Release Date: February 26, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- 74Software (FRA:1XV, Financial) achieved a pro forma revenue of $690 million with a combined organic growth of 5.6% in 2024.
- Axway, as a standalone business, added 121 new customers and achieved its most profitable year ever with a record high NPS employee engagement score.
- The company successfully completed the rebranding and integration of Axway and SBS, maintaining focus and achieving objectives despite the complexities of the carve-out.
- 74Software (FRA:1XV) is leveraging its portfolio across both companies to maintain its position as an independent technology provider, focusing on delivering successful customer outcomes.
- The company has a strong pipeline for 2025, with expectations of 2-4% organic growth and plans to improve unlevered free cash flow to 10% for the year.
Negative Points
- The integration of SBS and Axway is still in its early stages, with SBS on a similar transformation journey as Axway, which may take 2-3 years to complete.
- SBS's transition to a SaaS model involves long lead times for revenue recognition, with some projects taking up to 24 months to generate recurring revenue.
- The company's leverage ratio is currently at 2.87 times, indicating a need for further deleveraging to reach a more comfortable range.
- There is a significant difference in the profitability of Axway and SBS, with Axway at 20.9% and SBS at 6.9%, reflecting their distinct stages of corporate development.
- The company faces challenges in aligning the budgeting processes and business models of Axway and SBS, which are at different stages of their transformation journeys.
Q & A Highlights
Q: Can you explain the guidance for 2025, which implies a low organic growth of 1.4%?
A: The guidance for 2025 is aimed at achieving 2 to 4% organic growth. The 1.4% figure is due to currency fluctuations, particularly the strengthening of the US dollar. The pipeline for both Axway and SBS is strong, and we expect to start the year robustly, with a focus on closing deals in the first half and building the second half pipeline. — Unidentified_2
Q: Why is there a significant time gap between bookings and revenue recognition for SBS, compared to Axway?
A: The time gap is primarily due to the complexity of integrating core banking systems with clients' ecosystems, which can take 9 to 24 months. This involves building infrastructure and providing services before recurring revenue is recognized. — Unidentified_3
Q: What is the average cost of debt for 74Software?
A: The average cost of debt is just above 5%. This cost is reflected in our financing expenses, and as we deleverage, this cost is expected to decrease slightly. — Unidentified_4
Q: How does the budgeting process differ between Axway and SBS?
A: Axway uses a bottom-up approach with guidance, allowing GMs to manage their P&L. SBS has implemented a disciplined approach, focusing on cost management and aligning costs with revenue expectations, rather than expanding business at the expense of profitability. — Unidentified_2 and Unidentified_3
Q: Can you provide guidance on the operational margin variation for SBS in the coming years?
A: SBS is expected to progressively increase its operational margin, aiming to reach around 20% by 2028. This will be achieved through a step-by-step approach, similar to Axway's journey. — Unidentified_2
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
