Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Axway Software (FRA:1XV, Financial) reported a 2% organic revenue growth in H1 2024, despite a strong comparable period in 2023.
- Subscription revenue grew by 18%, indicating a successful transition from the traditional license model.
- Customer satisfaction, measured by the Net Promoter Score (NPS), improved significantly from 42 to 51.
- The company maintained a stable gross profit margin of 70.5%, consistent with the previous year.
- Axway Software (FRA:1XV) has a robust pipeline with a 3x coverage ratio, indicating strong future prospects.
Negative Points
- License revenue dropped by 12%, reflecting the ongoing transition to a subscription model.
- Maintenance revenue decreased by 22%, which is expected as customers migrate to subscription models.
- Service revenue declined by almost 6% organically due to contract delays.
- DSO (Days Sales Outstanding) increased to 169 days, up from 47 days in the first half of 2023, due to system changes and acquisition-related activities.
- The company faced technical issues during the earnings call, preventing phone-based Q&A and potentially impacting investor communication.
Q & A Highlights
Q: Have you changed the way you calculate your net promoter score compared to last year?
A: Yes, we did. We added new surveys at different stages of the customer journey, including support interactions. This change in scope resulted in a restated baseline, with the NPS score improving from 42 last year to 51 this year.
Q: To what extent has your growth rate in France in Q2 been impacted by the French election and slowdown in decision-making? What assumptions did you take for H2 in France?
A: The growth rate in France was influenced by a strong comparable from last year, where we had significant migrations from maintenance to subscription. The political situation has had some impact, but we are not heavily reliant on the public sector. We expect the implications to be controlled and have not taken any specific caution for H2.
Q: Are you satisfied with subscription renewal levels? Can you share the level of churn you currently observe?
A: Our churn rate was about 9% in the first half, which is consistent with our historical stability. We are satisfied with the renewal levels.
Q: Are you satisfied with Axway Managed gross margin from both historic and new contracts? What is the current gross margin level?
A: The overall gross margin was stable at 70.5%. As we add more Axway Managed contracts, the team is becoming more efficient, helping to maintain the margin.
Q: Which of your four business units enjoy the best commercial momentum at the moment? In which unit do you think we can expect a more stable performance?
A: All four units are quite stable. MFT is a market leader, while the other three are niche businesses with stable growth patterns. We've seen an uptick in products handling security, such as MFT and API management.
Q: Can you discuss how pricing is developing in your various business lines? Is it positive, and roughly how much are prices increasing this year?
A: We are not playing a price game on renewals. Price increases are more related to cost increases in the region. We are moving towards consumption-based pricing, which aligns with market trends.
Q: How long will be the delay in recognizing revenue from Axway Managed contracts versus Customer Managed contracts in H2? What is the timing of acceleration in the revenue recognition?
A: Customer Managed contracts recognize about 50% upfront, while Axway Managed contracts start recognizing monthly revenue once the customer environment is set up. This creates a more stable and predictable revenue stream over time.
Q: What are the main reasons for customers adopting more Axway Managed than they used to before? Does the mix of Axway Managed contracts versus Customer Managed contracts influence the DSO or deferred revenue evolution?
A: Customers are looking for speed, agility, and security, which Axway Managed provides. The mix does influence DSO; Customer Managed increases DSO due to upfront recognition, while Axway Managed does not.
Q: Do you believe the average revenue multiplier you saw in H1 is sustainable? What are the main levers behind it?
A: Yes, we believe it is sustainable. The multiplier has been around 2, driven by internal policies and the value added in the migration to subscription.
Q: Can you comment on the size of the pipeline coverage for H2 over the new target and the evolution of the pipeline in recent weeks, given the tough economic environment?
A: The pipeline coverage is around three times, which is a good level. The trend continues to be positive, and we have balanced campaigns across regions and product lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
