SNP Schneider-Neureither & Partner SE (SHF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the SNP SE Conference Call regarding the Q2 2024 results. [Operator Instructions] Let me now turn the floor over to your host, Marcel Wiskow.

Yes. Thank you, operator. Thank you very much. Good afternoon, ladies and gentlemen. Thanks for your participation at this investor call. This morning, we released our second quarter results for the current year. You can find, as always, the report and the corporate news on our website in the section Investor Relations. Joining me in this call is our CEO of the company, Jens Amil. As usual, he will guide you through the first part of the presentation containing the summary of the reported numbers and the forecast for the whole year '24. Also with me in this call, Andreas Röderer, our CFO. He will give you a more detailed insight of the financials. And as usual, we will finalize this call with a Q&A session where you get the chance to get -- to answer your questions. So with these introducing words, I will hand over to Jens.

Thank you, Marcel, and hello, everybody, also from my side. Thank you for joining the call. And as always, thank you for your continued interest in SNP. We are incredibly thankful for the continued trust of our customers and partners. In H1, many Fortune 500 companies made the decision to improve their data-enabled transformation capabilities to improve their business agility based on our software platform. And when you look at the list of sponsors of our transformation world event we had in June here at the SNP in Heidelberg, this includes IBM, EY, Deloitte, Accenture, Microsoft, Google, Fuitsu, PwC and many others. And we are sincerely humbled by the level of support and by the level of endorsement we get from the biggest IT players in the ecosystem. Now the entire SNP team is laser-focused on the success of our clients and on the success of our partners. And the good numbers we can report today are just the result of this focus on winning together with our customers and our ecosystem. So a big thank you to our customers, to our partners and to all my incredible colleagues at SNP. We are very pleased with the first half of 2024. And when we look at the numbers of Q2, you see that everything is pretty much in sync and consistent with the prerelease of our figures on July 19. So the order entry and the EBIT are even a little bit better. And when we start with order entry, that's always a little bit a concern. We also had quite a few questions around that at the AGM. But I can tell you when we -- and Andreas will look at the backlog later that everything we have sold in the last 18 months is real and has a very positive impact on our backlog. When we compare our backlog right now with the start of the fiscal year. And if you look at the book-to-bill ratio in Q1 and Q2, you see exactly the same number reflected in our backlog. Then revenue, strong growth overall on the revenue side, as you have already seen from EUR 48.5 million to EUR 62 million. We particularly like the overproportional growth we see on the software side compared to Q2 2023, we are 64% higher. And when you compare Q2 2024 with Q4 2022, we have more than doubled the software revenue and everything, again, with real business with real customers compared to Q2 2022. Then EBIT, we are, of course, very happy with our EBIT performance even outside of the one-offs, and I will show a few more details later. And when we look at our operating cash flow, we are also very pleased with the good progress we have made here in spite of high bonus payments as a result of the good performance in 2023. You see here that we had a positive cash flow in Q2 2022. The reason for that was that the bonus payments in this year have been made in Q1. And when you look, as always, at the top 5 key headlines of H1. So we already talked about the growth. We particularly like that we see a strong order entry and revenue growth across all regions and segments. Then the second aspect we're highlighting here is really, from my perspective, a major milestone for SNP. We are very thankful that we could find a solution for the legal dispute with the community of heirs. I want to thank all our shareholders who approved this agreement at the AGM in June with a support of more than 99%. And -- and I also want to specifically thank Tatiana Schneider-Neureitherhere publicly again, who was willing to find a compromise to step up for the entire community of heirs. So we have found a good solution here. And again, I want to publicly thank Tatiana for always also having the best interest of SNP in mind. And Tatiana will always be a very dear friend of the company. Then the third aspect we are highlighting here is that we are quite happy that all strategic growth levers kick in. So the partner business is now at 54% of the total order entry in H1. We see a sustained strong demand for S/4 and RISE with SAP. So that's 56% of H1 order entry, and we see a strong development in our 5 strategic growth markets. Here, the order entry went up by 79%. We, as already mentioned, could significantly improve profitability and cash flow. The EBIT went up by EUR 9 million. And the EBIT margin is now 3x better than in H1 2023. And also, as mentioned, we had a turnaround in the operating cash flow and are now positive with EUR 4.7 million compared to negative EUR 9 million in H1 2023. We raised our guidance for the revenue. We are now forecasting a range between EUR 225 million and EUR 240 million. And for EBIT, we are forecasting a range between EUR 16 million and EUR 20 million. So in Q2, you are familiar with the numbers here, so no need for me to read out all of them. Maybe I just want to point you to the overproportional growth we see specifically in the software and partner business. So when you compare the 108% order entry with a 45% overall order entry in the 64% revenue growth with a 28% overall revenue growth, we are very pleased with the development of our software business. Same with our partner business, we could double our order entry here in Q2 2024. We had one big deal in EMEA, where we had a fantastic software to services ratio. So we have a software ratio here of 65% and a services ratio of 35%. We could conclude the software transaction in Q2. The services transaction has been already concluded in Q3. So this will normalize our numbers a little bit in Q3, but we are still absolutely in line with our plans. Then we have here the H1 figures. No need to read them out here again, but I want to underline one more time that we incredibly thank you for the trust of our customers and of our partners and particularly here also of the trust SAP is putting into use. We know -- we absolutely appreciate that there is still a lot of work ahead of us. But for now, we as a team are pleased with what we have achieved in H1. Let me double click now here on the partner business. Again, we are humbled by the trust of our partners, but I'm also really incredibly proud of the work our partner team under the leadership of Lutz Lambrecht has done in the last 3 years with our ecosystem. Also here, a public thank you to Lutz and the entire ecosystem team of SNP. This is really a textbook case and I'm really, really humble to work and to run together with you here. When we look at the order entry, again, I already mentioned it. We doubled the business in Q2. We see 80% growth in H1. And when we look at the revenue, we saw a growth of 66% in Q2. This also -- this strong support and endorsement of the ecosystem community has also been reflected in the attendance of Transformation World. So we had a key event. We call it Partner Day with 250 selected participants, and we have then the main event, more than 700 partners here in Heidelberg. When we look at the deal bands, as you know, I always find this quite interesting. So the long and the short of it is that we have less deals than 1 year ago, but of course, higher volume yields. And here, we do not only have 2 or 3 massive, big deals we have this on top. But even when you look at the smaller deal bands and compare H1 2023 with H1 2024, you see that we have significantly less deals this year, but EUR 3 million more in order entry. And you can go through this, except the very midrange, which is in the same ballpark that we see here higher volumes here in all the deal bands, and this is, of course, helpful to grow the business, but it's also helpful to realize operational efficiencies and become more efficient. The large, I want to point out one thing. I mentioned that a lot of Fortune 500 companies have put trust in us or continue to put trust in us in Q2. You saw an announcement with BMW about a strategic partnership. This deal is not included here. So the call-offs of BMW are not included here in the order entry numbers. Then when we look at the business by region, I'm very happy that, as I already indicated at the beginning that we see growth in all regions. Particularly, we see growth in the biggest IT markets on the planet, in the U.K., in North America, that we still see 20% growth in Central Europe is for me a very clear indicator that the macro dynamics of our market environment are really kicking in and pushing us to the right direction. We see an increasing demand for our solutions even in our most mature markets. And then the fourth bullet, again, underlining the strong demand we see through H1 right also here overall proportional growth by 36%. Okay. Now when we look at the EBIT, we are, again, very happy with that. This is very positive even without the one-offs. We have here an improvement of 420%. We have the impact of the settlement of the agreement with the community of heirs partially offset by a few write-offs. So you see here only a positive impact of EUR 1.9 million. When we look at the costs, and Andreas will share a few more details later, this is overall in sync with our plans. Of course, we have an increase as we grow the business overall, but again, everything in sync with how we planned this for this year. When you look at the OpEx, this was getting my attention in the first step. We invested a little bit more in our Transformation World event, not because we want to have it much more fancy, but because we had 50% more customers there, right? So of course, this is also then a little bit more expensive. And with more employees, of course, we have more travel expenses. We invest a little bit more in offices. And also here, we had a few write-offs. But again, overall, everything is in sync with our plans. And then that's a view on H1 as you always get it from us, we have EUR 9 million more EBIT. If you also here exclude the one-offs. We have EUR 5 million more, which is more than double what we had last year. So we are very happy also with the operational improvements. Then the last point from my side, we have improved our forecast for this year. When you look at revenue, we improved the midpoint by EUR 12.5 million. The vast majority here is organic. And when you look at the EBIT, we increased the midpoint by EUR 3.5 million. We have EUR 1.9 million positive impact by the one-offs. And again, the midpoint increase is EUR 3.5 million. So that's it for now from my side. Thanks again to everyone for joining the call. I'm looking forward to the discussion later. And with that, I will hand it over to our CFO, Andreas.

So thank you very much, Jens. As Jens has outlined, the revenue already in detail, let us have a look at the cost side. The personnel costs are primarily increased due to the following 2 effects that had already been explained in our earlier calls. So we have added a higher number of employees, primarily in our services and sales functions to successfully deliver our order backlog and accelerate our future growth. In addition, we have slightly adjusted the salary also in line with some of the inflation rates we have seen. On the other expenses and income, Jens has already outlined to you the EBIT bridge, but let me outline several effects here that have partially netted off a bit more in detail. We have had favorable FX effects, but just to say, here, we can hardly plan for those things. This is a tricky thing for us because last year, we have seen that they have been rather negative. This year, it's a bit of a positive effect of EUR 2.1 million, as Jens has already outlined, primarily coming out of the hyperinflation situation that is still around in Argentina. But besides this, we have also seen, as Jens has indicated already some increased travel activities to grow our business in new markets like Brazil, Nordics and Middle East, which led to higher travel costs at the end. We had also higher marketing and event-based costs, as Jens has already indicated, but this has also been partially due to the effect that we wanted to promote also beside the Transformation World, our new SNP [indiscernible] strategy. But similar to last quarter, overall, no surprises and we keep tracking spend and cost behavior very closely. Now let us have a look at the segment reporting. I will keep this short as Jens has already touched this topic, but just to say, I'm happy to report that we see revenue growth in all 3 segments. Two things I want to highlight, once again, as Jens has already indicated, the software segment increased well above average by 31%. And I'm especially also personally happy that EXA has improved as well. But as I outlined to you in the previous earnings call, based on our understanding, this was just a matter of time due to the long and complex deal cycles of the company. Now let us have a look at the segment margins. Before we go into the details, I want to share with you that the one-off gains of roughly EUR 3.5 million from the settlement with the community of heirs has not been allocated to the segments as the initially built up provisions had also not been allocated to the segment. Now let's go to the Software segment. For the Software segment, we can see an increase in the half year 1 margin of 3.6%, although some receivables impairments for historic partner transactions have been allocated to the Software segment. The Services segment margin in half year 1 is at a similar level like in the previous year as we are still in an investment phase in which new colleagues need to be ramped up, and we are also investing into the further ramp-up of our partners. So from an operational point of view, we are on track, and this margin development had been planned for us as these investments will fuel our future growth and are in line with our partner strategy. As outlined before, EXA was able to close some long-lasting deal cycles, as indicated to you. So we are very happy for our EXA team that they could close now finally those deal cycles. And let me also emphasize here that based on our sales pipeline that we see for EXA, we are also optimistic for the half year 2 for EXA. Now let us go to the next page and have a look at the order entry and the order backlog. As Jens has already outlined, we see a strong increase in order entry across all regions, just to repeat that, but also an order increase across all segments. Especially, we are happy about the growth in order entry in our strategic growth markets like Brazil, Nordics, France, Middle East and Mexico. Here, the order entry was up 79% to EUR 12 million in half year 1. Now let us have a look at the backlog bridge. I think Jens has also that already indicated. I just want to repeat the key message here. Our order backlog is stable, and we are not losing projects. The reductions we see here are minor project remeasurements. I think we are very happy with the way how we transform backlog into revenue then. Now let us have a look at the balance sheet. If we look at the cash and cash equivalents and other financial assets, we see a similar picture as in Q1. Therefore, let me focus on the receivables and contract assets and contract liability position. Let me start to have a look at our noncurrent receivable positions. They have been reduced by EUR 7.3 million since the beginning of 2024. This means we are making progress on getting payment also for our historic partner contracts. And the current receivables have not been increased compared to the balance as of the end of last year, although our Q2 business was higher than our Q4 business last year. The contract asset and contract liabilities positions have been developed as expected in line with our ongoing business. So to sum it up, we further made progress in our working capital management, and we will also see this later when we discuss the operating cash flow. The noncurrent liabilities have increased as we closed the new bank loan at very good interest rates to fund some of our development activities. Finally, our equity ratio has improved as well. Now let us have a look at the cash flow. As already indicated, on a half year 1 basis, the operating cash flow increased by more than EUR 13 million, EUR 13.6 million to EUR 4.7 million. Accordingly, the Q2 operating cash flow was negative with minus EUR 5.6 million and has therefore significantly reduced the strong Q1 operating cash flow. But the main reason for this development are bonus and variable payments to the SNP team for the very successful year 2023 that had been paid in Q2, and the board, and we're personally happy that the SNP team can also personally benefit from the successes achieved last year. Finally, let us have a look at the headcount development in Q2. The additions to the headcount in Q2 relate mainly to our acquisition of the Trigon Group, a warm welcome again to all our new colleagues from the Trigon Group. Happy to have you on board. As you can see, we added 55 headcount to the group, primarily again in our Services segment to further fuel our growth, but also to have capabilities to ramp up our partners to execute on our partner strategy. And with that, I hand over to our Head of Investor Relations, Marcel Wiskow.

Thank you, Andreas. Thank you, Jens. Operator, I guess we're open for questions now.

[Operator Instructions] And first up is Yannik Siering from Stifel.

I would have 2, please. The first one, we have seen very strong topline growth, especially in software. Could you quantify the impact of large program licenses in Q2? Are these the 2 megadeals that you now mentioned in the presentation? I suppose they were like EUR 3 million each. And then the second one would be on your guidance. The updated and the increased guidance implies H2 growth of around 8% at an EBIT margin of roughly 5%, which looks rather low also given the high order entry in Q2 that we have seen and the recent trends in profitability that we have seen. Could you share your thoughts on your -- basically, your thinking there?

Yes. Thank you very much, Mr. Siering. On the order entry side, we actually have 2 mega deals here in Q2, as you see, overall, for EUR 17 million. In one deal, as I already indicated, we have an exceptionally high software share of 65%. But these are not all-you-can-eat licenses. These are specific licenses related to the transformation programs. On the EBIT side, we increased the midpoint of our revenue by around 6%. We increased the EBIT by twice as much by 11%. So that's what we see at the moment. Does this answer your question or...

Yes, great.

At the moment, there are no further questions. [Operator Instructions] And we have a question coming from Hannes Mueller from Warburg Research.

Yes. Also 2 from me. First would be on the partner business. Could you give us an idea of how important the largest partners are? I mean, of course, you have a lot of partners which are growing as well. But to what extent are there a few very large partners carrying the business? That would be helpful. And then just a specific question on leasing liabilities. I saw in the cash flow statement that the payments from lease liabilities were up quite a bit. Could you explain why and where you see that for the full year?

Thank you, Mr. Mueller for your question. Let me take the first one and the second one, I defer to Andreas. So I give you ballpark numbers because we don't report them. But in the interest of transparency and we want to also run the company externally. The top 5 partners -- so we have 2 sets of partners. We have system integration partners, and we have technology partners. Your question is referring to the system integration partners, who also specifically help us on the order entry side. And here, around 50% of the business is done by the top 5 partners. Andreas, can you comment on the second?

Yes, I'll cover the second. I think actually, this impact comes from our acquisition of Trigon. I think we did the purchase price allocation, and this was changing that slightly, but it's not a significant change. I think also on the EBITDA side, we might see a difference occurring from the Trigon acquisition. So in the past, if you look at the full year, the difference between EBIT and EBITDA was always usually roughly EUR 10 million. So EUR 2.5 million per quarter. We will see that slightly increase on a yearly basis, maybe by EUR 1 million or something like that, but nothing really significant.

[Operator Instructions] There are no further questions. I'll hand back to the company for some final remarks.

There are no further questions, we take this for an indication for our clear and focused communications. There are no further questions. And if you have any questions then contact Investor Relations, as you know, more than happy to answer all these all open items. And yes, with this, I would close the Q&A session. Goodbye, and see you soon and hear you soon. Bye-bye.

Thank you. Bye-bye.