Bechtle AG (BC8.DE) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for being here and for taking an interest in our third-quarter earnings call. This is the first call that my dear colleague Christian Jehle, our CFO, and I have led since Thomas Olemotz said farewell to this community at the Capital Markets Day. We feel sure we can earn the same trust and build the same kind of interaction with you that Thomas Olemotz created, and we are eager for what comes next. I will kick off our presentation in a minute, then Christian will offer deeper insights, and I will wrap up; afterward we will gladly take your questions. Let me now share a few highlights from our Q3. Demand remains strong, and our backlog reached an all-time high of EUR 3.6 billion. In Q3 of 2026, we continued to see robust growth across all segments and customer groups. Pre-tax earnings increased, and our margin stayed roughly steady relative to business volume. Operating cash flow was stronger than what we saw in the second quarter. And above all, we once again lifted our earnings guidance for the full year. Acquisitions and a growing European footprint. Through our acquisitions, we keep reinforcing our position throughout Europe. Interforce boosts our managed services operations in the Netherlands and adds recurring revenue. As a highly automated MSP, they can scale beyond the Netherlands as well. ITQuotes was our first acquisition project in Ireland, and it brings us new customers plus upside for our service portfolio. Through that deal we doubled in size, and those customers can now take advantage of our broad portfolio. The Kaut-Bullinger division reinforces our market leadership in HP's 3D printing across Germany and Austria. In the U.K., Bespoke XYZ contributes expertise in AI, data analytics and Microsoft Power Platform, which lays the groundwork for our AI unit in the U.K. and Ireland. Bespoke XYZ has been a partner for a couple of years and is efficiently driving AI adoption at our customers. Perhaps worth noting that these were the most recent acquisitions of this year, and the year has not come to an end yet. Also, it’s important to note that these acquisitions bring us not only volume but also expertise and capabilities that we will apply across public sector digital transformation. With the Bavarian judiciary, we obtained a framework contract valued at as much as EUR 250 million, encompassing approximately 17,500 IT workplaces, with a substantial share of services. For schools in the German federal state of Saarland, a framework agreement valued at up to EUR 80 million includes Apple iPads, accessories, and services. Funding has also been granted for IQM quantum computing resources under the DLR Quantum Initiative. We are achieving success in services through strategic product deployments and in future technology environments as well. We're increasingly seen as a strong partner for digital transformation that goes well past hardware. Our international growth in the public space is just as notable; and during Q3, growth in the public sector throughout the group hit 35%. We take pride in having our AI know-how recognized. We've achieved NVIDIA's top partner tier for AI infrastructure, and we joined the Microsoft AI Business Solutions Inner Circle, which brings together leading AI partners worldwide. In addition, ISG has recognized us as a leader for AI-enabled workplaces in Germany and Switzerland. AI is one of our strategic investment areas, and we'll lead our customers through their AI journeys. Lastly, progress has also been achieved in the areas of sustainability and digital sovereignty. We reached EcoVadis Platinum status for the first time ever, putting us in the top 1% of IT companies evaluated globally and providing a distinctive value proposition. In addition, a partnership was launched with secunet, focused on sovereign cybersecurity and critical infrastructure solutions. Having shared those highlights, I will now pass the floor to Christian Jehle for further insights.

Thank you, Konstantin, and good morning to all of you. If we look at the Q3 financial highlights, it seems fair to describe the third quarter as yet another highly successful one for Bechtle — the third such quarter in a row this year. We have delivered double-digit growth in both business volume and earnings. Looking more closely, business volume rose 19% versus the prior year, and the EBT margin is broadly stable. On our KPI of EBIT as a percentage of gross profit, we also improved productivity during the third quarter. Examining the Q3 results in detail, you can see gains on the top line as well as the bottom line. When we measure organic growth by business volume, it lands at about 18%. Gross profit for Q3 reflects a hand-picked group of sizable deals that we chose to take on. So when we examine underlying performance, that segment of the business likewise turned in a very robust result. Moving to EBT, we're seeing a rise in the double digits, and our EBT margin is broadly flat even with the tougher 2025 comparables. Considering as well our operating business and the operating leverage available to us, the tight cost control we maintain and the initiatives we're pursuing to boost productivity are already visible in the KPIs we report. Turning to order backlog and business volume: our backlog has hit an all-time record of EUR 3.6 billion, and being close to our customers is paying off for us. Backlog is up 33% versus a year ago, which means we're also seeing really strong momentum in business volume right across our operations worldwide. On EBT and the EBT margin: that margin matches last year's level even with the extra money we've put into our own IT. As we've told you over the past 3 quarters, we're investing heavily in our own IT to boost productivity. So EBT has risen 14%, and we're seeing the margin recover sequentially along with a very steady year-on-year profitability level. Turning to volume and how EBIT breaks down across segments, the chart highlights a robust contribution from our German home market, while our international segments are delivering as growth expectations anticipated. Germany, our largest contributor, is expanding on both revenue and earnings, which once again demonstrates the strong position we hold at home in Germany. Beyond that, we show a substantial degree of diversification throughout our European operations. The international portion keeps rising steadily, underscoring the resilience built into our business model. Consequently, we are posting broad-based EBIT growth. When you turn to business volume and EBIT margin by segment, it's obvious the expansion was widespread, with every customer group adding to it. Konstantin already noted how well the public sector did. And across all segments worldwide, we're showing gains in every region. Germany, with the best profitability, clearly stands out as our most established business. Its structure is the most mature, which explains the margin profile you see on the chart. But we're quite confident our international segments will travel that same road, and that we'll lift profitability in those areas too. Moving on to how each segment performed, here are some key points for each one, and I'll walk through a few of them. Overall, what comes through is that being close to our customers, together with a European footprint and our excellent vendor relationships, is what underpins the resilience of our business model; so let me touch on a few aspects of what the chart shows. First, you see strong organic growth in Germany, and in our home market we continue to gain market shares. France remains a challenging market. It's fair to say that any foreign business running a VAR business in France faces a challenging environment. We're seeing a 5% increase, and there's also encouraging movement in our strategic efforts to gain share within the public sector business. In that area, we're starting to see initial progress. As we mentioned during earlier quarters, we've established a new supply chain in France; the new warehouse we set up there is now operational as well. Overall, what stands out is that our international portfolio is quite resilient, and we've had strong success with a local approach that keeps us close to customers. Turning to cash flow: looking at the broader picture, I'd describe operating cash flow as having improved considerably compared with the second quarter. If you examine how our working capital compares to business volume, you'll notice a meaningful gain. We saw robust operating growth, especially during September, and that temporarily pushed up our working capital needs in the third quarter. When you dig deeper into that sort of performance and compare working capital against business volume, that measure has gotten better. Other measures have improved too. Our DSO dropped 2 days, moving from 38 to 36, and that area of the business has also gotten better. The primary factors behind our cash flow performance, I'd say, are inventory buildup. Everything we've built up is backed by orders, so our inventory carries no extra risk. On the whole, I'd say it's fair to describe our cash flow results as much stronger. Turning to our workforce, we've shown growth in headcount versus the same time last year, but that increase comes solely from acquisitions. Look at the underlying picture, then, and the organic workforce is slightly smaller. Despite our careful approach to costs, we continue putting money into our talent pipeline. I believe we've also told you about the announcement that Nicole has come on board this month as our new VP for HR & People Development, and we're delighted to have her with us. Based on our initial conversations, she seems to have integrated really smoothly, and our expectations for her are high. Now, let's turn to productivity. The chart shows the main levers for productivity that we outlined during Capital Markets. It's fair to say we're making headway in each one. Global process harmonization is the first focus area. Our go-to-market approach is the second. Technology and AI make up the third. So in all three, we're seeing meaningful gains, and Konstantin has already covered some of that. So we believe this sets us up for our 2030 EBT margin goal of 5% of business volume. Let's turn to the 2026 outlook. After the results in the third quarter and given the solid order backlog, we decided to lift our guidance for 2026. Looking at the chart, the main difference is the EBT growth number; we've moved it up from 5% to 10% previously, now to more than 10%, which mirrors three strong quarters this year along with the robust order backlog performance. That covers what I had; over to you, Konstantin.

Thanks, Christian. Before we take your questions, I want to recap a few main points. In a market that is still difficult, our business model continues to hold up well, and we keep taking share. We are still putting money into our own IT infrastructure so that productivity can improve further. In addition, we anticipate that prices will stay at higher levels during the months ahead. Growth momentum remains solid. We look for additional growth in the foreseeable future, both from our own operations and from acquisitions. Many thanks.

Are you able to hear me?

Yes. You're coming through.

I have two. So to begin with, on the part that isn't hardware or services — that is, the software cloud business — I mean, that was outstanding performance, rising 60% year-over-year. Could you give us some insight? In your presentation you referred to some big, let's say perhaps one-off, contracts within that figure. So could you add some color regarding what you see as the underlying trend? And then second, basically the other side of the coin, hardware revenues are, in my view, somewhat below what we expected, or perhaps also slowing a bit. So could you give us some details on this sort of trade-off of higher prices alongside volume pressure? You mentioned in your closing remarks that you anticipate pricing staying elevated. Do you think market clients will adapt to that higher price level, meaning you'd expect volumes to drive the coming quarters much more? Or do you think budgets will just stay where they are right now?

Thank you for asking. I'll probably handle the first part, and Konstantin will cover the second. Regarding the remark on product mix and how it affects margin — clearly, we're not able to disclose anything about specific customers. What we wanted to address is that in the third quarter especially, we handled a number of fairly sizable deals at a fairly thin margin, yet they added a specific amount in absolute terms to our EBT figure, and we chose to take them on deliberately. Naturally, we were considering how this would affect gross margin compared with a year earlier. So when you see the minus 1 percentage point, the largest share of it comes from some very large transactions we accepted, and those occurred across Europe. Clearly, we cannot reveal any customer details, but these were particular deals we took on to boost our absolute EBT number. That is the entire explanation for it.

On our end, we expect pricing to stay elevated. Based on what our vendors tell us, as far ahead as we can see, those levels will also stay high through next year. There could be further increases, though not at the sharp spike level witnessed this year, but hardware pricing will keep rising. As for how this affects our own business, particularly this year, the spikes we saw pushed customers to move budgets around. In certain hardware areas, notably workplace-related products, that had some effect on units, since investments got postponed or redirected toward data center business. So overall, unit growth was healthy in some segments and somewhat slower in others, though price increases made up for it. Broadly, when we set our results against the unit performance vendors report and what we observe happening in the market around us, we feel our performance there is very strong.

Yes. Are you able to hear me?

Yes, we can hear you.

So I've got 2, and maybe one more follow-up after that. The first would concern cash flow and working capital. You listed the drivers, and that makes sense. Right now we're sitting at minus EUR 131 million after 9 months. You did say that inventory is mostly tied to projects as well. So could you give us a bit of color on what you mean by significantly positive operating cash flow for 2026? I mean, we saw very strong Q4 levels last year and particularly the year before. So yes, that would help us get a feel for timing. And then the second one is on — just housekeeping regarding the financial results. Financial expenses are now about EUR 12 million. Can we broadly take that as the run rate for the convertible and the Schuldscheindarlehen in Q4 and after that? And my final question concerns public sector. You said the group saw very strong growth. Are you also seeing that carry on into the current quarter, given that the fourth quarter tends to be particularly strong in public sector?

All right. I'll handle the first 2, and Konstantin will take public sector. First, regarding cash flow performance, clearly we don't provide guidance on cash flow performance for the year. What I can tell you is that we'll continue managing cash flow very tightly. The main factor behind the shifts you're seeing in our cash flow numbers is inventory. And I'd say it's reasonable to expect that given the growth rates we're experiencing, inventory levels will rise somewhat. Still, for the full year, we anticipate a positive result on cash flow performance. So the fourth quarter will see some movement. How much precisely? Naturally, we don't provide guidance on that. What you can count on from us, though, is that we'll handle the fourth quarter consistently with the first three. Thus, we anticipate better underlying performance when it comes to days of sales outstanding and how we manage inventory levels. Any inventory we bring on is always tied to specific orders, so that inventory figure carries no risk. Regarding our financial expenses, the Schuldscheindarlehen, as you correctly pointed out, is placing some strain on those numbers. So in your position, looking ahead, I would expect a comparable figure for next year as well. We brought that amount on to fund future acquisitions, which you would expect from us; we keep watching the marketplace. Konstantin discussed the acquisitions we have completed recently. We are deploying the capital we raised, though naturally we intend to do so prudently and ensure we build the appropriate leverage. In short, to address your question about whether that same level should be expected: in all likelihood, yes, although it's clear the investments we make also produce a return for us.

Let me address what you asked about the public sector. We're still seeing really robust growth there. That said, we're up against a very, very strong Q4 from last year. But at this point we aren't worried, since demand in the public sector remains consistently very high, not only in Germany but throughout Europe, and we're securing significant frame contracts everywhere.

I have two questions, if I may. The first concerns 2027. If you could give us some early thoughts on it. How do you expect initial developments and the environment to shape up as we head into 2027? Do you think that because hardware pricing is higher, customers are raising their IT budgets essentially to cover their IT requirements? Or would you anticipate a picture similar to prior years, where customers truly have to prioritize purchases within a set budget? That is my first question, thank you.

What we have observed this year is that price spikes forced customers to reallocate budgets; they had to make necessary investments in hybrid cloud infrastructures and AI workloads, and so on, which pushed them more toward data center investments and somewhat away from workplace investments. We believe this must be followed by stronger investments in workplace as well. So we do think a positive trend will be underway there next year, and as we approach the end of the year, customers will of course be working on their budgets and reallocating to the new pricing levels. As I said earlier, we expect prices to remain high. We expect them to keep rising, but in a much lower and less spiky manner than this year. Still, we believe some budget reallocations will occur going forward. On the whole, we strongly believe that implementation of AI workloads, building out sovereign infrastructure, digitalization of all the governmental entities and so on means the IT industry in general will continue to see very, very strong investments going forward. So we believe we are in a very good position there.