q.beyond AG (QBY.F) Earnings Call Transcript & Summary

Hello, everyone, and a warm welcome to the European IT-Services Summit. It is a pleasure to have you all here today, and this session is dedicated to the q.beyond AG, and I'm delighted to welcome the CEO, Thies Rixen, who will share insights with us. And with this, I hand over to you, Thies. The stage is yours.

Thank you. Thank you. Hello, everybody. From the very cold Hamburg, we have now minus 8, and we have some problem with our heating in our building. So the hoodie is the warmest I found this morning in my office. So therefore, it's me with a hoodie and not with a shirt. Yes, I'd like to tell you something where we are at the moment. So our strategy is working, return to profitability. And I'd like to you -- to get you or to show you more details where we are and where we want to go. So the famous disclaimer upfront. So still, it was the last 3 years. So I'm CEO since 2023, and the mantra is, profit before growth. Before that, it was the opposite. And we will still keep it. On the other hand, we see that we need some growth for future profits. I will show you in a minute. So the strategy, you see on the left-hand side, will change in March. We will have a strategy '28. We -- last year, it was still the focused business model, effective go-to-market with the channel approach, 20%, 25% Vodafone and Deutsche Telekom, so mainly telco operators and then One q.beyond was an efficiency program, which we drove in the last year. So where are we? So we are free cash flow positive since years. The profitable growth, the profit is there, the growth I will show you is not as we like it to be. So we will grow -- we have grown last year 1.4%, 1.5%. We like it to have it more like 3% to 5%. EBITDA margin 7%, which is the figure right now. And we have since 7 or 8 years, we have a positive net income achieved last year. Here, you see the journey as we started 3% EBITDA margin, we are now at 7%. We like it to be at 10% in the midterm. Yes, that's our company, over 1,000 customers, mainly the size of the amount is driven by the channel customers. There are 100, let's say, A customers. And then we have many, many, many other customers or smaller ones where the journey is that we transfer them to A customers. We are working with 1,000 -- over 1,000 tech experts across Europe, India and the U.S.A., 15 locations, mainly in Germany, Latvia, Spain. Nearshore ratio is 20%. We -- our aim is to push it to 30% end of this year. We have reached 7% EBITDA margin, as I told you, and have a net cash or net liquidity of EUR 42 million with no debt in our books. Business model is unchanged. We have 4 core technology portfolio elements, and we like to combine it with industry expertise. This will be also one of our M&A focus for this year. So we are very strong in retail logistics manufacturing and have some customers in banking insurance and public sector. And we like to enlarge it or to enhance it with another industry like energy or health industry because our belief is that there's a lot of digital transformation still ongoing, and we can have a footprint when we combine our technology expertise with the industry expertise. Here the main customers. Last year, we achieved an order entry of EUR 215 million, which is a record, EUR 215 million of order intake last year. The main deal was the contract prolongation with the biggest client Rohlig, in the logistics industry for 5 years. This contract ends this year in October, and we prolonged it for 5 years with over EUR 80 million of order intake. The next biggest customers are Tchibo, this is German Starbucks. And Fressnapf, we still have contracts with them. Fressnapf will be prolonged this year. Tchibo is -- runs for several years. The basis for our success is, for sure, service, security and trust. You see the numbers. We have -- most of the customers are over 10 years with us. So the biggest 3 Tchibo, Fressnapf over 10 years with us, Rohlig is now the sixth year. Normally, the contract runs for at least 3 years, [indiscernible] runs a duration of 4 to 5. We prolong most of the contracts, so 95% and still ongoing that we cross-sell our portfolio. So last year, our biggest aim was to have a positive net income, as I showed you, here are some numbers. So consolidated net income, the middle was minus EUR 4 million, '24, now it's EUR 2.5 million. Last year EBITDA, 17% more than '24 with EUR 12 million, free cash flow over EUR 5 million, also better than the year before. The numbers were pushed by some special effects which have to be accounted but that's business. On the other side, we had also some negative impacts and some investments, which I'll show you in a minute. I am going to skip this slide. So as I said, focus on profitable revenues. We grow the business. So this is an apple-to-apple comparison, 1.4%, 1.5%. These are still not the latest numbers, they are not audited. You see the relevant factors. From management side, we look very carefully that we only have business in our books, which is highly profitable. So we put or divested some profit, which is -- or some revenue, which is not as profitable as we like it to have like license business, like where we have some [indiscernible] where we have only a small margin. But what we have still in our books is that we have a high share of recurring revenue. So we see over 70% is contracted, and we are concentrating on the 5 sectors, I mentioned before. So what we have done this year, we invested some of the, let's say, special impact, which we gained from the German tax authority back of our personal transaction. So we get some money back -- some tax money back from the transaction we did in 2019. And we invested a lot of money, EUR 3 million altogether in portfolio upgrade, which we call Qube internally. Then we pushed the international hubs. So what we do is do not only have tech experts in Latvia and Spain. We started to build sales organizations there to have the first revenue this year out of this -- out of the [ Balticom ] and out of Spain. We invested in ourselves in digitalization. So we upgraded on our SAP system to the cloud version of SAP and built a team of AI. So we pushed the AI expertise and built a platform and a team around it to consult our customers in the AI space.

Sorry, Thies, I think you have muted yourself. We cannot hear you anymore.

That's true. That's true. Sorry, wrong button. Sorry. So free cash flow grew by EUR 5 million, as I said, net liquidity over EUR 40 million, and we bought the final shares in the q.beyond Data Solutions, which is our data intelligence unit, very much linked to the AI business. So what's the outlook for this and the upcoming years? As I said, in March, I will give you more details on the strategy but the overall goal is still that we focus on services. So we like to be the service leader in our industry because we are convinced that this will drive value at the end and growth. So we will invest our money in, I think, in SAP capabilities for certain industry, energy and health is our target. We will push internationalization, especially in the [ Balticom ] -- the Baltic states and in Spain. The Spanish IT service market is 50% of the size of Germany and had a better dynamic. So we will start there with this technology we have already in our portfolio and expertise. And we will position ourselves, especially in the sovereign AI space or portfolio that the customers can with us use AI in a safe and compliant and sovereign way. That I said already, so our goal is to have 30% end of this year of the workforce in the offshore and nearshore locations. AI, you know that is in every head right now, a lot of discussions. We position ourselves that we say we have our own enterprise AI platform. This is a sovereign play. And then we -- for sure, we work with Microsoft and SAP to use their AIs, so the customer can still choose from my point of view, the -- our main potential is in the enterprise AI platform. So number one, where we see them better, the best dynamic and the most demand. So we build our own data centers. We build an open source AI platform, build a team around it, and this will grow further. So current market valuation is -- today is, let's say, roughly [ EUR 100 million -- EUR 93 million -- roughly EUR 900 million ]. So why do we think it's a good investment in us is when you combine the cash and the value of our data center, which is our own. We have 5 and the biggest one here in Hamburg is our own. When you combine it the 2 figures of the EUR 40 million, the EUR 50 million equals the market value more or less. So the -- and when you then have the business -- the value of the business, then you have a different valuation as we have right now. Therefore, we think to invest in our shares is a good idea. Maybe you have seen it, we had our extraordinary assembly, shareholder assembly last Friday, where we laid the foundation that we can do the share buyback as soon as possible. Q3 is now the time line. So we get permission to do it from the January assembly, and we will start as soon as possible. Time line right now is Q3 this year. And then we are allowed to buy back 10% of our shares every year. Here's a summary of what we do right now. So we will still, as I said, focus on profit. We will push our efficiency and to reduce our cost base through nearshore and AI. So we will use AI not only for our customers, also for ourselves, 5% efficiency per year is our overall goal. As I said, we will buy our shares back. We are also allowed to pay a dividend next -- the '27 for '26, and we'll use some of the cash for M&A. And these altogether are some arguments why someone should consider to invest in our shares. This is it from my side. I'm happy to take your questions.

[Operator Instructions] We will now move on to the Q&A session for a dynamic conversation. [Operator Instructions] We have not received any risen hands yet. There is a question, though. What are your plans for future internalization?

Yes. First of all, we'd like to enhance or push our nearshore quota. So from the workforce, we are now 20%. We like to push or enhance -- increase 10% this year to 30% plus. We will -- we have at least some millions in revenue combined in [ Balticom ] and Spain. The U.S. is also included, but this will also help us see where the dynamic is there. So in these 3 countries, we'd like to see at least a 7-figure million this year and then a strong growth in the future years.

Thank you so much. Are there any risen hands? No. We do have another question in the chat box, though, which is, what is the plan for the capital allocation of your cash holdings?

In summary, I see 3 main buckets. One is a share buyback, which is the priority. Second one is invest in the sector expertise, especially in energy and health. And the third one is dividends. And with this 3, for the 2, we are now allowed to do it. And the M&A pipeline is not [ full ], but there are some interesting targets, which we are proceeding right now, and I hope to be able to announce the first one in the first 6 months this year.

Perfect. Thank you so much. We have received another question. Can you elaborate a little bit more about the risk side and possible pressures from AI regarding our business model?

I see -- to be honest, I don't see so much risk because we have no -- we have -- the reason why is, we are a service company, and we work for -- at least in Germany for the German Mittelstand. So I don't see any disruption because I don't -- we don't have any products, any software products. I don't see any there. I see only -- to be honest, I see only chances for potentials in consulting our clients execute for them projects or help them to execute their AI road map and also to operate their AI models. So this would be my answer.

Thank you so much and thank you for the question. We have received one more question. Are there plans to divest the data centers in order to increase value?

Yes, but not now. So we have 2 potentials in our data center, though we have 1,000 square meters free capacity right now, which we sell -- which we sold last year a little bit and we will sell more this year. So this will -- these 1,000 square meters give us a profit of roughly EUR 2 million to EUR 3 million. And normally, we have a 5-year contract. And then we have another 1,000 square meters we must renovate, let's say, we have to invest in it. But if we are able to sell the free capacity plus the sovereign discussion right now and at least in Europe, where we like to be more independent from the U.S. players, I think there's a high probability that we will also invest in the second free capacity and sell this. And then at my point of view, then we have the maximum value, maximum value of the data center. So let's say this is midterm 3 years from now. But the timing now would be -- is from my point of view, not the best or the most valuable for the company.

All right. Thank you so much, and thank you for answering the question. No further questions have appeared in the chat box nor do we have any risen hands right now. [Operator Instructions] As no further questions have come in, we now come to an end of today's roundtable of the q.beyond AG. Should further questions arise at a later time, please feel free to contact Head of IR, M&A, Arne Thull. Thank you dearly to Thies and to you all for attending this call. And now I hand over for your final remarks, Thies.

No. Thank you for your attention. I hope I put some details to the investment story, equity story of q.beyond. I wish you a good start of the week and see you soon.