Q2 2023 SoftwareONE Holding AG Earnings Call
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Thank you sorry for the delay good morning, and thank you to everyone for joining tougher ones H, one 2023 result.
<unk> head of Investor relations at tougher one.
Joining me today are Brian Duffy, our CEO and Rudolph with this key CFO .
In terms of agenda, we will kick off with a summary of our H. One results presented by Brian Rodolfo will then take us through our financial performance after which Bryan will provide a CEO update we will finish the session with Q&A as usual.
Or handing over to Brian let me draw your attention to the disclaimer regarding forward looking statements and non <unk> measures on slide two with that I will hand over to Brian . Thanks.
Thank you Panna and good morning, I'm pleased to welcome everyone to our H, one and 2023 result, we had a solid first half of the year as we continued to successfully deliver across our key Margaret.
This is a testament to the strength of our business model, given the challenging macroeconomic environment as evidenced by peers.
Revenue for the group was up eight 5% year on year and the adjusted EBITDA margin was 22%.
Our operational excellence program is fully on track with $8 million of cost savings achieved year to date against our full year target of $15 million.
Building on the progress made with operational excellence, we are today announcing ignite focused acceleration to sharpen our execution, particularly our sales effectiveness and deliver enhanced performance as we move into a new era powered by data and AI and I'll come back to that later.
I would like to reiterate that with these results. We are on track to meeting our targets for the full year, which are double digit revenue growth and an adjusted EBITDA margin of 24% to 25% of revenue.
Before moving on I would also like to provide an update on the ongoing strategic review.
On July 24th the board of Directors announced that the revised offer from Bain capital have been rejected and that the strategic review will be launched to consider all options for value creation.
These include remaining a public company, a merger or sale or another potential strategic transaction.
The review was currently ongoing and we will provide relevant updates as the process progress.
In the meantime, the company remains fully focused on the execution of our strategy for the benefit of all stakeholders.
Now moving on to regional performance, our largest market EMEA delivered a solid half year with revenue up around 8% other enterprise clients, particularly in the dock region continued to invest in private solution <unk>.
APAC delivered an outstanding performance with growth of 23% and with these strong results across the board.
Nor on drove a strong recovery in Q2, particularly in the Microsoft business added clients transitions from legacy CSP to the new Commerce experienced model.
Latam was flat following a weak Q2, driven by good momentum in services offset by softer Microsoft revenue developments in Brazil and Mexico.
Moving onto our business line software and cloud services delivered around 8% revenue growth in Q2 and over 12% for each one of our core service lines cloud application and SAP services grew by around 20% and H, one partially offset by an acceleration.
<unk> and the phasing out of legacy Services Act simple grew 22% at a normalized rate in line with our expectation.
In terms of cross selling we saw good progress compared to prior year and now we have nearly 16000 clients purchasing both software and services.
Moving on to software and <unk> marketplace, which was up 5% in the first half overall.
Microsoft Billings grew at a healthy rate of 12%, reaching $10 6 billion U S dollars and H 123. After a soft Q1, Microsoft revenue growth accelerated in Q2 with customers transitioning from legacy CSP to new commerce experience, which comes with higher <unk>.
Pricing more favorable incentives and longer term subscription and.
In other Isps revenue declined in Q2 after a very strong Q1, and a high comparable last year.
Net suffer one's greatest strength is our 65000 clients who place their trust in us along with our portfolio and I'm delighted today to present a few examples of how we continue to add value and drive business outcomes for them.
In Europe , we secured the renewal of a multiyear contract for the provision of a 24 by seven managed service for spar than tire business critical environment, helping to ensure a smooth and satisfying shopping experience for all of our customers.
With our public sector experience and Microsoft expertise, we supported the government of Mexico with the development of a new collaboration hub based on Microsoft 365 to streamline communications between the government and citizens.
We also help double with the negotiation of Microsoft license terms across 35 countries to reduce cost and complexity.
And finally in the U S. We supported red roof, a leader in the lodging industry with migration to AWS and the provision of shared services to franchisees to accelerate their transformation to a new business model.
Yes.
I'm very proud to say that today, we reached an important milestone our software one and published our first ESG report as a company we fully recognize the role that we can and must play in creating a more sustainable future.
Importantly, we aim to be net zero for scope, one and two by 2030 by reducing the carbon footprint that we are responsible for and investing in impact project for the remaining emissions.
We're achieving that through our carbon reduction plan, which primarily includes reducing emissions from our car fleet and generating energy efficient work prices through our green offices initiative.
In addition, we will continue helping clients with our ESG journey VR cloud sustainability program.
This aims to provide clients with accurate admissions data for their cloud solution and advice on the complexities of cloud emission.
I would like to thank our ESG team and all our software one leaders and employees who have contributed thus far.
Keep up that great work and deliver on these important commitment.
On that note Rodolfo will now take us through our financial performance and I will follow up after that Rodolfo.
Thank you, Brian a warm welcome from me as well.
Revenue growth in each one was solid at Eaton is 5%.
Ported by an acceleration in Microsoft as we had anticipated, but we also faced headwinds in other Isps and the phase out of legacy services.
Contribution margin increased by <unk> nine percentage points in H, one and one two percentage points in Q2, reflecting optimization of delivery costs in our services business line as part of our operational Excellence program.
SG&A expenses grew by 16, 2% in each one we purchased net expenses, mainly growing in language wage inflation.
This also reflects the impact of operational excellence with the majority of the SG&A increase driven.
By non personnel expenses that will provide more detail on the next slide.
With the strong Swiss franc.
Forex headwinds had a significant impact was five percentage points on revenue growth.
However, given our natural hedge with similar exposures are obese.
<unk> impact on adjusted EBITDA continue to be small.
I would also like to point out that certain restatements reflect the ISI team have been made to the services business lines prior year numbers.
For each were up 22. These results to the net reduction of both revenue and direct costs by $11 million.
Contribution margin as a result of course remains unchanged.
The year on year development of adjusted EBITDA as shown in the bridge.
The incremental revenue was almost fully reflected in the incremental contribution margin given the minimal increase in the new vehicles.
Similarly general admin stayed almost flat year on year.
A major increases in expenses related to the normalization of non personnel expenses, specifically higher travel in sales and marketing costs as well as one offs co marketing investments from last year coming from strategic partners.
Moving on to the business lines.
Our court certainty slide continue to grow at around 20% in both Q1 and Q2.
With the declining legacy services accelerating.
The contribution margin in services was 39% of revenue each one up 3.3 percentage points compared to prior year.
Approaching best exact levels as a result of appropriate with our operational excellence initiatives.
SG&A grew at a lower rate than contribution margin translating into an adjusted EBITDA of $7 1 million and a margin of two 1%.
This year on year improvement, Jessica and confirms that we're on track to meet our 15% target for 2012.
In marketplace, while Microsoft delivered a significant rebound in Q2 as expected other items, we significantly slowed down in Q2 resulted in steady overall growth in both quarters.
Adjusted EBITDA margin was 46, 1% this is down compared to prior year, reflecting increased SG&A, partially driven by the allocation of solution consultants to these business lines.
We remained focused on getting those four vacancies from the operation of excellence.
Going through the key pillars.
In the commercial work stream, we continue to rebalance sales resources. We have also scaled up our AI driven cross sell pilot the Lora initiated similar pilot in APAC in.
In services delivery, we have made great progress with the majority of percent transitions now fully executed. The presale process has also been rebound at the organization wide rollout is underway.
Finally in the support functions country finance transition to shared service centers continue to appropriate fully language plan is Sunday edition of financial processes.
In HR, we're piloting assurance service center for EMEA APAC performance.
Baidu.
Progress across the pillars, we have achieved 8 million of cost savings are fully on track to achieve the targeted savings of $16 million.
The bridge illustrates the adjusted personnel expenses have grown by 7% in constant currency of which around five is due to wage inflation.
The minimal increase in Ftes. Despite the continued solid growth momentum has only been possible.
To be improvements in efficiency and effectiveness across the organization.
Working capital ended the half year at $177 million after factoring.
Broadly in line with our position one year ago.
ICD is a good outcome given admissions growth.
Our days sales outstanding have increased due to overall market conditions and growth of Consumptions as appropriate.
These offerings customer sorry, endpoints later compared to prepaid enterprise segment and.
So on accounts payable, we have optimized our payments to align with the longer customer payment cycle.
When we're satisfied with the result.
We do see scope to tighten working capital management, particularly collections.
We have consistently sold to improve the quality of our disclosures and in this regard we have now simplified our definition of net debt.
The new more stringent definition comprises bank overdrafts.
Plus current and non current financial liabilities, less cash and financial assets, including our opening trip.
Importantly, these definition no longer includes other non current receivables.
These change implies that as of June 32023, we had a net debt position of 72 million compared to $5 million whatever.
And we have done these to align with industry standards.
Now on a 12 month basis, and we did that to eliminate seasonality core operating cash flow, including Capex was 141 million, replacing a 60% cash conversion compared to adjusted EBITDA.
Capex investments of $51 million into our digital marketplace.
And regarding other outflow of $62 million is attributable to M&A earn outs and restructuring was 71 million relate towards dividend share buyback program and financing.
Sure.
I will conclude this section of our presentation with the full year outlook. We have had a solid start to the year with strong underlying demand across our portfolio.
We remain focused on continuing to implement operational legs in the spectral software one two step improve our efficiency and effectiveness and to deliver the planned savings.
While we recognize the uncertain macroeconomic environment, we generally see healthy demand in our markets and are confident in meeting our guidance for the year.
Thank you and now I will.
And back to Brian Thanks.
Thanks to adopt.
It has been around three months since I joined <unk>, one on the unique circumstances I've taken the time to meet with many of our customers partners and of course, the wider software one team at this stage I would like to share My initial perspective, and what makes me excited about <unk> future.
It's fair to say that we operate in a dynamic and high growth market environment strongly supported by a whole range of Mega trends some of which you see highlighted on the slide here.
The opportunity ahead of us is massive organ.
Organizations continue to prioritize investing in cloud solutions and there is a long runway to go.
With only 30% of workloads in the cloud already.
Cloud journey bring challenges and complexity multi cloud and hybrid environments are generally the norm today and for over 80% of organization controlling cloud spend has now surpassed securely at the top challenge.
Meanwhile, the demand for data and AI is exploding with over 70% of organizations, Inc. Flooring generative AI opportunity.
Our software one we have and continue to develop our portfolio of value, adding solutions to manage these highly complex and business critical cloud journey for our clients.
Now, let's go into more detail on the components that make up this great opportunity for software one.
The overall market for software and cloud spend was nearly 640 billion U S dollar in 'twenty two.
The reselling serviceable market, our Sam is nearly $18 billion by 2026 <unk> is expected to be worth 30 billion that implies a CAGR of 14%.
Digitalization will play a key role in driving this growth as customer trends towards self service.
We are already well positioned with one of the largest marketplaces globally, comprising 7500, <unk> partners and a number of very different delivery model.
Our Angola, however is to establish one digital workplace, leveraging our investments and growth path and pure cloud we are launching our software one client portal for existing <unk> clients and providing the opportunity for all customers to embrace digitalization and <unk>.
Self service.
Scaling our services has been a key pillar of our strategy over recent year.
Services are critical in a cloud and subscription driven world with big customer pain point with.
With unique insights and our integrated born in the cloud portfolio. We are in a strong position to help clients along their entire cloud journey.
From advisory to optimizing their cloud environment with a managed service.
Our services.
Worth 58 billion U S dollars today and is expected to grow to over $110 billion by 2020 at a CAGR of 19%.
There is again, a very significant opportunity for us to grow at least in line with the market and to capture share given the high level of fragmentation that exists.
Now in my prior role highlight one of the largest cloud transformations in the industry. We were highly successful in achieving our goals because we had a solid foundation and it was built on clarity activating the ecosystem and focusing on my favorite word execution.
Software one there is more than we can do to capture the market opportunity.
That is why we are initiating our ignite focus accelerated approach and let me walk you through what we plan to do.
Firstly ignite.
65000 clients across the world have placed their trust in software one.
I firmly believe that we are in a position of strength to ignite these relationships as clients look to answer three very important question.
Firstly, how will we move to the cloud and transformed secondly, how are we going to embrace generative AI and thirdly, and very importantly, which had been software one strength for so many years.
How are we going to keep those cloud transformation costs under control.
Now I want to share with you. All an example in Q2, we assisted our larger U S. Headquartered Fortune 500 company as they look to move our critical application to a hyperscale or they wanted to embrace AI.
But unfortunately, they had a transformation with a systems integrator that was running over budget and behind time.
We got stuck in and we assisted them in designing a fresh new blueprint and laying out our road map to align with the business to timely adopt innovation and to do so within budgets.
This customer story is similar elsewhere across the world.
What's common businesses can no longer wait they have to drive innovation now in order to compete and survive.
In addition at <unk>, one we have 7500 partners around the world and I've spent time with several of the largest ones since joining and I'm energized by the opportunity that we can ignite together.
Customers have made it loud and clear they need the entire ecosystem to work together for them.
As software one we will mobilize 9257 men and women to connect partners to serve our joint customers and the best possible way.
Now moving on to our second pillar focus.
Microsoft 365, co pilot is a massive opportunity for software one and our clients to completely re imagine productivity per employee.
Software one as you know was a key partner for Microsoft Office 365 was launched and today, we have tens of thousands of $3 65 customers.
I recently attended a round table with the CEO of Microsoft Satya and this week our team and the Microsoft team are meeting to finalize our go to market plan.
My plan is very very simple.
We aim to be Microsoft number one partner for co pilots globally.
Sales excellence and execution are key to driving growth and we are now laser focused on both eyes.
I found over the years the sales team they enjoy a challenge they enjoy direction and they enjoy rigor the changes I'm implementing to continuously evaluate our progress and bring the best of the best to support our journey will fully reinforced that we have already.
Already implemented new cadences embrace new tools to double down on key initiatives let.
Let me give you an example.
In North America, we launched an AI driven initiatives across the entire region, which directs our teams to a next best action for our clients based on customer benchmark data of which we have tons and this is showing incredible results so far.
And finally as you would imagine bolt on M&A remains a priority to add capabilities and geographical reach.
Now finally accelerates and.
In order to win we will further develop our generative AI offering and pivot as needed.
We'll also fully embrace AI as much as possible internally to support our own transformation.
We see a huge opportunity to scale software one client portal to leverage our existing base and expand beyond that in a highly cost efficient digital way. We have made considerable progress in that space and we will execute on our roadmap.
We will also continue to invest in our people and we've a great tapestry of talent to support our customers and partners.
I want to take some time to emphasize the great opportunity, we have with co pilots.
And it's huge.
We have run some preliminary number to.
To estimate the short term market opportunity and based on the 12 and a half million addressable seeds that we have and a conservative very conservative 15% adoption rate, we estimate a revenue opportunity of over $100 million.
Across the reselling and services.
Our relationship with Microsoft is something we are hugely committed to and the quote you see here reflect the value. Microsoft also places under partnership journey with software one given our global reach and deep understanding of our clients' needs.
<unk> proven track record.
The opportunity and data and AI extends beyond co pilot of course, it's also not new to us the tougher one.
We already have significant capability with 250 data and AI export experts and more than 230 projects delivered through 2021 across seven delivery hubs.
So let me be clear AI is not just the technology is an enabler for organizations to achieve significant improvement in efficiency inside customer and employee experience and ultimately innovation.
It's about becoming a data driven enterprise yet to achieve the full potential of AI, many elements need to be taken into consideration data management governance security and adoption and change management to name just a few.
Software one has incorporated this experience into an offering we call software one intelligence fabric a powerful foundation to help customers resolve the complexities and transition into data driven and AI powered organization.
Let me take you through an example of how we help echo a U S based leader and the HVAC industry drive operational efficiencies and create predictive capabilities using data and AI.
They face a very typical situation of needing to future proof their environment by consolidating and securing decentralized data after years of rapid growth partnering with AWS, we offered the platform the tools and the expertise to build the data lake to address.
<unk> needs and we leverage our migration acceleration program expertise as a result agco is today at the cutting edge of governance, and predictive data analysis and able to raise the customer service bar even higher.
To conclude with everybody I would like to highlight the following.
We have delivered a solid half year and are on track to meet our full year guidance.
Our operational excellence program is fully on track to deliver the promised saving.
With ignite focused acceleration, we will ignite customer and partner relationships take advantage of the new market opportunity in AI and sharpen execution to deliver enhanced performance.
And thank you everybody and now let's move onto Q&A.
Thank you.
As a reminder to ask a question.
Please press star one on your telephone.
And wait for your name to be announced two weeks or your question. Please press star one on one again.
We will now take the first question.
Hi, Thanks for taking my questions two for.
For me thanks.
Firstly on the macro environment I think you know that.
King of healthy demand backdrop can you just comment on how the current trading in July August has evolved and if the strategic review.
Situation has impacted any conversations you have with your customer.
And secondly on Microsoft It actually seems that the billings growth slowed in Q2 Q1.
But you noted an explanation in the revenue growth. So could you maybe just quantify the revenue growth.
And at <unk>.
Comment on.
How much of that call it came from price increases.
And then finally it was quite surprising to see that the services margin was down in Q2, especially given the progress you made on the serviceability.
Could you provide a bit more color there. Thank.
Thank you sure. Thank.
For the question and I'll split this with Rodolfo level.
Firstly in terms of the strategic review, which is ongoing I guess to answer that question I'll look through the lens of our.
Customers and also our employees. So firstly in terms of customers that has not impacted.
One relationships or our trading with customers.
Secondly in terms of employees our employees are focused on one thing which is delivering for our 65000 customers.
Around the world.
Then in relation to our specifically our trading.
For July and August obviously, we can't go into too much details around.
At July and August numbers, specifically, but what I will say is that given our broad portfolio to deliver solutions across the world. It allows us to navigate through the uncertain times that customers.
Experience and I would also stress that AI search.
Really fueling the demand that we see even more and more from customers around the world and then obviously.
<unk> suffered one client portal.
It's a huge opportunity for us and services is what allows us to direct differentiate ourselves.
From the competition at specifically.
And then I will turn it over to our Rodolfo on the remaining questions from here.
Thanks, Brian .
So let.
Let me take the last question first on the services.
But when you look at the numbers for the quarter I think what I would like to point your attention to the contribution margin for me. This is the moment Chris.
Critical measure.
While there was the slowdown in growth in services, let me.
Reiterate again the core services portfolio continues to grow 50%. What we saw is really a drop in the legacy services and what is super encouraging as contribution margin growth grew close to 20% when you see the contribution margin as a pause.
Digital revenue it crossed the 40% Mark which is.
Vesting periods now why did the margin decline.
We have a high increase in SG&A and as you know cost of presentation. These may be protected through non personnel expenses are set a couple of <unk>.
One offs impacting us, but going forward for me. The most critical thing is with this very healthy contribution margin with all the airports around operational excellence to also be used in stream.
Yes.
The possibility of operating leverage.
Hi.
And then.
I don't know if we missed one of your questions.
Peter.
Yes, just on Microsoft.
And it seems at the beginning there in the second quarter could you reported 13% growth in Q.
Q1, but then you mentioned is an acceleration in revenue growth. So could you just quantify.
Revenue growth and maybe give us a sense of how much of that growth was driven by the price increases.
And then maybe just one quick follow up on the current trading.
You see an acceleration already key's CFO . Thank you.
Yes.
We don't provide a.
Detail on all of the.
Let's say split in our marketplace business, but we did say last time.
Operator.
About 30%.
A reference both Microsoft decline, we expected that.
In Q2, I would say high single digit growth in revenue for Microsoft.
The buildings that we will continue to our buildings continue to be very healthy.
As you say, it's in the clearly the double digit territory.
It.
Is mirroring very closely the revenue Microsoft itself is reporting to in defence. We continued to maintain slashed gained market share in the kind of rebound in revenue is clearly driven by.
By the margin surround.
Commerce experienced by the higher pricing and so forth.
We've talked a lot about.
The Orca one call that we have been penalized.
Even though we have blocked many customers in the old in TSP.
Let's see.
March April this year license. So we're seeing what we expect.
Thank you.
Thank you.
Alright.
We will now take the next question.
One moment please.
And the question is from the line of Florian <unk> from Kepler. Please go ahead.
Yes, Hello, Thanks for taking my question Mike.
My question is around the legacy services simply to get a better feeling how big the impact to really what's been more better said what is or what do you expect the impact to be what is left basically switch to better understand when to services growth rate will clearly accelerate.
You mean for legacy drop but at some point in time no longer be such a headwind as it is today.
Let me question around co pilot I. Appreciate your comment on I think anticipate opportunity for the whole retail space on the whole Microsoft Kevin Kim you mentioned a bit on assuming todays zero from co pilot, but you expect it can be.
In the coming quarters, let's say 'twenty three 'twenty four to really get to feeling how kind of realistic <unk> hundred million dollars put into display on the short term and the second one on Microsoft and <unk>.
Identive levels.
Do you expect let's say.
Stable development in coming quarter for core products like 365.
And what do you think Thats, a fair assumption for incentive levels on the copilot side. Thank you.
Okay. So ill.
Take the co pilot and then that the Microsoft piece there. So firstly in terms of the copilot as I said I think we have a massive opportunity and this is a moment for organizations around the world to bend the curve in terms of our productivity firstly.
For ourselves we have enabled our sales force already.
<unk> been provided access by Microsoft in terms of access to the products and other reminder, the product is not generally available yet from.
Microsoft we anticipate that to happen.
Within let's say early 2024, and then as I said throughout we have $12 5 million.
And office 365, who are let's say primed and ready to.
Received co pilots.
Then in terms of the opportunity that's available the $100 million, obviously is highly dependent on when the product is made generally available a $100 million what could across both services and the reselling space and I certainly believe that we have an opportunity to really accelerate.
On the 100 million as soon as the product becomes available and then we internally are mobilizing our teams to ensure that we are ready to hit the ground running once it is available secondly in terms of Microsoft.
I've spent a lot of time as I said with our key partners at large ones and some other partners since joining.
And I certainly believe that we have an opportunity with Microsoft now not only to do what we already have done but actually to re imagine that partnership.
I have committed to SaaS and team that we will be partner number one for co pilots and like I said, we had the Microsoft partner team here with US This week and really what we're choosing not only is to stabilize the incentives, but actually to re imagine what the partner of the future from Microsoft actually looks like.
And there is a willingness at top down from Microsoft to have those conversations and explore what good looks like and lastly, a number of doubtful.
Yes.
Florian excellent questions and going back to the legacy services.
These poor quarterly enrollments of course is comparing against the prior year base, we do expect that.
<unk>.
The second quarter three but.
By quarter, four we expect that the.
It could be significantly more.
And I think again, let me reiterate that very encouraging.
Development in the fourth quarter is this strong growth in the core services side.
Okay. Thank you.
Thank you.
Okay.
We will now take the next question.
It comes from the line of Joe George from Jpmorgan. Please go ahead.
Yes, hi, guys. Thanks, very much for taking my questions I have.
Two just on the <unk> from please and firstly, Brian on the split of that $100 million plus revenue opportunity can you just give us some color on how that would broadly be split between reselling services and within the services piece could you just give us some detail on what sort of services you guys will be.
Providing because obviously this is.
White space.
And then secondly, beyond Microsoft within the AI opportunity.
With the vendors that you see more significant opportunities with <unk>.
And why is well thanks sure. Thanks, Joe for the question Firstly in terms of maybe I'll work backwards, a little bit in terms of the at the opportunity and like I said its massive I think the challenge for customers now nobu.
Nobody is asking why should we trans.
Transform at a high level or why should we embrace AI. They know that they need to do is otherwise they're going to be left behind the challenge for all of these customers.
And how are we going to embrace it and how are we going to actually fundamentally change our business with us and I think the lesson. Many customers have learned lessons from the past in terms of adopting and innovation to make sure that now they are going to be set up for success and that honestly is where we come in to answer that how question.
So right now in terms of services that we can offer with our fabric offering it's really around getting a customer ready to adopt AI like I said earlier from a governance from a security from a risk perspective from a data management perspective, all of these services are available to our customer now.
And but then obviously when copilot comments for us and the opportunity Thats available at NASA, one Randy the implementation and the adoption of the co pilot offering and enablement for organizations around the world in terms of the split.
For us I anticipate that that would look approximately like a 40 60 split 40 on the resale side 60 on the on the services side I will say that I believe that those are conservative numbers that we have again when you look at the $12 5 million users and that are available.
You had also asked around other partners and we're looking at working with and talking with and we are as you would imagine in conversation with AWS as well in terms of their AI, AI offering which will be.
And now here is shortly to the market and we are in conversations with them in terms of how we can partner with them to further and that offering and then there are the other 7500. There are many as you would imagine who are coming out with other.
Generative AI offerings, which could be relevant for customers. The one thing that we are going to do and hopefully you picked that up from.
My commentary earlier is focus.
We have 7500 partners.
And we have a segment of those partners that are the key ones that are delivering and most revenue for us and we're going to double down our focus in terms of those partners and at the <unk> and the business opportunity. That's available and then also my commitment is at the top of those partners in terms of our <unk>.
Working on and defining a clear go to market with each and every one of them.
Thanks, Joe.
Thank you.
Thank you.
Yeah.
We will now take the next question.
It comes from the line of biology to Potty from Citi. Please go ahead.
Hi, Thank you Valerie derivative from Citi.
Two questions from my side, if I may.
Firstly would you be able to comment on drivers of your expectation of material growth trends.
Third quarter into second half period.
And what is the expected contribution from M&A as well.
Other than that.
And second question on <unk>.
I guess could you shed color on growth rate with.
I used to lease in the second quarter period.
And should we think that our deceleration was on account of <unk> com.
Or how should we expect growth with them in second half of this year.
Solar biology, thanks for the question.
It's difficult to.
I think let me just see if I got the question right. So youre talking about the growth of Isps in Q2.
And then what do we expect for the balance of the year and then in India.
The.
What are the drivers overall drivers of growth image is that is that right.
Yes, and also if you are.
Factoring.
Increased contribution from acquisitions in second half period.
Okay.
Thanks for the question look again as I said.
We don't provide.
Let's see the numbers on <unk>.
On the growth for both Microsoft and Isps, but of course again, you do the math.
You'll see that there was not.
But the growth in the ISP portfolio in Q2, then will be doubled bleak.
The portfolio and this ties nicely with what Brian said before we see that many of the key Isps of growth continued to be okay, but.
It was really.
The very high.
Decline or lack of growth was in the.
Okay.
Here again.
Difficult to have the tier good cause analyses, but as we shifted a lot of focus due to Microsoft It was a very important quarter. Some of that may have played.
Development.
Yes.
Now when you take the average.
I think this.
This is a subset that where we see opportunity for growth in that.
A bit about what Brian said is really by the focus on the key ISP is making sure we have the right to these slides with these key partners.
No.
We would expect any way, let's say when taken on average.
As you know development, you mentioned to us in each one but with everything that is on the table right now we expect an acceleration of growth.
I think when it comes to be.
So the second half again, the core services remains growing diagnostic market, which we expect to continue slash accelerated very positive momentum with Microsoft I can only echo what.
Brian described before I mean, we're really coming together.
This is.
Brian comes into the organization he has.
And a reset in a very positive way the relationship with Microsoft.
To translate it into.
A higher degree of alignment.
For join.
Joined program, so we'll be back to take a half with excitement clearly 2024.
And so that is that is there.
Part of the of the growth expectations for second half as far as acquisition is concerned we remain this remains a priority for us both bonds, but none of the guidance is relying on.
Let's say significant.
The organic opportunities we have.
We announced a small bolt on in the first half there may be one or two in the second half, but again nothing material. So the guidance is not there is not a bank.
Banking or counting on.
Oh.
Understood.
If I may add one more question.
On the cash flow side.
Groups working capital have continued to move up.
Halfway where you should have been in line with your internal expectation and how should we think about it going forward.
Okay.
It's a very fair question when you look at the <unk>.
This slide with the within that working capital we see that the development is very similar to two development plus now we did say at the time, we were not particularly pleased with the development in Asia.
Now a lot of things have changed since then.
We have a worsening.
Financial environment.
Yes.
We have more we are shifting much more into consumption based offerings what are the payment terms are longer.
So I would say and this is what I quantified during my presentation. The fact that the networking capital in each $1 73 to be much language could be two Ics.
It could develop vertical to rethink the growth number one.
The financial situation and the shift in the in the portfolio.
The team has done a very good job at making sure we need all of that making sure our payment cycle is.
Consistent with the with the collection and <unk>.
Therefore, the impact on NIM.
Working capital you see in the cash flow.
As we proceed.
Liberal growth we have.
But we do see.
With operational excellence, we see an opportunity to improve certain financial processes.
We use the collection cycle.
Hello.
Already having an impact towards the end.
Understood I appreciate it thank you.
Thank you.
We will now take the next question.
One moment please.
It's from the line of Andreas Mueller from site does that Kb. Please go ahead.
Yes, thanks for taking my questions.
Two or three.
One after the author Tickers.
First one in SG&A when would you expect a normalization.
After marketing and travel and expand will be lost out on a year on year comparison Thats first question.
While this one I'll take.
Clearly an alignment with Brian .
We again look this is this.
This is a business cycle when we were at Colby, we stopped everything right now.
Now.
Following a normal seasonal business side.
Had an upswing in the wrong direction. So we have definitely put measures in place now.
To get tools designed to provide favorable spending and travel.
Sales activities.
So we expect this to impact us holds.
Alright.
A few weeks.
And again, it's just lower Bud light.
Probably part of the business cycles and measures have been taken to normalize.
Okay.
And then net debt position or do you expect by the end of 'twenty to 'twenty three Macy's could it be a net cash position again.
These new measurements.
We don't provide.
Don't provide guidance on.
Cash flow wise, I think I don't want to now start on that one.
Sure.
I would say what you know about.
Typically from a cash flow perspective.
<unk> is much stronger.
And so we wouldn't see any comparison.
Compared to H two.
Fourth of last year, we should we should see a similar evolution.
Hello.
<unk>.
But again, we cannot provide.
Provided guidance.
Okay. Thank you and then the last question I was still wondering on this AI driven cross selling pilot.
Is it now going to be fully roll it rolled out in.
North America and in auto pilot.
We'll be done in Europe .
In Europe .
And has it fully.
It's expectation in line.
And when would you think that a full rollout would be.
Here.
In.
All regions.
Andreas for the questions. So firstly it has been fully rolled out in North America and with this AI.
Pilot that we ran at the time, we basically are taking all of the data that we have on our customers. Our crunching that data and then with an algorithm, suggesting to our sales team the solutions, which should be provided next add to them the services and the price that it should be sold out and we have as I said seeing considerable impact.
From that in terms of <unk>.
Opportunity creation, but very importantly, and opportunity closure as well, which is why we moved from pilot phase to rollout across the entire region and the plan is for the second half of this year that we will look to embrace that and roll it out and to the rest of the world as well given the promising signs that are.
Pilots showed to us, which again reinforces the opportunity that AI prevents presents itself to all customers globally.
Okay.
Very much thank you.
Thank you.
We will now take the next question.
Yes.
From the line of note solar from Baader Bank. Please go ahead.
Yes. Thank you.
Looking at Latam, which was the weak spot in in Q2 can you said here from a qualitative perspective at least.
Whether you saw here an improvement of the demand momentum in Q3 and the second question looking at the co marketing invest headwinds in terms of the Comparables we saw that.
Came down a bit from $5 1 million in Q1 percent to $3 5 million in the second quarter can you. Please provide an update on the expected headwind for the second half. Thank you.
Sure I'll take the first part of that question, So Latin America Firstly.
Mass of geography for us and one which is very important and one in fact, where the partners rely heavily on us as a market. It's probably most similar to APAC for us and you can see the growth rates that we have in APAC.
In Q3, we will have a leadership change in Latin America to bring the necessary focus.
To the business that we need in that part of the world.
Our unique and that we have a very significant presence from a services perspective.
In that regard most players in this space don't have and such a presence there that is one of the differentiators for us.
This leadership change am I firmly believe that we will have to focus back on the business that we need and given the <unk> and the growth potential that we have there and I would just comment that.
Many partners that don't have the same presence in that part of the world that they do in other parts of the world, which is why they would be heavily relying on us.
We plan to make further investments into that space and to grow that business and then I'll turn the next part over to Rodolfo.
Yes, thanks, Brian so on the on the co marketing look again, we don't provide that.
Too many details on these topics, but in general I would say she is commodity marketing investments that we had last year.
We're relatively front loaded so I wouldn't say roughly.
70%.
On the H one until.
So theres still a remaining 30%.
You would expect.
Happening.
It would be even.
In the coming two quarters, but again much of this.
Yes.
Thank you guys. Thank.
Thank you.
Thank you.
Reminder, if you wish to ask a question. Please press star one on one on your telephone Thats Star one and why do you wish to ask a question.
One moment please.
Yeah.
I would like now to hand back over to Brian Duffy for final remarks.
Great. Thank you everybody for joining in this morning, and I appreciate us and thank you for your time and we look forward to following up with you afterwards as well thanks, everybody Bye bye.
That does conclude our conference for today. Thank you for participating you may now disconnect.
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