Atos SE (ATO) Earnings Call Transcript & Summary

Hello, everyone. Thank you for being here with us today. I am delighted to discuss with you some exciting new developments on Atos Cloud and share with you our vision during today's special event. You will notice that it is not an usual analyst call. Today's event is primarily dedicated to our customers and partners, but we thought with Uwe and Gilles that it would be a good opportunity to have another type of interaction with you as sell-side analysts. So here we are. After my introduction, we will answer to your questions together with Uwe but also Jean-Philippe Poirault, our Cloud Executive Sponsor for the group. So let's get started. More than ever before, organizations are faced with major challenges and must develop increasingly virtual customer interactions, maintain strong links between virtual teams, understand technology evolution, answer technology independence imperatives and shrink their carbon footprint. And when we survey our customers, what do they expect from this new era of digitalization? They want more flexibility, agility, reduced time to market. They want reliability especially on their business-critical applications. Of course, they want all this while improving their competitiveness, including on their costs. And they want safety, meaning security, technology independence, sovereignty but also now definitely decarbonization because they all have strong carbon footprint reduction targets, and they just need concrete help to achieve them. These are our customers' calls. Those were already trending up before COVID, but obviously, many of them have been accelerating with COVID-19 crisis. Of course, those needs take different shapes and forms depending in which industry our customers evolve. Cloud is the enabler of this new era of digitalization, where the full stack of infrastructure, data and applications as well as security meet and merge. Atos understands the impact of this parading shift, and it's today uniquely positioned to deliver to our customers the full value of cloud. Atos has invested in various capabilities that are now combined in a unique cloud forward initiative designed to help our customers unleash the business potential of cloud, proactively accelerating and facilitating migration to the cloud through a one-stop-shop offering, industry-specific go-to-market and a dedicated organization. Here is Atos OneCloud. First and foremost, Atos OneCloud aims at bringing to customers business outcomes adapted to their industry answering their market challenges and fitting their cloud journey maturity, which can be either foundational, opportunistic, strategic or transformational. Also, Atos OneCloud is designed as a modular approach allowing customers to move their entire landscape to the cloud or business building block by business building block. To deliver such business benefits to customers, Atos OneCloud combines a unique set of 10 offerings in a powerful one-stop shop. The strength of Atos OneCloud is based on Atos' ability to orchestrate any combination of those individual offerings and to instantiate them by industry further to the launch beginning of 2020 of SPRING, our industry-led portfolio, go-to-market and organization. Let me take you now through these 10 offerings. First of all, our industry-specific consultancy services to develop cloud business solutions at scale. As you know, for a year now, Atos is organized by industries, no more by businesses. That means we are organized according to our customers' businesses with the best people knowledgeable of our customers' challenges, hence, this ability to design the right cloud approach to our customer's business. Second, Atos multi-cloud orchestration across private and public and across all major public cloud providers maximizes application migration and portability, lowers operational costs and ensures cloud interoperability. This is what we do at Siemens across private cloud and large public cloud partners, AWS, Google Cloud and Azure. Another example is Transnet, where we develop a digital platform that brings 10,000 renewable power sources into a dynamic grid control to shape the future with renewable energies based on a joint development, Red Hat OpenShift, micro services and public cloud, both AWS and Azure. I am delighted to show you now how our 3 hyperscaler partners, Amazon Web Services, Microsoft Azure, public cloud -- Google Cloud as well as IBM Red Hat actively support the Atos OneCloud initiative and are ready to deliver the market-leading cloud technology and business solutions. By bringing together the world's leading cloud providers, Atos is a clear major player in this field as it can design and integrate a cloud business platform capable of delivering any business challenge. Matt, Jean-Philippe, Thomas, Arvind and Paul, please, the floor is yours.

Hi, Elie. And hi, everyone. Great to join you for the launch of Atos OneCloud. At AWS, we're very happy to be part of this new cloud program at Atos. We have a strong history of working together in many large customer engagements worldwide, combining Atos' transformative cloud capabilities with the power of AWS. There are many exciting initiatives on the horizon, including tremendous opportunity for us to closely collaborate with Atos to innovate, migrate and modernize legacy IT environments which will unlock huge potential for our joint customers. On behalf of the whole team at AWS, we're excited to be part of the Atos OneCloud announcement and excited for the future of Atos. There's plenty more to come.

Hi, Elie. Hi, everyone, I hope you're all safe and well. It is my great pleasure to be here with you today. Atos and Microsoft have been great powers for more than 20 years, helping our joint customers to take advantage of powerful digital innovation and cloud services. Our collaboration has enabled our customers to create many innovative solutions. And now with the Atos OneCloud program, Atos can support customers as they define their future state of the art digital footprint, optimizing it across on-premise, private and public cloud platforms altogether. With its deep industry knowledge, Atos can provide the right solution for each customer case. At Microsoft, we are proud to support the Atos OneCloud program and empower our customers to embrace the full potential of the cloud. Thanks again for the opportunity to be here with you today.

Thank you for having me today. Congratulations to the Atos team on the Atos OneCloud initiative. The foundation of Atos and Google Cloud's partnership is helping enterprise customers digitally transform their businesses. And I am proud of the strategic alliance between our 2 companies. Over the past few years, our partnership has expanded as has -- as our opportunity to serve common customers. For instance, Atos launched Google Cloud Innovation Labs in Europe and the United States to help customers apply AI and machine learning capabilities to solve important business problems. Second, the addition of Maven Wave this year further strengthened Atos' global leadership position with Google Cloud. Third, Atos continues to support key Google Cloud initiatives such as our Bare Metal Solution for legacy workloads. They have also supported our cloud acceleration program for SAP and our data center takeout modernization initiative as well as our recent launch of Google Workspace. We are proud to call Atos a global partner. And again, congratulations to the entire Atos team on this important cloud initiative.

To my friends at Atos, congratulations on the launch of Atos OneCloud. Today, every industry, from energy to retail to financial services is being profoundly transformed by technology. Technology has indeed become so pervasive, but it's not just a transformation. Every company is now a technology company. Hybrid Cloud is an incredible opportunity for the 2 of us to work together, combining the power of IBM's technology platform with Atos' expertise and skills. And we will bring tremendous value to our mutual clients. I look forward to seeing the remarkable outcomes this will drive as we help our clients embrace the promises of this era with rapid technological change.

We are really delighted to be part of OneCloud announcement. Red Hat and Atos have been partnering together for more than 12 years in delivering innovative solutions together in that time. At Red Hat, we really pride ourselves on our open culture and collaborative way of working. This spirit of collaboration has enabled us and led us to develop AMOS, cloud-based managed version of OpenShift, which has brought huge advantages to how Atos' customers operate in the cloud. We believe our open hybrid cloud model, coupled with your OneCloud platform, will provide an open, flexible and secure set of solutions for your customers to succeed anywhere on the cloud. We are very excited to be part of your ongoing journey and look forward to the future.

Thank you very much colleagues for your testimonies and your support. This support with the launch of Atos OneCloud will intensify in the next month, just like we announced today, a reinforcement of our partnership with Amazon Web Services. Let me now come to the third feature of Atos OneCloud, which is an important aspect of our delivery. We developed a highly standardized and automated management framework and architecture, meaning fast approach and capacity to deliver technology-enabled services in minutes. We don't talk about this enough when talking cloud migration, but you know how key this is. As an example, at Willis Towers Watson, a major contract we signed in Q3 this year, we enhanced the business experience by moving on-premise infrastructure to the cloud, Azure in particular in this case, retiring legacy hardware and software and shifting to a consumption-based model. What is key in this example is our ability to implement automation features to reimagine the end-user experience through the use of chat box, digital lockers and virtual technology bars. Fourth, as you know, Atos has been for years at the front end of sovereignty matters. Next-generation private and sovereign cloud platform is now ready to be deployed and managed in any data center to ease the migration to the cloud while ensuring compliance requirements are met around data sovereignty, localization and security. As an example, at the U.K. Network Rail, Atos migrates all applications from legacy data centers into a new digital private cloud. Our customer will fit from a highly secure, robust and cost-effective digital foundation for business while ensuring agility in a technologically converged environment. To illustrate all this, I would like to share a message of our great and long-standing partner, Michael Dell, leading Dell Technologies obviously, which notably enables Atos to deliver to the market the most advanced private cloud and virtualization platforms for data center modernization and cloud transformation through VMware. Please, Michael.

Hello, everyone. I'm honored to join you today to help launch the Atos OneCloud and to recognize the Dell Technologies-Atos partnership that spans more than a decade. Our partnership is deeply rooted in a shared vision to deliver integrated technology solutions to customers across the globe. And I'm confident that the Atos OneCloud will deliver unique benefits to customers and help accelerate their competitive strategies. Congratulations to the entire Atos team. And on behalf of the global Dell Technologies team, we are grateful for our partnership, and we look forward to continuing to serve the needs of customers together. Thank you.

Thank you, Michael, for your great support, as always, and also for our enhanced collaboration also announced today. Let me get to my fifth feature of Atos OneCloud. Armed with the Dell EMC VMware portfolio, Atos experts analyze existing estates, recommend modernization strategies and deploy agile, future-ready applications to any digital cloud platform powered by Atos Digital Hybrid Cloud solution. Benefiting from up to 66% faster development life cycle and up to 300% increase in developer productivity at lower cost, our customers are equipped to compete with digitally driven businesses. Here again, Atos OneCloud allows our customers to accelerate business-critical applications' time to market with our cloud application development modernization and replatforming, including strong DevSecOps. As an example, at Capital One, Atos Maven Wave has delivered a broad range of services including application development, microservices architecture, G Suite migration for 65,000 users and data migration on the AWS platform. Six, we developed cloud artificial intelligence and machine learning in-house capabilities to enhance business processes, create new solutions and monetize enterprise data. But we also give access seamlessly to our partner ecosystem of fantastic AI/ML features. As an example, at T-Mobile, together with Google Cloud, we redeveloped their chatbot based on the Google Cloud AI technology to significantly enhance end-user service quality. Another example at AAA, Atos Maven Wave moved of the largest core data sets to Google Cloud to give AAA a 360 view of customer products and interactions. Atos Maven Wave delivered machine learning projects to provide improved calculations and truck assignments for AAA's roadside assistance services. This overall AI/ML expertise is supported by migration capabilities towards cloud-native database. Atos innovation labs drive interactions between our customers and Atos data analytics experts as well as our partners' experts in design-thinking workshops. Seven, one very, very important differentiator at Atos is also the fact that on top of our integrator role, we produce in-memory service with the highest processing and memory capacities. Therefore, our world-leading so-called Bare Metal Solution support nonvirtualized, business-critical applications adjacent to the cloud to increase the breadth of consumable cloud services. This is the case of large SAP instances, for example. And by the way, let's take a moment to listen to Christian Klein, CEO of SAP, talking about Atos OneCloud.

Dear Atos colleagues, dear Elie, congratulations on your Atos OneCloud announcement. I would like to take this opportunity to emphasize the strong partnership between our 2 companies. Building on our successful partnership for more than 30 years, it is quay that we are now joining for drive the transformation of our customers in the cloud. I truly appreciate your trust and support, and I'm looking forward to continuing our close partnership.

Thank you, Christian. Eight, let's talk now about Atos Cloud Edge and Far Edge solutions. As you know, a very important number to have in mind. Today, 80% data is produced in the data centers, 20% outside. 2025 will be the reverse. 80% of the data will be produced at the edge, 20% in the data centers. At Atos, not only we can integrate and orchestrate the cloud and the edge at the same time, but we also produce unique edge servers, allowing us for an end-to-end setup for our customers. Combined with new 5G connectivity solutions, we ensure secure and local processing and optimize bandwidth consumption. Today, for example, we announced a unique partnership with TIM where cloud enables TIM to play a new role in the digital economy, leveraging data sovereignty, data security, 5G and edge computing at the same time to create new services for our customers, for example, in the area of IoT. Nine, our world-class cyber security operation centers are meanwhile operating and responding to cloud-native security controls and anticipate threats in a prescriptive mode, not anymore in a predictive mode. Atos is clearly committed here and invest on this key topic for cloud projects. We announced, by the way, recently a series of acquisitions, Paladion, SEC Consult, digital.security, IDnomic, so all of them, which complement our expertise in digital security very nicely. Last but not least, number 10, I would like to talk about another strategic differentiator of Atos, decarbonization, addressing 4 pillars: decarbonization assessments; decarbonization of our customers' core IT; decarbonization of our customers' business processes, the non-IT part; and our carbon compensation proposals. Our decarbonization offerings guarantee year-on-year carbon footprint reduction of cloud infrastructure, data and applications. And because we are serious about it and about our customers, we have introduced DLAs, Decarbonization Level Agreements, where we commit on this carbon-reduction trajectory. If not achieved, we will pay ourselves the compensation. We have just signed a very important contract with PwC in that field, as an example. And we have already a promising pipe for signatures. These 10 features are Atos OneCloud. I really do believe that Atos is uniquely positioned to deliver the full value of cloud, but it is now exactly the right time to accelerate and proactively engage with our customers on this modular approach. Atos OneCloud is the only solution on the market that blends industry-customized consulting with application transformation expertise in an end-to-end set of services. It is the answer to help further accelerate our customers' digital transformation into secure and decarbonized cloud environments. As a world leader in operating hybrid and multi-technology application platforms, together with our powerful ecosystem of partners, our cloud and industry experts are ready to co-design and deliver end-to-end a customized cloud road map for our customers' enterprise transformation. Atos OneCloud is built upon a series of world-class assets from Atos: our data center outsourcing and digital hybrid cloud managed services capabilities, where Atos is recognized as a global leader; our world leader position in cybersecurity services; our decarbonization center of excellence designed to help global organizations delivering trusted cloud strategies that achieve end-to-end carbon reduction, integrating notably contractual DLAs, as I've just talked about; our global force of 7,000 cloud experts, 30,000 application experts, 10,000 data center network experts and 6,500 cloud certifications; our recent acquisitions in the domain like Maven Wave or Edifixio; our investments in cloud expert training and certification and our investments in a graduate program, IGNITE; our 4 cloud artificial intelligence and machine learning customer labs to enhance the value of our customers' data; our investments in cloud research and development with in-house patented solutions for orchestration, automation, private cloud, cybersecurity, bare metal and edge computing; or in the co-development of European cloud standards as founding member of GAIA-X to ensure cloud interoperability and application and data portability. These Atos cloud assets I just detailed are at the service of our customers and beyond. They are organized into one holistic cloud practice across all of Atos for maximum efficiency and impact. Atos delivered integrated cloud services for leading cloud forward organizations in all industries around the world. You can see a few names here. Many more customer stories we'll be able to tell you and many more to come. Today, and the next days will be dedicated to specific sessions with customers by industry as well as partners to go through use cases and deep dive in customer journeys. As you have seen already, the secret sauce of Atos OneCloud is to be delivered by Atos in very close collaboration with a world-class partner ecosystem, including in particular Amazon Web Services, Dell Technologies including Dell EMC and VMware, Google Cloud, IBM Red Hat, Microsoft Azure, SAP, ServiceNow, Salesforce and many others. Customers will benefit from the close integration of these leading cloud technology providers. The ecosystem is built to allow our customers to implement new technologies at speed and reduce implementation risks. The Atos OneCloud partners will also actively contribute to decreasing the required upfront cloud investments and bring solutions to train customer IT and business staff to make optimal use of new technologies. We are very proud having this unique ecosystem at the service of our customers now and tomorrow. All in all, to support Atos OneCloud initiative, we have decided of a massive investment program of EUR 2 billion over the next 5 years. To accompany the strategic shift announced, Atos will make significant investment in its full stack of cloud capabilities, expanding the existing pool of expert certifications, accelerating R&D outcomes, pursuing cloud investments for customers and multiplying self-financed acquisitions. These investments will contribute to reach the targets we have already presented in our midterm plan. To conclude, Atos OneCloud is a group strategy and a pragmatic methodology at the same time, committed to drive business results, supported by a deep long-term investment. This one-stop shop to boost enterprise cloud business value is available already now. This is a unique approach on the market. Many do parts of it, we do all of it. From today onwards, Atos offers to both existing and new clients the opportunity to co-create their personalized Your Atos OneCloud Plan in 90 days. Together, we will build customized cloud business cases and industry-specific cloud reference architecture and a road map for applications, data and infrastructure modernization. The end result from an Atos OneCloud engagement will be a future state of the art digital footprint optimized across on-premise, private cloud and public cloud platforms customized to fit our customers unique business needs, again, industry by industry. Thank you for your attention, and let's now move to your questions together with Uwe, our CFO who you know very well; Jean-Philippe Poirault, our Cloud Executive Sponsor; and Gilles Arditti, who you all know very, very well. Thank you for joining me now colleagues. Thank you for joining me. So let's start with the question, Gilles.

Good afternoon. [Operator Instructions] We also have questions coming from the chat. So before we have the first questions, I'm going to start. So my first question is midterm, what are the risk that the hyperscalers want much more than hosting revenue.

Maybe Jean-Philippe, if you want to start. And maybe, Uwe, afterwards, if you can give some numbers in our model, I think, would be helpful for our colleagues here. J.P.?

Yes, absolutely. So between the hyperscalers and Atos, we have very complementary model. The hyperscalers are more global building data center, and we have a mix of global and local. We are extremely close to our customer. We manage their IT. We manage their application. Honestly, there is not enough people at the moment. We have a people-intensive business, and there is not enough people knowledgeable about cloud, and this is why we are investing a lot. So we are here to complement their business in terms of transformation. They need us. We need them. So this is very complementary on the people side on the business transformation. I would have to have one more point, which is also a differentiator of Atos. On the product side as well, we are the edge computing, and we have the bare metal services for which we have built the bare metal services with Google and with Azure, which is really remarkable. And as more the edge computing we'll develop, we'll see also more complementary work between the 2 companies also at edge.

And edge will require a lot of integration services even more than now.

Absolutely.

Uwe?

And Jean-Philippe, if we talk about the revenue and the growth, what we have currently is about 15% of Atos revenue...

Excuse me, Uwe, maybe -- I think we have one slide. Maybe it would be easier for our friends connected to follow, so if you can show the -- yes, exactly. Please go ahead, Uwe.

Thank you. Thank you, Elie. That helps. So overall in 2019 or roughly today, we have about 15% of our company's revenue in the cloud. We expect that to double and then representing 26% of the company's revenue to be in the cloud with these different components, as you can see here. And this is a quite conservative approach because, what J.P. just mentioned, it does not even include the edge contribution in the edge revenue, which would be on top of these revenues, so pretty substantial growth over the next years.

Thank you, Uwe. Thank you, J.P. Gilles?

Yes. Is there any questions from the audience? Please open your mic.

You can ask the question live.

You introduce yourself, and then you can ask a question. Otherwise, looking to the chat box, so several questions about the percentage of Atos revenue linked to cloud today and the breakdown with public cloud and the rest.

So if we -- I think we can go back to the same slide because they were -- this information was also there. So if you can go back to the -- yes. Uwe?

Yes. So as you can see, in 2019, roughly speaking, in current times, we have the largest piece of our cloud revenue is in private cloud, a smaller piece in the public cloud, and you see that revenue stream going up and doubling actually in the -- more than doubling in the public cloud and more or less roughly staying stable on the private cloud. So the portion of public cloud will grow especially over the next few years as more business-critical applications, as Elie was explaining, go into the cloud. And on top, you see more a quadrupling of the services around that, around cloud transformation, application modernization but also security and bare metal as components the overall revenue stream which we see today being rather small but going by 4x in these service components over the next 4 to 5 years.

Thanks, Uwe.

Next question from the audience? Yes, please.

Yes, Gilles. This is Antonin Baudry from HSBC. Yes, cloud definitely as a growth driver for you but also for your competitors, so I was curious to know the main difference you see on what you announced today on the -- probably what your competitors are doing today.

Yes. I will start with -- I will start to answer this one, and I think J.P. will certainly complement. What we announced today is unique in several dimensions. The first dimension is to create this one-stop shop and with such a variety and the breadth of offerings. We are the only one to have such a breadth of offering. These are the 10 features I took you through. We are the only one on the market worldwide to offer this breadth. And the fact we have all to have gathered them under one roof internally to be able to serve our customers with one face externally is, I think, very unique. But the second dimension is also within the 10 -- those 10 offerings or features, if you like, you've got several of them which are pretty unique. We are the only one to integrate and produce edge service. We are the only one to produce and integrate bare metal solutions. We are #1 in cybersecurity in Europe, #3 in the world. It's a unique positioning. We are the only one to have launched such a breakthrough in decarbonization, which is -- whose feedback from customers is tremendous, et cetera, et cetera. So number one, it's really putting everything under one roof, which is in terms of go-to-market very powerful. And when I say everything under the one roof, it's, again, a portfolio with breadth is unique. And then it's -- some of those components are themselves individually totally unique at Atos. Please, Jean-Philippe, if you want to complement here.

Yes, you said it's right. Really, I think for our customers who are trying to navigate towards the transformation journey toward the cloud, the one partner who can help them to navigate at the infrastructure layer and the application layer, as the data layer, they are all asking a lot of questions about security and also now also decarbonization. And I want to take one example, a customer example, the agreement we signed and we have announced today in terms of the exclusivity negotiation agreement with Telecom Italia is exactly a good example. Telecom Italia signed a major agreement with Google more than 1 year ago. And they were looking for a partner to help them to create a data sovereignty platform so that they help the enterprise in Italy to migrate their data along the chain from the edge to the data center to the cloud. And this is what we can offer.

Thanks, J.P. Next question? Otherwise, we go to the chat. I think I saw Hannes from UBS earlier on the...

Hannes, are you still there? Opening your mic.

Yes.

I'm sure we have others, otherwise.

Let's go to the chat.

Okay. So we go to the chat. The question -- one question is how -- what do you expect in term of revenue in the future for edge IoT. And how does this connect with your cloud initiative?

Uwe?

Yes. So edge, as I was explaining before, it's not included in this picture which you see in front of you around the cloud development. And we expect about a EUR 600 million -- circa EUR 600 million revenue stream midterm, so in the next 4, 5 years to be at circa EUR 600 million per year and, therefore, a substantial part of Atos.

Thank you. So if you have another question from the audience, please do not hesitate.

Maybe I can complement on...

Yes. No, please, please, J.P., go ahead.

Yes. So on edge computing, also what Uwe mentioned is really in the range of what we see and the transformation in front of us, you know that there will be something like 75 billion connected device in the next coming years. They will create a lot of data. And what we see that there will be an inversion of the way the data will be processed. 80% of the data are processed in data center today, 20% at the edge. And in the coming years, it will be the opposite, 80% at the edge and 20% in the data center, so which will increase the business in the coming future.

And we will have, I think, by the end of the year, on the edge, we will be able to announce sizable deals for the first time. So far in the last year was a POC, proof of concept or smaller deals, projects. Now we are moving for the first time to sizable deals. And I think -- I'm watching Uwe so that I don't say anything wrong, but I think we will be able to -- yes.

First upscale, right, bigger project?

Yes. Exactly. Exactly. In retail. Gilles?

Thank you. And any new question? Otherwise, one came. Do you consider decarbonization will help to increase cloud revenue? And did you start to partner with hyperscalers.

J.P., you want to take this one?

Yes, I can start about decarbonization. What we see at the moment in the transformation of our customers, they are all considering as they move to the cloud, most of the time also consolidating their assets, consolidating data center, modernizing their data center. It's the right moment for them to consider at the same time, well, how can I improve my carbon footprint, how can I decarbonize also all my assets. So most of our customers who engage with us in a transformation journey are also asking us this question is that how can we combine the 2, the transformation to the cloud, the consolidation of data center as well as decarbonization.

I think I see it seems that there is a question from Neil Steer.

Yes. Can you hear me okay?

Yes, we can hear you.

We can hear you. Please.

Okay. Great. And just a clarification, could you possibly say, of the EUR 2 billion that you're announcing today, how much of that is incremental investment to what you otherwise would have had in your plan over the next 5 years? And could you break that down into what is incremental OpEx and what is incremental CapEx and M&A spend?

I think -- I mean the answer is very quick. It's not incremental. So it's perfectly in line with our plan. So there is nothing new here. What's important is to gather all this in the same center of decision, if you like, to make sure that we have a very strong consistence internally, but that's not the most interesting, externally to our customers in terms of capabilities. And we make sure that we grow super fast in certifications, in accreditations, in capabilities through inorganic and organic and in R&D, especially on the topics we mentioned earlier. So there is no -- so we'll not give any breakdown of the increment because there is no increment. It's gathering, again, in the same place, under one roof, all those capabilities. Thank you, Neil.