Ladies and gentlemen, welcome to the SoftwareOne Q1 2024 Trading Update Conference Call and Live Webcast. I am George, the call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anna Engvall, Head of Investor Relations of SoftwareOne. Please go ahead.
Good morning, and thank you to everyone for joining SoftwareOne's Q1 2024 Trading Update. I'm Anna Engvall, Head of Investor Relations at SoftwareOne. Joining me today are Brian Duffy, our CEO, and Rodolfo Savitzky, CFO. In terms of agenda, we will kick off with a summary of our Q1 2024 Trading Update presented by Brian. Rodolfo will then take us through our financial performance. We will finish the session with Q&A as usual. Before handing over to Brian, please let me draw your attention to the disclaimer regarding forward-looking statements and non-IFRS measures on slide three. With that, I will hand over to Brian.
Good morning. I'm pleased to welcome everyone to our Q1 2024 Trading Update. Before diving into our Q1 numbers, I would like to recap on our updated strategy, Vision 2026, which we presented three months ago at our Capital Markets Day. With Vision 2026, we will drive accelerated growth, margin expansion by leveraging our value proposition, pursuing strategic growth opportunities, and sharpening execution. On today's call, I'll detail the significant progress that we've already made in Q1, including laying the foundations for our cutting-edge go-to-market transformation. Coming back to Q1 results, we delivered solid results in the first quarter against a backdrop of uncertainty in the macroeconomic environment. Revenue for the group was up over 7%, driven by demand for digital transformation.
The breadth of our portfolio and our focus on mission-critical, fast ROI offerings continue to address our client's priorities around software, cloud, data, and AI. The adjusted EBITDA margin was 18.4%, up 1.8 percentage points, which is a material improvement compared to last year, supported by a continued focus on operational excellence. Looking ahead and based on year-to-date performance, we reiterate our guidance for the year of 8%-10% revenue growth in constant currency and an adjusted EBITDA margin of 24.5%-25.5%. Now, taking a look at the regional performance, EMEA grew by 3%, driven by good momentum in Southern Europe, Benelux, and CE, particularly within our services. APAC delivered a strong quarter with growth over 14%. Meanwhile, North America, under new leadership, was up by an outstanding 26%, supported by several large customer wins in the region.
As we emphasized in February, North America is a priority market for us, and we intend to continue strengthening our organization in the region to ensure we have the right capabilities to succeed there. LATAM grew 4%, delivering a second quarter of positive growth on the back of leadership changes in 2023. Turning to our business lines, SoftwareOne Cloud Services delivered over 10% revenue growth in Q1. Growth was driven by strong momentum in AWS and Azure Cloud Services, as well as software sourcing and portfolio management. Legacy services continue to impact growth in Q1 but have now reached single digits in absolute revenue terms. Software and Cloud Marketplace was up nearly 5% in Q1. Microsoft billings reached $4.3 billion, up 6% year-over-year, which translated into revenue growth at a similar level.
In other ISVs, momentum improved slightly in Q1 compared to Q4 2023. We continue to believe there is a significant opportunity to cross and upsell our broader portfolio across our installed client base. In Q1, we prioritized a set of ISVs and began assigning global partner managers to work with these partners to build joint business plans, go-to-market programs, and shared targets as a means of driving profitable growth through improved portfolio penetration. Now, as you know, in January this year, Copilot availability was expanded to all customers. Based on our early client engagements last year and our first-to-market offering, we've been able to hit the ground running with great results so far.
As of the end of Q1, we have over 325,000 Copilot users and have delivered over 325 services engagements, helping clients understand use cases, quantifying their investment and ROI, addressing data security and compliance concerns, and finally, creating effective training and adoption programs for our customers. Now, it's still early days, but we are on track in terms of becoming Microsoft's number one Copilot partner and achieving our $100 million revenue target. A great example is the work that we're doing with QNET. This illustrates how we are supporting clients on their Gen AI journey and the approach many organizations are taking in their adoption of Microsoft 365 Copilot.
QNET is a great company, a global wellness and lifestyle company based out of Hong Kong. We have been their trusted partner for over 10 years, and we've helped them implement 365 and other Microsoft solutions in the past. They wanted to explore with us the potential of Copilot to drive productivity and innovation, but they were also acutely aware of the regulatory and ethical considerations.
As part of our SoftwareOne Copilot advisory service, we delivered workshops to help key individuals gain a better understanding of the capabilities of Copilot and address their concerns. A decision ultimately was taken to start with a small group of early adopters from different departments prior to an organization-wide rollout. This allowed for hands-on experience with multiple use cases and tailored solutions before making a larger investment. In the meantime, we continue to support QNET on their AI journey. Transforming our go-to-market model is key to our ambition to build a world-class organization, which leverages our existing scale and reach to expand market and wallet share in every segment that we operate in.
In Q1, we made significant progress towards a transformed UCM approach based on our new client segmentation and coverage model, with key markets including DACH, North America, UKI, and India up and running by July 1st. Those markets represent 65% of our revenue. This includes the launch of a new digital sales hub in Nashville for North American mid-market segments. This is a digital-first approach aimed at the significant and growing small and medium enterprise segments. Our major partners are absolutely thrilled with this new structure and the opportunity that it presents. We are transforming our approach also in our enterprise and corporate segments, offering them a more personalized, high-touch service to match their significant IT spending and the potential that they represent for us. This is reflected in the large wins that we've seen in North America in Q1.
We have also taken measures across the portfolio to improve commercial excellence, for instance, driving better and faster renewals and pricing adjustments. Our marketplace platform is, of course, key to our transformed GTM, allowing us to drive growth in a scalable way. We continue to see the platform gaining traction. And in Q1, we saw improved KPIs with the number of cloud subscriptions growing to over 34,000 and LTM gross sales increasing to CHF 668 million. In 2024, we plan to expand our platform by launching a self-service vendor portal, introducing new self-service transactions for clients, and streamlining SoftwareOne's operations for increased efficiency and growth.
Additionally, with the release of version 2 of the marketplace platform in May 2024, we've enhanced subscription management and ordering modules, supporting the latest Microsoft and Adobe models, and laying the foundation for further improvements later this year. To conclude, I'll say that it's great to see how much we have been able to progress even in the short three months since our Capital Markets Day. There is a lot of work to do, but this progress gives us the confidence that we will deliver on our Vision 2026. On that note, I will now hand it over to Rodolfo to take us through our financial performance.
Thank you, Brian. A warm welcome from me as well. Let me start by taking you through our financial performance at group level. Revenue growth in Q1 was solid at 7.4%, with all four regions in both business lines contributing to this result. We continue to see the positive impact of the operational excellence program on our costs. While revenue increased significantly, delivery costs decreased by 1% in constant currency as we successfully continued to optimize our delivery network. This resulted in a 2.7 percentage point improvement in contribution margin, more than compensating for the impact of portfolio mix. SG&A expenses grew by 10.3% as a result of investments in our sales force and marketing, in particular in the U.S., to reignite revenue growth momentum. It was really great to see that this is already translating into improved performance in North America.
Adjusted EBITDA margin was 18.4%, up 1.8 percentage points, a strong development, particularly as Q1 2023 already reflected a normalized cost base. With the strong Swiss franc, foreign exchange headwinds had a significant impact of around 4.3 percentage points on revenue growth for the quarter. However, given our natural hedge with similar exposures on OpEx, the impact on adjusted EBITDA margin was negligible. The year-on-year development of adjusted EBITDA is shown in the bridge, illustrating how we draw margin expansion through revenue growth, productivity improvements, and reinvestments in the right areas. Starting with delivery costs, we continue to improve productivity by reducing higher-cost external resources and bringing capabilities in-house. In sales and marketing, the increasing costs predominantly reflect the investments we've made in North America and an increase in our marketing activity.
For admin, we kept headcount flat while continuing to transition resources to our lower-cost shared service centers and investing in IT systems. Moving on to the business line view, growth in services was driven by cloud services and software sourcing and portfolio management. We reported a materially higher contribution margin at 42.1% of revenue, up an impressive 5.8 percentage points compared to prior year. SG&A increased by nearly 25%, driven by investments in business development executives to drive growth, translating into an adjusted EBITDA of CHF 4.4 million and a margin of 3.6%. Marketplace revenue growth in Q1 was 4.6%. Microsoft grew mid-single digit, while quarter-on-quarter momentum in other ISVs improved. We expect higher growth in the coming quarters as our GTM or go-to-market transformation progresses. The marketplace contribution margin was 86.1%, improving by 1.2 percentage points while SG&A expenses were broadly flat.
Adjusted EBITDA margin was 46.1%, up 3.6 percentage points versus prior year. It is worth pointing out that the EBITDA margin for the business lines may fluctuate quarter-to-quarter as SG&A is allocated based on a combination of contribution margin and revenue. But, of course, group EBITDA margin is unaffected by these allocations. It is now over a year since we initiated our organization-wide operational excellence program to drive efficiency and effectiveness. Thanks to the outperformance of the program in 2023, we raised our target cost savings from CHF 50 million to cumulative CHF 70 million for 2024. We remain firmly on track on the initiatives we outlined, including, importantly, our go-to-market transformation. For our services delivery, developing modular and standardized service packages continues to be a focus area. Meanwhile, in marketplace, we're ultimately aiming for end-to-end process automation.
On the right sizing of our support functions, we have scaled up the HR service centers, leveraging Workday, which went live a few weeks ago, and are completing the transition of finance organizations to shared service centers with around 30 more countries transitioning this year. In Q1, we achieved around CHF 7 million of additional cost savings, implying that we are on track to reach our cumulative CHF 70 million target this year. We plan to report the final savings and related costs with our half-year results in-house. As Brian already mentioned, based on our Q1 result and a stabilizing market environment, we remain confident in achieving our guidance for the year, which is 8%-10% revenue growth in constant currency and an adjusted EBITDA margin of 24.5%-25.5%.
Given the implementation of the go-to-market transformation in Q2, we foresee similar growth in Q2 as in Q1 and an acceleration of growth once the new sales organization is fully in place. Likewise, we expect savings associated with the go-to-market transformation and increased delivery cost efficiency in the second half of the year, translating into a higher improvement in EBITDA margin in the second half. I'll now hand back to Brian for his closing remarks.
Thanks, Rodolfo. As we progress through Q2, we continue to focus on executing on Vision 2026. I'd like to conclude by highlighting three points. Firstly, we have delivered solid results in Q1 with revenues of 7.4% and a strong adjusted EBITDA margin of 18.4%. Implementation of Vision 2026 is progressing as planned, and we're successfully capitalizing on strategic growth priorities, including Copilot. Finally, very importantly, we are sharpening execution through our go-to-market transformation and operational excellence initiatives. Now, with that, let's move on to Q&A.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets while we eventually turn off the volume from the webcast. Anyone who has a question may press star and one at this time. Our first question comes from Woller Knut from Baaderbank. Please go ahead.
Yeah, good morning. And thank you. Just a couple of questions to start with. When we look at the cost for the go-to-market restructuring and also determination of the vertical cloud solution MTWO, can you give us some color here what to expect in the coming quarters? Is the determination cost, are they now over with Q1? And also, what should we expect for the restructuring in the coming quarters? Looking at North America, where you saw already first green shoots of your initiatives that you have taken to accelerate growth, are you confident to be able to maintain this growth?
And can you give us some color which kind of solutions the new large customers adopted? Has it been mainly Microsoft or other solutions? And then just the final one, looking at the continuation of operational excellence, is that required to achieve the target of achieving approximately an adjusted MDA margin of 28% in 2026? Thank you.
Okay. So I will take the North American comment, that question, and then I'll turn it over to Rodolfo on the first and your last question around operational excellence. Firstly, thank you for the question. Maybe before diving into North America, let's put this in context a little bit. As part of the go-to-market changes that we have implemented since 2023, we have made a series of changes. We have had a CRO who has joined us in January of this year. We have had a Chief Partner and Strategy Officer that has joined us in January of this year, and we are seeing the impact that they are already having. We made a leadership change in Latin America last year, and we called out the positive momentum in Q4 and, again, movement in the right direction in Q1.
In North America, as you know, we had a leadership change and obviously have delivered very impressive results of a 26% increase. This is on the back of numerous changes that we have made, both in terms of the segmentation model, our coverage model, and also the large deals that we secured in Q1. North America is the largest software market in the world. We are continuously focused on how we can penetrate that market. As I called out, we are investing in Nashville because we have a large SME segment for us to go after, and we will continue to focus on making the right investments in North America to accelerate our growth.
Specifically on Q1, we had large wins both on the marketplace side and also on the services side, not only related to Microsoft but also related to other hyperscalers as well. We will continue to have that multi-cloud approach across the company and especially in North America as well, given that most of our customers are no longer one hyperscaler shop. Instead, they are a multi-cloud. With that, I'll turn it over to Rodolfo.
Thanks, Brian. Hi, thanks for your questions. Let me start with the last one because that provides the context for the first one. So operational excellence, as you all know, we started the program or we started the implementation of the program back in 2023. We outperformed in terms of delivering our savings target or our savings results against the target. We achieved CHF 47 million savings against an initial target of CHF 15 million. The idea was to get to a level of savings of CHF 15 million this year. With the outperformance, we increased the level to CHF 70 million. And already now, in quarter one, we have achieved 7 incremental, right, over the 2023 base. If you analyze it, it's like CHF 28 million for the year.
And what we will do is report the numbers at the end of quarter two. So with the H1 results, see where we are in terms of savings. In terms of restructuring, we have booked CHF 4 million for these operational excellence programs. We believe there will be some minor additional cost associated with these. And then we would like to close this program. Now, your question was to get to the approaching 28% margin target. Do we need to continue with operational excellence? And the answer is absolutely yes. You saw it in the presentation at the capital market day. We need to continue to control cost, improve productivity because operating leverage and operational excellence, meaning continuing to drive productivity, should be part of our business model.
But as such, we will not necessarily have a program that we are specifically tracking year by year or quarter by quarter. As it relates to what is coming up next is the go-to-market transformation. This is a big initiative. Brian already went through it in detail. Here, we expect the implementation in the key markets by Q2 and then continue rollout so that the implementation is fully in place beginning on 2025. Here, you see some initial cost. We will confirm savings and costs associated with this program by quarter two, again, with the H1 results. Maybe just one final comment on the restructuring. The other one you referred to, which is the discontinuation of the M2 line, this is pretty much the last restructuring expense associated with that.
Thank you, Brian and Rodolfo. Just a quick follow-up, Rodolfo. I understand that you will disclose the detailed numbers on the restructuring in the coming quarters. Just from a tendency, do you expect them to move up from Q1 levels or rather to decline or remain the same? Thank you.
Well, as mentioned, we will provide the full picture of the go-to-market transformation with Q2. I don't want to anticipate that. Of course, the implementation is happening as we speak. So these are the Q1 numbers. So we will already see some of the additional restructuring costs happening during Q2 since we're covering over 60% of our revenue with the programs that will be ready by July. I think Q2 will give us a good indication of where we stand in terms of restructuring. I would say I don't want to speculate too much. Probably the number would be a bit along the lines of what we're seeing in Q1, but we will confirm in July or in August when we report.
Excellent. Thank you, guys.
Thank you.
Our next question comes from Michael Briest with UBS. Please go ahead.
Yes. Good morning. Brian, I recall after the full-year results when we were talking about Copilot adoption, you sort of said there was a lot of workshops going on, but it felt like it was going to be gradual. That 325,000, is that sort of in line with what you were talking about then, or has there been an acceleration? Can you just remind us the timeline for delivering on the sort of CHF 100 million opportunity? And then a question on the sort of bid split situation. Can you give an indication of how many bidders, potentially, if any of these names have been involved previously, and are they at the due diligence stage? Are there any strategics, or are they all financial bidders? Thanks.
Thanks, Michael, for the question. So firstly, as I said, we have had 325 services engagements with our customers and 325,000 Copilot users we have sold. And two, as a reminder, Copilot, as you know, was made available mid-January. So those numbers are from January 15th through March 31st. So obviously, 75 days effectively of trading. We made our first sale in terms of a Copilot customer within 72 hours of availability of Copilot. We are very happy with the traction that we are seeing, especially on the services side. And it is still very early to tell given that we have had, let's say, 75 days of trading with Copilot. But the level of interest from our customers is high. The level of engagement that we have with our customers from a services perspective is high as well.
We expect to see continued traction towards reaching our 100 million target. On your second question, as you saw in the press release, the board has established a transaction committee, which is chaired by Till Spillmann. All board members are members of that transaction committee. This has been set up to ensure that we will have an orderly follow-up to any inquiries which are going to be made. At this point, we can't disclose how many bidders there are and if some of them are parties from the past either, as you can imagine. But when we have any updates, we certainly will be providing those updates to the market. As a reminder, this committee is made up of all board members, including the new independent board members as well.
Thank you. And just to follow up on Europe, I think you called out Southern Europe as being strong. So by implication, is sort of DAC and Northern Europe weak? Was it sort of growing or negative growth?
In Southern Europe, we had strong traction specifically around our services business as well. This is related to Microsoft and the other hyperscalers as well. Specifically in DAC, we had a tough year-over-year compare. There was no negative growth specifically in DAC. We don't disclose the DAC numbers per region. We did have, as I said, a tough year-over-year compare, but nothing which is a red flag for us for full-year guidance at this stage.
Okay. Thank you.
Our next question comes from Balajee Tirupati with Citi. Please go ahead.
Hi. Good morning. Thanks a lot for taking my questions too from my side, if I may. Firstly, could you elaborate on the board's engagement on the business side, and how should we see the comment in view of accelerating the transformation and growth plan? And the second question on the ISV, while the momentum has improved versus fourth quarter, it is still under the double-digit growth rate we have seen in the past. Should we expect the momentum to continue to increase towards double-digit growth in the second half of this year? Thank you.
Sure. Thanks, Balaji, for the question. So I'll take your second one first, specific to the ISVs. In Q1, under the leadership of Bradbury, our Chief Partner and Strategy Officer, we prioritized a set of ISVs. We began assigning global partner managers to work with these specific partners to build joint business plans, go-to-market programs. We have shared targets between ourselves and those key ISVs to ensure that we're going to be driving profitable growth for both sides. We are making considerable progress in that. And again, we have prioritized a set of partners out of the 7,500 partners. And to give you a little bit of context, that is approximately 15 partners in total globally that we have prioritized. We expect to see an uptake and an impact given the focus and drive that we have there, specifically in the second half of the year.
To your first question, we are, as a board and an executive board, very happy with the engagement that we have with the board. Obviously, we have some founding board members who have returned and who know the business very well. We have been spending time with the new independent board members to onboard them and to give them a better understanding of the business as well. But again, the conversations and the dialogue have been very productive. We look forward to working in partnership with the board to accelerate the transformation and growth of the company as well.
Thank you.
Thanks, Balajee.
Our next question comes from Martin Jungfleisch with BNP Paribas. Please go ahead.
Yeah. Hi. Good morning. Two questions, please, from my side. First one is just a follow-up on the growth in Europe. I mean, it was quite soft, 3% in Q1, and it's a bit decelerating. Your peer, Crayon, has reported quite solid growth there in Q1 and also talks about market share gains. So is the softer Q1 mainly relating to market weakness and higher comp base in certain markets, or do you have a sense that you are also losing some market share there to smaller competitors? That's the first one. And then just a follow-up on Copilot. The 325,000 that you're talking about, is that sold licenses, or is that users you're managing? And then you mentioned that you're on track to become the number one Copilot partner. Is that already the case that you're number one, or is it your aspiration? Thank you.
Thanks for the question. So I'll take the Copilot one first. You had mentioned our peers, our callers, that I believe were the only player here who's actually calling out our numbers. And you can read into that specifically around Copilot what you would like. But 325,000 licenses is what has been sold. 325 services engagements is what we have. We are well on track given the traction that we see with our customers. Next week, we will be in Seattle meeting with the Microsoft executive management team, specifically underscoring our commitment and our plans to accelerate around Copilot. So very happy with the traction that we have and very much on track.
And then specifically to your question around Europe, there is nothing per se showing pressure from other peers in the market specifically. As I called out, we did have a tough year-over-year compare in DAC. DAC is the larger part of our European business. DAC is now currently under new leadership as well since the beginning of this year, but nothing which is a red flag to us in terms of, one, competition and secondly, overall market sentiment.
Any other comments? Mr. Jungfleisch?
No. No. That's it from my side. Thank you.
As a reminder, if you wish to register for a question, you may press star and one. Our next one comes from Joe George with J.P. Morgan. Please go ahead.
Yes. Hi. Morning, guys. Thank you for taking my questions. I've got two from my side. Firstly, Brian, could you please give us more of a top-down view with regards to what you're seeing on the discretionary side of client demand? A number of IT service peers have reported still muted demand here. I'm just keen to get your view on what you're seeing and also expectations as we move towards H2. Then secondly, Rodolfo, just noting the CHF 8.4 million spent on sales and marketing through Q1, could you just please help us with how this investment will continue through FY24 and how this will be phased through the remaining quarters of the year? Thank you.
Hi, George. Good to hear from you again, and thanks for the question. So specifically regarding discretionary spend, my view is there are the solutions which are the must-haves, and there are the solutions which are the nice-to-haves. We are fortunate that we're in a position where the solutions which make up the majority of our business are the must-haves for our customers. So we are in a very fortunate position compared to other players. So I would say that given the broad breadth of our portfolio, we're well positioned to navigate through some of the uncertainty. And then specifically for us as a team, where we are focusing our energies is around our portfolio, our go-to-market, our segmentation, and the execution specifically around that to ensure that we will deliver for our customers and partners. And then I'll turn it over to Rodolfo.
Yes. Thanks, Brian. Hi, Joe. On the sales and marketing, let's say, year-on-year increase that you see in the waterfall, we had. So first of all, the key program for the year is the go-to-market transformation. We expect to have implementation in place, as I said in one of the prior questions, by the end of Q2 for roughly over 60% of the market or 60% of our revenue. Therefore, we will start seeing the impact in terms of growth, most importantly, but also in terms of sales force productivity. That will translate also indeed when we do the bridge, let's say, in quarter three. You will see the impact of that. As I said, we expect some productivity out of the program.
Now, more concretely here, as I mentioned, the number reflects some increases in sales force, particularly in North America. So some of that will remain. Let's say it's probably roughly 40% of the number. And then the rest is a combination of increases in other markets that may adjust over time and some one-time marketing expenses that we typically see at the beginning of the year. Among others, we have our sales conference but other marketing investments as well. Now, while I mentioned that some of these costs will be recurrent, what you will start seeing, particularly quarter three and forward, is the productivity measures. And I'll provide more color on that with the H1 results.
Great. Thank you very much, both.
Thank you.
Our next question comes from Rolf uncertain with AWP. Please go ahead.
Good morning, gentlemen. Thank you for taking my question. I'd like to come back to the approaches received by several parties and the update you're willing to give us later. My question would be, when do you think will the transaction committee have its job done? So within what time frame are we expected to get an update by your side? Is it something with weeks, months, before end of year? Just get some more color on that.
Sure. Thanks for the question, Rolf. So obviously, the transaction committee has just recently been established. I'll just clarify my earlier comment. This is under the Chair of Till Spillmann. The transaction committee is made up of only the independent board members, so excluding the founders, just as a clarification on my earlier comment. It's established to follow up on any inquiries that are received. They will handle those, and they will handle everything in a timely manner. When we have a material update, we will provide that update to the market.
A timely manner. Months?
We can't comment on how long that will take other than it will be completed in a timely manner.
Okay. Thank you.
Our next question comes from Reto Huber with Research Partners. Please go ahead.
Yes. Good morning. And thank you for taking my question. Just one for the housekeeping left. The CHF 16.6 million one-off cost or, let's say, adjustments between the IFRS and non-IFRS profit figure, how are those CHF 16.6 millions distributed among your IFRS accounts?
Well, so thanks, Reto, for the question. I think we will need to go, I would say, one by one. So when we think about the IFRS accounts, we divide them in personal expenses and non-personal expenses, broadly speaking. When we go to topics like integration, M&A, and earnout expenses, the majority really is associated with earnouts. And because the earnouts typically have a retention component, then under IFRS, they are classified as personal expenses. So that's one. Operational excellence restructuring, again, the vast majority is separations. So that will also be, let's say, probably two-thirds would be under personal expenses. Of course, in some of these programs, we are working with advisors, right, who are helping us manage the program. So a small portion of that would probably be non-personal expenses.
And then as it relates to go-to-market restructuring, it would be the same. The discontinuation of the M2 the same as operational excellence. Then the discontinuation of M2 vertical, at this stage, is again, we were pretty much separating the team who was working in this particular unit. So the vast majority is that. And then a few are write-offs of some customer contracts that we will not continue anymore. But this is really minor. So I would say if I had to summarize the 80/20, 80% will be in personnel expenses.
Okay. Very good. Thank you.
Our last question is a follow-up from the line of Michael Briest with UBS. Please go ahead, sir.
Yes. Just on North America, Brian, I know you were talking about M&A opportunities there. If there's anything you can add. And also, I mean, presumably given the situation today where you're saying that there's, again, bidders involved, how can you reassure us that that doesn't stall your M&A ambitions in North America? If I was the owner of a business, I'd perhaps be reticent about selling it to a company if I don't know who's going to ultimately own that. And then Rodolfo, just on free cash flow, I know there's a lot to be done in the last month of the quarter, but is there any indication you can give us yet on where free cash flow might come out for the first half? Thank you.
Sure. So Michael Briest, I just reiterate that, again, we're very excited about the opportunity in North America because, as it currently stands, we're underpenetrated in North America, which is why we're prioritizing our investments in North America in the right areas, like I called out around inside sales, which is going to be a game-changer for us. And already with a couple of months under our belt, we already see, let's face it, a massive impact already. And we are, obviously, as we had said before, looking at M&A.
We are prioritizing North America again given the market potential that exists there. This is where we need to balance doing the right thing for the company and positioning it in a good position and collaborating with our board as well while we go through the process that we're going through and we navigate through these waters together with the board. Rodolfo?
Yes. So Michael, during these quarterly updates, we don't discuss cash flow. And I will nonetheless give just an indication. As you know, the main driver of our cash flow evolution is net working capital, which continues to be a key focus area for us. I would say the terms that we grant customers and vendors remain pretty much unchanged. And then, of course, as the business is growing, as you have seen, and you have our guidance for the year because there's some marginal increase in working capital associated with the higher revenue volume. So the expectation would be that the working capital terms broadly remain unchanged, right, and most importantly, in sync between payables and receivables. And then there would be some variation associated with the volume of the business. But we'll discuss that for sure with our half-year result.
Thank you.
Thanks, Michael.
Ladies and gentlemen, this was our last question.
Great. Thank you. Thank you, everybody, for your time. We appreciate it.
Thank you.
Bye-bye.
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