Atos SE (ATO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Atos Group Third Quarter 2025 Performance. The call will be structured in 2 parts. First, a presentation by the Atos Group management team represented by Philippe Salle, Chairman and CEO; and Jacques-François de Prest, CFO. [Operator Instructions]. I will now hand over to the management team. Gentlemen, please go ahead.

Thank you, operator. Good morning, everybody, or good afternoon for some of you in Asia. So we're going to do a presentation and then after that, of course, taking all the questions you have. I'm, of course, together with Jacques-François, the CFO of the group; and Marie the IR of the group. So let's start with the first slide. So we're going to -- go on one more. Okay. Perfect. So in Q3, first, the performance is in line, I would say, with the full year profitability and cash trajectory. I think it's very important. I understand, in fact, that probably the team has the credit on cash and cost. And of course, we're going -- we are spending now quite a lot of time, I would say, on the top line, and I will give you more info during this call. The second is on bottom left, the Genesis plan is in motion to restore the strong financial performance. I just want to highlight that Genesis, it's a 2-part project for me. The first one is the project on cost. And as you see, we are doing the job. We will probably execute Genesis on this one by mid-'26. We estimate that probably in 18 months, we will have finished probably the job, except 1 or 2 countries where, of course, it's a little bit slower because it takes more time, I would say, to do the negotiations with the unions, and you can imagine what countries are there. The second part of the Genesis plan that is very important is the top line. So Genesis is reducing cost and also, I would say, it's restarting, I would say, the growth engine. And of course, I would say the cost takes roughly 18 months, the restart of the engine growth, it's roughly a 2-year effort. So it's -- we have done a lot of job, I would say, in '25. We have reshuffled completely the organization, changed a lot of people in the growth engine. And the idea, of course, is to start to produce results in '26 and of course, accelerating after that the top line in '27 and '28 according to our plan. And last, management team. So as you have seen, the top 20 is complete. The top 200 is almost complete. It will be probably by the end of the year. So I would say that the first circle and the second one will be, I would say, in force to execute, of course, executing in '26 and going forward. If we go to the next slide, some key numbers. So the order entry, EUR 1.3 billion, 66%. In fact, it's more 70% plus on Atos brand. It's lower in Eviden and mainly on HPC. Just as a comment, 2 things. The first one is that the book-to-bill in Q3 is always low. It's roughly 70% to 80% when you look, for example, at our numbers for the last years. And secondly, it's very important that you understand that discipline is important, discipline in cost, discipline also in the portfolio in the top line. And for example, I have decided not to renew some contracts. And by doing that, I would say, we have lower, I would say, the book-to-bill. I can give you just one example. There was a big contract in the U.S. If I -- I could have resigned this, it's a book-to-bill roughly EUR 300 million plus. So it's roughly a 20% -- I would have increased, I would say, the book-to-bill by 20 points, but the margin was too low, and we decided, I would say, to stop the negotiation. So it's very important to understand, of course, that the discipline on the portfolio lower the book-to-bill on the short term and of course, lower the revenues as we, of course, try to stop as many as possible contracts where we think it's impossible, I would say, to renegotiate the price with the customers. So revenue, it's EUR 2 billion. It's roughly minus 10% versus last year. You have seen that in Eviden, we are in a growing pattern. And in fact, we are decreasing with Atos. Also, this one, I can give you one number on the discipline, 80% of the decrease in Atos, so 8-0 comes from the contract stop. So it's -- I would say we are managing the top line, and that's why it doesn't hurt, in fact, the profitability because we are stopping contracts with roughly 0% margin. Important to note that roughly 5% of our turnover is what we call black contracts, so contracts with roughly 0 profitability and roughly 15% its red contracts, its contract between 5% and 15%. So roughly 20%, EUR 1.5 billion plus are contracts where right now, I would say we have strong actions either to renegotiate, to, I would say, change the delivery to beef up the margin or stop, I would say, the revenues. Net change in cash is roughly minus EUR 38 million. And in fact, we are not stopping Genesis. So it's not because we are trying, I would say, to slow down the Genesis. It's just because, in fact, we are also doing a lot of actions I would say, to decrease, for example, the accounts receivable, so to decrease the DSO. The teams are, I would say, in place to make sure that we are paid faster is very important. And it's, of course, on a recurring basis again. And then the liquidity, we still have EUR 1.8 billion in cash. So I would say we are quite confident, of course, that everything is okay in terms of, I would say, liquidity for the plan and of course, to pay, I would say, the Genesis ramp down in terms of cost. Next slide, please. commercial strategy. So as I say, the flip side of the decrease of cost is the increase of the top line. We are still aiming, I would say, to have 0 plus growth in the course of next year. So I would say probably in Q3 this year, we are at the bottom for Atos in terms of revenues, we will see. And then we have done a lot of things. So first, the commercial pipeline is gaining momentum. In fact, we have targeted the 100 accounts, the top 100 accounts for Atos. Just for information, it's roughly 2/3 of the revenues. And then for each CEP, so client executive partner of these accounts, they have now a plan, a 3-year plan where they look at the opportunities, I would say, in their own accounts and opportunities. Remember that during the Capital Market Day, we say we have roughly 1.6 business line per account. And the idea, of course, is to go at 2, 3 for some of the accounts. So there was a lot of opportunities that have emerged, I would say, from this work, and it has been done, in fact, during the summer. Cross-sell, as I say again, increasing for a given customer, of course, the different, I would say, capabilities of the group. And of course, a good traction also in cloud and cyber. We are in the book-to-bill, in fact, above 100. And we see that there is more and more interest, especially, I would say, also in Europe, of course, with the private cloud and of course, I would say, the sovereignty subject. You have below some contract renewal and win. I'm not going to go in details on this one. Next slide. The execution of Genesis. So in terms of people, we do also the AI, I would say, transformation. Of course, it's going to touch the delivery. It's going to touch, I would say, the service offerings that we're going to, I would say, propose to our clients. And it's going also to touch the back office of Atos, you can see that we have also trained a lot of our project managers and also of our engineers in the data and AI space. Portfolio review is the number of countries. So we closed 6 additional countries. When we say we close, there is no more commercial activity. Sometimes we still have, I would say, a company there. So let's say, a geological structure that will close, of course, but it takes sometimes more time, I would say, than I would say, closing the business. And as I say, in the portfolio, we are resetting, I would say, the base of the portfolio. When I say resetting, it's really to shave the low profitability contracts. Remember, 20% of my portfolio is not at the right profitability. And if you see, for example, the signed contracts that we have for the first 9 months of Atos, the margin is roughly 4 points above, I would say, the margin that I have on my P&L. So it means that the discipline is working. And for sure, I would say we are probably more selective in terms of, I would say, business increase. And then delivery and G&A, I would say this one is really going very well. The billability is stable, but I would say during Q3, it's normal because with the holidays, there is an effect, of course, on this ratio. You will see probably an increase, in fact, in Q4. So we continue, I would say, to increase this ratio and heading, I would say, to the 85 in the course of '26. And in terms of restructuring, as you have seen, we have a reduction of, again, 2,600 people. So we are now at 67 in the company. We spent roughly EUR 90 million and 9-0 of restructuring in terms of cash. And we launched also a social plan in France in September to continue. So we are -- I would say, when I look at the direct people, we have probably done roughly 3/4 of the job by the end of '25. And in terms of indirect, we will have complete the job, in fact, by the end of '25. So we are almost complete. And as I said, we will finish the job on direct people in the course of '26. Most of it will be done in H1. Next slide. This is the workforce. As I say, we are now at 67 in the company. It will continue to slide. Remember that with HPC, roughly 2,500 people will leave. And with the countries exit, it's probably several thousand also that will be taken off by the end of the year. So we still have some countries we're going to close, in fact, in Q4 that will have a big impact. The one that we have closed, in fact, in Q3 are very small in terms of number of people. Next slide, please. So if I go on the revenue performance, I would say, geo by geo. So let's go first on Atos. So this is, I would say, the bridge between Q3 -- pro forma Q3 without the scope. Remember that we have sold the WorldGrid last year that we have also foreign exchange hitting, I would say, the top line, mainly in fact, in the U.K. and the U.S., but also, for example, in Brazil. So on a -- I would say the pro forma is EUR 2.2 billion. And as I say, organic decrease was roughly minus EUR 200 million. And in fact, 80% of this -- and in fact, it's more than EUR 233 million because it's mainly on Atos, 80%, so it's roughly close to EUR 300 million, EUR 250 million to EUR 300 million comes from contracts that we have decided not to renew. Revenues is roughly EUR 2 billion this quarter. And as I say, we maneuver in the EUR 2 billion area, I would say, per quarter, plus or minus, of course, it depends on the quarter. And that's why we have guided that we should, I would say, do to make EUR 2 billion plus again in Q4 to be roughly at EUR 8 billion plus at the end of the year. Next slide. So this is, I would say, the split between Atos and Eviden. And then go next slide, we go, I would say, geo by geo. So you have, I would say, more color, I would say, by geo. So in Germany, I would say, contracts we have done is very important. There are contracts that we have decided to stop with a very low margin. Just for information, the OM, in fact, in Germany will be positive for the first time in many years this year. And in fact, for also the geo, we call this geo gas, GACE, G-A-C-E, which is Germany, Austria and Central Europe. And next year, we will probably triple, I would say, the profitability. So we have -- I would say, we will see a lot of impacts of what we are doing in the course of '25. Next to Geo, we have North America, bigger decrease also with contracts exist. Again, I would say, for some of -- I would say, probably U.S. have been hit, I would say, hardly on the financial restructuring in '24. That's probably the geo that has suffered the most, I would say, from the situation in '24. And I would say we have quite a good traction right now and probably restarting, I would say, to grow in the course of '26. Next geo, France also has suffered, I would say, from the situation in '24, but we have also reduced the scope, I would say, in some low-margin contracts. And remember also that in France, with the financial, let's say, instability coming from the country this time, not from Atos, the social -- the public sector, in fact, public and defense, it's a big sector for us and 30% plus, has suffered, in fact, with no budget in the beginning of '25. And in fact, it has, I would say, delayed some contracts that we had. Next Geo. U.K. and Ireland is like the U.S. also. At first, it has suffered from, I would say, the financial situation in '24. BPO contracts were there, so we stopped a lot of BPO contracts. And there is one, in fact, the digital workplace of -- I would say that was a big one losing money. As I say, we have roughly 2 contracts in BPO going forward with a given size, it's roughly EUR 30 million plus for each contract, still losing money in '25. And we are, I would say, trying to be roughly cash neutral by '27. One of them will be probably stopped by that time. Next geo, international markets. Again, you have first a comparable with the Olympics. So of course, because, in fact, the major events is in this geo and it's also in Spain and Spain is part of international markets. And we have also some contracts done, in fact, in APAC and Switzerland. Now for Benelux, that's the one that is probably, let's say, resisting the most. We still have, I would say, some contracts hands on but we have a good traction right now in the pipe, and we have quite, I would say, good opportunities right now with Europe, with the European Commission, in fact. Okay. And then we have probably Eviden. So as I say, Eviden this quarter, in fact, we have the Jupiter. But remember also that without Jupiter, in fact, we had a lot of also revenues that have been pushed to Q4. So in fact, Jupiter was a good news, but we had also some other news that, in fact, is a mixed quarter for Eviden. And we still have, I would say, we still expect a strong quarter, in fact, in Q4. I think that's it for the, I would say, the revenues per geo. If we go to the next slide, then I will give the floor to Jacques-François on the liquidity position.

Thank you very much, Philippe. Hi, everybody. As a reminder, the publication of our quarterly liquidity position is part of the regular reporting requirements, which were defined and agreed with the group's financial creditors. So the certificates have been posted yesterday night on our website. Our liquidity position remains strong at the end of September, thanks to limited estimated cash consumption over the summer. In Q3, the net change in cash is estimated at approximately minus EUR 38 million, which includes the minus EUR 87 million related to restructuring over the quarter. This figure is reported, of course, unlike previous quarters, without any use of accounts receivable factoring or specific optimization on trade payables. That number also reflects the results before the estimated impact of exchange rate fluctuations, which amounts to approximately plus EUR 11 million over the quarter. As a result, as of September 30, Atos Group's liquidity is estimated at EUR 1.769 billion compared to EUR 1.804 billion at the end of June 2025. This is more than EUR 1.1 billion above the minimum requirement of EUR 600 million, which is set in our credit documentation. All right. Thank you. With that, I will now hand back the mic to Philippe for the outlook.

Thank you. So if we go on the next Slide 25. So we have, let's say, put the guidance at EUR 8 million plus remember that versus the guidance that we had in May, EUR 8.5 billion, we have roughly EUR 200 million coming from FX. So in fact, the EUR 8.5 billion was more EUR 8.3 billion. We will finish between probably EUR 8 billion and EUR 8.1 billion. And most of the EUR 200 million that you will see is coming from low-margin contracts. And that's why I would say it doesn't harm the profitability for this year. As you then imagine, of course, then we continue to guide at the EUR 340 million in EBIT, which means that margin will be above 4%, 4.1% or 4.2%. And then the net change in cash will be better than EUR 350 million. We don't try, I would say, to, again, push back Genesis to '26. So if we -- I would say we are in the mindset of, I would say, doing the most that we can do in the course of '25. So it's possible that we will end probably between EUR 300 million and EUR 350 million because we have also a lot of exits coming in Q4. In '26, we have started to review the budget already. So when I look at the bottom-up coming from the different geos, we are still looking on an organic growth. And we will guide, of course, what kind of organic growth in March next year. So please be patient. But I would say there is some confidence from the teams. It's not only coming, I would say, from Jacques-François and myself. And then still continue to guide that, in fact, with the organic growth, a much better, of course, EBIT because we're going to have the results of the Genesis '25 in the EBIT of '26. We will have a positive or 0 plus, I would say, change in cash. And of course, this is before debt repayments, if we, of course, refinance the debt in the course of '26 and of course, any M&A impact. M&A, I said yesterday that if we restart, it will be probably after the summer. So starting in September '26, but I would say the goal for us is to restart M&A if there are interesting targets for us. And then we continue to, I would be confident in the 2028 figures, I would say, guidelines also that we have given in May during the CMD. still looking at EUR 8.5 billion to EUR 9 billion. So it means that we will accelerate the top line in the course of '27 and '28. And definitely, I would say the growth engine will be in place. I think it will lead, I would say, results. Remember that between '23 and '25, we will have lost probably EUR 2 billion of sales. And definitely, there are contracts in '27 that will come back that we'll probably regain because, in fact, we lost them in '24 and some of our customers are not happy. So I definitely think that Atos has a card to play. And that's why I think we can outpace the -- probably the market growth. Operating margin, we still, I would say, look at 10%. We have given, I would say, 9% to 10%. Remember that with Genesis, I have the 9% margin in my hands. And then going, I would say, from 9% to 10%, of course, it will be with the top line and with profitable growth again. I remember that's exactly what we are looking at. The average right now margin that we have signed for the first 9 months of '25 is around 24%, which is fair enough, I would say, to yield this 10% margin. Leverage ratio, of course, we will continue to deleverage. We will have a positive cash flow, of course, in '27 and '28. M&A, of course, will be a cash out, but I would say it doesn't change the fact that the leverage ratio will decrease and we will have a BB, I would say, profile. I would say, in the course of '28 and I would say probably an investment grade in the course of '28 or '29, we will see, of course, with the rating agencies. But I would say with all the jobs that we have done in '25 with the fact that I have been in the company almost 1 year, we are very confident, and I'm very confident, I would say, on the path for '26-'28. Next slide. And I think it's all for this morning in terms of presentation. So we are ready, I would say, to take any questions. Operator, I give you the floor.

[Operator Instructions] This question comes from Frederic Boulan from BofA.

Firstly, a question around demand. If you can discuss a little bit, demand and orders, how we can tie your book-to-bill ratio with your revenue growth ambitions for next year. I think you messaged before was the expectation of a book-to-bill to get close to 100% by the end of this year. You seem to be a bit more prudent now. Is it all down to you being more selective? Or there's also some kind of more difficult demand environment. And then secondly, around -- if I can ask a second question around your black and red contracts. The 20%, is this as of Q3, is it still in the pipeline today in terms of weight of those contracts. And the plan here is more try to fix them from a margin standpoint, exit, upsell, I mean what's the kind of strategy on this?

So the book-to-bill, yes, we will be above 100%, I would say, the threshold of 100% in Q4, for sure. And we are still aiming, let's say, from 90 to 100 on a full year basis. There are big tracks we are renegotiating, 2 of them, in fact, that of course, can push, I would say, the book-to-bill to 100 but of course, we are in the negotiation with them. There is one in the U.S. I will be in the U.S. specifically, in fact, next week for that. The U.S. team also from our customers will be in France in November. And the second one is in Europe. So yes, first, there have been also some contracts that we should have signed in Q3 that have slided to Q4, but that's life. It doesn't change, I would say, the '26 revenue for that. And that's why probably I would say also the book-to-bill has been quite low, let's say, this quarter for Q3. But yes, we still have, I would say, we know we have a very strong commercial activity in Q4 like last year, and there will be probably a lot of, I would say, good news coming in the coming weeks now. Black and Red, when I say 20%, in fact, it's today at the end of August. So roughly an effect in September. I'm not sure that it's going to change a lot. So as I say, roughly 5% and 15%, it was more last year. Definitely, I would say, the black accounts, in fact, when I say black accounts, remember, it's the account with a margin below 5%. There are 2 big accounts -- well, 2 really, let's say, cash, let's say, negative account and the 2 BPO in the U.K. One is roughly -- burning roughly EUR 10 million cash this year, the other around EUR 40 million. So it's EUR 50 million of cost of cash, next year it will be less. The rest, in fact, is a lot of small accounts with, I would say, margin that is close to 0. And some are big, but I would say that not that many. There is only one, in fact, that in the U.S. that we decided to stop. And this, of course, will continue to, I would say, to shrink in the course of '26. We have taken a lot of actions on this contract. So my main focus in '25 was on the black accounts. we are almost done, I would say. So there will be, I would say, less in terms of revenues in the course of '26. And now we are looking at the red accounts between 5% and 15% that, of course, is harming for me the profitability, probably the one between 5% and 10% for sure because the margin of next year will be above 5%. And then we will -- we are now, I would say, trying to do, so for these accounts, there are 3 possibilities for us. The first one, we renegotiated the price. Sometimes, of course, it's difficult for some customers because they don't understand why we have been serving them for years. And then suddenly, we say, sorry, but the margin is not at the right level, and we need to increase price. So that's why when it's possible -- not possible, of course, we stopped the contract. The second one, of course, we work on the delivery process and that's why we can beef up the margin with AI, with different, I would say, with more offshoring. It depends on -- I would say, it's a contract by contract. And it's all the situations, I would say, are very different, let's say, contract by contract and geo by Geo, of course. And the third possibility is, of course, to stop the contract. If we see that there is no possibility for us, I would say, to defer the margin or renegotiate then I prefer would say, to stop. And with some customer, they understand the rationale. They understand that we cannot continue, I would say, with that level of margin.

Next question comes from Nicolas David from ODDO BHF.

And congrats for a very good execution on the bottom line. Just talking about top line first. So you expect above EUR 8 billion revenue, which seems to imply on an organic basis, negative minus 5% in Q4. It looked like if we exclude HPC business Jupiter contract, it was minus 20% in Q3. So it's a nice improvement. We see that comps will help definitely. But what is going to drive the improvements beyond comps? Is it evident as you stated, Philippe, already? Or you also mentioned in the U.S. maybe. So any color would be helpful. And my second question is regarding 2026, if the growth recovery doesn't happen as good as you are expecting. Do you have some leeway in terms of execution of the restructuring plan to go faster in order to deliver on your EBIT ambition, even if you're a bit lower in terms of top line, a bit like this year actually? That would be my next question.

That's a good question. I will take first this one. So yes, there is a Genesis 2 in place if something happens in the course of next year. So remember, Genesis in terms of cost, it's roughly EUR 650 million. We have probably around EUR 300 million already in the P&L this year, a little bit less. There will be probably, I would say, part of it, of course, in the course of next year, EUR 200 million probably and then we can accelerate some of the actions first. So there are some actions we can take. We have already anticipated it. So I would say the idea, of course, is that if there is no growth next year, of course, it's not the case. We will protect the bottom line again, exactly what we have done, in fact, this year. So I would say, for the profitability, cash, there is no -- I'm not very, I would say, anxious about '26 and as you know, and you can imagine, I would say the focus I have now is really on the growth, so I spend every week on this topic because it's very important that we sign on projects. Remember also that we have what we call, let's say, low -- small contracts, it's contracts below EUR 3 million. It's a big chunk, in fact, of our portfolio. And this is usually contracts with lower, I would say, duration. So that's the one also where we are spending a lot of time to make sure also that there will be also revenues in the course of next year. So that's why don't be afraid because the book-to-bill is below 100. It doesn't mean we're not going to grow next year. Because, of course, I would say the smaller contracts also, we have traction also in this in many geos, and it will yield, I would say, some results in the course of '26. So yes, we're going to protect '26 margin. And when we're going to guide, in fact, in March, the guidance for me is almost a given. I'm not very skeptical on the EBIT, we're going to deliver, in fact, in the course '26. Whatever is the top line. And I would say the main focus and all the team now is really, I would say, understands that we need to deliver growth. The incentives, in fact, on the top 20 and top 200, we change, in fact, the bonus, 1/3 of their, I would say, bonus will be also on the organic growth and book-to-bill. I would say -- so I would say that there is a big incentive, I would say, to restart this path of growth in the cost of '26, yes. And of course, for Q4, the comps are, of course, better because I think last year, the turnover was around EUR 2.1 billion, if my memory is good. I'm not sure, but probably Jacques-François has the number. So for sure, I would say we have a better comparison, of course, because the turnover was lower last year. Remember, of course, that in this turnover, you have FX effects and you have, again, worked again in the course of Q4 last year. I don't know if you have the number on Q4. Okay. I will give you the number.