SoftwareOne Holding AG (SWON) Q2 2026 Earnings Call Transcript

Good morning, everyone, and thank you for joining SoftwareOne's H126 presentation. My name is Jelane Hansen, Head of Investor Relations at SoftwareOne. Joining me today are CEO, Raphael Erb, and CFO, Hans-Peter Schraner. In terms of agenda, Raphael will start with an overview of the H126 business performance. Hans-Peter will then take us through our detailed financial performance, and finally, Raphael will present the outlook for H126 and share his closing remarks. Before handing over, please let me draw your attention to the disclaimer regarding Forward-looking statements and non-IFS measures on Slides 2 and 3. With that, I will hand it over to Raphael.

Thank you, Giel Arne, and a warm welcome to everyone joining the call. I'm proud of our performance in the first half of 2026. On a combined like-for-like basis, we delivered 11.6% year-on-year revenue growth. We also delivered a 24.9% 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 12 months. We achieved 100 million Swiss francs 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. 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 26 maintained a strong momentum from Q1, with revenue growing 10.4% year-on-year. As a result, H1 26 revenue increased 11.6% year-on-year, with all regions and business lines contributing to growth. As already mentioned, in H1-2026, we delivered an adjusted EBITDA margin of 24.9%, an improvement of 4.5 percentage points versus the prior year period. Q2-26 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 2026 was 22.7%. This is an increase of 5.2 percentage points compared to SoftwareOne's standalone reported EBITDA in H1.25, reflecting well-executed integration and synergy realization. Overall, our results illustrate the strengths of our business model and confirm the strategic rationale of the merger we closed a year ago. Now, let's look at the business line performance on a combined like-for-like basis. In H126, all business lines showed positive growth, with channel and services showing an exceptional 35.6% and 17.4% 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 26. Adjusted EBITDA margin for the first half of 2026 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% each point versus prior period. This clearly proves the key message from our CMD. This is a very scalable business model. The growth in H1.26 was led by the CSB 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 Q2.26 performance. 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 cybersecurity continued to deliver strong performance. Profitability in services business also improved, and our adjusted EBTA margin ended at 8.5% for H1.26, a significant increase from 3.3% in H1.25. Growth in H1.26 was broad-based across all our regions, and I'd like to walk you through key highlights for each region. 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 business. 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 amount to over half of the regional revenue, grew close to 20%. Direct delivered double-digit growth and channel grew more than 50%. I'm very pleased with our progress in North America. which delivered its second consecutive quarter of growth, up 8.6% for H1 26. This was driven by a channel which nearly doubled year-over-year alongside strong services growth from CSP and AWS cloud services. APEC was our fastest-growing region, up 23% for H1-26 and accelerating to 27% in Q2. Growth was broad-based, with particular strengths in Australia and New Zealand, India, Southeast Asia and North China. The service business remains the primary growth engine, led by cloud services and cybersecurity. LATAM grew 6.9% to 49.3 million Swiss francs, led by services, cybersecurity, data and AI, and AWS, with direct stable year-over-year. Brazil and Mexico both contributed positively. And lastly, CEE. It grew 16.7% to Swiss francs 42 million, 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. What started as a cloud migration project has become a strategic partnership. Together with Allianz Ayudya, 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 Ayudya's life and health claims process, demonstrating how our business model and offering coupled with successful execution creates opportunities for deeper customer relationships. And with that, I will hand it over to our CFO, Hans-Peter Schraner, who will take you through the financial details of the first half of 2016.

Thank you, Raphael, 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 Crayon, which has been consolidated since 1st of July 25, and therefore significantly impacts year-over-year comparisons. Revenue grew 68.2% to 818.3 million in H1 26. The performance also reflects tailwind from multi-year CSP contracts and early renewals triggered by Microsoft price increases in July 26, consistent with the trend we saw in Q1. Reported EBITDA increase to 185.4 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 include 20.5 million of amortization associated with acquisition-related intangible assets arising from the purchase price allocation. The next financial result mainly reflects higher debt levels following the Krayon acquisition, whereas the prior year period benefited from positive fair value adjustments on software once pre-existing investments in Krayon. H-126 effective tax rate was impacted by non-capitalized tax losses and non-tax-deductible expenses, and as a result, net profit for H-126 amounted to $54.3 million. Let me now turn to the bridge from the reported EBTA to adjusted EBTA. Adjustments remain low and continue to be largely driven by the Crayon integration activities. In H1 26, 60.9 million of the total of 18.4 million EBITDA adjustments related to Crayon integration costs. Since the start of the integration in 25, cumulative Crayon integration expenses have reached 42.3 million as of H1 26. We now expect total cumulative integration costs by the end of 27 to be in the range of 75 to 85 million, below the initial estimate of 80 to 100 million. Looking ahead, we anticipate realizing a further 5 to 10 million of cost synergies by the end of 26, with approximately 20 million of integration expenses expected in age 226, around 20 million of integration costs remain to be incurred in 27. This slide summarizes OpEx development on a combined like-for-like basis. OpEx remained broadly flat year-over-year at 632.9 million. Cost discipline remains intact. Realized incremental in-year cost synergies of 37 million were largely offset by PECS inflation, performance-related compensation, growth invests, and higher third-party delivery costs linked to revenue growth. A fixed further reduced OPEX. The adjustments, EVIDIA adjustments. Also reduced from 33 million to 18 million, reflecting the improvement from reported to underlying profitability. Turning to the balance sheet. As of June 26, net debt stood at 408 million, up from 369.3 million at year end 25. Cross debt primarily consists of the $550 million term loan and $200 million loan under the revoving 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 had both the bridge facility drawdown and the crayon shares recorded as financial assets prior to settlement of the transaction. Net working capital of the factoring improved to negative 509.2 million as of June 26 compared to negative 216.6 million a year ago. This improvement mainly reflects the structurally attractive and acquired working capital profile of Crayon. Intangible assets increased substantially following the acquisition and now include the goodwill and the acquired intangible asset 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, Goodwill was adjusted by 22.5 million retrospectively as of the acquisition date. Importantly, this is a balance sheet through measurement. It has no impact on Software One's cash flow, underlying operating performance, or previously communicated synergy expectations. Overall, equity increased to $992.7 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 12-month period to June 26, net working capital before factoring improved by 46 million. This improvement came even as we reduced our utilization of short-term factoring by 12 million. So after factoring, the net improvement was 34 million. 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 the 26 to 2030 period. On the last 12-month basis, we delivered a 69% cash conversion, excluding the impact of factory. Last 12 months, operating cash flow was 271.6 million, primarily driven by profitability. Adjusting for the 12 million reduction in factoring utilization operating cash flow was 283.6 million. After capex of 71.9 million free cash flow amounted to 211.7 million. Against last 12-month reported EBTA of 308 million, this translates into a cash conversion rate of 69, well above the target. Last 12-month capex of 79. Of 71.9 million was primarily related to internal IT investments, followed by platform investments with services and other investments accounting for the reminder. As outlined at the Capital Market Day, we expect CapEx to increase modestly during 27 and 28 as we accelerate investments in platforms, internal IT, and DRP initiatives. During this period, CapEx is expected to represent approximately 7 to 8% of revenue before normalizing towards around 5% from 29 onwards. 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 H126 cash flow statement, we generated operating cash flow of 90.1 million, up slightly from 87.1 million in the prior period, supported by stronger profitability. Profit for the period increased significantly from 9 to 9, 9.1 million to 54.3 million. This benefit was largely offset by working capital movements, which resulted in 72.1 million cash outflow in age 126 compared to a cash inflow of 81.8 million in the prior year. The prior year period benefited from the introduction of our then new non-recourse factoring program. Invest in cash flow. Amounted to an outflow of $34.1 million, primarily reflecting $36.5 million capex, broadly in line with the prior period, and focused on internal IT and platform investments. This compares an outflow of $64.7 million in H-125, which included the settlement of the swap agreement related to the Crayon investment. Financing cash flow was outflow of 102.4 million compared to an inflow of 369.3 million in the prior year. This year's figure was negatively impacted by the acquisition of Crayon minority interests. The prior year's figure, by contrast, benefited from 424.2 million drawdown of the Crayon Acquisition Bridge facility. As a result, cash and cash equivalents were 382.8 million at the end of June 26, compared with 419.1 million at the beginning of the year. Let me conclude with the development of net debt over the last 12 months. As of June 26, net debt stood at 408 million, with a leverage ratio of 1.1. Compared to the net cash position of 36.2 million in June 25, the increase was mainly driven by the acquisition of Crayon. Beyond the acquisition itself, the key cash outflows were income taxes and interest paid, capital expenditure, and credit transaction and integration expenses. This concludes the H1 financial review. With that, I will hand over to Raphael for his closing remarks.

Thank you, Hans-Peter. We are tracking well towards delivering against all targets. Looking at the numbers, FI25 revenue growth was 1.4% and on an LTM basis to June 26, that's now at 8.9% growth. Our 26 guidance remains mid to high single digit revenue growth. H2-2026 growth is expected to moderate as the benefits from accelerated EA-to-CSP conversion and early renewals, which supported H1, don't repeat at the same pace, compounded by a tougher comparison base in H2-25. On EBITDA margin, FI-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. As a reminder, we are targeting an EBITDA margin above 28% by 2030, a 5 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. 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&A efficiency, we expect this to improve margin with no dilution effect. And last but not least, as we have already said this during the C&D, 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 100 million Fris-Francs cost synergy program completed in H1-26. And continued benefits from the more efficient operating model that the program put in place. Underpinning all of this is continuous cost-discipline across the group. And now, I'm pleased to present our evolved Executive Board, effective from 1st September. These changes mark the next phase of Software One'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 Crayon's NORAM business ahead of the merger and has served as President of North America since July 2025. Ricco Andreoli will lead the full EMEA region, broadening his responsibilities beyond Western Europe to include the Nordics, DACH and CEE. Ricoh brings nearly two decades of experience at SoftwareOne, having joined in 2009 and most recently serving as Regional President Western Europe. Varun Paliwal will continue to lead APEC, a region he has led since January 2025, after more than a decade in senior roles at SoftwareOne. Lastly, Gudmundur Adal-Steinsson has been appointed Chief Channel and Ecosystem Officer. Gudmundur recently served as Chief Partner and Sales Officer and brings more than 25 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 Bertschtold has decided to leave the company. Let me close with a few key takeaways. With integration substantially complete and synergies of 100 million achieved, Our focus is now shifting fully from integration to commercial execution and customer value creation. 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&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. 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 1 at this time. The first question comes from the line of Noshin Nijati from Deutsche Bank.

Please go ahead. Hi. Good morning, Rafal. Good morning, Hans-Peter, 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? And on 2030 margin bridge, and thanks for the color, very useful. The biggest piece is from AI and automation efficiencies. How much investment do you need to achieve this? And where exactly do you see those coming from? Is it internal processes, SG&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 back-end loaded? Thank you.

Thank you very much for the question. Maybe first of all on the ABDA margin target, I think. The lower end of the range would require a scenario where several things, I would say, would move against us at once. 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 let And 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. Then I think you had a point related to the AI efficiencies. Please. We mentioned. Before, on the trajectory to reach the 28% plus target for 2030 on EBITDA margin, that we see this linearly improving. 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 27-28 to, we said also today, 7-8% 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 the next two years, and then benefiting the...

Thank you very helpful.

The next question comes from the line of Lourian Dreisch from Kepler-Chevreux. 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 terribines 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 we talk a bit about the 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.

Thank you very much, Florian. We mentioned during the call that the EA to CSP conversion was a bit accelerated in H1 due to early renewables, 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 Not only on our direct or channel business, but also on our services business line has a positive impact because we sell CSP always as a bundle, which consists of the license plus a service wrapped around. Typically, there 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 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 Mark Börgy from Finanz und Wirtschaft. Please go ahead.

Yes, thank you. Actually, my questions were already asked. Yes, I was interested about the tailwinds that you get due to the early renewals, but you already clarified that. Thank you.

Thank you.

As a reminder, if I wish to register for a question, please press star and one on your telephone. The next question comes from the line of Christopher Trong from UBS. Please go ahead.

Yeah, 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 growth margins. The change of channel partner incentive changes.

Thank you very much, Christopher. I mean, we think, broadly speaking, on the FI27 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 365, E1, E3, OneDrive, SharePoint. 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. Yes. And therefore, I would expect there is absolutely no material impact for us on the incentive changes. We see them as very neutral.

Thank you very much.

We now have a question from the line of Christian Bader from Zürich Cantonalbank. Please go ahead.

Yes, good morning. Congratulations to these excellent numbers. I have a question regarding taxes. Your IFRS reported tax rate was 42 percent in the first six months. However, in terms of cash taxes, the cash-effective tax rate was only 20%, so I was wondering, can I maybe provide some color of what we should model for the full year tax rate?

For 26, you can assume a more normalized tax rate in the range of 30%.

And is this a good run rate for the years thereafter?

Of course, the ambition is to further reduce, but for 26, even the very standard integration, it's a reasonable rate for 26, yes.

Okay, all right. Thank you.

Once again, to ask a question, please press star N1 on the telephone. We have a follow-up question from the line of Marc Börge from Finanz und Wirtschaft. 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, Mark. I mean, we have mentioned we go now into the next phase, right, from integration towards customer focus and execution. 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, and that's what we have done now. We have three overarching regions with EMEA, Americas, and APEC focusing exactly on this. And then also, last but not least, very importantly, is the channel representation and our vendor partnership representation Thank you very much, everyone, and welcome to the channel business, which is part of 2030 strategy and plan, the fastest growing business line, also a very much in a creative business line. And we have that now represented in the executive board. And yeah, that's why basically we are. I'm very confident that I'm personally, honestly, very excited to work with this 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 Arne Hansen for any closing remarks.

Thank you, and thank you everyone for joining. And as always, please don't hesitate to reach out to the IR team if you have any follow-up questions. Thank you.