secunet Security Networks Aktiengesellschaft (YSN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to today's earnings call of the secunet Security Networks AG on the occasion of the financial figures for the Q1 2025. I would like to welcome CEO, Axel Deininger; as well as CFO, Jessica Nospers, who will take you through the presentation in a moment. In the background and with us throughout the call is Director, Investor Relations, Stephanie Kniep. [Operator Instructions]. And with that, I would like to give the floor to you, Mr. Deininger.

Thank you very much. Welcome, everybody, to the first quarter report of secunet Security Networks AG. Sorry for voice. I do my best to get you through the call to the very end, and I hope that you still can understand me. I would like to start with some highlights. Jessica will take over then later on with the financial figures, and I will wrap it up with some portfolio and product updates on the current status. So first of all, the highlights for the first quarter of fiscal year '25. We have an increase of the group revenue of close to 36% year-over-year compared to first quarter in '24. We have significant EBITDA improvement, which means that we have positive margins in the first quarter, which is only not the case in our business, shows our very strong position and a good start in the year with a slight improved operating cash flow, also better than '24. We have a promising order backlog. You will see that later on with some uncertainties, of course, in '25, but again, coming to the start, also with some orders we get a little bit earlier than expected, but I think it's still promising backlog we have on the order side. We confirm the annual forecast for '25, which means we cannot extrapolate the start of Q4. Again, some orders have been done a little earlier than expected. And of course, we still have uncertainty for the second half of the year also due to the new government in Germany, where we don't have, let's say, a full budget available on our customer base, which makes a little bit difficult to predict numbers for this year. But again, so far, we confirm our annual forecast for '25. So that will be it for the highlights and a quick wrap-up on the current situation. Coming to the next slide. Good. And I would like to hand over to Jessica to guide you through some financial data.

Thank you, Axel. So as Axel said, we had a very positive start into the year 2025. We have a high increase in sales compared to prior period. Revenues particularly growing in the public sector, and it is both national and international. So you can see that basically, although the majority of the growth is coming from the public sector, we also have a favorable development in the business sector. So both segments are showing growth, which we are very happy about. Next slide, please. Thank you. Also in the international sales, you see in Germany is the majority of the growth, but also international sales are developing favorably. And we predominantly have projects in Europe and the Middle East and also we could show some -- we could realize sales with international organizations like EU or NATO. We are very happy about it. We have put a lot of effort into the relationship to these organizations. And now we see that we can have a -- we have a positive result from caring for our relationships. Next slide, please. EBIT is improving significantly compared to prior year, which is mainly a scaling effect due to higher sales. So fixed costs are covered better because we have higher sales. Cost of sales increased in line with sales and the other cost items are on track and as budgeted and very comparable to last year. So that is why we have a positive EBITDA margin in the first quarter of the year. Okay. Next slide, please. The cash flow also, it remains more or less stable compared to year-end. So we have a lot of cash in the bank currently. It will reduce in the next few months because we have our general assembly and the dividend payment is coming up after this. Apart from that, yes, we are happy to have these stable cash balances, but actually cash was never our problem. Okay. Next slide, please. The outlook. So I will pass on to Axel, please.

Thank you, Jessica. Coming to the outlook and confirming our strategy on sustainable and also profitable growth. And I think that didn't change over the years. Yes, we have some uncertainties in the market, as you all can imagine. But overall, I think we are fully on track. And I think we also have some promising results we showed in the last couple of months. So first of all, on the public sector, we -- growth both into new accounts, but I'm confident that we also grow further in our existing customer base. And you can imagine considering the budget discussions we have in Germany, that's especially relevant also for defense part, where the budgets are not fixed yet, of course, but we are in very good discussions and we have an expanding position in the defense side. We further support that with core technologies. We are working on a product portfolio, new generation, which is post-quantum cryptography ready. So we will be meeting the requirements on the defense side. We already have a significant portion of the portfolio ready, but we are still continuing to expand that portfolio. And again, especially also on the defense side, we expect further growth in the upcoming years. E-health is, of course, a transition period. Our classical connector business is phasing out, still on a higher revenue level as we expected. And now it's a question when the new Telematic Infrastructure 2.0 is really taking off. But we also continuously working on new products, on new application scenarios. We set up a partner network to address the new markets, not going to be that steep increase that we had in 2019. But again, here, I think we're also on a long-term good track with our portfolio offering. On the industry side, we expect a significant growth finally also in '25, now having portfolio ready with being available and being able to sell to customers. That's the first step. So finally, the product we developed is taking off. But secondly, there's also now a trend that industry customers are requiring certified infrastructure for their operations and for their infrastructure. And that's driving also and showing that I think the decision on addressing industrial markets was right. We have to delay. So there was always delaying really the correct requirement on the industry. But I think now finally, we have requests from the market that they are looking, first of all, to that portfolio we have so far offering for the government space and also addressing the industry with new portfolio and securing the IT infrastructure. So again, we expect still on a low level, but of course, relatively a very good growth in '25. Strategically, the most important thing, of course, is cloudification, where we now have the first secret approvals being the first ones in the market. And that, of course, raises a lot of attention at the moment, both from the customer side, but also for partnerships we are at the moment discussing. I think you will see some further information throughout the next couple of months and this year that we collaborate both on the technology side, on the infrastructure side, but also with other cloud companies to integrate our secret software stack into their portfolio. So I'm very confident and very optimistic that we'll see a steep increase in the cloud revenues, not this year. As always, that will take some time, and it will also take some time until putting the loading on top. But I'm confident that on the long run, this was an absolutely right decision we took, having our portfolio cloud-ready and now having the first secret cloud offering that is available in the market, also supporting data sovereignty, both for Germany, but also for Europe. That will also, just as a remark, transfer our business model from appliances to a more recurring revenue model. But again, also that transition phase will take time, probably a couple of years. And again, appliances is still a predominant business model, which helps us also to address options available towards Q4 on the government side. So there's always a trade-off but appliances [indiscernible] being predominant, but we are now preparing also for more recurring revenue models in the cloud space. Internationalization, also there, we had some first spots in countries we have never been active in. Spain, for example, Eastern Europe, not a steep increase, but still a decent and continuous increase into our markets, especially in the EU, and we get further orders continuously with a broader portfolio also in the Middle East. Last but not least, acquisitions. We have still -- we always have a pipeline, but so far, nothing to report, but we -- continuous with our search for adding new technologies and new portfolios [indiscernible] to our portfolio. But so far, still in process and nothing that is public yet. So again, very good, more balanced approach, both on the market and portfolio side. And I think that will support our future growth. Next one. On the workforce development, we are carefully growing on the workforce side, as you can see here, trying to have lower growth in headcount versus revenue. We are still, I think, good in hiring, again, focused approach on getting additional technology expertise and operational capabilities. And we also carefully look on the employee growth over the years, and we try definitely to grow here under proportionately versus the revenue we are trying to hit. Order backlog, as mentioned before, remains at a high level, not a steep increase. But again, we had some revenue generated in Q4 that was expected a little bit later. So that's why you see a slight decrease, but I think on a very solid base. And we are working on -- continuously on the pipeline. We're also targeting some promising projects with new customers and also new products. And I'm optimistic that you will see an increase also towards end of the year. For the time being, of course, there's nothing yet in orders. But we will see the moment also the government is more set up and there's finally also budgets available to our customers, you will also see a further positive impact also on our order backlog side. So outlook overall, that's what you saw on the increase over the last years. Definitely a target is that you -- that we grow again further. We did everything to prepare for further growth, again, on the technology portfolio side, we are pretty unique now. In Germany, we see -- I don't want to say we see less and less competition, but at least on the German side, I think the offering is quite unique. That's definitely driving our growth in the defense and the public sector. We are continuous to drive for -- to go for EBITDA margin between 14.5% to 16.5% with an EBIT margin between 9.5% and 11.5% and keeping 11.5% and also supporting further growth in the upcoming years. But for the time being, we would stick to our forecast so far of EUR 425 million in the aforementioned EBIT and EBITDA margin range. So we confirm the financial outlook, what I just said before on the numbers with the EUR 2.73 dividend per share proposal to our Annual Shareholder Meeting 28th of May with a confirmed outlook of EUR 425 million. Thank you very much for listening both to Jessica and myself, and we are now ready to take your questions and answers. Thank you.

Yes. Thank you very much for the presentation and the numbers. We now come to the Q&A session. [Operator Instructions]. And [ Mr. Mueller ], you should be able to speak now and place your question.

A quick one on the margin guidance. So given that Q1 was very, very good in terms of EBIT and actually positive, would you say that the lower end of the EBIT margin guidance is quite unrealistic now? You expect a higher margin? Or would you say that if you have a better margin, you invest more and then you end up with the original margin guidance? So do you plan to invest, let's say, any excess EBIT this year, for example, in post-quantum projects? Or yes, is this actually kind of unrealistic now that you reached the low end of the EBIT margin guidance?

So we confirm our EBIT margin guidance because we have a good outlook on that we can reach our budget. We cannot say that we exceed the budget. And currently, we have -- fixed cost effects or fixed cost coverage is positive. That is why EBITDA is positive, but there are no signs that we need to adjust our EBIT or EBITDA margin guidance currently. So our budget is set. We are planning to hire people, and we have also post-quantum crypto projects planned, but we are not planning to get away from what was originally budgeted.

Okay. So your budgets are set and anything on top in terms of EBIT would be reallocated, but it's excess EBIT then.

So no, I can't say that we will have any excess EBIT, so we can confirm our margin, but we do not see that any excess EBIT is on the horizon currently. So that is what I can add to this currently.

Maybe one comment on your -- on the investment side. Post quantum is there, and we have most, let's say, or most of the portfolio is already post quantum ready. When we are considering significant investment at the moment, it's going to be into cloud. I think that's the higher pressure to prepare for further growth. So when you see investments in R&D quota is going to increase, that's definitely targeting cloud infrastructure, because that's where we, of course, see a long-term trend. I think that's out of doubt and out of question, and that's what we are focusing on. I don't want to say B2C comes on its own. Of course, it's also investment, but the majority of investment goes into cloud infrastructure and cloud software stack.

But I think we have found a very good balance within the budget to allocate sufficient resources for all the projects. But our focus, as Axel said, is currently the cloud, growing our cloud business without neglecting any other businesses and also post-quantum. I think we're currently -- we are constantly working on it, and we are set up very good because I think post-quantum will maybe at least come into our products a little bit earlier than, let's say, necessary.

Okay. Thank you very much for your question, Mr. Mueller. And we still invite participant to place their question. [Operator Instructions]. Well, by now, there are no questions in our chat box and no one on the line. So there are no questions in the meantime. That brings us to the end of today's earnings call. If there are any questions at a later date, please do not hesitate to contact Ms. Kniep at the Investor Relations department. And by now, I say many thanks to Mr. Deininger and Ms. Nospers for the presentation and answering the question. I wish you all a good day, a successful time. And once again, for some final last words, I hand over to Mr. Deininger.

So thank you very much for listening. I hope that we got you a good update again with some uncertainties with the new government setup in Germany. But again, we are optimistic both on the short-term side and also on the long-term side that we are well prepared. Thank you very much, and have a nice day.

Thank you. Goodbye.