q.beyond AG (QBY0) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the q.beyond conference call about the company's preliminary results for 2020, and its outlook for the year 2021. [Operator Instructions] Let me now give the floor over to Jürgen Hermann.

Thank you very much, and good afternoon, ladies and gentlemen. My name is Jürgen Hermann, I'm the CEO of the company, and happy that you are taking part in our call regarding the preliminary results and the outlook for the current year. Together with me, like always, is Arne Thull, our Head of Investor Relations and M&A. Let's start immediately with Page 4. Yes, we met our targets for the last year. Revenue, EBITDA and free cash flow, and for me, I think quite important and important to mention, we achieved EBITDA breakeven in Q4, and let me tell you this will be sustainable. On the next page, you can see that we achieved in the last year, an order entry of EUR 161.1 million, and 70% thereof is related to new customers or new services from existing customers. Just to remember you, the order entry is a sum of all legal binding contracts related to the contract period -- to the full contract period of the customer. On the next page, you can see that the growth path, since we sold our telco business in 2019, is there quarter-by-quarter. And you can see that in Q4, we had some shifts from Q3, mainly related to some large projects that were shifted from Q3 to Q4. In consequence, Q4 was extraordinarily strong, and therefore, Q1 will show growth on a year-to-year basis, for sure, but not compared to the strong Q4. But on the next page, you can see that we will show further improvement in EBITDA. And this is mainly driven by the fact that the -- that growth is delivered by -- the profitability is delivered by growth. So each and every year of growth will deliver further EBITDA. A glance look at the full P&L, which shows for 2019 adjusted figures without the telco business. The gross profit margin, so without SG&A, increased from 13% to 16%. And the segment margin, which is only without G&A, increased from 3% to 7%. And with that, let's come to our reporting segments in detail. So we have Cloud and IoT and SAP. Let's start with Cloud and IoT on Page 9. And you can see that the revenues are up by 12% from EUR 91 million to EUR 102 million, and the segment contribution from EUR 3 million to EUR 7.8 million, which is a strong improvement in profitability. And the same development we can see in our second segment, which is SAP, from -- revenues up from EUR 36.6 million to EUR 41.4 million, and concerning the percentage, nearly the same improvement in segment contribution. So both segments are strong in growth, in revenue growth and in segment contribution as well. And in the next slide, you can see both segments together. This slide demonstrates that our business model is working and scalable. That's the message. Concerning the balance sheet, on Page 12. I would highlight the net cash position of EUR 45 million as of December 31, and the equity ratio of 72%. So in a nutshell, q.beyond is still well financed. Yes, we started to communicate our growth strategy in Q2 2019, and honestly, it took some time to convince the market that they trust us, that we are prepared to deliver. And after recovering, you can see that in the slide, from the COVID impact in April, we can see a solid development, and definitely, October last year was a kind of a turning point. And let me tell you, of course, I appreciate, no doubt about that, the share price development, but I'm very pleased as well to see that the trading volume increased as well strongly in the last 6 months. Yes. On Page 14 is just the summary of the preliminary results, and I think we have just highlighted the main key messages. I guess, nothing to add so far. Let's come to the future, which is much more important from my point of view. And you can see on Page 16, our ambitious targets for the current year. Yes, we planned revenue growth of 12% to 18% to a volume of EUR 160 million to EUR 170 million. And EBITDA should increase from EUR 5 million to EUR 10 million and free cash flow from minus EUR 5 million to minus EUR 10 million. Let me highlight that we expect sustainably positive free cash flow, starting Q4 this year. On the next page and the majority of you know this page already. There's no big changes, which -- can see our 5 cornerstones of our growth strategy. So we have our attractive core business, where nearly 80% of the revenues are recurring and highly scalable. This is, let's say, our core portfolio providing basic IT services to our customers. The next cornerstone is the platform-based innovations. So I want to highlight later on 2 developments: the StoreButler and the Edgizer more to come. The third cornerstone, our sector focus where we generated 66% of our revenues of 2020 in these 3 sectors: retail, manufacturing and energy. And yes, definitely, in this year, we will further expand our strong position in this market, and maybe we are able to extend the sector focus on fourth -- on a further segment. Very important, from my point of view, is our performance-based culture because this is the basis for our performance all over the company. And we are still interested to hire highly qualified and motivated people, and therefore, we will introduce and we'll come to that as well and share plan for our employees as well compared to that, that we already did for the management. And the fifth column, investment in future and definitely M&A. So I already mentioned 2 examples for our platform-based innovations, StoreButler for the retail segment and the Edgizer, mainly, but not solely for the manufacturing segment. And let me tell you that we spent last year EUR 6.7 million in R&D that was expensed and not capitalized so far. Yes, what is the StoreButler on Page 19. It combines the best digital solution in a framework, able to transform each outlet into a desirable digital flagship. And you can see on the right side, the different features. And the benefits illustrated on Page 20. Yes, it's all about optimization, customer experience and the integration of online and offline channels. And at the end of the day, the result for our customers should be less cost, higher revenue and higher customer satisfaction. Edge computing. Yes, as more and more devices generate data for more and more locations, computing in general is facing a speed versus scale challenge. You know cloud computing. And by the way, this remains unrevolved, but getting data there, that takes time. And in case -- and this will be the case in the future where big data will be used to drive real-time decisions. There is only one answer to that, which is edge computing. And our Edgizer, in one sentence, is a scalable operating platform and model for edge devices. This can be our own service, our own applications, but it can even be those applications that are developed by the customer on its own. But even then, in this case, a platform is required to operate the devices. Very, very challenging market, but highly scalable. Yes. As mentioned, the sector focus is one of the cornerstones of our strategy, but not limited to these 3 in the future. So maybe we are able to expand these areas. And already mentioned that performance of the company is based on the performance of the employees. We implemented a program for executives last year, and now we will offer something similar for all employees. And the target, to be honest, is pretty clear, to align the interest of you as shareholders and the whole q.beyond team. To extend the team is part of our future investments. The acquisition of Incloud was one example. Last year, we implemented further development capacities in Riga, in Latvia. So we are always prepared to add well-trained experts to our team to support our growth strategy. Yes, one sentence to the spin of Colocation business. You know that the Colocation or housing business has been pulled in a separate entity early this year. And now we are, let's say, analyzing all options, and of course, the sale of the business is one of them, and we will provide further information quite soon. Yes, and of course, there are M&A plans. We have 3 areas unchanged to expand our strong position in focus sectors. The second one is extending our product and service portfolio, and the last one is add new technology that has so far not in the company. The mid-term targets on Page 27 remains unchanged. EUR 200 million next year, by the way, without M&A and still including our Colocation business. And the EUR 200 million for next year is subdivided in EUR 145 million for Cloud and IoT and EUR 45 million for SAP, and both segments are growing. And the margin target, when we look at Page 29, for Cloud and IoT is 18% to 20%. And on the next page for SAP, it's 14% to 15% for next year. And you can see, so far, we were able to improve the profitability in both segments last year, and we will do so in this year as well. Yes, so far, ladies and gentlemen, the company has shown that our growth strategy is working, and I am highly committed to demonstrate that this is for the future as well. Yes. Thank you very much for your interest and your time, and I'm happy to take your questions.

[Operator Instructions] And the first question comes from Jonas Blum from Warburg Research.

I got 3, please. Firstly, around your guidance for 2021. Could you just share with us what's your thinking around here? Like what makes you achieve the upper end of the guidance [indiscernible] and EBITDA? And what makes you achieve the lower end, given that your underlying assumption is also returned to normality by Q2 2021? Secondly, just wondering around your decision to waive the dividend. I mean, is there some sort of major acquisition upcoming? Or what should we think of this decision here, given that you still have comfortable liquidity caution? And I mean, obviously, the upcoming Colocation sale or did something change here in terms of your thinking? And then just finally, since this is also a major driver for valuation, what is the level of cash or debt you would feel comfortable with once you have vested, let's say, all the short-term growth opportunities either organically or inorganically?

Yes. Thank you for your questions concerning the guidance. I just want to make clear that we are still in a pandemic situation. So last year, we were able to achieve our targets independent from this situation, but nobody knows how the economy will develop this year. And that's the reason why we feel comfortable with that range that we gave to the market, full stop. Secondly, what changed, I think, was your question? In my opinion, besides concerning the dividend, when you look at the chart on Page 13, you can simply see the share price development since October last year. And when we look at this development, I think EUR 0.03 dividend is not really a high number in that context. And therefore, I think this is the right decision to invest into future growth even for the shareholders, from my point of view. Concerning the question, what kind of debt we were able to bear. Actually, I can tell you that so far, we are well financed. We are preparing our M&A strategy and executing it. And of course, there is the option to get further cash once we were able to sell the Colocation business. And even if there is a case to do further things to support our growth strategy, I'm pretty sure that we find solutions together with the market or the banks to get further cash, if required. To be honest, it's not a situation where we have to decide about that right now.

Okay. That's helpful. And can I just follow-up on the balance sheet consideration you were thinking of going forward. So let's say, you reached sort of a steady state there. Are you sort of thinking about staying net cash? Or would you also consider increasing the leverage? What's your thinking around that?

As mentioned, so far, it's not a good idea that the company has too much cash on the balance sheet. No doubt about that. This is something that I always told the market. And definitely, this kind of cash, so far, is reserved for further M&A acquisitions to support our growth strategy.

At the moment, there seem to be no further questions. [Operator Instructions] There was one follow-up question from Mr. Blum from Warburg Research.

Just like taking the opportunity here. Since you also invested in a branch in Riga, Latvia. I was just wondering, could you quantify what sort of capacities you added with that branch?

It's what we build there, and we analyze the markets quite well. And this area is well-known for IT talent, let's say, similar to our culture. English is not an issue at all. And at the end of the day, we have roughly 20 employees so far there, mainly developers and in our supporting structure. So in our first and second and third level support, but mainly software development.

There are no further questions.

Yes. If there are no further questions, fine for me and fine for us. Thank you very much again for your participation and your questions. I tell you, we will keep on track, and we are looking forward to talk to you on May 10, when there is our Q1 call. And of course, I would appreciate to talk to you in the upcoming conferences. Yes, goodbye and stay healthy.