Software AG

XETRA:SOW

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Hayley, your Chorus Call operator. Welcome, and thank you for joining the Software AG Release Q4 2018 and Full Year Results Conference Call. [Operator Instructions]I would now like to turn the conference over to Otmar Winzig, Head of Investor Relations. Go ahead.

[Otmar F. Winzig, Senior VP & Head of Investor Relations]

Thank you, Hayley. Good morning, ladies and gentlemen. Welcome to Software AG's Analyst and Media Telephone Call of -- on the Fourth Quarter Results and Outlook for 2019 and Beyond. Last night, Software AG has preannounced the outlook for 2019 and key information about project Helix. This morning, as planned, we have published a full set of numbers with the presentations used in this call. Today's call will have 2 sections. First, we address the financial results, and second, the strategy refresh and its implications on the outlook for 2019 and beyond.CEO Sanjay Brahmawar will start the presentation, and CFO Arnd Zinnhardt will finish both sections. Presentation will be followed by a Q&A session during which members of the management board will be available. All members will be available, including Chief Customer Officer, John Schweitzer; and Chief Product Officer, Stefan Sigg.We'll try to keep this call within a one-hour time frame. But in respect to the lot of details we have today, I will make sure that you, at the end, will get your regular half hour of Q&A.Before we start, there are some housekeeping remarks. This telephone conference will also be broadcast via web. Access to the webcast is via our Investor Relations website. The webcast will display the presentation, charts related to this call, and the same slides are on this website for download. After the presentation, you may ask questions, and Hayley already instructed you how to do that. For technical reasons, we cannot take any questions via email. The audio webcast will be recorded and available for replay later today.With respect to capital market regulations, I have to make the following safe harbor statement. This presentation contains forward-looking statements based on beliefs of Software AG management. Such statements reflect current views of Software AG with respect to future events and results and are subject to risks and uncertainties. Actual results may vary materially from those projected here due to factors including changes in general economic and business conditions; changes in currency exchange; introduction of competing products; lack of market acceptance of new products, services or technologies; and changes in business strategy. Software AG does not intend or assume any obligation to update these forward-looking statements.Now thank you for your patience. Let us now start. And I hand over to Sanjay Brahmawar, the CEO of Software AG. Sanjay?

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Thank you, Otmar, and good morning, everyone, and welcome to our call. This is my second quarterly earnings call. And today, there are 3 items on our agenda. Our Q4 performance, our full year performance and an early insight into the shape, scope and ambition of our Helix strategy. I know many of you listening will come to our Capital Markets Day in London on February 5. We'll go into much more detail about Helix then. But it didn't feel right to hold today's call without giving you a feel for the path we will now take as a business. So let's get started.The fourth quarter is always a busy one for our business, where the teams push hard for a strong end to the year to help us deliver against the high expectations we set out for ourselves. Overall, I think it's fair to say that our Q4 performance has been below what I would have liked in some areas. While for the full year, the overall picture is solid. But I'm here to shoot for more than solid. And that is also why we are implementing Helix. The results reflect something that both the company and most of the people on this call will already know: That Software AG has a strong product fundamentals and a robust financial position. What we must do going forward, however, is translate that strength into results. That alone will ensure we return to profitable growth and capture our fair share of the market growth.In terms of headline financials for the quarter, our revenue from DBP excluding Cloud & IoT declined 1% year-on-year, while license sales declined 6%. This comes against a strong comparative period in Q4 2017 where we secured some particularly large deals, one with Siemens and one with IRS in the U.S. The IRS deal secured by a federal business and related to changes in the Obamacare system wouldn't normally be expected to fall in the fourth quarter, given federal budget year-end is September. But the circumstances were unique and created a significant bump in Q4 2017 performance. We did also make some changes to our sales team in the U.S., but those are good changes that really bolster the team, and they have now vetted up.In Cloud & IoT, we have grown quarterly revenue by 101% year-on-year, testament to the quality of our proposition there and the hard work of the team. We also saw a pleasing development in net new logos within Cloud & IoT. We added 13 new names in Q4, building on the 10 new names we added in Q3. This is a good strong momentum we carry into 2019. Quarterly DBP ARR, another increasingly important metric for the business, grew 120% year-on-year. This represented a 12 percentage point acceleration from Q3, which saw 108% growth in the prior period.Adabas & Natural saw quarterly total product revenue decline 8% year-on-year, although our license sales decline of 15% represented a materially better performance than was expected.And finally, our Q4 EBIT was flat year-on-year at EUR 82.8 million, a strong performance reflecting our ability to manage cost and deliver underlying profitability against a backdrop of change in our organization. Lastly, we also delivered net income growth of 27% in the period, ending the quarter at EUR 61.3 million or EUR 0.83 per share.A number of important operational milestones in the quarter give an indication of the transformative potential of our products and a sense of the future direction of our business. In integration, Coca-Cola European partners chose our hybrid integration platform to help it achieve economies of scale through a merger of its 3 main European bottling companies. Our platform will be a key enabler for Coca-Cola's digital strategy, helping them harness the power of 3 distinct IT landscapes for better efficiency and impact. I'd also like to add that this was a clear competitive win in the marketplace against MuleSoft.In IoT, we were delighted to announce our new IoT partnership with Dell Technologies. We will bundle our Cumulocity IoT Edge product into a range of Dell servers to enable high-performance, industry-agnostic IoT connectivity. Our customers have been telling us that they want an accessible plug-and-play IoT solution ready to go as soon as they switch on their system. This tie-up is a direct response to that feedback, and has tremendous scale of opportunity, up to EUR 100 million over 5 years. We also have large distributor like Tech Data fully engaged in taking this to market.During the quarter, we also announced a partnership with SAP to work on the development of an open smart city platform. This allows cities, communities and administrative districts to create and implement their own smart projects. Gives you a sense of how our technology can make a real impact on today's most -pressing societal challenges, allowing the cities of tomorrow to coordinate IoT, Big Data and AI systems. In November, we were pleased to announce an expansion to our relationship with AWS at its re:Invent conference in Las Vegas. We can now offer our products to the vibrant AWS marketplace to small and medium-sized businesses that we previously couldn't reach. These partnerships with Dell, SAP and AWS also reflect our growing desire to partner with the best and the brightest names in the industry, and also their desire to partner with us, helping provide joint solutions to vital technology problems and deriving mutual benefit as a result. We are also working with Microsoft to launch our Azure-based offering shortly. This is all about scale through partnerships and OEM relationships.In terms of the full year, our numbers are largely in line with the guidance we set out at the end of 2017. Total group revenue was EUR 865.7 million, a 2% year-on-year increase in constant currency. Within that, total product revenue increased 4% year-on-year to EUR 682.3 million. Overall revenue dragged back by the planned reduction in third-party product services revenue, which declined by minus 6% in constant currency. In DBP, our revenue excluding Cloud & IoT was EUR 434.4 million, up 1% year-on-year on constant currency basis. This is an area where I'm not fully satisfied with our performance, and I expect to see an improvement. Importantly, our Cloud & IoT revenue within that division was up 106% in constant currency at EUR 30.3 million. Our A&N revenue of EUR 218.3 million was above our guidance range as a result of the strong new license performance in Q4 and represented a 2% increase net of currency versus 2017. In terms of earnings, annually EBITDA declined 2% to EUR 272.9 million, but we were pleased to maintain a strong operating margin, closing the year at 31.5%, above the midpoint of our guidance corridor. We delivered net income growth of 17% year-over-year, ending the period at EUR 165.2 million or EUR 2.23 per share. And our organization continues to throw off cash, generating free cash flow of EUR 184.1 million, a 14% increase year-over-year.So overall, for the full year, a strong effort from our team, and I'm grateful to all of them for their hard work in 2018.I'm now going to hand over to Arnd to give you a bit more detail on these numbers before I come back and talk to you about the key points of our Helix strategy. Arnd, it's over to you.

[Arnd Zinnhardt, CFO & Member of the Management Board]

Thank you, Sanjay. Good morning, ladies and gentlemen, and welcome to our conference, also from my side. Like Sanjay, I would like to keep the analysis of Q4 and 2018 as brief as possible to spend more time on our way forward.2018 delivered the results we've expected at the beginning of the year. We expected a total digital growth of 5%. We saw a slight shift from digital licenses to IoT/Cloud. The annual recurring revenue, ARR, grew double-digit and exceeded the EUR 300 million mark for the first time. This 11% growth is perfect evidence for the growing market demand for our digital product. Adabas-Natural even achieved a better result than expected, showing a 2% growth and is outperforming our guidance. All parameters in the area of value orientation demonstrated a strong performance: Cash flow is up by 14%; operating margin at the higher end of our guidance corridor; operating EPS growing double digit, which is also above our mid-term point of our guidance; and a strong IFRS net income with a jump of 17%.As expected, the strong FX impact did not continue as the euro weakened against U.S. dollar. As a consequence, we had a tailwind out of the euro-dollar exchange rate. On the other hand, currency from emerging markets, such as the Brazilian real as well as other currencies such as Great Britain pound weakened and made the total currency impact not noticeable in the quarter. However, due to a strong headwind in H1, the total 2018 figure was negatively impacted by almost EUR 27 million.In 2018, we were able to grow our total digital business by 5%. This performance was mainly driven by our IoT operation and a strong growth of our Cloud SaaS business. DBP excluding IoT & Cloud grew by 1% to 2%. This number is a blended rate of a flattish, slightly declining license revenue, driven by one single 2017 transaction resulting in a high comp in Q4 last year, Sanjay talked about that already, and a strong maintenance development.ARR showed a nice double digit increase of 11%, which clearly demonstrates our success in the market. In line with revenue growth, we continued to invest into sales and marketing. Compared to 12 months ago, we increased our total sales and marketing organization by more than 60 FTEs. Besides sales, we also invested into R&D. Our total R&D headcount is up by 134 full-time equivalents compared to 12 months ago.Let me continue with Cloud & IoT. In the last 3 months, the high interest of customers and prospects in our IoT & Cloud offering continued. All revenue lines underpin this dynamic performance. License, plus more than 100%; maintenance, plus more than 100%; SaaS, usage-based increased by 90%; and ARR, again, up by more than 100%.Let me pause here for a second and allow me to make one comment. Our ARR is EUR 30.1 million. This means that as of December 31, we have signed contracts, signed 2019 backlog in our hands that already equals our 2018 guidance. Without signing one single additional contract or signing any upgrade, we are already in the position to match the strong 2018 achievement. This fact underpins 2 aspects, the strength of the KPI ARR as such, and the beauty of a recurring business. I will follow up on this aspect talking about our way forward.Adabas-Natural continued its strong performance, which was honestly above our expectation for Q4 and the entire year. This results in an outperformance against our guidance. Instead of minus 2% to minus 6%, we delivered 2% growth. Looking into license, you see a very strong EUR 31.8 million, which is 43 of total 2018 license. This seasonality was much healthier than the seasonality we experienced in 2017.Also, maintenance was very strong in the last 3 months, showing a 1% growth. All those elements led to a segment result for the year, which was even higher than 2017. Actually, I looked to my historic files. I did not find any year in which we produced a margin of more than 71%. This leads me to believe that the result achieved is an all-time high.The consulting business showed the same pattern as observed throughout the year. The revenue reduction is due to the effects already described throughout the year, and our Q4 margin topped last year's achievement and, regarding total 2018, it remains double digit. As discussed on the previous slides, our business performed nicely with a particular continued strong Adabas & Natural and dynamic -- and the dynamic growth of IoT/Cloud revenue as well as ARR. This positively influences our gross margin that increased to 81%, up by 220 basis points in the quarter and to 77.5% for the entire 2018. The performance is quite impressive as we achieved the growth despite an increase of housing costs due to the strong performance of our SaaS business.Consequently, it's just logical that our EBIT margin exceeds prior year's level in the quarter and for 2018. Regarding net income and earnings per share, I'm happy to report a dynamic growth. Net income increased EUR 165 million, which is a growth of 17%. EPS even jumped by 19% to EUR 2.23. Like the Adabas-Natural margin, both numbers are unprecedented in company's history.The comments regarding operating margin can be short and crisp. Based on the underlying set of numbers, we observed a "normal" development. Consequently in Q4 and 2018, the margin is close to last year's benchmarks, and thus we achieved the top end of our guidance corridor. Regarding the fourth KPI of our 2018 outlook, I'm happy to report a growth of 11% on a guidance of 5% to 15%.Ladies and gentlemen, let me close my remarks on Q4 and 2018 just making one statement regarding our cash flow. Strong performance like always and well above last year's level.We will now come to the second part of our presentation, which is about our new strategy moving forward. Sanjay, over to you.

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Thank you, Arnd. We'd normally break for questions at this point, but I want to spend a few minutes first on the future. I want to tell you that we are making a departure from the past. This strategy is about growing and competing in focused, high-growth markets. It is a strategy to drive a sustainable, profitable growth future for this company. All of you know that I've spent a lot of time since my arrival on August 1 engaging our people, our customers and our partners in a dialogue. That dialogue has uncovered a lot of ground.We've asked a lot of questions. Who are we? Who do we want to be? Where are we just not doing well enough? Where do we have a right to win? These are important questions. In the context of today's earnings, the case for change of Software AG, especially when it comes to how we execute, is pretty clear. Our dialogue has brought us clarity on a number of fronts.The first is some comforting clarity about our strengths. We have market-leading products. Many are at the top of the wave or the quadrant, and all of them integral to our customers and trusted to work. Only last week, we proved the strength of our products yet again, being named #1 for the fifth row -- year in a row out of over 20 IoT platform vendors in MachNation's Annual Market report. We have the best product credentials of any player in this space. We have significant financial strength in our balance sheet and in our track record of generating significant cash flow from our operations. And we have a unique culture, a powerful mix of experience, capabilities and skills embodied in a global family of 4,700 people.If I look to other great software companies winning today, this mix of awesome products, financial firepower and a rich culture are all essential to the success. So will they be to our own. For all this strength, as elements of our Q4 performance today make clear, we are not delivering consistent growth. We serve high-growth markets, and yet for 8 years, we simply haven't grown.Our performance doesn't measure up to the opportunity. There are a number of things limiting us. We have not invested enough in our brand and go-to market positioning. We have too broad a product set. We are trying to be all things to all people everywhere, and that's no way to drive growth. Our go-to market was not built for growth. And our execution needs to be stronger. We do not effectively use the ecosystem of partner. Globally, some 70% of software sales are partner-driven. We are missing out on that potential. Now every one of these obstacles is internal to us. We are getting in our own way, but we are going to change that. The case for change in Software AG is pretty clear. And Helix is a strategy for unlocking our true potential.On February 5, we will give you full details of our Helix rollout. It will be a multiyear pathway, leading us to sustainable, profitable growth future for our company. We will return this company to growth. We will do that by recommitting to and reimagining integration. Integration is a tremendous challenge for organizations everywhere. And it's only getting bigger because of IoT, API, B2B integrations and mobiles. There are 2 things that are really different today. In the old days, integration was a technical problem. Today, integration becomes a business tool.Integration is an opportunity for the business to differentiate through agility, efficiency and innovation. Second is the real-time aspect, capturing business events as they happen and turning business data into information and acting on that data. This is real-time business situational understanding. And digital business provides you with that ability. It gives you the chance to access and interrogate data in a range of systems and locations, break it free from silos and democratize it. It is an opportunity that is large, no matter how you cut it.Hybrid integration, according to Gartner, is expected to grow from $12 billion in 2017 to $18 billion in 2022.Take all of the growth opportunities our technology touches, and that represents a total addressable market of $24 billion to 2023. This covers a wide range of growth opportunities such as IoT, self-serve analytics, digital twin, et cetera. And it is a market where our core strengths combine with this mega trend to give us the right to win. Salesforce's acquisition of MuleSoft for EUR 6.5 billion is an acknowledgment of the importance of integration to today's business. We are the only platform-agnostic company that can bring together applications, clouds, IoT devices and data for our customers. API, iPaaS and IoT and analytics give us 3 compelling roots into the customer. Our focus and background will make us a dominant player in this space, and we will become the heartbeat of our customers. And we have not been sitting still. Already in September, we made a significant and important acquisition, Built.io, which establishes our leadership position in iPaaS. So we will repurpose how we think, act and organize to start always with the customer. In our growth markets, the customer does not sit in the IT department. They think, act, test and purchase in different ways and on the basis of different values.We will use 3 levers to pivot our organization to these behaviors and values. The first lever is focus. We will bring a more coherent field to our product portfolio, removing the complexities that currently stop us, translating market-leading products into meaningful revenue growth. That means reconfiguring DBP into 3 new go-to market identities. Integration and API, IoT and analytics, and business transformation itself comprise of ARIS and Alfabet businesses.Each of these identities represents an attractive market opportunity. Integration has an addressable market of EUR 10.2 billion, while IoT and analytic sits at EUR 7.9 billion, and business transformation is at EUR 2.4 billion. We will apportion R&D dollars to those products with the greatest potential to accelerate growth.Products in high-growth areas, such as API, iPaaS and IoT. We'll also look to alternative structure for selling and supporting products, where the opportunity is less attractive or where growth could be delivered through leveraging partners and their strengths.Number two, we will be definitive about the markets that matter most to our growth. We'll prioritize investment in markets that are growing faster than the overall market rate, and where we have clear line of sight to materially increase our share. This means putting the spotlight on North America where we see high growth potential and also Germany, U.K. and France.North America is the market where we have not played enough. We have been flat. Just imagine what is possible if we can capture the potential in that important market. It also means investment and energy in APAC, particularly in Japan and China to accelerate our potential there.We will also augment our organic growth strategy with M&A that can accelerate our ambitions. This is something we've done successfully many times before, and we'll do it again, but in a disciplined, growth-focused way. We are doubling down an integration of apps, clouds, IoT devices and data. That drives where we're having conversations in the areas of data integration security and IoT.The second lever is execution, and this is a personal métier of mine. We will install a new matrix-operating model that allows us to execute on the areas of greatest opportunity for our business. We will break down functional silos and create end-to-end accountability for geographic sales and product sales. We will also improve our go-to market approach. We'll give our sales teams clearer direction by moving them from a generalist model to a specialist model. On sales execution, we're going to get sharper. That means new internal and external incentive, it means new behaviors in our sales team and new tools to help them. Our customer success function will also be created to help customers meet their goals, improve retention, deliver references and enable cross and upsell. We will measure go-to market execution additionally by new logos, big wins greater than EUR 1 million, and cross and upsell into our Adabas & Natural install base.Better execution also means refocusing our Global Consulting Services team to be a professional services organization. An organization that supports transformational projects sold by our license sales team, and an organization that empowers and enables our partners. We will also ready our organization to sell more of our solutions on a subscription basis. This is a major shift, something that is customer-driven and something we absolutely must do if we are to adequately address one of the major trends within our industry. Our customers want this shift. They have wanted it for some time. And we can benefit from being bold and making it happen for them, also reducing the quarterly fluctuations in our earnings.Now the third lever is team, both inside and outside our firm. Inside our organization, we will sharpen our employee value proposition to ensure that we retain our best talent, attract the best new talent and create a performance framework that equips and rewards our people for the growth plan ahead. We are expanding the definition of team to include our partners. We will be bold in cooperating with them to pursue growth, and we will make it worth their while. Our boldness adds up to an ambition to grow our partner revenues to a substantial percentage of our overall mix by 2021.So we will focus -- we will back our focused execution and team with investment. We are committing EUR 50 million to delivering on this transition plan. Roughly EUR 20 million to EUR 30 million of this will be new investment capital, leveraging the strength of our free cash flow. The rest will be sourced from reallocating mainly R&D, but also sales towards growth areas.I also want to make the point that I believe we have the right and strong leadership team in place to deliver on this plan. We have deep technology expertise in the shape of Bernd Gross, our new CTO. We have a new CMO, Paz MacDonald; and a new CCO, John Schweitzer; both joining us from high-growth subscription-first software companies, MongoDB and Workday. Highlighting the importance of product focus, I'm delighted that Stefan Sigg has stepped up to become our Chief Product Officer. Alongside Arnd Zinnhardt, who has an unparalleled knowledge of this company and deep financial expertise, the leadership team we have is well equipped to make Helix a success. We are rewiring our company for growth.So that is Helix: A real opportunity to drive growth, a structured plan to deliver on that opportunity and investment to make sure we do deliver. There'll be more details next week on the 5th, but I am truly excited about the future and the potential we have here.We also understand the effort it will take to get there. We have mitigated the risks and we have a strong plan, taking lessons from Silicon Valley, pivoting our company to growth based on customer feedback. We recognize that the software market we operate in is dynamic. I hope today we have demonstrated our own dynamism in adapting for the opportunity ahead of us and sent a signal that is, "This is a business able to adapt to win today and for the long term."Let me turn to Arnd now to talk about 2019 guidance and the medium-term guidance too. Arnd, back to you.

[Arnd Zinnhardt, CFO & Member of the Management Board]

Thank you, Sanjay. Let's start by just reminding ourselves of Software AG product portfolio and the 3 categories it falls into. First, Adabas-Natural. This is a mature business with customers demonstrating high loyalty that we want and must preserve. We will undertake all efforts to keep customers happy by supporting them adequately and selling new products into the customer base, enabling them to reduce total cost of ownership. The business enjoys high margins around 70% and high stable cash flows.Second, DBP. This is a business currently showing modest single-digit growth and some business line margins around 30%. Within this business, markets focused on cloud, hybrid integration and API management are really exciting, promising double-digit growth.Third, there is IoT. A business -- the business is most definitely in the transformation zone, having enjoyed a growth of more than 100% in 2018. IoT is expected to become a very relevant contributor to Software AG's success moving forward. Despite the fact that this market is still in a very early stage, it will certainly become a mega trend, which will -- which we will position ourselves for.All this explains -- all these elements explain why we currently have a blended modest total revenue growth with an extremely strong financial position with respect to EBIT margin as well as cash flow. Consequently, our ambition through Helix is to increase our growth momentum while remaining financially solid. In addition to all these business developments, we want to give an answer to your questions regarding reducing the quarterly volatility, dependency on single transactions as well as the financial mapped appetite on recurring revenue models.The request for higher visibility on your side resonates with the customers' demand for more OpEx-driven licensing models, which reduce the upfront investment costs and simultaneously increase the perceived flexibility. Many customers we talk to prefer SaaS, subscription or usage-based payment model, rather than the classic perpetual licenses. All these elements translate into the following financial mid-term ambition: Digital business to grow 10% plus CAGR; a predictable recurring revenue stream of 85% to 90%, while addressing value-oriented KPIs with midterm operating margin 30% plus; and a strong financial -- strong free cash flow and a consistent dividend policy.So how do we get there? Over the last 5 months, we worked with our teams on defining the most relevant leaders and operationalize them. On February 5, we will talk in great detail about every single one. Therefore, I would like to focus on just 3 of them today. The first one is sales execution. Let me highlight the following aspects. We will set up a dedicated team looking after renewals of big contracts. The prime focus of this team is to retain these accounts. Given the fact that it requires less effort going after existing customers, we do not want to distract sellers from hunting new logos and making their numbers only by harvesting the existing customer base. The special force going after those existing customers will have a higher quarter than the rest of the sellers. Going after the existing accounts includes upselling and cross-selling of more capacity and more products. We want them to generate more business, more cash flow out of the current customer base. And let me highlight, this approach also addresses selling integration or IoT products, just to mention these 2, into the Adabas-Natural customer base.On the flip side, the other sellers will solely focus on new accounts. This colleagues will be supported by the business units to ensure that we have the best knowledgeable people on the ground to increase the conversion rate from pipeline into contracts. Consequently, this setup will support sales efficiency as well as will increase the in-deal value. All those elements will be implemented in 2019 and should show first results this year.Secondly, subscription. The respective internal work starts as we speak. Some of the elements should hit the market in the second half of the year. The full effect, however, will kick in, in 2020. Implementing a subscription model requires a shift in the operating model, affecting many departments in the company, such as sales, customer care, pricing, legal and finance. Therefore, we will take 2018 to set this model up properly to ensure that we succeed. Subscription can and will become the central element of our way forward. As mentioned before, customers request licensing models that come along with less upfront commitments and increased [ assistive ] flexibility. As a result, many of our peers have demonstrated that by implementing such a model. And here, we talk about sales cycle can be reduced, the total lifetime value of a customer can be increased, additional upsell potential can be realized and the retention rate can be further improved.In addition to those elements, the company's -- the entire company's business model might enjoy a reduced volatility and a higher visibility as well as a predictability if, and that is important to understand, the legal terms and conditions are properly structured. I will briefly talk about this technical but important aspect on the next slide and in great detail next week.Number 3, OEM. This is a journey that's already started in 2017 and will deliver its full potential midterm. The IoT route to market has 2 prongs, direct and white labeling. Whereas the direct go-to market might create revenue instantly, the OEM prong might become a game-changer for our company moving forward. White labeling our products, embedding them into platforms of partners, creates momentum of scale that is unprecedented in Software AG's history. With those partnerships, we are able to reach out to customers and markets that we are unable to go after directly. Besides the scaling effect on the revenue side, you also should not underestimate the scaling effect on sales efficiency.I hope these 3 elements give you a first idea of how we want the company to grow and to be financially successful.Now let's have a look how the strategy materializes in numbers. 2019 is the year when we set up the organization to accelerate growth and increase the share of recurring revenue. Therefore in 2019, we again expect dynamic growth in the IoT revenue segment with an increase in the range of 75% to 125%. We expect to accelerate growth in the digital core business in the range of 3% to 7%.Given the positive outcome in 2018, we remain cautiously optimistic for Adabas-Natural and expect performance in the range of 5% decline to flat. Catering for the planned net investments of EUR 20 million to EUR 30 million in the reshaping of our business model and intensifying go-to market, we expect to generate a non-IFRS EBIT -- [ EBITA ] margin in the range of 28% to 30%.As we move through 2019 and beyond, the plans we have to shift to subscription and increase our recurring revenue mean that new additional metrics are helpful. We will offer you additional ways to track the underlying growth in our business and look to our future strengths. Over the medium term, then we will emphasize or start to present ARR, which we'll chart for our business in building our recurring revenue base and which we expect to show a 12% to 17% CAGR over the medium term.Booking of our new contract volume, which will show how our hopper is filling and gives a view on the future strengths of our revenue. We expect to show a 15% to 20% CAGR here over the medium term. Operating cash flow. We will show here the unchanged underlying strengths of our business. And we expect a 5% to 10% CAGR in this metric over the midterm. This will complete the revenue and non-IFRS EBIT metrics we already shared with you, which we will continue to share with you but may become less relevant in measuring business success and progress in execution of project Helix.These new metrics will be important to tracking our true progress as our transaction -- transition takes place. This is because we plan in 2020 to start the introduction of our new subscription licensing model, which is fundamental to our plan to shift to subscription and deliver on the improvements that will bring our business a reduced revenue volatility from quarter-to-quarter, and thus an increased predictability of our performance for us, but also, particularly, for you. This new subscription licensing model, as you have seen in many other software companies taking the same journey as us, will cause some change to our revenue recognition once the new model is in place.Revenue contracted on this new basis we expect to be recognized quarterly or per annum, not on an upfront basis. This will involve a technical compression of stated revenues and [ EBITA ] margins in the early phase of our transition, up to 200 basis points, as we take the steps we need to build the higher quality, more predictable revenue we are aiming for.So that is how we see 2019 and the midterm involving from a financial perspective. I look forward talking to all of you through more details on our Capital Markets Day on the 5th of February.Otmar, back to you.

[Otmar F. Winzig, Senior VP & Head of Investor Relations]

Thank you, Arnd. Thank you, Sanjay. So this is time now for Q&A, and as promised, we will have half an hour. Hayley, would you please repeat the procedure, and then we'll start with the first question.

[Operator]

[Operator Instructions] First question is from the line of Stacy Pollard of JPMorgan.

[Stacy Elizabeth Pollard, Head of Software and IT Equity Research]

Two for me, please. First of all, can you speak more about the EUR 50 million investment? So there is EUR 20 million to EUR 30 million from R&D, maybe shifting that into sort of faster growth products, et cetera. And then are you ending life with some products? And then on the EUR 20 million, which is the new spend, I guess, the EUR 20 million to EUR 30 million, which is the new spend, will that be ongoing? It kind of -- it looks like the main impact will be -- sorry, it also looks like this is the main impact on the margins. So is that the way to think about it? And maybe a second question afterwards for your new CCO.

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Stacy, it's Sanjay. So let me start by giving you a little bit around the EUR 50 million investment, then I'll hand it over to Arnd who will give you a bit more detail around the EUR 20 million to EUR 30 million. So first and foremost to -- about your point around the products, yes, we are, as I said, reallocating a certain portion of our R&D spend to our -- accelerate products. And that means making sure that our products in that space, which is API management, iPaaS, IoT analytics, are getting stronger in terms of how we compete in the market. Now for the rest of the products, of course, we will continue to support our customers. And there are certain set of products we will also look at, how we maintain them, and how we also leverage some partners to be able to support for our customers. So that's how we will go about with the portfolio. And Arnd, do you want to comment on the EUR 20 million to EUR 30 million?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Yes. Stacy, so the EUR 20 million to EUR 30 million, and you're absolutely right that it's basically the reduction of the margin in 2019 can be divided up in ongoing investment and onetime. And I would think about that 50-50, so 50% ongoing, 50% onetime. Onetime are all the costs which will occur in setting up our operational -- operation to deliver on the midterm outlook and ambition that we just have shared with you. Let me just make one additional comment. There is no time for a time out. So we will continue delivering on our guidance in 2019, which also goes together with efficiency gains that we want to see in our organization on the journey. So it's a transformation on the one hand side, but not taking the eyes off the ball, we will continuously be focused on our business.

[Stacy Elizabeth Pollard, Head of Software and IT Equity Research]

And I have another. Quick second one for your new CCO. When you're talking about strengthening the go-to market, I know you spoke a little bit about it -- or Sanjay spoke a little bit about it already, but can you elaborate, just from your perspective, what you'd like to do? What changes, new initiatives or time frame you see for that?

[John Schweitzer]

Yes, sure, Stacy. This is John Schweitzer. Maybe just before I answer that question, just a couple of comments. I'd like to say, again, how excited I am to be here at Software AG. We have a great, great opportunity in front of us. As Sanjay mentioned and then Arnd as well, around market-leading products that we take to market with strong financials, and the team that really here wants to win. Look forward to seeing, Stacy, you and the rest of the team in London next week. We have not -- just to your question, on the go-to market side, we're investing 125 additional sales and sales-enabling headcounts across the piece. A significant amount of that will come in North America. And look, I think what's really important here, as you heard about focus and execution, for me, it really comes down to people and capacity and our ability to deliver on our direct commitments. We have to take our partner contribution from less than 5% up to, in the longer term, at least 30%. And I'm going to continuously focus in a much different way on pipeline development and pace as our teams fill that pipeline and convert it and increase our win rate along the way.

[Operator]

The next question is from the line of Michael Briest of UBS.

[Michael Briest]

Arnd, I'm a little confused, maybe by some of the comments that were made around the shift to subscription. Is that something which actually has any impact in your '19 guidance? Or are you saying this really only has an effect in 2020? And as you said, it changes the shape of the P&L. Would it imply that the margin reset that you've done today might not be to bottom before we come out at a 30% plus margin in the medium term? And then I have a couple more.

[Arnd Zinnhardt, CFO & Member of the Management Board]

You [indiscernible] you're threatening, Michael. So you're right. So the shift to subscription that I talked about is something that will happen in 2020. So 2019, we will do some subscription, so we've already started with the journey. We will -- from a revenue recognition, from an accounting perspective, will not make a change in 2019. And we will talk about in great detail in -- on February 5, so next week, Tuesday, because it's a pretty rather complex topic. So this is also the reason why we -- like all the other peers, will implement all 3 KPIs that I've just shared with you, yes? And we will do that actually starting Q1 2019. So in 2 months' time that you have, the ability to track the progress that we are making in 2020, based on data that we will share with you in 2019.Now if you -- and that is just a technical aspect, and you will immediately understand that. If you change your revenue recognition from upfront, which we do today based on these standards, into pro rata or quarterly driven revenue recognition, that will, especially in year 1, have an impact on the stated numbers. Not on the operational numbers, so the 3 KPIs that I just talked about, but on the stated numbers. And therefore, you see on the chart, this maximum compression of 200 basis points that is going to happen in 2020. Now let me make one additional remark: The more successful we are in converting our business towards subscription, the higher effect will be. So if you look into the historic files of Adobe, I do know that my colleague from Adobe was exactly talking about that point with the financial market. So again, the more successful we are, the higher will be the impact in 2020, the better is the outcome on a midterm basis.

[Michael Briest]

Okay. And then, Sanjay, there were some headlines on Reuters around M&A, and some comments that you see a scope for EUR 1 billion to EUR 1.5 billion of spend. Can you talk about what sort of assets, I mean, presumably newer technologies, iPaaSes and mobile and analytics, as you said. What sort of scale of acquisitions you would consider? And then coming back to you, Arnd, I mean, you know the A&N business for a long time. [ The Z series ] cycle has just had one of its best in many, many years, and they're starting to roll over for IBM, and they're guiding to weaker revenues for some quarters to come. You had a very strong year. Why do you think that you can continue that performance when historically there's been quite a close relationship between the hardware and software side?

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Yes. Michael, so, look, let me start first by saying Helix is an organic strategy that's based on organic growth, right? Very clear. That's how we're going to drive it in strengthening our execution, our focus and our team. Now however, we will, of course, be looking at M&A to be able to complement that or accelerate that further. And as you can see in the past, we have done acquisitions, but we've done them in a smart way, in a controlled way that really adds to our strength. So for me, the most important thing is focus. And we are going to stay focused, as I said, around being the leader in integration of apps, integration of clouds, integration of IoT devices and data. If you look at those areas, then we are very strong in the app space, very strong now with Built.io in the iPaaS space, and we have Cumulocity IoT, which is the leading IoT platform. So those 3 areas, we are really strong. And now we're looking at, obviously, data integration, security, those are the areas where -- are interesting for us and further around IoT and analytics in terms of what more value can we add in helping our customers tap into the power of data. So hopefully that gives you an indication.In terms of our ability to do acquisitions, I expressed that we have the financial muscle. However, it's going to be based on what is right for us in terms of our focus.

[Arnd Zinnhardt, CFO & Member of the Management Board]

Yes. So Michael, the question regarding Adabas-Natural, and you referred to my long history with Software AG. So I use this long history with Software AG. You might remember the time when we talked about "killing the green screen." That was an initiative in order to modernize UI to become -- best -- user friendly to the young kids using the mainframe systems. At that time, we enjoyed revenue -- positive revenue development in Adabas-Natural, yes? Now we are talking about zIIP enablement, which is an additional product for our Adabas-Natural customers to reduce their total cost of ownership. So -- a use case, which as -- especially for financially driven people like myself, it's pretty easy to understand. Because it -- at the end of the day, you're reducing the operating costs by buying additional license. So it's a very, very easy ROI calculation, and therefore, a compelling event for our customers. That is something that has really kicked in and become relevant to our customers in 2018. So that is certainly -- if you want to talk about the most prominent lever, why this positive development of Adabas-Natural was possible, that is certainly the most prominent lever. We have analyzed our customer base, and we strongly believe that this trend on zIIP enablement will continue also in the next 2, 3, 4 years. And then -- and now looking to my dear colleague, Stefan, who is a CPO, and Stefan has a task to develop something after zIIP enablement, this is something that he and his team are currently thinking about, what is the next wave after zIIP, yes? So here we are not talking only about capacity upgrades, but also additional products to be sold into the customer base -- into the Adabas-Natural customer base.

[Michael Briest]

And then on to -- actually, Sanjay, I think you mentioned an up to 100 million opportunity from Dell IoT over the next 5 years. Was that devices? Or was that euro millions?

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Obviously, I won't comment for Dell and their own devices. But effectively, what we've done is introduce these easy-to-start IoT packages. And they are in what we call small, medium and large packages. And the objective is that these packages would be made available to customers that are wanting to start, and they will be distributed through Tech Data. So we have a very strong alliance now between Dell, Tech Data and us. And the EUR 100 million is based on a 5-year expectation of selling these packages.

[Operator]

Next question is from the line of Knut Woller, Baader Bank.

[Knut Woller, Analyst]

A couple of questions. The first one, just one of clarification with regards to the subscription model, maybe to Arnd. Is it like some of the U.S. players you highlighted that you will fully stop selling on-premise licenses? Or would it also be a hybrid model where you probably incentivize customers more to go for the subscription model? So how should we think about that? And then just to clarify, the 200 basis point impact that you mentioned in your notes in the beginning. And then on Michael's question, was that referring to the hit on revenues or hit on margins? So drop of margin 20%, recovery then in 2020 and afterwards. And then lastly, just getting a feeling with regards to your new M&A strategy, better feeling for the size of potential acquisitions. Do you also stick to your former strategy to implement buybacks? Or is that something where you still want to have some more, yes, freedom of choice at this point of stage, looking at what the missing parts of your portfolio will cost and which opportunities arise?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Yes. Knut, starting with the subscription. So you are referring to players in the U.S., and I just take some of them like Adobe or Informatica or PTC and others. They have exactly gone through this -- through the same model. The subscription will not be the only way how we sell our product, simply because we have perpetual licenses sold to our existing customer base. However -- and therefore, not everybody will directly jump to subscription. But we will consider to make very compelling offerings also to those customers, switching their perpetual licenses into a subscription model. Why is that of an advantage? Well, I talked about the reduced volatility and the higher visibility on the one hand side. And especially you and also investors, talking and discussing with us in great detail the quarterly numbers and sometimes, complaining about the fluctuation and -- of the license revenue will fully understand what I'm talking about and hopefully will take that positively.In addition to that, it also reduces the sale cycle -- the time of the sale cycle, which is required. We are able to have closer interactions, permanent interactions with customers, and therefore we believe that there is a higher upselling and cross-selling potential with those customers. And if you think about the model, the retention rate of those customers will also be increased, yes? Now looking to the individual markets, we see a high level of education in America. We see that also in the U.K. We see that to a lesser extent in continental Europe. So therefore, we will now shape our go-to market based on our observation, and sometimes even talking about individual customer segments.Now if you do this change -- and now that comes to your second question. It's clear that -- and I'm just making a very easy example. Let's assume you've got a perpetual license or a subscription license in the current setup of EUR 100 million. You would show that EUR 100 million in year 1. So let's assume that in 2020, you would show EUR 100 million in year 1, nothing in '21, nothing in '22. Based on the new concept, and this is something which is new to the market, and it's just an innovation that we have done on the back office side, you will rather see -- now I'm just talking about the annual years, EUR 33.3 million in the first year, EUR 33.3 million in 2000 -- in '21 and the same amount in '22. So basically what is happening is that you're deferring the license revenue over a period -- in my example, over 3 years. And then, it becomes obvious that despite the fact that the commitment of the customer is exactly the same. Just on the stated revenue numbers, you see a decline in the first year, a lesser extent to the -- in the second one, you equal out in the third year. And starting from year 3 onwards, you have a positive impact of the business revenue wise, cash flow wise, predictability wise, yes? As the revenue is deferred, as I just explained, that, of course, has also impact on the margin, yes? Because the costs still remain unchanged. Has no impact on the cost side. So therefore, the 200 basis points I was referring to is with respect to the margin.The third question you raised, M&A, buyback, you know that the financial market is extremely open. And listening to what Mr. Draghi and -- says, representing the ECB, I believe interest rates will remain very low for the time being, certainly within this year, I would predict even in 2020 and '21. So therefore, the appetite for banks granting credits, loans to high-quality companies is extremely high. In addition to that, there is a new initiative coming up from ECB, which even increases banks' appetite for quality companies and lesser extent to not investment-grade companies. You know we are investment grade. So therefore, from a financing perspective, the doors are entirely open with the banks, which gives us the potential of, a, paying a dividend; secondly, continue our buyback program in the ways that we have proceeded last -- in the last years; and thirdly, and that is important also from a long-term perspective, from operational perspective, will be able to continue with our M&A activities, as Sanjay has explained that.

[Knut Woller, Analyst]

Just a quick follow-up, Arnd, with regards to the maintenance revenues. They always have grown 3% to 4% in the last years at constant currency. When do you expect to shift to subscriptions impact maintenance? Should that be then something already from 2020 on and accelerating '21-ish? Or how should we think about that?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Yes. So now it becomes really technical. So the maintenance, because of the shift of subscription, is not impacted. Because the standard setters in London, for whatever reason, which I do not understand, basically force us to divide other payment artificially into a license and maintenance component. So what I was talking about was also with respect to licenses. So maintenance also in the shift in 2020 entirely remains unchanged.

[Unknown Executive]

This should mitigate all kind of bigger volatility...

[Arnd Zinnhardt, CFO & Member of the Management Board]

Yes.

[Operator]

The next question is from the line of Victoria Kruchevska of Commerzbank.

[Victoria Kruchevska, Analyst]

Couple of questions from my side, just to sort of like make sure that I got it correctly. In terms of the -- I guess, Stacy asked regarding the ongoing [ year ] investments of EUR 20 million to EUR 30 million, which portion of it is ongoing and which portion of it is one-time. So if I got it correctly, just to make sure that I reflect that in my numbers, is that EUR 10 million to EUR 15 million we should expect also in 2020 and onwards? But also in terms of the shift of the business, the impact from the shift of the business model to 100 basis points maximum in 2020. So like, just like 2 factors that should be -- so like reflected in the margin projections from your side? Is that the right thinking? And the other question in terms of the, would you say, like, segmentation in these [ signs ], should we actually expect that the DBP -- the overall DBP segment will be sort of like a split into integration and API, IoT and analytics? So is it something that you do internally? And very last question. In terms of the usage-based revenues, do you actually expect that your partners, for instance ADAMOS and the overall, from Cumulocity, all of your -- sort of like, through these points made initiatives in the IoT space, whether you actually expect to see those usage-based revenues sometime during 2019?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Okay, very good. Victoria, I'll take the first one, and Sanjay is taking number two and number three, okay? So the investment, you got it right. So just to reiterate again. So EUR 50 million in total, half of that is net new investment. So it's EUR 25 million. Out of that, again, 50% is ongoing, the other one is onetime. So therefore, the EUR 10 million to EUR 15 million is right. This, of course, goes together with growth in revenue. So when John is talking about adding more than 120 people to the sales organization, certainly, John will commit on higher revenue numbers, which generates a positive return. And you don't -- can't see him, he is smiling and nodding, so he is just confirming that, yes? So therefore, this ongoing investment will be already offset in the next year when we talk about 2020 by incremental revenue. And beside what Knut was asking for, let me just reconfirm that. We will grow the business despite of the stated numbers -- disclosing of the stated numbers in '19, in '20, in '21, in '22 as well as in '23, yes? So therefore, I was making the remarks with respect to, we will continue focus on executing on a superb world-class level.

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Victoria, let me try and address the 2 questions that you had. So first of all, on DBP. Look, DBP is an architectural picture which brings together different segments that support customers' requirements. And as I mentioned to you, we've got 3 segments that are very attractive from a market size and a market growth perspective. Let me just remind us, we are going to reconfigure DBP into 3 new go-to market identities: integration and API, IoT and analytics, and business transformation, which is comprising of ARIS and Alfabet. Why we're doing this? We're doing it because these are very clear segments, very clear requirements from our customers, very specific buyers, and we want to make sure that we focus on these segments correctly. Now to your question about are we going to report? Well, we're going to take the 2019 year to make sure that our setup is totally vetted down. And hence, as Arnd indicated, our numbers and our guidance for the 2019 is still in the total digital business, which is how we have shown it in 2018. As we go forward, obviously, we will start sharing with you clear indications on our segment, okay? So that's your second question.And then, the third thing was -- third question was really about usage based. And this is the space where I'm really excited about now. Because if you look at our joint venture with ADAMOS, ADAMOS started off with only 4 partners, and now today, we're already at 17 partners. So this is really scaling up. And we are not talking about the customers of these partners, we're already first talking about the assets that they have and bringing those assets onto the platform.So there is tremendous potential of bringing those machines and those assets on our platform, which is now starting to scale up. And as we grow the partner ecosystem, from their customers, the scaling potential becomes very, very exciting. So that's about ADAMOS. And then if you think about the partnership with Dell, and I was mentioning to, I think it was Michael who asked a question about Dell, that we expect this to deliver close to EUR 100 million revenue over 5 years. And that comes from just about 1,600 packages over that period. So the volumes that we are calculating are actually quite conservative in terms of the scaling potential of these kind of relationships. And then, final comment I'll make is this white labeling and the fact that our platform is now being used by very many of the leading manufacturers or telcos. So give you a few names, Siemens, Bosch, Deutsche Telekom, Telstra, they're all leveraging our platform, and therefore offer the scaling possibility. So this area is definitely a very exciting space for us.

[Victoria Kruchevska, Analyst]

Maybe just a quick follow-up regarding the...

[Arnd Zinnhardt, CFO & Member of the Management Board]

Very short, Victoria.

[Victoria Kruchevska, Analyst]

Very short. EUR 10 million to EUR 15 million ongoing expenses, how long do you think they will persist? Just a quick idea.

[Arnd Zinnhardt, CFO & Member of the Management Board]

So say it again, I didn't get the question.

[Victoria Kruchevska, Analyst]

Those EUR 10 million to EUR 15 million in ongoing expenses investment, for how long do you think that will -- they will last? Through 2020, 2021?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Well, the ongoing one is investment into sales, basically. So therefore, that is part of the 120 people that John was talking about. So therefore, that is an ongoing growth of the sales organization, which will be required in order to deliver the revenue growth.

[Operator]

The next question is from the line of Alastair Nolan of Morgan Stanley.

[Adam Dennis Wood, European Technology Equity Analyst]

It's actually Adam Wood on for Alastair. Can I just maybe try to finish off the questions that have been asked around the kind of margin progression as we look into 2020? Is it feasible with the shift towards subscriptions, we actually have a further decline in margins in 2020 because of that, even though that EUR 12.5 million of one-off investment falls out? That's the first one. Secondly, just in terms of the investments that you're making generally, we've seen with software companies and also with Software AG in the past, it's quite difficult to make reasonably large one-off investments because the software market is pretty hot at the moment. There's a lot of battle for talent out there. Could you maybe just talk a little bit about how you're going to make sure that, that investment gets the right people into the business, and that you can make that work well? And then, maybe just finally on the partners that you've talked about. Again, the IoT side of the business is still relatively small. What gives you the confidence that SIs are going to be willing to build practices and invest around the product set?

[Arnd Zinnhardt, CFO & Member of the Management Board]

Adam, now -- it came as surprise that it's you and not your colleague, but very good to talk to you. So the 200 basis points is only related to this transition of how to recognize the revenue, yes? So that is just the effect on this one, which is, as I put it, a technical rather than operational effect. And therefore, as is said, many people are now talking about the 200 basis points, which I fully understand. This is the reason why we set up these additional KPIs that you certainly have also experienced to monitor when looking to other -- basically U.S.-driven companies, but also to stage that have also implemented such a structure. And at the end of the day, we all know cash is the most relevant component, so therefore, we also include operating cash flow to give you the ultimate assurance that we take this business to a positive development.

[Sanjay Brahmawar, Chairman of the Management Board & CEO]

Okay. Adam, it's Sanjay. I'll take the other 2 questions. So first of all, absolutely spot on. We are in a war for talent. And we have to be very conscious about how we are going to continue to attract talent, and then, of course, develop and nurture talent within our organization. So 2 things: one, as I said, we are investing in a bold positioning and branding of our company. So they will -- we are increasing the visibility of our company and also the fresh new faces [ operating ]. Second thing, of course, is about investing in the employee value proposition. And we are putting money into the employee value proposition to make sure that we can create the right kind of environment, of course, as we bring this talent into our organization. And I said that we have a good mix between a 4,700 family environment, and of course, a global exposure or experience that we can offer people with our technology. So that's kind of the second thing around the war for talent. And then, the third part was really around the partners in the SI. So let me make 2 points: one, we have the best platform to connect, collect and analyze Cumulocity. That has been rated consistently. And why can we be confident? Well, because of the fact that we've got companies like Siemens, MindSphere, Bosch, Dell, Nordex, Coca-Cola, et cetera. They're all leveraging this platform now. So it does give us the confidence that the adoption and the acceptance of the platform is really bedding down, number one. Number two is that as we become more visible, the SIs have been getting interested into implementing and also building solutions on top of the platform. So we've had conversations with Accenture, Capgemini, Cognizant, HCL, TCS, all of the SIs. Some of them we already do quite a lot of work with. But their interest is primarily for 2 reasons; one, they've got platforms like Siemens, MindSphere that are adopting this, so they're very interested in implementing that. And second thing, they are very excited about ADAMOS, because it is the only machine builder for machine builders industrial IoT platform that's available. And it's something that is built with the domain expertise of machine builder. And that's why I can tell you that we've got now 17 partners on ADAMOS. So that's what's giving us the confidence that the scaling is going to materialize.

[Otmar F. Winzig, Senior VP & Head of Investor Relations]

Unfortunately, now we have to close this call. And normally we would say all the remaining questions will be handled by the IR team, but this time, I can say within 2 working days, we are back with the full team, even extended by the CTO and the CMO in London. So take this opportunity, spend a full day with the team and ask all the remaining questions and drill deeper, and especially get a deeper insight into the financial model from Arnd of this fairly complicated subscription construction here. Anyway, if you could bring along your customers, buy-side investors, they're all welcome. We have enough space there at the hotel. And so welcome to our Capital Market Day on February 5 in London. All details are on our website. Thanks for now, and see you soon. Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.