Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operating revenue increased by 7.3%, with the Energy & Utilities business up 14.7%.
- Net gain of customers during the year, indicating strong market demand.
- Significant investment in R&D with over 400,000 hours spent, showcasing commitment to innovation.
- Successful integration and renewal of a major customer in the German market for five years.
- Strong cash flow generation, enabling debt repayment and shareholder dividends.
Negative Points
- Decline in underlying impact from 55.6 to 50.1, influenced by R&D capitalization and tax rate changes.
- Power cloud business reported a loss of $7.4 million, indicating challenges in the turnaround strategy.
- Increased costs associated with ESG and sustainability initiatives, impacting overall expenses.
- Inflationary pressures and normalization of productivity gains post-COVID affecting margins.
- Amortization of software development costs increased significantly, impacting financials.
Q & A Highlights
Highlights of Hansen Technologies Ltd (HANOF, Financial) Earnings Call
Q: Can you talk us through how you are managing to deliver better-than-expected cash EBITDA margins without significantly higher investment in Power Cloud?
A: Richard English, CFO: It's early days, but we've already removed $30 million of costs from the business and are looking to enhance margins further over the next 9 to 12 months. We are executing our playbook and are comfortable that the cash EBITDA number will be better than expected.
Q: How should we think about the license fees for the Hansen core business into next year?
A: Richard English, CFO: License fees can swing margins and comparisons. We are guiding to $28 million to $32 million, depending on contract negotiations. We prefer long-term annuities, but sometimes upfront license fees are necessary.
Q: Can you provide more color on the pipeline, especially in the Telco space?
A: Andrew Hansen, Managing Director: The main driver in the communications sector is the commercialization of 5G networks. Our software enables quick bundling of products, which is crucial for telcos trying to monetize their 5G investments. We are well-positioned to support this growth.
Q: Can you clarify the revenue growth guidance and the base you're expecting to grow from?
A: Richard English, CFO: The baseline number is $379 million, which includes the core business at $334 million and an annualized $44 million from Power Cloud. We are guiding 5% to 7% growth from this base.
Q: What are the expectations for Power Cloud's EBITDA, and how does it reflect your turnaround strategy?
A: Richard English, CFO: We are guiding a loss of $5 million EBITDA for Power Cloud, reflecting the early stages of our turnaround strategy. This includes risks and necessary investments, but we are on track and will provide updates as we progress.
Q: What are the inflationary pressures you are seeing, and is there an opportunity to offset them through outsourcing?
A: Andrew Hansen, Managing Director: We face natural pressures, but we are leveraging lower-cost development centers in Argentina, Vietnam, and India. We continuously seek opportunities to maintain margins while providing the innovation our customers need.
Q: What is the current M&A landscape, and how are vendor expectations affecting your strategy?
A: Andrew Hansen, Managing Director: Vendor expectations remain high, but we maintain discipline in our acquisitions. Many target assets have not been sold in recent years, and we are waiting for the right opportunities at the right price.
Q: Can you explain the shift between capitalized and expensed costs and its impact on EBITDA margins?
A: Richard English, CFO: We are shifting more costs from capitalization to expensing, which impacts EBITDA margins. This includes higher investments in sales and marketing. Despite this, we are achieving higher margins on superior top-line revenue growth.
Q: Was there an acceleration of amortization or any write-offs related to Power Cloud?
A: Richard English, CFO: There were no write-offs. The increase in amortization is primarily due to Power Cloud. We will see an unwinding of acquired intangibles amortization in the coming years.
Q: How are you managing inflationary pressures in the core Hansen business?
A: Andrew Hansen, Managing Director: We are leveraging lower-cost development centers and continuously seeking efficiencies. Despite pressures, we are maintaining margins and investing in innovation to keep customers engaged.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
