Good afternoon, ladies and gentlemen, and welcome to the SNP Analyst and Investor Conference Call regarding the first quarter results 2023. 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 hand the floor over to Marcel Wiskow.
Thank you, operator. Good afternoon, ladies and gentlemen. Thank you very much for accepting our invitation again. This morning, we published our first quarter results for the current year. The report and found is always on our homepage at the section Investor Relations. With us in this call are the same gentlemen as in the last call on the annual figures, which wasn't so long ago. These are Mr. Jens Amail, CEO, Mr. Thorsten Grenz, CFO, and Mr. Gregor Stöckler, COO of SNP. Let's take a brief look to our agenda for today. The first part will be presented by Jens, giving us an overview of the key results in the first quarter. The second part covering the financials and the outlook presented by Torsten, the third part is dedicated to your questions and our answers. With this introducing words, I will hand over to Jens.
Thank you very much, Marcel. Hello also from my side. Thank you for joining this call. We are humbled, thankful, also very inspired by the trust our customers and partners have put in us. Overall, we are pleased with our results in the first quarter. We see solid growth in all major KPIs, both top line and bottom line. The order entry is 32% higher than in the previous year. We see an increase of 15% in total revenue. On the bottom line, we see an over proportional growth on the EBIT by 2.5 percentage points to 5.2%. We see second, a strong growth in our software business by 27%.
We spent a lot of time with our customers in detailed discussions of the value creation potential of our software, which led to two strategic deals. As a result, our software business, as I said, was growing year-over-year 27%. Looking at the regions, our globalization strategy is gaining momentum. When we look at U.S., LATAM, and also UKI, they basically doubled their business. The Americas, in the meantime, account for 37% of the total top line, which is 12 percentage points higher than last year. We also seen increase of S/4 projects, both in terms of number of transactions and volume.
More than half of our top line is now in the S/4 space, and that's a growth of 134% year-over-year. Looking at the key figures, first order entry, we report EUR 58.3 million, which is, as I said, 32% year-over-year. The group revenue is EUR 47.1 million, which is 15% higher than last year. As already mentioned, the EBIT is at EUR 2.5 million, which is more than double what we've seen last year. When we look at the software revenue, the book-to-bill ratio is slightly worse on the services side, which is a credit to the enterprise license agreements we did, which put us in a position that we can recognize more revenue immediately on the software side.
In addition, I wanna highlight that, we also had a sell-out effort of around EUR 1 million, with one of our strategic partners. The sales effort led to almost EUR 17 million in software. Looking at the partner business, Marcel, maybe we can go to the next slide, immediately. We had a very good Q1 last year in the partner side. We were growing the business by 17% from EUR 17.2 million order entry to EUR 20.1 million order entry. We had a very strong focus on developing our factories with our strategic partners. With Accenture, where we're extending the factory approach also to our JAPAC region, with a strong executive focus of our COO, Gregor Stöckler.
We also have a very strong focus and I'm personally heavily engaged on our partnership with IBM, where we also invest a lot of efforts together with our partner to find a scalable model for both sides to scale our business in the S/4 space, particularly going forward. We also have in place a new strategic initiative with our partner, PwC, in the particularly with the focus on the M&A segment. What for me is still being relatively new in the company, is a very strong proof point of our strategy and the quality of our software that 16 of the top 20 SAP IT consulting companies put their trust and put their strategic focus on SNP as a partner.
When we look at the order entry by deal bands, I maybe cluster here a few of the categories. When we look at the volume deals below EUR 500K, we are pretty much from an order entry perspective on the same level as last year. When we look at the deals between EUR 500K and EUR 3 million, you already see significant growth. The big kicker comes when we include the deals above EUR 3 million. This is what's driving really the significant growth on the order entry side. I wanna highlight two strategic projects. Both are long-term.
As for migration partnerships with two customers, one in Germany, where I don't wanna talk too much about it because we expect a press release coming out here very soon. The second one is in the U.S., where we can't publish too much about because it's one of the largest defense companies in the world. I was heavily involved in this engagement, also personally, because it was a very exciting win big for us from a competitor, where the company initially made a decision to go with a different software approach. After they were struggling, they went into an extensive POC with us, and we could earn the trust of this customer.
This also led to a long-term $ multi-million strategic engagement with SNP. When we look at the order entry by region, we see growth in all regions. As I already mentioned, when we look at the U.S., the UKI and LATAM, we basically doubled our business with a particularly strong performance in the U.S. with EUR 10.7 million. We also had a very good year in our home market in Central Europe, where we are also growing the business from EUR 26.7 million to EUR 29.4 million. In spite of the very solid growth in Central Europe, the dependency on our home market is a little bit less than one year ago. We see 50% of the total business in this region versus 60% last year.
As I already mentioned, a strong momentum with S/4HANA. We record here order entry for EUR 29.8 million, versus last Q1, EUR 12.8 million. This amounts for 51% of the total order entry volume. When we look at revenue by segments, we see, as already indicated, growth in all areas, even a small growth in EXA. We will, we are optimistic that we will see here a little bit more going forward. When we look at the book-to-bill ratio, yeah, we are very happy about the revenue. We are also very excited that the book-to-bill ratio is even stronger with a ratio of 1.24. Very strong order entry performance.
Thorsten will talk about the impact on the backlog in a second. Looking less common from my side, looking at the EBIT, here we're particularly happy, if I may say that, not only because we had a very strong revenue performance, but when we look at the cost structure, we were able to reduce our OpEx in a few areas by EUR 0.9 million. Of course, we have more costs. We are a growth company on the personal expenses side and on the COGS side, on the personal expenses side, because we have more employees, because of course, we made salary adjustments, and we had a one-time inflation adjustment payment.
We are not concerned by the cost increase of EUR 2.9 million here. I wanna particularly point your attention to the headwind we were facing on the currency side. We had a negative EUR 2.2 million swing on the currency side. Apples to apples, we could compare EUR 1.1 with EUR 4.7, which would be a 300% overall year-over-year growth. In total, we are not unhappy with the start into the year, so we still have a lot of work ahead of us. Again, we're extremely humbled by the huge trust of our customers and partners. Thank you. Thanks to the entire SNP team.
With that, I would hand it over to Thorsten.
Yeah. Thank you, Jens. Welcome also from my side to our audience. Jens has in his presentation addressed the main drivers of our results. I can focus on adding some details and giving some additional information. First one on headcount. The company is growing, and this is reflected in our headcount evolution as well. We managed to get 20+ new colleagues on board. The headcount split by function remains more or less the same as it was before. The income statement, Jens has talked on the development of the revenues, some additional information. Personnel expenses are up. The company is growing, we have more people on board.
We had to accept salary increases due to the inflationary tendency in the market. The operating expenses that have risen, Jens Amail has already pointed out to the adverse effects from Forex. The marketing costs in the first quarter lagged behind prior year. This is the impact from our reduced and cutback in sponsorships we executed in the course of the last year. We can post improved earnings per share by EUR 0.27. Next chart, please. A glance on our segments. First, the segment software. As Jens Amail has already explained, a strong growth in revenue. As the mechanics of this segment works, that translates into a very nice improvement of our profitability. EBIT is up by 62%. Service.
The service segment remains one of our weaker spots. We are glad that revenues have risen in this segment as well by 10%. The results, EBIT, is only marginal, and as I said, we are working on that to get this segment to an acceptable profitability as well. The measures initiated are underway, and we expect an improvements during the course of this year. EXA. Revenues slightly up compared to prior year. EBIT, it's a small number, increased by more than 1/3. Also this positive tendency attributable to software sales that directly impact our EBIT. Order entry. Order entry strong performance. Here is an additional information, the breakdown by segments.
We see that all segments have contributed to the growth in order entry. Order backlog compared to the first quarter of last year is more or less stable or has risen slightly by 2%. We see and are very happy over proportional growth in North America and Latin America. We see that about 50% of the entry volume comes from S/4 projects. As usual, the reconciliation year-on-year of our order backlog, we started with EUR 131 million-132 million. Order entry, EUR 58 million. EUR 47 million were converted into revenue. Project remeasurements, we label this the fact when a project absorbs less cost than and revenues, corresponding revenues, compared to how it has been booked as order entry.
In here an adverse Forex effect of little more than EUR 1 million. We stand at EUR 140 million at the end of March. The balance sheet reflects our growth. We see that receivables and contract assets have risen. This is attributable to the strong sales performance in the first quarter. It's also a technical effect, a rebound from the factoring solution we used over year-end. That has now negatively impacted our receivables and contract assets. I will come back to this position when talking about our cash flow. As I said, we need and we are working on the service margin, and we still can improve on our cash generation.
On the liability side of our balance sheets, it's a change that is mainly due to reclassification of promissory notes in March. That's better due in March 2024, so now less than a year. Cash flow statement. We start with positive net income, which is a positive message in itself. We see that then the change in working capital, more than EUR 5 million increase in working capital, is absorbing the positive trend in income generation plus depreciation. We have an operating cash flow of - EUR 1 million. It is minus, so cannot be satisfactory, but it has improved significantly compared to last year. Investment cash flow is marginal.
There's little repayment of these liabilities, so we end up with a free cash flow again, significantly improved compared to prior year, but still negative. The working capital ratio increased by four percentage points due to the increase in contract asset values and trade receivables. Let's come to the last chart we've prepared in the finance section. This is our outlook. In a nutshell, we confirm our outlook. You know that we have given a qualitative outlook this year and promised, and we will keep that promise to come up with more detail and quantify the outlook with the half year numbers.
For the time being, the outlook is confirmed, but let me stress two aspects we have added to give more meat or more flavor to what is behind it. Looking at order entry and revenue, we confirm what is behind it, and we add, and we point out, be cautious. The growth will not match the level of the first quarter that has been characterized by two very large deals. Seen from today, this effect must not be multiplied by four. We confirm the development of profitability, both with EBIT and EBITDA, over proportional increase.
Finally, the distribution of our economic performance over the quarters will not be evenly distributed as in prior years over the quarters. However, due to the exceptional strong first quarter, we currently do not necessarily expect that the second half of the year will be stronger. With these words, I give back to Marcel Wiskow.
Thank you, Thorsten. Thank you, Jens. I guess, operator, we are open for the Q&A session.
Yes. Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to withdraw your question, please press nine and star again. Please press nine and star to register for a question. First up is Wolfgang Specht from Berenberg. Over to you.
Yes. Hello, good afternoon. Three or four questions from my side. First, on the project, the two major projects you mentioned in the presentation and the report. What can we assume, for sure the order intake is in the figures, but how is the contribution to sales? Is there more to come in the remainder of the year from these two contracts or a large part already in the P&L and the cash flow statement already? On order entry and backlog, there seems to be some slippage, if I calculated it right, some EUR 2.8 million. You stated FX as one source or let's say lower project volumes than initially assumed.
Are there any cancellations at all or are you not facing cancellations? Third question is, the split of order intake by partners and on your own side would be interesting. Given your outlook for the remainder of the year, are you confident that you will achieve a positive free cash flow?
Maybe I take the first question. This is Jens speaking. Thorsten, you the second and the fourth, I'm happy to comment on the third one. The two strategic agreements we have in place are long-term agreements already. We expect that these strategic partnerships with these two large clients will even go beyond the current agreement. In the future, we expect more business, more value creation from our side with these customers as well. Both agreements are already fully reflected on the order entry side. The current agreements, part of the software which is not maintenance is already reflected on the revenue side. Everything else, the revenue is not reflected yet.
Your third question on the partner side. Maybe even Marcel, you go back to the slide we have here. We have on the order entry side EUR 20.1 million order entry driven by partners. That's approximately one third of the business, 20% more than last year. Of course, if we take
If you exclude the two massive strategic deals we are having here above EUR 3 million, the percentage looks a little bit different, and the share looks a little bit different. On the revenue side, we are flat. We don't read too much into that. That's by no means a red flag since we are again excited by what we see in concrete projects together with our strategic partners and how we are currently ramping up a scalable infrastructure with the biggest consulting companies in the world globally.
Okay. Wolfgang, I will be adding two answers. The first was on cancellations. Cancellations are insignificant. On the level, the level of detail we have given, they are not measurable. On cash flow, nice try. Of course, we will not disclose a number. Having said that we will come up with numbers for the full year in summer, I cannot move ahead and give you a number right now. I mean it serious. Working the movement of cash on cash, on cash flow is one of the top priorities. And we want a priority driven by finance department. It means we have the sense of urgency is understood in the organization.
That is already, I think, an achievement in an organization that is very much focused on order entry and on sales. We are happy that we share this understanding now in the company. We are improving our means and we are improving also our resources dedicated to this. Our promise is, we are working hard with this number, which I understand is, at the end of the day, the most important one, like dig-digit.
Okay, fair enough. Thanks a lot.
Thank you.
Next up is Lukas Spang from Tigris Capital. The floor is yours.
Yes. Hi, good afternoon, gentlemen. My first question is on the largest IT consulting companies. Some weeks ago, as we talked, you mentioned on your presentation that you have 14 out of the world's 20 largest IT consulting companies, and now you are talking about 16. Which two came up on top of the list?
Hi, Lukas. This is Gregor speaking. It's a coincidence, actually. The top 10 we have changed. That's one.
Okay.
That accounts for one. The other one is Ernst & Young, which we have not had as a partner so far, where we are in early engagements. It's not a, it's not a fixed and formal partnership yet, but we are in early engagements. It's, it's not plus plus , it's plus one. Another one because of the measurement changed.
Okay. Then on, yeah, recurring revenues, was also a topic in the prior calls. If you look at software support and cloud, SaaS revenues, they were more or less flat. The question is, the first part of the question is why is this currently the case? The second part of the question, when, and, so when will this change to revenue increases, and what can change this in the future?
Mm-hmm.
Gregor was already answering a similar question in the last call. Of course, as the software business will increase, this will also get higher. However, it will get over proportionally higher as you would see with traditional software or cloud companies. Because our software supports projects, yeah, and transformation initiatives. However, what we do see are very long-term engagements. Yeah. Here you will see long-term license improvements. Yeah. You will not see an over proportional growth in terms of cloud revenue or maintenance revenue. This will grow in with our software business.
Is this, as I think you mentioned also this in the last call, is this part of your license business, which is not clearly recurring, but you see this as a kind of recurring? If you look at the software revenue, it went up nearly 30%, but these recurring revenues were flat. If you say if revenue in the software segment is going up, these revenue parts will go up also?
It-
It's not, it's not the case.
It is not the case.
Just to be clear on.
It's not the case this quarter. We still talk low numbers overall. What I do can tell you is that we are talking with customers about partnerships of eight years, 10 years for large, long-running transformation initiatives. Here we will see more recurrent license revenue, not maintenance, not cloud revenue, but more long-term license revenue.
Okay. Also on software business, if you look on the order intake, and also topic of the last call, you said in the long term perspective, we should see more than 50% software revenue. If you look at all the intake, order intake in the software business went up under proportionately. The service business went up more strongly. Why where's the? Let's do it in upper, in an inaudible, software problem to bring it more up, more strongly up, yeah, the software order intake. Why are you not able to improve software order intake much more than service order intake?
One impact is, of course, that we still have to deal with a sell-out, yeah, we had some successful sell-out efforts this quarter already. There's more to come. In the more strategic engagements we have, yeah, the software to services ratios is much better. I also shared with you in the last call that what we are doing operationally is a change and transformation effort for the next 18- 24- 36 months. We need to touch the software business on a number of angles, yeah. Pricing is one of them. In the first quarter, right, you see a solid growth on the software side from my perspective. I'm happy with the value of software we could position in the strategic conversations we had with our customers.
That's very encouraging from my perspective. Overall, we still have to do a lot of homework operationally.
Okay. Last question on service business. You mentioned also there that you are not that the margin is not satisfying. If we look at the comparable numbers, you already made EUR 3 million more in revenues, but the margin went down. Where's the problem in the service business that you are not able to transform more revenue into more earnings?
In the service business, we are suffering from underutilization of the service organization, globally speaking. As we are short of certain skills, namely in project management, we have a significant spend for external consultants. The utilization thing is a complex project assignment process. You have seen our split of headcount. It's more than half of the company in consultants. To make sure that the available skill and the demand on the project really match, we need to improve the system and the process, mainly the system that is behind it significantly. We are working hard on that and making good progress.
Okay. Thanks.
Thank you.
Next up is Yannik Siering from Stifel. Over to you.
Thank you. Hi, good afternoon. Thanks for taking my question. I would have two follow-up questions. The first one would be on customer demand for large data migration projects. Could you maybe talk about that? Do you see a change also in the organization in terms of being a partner ready, let's say? Then the second question is on other operating income. We saw an impact from the reversal of provisions. Is there any other meaningful effect that drove the rather high result of EUR 2.4 million? Thank you.
Maybe, Yannik, thanks for the question. This is Jens Amail. I take the first one with two sub-bullets. Yes, we do see a strong demand in the market for data migration projects driven by our standard market drivers like, merchant acquisitions, moves to the cloud. We see particularly now the S/4 wave kicking in. We do see a strong demand. We are working to the secondnd questions you had here. We are working on the partner readiness on our organization. I think we made good progress getting partners energized and focused on us and making strategic decisions to go with SNP. Now we're working very hard, and I mentioned two examples with Accenture and IBM to develop jointly core staff from both organizations scalable infrastructure.
We are on it as we speak.
On other income and expenses, the main decisive driver is Forex.
Okay, great. Thank you.
Thank you.
At the moment, we do not have any further questions. If you would like to raise another question, please press nine and star on your telephone keypad.
We would say we have no further questions. Thanks participants for the participation. As you know, investor relations afterwards for questions is more than happy to answer these. With these closing words, we want to come to an end and say goodbye and stay healthy. Bye-bye.