CENIT Aktiengesellschaft (CSH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and I warmly welcome you to today's earnings call of CENIT AG following the publication of the Q1 figures of 2025. The CEO, Peter Schneck; and CFO, Axel Otto, will speak in a moment and guide us through the presentation and the results. And afterwards, you have the opportunity to ask your questions if you may have. And having said this, Mr. Schneck, I hand over to you.

Yes. Thank you very much, and a very good morning, ladies and gentlemen. Thank you for participating in our today's earnings call for Q1 2025. Like always, we would like to guide you through the figures of this Q1 2025 and to give you some further details in addition to the notes that we have published. At the end, we would like to grant you the opportunity to ask questions and, of course, to make any comments. Just before I start, I would just like to remind you that this call will be recorded and provided on our website for participants that cannot join today. So if you ask questions later on, please be aware that your voice is recorded. So if you don't want to use this opportunity, you don't want to be recorded, please ask your questions via the chat function of this website. So let's start and let's jump into the financial figures Q1 2025. It's early in the year. So what you can see is, first of all, we have the good news that we have a slight increase in our revenues from EUR 50.5 million to EUR 51.5 million. So it's a slight increase of 1.9%. And this, of course, in a very challenging environment, as you all know, and I don't have to recall this, the political situation in Germany was for quite a while, difficult and there was certain reluctancy, of course, related to this also the French market, and the DACH and the French market are our main markets. And then on top, the tax surprises, if you want to call it that way, of Mr. Trump, of course, influenced also a lot of our customers. So the customers were quite reluctant with their investments, and you will see this later on also in the backlog that we have quite some work to do. But of course, so far, the customers were a little reluctant. So when we look into the background of this slight increase, you will see that the consulting and services increased by 11.5%, which is, of course, very nice and impressive. But what you have to bear in mind is, of course, also that this is also driven by the acquisition of Analysis Prime that we have done last year. And for the first time, we have consolidated them now also in Q1. So that's why you have to bear this in mind and what you also have to bear in mind is, we slightly planned conservative in all other divisions. Only Analysis Prime was foreseen to grow, and that's why we are very confident to see that we are close to our figures in those areas. But of course, we would have a much better increase in these revenues if Analysis Prime would have delivered. Analysis Prime is $4 million short in revenues in the first quarter according to their plan. We are very confident that we will catch this up. And also in April, we see now that they are, for the first time, profitable in this year and, of course, coming also close to the target. And we see that the pipeline and also the bookings confirm that we're heading into the right direction. Then what we see is, as we have scheduled and planned this, we see in the software sales on the third-party software side, a slight decrease of 4.9%. This is mainly driven of a big deal that we did in 2024, which was a defense deal for the company called Diehl, and with also a nice EBIT effect, as you will see. And of course, we could not, in this environment, catch this up this year and have a similar deal. Down the road, we see those kind of deals. But as I said, there's a certain reluctancy and that's why we had planned also to be in this range. And then what you also see, but this is a small amount when we come later on to the figures that in the proprietary software, we also have a slight dip of 1.4% in our revenues. On the gross profit side, we have an increase of 5.5%, which is, of course, also a very nice message. But due to the different product mix because we have now more consulting services, but of course, less PLC means software sales. The margin is a different one, and this you will see also on the EBIT side. So yes, nice to have, but the product mix is something that in the remaining 3 quarters, then, of course, we have to catch up. But it shows that we're heading also into the right direction because there's already a lot of preparation and migration work that we have to do to then deliver in the remaining quarters, this software. And then what you will also see in the figures later on, we see already an increase in the order backlog of 20.58% (sic) [ 25.8% ] to EUR 88 million for our catch-up 2025. This is a nice sign. But what you also have to bear in mind is that, of course, there's Analysis Prime also adding to this one. So it's not 25% that we have in the backlog for all the other divisions. So it includes Analysis Prime. But again, this shows there is a nice prep work that we can already do. And there's also on top a very impressive pipeline for the remaining year. So it all depends on how good our economy will start and depending also on the investments of our customers that have waited now for the results in Germany and the overall situation in the world that they will release their funds for further investments into software. So when we then look into the EBITDA, and we've done this here in a way we show the EBITDA to EBIT line so that you have a pretty good understanding where this is coming from, and then I will run you through this one. As you all recall, we had planned last year, a so-called restructuring program where we had some measures to reduce our -- or to adjust our team to the market requirement, what we call Fit for Future. And in this environment, we have released 3 point -- or built an accrual of EUR 3.349 million as an accrual to run this program in 2025. So overall, this will result in an area of about 50 to 51 employees that we will not have in our team down the road. We have the restructuring in here. And when you look into the figures that we have released, you will see that we are similar in size of our team, so still 980-ish employees. But this is, of course, because we run this program now in the first quarter. So we have the costs in. But of course, now the effects you will see in the remaining part of this year, so we will run against this accrual. And on top, also the 51 employees will be out of our team and not shown any more in our figures starting in April and May. And we will have in April and May effects for our French team, which we could not include in the Q1 figures since we have a union in France, and that's why we had to wait until we will include these effects on top. So this will be again in the range of EUR 300,000 to EUR 400,000, so that at the end, we will end up with this 3.77 that I mentioned in our last call. So this is one effect. And the second effect that you see is, of course, also we had some currency effects in the range, as you will see later on, on the bridge of about EUR 400,000 since we have now an important activity also in the United States, of course, we are depending on the U.S. dollar. And due to the tax issues that we had in Q1, the dollar was getting quite weak. And of course, the euro was much stronger. That's why we had here a kind of additional cost of EUR 400,000. Then when we switch into the EBITDA, to the EBIT -- sorry, to the EBIT, you will see that there is again another effect, and this is, of course, mainly driven by the PPA. So of pre-PPA of Analysis Prime, we had a first PPA vision that we included in our last year figures and, of course, had to adjust this now in our auditing with our auditors since we had quite some additional customers in the pipeline that were shown in our list and that, of course, increased the PPA. So that's why we have another EUR 900,000 effect. Overall, I think mainly driven by the restructuring program that we are running in Q1. And other than that, I think nothing to worry at this stage. So then when we look at the overall figures and the KPIs that we have listed in here, you will see on the KPIs area on the bottom line, the order backlog that I just mentioned, so this 25.8%, as I said, one effect is Analysis Prime. The other effect is, of course, that we have an increase in our order backlog because some of the customers placed the order, but did not start the projects yet. And then, of course, there will be also software effects on top software sales for those projects in the future. Then when we go on the right side, you see the cash flow effects. We are in line with, I think, quite impressive and good operating cash flow of EUR 11.6 million and a free cash flow that is similar to last year of EUR 11.36 million. Other than that, I think I mentioned already all the other things. One thing to mention is maybe the equity ratio that you see on the balance sheet side. It's dropped down to 25.7%. The comparison is made here to the 30.3%, which is the full year 2024. So if you really would compare this now to Q1 2024, we were at 27% equity ratio. So for Q1 figures, quite in a similar range. Now explaining a little bit more the EBITDA bridge for all of you that you get a better visual impression of what I just mentioned. You see here the EBITDA that we had in the previous year. The EBITDA was EUR 1.8 million. In this EUR 1.8 million, of course, there is this deal of the defense company, Diehl, included, which is already a different starting point. Then, of course, we had the project performance, as I just mentioned, the Fit for Future program, which is in the area of EUR 3.3 million. And there will be the French team coming on top then in April and May with a EUR 300,000 to EUR 400,000 on top. But again, for Q1, EUR 3.3 million. Then we have the mentioned FX losses, the currency losses because of the U.S. dollar in the first quarter, which over the year, we assume will equal out again since we see that the dollar is coming back to the $1.10 that we have planned and that we have also in our figures. So getting into this direction, and of course, we will have a slight correction over the year, I'm pretty sure. Then we have the effect of EUR 1.4 million according to our plan. So we had losses of Analysis Prime in Q1 of EUR 1.4 million since they had, of course, the team, but they had some projects that were still in delay and some of the customers that restarted now. As I mentioned, in April, we see already they are positive now, and we are catching up. To catch up also this EUR 1.4 million loss over the year so that we would equal out, and we will still meet our overall target. This is what we are still going for and what the team is also going for. And again, there, we have also a very impressive pipeline, I must say, at the moment, unweighted $55 million for this year. Our plan is the USD 28 million. So I'm confident that we will meet our target. And of course, we have 3 months signing line from first contact until we get the deal ordered. So the problem that we have now in the U.S. is more likely the delivery of those projects for the remaining 9 months compared to what you see here. And then, of course, as I mentioned, this what we call here less PLC gross profit is based on the product mix that is different since we had in Q1 a little bit more services, consulting and migration work and less software, what we call PLC sales. We had, of course, a different product mix that according to last year resulted in EUR 700,000 less profit than what we had expected. So this overall sums up then to this EUR 4 million EBITDA in actual. And I think you see that this is mainly driven, of course, on one hand, by the project performance and on the other hand, of course, Analysis Prime getting on track, but not being in line at the moment. Now if we break it down to the sales by the revenue types, as I mentioned before, you see the Consulting Services, the 11.5% increase, but you also see that this 1.4% of the CENIT software is a slight or smaller difference. And again, as you can see here, this is one project that goes into one of the other months, and that's why this is nothing to worry about. On the third-party software, you see mainly this missing deal of the defense company. So this [ EUR 1.4 million ] overall, but with a very important impact, of course, also on our EBIT. And here you see that this is a deal that we could not cover in this environment in Q1. But again, we have, especially in the defense environment projects in our pipeline that will allow us to catch this up. Then if you go into the segments, you see the slight difference on documentation, so EIM, which I think I don't have to explain. And you see on the PLM side, this increase of 2.7%. And again, please also bear in mind that in the PLM section, there's, of course, also the revenues of Analysis Prime included in our reporting. If we then go already to the customer highlights, I would like to mention Intecro, which is a Turkish integrator that decided to run the production now with FASTSUIT, so our digital factory solution that is really catching up, I must say, and also positive and increasing the sales. So where, as you know, 2 years ago, 3 years ago, we were negative with this division. And by now, I can already say that also this year, we're very confident that we will be in a very nice positive environment and that they will also contribute to our overall EBIT. And in line with this, we have another FASTSUIT or DFS project with a company called SMR Plus, which is a Czech-Slovakian company that is also doing quite some metal processing work, and they also decided to run their whole production with our FASTSUIT solution down the road. And then in the 3DEXPERIENCE environment, as you can see here already, this is a defense customer that we're not allowed to mention, but it's in the aerospace environment and a larger customer that decided also to continue with us on the 3DX DELMIA side and which is more likely the production side of the solution and to invest into this future. So it's a start for this company to expand the activities with us, and we're also very confident that given the production challenges that they have in the current environments, that they will still run also their software project. Then if we come to the share information, this I will go quickly because you know better than I where the CENIT share prices are. We're slightly getting back like all our peer group members as well. So it looks like that we're heading in the right direction. And of course, I hope that we will confirm this also during the year with our figures. And finally, also because we had some changes, I just wanted to draw your attention to the fact that now we have a free float of 65% in our shareholder structure. And of course, we're hoping that there will be some strategic investors down the road that will see the potential and the opportunities that we have with CENIT. We have updated, of course, the latest ratings. So these are actual ones that you see here by the different analysts. And of course, you're part of this, in this call, I assume. So this is what we have mentioned. And finally, I would just like to remind you that we have proposed for this year shareholder meeting that we will not pay a dividend for year 2024, given the environment and, of course, also the results that we had in year 2024. We think that it makes more sense to invest into our future and to keep this up. And then, of course, finally, you see here our meetings that we have. So already next week, I will be present on one investment forum. And then, of course, I would like to remind you and hopefully also see you at our Annual Shareholder Meeting in Leinfelden-Echterdingen in Filderhalle, so close by here to our offices in Stuttgart just across basically the autobahn. So I hope to see you then. So that's it from my side in a nutshell. As you can see, I think I can assume that Q1 is mainly affected by the restructuring costs as we had announced and that make us fit for the future. We had to adjust our team to the given environments. But to be honest, I -- if you just recall, I announced this already 3 years ago. So in this restructuring process, we also did quite some changes in our team composition that were necessary. And with the investments that we did in the acquisitions, we bought time, EBIT and, of course, also revenue. As of today, I can tell you that given the market capitalization that we have in the environment of EUR 70 million, if you would just sell now the acquisitions that we have done in the last 3 years, we would easily end up in an area of EUR 80-plus million without touching CENIT core. So as I mentioned in our last call, 2025 will be a challenging year, will be a bridge year for us where we run our restructuring. We will have quite some challenges, but we're heading in the right direction, and we're in line with what we have forecasted. So that's it from my side. And I would hand over to you for questions, for comments from your side. Thank you very much.

Thank you so much, Mr. Schneck for the presentation. So let's move into the Q&A session. [Operator Instructions] We will start with Cosmin Filker. So please go ahead and ask your question.

A question regarding Analysis Prime. You said that they are short around USD 4 million. It means that at this moment, they are on track to generate only $24 million for the full year. So your previous forecast was $28 million.

Yes. We still stick on this forecast, Mr. Filker, because we see, as I mentioned, they have -- as of today, and that's why I mentioned also they have this 3 months rate from first customer contract to signing the deal. But as of today, they have a pipeline of $55 million unweighted. And then, of course, if we weighted and it's according our conservative weighting that we have here in Germany, we still end up with the target that we have of this $28 million. So that's why we're not revisioning or changing our forecast for Analysis Prime. They will be in this range. What happened is that we have projects already from last year that were shifted. But of course, we had also customers that didn't really start up on the 1st of January with the projects. They basically started slowly. And this is why the delivery team produced the costs we had them on the bench. We had the team available in January and February. But finally, the team really started working then mid of February, March. And until they had really the ramp-up phase, we basically were already in a situation that we could not deliver or achieve our target for Q1 anymore. So what they have now, and this is the big challenge is to deliver in the remaining 9 months, the pipeline that they have in front of them. We've seen a slight catch-up already in April, but I think May and then June will be the months where they definitely have to catch up. So June is a month where they basically have the utilization rate of the team across 100%. So there we have to make sure that, first of all, nobody gets sick, but the second thing is that we also have support from additional teams that we have to build in, which are these Colombian backups that we have. So we're not worrying about this, and this will also not affect our cost structure on the Analysis Prime side.

Is it fair to assume that Analysis Prime contributed in the first 3 months around mid-digit million range?

On the revenue side or on the -- when you say contributed on the EBIT side?

Revenue, revenue.

Yes. On the revenue side, they were basically in the range of about 3-ish million. So this was not what we were looking for. They basically missed this by $4 million.

Okay. Do you see now in the month of April, you already said a little bit about that, but do you see a reduction in the customer reluctancy? Do you see improvement now after the tax -- after the yes, the topics, the geopolitical topics were a little bit better now in April.

So to be honest, Mr. Filker, already in Q1, we saw a lot of customers that were willing, but waiting in doing investments. You've seen also in the order backlog that -- and this is also partially of the increased consulting services. We had already quite some preparation projects that we were doing with customers, but they were not investing in the software yet because they were waiting for the developments. I mean, the German customers, of course, looking at the German government side and the French customers also looking at the overall European, but mainly driven German side. So I think that we are now -- and I hope that after today's presentation of Mr. Merz in the German parliament that this will release also from the customers, the investments so that they have a clear guideline. They know what they're heading to and they mitigate their risk. This is what they're all about. I mean, we honestly -- and you know this, we have a lot of automotive customers that were worrying whether they invest in Germany or in East Europe or maybe in another country. And they were preparing to improve their activities in the German market, which is, of course, helping us. But now we have to release this. But overall, the activity has increased. If I compare this to last year, honestly, November and December, this was already slow.

And last question is regarding the special expenses. So in total, we were expecting around EUR 4 million for the total year. That means EUR 0.7 million around left. Is this expected to come in the second quarter now?

Yes, there will be just this, but not the full -- this will not be EUR 700,000, this will be, like I said, in the range of this EUR 300,000 to EUR 400,000. We had originally forecast this EUR 3.7 million. We're now calculating because, of course, we have to do the exact figures for the French teams or team members that we're talking about, 9 team members. And based on this one, then we have the final figure that we will add in the April or then May figure. I would assume even in the May figure that you will see this. But in Q2, you will see the remaining piece, which will not be in the range of EUR 700,000.

So now we have one further hand and this hand belongs to Kai Kindermann.

Two questions from my side. I wanted to ask on Analysis Prime, how can we think about the risk of further project delays in the rest of the year? Can you evaluate them?

Yes. Maybe responding to your first question, Mr. Kindermann, and then coming to the second one before the first one. So what we are doing is we have increased the support, let's call it this way or the surveillance from Germany. So what we have is now a weekly call with our team in the U.S. where we really go through and week by week, see what they have done and adjust with the delivery side, which is one hand and on the other side, track, of course, the additional bookings because, of course, we want to make sure that we also have a nice shift and also a nice piece that we can shift then also in 2026. So the truth is, as we all know, we still have to learn to work together and the Americans are, in many cases, more optimistic than we are, which is a cultural issue and also good. On the other hand, of course, for our forecasting, this makes it difficult. We have adjusted with them the way on how they weight the projects and also the delivery, which is based now on our German system. And we're talking to the salespeople directly making sure together with the management, of course, not the side of the management, but making sure that we increase our accuracy of this forecasting. So this is the only thing we can do at the moment because, of course, we cannot interfere on site, but we can control them much, much closer and work with them so that the currency goes up.

And the second question is on the order backlog, which part of the development is organic without the Analysis Prime contribution?

When you say which part, I mean, what I cannot -- I can't tell you now what the figure is that is already in the order backlog from Analysis Prime. Honestly, this would be just a guess. That's why I don't want to come up with this. But what I can tell you is we have on the SAP side, quite some backlog because SAP is promising for this year, let's say, this way. And to be honest, also the 3DS side, which we forecasted a little lower and maybe less aggressive than we've done in the past years is heading into the right direction. But sorry, I don't have the exact figure now of this 85 million, which portion is Analysis Prime and what the other portions are in total.

So now we move on with [ Oliver Frei. ] So please go ahead.

I would have 2 and maybe starting with the restructuring program. What potential savings do you see here? And when should we expect this? Because if I understood it right, we will see the lower FTEs already with the Q2 reporting.

Yes, Mr. Frei, that's absolutely right. So what we are doing is we had this accrual and now we're running with our savings against this one. You will have 9 team members from France that will, over the years, start a little later. For the German piece, I can just say there's a so-called -- well, I don't know what it is in English, but there's an Übergang company or transition company, if you want to call it this way, where we can shift into already the team members. So you will see the number of the team members not anymore on our total figures. So that's the first one. And then the second thing is we had now calculated this one and assume that we will need less money than that we have accrued. And there will be a certain effect. And then, of course, what we will have in this -- I mean, and this is also what I mentioned for next year, the total effect is in the area of EUR 5.5 million for this 51 team members that we're saving on staff costs. So if you calculate this one, we will definitely be in the range that we will have another -- and now this is now guess, more likely, so not the exact figure, but in the range of EUR 2 million saving that you will see still in this year. So that's why we end up than with this EUR 3-ish million still that we have, and there will be a slight difference on top.

And maybe a second question on D&A. What should we expect for the full year? We saw a slight increase. Maybe some insights on the split for depreciation, amortization? This would be helpful.

When you say now on the D&A, what do you mean by this one? You mean...

So maybe like some -- maybe some guidance on the full year depreciation and amortization charges we can model and maybe a split between the depreciation part and the amortization part?

This will be something that off the hip, I cannot provide you, Mr. Frei. So I will send you the -- I mean, I will take this question, and then I will provide you the information because off the hip, I cannot give you now figures. This would all be more likely try and guess.

So in the meantime, we have received no further questions. So therefore, just a quick reminder, if there's still open topics you would like to discuss, just let us know. But it seems there are no open questions in the chat, no virtual hands. So that appears everything is answered so far. And we say thank you for participating and your shown interest in the CENIT AG. And also a big thank you to you, Mr. Schneck and Mr. Otto for joining and for the presentation. So from my side, I wish you all a lovely remaining day and hand back to you, Mr. Schneck, for some final remarks.

Yes. Thank you very much, Ms. Malek. And of course, thank you very much to all of you for participating and also your questions. And Mr. Frei, we will provide you then the information that we will then also disclose to all other team members here in this group, of course, also on our website with further information. Yes, other than that, as I mentioned, you see the Q1 is a challenging environment that we're battling and handling, but I think, like I said, 2025 is a transition year. We -- as of today, we do not see any reasons why we would adjust our forecast. So we will stick on this one, and we will head into the right direction. And I'm looking forward then to present to the next results in our midyear call on August 1, as far as I recall. So if you have any further questions in between, if you need any further information, you see here the financial calendar on our website where I will be present. And then, of course, feel free to contact us directly. You have my e-mail address, you can send me as well, of course, also any kind of WhatsApp or any other things or through our website where Ms. Marinovic is, of course, taking those questions. And beyond this, you can, of course, also call me or visit us in Stuttgart. So thank you very much. I'm looking forward to see you soon again and to talk to you soon again, and have a nice week, and see you next time. Thank you very much.