Exasol AG (EXL) Earnings Call Transcript & Summary

Good day, and welcome to Exasol business update call, including the preliminary 9-month results of 2025. The CFO, Jan-Dirk Henrich, will guide us through the presentation. And afterwards, we will move over to a Q&A session for Mr. Henrich and CEO, Joerg Tewes, who will answer your questions. And having said that, Mr. Henrich, the stage is yours.

Thank you very much, Sarah, and thank you very much to all of you for joining this impromptu Q&A call, as we call it, which we decided to schedule to give you the chance to ask us any questions you might have on today's guidance correction and ad hoc message and the related publication of our preliminary 9-month figures. This call does not replace the webcast that we will do on the full 9 months figures mid November. So that is still coming. But we thought we open up the forum for questions in case you have any. So I will briefly guide you through a couple of slides that we've prepared to illustrate a little bit on the background on today's news, leading -- giving you a bit more structure on the numbers. And then afterwards, we will open relatively quickly to answer your questions. So with me today is also Joerg Tewes, our CEO, who will obviously also be available for questions later. This is our usual disclaimer with respect to forward-looking statements, which you can also read in the documented version of this call afterwards. So what has happened in 9 months and what led us to correct our guidance for this year, and what does it mean a little bit in terms of outlook. So first of all, in terms of pure numbers, how did we come out of the 9-month financials. In terms of revenue, we ended up with EUR 31.7 million revenue year-to-date. That's a 9% increase over last year's figures. This was substantially supported as well with appliance sales and one-off revenues in our focus verticals, which we talked about already in our half year call, which is part of our focus vertical strategy and which, in this particular case, as we will later talk about, also help us to get through this phase of a little bit of deprived ARR development as we transition our customer portfolio. ARR stood at EUR 39 million. That's down 4% versus end of Q3 last year, and I'm going to elaborate more on the dynamics of that development in a moment. And EBITDA stood at a very strong EUR 3 million at the end of Q3 versus EUR 1 million at the same time last year. So on a very, very good track to achieve our guidance for this year on the upper end, as we will later elaborate. So on the ARR side, the growth overall underlying these minus 4% still was a very strong growth performance in our focus verticals. The focus vertical ARR grew by 24% year-on-year to now EUR 26.6 million and is now representing a share of almost 70% in overall ARR. But some short-term business trends are affecting our overall expected ARR performance. One thing that we've already talked about in the past calls is a higher-than-expected churn in the non-focus verticals, and I'll give you details on that in a moment. And that overall came in at a higher rate than we initially expected at the beginning of the year. At the same time, our sales initiatives in the focus industries and the things that we've been doing on the partnership side, as we'll talk about it a little bit more, have ramped up slower than we expected. So that the impact of these initiatives, we now believe -- we largely see in 2026. And as a consequence, contrary to our belief up to now, we will not be able to fully compensate these elevated churn rates before year-end, but it will take a couple of more months in beginning of 2026 to get through the bottom. The important thing to note, and we've highlighted that in the news, that the elevated churn that we're seeing this year is a pull-forward effect. So we initially only expected that for 2026. And as a consequence, we're expecting a significantly lower churn next year, which will help us get back to growth then. The other thing that will help us get back to growth, which we fundamentally believe in is our new partnership with MariaDB. You've seen a separate press release on that earlier this month, which is a partnership that we've been working on for several months. And I'm sure later in the Q&A session, Joerg can elaborate a little bit more on the depth and breadth of that partnership. The important thing for us here is that it's a true OEM partnership, and we get access to a very wide user base and gain a high amount of visibility and believe that this is a very fundamental platform for growth for us, both MariaDB and us over the next couple of years. So in sum, taking these effects together, the churn reduction in 2026, the significant churn reduction plus the impact of the projects initialized this year materializing and the ramp-up of our -- of this new partnership provides a pathway for growth in 2026. So let me elaborate on some of these things in a little bit more detail. So looking at total growth dynamic, again, these are the minus 4% that I've elaborated on. You can see the elevated churn here. So in total, over the past 12 months, we've experienced slightly more than EUR 10 million of churn or 25% churn rate. I'll break this down into focus, non-focus in a moment. We've continued to have very strong upselling performance. But you can also see already here that our new customer initiatives have not yet unfolded their potential in full. And that's why we believe that this current negative 12-month growth momentum from -- of minus 4%, we won't be able to turn around until year-end and hence, our adjusted guidance. So if we break this down into non-focus versus focus verticals. This is the picture for non-focus verticals. What immediately jumps into your face is the fact that almost all the churn that we've been experiencing over the past 12 months was indeed caused within the non-focus verticals. And within this effect of EUR 8.6 million here, almost half of it came from downsell or churn of 2 major retail customers here in Europe. So that was an impact that we've been expecting -- also we've been expecting to take place like spread out over this and next year. It now accumulated a bit more this year than we initially thought, but it also means that we kind of get across this hump quicker. If you look at the picture, for the focus verticals in contrary, where we see -- continue to see 24% growth year-on-year, you see that the churn within this sector is significantly lower, more at our historical kind of normal 6% churn rate, which is kind of industry benchmark, gross revenue retention of around 95%, 94%. But you can see here that we have not yet been able to unfold the potential of the new logo initiatives. So particularly the MariaDB collaboration that we've been working on over the past couple of months. We were hoping to already sign earlier and start marketing earlier. You can see now that it has been kicked off. So the product is now in active distribution and marketing by our colleagues at MariaDB so that we hope to start seeing some effects maybe still this year, but the dominant effects starting to kick-in in the first half of next year. And this is a very broad collaboration with significant investments on both sides being made. And just to give you a sense of how serious the colleagues over there take that collaboration as well. So actually, our colleagues are investing a low 7-digit figure in getting this product up to speed, getting it running and start marketing the product. That's the commitment from MariaDB side into this collaboration. And nevertheless, within the focus verticals, still very healthy fundamentals and low churn rates. So in sum, where does that leave us? It leaves us at a point where we are also progressing faster in terms of the weight in our portfolio of focus versus non-focus verticals. So we are now at 70% of ARR in the focus verticals with a growing tendency. So this will certainly never go to 0 in the non-focus verticals. But this is kind of the 80-20 midterm split that we expect to happen. Maybe also a couple of words on the profitability and liquidity side. As you saw in the news this morning, continued strong profitable path. We had EUR 1 million of EBITDA in Q3, bringing us to a total of EUR 3 million of EBITDA year-to-date. So in terms of our guidance of EUR 3 million to EUR 4 million, at this stage, we're feeling confident that we will hit this at the upper end of the spectrum. So this is a combination of continued very focused investment discipline and cost discipline with the fact that through the additional appliance sales that we've been able to make to our focus customers, we've had some additional margin that helps us get through this ARR transition from focus -- from non-focus to focus verticals that we're currently seeing. On the liquidity side, the EUR 18 million end of Q3 are roughly on the same level as the year before, but this is only because we had roughly EUR 1.3 million of working capital effects of appliances that were ready for customers, but at the end of the quarter we're not yet shipped. So adjusted for that, we would have been roughly at EUR 19 million. And this is also the region which we expect to end the year on in the region of EUR 18 million to EUR 19 million, give and take, depending on customer payment behavior at the end of the year. So in sum, in terms of our 3-pronged guidance for this year, we made one adjustment, we made one confirmation, and we made one specification. As mentioned before, we adjusted our ARR growth. We are now expecting a single-digit decline in ARR kind of along the dynamics that you're currently seeing in 12-month growth. However, on the revenue side, we confirm our guidance because the additional appliance and on top businesses that we were able to generate compensate there and also some of the commitment that MariaDB is making is also helping us already this year in the form of upfront commitments. And on the EBITDA side, we believe to hit our guidance at the upper end or in the upper half. So this is what we've prepared on the basis of the preliminary numbers. I didn't want to make too long a presentation because the focus today is really answering your questions. We will follow up with significantly more detail in our webcast middle of November. And with that, I would open it up for questions.

And I think there was already one question by Andrew in the forum. So maybe I read this out. I don't know whether that's visible to all of -- to everyone. Thank you for the presentation [indiscernible] -- is everybody seeing this, Sarah?

No. Yes, no. I mean it's...

This is the first time we're using the new tool of our Montega colleagues. So some teething problems on my side at least. Yes, bookings. Yes. So I mean, obviously, we're currently in our planning for next year. We are also obviously still working on deals. So the exact amount of slippage is not yet there. I think the slippage -- a big deal of the slippage refers to the delayed ramp-up that we are expecting from the MariaDB colleagues. So that will mostly hit next year, which is a 7-digit value that they have approximated for kind of the 12 -- first 12 months of business. In terms of pipeline coverage, it's also something we are in the process of building for next year. So there's -- Q3 typically is relatively slow in terms of marketing events. with -- we brought middle of the year, a new CCO joined us, who covers both the marketing and sales area, who's now building an initiative portfolio with the teams and is making very rapid progress there. But in terms of the 2026 revenue growth and profitability, obviously, revenue growth-wise, revenue growth will be rather muted next year because revenue growth is always a kind of delayed function of ARR growth. We are still working also with customers in the focus on industries in doing additional appliance deals as well. But on the profitability side, we are aiming to continue the level that we've achieved and not slip down on it. So because I think in terms of investment focus, we continue to be very disciplined, and I'm very happy with that. Laurent, I think, is asking on the MariaDB side. Joerg, do you want to elaborate on that?

Yes. Thank you. So I turned on my microphone, maybe -- I don't think there's echo now. So okay, good. Yes, the MariaDB partnership, I think, in general, helps us in several ways. Laurent, specifically on your question, maybe to understand, MariaDB is a transactional database system that is actually being used by over 750 enterprise customers on a global basis, and they have over 10 million free versions out there. Amongst their enterprise customers, they actually have large financial services customers. So in Germany, for example, they have Deutsche Bank as one of their customers. We also have actually started engaging with some clients of them in Singapore. We have a Standard Chartered Bank as one of our customers. So we actually see a lot of synergy in those financial services areas where they have a presence and we have a presence as well to find new customers and also with the combined product offering, provide more value to customers. Of course, they are also working on other verticals. So we will, at the end of the day, also work with them supporting them in other areas that we're not actively going after. But there is actually, like I said, a pretty good overlap between their markets and also what we're doing.

All right. Thank you so much. So by now, we did not receive further questions. [Operator Instructions] So it seems everything is clear and discussed so far. And having said that, we received the next question. So what are the expectations for Q4 in terms of ARR, especially on churn?