Axway Software : Transcript - Analyst Conference of 2021 Full-Year Results

2021 Full-Year Results

Transcript

2021 Full-Year Results

Transcript

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Axway 2021 Full-Year Results

Transcript

Tuesday, 22nd February 2022

PRESENTATION

Arthur Carli: Ladies and gentlemen, good evening and welcome to Axway 2021 Full Year Results Analyst Conference. My name is Arthur Carli, and I'm in charge of Investor Relations for the Group.

As usual, I have two reminders to make today. First, I must alert on the fact that this event is live and is being recorded. A replay of the meeting will be available as soon as possible on Axway Investor website.

1. would like also to remind you that today's presentation contains forward-looking estimates that are naturally subject to risk and uncertainties. Future activities and results may differ from those described today. As a reminder, actual risk factors are described in the company Universal Registration Document.

And with that, I wish you a very good presentation, and I would like to hand over to our CEO, Patrick Donovan.

Patrick Donovan: Thank you, Arthur, and thank you all for joining us here tonight for our 2021 analyst call. A few minutes ago, we released our 2021 results, and Cécile, Roland and I will give you some additional commentary here tonight to help highlight certain topics within the press release. We'll then wrap up with some Q&A sessions as normal. So let's get started.

At the beginning of 2021, we communicated our vision and mission that Axway enables enterprises to securely open everything. We believe that in order to create the most value for your customers, partners and employees, you need to open everything by securely integrating and moving data across a complex world of old and new.

Nothing about the 2021 results or our forecast for 2022 has changed our vision and mission. This is still valid. And with that, our strategy is to help deliver that vision with our strong Axway portfolio of solutions such as MFT, B2Bi or Digital Finance, which has been serving our customers for at least 20 years or our market-leading Amplify API management platform.

These are the backbone products for which our strategy to deliver this vision is built upon. With this portfolio-based strategy, we're looking to create a long-term and balanced value set for our three constituents.

For our customer, we will deliver brilliant customer experiences, and we look to do this with our solutions over the long term to be with them and to support them in their mission-critical business activities.

For our employees, we want to make Axway the place to be. We want to be a force of the traction that our employees can have a successful and rewarding career in their mission of serving our customers.

And for our shareholders, we want to build a predictable, profitable long-term value. We do not strive to be a short-term flip of value, but to deliver stable, improving financial results over the long term.

Over the coming slides, I'll dive a bit further into each of these constituents and how we have helped them in 2021, and then both Cécile and Roland will come back and go further into details on some of these points.

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Tuesday, 22nd February 2022

In 2021, we continued to build on the value we have delivered to our customers over the years. This work and effort continue to be recognised by our customer set. In fact, in 2021, we increased our net promoter score yet again, another 16% over 2022, which represents four years of continuous improvement since we introduced this metric into the Group. Our revenue renewal rate is at 94% for all our recurring business, that includes both maintenance and subscription, a figure that you should continue to see improve year after year.

The continuing renewal of our base is a confirmation of their usage and reliance on our solutions that help them run their business. We increased in 2021 by 7%, our new and cross-sell bookings. These are either brand-new customers for which we added 265 this year or current customers where we are able to cross-sell a new solution to a different part of the business or a different organization within the parent group. This new base of customers provides us the opportunity to grow with them in the future and grow over time.

We continue to strive to make Axway the place to be for our employees. Essentially, software editors like us are in the people business, and we want it to be rewarding to be at Axway for our employees. In 2021, we achieved an employee engagement score of 66%, which was an improvement in the survey results since we started in 2018, which were at 49%. This benchmark survey we utilized uses a standard threshold of 60% as the baseline for which you need to have an engaged workforce to help deliver the results both to the customers and then to the market.

In 2021, we're able to have 204 people join Axway. This is a good level during this interesting time. Obviously, we are not immune to the great resignation we're all hearing about. We are experiencing higher than normal attrition rates as with the others in our industry and within our customers, as I talked about with regards to the Q4 results. We will continue to build the Axway we want to be at, and we'll welcome those who want to come along for this journey.

In 2021, we continued to improve the level of women within our employee base. This is not something that we could change overnight, but we are almost at a third of our workforce. And as a reminder, our workforce is quite technical in nature. So we're looking to make this continuous improvement in this area year after year. And I believe a diverse workforce is a better workforce for all and for our customers as well.

So as I move on to delivering the value to our shareholder set, the third constituency, it is obvious that we engaged - have an engaged employee group, and we're doing the right short- and long-term actions for our customers. We should be able to deliver positive results. Delivering stable, improving results over the long term will give this value back to the shareholders. I set out with this mission back in 2018 and after completing that year of investment as well as some investment in 2019, this is what - exactly what we started to do.

First, we wanted to shift our business model to more of a recurring business model. This type of recurring customer contracts are more predictable and give us a better forecast ability into the upcoming periods, so we can avoid the unexpected quarters like we had in Q4. In Q4, this delay in timing to close deals with a missing employee base at the customer set that I had talked about previously from the great resignation that we saw across all product lines across all regions added about a month to our average closed cycle in the deals. But on the larger deals it added three or more months for the anticipated closing.

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Tuesday, 22nd February 2022

So by 2023, we should start seeing the benefits of this shift to subscription and we should be able to have better predictability. And Cécile will go into the details of that in her presentation.

For 2021, we had 93% of our product revenue that was under recurring contracts, which you could think product revenue as license, subscription and maintenance. Notice I was careful to say under recurring contracts because over the past years, we've been signing the first installation of these recurring contracts and we are not yet fully into the renewal of these contracts, which starts in 2023.

So in 2021, of the roughly $51 million of upfront revenue, only $8 million of that was actually renewals of deals we signed in 2018. In 2021, for our principal product lines, MFT, B2B, Amplify and Digital Finance, which we formerly called Accounting Integration Suite, we grew almost 4% organically over 2020. These critical product lines make up almost 85% of the 2021 revenue.

Since our 2019 year, our investment and the conversion to subscription have started to build back to - build so we could start delivering back on profit. We have improved our profit and operating activities by 7% over 2020 and the year 2021, and we increased our net profit by 13%. We expect this continuous improvement to go forward over the next several years.

As we will see later in Cécile's presentation, this move to the subscription business model and more broadly the recurrent model of business, and the investments we have made over the prior years will come back to us in more stability in the renewing contracts, which bring a better base in this subscription line, and as well in our cash flows.

And we have to continue spreading this message into the market. We have to continue to talk about the good things we're doing here in Axway. And on the screen is a couple of examples of what we have done in 2021, such as our Axway Summit, where we had over 900 customers and partners at attend virtually, which got great NPS ratings and pipeline build as well or through our web and social messaging that is pushing the open everything message, which helps drive pipeline, drive traffic to our website and drive other types of engagement with Axway about our product set. Or we will continue in this strengthening our brand and awareness campaigns in the market.

You could see various activities that we're constantly doing, but we're also doing some non-normal, let's say, activities with our Axway catalysts, which are constantly talking with customers and attending virtual events or attending the API talks and sharing our view of the market or various podcasts that we have launched throughout the years and other outbound channels. All of these continue to build the brand of Axway and make an awareness in the marketplace about the great things we're doing.

So in summary, for 2021 on the financial figures, we finished the year at €285.5 million in revenue, which was an organic decline of 2.7%. This also included a strong currency impact of about $3.7 million as we had a weaker US dollar and Brazilian real.

We were able to continue to improve our profit on operating activities to 11.5%, up from the 10.4% last year and also up in absolute value even with the declining revenue. We expect this to continue in 2022 as well. We continue to grow our subscription revenue up almost 19% from 2020, as well as a percentage of our total revenue under recurring contracts. Finally, our ACV growth was 4.2% in 2021 over 2020.

I want to make a final note that's not on the slides in front of you. If you remember several years back, when we started this transition to subscription, I created something I called the signature metric. This

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was taking the licenses signed and the new subscription contracts and trying to blend them together so we could have a reliable measurement of how the sales was performing year-over-year.

This was a great transitionary metric that we used to full success. But I knew that this metric was going to have a limited life, because once we were under more subscription contracts, this would go flat and we'd have to start introducing the renewals of these contracts. So I have asked Cécile to start tracking a more traditional recurrent revenue metric in 2022, such as ARR.

I'll come back to you later in this presentation with some other 2022 initiatives and our guidance. So for now, I'll turn it over to Cécile. Cécile?

Cécile Allmacher: Thank you, Patrick. Good day, everyone. So let's now dive into the 2021 financial results that we just announced a couple of minutes ago in our press release.

Going through 2021 income statement. As you can see, total revenue is down 2.7% organic and 3.9% on total, as announced in our last press release as of January '19. Cost of sales decreased around services and subscription costs as part of our plan and in consistency with the trend we started last year.

Our gross profit is still - is slightly higher at 70.8% versus the 70.5% we had in 2020. We were also able to pull back some of the operating expenses as planned. So in sales and marketing and G&A, we have the impact of the variable bonus and commissions decrease due to the revenue mix of Q4.

Our R&D decreased in the continuity of the optimization we started last year as part of our strategy to improve margin. We were consequently able to generate a higher margin at €32.9 million or 11.5% of our revenues, up from the 10.4% in the prior year.

Our operating profit is inclusive of about €8.6 million of amortization on intangible assets, share-based payment expense, as well as restructuring costs due to the close of some offices. Overall, our net profit finished at €9.6 million at €0.45 per share versus the €8.5 million or €0.40 per share in the prior year.

Let me now go into details on the revenue by activity. We continue to see the acceleration in the changing business model with the shift away from licenses decreasing 26.6%. Maintenance revenue dropped 12.9%, which was expected with both the decreasing license revenue and the migrations to subscription. Subscription is growing 18.9% organic below what we expected, mainly due to a miss of about €10 million of upfront revenue in Q4.

When added to the maintenance revenue, we reached 82% of our revenue under recurring contracts for 2021 as opposed to the 79% we had back in 2020. Service revenue dropped 4.9%. We are still seeing the impact of COVID in some accounts, which is slowing down the activity.

Overall, our revenue finished at €285.5 million, down from the €297.2 million reported in the prior year. So to focus on the license and maintenance activities, we experienced a 26.6% organic decrease in the license activity with a double-digit drop for three out of the four quarters, which is higher than the budgeted decrease of 0.3%. This trend is consistent across our regions.

On the maintenance side, as forecasted, and in consistency with both the license revenue decrease and the migration to subscription, we have a 12.9% drop. However, we are still seeing a good level of renewal.

Now if we move to the subscription revenue, we have quite a different picture. The revenue grew strongly for the first three quarters in almost every region. We started seeing a softening of the market end of Q3,

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