ATOSS Software SE (AOF) Q1 2026 Earnings Call Transcript

Hello everyone. Welcome to our Q1 Earnings Call, where we will be discussing our results for Q1 2026. We are pleased to have you here with us today. I am joined by our Chief Financial Officer, Christoph Leiber, and we are glad to have the opportunity to walk you through our performance in Outlook. We will be referring to the Earnings Call Q1 2026 presentation, which was published earlier this morning and is available for download on our Investor Relations website, as well as via the link provided in the webcast. A detailed investor relations presentation was also published this morning, which we encourage you to review for further insights, but will not discuss during this call. Please note that today's call is being recorded, and the recording will be made available on our investor relations website after the call. Before we begin, I would like to start with a disclaimer. Please note that the presentation contains forward-looking statements based on the beliefs of ARTOS Software SE. These statements reflect the current views of ARTOS Software SE with respect to future events and results and are subject to risks and uncertainties. Actual results may differ materially from those projected here due to factors including but not limited to changes in general economic and business conditions, the introduction of competing products, lack of market acceptance of new products, services or technologies, and changes in business strategy. ARTOS Software SE does not intend or assume any obligations to update these forward-looking statements.

With that, I will now hand over to Christoph Leiber, who will walk you through the key developments of the first quarter of 2026, including our business and financial performance, an update on artificial intelligence and our outlook for the year ahead we will then conclude with a q a session christoph over to you thank you carla and a very warm welcome from my side to everyone on this call i'm happy to walk you through our q1 2026 results current developments and our outlook at the same time i'd like to thank all of you for your continued interest in atos so let's get started with slide four and key takeaways ways. We started 2026 with a continuation of double-digit revenue growth and margins above our guidance. Revenue grew by 11% year-on-year in Q1, driven by continued very strong momentum in our cloud business, which grew by 27%. At the same time, we achieved an EBIT margin of 35%, which is above our full-year guidance. This strong margin development was supported by two factors. First, the efficiency progress we are making through our internal AI efficiency and productivity initiatives. And the second effect that we saw was a technical effect from the revaluation of our long-term incentive programs. Turning to order development more broadly, ARR and cloud subscription order backlog year-on-year showed a continued double-digit growth. At the same time, we saw in Q1, from the beginning of March onwards, a certain level of caution in the market, driven by macroeconomic and geopolitical uncertainty. Against this backdrop, overall, new ACV in Q1 came in at prior year level, which we consider a solid outcome. Positive to note, the share of new logos in our new ACV increased to around 50% this quarter, and this is compared with 30% to 40% in the previous year. One area that clearly stood out positively was healthcare. We saw a strong momentum in this sector. Amongst others, we have one very renowned new customer in our healthcare practice, the Berlin Charité, and are very proud to have this large hospital right now amongst our healthcare customers. We continue to see a robust pipeline in healthcare. So going forward, this will hopefully help us in the next quarters. Healthcare is a highly regulated environment with large operational workforce working 24-7 and it is exactly these characteristics which are in demand for structured workforce management and increasingly for AI-based forecasting and planning support. This directly links to our broader progress in AI in Q1 where we continue to execute consistently on our AI roadmap on the product side while at the same time leveraging AI internally to improve efficiency and productivity. These internal initiatives are already contributing to higher operational leverage and more scalable cost structure. We expect this to allow us to significantly increase output over time while keeping costs well under control. Finally, let me briefly touch on our outlook. We continue to guide for revenues of around 215 million for 26 around reflecting here the possibility of a negative deviation of up to 2 percent i.e. a range of approximately 210 million to 215 million euros in revenues for this year this is in line with what we have said on our earlier conference calls in this year. Based on the efficiency gains we are seeing both from operational execution and from AI-driven productivity improvements, we are confident in our margin trajectory. As a result, we are able to update our EBIT margin expectation for 26 to at least 34% as an EBIT margin for the full year. Now with that, let's move on to the income statement on slide 6, comparing Q1 26 with Q1 25. As mentioned, our total revenues increased in Q1 by 11% year on year. This growth continues to be driven by software business, which grew by 13% year on year and accounted for 74% of total revenues now within software cloud and subscription revenues remain the key road drivers this line of revenue increased by 27 percent year on year and now represents 53 percent of total revenues compared to 46 percent of total revenues in the prior year first quarter maintenance revenues declined by around three percent which is fully in line with our expectations giving our ongoing shift towards cloud. Looking at the remaining revenue streams consulting revenues increased by 11 percent year on year reflecting continued solid demand. Other revenues grew by 12 percent while hardware revenues declined by 24 percent which constitutes however a very small only a very small fraction and share of our overall revenue base. With the top line growing we achieved an EBIT margin of 35% up one full percentage point compared to the prior year quarter. Let's now take a closer look to the development of our recurring revenues comparing Q1 26 with Q1 25 on slide 6. Starting with total AR which includes cloud and subscriptions as well as maintenance total AR increased by 17% to 148.1 million in Q1 26 looking specifically at cloud and subscription AR we saw again an increase of 27% to a hundred and nine point eight so nearly 110 million in Q126. When looking at customer value dynamics, our net retention rate came in at around 112 percent for Q126, sitting slightly above the rate that we had for the full year in 25. So positive development overall there as well. Now turning to our backlog, which provides good visibility into the future recurring revenues our total AR backlog for the next 12 months increased by 16% to 152.5 million. This reflects a solid level of contractually committed additions and continues to underpin our revenue visibility and guidance for the upcoming quarters. Looking at the incremental cloud and subscription backlog added year on year, we see a stable development. Again, we added 21.5 million in Q1 26 compared to Q1 25. And given the ongoing macroeconomic and geopolitical uncertainties, maintaining this level year on year demonstrates the resilience of demand for our cloud offering now let me turn to cash flow and liquidity on slide seven in the first quarter of 26 operating cash flow increased significantly compared to the prior year quarter from around 20 million in q125 to around 39 million in q126 The year-on-year increase in operating cash flow is largely explained by a one-off-tax effect reducing the cash flow in Q125, so now showing off as positive in the operating performance in Q126. Turning to liquidity, at the end of Q1 26, total liquidity stood at around 162 million, up from approximately 123 million at the end of the year 25. Overall, this leaves us, as always, with a very strong liquidity position. Let me now turn to outlook on slide 8. And based on the solid start in the year, we reconfirm our revenue guidance for 26. We continue to expect total revenues of around 215 million euros for the full year. And as mentioned in the beginning, a round reflects a prudent bandwidth and based on our current visibility, this means we expect to land within the range of approximately 210 million to 215 million euros in revenue. On profitability, reflecting the efficiency gains we see, we are raising our EBIT margin guidance. For 26, we now can expect an EBIT margin of greater than 34%. For 27, we continue to target total revenues of around 245 million, i.e. around, implying there is a possibility of a negative deviation of around 3%. Hence, we expect a revenue CAGR in the range of approximately 12% to 14% for 26% to 27% combined. Naturally, the exact trajectory will depend on macroeconomic conditions and our execution, i.e. for more clarity in 27%. We have to wait until later in 26 and or the end of 26. Moving on to people and organization on slide 9. At the end of Q1 26, our total headcount stood at 862 employees compared to 856 at the year end 25. This reflects a moderate and largely planned development in our organization and remains fully aligned with our strategic priorities. Regarding our go-to-market organization, we are now where we intended to be from a people perspective. As of Q1 26, our sales and marketing headcount stood at 207 employees, which is fully within the targeted range. Importantly, a significant share of our current account executives has joined over the course of the past quarters and is still in the ramp phase. As these colleagues progress along their ramp up, we now increasingly expect to see productivity feeding through step by step. At the same time, improved processes and the use of digital processes and AI-supported tools are helping us to accelerate this ramp-up and further increase productivity. Overall, this means that from a go-to-market perspective, our focus is clearly shifting now from capacity and process build-up towards sustained productivity, efficiency, and execution quality. Therefore, we currently do not see the need for significant headcount expansion despite ongoing growth opportunities. Instead, our priority is balanced productivity gains from AI with operational efficiency. This may also imply that for certain areas we allow headcount to remain stable over time without constraining our ability to deliver or innovate. In parallel, we continue to invest selectively where it creates the most leverage. This includes, for example, the buildup of our AI development hub in Bangalore. Together with capacities in Romania and Germany, this setup allows us to strengthen our AI capabilities in a focused and scalable way on the product side. And with that, let me now turn to the artificial intelligence on our roadmap on slide 10. Before we continue, I'd like to quickly share our current observation about the market demand for AI. We see a growing interest in our AI services across our customer base, although demand currently differs by industry. And in healthcare, for example, since we announced the future AI services would be released only on cloud infrastructures for our cloud customers, all medical customers opted for cloud. And since the availability of our first AI forecasting features, all new enterprise customers have these services in healthcare as part of their selected product packages. Also, in retail, we observe some traction. Approximately one-third of new customers embedded AI services in their packages. However, in other industries, demand is still at an earlier stage, so that we are seeing today, what we are seeing today is not a uniform wave across all sectors. It is a general interest and a specific explained and pronounced buying interest in certain industries. With this said, let me come back to our roadmap, which we believe will increase the appetite for AI services with current and future customers alike. It also makes it even more important for customers to move to our cloud offerings. Today, our AI features already help customers improve planning quality, for example, through absence rate forecasting and workforce intelligence, making risks and inefficiencies visible earlier and more reliably. What comes next is to take this one step further, not only identifying better decisions, but making complex compliance critical tasks easier to execute in a day-to-day operation. Agent-based services do exactly that. They reduce the need for deep system expertise by taking over routine, guiding users through complex workflows, and supporting that crucial steps are completed correctly and consistently. Let me make this concrete with one practical example. The next AI feature we plan to release in Q2 already, 26, so this year, is an agent for our ATC clients, starting with insight and then moving into the action part. To illustrate that, what this means in practice, consider the onboarding of new employees. Every time a new employee joins, they must be assigned to correct working time models or if non-fits new models need to be created today this is of course still a very complex task administrative staff needs to translate contract terms into working time models that combine shifts weekends start and end times breaks rounding rules and salary supplements all of which are critical from a compliance perspective. With a new ATC agent, this process becomes much simpler. The agent asks only the relevant questions, ensures that no parameter is missed, and proposes the correct working time model or helps create a new one if required. This results in significantly less administrative efforts and enables less experienced employees to complete these steps correctly and consistently. And this is just one of the capabilities of this first ATC agent. It also supports in creating replacement suggestions if an employee is ill, etc. So this starts in Q2 with support on the inside side and continues in the coming periods with the action side of this agent. Let me give you another example of agentic support with our solution, this time based on our first ASIS staff center agent that are planned for release starting in Q4.26. Consider a frontline worker returning from parental leave who suddenly needs time off for their child's daycare onboarding. Instead of searching policy documents, figuring out what is allowed under the contract and worrying about pay, compliance, and other implications, the employee can simply describe the situation, even by voice, sounding like this. I might need to leave early or take a day off. What are my options? The staff center agent then interprets this request, checks the relevant policies and contract context and proposes concrete compliant options explaining the impact and guiding the user through the next step such as adjusting the shift or initiating appropriate request let me give you yet another example of an agentic support with in our solution this time based on the first version of the Asus expert agent planned for release in Q4, 26 equally. Imagine a store manager starting Monday morning, 47 leave requests from her team on her desk. The challenge is not to approve them quickly and just approve all of them. The challenge is approving them responsibly without breaking coverage, without violating rules, creating no problems on shop floor later in the week. So, for example, approving a request that would trigger shortfalls on Saturday. So this is the task. With the expert agent, all 47 requests have already been checked over the weekend against staffing levels, required skills, contract rules, peak demands, and are pre-selected and grouped by risk. Requests that are safe to approve, requests that would create gaps, requests that need clarification. Crucially, every recommendation is explainable to the manager, so the manager can see why certain requests are safe and why others are not. The more typical takes around an hour of manual work or even more sometimes is reduced to just a few minutes and on top the quality of decision increases through better consistency and transparency and let me say on top of that on each of these steps of making decisions there's the human in the loop the manager in this case who ultimately makes the decision so we have good control and good guardrails in place as well again also for others these These examples are just a small part of the capabilities of the first ASIS Expert Center AI agent, meaning the AI agent can be used for lots of other use cases as well, predicting reduced coverage rates in the future and its consequences on illness rates, overtime, etc. Proposing scheduling mitigation to predicted reduced coverage rates, etc. etc. Collectively, these agent-based capabilities fundamentally change how people work with workforce management systems, and our focus is to continuously evolve this and remain the best-in-class solution for our customers. Coming from our workforce management day, I can say there's excitement. And at the same time, for a lot of customers, it means that they now understand why to move to the cloud. Finally, a brief word on how we use AI internally. Around half of our software developers use Cloud Code. Since mid of March, all of our developers have access to Cloud Code. and by the end of next quarter we target to have more than 70 percent of our coders actively using it across the company around 70 percent of employees already use ai tools on a regular basis and about 50 percent already use them on a daily basis we invest regularly in training adoption is strong and productivity effects are clearly visible hence our margin guidance can be increased Overall, AI is not a future topic for us. It is already becoming part of how we build products and run the company today, and that is on every level. Now, this concludes the presentation part of today's call. We'd now like to open the floor for questions and are happy to dive deeper into any topics you'd like to discuss. Thank you.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. The first question is from Nicolas Herms, Deutsche Bank. Please go ahead.

Yeah, hi, thank you for letting me on. I have a couple of questions. I think it's easy if I just ask them one by one. And the first one would be on the geo and macro weakness that you've mentioned. I was just wondering if you are seeing any differences in the international versus the DAX business and if there is, you know, any sector that is particularly affected and if there's a difference between the new customer and existing customer business.

Hi, Niklas. Thanks for putting all these questions. On the geomacro, I mean, let me say first, we started this year very strong, I have to say, on the new ACV side. And that led to development that all the way until the end of February, we were significantly above last year. Then everybody knows on 28th of February, I think things have changed a bit. Energy prices went up and that has left not the pipeline to change, the pipeline still is very robust, but the conversion within the pipeline and the time accuracy of customers or potential customers following through with their decision process. And that's quite understandable, I believe. That was particularly pronounced in areas that are not public sector. So in public sector, I mentioned healthcare, we saw positive development, continuation of positive development as well. But in other areas, like manufacturing in particular, we saw this development. If I wanted to break this down by versus DACH versus international, I don't really see a difference here really, I have to say, although obviously our international practice is a bit more limited, so it's for me difficult to call this out as a statistical number in international we actually have seen quite a good development actually because we have been successful in winning a larger extent expansion of one existing customer a french customer there in logistics with whom we have signed last year a deal for i think the banalux And they have been very pleased with the development in the Banalax region, Belgium and the Netherlands, and are now expanding substantially. So this was quite a large deal that we won in Q1. It's a French logistics company, which continued their confidence in further rollout with Atos in the next years. In the DACH region, I would say in terms of new logos and existing customers, we were, as I said, seeing a positive development in this for the entire quarter in new logos overall. obviously we had hoped for a bit more but it was a positive development because 50% of our, slightly more even, of our overall new ACV came from new logos and that was on the backdrop of 30% I think in Q1 last year and 40% for the entirety of last year. So good continuation of the development in the new logo side yes we had hoped for a bit more and to give you an idea there adding to this time topic that customers the pipeline has not changed the convincement convince a conviction of customers to ATOS or to the workforce management side has not changed but the deciding point of doing it just now in March was probably for some customers a bit difficult. Two of those have directly signed after in April, but as we report on quarters and not on timeframes that are leading up to today, these were obviously not counted in Q1. Then in terms of enterprise SMB and other areas enterprise was actually above last year so generally good development which we had hoped to be even stronger but still above last year SMB was from our perspective quite a disappointment and maybe it's showing that the uncertainty is even increasing on the level of SMB customers in particular there on the new logo side they're quite different from the

enterprise side that's kind of the color that I can give you on top of that if there's anything else I you would be interested in please follow follow with a follow-up question no no that's that's already very very helpful just I just had another question on the new cloud ACV I think one of the previous calls you I mentioned that you need, I think, 5 to 6 million euros in new ACV to get to the 215 million in revenues. And in Q1, the incremental cloud order backlog added was flat.

So just wondering if we should expect the lower half of your revenue guidance range for 2026 as of now. okay um fair question and yes um in general a new object yes and we what i said in on earlier calls was that for the entirety of this year we would need um and ink the incremental order backlog added at the end of this year to grow uh on top of last year and not be not stay flat So, growing would mean roughly 10% growth. That would imply that by the end of this year, so at the very end in Q4 this year, the incremental order backlog added for the 12 months before, so in the course of this year, would need to be in the ballpark of 25 million euros. but not really for the year 26, rather for 27. In order to do the 26 guidance, we are currently in line with our projection. So we would be still seeing us in the middle of the bandwidth that I gave. So around 215, meaning 210 to 215. And the middle thereof would be 212.5, something like that. That's what we see currently. And that's mostly driven, but not by the new orders for cloud and subscription. That is sufficient for even the upper end. But it is the perpetual licenses still that are still falling short of even the level of last year. In the first quarter, we saw a decline there of 40%, I guess. Of course, in our overall, as it just makes up 2-3% of our total revenue, it's not so important, but it makes the difference between this bandwidth. So currently, it's really more for this year. It's more the perpetual licenses that play a role. For 27, however, we need to step up. And let me add there, the pipeline is there. We do have still a good pipeline. It is about the conversion rates. And the conversion rates of that pipeline and the timely conversion of that pipeline has to do with two things. One, with the macro. this would need to light light up in order to really fold through and of course secondly it has to do with our own ability to execute and here we still are stepping up the maturity level of our sales organization capacity wise we are okay process wise we are okay but maturity level wise we still have to step up and this will happen in the course of this year all right thank you And just one final question would be, I think, in the beginning you mentioned that margins benefited from one-off related to the re-evaluation of the long-term incentive program, if I got that right.

How much of a tailwind was that exactly in Q1?

That's right. and the tailwind was roughly one full percentage point in EBIT margin and that basically the revaluation of the long-term incentive, in particular of BORD and others, did play a role here.

All right, thank you. Thank you.

The next question is from Gustav Froberg, Berenberg. Please go ahead.

Hi there, thank you for taking my questions as well just one uh follow-up from me um i wanted to ask about uh the cloud migration dynamics for your existing maintenance subscribers or maintenance customers um how much of your business in on the cloud side was driven by migrations in q1 and how should we think about the evolution of cloud migrations as we progress through 2026 yep very important point um just allow me to expand a bit.

Yesterday we had our workforce management day and I was really excited and I think a lot of our existing customers were excited as well to see live on stage what I shared with you today but really live it doesn't make a whole lot of difference to see this AI agent operate and actively communicate with a person and solve problems. So we had another speech there where it said, hey, cloud is really the prerequisite to move to or to get access to these AI agents. So with a lot of these customers, and we had like 700 people there, a ton of customers and resellers and lots of people, with a lot of these on-prem customers that we have, I think it made click that in order to get to the door to AI, and then you have to kind of go through the door as well to actually leverage AI. you first have to move to the cloud. And so I really hope that this kind of ignites a bit of a migration going forward. In the first, just to make this, to put this with clear numbers, in the first quarter, in this NRR, in this ARR bridge that you'll find in the full deck of the presentation. There we have the new customer AR expansion illustrated, and I think that has been 12.7 million euros in the reporting period. And so roughly one third thereof, So $4 million comes from additional migration. And as I said in my speech here, the negative revenue development of the cloud, of the maintenance revenue minus 3% year on year, that is exactly customers moving into the cloud already. So we do have prominent customers like Steele and others in Germany who have moved last quarter, but there needs to be a stronger wave going forward in order to get access to the functionalities, but also in order to kind of have a long-term positive effect for us and for the customers.

Great, thank you. And then a quick follow-up on the same topic. Do you see customers moving in conjunction with an SAP migration as well, or are the two not really correlated and the customers are happy to just migrate on the Atos side without thinking about the rest of their tech stack?

Well, overall, we continue to have a strong SAP-endorsed app partnership, in particular with new logos, I have to say, currently. With the migration trend, I would have to look into deeper myself, but on the new logo side, we are pleased with how the partnership goes, and I think there's a lot of value on both sides in it. Yesterday, in our workforce management day, there was a booth from SAP SuccessFactors as well, so tremendous value on both sides, in particular in the healthcare, but in other areas as well, where we can collaborate perfectly together. Yeah. great thank you thank you it's a reminder if you wish to register for questions please press star and one on your telephone at the moment there are normal questions registered I would like to turn the conference back over to you for any closing remarks thank you well thank you and thank you for the continued interest in in artists I think we've proven once again that we've started with a very solid Q1. We have a strong leverage on our margins because of our own internal efficiencies. Our business model seems to be very resilient even in these macroeconomic environments. Yet going forward, we are looking with a positive view on our pipeline and have to execute on this in order to really show the case for even stronger growth hopefully in the full year and the years to come thanks for your interest and I'm looking forward to the half-year earnings call and all the exchanges in between with the entire investors community thank you