softwareONE Conference Call Notes – Positive Momentum, Growth Acceleration , Software and Cloud, Synergies

Your first question comes from Stacy Pollard from JP Morgan. Please go ahead. Your line is open.

Year on Year Growth, Positive Growth for the Year

Q: Can you talk about the pipeline for software and cloud and what kind of year on year growth you’d expect for the second half? And could you make it to a positive growth for the full year?

CEO: On the first one. In terms of our pipeline, we have already seen the pipeline growing from May onwards. We see continuous rebound in that line of business also in the current months post H1. We have a positive momentum. If you take our geographies and that slide which I showed on Latam. If you would normalise Latam and if you would take those 2-3 countries from Europe in the normal performance, we would already be on a positive level in software and cloud. So that's what we have addressed. Of course we cannot address the macroeconomic side of it, but Brazil and Mexico and Colombia is also improving heavily on that side.

Software and Cloud, Exceptional Growth, Normalised Basis

Q: And then as you look into 2022, do you think there’s a bit of a rebalancing? So for example do software and cloud get back up to double digits and then solutions and services, obviously quite exceptional growth in the first half of this year. Where do you see that balancing out on a normalized basis?

CEO: On the second part whether we see a normalization in 2022; we see this from different angles. The first one is of course we see that positive momentum across geographies, but we also see the SME recovery across the board. And the second part, which I want to mention over here, we see very positive dynamics also in the Microsoft space. And for that we are very confident on 2022 as well, but as you know 2022 guidance, we will do with the full year results.

Operating Leverage, Synergies

Q: And second question, can you talk about the operating leverage that you’re getting in the second half now? I know it’s partly slower investments, maybe what other areas obviously comparing synergies are on target? I guess there’s some catch up to do, I think in the second half and basically trying to get a sense of just how are you very confident in that catch up or there any things that we should sort of watch around the edges that it could be better or worse.

CEO: Yeah, you're absolutely right. I mean if you do the numbers then you have to see that we we have to have accelerated growth in the second half of the year, but that's not the only piece right. We also have to make sure, that the cost base goes into the same direction. We do have a high performance culture at softwareOne. We absolutely reiterating this over here. That's where we our investment into, our resources in the first half of year, we will see the payback. And we will see acceleration on the second half of the year. The comparex which is mentioned, we are on track on that. But on top of that high performance culture coming out of Covid, coming out of often more empathy year of 2020 we're back on the high performance and that paired with our, with our investment H1 will accelerate our growth.

Your next question comes from Alistair Nolan from Morgan Stanley. Please go ahead. Your line is open

EBITDA, Flat Cost Base, Confidence, Acceleration

Q: Just to follow up on Stacy’s question, am I right in saying in terms of getting to the 30% EBITDA margin for the full year, if we assume a flat cost base, we’re basically implying an acceleration too close to mid twenties ex-FX growth, I think 23% ex-FX growth, which is pretty material acceleration. Can you confirm that, what gives you the confidence to see an acceleration of that scale.

CEO: So on the first point yes, you're absolutely right: It means that we will be exiting 2021 with a higher growth rate for us. This is now it's absolutely clear that our growth is further accelerating in the second half of the year. There are multiple components over there which gives us this confidence. First of all, we already have a run rate business and you have seen this is now 59%. 59% of the over 35% of the GP. That is continuously to grow and that's already a given, it's booked, its banked, it's into the system. We have a pipeline with a high conversion ratio um where we have the intelligence of what the conversion ratio is in the past and if you simulate this, we're very confident on that as well. Both together, for us is absolutely clear that the acceleration in the second half of the year will continue. We already see this Alistair, it's already visible now in the in the running environment.

Services – Larger Component of Business, Gross Profit Margin to EBITDA

Q: And then I guess more broadly as we look into the midterm if services is going to continue to accelerate and become a larger component of the overall business, I think you’re alluding to 50% in the midterm. How do we get comfortable that EBITDA can grow at a faster rate than gross profit, given services typically come at a lower margin GP to EBIDTA.

CEO: On the second question where you say if you pivot to a more solution and services organization, I just want to reiterate our strategy. Our strategy is not to become solution and services alone. Our strategy and there our main differentiators that we have to synergy between software and cloud and solution and services, which is quite unique in the market. I know where you come from with your hesitation; a normal system Integrator would have a different margin profile right on the EDITDA side, but we don't want to become a system integrator. We want to be an exchange service provider where we drive chip where we drive automation fresher approach where even on the solution and services, it is absolutely isolated from a headcount growth and we have a scalability where the contribution margin outweighs our investment. This paired with our digitization on the reselling space where we where we have now, not only a restriction to 90 countries and to 65,000 customers, which we have today, but once you are on the market place, you're suddenly in a digital experience where the addressable market is a completely different one, and you take the human factor out of it with the digital experience, it means whatever margin you have on that flows directly through to the bottom line, so that gives us the confidence.
I understand that we have to talk more about this and we will do this in the Capital Markets Day because that's something where I think there's still a gap from a communication point of view.

Using Python to transcribe Conf Calls, Webcasts

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