Softwareone Holding (SIX Swiss: SWON) Q2 2026 Earnings Call

0:00 Ladies gentlemen, welcome to the Softwareone H1 twenty twenty six Results Conference Call and Live Webcast. I am Matilde, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Shi Arne Hansen, Head of Investor Relations at Softwareone. Please go ahead. Good morning everyone and thank you for joining SoftwareONE's H1 twenty six presentation.

0:50 My name is Helarna Hansen, Head of Investor Relations at SoftwareONE. Joining me today are CEO, Rafael Erb and CFO, Hans Petter Schraner. In terms of agenda, Raphael will start with an overview of the H1 twenty six business performance, Hans Ketter will then take us through our detailed financial performance and finally, Raphael will present the outlook for '26 and share his closing remarks. Before handing over, please let me draw your attention to the disclaimer regarding forward looking statements and non IFRS measures on Slides two and three. With that, I will hand it over to Rafael. Thank you, Kjell Arne and a warm welcome to everyone joining the call. I'm proud of our performance in the first half of twenty twenty six.

1:38 On a combined like for like basis, we delivered 11.6% year on year revenue growth. We also delivered a twenty four point nine percent adjusted EBITDA margin, a 4.5 percentage point improvement versus the prior year with our profitability translating into a cash conversion ratio of 69% over the last twelve months. We achieved CHF100 million of run rate cost synergies delivering the top end of the announced target six months ahead of the original schedule. Integration is now substantially completed with the company's focus shifting fully to commercial execution and customer value creation.

2:30 Now let's take a closer look at the financial results. I will mainly focus on the like for like performance as this best illustrates the results of the combined business. Q2 twenty twenty six maintained a strong momentum from Q1 with revenue growing 10.4% year on year. As a result H1 twenty six revenue increased 11.6% year on year with all regions and business lines contributing to growth. As already mentioned in H1 twenty twenty six, we delivered an adjusted EBITDA margin of 24.9%, an improvement of 4.5 percentage points versus the prior year period.

3:18 Q2 twenty twenty six was particularly strong with adjusted EBITDA margin reaching 28.9, up 5.4 percentage points year on year. I would also like to highlight that our reported EBITDA margin for the first half of twenty twenty six was 22.7%. This is an increase of 5.2 percentage points compared to Softwareone's standalone reported EBITDA in H1 twenty twenty five reflecting well executed integration and synergy realization. Overall, our results illustrate the strength of our business model and confirm the strategic rationale of the merger we closed a year ago.

4:08 Now let's look at the business line performance on a combined like for like basis. In H1 twenty six, all business lines showed positive growth with channel and services showing an exceptional 35.617.4% growth at constant currency respectively. Software and cloud direct grew 1.5% in H1 driven by EA to CSP conversion. This continued in Q2, however growth declined 1.8% as the comparative period benefited from several larger deals. We expect direct to return to growth in H2 twenty six.

4:57 Adjusted EBITDA margin for the first half of twenty twenty six ended at 50.8% at the same level as last year. Our channel business had an exceptional first half of the year growing 35.6% with an adjusted EBITDA margin ending at 57.2%, an increase of 9.3 percentage points versus prior period. This clearly proves the key message from our CMD. This is a very scalable business model. The growth in H1 twenty six was led by CSP business as well as strong growth from other ISVs with AWS at the forefront. In addition, the expansion of CloudIQ to new countries further contributed to Q2 twenty six performance.

5:51 Performance in our services business was also strong in the period led by CSP related services. In addition, cloud services especially in AWS and Google, data and AI and cyber security continued to deliver strong performance. Profitability in services business also improved and our adjusted EBITDA margin ended at 8.5% for H1 twenty six, a significant increase from 3.3% in H1 twenty five. Growth in H1 twenty six was broad based across all our regions and I'd like to walk you through key highlights for each region.

6:39 DACH grew 6.8%, Microsoft related growth remained strong driven mainly by continued EA to CSP conversion which also drove double digit growth in our services. Western Europe grew 11.7% driven by strong double digit growth in services and over 50% growth in channel supported by continued EA to CSP acceleration in direct. The Nordics delivered particularly strong growth of 26%. Our services business which amounts to over half of the regional revenue grew close to 20%. Direct delivered double digit growth and channel grew more than 50%.

7:30 I'm very pleased with our progress in North America, which delivered its second consecutive quarter of growth up 8.6% for H1 twenty six. This was driven by channel which nearly doubled year over year alongside strong services growth from CSP and AWS cloud services. APAC was our fastest growing region up 23% for H1 twenty six and accelerating to 27% in Q2. Growth was broad based with particular strengths in Australia and New Zealand, India, Southeast Asia and North China.

8:17 The service business remains the primary growth engine led by cloud services and cyber security. LATAM grew 6.9% to CHF49.3 million led by services, cyber security, data and AI and AWS with direct stable year over year. Brazil and Mexico both contributed positively. And lastly, CEE grew 16.7% to CHF 42,000,000 with strong performance across all business lines particularly in Hungary, Romania and Bulgaria. Let me now share a great example of how SoftwareONE moves from project execution to strategic engagement.

9:11 What started as a cloud migration project has become a strategic partnership. Together with Allianz IUDIA, the Thailand based subsidiary of Allianz, a leading global insurance and asset management company, we successfully migrated over 500 servers to AWS, reduced infrastructure operational run cost by 24% and accelerated their cloud transformation journey. Today, we are supporting broader modernization and innovation initiatives such as development of an app that would modernize Allianz IUDIA's life and health claims process demonstrating how our business model and offering coupled with successful execution creates opportunities for deeper customer relationships.

10:06 And with that I will hand it over to our CFO Hans Peter Schranner who will take you through the financial details of the first half of twenty six. Thank you, Rafael and welcome from my side as well. I will now take you through the IFRS income statement. As a reminder, the '26 income statement includes Scrayon which has been consolidated since 07/01/2025 and therefore significantly impacts year over year comparisons. Revenue grew 68.2% to CHF880.3 million in H1 twenty twenty six. The performance also reflects tailwinds from multi year CSP contracts and early renewals triggered by Microsoft price increases in July 26 consistent with the trends we saw in Q1.

11:02 Reported EBITDA increased to CHF185.4 million corresponding to a margin of 22.7 a significant improvement of 5.2 percentage points versus the prior year driven by strong revenue growth, synergy realization and disciplined cost control. Depreciation and amortization includes 20,500,000 of amortization associated with acquisition related intangible assets arising from the purchase price allocation. The net financial results mainly reflect higher debt levels following the Krein acquisition whereas the prior year period benefited from positive fair value adjustments on Softwareone's pre existing investments in Krein.

11:55 H1 twenty six effective tax rate was impacted by non capitalized tax losses and non tax deductible expenses and as a result net profit for H1 twenty twenty six amounted to million. Let me now turn to the bridge from the reported EBITDA to adjusted EBITDA. Adjustments remain low and continue to be largely driven by the Creon integration activities. In H1 twenty twenty six, million of the total of CHF18.4 million EBITDA adjustments related to Crayon integration costs. Since the start of the integration in 2025, cumulative Crayon integration expenses have reached €42,300,000 as of H1 twenty six.

12:52 We now expect total cumulative integration costs by the end of twenty twenty seven to be in the range of 75,000,000 to €85,000,000 below the initial estimate of CHF80 million to CHF100 million. Looking ahead, we anticipate realizing a further CHF5 million to CHF10 million of cost synergies by the end of twenty twenty six with approximately CHF20 million of integration expenses expected in H2 twenty six around €20,000,000 of integration costs remain to be incurred in 2017. This slide summarizes OpEx development on a combined like for like basis.

13:38 OpEx remained broadly flat year over year at million. Cost discipline remains intact. Realized incremental in year cost synergies of CHF37 million were largely offset by tax inflation, performance related compensation, growth invest and higher third party delivery costs linked to revenue growth. FX further reduced OpEx. EBITDA adjustments also reduced from €33,000,000 to €18,000,000 reflecting the improvement from reported to underlying profitability. Turning to the balance sheet.

14:25 As of June 26 net debt stood at CHF408 million up from CHF361.3 million at year end twenty twenty five. Gross debt primarily consists of the CHF550 million term loan and CHF200 million drawn on the revolving credit facility. As planned the bridge facility was fully repaid in January 26. Comparison to June 25 should be viewed with some caution as the June 25 balance sheet reflects the pre closing structure. At that time we have both the bridge facility drawdown and the crayon shares recorded as financial assets prior to settlement of the transaction.

15:14 Net working capital after factoring improved to negative 109,200,000 as of June 26 compared to negative 216,600,000 a year ago. This improvement mainly reflects the structurally attractive and acquired working capital profile of Praia. Intangible assets increased substantially following the acquisition and now include the goodwill and acquired intangible assets recognized as part of the purchase price allocation. I would also like to note that we have now finalized the purchase price allocation for the Crayon acquisition. As a result of this final valuation work Woodbill was adjusted by CHF22.5 million retrospectively as of the acquisition date.

16:07 Importantly this is a balance sheet remeasurement there's no impact on Softwareone's cash flow, underlying operating performance or previously communicated synergy expectations. Overall equity increased to million almost doubling versus June last year reflecting the capital increase related to the Crane acquisition and the profit for the period partially offset by dividend paid and currency translation adjustments over the period. Turning to working capital which remains a key management focus. On a like for like basis and looking at the last twelve month period to June 26 net working capital before factoring improved by CHF46 million.

17:02 These improvements came even as reduced our utilization of short term factoring by CHF12 million so after factoring the net improvement was 34,000,000. I would like to emphasize that we delivered strong growth across the combined business while keeping net working capital broadly stable. This reflects continued discipline in working capital management and ongoing improvements in our underlying processes which remains a priority going forward. At our Capital Market Day we introduced a cash conversion target above 60% throughout '26 to 2030 periods.

17:51 On a last twelve month basis we delivered a 69% cash conversion excluding the impact of factoring. Last twelve months operating cash flow was CHF271.6 million primarily driven by profitability. Adjusting for the CHF12 million reduction in factoring utilization operating cash flow was CHF283.6 million. After CapEx of CHF71.9 million free cash flow amounted to CHF211.7 million. Against last twelve months reported EBITDA of CHF308 million this translates into a cash conversion rate of 69 well above the target.

18:41 Lost twelve months CapEx of CHF71.9 million was primarily related to internal IT investments followed by platform investments with services and other investments accounting for three ninety. As outlined at the Capital Market Day, we expect CapEx to increase modestly during 2017 and 2018 as we accelerate investments in platforms, internal IT and ERP initiatives. During this period CapEx is expected to represent approximately seven to 8% of revenue before normalizing towards around 5% from 2019 onwards.

19:28 Regarding cash conversion, we continue to expect a meaningful tailwind from net working capital improvements over the first three years of the plan period with benefits moderating thereafter. The exact phasing will naturally depend on the pace at which we execute further working capital improvements across the combined business. Turning to the H1 twenty six cash flow statement. We generated operating cash flow of million up slightly from CHF87.1 million in the prior year period supported by stronger profitability. Profit for the period increased significantly from CHF9.1 million to CHF54.3 million.

20:21 This benefit was largely offset by working capital movements which resulted in CHF72.1 million cash outflow in H1 twenty twenty six compared to a cash inflow of million in the prior year. The prior year period benefited from the introduction of our main new non recourse factoring program. Investing cash flow amounted to an outflow of CHF34.3 million primarily reflecting CHF36.5 million CapEx broadly in line with the prior period and focused on internal IT and platform investments. This compares to an outflow of €64,700,000 in H1 twenty twenty five which included the settlement of the swap agreement related to the Crayon investment.

21:18 Financing cash flow was outflow of CHF102.4 million compared to an inflow of 369,300,000 in the prior year. This year's figure was negatively impacted by the acquisition of Creon minority interests. The prior year's figure by contrast benefited from CHF424.2 million drawdown of the Creon acquisition bridge facility. As a result cash and cash equivalents were 3 and 82,800,000 at the end of twenty twenty six compared with 419,100,000 at the beginning of the year.

22:06 Let me conclude with the development of net debt over the last twelve months. As of June 26 net debt stood at CHF408 million with a leverage ratio of 1.1 Compared to the net cash position of 36,200,000 in June 2025 the increase was mainly driven by the acquisition of PRAYA. Beyond the acquisition itself the key cash outflows were income taxes and interest paid, capital expenditures and prior transaction and integration expenses. This concludes the H1 financial review. With that I will hand over to Rafael for his closing remarks.

22:54 Thank you Hans Peter. We are tracking well towards delivering against all targets. Looking at the numbers FY 2025 revenue growth was 1.4% and on an LTM basis to June 26 that's now at 8.9 growth. Our 2026 guidance remains mid to high single digit revenue growth. H2 twenty twenty six growth is expected to moderate as the benefits from accelerated EA to CSP conversion and early renewables which supported H1 don't repeat at the same pace compounded by a tougher comparison base in H2 twenty twenty five.

23:43 On EBITDA margin, FY 2025 was 20.9% on an adjusted basis with LTM now at 23.2%. We continue to guide to above 23% adjusted margin for 2026. Our dividend payout policy remains 30% to 50% of adjusted profit for 2026 moving to 30% to 50% of reported profit as we look forward 2030. And lastly, our cash conversion outlook for 2026 is above 60%. We wanted to use today's update as an opportunity to give you a bit more detail on what's driving the path to our 2030 margin ambition we laid out at the Capital Markets Day in June.

24:42 As a reminder, we are targeting an EBITDA margin above 28% by 2,030, a five percentage point improvement compared to the '26 outlook, which we expect to face roughly linearly over the period. The largest contributor around three percentage points comes from AI and automation efficiencies and further embedding that across our own internal processes. A further one percentage point comes from scaling our channel business. Margin expands faster than growth as we scale within our existing footprint and as we expand into new markets.

25:31 The final percentage point comes from our services business as AI drives a more scalable delivery model through for example central platforms that allow us to leverage expertise globally and standardize some delivery alongside continued SG and A efficiency, we expect this to improve margin with no dilution effect. And last but not least, as we have already said is during the CMD, sharpening our services portfolio is something that will contribute to the margin expansion. All three of these build on the foundation we have already delivered, our CHF100 million cost synergy program completed in H1 twenty twenty six and continued benefits from the more efficient operating model that the program put in place.

26:32 Underpinning all of this is continuous cost discipline across the group. And now I'm pleased to present our evolved executive board effective from September 1. These changes mark the next phase of SoftwareONE's development increasing regional representation at the executive board level and bringing customers, partners and markets closer to decision making. Regina Manfredi will assume responsibility for the full Americas region expanding her current mandate for Noram to include Latam. Regina led Creon's Noram business ahead of the merger and has served as President of North America since July 2025.

27:27 Rico Andrioli will lead the full EMEA region broadening his responsibilities beyond Western Europe to include The Nordics, Das and CEE. Rico brings nearly two decades of experience at Softwareone having joined in 2009 and most recently serving as regional president Western Europe. Varun Palibal will continue to lead APAC, a region he has led since January 2025 after more than a decade in senior roles at Softwareone. Lastly, Gutmundur Adar Steinsson has been appointed Chief Channel and Ecosystem Officer.

28:13 Gutmundur recently served as Chief Partner and Sales Officer and brings more than twenty five years in the software and cloud industry including a decade at Crayon in senior commercial leadership roles. Combined the new structure strengthens accountability and supports faster execution. I would also like to mention that our Chief Operating Officer Oliver Bertschold has decided to leave the company. Let me close with a few key takeaways. With integration substantially complete and synergies of $100,000,000 achieved, our focus is now shifting fully from integration to commercial execution and customer value creation.

29:05 We remain on track to deliver on our 2026 financial targets across growth, margin and cash conversion. And we continue to focus on sustainable working capital improvements to further strengthen our cash generation. Taken together, this sets a clear foundation for how we execute against our ambition going forward. And with that, we will now move to the Q and A. We will now begin the question and answer session. You will hear tone to confirm that you have entered the queue.

29:52 Questioners on the phone are requested to disable the loudspeaker mode The first question comes from the line of Noushin Nizati from Deutsche Bank. Please go ahead. Hi, good morning, Rafael. Good morning, Hamsitter and congrats on the quarter. I have a couple of questions on margin. Given how strong margin has been in H1, why are you only reiterating the guide for 2026? I guess my question is, what are you expecting to weigh on margin in H2?

30:39 And on 2030 margin bridge, and thanks for the color, very useful. The biggest piece is from AI and automation efficiencies. How much investments do you need to achieve this? And where exactly do you see those coming from? Is it internal processes, SG and A or delivery productivity? And if I may also on the linearity of that expansion, do you also expect the contribution from AI to be linear or is that more backend loaded? Thank you. Thank you very much for the question. Maybe first of all on the EBITDA margin targets. I think the lower look, the lower end of the range would require a scenario where several things I would say would move against us at once.

31:36 We are not seeing evidence of that today. The range as guided reflects the realistic band of outcomes. But based on the underlying growth trajectory, the momentum in services and channel and the trends across our regions, we are comfortable that we will end in the range and we are from an EBITDA margin positive that we will not land at the bottom of the 23%. I hope this clarifies your question on the EBITDA margin. And I think you had a point related to the AI efficiencies. We mentioned before on the trajectory to reach the 28% plus target for 2030 on EBITDA margin that we see this linearly improving.

32:36 Now for AI related, for sure we see some more of the effects probably '28 onwards. Right. And sorry, how much investment you need to achieve this? I mean this is what we have communicated at the Capital Market Day. The CapEx will increase in twenty seventwenty eight to we said also today seven to 8% of revenue funding these investments in AI and automation and the funding will come from the release of networking capital. So it should be in a way cash neutral. So we will have heavy investments in next two years and then benefiting years by now.

33:35 Thank you very helpful. Next question comes from the line of Florian Trausch from Kepler Cheuvreux. Please go ahead. Yes. Good morning, gentlemen. Thanks for taking my question. I have basically two questions around this EA to CSP shift. The first is, can you simply can you kind of quantify the tailwinds you have seen in H1 and what you expect to happen in H2? Or can we argue that higher pricing at Microsoft can compensate for the higher comparison base in H2? And the second one is, like you flagged, that the CSP shift has also positively impacted your services margin. Can you talk a bit about sustainability in that segment if you look into the coming quarters, if it's fair to assume a 10% plus margin also in the quarters to come? Thank you.

34:28 Thank you very much Florian. We mentioned during the call that EA to CSP conversion was a bit accelerated in H1 due to early renewals also due to the fact of the price increases of Microsoft as per July. And that clearly gave us certain tailwinds in H1. And we mentioned that the tailwind is around four percentage points overall and this will then also have an impact on H2 where we see a bit of decelerated growth compared to H1. The second point, it's absolutely true that the EA to CSP conversion has an impact not only on our direct or channel business but also on our services business line. It has a positive impact because we sell CSP always as a bundle which consists of the license plus a service wrapped around. Typically this is various support packages which we offer to our customers but there is always a service wrapped around and obviously that then also helps us accelerate our services business and contributes to

35:58 the growth which we have achieved in H1 and will also contribute to the growth which we see in H2. Great. Thank you. We now have a question from the line of Marc Berge from Finance and Peer Just. Please go ahead. Yes, thank you. Actually, questions were already asked. Yes, I was interested about tailwinds that you get due to the early renewals, but you already clarified that. Thank you. Thank you. The next question comes from the line of Christopher Thong from UBS.

36:50 Please go ahead. Yes. Good morning, everyone. Thanks for taking my question. Maybe just one from my side on Microsoft 2027 incentive changes. I was just wondering what your thoughts were on the introduction of gross margins and the change of channel partner incentive changes? Thank you very much, Christopher. I mean, we think broadly speaking on the FY 2027 incentive framework, the focus is increasingly on growth basically. And partners which grow fast, they can I would say benefit right? As for Microsoft announced, they announced this 5% margin reduction from October 26 on products such as three sixty five E1, E3, OneDrive, SharePoint.

37:47 Based on our discussions with Microsoft and also our assessment, it suggests that we would not expect a meaningful impact overall. Any reduction on these products should largely be balanced by other incentive opportunity. Also these products make up only a small part of our overall CSP business. And therefore, I would expect there is no there is actually no material impact for us on incentive changes. We see them as very neutral. Got it. Thank you very much. We now have a question from the line of Christian Bada from Deutsche Cantonalbank.

38:42 Please go ahead. Yes. Good morning. Congratulations to these excellent numbers. I have a question regarding taxes. Your IFRS reported tax rate was 42% in the first six months. However, in terms of cash taxes, the cash effective tax rate was only 20%. So I was wondering, can you maybe provide some color what we should model for the full year in terms of tax rate? For 2016 you can assume a more normalized tax rate of in the range of 30%. And is this a good run rate for the for the years thereafter? Of course, the ambition is to further reduce.

39:33 But that is for '26, even the very standard integration, it's a reasonable rate for '26, yes. Okay. All right. Thank you. We have a follow-up question from the line of Mark Birgi from Financial Fairshaft. Please go ahead. Yes, thank you. Could you maybe explain the logic behind the reorganization? Why did you decide to streamline it and reduce the number of regions? Thank you. Thank you, Marc. I mean, we have mentioned we go now into the next phase right from integration towards customer focus and execution.

40:23 That's really the key. And I think with that, it's very vital that we make sure that within the Executive Board, we really have the representation, which is close to the customers and close to our markets and therefore elevating some of the regions into the executive board makes a lot of sense. That's what we have done now. We have three overarching regions with EMEA, Americas and APAC focusing exactly on this. And then also last but not least very importantly is the channel representation and our vendor partnership representation in the executive board with Gudmundur joining.

41:15 We mentioned the channel business, which is part of 2030 strategy and plan, fastest growing business line, also a very margin accretive business line. And we have that now represented in the Executive Board. And yes, that's why basically we are very confident that I'm personally, honestly, very excited to to work with this new newly structured executive board moving forward. Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Shiel Arnehansen for any closing remarks.

42:05 Thank you and thank you everyone for joining and as always please feel happy to reach out to the IR team if you have any follow-up questions. Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.