q.beyond AG (QBY0) Earnings Call Transcript

Welcome, ladies and gentlemen, to the H1 earnings call 2026 of q.beyond AG. I would like to welcome the company's CEO, Thies Rixen; and CFO, Nora Wolters, who will guide us through the figures in a moment, followed by a Q&A session with audio line and chat. And with that, I already hand over to you, Mr. Rixen.

Yes. Thank you, Mara. Yes, welcome, everybody, to the Q2 call. As usual, Nora and myself will present it. I will start with a short introduction and setting the scene, and Nora will give you more insights into the Q2 numbers. Yes, we called it the accelerated AI transformation in Q2. So what's the current status? We are better with AI and the AI progress as planned, but still, we are, let's say, suffering a weak demand from our clients from the German or European Mittelstand. Adjusted EBITDA is as previous level, if you count the EUR 1 million or EUR 900,000 transformation costs we invested in transferring our service desk to Romania and puts AI technology in it. So we have EUR 2.5 million EBITDA, EUR 43 million revenues and net income of breakeven level. For us, it's not -- I would say it's disappointing. So we planned different numbers and a different performance, and one part is, for sure, it's the economy, one part. The other part, it's ourselves. I will come to that later. Good is that we have still a full order book. So we did more order entry in Q2 as last year, roughly EUR 2 million or roughly 10%. But still, we are -- let's say, we are impacted by last year. We see that we gained new orders, but still the signing is underway. It's quite -- I would say, it's getting more and more complicated to get the signature under the contract. But we know what is coming, and we know that we have a funnel of EUR 200 million, which we will harvest in Q3 and Q4. And you know that from our business model that we have stronger numbers, especially in Q4. And this will deliver this year also. Yes, as we said in the press statement, the AI, let's say, impact on the positive side is better than we planned. It's for the -- if you look at operations of the Managed Services business, you see that in the middle of the chart, we automated a lot of workflows, a lot of work, 6,000 hours per month. It's still growing. And this is -- right now, it equals to 40 full-time equivalents, and it will be more and more every month. Therefore, we decided to reduce the workforce this year, which we will come to that later on. This is good. The other thing I just said is that we already invested EUR 900,000 in the enlargement of our international tech hubs with Romania and also to put our service desk, which we have for our clients in Germany, we transformed to Romania and invested in AI technology to be more efficient there. You see that we will have end of the year, 50 employees. This, let's say, measure would save us EUR 1 million. We have said that we will save next year, with all the transformation we do this year, we will save EUR 7 million in total of personnel cost. We will have more efficiency and Romania will be the, let's say, health care or SAP health care competency center. You have seen that we bought the 51% of GITG, SAP health care specialist, and then the workbench we will establish for new clients in Romania. Having said that, this is in a nutshell, 10% in Managed Services already gained. We are turning the company more and more an AI-first company. So every, let's say, process should be AI-driven. We will still be a service provider where the human being is important. But on the other hand, we have to be more efficient to be more profitable. And this will -- AI will be one of our most or most important levers for the future. The EUR 900,000 we already invested plus the EUR 4 million to EUR 5 million, which we will invest this year will lead to the EUR 5 million to EUR 6 million investment. And this year, EUR 1 million is still in the books. And this will save us for next year EUR 7 million at least in personnel costs. And this will -- so we will do it once this year and have the EUR 7 million every year for the future. This is our business case we just announced today. Yes, putting all that into account, Nora and myself, we decided to adjust the guidance a little bit. So we are now expecting in revenue around EUR 180 million and an EBITDA, let's say, including the EUR 6 million of investment, from EUR 3 million to EUR 7 million. This is a onetime effect. And next year, we are on track -- yes, we will be on track as we have been in the last 3 years. Again, it's -- for us, it's a movement we have to take to be better in '27 and '28 onwards. With that, I hand over to you, Nora.

Thank you, Thies, and a warm welcome from my side as well. Before I take you through the details of the quarter, let me start with what matters most. The second quarter confirms our consult-to-operate model. We are growing in Consulting. We are earning significantly better margin than a year ago, and our recurring revenue give us the ability to drive this transformation entirely from our own resources. Let me show you what that looks like in the numbers. Group revenues came in at EUR 43 million in the second quarter after EUR 44.4 million a year ago. This decline of around 3% stems entirely from the critically sensitive Managed Services businesses. I will come back to that in a moment. What really matters is the structure underneath. Our Consulting business grew by 5% to EUR 16 million. This is precisely the mix shift we are aiming for. The growing part of our business is also the higher-margin part. Underneath of that sits a solid foundation. 71% of our revenues are recurring. 68% are generated in our 5 focus sectors. And our sales organization is delivering after its realignment. New orders rose by 12% to EUR 20.6 million, and our sales funnel now exceeds EUR 2 million. And this sales success is tangible. In the past 3 months alone, we won, for example, new customers like Dr. Beckmann and Barbarossa Backerei, among others, 2 strong names from the German Mittelstand. These wins show that the realignment of our sales organization is working, not a promise, but in the order intake. In short, in a market where German SMEs are barely investing, we are growing exactly where we want to grow. Just how well this mix shift is working is shown in the margin. Gross profit in Consulting rose from EUR 2.3 million to EUR 4.2 million. It almost doubled. The gross margin jumped from 15% to 26%. With revenues up 5%, that means the leverage comes from working better, not just from working more. Four drivers sit behind this. First, significantly improved team utilization. Second, a rising demand for AI consulting. And third, the growing demand for S/4 transitions, a wave with a fixed deadline, and mainstream maintenance for SAP ECC ends in 2027. And at last, high-margin one-off license revenues. Let me make the AI demand tangible for a moment. When it comes to artificial intelligence, our customers are wrestling with 3 problems. First, the data must not leave their premises. Second, they need to comply with the AI Act. And at last, they struggle to move AI from pilot to stable productions. We already have market-ready answers to all these 3. With our private enterprise AI, we have been offering the sovereign data platform since 2025. Private, local, made in Germany 100% data sovereignty, including consulting service, training, and GPU as a Service. With AI Act as a Service, we launched a tool this year. This is unique in the market. Companies obtain a risk classification to the AI deployment. Bookable online, usable without any integration and managed AI workflows, SLA-backed workflow automation operated 24/7 in our German data center are going to market now. The next steps in Managed Services with AI will follow in the next quarters. Our path towards to becoming the A operating partner of the German Mittelstand. Let me be transparent there. The license effect is a one-off. But even without it, the margin is well above last year's level. In the structural drivers, AI consulting and S/4 will carry us well through 2026. And from this quarter, GITG adds a further building block, proprietary IP for the succession of SAP IS-H in the German market. This affects more than 500 hospitals. Now to Managed Services. This is where the investment reluctance of German SMEs is most visible. Revenues came in at EUR 27 million after EUR 29.2 million a year ago. The gross margin before the one-off provision stood at 19% after 22%. Three factors weigh on the segment: Subdued new business, price adjustment for existing customers in a sluggish economy, and quite deliberately, our ramping up AI investments. And this is exactly where the turning point lies. The increasing use of AI is already lifting our efficiency measurably by more than 10% in Managed Services. That is not an announcement. This is a measurement. From the third quarter, our new site in Cluj, Romania, takes over AI-assisted 24/7 support. This alone will generate savings of more than EUR 1 million a year from 2027 by boosting output by 25%. And we are not keeping this efficiency to ourselves. We already automated 300 workflows internally with another 1,000 in development, as Thies already said, saving more than 6,000 hours every month. This is precisely the field-proven workflows that we will start marketing to third parties in the third quarter. What saves us cost today becomes revenue tomorrow. We are not hiding this weakness. We are systematically rebuilding the segment. AI is changing the cost curve of this market, and we have decided to be on the right side of that curve. So what does all of this mean for the income statement? My message upfront, every deviation in this table has an explanation, and none of them is operational weakness. EBITDA came in at EUR 1.6 million. This includes a provision of EUR 0.9 million for the first stage of our AI transformation, the restructuring of our service organization. Adjusted for this, EBITDA stood at EUR 2.5 million, close to last year's level. The adjusted margin unchanged at 6% and adjusted consolidated net income was 0, exactly in the prior year. Two lines deserve a closer look. Sales and marketing expenses rose from EUR 2.9 million to EUR 3.7 million. This is our deliberate investment in the realignment of our sales organization, and it's already paying off. You can see it in the 12% growth in new orders. In return, we reduced general and administrative expenses from EUR 3.9 million to EUR 3.4 million. This counter movement shows one thing, we are in control. And the overall net of this transformation is simple. One-off costs of EUR 5 million to EUR 6 million stand against savings of around EUR 7 million from 2027 per year. The payback period is less than 1 year. 2026 is the year of transformation. 2027 is the year of harvest. And we are funding this transformation entirely from our own resources. Net liquidity stood at EUR 41 million as of June 30, just EUR 1 million below the year-end figure, even though we paid out variable remuneration of EUR 3.9 million during the quarter. Compared with the same date last year, net liquidity actually increased. This corresponds to EUR 1.65 per share with an equity ratio of 70%. The free cash flow of minus EUR 1.6 million in the quarter is essentially a timing effect, not a structural outflow. In the third quarter, the purchase price for GITG will affect liquidity. That is planned for and fully funded from existing resources. This balanced strength gives us the freedom to do 3 things in parallel. First, fund the transformation. Second, grow inorganically with GITG and at least at the end of August, once the statutory waiting period has expired and subject to the decisions of the management and the Supervisory Board, buy back our own shares. We are acting from a position of strength. And with that, I hand back to Thies for the road ahead and our 2028 strategy.

Thank you, Nora. So what will remain unchanged is our strategy for 2028. So we said 3 things in March. One is the sector focus. So we like to enter 2 industries, health care and energy, to drive -- or to harvest 2 macro trends. With the GITG acquisition, we did the first, and we will take some time to integrate it or to find a way, and then we will target the next target for the sector focus. Enabling AI, I think we talked a lot about to give you more details what our plans are. And internationalization, we already started our go-to-market activities in Latvia and Spain. And with Romania, it's already -- the setup is done, and we are hiring people there. So it's paid off. Here you see some details in GITG. I think we already stated in our press statement. Maybe my summary is the market is there. There's this SAP -- the SAP solution will be out of the market in '27, latest 2030. That's the #2. And the market is with 2,000 hospitals in the DACH region is huge. 500 of them have the SAP solutions. They all need to do something. So this is what we'd like to tackle. And with -- this is #3 with GITG with their own IP, we have a foot in the door. And it's like an iceberg. So the revenue per hospital is one thing is the SAP template, the health care SAP template. But the majority of the business is the normal S/4 transformation and cross-selling we will do concerning Microsoft business or security. So for us, it's more, let's say, is more a sales machine than the business by its own. So that's number one. Number two, as you just said, Nora, we have several services live. So this is not q.beyond internally, this is what we offer to the market. So we launched our Private Enterprise AI. We launched the AI Act as a Service. We will launch -- already have launched the managed AI workflows. And then we will launch in Q4 the orchestration platform for our clients. And there's all what we learned internally will be incorporated for our clients also. And as we said, we expect 10% of the revenue be AI-driven in the future. Internationalization, nearshore or the international quota or nearshore quota is important for us. I think we will be, end of this year, roughly at 30%. We are aiming for 40% in '28. So this is well on track. And here, you see the add-on Nora just said, the capital allocation. So we promised that we will do it this year. So we will do it this year. We have done all the necessary steps. We have to wait until the 17th of August. There's this waiting period, then it ends, then we will take the decisions as management and Supervisory Board, let's say, it's already decided, and then we will start the buyback the week after. That's it, and we can buy EUR 2.5 million q.beyond shares back, which is our goal. In summary is these 3 elements: Organic growth. Yes, we have to do more. We have to do more. Pipeline is there. Our funnel is there. M&A, let's say, is working. We are very glad that the GITG acquisition is done. We will find also a suitable next target for energy when the time is coming. And the AI operating partner is underway to build it and to really -- we see that we have trust in the market and trust from our clients, and we will have more of them in the near future. With that, I would say we are happy to take your questions, and thank you for your time.

[Operator Instructions] We have received a risen hand by Mr. Nilsson.

I mean looking at your numbers, I mean, Consulting, in that part, there's really no signs of a weak market. I mean the numbers are strong at least. But in Managed Services, it's quite the opposite. However, one would expect Managed Services to be more stable in a soft market and Consulting perhaps to take a bigger hit. Now it's the opposite. Could you help us understand the reasons behind?

Yes, there's 2 things. One, we worked for the last 2 years for Consulting. We worked, let's say, the last 2 years heavily to get the structure right and also the resources we needed. So the profit gains are because of better -- let's say it's a better mixture. We worked on the last 2 years. This is one part for Consulting. The other one is SAP. So the transformation, I would say it's more or less independent from the market, and we have a good position there, and it will be even better with health care. So we are gaining from that. So we did -- let's say, we did the adjustments for Consulting. We did during the last 2 years. This is now paying off. This is one. And for Managed Services. To be quite open, there are 2 things. One thing is that on the sales side, it's taking longer as expected, and there is some reluctance to take bold decisions on the customer side. On the other side, we underestimated, at least for the budget this year, the churn and the impact of the churn for this year, the customer churn. There's always churn each year. We know that. But normally, we are able to overcompensate it. And therefore, this has an impact on the Managed Services side. So it's customer reluctance plus some things which develops in different ways as we planned.

That's clear. And regarding the gross margin in Consulting, it was very strong in this quarter. You mentioned some one-offs license revenue. I mean could you give some kind of quantification of how large that impact was?

I don't know. Do you have the details?

A lower EUR 1 million revenue.

Which equals more or less also profit?

Yes. Profit and revenue.

Great. And lastly, from my side, I assume that GITG is included in the new guidance. So the underlying cost is slightly higher. Is that how I should read the numbers here?

Yes, it's included. It's included. It has an impact, but we can only consolidate 5 months right now. So there will be a couple of millions of revenue and not even EUR 1 million in profit. So it's included. It has an impact, but the impact is small.

We have another risen hand by Mr. Sennewald.

Follow-up on Managed Services regarding the price adjustments in the existing base. Are you largely done with them now? Or do you have still some renewals coming up there?

The renewals -- there is always some renewals every year. So the major ones are done. So we did Rohlig, the largest customer last year, and we did Tchibo this year. So Fressnapf as the third biggest customer is end of this year, but we are in negotiations. So there will -- nothing really happened there. There are smaller ones, but this is, I would say, under control in a good way. So this is always the case and the pressure will be there. It was always there as a price pressure. This is a normal way of doing business. What is unnormal for us, as I said, is that we have not been able to overcompensate the effects. And therefore, we are now quite sure that the funnel is big enough and that we have enough chances. And we have -- the deals are there. So we have always 2 phases. There is a yes from the customer and then it's a yes -- then it's a signature under the contract. So we have several yeses already in the books, and we are working on the last details. And then the next thing is that we are -- as we said, we will adapt the related cost to the Managed Services business and then the profit will be different than this year.

So you expect it to turn starting next year?

Yes. As we said, so we will do the measures now, get the hit now. It was not an easy decision, but it's better to have it now and then be prepared next year and the year after.

All right. I don't know if you said it, but on Consulting, you mentioned those one-off high-margin revenues. Can you size those?

Just I already said a lower EUR 1 million sum.

Okay. Okay. So all right. And what would you call...

What is important for the SAP -- this is SAP licenses we sell. So the transformation will last at least for the next 2 to 3 years. So we expect and we have found now the right answers to the market. We expect this will not be only this year. So we see it for at least 2 years that we can have this kind of mixture as we have this year because the clients are waiting what SAP is doing and the last chance they have is 2030 now. So in 4 years, and there will be the majority of the transformation projects, and we will be one of the partners doing them for the German Mittelstand.

Okay. I mean looking at the '26, that's, of course, then not the base level. What would you regard the current base level of the Consulting margin -- gross margin?

Yes, at least above 20%. So there we will stabilize it. So 21%, 22%, 23% this area. So good margin.

Yes, yes, of course. Then on the process automation, you mentioned in the report that you -- and you mentioned also in the presentation that you right now automated processes to the tune of -- equivalent to what 40 FTE can do, and you want to improve that even further you mentioned. How many people you plan to let go? How much percent of the workforce?

In the current -- with the current measurement, we said 70? 70 to 80. This is a mixture of, let's say, layoffs. And then we will have some -- we will have -- you always have some employee churn, which will not -- where we will not hire new ones. We have the retirement waves going on in Germany for the baby boomers, so not only this year, next year, year after. So this is a basket of several measures. In total, it will be 70 to 80 head count this year.

Additionally, this means 10% of the German employees.

10%?

10%.

And that's probably the EUR 4 million to EUR 5 million additional one-off costs you plan for second half, right?

Yes.

Yes.

All right. Okay. Last one on the -- just your guidance for this year. Looking into your mid-term guidance, those EUR 250 million sales target you have, that's roughly, yes, EUR 75 million, EUR 80 million you got to add inside 2 years. Can you give me the building blocks of this?

Yes, this is M&A. This is also -- the building blocks are organic growth. Now we can put a question mark on it. So we expected as we put out the strategy that at least the German and mid-market will recover sooner. So this is building block #1. Building block #2 is inorganic growth, so acquisitions. And the third one is AI, new AI business. So I'm quite sure that we will have -- the plans for #2 inorganic growth will work. And also for AI, I would put a little question mark on #1, the organic growth.

So a bit rough on the numbers here, like saying those EUR 75 million in 2 years starting from FY '26, how much of that is -- you just said organic growth, you can't be too sure about that. So let's see. And how much of this is -- how much further M&A you want to add or M&A...

Ask me next year again, please.

Yes. But you have the mid-term guidance out now, right? So what's your feeling here?

Ask me please next year again.