CENIT Aktiengesellschaft (CSH) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to today's earnings call update CENIT AG following the publication of the Q1 figures of 2024. The CEO, Peter Schneck, will speak in a moment, and he will guide us through the presentation and the results. Afterwards, we will move over to our Q&A session in which you will be allowed to place your questions directly to Mr. Schneck and the CFO, Axel Otto. So having said this, we are looking forward to the results, and I hand over to you, Mr. Schneck.

Thank you very much, and a wonderful good morning also from my side, and welcome to the Q1 2024 earnings call for the CENIT AG together with our CFO, Axel Otto, I'm pleased to present you today very strong figures for Q1 2024. Before I start with this presentation, like always, just the notice that this call will be recorded. So if you have any questions later on, please bear in mind that your voice and your question will be recorded. And then, of course, like I already mentioned, at the end, we will have time for questions. So please hold your questions for the end, and I will run you through our figures that we have disclosed this morning. So jumping into our financial figures 2024 for Q1. As you can see, we have a very pleasing and strong jump increase in our revenue from EUR 43.42 million in the quarter of 2023 now to EUR 50.54 million in the first quarter of this year. So this is an increase of 16.4%. And for the first time in the history of CENIT, in 1 quarter more than EUR 50 million of revenue. And reason for this is, number one, of course, we have increased also our sales. We have also increased prices in different segments and for our own software as well as for the daily rates. But of course, you also have to bear in mind that we have now, for the first time, consolidated our acquired companies that we got last year, during the year on board like ABC Consulting in Vienna, the PII in Berlin, and MIP in Munich. And on top, of course, we have acquired by beginning of this year. So since January 2024, fully consolidated the company called CCE b:digital in Germany. So I think this is a very strong start in this year, and I hope -- and I'm sure that we will hold it despite the challenging situation that we see in the market. But like I mentioned in many of our sessions, challenges, there are a lot of chances as well. And in this case, I think we have enough opportunities to stay in line with those figures for the coming 3 quarters until the year-end. Then, of course, EBITDA jumped up by more than 100%, as you can see here, also very pleasingly from EUR 1.5 million to EUR 3.1 million. I think this is also a very pleasant information for you. Now if we go to the EBIT figures, I think this is even more interesting, in Q1 of 2022 we were still negative, in 2023 for the first time, we were positive in Q1, and as you can see now, in 2024, we have a major increase that is far above 100%. We just didn't calculate this because it doesn't make sense. And we're now at EUR 1.24 million in quarter 1 at EBIT, and also, as a consequence of this, of course, as you can see, the EPS jumped up from a negative figure that we had in Q1, like we also had in the past Q1s of CENIT, we had this major jump now by more than 100% to a positive figure to just EUR 0.03. But I think coming from this area, I think you see how we improved this. And you have to bear in mind that at the same time, we had to cover financing costs, which were EUR 1.3 million that we paid just in this year. to support our buy-and-build strategy and, of course, to reduce the loans with our banks. So I think a very positive start as well here on the EPS side. Now if we go into our income and balance sheet, what you can see here is, the dividend our proposal is EUR 0.04. This is the legal minimum that we have to provide, but other than that, as I mentioned already in separate sessions, we are proposing in our shareholder meeting this year not to pay any dividend other than this EUR 0.04 for legal reasons, but other than that, we are in the middle of several acquisitions. And of course, we are paying at the moment about 6% interest. So to our opinion, it doesn't make sense to pay these interest on this EUR 4.3 million that we would have to pay if we stay on this EUR 0.50, and then basically fund this by any kind of credits. That's why we decided or we proposed in -- for the shareholder meeting to drop this, this year as an exception. And then, of course, next year, we will return to our normal dividend policy as we have always done this also in the past. Now the market cap. If you go on the bottom line, as you can see, it is what it is. I don't read the market well. I think we're fast growing. We're doing quite a lot of positive things. But unfortunately, this is not reflected in the share price yet. But I think during the year, there will be some boost coming that will definitely push us in the right direction and then also the capital market will react on this one. As you can see, the order backlog very strong, again, another increase that we could manage here. So now we're at EUR 70 million order backlog. I think this is a very strong message despite the current economic situation, especially in the German speaking, German country, I must say, so in Germany, because Switzerland and Austria are doing better than Germany at the moment. Now if we look into the cash position on the right side of the -- in the middle of the balance sheet. As you can see here, also a major increase, close to EUR 10 million that we have on top. Reasons, of course, as you recall, in the last quarter, we had quite some open invoices. So this is basically due to the receivables that we could book in the first quarter of this year. So a normal process, but I think also very strong. And as you can see, we collect our invoices and there's no risk of any drops. Then on the overdraft side, and just to specify overdraft in this case means bank loans. As you can see, we're reducing this, we're coming down. And of course, we are now planning to negotiate with the banks an extension of our existing credit agreements that we have with the banks to turn this into a syndicated loan and to extend this. So by this, we will ensure our financing strategy for the buy-and-build strategy that we have in future. Then down on the cash flow side, I think also very positive. You see the operating cash flow increased from EUR 8.69 million in the last year's quarter to this year EUR 12.5 million. And the CapEx investments, this is mainly the returns of the credits that we've done other than that. And of course, the CapEx investment was one that we have done for CCE. But other than that, there nothing happened so far this year. And then on the free cash flow side, as you can see, a very strong increase as well, so almost doubled from EUR 6.5 million in the last year's quarter 1 to now EUR 11.66 million. And as a consequence, when you look into our report that we had presented also and that you can download on our website, you would see that based on this, of course, we have a very strong increase of our working capital now from EUR 6.6 million to this EUR 11.9 million in this year. So I think figure-wise, pretty strong. If we jump now into the sales by revenue type. You also see some of the reasons of the EBIT increase that we announced. So on one side, you see in the consulting and services, 11.9% increase due to two reasons, of course, a normal organic growth or a very nice organic growth, but on top, of course, also increases of our daily rates. And the same applies also to the CENIT software, where we have a major jump now from EUR 3.3 million in last year's first quarter to now EUR 4.4 million. Reason for this is the increase of our software prices, especially FASTSUITE of the Digital Factory Solutions division. Then there is a major deal that we have done on the SAP side in the defense environment, and also for EIM that basically booked some of their PLC ideas and plans that they had already for last year, which we couldn't book last year, and that basically was shifted into Q1 due to customer decisions, sometimes delays, whatever happens. So as you recall, last year, we had some of these deals that we couldn't book, and on top, the switch into SaaS this year now, we catch this up, but we still, of course, see also an increase into [ PH1 ], PLC into this SaaS models. On the third-party software as well, a very nice increase from EUR 22 million to EUR 26 million, which reflects this 17.6% increase. And this is, of course, mainly because of a very strong deal that we have done also in the defense environment with our 3DS department. So here is a very large software license from Dassault included. If we then switch into the sales by segment. As you can see here, very steady organic growth, 9.3% in the EIM sector, which is our documentation division. So from EUR 9.32 million to EUR 10.18 million. So this is pure organic growth. And on the other side of the PLM division, you see from EUR 34 million to EUR 40 million, which is an increase of 18.4%. Two reasons for this. One is, of course, a very strong increase of our organic growth. And the other thing also to mention is, of course, the consolidation of our newly acquired company, CCE, which reflects about EUR 1.4 million in this first quarter. So this gives you an idea that overall, the organic growth is very strong and also heading to this 2-digit figures. I've mentioned in many of our sessions that we have based our plans on 5% organic growth, although that I see the market growing faster and that I would love to be at the 10%, and as you can see here, at least in the first quarter, we're coming close to my dream figures here in PLM definitely, but on the EIM, we're a little below, but I think that we will catch up with this. Now if you look into the projects, to give you some highlights and some of them I mentioned already, the big SAP deal, as I mentioned, this one is this what you see here is aviation experts, there, we have a pretty, pretty nice contract with an U.S.-based defense company. That's why we're not allowed to mention this in here. A helicopter company working for the U.S. Army, where we basically bridge the existing 3DS solution to the SAP solution with our own proprietary software. So this is a pretty nice project, and I assume that there will be more to come also in this environment. Then you see on the bottom line in the area of 3DS, [indiscernible] environment in France, we were able to sign a new contract with a new customer out of the space mobility area, also not to be mentioned. So it's not defense, but kind of critical. So that's why -- they don't like to be mentioned. And also here, we were able to sign with them 2 ways. One thing is services around the 3DEXPERIENCE solutions. So the license, the main license has been sold by the Dassault. And we provide the services now for this. And then on top, we have in their design phases in step 1 several devices, as you can see here that we're going to provide, which brings us to the assumption that there will be definitely a step 2 and step 3 to come in the next quarters. And it's a very challenging but also very interesting project. And as you can imagine, also for our team members very exciting one to work in this space environment. And then the last one to mention is also from our Dassault team, the 3DS team based in Germany. That was able to book a very big license deal in the aviation industry based in Germany. Also more likely in the defense environment. So that's why we're also not allowed to mention them here. But I think this gives you a little bit an idea that, like I announced in some of our sessions before, defense is an interesting sector that allows us to pick one or the other bigger deals. But other than that, we still have, of course, also a lot of very nice projects that we haven't mentioned in here now. So these were just the few ones that we picked for you to give you an idea what this comes from. Now if we look into the inorganic growth, the one to mention so far is by beginning of this year. As you all know, we have done an acquisition. As you can see here, called BBC -- CCE b:digital, a company based in Germany with 16 employees and the founders decided to sell the company, the son of the founder is still our Managing Director and will stay with our organization for the coming years until it retires. So this is a very nice and good regional expansion of our presence in the German market, supporting the 3DS team and making sure that we're much closer to our customers, in this case, in the region of North Germany, where there are a lot of hidden champions as well, and we're close to some of those champions now by this acquisition of CCE. And as you can see here, there are two more dots. So we have a quite good pipeline. And as I have also announced already in our annual call and also in several meetings. We hope, because we haven't signed at the moment yet anything, but we hope to close at least two deals before at the mid of the year, so that then we can consolidate them also for the second half of this year, which would be very supporting and promising and would allow us then also to be -- to make some major steps ahead on our planning to achieve the EUR 300 million in 2025, which, by the way, is already next year. So there's not a lot of time left, but we're very positive that we will be in line with our plan. And as a final advice for you, I will be present at the HAIB Stockpicker Summit, Kitzbühel. And then, of course, 2 weeks after, we have our Annual Shareholder Meeting here in Stuttgart or Leinfelden-Echterdingen, which is just the other side of the Freeway A8, at the Filderhalle so you are all invited to join. This will be a presence meeting, and I would love to see you all and to look forward to all your questions. So that's it for today. I want to keep it very brief and quick. So I would say now, I leave the room up for questions. Please start with your questions.

Thank you so much, Mr. Schneck, for your presentation. So as I've already mentioned, we will move over to our Q&A session. So for a dynamic conversation, we appreciate it. [Operator Instructions] And we will move over with the questions from Cosmin. So, please go ahead.

Okay. I have three questions. The first question, you mentioned that the contribution of CCE in the first quarter was around EUR 1.4 million. that there are also other inorganic effects because a lot of companies, the acquisitions made during the last year. is it right if we assume that the organic growth would be around EUR 4 million in the first quarter.

Yes, it's close with ABC, and PII, MIP, yes, yes, it's coming it's 3-point-ish, but heading EUR 4 million.

Okay. So around 50-50, inorganic and organic growth.

Yes.

Okay. The next question is regarding the development of the costs. So despite of the increase in sales of the proprietary software and also the consulting revenues, there was a shift from personnel costs to expense to material costs. But that's not the logic that I would have expected because higher proportion of consulting revenues goes together with higher personnel costs and also a higher proportion of own software sales goes also with decline in material costs. Is there a reason behind that where the material goes up and personnel goes down.

Personnel -- the personnel goes down. I think it's just somebody one or the other person leaving. And as you know, we had started a so-called performance program. So our idea is that with the existing team, so kind of staying with the same personnel costs with small decreases because you have people leaving, and we might not fill all up these positions that at the same time, we will increase our revenue. This is what I always said. We have this performance program called Series 2 now in place. And this is, of course, also not only cost savings. It also means performance increase. And this is what you see on this side. On the material costs, you have -- I don't know which ones you are referring to because if I look into the -- now into the consolidated statement. There, we have the cost of materials from EUR 18 million to EUR 21 million. And then we have the personnel expenses also going up, but this is, of course, because of CCE, but if you take this out, then we would have less personnel expenses. That's absolutely right.

No, I just meant compared to the first quarter of '23, quarter of material costs went up by 1% or almost 1%. And at the same time, your own software sales went also up. So yes, that was just a question behind that.

Yes.

And the last question, I mean, you already have now sales totaling EUR 50 million in the first quarter, just by multiplying by 4. At the end of the year, you come out at EUR 200 million. But as we know, the majority of sales you generate in the second half year or in the last quarter. So what made you remain or keep the forecast?

What made me keep the forecast is year 2022, where by the end of the year, we had some expectations that did not come in. And then I basically had to step back and had to announce a reduction of our guidance, which, of course, I don't want to do this year. So you're absolutely right. There's a lot of positive indication in here. And yes, I hope and I expect that we will be by the end of the year, higher than 4x. But at the moment, I would stick to our guidance because, yes, we don't know what happens during the year. We have now the second quarter, which is -- I mean, basically, you can take the month of May out because it's only public holidays and whatever. So it drives me nuts. But on the other side, yes, it's -- by mid of the year, we might adjust if we have a much better view and feeling and then maybe also we have to adjust because we might have done by then acquisitions, which will force us anyhow to adjust. So at this point, it's a very conservative figure, and I would like to stick to this figure and to stay within our guidance.

Thank you so much for your question. So now let's move over to the question from Yannik Siering.

Yes, good morning. Thank you. Some questions have already been asked, two left from my side. The first one would be on the acquisitions, just checking how the integration is going. Are you satisfied with the development so far. And the second one, just a housekeeping question, the high tax rate that we see, is that due to the acquisitions you made in the PPA arising from that? That would be it from my side.

So the question two, yes. And to question one -- so basically, it's the PPA that is driving this and that has this major change, but also so please bear in mind in Q1, so there's always a lot of adjustments and changes in happening, but the main reason is PPA. Then coming to your question one, M&A. So far, we are satisfied. We are with 2 targets in exclusivity. So it means we are with one target by the, I would say, close to the end of the DD so far without any red flags. And we are now starting the discussion and negotiation of the SBA. And the second target will just started now to dig into the dark room and basically start looking and starting our due diligence. So I expect this somewhere also to be done by mid of June, so that then we might have a drop either. We will finish it still in June or it might drop into July. And the first target, I expect this to happen in June. So it means signing and closing because the target that we always had is that we can consolidate both acquisitions to the first of July, but it's -- M&A is nothing that you can plan forward. And up until today, we haven't signed anything other than we are in exclusivity with these two targets.