries to design and optimize data center solutions. NCBR - Poland's National Centre for Research and Development - selected Modelon Impact for a project on climate-friendly heat generation using heat pumps. In Japan, we signed a contract with a new customer covering simulation software licenses and services for hydrogen fueling. This contract, together with software deals in previous quarters with Panasonic and Korea Hydro & Nuclear Power (KHNP), contributes to year-over-year revenue growth in Japan and Korea. After the end of the quarter, we signed a reseller agreement with Simetrix Digital Technologies, which will help us address the Australian and New Zealand markets, with an initial focus on data centers.
Net revenue amounted to MSEK 15.9 (16.3), a decrease that reflects the ARR decline in previous quarters. Software revenue decreased by 9 percent year-over-year, while services increased by 31 percent. Services growth continues the positive trend from the second quarter, which is the result of allocating service resources to high-value Modelon Impact licensing projects where customers have complex demands and onboarding requirements.
Operating expenses amounted to MSEK 19.3 (20.4), stable at a lower level than last year. Adjusted EBIT improved to MSEK -3.1 (-4.0), the seventh consecutive quarter with a year-over-year improvement. Operating cash flow improved to MSEK -10.6
(-16.9). Modelon's cash flow is seasonal: renewals invoiced late in the year are typically prepaid, which makes cash flow stronger in the first half of the year than in the second.
The power of data center simulations
Resalta, a European energy services company, used Modelon Impact in a project for a gas turbine powered data centers, where waste heat drives an absorption chiller system. Resalta's work, which was published during the third quarter, demonstrates that Modelon's physics-based libraries and simulation platform are well suited to describe and simulate both power generation and cooling systems. The simulations show an 81 percent reduction in cooling-related electricity consumption compared with conventional compressor-based cooling. By replacing spreadsheet models with Modelon Impact, Resalta also cut the time for model preparation and scenario evaluation from about one month to one week. The results are promising, since the methods and tools are scalable to other data center configurations and customers.
New data center cooling technology
Demand for new data center cooling solutions is driven by increasing IT workloads, and liquid cooling has become mainstream for AI data centers equipped with graphics processing units (GPUs). Power densities are approaching a level where new technology is needed, and two-phase cooling, which combines liquid and vapor to dissipate heat, is emerging as the main alternative. In October, we released an update of the Data Center Library, which includes a two-phase direct-to-chip cooling model validated against experimental data, developed together with researchers at the University of Maryland. The library now covers air, liquid, and two-phase cooling, from the chiller plant to the cold plates inside each rack and lets customers test designs and control strategies before any equipment is ordered. This has drawn interest from leading suppliers and operators in the data center industry, and we are optimistic about winning new business in this growing market segment.
Boosting customers' productivity with AI and faster simulation
Our customers increasingly use agentic AI tools in conjunction with Modelon Impact to boost simulation output - accelerating model development, calibration, and analysis. This increases platform capacity requirements, i.e., compute, memory, and storage. To meet these requirements, we launched Productivity Packages for Modelon Impact during the quarter. These robust add-ons provide up to 12x more parallel simulation capacity than our standard license. Modelon's scalable cloud platform supports further capacity enhancements, which we expect will generate additional revenue as AI tools drive customers' increasing demand for simulation capacity.
Outlook
We delivered sequential ARR growth in the third quarter, and we see opportunities for continued positive ARR development. Product enhancements in AI, application libraries, and simulation platform capacity create new revenue streams, and we maintain a long-term target of annual ARR growth above 20 percent.
Operating income has improved consistently since the second half of 2024, and we expect further improvements from a combination of ARR growth and continued cost control. Long term, we target an EBIT margin above 20 percent.
Cash flow will improve with higher EBIT, but with quarterly variations based on the timing of license deals and renewals. We continue to expect positive cash flow from Q1 2028, noting that multi-year deals and additional research grants could further accelerate our path to positive cash flow.
Modelon has abundant opportunities in data center cooling simulation, AI-driven productivity enhancement, enabling new revenue streams and business models. We look forward to explaining how we capture these opportunities at our November 10 Capital Markets presentation. Welcome!
Jan Häglund, CEO Modelon
Lund, October 23, 2026
Investor presentation
Modelon invites investors to a presentation of the Q3 interim report at 10.00 a.m. CET on October 23, 2026. CEO Jan Häglund and CFO Jonas Eborn will present the Q3 earnings in a webcast.
The complete Q3 interim report is attached to this press release and is also made available on the company webpage: http://www.modelon.com/investor-relations/FinancialReports.
For further information, please contact:
Jan Häglund, CEO
jan.haglund@modelon.com
Investor Relations: ir@modelon.com
About Modelon
Modelon provides systems modeling and simulation software that accelerates product innovation, development and operations in a range of industries. Modelon's flagship product, Modelon Impact, is a cloud-native, AI-driven system simulation software platform featuring a collaborative browser-based interface and thousands of proven models and components spanning a broad range of applications. Headquartered in Lund, Sweden, and with global reach, Modelon is an expert industry leader in model-based systems engineering with a focus on leveraging open standard technologies.
Modelon AB is listed on Nasdaq First North Growth Market with ticker symbol MODEL. Redeye Nordic Growth AB is appointed the Company's Certified Adviser.
This information is information that Modelon AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 2026-10-23 08:00 CEST.
