Serviceware SE (SJJ) Earnings Call Transcript & Summary

[Audio Gap] preliminary figures of the full year 2023-2024. I am delighted to welcome the CFO, Harald Popp, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move on to a Q&A session in which you will be allowed to pace your questions directly to the management via the chat box and not the audio line today. And having said this, I hand over to you, Mr. Popp, please, the stage is yours.

Thank you very much, and thank you to the audience, to the investors. I really welcome you, and I'm very proud that we could have a first English earnings call today. This was a wish of the English-speaking investors. We had a German language call this morning as the main base is still in German-speaking, but interest is coming up from the Anglo-Saxon area. So we decided this year, first time ever to do an earnings call in English. We will see the preliminary figures, which are not approved yet, but they are not expected to be changing materially. And the final report or the final figures will be published on March 21 this year. So we will now discuss and present the key figures for the past financial year and also we discussed our expectation for the current fiscal year and a little bit beyond. And as I know that most of you are in the equity story, we will not go into details so much concerning the equity story. So we will talk more about the figures and why we are confident for this year and what makes us successful the last year. As the moderator told you, it will be now around 30 minutes I will present you the figures, the key figures, some reasoning. And then afterwards, we have another 30 minutes for questioning. So please take advantage of it because it's important for us to see what questions do you have. And perhaps I can explain a little bit further and deeper when I did not explain it in the call. So first of all, my name is Harald Popp. As you know, I'm the CFO and Founder of the Serviceware together with Dirk Martin, our CEO. And yes, let's start. Before we go into the figure detail, I'd like to share our vision again with you because we do think that it's important to understand why we have this vision since when we do have this vision and what really changed with a turning point in 2023. So this vision is a long-term vision before the IPO. It was a long-term vision that we digitized the service processes and let cost savings apply to our customers if they use our ESM platform. And there was a turning point at the beginning of 2023, there was an outcome of the publishing of the commercial use of a big language -- large language model from the ChatGPT from OpenAI in early 2023. And therefore, we had a central addition to our vision. And this is even important to know because it changed a lot since 2023 in terms of how we see the market, where we have to go. And of course, technically, what will AI bring us. And we did a deep insight and also this quotation from our equity story from Sam Altman, the CEO of OpenAI. He said -- he was asked what kind of industry will be affected a lot by AI. And he said, well, this will be the service economy, and there will be less people. We have more digitized processes and increase of productivity. The money that goes into this area will be multiplied by 20 by the end of the decade and also the automated interaction will be leveraged by a factor of 20. So -- and therefore, we had this -- or we're looking into this topic with artificial intelligence long before. So it's not a password. What you see here, it's really something we started right after our IPO in 2019. And so we can look back to a long-term AI expertise. The AI team in Darmstadt, it's now 7 years of experience. And a lot of decisions we made during this course since that time was influenced by the University of Darmstadt in discussions with a really intelligent guys who came partly from the university and now running our AI lab, and this is very important for the future, and we come later on into the AI process engine. This is the first big outcome of these 7 years, and I will talk about it later. So our goal is to be one of the winners of the AI revolution, and we have very good chance of emerging as a winner in the AI development because we did start the topic in 2019 and not since the publishing of ChatGPT in the early 2023. Well, what made us successful last year. This is the last slide before I come to the KPI figures. But I think it's important to understand what the 2 core elements last year were to be successful. And this is also 2 core elements which will bring us further beyond 2025 and so on because it's something that has just started this AI revolution. And one core element is, of course, the internationalization, which took up speed after slowing down with corona and so on. We are now in a good position. The pipeline is full, the international pipeline and also the second core element of our strategy in the driver for revenue, but also for profit is the innovation through AI. And that makes us very optimistic for the coming years for 2025, but also beyond. When it comes to internationalization, you could see that we were winning large customers with multiyear SaaS contracts in different industries. So all kind of industries can be named where customers -- where our customers are in. So latest ones were construction, banking, logistics, we have also motive supplier. You can imagine these kind of companies in Germany have struggling a lot right now, but they are not winning the contracts the way around or the other way around is the fact that they will know invest more in our solution because to get cost transparency and to save cost. And also, the regional positioning is quite good. We showed in the U.S., in Asia and in Europe that we are able to sell our products, that we are competitive against the big American players. And I think it is also important to know that we are well set for this AI race coming up. When you migrate from a license model to the SaaS model, then you know that the deals, which we are talking about are not in the P&L so far in the income statement, but in the balance sheet. Recurring revenue has to be released by performance date. And as I do at SaaS day today, then you will see the revenue in the P&L in the future and not today. This was different with license deals, and that is a little bit the fact that we are struggling in the last year with the earnings. And also, it was lowering our growth potential, but we are coming to an end. We are in the migration, but we will see the future years that this will be better and will affect our growth rate in revenues, but also our growth rate in profits in a positive way. Well, when it comes to the success of AI per strategy, then a lot of consultancy in last 7 years took place, and we learned if you want to leverage AI in full, it's not the best way to attach AI to an old software architecture, but to really build the software from scratch and put AI in the center of the architecture. And that's what we did 1.5 year ago after having built up this AI lab in Darmstadt. We decided to really make an AI process engine, which is now fully born in the cloud, and it has AI in the center, and we put the software around in 6 quarters. And since the beginning, we had a double-digit order income in this new model, in this new software and also international customers raise interest in knowing what is the AI process engine about. And we are here in a pioneer situation because if you compare it to other software vendors, they are now adding AI to their software. But so far, they did not start to really develop from our knowledge, really a new product with AI in the center of architecture. So we have a good starting position for national and international sales. And that is what drives our performance last year, and this is nothing, which will stop this year, this going to 2025 and beyond. So let's look to our performance. We see here that we reached, and this is a very important thing for us because it was something we announced to our employees, I think, back in the financial crisis in 2008. The revenue of the company was about EUR 17 million, and we said by the end of the decade, in 2020, we want to be USD 100 million -- EUR 100 million company, okay. It took a little bit longer, and we realized that on the way to our EUR 100 million by the end of the decade and then we decided to push a little bit more speed into the growth, we have to do an IPO. And what you see today, and that is what makes us very proud that we are more -- we have more revenue than EUR 100 million. And this is also internally for the company. It was a big milestone. We celebrated it a little bit. And that is a 12.8% increase of revenues. This is on the upper 1/3 of our original guidance, which was 5% to 15%. We adjusted it to the upper half by autumn this year. And again, the growth driver is the SaaS and service revenue, which grew by 22.1%. And this is also something, which is very interesting because a lot of investors always asked me in the last years, well, what is the part of services and what the part of SaaS in this line. We hit this line since the IPO and this year, the first time in our annual report, we will publish -- we will split off. We will give the information how much services in this line. And you will see that this dropped over the last years. So the original growth of the SaaS revenues is much higher than 22.1%, and we move forward this to the common -- to the coming annual report, so that we show more transparent because investor ask for this transparence. The EBITDA and the EBIT line is also in line with our expectations. We did not reach the positive EBIT, but we did a tremendous step in the EBITDA, and this is important for us. And next year, we should really see there a positive after all profit so that we are after tax and everything, we are positive. So it should be the goal. We are close by because we get also from the cash position, a big interest back. And so the minus EUR 320,000 is a little bit better, closer to the 0 when it comes to the very, very low line. Also, I want to focus your attention to the recurring revenues, which is now a share of nearly 80%. I have been asked, Harald, what do you think, how will be the limit? I guess it will be higher in the following years. As you can see, that contract liabilities are higher. You come to this the next slide. And what is also important, I think, is that we generated a good operative cash flow in this year. So from this nearly -- from this nearly EUR 12 million of group growth, you can see that we converted into operative cash nearly EUR 10 million. And that shows you that we can generate cash as we did it before we did -- went public. Well, here is the slide with some more KPIs. We decided to show you not only the cash, but only cash equivalents, which raised by nearly 20% from EUR 28 million to EUR 36 million. Why don't you see it in the cash position only because we decided for risk reasons to adjust or to put money in different baskets to be resilient if ever a bank gets in trouble? So, therefore, we have about, I think about EUR 9 million, in really long term, good-rated government bonds to park the money, but to also have the liquidity in 2 days if we will need it. And we have this risk spread what is important. The equity since a long time, absolutely grew a little bit. That is also a change. And you see that the balance sheet total is a lot. It grew by 24.3%. This is mainly to the contract liabilities, which grew by 45%. And that leads to the point then that the equity ratio is down, but absolutely, we have more equity and also the contract liability is a sign what we did this year because -- as you do SaaS and recurring revenue, you know that this will not be released in the profit and loss account immediately, it will be released in the contract liabilities, and this is secure revenue for the future. And that gives us also confidence that in challenging times, we have a good backlog to release revenues despite the fact how will be affected by our core market, Germany, where we still have 80% -- nearly 80% of our revenues. And that's what I said is reflected here. So perhaps you look, first of all, to the contract liabilities on the right-hand side, it grew by 45% again. And this is, yes, a leading indicator that should tell you, did we do business or not and how much businesses we do beside the growth in the P&L and the revenue side. So you see we have now EUR 80 million of contract liabilities with a strong growth. And this is future revenue will be released after November 30. And if you ask me, well, what will be -- what's released from this 55.4 from last year, then you can see that this is a wave that is getting higher and higher. And you see that we need this now with SaaS and service revenues are at a level of EUR 70 million of SaaS revenues. And this is, as you can see with 22%, still the growth driver and will be the growth driver for the future. Yes, we are still in the process of migrating from one off to recurring as can be seen in the fact sheet, the inflow into the balance sheet is far higher than the outflow from the balance sheet So we are not in a swing state. So anything we do in growth mainly goes into the balance sheet and not to the profit and loss account that this is something that is normal for software companies, which migrate from license to SaaS. Here, we have some more financial figures, KPIs, you can see the split of SaaS, maintenance and licenses. You see that our HR costs were stable over the last 3 years. And if you see a little peak in 2024, then there is some provision made, which could be -- which can be released perhaps next year, partly. So this was something our auditor ask us for, but you can see directly in the last 3 years, we have a positive track record on the right-hand side concerning our EBITDA and EBIT. And since our after-IPO life, you see it's the best result we achieved so far, but we are confident that there will -- is more to come as we now try to fix -- not fixed, but try to lower our growth rates in cost terms, but try to enforce the growth in revenues. And that will, of course, then lead to higher margins. What we are -- what we are focusing on the next years. But also keeping in mind that we have to grow and that we have to grow a significant growth rate in terms of revenues. Here are other selected KPIs. You see on the left-hand side, the recurring revenue, we have already seen it. It's up 24%. So a higher growth rate than the CAGR we saw before. The non-German revenues grew faster than the national revenues and that this is important, as I always say, the favor of our company lies in the internationalization because the customers are bigger, the margins are higher. So the more international business we do, the more growth -- profitable growth we will see. And as now, the German revenue and the non-German revenues grew much larger or much more than the German revenues, we are on a good way and keep -- please keep in mind that this is only one part of our international business because the other part was put to the passive side of the balance sheet and the contract liabilities. So there's more to come in the following years. And you can see that we have a turnaround also in the cash and cash equivalents position as we are generating operative cash again, we will expect to follow up this past 2025 and further on. Then always important in recurring revenue models is what is the churn? And we define the churn as a number. There are a lot of definitions I know and the cohort division. So I learned a lot from your investors because you always tell me, well, what is about the churn rate? Please explain me. We try to keep it very simple. So what we calculate here is how much euros or dollars acquitted a year in comparison to the volume. So if you have EUR 100 or $100 in volume, then 3.2% means that you -- loses of this volume not take into account that you do more business because you have new -- more customers that you are losing 3 points this year or last year, we're losing just from churn, EUR 3.20. And this, I think, is still a low rate, especially if you think about what we are doing behind the scenes with the AI process engine and so on. And I also do not worry about the equity ratio, as I said, the maximum -- the absolute -- the equity in absolute ways, raised a little bit. So this should be going on next year. So what do analysts think about our share? They have updated the guidance, especially Quirin sent me after the morning call a new buy goal. It's a little bit larger than the EUR 25. But also Montega after the road show in Hamburg, I had in the beginning of February, raised their goal, their price goal to EUR 21 and these are prices you can realize if you talk to investors in the U.S. or in the Anglo-Saxons area, they say that this can be a fair price. And therefore, I take this very seriously. You see the main shareholder structure is still constant since IPO. Dirk and me are earning together 62.8%. And this gives stability to the company because you might have seen that some companies in the stock exchange were taken by within the past. But with a stable shareholder structure that is the likelihood is not a -- or the likelihood is lower because we see much more potential than the analyst quotes, you see today, we are expecting more midterm and long term for the company. So what will be the outlook? And before I come to the outlook, I will again focus a little bit on the growth drivers, which will help us to achieve this guidance and to give us optimism about the current financial year, but also about the future beyond 2025. Well, with optimism in Germany, it's a little bit difficult right now. And as we do 80% of our sales still in Germany, I think you have to be a little bit careful because you don't know what this concentration in a comparable weaker market compared to international markets will bring. But we still have an optimistic view on our future Serviceware development and beyond in 2025 and beyond because the most important lever, as I said, is in the future is internationalization. And the international pipeline is filled very well. My colleague, my CEO, Dirk Martin, and the CEO, Alexander Becker, went in the first half of February to our partner Maryville to see what deals we can do and is a pipeline really hard? Or is it not that hard and they came back with an optimistic feedback. And of course, this international pipeline, which is filled very well, has a positive impact on the sales and the earnings in the future. And don't forget the tailwind from the contracts we have already signed and which are not in the income statement, but in the balance sheet. And this is also something that makes us confident and optimistic to expect a further increase in sales despite difficult market conditions because since 1 year, the circumstances worldwide, but also especially in Europe, are more interesting, so to say, and we have to focus really that we are taking into account what happens and being better. So AI will be a sales and earnings driver. We will focus also now on the AI process engine, which I have said, which was welcomed in the market with double-digit order income since the first of December, where we have this live or markable and we will see that we have national but also international opportunities with this AI process engine. And our goal is that the costs will develop flat and with rising sales, this should lead to the positive earnings development in the future. Saying that, I come to the guidance for the fiscal year. We expect another 5% to 10% to 15% earnings improve -- not earnings, sorry, revenue improvement for the next year. Of course, I got some feedback last year. This is a broad range. Couldn't you narrow it. We were guided by this guidance to avoid with a high confidence interval to go back during the week to the -- during this week and tell you investors, well, it's not going to be -- or it's going to be a lower guidance. We are very confident with this guidance and there should be a likelihood that we can as we did it last year to adjust it to an upper range. Let's see, we started quite good in the first quarter. So I think there is room for improvement, but we want to be safe not to do some warning during the year. And with this more challenging situation, we said despite the fact we're expecting more, we will be conservative in our guidance. And also, we will see a better EBITDA and EBIT level compared to previous year. And this is very important because when I go back, then I must say that -- let me check it here -- Yes. When I -- well, am I here? Sorry, I did not see the -- doesn't work anymore. The next slide, please. Okay. We have to face the fact when we come to the EBIT guidance that we had to capitalize our development costs for 6 quarters, and we stopped this by the end of November as a product -- process engine is now up at market, and we don't have to do it anymore. I know a lot of American companies do this capitalization of R&D costs. We don't like this. We want to have it in the fiscal year, but we had to because we developed a brand new product. This is over now. And, therefore, there will be no cost relief anymore for EUR 1.7 million of the -- of last year is stopped and it will also affect a little bit the EBIT because since first of December, the depreciation started and will affect the EBIT, but nevertheless, we do think that we can show growth in EBIT and EBITDA, and that is most important. And therefore, we are confident for the reasons I told you. So thank you very much for your interest, for your time, and we are now about to switch to the question-and-answer mode, and I'm happy to receive a lot of questions because it shows me what you learned about this presentation. Thank you very much.

[Operator Instructions] And we already have some questions, and we start from the top. And I would say, operating cash flow was very strong, was there one-offs here? Or is this a level that can be considered a base to grow from?

Yes. I think the second part is the reality, I will expect for the future. As you might know that we get cash when we signed the contract. So cash is always first, and then we put it to the balance sheet and comes to the income statement. So, therefore, letting our SaaS recurring business grow we can expect a good conversion from revenue to cash. And, therefore, it's fair to say that, that can be considered as a base to grow from. I did not say that next year, it will be, again, plus EUR 9 million because it's a little bit complex to really forecast this. As you know that it depends a little bit how the deal comes in. And if the customer pays 1 -- 3 years in advance or just a quarter, that affects a lot of the cash flow statement. But as I can see how it went last year, and we had no one-offs or additional things. I think it's fair to consider a base to grow from.

Thank you. Yes, and we move on to the next question. How did the gross margin develop in the second half of 2024 and what were the key drivers of this development?

Yes. Well, I did not have the KPIs of the gross margin, but it developed from my knowledge, in line, how we saw it. As you know, our ESM platform, especially in the German market, often comes with some products because we have smaller customers who want us to implement their cloud services and so on. So it comes with cost of goods sold, especially the national business. And, therefore, I say the international business, it does not come with this additional business. So therefore, the profit -- the profitability in the international business is much larger. So, therefore, the key driver is really for this cost of goods sold. First of all, if you do a new SaaS contract, then you have some cost in advance, which has to be acknowledged in the cost of goods sold. And as we try to outsource also our service business to partners to enable them to sell the software worldwide. We are selling services from other vendors and discuss also into the cost of goods sold. But for the future, the more international share we see from the revenues, the higher is the gross margin in the future. So this is a direct function, and we -- that's the reason why we focus on international growth.

And we have 2 questions from one participant. The first one is, can you give us some insight in your U.S. pipeline?

Yes. Well, of course, it's always like this that we cannot talk about names and logos because companies want to have it unsecured, secured and they don't want to see -- want to get in relation. But as I said, Alex and Dirk were in the U.S. And when they came back, we had a meeting and I said, well, is there potential more we see after you visit? And is it really hard forecast? Or is it that we do think there might be something coming up. And they acknowledge me that there is a real good forecast, good quality, much more logos than last year. And of course, this pipeline, we started this in 2019, the pipeline or the international pipeline, and it melted away in 2020, 2021 because of corona. But the good thing in corona was that you now are able to sell your software and your services and your SaaS revenues virtually. So you don't have to go there. But also, it's important to have this U.S. partner because the most feedback we receive from U.S. customers, well, we did not know that such a cool software is existing. So Maryville is helping us to make the brand service where available and noticeable in the U.S. And we took a lot of effort to think before we entered with an agreement with a partner, how we can be successful in the U.S. market because if you take an inside -- look inside for many software companies, which took the step, some of these initiatives failed and we learned about this. And I think for our way to the U.S., it's really -- the right way to do it with Maryville, who is one of the best partners of our American competitor, Apptio. But as you know, they were bought by EVM and so Maryville was reaching out for a second step or a second level to rely on to also be a software and SaaS seller in the U.S. So that helps a lot. And the EBIT, there, I take this question because I see it was also a little bit weaker in Q4, yes that had main 2 reasons. One reason was that we had to do some provisions and they could come back in the new year to partly offset. So this will hopefully support us in the next year, but the auditor asked us to do so. And secondly, we had some currency issues, which are -- which were valid in the date of the balance sheet on 30th of November. You might have noticed that the U.S. dollar after Trump was voted in the U.S. was very strong, and our liabilities, which were booked on the passive side, were not that value anymore. Meanwhile, despite the dollar cost is -- the dollar price is the same. We bring that up again. I think it was just a valuation topic for this special day and I do not expect to go this further. As I say, we want to be better in earnings this year. That is the fact that we -- and we have to earn at least EUR 1.7 million more because the relief is not there from the capitalization of our developing costs. So, therefore, you can expect that we return to our levels of EBITDA and EBIT to achieve our goal to see a better EBITDA and EBIT by the end of the year.

Thank you very much, and that was actually an answer to some of your questions in the chat box, and I would kindly ask you guys to remove questions when they are answered so that we can move on. And we have another one, which is pretty interesting. Any interesting idea is to use your cash pile.

Yes. That is the most question I received so far in road shows. And as a CFO, I'm pretty comfortable with the cash. But I know as an entrepreneur and I'm also entrepreneur, I know holding cash is not the best way to improve our earnings, but it gives us a lot of flexibility to decide on our own without any help from outside what we do with the cash. So one could be, of course, another add-on for our ESM platform so that we see technology, which fits very good in our ESM platform. There are one, two technical things we are looking on and we are looking to inorganic growth, of course, every month. But as we have a lot of opportunities and we put the focus on organic growth, we look at these inorganic chances. And if there is a good perfect chance, we will take, so, therefore, we will use then the cash we accumulate, but right now, we do think that to focus on the organic international growth is much valuable for the company than now buying not very good fitting assets into the platform, but this is also a topic which is on our book. And we have to -- of course, we have to find answers in the next quarters. What we will do with the cash because we are not -- yes, a fore manager to distribute cash. We allocate this cash very securely that it don't go away. As I said, we put something to the governmental bonds with a very high rating and in many baskets. So we have this, and we are comfortable with it to use it when it brings the best value for the company.

Thank you very much. And we have one participant with 3 questions. And the first one was also about Q4 EBITDA, so we can skip that actually. And we move on to a question which is on -- further on, the salary costs increased approximately 7% in the second half. How do you expect this development in the full year '25 and maybe you can refer to the operating costs, which are increased sharply in the full year '24 and if you expect a similar development?

Okay. Thank you. Well, coming to the HR cost, it was very flat. And you see there were about 700,000 more in the last fiscal year compared to 2023. And that is something to do. I just mentioned it with the provision we had to take in the times where we were not successful in 2022, we wanted to bond some of our employees to the company, and therefore, said, well, if there will be a time and some measures are met, of course, and one measure is the earnings level, then we might pay you back this bonus, we did not pay out in the year '22. And this was one part. So it was something not in the term. So you can expect that we start rather from a level of '23 than a level of '24, but of course, we are looking especially in sales and in marketing. We have a lag here to invest, to be more relevant in the international market, because that is a little bit undermined or a little under focus. I think our social sales and marketing, there's a space for improvement, and therefore, we will see -- or we will invest some money in it. But on the other hand, we've got a lot of efficiencies through using AI internally and therefore, I expect on the other way to offset some of the more cost and then to be nearly stable. Of course, that could also be a little growth, but the plan is to be as stable as possible for the growth in HR costs and tremendous growth, of course, in the non-personnel costs, not in our HR costs. Yes, we're topic from -- yes, still -- it sounds a little bit silly, but we really came back from corona beginning of 2023. So '23 and especially '24 where in the age of post corona, we visited a lot more our customers anymore. We are big fans of physical meetings and not doing too much in teams. And therefore, the travel cost raised a little bit more and we had more traffic, more activity in the visiting our customers also international travel cost raised, and therefore, we saw this rise, but also, we try to keep it in a limit for next year to really elaborate more on the EBITDA and the EBIT.

Thank you. And we have a question. How much did you increase prices? And how much was upsell to existing customers and the new customer growth?

Yes. Yes. With the inflation, we had a good argument to increase costs and especially as we have a very big bonding in of our customers. So once they are on our platform, it's very sticky and very hard to leave our platform because AI data and processes are reunited in our platform. So if you quit with our platform and go away, then you do not -- you might be have AI with ChatGPT, but it's not related to your data, which was stored over years in the platform and also not to our process. You cannot copy your data and processes out of the ESM platform and transfer it by a mouse click to another vendor. So, therefore, we have -- our customers are very bonded and the software is very, very, very sticky. And that is the reason why we do think that we could have the chance. We did this to rise prices. But the main focus in growing our revenues was new customers, and of course, customers winning in 2023 and now coming the contracted liabilities into the profit -- into the income statement.

Thank you. And we have a pretty detailed question. I'll read it out to you. You added close to EUR 12 million in sales, but only EUR 3 million in EBITDA during 2024. And your guidance is for a similar improvement for 2025, but with stable HR costs and high gross margin software sales. Why shouldn't we expect more of sales growth to fall through to the EBITDA?

So I like to be on a conservative positive side when it comes to the guidance of revenue. As we've shown last year, there's potential, yes. And -- but this guidance was discussed in the Board and the majority felt positive about this guidance knowing that there is also the likelihood of up-beating this guidance, I would say, personally, is much higher than somehow downgrade this guidance during the year. But to be on the safe side and what we see in 2022, when we had to make the profit warning, the effect of this profit warning was so much more worse than really what happened. It was around some money, of course, but it was not -- the value of the company was breaking down so much. So I mean, in our sizes, with our liquidity in the share, you really should avoid adapt are changing your guidance to the lower. You better do a guidance, which you can do better during the year because that helps you on a long-term track in valuation in the company to see a higher valuation. And, therefore, it was more a conservative move to put this, but of course, with this contract liabilities and the opportunities to see internationally, there is a big potential, of course, yes.

Thank you. And I would kindly remark to the participants that if anything is answered, meanwhile, then you please just remove your questions for a better operational statement. And we have a question, how long can ARR growth keep growing faster than sales growth.

I think this will be the case until the date we are run through the transition. And in my expectation, we will reach a level of recurring revenues, as I said, 80%, 90%. And then, of course, the SaaS growth determines the overall company growth. And I expect, of course, that the license revenue and also the maintenance revenue will go down, especially we started in the first -- we started in 2025, an additional initiative to move our maintenance customer to SaaS customer and to demand the uplift from the yearly fee because maintenance is just software insurance and support and SaaS makes so much more because you get a fully configured solution and just getting credential and use it and this is a big value for our customers, and therefore, we can demand more money when we migrate our maintenance fee to SaaS fees. And with the existing customer, we started this approach just this year because now we have really, with a new AI process engine, the platform, which is born in the cloud before it was a software which was decades old with an old architecture. And now we have really this architecture, which can be scaled up. And we have also for big, large customer environments, solution to put them into the SaaS mode.

Thank you. We move on to the next question. What is the current portion of contract liabilities and what is the spread between current portion of contract liabilities and contract assets.

Yes. Well, the contract liabilities will be divided in 2 parts, a short-term part and long-term part. The long-term part is much smaller and this contains durations up from 12 months from the date we put it in the balance sheet. So the contract liabilities long term will include terms or invoices, which reflect the date 30th of November 2025 and further on. So months 12 and ongoing for further. In the short term, which is the majority of the -- nearly EUR 80 million is the majority, and this will be released between December '24 and November '25. And -- but as I said, the release of this money of this EUR 50 million will be offset in the growing business, and there will be more getting into the contract liabilities because the long-term contract liabilities will come shorter and then they come into the -- in the short-term contract liabilities, and the long-term contract liabilities will be fed up with new deals, but also the short-term. So I expect this figure to grow and make our business model more resilient in the future as the value of contracted utilities is growing. And I cannot really deal with a word contractual assets because I don't know what exactly is submitted there. We -- I know the contract liabilities, which is a very important KPI for us because it shows what business we did in the fiscal year. And, therefore, we look at this and contract assets, perhaps we can dig deeper there because I really don't know what it's about.

Okay. Thank you. And we have some more questions and concerning the time we have left, I will move on to the next one. What was the CapEx, tangible and intangible and lease payments in the year.

Yes, but very specific questions. I wanted to focus on the main KPIs, and I do not have any numbers as they are not final in mind. So before I tell you some figures, which turn out then in the annual report differently, I cannot really talk about the specific figures. But as you can see in the cash flow statement that it's developed very well. And, of course, there are -- besides the operating cash flow, which was nearly EUR 10 million, we had some negative cash flows from financing because of this IFRS topic 16, I think, where you have to capitalize your lease and your rental costs and then write it off. And secondly, from paying back some bank loans, this will be stopped by the end of the year. So there's EUR 1 million left, I know, which has to be paid back. And then we have no bank credits anymore. And we are -- can show a lot of a good conversion to free cash flow. And that is something to expect that these 2 cash flows are negative besides the operating cash flow, but it turns out that we strengthen our cash position, as you could see. So in total, we generated cash also when you take the investing and the financing cash flow into account.

Fair. I'll move on to 2 participants with their questions who did not put any questions before. And can you say something about how the average duration contract length for the SaaS business? And perhaps if you could give some more color around forecasting EBITDA improvement. Is it as possible to narrow that similar to revenues range?

Yes. So the second question to narrow the EBIT guidance. I was asked this in the morning call as well. It's a very complex thing to do a forecast for us when it comes to the bottom line because at the end, there is an auditor who has to sign the annual report, and he has all the IFRS knowledge and says we have to do it like this and this, we do it over the year, of course, with them together. But by the end of the year, everything will be checked. And, therefore, sometimes this auditor ask us to do some things I wouldn't do because I would say this is not something necessary, but from the rules, we should do it. So, therefore, it's very difficult. And we always work on that to narrow this guidance, and there will be a day, I'm sure, where we can tell you it's in the range, the EBITDA and the EBIT in that range. But being at a 0 level, it affects a lot our EBITDA when, for example, EUR 400,000 provision has to be made because then it leads to the point that you are negative, and it's a big difference if you're negative or positive. So therefore, let us work on the profitability to a certain level and then the EUR 400 or EUR 500 provision, which comes up doesn't matter anymore in terms of being precise in the percentage way. So, therefore, it will come, but it should take a little bit time, and it also comes with levering out the level of how much SaaS revenue is now in swing state. And I think when we are at 80%, 90%, and it's easier to forecast because it's more secure. This was the second part of the question. Could you just -- I forget it's the first part of the question, repeat it. It was about the contract liabilities, right? Yes, I can't hear you. Sorry. I can't hear you. I'm sorry.

So that was the question about the contract duration length.

Yes. Sorry. Okay. Yes. Normally, standard is 3 years contract minimum. We also see customers after the second or third year, they prolong to 5 years. And as you can see with the churn rate. There are customers with us for 20 years or more. So we have this internally this view, and it shows a number of about 4 to 4.5-year duration and we are looking at this because it also will help us to better forecast the profit in the future because this exactly determines, for example, this is one reason how the profit will develop.

Thank you. So we have three more questions, and we have come to the end, but I will post them if it's okay with you. Can you elaborate on the ESM financial performance knowledge business shares in the SaaS service revenue line now and their respective growth rates?

Yes. So the financial performance part is a part we do internationally so far, and this will take a bigger effort, a big focus in the international business. So, therefore, the growth rate is much higher than the overall growth rates coming from a lower level, but in the recent years, we saw growth rates about 40% year-over-year. Last year, it was lower than this number, but this is something we do internationally and as we want to see the growth there, this will grow. When it comes to knowledge business, this is also, as we did buy the knowledge product in 2019, it was born in the cloud company with a high share of SaaS. And we -- when we bought it, it was very unprofitable, so they're making a lot of losses. And during this time, since now, it shows only this area from knowledge. It shows profitability, which is beyond the point I have as a midterm goal, 10% to 15% EBIT margin. So you can see if you have a full swing, then the profit is coming. But also, this was a smaller part, which was growing over the last years. And where we have seen some decrease is not very much, but slightly in terms of the portion of the overall revenue was the processes business. And as I said, there was a trigger then the large language model from OpenAI or the AI topic in whole to bring us to the point to build this software very new up from scratch around AI. And, therefore, we expect here for the future because we also see international interest that we will, in our expectation, see a growth path again. And that is the reason why we think overall that it will grow. And when it comes to the split off, I think as it is a fact that all ESM products contribute mainly to the SaaS line. And, therefore, there is not really a big difference how they contribute either in license or in SaaS. Of course, I said there are products like knowledge, which are higher -- have higher SaaS shares because we have this old history of the processes product. And last year, we had a big license deal because a customer who is 25 years in the platform decided to roll out help line of Serviceware processes, not as an AI process engine into another country and he was on a license model, so he bought licenses. And that is something to change. But I think the younger the products are, the more accessible or the more SaaS portion will go into the SaaS line.

Yes. Thank you. And we will now move on to one, I guess, final question from the participant at the upcoming question with European and German business shift towards SaaS-based solutions, do you see more German ESM customers willing to buy cloud-native service now at the cost of local players like Serviceware. In the context, how do you convince your German ESM customers to stay with Serviceware.

Well, this step was made in the past. Now, we have to put it on the road. We did develop a really hot product, which is really cutting edge. As I said, we built the software around AI. I did not know any of our competitors who did this. They put AI to the software, but they did not do a new product from scratch. And I think that brings us in a good position. But there's a reason why we didn't move for AI process engine for international business because ServiceNow is very dominant. You can see worldwide. And why if we have potential in the financial on the performance area to grow internationally. Why should we put in focus on that. That was a meaning, this was opinion until last year. Now, as we can see that customer asked actively for the AI process engine internationally because ServiceNow is more expensive because it's perhaps in terms of configuring it in terms of AI differently. There might be a chance not only sell internationally, financial performance, but also as additional or cross-sale, the AI process engine, and, therefore, we have good arguments also nationally, well 20 more order incomes in the last time since first of December. I think this is a strong message that shows that there is a product on the start, which can be a game changer and a good success for the future.

Thank you. We have 2 or 3 more questions I would ask you, Mr. Popp. If it is possible that we stay longer in the call to ask the questions?

From me, it's very good. I like. It shows interest.

So we move on to next one.

Let's go for the last 3 questions.

Yes. Well, how much third-party product SaaS sales does the company do?

Yes. Well, this is a figure we do not disclose. But if you read the analyst reports, I think you get some more insights. And also if you see how the gross margin has developed and it changes, of course. What I can say is that the business model did not change in the IPO. So therefore, it's fair to expect the same when we are through this migration to expect the same margins, but we do not yet publish this split, but of course, in all products, we sell and all solutions we sell, we have in equal, the same ratio concerning SaaS and onetime revenues.

Wonderful. And we have 1 question. You are now going to split SaaS and service revenues, and it looks like the pure SaaS revenues grew up above 30%. Do you expect SaaS to continue this growth rate going forward as well?

Well, our goal is 20% plus, so 30% is in reach, yes, but I'm away from promising that we will see a 30% year-over-year growth rate. But yes, what we see is with the contract liabilities that a lot of recurring revenue is coming in and that is a growth driver. And we also see that the other business is going down, switching to the recurring revenue, and, therefore, I can imagine that the growth rate will be at least 20% or more. If it's above 30%, I don't know, but it will be more taking into account that the business is in, and we just have to release it. It's just a matter of time that it will follow up in the income statements.

Thank you. And then we have one more question. When new customers sign up for the new SaaS contract, is it usually for one year term or what term is it customers usually sign up for?

No. Normally, it's a minimum of 3 years. And this is easy to sell because the customer also wants to have a security in the investment. And normally, after the first or second year, they come back and say, well, please, let's prolong from 3 to 5 years because we see that the value is there and we rather now prolong to save the price and not facing a price increase after 3 years. So, therefore, the minimum is 3 years, and it's no doubt that the customer will do it. So, therefore, when a customer comes, it comes usually with 3 years following up longer time when they see really what value they get from using our software.

Great. And we move on to the final question of this call. What is growth of contract receivables.

Yes. Well, this grew, of course, as well. For me, the growth of the contract receivables is not the important figure. The important figure is the delta between contract liabilities and the contract receivables because that shows exactly the gross margin carried forward after the balance sheet date. And that grew from last year's EUR 17 million to this year EUR 25 million. So there are some figures I did not show, I have in mind because they are very important for me to see that there is a higher margin in the balance sheet, which grows every year. It came from EUR 10 million. After that, it came to EUR 17 million. Now this year, it will be EUR 25 million. And that shows that there's not only revenue in the balance sheet, but also -- but also deferred, yes, raw margins -- or gross margin you see there. So, therefore, I'm looking exactly at the figures I have always in mind because it shows me if there's just revenue coming in or if there is profitable revenue coming in. And the second thing is right now the fact.

Thank you very much. And we have no more questions in the chat box. So we come to the end of today's earnings call. A big thank you to you, Mr. Popp for the presentation and taking your time to answering all the questions. And should further questions arise at a later time, please feel free to contact Investor Relations. And I wish you all a lovely remaining Friday. And with this, I hand over again to Mr. Popp for some final remarks.

Yes. So we are honored. I like to thank you to have their interest to take part in this call to place so many questions that that is fun, really because that shows me that you're interested. I think now it's the time not to sell the share. We are not at the end of our story with AI thing, it just begun to reach the new level and especially PE funds are very active right now, but I can assure that these prices are much higher. So I expect more to come. So it's a good investment now to invest in Serviceware because we expect more to come and to see a higher Serviceware value in the future. And saying that, I hope I convince you to stay at the chair and be comfortable. And if there's any question, furthermore, please reach out to me. I'm more than happy to answer them. And thank you very much for your time and your interest this morning or afternoon, depends where we are. Thank you very much. Good luck, and have a great weekend.

Good bye.