innoscripta SE (1INN) Earnings Call Transcript & Summary

So we are -- the first customers we signed up our German companies with a subsidiary in the U.S. since we have already established relationship with those customers and the size ranges from larger midsize, which means around 500 employees to also some large corporations, so over having over 1,000 5,000 employees. I don't have the specific numbers here, but it's the first sign customers in basically France, U.S. and U.K. are pretty much customers of the existing customer base in Germany, which, by the way, also proves that this works if you address it the right way. Nevertheless, you need a local team on spot in order to serve the customers, of course, we have to have with the submission, and we need local people to facilitate the submissions there.

Okay. So -- but the submission is for is for the U.S., not for the German applications?

Yes, let's say, all tax credit schemes worldwide are slightly different. So that means that you have different processes in Germany. You have a 2-stage process. You first have to submit the government authority, which is called the beers of set and then this claim basically substantiate your R&D tax credit. And then again, you have to collect the cash at our annual tax statement. And in the U.S., it's a little bit different. You only have one step here, you only have this annual tax statement. So Nevertheless, you have to support the customer there, and they expect the local personal local workforce to help you there. Our main aim is not only to have this local processing workforce, but also to have a local sales workforce who generally win over American companies. And this is, let's say, a harder step because this is, of course, requires let's say, a few references and -- but this will come time over time when we scale up and build the sales force over there. By the way, we happen to manage to do this in Austria quite successful. So we have some traction now in Austria with the Fossenier, which is also a different tax credit scheme as in Germany. And yes, so we expect that we can repeat this playbook there. And maybe we can also answer your second question.

This is -- can you describe how AI is improving your OpEx? What is the main use case for AI in script today?

Yes. So basically, what are we using AI mainly for we are using AI for pricing documents. So if you can imagine customers submit a lot of documents to us. So we have payroll downs covering several thousand pages. And our main concern here is, of course, the speed of processing those documents, but also the reliability and quality. Quality comes from two different perspectives. That means, let's say, versus the accuracy, how we do this document. So no solution here reaches 100%. You always have errors, which you have to feed into a [indiscernible]. The second one is where do we do this data processing. So our strong direction here is to have our proprietary data processing in the European Union. So in order to address data concerns from our customers, which are obviously concerned that data is being used for training data on some models. So this is actually the big main part where we will use AI and how we can accelerate our business. Improving OpEx. If you if you see our main, let's say, expenses here is R&D, which goes into developing new products. So we don't see any main impact. You see some let's say, improvement in G&A. But let's say, we don't see a very big driver of that. It's more about like the ability to improve to serve the customer with a drastic increase in quality, which basically gives us reason to believe that AI basically helps us here in a big deal. Next question?

Partly my question was already answered. But maybe you can give some insight regarding your three new markets France, U.K. and the U.S., what would be the potential in the coming 1, 2, 3 years from your perspective? What is competition looking like -- and when do we expect to breakeven? I mean you build up some offices, with people. Maybe you can talk about that about these 3 points.

Yes. Thank you, [indiscernible]. So basically, in order to give you some color here. So we don't expect any significant contributions in 2026. We see -- like I say, our requirement for those markets is that we get very soon to, let's say, within the first 12 months to a revenue of EUR 1 million. This is the first target which we see on those markets. Obviously, this is not the breakeven point that will come at, let's say, a single digit, let's say, 1 million amount. That depends a little bit because of the salaries in the U.S. are quite high as we found out there. But let's say, what we really have to manage there is we have to build up a sales organization, which is, let's say, not an easy task. You have to build -- we've hired experienced sales people there who know already the tax credit scheme, we work for competitors. So there are also onboarded some, let's say, people, they knew. But we have to see how we, like, let's say, how the revenue even the PAP development will be. So obviously, we have a strong pipeline in all of those, that's main markets, let's say, with some companies already in contract negotiations. But let's say, we are here in the long run, yes. The main challenge, which we see is, for example, in France, you see an intense price competition. You see basically tenders. Where companies are invited in and which is where competition is happening mostly over price. We don't believe this is smart also for the customer because at the end he pays the price with the quality standard and especially when there's [indiscernible] from side of the -- from the government there, especially when it comes to big claims, we believe we have a deep value with our approach of the data collection because data collection, data processing and providing the documentation for a customer, which answers those questions, those detailed questions. This is what we believe has a superior value -- and our main challenge is that we communicate this in the market. So this is not something which happens in half year, a year, but I think we will basically see if a market the market surpasses EUR 1 million revenue within 12 months. We have reason to believe that this will be very successful. And all of those markets are already much bigger than the German market. So if it only comes from the U.S., we see a potential of several magnitudes in revenue like compared to the German market. And this is why we are doing it essentially.

Okay, let me pick up a couple of questions because we are running out of time. I see a couple of questions. So I see a question for Mark, and I'll summarize quickly myself. Can you explain some revenue move from Q2 to Q3? Yes. So what we basically just briefly talked about is the software migration and that at least 1.5 months, we're missing in the first quarter to get to revenue in Q2 with our 3 months delay in revenue recognition. So we expect to catch up with this in Q3 and Q4. So we don't communicate a fixed number at this point of time, how we expect that to distribute between Q3 and Q4, but we are confirming guidance that we generally keep believing in our guidance, which is EUR 140 million of revenue on in EUR 80 million EBIT. Then I think we touched the question of Gustav, if we see any increasing customer acquisition costs going up. So the additional expenditure that we have is the investments in our international markets that naturally leads to new contracts coming in with a couple of months delay. So it looks as if the customer acquisition is going up. But we feel in our established markets based on numbers that we see. And if we roughly assume the amount we are spending on international markets here in our core market in Austria and Germany stays fairly constant. Then regarding our market share. So this was a comparison where we had the fixed numbers of PSF set approvals in 2025. And there, basically, we had official statistics of the BSFS approvals, and we had our own internal numbers. And based on that, we came to a conclusion that we have a market share of approximately in non-SME liens that court granted the first BSF set approval in Germany. Yes, we, at this point, don't communicate a forecast how we expect the total amount of applications to develop in the coming months. But naturally, with the growing customer base, we expect that to grow Data migration is over. Yes, I can confirm that, that majority of data migration is over. We don't expect in the short term, further delays. And now last but not least, I would like to pick out the question from Thomas H. How does management see the business developing over the medium to long term without committing to specific guidance in terms of revenue growth and EBIT margin what long-term range would management consider realistic? And does management feel comfortable with prevailing analyst estimates for the next 3 years. Just a couple of thoughts on this. So we see in our core market in Germany, where we have started off, we see an increasing generosity of tax credits. So this year, for example, the threshold of expenditure that can be handed in was increased from EUR 10 million to EUR 12 million a year. And basically, this way, the funding rate also got increased. So we see positive regulatory tailwinds. Now if we think beyond growth in Germany, where we see a lot of potential to win again new clients who have never filed for tax credits before or have dramatically under claimed we see the potential in other adjacent markets. Number one is the U.K., where roughly EUR 9 billion are spent in tax credits every year, just as a comparison, the German market at this point of time stands at EUR 1.2 billion a year. So the U.K. is multiple times bigger France is currently standing at EUR 7 billion in R&D tax credit expenditure, yes? And the U.S. is an even bigger market, yes. So we try to expand into other geographies where tax credits seem to be more attractive and even a bigger volume. And with our approach, we offer one platform to a global client, and we serve them in all geographies on one platform we assume to have a long-term competitive advantage. Other alternatives are typically big 4 and old to additional consulting companies, yes? That's our competition. They have very little to no software solutions, and this is where we are USP and where we feel we can also gain market share in other geographies.

Maybe let me pick a couple of another questions since we are short on time to address all questions. Andrea Ruda said you expected age to EBIT growth slows down. So I can only refer on the published guidance, which we confirm there, which is EUR 140 million in revenue and EUR 80 million EBIT. So we feel you're confident we will, let's say, beat this. And basically, this is the current state of the information here. Question from Thomas H. Like you said I already addressed this question, Thomas H. regarding the international role. I think you already addressed it as well here. So we believe those markets are magnitudes larger than the German market. So at least currently, since the German market is still -- infancy is still growing at quite high rates. And we believe we have reason to believe that we have a competitive edge in those markets where we our main challenge is to explain to the market that this is actually an advantage. So the customer also understands it. Then Nicolas Olofsen has a question about -- so I just go through, which I already answered. Let's say, do we know something about the total market value of total tax grants brands in Germany, France, and if the markets are stable or if they cycle with the over economy. So the answer here is they're very stable. They don't cycle because R&D expenses are usually very let's say, very slow to change. And even in crisis, the R&D head count is the last one to be reduced. And the overall market value of -- I think we have the slide, as I just referred to the published slides here, so France currently is several times as big as Germany, the U.S. is way larger. So as I referred to last year in Germany, we had EUR 1.2 billion France was EUR 7 billion, United States, EUR 34 billion, the kingdom EUR 9 billion. So roughly, you can say it's 9% of the R&D expenses of our country is the tax credit claim. This is what you see, the headwinds from cluster migration, what has this Yes. So basically, we can hand in faster with more stability. So this is actually -- and we can make international [indiscernible], and this is why we where we did this migration. Do you mean you serve some customers outside of clastics that migrated into clastics. I don't particularly understand the question. So like there are customers outside of cluster rig. So it's more, let's say, a migration from a previous system. So we reduced the number of software systems we use internally and those submissions will be pushed over to Q3. Again, let's say, we see, let's say, that we were not able to hand in some submissions in the first quarter, and naturally, they will be handled in the coming quarters. How does a normal customer typically function over, let's say, a 10-year cycle. Yes, let's say, when we have a given churn rate of below 2%, then. Basically, we expect, like, let's say, a customer to be there in 10 years. So the average customer, and let's say, in terms of submission, I think we still have to do some improvements in our aftersales process. Yes, there's still some, let's say, improvements we can do. We remain focused in Germany with new customers. So that means that we want to still capture the market, this opportunity and still invest a lot in capturing new customers. And so when it comes to submissions of existing customers, there is still some potential, which we could leverage. So usually, a customer make submissions when we onboard them. Like in some cases, we, let's say, there's basically no real playbook what happens after that. In some cases, there is another submission in 6 months. In some cases, we build up a relationship with the customer. So the first submission is quite small, and the following submissions are quite large, every time larger to build up this trust relationship. In some cases, the customers hands in for previous years. So at the end, let's say, we see the typical customers coming back, so it doesn't come back in predictable patterns. But there is still some area which we let's say, where we could improve the, let's say, derives and the structures area also to lead the customers to more regular refi submissions. And this is something still upcoming for the future, which we see some area of growth and improvement. There's another question from Guilhem of the EUR 140 million forecast. Let's say, how confident are we? As I already said, we confirmed it, so we are confident. And regarding the capital allocation of the company, is it fully focused on the expansion? Or do we have other initiatives. Yes. Again, we look forward to keep at least the dividend stable or slightly increasing, not necessarily see a full payout and -- we also have the option to make some share buybacks, which we cautiously would weigh in the future. And maybe leading over to Alex for some other questions. I'm just checking if there are any significant questions, which we haven't touched as yet.

Okay. So a small question. Can you give us a feeling how much the office openings have had an impact on EBIT in 2026. So I feel the major investment is into people. Of course, office infrastructure is also an investment. But as we start with relatively small and flexible office structure, it is not a very super significant amount in comparison to salaries when you hire 5 to 10 people, for example. So this represents majority. Then I see your question, sales went down because migration, can you explain the correlation of migration and sales decrease -- so I think this is a very good question because we have to differentiate here. So sales in terms of incoming contracts with customers and R&D volume has not gone down. So this is a very constant figure that we touched on with good stuff earlier. That's our customer acquisition over the last 6 months or last 12 months. What has gone down in that limited period of time is simply the submission of R&D proposals via our software platform. Again, that is only a temporary slowdown. The R&D volume behind with existing customers has not decreased. So there is simply delay? And the migration benefit overall is a simplification of internal software systems that we use to serve clients and that will enable us to be more efficient and work with higher speeds and better precision in the future. Maybe another interesting question, how many percent of your customers need special adoptions? And if so, how many percent of those are paid for by the customer? And do you expect those numbers to be very different in U.K., France and U.S. So we work only with country-based workflows. Customers don't get individual adoptions. So the cockpit within our platform for each customer, looks the same. There is no customized work included because the tax credit workflow within a geography is usually the same for every client. In some geographies, you have a differentiation between an SME scheme and a large company scheme that there might be two different workflows. But generally, this workflow has to be built for a country, but then this workflow for a customer is the same. And last but not least, if state elections in Germany in September result in a government coalition breakdown and snap election, early 2027, how do you see impact for submissions, cash back time line in the scripted in general? So we are working based on a law, which is indefinite. So tax credits is like your regular tax declaration and rules and regulation around it. So it's a law that there is a legal right to have a cash back. This is an indefinite program. It's not limited to a period of 2 or 3 or 4 or 5. And if you were to check how parties generally think about R&D tax credits, then every party doesn't matter if left or right or middle or however you would define what the party is everybody is in favor of R&D tax credits. So first of all, it's a very stable instrument. It has been in adjacent countries very stable over time, typically with more generosity. This is what we have Germany as well that the generosity was increased 4x since the inception of this program. It's embedded in the law, which makes it very reliable for companies to use this instrument, and generally, all political parties are in favor of R&D, yes? Because this is not about taxing somebody more or taking more from others. Everybody has the understanding that R&D is one of the very major welfare drivers of an economy. Okay. I think -- and I hope that we have answered all questions and that we helped you with the understanding of our business. If there are further questions, please feel free to reach out to our colleague, Max Hunger, and he can answer further questions or also schedule one-on-one meetings with me and with Michael, if there are further questions. Thanks a lot for your attention, and I would like to highlight that you are part of our software world today. So this meeting happened in cluster meat, which is our own development, which we use internally to serve our clients. It's basically a video call and of course, also call software. We are very proud that we were able to host our first earnings call within our own software framework. So maybe this gave you a little bit of a taste that we love to build great software and great processes. And at least today, you've seen a small fraction of what we have developed. So thanks a lot for taking part and bluster meat, and yes, feel to reach out with additional questions to us. Thank you very much.

Thank you, were from my side, and Yes. As Alex said, please feel free to reach out if you find that some of the questions were not answered here in this call because we have a short time frame. But we are here for you as you can address Max, and we will set up a one-on-one meeting or we will answer the questions in writing. And so please feel free out to reach any time. Thank you Bye-bye.

Thank you very much, everybody. With that, we are at the end of our call. Feel free to reach out, and have a good evening. Bye-bye.