Planisware SAS (PLNW) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Planisware Full Year 2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Loic Sautour, CEO. Please go ahead.

Thank you, and good morning, and thank you, everyone, for joining us today on this call. This is Loic Sautour speaking, and I am here with Stephanie Pardo, our CFO. Well, I'm going to share some very exciting updates about Planisware journey, where we continue to follow our strategic road map of sustainable and profitable growth, continuously paving the way towards our ambition to be the accelerator of the project economy and the #1 provider of multi-specialty project and portfolio management solutions. In 2024, we welcomed new customers. We've grown our team, and we have with record highs in revenue. Now, none of this would have been possible without the dedication, the energy and the patience of our 750 Planiswarians great. I would like to thank every single one of those Planiswarians for delivering an outstanding record breaking year. At Planisware, we have a clear goal to build a strong relationship with our clients. And together, we contribute to a greener and more digitally advanced world. So to them, I also want to express my gratitude, and more broadly to all of our stakeholders participating to our success, thank you. Now let's dive into the key figures for the year. Despite significant global uncertainties and concerns in the macroeconomic and geopolitical context, our long-standing relationship with our clients, also fueled by many new clients enabled us to achieve a robust 17.4% revenue growth in constant currency, totally in line with our 17% to 18% objectives. Our revenue growth was driven by the continued success of our SaaS operation. This trend drives our activity mix with an increasing share of recurring revenue and geographical diversification, which helps maintain our growth resilience. Our more recent pillars are also strongly contributing to this growth. In parallel, our adjusted EBITDA increased by 24%, representing 35.2% of revenue. This improvement of 180 basis points compared to the 2023 margin was mainly due to the mix effect with our most profitable operation growing the fastest. We exceeded our '24 objective of 34% and reached the level targeted for 2026, effectively delivering our medium-term profitability ambition 2 years ahead of schedule. Similarly, our current operating profit increased by 21%, reaching EUR 52 million. Our adjusted free cash flow growth was particularly strong at 24.5%, resulting from improved profitability and a strong cash conversion rate of 84.5%, higher than our targeted 80%. This leaves us in a very strong financial position at year-end with a net cash position of EUR 176 million and no financial debt. Now let's take a look at our revenue performance by geography. The geographical diversification of our group has proven to be a valuable asset, helping us to navigate any growth slowdown in specific regions by compensating with growth in other regions. In 2024, all key geographies contributed to Planisware revenue growth. So their contribution vary through the year. North America, representing 44% of our total revenue in 2024, played a significant role in our year-end growth with a 19% increase in the second half of the year. This came after a slower start in the first half where elongated customer decision-making processes impacting nonrecurring activities and implementation services, resulting in a 15.6% growth. Now overall, North America achieved a 17.3% growth for the year, thanks to substantial cross-selling, upselling with existing customers and, of course, new customer wins. Europe, in contrast, so a decent growth of 18.1% in the first half of 2024, driven by strong dynamics in Germany in particular. However, revenue growth slowed to 18.4% in the second half due to macroeconomic uncertainties, political concerns, especially in France and challenges in key verticals like automotive, primarily for new customers. As a result, Europe achieved a 14.5% growth for the year. Planisware growth in APAC and Rest of the World of 44%, resulting from a very strong commercial momentum across Japan, Singapore and the Middle East. Now let's take a look about our revenue evolution by pillars. 2024 is demonstrating again that our multi-specialist approach is really paying off, helping us to stay resilient. Our newer pillars are ramping up as efficient cost drivers balancing out the slower performance of our historical product development and innovation pillar, which was more impacted in the second half of the year by elongated customer decision-making processes, especially in the automotive industry. Despite this, PD&I remain our principal pillar in 2024, contributing 53% of our revenue and being the main driver of our growth. The project control and engineering pillar, which support production team in the industry with sophisticated products, plants and infrastructure like aerospace and defense, energy and utilities, manufacturing and engineering and life sciences worked very nicely. Although it's still a recent addition for Planisware, it represented 20% of our 2024 revenue and posted a fantastic 35.6% growth thanks to the successful rollout of our specialist solutions in North America. The IT governance pillar represented 18% of our 2024 revenue, it grew by 20.1%, driven by continuous cross-selling to Planisware clients needing to accelerate their digital transformation. Project business automation represented 9% of our '24 revenue and confirmed its ramp-up with a solid 17% revenue growth. Now I'd like to move on to more qualitative aspects of our performance in 2024. One of our product achievement is our breakthrough in the U.S. defense industries Northrop Grumman Corporation, a leading global aerospace and defense technology companies. They have chosen Planisware Enterprise as their enterprise-wide program management system. We are honored to partner with them as they continue to implement digital technologies across their business. Planisware is playing a key role in their digital transformation effort, streamlining portfolio management technologies across the entire product life cycle. Planisware's reputation is also bolstered by broad recognition from third-party industry analysts, which helps us attract and retain customers. In 2024, the high-quality, reliability and usefulness of our solutions were further confirmed. Gartner ranked Planisware as a leader in its adaptive Project Management and Reporting Magic Quadrant for the third year in a row and recognized us as the solid customer choice for strategic portfolio management in its voice of the customer for the second year. With our new AI powered unified platform, which I'll detail a bit later, in the presentation, we are shaping the future of portfolio management. We are staying at the forefront of innovation, delivering the next-generation experience with a new version of our platform, keeping us one step ahead of the competition. In terms of sustainability and social responsibility, Planisware's efforts were recognized with a gold medal from EcoVadis, the Great Place to Work certification for all of our offices and satisfying B score for our first rating by CDP. These distinctions highlight Planisware's rapid progress on ongoing and ongoing commitment to building a more responsible society. They encourage us to continue innovating while leading the highest environmental and ethical standard. Let me zoom in on one industry that is definitely accelerating, the defense industry. It is a massive sector with around 2.5 trillion in early global spending, and about 40% of that in the U.S. alone. This market is not really large, but it's also growing at a mid- to high single-digit rate with an increasing share of software spending. However, players in this field who are on our actual or potential clients have very, very specific needs. For security and sovereignty reason, they need to run their mission-critical solution on their own infrastructures rather than through cloud-based SaaS. To address this, Planisware has introduced a new delivery mode that combines the best of both worlds. The security of private infrastructure and with the support possibility, the long-term relationship and the recurring revenue similar of the one from SaaS delivery. This relies on licensing our technology annually, through multiyear agreement. We are reporting this line of revenue for the first time in 2024 within our recurring revenue under Planisware SaaS model since we initially delivered such licenses in Q4 2024. Planisware anticipates that this innovative delivery mode will be particularly relevant for companies with specific security and sovereignty requirement and will drive additional cost -- for the additional growth for the group. Now before transitioning to Stephanie, I would like to develop a bit on our new AI powered platform, shaping the future of strategic portfolio management. Like many others, we do believe that in a few years, up to 80% of users will interact with applications such as Planisware by voice or a chat or by chat, and we are -- we have prepared ourselves to support that evolution. To do so, being already on a single unified platform has been fundamental. We further developed our semantic metadata model, which contains physical database objects that are abstracted and modified into in-memory logical dimension. This makes our platform future proof for increased AI usage with the deployment of AI agents that need the semantic model to perform. We clearly set ourselves apart with our unified platform. As you can imagine, other players in the industry who are trying to stitch together several acquired technology can't deliver what we are delivering to our customers. This increases the barrier to entry in our business where being a specialist is paramount. So thank you. Now Stephanie, the floor is yours for the financial. Thank you.

Thank you, Loic, and good morning to all. I will start my presentation with the revenue evolution by revenue stream for 2024. As usual, in order to reflect the underlying performance of the company independently from exchange rate fluctuation, I will focus my comments on revenue evolution in constant currencies, which means applying 2023 average exchange rate to 2024 revenue figures. Anyhow, FX effect was quite low in 2024, representing only EUR 0.3 million, almost fully related to the appreciation of the euro versus the Japanese yen, while nonintuitively the year-end appreciation of the U.S. dollar has no effect in the yearly average exchange rate. As expected, the key driver of the revenue performance was our SaaS model, which represented 78% of the total revenue and grew by EUR 27.9 million or plus 24.1%, fueled by new customer wins as well as continued expansion within our large installed base. Our SaaS model is made of SaaS and hosting revenue, up by 27.1%. Support activities, which grew together by 18.1%, including a healthy 26.5% in subscription support. And annual licenses or new reports in line of revenue that Loic mentioned just before, which contributed for EUR 1.1 million in Q4 2024. Still in the recurring part of the revenue profile, maintenance grew by 1.8% over the year. I now move to the nonrecurring part of the revenue, which represented 11% of the total revenue and slightly declined by minus 1.7% in '24 as anticipated. Planisware sold perpetual licenses for EUR 7.5 million, mostly to established customers for extension of formerly sold licenses, which represented 4% of the total revenue as guided. These new licenses will generate additional recurring maintenance revenue in the future. Oppositely, implementation services faced [ revenue ] longer customer decision making process, primarily from new logos and in the U.S., leading to a revenue contraction by EUR 2.1 million. I would like to illustrate how this translates to the evolution of the revenue mix towards more and more recurring. Over the year, recurring revenue made of SaaS operation and maintenance of perpetual licenses represented 89% of total revenue, 260 basis points higher than for the previous year. The SaaS itself represents 78% of total revenue, while it was 74% in 2023. Turning to the gross profit. I'm proud of the continued disciplined approach to the expenses implemented in the group with the 150 basis points of gross margin improvement [ but ] last year, leading to a gross margin of 72.7% of revenue. This performance was driven by business mix evolution, as I just detailed, and in particular, thanks to the combined 29% of growth of the SaaS and hosting and annual license line, the most profitable change of the revenue. The next slide presents the repartition of our operating expenses, which is very much consistent with the one observed during the previous period, totaling 44% of the group revenue. At 12% of the revenue, R&D expenses consist primarily of staff expenses directly associated with R&D teams as well as amortization of capitalized development costs and the benefit from the French tax credit, are reflecting the group ambition for the continuous product development and leadership. The efficiency of the R&D increase the benefit for the deployment of AI tools, boosting the group's ability to provide innovative products and software solutions. In 2024, capitalized development costs amounted to EUR 2.5 million compared to EUR 2 million last year in '23. Represented 14% of revenue, stable compared to 2023, G&A expenses growth reflect the recent hirings made to strengthen the global functions to contribute to the growth of the business and international expansion of the group. In the future, as the company continues to scale up, G&A is expected to progressively decrease as a percentage of revenue. And finally, at 18% of the revenue, sales and marketing expenses translate the employee-related costs in the sales force and marketing team to support an [ expansion ] in its domestic and international marketing activities and corresponds to a level we intend to suspend in the future to keep strengthening our leader of market position. As a result of the gross margin improvement and the consistent OpEx level, the adjusted EBITDA margin, which is 35.2% of the revenue, year-on-year improvement by 180 basis points. In absolute value, adjusted EBITDA reached EUR 64.6 million, up by 23.7% year-on-year. Moving to the cash generation, now which has been strong over the year with an 84.5% conversion of adjusted EBITDA to adjusted FCF. This level is slightly above our circa 80% 2024 objective that we consider with a normative conversion rate we expect in the coming years. Looking at the details of the conversion of the EBITDA, change in working capital was positive by EUR 2.5 million and in line with the structural slightly positive change in working capital expected every year, thanks to the growth of the subscription contract being in advance of service vendors. The CapEx, which amounted to EUR 5.5 million, represented 3% of the revenue which is in line with the usual CapEx spending and with the expected labor for the coming years. And finally, tax paid increase reflects the growth of taxable profits. The cash generation over the year coupled with the payment in April of a dividend on 2023 results led to a solid cash position of EUR 176 million at the year-end, 23.5% higher than a year ago. I remind you that except lease liabilities related to offices and data center facilities, which amounted to EUR 17 million, a small amount of bank overdraft, Planisware does not have any financial debt. Finally, in this context of strong financial performance and subject to the approval by the shareholders, the group will pay a dividend represented 50% of its profit for the period in line with the historical dividend policy. This would represent EUR 21.4 million or EUR 0.21 per share. This concludes my presentation. Thank you for your attention. I now give the mic back to Loic to conclude.

Yes. Thank you, Stephanie. Well, I will conclude with our 2025 objectives. Taking into account our strong commercial pipeline on one hand and uncertainties in the timing of contract starts and the evolution of sales cycles length on the other hand, we have set the mid- to high-teen range for revenue growth guidance. We also intend to maintain our profitability on 35% and to keep delivering a cash conversion rate of circa 80%. So thank you very much for your attention. We are now ready to take your questions.

[Operator Instructions] We will take our first question from the line of Frederic Boulan from Bank of America.

A couple of questions, please. First of all, if you can spend a minute on the demand environment. I mean, I think you flagged some areas of strength, but still a number of uncertainties. So it would be good to have a bit more granularity in terms of any markets where you're seeing incremental pressure? I mean, particularly in autos, do you expect spend to recover or still to remain under pressure in the medium term. You flagged strong growth in the U.S., it would be interesting to hear a bit more about some of the geographical diversification. Second question around EBITDA. So you're already at your 2026 targets. So well done, but the question is what's next for your guidance in '25, there's no further improvement. So why would the operating leverage not continue to work going forward? And then maybe lastly, around Gen AI, I mean, interesting comments around your unified platform. It would be interesting to understand a little bit how you think about monetizing Gen AI. Is it just part of the feature? Or are you saying there is an opportunity to extract additional revenue from that? And anything you can share around the productivity side for yourself in terms of coding and better internal efficiency?

Yes. Thank you for the question. Well, the demand environment, it still remains -- I think we really have to separate the existing customers from the new customers. With the existing customers, the need to react to their own market change, the need to have project to handle that is definitely there. And that's why not only we have a very high recurrent in our revenue, but we are expanding because we really help our customers to do more and more with Planisware. For the new customers, that's where we see some sales cycles that we've seen that last year, and we still see that now some sales cycles that are elongating, there are some uncertainties. There are some uncertainties politically, geopolitically, that some companies are willing to see what will happen with the tariffs or not in order to take some -- to take some decisions. From the geos, definitely, there is some -- it's dynamic in the U.S. There's still some -- I mean the same comment applies for between existing customers and new customers, very dynamic with existing customers, new customers, it depends. Europe, clearly, there are some concerns about the politics in France and Germany. There are the economies are not striving and we can feel that. The second question about our EBITDA. We have reached 35%. But clearly, we maintain our guidance at this level because we don't want to alter the long term. We are here for the long term, we want to continue to fuel the long term. And so that's why we are maintaining our guidance at this level. And about Gen AI. So we continue -- so if you remember, our funding team, they come from AI. So it's really -- AI has always been top of mind. And -- and now more and more with the latest things that we see around AI, we are leveraging that. So we bring a lot of capabilities with AI agents directly in Planisware. The fact that we've already built on a single platform is key, a single data model is key. And do we monetize that? Yes, we do. Depending -- we have multiple AI features that we bring to our customers when there is this know-how that where we can leverage the customer data in order to help the customer with its prediction, for example, this is something that we monetize because that has clearly -- this is clearly a gain for our customers. And yes, this is something that we monetize. On our side, we also leverage our broad solution, our own Planisware. We've seen some gain in our R&D, but also in how we support our customers because we -- because we do leverage Planisware, it's helping us to be more efficient into what we do.

We will take our next question next question comes from the line of Gustav Froberg from Berenberg.

A few kind of follow-up questions and then some adjacent ones. The first question is on the demand side picture as well. Could you talk a little bit more about how you view the phasing of the year and whether or not you expect a big acceleration in second half or if you need a big acceleration in the second half to hit the kind of guidance that you've given for the year? And then I have a question on annual revenue. The new revenue line that you've published, could you explain just that line again? And how and why it's considered recurring and maybe how it's different to SaaS, I didn't quite get that. And then final one, also on AI, we talked a lot about it, good to hear the qualitative color, but could you also quantify the impact that you've seen from Gen AI on your business, both on the sales line and on the cost line, please?

Okay. Maybe I'll start with the second one about the annual revenue because it will help me with the first question. So we have the demand from some customers to use the Planisware technology in their own private environment. And sometimes within their private environment, they also need for their own customer needs, they need to actually silo even the same technology. And so clearly, those customers, they cannot rely on the traditional public SaaS offering. They need to operate that in a very confined and siloed environment. And that's why in order to support that, we have worked on this annual license. So what is the difference between the annual license and the SaaS, it's the hosting. The hosting that is done on the private infrastructure for annual license. And as opposed to SaaS, you'll see it's done in our own architecture. In terms of contracts, the contracts are actually very similar in the sense that they are multiyear agreement in which there is an annual fee, either an annual license in the case of this annual license that we reported or typically an annual SaaS fee in the -- in terms of a SaaS delivery. So in terms of the demand side for the phasing, actually with a little bit of understanding on this annual revenue and the recurring of this annual revenue, yes, we do expect that the second half of the year will be accelerating a bit more in terms of revenue. And AI, it's very hard to comment on the qualitative aspect of it with numbers that we can share publicly. We know and we have measured the impact but those are not numbers that we can comment here.

Your next question comes from the line of Ines Mao from BNP.

So I have 2 questions. On the full year '25 guidance. First, what are the building blocks to give you confidence to reach it? I'm not thinking about cross-selling, new business. And are you seeing any risk to the level of subscription as customers might be cutting headcount? And my second question is about geography. So Europe has slowed a lot in H2 versus North America. Are you embedding any European growth recovery in 2025 to reach your mid- to high teens guidance.

Can you please repeat the second part of your -- the second question, please?

Yes, of course. So Europe has slowed a lot in H2 versus North America. I was just wondering, are you embedding any recovery for European growth in 2025 or in H2 2025 to reach your full year guidance?

Okay. So the first question is about our forecast. So what is very -- what we need to remember is a lot of our revenue growth comes from existing customers. With a net retention rate of 121%, I mean this is a testimonial to that. This is a testimonial that we do for our customers is really key, it's really mission-critical for them, and they expand with Planisware. So with the level of customers that we have, with the level of recurring revenue that we have, with the net retention rate that we have, we do have actually a very good confidence and the predictability for the future. The variability will come primarily from new customers. And as I said before, our commercial pipe is actually very strong. But the timing is everything. And depending on when new customer sign is really what it impacts. Are we -- part of your question is like it's true like some companies are reducing their workforce. Some of our customers are doing that. Are we afraid that it will impact us, not necessarily. But the thing about Planisware is that we help our customers to react and adopt a changing world. And because of that, sometimes they need to reduce their employees. They need to reallocate resources. They need to distribute all of the work across the remaining workforce. And for that, Planisware is really helping them. So that's why very often, we will see that with our existing customer will be a bit countercyclical because as they need to react and adapt, react to the changing world, then they need Planisware to do that. And finally, if I got the question right, it's about the Europe slowdown at the tail end of 2024 and if we see any recovery. We have seen that on a new implementation. As we had commented last year, there has been some deals that took some time to be signed. And several of those deals have been signed at the end of the year and this switch we are implementing. So there is a bit of recovery for us on the implementation side of our deal we implement customers.

[Operator Instructions] We will take our next question the question comes from the line of Pavan Daswani from Citi.

Firstly, could you maybe give us an update on pricing and whether you finished introducing the inflation indexation to all the customers now? And then secondly, you called out the opportunity in defense. Can you maybe help us understand your current exposure to the sector and where you are with this journey? And then lastly, I saw that churn picked up to 2.2%. Any color you can share on that?

Okay. Yes. Pricing indexation, as you remember, we have pushed that in our contracts when -- especially after inflation started to be in strongly. And now the vast majority of our contracts are indexed to some -- with some indexation clause depending on where they are geographically. CPI type clause in North America. And now that has been done, then inflation is much lower than it has been in the last few years, and who know where it will go. Concerning the defense exposure, there are clearly -- it's a sector for us that is fast accelerating across the world. That is clear. Now remember that we are very diverse in terms of industries. So as a result, our exposure strictly to the defense is not extremely high because of the diversity that we have in our different customer set. 2.2 churn rate, it remains an extremely low churn rate in the industry. It did go up a little bit, and the reason for that is -- I mean, several reasons for that. When there have been -- there have been some companies that have been cautious in their spending, and it's more affecting our -- more our Orchestra line where some companies where it's more like a departmental approach that they may have churn. And on the larger churn that we've seen, it's actually primarily for companies that have been acquired or actually that have disappeared and that's why it did go up a little bit. It has been up for some companies out there. And that's why it impacted our churn rate a little bit. Yes, it remains a very, very good churn rate, and we are very proud of it.

This concludes the question-and-answer session. I'll now hand back for closing remarks.

Well, thank you. Thank you for your interest and all of the questions. We'll be happy to see some of you in the next days. Feel free to contact Benoit, if you have any additional questions that you would like to address. Thank you.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.