Crealogix Holding AG (CLXN) Earnings Call Transcript & Summary

Hello. Welcome to the analyst call for the half year results for the year 2021, 2022 of the CREALOGIX Group. I'm your host, Esther Bosch, and I would like to introduce you to our 2 speakers today, Mr. Oliver Weber, our CEO; and Mr. Daniel Bader, CFO of CREALOGIX. They will present the annual results first, and then they will be taking your questions. So until the results are presented, your microphones are muted. [Operator Instructions]. However, the entire presentation is recorded. You're going to be able to access it on our website as usual, and you will be able to ask any questions from our Investor Relations team. For the best feeling experience, I would also like to ask you to -- if you're joined over Teams, to move your mouse over to 3 dots next to the presentation and tap fit to frame so that you get the full screen and the best experience of this presentation. And without further ado, I would like to invite Oliver Weber to start the presentation of the annual results.

Good morning, and welcome. In the first half year of the financial year '21, '22, we are reporting a continued increase in our SaaS revenues by 9%, contributing to 32% of overall revenues. Main drivers for growth are new SaaS subscriptions and upsells to existing customers. The recurring revenue share that SaaS and maintenance revenue increased to 56% of total revenue. Previous year, it was 50%. R&D increased to 30% of revenues, previous year, 18%, mainly in order to productize the funding portal, which will lead to a higher future SaaS revenues. In addition, we continue to invest in the digital hub and into its new wealth management segment solution. Total revenues decreased by 13.6% year-over-year, a decline which was driven by non-SaaS revenues and some orders which were pushed into the second half of this financial year. In addition, our focus on growing the implementation services partner ecosystem also resulted in reduced on service revenues. EBITDA is negative CHF 3.8 million, a decline of CHF 5 million year-over-year. Main driver here are additional R&D expenses of CHF 4 million and the volume effect from lower revenues. Our improved cost base could compensate for some, but not for all of those effects. In summary, some of the results shown here came in as expected, but the timing delay for some orders was unplanned. We are convinced that the additional product investments we have done have created substantial traction in the funding market, a.k.a development banking market, which -- with successful go-lives, additional new logos and positive pipeline development. Our strategy is right. We have seen rapid account growth in the post-merger environment in one of the largest Middle Eastern bank and significant upselling in existing -- in our existing customer base as well as additional banks on the transition to the digital hub. Let me share some of the transformation highlights from the first half of the financial year '21-'22. 2 years ago, we had established a dedicated transformation program designed to change the business model of CREALOGIX. This program has been completed by the end of the year and transferred into the new global functional organization with a new leadership team. And the global functions are now driving the execution of our strategy. I would like to highlight 3 areas we have been focusing on. First, product development, where we have done the heavy lifting over the past 18 months. We have shifted from 80-plus products in various markets to a consolidated, clearly defined portfolio, which is integrated in the digital hub. 85% of our R&D spend is allocated to strategic products now. We have invested heavily in R&D this past half year of the financial year. The increase was mainly driven by contracted product developments from third party. Secondly, we have continuously improved our cost structure by benefiting from economies of scale, thanks to the global functional setup and the standardization of products. Personnel expenses are down 10% year-over-year, and we will continue to improve our cost structure. Thirdly, we have established a new nearshore center in Poland, if we are employing already more than 60 team members there and continue to build up capacity in the center by consolidating other areas. One of the key highlights in the first half of the financial year '21, '22 was the successful delivery of our digital hub with the funding configuration to 6 of the German development banks. This is the largest customer program in the history of CREALOGIX, and it is a 10-year SaaS contract. And it is a new and strategic market for us with more than 250 development banks across Europe. Besides the development banks, there's a larger number of ministries and other funding organization, which can be targeted across Europe. The funding platform has been developed with the latest technology. It is modern, modular and scalable. Two banks are live and 4 banks are ready to go live over the next couple of weeks. The beauty of the standardized SaaS solution is that we have decreasing incremental cost for each new bank we are adding on to this platform. We have won Bremer Aufbau-Bank recently, and we are in negotiations with other development banks, not only in Germany. This SaaS solution with its design, the way we have delivered the program and how we run this cluster of customers is, for us, a blueprint for future digital banking SaaS solutions on the digital hub. Our job in this context was to provide a platform, which allows the participating banks to tailor their specific offering in their state while being on a highly standardized platform, which can be hosted by CREALOGIX. The platform consists of different modules and includes also modules to allow any development bank in Europe to apply for grants from the European Union. It's a highly standardized process with a lot of regulations, and therefore, those modules are key because they offer that standard. And for the context, development banks are specialized multipurpose financial institution. They are not widely known here in Switzerland, but in Europe, they play a major role in the financial system. They provide medium- and long-term finance and funding for government programs for both the private but also the public sector. Those banks are in charge to approve applications and to pay out stimulus investments for economic growth, for the labor market or labor market subsidies, housing allowances, infrastructure programs, loans for start-ups, incentives for technologies to reduce global warming and special programs such as COVID aid. It is a very attractive banking segment, which offers high chances for growth. And this is the reason why we have decided to invest significantly in this new segment. Another highlight worth mentioning is the progress we have made with our main product, the digital app. Thanks to the focus in R&D and the additional investments, we have generated promising leads across all markets. We are in detailed discussions and proof of concept with new and existing customers. And we see that the strategy is showing tangible results. The feedback from the market is excellent when it comes to the future proofness of our digital hub. It's innovative, scalable and cost efficient. And it helps solving the challenge that banks have, how to modernize the front end while running the bank at the same time. It is an offering combining innovative front-end experience with our integration capability. And this is the reason why we have been recognized with the best of breed in WealthTech Asia 2021 as innovation partner of the year by IBM. And we are one of the finalists at the 10th Annual WealthBriefing, the European Awards 2022. And now I'm handing over to Daniel Bader, our CFO, who will give you the details of our numbers.

Thank you, Oliver. Good morning. Also welcome from my side. Now let me show you our key figures for the first half year '21, '22 in more details. Revenue reported at CHF 45.4 million, which is a decline of 13% in Swiss francs, but also in local currencies. The decline almost entirely resulted from our nonrecurring revenue, which decreased by CHF 6.2 million, respectively, 23%. Main drivers here were a lower level of good sales, delayed license sales due to COVID travel restrictions, but also shifted service revenue to partners. It follows our strategy to focus more on product sales. On the other hand, the share of recurring revenue, which is our focus area increased from 50% to 56% of total revenue. The increase was driven by additional SaaS subscription business where we could upsell additional modules to the German development banks, but also to Swiss financial institutions. Therefore, the share of SaaS/hosting increased from 25% a year ago to 32% of total revenue. From a regional point of view, we see a strong demand in the Middle East region, whereas our home market in Switzerland was impacted by the delayed license sales and the lower level in the goods business. Continued high investments into R&D and reduced revenue had a negative impact on the profitability and could not be fully compensated by cost reduction measures. In total, EBITDA declined to minus CHF 3.8 million. A higher noncash tax burden further decreased adjusted net profit. Adjusted means net profit before amortization of goodwill, which do constantly amortize over 10 to 15 years. Now let us have a closer look at our operational results. As indicated in our guidance in September '21, we continued to heavily invest into R&D, which summed up to a share of 30% of total revenue. On the cost side, we can see now the result from our restructuring we have initiated 18 months ago. Personnel expenses decreased by CHF 6 million, which is a decrease of 19% if compared to the previous first half year. This can also be seen in number of FTEs, which declined from 694 FTEs a year ago, down to 572 FTEs as per 31st December. We also made progress on our rent costs, which we could reduce by more than 20% if compared to the previous first half year. However, the significant cost savings could not compensate the lower volume and the high R&D spending. As you might remember, in July 2020, we signed a huge 10-year SaaS contract with 6 development banks in Germany. At that time, we started our journey to develop the new product, funding portal. More than 70% of this invest has been completed by the end of 2021. And the phase go-live of the 6 development banks will be completed in the next months. Thereafter, the R&D spending will significantly decline to a normal level of around 18% to 20%. The majority of these development costs is reporting the line goods and services purchased as there are many development partners involved. The invest into wealth offering and the digital hub continued at the same level as in the prior years. Overall, we invested in absolute numbers, CHF 4 million more into R&D as in the previous first half year. And we can say that the majority of the invest is spent into our future strategic products, such as digital hub, wealth solution and the funding portal. Free cash flow was CHF 15 million negative and impacted by the following factors: delayed license sales and lower goods revenue had an immediate impact on the cash, but also our billing peak in December had a temporary adverse impact. Most of our annual subscriptions and maintenance bills are due in January and a significant part of that could not be collected before the due date. The significant invest into R&D, but also in our infrastructure and tooling landscape, increased the CapEx to more than CHF 6 million. Even so free cash flow was negative, the cash balance reported at a level of CHF 23 billion. Financing is secured long term by our convertible bond, which matures in November 2024. Constant amortization of our goodwill with an annualized charge of CHF 5 million, combined with the reported net loss, reduced the equity ratio to 30% of total assets. Oliver will now conclude our call with the outlook and his final remarks.

Our guidance for the full year. We expect higher revenues in the second half of this financial year compared to the first half. And when we're looking ahead, we will generate significantly improved EBITDA margins in the next financial year. That concludes our call, and I'm handing back to our moderator.

If there are no more questions, then, if anything comes to your mind later on, you are, of course, able to reach CREALOGIX Investor Relations any time on the usual channels. This recording will be available online as well. We thank you very much for your attention today and wish you a nice rest of your day. Bye.

Thank you.