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

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the SNP Schneider-Neureither & Partner SE. The Executive Board of SNP, CEO, Dr. Jens Amail; and CFO, Andreas Röderer, will speak in a moment and guide us through the half year figures of 2025. After the presentation, we will move on to a Q&A session in which you will be allowed to place your questions directly via audio line to the management. We're looking forward to the results. And having said this, I hand over to SNP's Director of Investor Relations, Marcel Wiskow. Please, the stage is yours.

Hello, everyone, and welcome. Thank you for joining us. Thanks, Judith, for your introduction. With me today, as already mentioned, are CEO, Jens Amail; and our CFO, Andreas Röderer. On this call, we will discuss our second quarter 2025 results. You can find the presentation using in this call as well as our quarterly statement on our Investor Relations website. As always, the first part is presented by Jens with a compact overview of the numbers and the outlook for the whole year. And the second part, Andreas will present the figures in a little bit more detail. And the third part contains, as always, the Q&A session. And now I will turn over to Jens.

Thank you very much, Marcel, and hello, everybody, also from my side. Thank you for taking the time to join this call. And as always, thank you for your continued interest in SNP. Q2 was another good quarter for our customers, for our partners, our employees and for our shareholders. We saw market-defining go-lives, and we had many of our customers talking about them actually on stage at the biggest transformation world ever, which we had last month here in Heidelberg. We also closed the transaction with Carlyle and established a new Supervisory Board, which will support all of us bringing SNP to the next level. We also made strong operational progress. And thanks to the continued trust of our customers and partners, we see continued top line growth. So I would say, Marcel, let's jump right away into the numbers. So as always, let's look at the overall 5-year trend at the beginning. So we see a very healthy order entry growth to EUR 79.8 million, which is 8% year-over-year. When we look at the CAGR over the last 3 years, we actually see an order entry growth of 27%. When we look at the revenue, here, we see a year-over-year growth of 17% and it's actually the biggest quarterly revenue we had ever in the history of our company. So even bigger than Q4 2024. When we look at the EBIT, this is -- as you've seen in the press release probably already, this is going down in our official financial reporting. We had year-over-year significant one-off effects in Q2 2024, which were very positive. And we had some negative one-offs this year. But thanks to the good operational progress we made, we also could significantly invest into the scalability of the company. And looking at this chart at the operating cash flow, this does not look good at least at first glance. This does not look good here either. Andreas will share details later in his part. But the key reason for this decline is basically our success in 2024 and the higher bonus payments to all of our colleagues for which we, of course, already set up accruals in Q4 2024. Looking at the headlines of H1. First, the top line, as I said, is growing even a little bit faster than we have forecasted in our guidance. So we are a little bit ahead of the curve here. Second, we can report a very strong operational progress with a significant EBIT improvement in spite of the massive negative one-off effects. I will talk about that later, I already indicated. Third, we can note that the established strategic levers continue to deliver for our customers, for our partners and for SNP. Fourth, we had a very successful AGM and a new Supervisory Board with 2 new members with Michael Wand and Willi Westenberger from Carlyle. And Peter Maier continues to serve as a member of our Supervisory Board also going forward. And last but not least, unlike what we see in some other cases in the market, we can confirm our guidance for 2025. When we look at the key figures on a more detailed level for H1, we see again a strong top line growth with a book-to-bill ratio bigger than 1, which means we do not eat in our backlog. And overall, I must say the backlog is very stable. So we don't see any erosion here. EBIT, again, could have been much better without the one-offs we had in Q2, but still 19% year-over-year growth. Then we look at the overproportional growth on the Services side. We had -- we could conclude quite a few long-term agreements. And we saw a lot of change requests recently, which is great, and that's the reason for the strong growth on the Services side. Software side, a little bit less in terms of growth, but with 10% year-over-year, still higher than the average guidance or the midpoint guidance we have outlined at the beginning of the year. So we're also very happy year-over-year with the 10% in Software growth on the order entry side. The partner growth is in line with the overall growth after Q1 was a little bit below our expectations, but we saw a really strong Q2. Maybe we go to Q2 right away. So you see here at the bottom right, 35% year-over-year in our partner business on the order entry side and a 38% year-over-year on the revenue side. So the other Q2 figures, you already saw in the 5-year overview, again, strong top line. And this, I want to underline this, this is on the back of 2 record years. This is on the back of a particularly strong Q2 2024 with 45% year-over-year order entry growth, and it's on the back of a very strong Q1 of a very strong start into the year. So we are happy with the top line. We are actually also very happy with the EBIT. Apples-to-apples versus 2024, we have a total of EUR 7.7 million one-off effects. And this means, if we take this out of the equation, this means that we actually can see our operational improvements in the balance sheet. So when we look at Software, this obviously does not look great here with a minus 7% year-over-year order entry in Q2. Maybe a few comments here. First, Q2 2024 was exceptionally strong. So the Software order entry growth in Q2 2024 was 108%. And then second, we also see here an impact by our sell-out efforts against old partner contracts. And we also had another great Q2 in EXA from the Software side. So without these 2 special effects, again, sellout and EXA, we will see a positive growth on the Software side. Maybe we have a look at the partner business. This is a view you're already familiar with. Just a different perspective. Again, we had a little bit soft Q1 on the order entry side, but overall, we are on track. So when we look at the deal bands, as expected in a business like ours, large deals are the key growth driver for us, but we also see in the very small deal band an increase in terms of number of deals, in terms of overall value. And as I already said in the last call, this is a good indicator for the potential to penetrate this segment a little bit more also with cloud offerings. When we look at the order entry by region, Q2 growth was pretty much driven by NEMEA. Looking at H1, we know we have work to do in JAPAC, but I'm just returning from Singapore. I was there last week. I'm very optimistic that we will get there and that we will see a much better H2 than we have seen in H1. And of course, we really like the growth in North America with 47% year-over-year. Last comment maybe on this slide. The RISE business continues to deliver with a 12% order entry increase year-over-year. Again, also this is stronger than expected when we launched our initial guidance. So also here, we are a little bit ahead of the curve. Then the most interesting chart from my perspective is when we look at the reconciliation of our EBIT first Q2 2025 versus Q2 2024. Of course, the 2 main blocks here on this chart is the revenue and the personnel expenses, everything as expected. Personnel expenses, of course, based on significantly more employees, but also compensation adjustments. We also like what we have achieved in the area of COGS and OpEx. But when we look at the one-offs, so there are always 2 sides to the coin here. So last year, we had significant positive one-off effects. And this year, we had some negative one-offs effects because we're investing in the company. We are investing in strategic consulting initiatives together with Carlyle. We are investing into the global scalability of our tools and of our IT landscape. And we also made some conscious decisions and had to show some restructuring costs here as well. So this adds up, again, a positive last year and negative this year. This adds up to a total of EUR 5.4 million. Same on the currency side. We had a slightly positive currency effect last year. This year, we see massive headwind on the currency side as a result of the weak U.S. dollar. And this leads us then to the following H1 bridge. Again, when you total up the EUR 9.3 million one-off effects and when you look at the overall EBIT growth, 18% year-over-year still, then we all can do the math where we would stand without the one-offs. Finally, coming to the outlook. As already indicated at the beginning, nothing has changed here, and we are happy that we can keep our forecast stable. So that's it in a nutshell from my side. Again, we are pleased with Q2 and H1 after the record results in 2023 and 2024. Thank you for joining the call. I'm looking forward to our discussion at the end of this meeting. And Andreas, with that, I hand over to you.

Thank you very much, Jens. Now let's take a look at the income statement. Similar to other companies with revenue streams in U.S. dollar, SNP has also been impacted by currency fluctuations, as Jens has already explained. In addition to the one-offs Jens mentioned, SNP is making strategic investments into its future. Some of these ones are related to the Carlyle acquisition process, for example, fees for external advisers, particularly for the DPLTA assessment that we have agreed on at the AGM meeting. Beyond that, we conducted several evaluations across departments, including procurement, treasury, finance and IT. And there, we also took the help of some external consultants. These assessments are part of building a comprehensive road map to prepare SNP's internal systems and processes for further growth. Taking into account the positive one-off effects that Jens have already mentioned in Q2 2024, as mentioned, the EBIT development is fully aligned with our operational planning for the year. Personally, I'm especially pleased that we were able to manage both the COGS and the OpEx effectively despite the significant growth that we could show on the top line. So to sum it up, aside from the one-off investments and process excellence, our core investment focus remains unchanged from the past 2 years. We continue to invest in strengthening our service delivery capabilities and expanding our sales teams. Now let us have a look at the segments. We are seeing a stable growth trend across all 3 segments, which is very encouraging. In particular, we are pleased with the performance of the Services segment where numerous successful go-lives have taken place, as Jens has already mentioned. I would also like to reiterate the key message from our Annual Shareholder Meeting. We follow a quality-first approach because a single poorly executed project could significantly impact our reputation. Put it simply, when SNP commits to a project, we deliver just as we have consistently done in the past. Now let's have a look at the segment margins. As in the previous periods, already explained, we allocate costs to the Software and Services segments based on their respective revenue contribution. Given the investments made into SNP's process excellence initiatives, both the Software and the Services segments have absorbed a higher cost share. From an operational standpoint, our Services segment is progressing well and remains on track. We are making solid headway with the onboarding of new colleagues, both locally and at our centers of excellence in Slovakia and India. Regarding EXA, we are very pleased with the improvement. These are the results of long deal cycles that have successfully been closed over the past quarters. Delivery of EXA projects is progressing as planned. Let's have a look at the order entry and the backlog. As already presented on the previous slides, the order entry is at a new record level, and we are pleased that nearly all regions and our strategic markets could contribute to this increase, as this is continuously improving our risk profile by reducing dependency on any single region. Jens has already mentioned the stability of our backlog. Looking at the backlog bridge, we can see that SNP continues to generate order entry in line with the guidance that we have provided. We are also consistently delivering on our projects as demonstrated by the many successful go-lives in the first half of the year. To reiterate the point we shared during our Q1 call, a significant portion of the backlog reduction we can see here from project remeasurements stems from a strategic transaction in which we transferred a larger contractual obligation to a trusted partner. This allows our services resources to focus more effectively on our core business. Importantly, this move was made in the best interest of our joint end customer. So to sum it up, our backlog is very stable, and we do hardly see any losses in backlog. We are very happy with this development. Now let us have a look at the balance sheet. The decrease in cash is mainly a result from the acquisition of the remaining minority shares of the EXA AG of approximately EUR 11 million. Instead, SNP now owns 100% of EXA AG. The working capital development, including the development of trade receivables and trade payables was in line with our plans and the result of the increased business volume. We have also started to replace external loans with an internal financing from our new main shareholder, all agreed and aligned as planned. Now finally, let us have a look at the cash flow statement. Jens has already touched on that a bit. I'll go a bit into more detail here. The development of the investing cash flow has already been explained on the previous slides and primarily relates to the acquisition of the minority shares in EXA AG, as mentioned. Turning to the operating cash flow. Let me briefly highlight the typical seasonal pattern we observed in Q2. Operating cash flow in the second quarter is usually lower than in other quarters and often negative. This trend has been consistent over the past years. The main reason for this, as already indicated, is the annual bonus payments for the previous year, which are typically made in Q2. To reiterate this as well, 2024 was an exceptional year for SNP. We had a revenue increase of roughly EUR 50 million and EBIT increase of roughly EUR 17 million. And as a result, bonus payments increased by approximately EUR 4 million, driven by higher target achievements and a larger workforce. In addition, I would like to mention a one-off effect that was also outlined during our Q2 call 2024. Q2 2024 included a onetime cash inflow from a historic partner agreement, and this special effect will not recur in 2025 either. As already mentioned, the working capital development is as expected in -- as we have expected it in Q2. Now last turning to the headcount development for the first half year of 2025. The picture remains consistent with the previous quarters. We continue to invest in expanding our service delivery capabilities, be it locally or in our mentioned COE locations and strengthening our sales teams, particularly in our fast-growing strategic markets. Here, let me just take a second and a big kudos to our supporting teams in HR, IT and finance. Once again, they have enabled SNP to handle a significant higher volume of activity without increasing the headcount. This is a remarkable achievement, and thanks a lot to our team here. As mentioned earlier, we are also investing heavily in our further process excellence. One example here, just to highlight that, is an ongoing initial assessment to prepare SNP for a potential transition from our current SAP private cloud RISE system into an SAP public cloud system, which is then also fully in line with the strategy of our partner, SAP. With that, I hand over to our Head of Investor Relations, Marcel.

Thank you, Andreas. Thank you, Jens. Judith, I guess we are open to Q&A line, right?

Yes, we will. Thank you very much for your presentation, gentlemen, and congratulations to your progress. We will now move on to the Q&A session. [Operator Instructions] We will wait for the first hand up from Thomas Kaiser. You should be able to speak now.

Hello to the whole SNP team. On the second look, strong numbers for Q2. And I would like to take my question one by one. In the first moment, it looks like the business is losing slightly momentum in the Q2. Do you see this just as a short reaction due to the current situation and the uncertainties around the tariff discussions? Or do you expect that to last longer?

Kaiser, this is Jens. I don't see the business losing momentum.

Okay.

We are growing in all areas. We have an 8% order entry growth, which is fully in line with our guidance. The midpoint of our guidance compared to last year is 8%. We have in Q2 where you say we lose momentum, we are exactly on the dime in terms of order entry growth. We have a 17% revenue growth overall. Partner business is moving. S/4 is moving. I think we've been a transformation world. So I don't see at all that we lose the momentum. I think we gain momentum.

Okay. Fine. And in JAPAC, you mentioned you expect momentum coming in the second half.

Yes. I think we -- as always, when you touch a few fundamentals, you don't see the impact immediately. But I was there for a few days. We opened a new office in Singapore. We see a strong momentum picking up also with our partner community, particularly in Southeast Asia and Japan. So again, we are not -- as you know, Thomas, we are not forecasting on a regional level, but I expect that we will see a better second half than the first half year.

Okay. Fine. Then on the transformation world, we could see the Kyano is rising with new capabilities on the platform and upcoming add-ons. Do we expect to -- can rise the pricing around Kyano given the more capabilities?

So I mean, we -- I don't want to talk about price increases, but we launched a new pricing actually on July 1, where we want to be a little bit more transparent for our customers and where we also want to have a strong focus on the value we create. This is in terms of the whole mechanics, the transparency for our customers where we said we can do better. And this is actually something we have launched on July 1.

Okay. Fine. And on the Service segment, your goal is to reach a 10% EBIT margin. And as you mentioned, there are also one-offs in the numbers. So can you exclude maybe some part of the one-offs? Where is your actual numbers in the EBIT margin of the Service segment especially given the great customer satisfaction in the current project?

This is Andreas speaking. So we do not track that separately and exclude one-offs to have then a segment margin or something like that. But of course, we track our gross margins on the services side, and they are unchanged. Of course, we see that the segment had to absorb more costs, as mentioned. But on the operational progress side and also from the pricing as we do it, there's nothing, nothing has changed here.

Okay. And the next question to you. The Argentinian peso has quite a big negative effect this year, but I can't see it in the numbers. Given the drop in the currency, can you give me some insights to this topic?

So it's primarily coming out of the dollar development, the negative effects that Jens has elaborated. On the peso side, we feel that things get a bit back to normal. And also if we discuss with our local colleagues in Argentina, they also feel that the inflation isn't that harsh as it has been over the last 2 years. So I'm not talking about the normal currency situation with the peso, but things are developing in a positive direction. And we also do not see the impact as tremendously, for example, as we have seen it in Q4 2023.

Okay. Fine. And maybe some words to the second half year. What do you expect for the development in the third quarter and fourth? Do you expect a normal seasonal behavior?

So we -- when we look at the pipeline, we feel confident that we can confirm our guidance, Thomas.

Thank you for your questions, Mr. Kaiser. And we have the next hand up from Lukas Spang. He should be able to speak now.

I joined a little bit late to the call, so I hope my questions have not been answered yet. My first question is related to the IT topic. You mentioned in your press release that you had some, you call it, investments. But on the other hand, I heard that you had a, let's call it, cybersecurity issue in Q2. So first part of the question, is this true? Can you confirm this? And the second part is, is this investment in IT you mentioned in the press release related to this issue that you had to improve your IT security and your IT systems for potential cybersecurity attacks?

Jens, I will pick that question. Thanks a lot for your question. Mr. Spang, I can confirm that we had an IT security issue affecting our own internal SNP system. An external investigation was done. The issue has been contained. Relevant authorities have been informed. As you can see in our numbers, our business is fully on track and ongoing. It did not impact our ability to successfully deliver our projects. The one-offs we have mentioned is a combination of process improvement and also investment into our IT infrastructure, but all those activities have been started before this has happened. So this is nothing specifically related to this incident that you have asked for.

Okay. But can you quantify the investments?

No, we cannot quantify that. It's an ongoing assessment. It's a mixture of investments in infrastructure as well as in activities to hardening our infrastructure, but also significant investments into our process excellence. So it's a complete overall assessment to bring SNP's internal processes, IT systems, but also our application landscape to the next level to prepare for further growth.

Okay. But then maybe from another perspective, will it be the most pronounced in Q2? Or will there also be higher investments for this in Q3 and Q4?

This is an ongoing initiative, and we will see where we need to do investments.

Okay. And then also another topic from the last call. regarding M&A. So how did the M&A topic or your M&A pipeline progressed in the last month? Any update you can share with us?

Not at this point in time. So I need to ask you, Lukas, to be a little bit more patient with us here.

So -- but you are optimistic to share some insights in the coming months or – [indiscernible] interpretation.

Lukas, you will be the first to hear. You will be the first to hear.

So -- but you are optimistic to close something? Or how should we interpret that?

No interpretation. No interpretation. As soon as we have something to announce, we will do it.

And we will go on with the next question from Thomas Kaiser. [Operator Instructions] So Thomas Kaiser, the stage is yours.

Thank you, Judith. Just one question to one-offs in the second half of the year. Do you expect greater numbers? Or is there nothing to see?

Jens, I'll take that. I think Jens has just confirmed our guidance, everything we plan to do, we have planned for.

Including some more one-offs or we don't expect some.

I think the guidance as we have it out with an EBIT to EUR 34 million is and there we have factored in topics where we need to do investments. As said, there are some assessments ongoing, for example, on the treasury side, just to improve our cash flow prediction, predictability and things like that. So this is a whole of things going on. But those things we have accordingly planned for.

And in the meantime, we have received no further questions. We, therefore, come to the end of today's earnings call. Thank you, everyone, for joining and your shown interest in SNP Schneider-Neureither & Partner SE. Should further questions arise at a later time, please feel free to contact Mr. Wiskow from Investor Relations, and you can also find the recording of this call afterwards on airtime. A big thank you also to you, Mr. Amail and Mr. Röderer for the dive into the numbers and the time you took to answer the questions. I wish you all the best and a lovely remaining day. With this, I hand over to Mr. Wiskow for some final remarks.

Yes. Awesome. Thank you. Thank you, Judith, for your lively conversation. Thanks, Andreas. Thanks, Jens. You mentioned it. Any questions further then contact me. I'm happy to answer your questions. And I guess with this, we terminate this call and say goodbye and see you soon. Bye-bye.

Thank you. Bye-bye.