q.beyond AG

Conference is now being recorded.

Good afternoon ladies and gentlemen and welcome to the QBeyond conference call regarding the third quarter results 2020. At this time all participants have been placed on a listen only mode. The floor will be open for your questions following the presentation. Let me now give the floor to Jürgen Hellmann.

Thank you very much. Good afternoon ladies and gentlemen and a warm welcome to our Q3 conference call. My name, as said, is Jürgen Herrmann. I'm the CEO of QBeyond. 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 Plasnet after the sale of this 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 three. New orders rise to 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 were able to convince from our portfolio. In total, so far, when we look at the last three quarters, We contracted 102 million in this year, so our target for 2020, which is more than 143, is not in danger, to put it this way. Yeah, from order intake to revenues, on page four, 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 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 five, 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, um improved and this especially leads to a rising cost profit by 25 let's come to the two segments uh first the cloud and iot segment uh page six um and ladies and gentlemen there is no doubt uh kovit 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 1.4 million by nearly half a million. Let's come to SAP. And I want to make clear that SAP segment has two 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 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 business working, we have lower income, lower revenue due to ticket and normal operational processes. Page eight, the company is still solid finance. We have had a free cash flow of minus 3.9 million, excluding definitely the purchase price for our latest acquisition. And with that, we can show net liquidity of 49.4 million at September 30th, with a 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's 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 projects in the last quarter. And with that, as said and as reported, we definitely stay to our guidance of more than 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 EBTA and to free cash flow as mentioned. And definitely we can confirm that we will show positive EBTA next quarter sustainably. Yeah, on page 11, QBeyond 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 in platform-based revenues. We have a strong balance sheet, and we are sure that the shutdown will cause a further grow pushed to our core market, 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 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 that will be break-even in Q4 next year. And with that, yeah, I'm happy to answer your questions, ladies and gentlemen. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to cancel your question, press 9 star again. And the first question comes from Jonas Lu from Warburg Research. Please go ahead with your question.

Yeah, good afternoon, and thanks for taking questions. I got three, please. Firstly, I was wondering with regards to your order intake, which was frighteningly 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 your first question. Second one regards your SAP business. What's the revenue level you should expect you to fall back on in Q4, given that social restrictions have obviously intensified in the recent weeks? And just a quick question, could you quantify the stated upfront cost effects in your cloud solutions which occurred from migrating the customers? Yeah. Okay. Thank you.

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 two large contracts with a contract period of four 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 is upselling potential. And we will see what there are. There are, of course, some leads in Q4 as well who are able to reach a number again, but it is too early to commit to that. But definitely, we will reach our target of more than 143, which is important as basis for future growth. Concerning SAP, we expect that SAP in Q4 will be more than 10 million. And we expect in the area of, let's say, between 10 million and 10.5. Concerning the upfront cost effects, this is definitely not a big amount. It's less than $1 million, and it has to do with the transition of large outsourcing projects. Hope that was fine for you. Otherwise, yeah, I'm happy to take your question again.

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

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

Okay, great. Thanks. The next question comes from Wolfgang Sprecht from Bankhaus Lampau.

Please go ahead with your question. Yes, hello, and good afternoon. Two questions from my side. And first, just can you give us an idea why you didn't decide to rate the EBITDA guidance if you're targeting a positive number in Q4 and nine months is only standing at minus 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 2020 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? Yeah, Wolfgang, thank you very much for your questions. The first one is a good one. So let's put it this way. We will be better than our guide at minus 5%. And when you look at the consensus of all the different researchers, 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're positive for Q4 and definitely better than minus 5. So this is just something between zero and minus five. And this was not an issue where we want to change the guidance at that point of time. 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 16, and the number for next year will definitely be better, and we want to achieve free cash flow pretty even in Q4 next year. And concerning the margins for next year, I hope you have full understanding as we come out with the guidance when we have a pretty clear view on next year's numbers. Okay, thanks a lot. At the moment, there seem to be no further questions.

Ladies and gentlemen, if you would like to ask a question, please press mind and start.

Next question comes from Lucas Spang from Unilist. Please go ahead with your question.

Yes, hi, good afternoon. Just one clarification question on the order intake. So if you book the order intake, for example, for the five or four years contract, you book the complete order value into the order intake. Is this right?

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

Okay. Thanks for the question.

The next question comes from Heike Powels from CommerzBec. Please go ahead with your question.

Yes, hello. Good afternoon. I hope you're well. I just had one extra question about the collocation business. I was just wondering what's the status here because you were planning a carve-out.

Yeah, thank you. 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, yeah, to make sure that we have all the best opportunities in place to decide what will happen to that kind of business. And we have all strategic options, and no doubt the favorite one is a sale.

That sounds good. Thank you.

The next question comes from Janik Wiering from Stifel. Please go ahead with your question.

Hi, good afternoon. This is Janik Wiering. 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. Thank you.

Yeah, this is an interesting question. I think, Janik, to be honest, it really depends on the on the customer in much cases we can see that lots of urgent projects are postponed and in germany i would say some some managers fan of licht they are just taking care what's going on the next month and and be careful but other important projects in the utilization especially when you're talking about outsourcing, there's an interesting request of the customers due to the fact that they see, mainly driven by 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 S4HANA transformation is a little bit postponed in some cases and outsourcing or transformation projects are even faster than normally they would be expected.

Great. Thanks a lot.

There are no further questions at the moment.

Ladies and gentlemen, please press 9 and star if you have a question.

There are no further questions. 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. QBeyond has delivered so far and 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.

The conference is no longer being recorded.