74Software (74SW) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to 74Software H1 Results Presentation. My name is Arthur Carli, and I'm in charge of Investor Relations for the group. I'm here to remind you that this presentation is live and is being recorded. A replay will be available on our Investor Relations website as soon as possible after the meeting. On top of that, I would like to remind you that this presentation contains forward-looking estimates that are subject to risks and uncertainties, all of that are described in our universal registration document. With that, I would like to hand over to our executive team and our CEO, Patrick Donovan.

Thank you, Arthur, and thank you, everyone, for joining us here today. Joining here with me today is Eric Bierry, the Deputy Chief Executive Officer; and Tobias Unger, our CFO. To go through some opening remarks, I'll start with covering a few points on just globally overall, the building up of 74Software. And then Eric will join and cover some key developments in both Axway and SBS. Tobias will go through the financials in detail for the first half of 2025, and I'll come back and do some closing remarks and a Q&A session. With regards to the Q&A session, as we go through the presentation, there is a chat available on the website, and you can enter your questions there, and we'll cover those or you could do it if you're on the call line and the operator will feed the questions through to us. So with that, let's dive in. So as a reminder, 74Software is not that old of a brand. The 74Software public company has only been under that moniker since December of 2024. And it came about 10 months ago now when Axway and SBS came together in September of 2024. And since then, I can't say enough good things about our employee base keeping the focus and dedication of delivering value and successful outcomes every day to our customers. And their focus and dedication has allowed us to have the good financials of the formats combined for 2024, and we'll share with you the first 6 months of 2025 here today. But we're happy to say effectively, all metrics are moving in the right direction, and we're really pleased with the results we get to share here today. So for those of you new to the story, 74Software was built out of the combination of Axway and SBS in September 2024. And in December, we took the opportunity to rename the listed company and the investor brand to 74Software with a goal of really leveraging the portfolio across the 2 recognized brands of Axway and SBS to continue delivering value to the customers with the leading products within the portfolio and continue to build out a strong long-term successful software company. And with the 74Software combining the 2 companies together, we look to leverage this combined strength to deliver a better service internally with our G&A functions such as legal, HR, finance, et cetera, at a lower cost base, so we could spread the cost base over a broader set of products. And with that, drive financial strength into the business. That has allowed us to have an enhanced equity story, which you have seen in the market. We've had expanded stock coverage over the past 6 months, and we're getting a renewed interest from the investor market. This also allows us to look at synergistic opportunities across the portfolio of ways we could help serve the customers better by making the product set potentially deeper within a customer base. And we look to also leverage the larger size to get a better market visibility overall while trying to have a stronger and elevated employer brand. And we want to do this while remaining very faithful to the roots and our culture. So we've been saying over the years, if you've been listening to me at the Axway level and at now the 74Software level that we have 3 constituencies that we are looking to serve equally well, our employees, our customers and our shareholders. We really want to make our group the place to be for our employees. We want them to be engaged and with us on this journey. For our customers, our customer relationships across the portfolio is with enterprise customers that want to be with us for the long term. So a customer over 10, 20 years or more is not uncommon with the value we bring with our portfolio. And we look to continue delivering these brilliant customer experiences with this group, 74Software. And for our shareholders, we want to continue to look for ways to build a predictable and profitable long-term project that's self-sustaining that could look out over the next 20 years and continue delivering value back to our shareholders that go along with us on this journey. So for the first half of 2025, I'm happy to say that we achieved a revenue of EUR 344 million, which was up 6.5% organically. And that was seen across both SBS and Axway brands. We had an improvement in margin as we expected, achieving 12% of revenue in the first half. We had strong commercial momentum, exceptionally strong commercial momentum across both brands in the first half that may skew a bit the timing of the revenue between the first and second half, but we have been really pleased to see this disciplined execution carry out through the go-to-market teams. And finally, and Tobias will cover this more in his section, but we also increased our ARR nicely across both brands, strengthening our recurring revenue model. So with that, I want to turn it over to Eric Bierry to go a little deeper on some key developments in both the brands. Eric?

Thank you, Patrick. So as you told, I think we did have a very robust first half with a good market traction across all the portfolio from 74Software. If we are looking deeper into Axway, we did sign 58 new clients. So compared to last year, it's definitely better compared to the 49. And what is really important within this new client, large part is linked to MFT. And when we are looking at the MFT market, it means that we gain market share because it's not an unlimited market, and it has given the proof that we are very strong within that business line. Second thing, we see that over the H1 bookings, 35% of the total booking is linked to managed deployment. So that's what we call own managed. And if we are looking at the B2BI product line, we see that it's even more than 60%. So it means that the market is shifting where on this robust technology, the clients are expecting not to maintain too much or increase their capabilities internally, but they do rely on us on our ability to operate their core business, which is really important. I'm going to come back later on the second slide on Amplify Fusion and Amplify Engage. And if we are looking at SBS, the first thing which is very important is today on H1, 75% of the total revenue is now product revenue. So it's up by 8% on a year-on-year basis. And as per plan, the service revenue did decline by 19% on H1. So this will not be the case at the same level in H2. But it's really what we were expecting to deliver. So meaning that maintaining growth across SBS, the ability to stay very focused on the product revenue is now becoming a reality. Second, we did, inside SBS, manage to give the proof that we are able to cross-sell the new product, the digital native SaaS product called Modular within our client base, and the proof is coming especially from the regulatory capabilities, and I'm going to come back also within that in a second. The last thing we should be saying, of course, if we do compare with the 58 new clients on the banking application, we know that the number of new logo is taking a lot more time, but we can say that we do have 6 new logo and across all the different geographies because it's one in the U.S., two in Europe, three in Africa, where inside this, one is linked to regulatory reporting, four are linked to core banking and one is linked to financing. But let's move to the incubation part, and you know that it's really important in our way to drive and keep control on our ability to launch, invest and without jeopardizing that investment across the whole markets and across our -- all people on the field. So the first one is regulatory reporting. As I said just before, we have been able to cross-sell more than 230 contracts, what we call SaaS service for reporting. And already in H1, 109 are live for 57 banks. So we are now giving the proof and especially for the French market, the CRELAP reporting has been delivered and our clients, and in this case, it's 30 clients have been able to deliver that reporting without any issues end of June. The second is the digital engagement platform. We did know that for H1, it was very critical to go live with the first early adopter. It's in France, and it was really important to be in that situation, which is now down since June, and we have 4 others expected to be live in the next semester. Looking at digital core, of course, renovating and reengaging with the new core banking full digital native is taking time. So we took the decision to bring step-by-step proof to the market that we are able to deliver part of it, and we took the decision to start with the instant payments. So 22 banks today are live with instant payments, so which is one of the very important first step to move forward. And we can say maybe you have seen this morning the last press release, but our first big client who would be live in '27 within the full digital core is National Savings and Investments, so NS&I. In the U.K., we are talking about more than 23 million accounts. And this is definitely for us one very critical milestone coming in the next 2 years, of course. But we'll be able to show the proof that our new core banking, new generation is going to deliver the value the market is expecting. And fourth, talking about Amplify Fusion and Amplify Engage. So I'm going to start with Engage. Today, we have more than 100 active clients. And maybe for you following this, it was formerly called Marketplace. And meaning that Engage is going to progressively leave the incubation zone. We are ready to deliver that to all the sales force of the company and to move into what we call the performance zone and now to move at scale. The second is Amplify Fusion. And if you remember, it's the combination with the iPaaS and the API capability. That investment is also very critical for our ability to deliver the value in combining API on one side and the no-code capability for integration. And this one, today, we can say that we have already 30 early adopters. We're going to keep a very strong and disciplined control within that investment for this year to be ready to move at scale starting next year. So Patrick, that's what we can say about the development in H1.

Thank you, Eric. And let me turn it now over to Tobias to go deeper into the financials. Tobias?

Thank you very much. Yes, very happy to be here as well to explain you how the half year was looking on the financial side. As Patrick already mentioned, we had a very strong H1 with revenue growth and more importantly, ARR growth in double digits. The nice thing about the margin at the same time was that it was up significantly compared to H1 2024. Axway is at 16.6%, SBS at 7.9%, which, of course, for the first half of the year is good. And let me remind you that the second half of the year is the half of the year that is stronger on the profitability side. And therefore, that is a really good development for the H1. On the cash flow, unlevered free cash flow, our metric that we're guiding on, we had 22.2% in the first half of the year. Now I just have to warn everybody not to expect the same number in the second half of the year. It's exactly the opposite as then on the profitability side, cash flow is strong in the first half of the year and not so strong in the second half of the year. The strong cash flow has really allowed us to delever ahead of schedule. We were targeting to be below 2x leverage ratio by the end of the year, and we have achieved that already at end of June. We will not expect that the leverage is coming down a lot further in the second half of the year, given what I just said on the cash flow. But the fact that we are below 2x will allow us to save a little bit of interest for the second half of the year. And earnings per share at EUR 0.20 on a fully diluted number. On this slide, I'm not going to spend a lot of time. Just wanted to point out the net profit, a turnaround from the pro forma figures in H1 2024 from minus EUR 15.6 million to plus EUR 5.8 million. Of course, the pro forma figure, the H1 in '24 was impacted by a lot of different things, including the carve-out of the business in -- the SBS business inside Sopra Steria. But nevertheless, it is a significant improvement. And it's also an improvement on the Axway stand-alone figures for the H1 2024. We mentioned already the organic growth that was strong at 6.5% for the half year. Axway contributed to that with 8.9% organic growth and SBS was 5% organic growth. Just to remind you, our business is more or less split 50-50 between Axway and SBS. Axway is contributing 47% in the first half and SBS 53%. And therefore, the growth rates are -- obviously, the blended growth rate is driven by both companies at a very strong performance. On the Axway side, it has to be noted that the growth was partially driven by customer-managed deals that were signed earlier in the year than we originally anticipated. And also compared to last year, we signed more of those deals in the first year -- first half of the year. And therefore, that number is very high. In terms of our strategic priority, you know that we want to become a pure-play software player for the whole group, and we want to go towards subscriptions and recurring revenues. And the trend is going in exactly the right direction with, first of all, our service revenue contribution to the total revenue dropping from 23% to 19% or vice versa saying the product revenue grew from 77% contribution to 81% contribution. The recurring revenue as well increased from 71% to 75%, up 4 percentage points. Within the product revenue, subscriptions grew both customer managed as well as own managed subscriptions, whilst maintenance and support continues to go down in line with the strategy to transform some of these maintenance contracts into subscription contracts and licenses were about flat at 6% contribution to the overall group. So more and more predictable and less and less impacted by the license -- the traditional license model. In terms of the split in Axway as well as in SBS, you can see on Axway, the transformation going from maintenance fees to customer managed subscriptions. And on the SBS side, you can see the transformation going from service revenues towards own managed subscriptions. So those 2 metrics or contributions I wanted to point out as they underpin our strategic direction for the revenue also in the future. Looking at the product line split. And here, I have to say on the Axway side, it is impacted by the customer-managed subscriptions, and it depends a little bit which business line has what kind of mix of customer managed versus Axway managed. So the shift -- the split shifted a little bit, but we don't see anything extraordinary. Looking at the ARR growth by product line would show a much more balanced movement because that's not impacted by the upfront recognition. On the SBS side, the one thing to point out is that the modular products are becoming more important as a part of the portfolio in line with what Eric was talking about on the SaaS deployments. Okay. So moving to the ARR. We had in both businesses, a strong double-digit growth in ARR. What you can see on the slide is also the absolute amount of ARR at each end of the quarter in the last -- sorry, 7 quarters. The absolute amount of ARR is, of course, impacted by FX, and that's why you can see some of the charts or the bars looking a bit more flat towards Q2 now, especially on the Axway side, which is impacted by the dollar quite a bit. But as you know, we're focusing always on the organic growth. And there, you can see that the organic growth, the underlying growth of the ARR is really strong. I wanted to point out that both businesses, Axway as well as SBS since the end of '23 have added roughly EUR 30 million each of ARR to the balance. So that's ARR up about EUR 60 million between both businesses, and we believe that creates a lot of value for shareholders going forward. A few words on the margins. You have seen gross profit margin go up on the 74Software level and profit and operating activities go up on that level as well. The contribution to those metrics comes on the gross margin, it's a very strong improvement on the Axway side that is driven by the large amount of customer managed subscription where the upfront revenue that is booked in the half year obviously comes at a very high profitability, and that's why the product gross profit margin has improved quite a bit on that side. On the SBS side, product -- the gross profit margin has improved very slightly, and that's mainly helped by the shift from product -- from services revenue towards product revenues. On the costs, on the operating costs, we had good developments in the first half on both businesses. So we are seeing the uplift, obviously, in the profit and operating activities level. And we are going into the second half of the year with confidence that we will there also achieve the levels that -- or the improvements versus last year on those lines. A few words on the cash flow statement and the cash flow. As I guess, I need to explain a little bit the 22.2% unlevered free cash flow in the first half of H1 of 2025. So the operating cash flow was very strong at EUR 90 million. We had a very positive change in net working capital. As we explained, I think, 6 months ago, we have strong cash collections in the first half of the year, and that's what's showing here in the net working capital change. However, what we also did as of end of June 2025 for the first time is introduce a factoring program. And I think we were talking about this before that we're looking at ways to optimize our cash flow or cash collections. So we have executed a factoring program where we sold EUR 12.5 million of receivables to a factoring bank. That flows through net working capital and shows -- is included in these numbers. The reason why we did that is because our interest expenses are driven by the leverage ratio. And by moving from above 2x leverage to below 2x leverage, we could actually get into a cheaper bracket on the debt interest. And that's really the reason why we did this. So we can save a significant amount of interest costs in the second half of the year and on a full year basis. The other thing to highlight here, we capitalized R&D of about EUR 9.2 million in the SBS business. That is a very low level of only about 10% of the overall R&D spend that we are capitalizing on an annualized basis. We -- I talked already about the debt repayment. We were able to repay EUR 42 million of debt due to the strong cash flow and cash collections in the first half. And that, again, has helped us to reduce to the level where we are at the moment. Just to illustrate the points in the chart that's on this slide. So the EUR 42 million of debt repayment plus the EUR 16 million of positive change in cash balance allowed us to reduce our net debt figure by EUR 58 million, coming down to -- from 2.87x leverage to 1.83x. And that's what I wanted to say. Thank you.

Thank you, Tobias. I'll now give some closing remarks and cover our guidance as well for the full year and a little bit beyond. So at 74Software, this is now a software house, and we're creating a software house mindset. A key part of this are the brands underneath of Axway and SBS or if we welcome a future brand as well. Within those brands, our products in the product portfolio, let's say, approximately 10 within the portfolio now. The key is each one of those products in the portfolio should be a market-leading product or have a very strong niche position within a market or within a use case. We want our teams driving the products to drive a very customer-centric approach to get closer and closer to the customer, their needs, the road map they need for us because this model grows through the existing customers. As Eric said earlier, the -- adding a core banking system, you add a few a year. They're big wins or longer-term projects, but you have to keep your current customers satisfied and referenceable to get the next customer. It goes across the whole portfolio. And we track the NPS to track how we're doing in that method. We want to always constantly be looking at our portfolio for ways to help the products in the portfolio grow and achieve the best they can within their respective markets given the maturity curve of the software and the software life cycle. We have another unique opportunity where you have the infrastructure side of Axway could sell through some of the application side on SBS. So we have done that in the past through an OEM relationship. But now that we're together, we're continuing to look for ways to facilitate that to happen. And we also want to have that portfolio discipline that we talked about over the past several years to make sure each product and portfolio has a purpose that's well defined and that it fits in nicely to the overall company story. As I mentioned to start this, we're very happy to see the focused R&D efforts and sales and marketing efforts, and we're going to continue to try to bring focus in those areas to deliver the products that customers need and to make sure the prospects and the market hears about it and gives us every opportunity to compete and win our fair share of the deals. And overall, we need an engaged team. We measure the employee engagement score, which we've talked about in prior presentations. And we want to build a very efficient organization, especially with the G&A departments, what we call chapters to help facilitate a better service internally to our different brands and also externally to our customers. And we do all of this with a strong discipline across running continuously a software company and take a very software-centric approach growing through the product revenue and doing the level of services that are necessary to make our customer satisfaction high to get the products adopted, but then to partner with others to do non-value-added services for us to really focus on a standardized offer and product to deliver the market -- to the market. This is a slide we've shared several times since we started talking about the companies coming together and our forecast for the future. And we're going to be sticking strongly to this. So for 2025, we've given guidance of EUR 700 million of revenue, which is about 2% to 4% organic growth run rate for the year. We're really focused on that 2% to 4% organic growth. The EUR 700 million, if you mathematically look at the revenue we did for the full year 2024, we'd be above EUR 700 million, but we did anticipate some hit in the Foreign currency exchange rate, as Tobias said, especially in the U.S. market, and we'll see where we end up for the year. But the 2% to 4% organic growth is where we're targeting, and we're expecting to land within that range. On the profit on operating activities, we're confirming that we should be within the 14% to 16% range for the full year. Really happy with the improved performance in the first half of 2025, especially when compared to the pro forma 2024, and we should continue to see this improvement as we end the second half of the year. There's a slight change in our forecast for the unlevered free cash flow. With a strong first half, we're changing our guidance from approximately 10% to saying we should be above 10% for the first half or for the full year. And as Tobias mentioned, we wanted to be at below 2x leverage ratio for 2025 and delever the business for the full year. We were really pleased to see the performance of the teams in getting us there in the first 6 months of 2025. So that is a great achievement. Now for the rest of the year, it's to keep that achievement, stay below 2x as we enter 2026. As we look out to 2027, we expect to be greater than EUR 750 million and at a 17% profitability level. And you start seeing the unlevered free cash flow start coming up closer to our profit level, and it should be somewhere a few points below our profit level after 2027 on going into the future. We're targeting a 20% profitability from 2028. And if we could pull it forward a year sooner, we will take every opportunity to do so. And with the ambition to get to EUR 1 billion by 2030, which would obviously require us to be back in the M&A market. So with the capital that this portfolio and this company can generate, obviously, we focus on deleveraging the debt we took on to do the deal and getting our leverage ratio below 2, which looks in very good shape for 2025. And as we go into 2026, both companies have been created over their histories with an opportunistic approach on M&A that creates value for the business. And we will continue to do so, and we'll look to start that in 2026. And for the capital generated by a business, that would be the first priority to be looking for the M&A, but if those opportunities aren't there or if they're of smaller scale, we'll look to return to dividends or also use the tool to buy back shares in the market to add value to our shareholders. So with that, we'll start taking questions. I have received some questions on the chat line, which we'll go through now, and we'll come back and cover the ones on the phone in a minute.

So maybe with the first question, let me turn it over to you, Eric. As SBS is now fully outside of Sopra Steria and not tightly linked, how do you see the partner ecosystem accelerating? And are you able to work now with a broader partner set? Maybe even say a few words on how it fits into the product strategy. And are you seeing early traction from global integrators or regional players?

So it took I should say, a few months before moving and attracting the partner ecosystem, but we can say that today, there are 2 global players investing close to us, and we have closed with one of them an opportunity already in the U.K. brought by them. And I think it's a significant change and opportunity for us. For sure, the ability for us to engage with that partner ecosystem is a lot more linked to our new product because it was designed to be able to drive with partners. Our legacy product, I would say, were not designed to work within the partner ecosystem. So we are still not able to deploy that strategy across the whole portfolio of SBS. But definitely, it has started. And I think our image within the integrator ecosystem has really changed in a few months, and it's a good opportunity for us.

Okay. The next question, and maybe ask Tobias to answer this one. Given the strong first half, how does the full year guidance look? And why does it look prudent given we've grown 6.5% organically in the first year? Are you expecting a somewhat lower second half than first half?

So yes, as you saw, we left our guidance unchanged, and we've grown 6.5% in the first half of the year. So yes, we are expecting a much lower second half of the year. As I mentioned, we do have the customer-managed deals that were signed early and therefore, drove significant upfront revenue in the first half. We also had a similar effect on licenses where we signed, especially in the SBS business, where we still sell licenses, a level of licenses in the first half that we haven't seen in the past. And in the second half, we're actually expecting to sign less than previously. So there is a shift in both businesses from the seasonality. And therefore, we left our guidance unchanged as we still expect to be in that range.

And as we look at the pipeline, that mix between license or upfront customer managed was all heavily weighted more in the first semester. So second semester will be more own managed, which is good for the long term and helps build that run rate of own managed revenue as we go into 2026. So that should be a nice impact for 2026, and we'll see it in the ARR as well. [Operator Instructions]. But the next question we have is regarding to M&A. So with the leverage ratio now below 2x and the strong free cash flow generation, is M&A back on the agenda for fiscal year '26? And are you targeting bolt-on acquisitions adjacent to Axway or SBS? Or are you actively considering a third platform? I'll go ahead and take that one and first say that getting to 2x leverage ratio in the first half of 2026, a lot of good work was done there to collect the invoices that are sent out on maintenance and subscriptions and really push into the seasonality of the free cash flow that both businesses have as well as the factoring program. But that was really in an effort to manage our interest costs and the drag of the interest costs and the profitability. When we look, we're still targeting that 2x for the full year, and we don't want to get ahead of ourselves. We have started being in the flow of traffic, we call it in the U.S. and seeing the deals now come across our desk and taking the calls and evaluating M&A. It's much like the sales cycle within both businesses. When you see something interesting, there's a long lead time for that to develop and turn into something that we want to react on and move forward. And we're being rather picky right now on both sides of the business to make sure it's the right type of M&A that would add value. So even if we wanted to do something in 2026, we have to start looking now, which we have done given the deleveraging we've hit at this point. So for 2026, we could see a bolt-on. Those smaller acquisitions, we can move quite a bit quicker. A larger acquisition and adding a third line, I'm not sure we strategically would want to do in 2026, it could be far too disruptive to the teams as we're still in the journey of building out the chapters and building out the way we work together because for both companies, this was quite a big challenge to bring 2 companies of equal size together and to get operationally all the discipline and structure that's needed, especially since SBS was carved out of Sopra and a lot of that structure and G&A was performed by Sopra has to be built and created with all the systems and activity within the group, so we could build and add new products, new platforms going forward. So it's a long way to say that 2026, if there's an opportunity, we'll definitely be looking at it, a bolt-on could go quicker. I'm not sure I would be in favor of adding a third leg to the stool in 2026 or even really 2027, but we could do a material roll-up strategy of one of our core competencies in either line. And I've gone through all the chat questions I see here in front of me now. Operator, could you open up the line and ask any questions you may have on the line.

[Operator Instructions]. We will take our first question from Edward James, Cantor Fitzgerald.

Congrats on the really good results. I've got 3 questions. And if I could just take them one by one, if that's okay. So first one being, it's clear that 74Software is really trading very well, and we also saw Temenos report earlier this week with very strong results. So I guess, can I read into that, that the underlying core banking software market is in a really robust place and maybe even picking up a little bit?

Eric would -- the question, if I understood, is the underlying core banking market picking up quite strongly and maybe implying that we should be growing faster, I think, is what he's really after here?

Yes, maybe. There is a fact where banks, they cannot stop their modernization. So they can stop to -- let's say, they can try to save cost on services consulting. But on their core business, they need to continue to invest and to bring more, I would say, digital engagement within their core banking. And doing that, they have to invest both on the digital engagement part, but also on the core. So we do see a good traction. We do not see the market accelerating, but they are not reducing their investment. So we think that from a long-term perspective, definitely, that market is going to continue to move at that speed. The majority of our product is now giving the opportunity to accelerate within that digital engagement. But we know that the life cycle of this kind of modernization are between 2 to 4 years. So that's where we are. But the underlying trend is not bad.

And second question, just on margins, and there's already been a couple of questions on the H1-H2 split, so I'll leave that. But the other one I wanted to dig into was just on the SBS synergies. The Q1 update was strong in that regard. And by the looks of things, kind of the realization of synergies continues to be really good. So if you could just give us some color on that, particularly as I can see the R&D and marketing cost line items for SBS have come down in absolute terms year-over-year. So yes, just any color on that and if you're maybe tracking a little bit ahead?

Tobias, do you want to cover that one?

Sure. So when you talk about synergies, you were focusing on the cost. I think Eric was talking earlier a little bit about revenue synergies. As we said before, revenue synergies is not a major thing, but they do help and there is nice traction there as well. But to focus more specifically on the cost side, we do have -- or we have achieved some early synergies already in Q1, as we said, and even in Q4 last year, sort of the -- really the low-hanging fruits on the corporate side, let's say. So those would have come through in the numbers now. In terms of the sales and marketing and R&D, I remind you, we're not integrating those between the 2 businesses. So it's really efficiencies that we are getting there from becoming more efficient in the way we do R&D in tailoring down a little bit the R&D investments as we had the incubations on products becoming available or some of them becoming available and so on. So that's really the underlying trend on the R&D side. On the sales and marketing side, I would say it's a bit seasonal as well. So there, we don't expect a huge amount of change in the ratio for the full year.

And then just one final one for me. The minor change to the free cash flow guidance is clearly a positive one. If you could just unpack a little bit the -- what's given you the increased confidence there? Has it got much to do with kind of the acceleration that you've seen on the product side of the business, particularly with some of the recurring revenues there and how that's flowing through the P&L? And I guess you spoke about how ARR should continue to build in the second half of the year. Does that give you increased confidence of the free cash flow outlook as you move into 2026 as well?

I want to say one quick thing before Tobias gives the answer. When we built the 10% unlevered free cash flow as a percentage of revenue when we gave our guidance in the rights offering roadshow. The treasury structure and treasury systems of both companies was not at a place where we had consistently reliable forecast. And we have put those in place in the first 6 months, and we've hired a treasury team and taken full control of the treasury. And they've done a fantastic job including things like the factoring program. These were things we weren't even really considering using those level of tools in the past within Axway, we weren't in need of that service at that level. But now with the size of the group, we've really built a rock-solid treasury team, and we see the benefits coming through. And the cash recovery team has done an amazing job on both companies really cleaning up the receivables, and we expect that to continue for the rest of the year, but you could layer on to the top of that.

Yes. Maybe just to complement that with 2 additional points I would make. One is signing a deal earlier in the year on a customer managed subscription that used to be a maintenance deal, you usually sell -- do have an upsell multiple on that deal, right? So if you sign it earlier in the year, then obviously, you also collect more cash earlier in the year. So that's one thing. The other thing is the effect of the factoring program, as I explained, it's really an acceleration of cash flow. So we moved some of the August and -- or July, August cash flow into H1. And if we're assuming we're going to do the same at the end of the year, we'll move some of the '26 cash flow into '25. And therefore, the increase of the guidance comes as well from that effect, of course, because that flows through the net working capital, as I said. Maybe just to state what I wanted to say is on the -- let's say, just excluding the factoring, I think, yes, we are going to be around the 10%. And if you layer that on top, then we're going to be above.

And maybe a question that flows out of that. We were below 2x for the first half and getting below that level saves us on an annual basis about EUR 1 million in interest expense. So we have a question, thanks to lower debt, you'll reduce your debt costs and also the lower leverage ratio. What do you expect for second half versus the first on interest expense?

A little bit lower than in the first half, but that's obvious. But look, I mean, we also have the interest rates going in our favor a little bit. So we do not expect to have what was it EUR 9 million in the second half of the year, but a little bit less.

Okay. And maybe another question for you, Tobias, we're bringing on spot quite a bit. The operating costs were flat year-over-year in absolute terms despite a reduction in number of average employees. So could we expect some additional cost savings in the second half of the year?

I think I would say our trend is downwards, yes. So especially as we told you before, our 3-year plan, especially on the SBS side, is to improve the profitability quite a bit. And some of that comes from the revenue growth, but some of that also comes from the cost containment or cost reductions. And therefore, yes, we should see continuously a reduction in cost base. And that should also be visible in the headcount numbers where we make use of attrition to not grow as fast as our revenue.

And seasonally, we normally have a lower cost base in the second half than the first half as well due to holidays in the second half primarily. So our staff costs drop a bit. Another question, how much could you save on SBS R&D as products mature and the R&D comes to end? Maybe I'll cover a first comment on that and then if Eric or Tobias want to add anything, I'll welcome them to jump in. But if I remember right, for the full year basis in 2024, R&D costs were around 31%, 32% at the SBS level. And if you roll back in the capitalized R&D, that gets up to about 37%, 38% of revenues. And so the plan is that these will gradually come down year-over-year. And one big part of that plan is as products come, as Eric said earlier, out of the incubation zone and start going GA, we expect to lighten the load of the R&D spend. But we're also looking for opportunities to really get focus in deliver the code with less percentage of overall spend from our revenues as we go through that period as well. So we do expect it to come down to end and normalize and normalize for a core banking type company like SBS is somewhere around 25%. Do you want to add anything, Eric?

A small additional comments. Of course, on the integrated products, if we want to cross-sell, we need to bring all our clients with a lot more discipline into the ad version. And this is ongoing. And for some of them, we are close to the targets. So meaning that this will be allowing us with that standardization also to continue to reduce and to accelerate the cross-sell of the modular product. So it's that combination.

Because we don't have to maintain multiple versions out in the market of those core banking...

Maybe something we were doing years ago. And I think that discipline has really changed, and that's the way we look forward.

Okay. I have another question. Despite the strong customer managed sales at Axway in H1, working capital was greater than EUR 0. Even adjusting for factoring, should we now expect for the working capital to stay structurally above EUR 0 at Axway?

So the net working capital definitely will be above EUR 0, but the change in net working capital from period to period is what I was always trying to highlight because that was negative last year. And this year, we expected that to be still slightly negative. And then as we go into next year, it should at some stage, turn positive. So...

That's full year, right?

And I'm talking full year. I'm not talking seasonality adjusted because that's a bit too cumbersome to explain. But I think on a full year basis, as I said before, that trend we see and we confirm that's still going to happen, but the absolute amount of working capital on the balance sheet will be positive.

And for 74Software as a whole, any different comments?

No. Well, I think it's a combination of the positive changes on the Axway side from the transition to the subscription model. But on the SBS side, we see -- we don't see a structural change in net working capital, and it depends on the growth that we have on revenue and to see how much we need to fund that growth, but it's not a material big number. So the real driver of it is really on the Axway side.

Okay. Operator, do we have any other questions on the line?

There are no audio questions at this time. Please proceed.

Thanks, Alan. And so with that, I'll go ahead and close this first half 2025 call, and we will look to join you again at the full year results. Thank you all for joining. Have a good evening or afternoon, wherever you're at. Bye-bye.