CM.com N.V. (CMCOM) Earnings Call Transcript

Hello, and welcome to CM.com Second Quarter and Half 2026 Results Webcast, hosted by CEO, Jeroen van Glabbeek; and CFO, Geert Beullens. Thank you for joining us today. [Operator Instructions] Before we begin, I would like to remind you that during this call, we may make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Forward-looking statements include, but are not limited to, statements regarding our financial outlook strategic priorities, market developments and future performance. We undertake no obligation to update any forward-looking statements made during this call, except as required by law. With that, I would now like to hand over to Jeroen van Glabbeek and Geert Beullens. Gentlemen, please go ahead.

Yes. Welcome, everyone. Thank you for joining our investor call. Before we begin with the Q&A session, Geert and I would like to provide an overview regarding the company's financial performance, strategic progress and outlook.

Thank you, Jeroen, and welcome, everyone. Let's start with our financial performance. EBITDA reached EUR 6 million in the second quarter, up 55% year-on-year, and EUR 11.9 million in the first half of 2026, up 52% year-on-year, driven by revenue growth and improved operating leverage. Adjusted EBITDA amounted to EUR 6.3 million in the second quarter, up 61% and EUR 12.5 million for the first half, up 60%, lifting the half year adjusted EBITDA margin to 9.6% from 6.5% a year earlier. Revenue increased 14% year-on-year to EUR 67 million in the second quarter and 9% year-on-year to EUR 129.9 million in the first half. During the period, we identified specific messaging traffic that should not have been reported on a gross revenue basis under IFRS 15. Correction has, therefore, been applied retrospectively from the start of the traffic in the second quarter of 2022. Revenue and cost of services for the prior periods were reduced with no effect on gross profit, EBITDA or results. The total impact over the 4-year period is approximately EUR 34 million in relation to roughly EUR 1 billion in total revenue. Further, our annual recurring revenue grew 3% year-on-year to EUR 35.5 million. On a quarter-on-quarter basis, ARR declined by 1.8%. This was primarily due to the loss of a 10-year contract that expired during the quarter and was not renewed up on retender. Excluding this contract, ARR grew 8% year-on-year and 2.5% quarter-on-quarter. We achieved record messaging volumes in the second quarter reaching 2.8 billion messages, up 30% year-on-year and 12% quarter-on-quarter with strong growth across all channels. HALO, our Agent AI platform continued to gain ground as its contribution to ARR grew 187% year-on-year to EUR 3.3 million, up from EUR 1.2 million in the second quarter of 2025. Gross profit did not grow at the same pace as revenue as gross margin decreased to 30.6% in the second quarter and 31.2% for the first half year. The margin decrease reflects shifts in product mix, combined with messaging market pricing dynamics and currency effects. Operational efficiency improved further supported by increased AI usage with the number of FTEs down 11% year-on-year. As a result, OpEx for the first half decreased by 12% year-on-year to EUR 28.7 million. The net result for the first half was a loss of EUR 2.3 million, compared to a profit of EUR 0.9 million in the prior year. The prior year, however, first half included an EUR 8.8 million gain on the extinguishment of our convertible bonds. Excluding this one-off, the underlying result improved significantly year-on-year. In the second quarter, the net loss narrowed to EUR 1.1 million from EUR 4.6 million a year earlier. Turning to cash flow and financial leverage. This first half generated free cash flow of EUR 5.1 million, up EUR 2.9 million year-on-year. This was driven by higher EBITDA and a EUR 2.7 million cash receipt from a trade receivables factoring arrangements. Net debt stood at EUR 59.8 million, and our adjusted leverage ratio improved to 2.4% from 3.1% at year-end 2025 and 2.7% at the end of the first quarter of 2026. With that, I would like to hand back to Jeroen for our strategic progress and outlook.

Yes, let's reflect on the first half of 2026. The results confirm the direction we set out. we delivered strong growth. AI creates when it can act on relevant customer context. And that belief is at the heart of our 2 key innovations we introduced this quarter. At our customer event in June, we presented our new customer context platform. This platform is designed to bring together fragmented customer data and turns that into usable context for AI-enabled engagements. Alongside this, we expanded HALO with Ask HALO. Ask HALO is a natural language assistance. It makes it easier and faster to create AI agents. Other innovations we invested in during this quarter are Agentic AI, voice AI, voice for WhatsApp and rich messaging. And these investments are aligned with structural market trends. The global AI market is growing. Businesses are increasingly adopting AI to market, to sell and to support their services to their clients. We updated our proposition accordingly. We now position CM as the only AI platform that runs the whole conversation and everything it leads to. Our upgraded proposition brings 4 suites together around 1 single customer. Connect, for every channel; Activate, for marketing; Convert, for payments and other transactions; and Support, for AI-powered service. This all runs on 1 shared customer context. So every interaction builds on the 1 before. Further, we redesigned our website and launched a brand-new campaign behind every moment. Together with Frank Timmermans, our new Chief Commercial Officer, we updated it our go-to-market approach around key client segments. The commercial impact of these changes is still at an early stage, but we believe we are on the right path forward. In closing, the first half of 2026 demonstrates that our strategy is delivering measurable progress. This supports our confidence, as we're on track to achieve our guidance of more than 30% adjusted EBITDA growth for the full year 2026. With that, we would like to start Q&A.

[Operator Instructions] Our first question is from Simon Ramberg from EFA.

So first, on growth. So over the past 12 to 18 months -- I mean, before that, you made clear progress on profitability and net debt leverage, but gross profit, if I look at the growth, I feel it remains quite modest. So what do you really see as the main bottleneck preventing stronger gross profit growth today? And what gives you the confidence that this is going to improve over the next 12 to 14 months? And then maybe another question, so you talked about that 1 contract that was lost at retender. And I appreciate you cannot discuss the names, et cetera. But should we think this is an isolated event? Or are there other sizable contracts within the ARR base that are due for renewal or retender over the next 12 to 24 months that could have maybe a similar impact on ARR growth given that this is the first time that AR declined quarter-on-quarter? And then also 1 on the balance sheet. So clearly, the balance sheet is in a better place today. Leverage is down, but also include introduced factoring for the first time, and restricted cash, I think it's around EUR 15 million. And from what I've read in your annual report is that the RCF commitment reduces to EUR 65 million in 2027, if that's, if I'm correct. So how should we think about the next phase of balance sheet management? And then specifically on factoring, why did you decide to do it now? And is this a one-off or will this be a structural part of your balance sheet management?

All right, Simon. Thank you very much for your 3 questions. Let me answer the first 2, and I'll then hand over to Geert for the third 1 about RCF and the balance sheet. Your first question was the gross profit. The gross profit was modest compared to the revenue growth, and revenue growth was 14%, and it only translated to 5% gross profit growth if you look at constant currencies. How do we look at that? I think what we did last quarter was basically a land grab in terms of rich messaging, have we always anticipated on the day that rich messaging would really take off. And I think that just happens. So our volumes grew 30% over the last quarter compared to a year ago. And that increased, of course, our revenue and our messaging. And this new messaging volumes are new clients with WhatsApp, new clients with RCS amongst others. We believe that the best strategy for CM.com now at this moment to grab as much as possible in this new flows of messages. And we also believe that there will be a moment later in time, maybe not too far from now, that we can also optimize the margin we make on this new revenue streams. And we deliberately chosen for the strategy to first get the messages in, make the client successful, really demonstrate value of rich messaging for them, later when this value is more clear for all involved parties, there will be a time for us to optimize the margin on these new revenue streams. So yes, new revenue will bring new gross profit, but there's a little bit of timing issue that we see already the new revenue, and we really expect to see the growth and growth profit later. I hope that answers your first question. And then about the lost contract. Yes, indeed, we mentioned that deliberately, it was a contract we had 10 years at least. We didn't have it for 10 years. We acquired a company 5 years ago, more or less with that 1 individual contract with bespoke software development. It was made to measure software contract for 1 individual client with an annual fixed revenue of EUR 1.5 million a year. That contract duration of 10 years. We knew that when we acquired this company around 5 years ago, and that ended last month. So yes, because this 10-year contract ended last month, our ARR was down, I think, around EUR 700,000 instead of EUR 800,000 up what it has been if we didn't had this cancellation of this contract. We anticipated on this. It was a -- yes, because we spoke software, it was not our core business. We focus on messaging, AI, payments, tickets that are our core business, and this was a bit separate contracts. It was highly profitable. So we regret that it was not renewed after 10 years. But on the other hand, now helps us to focus more on our core business, freed up people working on this bespoke projects, and they're now reallocated to more our regular business development. And -- so that's the 1 positive thing about this. But -- so it didn't came as a surprise. We knew it already 5 years ago when we took over this specific company, and we have to include it in the figures now. And we don't see any trend of this. It is really one-off accident not related to any market circumstances or order developments within CM. All right. This answers the second question, let's go now to Geert to answer your question about factoring and debt.

Yes, indeed. Simon, so on the balance sheet, we entered into a factoring agreement for 1 of our countries where we are operational. This is, I would say, normal factoring of our accounts receivable going through a process also with, of course, a bank, a financial institution taking over these receivables. A very solid process that we underwent was approved by the bank internally. And this is something we want to continue for this specific country in the coming quarters, indeed. The impact, as you also have read in the interim financial statements, has been that we derecognized around EUR 2.9 million receivables at the end of the quarter. And I think this is a kind of trend we expect also for the coming quarters for this specific country. Then, indeed, on the more general view on our financing structure. I think you're fully right. I'm very happy on the trend that we are seeing. So we -- our adjusted leverage decreased significantly over the past 1.5 years. It's a trend that we want to continue. So not maybe that's steep as was incurred, but we further want to decrease. You see also that we are generating cash. Of course, cash generation comes with black numbers also with profit. You also see that we are closing the gap towards profitability. And that's the road we continue on to become profitable and generate cash. And that will also, I think, make it easier to watch banks and financial institutions looking forward and also to our situation in general. So very happy on the trend and the progress.

If I can just quickly have a question on the first one, I asked about growth. So you touched upon on messaging indeed that now you have always high volume of rich volume -- rich messaging volume. What about the other divisions? So if you look at Engage, at Bay, at Live, So if you look at growth there, where do you see that coming from in, let's say, the coming quarters, that incremental growth?

All right. Let me answer that. Indeed, I focus a bit more on the messaging business in my first initial answer, but I can also dive a bit deeper to the other units like Engage. If you -- if I flex a bit on what happens with Engage over the last years. Of course, yes, when we listed the company in 2020, we did a few acquisitions also in this SaaS AI type of business. One of the acquisitions we did was CX company. They had a conversational AI products with many clients. We acquired that. We integrated that into our business. We integrated the platform, we accommodated the people. We stabilized the business, so to say. And then, we started investing. With the team, we acquired. We started investing in new developments, new insights to make -- to really build the product for the future. And it was HALO. We launched it 1.5 years and it really helped us not only to stabilize the clients with the AI cloud because we saw some churn a few years ago there. But with the launch of HALO, we managed to stabilize the churn, and also, yes, generate a lot of growth, of course, in HALO. You see that we almost tripled the revenue with Halo last year. That's a really good growth. Next to that, we also did other acquisitions within this Engage software business, for example, building blocks with the Inspire products. And then here's actually with the same history, but start a few years later. So we acquired Building Blocks for consumer AI. AI that really gives insights in consumer behavior for a lot of clients. It was a very advanced product at that time. It was a lot of machine learning, a lot of data scientists. But the market evolved, we evolved. We learned, we integrated the companies. We integrated the platforms, we accommodated the people. And we also here, we started investing in the new products. And that new product was CXP, the customer context platform, which we just launched last June. Also here, we expect that the CXP will generate a lot of revenue in the upcoming years, like HALO did in the past years together, along will be our 2 flagship products. But if you look at the revenue for the last year, we saw an impact of, yes, the former building blocks inspire business a bit staled and also declined due to some churn. Clients, who were there for years yes, were looking maybe for newer solutions like we just launched with CXP. I think we are ahead of time with this product. Context is really important, and I'm very happy that we have this product now. And also, like it's HALO. It was a bit the future for CX company. After we acquired it, we really believe that the CXP context platform will be the solution or the future for the clients, in the business we acquired with building block. So yes, going forward, we see a lot of potential there. But just looking back for the last year, we saw a little bit of stagnation in the -- in revenue. It didn't grow as fast as we maybe had wished for. But if you dive a little bit deeper, you see that mobile marketing cloud is growing good, serves cloud is growing goods halo is really going well and then for Inspire now with the solution with Spain. So that's a bit diving into Engage. I think Pay is going to plan. We had a good half year according to our internal budgets. Volumes are growing. Product is really evolving. The investments we did in direct connectivity with Mastercard and Visa is really paying off. We are also investing in upcoming payment methods like Vero, new standards in Europe, a successor of ideal. We introduced a really nice terminal lately. It was air. It's a bit of a technical name maybe, but the terminal payment terminal really has it all. It's waterproof. It's really handy. It's a good battery, and we are now introducing it in a Live part. And there you see that it is also really integrating where we maybe look back last 2 years. On 3 or 4 different business units, we see that every step we take, it's becoming more and more 1 platform with 1 consolidated solution around the 4 different use cases we now present on our website. Yes. And live, I think Live is actually -- it was a good year this year. Last year was a bit better. Why? There were a lot of one-off events last year, like for example, Amsterdam 750, yes. That only happens once in 750 years that you have had. And there were also some other really big events last year. For example, the sales last year of the last country this year. A lot of these tickets for the large company this year, we sold already last year. And we're not selling this year ticket for the gap of next year because there won't be any in Sanford. So if you look at purely the volume of tickets in the Live business, it's a bit less than it used to be last year, but we added so much extra value for these clients. But in total, we are very happy about this experience business. It also leads to extra business in payments, it leads to extra business in Engage. And also, especially in Live, you see that there's vertical, festivals, events, museums, traction parks that we have a really solid proposition there and that we're winning a lot of deals. And that -- yes, that makes us very positive looking forward for this part of the business. And with all the artificial intelligence, Live experience are really something that set out for consumers in the future. That's our belief.

[Operator Instructions] Our next question is from Johan Vandeven, ABN AMRO.

Yes. Sorry, Johan from [indiscernible]. A lot of answers we've already given on the questions raised before. I would like to go a little bit more going to depth in the Pay segment. Looking upon TPV volumes, they are slowing down somewhat. When you look upon the Siemens contracts you mentioned before, where are you exactly with the ramp-up? What's the impact of this Vero introduction? And how would the take rates develop from this? So yes, when you look upon the growth, we don't see it's really getting converted into gross profit already. So a little bit more color on Pay.

All right, Johan, thank you very much, and also for standing in for Wim Gille as our -- doing a good job as our new standby analyst. Thank you very much for that.

Still engaged, of course, with the company in the just case.