Exasol AG (EXL) Earnings Call Transcript & Summary

Good day, and welcome, ladies and gentlemen. Sorry for the delay from AIRTIME side. Welcome to the Exasol's 9 Months 2025 Earnings Call. The CFO, Jan-Dirk Henrich, will guide us through the presentation. Afterwards, we will move over to a Q&A session in which you have the possibility to place your questions via chat box and audio line. Having said this, I'm handing over to you, Mr. Henrich.

Thank you very much, Judith. And again, also from my side, apologies for the delay, which was due to a technical problem we had. So I hope we didn't let you wait for too long. Welcome to today's call, which, as many of you might know, is already the second call on the 9-month numbers. Most of you will have noticed that 2 weeks ago, we corrected our guidance for this year, which I will run through again today and conducted an impromptu webcast to give you the opportunity to answer any questions you might have. I will run -- nevertheless, run through all the information again in today's call. So for those of you who have already attended 2 weeks ago, apologies for the repetition. But then obviously, I will also go in a little bit more detail on some salient points on the business side, but also on the P&L result as of 9 months ending. I will lead you through the call alone today. Joerg Tewes, our CEO, is not attending. However, if you have questions to him or me, feel free to reach out to us via our Investor Relations contact, and we're happy to set something up outside the regular formats of our webcast calls. I'd like to point your attention, as usual, to our disclaimer with respect to forward-looking statements. I will not run through it, but please, as you review the information, have a look at it if you look through the downloadable presentation. So what has happened in the first 9 months of this year? I think from a strategy perspective, we've continued to see strong ARR growth in our focus verticals. So as you recall, we have reworked our strategy earlier -- late last year, earlier this year to hone in our -- on some key industries for customers where we think our value proposition is biggest. And we continue to see 25% year-on-year growth in those focus verticals and as a result, the share of these -- in ARR of these focus verticals has meantime increased to roughly 70% versus around 50% at the same time last year. That being said, this transformation and strategic refocus has led to a shift in our customer portfolio with the growth in the focus vertical on the one side, but also a significant churn in the non-focus verticals on the other, which has progressed at a higher rate than we initially expected for this year, leading to dampened growth on an aggregate level. And then also in conjunction with some key projects in the focus verticals for new business that had shifted to next year, we came to the conclusion that we will no longer be able to achieve our original guidance and have adjusted it accordingly 2 weeks ago. However, we do not see negative impact on both P&L revenue and EBITDA, which I will run you through in more detail. What does that mean in terms of numbers? In terms of numbers, we ended 9 months with EUR 31.7 million in revenue, which is up 9%, which already gives you a sense of the healthy revenue performance. ARR, however, on a 12-month basis was down 4% to EUR 39 million caused by the accelerated churn in the non-focus verticals. On the EBITDA side, we ended 9 months with EUR 3 million compared to EUR 1 million at the same time last year, which gives you a sense of the progress in terms of profitability that we've made over the past 12 months. Now what does it -- so while this is obviously a dip in our growth development, we remain still, however, bullish for the future. Why? As said, we see -- continue to see the strategy with focus on the focus verticals working out. In addition, our increased focus on closing meaningful partnerships, which give us reach in the market has made progress in the form of MariaDB. Now MariaDB, I will give some background on this collaboration. It's a database software provider in and by itself with a slightly different focus. And there's lots of synergies that we believe we can exploit in bringing an integrated offer to the market, which gives them increased monetization options of their large user base and us, obviously, an increased reach into the market. So overall, with this increased churn in the non-focus verticals, this, however, also means that we have a clearer visibility to a decreased churn dynamic in the non-focus verticals moving forward in 2026. And together with the shifted projects, we believe there is now a clear visibility back to accelerated growth in 2026, which MariaDB will also contribute to. Maybe elaborating on that a little bit. So what is MariaDB? MariaDB is a database software company located in the Silicon Valley and Ireland. They originated as an open source database software with a focus on transactional data. As some of you might know, the data world is kind of divided into transactional data and analytical data, so OLTP and OLAP. So our focus as Exasol is on the analytical data. We're an analytics company, analytics database software, whereas they manage the huge amounts of transactional data that any organization shifts. And through their origins as an open source company, they have an extremely large user base. So over 1 billion downloads of the original open source software, which over the years, they've been able to convert into 600-plus enterprise customers. So -- and they were looking for opportunities to increase the value add of the offering and further leverage the unmonetized part of their user base and give them additional monetization options. And one of that potential options, obviously, is to give them basic capabilities to also analyze the transactional data that they're managing with the software with analytics. And that's where the idea of a joint OEM product came from. So basically, MariaDB will take our core database technology and integrate a basic version of it into their enterprise offering to a new offering called MariaDB Exa, which gives their customers the opportunity to do basic analytics on the large amount of transactional data that they're running, benefiting from the performance that is inherent in our technology and our USPs and then also doing that in a cost-efficient way. And that has several benefits for us as Exasol. So for MariaDB, it's a win because they get an additional option to monetize their big open source user base. For us, obviously, it solves a key problem that we had in the past of gaining visibility in the market and also global visibility in the market and also gaining visibility in the tech communities out there. And this large open source user base is a very good multiplier for us to gain visibility and the OEM offering that we are making gives us visibility as a brand. So we're not like -- sorry, an invisible technology component embedded into their product, but we're going to market it as powered by Exasol, which then also gives the opportunity to interested customers who are using the MariaDB Exa product and now have an interest to upsell to a full-scale enterprise data -- analytical data warehouse solution to directly transact with us and convert that into non-OEM larger customers with upsell opportunity. So there's basically 2 monetization paths into the MariaDB relationship. One is the royalties that we receive from MariaDB on the MariaDB Exa product plus potential upsell opportunities of customers who have then gained interest in our technology to upgrade into a full-scale analytical data warehouse. And obviously, from a go-to-market efficiency side, it gives us a wide access in the market with comparatively little invest ourselves. MariaDB is carrying the development cost for the collaboration themselves, and we're basically benefiting from their go-to-market organization and their customer relationships. So this is a relationship that is ramping up, which they have a very high level of commitment to. And similarly, us, we ourselves. And I think this commitment from their side is also expressed in a relatively large pre-commitment on the first year royalties that they've made, which you will start seeing in our ARR in Q4. So they've put their money where their mouth is, so to say, and that it's an expression of the big belief they have in the relationship. And we expect kind of first customer conversions or first customer of theirs adapting the new product potentially already end of this year, early next year. But you've probably seen the joint press statement that we've released. So this is ramping up now. We are enabling their sales teams and they're starting to drive the product into the market. Meanwhile, coming back to overall ARR development over the past quarters, you can see that Q3 has been a rather low growth dynamic quarter for us, which is not unusual. The past Q3 quarters weren't as dynamic either, but it's been slower than expected, partly because of the churn, partly because of some shift of projects. The little growth that we did see in Q3 was generated by the focus verticals again. So those have risen to a total of EUR 26.9 million in overall ARR, which, at this stage, brings us to a share of these focus verticals of to 70% versus 30% in the non-focus verticals, which is roughly the level which we would expect also towards the end of the year. Digging into this in a little bit more detail by the 2 different segments. So if we look at the growth dynamics and subscription dynamics in the focus verticals, you can see that over the past 12 months, we were very successful in expanding our footprint with existing customers at almost EUR 6 million of upsell. And compared to the overall churn rate, relatively low churn of 6%, which is kind of a best practice kind of churn level in the software industry, where you can see where we are not. Where we want to be is in terms of new customer ARR in the focus verticals, while we do see promising pipeline opportunities, which are evolving. I think what we've also found this year that the nature of the customers we're dealing with here in regulated industries sometimes makes the sales cycles slower than, let's say, in an e-commerce or digital environment because you have to go through the appropriate enterprise checks and enterprise software approvals in the respective organizations. However, once the customers converted, they do tend to be equipped with higher initial ARR rates and then also upsell potentials. So overall, we did see a gross upsell rate of 130% in the past 12 months and a churn of 6%, leading to a net revenue retention of 123%. Now unsurprisingly, based on what I had already indicated in the non-focus verticals, the picture looks a little bit different. So we had significant churn there in the past 12 months to the tune of 36 -- sorry, 46% churn and a net decline of 36%. This is very much driven by 2 major retail customers that we've lost or have down sold in the past 12 months. So basically, these 2 customers already account for roughly half of what you see here, which is a hump in our customer portfolio transformation that we had to get over. And as unpleasant it was that it happened this year, it also means that we've digested this transformation now. And as a consequence, we expect overall churn across the org to significantly decrease. And if we look at the overall picture, so if you bring these 2 pictures together, this leads to the minus 4% that I've alluded to in the executive summary with the majority or the whole growth that you see in this picture on the left-hand side in green coming from the focus verticals, whereas the downsell and lost customers are basically contributed by the non-focus verticals. For 2026, we expect this absolute churn volume of 10% that we've been seeing this year to half. So we're going to see roughly. So we're going to see significantly reduced churn dynamics and normalizing churn rates, which makes the path back to net growth significantly easier if we continue to do our job on the focus vertical growth side and also then leveraging the opportunities that come with the collaboration with MariaDB. So that's the update on the growth side. If we look at the bottom line and P&L. So first of all, I think bottom line has continued to evolve very much to our satisfaction. So we had EUR 1 million of EBITDA in Q3, then amounting to a total of EUR 3 million EBITDA year-to-date. This compares to EUR 1 million at the same time last year, and I'll go a little bit through the dynamics within the P&L on the next page. Liquidity-wise, we ended the quarter roughly on the same level as the same quarter last year. Now you might wonder why is that if you've made so much EBITDA or more EBITDA. And this is mostly because we had some temporary effects at quarter end on the working capital side. We will talk about our one-off revenues in a moment. So with customers in our focus verticals, we complemented our offering by also offering appliances or pre-installed appliances. And we had some equipment in the books that is shipped now and has been shipped in October, but was in our books at the end of the quarter. So that made up EUR 1.3 million. So normalizing for that, we would have been rather at EUR 19 million liquidity and expect that to be at the level where we end the year roughly as well. So we're good on the EBITDA side. We're good on the liquidity side, especially if you compare it to the situation we went through in the past couple of years. If we look at this a little bit more in terms of P&L dynamics. On the revenue side, I've already commented, we're up EUR 2.6 million or 9% compared to same time last year. What you can also see, if you look at the revenue on a more structural level that the recurring revenue is actually slightly down compared to same time last year, which is not a surprise if you look at the development of the ARR metric that I've presented to you. So we saw a 4% decline in ARR, and this translates in the end also into a declining recurring revenue in the P&L. At the same time, we have significantly more nonrecurring revenue this year, which is the bundled offerings that we're making to customers in the focus verticals where we've seen an increased demand of customers asking, "Hey, could you also offer the whole hardware appliance to us with your software and database software preinstalled." So if you want, you get a ready-to-run hardware stack, which is an additional service that we can also charge for. And we've seen increased demand for that and increased opportunities, which we've leveraged. So as a consequence, that has driven up revenues a bit. Now obviously, gross margins on the one-off business are significantly lower than on software. So this has not translated the same way into gross profit. The other thing that has led to gross profit actually being EUR 1.4 million lower this year compared to same time last year was the fact that we received -- let me start a bit more fundamentally there. So for those who haven't followed us over the past quarters. Last year, we started applying for research grants for the German government. So there's R&D funding options for projects in the data space, machine learning space and data science space. And we started applying for those last year, retroactively for the years starting 2021. So the grants that we received in 2024 were actually retrospective grants for 3 years. That's why they've been exceptionally high. Now in 2025, we've received those grants again, but only for the year 2024, which makes the level lower. So that -- and that goes through other operating income, which goes into gross profit. And that's why you see a slightly declined gross profit. So that doesn't come from recurring business. It's basically the fact that we had a positive exceptional in 2024 in the form of retroactive grants being paid for the years 2021, 2022. So on the cost side, we've made up for that. Personnel expense-wise, we are at EUR 2.4 million lower and are now kind of in an organizational shape, which I would consider appropriate. So there's not going to be further restructurings or personnel reductions moving forward. We'd rather see as we continue to be profitable, selective reinvestments, particularly in our R&D team to maintain competitiveness of the technology. Marketing-wise, is pretty stable. IT infrastructure has been lower, mostly because of optimized cloud spend, whereas other costs were largely stable. So in total, this improved cost position has compensated the lower gross profit and brought us to an EBITDA, which is EUR 1.9 million higher compared to same time last year. And what you can also see that we overproportionately improved our net income as well. So we are now at EUR 2.1 million net income at the end of Q3, which is up EUR 2.6 million compared to last year. And this is mostly due to 2 factors. One is a continued decrease in depreciation. Some -- those of you who have been following us for longer already know that we've stopped capitalizing R&D expenses a while ago. And as a consequence, the depreciation on legacy capitalized R&D expenses is continuously decreasing. The second reason is that we are seeing significantly better financial interest income from the higher liquidity reserves in combination with the higher interest rates over the past 12 months, which are now normalizing a bit, but still allow us to earn to the tune of around EUR 400,000 of interest income on a 12-month perspective. So all this together has led net income to significantly improve and to the picture that you see here on the screen. Now adding all this together led us to a correction of the 3 guidance parameters that we've given out for this year. I've talked to you about the ARR growth, which we've corrected from the original mid-single-digit growth that we aim for to an expected single-digit decline that we are now expecting. If you see the 12-month dynamics, I think that becomes clear. And we, at this stage, do not believe that this can be compensated in the remaining time of the year. On revenue growth side, we confirm our guidance to grow in the mid-single-digit percentage range, driven by the compensation -- compensatory one-off revenue businesses that we were able to do, which help us go through this transition phase on the ARR side. And on the EBITDA side, at this stage, we feel comfortable in narrowing our guidance on the upper end and now believe that we will rather come in at EUR 3.5 million to EUR 4 million, so at the upper end of our guidance. So in summary, in closing, what should you take away from today's call. First of all, we see our strategy with focusing on the focus verticals paying off, and we see a good pipeline opportunity there. The MariaDB partnership gives us additional reach in the market, and we are all very bullish about that and are looking to close further partnerships. And I think I already saw a question from the attendee around on the partnership with adesso, which I will comment on in a moment in the Q&A section. Overall, what we're currently seeing is the short-term business trend of increased churn dynamics in the focus -- the non-focus verticals, which kind of gets us over the hump quicker and as a result, gives us a clearer visibility on a return to growth in the -- driven by the focus verticals in 2026 with the combined effect of lower churn, continued focus vertical growth and the MariaDB partnership adding up to a good mix. And with that, I would close my presentation remarks and open it up for Q&A. Thank you.

Thank you very much for your presentation and your transparency, Mr. Henrich. Ladies and gentlemen, it is your turn now. [Operator Instructions] And I will start with the first question. During the last call, I was surprised that you would expect first customers for the MariaDB Exa already at the end of this year. This seems to be a very short lead time starting from the announcement in October. Could you shed some light on this?

Yes, I can. And actually, in the Q&A, I think Philip, you've raised 3 questions related to MariaDB, so I'll try to address them all. You also asked what we believe is the share in the 700 MariaDB enterprise customers that could be interested in our solution and whether the partnership with MariaDB is exclusive. So let me maybe just answer that in one bundle elaborating on the MariaDB partnership a little bit. So obviously, at this stage, it's difficult to predict on how many customers we will already see at the end of this year. However, we've been discussing the collaboration, obviously, for a couple of months already before we formally announced it in October. And as a ramp-up to that decision and signing of the agreement, they had already discussions with some of their enterprise customers on potential interest in the solution and received good feedback, which was also important kind of market diligence work for them, to gear for them how much they put into this partnership and what they invest in the partnership. So that gave them at least what they transferred to us, a high level of confidence of being able to start marketing that quick. Obviously, it's up for us to see whether that turns out to be true. And I don't expect huge amounts of business by the end of this year. However, as I said, MariaDB has pre-commit kind of a year's worth of expected royalties, which is kind of a low 7-digit amount, which you will gradually start seeing seeping into the P&L. And in parallel, we will start ramp up the customer solutions with them. The partnership is not exclusive. So we are free to partner with other companies out there on solutions and it's mutually nonexclusive, so to say, yes. So -- and we actually do consider such kind of OEM solutions a valid thrust in go-to-market. I mean it has obvious advantages to a company our size and with the resources that we have and it's something that our partner -- Director of Partner Management internally keeps exploring further. So building on that, you asked me about adesso. So adesso is kind of a partner in 2 sides. So first of all, we started collaborating with them in setting up a small R&D presence in India because what we've seen is that we have difficulties finding talent for our tech organization at an acceptable price point in kind of the European and also U.S. markets. So we started exploring options on how to tap into the huge talent pool in India for tech talent in a way that does not create disproportionate administrative overhead for us. And for that, we found a partner with adesso who are basically acting as an employer of record for us. They are also setting up an office space for us and managing that. So we basically have one contractual relationship with adesso and our whole India presence is contractually run through them, which makes it easy for me from a G&A perspective. It also keeps all the tax topics and salary and payroll topics away from us. And obviously, we pay them a fee for that, which is a markup on the actual salary cost. But it's a very good kind of setup for us. And we've seen a small but impactful team come together already. Now at the same time, we've then also started discussing with adesso options to collaborate on the go-to-market side. As you know, probably adesso has a big IT integration consulting activity. And they are similarly organized in terms of verticals. So they have also teams focusing on these focus verticals that I talked about, like financial industry, telecoms, public clients. And we are in initial stages of exploring whether we can jointly develop the market together. So there's a partnership opportunity on the go-to-market side as well, which is evolving. So I hope that answers all your questions on MariaDB and adesso in a satisfactory way.

Thank you very much. And I will move on to the people with a hand up. [ Ramon Huber ] you were the first one. We will have a look at your questions later, and I will go on to Felix Ellmann. You should be able to speak now.

Can you hear me?

Yes.

Wonderful. Yes, Felix Ellmann from Warburg Research. I have a question on the cooperation with MariaDB. With regards to the company, even though I'm in the sector for 30 years, I didn't hear about them. Well, a very simple one maybe. If I see about 1 billion open source users they have, is this company on the long run, let's say, for 2, 3 years, good for 10%, 20% of business increase? Or is it good for tripling the business? Where is the truth here with -- in terms of numbers? What do you think is it good for?

Well, I would say over the -- if you look at our current ARR of EUR 40 million, and if I now -- which is hard for me to guess right now is the upsell opportunity. So if I estimate the royalty opportunity over the next 3 years, I would say that has the potential to raise our ARR by a single-digit million amount. So based on the ramp-up that they're projecting for the Maria Exa DB product, so I think they're estimating kind of a low double-digit million amount, but then obviously, we only get a share of that in the form of royalty. So I would say, over the next 3 to 4 years, to be seen, but it's not in the kind of Exasol triples its business kind of range, if you're asking me that. So -- but it is a very healthy supporting relationship to get us from EUR 40 million to EUR 50 million and contribute to that. So -- but this is not the -- MariaDB is not the -- excuse the verbal pun, it's not the Hail Mary or the Hail Maria that lifts us to EUR 80 million.

It was difficult to estimate as I did not know the company. And the only thing I read was the 1 billion users in your press release, and that was difficult to estimate.

I think what's interesting is that in particularly their paying customer base, which is kind of 600-plus customers. They have a range of also financial institutions, which use them for transactional data, and that's obviously interesting thrust. So if you go on their website, for example, they have DBS as a big client and also as a customer success case on their website, which is a big Singaporean bank, as you might know. So -- and they have several of these, I think Deutsche Bank is also a big customer of them, which are both not yet customers of ours. So this gives you a little bit of a sense of kind of the -- also the upsell potentials and visibility potentials that has also for our focus verticals, although obviously, the MariaDB collaboration is per se sector agnostic, yes. So MariaDB is not per se specialized on our focus verticals, but they do have a big presence and paying customer base in these key industries.

Thank you very much for your questions, Mr. Ellmann. And I have one question left in the chat box. Do you see the level of growth in the focus industry to proceed during the upcoming quarters?