Earnings Call: Q2 2021

Aug 9, 2021

Good afternoon, ladies and gentlemen, and welcome to the Q Beyond's Conference Call regarding the Second Quarter Results 2021. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. Let me now give the floor to Mr. Jurgen Hermann. Thank you very much, and a warm welcome from my side to our Q2 conference call. Together with me, like always, is Arne O'Toole, our Head of Investor Relations and M and A. Yes, ladies and gentlemen, in a nutshell, our profitable growth is increasingly gaining momentum. And with this growth, as always mentioned from my side, our profitability is rising. Order entry is developing well, and the sales pipeline is there also. And on top of that, we are on track concerning the execution of our M and A transactions as well as on track concerning the sale of our colocation business. And with that, I would like to start with the presentation on Page 3, where you can see the results of this quarter compared to the Q2 last year. As you can see, the revenues increased by €4,300,000 and 77% of this revenue in the 2nd quarter are recurring. And based on the €4,300,000 increase in revenues, EBITDA rose by €2,000,000 to €1,200,000 in the 2nd quarter. And like in the last quarter this year, the marginal return came to more than 40%. Coming to our order entry as an important KPI on the next slide. In the Q2 this year, new orders even more than doubled to €87,500,000 And for the 1st 6 months, we achieved €160,000,000 which is an increase of 67% compared to the 1st 6 months of last year. Of course, and you know that Rolik Logistics as a new customer and a new focus sector played a big role in this order entry. And this was a driver as well for the fact that almost 90% of orders in the 2nd quarter involved new customers on new projects, meaning new business with existing customer. This is, from my point of view, a strong foundation for ongoing strong and profitable growth. When we look at the segments on the next slide, the split in segment shows the great demand for cloud solution and digital workplaces. For this segment, the increase in revenue was $4,600,000 which means plus 19 percent. And the segment margin already rise to 14% and is, with that, on track concerning our target for next year of 18% to 19% segment margin in the Cloud and IoT segment. SAP, next slide, was affected somewhat severely by restrictions on contact, but it's stable, not more, but not less. And I'm very confident that we can increase this figure for the second half of this year. And with then, let's say, at least EUR 43,000,000 revenues, you would then show a growth rate compared to last year of 5% plus, which is, due to the fact that we are still in a pandemic situation, a good result from my point of view. Let's have a few and on the full P and L, and it demonstrates again, it shows improvement in all relevant figures. And let me highlight the increase in gross profit by 50% and the increase in segment contribution by more than 100%. And it shows, ladies and gentlemen, that our business model is healthy and supporting our growth strategy 2020 plus And this is as well concerning our balance sheet. It's still financed very solid. Net liquidity as of end of Q2 was €30,700,000 And this number, you know that does not include the sale of the first part of the colocation business to Datef, which has been closed a few days ago. And with that strong balance sheet, we are on track concerning the execution of our cost strategy. And the 5 columns, you know this chart are shown on the next slide. But the fact that you know this chart shows always also that we have a clear strategy, and this is unchanged since we published it in May 2019. And against the backdrop of corona, we consistently implement our strategy. And I will do everything to execute this until next year, and then we will show you our new targets beyond 2022. And for this new target, so the strategy beyond 2022, the focus on platform based innovations will play a key role. Therefore, we are preparing even today this development. We are pooling our expertise in different locations, which are the basis for these new services. And when we although these new platform based services, as of today, are very, very small in revenues, they will be very important for our future for the future of QBeyond. And you can see that for the first half, we expanded €4,200,000 in research and development, which represents, in a certain way, the make part of our business. On the next slide, you can see that the buy part is part of our strategy as well. So you can see the 3 columns of our M and A strategy, which is still unchanged, expanding in the focus sectors, extending our product portfolio and investing in unique technologies. And on the next slide, you can see an example for extending our product portfolio, which was the takeover of 100% of shares of Datac, which is, yes, modern workplace and collaboration specialist. And yes, it is, from my point of view, very important in these times of corona that we strongly believe in the extent of workplaces. And DataTech is, as mentioned here, a specialist with a clear focus on Microsoft, which is from our point of view, the leading technology, especially with the Teams solution. Yes, on the next slide, you can see the let's say, the latest transaction concerning our M and A strategy, which is acquisition of 25.4 percent of Snebel. Snebel is a specialist in self checkout solutions for our focus sector retail. And let me say this, it's not a start up anymore. It is a proven technology with existing customers. And let me tell you, with revenues north of €1,000,000 for this year. And this was the main reason why we already negotiated an option to take over the majority stake from 2023. So as mentioned, we are on track concerning the execution of our M and A strategy, but we are on track as well concerning the sale of our Kolo business. On the next slide, you can see, as already published, the key messages concerning the sale of the first part of Colo Business, which was the existing customer, Dataf, with its, let's say, isolated data center, which we gave back in a certain way to Dataf. And this is representative for roughly 10% of the whole colocation business in revenues, a very successful transaction from my point of view. We delivered, as you can see on the next slide, this transaction to a raise of EBITDA and free cash flow concerning our guidance. So we stay with our revenue guidance with €160,000,000 to €170,000,000 But after this transaction, we expect an EBITDA from €8,000,000 to €30,000,000 which is plus €3,000,000 and the free cash flow from minus $2,000,000 to $3,000,000 which is plus $8,000,000 And on top of that, we expect the positive free cash flow 1 quarter earlier than planned already next quarter. Yes. This is our plan on Page 16, published, as mentioned, in May 2019. So we are still on track to reach our guidance for this year as well as the €200,000,000 revenues for next year. And it's always important to mention and to repeat that we have a scalable business model that leads to rising EBITDA margins as targeted more and north of 10% for next year. Yes. Thank you very much for so far for your patience, and I'm happy to take your questions. Thank you very much. The first question comes from Jonas Blum from Baboqu Research. Please go ahead with your question. Yes. Good afternoon. Thanks for taking the questions. I got 3, please. Firstly, with regards to the Rulik order you acquired in Q2. I'm just wondering if you could give us sort of a segment revenue split and when you expect first revenues from this order to be booked? And is it also fair to assume since this is a key customer to you that they have perceived favorable margins? Or is it just a regular group margin contribution? So I got 2 questions, Jonas, or what were the third one? I know. So there was basically one, but I will follow-up. Okay. That was one. Fair enough. So let's start with Roelig. Yes, as mentioned, Saenz in the Q2, we are now in the, let's say, in the transition phase to take over the business of Rolik as customers, which will show first revenues in Q3, which is a fast transition. So far, normally, it takes us at least 6 months to take over the business. And on top of that, we are very good on track concerned with preparation and the start of even and this was always part of our strategy to attract further customers in the sector logistics, which will start in Q3 as well. And concerning the margins, yes, of course, you do not expect that we give precise numbers here in the call, but I can tell you that we are generating good margins out of that deal. Okay. Great. And then just following up on the cloud and IoT business overall. I mean, you're again mentioning investments in future growth. So I was just wondering when do you expect those investments to kind of fade out in your P and L? Yes. When we look at the R and D expenses, which are mainly responsible for the new platform based innovation business and new services environment, I expect the first revenues definitely this year and increasing number next year. But I think that you can really have an impact on the P and L. I think it will be second half of next year. Okay. So that's on the revenue side. But do you also expect then the costs to phase out over the next year? The costs concerning R and D, I think this is something we will keep on a stable level to make sure that we always have the right innovation and the best preparation for our future business. Okay, great. And then just one last one, if I may. With regards to the SAP business, I mean, you're mentioning some customers opting for later appointments in H2. So I was just wondering if your internal assumption is that you will see some sort of sequential revenue growth in H2 in the SAP segment? Or is it too early to assume a recovery? Fact is that, yes, driven by corona, we see some restrictions on contact, and this will be impact on the revenue side for Q2. I can tell you, as I mentioned in my introduction, that we expect higher number in revenues concerning the second half of this year than in the first half, whatever it is, but definitely higher than the 1st 6 months. Okay, got it. Thanks a lot. The next question comes from Lukas Bank from Tigris Capital. Please go ahead with your question. Yes. Hi, good afternoon. My first question is concerning the sort of the colocation business. What is the deconsolidation date of this business? The deconsolidation date is twofold. 1 is already done for the part of Dataf, which is including all the numbers and the new guidance that we published. And the second date will happen once we have signed the agreement for the sale of IP Exchange GmbH, which is, let's say, the remaining part of our colocation business. And we expect if all the offers will be acceptable for us, this is fair enough to say. If this is the case and we have finally negotiated, we expect a date of end of Q3 for the deconsolidation and the transaction. And this would be for both co locations? No. For the first one, it already happened. With the date we signed, which was 10 days ago, I guess, is already included in our numbers, which is the smaller part of that business. And the larger part will be included once we have signed the contract, which has still to be negotiated, and we expect that end of Q3. So the first part is consolidated 7 months? Yes. Okay. And can you give us a number for revenue and EBITDA contribution from this part for the first half of the year? Let's say, as I mentioned already, that the whole colocation business is about and this is what I always said, about €20,000,000 in revenues and 25% EBITDA margin. And the part for data, which has already been sold, is in revenues concerning 10% of that part. EBITDA was a little bit higher, but mainly in the same area. Okay. And then you confirm now the €200,000,000 for next year. Do you need further M and As for this? Or can you reach this from a year to date space? So far, we always told the market that our growth plan and the €200,000,000 as well is based on organic growth, which may change, and this is fair enough, if we really say the colocation business, the part the larger part in Q3, then we have to compensate this portion, let's say, with M and A, which is fair enough because it's organic, so both sides are touched. Okay. So if we assume the deal will be closed, we have to reduce the €200,000,000 by €20,000,000 From a rhythmic point of view, yes. But on the other side, we are still on track concerning M and A transactions. And I'm pretty confident that we will find something to compensate that in revenues and in margin as well, on top of that, which better suits to our strategy in the long term. Okay. So but the new M and A transaction with the €6,500,000 you would not include in this? Which is look at the fair enough, which is part of that, but it's not as big as the colocation business, which is part of that as well. Sure. Yes. Okay. Yes. That's from our side. The next question comes from Claus Bruna from Plattu. Please go ahead with your question. Yes, good morning, everyone. No, good afternoon, actually. I have two questions. Number 1 is basically you already pointed at that, but basically maybe you can reiterate it and strengthen it a bit. Where do you see the sales growth coming from in the second half mostly because it's quite a bit behind on your annual target from the first half looking at from the first half? And then the second question is what I can see is quite nice margin expansion. If I looked at the numbers and if I did my math correctly, then your EBITDA margin was 1.9% roughly in the Q1. It's now at 3.1% in the second quarter. But for the full year goals, maybe in the mid of the goals, we are still aiming for 6.4%, which is twice as good as the second quarter. Where do you see the margin expansion coming from? Thank you. First of all, concerning sales growth, as mentioned, one of our main, let's say, indicator for growth is our published KPI order entry. We have a very, very good development in the 1st 6 months. So this is the basis for our confidence to reach our target for the full year. That's it. Concerning margin, we have guided not guided, but we have communicated to the market that we will achieve more than 10% for next year. And for this year, after the onetime effect of the sale of the colo business, the first part of the colo business, we have a new guidance of €8,000,000 to €30,000,000 And as mentioned, I'm fully convinced that we reached these targets. And where will the margin expansion come from? Is it coming from all parts of the business or It's no, it is always the question. And this is what I mentioned before that the increase in revenues, as I said, so a €4,300,000 increase in revenues for the 2nd quarter shows an EBITDA increase by €2,000,000 to €1,000,000 So the marginal return is 40%, and this is something that will further continue. Or with other words, due to the fact that we have everything in place, workforce, infrastructure, everything in place, each and every euro growth in revenues is paying really on the increase of profitability. That's the main reason. Okay. Thank you. The next question comes from Sebastian Wietinger from Monterga. Please go ahead with your question. Good afternoon and thanks for taking my question. So I have got 3 left, one for each long standing focused market. So the first one is, in how many retail stores, including test, is the store butler currently used? And the second one is in the half year report, you mentioned a corresponding platform for the manufacturing industry in the trial phase. So does this include the already announced solutions? Or are there new product plans? And the last one is why is your revenue in the energy industry declining? What are the main challenges here? And in view of the Verdict order, the logistics sector should already be more important, right? Thank you, Fred, for your questions, Sebastian. Let's start with the first one concerning the retail sector. So what we can see here is and this is what we mentioned that the store butler is well achieved accepted by Freshnap, one of our main customers. And we are just in very deep talks and negotiations to implement each and every store of Freshnap with that solution. But it's not signed yet, to be honest. And we have after we have won the award of, let's say, the retail board, yes, in this sector focus, we have been addressed by a lot of customers, and they're doing pilots so far. So I expect the first revenues in this year concerning Store Butler, but the main impact when we really write the solution will be seen next year. Concerning manufacturing, we are talking about not new solutions. We are talking about our, let's say, operating platform for edge devices, which is called Edgizer, and we are in talks to implement that as well. The third one was energy, which is yes, it's stable, let's put it this way. What we can see here is that it's highly regulated. It's a little bit more difficult to get a footprint with the new solutions in that environment. But I still think that it's a very, very attractive sector, and therefore, we are working on this very hard to rise revenues in this segment as well. And concerning Rolig, definitely, when we have finished the transition of Rolig as customer, it will be a huge number starting Q3 and Q4 definitely. And once we have implemented all the procedures to attract even new customers in this sector, it will definitely play a major role in the future. Okay. Thanks. Thank you very much. There are no further questions. Maybe I'll wait another 10 seconds. So actually, there are no further questions. So ladies and gentlemen, thank you very much for being part of our call for your questions. And maybe we will see us on one of the upcoming conferences in August and in September as well. If not, of course, I'm looking forward to see or to hear you in the Q3 conference call on November 8. And I'm sure until then, so until November, we will have a decision on the remaining part of our colo business in a certain way. We will have a clear view on the full year 2021. And I hope that we have some more information on the execution of our M and A strategy. Thank you very much, and take care and stay healthy.