QBeyond AG

XETRA:QBY

Earnings Call Transcript 2020-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the q.beyond's Conference Call regarding the Third Quarter Results 2020. [Operator Instructions] Let me now give the floor to Jürgen Hermann.

[Jürgen Hermann, CEO & Member of Management Board]

Thank you very much. Good afternoon, ladies and gentlemen, and a warm welcome to our Q3 conference call. My name, as said, is Jürgen Hermann. I'm the CEO of q.beyond. This is the first time -- the first call with our new company name. And obviously, it is as well the first time that we can compare the quarters like-for-like because Q3 last year was the first year without Plusnet after the sale of the telco part. I'm currently in Hamburg, and my colleague, Arne, he is Head of Investor Relations, you know him, is taking part out of Cologne. So let's come to the presentation. And I want to start with Page 3. New orders rise to EUR 52.3 million in third quarter. And ladies and gentlemen, this is a record since we started to publish this important indicator. And it is the core indicator of medium-term growth. Therefore, it's obvious that we are quite satisfied with this quarter -- with the last quarter. And let me tell you that 70%, so more than half -- much more than half received from new customers that we are able to convince from our portfolio. In total, so far, when we look at the last few quarters, we contracted EUR 102 million in this year. So our target for 2020, which is more than EUR 143 million is not in danger, to put it this way. Yes, from order intake to revenues. On Page 4, you can see the development, and it's fifth consecutive quarter of revenue growth. And could it be more? Yes, definitely, in normal times. And from my point of view, this is a good message that we were able to increase revenues in these challenging times. And coronavirus-related restrictions on contact held back, especially the customer -- the consulting business on location at customers. But we are showing growth quarter-by-quarter, and we do confirm our guidance. If we look at the profit and loss statement on Page 5, I always said that the main driver of profitability at the end of the day is growth because we do have all the resources in place, the infrastructure as well as the people. And this can be seen on the comparison of Q3 last year to this year. All figures improved in relation to Q3 last year, apart from net income. And you can see on the bottom on the left side that the reason for that is an extraordinary impact of income taxes recorded last year, which we had not this year. But all the other figures improved. And this especially leads to a rise in gross profit by 25%. Let's come to the 2 segments. First, the Cloud and IoT segment, Page 6. And ladies and gentlemen, there is no doubt. COVID-19 has created particular strong demand for cloud solutions with a key focus on the implementation and operation of digital workplaces. And with that, the revenue increased by 11% compared to last quarter -- or the quarter last year. And segment contribution improved by to EUR 1.4 million by nearly EUR 0.5 million. Let's come to SAP. And I want to make clear that SAP segment has 2 major, let's say, parts or elements. The Consulting part, on one hand, which is definitely impacted by COVID-19, as mentioned, due to the fact that we cannot get to the customer prem normally. And on the other hand, the second element is application management services, which is not so strongly hit by COVID-19. Although we have a small impact as well because when the customer is not on his prem -- on his business working, we have lower income, lower revenue Q2 ticket and normal operational processes. Page 8. The company is still solid financed. We have had a free cash flow of minus EUR 3.9 million, excluding definitely the purchase price for our latest acquisition. And with that, we can show net equity of EUR 49.4 million at September 30 with equity ratio at 74%, which is a strong balance sheet, especially due to these challenging times. On Page 9, you see again the revenue development per quarter, and there is no doubt when we confirm our guidance, what we did, and what we do is then we have a strong Q4 that we expect. And this is mainly driven by the high-volume of new orders. But especially, we do expect the completion of some large migration Cloud project in the last quarter. And with that, as said and as reported, we definitely stay to our guidance of more than EUR 143 million for this year, which you can see on Page 10, which would mean a growth related to last year of more than 13% -- or roughly 13% and this is due to the fact that we are still in challenging times that we all know. And we can confirm as well our guidance to EBITDA and to free cash flow, as mentioned. And definitely, we can confirm that we will show positive EBITDA next quarter sustainably. Yes. On Page 11, q.beyond is prepared for this crisis because we're in a certain way, in a privileged position. There's no doubt that we have this business -- this robust business model and that more than 75% are recurring and platform based revenues. We have a strong balance sheet. And we are sure that the shutdown will cause further growth push to our core markets, Cloud, IoT and SAP. And with that, on Page 12, we maintain even our growth course for the coming years. And you know that figures, especially our target for the year 2022, where we want to achieve EUR 200 million in revenues. And to repeat that as well, we expect in this context, in 2022, EBITDA margin of definitely north of 10% and positive free cash flow will be -- that will be breakeven in Q4 next year. And with that, yes, I'm happy to answer your questions, ladies and gentlemen.

[Operator]

[Operator Instructions] The first question comes from Jonas Blum from Warburg Research.

[Jonas Blum, Analyst]

I go three, please. Firstly, I was wondering with regards to your order intake, which was surprisingly strong. Could you just elaborate a bit on the growth you derived here from new customers, especially new customer orders? Is it a structural trend you're currently observing? And is there also an upselling possibility? And just related to that, why do you think that you have derived so much growth from new customers compared to your Q2 order intake, which mainly was a result from cross-selling and contract extensions? That's basically first question. Second one with regards to your SAP business. What's the revenue level we should expect you to hold back on in Q4, given that the social restrictions have obviously intensified in the recent weeks? And just third question. Could you quantify the stated upfront cost effects in your Cloud solutions, which occurred from migrating new customers? Yes.

[Jürgen Hermann, CEO & Member of Management Board]

Yes, Jonas, thank you very much for your questions. Let's come to the first one. The order intake, which was a record number for Q3, was mainly driven by new customers because we were able to sign 2 large contracts with a contract period of 4 years each. And of course, these are the basic contracts for, let's say, the normal services in the area of IT service for companies. In former times, we named it outsourcing, let's put it this way. And of course, there's upselling potential. And we will see what -- there are, of course, some leads in the -- in Q4 as well if we were able to reach the number again, but this is too early to commit to that. But definitely, we will reach our target of more than EUR 143 million, which is important for -- as basis for future growth. Concerning SAP, we expect that, yes, SAP in Q4 will be more than EUR 10 million. And we expect in the area of, let's say, between EUR 10 million and EUR 10.5 million in revenues. Concerning the upfront cost effects, this is definitely not a big amount. It's less than EUR 1 million, and it has to do with the transition of large outsourcing project. Hope that was fine for you, otherwise, yes, happy to take your question again.

[Jonas Blum, Analyst]

Can I just follow-up on the upfront cost. Is that a one-off basically or is it something that might recur?

[Jürgen Hermann, CEO & Member of Management Board]

It's one-off. It's one-off, and it has to do with the transition of large Cloud projects.

[Operator]

The next question comes from Wolfgang Specht from Bankhaus Lampe.

[Wolfgang Specht, Analyst]

Two questions from my side. And first, just can you give us an idea why you didn't decide to raise the EBITDA guidance if you are targeting a positive number in Q4? And 9 months, it's only standing at minus EUR 2.5 million. And the second question, do you expect any sizable shift in working capital in Q4? And then maybe a quick outlook on 2021. When you're saying that you're targeting above 10% the year after, can you give us a rough idea of what a good figure regarding the margin for next year could be?

[Jürgen Hermann, CEO & Member of Management Board]

Yes. Wolfgang, thank you very much for your questions. The first one is a good one. So let's put this way. We'll be better than our guided minus 4 -- minus EUR 5 million. And when we look at the consensus of all the different researches, we can already see that you have forecasted in your numbers. And so far, I think it's fine that we will not be positive for the full year, and we were positive for Q4 and definitely better than minus EUR 5 million. So this is just something between 0 and minus EUR 5 million. And this was not an issue where we want to change the guidance at that point of time. But there is no reason that we do not expect to get to our guidance concerning EBITDA. And the second one, there is no major impact concerning working capital expected. So as said, we forecast free cash flow, not lower than minus EUR 16 million and this number for next year will definitely better, and we want to achieve free cash flow breakeven in Q4 next year. And concerning the margins for next year, I hope you have full understanding that we come out with the guidance when we have a pretty clear view on next year's numbers.

[Operator]

At the moment, there seem to be no further questions. [Operator Instructions] Next question comes from Lukas Spang from Junolyst.

[Lukas Spang]

Just one clarification question on the order intake. So if you book the order intake, for example, for the 5 or 4 years contract, you booked a complete order value into the order intake. Is this right?

[Jürgen Hermann, CEO & Member of Management Board]

Yes, Lukas, this is right. So order intake is guaranteed and contracted volume for the period of the contract. So for example, if this is a EUR 40 million order intake with a contract period of 4 years, we can be sure that we have EUR 10 million per year in revenues.

[Operator]

Next question comes from Heike Pauls from Commerzbank.

[Heike Pauls, Equity Analyst]

Yes. I just have one extra question about the Colocation business. I was just wondering what's the status here because you were planning a carve out?

[Jürgen Hermann, CEO & Member of Management Board]

Yes. Thank you, Heike. Thank you for that question. I think it's an important one. As mentioned, we have started internally a project to carve out that business. So the entity, the legal entity is already founded and established. We have the management in place. And now they are working -- and this will be finalized with all the relevant issues until end of the year. And in parallel, we are working on the information memorandum, and we will start an official process early next year, yes, to make sure that we have all the best opportunities in place to decide what would to happen to that kind of business. And we have all strategic options, and no doubt the favorite one is a sale.

[Operator]

The next question comes from Yannik Siering from Stifel.

[Yannik Siering, Analyst]

This is Yannik Siering. I would have just a quick one. Can you shed some light on customers' willingness to also do bigger transformation projects also in light of recent news flow on the current pandemic? That would be helpful.

[Jürgen Hermann, CEO & Member of Management Board]

Yes, this is an interesting question. I think, Yannik, to be honest, it really depends on the customer. In much cases, we can see that not so urgent projects are postponed. And in Germany, I would say, some managers [indiscernible, they are just taking care what's going on in the next month and be careful. But other important projects in digitization, especially when we are talking about outsourcing, it is -- there's a -- yes, there' an interesting request of the customers due to the fact that they see, mainly driven by some -- even some problems in establishing digital workplaces when they do it on their own, that it's challenging. If you have security issues, and so far, they decided to even earlier to work together with professional IT providers. Therefore, I would say S/4HANA transformation is a little bit postponed in some cases and outsourcing or transformation projects even are faster than normally they would be expected.

[Operator]

There are no further questions at the moment. [Operator Instructions] There are no further questions.

[Jürgen Hermann, CEO & Member of Management Board]

Okay. Yes, ladies and gentlemen, thank you very much for taking part. Thank you very much for your questions. Actually, these are challenging times, I think, for everybody. q.beyond has delivered so far, and we will continue to deliver. And just to mention that, you can see it on the annex of the slides, apart from myself, the executive management is convinced from this success as well. And they bought, on top of my share buys in September, October, additional 1 million shares, which is a strong signal from my point of view. So just to mention that. Thank you very much for taking part. Take care and stay healthy.