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

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

Thank you so much, and it is a great pleasure to welcome all of you today to our earnings call for the first half year. We will go through the highlights of the first half year 2026 obviously look deeper into the financials, provide an outlook, and then we are looking forward to your questions and thoughts. The first half year at secunet was really driven by robust development and very high order intake momentum, continuously driven by the public sector, also by our activities in Defense and Space and Homeland all the way throughout public authorities. So we were able to increase the order intake by almost 80% in the first half year compared year-over-year and landed at EUR 287.4 million. Also, revenue was increased significantly by almost 20% to EUR 204.7 million in the first half year and EBIT is following with an increase of even more 20.4% to EUR 8.7 million in the first half year. All of this is driven by the demand in our main areas of business around the SINA portfolio, but also by the -- also driven by the changes that we are doing in the organization in order to really invest into the future and cater the sector even better. This leads us to specify the revenue expectations for 2026 at the upper guidance of our range or at the upper end of our range, which is EUR 460 million to EUR 500 million. So we are aiming to reach the upper range of our guidance. Looking one step deeper, we see this significant uptake in order intake and backlog. So it's definitely a record order backlog for secunet, up by 30% and standing in the first half year at EUR 360.8 million, which for me is always the most important indicator as order intake and order backlog are really showing the revenues for the future and underpinning the continuous growth trajectory that we are looking at for secunet. So we have a really solid foundation of reaching our targets for 2026 and also substantial part of this order intake already reached into 2027 and the following years. At the same time, we have increased our workforce and expanded specifically into the key areas of development, whether it's AI functionalities, AI testing and cloud capabilities and obviously enhancing our technological expertise in these specific areas. Yet we are also looking at AI functionality to continuously grow revenue at an underproportional growth of workforce and with that cost. We are very -- sorry, that was -- yes, here we go. We are very strongly investing our resources and time into creating strong partnerships. This is one advancement for secunet as we are really landing inside the entire hardware and software, AI, IT ecosystem, where co-creation and co-building of solutions and stacks that are supplied or that are served by various players is absolute key in remaining successful and especially in scaling beyond local, beyond region and beyond German markets. So for this, we are investing a lot of time and energy to create partnerships with great companies out there to offer even better holistic solutions to our customers. So beyond strategy, we are happy to specifically announce for this year a number of partnerships that continue growing. We mentioned some of them during the Annual Shareholder Meeting. Yet I want to underline again the momentum that we're creating in these partnerships, which, on the one hand, for example, with INNOSYSTEC really allow for analytics at scale. So German analytics and data analytics at scale in a sovereign manner. We are working heavily with HPE and NVIDIA to create sovereign ecosystems for running AI workloads in public official and in our core customers, allowing public officials and public entities to really access the capability and power of AI while meeting regulation and remaining in a sovereign ecosystem. The latest partnership with Cloudflare is the same concept, really allowing the use of state-of-the-art technology, especially in terms of network encryption, network security, while maintaining the data privacy, the regulation in Germany and Europe and making sure that all and any data remains sovereign. So we're really trying to create the best of both worlds using state-of-the-art technology, making this available for our public customers and at the same time, maintaining our promise of sovereignty alongside these new technologies. With DCSO Tenzir, we are working on sovereign control on the edge, really intelligent filtering and data security at scale for solutions that are, for example, required for what you might understand and hear around the publications of the Cyberdome initiative and the like. And also with the Telekom’, we are offering a classified cloud on demand. So our security infrastructure is used by Telekom to process and work with highly classified sensitive workloads. This is just a sense and feeling to see -- to give you a feeling of where the company is developing alongside the numbers, but this will be creating the future of technology in the entire stack. And this will obviously then be also the foundation for further growth and the numbers we report here in the future. And with this, I'd love to bring you back to today's half year report and hand over to my colleague, Jessica Nospers, who will look -- have a deeper look into the financials of the first half year 2026.

Thank you so much, Julian, and good morning, and a very warm welcome from my side to everyone. Let me take you through the financials now. First of all, we're having a look at group revenue, and we can see that -- you can see that we had a very good start to the year in Q1 and that the dynamics increased furthermore in Q2. As Julian already mentioned, the top line for the first half year is up 19.2% and when we are looking at the Q2 alone, the result is even more profitable, and we have roughly 32% increase in revenue growth. We will see later in detail, and this was particularly up to the public sector that drove this development. And with the continued high order intake, we saw the first 6 months, we were very optimistic for a growing momentum also in the second year -- or second half of the year. Looking at our EBIT development, you can see a similar seasonal pattern over the year. We typically start very slow into the year, but there's always an exception to this rule. Last year, for example, Q1 was a little special when it was already positive in the first 3 months of the year as a result of some orders that were slipping from '24 to '25. This year, we have a more normal or more regular seasonal pattern, again, starting with a slightly negative operational results. But as usual, it depends very much on how many orders we execute in the first quarter, while fixed costs are mainly fixed. Overall, EBIT increased by 20.4% in the first 6 months and more than doubled quarter-by-quarter. When we are having a look at the growth or the development by sector. We can see, as I indicated earlier, that the public sector took over the majority of the growth momentum and stood out increasing almost 30%. And in Q2, it was more than 40% revenue growth. Mostly the growth is driven by Defense & Space, which recorded a revenue growth in the mid-double-digit percentage range, but also Homeland Security division showed a very similar dynamic growth, nearly doubling the revenue if you compare it to the same period in the previous year. Business with public authorities also increased significantly, which is quite encouraging also for the second half since this customer group is more year-end driven when it comes to placing orders. The business sector, on the other hand, is down 47% in the first 6 months. This development was already visible in Q1. The segment is facing overall weaker demand from health care sector, but also in some industrial sectors. We are fundamentally reviewing and realigning the product portfolio of this segment with a stronger focus on recurring revenue. And this will initially lead to weaker revenue and earnings performance during the transition phase, but we are very confident that in the future, we will see an uptick again. Coming to a favorable development in also the international sector and by geography, you can see that Germany had a good growth as usual, but also internationally, we see a very favorable growth development in the first year -- first half year of 2026 compared to '25 and even more quarter-over-quarter. Main reason for the increase in the first 6 months was European deals or business within Europe with the EU, but also within smaller countries in Europe. I think that the consistency that we showed and the confidence that we -- and the trust that we build up with the customers starts paying out. The cost development, as you can see on this page is showing the profitability in EBIT expressed before. We have a growth by 20.4% in EBIT and 15.5% in EBITDA. You can also see that we had quite an uptick in the G&A development, which was due to, first of all, quite a low base, let's say, in the past year. So G&A costs are historically rather at the low end in secunet. But we increased it, first of all, ramping up our FTE base for the transformation, but also for further growth to expand also our skill set. And in addition, the position is affected by some consulting projects aimed at improving our organizational excellence. After all, EBIT margins after 6 months are in line with the previous year, but also show a nice improvement in Q2 and also net income was up roughly 17%. When it comes to cash flow, you will see that we had quite some -- we made quite some use of the cash that we had collected in the past year, but there is no need to worry. You can see that a lot -- a high portion of the negative free cash flow comes from a change in working capital, and this was a decision that we made in order to be able to serve our customers in these difficult times. The main reason for the increase or for the change in working capital, as you see it here, is an increase in inventory, and this is related to this, let's say, a little bit crazy market of storage media. Typically, we have fixed prices that we negotiate with our suppliers once a year. Due to the storage media crisis, though our suppliers could not keep up to the prices, and this change would have affected our workstation hardware prices quite negatively. So our suppliers informed us in time and gave us the opportunity to place a so-called end of price order, which we deliberately did. This will secure attractive prices for our customers and most of this additional inventory is expected to be sold off until the end of year. And this expectation is clearly supported by the high order intake that we already talked about. And as a result, our cash position at the end of the period stood at roughly EUR 7 million, but is expected certainly to increase again in the near future as deliveries increase and we can sell off the stock. With this being said, I would like to hand over again to Julian for some comments in our outlook and some final remarks. Thank you for your attention.

Thanks so much, Jessica. And especially this last point is obviously the foundation and the basis for our decision to specify the outlook because the last point really enables us to guarantee and secure to an extent, the ability to deliver in 2026. So therefore, we are specifying our revenue outlook on the higher end of the range, so around EUR 500 million and confirming our EBITDA and EBIT ranges as outlined before. These are narrow ranges. So we are confirming them for today. In summary, and most importantly, we see the order income and top line to really continue growing with high momentum and a lot of clarity, a lot of more clarity, I would say, coming into the pipeline of the next years, especially in defense spending. This is different than probably 1 year ago when you heard us talking about unclear -- a lot of money in the market, but unclear direction. So we see much more clarity. We see much more direction that allows us to build our planning and business upon. We see very strong dynamics in the public sector. And I also want to underline here that we are making progress with our active approach to new regional markets. So similar product ranges, similar customers, but more on a regional than on a state level and as well, as Jessica pointed out before, substantial progress in our international customer base. Our profits are significantly improving in line with the sales, while we are able, as also Jessica outlined, to fund our own transformation and get ready for the next phase of growth and get the team ready for the next phases in our market. We see progress in our core technology as well as in our most -- so if you remember, the 3 fields are our securing and bringing our core technology in the future. We see substantial progress driving cloud and AI offerings in order to help our clients also to apply secure sovereign cloud solutions and even use AI functionality on top of these. And the third part, which is not listed here is the internationalization, where we also see progress. So a lot of movement in 2026. With this, we confirm the outlook with the revenue at the upper range, as I said, and we are really looking forward to the second half of 2026 as it's going to be a super exciting year. You know that secunet is quite strong in the last quarter. We have been getting ready for this with the additional inventory and a lot of negotiations with our suppliers, partners and especially customers, which are always at our heart when we think of technology and when we make sure that we can serve them as we are very much aware of our responsibility in this market, really securing the freedom to operate for really key critical infrastructures and institutions throughout Germany and Europe. And with this, I would love to thank you for your patience and attention throughout the presentation. And obviously, with this, open the floor for any questions that you might have.

Yes. Thank you very much for the presentation. [Operator Instructions].

Congratulations on the quarter. A couple of questions from my side. So the first one is on the hardware price inflation. What would be the impact of a prolonged hardware price inflation on prices agreed with customers if we look into the next year, would you be able to agree new prices with clients? Or do you have framework contracts that kind of fix the prices with clients? So that's my first question. The second is on the order intake. How do you expect incoming orders to develop over the course of this year, i.e., in H2, should we expect the typical seasonality with a stronger H2 than H1? Or is this year likely to be a special one? And then on the order book, are all orders in the order book binding or does the order book also include nonbinding orders where clients might not order or pull the order if they consider prices too high given the supply chain constraints.

I'm happy to take the questions. First of all to the hardware prices. Usually, we have the possibility to increase prices with our customers, full stop. Nevertheless, this does not change the budget for our customers. We clearly need to say that when they, let's say, have a budget of 100, it is not going to increase in line with inflation. So what we are always trying to achieve is to find a good solution with our customers and sometimes and very often communicate very clearly with them what the issues might be in a certain situation, particularly now driven by the hardware inflation. And so we usually work then on agreements where the price increase -- where there is a price increase. But nevertheless, we keep the price increase for a certain time even if the original input prices is reduced again to cover for, let's say, what we bring in advance. So we are very open, particularly in these crazy situations where daily [indiscernible] prices really make the market. So we're very open. As a little summary, yes, we can negotiate price increases. We do it, but we also try to keep our prices for the customer attractive and find solutions that are favorable for both parties. When it comes to order income development over the next quarters, we expect to see the same seasonality that we usually see. So we expect also a very good level of order income during the next few months and quarters. Certainly, times have changed a little bit since, let's say, 2 or 3 years before, which you can see that defense revenues are increasing, and we expect also an ongoing favorable order income development when it comes to Defense, but also when it comes to all our other divisions. When it comes to order income, if they are binding, yes, order income is always binding. It is always based on confirmed orders. It has rarely happened that somebody cancels an order. Sometimes the specifications of an order are changed or the setup of the order, but it's very rare that orders are canceled. Usually, also we have a binding contract. But if our customers will ask us if we can cancel an order, we always try to find a solution that is favorable for both parties. But as I said, rarely happened before.

Okay. So we move to the next participant, Mr. Christian Cohrs.

First of all, thank you, Jessica, for the clarification on cash flow and the hardware presentation. I have 3 questions remaining. First of all, coming to border control, there is a new European entry exit system, which produced a lot of press media attention about long waiting queues at the airports, et cetera, et cetera. According to my understanding, your solution is a success story, but maybe can you elaborate -- or can you elaborate to what extent the current problem or -- yes, the current problem are these linked to your technology? Or what is the cause and the root of the problem here? Secondly, in Germany, there are plans for a digital wallet to develop a sovereign German stack. So to what extent is secunet involved in these projects? And is there future business potential to -- that can materialize? And would this also not allow secunet for a stronger penetration of municipalities? I mean, so far, I think your revenues are not exclusively, but to a large extent, linked to federal institutions. So is there a possibility to go for a stronger penetration of municipalities and local authorities? And lastly, you mentioned the cloud ecosystem. You have put this system in motion. Do you notice already also more customer interest? Or have you even been able to achieve any commercial progress in this particular field of business?

Christian, one real question. I didn't hear the third one, an ecosystem for what?