Adesso (Xetra:ADN1) Q1 2026 Earnings Call

0:04 Good morning, everybody. This is Martin Norman of adesso IR speaking. First of all, I'd like to thank you for joining our Q1 earnings call regarding our quarterly statement we have published today. Within our release this morning, you found adesso keeping up its fast organic growth pace with 13% in sales to €398,100,000 The operating result boosted significantly by 58% to €20,000,000 This is €9,900,000 more than last year's EBITDA contribution. Since the second half of the year in Germany provides significantly larger number of working days than the first half, a larger portion of EBITDA contribution is expected to be earned later in the year.

0:51 I now like to welcome as well our CFO, Michael Knopf, who will give us a deeper insight into the figures of the first quarter and the outlook for the remainder of the current year. As always, I like you to mute yourself during the presentation. Feel free to open up the channels for the Q and A session afterwards. Participants on phones may want to mute or unmute their microphones via the star key followed by the number six of their phones. Thank you so far. And, Michael, please go ahead. Thank you, Martin. Good morning, everybody. I will guide you now through our q one two thousand twenty six financials. And as always, I will start with our revenues.

1:39 Revenues came in with 398,100,000. There's an increase of 13% coming from 351,200,000. It's important to mention that this the whole growth is purely organic, so there is no m and a impact in there. And at this point of the presentation, it makes always sense to look a little bit at the economic environment. 2023, 2024 was a difficult time in Germany. Germany, we generate more than 80% of our revenues. Last year, we already have seen little improvement. Gross domestic product came in slightly positive.

2:24 This year, this improvement continued despite the fact that it's probably less than what at the beginning of the year was expected due to the war the impact of the war in Middle East. So economic environment is challenging. However, that's not surprising for us. That's what we expected. And important for us is that the market for IT services, I two t solutions is still stable. That's that that continued growth, and, actually, that's the case. So if we look at our head count head count in average compared to q one two thousand twenty five has grown by 10%.

3:14 And also, the year over year increase is exactly 10%. Currently, we employ 11,497 employees. It's an increase of 1,036 employees coming from 10,461. 60% of this growth is generated in Germany, which is a year over year increase of 7%, and 40% of this growth is generated abroad. This is an increase of 21% year over year. And similar to the last few quarters, this growth is mainly driven abroad by our shoring activities in Romania, Bulgaria, and especially in India.

4:11 If we look at the sales split, certain things are pretty similar to what you are you are used to. Certain things have a little bit changed. The overall perspective actually is the same. We are very much diversified. Similar to the last few quarters, The top 10 customers contributed around about 22% of our revenues. The top customers so far this year contributed in terms of revenues at 2.9% of our revenue. So we are very much diversified. That's pretty important. And we benefit from the fact that we are very strong in the right sectors.

4:59 At the moment, it's insurance, it's banking, it's health, public, utilities. They are not impacted by all these tariff hiccups, and, also, they are not directly impacted by the energy crisis, this increasing energy crisis. Sooner or later, probably, we will feel it we will feel it there as well. Our customers will feel it. But at the moment, these are exactly the right sectors. And if you look a little bit more in detail into this, the strong growth in insurance has continued 30% year over year. This is mainly driven by the order entry which we have seen in Q3 and especially Q4. This was very, very strong, and it continued also in Q1 this year.

5:46 Banking, also a double digit growth rate, 14%. Health, a little bit less dynamic than what we have seen in the past, but still double digit. Public, yeah, only 5%. This is somewhat disappointing, but not really surprising because the order entry in q three and q four was comparably weak, only showing a little increase compared to the prior periods. And this is actually caused the order entry last year by the the election in Germany, which after this elections election took some time until public activity started again. And the impact from these two additional budgets for the armed forces infrastructure has not shown up last year. However, this year in q one, we see much more activity there.

6:44 Order entry in public sector has improved significantly, so this is nice. So we expect revenue to improve in the next quarters. Automotive. Yeah. So far, we were able to, let's say, show only little impact from the difficulties in this industry. Last year, only a revenue decrease of 4%. This year, Q1, we were highly impacted from that 20% decrease in sales. However, that's fortunate for us. It's our, by far, smallest sector. Manufacturing, also double digit growth rate. Here, it's worth to mention that we have done some reallocation.

7:31 So far, life science was part of health. It's now relocated to manufacturing. We have done that because life science at adesso is revenues with the pharmaceutical industry, with biotech, and actually, that's more close to manufacturing than to health insurance or statutory endurances. So therefore, we have reallocated that. Retail, also strong growth rate. And utilities, again, 31% revenue increase. And as we have seen this in the past, driven by our SAP activities. We are very strong in this sector with our SAP services.

8:17 If we look at the sales split, as usual, Germany has shown a strong growth, this time 13%. What's very nice that we have seen the turnaround in Switzerland continuing. If you remember, last year, we started with minus 7% in revenues, improved this over the year to minus 3% for the whole year. However, we have seen a very nice order entry in Q4 and also Q1 this year. And therefore, Switzerland is back on the growth rate, 15%. And Switzerland contributes round about 50% of revenues abroad. So this is a very, very important change and improvement.

9:07 Austria and Italy, again, double digit growth rates. Netherlands, somewhat disappointing with a decrease in revenues. And Turkey also impacted by the very challenging economic environment in Turkey. If you look at Turkey, it's important to know that a pretty similar amount, what is shown on this slide, again, around about 4,000,000 is earned with shoring. This does not show up in the line revenue in Turkey because this is revenues done with customers in Germany, Netherlands, Switzerland and so on. If we look at EBITDA, it's a very nice improvement, 58% increase, 27,000,000.

9:53 It's in total 9,900,000 plus compared to last year. How did we achieve that? Actually, main contributor was the increased revenue. And this despite weaker capacity utilization, we had a very slow start this year. So far for all three months this year, capacity utilization is below prior year's level. On the other side, personal costs and especially other operating expenses grew disproportionately lower than sales. This was the other contributor to this improvement.

10:39 And what's also worth to mention, increase of material costs continues. So this was slightly disproportionately higher as we rely more on external partners, third parties, and this is also caused by we have more bigger projects where we are a general contractor. If we look at the key figures, sales came in 30% higher, same gross profit. So this is, as pointed out on the last slide, one of the key drivers of our EBITDA growth, increased sales, same margin, and therefore, a very nice contribution to the EBITDA.

11:30 On the other hand, personnel costs and especially other operating expenses, a lower growth rate is also contributed to our EBITDA development. And therefore, margins improved to 6.8%. This is still below our goals, which is in this line between 11% to 13%. However, it's a significant improvement compared to Q1 last year. As always, we look at our main profit drivers. Utilization is lower at adesso SE. This is probably a little bit disappointing development for the whole year. We have budgeted a similar level than what we have seen last year. However, q one was below prior year and also our expectation for this year. We see some light on the annual at the end of the tunnel now at the at the end of March. April already looks better, so we are moving in the right direction.

12:43 Daily rates have improved. Last year, we have started an initiative to improve our daily rates, and some of these improvements which we have negotiated started at the January 1, so therefore, we see some positive development there. License and maintenance of our Indoor product line. Last year, we have seen no license revenue this year as well. So it's not a very surprising development quite often. We do the license sales at the end of the year, and therefore, especially in q one, we don't see a significant number there. And if we look at the personal cost per FTE, this is always a mixture.

13:32 Personal cost per FTE increased by 1%. On the one hand side, we have a higher a higher percentage of senior people, so therefore, the average cost per employee has increased. We have seen the the normal increase in salaries, which you always have for with your employees also because of inflation. On the other hand, the we have hired more people abroad in the countries where we do shoring, where we have a lower salary level. And therefore, this has a negative plus positive impact on on salaries because it brings the personal cost per FTE down.

14:19 If we look at some other figures, we EBITDA. Below the EBITDA, we have our depreciation. Depreciation of plant and equipment has increased slightly. This is mainly due to an increase in the right of use assets of €1,200,000 On the other hand, depreciation of fixed assets has a little bit decreased. Same applies to depreciation related to purchase price allocation as we have not done any m and a activities for the last few quarters.

15:04 This line this number is going step by step a little bit down. Income from investment activities, that's what we show on the line at equity, a little bit more negative than in Q1 last year. And financial results, that's the interest we pay slightly higher because we have some more leasing. We have also the loans, the the what we have dropped from our syndicated loans, and the amount was slightly higher. On the other hand, interest rates are a little bit lower than what we have seen last year, but overall, there's a little increase. Income taxes, a little bit less than what we have seen last year, but still a pretty high tax quarter of 55%.

15:52 Normally, you would expect here something between 3035%. This is due to the fact that we have certain expenses which are not tax deductible. And on the other hand, we have certain subsidiaries which have brought in a loss, and these net operating losses carry forward cannot be put as a deferred tax asset on the balance sheet. Therefore, they go directly through the expense line and have a negative impact on our consolidated earnings. However, it's very nice that we, for the first time since four years, that we are able to show a positive earnings per share figure in the first quarter and it's also a significant improvement compared to the last year's Q1.

16:46 Let's have a look at cash at net working capital. If we look at the lines, financial debt, net debt, you see an increase of €34,900,000 Net debt is also higher, 30,500,000. Why? Because net working capital increased by 28%. This is compared to the increased revenues that are comparatively high, disproportional increase. If you dig a little bit more in detail into this, you will see that this happened in q four last year. So far, we were not able to bring it down again. In q one itself, that's what we will see on the next slide.

17:32 The development was that we kept the level. It has not become worse, but we were on the other side, we were not able to improve it. Investment cash flow, pretty similar compared to last year, which will change its cost mainly by currency fluctuations. And what's also important, equity ratio improved slightly to 22. Here, we see the operating cash flow in Q1 itself. And you can see, as always, it's negative. That's what we always see in Q1 and Q2. However, it's only 6% more negative and compared to 13% revenue increase. So that's what I pointed out on the last slide. Q one itself was okay, But on the other side, we were not able to get our working capital a little bit reduced.

18:28 CapEx in line compared to last year. These repayments, that's what we show as CapEx due to the interpretation of the IFRS foundation, which means in this line, we show the lease for our offices and also for our company cars. Now let's have a look at our guidance. At the beginning of the year, we expected an ongoing demand for IT service, slight growth there despite the weak macroeconomic environment, especially in Germany. We expected some positive impact, some more dynamic coming from the IE demand from our customers and, IE, support development processes.

19:19 We expected to keep the capacity utilization on a similar level than what we have seen in 2025 and continued reduced hiring speed. Actually, if you just look at q one and the development since the beginning of the years, you can see that we already reduced it a little bit more because the increase since December 31 is only 1.7%, which is comparably low for adesso. We expect improved profitability and especially also the benefit from these two additional working days in q four this year. However, the start into this year was, in most areas, a little bit slower than expected.

20:10 Despite that, we were able to improve our EBITDA and our revenues in the first first quarter. If we now compare our achievements this year so far with our guidance. Guidance for sales is 1,600,000,000 to €1,700,000,000 This is an increase of 9% to 16%. We have achieved so far €400,000,000 That's between 2325% of that what we need. And if you look at the revenue figure of 400,000,000 if you just multiply it with four, you're at already this €1,600,000,000 And if you consider that we will continue to grow, that especially the second half of the year, will have nine additional working days compared to the first half of the year, it's fair to assume that we will be well within our guidance.

21:09 EBITDA is always a little bit more challenging to predict that and to see it because the guidance is 130,000,000 to €150,000,000 We have so far only achieved 18% to 21% of that. However, this is pretty similar, and this range actually is better than what we have seen last year at this time. Please keep in mind that last year, for example, 70% of our EBITDA was generated in the second half of the year, especially because in the second half of the year, we have some more working days. And in addition, we also we also for this year, we expect some license revenues.

21:56 However, these license revenues are expected in the second half of the year similar to the that what we have seen last year. Yeah. That's all from my side at this stage. And now I will hand over to Martin Lekinski. Thank you, Michael. That was very helpful. So we're heading for the q and a session. And now, please, we're we're grateful to take your questions. So the first one will come from mister Ziering from Mitch Meyer or Warburg Research. Yes. Great. Thanks for taking my questions. I will have three for the start. The first one on daily rates.

22:46 You made some comments, but is it also possible for you to quantify this a little bit? We have seen with the full year a decline in fixed price of 2%. Maybe you could just provide some color if these trends have reversed or what you're seeing. Then the second one on utilization. That's also helpful that you mentioned this has improved towards the end of the quarter. Do you already expect a reversal here in Q2? Or is this rather a topic for the second half? And then the last one on the tax rates. Yes, you mentioned the moving parts. And you also mentioned what we should usually see. Probably, that's not what we see for the full year. Maybe some sort of guidance, if possible, if this will be remarkably above 40% or what you're seeing here.

23:46 Okay. Daily rates, I mean, we are not talking about very significant improvements. We are not talking about 5%. This sometimes applies to a single customer. But if we talk about improved daily rates, it's very low single digit growth rate. Let's say it in these words. For us, it's our goal to keep this in line with inflation, and this is already very, very challenging because the competition is pretty tense at the moment. There are a lot of consulting IT services companies coming, for example, in the automotive sector, which now try to to get into the other sectors.

24:35 If we look at utilization, it has improved at the end of March, and and we already see further improvements in in April. We hope and then expect that we will be in line somewhere within q two. So and we are I mean, we are not talking, as as pointed out in the past, we are not talking about three, four, five percentage points. Already one percentage point less capacity utilization is already pretty significant in terms of profit because it's pure profit. Tax rate, yeah, that's something which is pretty difficult to predict.

25:25 Last year, for the whole year, the tax rate was also slightly above 50%. I think if you need a tax rate for your for your calculations, for your thoughts, I would say we should expect it somewhere between 4550%. It would still be higher than it should be because we have some subsidiaries which generate losses, and you we cannot put these losses as deferred tax assets on because, as you might know, deferred losses can only put those losses on the on the balance sheet where you expect to use them within five years. Great. Thanks a lot. That's helpful. You're welcome.

26:19 So just a a short reminder, people on phone or participants on phone may want to unmute their microphones via the star key followed by the number six of the phones for our q and a session. Do we have more questions? Hello? Yes? Hello. This is Wolfgang from Berenberg. I have two additional ones, if possible. First one is on working capital that, let's say, increased disproportionately against sales.

27:09 You mentioned you were not able to drive it down the first quarter. But if I remember the Q4 call right, you, let's say, started some measures already So or you're working on what can we expect over the next quarters? What are your targets to drive accounts receivable and other items burdening working capital down? That would be interesting. Actually, we have analyzed this and and also defined a goal ourselves. In q four, the increase of working capital was 20,000,000 higher than what it should be. We are talking about 20,000,000, and that's what we want to that's the amount which we have set internally as a target and and to to get it reduced.

28:06 We have if you look at the key drivers, it's first of all all these what we call contract assets. It's not the line receivables because we in in general, we don't have problems with receivables, customer pay within the payment terms. What we have seen actually in q four, this has a little bit reversed already in q one, that customers wait a little bit longer within the agreed range. The main driver actually are contract assets, which means fixed price projects and and and other work we have done, but which can be, for several reasons, not be invoiced yet. And that's something where we also need to work a little bit on our processes to turn these assets much faster into billable revenue.

29:01 It's always a development during the year that Q1, Q2 and also Q3, this line of the balance sheet increases. But last year, that was different to prior years. We were able to reduce this in q four, but not as much as it should have been reduced, and that's where we are working on. Okay. Thanks a lot. And then maybe on on the pipeline on your hard order book, you mentioned that activities picked up, for example, in the in the public sector. But has your hard order book also increased during the quarter? If we look at this, see one of the first four months, so that's early of April.

29:47 It's so far. Absolutely nothing with our expectations. Okay. Thanks a lot.

30:39 So are there any other questions? Anyone? No. This doesn't seem to be the kick. Ah, there's one. Mr. Zwing again. Yes. I would just take a follow-up, if you allow. On the public sector, you mentioned the drivers, and we know that the Sondafermeung is a little bit slow to turn into actual revenues. I know it's very tough, but do you have any idea about the timeline? Is this rather an H2 topic? Or do you think this could go into rather 2027?

31:29 Any color would be helpful here. I mean, Q1 was the first quarter where we have seen it in terms of order entry. So we have seen some more tenders. We won also more we got more orders. So we have and in terms of order entry, public sector was already fine in q one. However, the revenues in q one, these are the revenues are still based on the order entry from the past, which means q three, q four, and that was pretty disappointing. So, yes, we see some some impact from these additional budgets. There's only for moving for the armed forces and infrastructure. It's probably less than what we one year ago would have expected, but there is some impact. And as far what I what I heard also from from peers, it's not only adesso. It's it's in general, it seems to move now, and that's, I think, good news.

32:32 Okay. Great. Thank you. Thank you. Do we have more questions? So then, it's my turn to thank you all for your participation and your interest in your in this call, and, I hope to see you soon in person, maybe tomorrow on the German Spring Conference. For now, I have to say goodbye and, see you soon.