74Software (74SW) Earnings Call Transcript

Good evening, good afternoon, good morning, wherever you are in the world. Thank you for joining us for this 74Software first half results presentation. I'd like to remind everyone that, as usual, the forward-looking forecasts and discussions we'll have here today or highlight in the presentation are subject to the usual risks and uncertainties that we outlined clearly in our universal registration document filed with the AMF. I'd also like to make a more broader point. As usual, for those of you that have heard me speak for a while, our business is subject to seasonality. And so the first quarter, first half -- these are good feelings about how we're going for the year, but we still have a lot to do to make the year. And so when we talk and we look out at our business, we're normally looking at the full year forecast. But I'm really pleased how the first half of 2026 has started, and we're going to go through in detail that today. So I'll go ahead and start us off with the highlights and our progress and our strategy of building out 74Software. Then I'll turn it over to Eric Bierry to cover the operational execution of both brands and the overall 74 business and to also highlight a few things on our AI journey. Then Tobias Unger will join us and go through in a lot more detail on the financial results, and I'll close it up and give our closing remarks and open it up for Q&A as well as our guidance. So, with that, I'll go ahead and jump in. So, for the first half, as you saw in the press release, we are really pleased about how we launched the year. It continues following a very strong Q1, and we rolled out into Q2 in a similar fashion. So, overall, our top line revenue improved organically 8.6%. But personally, I'm even prouder to see that both brands are contributing to that growth. And the teams inside both Axway and SBS have just done a fantastic job at launching the year well and really going after it to give us the stability that we can now look out at the full year and have great visibility in what -- how we're going to land for the year. This strong revenue growth has also resulted in a nice first half margin improving from 12% in the first half up to 15.2%. So you're seeing as we're able to grow the top line, we're able to grow the margin as well through continuing to manage and follow our costs and really challenge that our investments in our expense lines are where we want them to be to help us grow our business, but also meet our strategic priorities. And with this good first half and the analysis and the visibility into the pipeline and how the business is trending, we raised our guidance in this press release as well Not significantly, we raised a percentage on both top line revenue and margin, but we are confident enough in how the year will land that we did that, and I'll go through it in the figures in greater detail towards the end of the presentation. So as we built out 74Software and we've faced this wave of the AI wave we're all experiencing now. I'm really happy as CEO at the portfolio we have and the characteristics of both Axway and SBS. And so Axway, as you may know, is providing a trusted data flow integration, trusted data flow movement in a very secure environment. SBS is supporting regular banking and high available critical workflows as well as many other use cases, but all of these are at the core and the heart of the business of our customers. And these customers are often in regulated industries and have very critical data movement or data requirements to run their business that we're a part of. And so that means that our businesses are there in this new environment as a foundational product, helping our customers address where they want to go in this new world. And so that's a great place to be. Most of the products, if not almost all of our products across the two brands play in this world. And as a CEO, it gives me a lot of comfort that we're here for the long term. And so going a little deeper on this, Axway, you could think about as a trusted integration and control layer horizontally for many different industries, whereas SBS is a trusted execution layer for the banking industry. But if you look at both brands and going deeper into the portfolio of both brands, there's very common shared attributes. We're offering with mission-critical software for our customers. This mission-critical software gets deeply embedded in the customers' installed systems and base to run their business. We're able to grow with our go-to-market model, continually increasing our recurring revenue base, which is critical for the long term of 74Software. Our customer relationships, as we've talked about before, aren't for several years. It's often for several decades. So we plan or even longer. We plan to be with our customers over the long term, and our customers are often in these regulated and high-trust environments where it's very complex to trust a vendor to get a vendor in. But once they're in, it's also significant cost and barriers for replacement of what we're doing. And all of that has helped build out what 74Software is. So when you look at Axway and SBS, they have the shared attributes I just talked about. But in our M&A strategy, the future brands that we may welcome or future products that we welcome into Axway, SBS are going to have these similar characteristics. And at the group level, 74Software is going to bring a group level discipline and also group level capital allocation or help with the strategy, help with the M&A, bring technology platforms and operating standards that hopefully, we could deliver this G&A or functional service at a lower cost, but still at a good level that we could let the brands and the product lines really focus on being closer to the customer, worried about the product road maps, worried about driving a profitable growing business. And with that, we think it gives us the best chance for success. And we're really happy with really the two years that we've been together now that we've evolved in this way. We've really built a nice group of general managers that are driving our product lines and really taking ownership, accountability and pride in everything they do and the results are showing that. And so I couldn't be more pleased with where we're at, and we still have some work to do as we go forward. But we know what to do, and I believe we have the management team that will drive us there. So, with that, I'm going to ask Eric Bierry to take over and make some comments about the first half operations.

Thank you, Patrick. So let's start with the Axway brand. And I should say we can see a very strong execution performance over H1 for the Axway brand, combining, I would say, a double-digit organic growth for revenue, for product revenue and for the ARR. So I'm going to come back later around the ARR for the two brands, by the way. This is mainly explainable by two factors. The first one is the modernization of Amplify, federating API and AI platform, which is allowing our MFT and B2B clients to augment by the ability to use iPaaS on one side and also to keep and take control and orchestration on MCP servers and AI agents. The second is linked to our large base clients, which are augmenting and driving expansion in the way we are driving renewal of the different contracts. So it's the way we can explain that very strong H1 performance. On the SBS side, there is a robust growth on revenue, but mainly on the product revenue and the ARR. It has been driven by, I would say, three main factors. One is the integrated product, meaning core banking, integrated core banking, especially in Africa, we did win 11 new logo, so which is really a good performance. But also we see the benefit of the digital engagement platform, so what we call digital banking suite, where we did close three new clients, so giving us being above 13 clients for this new offering we launched last year. And the third one is linked to our financing activity within the U.K., which is delivering a very interesting growth and preparing the future. When we are looking at the area, what is very important is, first, there is that continued and predictable growth over our area across the two brands. But inside each brand, we can see that there is a double-digit growth, which is not linked only to one product line, but really linked to the very critical products which are making our reputation first, but also where we took decision in the past two years to invest and to launch to the market. So this is really important. We are tracking that with a lot of discipline, and it's the way we see healthy future and predictability for the two brands in the future. If we are looking at where we did manage to, I would say, deliver that performance in H1, I would keep first the strong positioning of our products, which are making our reputation, as I said, first with MFT and B2B, where the renewal are making a difference because, as I said, this is an opportunity to augment the positioning with the iPaaS and to introduce and reason why you can see that we did close 48 Fusions until now and very critical because Fusion is bringing that iPaaS capability on one side, but also is bringing the capability to manage the AI governance by controlling and orchestrating all the AI activity, I would say, covering agent and MCP servers. So this is one of the biggest reasons today we are trusting the way we are scaling both the new platform, but leveraging and augmenting our existing, I would say, strong position within the market. On the SBS side, as I said, the SBS core Amplitude is really driving a large part of the growth, but also having a new win in open banking with Wero and the three new signature on the digital banking suite is making a difference. And again, scaling newer platform, augmenting our existing presence and augmenting the different products, which are making us very sticky with our clients on the long term. The last message I would like to give on this slide is the disciplined investment and execution. We have been able to really drive additional investment around the AI Gateway in Fusion by being very selective in the capital allocation to ensure that, that positioning and the window we see within the market on AI governance for the next three, five years is critical for Axway. So we need to be ready to be on time within that window, and I'm going to come back later regarding this AI opportunity. On SBS side, you all know that two years ago, we did engage ourselves in a 5 years improvement program within the margin. And that discipline is showing that we are on track within that plan. There are still years to go and I would say, improvement to come, but it was important for us to see that after two years, we're on track within that improvement plan. Looking at AI. So some of you may remember this slide. We did show that already in February, but our maturity, I would say, with four months more did augment, and it was very important for us to continue to invest and to continue to position the company and to see our ability to, I would say, resist first to that AI wave, but take opportunity within that AI wave for the future. Let me start with the external view of the AI. As Patrick said at the beginning, more than 85% of our total revenue is within clients in regulated industry. These clients in the regulated industry are having regulators, of course, but they need to have deterministic results. So meaning that the way they are looking at AI is critical for them in terms of preparing the future, but also they are very cautious in the speed they may want to adopt. Let me take a first example with AI Gateway. Several clients on Axway side following the Amplify Fusion signature did adopt our AI Gateway. But they did adopt it in trying to anticipate the way they will be governing and they will be controlling the different AI flows in the future in the company. But they want to take time. They know that they need to be ready. They want a trusted partner like us anticipating and preparing the future. But at the opposite, they don't want to be a victim of hallucination in the way they're going to drive their clients and as a consequence, their reputation. So we are starting and we are listening, especially within that first implementation, what are the real needs from our clients and to drive our future investment in the road map, but securing also that we are at the right speed within the client and the business adoption and securing also that we are really investing where our clients are expecting to be supported and protected by us. When I'm looking at the SBS side, I should say that there is the same pattern first because banking industry is fully regulated. So we launched the SBS AI Foundation to the market earlier this month with the first client, I should say it's a beta client. And as I said for Fusion, it's important for us to have this first client and to gather all the feedback and to understand if the several use cases we are giving to the clients in the U.K. are really delivering first the business outcome this clients should be expecting and to measure them, but in parallel to make sure that we are delivering all the control and all the security and all the compliance at any point in time to be able to drive explainability within the AI usage. So that's where we are today, and we consider that we are having as a group, a unique position to combine on one side, that control plane, which is going to drive full compliance, full control and governance within the AI flows and within the banking sector to bring as an addition, that business knowledge on banking, which is driving an additional compliance and especially to be in line with regulators' expectation. From an internal use of AI, I know that everyone is trying to understand what are the gain, how are we able to deploy this technology and change our operating model potentially in the future. Where we are today after four months, we did deploy within small first teams, especially on the new development, all of this technology to have a first result within these teams where we are doing our new development for the future. And we are able to accelerate as a first result after four months by 25% the speed, so our ability to deliver faster, especially the new product and like Fusion, I was just explaining just before. But we are a portfolio company with a lot of different products. So we are experimenting and deploying and starting to measure across the whole portfolio, what is the real productivity and what is the real ability for us to accelerate our different road map, which is first, our top priority. So there is still work to do. We know that the journey is continuing each month, each three months, we are progressing. And we are really planning to deploy across the two different brands, completely that different methods and approach and tooling to make sure first that we have a consistent way to deliver in the future our different products, leveraging AI. And as a reminder, we are delivering this product for regulated industry. So we need to be sure that the way we are anticipating and deploying the different tooling is fully secured for our clients. So that's where we are at the moment. Each new request, each new problem is today looked with first an AI lens to see if we are able to take benefits of all of these different technology. And the two brands and the group itself is fully engaged now in completely deploying all of this. Time to give the floor to you, Tobias.

Thank you. So, on the financial results, Patrick already introduced the presentation by saying that seasonality plays a big role in our business. So what I -- for those who have been following us for a while and have heard me talk about this before, I used to say we make all the profits in the second half and all the cash flow in the first half. This year, this is certainly not the case, and I'll explain to you later why. So we've had record revenues in the first half, as mentioned already, despite some FX headwinds. But on an organic basis, we grew 8.6% in both brands, strong growth, Axway with almost 12%, SBS with 6%, almost -- and that is despite a continuous reduction on service revenues on the SBS side. So on the product side, the growth was almost 9%. So that has then translated in a very good margin as well since some of the growth was obviously led by customer-managed subscriptions and licenses, and therefore, that came with a high margin and drops to the bottom line. We managed to increase the profit on operating activities significantly and very happy with that result in the first half. In terms of cash flow, as I mentioned, it's a different story from last year, where we had a very strong cash flow in the first half of the year. This year, we're expecting good cash flow in the second half of the year as well, where last year, we had to guide that the cash flow in the second half year was fairly limited. Nevertheless, most of that or all of that change is driven by changes in net working capital, which are linked to signing a lot of customer-managed deals that I already mentioned and some other factors that I'll go into in detail. The leverage ratio is now well below 1.5x, which helps us with our interest costs going forward. So we are happy about that as well. And the earnings per share are obviously up very strongly based on this result. On this slide, I will not dwell very long. The one point that I wanted to make is on the operating leverage. I think I made that at the end of the year already. As you can see, every line below revenue grew stronger than revenue. So we do see the nice operating leverage, and it is supported by reductions in costs and reductions in expenses on many items as well. I would call out the share-based expenses, which we've explained in the press release that last year, we had a one-off increase of social security contributions and therefore, this fell away this year. So we have less -- the second one to call out is the other operating income and expenses where this year, it's largely attributable to some project expenses on the integration project that is still ongoing on the IT side, whilst last year included quite a significant portion of restructuring costs, which we didn't have in the first half of this year. And finally, the income tax expense is, of course, higher given the profitability is higher as well, but the ETR dropped slightly from last year to 20%. I already mentioned everything on this slide, so I will just move on to the next one to talk about where the growth came from in terms of the revenue types. Maintenance is down as we have talked about continuously. We are continuously transforming maintenance revenues into subscriptions, especially on the Axway side. That has -- so that was a planned reduction. We did have a little bit of churn on the SBS side from a large Tier 1 program that has come to an end and was renewed at a lower rate this year. So that you'll see in the SBS results. But very pleased on both brands that the customer managed subscriptions are up strongly as well as the own-managed subscriptions. And licenses is maybe a bit of an oddity that it is up so strongly in the first half of the year. This is really coming from an end-of-life product on the Axway side where customers were not ready to move off the products and ask us for extended support. And therefore, we were able to sell new licenses for a product that is not really available for sale anymore. As in Axway, there is very, very little -- very, very few products available for sale on the license model anymore, as you know. In terms of the revenue breakdown, you can continue to see the trend on the maintenance revenues on the Axway side dropping fairly significantly. And we predict that we will have another couple of years of strong transformation activities. But by that time, then most of the maintenance revenues should be transformed or will be here to tail off in the future. On the SBS side, the service revenue is now down to 24% by 1 percentage point versus last year. And the customer managed grew quite strongly in terms of share of revenues because of upfront recognitions of some revenues. It's very selective on the SBS side. So we're not doing this at scale. It's linked to a few deals. It's not something that we do at scale with all the customers. In terms of the margin, we had a very good development on the gross margin coming from a nice product mix in terms of high-margin licenses and customer managed subscriptions. On the cost side, we are down in terms of R&D percentage. We're down in terms of sales and marketing percentage, and therefore, the brand contribution has increased significantly by almost 5 percentage points. In terms of G&A, we had an increase in G&A. Some of that is linked to the continuing build-out of the corporate functions, chapter functions that Patrick was mentioning before. Some of it is also linked because we had such a good H1. We had increased bonus accruals, and we have some seasonality in there as well, which will balance out over the year. So we're not predicting to be at 10% of revenue by the end of the year on that line. So those are the contributors to the profit on operating activities increase. When we look at the brands, the two things to briefly talk about is the gross margin, again, on Axway, as I mentioned already, high-margin lines from customer managed subscriptions and licenses drove the gross margin increase, but also nice increase on the services side, even though that's a very small contributor to our profits. On the R&D side, both brands have been able to reduce the expenses in absolute amount as well as in percentage amounts of the revenue. On the Axway side, we don't capitalize -- or we didn't capitalize any R&D in the first half of the year. On the SBS side, we capitalized -- or we had a net effect from capitalizations of EUR 6.7 million. And therefore, if you look at the footnote, you can see that the gross expenses reduced quite a bit and contributed to 2.6% of revenue reduction. On the SBS side, the gross margin was a little bit weaker this year in the first half, which is related to, on one hand, we had good growth on the own managed subscriptions, which are lower margin, as you know. We also had some, I would call them almost exceptional costs or extraordinary costs as we had to invest in a new product head version that will benefit us in the future where customer migrations on that -- towards that head version should help us for the future. On the cash flow statement on this page, I will not dwell very long. Just one point on the financing cash flow. As you know, we have refinanced our debt in April, and that had a very small effect on the cash flow as we more or less refinanced the same amount that we had outstanding before. But as you know, and as you've read before, we're very happy with that refinancing where we cleaned up all of our bank facilities and where we were able to get better terms in terms of the way leverage ratio is calculated, where we have a good combination of interest costs and so on. So that has helped us to reduce our interest costs as well. Looking at or explaining the unlevered free cash flow drop, I wanted to go into a bit more detail given it's something to look at. So we did have a negative effect from factoring this year of about EUR 19 million compared to last year, that is, right? It's not the absolute effect this year, but it's the comparison of last year's first half cash flow to this year's first half cash flow. So we had a reduction in factoring last year as it was a first-time introduction, we had a big benefit in the first half. And then this year, as we reduced it from the amount we had at the end of 2025, we had a negative effect, and that together amounted to EUR 19 million. The second effect is other, I call it other net working capital movements, but I was calling out the seasonality already. And there is this year, quite a significant shift of some customer collections to the second half of the year. Most of that is stemming from the fact that we migrated or transformed maintenance revenues into subscription revenues that were maybe signed in the second half of the year. So a maintenance contract is always invoiced at the beginning of the year, but the subscription is invoiced whenever it's signed on an annual basis going forward. And therefore, you have a lot more invoices in the second half of the year from those new subscriptions that were closed in the last few years in the second half of the year. The other element is also that at the end of 2024, we had a lot of receivables on the balance sheet. So during the transaction and shortly after the transaction in 2024, we did a lot of billing, but we didn't collect all of that cash towards the end of the year, and therefore, that was collected in 2025. And we didn't have that beneficial effect this year. So if you look at our DSO on the billed, i.e., on the trade receivables, on the billed receivables, it's actually down by eight days versus end of last year, and it's also lower than at the end of last first half in 2025. So it's -- we don't have a collections issue. It's really a billing timing topic. On the unbilled DSO, of course, we are increasing every quarter, every half year since we're migrating so many licenses to subscriptions. And we continue to have an increase in the unbilled DSO on the balance sheet. It's now EUR 222 million balance on the balance sheet, which is invoices that will be billed in the future, but hasn't been billed. So that's quite a nice backlog of bills for the future. In terms of the other operating improvements, excluding the net working capital, as you can see, we improved both on Axway and SBS. On SBS, of course, due to the cost reductions and margin improvement by EUR 20 million on the Axway side, strong profitability already, but which was further improved, so EUR 7 million on the Axway side as well. So I hope that helps to explain the drop of the unlevered free cash flow. And as I said, this year, we'll certainly have some free cash flow in the second half of the year as well. On the last slide, the only point to make or that I haven't made yet, the net debt, the absolute amount is now at EUR 181 million. And the cash generation in the first half, we have used to reduce that debt by about EUR 10 million, EUR 12 million, but we have actually spent EUR 14 million on repurchasing shares for our LTI program as we announced in the beginning of the year. So we have announced that we would purchase up to 800,000 shares this year. We have purchased roughly 450,000 shares already. So we still have an allowance to purchase quite a bit more in the second half of the year. And I think that was it. So I'll hand back to Patrick.

Thanks, Tobias. So, let me close up our remarks, and we'll open it up in a minute for Q&A. So with the really great performance from both teams in SBS and Axway, as we've talked about, we've had a fantastic first half, and we're looking out for the full year and see this momentum continue. So we're taking the opportunity to raise our guidance, which on the revenue side was 3% to 5% organic revenue growth. We're raising that to 4% to 6%. And on the margin on operating activities moving from 15% to 17% to 16% to 18%, and we're able to do that at this point as we're seeing the midpoint of that raised guidance clearly, and we see some upside potential that will either show up or help us mitigate any surprises we may see in the second half. Obviously, with that revenue guidance being at 4% to 6% for the full year, we expect the average to be below for the second half what it was in the first half. But at this point in the year, that's the pipeline, that's the visibility we have, especially on our large deals, and we're quite comfortable with where we're at. And for me as CEO of the group, moving the seasonality effect because if you remember following especially the Axway story, but even a little bit on the SBS side, we always had this hockey stick coming in Q4, and Q4 was such an important quarter to us that it could be a surprise at the last minute. As we continue to look for opportunities to pull the deals that have been worked for months into the first half, this gives us the stability, as Tobias had covered of balancing out our revenue over the year and it gives us the ability to forecast and be a little bit more stable throughout the year. So I'm really pleased with the first half performance. The full year guidance looks good for us. We're staying a little conservative on the unlevered free cash flow as Toby went into detail and keeping our guidance where it is. If anything changes in that, we'll mention it in Q3. When you look out a little bit more on the midterm, we're keeping our 2028 ambition. Obviously, this is a conservative revenue approach, but we have no visibility at this point in the next couple of years. That would change the acceleration to close to or over the EUR 800 million, and we're targeting to get closer to the EUR 1 billion, including our M&A approach. But the strong financial results really are allowing us now to start looking at M&A a bit more seriously because we'll have the financial power and the debt capacity to look at the next opportunities we see in the market. But that's -- if you followed us for a while, we're going to look for the right opportunities and not rush and make commitments on spending money that could end up being disastrous if we do the wrong M&A. Our margin on operating activities, we're keeping at 20% as well as the 16% unlevered free cash flow of revenue. So overall, I'm quite pleased with where we're at. If you've been with us since we brought together the two businesses and formed 74Software at that time, we talked about how we saw the evolution and the disciplined approach year after year in building a stronger company globally. I'm really pleased with both teams and their progression on this. We're either at or ahead of where we expected to be at this time. We're doing it with a very nice organic growth with the organic growth, it's allowing us margin expansion as well as being very disciplined in how we spend and allocate our expenses. And that will allow us to continue to either delever or to buy back shares or to go into the M&A market. And as we're continuing to build out both businesses, and the discipline, we're able to get greater and greater visibility into the revenue forecast, the pipeline, how we could grow with our accounts. We're looking to continue to build out the recurring revenue within our products. We've brought down the service revenue to where it should be for both brands. We're not expecting as much dramatic movement on services this year. And we continue to look to be relevant for our enterprise-based customers with our mission-critical software. So, with that, I'll go ahead and open up the line for Q&A. Alicia, if you could tell us if we have any color.

Thank you. It is the conference operator. We'll now begin the question-and-answer session. [Operator Instructions]

So, at this point, I'm not sure if we have any cars on the line, but I see one coming through the platform. And so with the question is regarding our AI Gateway capabilities and the evolution of that in growing our ARR R&D. We think it's going to accelerate with the AI gateway capabilities we're introducing, but we could broaden it even further and talk about the SBS approach in their meeting and growing with their customers and their AI needs. Maybe I'll give that question over to Eric. Eric, what do you?

Yes. I think we will see a growth, and we think this will be a long-term growth. The critical question we are having at the moment is the speed of adoption from our clients. So we are convinced that we are on the spot on this topic. We are looking at the different feedback. And this offering are, by the way, only subscription-based. So this will be subscription, and this will generate ARR. But the speed for this ARR is something we need to look at, and we see that this regulated market industry, they will take time, allowing us, by the way, to listen and to be able to deliver really the expected capabilities.

I think it's really critical there, what Eric said and he mentioned it in his presentation on the regulated industries, they're not going to be market leaders. They may test the capabilities. They may want to use them, make sure their partner really has a plan, but they're not going to go out there and be launching it into production really anytime soon. It's going to come quarter after quarter, so you're going to see a nice slow evolution of the ARR. Okay. We've just had another question come in. What is our M&A strategy and what's our priority? Over the first couple of years of coming together, we really wanted to ensure we didn't have any operational hiccups, we had to pay down our debt, which was a commitment to the banks to fund our activity. And so we were in the market looking, learning what's out there, learning the activity, but we weren't going too deep. Now we're starting to get involved in going into deeper analysis of companies that we're seeing, having the first meetings going into sometimes due diligence to understand more and more what's inside the company. So with regards to M&A strategy, I did present in my section of the presentation, if you remember, we had the Axway box, we had the SBS box and then we had a third box, an unnamed box. I'm not sure we would actually buy and go into a third stand-alone brand at this time. We have to build up the management strength and capabilities of an M&A engine to do that. We could consider if there's a product in our portfolio that may fit better with another product that's in the market to create a third leg, that's one option. So, for example, their specialized finance of the wholesale auto financing market. That could be an opportunity or taking the Alpha product, the accounting integration product and coupling it with another accounting integration product to create its own stand-alone brand. But short of that, our priority would be finding something where we're strong. So in the integrated banking solutions, core banking solutions, adding value on top with various capabilities that we've built that are applicable to multiple core banking systems or going into the MFT space or where we're building out the Fusion capabilities and really strengthening that market for us. So that would be our priorities. But there's a lot in the market, and we're seeing a lot of good activity, but we still think a lot of it's overpriced and a lot of the pricing needs to come down. Okay. A question from Derric Marcon. What's your moat in the AI agent orchestration platform against the larger vendors like ServiceNow, Salesforce, et cetera. We have a lot of good moats. I'd say maybe the primary one from my standpoint is our customer relationship and the trust they have with us around our core activity that we're providing for them. But maybe, Eric, if you have any other thoughts on how...

Just following what you said, Patrick, we are coming from the API orchestration. So then when we are federating API and AI orchestration. So first, we are in a position with our existing clients to expand the B2B and the MFT with the iPaaS first and then to bring that control play layer. So, for us, first and because it's the regulated industry, the trust is making a critical difference. So having that move is positioning us and differentiating us completely differently, I would say. So that's the positioning, which is the first way and which is going to give us a positive reference and good reputation to the market because I'm insisting the security and the compliance within that space is going to make the difference. If I'm adding the banking capabilities within that very specific market, of course, we will be able to bring that business domain on banking know-how to follow the regulation. So that combination is even stronger in the way we are looking at the positioning to the market.

So, another question, have we seen any deals that slipped at the end of the first half due to customer hesitation to invest in the uncertain economic environment? I have my opinion from the couple of sales people I've talked about on this, and I'll also invite Eric if he has any opinions as well. But from my perspective, what I've seen is with this uncertain environment, most customers -- most of our enterprise-level customers have gone into the year with the budget and plans and projects that are ongoing. Because of this uncertain environment, being nervous about what could happen in the second half of the year, they've wanted to get the project engaged, signed and going and not wait to see if there's a bigger disruption in the second half. So it's maybe one of the minor explanations of why the first half, especially on the Axway business has a lot of transactional volume. is improved and the second half forecast we have is a little less muted. But Eric, I don't know if you've heard anything.

Just to add one small thing. We are really in the core business and the heart of the operation of our clients. So meaning that, as you said, when they are engaging modernization, when they are engaging investment around digital because it's still the case, especially within the FSI, but also the health care industry, they do not reduce their willingness to move. Maybe there are some services or consulting activities, which may be impacted or at least being delayed by that uncertainty. But we do not see that big willingness to postpone that decision when we are talking about the core of their business.

Okay. The next question we have and maybe I'll toss it to Tobias, but -- why are we not changing our unlevered free cash flow guidance when we're increasing our revenue and our profitability guidance for the year at this time and if we want to call out any specific headwinds.

So it's fairly clear. The overperformance on the growth, a lot of it comes from customer managed deals with upfront recognition of revenue. So if anything, this has -- this is a headwind on our free cash flow as a percentage of sales because customer managed deals have a very low cash conversion compared to other types of revenues, right? And that's why we didn't change the guidance. So if anything, we'll have a headwind because of the higher growth.

Okay. Next question come in, how looks the pipeline entering the second half of 2026, especially in the context of the deals you're successfully pulled forward in the first half. Let's say we pulled forward deals. So that's the assumption there. We had deals that -- our deal cycles are six to nine months on the Axway side, as we've talked about. And on SBS, they're quite a bit longer.

12 to 18.

12 to 18 months. And so we normally have deals in the pipeline that take a while to close, and they were able to come in and close in the first half. When we look at the second half pipeline, we have the pipeline to do the guidance that we've given and the deals are advanced enough in this stage to do that. But a lot of the deals, as Eric talked about in the past for SBS create revenue in the future years. And on the Axway side, a lot of the larger contracts that were signed in the first half were customer managed, as Tobias has been covering. When we look at the second half pipeline, I'm really excited to see that we talked about, I believe, it was 48 Fusion contracts that were signed. But for the year, the acceleration should continue. So a lot of the pipeline is in the newer products as a lot of the larger deals that were in the pipe for a while, we're able to close in the first half. So we're going to see, hopefully, that Fusion number more than doubling in the second half and the revenue landing where we're expecting it to land. So I believe we have a phone question, operator.

Yes. Phone question is from Bharath N. from Cantor.

I hope you can hear me.