secunet Security Networks Aktiengesellschaft ($YSN)

Welcome to the earnings call of secunet Security Networks AG following the publication of the first quarter results of 2026. I'm delighted to welcome the CEO, Marc-Julian Siewert; and CFO, Jessica Nospers, who will guide us through the figures in a moment, followed by a Q&A session via audio line and chat. And with that, I'm handing over to you, Mr. Siewert.

Thank you so much, and a very good morning, dear ladies and gentlemen. It's a great pleasure to have you for our Q1 earnings call for secunet Security Networks AG. And I'm super delighted to present figures, especially on the revenue side that outperformed the very strong revenue we had in the first quarter of 2025, which were really out of the normal seasonality last year. So we could outperform last year by more than 4% in terms of revenue, really underpinning the strong momentum we have in our various market segments. Besides that, I'm extremely happy, especially looking into the future about a very strong performance on order intake in Q1. I'll say a little bit more about that in a moment. We have a temporary negative EBIT in Q1 2026, which is driven by a onetime special effect and also by laying the foundation as we have planned to deliver higher growth and higher volumes as well as better services into our markets going forward as we grow the business and shift it into the future. So in summary, we have a very high order backlog and order income, which gives us great visibility to underpin our annual targets for 2026. And therefore, we are also happy to confirm the guidance for 2026 with an increased level of confidence. The structural demand remains strong and is driven really by geopolitical tensions and rising defense spending as well as increased regulation and awareness in the cybersecurity sector. So looking deeper at this highlight of order income, we see a growth of more than 90%. We almost doubled the order income in Q1, giving us a very good outlook for 2026 and beyond. And the very positive thing around this is that the order income was driven by various large projects and especially by one large project from a new regional client in the public sector, really strengthening our core with leading to a book-to-bill ratio of 1.7. And we see as a result of the high order intake, a very strong order backlog in Q1 and further increasing demand with the -- especially in terms of the German Bundesregierung, the Bundesregierung being in place and being able to operate. Looking at the EBIT, we basically have a deeper look on the development of our workforce. So we increased the workforce by 7% year-over-year towards March 31. And we're actually happy that we could onboard very strong support and very strong, especially people in the development, which also help us to address the new fields of business, underpinning our growth and strategic levers in the cloud business, but also answering to the many threats and challenges that you might have seen from the outside world in cybersecurity, looking at artificial intelligence, and new vectors or anchors of threats into the cybersecurity sector, opening really new opportunities for us in terms of growing in our very focused core business beyond the core on the left and the right. We need answers. We need good answers for the things that you are seeing [indiscernible] and Anthropic and other very dynamic report development that come from an outside AI revolution, I would say. So with this, we -- I would like to hand over to my colleague, Jessica, the CFO, and she will give us a deeper look into the financials.

Thank you. Thank you, Julian, and also a very warm welcome from my side. Let me now take you through our main financial figures by starting with group revenue. As you can see on the first chart, group revenue follows a seasonal pattern with Q1 typically being the weakest. As Julian already mentioned, we are quite happy that despite an already strong Q1 last year, we were able to increase top line by another 4.4%. As a reminder, Q1 2025 was up by roughly 36% as a result of some orders that had moved from Q4 into Q1 2025. So we see it at a very -- we see it is a very positive signal that we were able to beat that already high revenue level in the first quarter of the last year. As we will see later in detail, it was particularly the Public Sector that drove this development, while the business sector is reflecting the customer's path to modernize higher security infrastructure and ARR models currently. Looking at our EBIT, we can see that the same seasonal pattern applies for 2025 as it did for previous years to our earnings development. We typically start into the year with a slightly negative operational result. The main driver is certainly, the seasonality of the revenue would also a larger organization as we prepare for additional growth this year. On top of this, there is a onetime effect of EUR 2.1 million. That goes back to a change in how we account for our bonus provisions during the year. So it will be effect on the full year. It will be neutralized in the next quarters and it burdened our Q1 results. When we go now to the revenue growth by segment. the group top line increased by 4.4% with the Public Sector standing out with a growth of almost 13%. This is particularly driven by Defence & Space that were showing mid-double-digit growth and our Homeland Security division was also showing a very positive momentum with continued demand from public authorities for our border control solutions. In the business sector, we observed that there is a substantial need for much higher security standards. At the same time, we see that the implementation of such regulation is being rather slow and customers are still finding their ways in. And the same can more or less be said about the eHealth markets, the change to the ARR models is a little bit slower than we initially thought with being still beneficial in the long run. On top of that, in Q1 2025, the demand was driven by one large project of our SINA portfolio. When you look at the revenue by geography, you can still see that domestic revenue is playing a dominant role for group figures. The domestic revenue went up by 7% while foreign sales decreased by 20%. But I mean this is for our international sales, not an unusual development. Sales also fluctuate significantly quarter-on-quarter and a portion of last year's effect was certainly to be contributed by our international business. So compared to a rolling 12 months perspective, international business increased by 15%, which is a good development, and we are very happy about this organic growth that we could generate ourselves. When you look at the cost development, there are, again, the one effect that I have mentioned before, both effects that I mentioned before, first of all, the change of how we seasonally account for our bonus provisions and also a bit of a larger organization that we talked about because we are working on a lot of projects also working on research and development with a lot of forces. And at the same time, you can see that we had a little bit of lower margin, which is mostly due to the high portion of hardware sales and the product mix with the hardware sales carrying a little bit of a lower margin. But in the end, expenses developed in line with what we expected, so no surprise here. When you look at our cash flow, it is a little bit different than it was last year, but still following the seasonal pattern. First of all, we have the cash flow from operating activities, which is negative not unusual in this time of the year. We, first of all, prepare for higher revenues in the second half, but also we had a negative EBIT and EBITDA in Q1 also forcing the cash flow down. And we had some working capital increase due to the very high order income. We have a little bit higher inventory on balance and higher working capital levels in general. I mean cash at the end of the period with almost EUR 88 million gave us a very good start into the year and still a cash balance of EUR 61 million is quite a lot of cash. I would say, please remember, we do not carry any bank debt on our balance sheet. So our M&A strategy and activities is also well supported by our cash balance. With this being said, I would like to hand over to Julian for some comments on our outlook and also some final remarks. Thank you very much for being ...

Thank you very much, Jessica and thanks for diving us through the details of the figures which I think underpin the summary in the beginning. So we -- based on the very strong expected outlook in terms of order income and revenue, combined with a good preparation also in our inventories, ensuring the ability to deliver. We confirm our guidance for 2026. As said before, with explicit confidence into the guidance for 2026. And obviously, we are, at the same time, setting a foundation, the structural foundation for future business in our -- for future business growth in our core field and also beyond, especially supporting our customers in the new attack surfaces and in the new threat surfaces, which we see moving extremely fast. So in summary, we would like to share some key takeaways on how we look at the business overall. And I think it comes across that there's very strong demand for secunet's core product portfolio and services, which is reflected clearly in the order income and in the top line growth. This order income is at the same time changing its pattern becoming more becoming equally strong on a federal level and on a Germany level, let's say, remaining stable on an international level. We are focusing on further international growth, which we have to structurally enable. And this order income pattern is also growing wider in the regional areas in Germany, which is according to our strategy where we address besides Berlin and the central government, more of the regional governments, we see first big successes. We see strong public sector dynamics with growth in spending and as Jessica mentioned, very strong defense demand, which is coming from, on the one hand, the different Army institutions, but also from the critical infrastructure sector, we see the sector finding its way into getting ready to adhere to all the requirements to all the regulations. We also see this sector substantially growing. So the customer base is substantially growing. We are still working on educating and working with this customer base in order to implement properly the new regulations that continuously change and really address the tax surfaces that we see changing in the world. Order intake and backlog are on a record level, and we see the structural tailwinds which are fully intact, we rather see those increasing. We are setting the foundation internally for further growth, which led to this onetime effect, bringing the EBIT into the more natural pattern if we look back, over the last 10 years, very natural pattern. At the same time, the good news is that in a very competitive market, especially around the developer space we are still able to acquire very good talent and get ready for our future next steps and growth as well as our strategic plan. We, therefore, confirm the outlook, and it's supported by a very strong demand, and we are very much looking forward to going through 2026 in setting the foundation for substantial growth and progress in our core businesses. And with this, I thank you very much for the attention and I think we'll hand back to move into the Q&A session. Looking forward to your questions.

Yes. Thank you very much for the presentation, ladies and gentlemen, it is your turn now. [Operator Instructions]. And the first hand up is from Andreas Wolf.

Congratulations on the strong Q1 order intake. I have a couple of questions. The first one is on hiring. How will hiring proceed during the course of the year? And then the second is related to the order entries. Could you shed some light on the type of revenues yes, within the Q1 order entries? Are those more hardware or service related? And then the third question is on the border controller systems. To what extent are you through with the installations in Europe? How much is already covered? And how much more is to come? That would be an interesting insight.

Okay. So maybe I'll start. Thank you, Mr. Wolf for the questions. Super important and good questions. So we see the hiring to slow down over the course of the year. We really basically hired according to our plan from beginning of 2025 and into the strategic plan. So this is going to even out and be more particular in the rest of the year. In terms of order entries, I would really underline -- so that's -- thank you for the question, giving me the chance to explain this a bit more. We really see projects over the entire ecosystem of SINA and slightly beyond with full solutions. So these orders that we see include one-off sales and then long-term service contracts, ranging from 4 to 8 years which basically give us plannable and recurring revenue. In terms of border control, that's a real highlight, and we are really proud of that. I think all of you can observe the systems working because comparing to the European landscape is split among certain local players. We are, in the meantime, by far the biggest one. So we cater for most European countries and we are just in the progress of agreeing with additional countries to update their rollout or they are basically border control systems. For the existing orders, we are around 70% in terms of installation. And we are fully in line. We are fully in line of every project milestone, which is special to mention because it's not the case in many of the European installations, but we are in line with every milestone, especially with the big airports going online according to the rollout plan. And yes, it's really great to see this in the big hubs now all going live like Frankfurt, Munich and the big hubs in Germany and in the other countries where we are able. So we still see a very good momentum, and we are working on a quite strong leading market position in this field.

And the next questions are coming from Christian Cohrs.

I have also a couple of questions. First of all, if I'm not mistaken, your selling expenses have come down in contrast to the other OpEx items. I wonder if you are now expanding the workforce, does this solely relate to production, R&D and services? Or are you also eyeing to expand your sales force? And could this then also stipulate further top line growth in the years to come? Secondly, in light of the volatile geopolitical environment, do you foresee any supply chain concerns we should have an eye on? And lastly, in your previous remarks, you mentioned that you expect recurring revenues attached to the latest order wins. Does this relate to the cloud business? And how is the cloud business developing? I mean, so far, I think the cloud business still has a lot of upside. And is this -- do you see already first signs that this potential upside is materializing?

Thank you, Christian, for your questions. Yes, our selling expenses have come down, but that is mostly because we had some presales activity and also technical sales activities in some projects and so to say, the efforts of our sales force went into those projects expense-wise. We are having a clear focus on R&D cost, but yes, we will also extend our sales force when it comes to new when it comes to new fields of service or products that we are exploring. With the supply chain, these are being managed, is still volatile, but we have good contracts with our suppliers, and we also had a quite a good sales forecast last year or at least some assumptions on that so that we could contractually agree upon a large portion of the budget when it comes to the supply chain, still there are some volumes open. We are currently managing it's volatile, but we do not have any concerns at this point in time. For the cloud question, I would kindly refer to Julian.

Yes, happy to take this. It's super important for setting the foundation of our future portfolio. So the cloud is basically moving across the entire portfolio. And we see momentum in the cloud. As you also mentioned, there's still a lot of potential. We see also the cloud developing in line with other cloud providers. So the adoption of secure cloud environments where we have a substantial head start in terms of security certification is slower than expected on the entire chain which in turn is IC positive for secunet as we are in the progress of bringing many more applications into our cloud. So offering final applications to our existing customer base is key not to only give basically the server environment or the compute environment, but also the usability environment in terms of real use cases, if we think of all the hundreds of faster and special purpose processes, that are used in government. So this is analyzed in detail and with more applications coming into the cloud, we see momentum increasing while at the moment, we are fully in line with our strategic plan in the cloud business. Second part of the question referring to the specific order incomes. We see order income that impact the cloud business positively according to the plan that we have. There's a very big order we mentioned before, have cloud POCs included, so proof-of-concept installations, yet the majority of the order income really comes from the wider SINA ecosystem and from the core business. I know it's a long answer, but allow me one last point around the cloud, the reasoning of the cloud and a real sovereign offering, I believe that secunet is positioned as the one real sovereign player with a lot of other multi-clouds around it for different applications. So real sovereign, very core secunet is super well positioned and here comes in the value proposition, the key that our cloud can connect to the SINA ecosystem in the network, especially in terms of the defense business, this is really crucial as an access point to roll out clouds into the ecosystem.

And I see a follow-up by Andreas Wolf.

Yes. I have 2 questions left. The first one is related to agentic coding. Is it something that can provide additional efficiency to secunet? Or is the agentic coding something that cannot be utilized in the secunet product development? And the second question is related on the investing activities, so CapEx or CapEx in intangibles, I should say, have increased compared to Q1 '25? Is it kind of the new run rate that we should look at the minus EUR 3.7 million at investing activities level that we saw in Q1?

I would take the first one, and thank you for this, Mr. Wolf because it's a crucial topic in all business fields. So yes, agentic coding will have additional effects on productivity and on security because we have to mirror the attack surface and the attack surface is moving more and more into AI to counter it with speed. We also need to apply it. To your specific question, we have certain areas at the moment, left and right of the very core high security field, where we are starting to use agentic coding. And we are applying this now to parts of the developers in Q2 in a wider way. And I can just make mention of one project that we mirrored. So a project that initially took a team around 16 weeks of coding was built by one developer -- was rebuilt by one developer within 4 days. So that's what we are looking at, and that's what we are rolling out wherever we can in terms of security requirements. And we are doing this, obviously, all in our own AI capabilities in our own cloud in a completely sandboxed approach, but happy to share more details in another forum. And -- for CapEx, I would just give you the start. I believe that and Jessica, please underline, we had certain specific expenses, which are mainly due to the fact that the cost of storage media is substantially increasing because of the AI hype. So we have preponed some investments, especially in compute power in our cloud business. I would tend to say that it's not the new run rate, but that is a little bit out of the seasonal pattern as we took some decisions in order to still take lower prices and provide what we see necessary this year to our cloud compute capabilities. Jessica, please.

Exactly. Thank you, Julian. So basically, as Julian highlighted, yes, we had some expenses the cloud business or some CapEx for the cloud business, also a little bit higher prices, 15% to 20% also play into the game. But I think that our CapEx level is still quite low for the business as it is because it is usually really, first of all, a little bit ramping up or keeping the cloud at best practice levels from time to time, also expanding a little bit with the cloud. But apart from cloud business, it's just a little bit of CapEx for equipment for employees. Sometimes they want all the other data center, CapEx. But it's -- I think we have still a very CapEx-light business and I'm very proud that we could keep it this way for such a long time.

And ladies and gentlemen, with no further questions, we have come to the end of today's earnings call. Thank you very much for your interest in secunet Security Networks AG.. A big thank you also to you, Julian and Jessica for your presentation and your time. Should you have any further questions, ladies and gentlemen, please feel free to contact Director Investor Relations, Christoph Marx. I wish you all a successful day around the world, handing back over to Julian once again for some closing remarks.

Thank you so much. And as the final words, I would just underline that cyber security is going to transform and to be transformed going forward. secunet is positioned uniquely in the very core of high security in Germany and Europe. We are further working on exploiting and exploring this position, narrowing the focus on our positioning while growing with our markets and in the very core use cases and challenges that our customers are facing. Based on this, I'm fully convinced with, on the one hand, our strong position. On the other hand, our strategy going forward and this is underpinned clearly by the order income in Q1 and by the momentum as we see throughout 2026. So I look forward to seeing you. Thanks for following us. And I'm happy to really share with you the momentum going through 2026. Feel free to come back to us at any time. Thanks a lot, and have a great day and rest of the week.

Thank you. Bye.