74Software (74SW) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning and welcome to Axway Software H1 2024 Results Presentation. My name is Arthur Carli, and I'm in charge of Investor Relations for Axway. I'm here to remind you a few things. First, you should know that this presentation is live and is being recorded. A replay will be available as soon as possible on our website. Also, you should know that this presentation contains forward-looking estimates that are subject to risks and uncertainties, all described in Axway Universal Registration Document. Finally, because of a technical problem we have today, we won't be able to take your question by phone. But please ask all your questions in the chat and I will relay them to the team on stage. With that, I would like to hand over to our CEO, Patrick Donovan.

Thank you, Arthur, and thank you all for joining us this morning to go through our first half results. I realize that we've accelerated this by a week, but there's a reason we've done so and I'll come back at the end of the presentation to cover that. But for those of you that got up this morning to join us, thanks for coming and sharing a lot of time with us. So, I wanted to start out this presentation by saying that Q3 for Axway is a very exciting time. It truly is the next step in our journey of what we've built over the prior 10 years now. As you know, Axway has been a history of acquisitions, as well as organic growth in some of the products that we've built. So we've been able to get the organization, the structure and the business model that adequately perfects what we've done over the prior years with our acquisitions, and the management team and structure to be able to run that the most efficiently. And you see that in our financials and the improvement we've made over the past several years. And it allows us to have the structure and the discipline to do what's next in our journey, and I'll cover that at the end of the presentation. But we went back at the start of this year and rebuilt our why. Why is Axway in business? And historically, we've really focused heavily more on the MFT side of the business or in the integration and data movement I've talked about over the years. But really, what we've become and what we've built over the past several years is that, we are an independent technology provider that's looking to sustainably grow value based on a trust relationship over the long term for our customers, employees, and shareholders. And we truly believe in that, and that's why you continuously hear Roland and I, the management team, speak about our metrics that are aligned with these priorities in our 3 constituents, in our activities, and the journey we've been on to build the company to what it is today, to allow us to build the future, which we'll get into. And so, as we've said, these ambitions that we're after are for our customers, employees, and shareholders. And we try to keep these 3 constituents all in mind as we're doing things. So we have metrics like employee engagement score and NPS or EPS for the shareholders. We look at all of these constantly and try to do the right thing with our organization, our business, to respect our 3 constituents. And I believe we have done that in what we've done in our org changes, our model, the different experiments we ran and learning from this and keep iterating to get to the point we are today. So, when I look at the first half and how it fits into that, well, Axway is running as planned. We're organized with the general managers and we built a system that, as we go through our financials, we're not having the surprises or the variability like we used to. The results that come in are managed and managed well by the leadership team, the general managers as we refer to them, and they're driving the business forward with the performance we need to be able to invest either in incubation ideas or into M&A. And so, you'll hear that as we go through our first half performance. So we continue to see the subscription growth in revenue, and that's the model that we're pushing into and the customers have been asking us for over the last several years and we've been able to meet that both with Axway Managed, which, for memory, is when we're running the system for customer in the cloud, or Customer Managed, where most likely the customer is taking our technology and putting it in the cloud, but the cloud environment that they manage either controlled or on the public cloud. But overall, our subscription revenue is continuing to grow along with our ARR growth. So these are good indicators to see our continued health in our business. We've been able to maintain in the first half our revenue growth. Clearly, the mix between the Axway Managed accounting and the Customer Managed accounting has a different impact in the top line revenue and it may vary because of this. But we're looking really at our ARR growth, our bookings growth, and the other metrics that show we're continuing to build the business, and we know the revenue will come back to us at the right time, but we have the contracts to manage appropriately. Our profitability continues to remain strong and stable and predictable, as well as our free cash flow ambitions for the year. We had a little blip in the first half, which I'll cover later in the presentation, but our forecast is still strong. And we've continued had -- as you'll see in this first half, we've had continued success with this move to the cloud, where Axway is managing the delivery of the service to the customer. And Roland will hit on that more deeply in his presentation. And finally, our customer satisfaction is continuing to grow, which is a key metric we track, because without strong customer satisfaction, loyalty, and we measure that with the NPS score, but without that and other measurements that we track, continuing to move in the right direction, our model becomes at risk. But we've seen continued improvement and we're happy to see that. So the actions we're taking continue to pay dividends for the company. And so, for first half, we finished with EUR 148 million in revenue, which was up almost 2% organic. That allowed us a profit on operating activities of EUR 17.1 million, which was 11.5%, roughly in line with what we produced in the first half of 2023. And let's remember, 2023's revenue -- the organic growth of 2% may not be strong for the first half of '24, but 2023 revenue was actually up in the first half 11%. So there's a extremely strong growth for first half of last year. We had a tough comparable, but I'm happy to see we maintained and actually, grew it again. And we've been able to control the cost to keep the margin at the good line, in line with last year. And our subscription growth grew 18%, which is good to see, that figure continue to grow year after year, and I'll go into more detail on that when I come back and cover the financials. And our ARR growth, what I mentioned earlier, was just over 7% for the first half, which is nice to see, this constant, steady drumbeat of improvement. So, with that, I've asked Roland to come join me today and go through the business and what we see from the activity in the business. Roland?

Well, thank you. Thank you, Patrick, and good morning, everyone. I'm today thrilled to share an exciting update on the Axway first half business performance, reflecting the tremendous efforts of our teams worldwide. We've witnessed our robust performance, as Patrick said, across the globe, with particularly strong results in Americas, Germany, and the APAC region at the beginning of the year. And our success this first half has been driven by securing significant deals, especially in Managed File Transfer, as numerous customers made the strategic decision to switch from competitors to Axway. And moreover, our existing customers have continued to expand their usage with our solution, particularly in the realm of APIs. We've been -- we've seen a substantial increase of the API transaction and their consumption, underscoring the growing reliance of our API Management Solutions to drive their digital business. This success, for me, is a testament to our team dedication and the value of our solution bring to their customers. And I'm very pleased to see that our customers continue to be satisfied, expanding with our -- their usage with our solution, and that a growing number of customers is also attracted by Axway solutions, resulting in strong performance across all Axway regions. During the first half, we hosted several -- 3 remarkable events, 1 in Denver in Colorado, 1 in Sao Paulo, and 1 in Lyon in France. And these Axway Summits show more than 400 people -- attendees, representing a 30% growth compared to last year. And that set really a very positive tones in an engagement with customers. In addition, I embarked also with a 2 weeks' trip in APAC that I'm just coming back from, meeting with customers in a more localized and personal settings. All these events were a great success. The attendees of this event -- attending this event personally and with the rest of the team, really allowed us to connect with our customers, to present our strategic directions, showcase our new capabilities, but perhaps more importantly, they provide us an opportunity to listen to our customers. And this interaction has been invaluable in understanding the unique needs and their direction to integrate their feedback into our products and roadmaps. These events are highly appreciated by the Axway community, our customers, because they offer a platform for them to share their experience and learn from each other in a collaborative and open environment. And this conversation often trigger new -- open new horizons, trigger new initiatives, new projects with our customers and collaboration. Overall, the first half of the year has been an excellent period for us to connect with our customers and reinforcing our commitment in meeting their needs. And -- doesn't switch. Sorry. One slide back, please. Yeah, as -- yeah, that one. As demonstrated by the importance of our Axway Summits, our success and growth are powered by a strong customer success focus, striving to deliver enduring value. And I'm excited to report an important update on our customer satisfaction metrics. Our NPS score has shown a significant progress, reaching 51 this year compared to 42 points last year, and this improvement highlights our ongoing efforts in dedication to enhancing our customers' experience. We are actually expanding our measurement capabilities to collect more comprehensive feedbacks from our customers at every stage of their journey. And this continuous focus of improving is not just the metrics, it's for me a testament of our commitment to build a stronger, loyal, growing customer base. Achieving this high in NPS, we're definitely high in the top quartile of the industry is a strong indicator of our success and assure us for a solid foundation to build the future growth. In addition to the NPS, the average migration multiplier is another key metrics that we are measuring. For several years now, we have been transitioning our customers from a license maintenance model to a subscription model, and the subscription model represents today more than about 60% of our revenue. This shift requires us to deliver even more value to our customers and those moving to the new subscription offers benefit from increased flexibility in deployment, but also access to new features and modern architecture, leveraging the cloud infrastructure. So, while the absolute number of the migration has decreased compared to last year, the migration multiplier has increased, and this increase for me is a -- it still shows a -- is a strong indicator of the value that our customers perceive in the new offerings. So these 2 metrics, the NPS and -- the improved NPS and the migration multiplier really demonstrate our commitment to enhancing the customer experience and they assure us with a solid foundation, as I said, for the future growth with a strong and long-term partnership with our customers. And while retaining customers and growing with a customer base is crucial, I think that a healthy influx of new customers also ensure a sustainable growth for the long-term success. And the trend of new customers booking with Axway has shown a significant growth, increased from 16% last year to 28% this first half. And I'm very happy to see this, because new customers -- the new customers booking is not just reflecting the value of Axway technologies and solutions, but it also really indicates the positive impact of the company on the customer experience. Another remarkable trend we have observed in the first half is related to Axway Managed Cloud, and Patrick mentioned it a couple of times. First, the Axway Cloud booking has surged by an impressive 38% over the year. This growth is a clear indicator that our private cloud solutions are resonating with the market and fulfilling critical needs of our customers. And to put that into perspective, Axway Cloud represented 42% of our total booking in the first half. It's a substantial increase compared to 25% last year. And even more, the -- when we looked at just the new customers booking, 60% of our new customers booking now comes from Axway Cloud, when it was only 48% last year. So the new customers are increasingly looking for quick onboarding, rapid technology deployment, and these needs for speed is a significant driver for them to select Axway Managed Cloud solution, allowing them to leverage our technology faster and more efficiently. This trend in accelerating -- is accelerating slightly faster than what we were anticipating. We were at 25% -- roughly 22%, 25% last year. I was thinking that we will be -- planning that we will be in the low-30s, and actually, 42% is a bit above that. The widespread of this adoption of Axway Cloud doesn't look like a fleeting trend. It is a movement that is coming, that is gaining momentum across the board, across the region, across the product line, and across the different verticals, where we are seeing now major financial institution, which traditionally have been very cautious about the cloud, are now joining the cloud movement. They are not just adopting our cloud solution, but they are accelerating their journey to the cloud, driven by the need for agility, scalability, and enhanced security. So, looking at our pipeline analysis, it indicates that this trend, we can expect to see the continuous result and same trend over the next quarters. From a financial perspective, while the shift to the cloud service means a reduction in the upfront that we are getting within the quarter, it is a positive indicator for the long-term deferred revenue and this transition align us with the broader industry trends and position us with -- for sustained growth and stability. In summary, the growth of Axway Cloud booking is a testament to our strategic vision and execution and it reflects our ability to actually meet the evolving customer need, drive innovation, and adapt to the market demands. I'm thrilled to also share some exciting news about Axway leadership recognition in the industry, which underscore our commitment in delivering exceptional solution and brilliant customer experience. And the first one, I'm really proud to announce that Axway API solution has been recently named a leader in the prestigious Forrester Wave report. And this recognition is a testament of the strengths and innovation of our API Management platform. Forrester evaluating -- evaluation highlights our capabilities, strategic vision, and ability to meet the evolving needs of our customers. And Axway even earned the highest scores possible in several evaluation criteria, such as the federated gateway management and the API product management. Being named as Axway -- Axway being named a leader by Forrester really validates our efforts in providing a robust, scalable, and secure API solution that empowers the business to accelerate their digital transformation journey. I would like also to mention that we've been recognized as a leader in G2 review, a platform which is an unbiased and customer-driven evaluation. Our customers have highlighted Axway effectiveness of value and reflecting our focus on the customer satisfaction program. For me, being named as a leader by Forrester, receiving honors at G2 really demonstrate that Axway is not providing just great technology, but also build a trusted partnership commitment to our customers and success. And if I looked at our -- the strengths and the key drivers of our key product lines that continue to generate the good results. If I looked at MFT, the customers are prioritizing secure and reliable file transfer. And, for example, like several others during the first half, MassMutual in United States have moved from competitors to our private, secure MFT cloud solution, underscoring our capabilities to meet stringent security and reliability requirements. The push for modernization and the e-invoicing mandate across Europe are significant drivers for our B2B solution, and we are having success with these 2 drivers migrating customers to the new platform and leveraging the Axway Managed services. However, we do also recognize that the impact of the new delay in the e-invoicing regulation is affecting our short-term expectation on B2B. On API, the growth of APIs, as I mentioned, the volumes and the consumption is a major success factor. For instance, and you may have seen on the web, Commerzbank recently renewed -- they recently renewed their commitment with API for a multiple-year contract. They announced having surpassed 1 billion secure API calls per month, and this really showcases the robust performance and reliability of our API solution. And finally, with our Financial Accounting Hub, our strategic partnership with KPMG continues to accelerate the pipeline growth of our solution, particularly with the CFO offices that are modernizing their financial system. So in conclusion there, the strengths and drivers of our 4 key product lines demonstrate our ability to meet diverse customer needs and to drive significant business outcome. As we continue to innovate and enhance our offering, we remain dedicated to helping the customers to achieve their digital transformation goals, managing their critical data with confidence. And a good result of the first half, together with the strength of our product, validated by the industry recognition, really underscore our market leadership. The increased security concern for critical data management and the growing numbers of digital transaction continues to drive demand for our solution, especially in the MFT, Managed File Transfer, and the API Management. Our robust pipeline, paired with a long -- a very large and loyal expanding customer base set a solid foundation for the sustained growth. And while predicting the level of the Axway Managed part and its impact on the upfront revenue in the second half remain challenging, as always, the relentless focus and discipline exhibited by the Axway team ensure that we are well positioned to capitalize on these opportunities and provide a solid foundation for the future success. With that, I thank you for your attention. Look for -- I'm looking forward to an exciting second half of the year, and I hand it over back to you, Patrick.

Thanks, Roland. I'll go through the first half financials in more detail now. But before I do, I want to just echo something that Roland said. As we've been moving through this journey of building the subscription business model, the predictability and the forecasting between Axway Managed and Customer Managed is more of an art than exact science. And so, what we're looking at is metrics like quota achievement and how we built the budget versus how the actual -- the quota achievement was fine for first half. It was in line with our expectations to hit our revenue forecast, and the growth of 2% wasn't outside the range of the revenue we forecasted for the year. So, what we're building is a nice system, nice structure that we're getting more and more predictable about how the results will come in. Even with this constantly changing mix between Axway Managed and Customer Managed, it does have some varying effect on the revenue. But hitting the quotas, hitting the ARR growth, and controlling the revenue are the objectives. They're all hit for the first half of 2024, and both of us have just worked with our GMs to review for the rest of the year and we have the pipeline and the confidence that the rest of the year is there to do our guidance as well. So, quite pleased with the team's work and the team's effort for the first half, and I really got a chance to see that effort when we were at the customer summits. Roland mentioned we held 3 in-person customer summits and then he did a roadshow in APAC. And the feedback we've been receiving from the customers on the -- their satisfaction with the GM model, the focus back in our products and the roadmaps to serve their needs, and the alignment between our product teams and the customers' needs is as strong as ever. We heard that echoing and coming back to us at our customer summits. I'm really pleased with what I've been seeing in the first half of 2024. Let me go quickly through the financials, which you've seen in the press release as well, that our revenue for the first half was up 1.9% organic, or a total growth of 2.2%. Our cost of sales was relatively stable, allowing us a very stable gross profit of 70.5% for the first half of 2024 versus 2023 exactly at 70.5%. Overall, the operating expenses increased slightly, about EUR 2.9 million, which was primarily in the R&D area as we've acquired, if you remember, AdValvas and Cycom. We're getting the full year -- or full half year effect of both of those acquisitions in the R&D. And we've had some adjustment in our tax credits, which in certain countries also lower our R&D expense. And with the different evaluation of those tax credits, our R&D has drifted up a bit, but it's still well under control. Our G&A has gone up in the first half a bit through the activity internally, we're actually replacing all our systems that support the business, both in the financial and the HR, and IT is engaged with that in the journey. But we've had to increase some spending in the first half to cover the investment we're making in the Workday platform, enrolling it system-wide, and the teams have been quite diligently at work to make that a reality over the year. Consequently, we ended up with a margin of EUR 17.1 million, or 11.5% of our revenues, which is quite in line with what we saw for the first half of 2023 at 12.2%. Our operating expenses don't include our amortization of intangibles or noncash expenses, or the additional onetime expenses coming from the Sopra Banking acquisition. So, overall, our net profit finished at EUR 2.8 million, which was EUR 0.13 per share, not so far off and quite in line with what we saw in the first half of 2023 at EUR 3.7 million, or EUR 0.17 per share. So, going a bit more into the revenues. License revenues are almost -- they're almost nonexistent at this point, really. We have a few remaining customers that still buy in the license model and the revenue we get for license revenue reflects that. And we see some large contracts with the U.S. government and a few left in France. But overall, the move to subscription has really happened and we're almost complete with the historic license model. So, it dropped 12%. But this level of license now is almost all exclusively moved up into subscription. And with the migration of customers from license and maintenance, so as a reminder, when a customer has bought a license in the past and they're currently under a maintenance contract, if they have needs that require additional capacity or new features and functionalities or another product to the portfolio, we'll be proposing now more than ever a subscription model and to move them into this subscription business model that gives them, as Roland was covering, new functionality, new capacities, and starts going more and more towards a usage-based thinking. So we will continue to see maintenance revenue go down at strong levels year-over-year, it dropped 22% but that was right in line with what we budgeted. And the movement towards a subscription model, which grew 18% in the first half. This growth was a little lower than we expected, but that's because we got a little higher-than-expected Axway Managed revenue in the first half. So, that revenue will come into our model in the future periods, but still grew double-digit and quite strong and the largest item on our P&L -- our largest revenue item on our P&L. So we continue to have 86% or around that, thereabouts of our revenue is under recurring contracts, and it will stay as such, because the service contracts won't be included in the recurring business. Service revenue decreased almost 6% organically in the first half. We had certain contracts delayed in their starting, which pushed it to the second half and may not be able to be fully recovered for the year, but we're doing our best to try to accelerate the delivery in the second half to come back close to what we are expecting for the year. So, overall, we finish, as I said, with almost EUR 149 million in total revenue for the year. Going a bit further into the subscription revenue, you see here the breakout between the Axway Managed revenue, which increased again this period at -- almost 15% organic, with the impacts of prior period contracts now being delivered and the customer utilizing that service, as well as our Customer Managed contracts and Customer Managed revenue increasing in the first half of 19%, which includes roughly EUR 39 million of upfront revenue and it was EUR 34 million in the first half of 2023 for upfront revenue. So, you see there the way we look at the business, either Customer Managed or Axway Managed subscriptions, but they both are recurring contracts that come back for renewal. And so, it's our job as a company to delight the customer, which was one of our key priorities, continue the customer delight in our products and our services. So, in these renewable contracts, they keep coming back and renewing and buying more capacity, buying other services or products from us, and continuing in the long journey of a relationship with Axway, because that's a key principle for our business model now. All of this resulted in 18% organic revenue in our subscription basis. I'll say a quick word on our balance sheet. We finished the first half at EUR 16.9 million of cash and cash equivalents, with a net debt of EUR 70.8 million. Our DSOs moved up to 169 days, which drifted up in the first half. Unfortunately, when you remove the unbilled and the way the Customer Managed contracts are accounted for, we had our DSOs with trade business that have been billed drift up 10 days -- 10 DSO days from 47 in the first half of 2023 to 57 for first half of 2024. This drift, unfortunately, was due to the system changes I was talking about earlier and the disruption of, not only these system changes, but the heavy work we've needed from the finance team primarily in helping with the acquisition project. But we're sure that this drift is just a short-term item and we'll recover in the second half of 2024. The system implementations will be -- are being completed now, so we're getting back into having a workable system that allows our collections team to be more efficient and to do their job at the good levels and get us back on track with our DSOs for the second half of 2022. So, from a cash collection standpoint, we're not seeing any customers at risk, and we look to deliver on the free cash flow that we've been forecasting for a full year. We'll just have to recover it in the back half of the year. Our current deferred revenues remain quite [ stable ] at EUR 60 million. Our total assets are up to EUR 591 million, which includes increasing ARR component -- or AR component. And our overall equity finished at EUR 356 million. And as a reminder, we held back from paying a dividend, so we didn't have the dividend impact in the first half of the year that we'd normally be paying out the dividend, and we're using it in our capital allocation strategy to help us fund the acquisition strategy. So, going -- a quick word on our cash flows for the first half. Our cash overall was up EUR 2 million compared to the first half of 2023. Our EBITDA in the bank covenant ratios was relatively stable, much like our result from operating activities when you compare first half of '23 to first half of '24. So we finished with an EBITDA of EUR 18 million for first half of '24 versus EUR 20 million roughly for first half of 2023. And this had an impact as well as -- with our net working capital decreasing by about EUR 2 million, which is linked to the point I made on the DSOs before. So, overall, we saw a decrease in free cash flow in the first half of 2024 when you compare that to the same period in 2023. But as I said, that was with the drift of the DSOs on the trade receivables due to the system implementation. So we'll come back on that in the second half of 2024. Our bank covenants were all in line with the expectations to have the availability of the RCF, if we choose to need it in the second half. This chart's one we've showed since we've started this transition, the belly of the fish as we call it a bit. But the movement into the subscription business model, where you're billing annually, has to create a waterfall effect to where it comes back to us over a period. So we saw 2023 roughly at a low point that we stayed at for a few years as we transitioned our business model. So we were at, if I remember, about 6% of our revenues and free cash flow for the full year 2023. We were looking to almost double that in 2024, and our guidance still has us in that range and we look forward to bringing down a bit our DSOs to get there in the second half of the year. So, our forecast still remains for our free cash flow for the full year. So let's look a bit at the second half of 2024 and look beyond. So, hopefully, you're seeing, and through our talk -- both Roland and my talk, what we've built here in Axway, we've built the foundations for a portfolio of companies. When we talk about the business, Roland mentioned the 4 core product lines: MFT, B2B, API Management, and our Financial Accounting Hub. This portfolio of products makes up the software house, if you will, of Axway. This is how we strategically are running the business, to focus on our core products, the value they bring to the customers every day, how we could serve the customers better. We've put a team organized with a general manager on top of this structure for each of the product lines. And they have their specific missions that they deliver on and to lead their market in the case like MFT, or be a strong niche player like our B2B solution, or our AFAH solution is, or provide a very strong use case as supportable, repeatable like our APM solution. So, this portfolio makes up Axway who we are today. And with this portfolio, for 2024, our guidance for the full year was to achieve revenue between 1% and 3% and a profit on operating activities to around 20%. If you remember, in 2023, we had a very strong year and an acceleration of our margin. And we finished the year almost touching -- coming quite close to touching that 20%. I would like to have 2024 at the 20% and that our -- that's our new baseline, that's our new floor value as we go forward. So you look at our midterm ambition, it's keeping that profitability in the Axway scope -- Axway portfolio at 20% or better year after year. Hopefully, we can improve on that as we continue to perfect them all because let's be quite honest about what we've built. We've done a lot of transformation and change over the past 5 years. We've put in a completely different organization model to run Axway. We've focused on our products in our regions with leaders. We've changed to a subscription business model. So, all this disruption was happening fast. It had a lot of bumps along the way. But now that we're bringing stability back into the business, we have the good organization model. We're going to look to improve every day on this model and how the different organization serves us, being the best we can for the Axway scope. And that will allow us to continue to build on the 20% profit and see where we could take it over the coming years. We want our free cash flow from the prior chart we showed to start normalizing, and it should normalize right below the profit on operating activities and stay there. And we will be creating a profit or a very predictable engine in our free cash flows that gives us the funding to invest where we need to invest. And it shows that we're running the portfolio that we have in the Axway parameter the correct way. But we also had a midterm ambition of EUR 500 million of revenue. And as I've repeated too many times over the years, that was the guidance we set during our IPO. When I was CFO and we launched the IPO, we targeted EUR 500 million through the activity. Now, as I mentioned in February, we're happy to announce that we've been able to get the strength of Axway to the right level to allow us to stretch and get to that EUR 500 million goal. And so, back in February, we announced the intention to acquire Sopra Banking Software. And that project has been moving along quite well along its journey over the past months. We've had a lot of hurdles to get to, because it's not easy for 2 companies of equal size to come together, especially when one of them is carved out, not only out of a bigger organization up top, but we actually carved out the business within the business. So we have been carving out Sopra Banking Software from Sopra Steria, but then we've carved out about 2/3 of that business that will move over to Axway. And the rationale there was really focused on what is software versus what is more of a service project. The service projects are remaining with Sopra Steria, which are experts in delivering a service business model. We're a software business and we're experts in running a software company. So, we wanted to make sure that the Sopra Banking assets that come over really will be able to run alongside the portfolio of Axway in a very software editor type thinking, format, and process, so we could deliver the value and the satisfaction to the customers, not only of the Axway portfolio, but now of the Sopra Banking Software portfolio. So, as I said, the project's well on track. The teams, both in Axway and Sopra Banking, have done an amazing job. The Sopra Banking team, especially the finance and legal teams, have had to go through and make decisions on entity-by-entity, customer-by-customer, which is part of the journey, and which is staying with Sopra Steria and do all the carve-out financials, carve-out accounting to allow us to complete this transaction. That just takes time. It takes a journey, and they've done tremendous hard work for a long period to get there. And on the Axway side, the team, not only has been putting in place a new financial system, which was planned years ago before this acquisition announced, but they've had to work diligently to allow us to come speak to you today, advancing a week, as well as support the business in this acquisition journey. But the beauty of the model we've created in Axway is the performance zone that Roland is running, delivering value to our customers in the regions, in the products around our 4 core products, has not been disrupted at all by the acquisition process. It's all been handled by the legal, finance, myself personally, teams, to allow us to focus on the business of Axway, which the business of Axway and the health of Axway has allowed us to do this. And we can't take our eye off the ball and let anything drop because that health of Axway allows us to do these type of acquisitions and continue to grow the business. So we're looking forward to having the SBS team join us in this journey. And so, when you look at how they'll come in, they're going to come in to our house we've created in Axway. We have the different portfolios of our product, which we mentioned the 4 core products in Axway's portfolio. So, for banking, we'll have banking applications and a banking platform or their financing platform with various GMs and products under each. And we'll work together to really perfect this GM model, really perfect the software house and the software editor activity to continue to deliver our objectives, which are very much aligned with the objectives of SBS from everything I've seen. So we're really looking forward to this next evolution. I had mentioned at the beginning of this presentation how exciting this period is because we're building a brand-new story and that starts in Q3 and we get a kick off this journey. So it's just a fantastic time to be here at Axway and to start working with our SBS team. So the timeline that you've seen, we've had to announce our first half accounts a week early. So we've had to accelerate quite a few things, which has been a little bumpy, as you've seen in the technicalities of this process here today and coming to you this morning. But we've done this to clear all the information out of the system so we could go the next step in the journey. On July 10, you saw the announcement that we've cleared all the regulatory conditions that we were able to move forward. And now, we're in the process of completing on the Axway side, the prospectus, which we'll be filing today or over the next few days with the AMF, and we'll be working with them to answer any questions they may have and get those incorporated back into documentation. And once we receive the AMF's visa, stating that we have completed all the documentation and it looks good from their side, that we could go into the market and start raising the rights offering, we will -- that will allow us to help the completion, so Axway can finance the acquisition. We've already got in place the EUR 200 million of debt capacity. We've worked quite diligently to put in place some -- the good debt component, which is EUR 200 million. The rights offering will allow us to complete the other side of the transaction for EUR 130 million, and we look forward to being able to launch this rights issue before the end of July. And with the timetable shown for the end of July rights offering, if we could get into market by that time, we will be able to complete the rights offering and the acquisition, all within Q3 2024. So that will be a very important milestone that we'll be able to complete and launch the next phase of our evolution in Axway. We're very excited to have the Sopra Banking team join us and help us along the journey. And combined, we will be able to do better things than we are alone, and we'll be able to tackle the next step in our journey. So, I'm very excited about where this allows us to go and very excited about looking forward to the future and what we can accomplish with more than doubling our size and welcoming the SBS team. Unfortunately, today, for Q&A session, we have 2 things. One, we will be doing the Q&A only through chat. The operator -- we had technical issues with the operator. So any questions need to go through the chat line, and Arthur will read them. And second, I can't answer at this point any questions on the acquisition, our forecast with the acquisitions, or anything about that. Those will be in the prospectus. And once that's public, we will get out on the roadshow and speak to many of you at that time and go through great detail about how SBS, Sopra Banking Software, coming into Axway will transform what we look at as our future ambitions. But for today, we need to stick only on the Axway perimeter. So, Arthur, if we have any questions on the chat line with the Axway perimeter, please pass those through.

Yes, Patrick. Actually, we have quite a few questions. So the 2 first questions are from Derric Marcon at Bernstein. Have you changed the way you calculate your Net Promoter Score compared to last year? That's the first question. And the second one, to what extent your growth rate in France in Q2 has been impacted by the French election and slowdown in decision-making? What assumption did you take for H2 in France?

Roland, why don't you answer both of those actually.

Yes. So the first one on the Net Promoter Score. Yes, we did. As I mentioned in the -- tried to mention, but quickly in reporting the figures, we continue and we have added new surveys into the mix. So we had to restate what was the -- we did that last year. We didn't communicate the figures with the different things, but we established the comparable last year. And that's why when I mentioned 51 compared to 42, 42 is with the new scope of the surveys on NPS. Basically, we added new surveys at different level of the customer's journey. We had surveys coming from the support interaction, which is an important communication with our customers, and we do have lots of interaction during the lifecycle, which are with a technical practitioner. So, we had that big one that changed the scope and changed the baseline and the result. We added other specific surveys. So, that's why 42 wasn't the one that we reported. But 51 compared to 42 is the trend that we've seen.

And if I remember right, at the end of 2023, we reported 37 as our NPS which was an improvement from the prior period. But that 37 was on the consistent basis. When you restate the 37 inclusive of the support surveys which we felt was critical to get the lifecycle feedback from our customers, that score would have been 42 or 43, if I remember right.

Yes, 42.

Yes. So from -- going forward, we will stay on a consistent basis when we report. So you'll see us put the current score, plus what the adjusted would have been if we capture surveys. We want to capture them for a year to make sure we had the historic comparable before we started reporting on the new method.

So that's the first one. The second one is regarding France, the result and the economical situation or political situation within France. The first, when we looked at the result of France this year and the result and the growth, or the negative growth, we needed to look back of what it was last year. Globally, in first half, we had a very strong growth last year, globally in Axway, 11%, but more than 20% in France. When we looked at the business and the transaction type that we've made last year in France with -- 2 last year, actually, in France, we were extremely successful in converting large customers from maintenance to subscription that during this period generated a spike of the upfront. Today, we have less of these big customers in France. We have less migration, as we call, that actually decreased this upfront. So the ARR is better. But we are -- on revenue, we have this downturn. For the political situation in France, we are -- it is impacting. I don't know exactly, it's difficult to measure exactly how much it will be, but we are not that much public sector-related in France. So there is contract and there is deals and opportunities in our pipeline with public organization. It is much more on renewal and long-term customers that I expect the implication to be controlled, I will say. Now, what will be the second half in France is still very unclear.

Looking through our pipeline and the deals we need to close to make our year, if I remember right, we only had really 1 big public sector deal, and that one's a current customer with current installation, just adding on in their controlled perimeter. So it shouldn't be subject to the disruption in the French politics. It should be well managed. So we haven't really taken any caution in France for our business for the second half of the year.

Next questions are from Jeremie Couix at HC Capital. Are you satisfied with subscription renewal levels? Can you share the level of churn you currently observe? That's the first question. And the second one, are you satisfied with Axway Managed gross margin for both historic and new contract? What is the current gross margin level?

If I remember right, our churn rate was about 9% in the first half, which isn't out of line with what we've experienced over our history, with our stability in our products. They're normally long-term installation. So, our churn remains consistent. And it's normally what I call corporate churn, where a customer's sold and the buyer has a different system or they're merging some entities. But we had about 9% churn, and the gross margin was overall 70.5% and quite stable. With the mix going to Axway Managed, we'll see if that comes under pressure, but retaining at that level. But right now, as we're adding more and more Axway Managed contracts and business, the team doing the Axway Managed services is becoming more and more efficient in their processes. So, we're having an offsetting balance. We're able to keep the margin. So that's a good sign, and I hope it continues that we're able -- as we add more Axway Managed business, the gross margin percentage doesn't erode. So right now, it looks fine.

Next questions are from Erik Karlsson at CapeView. Which of your 4 business units enjoy best commercial momentum at the moment? And in which unit do you think we can expect a more stable performance?

All 4 are quite stable. The instability, like I mentioned and alluded to, the MFT, we could say we're a market leader there. We may not have the top revenue. That would be IBM, but IBM has quite large business. But from a product quality and roadmap, we're second, I believe, in revenue and we continue to be the one investing, delivering, and being with the customers for the long-term and have a long-term focus there. The other 3 are really niche business -- niche businesses or niche use cases. And so, with that, you're going to have -- 1 big deal could make a year or 1 big deal not being present could be a bad year. But over the long-term, they are quite stable. We've seen uptick, though, because all of our products currently in the portfolio, not our new innovations, but currently in portfolio are solving problems that have all been there 10-plus years. So they're mature, strong products that have a nice stable growth pattern. But we've seen an uptick in the products that handle security in the past year. So, our MFT business line and our API Management business line have had some nice new customer bookings coming to us, looking for Axway to continue to be with them as they go on their journey in selling our products and to solve their needs. But do you have any other comments?

The MFT has seen -- there's 1 trend that we've seen with the highest level of security concern due to some of the breaches that has been communicated, that we've seen customers moving and selecting the Axway private offering, which give us a good result. I've seen a report -- a recent report from Gartner saying, really, that Axway is the only leaders with double-digit growth, double-digit part of our importance on MFT, and double-digit investment, really positioning us as the leader, even if in terms of revenue. Worldwide, we are not the leader because of the size of IBM. So, really strong on that one. The growth of the volume, as I said, on API, with 2 factors, the growth of the volume and securitization of the APIs, really, generating lots of good momentum with our customer base and the enterprise marketplace that is for these customers that are now very stable and have the -- perfecting the APIs model in term of security and in term of architecture, really moving to the monetization and business plan is providing growth. The other lines will be as -- will be stable growth. And as we said, it's not looking at the growth at the quarter for the product lines, especially based on the size and the type of our customers. But overall, the trend is good and will give us the possibility to achieve this -- the guidance of the full scope.

Another one from Erik Karlsson at CapeView Capital. Can you discuss how pricing is developing in your various business lines? Is it positive? Roughly, how much are prices increases this year?

Do you want to take that?

Well, we -- I'll say, we are not playing a price game on renewal like some other companies we've seen in the market. We are not playing with that. We have a increase much more related to the cost increase in the region. When we are -- the pricing change is really when we are changing the type of offering, providing new capabilities, new services, and new offering models. So there's no -- it's CPI, it's contractually-based increase, but there's no game on renewal repricing that we've seen.

We have been changing, though, our pricing a bit more towards consumption-based pricing. Historically, 20 years ago or so, our pricing was a lot based on your server that you were running. Now it's gone more to the consumption model, which is the market-based pricing. So a lot of the products have been evolving that way. But as Roland said, CPI increases and the like are working its way through our contracts. We're not jacking up and holding hostage or customers like some of the funds will do, because we're looking at this at a long-term play with our customers. Most of our customers, 10, 20 years is not abnormal. So...

The pricing on the subscription to go back on the volume base. That's why I mentioned the volumes increase and the customers growing. What we want is the partnership with our customers and actually, our pricing, depending of their usage or the business that they are generating on the solution. So the more they grow the more we grow. But it's the win -- it's based on the conception, the marketplace, same thing. Customers start low sometimes because it's a business -- it's the start of the business for them, and they increase with the success of their business outcome.

Next question is from Guillaume Buhours at Gay-Lussac Gestion. How long will be the delay in recognizing revenue from Axway Managed contract versus Customer Managed contract in H2? What is the timing of acceleration in revenue recognition?

Customer Managed, as Cecile has gone through in the past, the model with the Customer Managed, the IFRS rules have us take the contract value and about 50% of it's considered like a upfront license, if you will. And so, it gets recognized when the contract is signed and the other 50% gets spread over the term of the contract. For Axway Managed, we'll get a value for the contract term, and that get starts getting recognized monthly when we get the customer environment set up. And so, if we sign a contract in June, in July or August, we'll stand that customer up, get their security elements cleared, and we'll start taking revenue then. But the bookings in Q2 don't materialize and start generating revenue until Q3. And that revenue is not boom, 50%. It is 1 month's revenue. So it takes a while to accumulate and build that waterfall of growth. But actually, if we could manage this movement to the cloud calmly and meet the customer demands, but do it at the right time, we should still be able to maintain growth in our top line revenue. But then as we get more and more Axway Managed revenue contracts, it will become more and more stable and predictable, because we'll have this waterfall of monthly revenues.

A few last ones from Derric Marcon at Bernstein. What are the main reasons for customers for adopting more Axway Managed than they used to do before? And does the mix of Axway Managed contract versus Customer Managed contract influence the DSO or deferred revenue evolution?

I'll take the first part on what are the reason and the business drivers from the customers. We -- globally in the market, we have reached a level of cloud to be secured and our solution today is not -- lots of questions, and all question was security and public cloud. And the third point is, sovereignty of the data. So, our solutions really are extremely secured, okay? They are private cloud. So that's their environment. And the resiliency of the data, we manage to have that in a different region for the customers. So the constraint -- the early constraint and fear from the customers are lower. And on the other side, they are looking for speed, agility, and potential growth -- controllable growth of the volumes. So the fact that they need the speed and the security, reliability of the solution in the private model is balanced. Now, they want to get faster on the -- on an environment and be able to actually scale based on the revenue, getting to the subscription and actually size what they consume, depending on the size of their cost, based on they're -- what they're consuming. So that's basically the trend there, which is, really, with the fact that the security level is there and the fact that it is an Axway private SaaS that we are delivering to them. We saw that and we see this move now with any type of customers, and especially the big one that are then making the trend accelerating because when large financial institutions are actually publicly communicating that they are moving to the cloud, that's accelerating lots of other customers that take the lead and the validation for these customers and market setters to adopt that one. And Patrick, for the DSO part?

On the DSO, the Customer Managed increases the DSO. So, when you're taking 50% of that Customer Managed upfront through the IFRS rules and you're only billing annually the contract, it takes a few -- a year or 2, sometimes 3, to catch up to the upfront piece. So that increases the DSO, and you hear that talked about as unbilled in our discussions. The Axway Managed does not increase the DSO if we collect the invoice we send out in the proper time. Any other questions, Arthur?

Yes, 2 last ones, from Derric again, actually. So, do you believe the average revenue multiplier you saw in H1 is sustainable? Can you explain what are the main levers behind it? And the second one, can you comment the size of the pipeline coverage for H2 revenue target and evolution of the pipeline in the recent weeks, given the tough economic environment?

Sure. I'll take the first one and let Roland take the second one, just so we could split it up a bit. The multiplier, we've -- since we started the migration to subscription back in 2018, we've enjoyed a nice multiplier when we convert to subscription. And so, we've been hovering around 2, which, from what I could tell in the industry, is a really good level. And so, we put in place internal rules to protect from a salesman just doing a financial exchange, converting a maintenance to subscription, whereby Axway would lose out on it. We'd be giving away more for the same price, but paying the commission. So we put in place some internal rules and discipline around our sales policies and hurdle rates to keep under control that when we do a migration to subscription, we're adding some value to the contract for the customer. And that's what has allowed us to enjoy that roughly 2x multiplier. We expect to see that continue, based on our internal policies and rules and the value we add in the movement. But as Roland did mention, the opportunity for the migration from maintenance to subscription is getting lower as our maintenance base gets lower. So it will slow down a bit in overall bookings, but the multiplier should remain. On the pipeline, Roland?

On the pipeline, we -- the trend of the pipeline and the pipeline for H2 that we just reviewed, we were this week, early this week, reviewing with the general management of the product line and the region, is covering with the ratio that we are looking for and that we've been before. We are [ another ] 3x roughly pipeline. The trend continue to be good. We have some good campaign in the different regions that are generating the pipeline early and we are building that beginning of the year. So, despite the very good success of last year, we had a drop of the pipeline at the beginning of the year. We are back on a level of pipeline that is the right coverage -- theoretical coverage to actually deliver on the year. So -- and this roughly -- there's no specific in a region or product line, the different -- we do have a balanced campaign for the different region and product lines. So I expect the different product line and region to be successful based on their plan.

Arthur, I'd say we have time for 1 more question, if we have anymore? Otherwise, I think we're 10 minutes over our allotted time.

Yes. I would take one last -- as we are already behind schedule. But it's an important one coming from Guillaume Buhours at Gay-Lussac Gestion. The margin guidance looks a bit challenging at this stage. How confident are you to deliver on it? Could you please give us a bit more color on that point?

Yes, I'm a little surprised why you say it looks challenging, as we are about the same margin level as we were in the first half of 2023, when we delivered roughly the same margin for all of '23. So we're quite confident that as long as we don't have extreme disruption to where, for example, say, we hit our full quota, but it's all with Axway Managed for the second half of the year. If we had that happen, yes, hitting the margin would be quite challenging. But from our pipeline review and the quarterly business review Roland and I are just coming from, we have the nice mix of Customer Managed and Axway Managed in our bookings that we anticipate to be able to do the quota for the second half and also the forecast to allow us to also hit the margin. And the costs are under control on the Axway side. So, for the Axway perimeter, we are still forecasting and see the path to the guidance, both top and -- line and margin. So, right now, we're confident in our full year forecast. So, with that, I'll go ahead and end it up here as we're overtime, and thank everybody for joining us this morning. And if you, by chance, called in from North America, get to bed. Otherwise, we'll look forward to seeing a lot of you on our roadshow with the rights offering once we finish the last part of our journey. Thank you all for joining, and we look forward to coming back to you with exciting news for Q3.

Thank you.