GFT Technologies SE (GFT.DE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 9 Months Q3 Results 2025 of GFT Technologies SE Conference Call and Live Webcast. I am Shari, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Herzog, Head of IR. Please go ahead.

Thank you very much, operator. Good afternoon, ladies and gentlemen. Welcome to today's conference call with our CEO, Marco Santos; and our CFO and Deputy CEO, Jochen Ruetz. This morning, GFT published the results for the first 9 months and confirmed the outlook for the full financial year '25. Marco and Jochen will guide you through our numbers and will then be available to answer your questions, of course. Corresponding slides for today's session are available on our website in the Investor Relations section. Allow me to remind you that registration is still open for our Capital Markets Day next week in Frankfurt. Join us in person or virtually to gain deeper insights into our 5-year strategy and explore, together with our experts and key clients, how Agentic AI is redefining enterprise transformation. If you have not registered yet, you still have the opportunity to do so or simply contact the IR team. We will be happy to assist. But now without further ado, I would like to hand over to Marco. Please go ahead.

Thank you, Andreas. Warm welcome to everyone and thank you for joining today's call. Before we move into the figures, let me share a brief reflection from my recent investor roadshow in the United States and Canada where I had the opportunity to meet with investors in those key markets. The discussions were highly engaging and they confirm that our AI-centric strategy is resonating with credibility in the market. Investors clearly recognize GFT's differentiation, our AI-centric mission Wynxx, our generative AI product for software development life cycle and legacy modernization, our deep engineering expertise, industry focus and ability to deliver globally at scale. GFT is not simply part of the IT services market. We are challenging it. That feedback reflects our positioning as the artificial intelligence digital transformation challenger. We are proud of who we are, ambitious in our goals and bold in how we compete, leading with innovation, speed, and measurable impact with artificial intelligence. It's not about creating hype. It's about making impact. Now let's look at our year-to-date performance on the next slide, please. I'm pleased to share an overview of solid GFT's results appeared marked by constant delivery of our 5-year strategy. We delivered solid results for the first 9 months of 2025, and we are confirming our full year guidance with confidence and positiveness. Let's take a closer look at our 9-month 2025 results. We achieved EUR 655 million in revenue, representing 2% of growth in euros and 5% of growth in constant currencies. This is a strong performance and reflects continued client demand, the resilience of our smartshore global delivery platform and differentiation of our offerings and our AI-centric strategy. Our EBIT adjusted came in at EUR 46 million, corresponding to a 7% margin. Moving to our guidance for the full year 2025. We are confirming our expectations of EUR 885 million in revenue with 2% of growth in euros and 5% of growth in constant currencies. We also confirm with confidence and positiveness our target to reach an EBIT adjusted of EUR 65 million at 7.3% margin. Now regarding our financial highlights. In constant currencies and excluding the U.K. and Software Solutions, we delivered a quite solid, strong and profitable operating performance with 11% of revenue growth and an EBIT adjusted margin of 9%. Our main growth markets continue to perform very strong with Brazil leading the way with outstanding 27% of growth; APAC with 22%; Colombia, our Software Solutions acquisition, with 19% of growth; and the USA delivering an outstanding 18% of growth. These 9-month results confirm that our 5-year strategic initiatives are on track. Our profitability remains solid, and we are entering the final quarter of the year with strong confidence, focus and discipline. Let's move on to the next page to look closer at the highlights of the last quarter. Building on our solid financial performance, I am pleased to share that we are executing our 5-year strategy with strong momentum with a particular focus on the accelerated deployment and expansion of artificial intelligence across our client installed base. Let me lead you through some of these impressive achievements in the third quarter. Firstly, I could not be more proud to present that we have achieved a highly successful artificial intelligence deployment and expansion led by our GenAI product Wynxx. We successfully rolled out Wynxx to 8 countries. The number of active clients increased by 38% quarter-over-quarter from 42 in Q2 to 58 in Q3, reaching a total contract value of EUR 42 million. Wynxx is now evolving towards an Agentic AI platform, which can improve its capability of learning, adaptability, collaboration and decision-making, evolving with our clients' business needs to drive measurable outcomes such as a faster time to market, lower cost and higher productivity and customer satisfaction. Secondly, an outstanding large-scale AI client success case study at Bradesco Seguros, Latin America's largest insurance company, which implemented Wynxx and achieved an impressive proven 40% productivity improvement across 180 FTE development team focused on AI modernization and software development. The fundamental important news is that GFT is now delivering 40% more to the client, and the client is not asking GFT to reduce the team by 40%. On the contrary, our teams keep growing. We are right now more than 200 professionals working at Bradesco insurance with Wynxx. This is our AI-centric vision getting materialized with tangible results for our clients and for GFT. Moving on to the next bullet point. We also secured a new AI data and software platform contract with a leading German cognitive robotics company, further expanding our footprint into the high-growth and promising robotics and physical AI industry. Our global brands relaunch was completed successfully, positioning GFT firmly as the artificial intelligence digital transformation challenger. This marks a key milestone in implementing our next-generation technology brand and positioning. In the Software Solutions business, our Smaragd platform was selected by a tier-1 German bank as its core AML transaction monitoring system. Additionally, we also closed a strategic 3-year contract with Audi AG for the extension of the central platform for digitalized project planning and management based on GFT's Engenion technology. In Brazil, we signed a new 3-year master service agreement with a tier-1, the top 3 large -- one of the top 3 largest retail bank in the country, in a process of vendor consolidation from 20 down to 8 IT partners. This was a clear sign of client trust and confidence in GFT's delivery capabilities and differentiation. Another milestone this quarter was the successful completion of the Megawork acquisition on September 2 and the signature of our first cross-selling contracts with a Tier 1 GFT clients, showing immediate synergies of SAP into our core business. This is aligned with our strategic focus on ISVs and high value-added services. Finally, I am proud to share that GFT has been ranked #1 globally in Digital Banking Services in the 2025 SPARK Matrix and also recognized as an Emerging Specialist in Generative AI Service in the Gartner Innovation Guide 2025. We have been executing our strategy, scaling AI at the core of our services, turning our vision into measurable outcomes. All our 5-year strategic initiatives, naming a few such as our AI-centric transformation, smartshore global delivery platform, expanding Tier 1 and Tier 2 client relationships, among others, have been building the foundation for sustainable growth and an innovative, efficient and resilient GFT organization. Now I will hand over to Jochen for a detailed presentation of the figures.

Thanks, Marco. And let's directly move to the 9-month financial results, going to Slide #7. Marco already mentioned the solid growth to EUR 645 million in revenues with a 2% growth in constant -- in current currencies, sorry, and a 5% growth in constant currencies. So the strong euro continues to weaken our current currency growth rates. It's a bit the same on the order backlog. We're down 1% versus previous year end of September. But in constant currencies, this is an increase of 3%. Focusing on profitability, the EBIT adjusted is down by 16% mainly to the already mentioned turnarounds in U.K. and Software Solutions. The margin stands at 7.0%. You see in the smaller bullet points, the deviations to last year. U.K. Software Solutions are EUR 9 million behind last year. All other GFT entities are slightly up versus last year, including a EUR 2 million hit coming from FX. When we go to EBT, we have additional topics besides the ones already mentioned. First of all, last year, we had a one-off -- strong one-off gain in Brazil of EUR 9.9 million. It was the release of a provision for a court case. And therefore, the comparison to last year lacks this EUR 10 million in 2025. The capacity adjustments are at EUR 8.1 million. Last year it was EUR 6.9 million, so slightly up in 2025. Interest, M&A is down. The Sophos integration and acquisition last year led to strong costs, especially for order book. Other longer term amortizations are coming to an end. That's why this cost effect is reducing. And last but not least, virtual share effects, EUR 500,000 profit coming from this one last year, EUR 1 million. The tax rate is at 31%. This is a notch above what we used to expect for the year, but we do have a nonoptimal mix of entities. We have entities in GFT with a loss, often talking about GFT U.K. and Software Solutions, and we have other entities overcompensating with profit. This is always a bad time for tax rates. Therefore, we are slightly behind 2024 tax rate, and we believe this will improve again in future years. Going to Slide #8 and focusing on the sector growth, which is the left side of the slide. We do see strong growth, and let's start from the top in Industry & Others, 13% of growth in current currencies versus last year. The Insurance business is growing by 15%, 1-5 percent, versus last year. And the Banking business is down by 3 percentage points. But let me point out our U.K. organization, which is heavily behind 2024 revenue figures, is nearly all in Banking. So this is playing in the banking sector numbers. Going to the right side, the client portfolio, not much has changed. I'll do this quite fast. The largest client is 12% of the group revenue. All ratios in the 4 groups we're showing are pretty much unchanged. So the portfolio is more or less like previous year. Let's move forward, Slide #9, and look at the quarters. I'll start with the revenue side on the left. The revenue year-over-year is down by 1%, a slight decrease year-over-year, primarily driven by the weaker development in U.K. and Europe. And on top, we do have FX impacts when we compare. When we compare quarter-over-quarter versus Q2, we see a 3% decline. The decrease is mainly due to the weaker performance in U.K. and then to a far lesser extent, Canada, Germany, and Poland. Now let's move to EBIT adjusted on the right side, comparing again year-over-year, the EBIT adjusted is heavily down 37%. Last year, it was EUR 24 million. This year, we didn't have the spike in the Q3 EBIT adjusted as has been expected due to our turnaround challenges that we're currently working on. That's why EBIT in the third quarter came in at EUR 15.4 million. Let we now compare quarter-over-quarter, Q3 versus Q2, this is a slight improvement, but it's not the step we used to see in the last 2 years between Q2 and Q3, which is fully due to the 2 turnarounds and some FX challenges. Moving forward, Slide #10, looking at our business segments. And again, starting on the revenue side left, Continental Europe is down 5% due to macro headwinds with noticeable reductions in Spain and Italy. At the same time, Americas, U.K., and APAC is up 6%, which means a 13% increase in constant currency, 6% in current currencies, 13% in constant currencies. And these growth rates, as Marco mentioned, are mainly coming from Brazil, Colombia, USA, and Canada. The U.K. is challenging these growth rates as it declined by 26% versus last year. On the EBIT on the right, let's again look at Continental Europe first. Here, we're down 19% in EBIT adjusted mainly due to the lower revenues and corresponding gross margins and the Software Solutions transformation. On Americas, U.K., and APAC, we have differing effects. We have got strong business in U.S. and Brazil with strong profitability, but the turnaround in the U.K. is burdening these numbers mostly. And on top FX, negative EBIT adjusted effects are also only happening in the Americas, U.K., and APAC segment. Moving forward to Slide #11, growth rates by the regions we have defined. And let me start from the bottom from small to big. APAC and others is 3% of the GFT revenue, and this region is now growing by 22%, and we have named the countries which grow fastest. And you do see the Emirates named in here, which is also part of Others. U.K., #2, 9% of the overall revenue, down 25%. I think you have a rounding thing to the slide before, minus 25% due to the local market. I think we have discussed it in all quarterly calls. This is currently our turnaround country. North America, 17% of the overall business, is growing by 11% in current euro currencies. The U.S., keeping the pace, growing 18% by half year, growing 18% after 9 months. So it's keeping the pace and it is stronger growing in local currencies. And Canada, a bit weaker, growing by 4% now after 9 months. Latin America stands for nearly 30% of the overall business, growing by 20% versus last year, driven by Brazil and Colombia. And then our biggest region, Europe, standing for roughly more than 40% of the overall GFT business. Here, we are down 6 percentage points. The slowdown is not major, but it is in all of our major countries: Spain, minus 4; Germany, minus 3; Italy, minus 3%; and then a bit bigger hit on the Software Solutions side, our other turnaround entity. Let's move forward, Slide #12, P&L. I'll do this fast, not really much to talk about. Maybe just a brief comment on other operating income, the second line and the second bullet point on the right. Here, we are down. Here, we have booked last year the Brazilian court case release of the accrual. Therefore, the EUR 10 million or EUR 10.8 million are not happening again in 2025. Cost of purchase services is mostly stable, 2% up, just like the revenue. And then personnel costs, up 4%, which is driving our current nonoptimal profitability. And this is the number we are working on to improve for 2026. Other operating expenses did not grow, showing that we are managing our cost base. Let's move forward to Slide #13 and look at the cash flow. We started the year with a net cash of minus EUR 42 million. The cash flow in the first 9 months is plus EUR 2 million. This is EUR 20 million less than the last year. And the effect is 50-50 on 2 topics. First of all, lower profitability than last year, roughly 50%, EUR 10 million less cash flow from that, and EUR 10 million higher working capital effects. We see a strong cash inflow, as always, in the fourth quarter. And in the end, we will hit the free cash flow target we will talk about on the last slide. On investing, we have besides our normal fixed asset investments, the Megawork acquisition, which here is highlighted with EUR 6.88 million cash out for investing. And for financing activities, we included the acquisition of treasury shares, for which we spent EUR 14.14 million by the end of September and the shareholders' dividend of EUR 13 million. This all leads to a free cash flow adjusted after 9 months of minus EUR 10 million. It's the same EUR 20 million gap I was already commenting in the operating cash flow. A very short look at the balance sheet on Slide 14 shows no major changes. What we do see is that the balance sheet has contracted a bit, which is mainly due to the cash outflows for the dividend and for the purchased shares. That's it. I would keep it there. If you have questions, please highlight. And I move directly to Slide #15, utilization and the people slide. First of all, employees is up to slightly above 11,600 FTEs, not a big growth. The big growth is coming from Brazil, Colombia, France, India, USA. But at the same time, we have minor reductions in Canada, Germany, Italy, Mexico, but all these effects are not major. The external contractors are more or less stable, 11,600 -- 1,163 by the end of September, slightly down versus last year. And looking at utilization rate at 92.5% on a high rate, we're happy with this. So far, we have talked about the increased base after the Sophos acquisition. So when you compare to previous years, you have to take into account roughly 1%, 1.5% Sophos lift-up effect when comparing. And last but not least on this slide, attrition. Attrition is up to 12.7%. This is mainly happening in our growth markets. When we looked at the regional development, we saw Latin America. North America is where the growth is and that's where also the attrition is picking up, not so much yet on the European side. So it is differing by regions. With that, let me move to the Slide 16 and have just a couple of sentences on our share buyback program. The very first arrow program results. We have spent our EUR 15 million by the 10th of October. We have repurchased worth 761,000 shares, which is roughly 2.89% of our share capital at an average price of EUR 19.70. So all of this share buyback happened from April 24 to October 14. I will not repeat the resolution details and the capital authorization. Let me focus on the purpose. For this, we have agreed with our administrative Board that we will decide on the exact further use of the treasury shares in due course, somewhere in Q1 first half of next year. And of course, all the effects and costs are included in our guidance. Now my last Slide #17, the additional milestones we're always giving. They are mostly unchanged. Free cash flow expected at EUR 35 million this year. The gap to previous year explained by the lower profitability and the very high cash inflows we saw at the end of especially 2024. We expect a net debt-to-EBIT ratio of 0.8, and we have upped the utilization target slightly to 92%. Last milestone guidance here was 91%. And with that, Marco, back to you.

Thank you, Jochen. To conclude, I would like to emphasize a few key messages. First, we have demonstrated resilience, achieving solid growth in the first 9 months of 2025 with some markets delivering outstanding performance such as Brazil, APAC, Colombia, and the United States of America, all of them generating double-digit growth. We are successfully deploying and expanding artificial intelligence across our markets, client, services and offerings with Wynxx continuing to stand out as a key differentiator for GFT. We foresee a large-scale long-term growth opportunity in legacy modernization, where AI is breaking down traditional barriers of change and unlocking new horizons for our clients. At the same time, our transformational initiatives in the U.K. and Software Solutions units are progressing well showing tangible early improvements, thanks to the disciplined management and focused execution. Above all, we are executing our 5-year strategy determination and diligency, positioning GFT as the artificial intelligence digital transformation challenger. Thank you very much, and let's go beyond together. Now Jochen and I will be happy to answer your questions.

[Operator Instructions] The first question comes from the line of Wolfgang from Berenberg.

Three questions from my end to start with. First, on the Wynxx contract value you gave at EUR 42 million. Can you give us some idea over which horizon this should transfer into sales? Second question would be on the largest clients, which I suppose is still a German bank. Do you expect, let's say, stable revenues going forward? Or could there be some declines in 2026? And then on restructuring of the U.K. operations and Software Solutions, where are we standing in the reorganization process at both topics?

Thanks, Wolfgang. Thanks for the questions. I'll pick up the one on the largest client, Deutsche Bank. Sorry, yes, I mentioned it now, right? So no surprise. It's the long-standing biggest client of GFT. Revenues are slightly going down '25 versus '24 as the client overall is spending less on external services. For next year, we see a small further decline happening, but nothing major, right? We're around EUR 100 million, and I think we will be slightly below in 2026. On the Wynxx transforming into sales, Marco, I'll leave that to you.

Yes. So regarding the number of the EUR 42 million that we mentioned here, they are all the projects and services that we sold -- that we have sold with Wynxx as a generative AI tool for our clients. So that's the total -- what we call total contract value of service and projects with Wynxx as artificial intelligence, and that will be delivered. Some of that already delivered and some other parts, it's going to be delivered over the next few quarters. It depends upon the specific project and specific service. There are projects that are short-term projects that are going to deliver in 1 month, 2, 3 months and others that are going to be more -- that will take more time. And regarding the restructuring of U.K. and Software Solutions, where do we stand? So we are doing very well on those turnarounds and the restructuring. So Software Solutions, we have evolved and optimized the team and the organization with our gravity program. We also put, let's say, strong focus on the strategic clients of Software Solutions, and I'm very proud to say that we were able to accomplish 2 major goals with Software Solutions. One, to close a strategic contract with Smaragd as the anti-money laundering solution for one of the largest banks in Europe, one of the top banks in Germany. And that client position Smaragd as the future of AML technology. So for us, this was a really, really good news and a major accomplishment. And the other one is the extension of the contract at Audi that also was a remarkable achievement that we did with the team from Software Solutions. So moving very well on the restructuring process and also in the business evolution. In terms of U.K., we've been moving on the restructuring as well. And we are now in the, I would say, the conclusion of bringing the new country manager of U.K., which is a process that we took that in a very -- with very diligency and also doing some specific restructuring that we planned. So U.K. is also moving. We also got some signs of some good small wins here and there in U.K., small projects yet, but good signs as well.

Okay. To come back on the anti-money laundering deal, is this really a new customer? Or is it, let's say, a renewal of an existing customer that had been using the Smaragd tool before?

This is very good question. So actually, is, as I mentioned, one of the largest banks in the region in Europe and in Germany. And these clients, they already used Smaragd, okay? And we were able to sell it to a new entity. So it was a new sale. It was not an extension of the current contract. It was a new sale. And I must even state that the client was planning to do the project with another technology with a competitor Smaragd. And the team in a very, very focused approach, were able to show our capabilities, our differentiation and change the game and made that a big win for us. We're very, very proud and very happy with that development.

The next question comes from the line of Knud Hinkel, Pareto Securities.