CENIT Aktiengesellschaft (CSH) Earnings Call Transcript

Good morning, and a warm welcome to today's earnings call of the CENIT AG following the publication of the Q3 figures of 2025. The CEO, Peter Schneck; and the CFO, Dr. Johannes Fues, will speak in a moment and guide us through the presentation and the results. [Operator Instructions] We're looking forward to the presentation. And with this, I hand over to you, Mr. Schneck.

Yes. Thank you very much, and good morning, ladies and gentlemen. A very warm welcome also from our side, and thank you for your interest in the figures of CENIT AG. As usual, Dr. Johannes Fues, our CFO; and myself, will run you through the Q3 figures and also some highlights from the operational side before answering your questions at the second part of this session, and we're looking forward to your questions. So let's start. As you all know, we had this year quite some challenges by the beginning of the year, especially in Q1 and then with some effects also in Q2, which were related more likely to our staff, where we had in France and in Germany, several team members that we had, yes, to offer some deals in German called [indiscernible] to make sure that we are from the operational side, prepared for the challenges that we have in the market. And of course, we have also the challenge with Analysis Prime. But when we look now at the operating business, I can tell you, and you will see it by the figures that we have a very stable -- the top line momentum at the moment in our major segments, PLM and EIM as we report that we have a stable organic business with a slight decline. But I think given the challenging economical environment, this is a very good and outstanding message if I compare this to our peer group. And of course, what we have is an operating profitability that has improved quite a lot compared to last year. As you will see, it's 14.7% in EBIT above last year's Q3, if we compare this like-for-like. Then the second thing that we will show you is that our acquisition that we have done in 2024 in the United States called Analysis Prime had, as I presented to you already in our last sessions, quite some challenges, I would call it, starting problems and maybe getting also used to our reporting and maybe also our challenges that we have within CENIT. We had to change our CEO, which we successfully did. And now the new management team is full in effect and running in a very good way. We have updated our revenue outlook from originally about EUR 25 million now downgraded to EUR 15 million, which is already reflected in our figures and also in our guidance that we have given you. But of course, this had a major impact also on the team there. So we had also to reduce some staff numbers in the United States. And of course, this was a challenge. Then the projects, when we talk about this one, what we mean by this is the project performance, mainly as we call it internally. This was an improvement of our cost structure. As I mentioned before, we had 52 team members that left our organization where we had to provide some compensation fees, if you want to say so, since in Germany and France, as you all know, the legal requirements are quite strict. And unfortunately, not always in favor of an employer. But I think you've seen this was an amount of about EUR 4.1 million that we have included in our figures. And that, of course, are also hitting our figures for this year. But I can say the performance is working very well. It's even working better than we had forecasted. So we're already collecting quite some effects also now in the Q3 and also in the Q4 figures. And we're very confident that also in year 2026, we will gain at least the around EUR 5 million EBIT effect that we had planned for and that we had in mind when we set this. Overall, if you compare the figures in the team, you will see that we have about 70 employees less than we had at the last year's time in comparison. So you can see that we have done also some work beyond this one and just did this without any major compensation on our daily operational business. So this is also reflected in our pretty good Q3 figures, as you can see. And what I can say is at the end, we are in line with our updated guidance that we have given you by mid of the year. Although that the Q3 figures have, I think, a very positive momentum and show that we're heading into the right direction, we will stick to our guidance. Since you all know that Q4 is a very important quarter for us. And at the moment, I can say it looks also very good. But we have burned our hands also in the past, and that's why we will not adjust any of our guidance. So heading into the figures, I would like to hand over to my colleague, Dr. Johannes Fues, and he will run you through the Q3 and, of course, also year-to-date figures.

Yes. Good morning. Good morning. Happy to do so. It's after the first 3 months, second time for me presenting the CENIT figures. And as Peter pointed out, I think we can be quite pleased with the Q3 numbers. I'm going to run you through. Let me start with a general remark. The transition is underway. We see the initial impacts. It is the beginning, but we're not through yet. But I want to highlight the main points in the figures. We're not hiding the maybe questionable ones. Let me just run you through what we have here, starting with the revenues. What you see all in is a rise close to 2%. We have -- in the '25 figures, we have inorganic effects in there. If you deduct those, you are at the decrease organically of the 2%, which then, in effect, and if you look at the peer group, leads me to say, I think we have a quite stable momentum. Overall, we do see a very nice and stable development there in both segments. We're going to come to that later. So that gives us a pretty good business to work with. The main things we have done now, they are in the operating expenses. We have put out the gross profit here. This is up to EUR 92 million, EUR 93 million. The more important figure for me is the gross margin, which is moving sustainably close to 60% of revenue, which is good. After the gross margin, the next thing that is worth mentioning, and we're going to come to that later in a second on the next slide is the other OpEx. And what Peter has been telling you, the Q3, you begin to see the operating cost base being optimized. You see the operating cost base reduced, particularly in the personnel structure, we're inching towards some 40% of revenue of the personnel margin. Yes, let me have a deeper look. As you're aware, per Q3, so in the 9 months, we have done EUR 154 million, and we are at an EBIT accumulator of minus EUR 1.5 million, so very close on point with the guidance. But I think it's worth having a closer look at the Q3, actually just that quarter. We realized an EBIT of EUR 2.2 million. That is an EBIT margin of 4.3%. And if we go deeper, if we have a look what is inside here, then we are at that illustration that we have in front of us. It is worth noting that Analysis Prime, that initial -- that startup problems that Peter was referring to adds to these numbers with a volume of EUR 1.1 million. That is operating loss. And obviously, we have a PPA amortization in there. So that is in the numbers. If you deduct that kind of subtracting for analytical purposes, then you see that the rest of the group is operating at a 6.5% EBIT margin already, which is a pretty good number. And again, we're not through. There are things to do. But I think if these all comes into effect, we're going to look at the full profitability effectiveness in '26. If we move on, again, this is the 9-month view that I was pointing to, EUR 154 million of gross -- of sales in gross profit that has improved. The EBIT I was pointing to, if you really look at the Q3 numbers only, that is EUR 2.2 million, which is a good number. We are -- and as Peter has been pointing out in the overall rhythm of the business, we have realized the major one-offs basically the first half year. So if you look at the EUR 1.5 million minus EBIT, you have to take into account there is close to EUR 4 million of restructuring one-offs included here. And if you look at the accumulated effect of Analysis Prime, that is something like EUR 2.6 million of negative EBIT contribution here. So that is just 2 things to take into account and have in mind when looking at that number. Those are the effects that we see as one-off or interim effects so that we actually look in a pretty okay way going forward. What else do I think is worth noting? We have a strong cash position over EUR 20 million. We've seen an operating cash flow in Q3 already that has been sustainably -- materially better than in the prior year. That is based on working capital measures that we take. So I'm quite pleased with that. Yes, basically, as I said, it is the beginning. We're not through. But in that Q3, we're able to show some things that definitely going in the right direction. Peter?

Yes. What I would outline also on this slide is, on one hand, of course, as Johannes already mentioned, the operating cash flow, but I think for our Anglo-American investors, even more important, the free cash flow that you see is far above of what we had last year. But of course, given the fact that we had no investments also this year. But as you see, this is a kind of indication for the EBIT for the coming year. So this is, I think, very positive. And the other thing that I would like to outline is you see that there's a decrease in the order backlog of about 10%, which, of course, reflects now also a little bit of the situation of Analysis Prime. You've just heard that they are now below by almost EUR 10 million instead of the EUR 25 million that we had already forecasted for this year. They are now at EUR 15 million that we're forecasting, which is already included in our figures and in our guidance. But of course, this also has an impact on the order backlog. So they're struggling. The U.S. market is a good one. But of course, whenever you have internal issues, then, of course, you focus on this one, but I'm still very optimistic that also we will get our arms around this and that you will see an increasing order backlog also in the coming months already and especially now in Q4, which is, of course, our major [ cue ], as you all know, from the past. So let's give you an idea of the sales by revenue type and by segment for the last 9 months. As you can see, we have an increase close to 6% in the area of the consulting services area, which is, of course, also related to the fact that Analysis Prime is fully included. So last year, we did not have the first 6 months in those figures. So bear this in mind. And that's why I would say we're kind of -- if you deduct this one in a kind of a flat situation with a little growth. Then what is very nice to mention, and this is also our main focus, as you all know, and we will increase, especially also next year with some new software offerings that we will present to the market. The proprietary software CENIT has increased in the past first 9 months by 3.8%. And if you just look at the Q3 figures, you will see that we had an increase of 5.7% just in 1 quarter. So we're expecting, of course, this will continue this way also in Q4. It is mainly driven by the SAP PLM business as well as the recovering DFS business. So the Digital Factory Solutions, as you will see later on, has quite a momentum in the aviation business. So this is pretty nice to mention. Then what you see is, I would say, kind of a flat view on the third-party software. This is related a little bit to the difficulties that you see also with the Dassault, the software. You might have seen and this also had an impact on our share price that last week on the 23rd of October, the share price of Dassault dropped mainly because they are struggling also in selling the software or the partners as we are in a kind of flat area. And, of course, this had an impact on us. Though I must say that we are very optimistic in Q4, we will have some impressive deals that will help us to increase this and then to turn this overall in a very positive figure. If we go by the segments, I would call it flat. So that's why I don't want to go into more details than what you see here on this chart. And if I give you some background on the customer highlights that we had in Q3 and maybe also an outlook for Q4, you will see that one of the nice deals that we could sign is an extension of the 3DX implementation platform with Porsche AG. As you all know, Porsche has quite some challenges. But on the other hand, of course, they are focusing now on increasing the efficiency, reducing their costs and of course, also improving their innovation, which results in the fact that they're going more for digitalization of their production lines of the manufacturing and the whole projecting business. And the other thing that also plays into this deal is, of course, Porsche has kind of slowed down on their battery-only strategy and focusing on conventional engines as well, which, of course, results then in additional seats for the Dassault software. Then the second nice deal to mention also in the area of the Dassault environment is a company called Delpharm, which is a French pharmaceutical company, and they decided to run their whole development now with DELMIA Ortems for 6 industrial sites. So this is not only the packaging. So this goes beyond this one. And we hope that there's more to come because they just started with this. So this is a complete new customer, a new account, if you want to say so. The total volume in the first step just for this year is about EUR 350,000. And again, our French subsidiary, KEONYS, so CENIT KEONYS has done there an outstanding job and has entered also now into the pharmaceutical business. So we hope that this will become a kind of a blueprint for further businesses in this segment. And the final one to mention is the aviation company, Bombardier. Bombardier has decided to go for a FASTSUITE Edition 2, which is our Digital Factory Solutions, so DFS in abbreviation. And this deal is, I think, showing that most of the aviation companies, I must say, or at the moment, I can even say all the aviation companies, they decided to go for our solution in the automation/robotics of the manufacturing processes. And what I can also already give you as a kind of preview because I recently just came back from China, the large aviation company called Comac, which is similar to Airbus and Boeing, has decided to run their whole production with FASTSUITE Edition 2 as well. You will see this only in Q4, but the new airplane C919 is fully running on our solution. And it's really impressive also to see when we talk here in Europe of the first dark factories. You're going to find them there. They're running the whole production with 1 or 2 employees. So this is very impressive. So whenever there is the idea that the Chinese have an advantage because they have lower staffing costs, then I must say that's not what I see. I visited also XCMG and other major companies that are much bigger than what we see in Europe. And they all go for automization, they all go for digitalization. And this is, I think, where the future is heading to and what I'm saying already since months, the European companies have to catch up. Otherwise, we will be completely outpaced in the sector. But final statement I can make is the aviation business is growing and is doing very well. You will also see in Q4 a nice deal for the SAP team with services for Airbus aviation or defense aviation. So this is all heading in the right direction. I can just tell you, I'm positive about Q4, the indications that we see. The traffic that I see in the sales department is exactly what I'm looking for. And despite the environment that we have, I must say that we are in the right way. And as Johannes has mentioned before, from the operational cost side, we're still having this in focus. There will be additional measures that we are -- that we have implemented and we'll collect now the fruits. But there are also some additional measures that we are still introducing to streamline and, of course, increase the efficiency of our organization. So that's it from my side or from our side. So now we're ready for your questions. And yes, we're looking forward to your questions.

Yes. Thank you very much for the deep dive into the figures and highlights. We will now move on to the Q&A session. [Operator Instructions] And we already have 2 raised hands. Mr. Filker, you may unmute yourself now.

And it seems like the light at the end of the tunnel is a little bit brighter now at the end of Q3. And I just wanted to ask, you said that you kept the forecast because you made the experience that you burned your hands in the last years. But still, it seems a little bit conservative, just taking into account that in the last quarter, you don't expect any extra expenses according to the restructuring program and also the first positive effects are to be seen or are already seen in the Q3. So my question is, would it be fair to expect that the EBIT would be at least in a positive -- would be at least positive because EUR 2 million were already reached in Q3. So in Q4, why it shouldn't be -- again, this level of EBIT shouldn't be reached?

So in the past, Mr. Filker, what -- let's call it, the guidance that we have given is minus EUR 1.5 million or better. And we're working on the order better. That's my first statement. And that's why I say we would like to stay a little bit more conservative. The second thing is we still have, of course, challenges in the United States with Analysis Prime. So we just want to be on the safe side. And the third thing is, as you also know, in the past, we have been always naked. We never had the chance to cope or also maybe to build one or the other accrual. So maybe we will do our best to be well prepared for the year 2026. But again, our guidance is EUR 1.5 million losses or better, and that's what we stick to at the moment.

Maybe be technical there, Mr. Filker. We've guided on 2 positions. We are close to reaching 1, which is also, for me, the more important one. But blame it on a conservative CFO, if you will, I or we don't want to change the guidance right now.

And you mentioned -- you already mentioned the problems at Analysis Prime. Are the restructuring measures already showing some positive signs? And do you expect to reach breakeven in the next year?

Yes. In next year, definitely, this year, this will not be possible, also not from the operational side. So even if we deduct the PPA stuff, we will not be positive. But next year, we are planning for a slight profit. Of course, the Analysis Prime is optimistic, but we've seen that in the past, this was not always reflecting then the reality, and that's why we keep it positive, but slight positive.

That means that in the last quarter, you still expect a negative EBIT from Analysis Prime?

Correct.

And just one last question. The restructuring measures are finalized now. There are no more personnel measures to be taken in the last quarter. So no special costs that will come up?

No.

Never say never.

That's it. As of today, I must say, Mr. Filker, there is no case that we have any additional restructuring costs or anything that we have planned for. And of course, what we do is normal operational effectiveness to increase this one. So wherever possible and wherever we see the option or the necessity to do certain cuts, then we will do this, but this is not linked to any program and of course, also not to any additional costs.

Let me also put that into a little context. As you might know, I do have a restructuring background some station of my CV spend there. So the answer in terms of big projects as the one we have presented that has affected the -- especially first half year of CENIT. I don't see that happening. But on the other hand, and this is something that I'm transporting to the leadership team very strongly is performance is not a project. It is an everyday duty. And as we are doing performance management measures as we're doing the alignment and realignment of internal structures, you might see or we're going to -- might be coming back also reporting on just every day, day-to-day performance management measures that we do as we move forward.

We do have another raised hand by a participant who dialed in by phone with the last digits of 813. There is no response. But we have another raised hand. We may go there now. Maybe you can figure it out during. Mr. [ Kowetzky ], you may unmute yourself now.

Can you hear me?

Yes.

Thank you very much for the presentation and the kind words. Great to see that there is light at the end of the tunnel finally. I mean, personally, I am a bit troubled by the market right now that everybody who is spending money on AI is going through the roof and the market is ignoring company that earn money by implementing [ AI. ] Do I understand it correctly that the latter is the case with you? Are you undertaking any kind of measures to communicate that a bit more proactively maybe?

Absolutely, Mr. [ Kowetzky ]. So there are 2 effects. Number one is, as you rightly mentioned, there's a lot of companies out there that have PowerPoint presentations, but they have no revenues or in many cases, even just losses on the AI figures. We had -- CENIT have the advantage that we acquired with ISR in year 2022. A company called -- was a kind of present, I must say, because we really didn't pay for it, but it was a hidden present, I would call it, and the company is called Buildsimple. Buildsimple is used now for insurance and banking organization. So in Germany, the German Sparkassen -- out of the 312 Sparkassen organizations that we have in Germany, we have, at the moment, 65 that are already equipped with our AI solution. And this AI solution is without any human intervention, deciding on normal debt or credit requests from customers. So this is done by our solution. And we are, of course, working and equipping the other remaining 200-ish Sparkassen in Germany as well. And then what we're handling with our solution is about 80% of all customer accidents, incidents, if you want to say so, in the insurance business of the car insurance companies in Germany, they are already equipped with our solutions. So what we can say as of today, we have 48 solutions for our customers or I must say, use cases because they're all based, of course, on the same solution of Buildsimple. And we have now close to 100 customers that are already using the solution. And this is a fast-growing business for us. It is profitable. It's even highly profitable, though we are investing in this area. And coming to the second remark, yes, we have so far not very well communicated in this area. We are changing at the moment our website, and we will also show our, I think, portfolio in the future a little different. You will also see some internal AI solutions from CENIT that we will add, as I mentioned before, to our proprietary software solutions, but there's also Gen 7 coming into the market from Dassault. And we honestly expect this to be a big boost for our existing customer base to move from V5, which is now about 15-plus years in the market to move from V5 to V7 because now the customers with the AI solutions that are implemented in this one have a real reason and a very good argument to move into this one. So if you do not do this change, then of course, you are on an old version that is not supported by AI at all. So any new AI solutions will be only available in the cloud, and this means that you have to move then to 3DEXPERIENCE. So this will be another boost for us, and we will outline this in the coming weeks on our website and then, of course, also on our presentation on the [ AKF ] and others, you will see that we will now have a totally different communication to what we have done so far.

We appreciate that feedback, Mr. [ Kowetzky ].