Earnings call transcript: HPS Q4 2025 highlights SaaS growth, stock dips

HPS reported FY2025 revenue of MAD 1.5 billion, up 22.3% YoY, and EBITDA of MAD 286 million, up 30% with an 18.4% margin; recurring revenue now represents 72.3% of sales. Backlog rose to MAD 1.7 billion (+89%), supporting 2026 guidance of organic revenue growth of 12%-17% and an EBITDA margin above 25% (AccelR8 target 25%-30% by 2027). FX headwinds reduced reported revenue by ~MAD 60 million and EBITDA by ~MAD 18 million; testing business is slated for divestment and CR2 integration is accretive. Despite strong fundamentals and cash generation (operating cash flow MAD 240m; cash MAD 250m; net debt down >42%), the stock dipped ~0.9% post-results, suggesting mixed near-term investor sentiment.

Analysis

HPS’s transition to a SaaS-first model materially changes the economics: incremental revenue from live platforms will convert to EBITDA with minimal incremental capex or headcount, meaning margin expansion is driven more by volume upside than by cost-cutting. The second‑order implication is cash conversion: as recurring SaaS replaces lumpy license recognition, free cash flow should become both higher and less lumpy — a catalyst that typically re-rates EM software multiples once visibility persists for two consecutive quarters.

The CR2 integration creates a deeper product stack (ledger-to-facing-app) that raises switching costs for large bank customers and opens higher‑ARPU cross‑sell opportunities in adjacent rails (tokenization, A2A). That increases strategic optionality: M&A is now more likely to be targeted bolt‑ons that add rails or vertical functions rather than scale‑alone installs. Infrastructure and security vendors (cloud + SOC) are asymmetric beneficiaries, while local testing outfits and low‑margin services businesses face structural shrinking demand.

Key risks are execution and macro: multi‑year, multi‑phase projects can push recognizable revenue into later reporting periods, and currency moves remain an earnings swing factor given contract currency mix. Geopolitical shocks or a sharp EM risk sell‑off would compress multiples and could turn the narrative negative in weeks; conversely, visible SaaS ramp + backlog conversion over the next 6–18 months is the clearest path to a durable re‑rating.

Contrarian read: the modest share‑price reaction reflects short‑term concern over FX and a non‑strategic testing unit, not the persistent operating leverage embedded in existing SaaS platforms. If management delivers predictable monthly/quarterly SaaS billing growth, market underestimates the ease with which incremental volume converts to margin — an asymmetric payoff for patient capital over 12–36 months.

Key Decisions for Investors

• Long HPS equity (12–24 months): Initiate size with staggered buys on 5–10% pullbacks. Thesis: execution of SaaS ramp and backlog conversion should drive a multiple expansion; set tactical stop-loss at ~18% below entry and target 35–60% upside if margins progress toward guidance.
• Long HPS 12–18 month call spread (defined-risk): Buy near‑ATM LEAP and sell a higher strike to fund premium. Use this to capture asymmetric upside from SaaS inflection while capping downside to option premium; target 3:1 upside vs premium if run‑rate metrics inflect within 12 months.
• Hedge FX tail when holding HPS: Hedge 30–50% of USD exposure via USD/MAD forward or currency options for a 6–12 month horizon to protect EBITDA from sudden dollar moves. Cost of hedging is moderate vs the earnings volatility it removes and materially improves risk‑adjusted returns.
• Sector pair: Long HPS / short a legacy on‑prem payments incumbent (6–18 months): Long exposure to the SaaS ramp funded by shorting a slower cloud transition peer to isolate software margin upside vs broader payments cyclicality. Monitor execution KPIs quarterly and size to neutralize beta (delta‑hedged).