Good afternoon, ladies and gentlemen, and welcome to the SNP Schneider-Neureither & Partner conference call regarding the first quarter results 2022. 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 hand the floor over to your host, Marcel Wiskow.
Yes. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you very much for accepting our invitation. This morning, as you have seen, we have published our Q1 numbers for the year 2022. The interim report, as well as the press release, can be found, as always, on our website in the section Investor Relations. With me in this call are Michael Eberhardt, our Chief Executive Officer, Thorsten Grenz, our new Chief Financial Officer, and Gregor Stöckler, Chief Operating Offiicer. With these introducing words, I would like to hand over to Michael.
Thanks a lot, Marcel, and also a warm welcome from my side to this analyst call. We have split the next 45 minutes in three sections. I will give you a short overview about our performance in Q1. I hand over to Thorsten. He will give you all the financial outlook and the financial statements, and then Gregor will do the outlook for, let's say, the rest of the year and what we plan to do going forward. Let me start with the overview. When we look to our result in Q1, I think it's an overall a positive message, and let's say a couple of challenges, but nothing which is really concerning.
When we start with an order entry point of view, the very positive side is I think Q1 was the quarter where we have now a clear proof of concept that our partner's business is scaling as we expected. I will give you later on a couple of examples. We had a 50% improvement year-over-year on the partner side. This is really not only caused by one partner, but by the global partners as well as the local partners at the same time. On the other side, our order entry goes down by 16%, caused primarily by the deconsolidation of our Polish business.
When we look for like for like, we have a - 3%, which is primarily caused because we had a solid, let's say, pipeline, and we had a very solid order entry on the project base. We see that the customers in the meantime, specifically after all these challenges on the logistics side and also the Ukraine crisis, they are not prepared to do long-term strategic decisions. That means our platform business is still up. We signed one bigger deal in Q1, but we see that the customers are moving to, let's say, shorter cycles and smaller deals.
I think this will stay maybe at least for the next couple of months, which is not, let's say, risking our guidance, but we need to manage the business more closely along smaller projects. The group revenue went up by 24% compared to the previous quarter. The good thing is we see, let's say, a really strong demand by the direct business, but also by the partner-driven business, which is totally positive. The EBIT we achieved EUR 1.1 million EBIT in a traditional weaker Q1. When we compare to the history, I think this is the first time since six years that we start with a positive quarter, which was one of our main target that we start 2022 positive.
Our aim is to be very positive in all, in each single quarter, which is as important to stick to our guidance and to demonstrate that this company has a healthy structure. Our software revenue increased by 25% due to high demand for software license. What we mean software license here, we mean our own software. This is not a reselling of SAP license, but SAP license. Besides this, we also sold EUR 2.6 million with partners to customers, which we could not show in our financial results because they were already shown in previous periods. We again confirm our guidance, there is no need to change.
We also have a solid pipeline for the rest of the year of more than EUR 500 million unweighted. The good thing is also the mix is relatively healthy because 40% of the pipeline comes really through partners and our partner business. If we go to the next slide, this slide demonstrates to you the growth of our partner order entry business. Let me just only compare Q1 2021 against Q1 2020. This would be a 91% growth. If we do the same for Q1 2022 compared to Q1 2021, again, we grow with 59%, which is great.
I promised you to give you a couple of examples, what we achieved in Q1. Let me start. I have just picked 15 examples, which we did in Q1. We signed the second tranche of the service business with Fujitsu on the Mitsubishi Heavy Industries. We signed a very nice deal with KaaIoT Technologies. It's a Japanese JGC partner in Saudi Aramco in the Middle East, and we already started to implement this project. We signed a nice deal here in Germany and at Vorwerk together with Cognizant. We signed a deal with Bitzer, also a Swabian company, here with All for One. We signed NXP, the semiconductor business with TCS. We had Stadtwerke Mainz, which is a utility company, together with Scheer.
We signed Carasso with IBM. With Accenture, we signed Daimler and a couple of other deals. With delaware, we signed a very nice Anheuser-Busch one of the nicest win in this quarter because we really demonstrated the strengths of SNP. We sold not only transformation but also Glue and also a couple of other Data Vault products at one shot. We had a partnership with Swisscom. We had Bionorica with msg, a Munich company. We signed a deal in the U.S. with Eastman Kodak with Nimble. With IBM, we signed Pfizer in the U.S. it's a proof of concept, but this will lead to a very big opportunity.
With SAP again, we signed a deal with Klingele, this retail company. With MHP, we signed a deal in the U.S., which was a German company, REHAU, in the U.S. but also, with MHP, we signed Porsche. This is just, let's say, an extract of what we have achieved in Q1 together with partners. I think that not only the number, but also the mix between global partners, local partners, different industries shows that our services and our software echoes very well in the partner organization. We have even already increased the number of people in the factory, for example, what we did together with Accenture.
If we look to the next slide, please, you see a healthy order entry in most of the regions as well. I think still Central Europe is dominating. In total, the book to bill, what I said before, is also something which is not, let's say, exciting, but I think this is the good thing is we will generate order backlog with our platform deals, with the Prokom license, what we have presented to you in the history as well. We signed, for example, a very nice platform deal with Deutsche Post DHL, which is a great part.
Most of the customers where we are in contact, they signed in the meantime single projects, but they said, okay, in the time given, with all this, let's say unknowns in the market, they stick to, let's say, separate this and do this more in smaller steps. That means this will not hit us on the revenue side, but I think today is not the time to build up a, let's say, a long-term order backlog in a significant way. As long as we are positive from the book to bill, I think we can manage this business in a healthy way. In all the regions besides UK&I, you see a good balance between order entry and revenue. In UK&I, we just had a review yesterday.
I think this is not concerning. We had a very nice win in Q4, and the pipeline for the rest of the year looks very solid. I guess that we will see this trend. Business will be a slightly, let's say, more scaled down to smaller projects, but overall the demand is great on all areas. The carve-outs are running, move to the clouds, this business is running, data management, analytics. Glue is very interesting for our customers to get, let's say, easier access to real data, which they need to do to manage their analytics.
Also the S/4 migration business is slightly accelerating, and we see a lot of customers are preparing, and we see more and more RFPs coming from partners towards the big customers to move the whole business or at least partly to S/4. If you go to the next slide. On the partner side, as we said before, we had with almost all partners, we are in a close partnership. We have seven out of the ten biggest largest IT consulting companies. We are in a real partnership. That means, we have a pipeline. We have a cadence of management meetings. We have a governance behind, and we sign deals. This is a living partnership with all of them.
With Accenture, we have set up this factory. We announced this, I think, already a couple of months ago. We already signed so many deals that we have injected additional people to really handle the work what we have signed together. Just recently, we got the announcement that we do the carve-out, for example, of the T-Systems SAP systems for Deutsche Telekom together with Accenture in this factory. We have new partnerships implemented also with PwC in LATAM and U.S. for example, with Deloitte in U.K. and in U.S. both are, let's say, Big Four. That means it's a traditional partner business. There is not a worldwide responsibility for this kind of partnership.
That means we need to do this, region by region, country by country, partner by partner. This is really working. To be recognized when we go in and we sign the first deal, then the organization wakes up. That means the internal communication from partner to partner in those organizations is working pretty good and supporting our business going forward. Since the second half of 2021, I think we communicated this last time already. We have decided not to do any upfront deals anymore with partners. We do upfront deals with customers, which is, for example, a platform deal, but not with partners.
That means, we only will show the revenue when the software hits the end customer, so that we are in the projects and there is no volume part on the partner organization. Then we make progress with the cross enablement between Datavard and SNP products. The Datavard name will disappear, but we really change the organization in a way that we focus now really besides, let's say, getting transformation business acquired. We focus also on land and expand or on share of wallet for each single account. That means our people are incentivized to do cross-selling and to really sell the product SNP portfolio to our customers. I think we said already the order entry with our partners increased by 50%.
In total, we are really happy with what we have seen in Q1 in this area. 36% of our group revenue comes through the partners channel, and 37% of the group order entry is coming from partners. That means we are on the way, as we said last time, to be, let's say, to achieve 40%-45% partner business hopefully by the end of this year. This is our aim and, for me, the even more important part is we have a healthy mix. We are not depending on one partner or two partners. We have, I would say, three, four hands of partners which are doing business with us on a regular basis.
If we go to the last slide, I think you see here our partners which we have on a worldwide basis. We split this into partnerships. We split this into technology partners on one side. You see the SAP, Microsoft, AppDynamics, which is a former Datavard partner. Yeah, for sure the hyperscalers are very important, but also now Snowflake when it comes to Glue and all this analytics part. You see our go-to-market partners, and we split the go-to-market partners in two dimensions. One is the global partners like Accenture, TCS, PwC, Deloitte, Wipro, Infosys, and IBM is for sure, let's say the longest one. We have local partners, which are, for example, All for One, we named several times.
Share is doing business with us in Europe, but locally here in Europe and not globally. delaware or Swisscom. Swisscom a very interesting partner for our Swiss business. I think this really gives us also a better momentum in playing this business, let's say more local to the customer. We've also given the customers a choice with which partner he would like to go. My last slide is regarding people. You see our headcount development. Headcount this is not a dramatic picture. We have 25 people less compared to the end of 2021. Yeah, for sure talent, let's say retain talent, acquire talent, people management, our industry is hot.
I think this is one of the competencies that we need to take as a challenge that people management needs to be one of our professional in this area. I think we really made good progress in the last six months to get the people, let's say, committed to SNP. I think it's also important that we get back to manage profitability as a business, that we grow, that we win new customers. That's all good. Now the challenge is we are, let's say, well utilized, so we need to look at our quality, our service delivery quality, the quality of the software, so that our reputation in the market stays high as it is today.
If we do that, I would say, we should have as SNP a fantastic future in front of us. With this, I hand over to Thorsten.
Michael, thank you. I will guide you through the major numbers of our quarterly report. I will not be reading it line by line, but focus on the major points and specific details you will be asking anyhow, I guess. We reserve as much time as possible for Q&A. For the income statement, as Michael said, revenue is up by 24%, and this strong top line drives all profitability indicators down to EBIT, which is positive for the quarter. That is not usual, has not been usual in SNP for the last years.
The EBIT Michael pointed to the specific situation would have been better by EUR 2.6 million even if the accounting treatment of upfront software revenues from partners in prior years would have not been booked as it has been booked. Then we have realized EUR 2.6 million in revenues. Real sales performance in this quarter that does not go into the top line and not in the bottom line. This gives you the flavor for the earnings power of the company. I think to address the difference between EBIT and EBT, which is a pretty large number. The question is how come?
In fact, there's an interest expense, ordinary interest expense of EUR 0.45 million in there. So the lion's share of EUR 1.4 million is economically a dividend. A dividend paid out by EXA to EXA shareholders. Now the situation, the ownership situation with EXA is that we are considering and we have to consider EXA already a 100% participation, despite we do not control a 100% right now. But the gap is closed by binding and unmistakable corporate constructions so that it is a 100% certain that we will own the company at a 100%. In this situation, a special accounting treatment kicks in. That is IAS 32.
The detail is found in point 35 of this standard that defines that in this situation you can't pay a dividend within a group. The number has to be treated as an expense in the interest line. EUR 1.4 million of this EUR 1.9 million difference is the dividend paid to EXA shareholders. As this is an annual dividend, it is also clear that the following three quarters of 2022 will not be affected by a similar impact. What happens in the next year in 2023 will be decided then.
I want also to point, going back, to EBIT that the P&L includes a positive Forex impact of EUR 1.6 million that is mainly attributable to the strong dollar in the relevant time. The personnel expenses have risen also because they have absorbed a settlement compensation of EUR 0.6 million. Brief look at the software segment. Revenues are up by a quarter and EBIT has more than doubled. The software segment is performing nicely. Revenues in the service segment up 20% and EBIT has turned positive in this quarter driven by utilization of the service organization, mainly. EXA our third segment.
Small numbers, but needs some explanation, mainly because why is EBIT declining in the light of increasing revenues? The analysis has shown that the structure of the business of EXA in the first quarter of this year is very different from prior years. It contains a significant number of proof of concept projects, which mean there's little revenue in these projects. But they have already absorbed all the costs for setting up new people and for setting up the project structure. Looking at the full year, we can confirm also for EXA that we strongly believe that we are confident that they will make the numbers as budgeted. Order entry.
Michael at the beginning has already pointed to this development and the reasons behind it. I would like to add, looking at the order backlog, we see we have a significant and stable order backlog. We have a good basis to match the numbers we have promised and budgeted for this year. Finally, on orders, the reconciliation between the numbers where we started the quarter and where we ended it, and it is a very clear and simple picture. Slight increase because order entry is slightly higher than the revenues realized. Special effects in here are of minor importance. On the balance sheet, I would like to point to only two positions.
On the asset side, we see that total current assets have increased. This increase is from contract assets as a direct consequence from the strong revenues that have an impact in here. That is the difference in total assets. The change on the liability side, total current liabilities and non-current liability, it's a switch reclassification after the company successfully placed the promissory note loan. The position had to be reclassified according to the new duration of the instrument. Finally, on cash flow. Cash flow is negative, and it starts.
We have an operating cash flow, which is negative at -EUR 5 million, driven by an increase of our working capital, and this driven by the strong sales performance but higher revenue number. The free cash flow, furthermore, is negative by almost EUR 10 million. The operating cash flow includes, pardon me, the bonus payments for last year that always affects the first quarter heavily. Going then to the bottom line, to the free cash flow, we have also the payment, the outpayments of purchase prices for Datavard and EXA. Well, this so far the brief tour through our numbers.
Thank you very much, Thorsten. Also warm welcome from my side. We have given guidance as part of the Q4 announcements, and we want to reaffirm everything that Michael and Thorsten have led you through. We remain very confident for the remainder of the year that we will be able to stick to the guidance. In detail, the growth in group order entry, we have seen Michael commented on the amount and the challenge that we see in terms of rather smaller project versus larger programs that we have seen in the past two fiscal years. However, that does not impact on the growth of revenue. We confirm the guidance in the corridor of EUR 170 million-EUR 190 million. With a sparkle in our eyes, we see that the plan works out.
On the group EBITDA, same here, we remain with the guidance. We will see the strong growth. You have seen that the first impact is already visible. Michael commented on that best first quarter in the past six years. I think that speaks for itself and needs no further explanation. Group EBIT, you understand that this is one of our key focus points, not only as articulated in the ELEVATE strategy, but also as confirmed to you. Very positive start of the year. Pipeline growth together with the growth in order entry, there is no way other than to smile and confirm this. We will remain in the corridor of EUR 10.5 million-EUR 13 million. The midterm guidance, respectively midterm goals that we published, we remain very positive here as well.
We see potential to grow beyond EUR 230 million. Especially here, the important segment partner and software will be the key drivers and our group EBIT margin is targeted to be 10 percentage points above the last fiscal year's number. As a quick summary, we understand that there is a point number zero on all this slide, which you have clearly articulated to all of us, either in the one-to-ones or in the respective meetings we had. You want to see our good work in the numbers. Yes, we will remain confident that further good quarters will follow, but please see this as an attestation to the fact that we take this very seriously. We remain a global leader and a pioneer in our market. That is the fuel that drives this engine.
The partner ecosystem, I think Michael alluded to that in great detail. We see a tremendous success in the order entry side. Not so much in the onboarding, but that was not necessary for sure with PricewaterhouseCoopers. That was fantastic new partner on board. We see already good traction, especially in the partner ecosystem, adopting the full breadth of the portfolio. So we will be able to expand data management and cloud further. I'm quite sure that as part of the Q2 numbers, we already will see first bigger notable wins that we will be able to announce. Number four, excellent customer portfolio remains.
Michael outlined a couple of names, local champions as well as global heroes, that reaffirms us and gives us a further basis for growth in combination, as we announced in the strategy in the Q4 call, that we will focus on two-dimensional growth. One is acquiring new names directly and via partners, but also remain active through cross-selling and upselling opportunities in each account with a very structured and very dedicated approach. Number five, ELEVATE, the new strategy is in place, works out. We see that this is bearing fruit already, as was highlighted by Thorsten as well as Michael. That gives us enough backwind to realize the midterm goals that we articulated.
With that, we are at the end of the scheduled presentations, and we will be giving back to operator for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. In case you wish to withdraw your question, press nine and star again. The first question comes from Yannik Siering, Stifel. Please go ahead with your question.
Thank you. Can you hear me?
Yes, yes.
Great. Thanks for taking my question. So I've got three basically for the beginning. First one would be, maybe you could provide some color on the start into Q2. Did you already see significant effects from the macro uncertainties besides, let's say, the deceleration of program licenses that was probably already visible in Q1? Gregor Stöckler also just mentioned that there were or there might be some bigger wins in Q2, maybe some more detail on that.
Second, on the rather weak operating cash flow, can you shine some light on the development of working capital over the course of the year? Third, on wage inflation, in the last call, you mentioned that salary increases happen on April first at SNP. That would be interesting, any takeaways from that. Thank you.
Gregor, will you start with one?
Rules of the game. This is the Q1 call. We will not give guidance in detail on Q2. As you can hear from my voice, we remain very confident. We reaffirm our guidance for the full year. More details on Q2 in the next call.
On cash flow for the full year is expected to be positive. It will be mid-sized single digits number. The performance over the course of the year is going to improve. Point taken, working capital impacts on cash flow is a strong point we need to work on.
Point number three was employees and salary package, salary increases. I think on the one side, it's very clear we cannot swim against the market in this area. That means we benchmark the market. We have in almost all regions, we understand the market, let's say, payments to personnel. So we adapt to that one. But to get the cost under control, our answer is not easy, but manageable. The one is to manage the labor pyramid in front of a project. That means having the right seniority in a project attached. The second part is we talked at length about this, DTCs and the shoring kind of things.
That means a significant portion of our growth and headcount will happen in lower cost countries, so in Eastern Europe and LATAM and in India. That's the way how we get the cost under control, but pay when we have people on site in high-cost countries to pay the people according to the market conditions. Okay.
Great. Thank you very much.
Thanks.
The next question comes from Bert Lou, Blackwell Capital. Please go ahead with your question.
Good afternoon, gentlemen. Thanks for taking my question. Mine is related to the product. In one of the recent discussions, you mentioned that there may be arising the opportunity to integrate CrystalBridge with SAP's Signavio software. Can you update us whether there has been progress and if this project is really going to materialize? Thank you.
Yeah. Thank you very much for the question. That is indeed correct. We have formed a joint task force that explores opportunities. We have also received high interest from our two partners to participate in this task force. We are evaluating how to do this. I think as part of the Q2 call, we will be able to give you a more detailed update on how the integration should look and could look in detail. What is already visible is that there is a high interest in the market to get more insights on process KPIs, and hence we think that should be quite a nice combination given especially the rich benchmark database that we have ever since 2010, early 2010.
Thank you very much. Looking forward to the July call or August call.
August.
The next question comes from Wolfgang Specht, Berenberg. Please go ahead with your question.
Yes, good afternoon. Two additional ones from my side. First on the cost side, we are aware that wage inflation is an issue, but what about other cost categories? Do you see scope to lower other cost categories or is, let's say, the organization already as lean as it can be? The second question on the development of the U.S. business, you gave us some indications. We also see the sales in the U.S. Can you give us some more indication regarding the order intake or the order book that you currently see in the U.S.?
Okay. On the costs, of course, the answer to a question, are you as lean as you can be, is always no. It applies in our situation, as well. You have pointed rightfully to the labor costs. That is an important factor in the P&L, but also the other positions. What we are doing or what we have been doing is reviewing all cost items by cost items. There are already savings, as the team presented that, with the full year numbers in March. I make reference to the sponsoring expenses, which are easy hits, low-hanging fruits. We are now looking department by department.
It's not that it is a simple cost-cutting exercise. Definitely not. It's a question of efficiency, and it's a question of value generated by the cost.
It is not the case that obviously and apparently there are too many people or too many other costs on board. The value impact of each cost position needs to be assessed and addressed, and that takes some time, but you will see impact in this business year, certainly.
I want to quickly comment on your question about the US. You've seen the numbers in chart five. We are quite happy with the year-over-year development. That is fine. What remains a strong focus in the U.S. is we have to have a very close eye on pipeline development. Book-to-bill ratio for this quarter is at one, which of course needs further attention. Pipeline is filling up, especially for the second half of the year. We have two very promising bigger deals that are lining up, so we remain positive. As outlined also in the Q4 call, the U.S. remains a market of attention. Everything that Michael highlighted regarding smaller projects versus larger projects definitely applies for the US. We see very careful spending patterns depending on industry.
Of course, oil and gas is on high season. There we don't see any spending patterns at all other than full speed. Of course, the strong markets, retail, consumer products that we are in, chemicals, pharma, we see that there is a tendency in the U.S. to be careful in spending. How much that will impact later part of the year, we will see. Of course, you can be assured that this is a focus point and a point of high attention by all board members.
Okay. Thanks a lot.
At the moment, there seem to be no further questions. If you would like to ask a question, please press nine and star on your telephone keypad. We have one more question coming from Lukas Spang, Tigris Capital GmbH. Please go ahead with your question.
Yes. Hi, good afternoon, gentlemen. I have just one question concerning your other operating expenses, which were up by more than 50%, and in your report you are explaining this with expenses regarding SNP Poland. Maybe you can explain a little bit this topic, please.
Okay. Yeah. Good points, pretty technical. Poland is no longer part of the group and is no longer part of the consolidated numbers. But we still, of course, have business relations with this organization. The costs that used to be internal costs are now external costs.
This will end in the coming quarters or is this a, yeah, still running point for the future?
Yeah, that business point Michael will respond to.
Yeah. It will run by the end of 2023. This is in the original contract. We had volume commitments. It's also on our side because we have an earn-out structure, so it's our own interest to manage this in a very balanced way. We have not decided right now what we do above 2023 because this is one of our digital delivery centers. We are bound until 2023, but at the end of 2023 and then we can readjust if we have better, let's say, opportunities to source innovations outside of the high-cost countries.
DTC is very much for us one of the first experienced organization to deliver services, transformation services in a let's say nearshore center.
Okay. Understood. That's from our side.
Thanks.
We have no further questions from the audience.
Well, if there are no further questions, in the aftermath, of course, investor relations is more than happy to answer questions. With these words, we want to close our call, and we say goodbye and stay healthy. Bye-bye.
Goodbye.
Bye-bye.