GFT Technologies SE (GFT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Tom, your Chorus Call operator. Welcome, and thank you for joining today's conference call on the 9M Figures 2023 of GFT Technologies SE. [Operator Instructions] And now I would like to turn the conference over to Andreas Herzog, Head of Investor Relations. Please go ahead.

Thank you, operator. Thank you, Tom. Welcome all to our call on our earnings for the first 9 months of 2023, which we published this morning. With me is our CEO, Marika Lulay, and our CFO, Jochen Ruetz. Both will guide you through our numbers and of course, we'll be available for your questions afterwards. As a last reminder, please keep in mind that this webcast is being recorded, and all information, of course, is also available on our website. Having said that, I would like to hand over to our CEO, Marika Lulay. Floor is yours, Marika.

Thank you, Andreas. So welcome, ladies and gentlemen, also from my side. So let's go into our 9-month results. The overall story -- let's jump directly to Slide #3 -- is that we grew 10% on revenues compared to the 9 months of 2022 and due to a very good utilization in Q3. Also, our adjusted EBIT, excluding currency exchange effects, grew even by 14%. If we obviously include the FX, the adjusted EBIT grew by 7%, and this clearly speaks about our resilience and ability not only to protect our margin, but to improve our margin even in challenging times. Good news is also that our biggest market, Brazil, we were able to stop the trend of revenue actions in Q3. So revenues in Brazil grew quarter-to-quarter Q3 to Q2 by 11%. And as already explained at the Capital Markets Day, there is always a risk of a onetime effect for Q4. Banking clients may ask for MTA, so-called mandatory time absence. And how does it work? They simply ask all their suppliers to stop working for an average 2 weeks usually in December, some in November. It doesn't happen every year. Last year, for example, this risk did not materialize at all. This year, the requests are very strong and actually across the globe, not just in U.K. So we think it is due to raising geopolitical risks and banks simply focusing on optimizing Q4, their Q4. The total request which reached us would have impacted us with a reduction of EUR 12 million to EUR 15 million against our expectations. We were able to manage this down to approximately EUR 7 million to EUR 8 million revenue impact. Hence, we adjust our revenue guidance for 2023, slightly down to now EUR 800 million to EUR 810 million. Despite this reduction, we remain confident to deliver the current guidance on EBIT adjusted. We also improved in Q3, our positioning in the market, in our core offerings, digital banking and cloud services. Industry analysts ranked us even higher, so that's positive. And we also improved our ranking for sustainability from bronze to silver with EcoVadis. And this puts us into the top 25% companies assessed by EcoVadis, who is one of the largest providers of sustainability platforms and ratings. Let's move on to Slide #4. And you know that we recently launched the AI.DA Marketplace. Actually, it was beginning October and since we saw an increased demand for AI-enabled solutions and data platforms. The current requests -- and maybe this is simply of qualitative interest. The current requests from our financial services clients are mainly about enhancing chatbots, be it for consumer interactions, HR services or generically upgrading the intranet chatbots. But also, AI-enabled solutions for invoice processing, or, for example, with one client, we are building a voice interface for ATMs, which is then supported by AI. For industrial clients, it's different. It is mainly about using AI to improve for quality assurance processes in production. And that is usually strongly connected by building a proper data platform as a base. And for this, we also worked, for example, with partners like Snowflake. Obviously, we also eat our own food and, for example, introduced AI features to develop, test and enhance our own products like SMARAGD, our compliance solutions. And with regards to speed up programming, version 1.1 for GFT AI Impact, Version 1 was launched with the marketplace. Version 1.1 will now be ready and released end '23. And we already have a product release plan also for '24. We are currently running now 5 proof-of-concepts with 5 clients, and the pipeline is growing. So I expect that we have more clients by the end of the year using that solution. And the proof-of-concepts are showing that we can save, and we mean we and the clients can save an average 40% of the time of a programmer for standard coding. Standard coding usually accounts for 80% of the workload. On next, Slide 5, I also want to share with you the developments -- the recent developments we made on UDPN in Q3. UDPN is our solution for a payment infrastructure for cross-border transactions with stablecoins. And UDPN leverages DLT technology, and I am very proud to share that 2 banks, Deutsche Bank and Standard Chartered have completed the first transaction and the test environment, obviously. It was a real-time on-chain transfer and swap between USDC and euros stablecoin. Both went public with a press release talking about it, and I'm looking forward for the other 11 proof of concepts to be completed by end of the year, and those results will also be published. The simple benefit of that infrastructure is not only that it is real time, but also it has much lower cost than other infrastructures like SWIFT. We at GFT, we will definitely continue investing and we think that this solution could play an important role for our change in our revenue architecture on the long term. But obviously, we first need the central banks to launch the stablecoins properly, which are fiat-backed. Now let's go now into the details of our financials. Jochen, over to you.

Thank you, Marika. And let's directly move to Slide #7, look at the 9-month key figures of '23. So we do see the 10% revenue growth here. We came in at nearly EUR 595 million after 9 months. The order book is down 1 percentage point and it reflects some seasonal decrease in shorter order cycles. The order book is improved versus our Q2 numbers. Last quarter, our targens numbers were only partially included. We still had some data issues back then. So now it's the correct number, we're 1% down versus a year ago. EBITDA, up 4%. The EBIT adjusted, improved by 7%. This includes -- and this is now the bullet point on the right side, the smaller ones -- capacity adjustments of EUR 3.6 million and negative FX effect of minus EUR 0.9 million, both [ burdening ] are stronger than a year ago. If we exclude the FX effects, the EBIT adjusted, as Marika has already mentioned, would have improved by 14%. The EBIT adjusted margin came in at 8.8% after 9 months, nearly on the same level as last year. EBIT is up 3% because we do have amortization effects due to the acquisition of targens this year. Therefore, the EBIT is below the EBIT adjusted. Net income obviously also increased by 3% as we have a stable tax rate of 29%. This brings me to Slide #9 (sic) [ Slide #8], and let's start on the right side of the slide and look at our sectors. So we have seen solid growth, especially in our banking sector. It still represents 73%, and by that the majority of our business, up 12%. Half of the growth is coming from targens, half is organic growth. Looking at the insurance sector, we're down 1%, so more or less stable. There is a bit of FX impact exactly in this insurance numbers, so on a local currency basis it would look a bit better. But fundamentally, we see a big number of projects coming to an end this year. We're able to recover and replace them, but we don't see room to grow the insurance business in '23. To look at Industry and others, we're growing by 15% after 9 months. And here, we see strong growth, especially in Germany and Spain. On the left side, the well-balanced client portfolio. Well, we discussed it last time in Q2, and it looks pretty much the same. So there's not much to comment here. The biggest client on the very left bringing in more than EUR 50 million a year is Deutsche Bank, and it still stands at 16% of the revenue of the year 2023. And that's probably also our outlook for the full year. It will be between 15% and 16% on a full year basis. Let's move forward, Slide #9 shows our quarters. And now let's first compare to the quarter a year ago, Q3 '22. We do see solid growth. It's 10% up on the revenue side, and we have improved EBIT adjusted by 14%, mainly due to the improved profitable top line growth, the 10% growth is helping and higher utilization despite some negative FX effects compared to a year ago. If we compare to the last quarter to Q2 of this year, growth is only 1 percentage point. And it is like-for-like because the targens acquisition was in both quarters, Q2 and Q3. It's a 1% growth. Adjusted EBIT increased by 41%. And again, it's mainly due to the improved utilization, reduced negative FX impacts in Q3 versus Q2, and we have a normalization of our Brazilian business. Moving forward to Slide #10, revenue and earnings by segment. And let's start at the top with the Americas, U.K., APAC segment. Again, we see growth. This year, it is at 3% growth, of which 4% is organic and we have a negative minus 1% on the FX side. Biggest growth drivers in this segment is currently the U.S. and Mexico, both mainly driven by the banking sector. When we look at the EBIT adjusted, we're burdened by weaker performance in Brazil, and the shift of profitable projects from our U.K. business to Poland in line with client demand. So it was not our choice to move the project. The client wanted to. And on top, we have more negative FX effects in this segment than in Continental Europe, which is mostly in euros. So let's look at Continental Europe, again, euro based mostly. Revenues up 20%, 11% organic supported by, of course, the first time integration of targens, which is shown under M&A, another 11% growth. Overall, Germany is growing by 55% explicitly due to the targens acquisition. We also see growth in Poland. As already mentioned, we moved roughly EUR 11 million of projects from U.K. to Poland, which is benefiting the Continental Europe revenue growth. On the profitability side, we see a 39% increase, which is -- because of the targens integration, which is contributing and a shift of profitable projects from U.K. to Poland. So on the group level, in a nutshell, revenue up 10%, 7% organically, 4% M&A, minus 1% coming from FX. As we move forward, Slide #11, revenue by markets, and let me comment on some of those. Brazil unchanged, biggest market in the GFT Group, representing 17% of our total revenue. As Marika already said, Brazil, for the first time this year is growing versus the quarter before. So we see a comeback of the Brazilian business. U.K. unchanged, number two, although we lost EUR 11 million which were shifted towards Poland, where you do see a very strong increase on the revenue side, EUR 11 million come from a pure shift of already existing client projects. Third largest market at the moment, Germany, 12% of our business, fueled by our targens acquisition. But on top, we see 12% growth in the local business without the targens acquisition. And let me also mention U.S. and Mexico, also showing markets, although, especially in the U.S., we see it slowing down quarter-over-quarter, which is showing the insecurity in the local U.S. market that we are facing at the moment. Year-to-date, 15% growth and Mexico is up 46%. Let me move forward, Slide #12, which is the income statement. Not so much to comment here as there are no relevant changes to the last quarters. The fourth bullet point brings together our people costs, which are a combination of cost of purchased services and personnel expenses. If we combine all the freelancers we buy or own -- our own people cost, we see it is unchanged at 80% of the revenue. Last year, it was 79.9%, so quite stable on a 9-month basis. Operating expenses are somewhat up, mainly because we see travel coming back at least somewhat, and we have higher license cost for the IT products that we are using. And the last point I want to mention is, again, income taxes. We see 29% tax rate, which is in line with last year and which will be the tax rate, also we guide for the full year. Moving to Slide #13. The cash flow analysis. We started the year with a positive net cash of EUR 35.7 million. We see an operating cash flow after 9 months of EUR 13.17 million. And as you can see mentioned in the third bullet point, and I keep repeating this since Q1, we have a special effect that we had a payment late Q4 last year, which came in as a positive operating cash flow. EU funds into our Italian organization, which 2 weeks later -- but that was in Q1 of this year -- were distributed to the end users of the funds. And therefore, we had a positive EUR 14 million in '22 and now we have a negative EUR 14 million in '23, which is extraordinary. If we add those EUR 14 million and EUR 13 million operating cash flow we're showing, we stand at EUR 27 million operating cash flow after 9 months which is a good number, and we believe we should be able to add another EUR 20 million in the last quarter, which would bring us to an operating cash flow of close to EUR 50 million. I also want to mention cash flow from investing activities. This is purely -- and it is mentioned on the right side in the last bullet point, the acquisition of targens, which was taking most of the funds in this category. And in the end brings us to a net cash on the very right side of minus EUR 19.2 million. With the inflows, we are still expecting -- we do see net cash to be roughly positive in the end of '23. Brings me to balance sheet on Slide #14. Not really much to mention here. The balance sheet total has expanded, but this is purely aligned to the targens acquisition and a bit aligned to the business growth we have seen. But there is no major shifts in the ratios. Equity ratio stands at 42%, improved by 2 points versus the beginning of the year. Going to the people slide, Slide #15. We see, first of all, that we have 10,500 talents on board at GFT, that's head count plus all our freelancers. Now going for the numbers in the graphic on the left side, this is FTEs, full-time equivalents as IFRS demands. Here, we see a growth of 3% compared to the beginning of the year. We had reductions, as mentioned in the second bullet point in Brazil, Poland, Vietnam and Mexico. At the same time, increases in Germany because of the acquisition, Italy and Spain. The number of contractors is down somewhat to 1,136 in the GFT organization, which compares to the 1,275 at the beginning of the year. And of course, some of the freelancers came on top because of targens. The interesting and the very strong number of Q3 is our utilization rate. We improved it to 92%, 92.1% to be precise. Our teams were perfectly matching the demand and boosting utilization to 92%, is heavily linked to the attrition number which we see on the right side. So good things came together. We have the right-sized team on the production side. And we did not have to replace that many people. We did not have to onboard so many people, which usually costs us utilization due to some unbillable days or weeks. So it was kind of a perfect quarter for the utilization. And again, as I mentioned, attrition is down, is now at 11.2%. The lowest number we had over the last decade was during COVID at roughly 10%. So we're pretty close to that. People are not moving jobs as likely as they did a year ago. And with that, back to you, Marika.

Thanks, Jochen. So let's come to our outlook. Let's move to Slide #17. And I already said at the beginning, but let me summarize here. So we confirm our earnings guidance. We only adjust the revenue guidance due to onetime effects in Q4, slightly down. Our revenue should grow for 2023 10% to 11% to EUR 800 million to EUR 810 million. Adjusted EBIT will grow at least in line with revenue, so at least 10%, up to 13%, reaching EUR 74 million to EUR 76 million. And our EBT, which then obviously includes all effects from M&A, FX, and share-based compensation will grow a bit less by 3% to 6%, reaching EUR 68 million to EUR 70 million. Now if we ever make a qualitative -- more qualitative statement about the outlook, obviously, the increased geopolitical risks, they make it more challenging for our clients to take investment decisions, also the increased interest, although it now came to a hold, but it's still a bit unclear whether we stay at the level or it would go up or go down. So hence, our market simply remains being more volatile, more short-term oriented. Nevertheless, we are confident that due to our positioning in the market, our niche at scale, we will continue to grow in '24. We will continue to outpace the market due to our positioning, due to our strong delivery excellence despite more headwinds. And on the next slide, it talks a bit about the strategy. I will go quick over them. I think we covered them a lot in our Capital Markets Day. But Slide 18, some of you may recognize this slide. It talks about our strategy. It remains unchanged. We continue to collaborate with market-leading partners, to always be at the forefront of technologies. And I sometimes summarize by saying, we simply focus on fast-growing niches which scale globally, which is obviously then also allows for higher profitability. Now Slide 19 shows our long-term goals. The long term in our industry is shorter, it's 2026. So they also remain unchanged. We want to have a decent diversification by sectors, keeping banking as our core sector. We want to outgrow the market as said before, technological excellence and both the economies of scale, which comes by growth. And the well-managed organization should lead to an adjusted EBIT margin of 10% or ideally higher in 2026. Now Slide 20 summarizes our strategic pillars, which enable us to deliver on our promises, which is accelerate profitable growth. It's, in short, our ruthless focus on delivery, our agile at scale company culture, our constantly renewed offering portfolio, all supported by a programmatic M&A strategy and this will allow us to grow and to grow profitable. With this, I hand back to our operator, opening the Q&A session.

[Operator Instructions]. The first question comes from Knud Hinkel with Pareto Securities.

I've got a couple of questions, if I may. First one on -- where to start. So -- yes, on the revenue contribution of targens. So if I -- I'm looking now at the Q3 only, not 9 months. So if I strip out the contribution of targens, which I would put at EUR 8 million and then also the growth that comes from Deutsche, which obviously had a very good third quarter. Is it fair to say that the business with all other clients was almost flat in the quarter? That would be my first question. Secondly, can you elaborate a little bit on insurance business that was a bit soft in the first 9 months? I think you said after H1 that they are reluctant to start big projects. Maybe you can say something on the development in the third quarter. Third question, number of FTEs was up 4%, but your personnel expenses increased by 30%. So I guess, there were some wage increases because of the inflation, but that's probably not all the 10%. I saw in your presentation that you talk on the mix of the locations of your personnel and that it shifted a little bit to Spain and Italy and Germany. Is that -- was it voluntary? Or is that -- yes, a coincidence? That would be my third question. And yes, on digital payments, that's probably for Marika. I'm not 100% sure if I understand it correctly. Do you target the profit pool of credit card companies with that? Or do you think that digital payments will become a business of its own right and to target with that initiative? So that would be my first questions.

Let me start with your last question first. So you talk about the UDPN network solution, I guess. So it's not about addressing the profit pool of credit card companies, but addressing the profit pool of infrastructures like SWIFT, which make money by simply managing cross-border transactions of today's fiat money, so real money. In the future, we will also have infrastructure. We need infrastructure to transact stablecoins. And this also needs an infrastructure and somebody needs to do it and somebody is going to make money on this. So the UDPN network will simply operate by the same principles than SWIFT. So there is a percentage or a [ per mill ], which the participants have to pay to swap stablecoins over this infrastructure. So therefore, we rather address the, let's say, the fee pool, so to speak, of the banks when they use those types of infrastructures. Is that more clear?

Yes. Yes.

Thank you then. Let me also take the insurance question while Jochen can prepare the number answers -- financial answers. So on the insurance side, it's a bit of a mixed picture. We have won additional insurance clients, 4 core insurance transformation programs and even cloud migration. But we had 1 large project for an insurance company in Canada, which actually had nothing to do with core insurance or cloud transformation. It was about implementing processes, improving their security because they had a huge data leakage 2, 3 years ago, where data was stolen, they got fined and then they asked us to come in and help them to upgrade the whole IT processes. We've done that, we delivered that. And that obviously is a project in itself. And there is nothing you do thereafter and also not something you do sell to other insurances because it is very special to this insurance company. So if we were to deduct that special project, you would see growth in insurance. But again, if you just count all insurance projects together, we look like just being stable.

Okay. Just [ to clear stab it ], that project was last year and that makes the comparison tough? Or what you allude to?

Exactly. The project was delivered last year. I think it went a bit into Q1, but not much. It was a huge program. We had, I think, easily 100 people on it, really huge, and this ended. And therefore, it makes simply the comparison tough.

To your number question, you asked how much targens' revenue was. It was roughly EUR 10 million, ten dot a bit, in the third quarter. And therefore, your assumption that Deutsche was contributing as in quarters before, and all other clients were not growing is correct. You asked about the people number. Yes, you're right. We increased personnel costs by 13%. FTEs on an end-of-quarter basis, that's always important, right, because personnel expenses relate to average employees. And FTE numbers in our graphics are always the end of quarter numbers. We have been replacing freelancers, that's one of the reasons why the freelancer costs are reducing. But this doesn't explain why FTE is not growing faster. We had roughly 6% salary increases and the rest is effects between more expensive and cheaper countries and average versus end of quarter view of these numbers. At the end of the year, we will give an exact update on how this works out on average basis. I think that speaks most.

The next question comes from Andreas Wolf with Warburg Research.

Can you hear me?

Yes.

Yes. Great. Congratulations on the solid performance in a difficult environment. I'm curious on your current client discussions. Firstly, regarding Q4. So obviously, you still have the EUR 10 million variability in your guidance, which I assume might be related to MTAs or possible MTAs at the end of the year. Maybe you could comment if you still expect those. And then regarding the next year, apparently, I would assume that you're already entering the discussions -- budget discussions regarding next year. Maybe just from a big picture perspective, if you could share what you see in general in terms of client behavior, whether clients basically have seen the trough in their spending and that we might expect at least a similar development as this year, also for next year? That would be helpful.

Thank you very much, Andreas. Thanks for the congratulations. So in terms of the guidance for this year, yes, we decided to continue with this. It's a span because we obviously keep negotiating the MTA impact every day. The truth is that we know this [ earliest ] end November, but the earnings call is today. We discussed this a lot. And then we thought that the simple truth is we don't know. So therefore, we came up with the spend. Obviously, it could go to the lower end, could go to the upper end. Otherwise, we would have not done it. But it's purely impacted by MTA. Maybe one or the other projects all of a sudden gets delayed into Q1. But then it kind of follows the same MTA logic. What we currently see that especially the banks, it doesn't happen in other industries, not in insurance, but it happens strongly in banks. And actually, for the first time ever, across the globe so far. It was mostly U.K., a bit Germany, sometimes a bit the U.S. but very seldom. Nowadays, it even goes to Brazil. Even banks in Brazil talk about MTAs, so that they all met and talked about it. So the only reason for the span is that -- and even if a project gets delayed, again, it would get delayed for the same reason, just optimize Q4 and then start in Q1. So therefore, we don't see any connection between the Q4 performance and our growth aspirations for 2024. They remain unchanged. Having said that, obviously, there is stronger volatility, the geopolitical risks. I cannot predict whether this continues a bit bumpy in Q1, could be, right? The banks still wait a little bit or they wait, whether the fact of increased interest or the ECB or they keep it stable again. Overall, we think that if I take a big picture, we had fantastic '21, '22 with huge demand fueled by 0 interest. We had '23 more bumpy. I think '24 probably going to rather be a bit like a '23. Hopefully, a bit better towards Q2, Q3. That's what I can see, hoping that the stabilization of the interest or either reduction would again make our clients be more ready to invest or simply get used to how to operate in a, let's say, an environment of interest which they were not used to for the last years.

And related to your last answer, Marika, a follow-up from my side. Could you remind us what the share of clients is in the GFT portfolio, which benefit from higher interest rates, i.e., probably...

70%.

Lending -- 70%?

Yes. Yes. So they benefited a lot, and you can see this when you look at the banks, their profitability is impressive. And you would have assumed they take the money, invest a lot into digitization. But what simply happened -- what simply seen as the high interest actually more or less attacked and tilts to a certain extent the fintechs, the banks became less nervous, and they actually thought why not optimizing my EBT and actually improving my shareholder return and maybe my bonus gets paid out a bit easier. So it's a pretty short-term oriented behavior, which tells you it's not -- a, has nothing to do with GFT; b, this just means they pause a bit or slow down a bit in their investments, but they've still got to do it. What has changed in terms of the client conversations, what is very interesting is that whilst I would say, until Q1 this year, most clients spoke about the classic things like cloud transformation, core banking, digitalization, et cetera. With the launch of Open AI and ChatGPT, clients quickly changed and even stopped investment in that regard and now keep investing in AI-enabled solutions. So there was a qualitative shift which happened this year, which actually makes me look pretty promising into the future because we are well positioned. We have a lot of good conversations. Having said that, the first projects and investments are rather small digits, 6 digits. It's usually not yet 7 digits, but it's piling up. And given that most of the things are so-called proof of concept, or a Phase I, this could fuel a big investment. And as the return on investment -- then I will stop talking, Jochen is already looking at me. As the return on invest is very short for AI investments, it's usually less than a year. And that is extremely interesting for banks because they love having RIs of less than 1 year, which is not the case for big cloud transformation projects, which usually have a much longer period before they pay off. So therefore, it's a bit of a mixed picture. I'm sharing here, I know. But I would say if you ask me one answer, is it more positive? More negative? I would say it's more positive. But yes, it's a volatile environment.

[Operator Instructions] And the next question comes from Lukas Spang with Tigris Capital.

I would like to follow on the growth topic for next year. You already said that you expect further growth, but you also mentioned the uncertainties. So how do you handle hiring for next year regarding all these uncertainties and also on the other hand, keeping the utilization high at the same time?

Yes. That's -- I would say, that's the recipe for success, right, to get that perfectly aligned. So it's -- there is no magic. It's pretty simple. We analyze our pipeline and the quality of the pipeline, the reliability of the -- let's say, of the conversations we have with the clients, whether they want to start a project or not on a -- if not daily, but definitely on a weekly basis. We do have countries where we can hire pretty much on short notice, with a lack of max 4, 6 weeks, which obviously helps to react very fast. We have other countries -- or with Germany, is on the other end, where you rather need months, which obviously in those countries, we'd rather be very conservative and very cautious and then we augment simply with other countries. So as we are specifically in Q4, most of our clients are closing their budgets in Q4. Most of them actually on December '23, which is not helpful for this call. So we are in close contact with the clients. We understand their budgets. We understand their priorities, and that helps us and enables us to then decide where to recruit or not. But it's a judgment call in the end. You can get it -- usually, you get it always a bit wrong. Either you have too many or too less people, so the art is to close the gap to the max. But this is something which is management skills we have. So -- and especially in those times, we will -- if needed, we would most probably rather stay on the conservative side, where in the years '21, '22, we went on the progressive side. We simply said hire as much as you can, demand will follow. Now the priority is rather the opposite around, make sure the demand is there and then we hire.

You've seen in '23, our utilization in the first 2 quarters was below what we can do as we're proving in the third. So we would like to avoid the first 2 quarters of '23 in the year '24. So go with less risk into the year, which should show utilization rates of above 90% already in the first quarter. That's our aim.

Yes. And then on the earnings outlook, if we assume for a moment that you will reach the upper end of the adjusted EBIT guidance, which would make nearly EUR 24 million adjusted EBIT in Q4 necessary compared to roughly EUR 21 million in Q3 and roughly EUR 19 million in last year's Q4, so 26% up year-over-year. What would make this strong earnings improvement Q4 versus Q4 if this is still in your guidance range?

So in order to make that happen, we definitely need the revenue to be on the upper end of the guidance, which means very successful negotiations on MTA. The reason that the EBITDA is -- or the EBIT is better than in last year is simply we did not only have wage increases. We also negotiated price increases in 2023. If you simply look back, the reason that we are able to protect the margin in percent, although we had restructure, although we had lower utilization in the first months tells you that our price increases were very successful. Obviously, if then you get the utilization right, it directly goes to an improved margin on the bottom line.

No more questions?

The next question comes from Wolfgang Specht with Berenberg.

Two additional ones from my side. First, on your competitive situation regarding Thought Machine and Guidewire which is, let's say, a huge enabler for projects, both in banks and insurance companies. Do you notice any activity among competitors for, let's say, more employee training on these software stacks? Or do you believe you can keep your lead here regarding skilled personnel for this software [ seeds ].

So on Guidewire, as this is a very mature solution and already very long in the market. I would say we were actually rather -- with that said, that we were rather entering the market. There were other companies before us. We simply speed up our positioning by really being extremely successful in Canada, and there we reached the leading position in Canada, French-speaking Canada. And by doing that, we then, let's say, developed our positioning. So I would say, in Guidewire, it's more a qualitative leading position, not a leading position in terms of being the first one or being the biggest one. Others are maybe even bigger, but they focus then more on commodity. So I would say Guidewire, easy. Thought Machine, yes, we do see, and I think that's actually good news because it means that our other competitors see that as an interesting market. They are training more people. On the other hand, yes, for sure, this will challenge us because they will walk in maybe even with lower prices to conquer market share. But what they cannot keep up with very quick is simply that we've delivered most of the projects, most of the implementations. We have the vast majority, and especially banks are, by definition, very risk averse. And especially with a big investment of changing their core banking system, they want to have a partner they can trust, who delivers, which is a qualitative augmentation. And this doesn't -- is not -- cannot be compensated by saying to a bank, Oh, I trained 500 people overnight. They say, "Great, but have they delivered ever, anything? No. Thanks, go home", right? So what we probably rather will see is that they either win various smaller banks so that they win small parts and then build up. So I think we will still keep the competitive advantage I would say definitely for some years. Over time -- I fully agree with you, over time, it will become a normal market where a lot of people have their knowledge and their competitive advantage will decrease. Hence, our wave strategy, that's when we have to hop on to the next wave because ultimately, we're going to be eaten by the big guys who are usually a bit slower, but they come from the pack.

Okay. Understood. And then a different topic, M&A market. Do you see any, let's say, easing of the market? Are more assets coming for purchase? Or does it remain difficult?

Well, I would say our pipeline is -- we do have a pipeline. So -- it's actually -- I'm a bit struggling how to give the right answer now. So we have a good pipeline, I would say. Do we see an ease in terms of pricing? Well, no, not really, to be honest, as we only look for profitable companies with a good positioning, where they grow. So not -- we do not look into distressed companies who need to be restructured. Probably those become cheaper, especially in these times, I can imagine, but that's why we are not interested. So I would say the multiples have not yet massively come down, but definitely, they don't go up, let me say. So the party, which we sometimes saw in the last 2 years where targens have asked from our perspective insane multiples, which we simply then said, no, we did not close, but they have been closed, that we see less. But our position was -- is of no difference than the last 2 years. But overall, I would say we have a good pipeline.

We have no further questions. I'll turn the conference back over to Andreas Herzog for any closing comments.

Okay. Perfect. Thank you, operator. Thank you very much for participating in our call today. As it seems there are no further questions, I would like to thank you again for your participation. And if questions may arise later, please do not hesitate to contact our IR team. So again, thank you. Take care, and goodbye.

Goodbye. Bye-bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.