Earnings call transcript: Atos Q4 2024 sees slight earnings beat, stock dips

Atmos Energy Corporation (ATO), a utility company with a 32-year track record of consecutive dividend increases, reported its earnings for Q4 2024, showing a slight earnings beat with an EPS of $2.23 against a forecast of $2.20. Revenue hit the mark at $1.35 billion, aligning with expectations. The company maintains strong financial health with a current ratio of 1.56, indicating solid liquidity. Despite the positive earnings report, the stock experienced a 2.53% decline, closing at $149.75.

According to InvestingPro analysis, Atmos Energy currently appears overvalued compared to its Fair Value estimate. Discover more insights with InvestingPro’s comprehensive research report, which provides detailed analysis of ATO and 1,400+ other US stocks.

Key Takeaways

• EPS of $2.23 surpassed expectations by 1.36%.
• Revenue met forecasts at $1.35 billion.
• Stock declined by 2.53% post-earnings.
• Operational improvements noted, with reduced workforce attrition.
• Regional revenue declines raise concerns.

Company Performance

Atos reported a full-year 2024 revenue of €9.6 billion, marking a 5.4% organic decline. Despite the revenue drop, the company’s operating margin stood at €199 million, or 2.1% of revenue. The company faced a net loss, influenced by a €3.5 billion gain from debt restructuring. The book-to-bill ratio was strong, with Evident at 111% and Tech Foundation at 122%.

Financial Highlights

• Revenue: €9.6 billion, down 5.4% organically year-over-year.
• Operating Margin: €199 million, representing 2.1% of revenue.
• Free Cash Flow: Negative €2.2 billion.
• Net Loss: Impacted by a €3.5 billion financial gain from debt restructuring.

Earnings vs. Forecast

The company slightly exceeded EPS forecasts with a $2.23 result compared to the expected $2.20. Revenue was on target at $1.35 billion, showing operational consistency.

Market Reaction

Following the earnings release, Atmos Energy’s stock rose 1.16% in after-hours trading but subsequently fell 2.53%, closing at $149.75. Trading near its 52-week high of $154.55, the stock has demonstrated impressive momentum with a 34% return over the past year. The stock typically exhibits low volatility, with a beta of 0.66, making recent movements noteworthy. This price action reflects investor concerns over broader financial challenges despite the earnings beat.

Outlook & Guidance

Atos plans to present its strategy for 2025-2028 on May 14, 2024, during its Capital Markets Day. The company aims to improve margins in 2025 and achieve positive free cash flow by 2026, focusing on cash generation and cost adaptation. Analysts maintain a moderate buy consensus, with target prices ranging from $137 to $165.

InvestingPro subscribers have access to 10 additional key insights about Atmos Energy, including detailed financial health metrics, valuation analysis, and future growth projections. Get the full picture with InvestingPro’s exclusive research tools and comprehensive company analysis.

Executive Commentary

CEO Filip Sal emphasized the importance of cash flow, stating, "Cash is king for me. Cash is freedom." He reassured investors about the company’s financial health, saying, "We are now back to a normal company with a decent level of debt." Sal also highlighted the company’s strong client base as a key strength.

Risks and Challenges

• Continued revenue declines in key regions like North America and the UK.
• Negative free cash flow remains a significant concern.
• Potential macroeconomic pressures could impact future performance.
• The need for successful execution of the transformation plan to stabilize operations.

Q&A

During the earnings call, analysts inquired about potential client losses, to which Atos confirmed no major losses are expected in H1 2025. The company also addressed concerns about contract terminations, reassuring stakeholders that no significant risks are anticipated.

Full transcript - Atmos Energy Corp (NYSE:ATO) Q4 2024:

Conference Operator: Good day and thank you for standing by. Welcome to the ATTO’s Full Year twenty twenty four Results Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Filip Sal, Chairman and CEO. Please go ahead.

Filip Sal, Chairman and CEO, Atos: Thank you, operator. Good morning, everybody. Thank you for joining us this morning for 2024 financial results. I’m with Jacques Francois, the group CFO. So on Page three, of course, you have the normal, I would say, disclaimer.

There is nothing new on this one. So on Page four on the agenda, today I will share with you some key messages, then I will go on the business highlights on 2024. Jack Francois then will take the lead for the 2024 financial results and then I will come back with key takeaways and of course, we’re going to take some Q and A after that. So with the highlights first, so let’s start on the page, which is number six. So I would say, first on Q4, I think the good news is the, I would say, commercial activity on Q4.

As you can see, the Q4 book to bill in fact is very strong, above 110% and stronger in fact than Q4 twenty twenty three. We signed in fact a lot of multiyear contracts. It’s both renewals in terms of contracts and wins. In the second point, we have 2024 revenue organic evolution. Operating margin and free cash flow is roughly in light with the outlook that we have communicated in October, which I think is very important in terms of, I would say, confidence.

In terms of M and A update, we finalized the sale of WorkGrid. It has been done in the year of 2024 and we received the cash in fact before the end of the year. As you know, in November, we received a non binding offer from the French state for the potential acquisition of the what we call the advanced computing activities. And we have launched the self process of the mission critical system. In fact, this month in March, when we if we have, I would say, the right level, I would say, of price, we will probably sign something during the summer for closing probably at the end of the year or beginning of next year.

And finally, I would say on the right column on the slide, I think it’s very important to understand that we are now opening a new chapter. First, we have successfully, I would say, closed the financial restructuring. Which was done on December. Then we had, I would say, a credit rating of B minus with a stable outlook on our corporate bond. And then, of course, there is now, I would say, a transformation plan that is underway.

So in fact, when I joined the company, I launched in December a strategic review plus a transformation plan. And in fact, I will convey a Capital Market Day with Jacques Francois and the top management in May. It will be on the fourteenth. Where we’re going to, I would say, reveal exactly, I would say the strategy ’25, ’20 ’8 and of course, a business plan for the next four years for 25%, of course, and then the next four years. If we go on the Page seven on the twenty twenty four financial performance.

So first, in terms of sales, we are at billion. It’s roughly organically down by 5%. We can say roughly that the market was around minus 2%, so it means that we have suffered a little bit more than the market around three points. And of course, this is, I would say, normal, I would say, situation with the instability, of course, that was with Atos during the year of 2024. If we did die, I would say, between the two business units that we have, so EBITDA is roughly at minus 7% and the Tech Foundation around minus 4%.

In terms of operating margin, around CHF 200,000,000, which is roughly 2.1% of sales. It’s, of course, I would say, probably the bottom for us. Surely, I would say the bottom, I think, we’re going to rebound already in 2025. If you compare, I would say, versus 2023, first, there were some costs in fact in 2023 that were put under the OM for the separation that is, of course, no longer an option. And it was more it was a circa roughly 100,000,000.

And also we had we make some provisions, in fact, in 2024 when we call on the red or black accounts around 40,000,000. The gross free cash flow is minus 2,200,000,000.0. You have to understand that we completely stop what we call the working capital optimization and it has an impact roughly of $1,500,000,000 I would say on the cash. And we have also higher CapEx coming from the HPC. That’s a one off.

I would say it’s not going to be repeated in fact in 2025. And it was around, I would say, $200,000,000 plus that was core. Of course, I would say, has affected, I would say, the cash flow of $23,000,000 If I go now on Page eight for the I would say the order entry and the commercial performance, so it’s roughly EUR 8,000,000,000. And as I said, EUR 2,700,000,000.0 in Q4, I think we have been we have been able, I would say, to see a good rebound, I would say, on the Q4 activity. And also because most of the clients were waiting, I would say, the end of the financial restructuring.

In fact, we signed a lot of contracts in December. After that, of course, by business line, EBITDA as a book to bill. So in Q4, at 111% and roughly at 88% during the year of 2024%. And Tech Foundation, the Q4 was at 122%, which is quite a good, I would say, performance. And book to bill, we’re a little bit below 80% also for the year 24%.

I put, I would say, some examples of what we have been able, I would say, to negotiate during the Q4 in banks, in public sector, car rental company and health insurance. If we go on the Page nine, so the revenues, I would say, by regions, as you can say, we are quite balanced finally, I would say, between North America, U. K, Benelux, what we call Central Europe, includes Germany, Southern Europe and what we call also growing markets, which is, of course, Latin America, Africa, Middle East and Asia. Let’s deep dive, I would say, let’s say, region by region and let’s start with North America. So in fact, in the North America, the revenue was minus 12%.

It has been quite, I would say, difficult environment. Probably, I would say, for me, I was in The U. S. Last week. I think that a lot of, let’s say, U.

S. Corporation were more sensitive, I would say, to the financial situation of FATOS. And that’s why we lost some of the, I would say, some contracts in this area. But the good thing the good sign that we have in fact is some of them are restarting, I would say, to renegotiate some contracts with us, which I think it’s a good sign, I would say, for 2025. On Page 11, in The UK also it has been quite tough, but we’ve also decided, I would say, to stop some contracts.

And remember also that we have the BPO activities mainly located in The UK. And this one is, in fact, was a double digit decline. Benelux and Nordics on Page 12, quite LC, I would say, growth at around 5%. It’s also, I would say, done with, I would say, a good performance with FIDEN and of course, an HPC that was sold in Denmark. And Tech Foundation was slightly declining with some contracts completion.

Central Europe, which includes, I would say, Germany, it’s roughly minus 2%. We had roughly a small decline for both Evidane and Tech Foundations. And we have also a scope reduction in fact in some sector and you know that for example Germany of course in the automotive sector is I would say suffering quite heavily. On Page 14, Southern Europe, which is mainly France and in fact Spain, we have, I would say, a slight decrease, I would say, compared to, I would say, competitors. Nothing I would say to say the I would say particularly, I would say, in this question.

And finally, on the growing markets, it of course, it has been so it’s on Page 15. It has been also driven, I would say, by the Olympics because the Olympic contracts, I would say, is in this region. So we have, I would say, a strong growth, I would say, on Tech Foundation because of the Olympics. And Evident, we had, I would say, some declines, but it’s also because I would say the base is not really comparable with the HPC as we have done, I would say, quite a good year in 2023. Now to finalize, before I give the floor to Jacques Francois, I think the good news is the attrition rate on Page 16.

As you can see, it’s around the 15%. So it’s, I would say, compared, I would say, to the normal year for us. So there was not a leakage, I would say, of employees in the company. And of course, I think it’s a good sign to see that finally, I would say, most of our workforce has been able, I would say, to stay with the company. And of course, we are now, I would say, aiming to probably decrease this attrition rate in the future.

The retention of the key employees also is very important at 92%, which, of course, is important as it is the workforce, of course, that is driving the group going forward. With now, I give the floor to Jacques Francois to give you the, I would say, the highlights, of course, of the financial results. Thank you

Jacques Francois, Group CFO, Atos: very much, Philippe, and good morning to you all. So our consolidated financial statements have been established as usual on a going concern basis. All the numbers I will comment upon today are in euros and I will give you of course a snapshot of our key financial numbers for 2024. So as Philippe just commented, the group revenue was EUR 9,600,000,000.0 in 2024, down 5.4 organically compared with 2023 with EBITDA down 6.7% and Tech Foundation declining by 4.1%. Group operating margin was EUR 199,000,000, representing 2.1% of revenue, down 200 basis points organically compared with fiscal year twenty twenty three.

Free cash flow was minus EUR 2,200,000,000.0 for the full year, largely explained by the end of one off working capital optimization actions, which resulted in a EUR 1,500,000,000.0 decrease compared with December 2023, as well as by higher CapEx linked to HPC contracts. The nominal value of our debt, the net debt post financial restructuring was EUR 1,200,000,000.0. As you can see in our accounts, the book value of our debts in IFRS was actually EUR 300,000,000.0 because it included an IFRS nine debt fair value treatment, which reduced its value by nearly EUR $100,000,000,963,000,000 in order to reflect the mark to market. This EUR $963,000,000 would be amortized in subsequent years. Net loss group share was billion, primarily reflecting a billion financial gain related to the financial restructuring of the group, a billion income from the IFRS debt fair value treatment and a goodwill and other current asset impairment charge of EUR 2,400,000,000.0.

Let me guide you through our revenue evolution in 2024. Our revenue evolution is explained by two main drivers. Firstly, the organic revenue decrease of minus 5.4%, as Philippe just said, driven by previously established contract terminations or scope reductions as well as market softness in key geographies. Secondly, of course, the scope changes over the past years with the divestitures in 2023 of UCC EcoAct, State Street (NYSE:STT) joint venture and to a lesser extent WorldGrid at the end of twenty twenty four. The organic revenue evolution percentage is in line with the business outlook we provided in October.

This leads to a full year revenue of EUR 9,700,000,000.0. Regarding our profitability, The group operating margin was EUR 199,000,000, representing 2.1% of revenue, down two ten basis points compared to ’23. As a general comment, the margin decrease comes mainly from two one off items. Firstly, the allocation to the business of EUR 103,000,000 additional SG and A. In 2023, these internal costs because they were unusual, abnormal and infrequent because they related to the separation project that was conducted at that time that were classified below the operating margin in the other operating income and expense line of our P and L.

And secondly, circa EUR 40,000,000 of provision for underperforming contracts following negotiations with customers. So now per business line. Evidens operating margin was EUR 90,000,000, representing 2% of revenue, down three fifty basis points, Beyond the allocation of SG and A costs representing EUR 48,000,000, profitability was also impacted by revenue decrease and lower utilization of resources. Tech Foundation’s operating margin was EUR 109,000,000, representing 2.2% of revenue, down by 70 basis points. The business benefited from the positive impacts from the continued execution of the transformation program and the accelerated reduction of underperforming contracts.

That was offset by higher allocation of SG and A costs to the business for EUR 55,000,000 for Tech Foundation. I will now walk you through the rest of the P and L. Non recurring items were a net expense of EUR 2,900,000,000.0, and I will comment upon the key elements there. Firstly, reorganization costs amounted to EUR 119,000,000, a strong reduction compared with the EUR $696,000,000 incurred last year. Reorganization costs include notably the workforce adaptation measures for EUR 56,000,000 compared with EUR $343,000,000 in 2023 as the group limited restructuring expenses in order to manage its cash position during 2024.

It also includes separation and transformation costs for EUR 42,000,000 related to the last cost of the legal carve out, which was launched in 2022 as part of the separation project. As a reminder, these carve out costs amounted to CHF $353,000,000 in 2023, about one third being internal costs and the rest being mostly external consulting and legal costs. Secondly, rationalization and associated costs amounted to €37,000,000 and corresponded to the consideration of the data centers consolidation program. Thirdly, goodwill and other non current asset impairment charge amounted to EUR 2,400,000,000.0. I’m sure you all know, but just to make things clear, I remind you that this charge is a noncash item.

Impairment amounted to EUR 1,500,000,000.0 for the first half of the year and EUR 800,000,000.0 in the second semester, reflecting the decrease of the group’s enterprise value, which takes into account a lower fair value of the financial debts and a lower market capitalization. Remaining goodwill on the balance sheet at the end of the year amounted to circa EUR 600,000,000. Finally, in 2024, other items were a net expense of EUR $288,000,000. It included EUR 74,000,000 of net capital gain related to the sale of WorldGrid offset by additional losses recognized on past transactions. It also included the reassessment of Onero’s contracts that were accounted for in OOI in previous years for million settlements and legal fees related to major litigations for EUR96 million, current asset write off for EUR78 million and net cost of pension and early retirement programs in Germany.

Net financial income amounted to EUR3.1 billion in 2024 compared with a net charge of billion in 2023. This increase results from higher interest rates, increased drawings on our SCF as well as interest paid on the interim financing and on the new debt structure. Secondly, net financial gain amounted to EUR 3,500,000,000.0. This topic is so important, we have added a page on the next page to elaborate and explain the financial impact of the debt restructuring. Let’s go through that.

As you can see on the screen, the billion is made of four main elements. The largest one to the left is recognized is a gain recognized for billion upon the conversion of the debt into equity. Then there is a million income, which was recognized following the fair value treatment applied on our debts according to IFRS nine. This amount will be amortized in subsequent years. An expense of EUR 45,000,000 related to the issuance of the warrants was recognized as well as the cost and fees of the financial restructuring amounting to EUR 165,000,000.

Thirdly, in 2024, other financial expenses amounted to EUR $221,000,000. It included EUR 78,000,000 of exit fees on interim financing loans, a lease liability interest of million, higher than in 2023 due to higher discount rates, pension related financial expense of million, a net foreign exchange loss including hedges of EUR 29,000,000 and prior year transaction costs, which were fully amortized in EUR 24 in the context of the financial restructuring of the group for EUR 15,000,000. The tax charge for for 2024 was EUR $214,000,000, increasing by EUR 102,000,000 compared with EUR 23,000,000. This increase was primarily driven by a EUR 59,000,000 valuation allowance on DTA recognized in past years, reflecting the latest business plan of the group and reduced taxable income perspective. And on top of that, EUR 37,000,000 of non recoverable withholding tax paid on dividend distributions.

Turning now to our free cash flow statement. Free cash flow was minus $2,200,000,000 in 2024. Let me highlight the key elements there. Firstly, the free cash flow for the year reflects the end of the one off working capital optimization actions for EUR 1,500,000,000.0 compared to 12/31/2023. Details of these working capital actions will be shown on the next page.

Then capital expenditures increased by EUR $239,000,000, reflecting increased investments in client projects, particularly for a significant investment in the energy efficient exascale technology. So as we said before, we are no longer doing any one off actions to optimize our working capital. The $319,000,000 you can see here to the right consists only of customer payments received in advance of the invoice due date. I insist, we have not given any discount for this cash in advance nor have we orchestrated it. This comes purely from large public sector companies customers in various countries, various industries.

As a reminder, working capital optimization amounted to EUR 1,800,000,000.0 at the December 2023. So logically, the impact on this year cash flow statement was minus EUR1.5 billion. Going forward, our intention is to put in place measures to improve our working capital in a sustainable and recurring manner. The total of reorganization, rationalization and associated costs and integration and acquisition costs reached EUR $256,000,000 compared with EUR $660,000,000 in 2023. Indeed, the group limited restructuring expense to manage its cash position in 2024.

Cash out related to other changes amounted to EUR $5.00 4,000,000. This amount included costs incurred on Onerus contract for EUR 166,000,000 for the most part in relation to the contracts that were accounted for in other items in previous years. It also comprised expenses related to financial restructuring for EUR $226,000,000, out of which EUR 110,000,000 of external advisor costs, EUR 38,000,000 of lender fees and EUR 78,000,000 of exit fee on the interim financing we had in 2024. The litigation costs including the cash disbursed to settle a major litigation are also reported on that line. In conclusion, the group reports a negative free cash flow of minus $2,200,000,000 in 2024, reflecting the end of one off working capital optimization actions for EUR 1,500,000,000.0 and higher CapEx linked to HPC contracts for EUR 200,000,000.0.

The net cash impact resulting from net disposals amounted to EUR 162,000,000 mainly relating to the net cash proceeds generated by the WorldGrid disposal for EUR $232,000,000 including fees on disposals. This also included the write off of a receivable on a past disposal. To conclude on the cash flow statement, let me spend a moment on what was the impact of the capital increases of our net debt. Following the successful closing of our financial restructuring on December 18, we have restored our liquidity profile and reduced significantly our debt. This translated into EUR 145,000,000 of new money equity raised from the rights issue, as well as EUR 2,900,000,000.0 of equitization of existing financial debt.

The total net debt for the group amounted to EUR $275,000,000, including EUR $965,000,000 IFRS nine debt fair value treatment, which will be amortized in subsequent years. As a reminder, before this IFRS nine debt fair value treatment, the nominal value of our debt amounted to EUR1.2 billion. The group did not pay dividends in 2024. The numbers you see on the screen related to the withholding tax paid by certain subsidiaries on internal dividend distribution and dividend paid to minority interest. To conclude my presentation, I would like to present to you our new financing structure and maturity.

Cash, cash equivalents and short term financial assets at year end were billion, meaning we have sufficient liquidity to operate at mid term and to execute our business plan. As a reminder, the million revolving credit facility is undrawn at the end of twenty twenty four. Consequently, our gross debt at December 24 is EUR 3,100,000,000.0. You can see on this slide the breakdown between bonds, loans and RCF. We have no maturity before December 29 with the first lien debt of SEK1.8 billion including the FCF having a maturity in December 29, the SEK1.5 billion debt of SEK1.9 billion in December 30 and the second lien debt of 500,000,000.0 in December.

All these amounts include the debts related to the interest in kind. PIC. I will now hand over back to Philippe.

Filip Sal, Chairman and CEO, Atos: Thank you, Jacques Francois. So I think we are now ready for this new chapter for Atos. Now that I would say the financial restructuring has been completed in December, we can now focus on the transformation journey, which of course is very important. And the idea of course is to provide highest level of support to our customers for innovation and quality. So first, we have a new governance in place.

We have now a combined Chairman and CEO role. And we have a reduced Board of eight directors with a strong and recognized Domenech expertise. Two, there is a transformation plan in motion. In fact, I launched early December a strategic review. And also, there is a launch of a transformation plan during the Q4 last year.

And of course, this will give, of course, a lot of results in the course of 2025 and 2026. Three, I think the leader team now is appointed. The top 20 is almost complete. And I would say the what I call the management team around 200 people now already, I would say, to deliver, I would say, the results we are looking at, of course, for ’25 and in the next years. And finally, as I say, there was a strong commercial activity in Q4 and we, I would say, quite confident also that we will continue to have some good results in the course of 2025.

So as I say in my introduction, I will give you, I would say we meet you, I would say, on the May 14 in France, in Paris. We don’t know exactly where is the venue, but we will, of course, come back to you and, of course, the timing. I will present, of course, with Jacques Francois and some of the top management my vision for Atos for the ’25, ’20 ’20 ’8 plan. So it’s a four year plan. Of course, this year plus the next three year, we will give also guidance for 2025 and we will also give a guidance for ’28.

With this, operator, we can start the Q and A session. Thank you.

Conference Operator: Thank We will now take the first question from the line of Frederic Boulan from Bank of America. Please go ahead. Frederic Boulard from Bank of America. Please go ahead.

Frederic Boulan, Analyst, Bank of America: Hey, good morning, Filip and Jacques Francois. Thanks for the presentation. A couple of questions for me. First of all, in Q4, if you can give us any sense of when you look at the operating performance of Evident and Tech Foundation, what was the impact of kind of contract termination within those within the kind of organic revenue decline. Specifically, you point out to some HPC delivery in Denmark and Germany.

It would be great here if you could also give a bit of quantification around the positive impact around those. And then more broadly, when we look at the trajectory in the next couple of years, I mean, the pre restructuring, you had this kind of very useful flowchart to kind of paint the picture of where you plan to be in the medium term in terms of leverage, cash flow, etcetera. So I understand you will give us all that detail on the May 14, but would be interesting to understand at least for 2025, any thoughts you have around free cash flow, Any specific elements you want to call out? I mean, you mentioned margin should probably not worsen further, but anything else you can say in terms of where we’re trending versus the previous plan and what you’ve presented to debt holders versus the kind of current leverage target? I think you had a target of 1,700,000,000.0 pro form a debt at 2027.

So any kind of color you can give on that would be great. Thank you.

Filip Sal, Chairman and CEO, Atos: So probably on the second I will let Jacques Franco answer on the first two questions. But I would say on the as I say, I’m not going to give any guidance. You can try you can understand this. It’s normal. But I will wait, I would say, May to, I would say, give I said the guidance for 25% with a business plan, of course, for 28%.

You said that I think the lowest point in terms of margin and profitability, I’d say operating margin was touched in 24%. So for sure, we’re going to do much better, I would say, in 25%. But I would say, except this one, I’m not going to come at more than that, unfortunately. So you need to be a little bit patient. May in two months.

You will have, I would say, full view of where we think we can land, in fact, in 2025. And where we’re going to head, I would say, for the next four years in terms of strategy and also in terms of financial results? Jacques Francois, you want to comment on this? Yes.

Jacques Francois, Group CFO, Atos: Frederic, I would say regarding the top line, maybe a world of the Q4, which is a quarter of contrast because on one head, as you pointed out, the revenue evolution was degraded due to the contract terminations or the scope reductions, both in Tech Foundation and Evident, but more in Evident at the Tech Foundation. Although on the other hand, we have seen a rebound on the commercial activity with very significant level of order entry. If I look at the period between the December 19 and the December 31, so that’s the last two weeks of December, we have signed a deal for 1,600,000,000.0 only. So that makes our book to bill of 117% for the Q4, which is, we believe, a regain of momentum regarding the commercial activity.

Frederic Boulan, Analyst, Bank of America: Anything you can share around the impact of HPC?

Jacques Francois, Group CFO, Atos: Can you elaborate a bit on the question?

Filip Sal, Chairman and CEO, Atos: The Denmark

Frederic Boulan, Analyst, Bank of America: Yes. You said in Denmark and Germany, you had some large delivery that helped in the quarter. So that’s great, but would be interesting to understand any what’s the kind of

Filip Sal, Chairman and CEO, Atos: scope of those wins? Yes.

Jacques Francois, Group CFO, Atos: I mean, we have on the Denmark, I think we made a press release explaining a bigger HPC deal in the course of 2024. And on Germany, this is the very big exascale, I think the first European exascale, which is the Julich project, which is still being developed for which there was a high CapEx in 2024 and there will be still a news on this project in 2025.

Frederic Boulan, Analyst, Bank of America: Okay. Thank you.

Conference Operator: Thank you. We will now take the next question from the line of Laurent Dorel from Kepler Cheuvreux. Please go ahead.

Laurent Dorel, Analyst, Kepler Cheuvreux: Yes. Good morning, Philippe, Jean Francois. I have two questions. The first is on the contract termination. Could we have an idea of the impact it could have on 2025 versus the revenues you generated in 2024 to have the full year impact would be useful?

And I was also wondering within the large customer, in the next two years, do you see additional risk of losing further business? Or do you think the situation has now stabilized? And my second question is for you, Philippe. And more precisely, you’ve been in the group now for a few months. What’s going to be your main challenge in the next two to three years compared to your initial expectations?

Thank you.

Filip Sal, Chairman and CEO, Atos: Okay. I will take part of the first one and the second one, of course. We don’t expect there is only one client at risk in The U. S, but in fact, we’re not going to lose him. I had some news yesterday night.

We probably reduced the scope, but we’re not going to lose the client finally. So we don’t expect, in fact, any loss at least in H1 for the moment, I would say, from the tender that we have right now. We have, I would say, probably more good news than bad news, I would say, versus ’24. So I’m quite confident, in fact, that ’25, I would say, we’re not going to lose that much contracts versus, of course, what happened during the year of 2024. Now to the expectations, I think it’s important cash is king for me.

So I think I said to the team that it’s important that we say cash is freedom. It is, of course, the possibility for us, I would say, to decide on our own future. So we’re going to have this exercise, I would say, to make the sales going back to, I would say, a positive territory, which I think is very important for me. And that’s why I’m pushing very hard right now on the sales team. And we have a cloud Chief Growth Officer, I would say, with all the geos that is on the job.

And this, I would say, of course, is to make sure we’re going to be, I would say, to have a rebound, in fact, in starting in 2026. And then the second one, of course, is to adapt the cost versus, I would say, the size of the company to make sure, of course, that we have, I would say, let’s say, normal profitability versus our peers. So it’s, of course, on the short term for me, I would say it’s more important, of course, to shave costs and make sure, I would say, we deliver free cash flow and we will be a positive free cash flow starting in 2026. Exactly the plan, in fact, that we issued in September was, I would say, showing, I would say, positive free cash flow starting in ’26, and I definitely think it will be the case. And after that, of course, it’s a combination between, of course, growth and I would say profitability.

So that’s really what I’m looking at. Usually, the way I manage the company, it’s always a vision, organization, people and transformation plan. So we launched the vision. It will be finished by April. The transformation plan has been launched also in Q4.

In fact, there was already a start of a conversion plan before it arrived and then I accelerated it and you will show it I will show it in fact in May. The organization is in place. It has been communicated internally. We have now the people, the top 20 is in place also like the top 200. So now we are in the I would say finishing the strategy and starting what I call, I would say the executing mode, which is in fact will be starting in April.

So for the first question, which was on the top line, I think, yes, I just want to finally let you answer.

Jacques Francois, Group CFO, Atos: Yes. I mean, Philippe said earlier that we are not going to give a precise guidance for ’25 today because there is this meeting point in May at the CMD. However, logically, what I can say, you see on our press release and you will see in our accounts that indeed the Q4 numbers, it’s a reduction in revenue versus the prior year, let’s say, of million in total, which is million for EBITDA and million for Tech Foundation. So logically, the full year impact will keep going for the coming quarters. This being said, for the purposes and because this is what we really for the purposes of issuing and completing these accounts for fiscal year twenty twenty four, we have confirmed and we do confirm our view for the cash level and the operating margin level in the assumptions of the business plan, which was used for the accelerated safeguard proceedings, which still gives you an idea of the bottom line.

Laurent Dorel, Analyst, Kepler Cheuvreux: Maybe if I could just understand it.

Filip Sal, Chairman and CEO, Atos: Yes, it’s very important to understand we are cash focused now. I think it’s more important than the rest. So of course, the business plan of September gives, I would say, a negative cash flow this year because of the restructuring plan we are also continuing and accelerating in fact. But I would say that’s the of course, we take this as a challenge and we will try to probably do better.

Laurent Dorel, Analyst, Kepler Cheuvreux: And on the client side, I mean, you still have Siemens (ETR:SIEGn), I guess, as your largest client. I’m just wondering if you or what happened in the last couple of quarters may have an impact when you have to renew some pieces of the contract.

Filip Sal, Chairman and CEO, Atos: Well, I had a longer discussion, in fact, with the CEO. So I would say we are, I would say, in contact. There is no I know that there was a paper saying that we’re going to lose anything from CIMA. This is not the case. So we continue, I would say, to have LC relations.

I will be also in Germany, probably in April. And in fact, there is a contract in place still for the next two or three years. So we are, I would say, fulfilling completely, I would say, the contract.

Laurent Dorel, Analyst, Kepler Cheuvreux: Okay, great. Thank you.

Conference Operator: Thank you. We will now take the next question. The next question comes from the line of Adam McGarry from Bank of America. Please go ahead.

Adam McGarry, Analyst, Bank of America: Good morning and thanks for taking my question. I wanted to ask if you could give some comparison on the one off items in the free cash flow compared to what was guided in the safeguard plan. I mean if I look at reorg rationalization and one offs, it seems like sort of add up to $757,000,000 compared to around the $600,000,000 figure in the business plan. Is there any timing difference here? Do you expect the kind of total numbers for the year to stay the same as what was previously guided?

Or any comments will be helpful as to how these numbers compare to the previous plan?

Filip Sal, Chairman and CEO, Atos: So I will let Jacques Francois comment. In fact, in the business plan for ’25, it was roughly in the range of 400,000,000. We expect roughly to be there. We try probably to accelerate a little bit probably the restructuring plan for 2025 just because I want to make sure we’re going to hit the numbers also in 2026. But I would say, I guess, it will be in the range of CHF 400,000,000, a little probably above.

It’s possible, but I would say that we know it’s not going to be a bigger change versus the business plan we had in September. Now for CHF $20.24, I let Jacques Francois answer.

Jacques Francois, Group CFO, Atos: Yes. Thank you, Philippe. So Adam, if you look at it facially, the business plan, which we have been using for the last month, was without this working capital optimization actions. So that’s the main big, big difference. Once you neutralize that, we’re actually quite close from what was guided and better off actually.

So the underlying cash flow generation or consumption rather was SEK783 million for SEK24 million and it comes out that we end up the year at SEK335 million. So obviously, there are variations line by line, and I won’t bore you with details line by line. But basically, we have a positive impact of working capital. And we have no how can I say, if underlying your question is the fact of whether we will be worse off because in 2025 because we have been better off in 2024, that’s not the case? So it’s comparable.

There is nothing which has been pushed down further to 25%. And we start the year, I can say, completely clean in terms of cutoff and items in 24% versus 25%. Does that answer your question, Adam?

Adam McGarry, Analyst, Bank of America: Yes, that’s great. Thank you very much. And then one more question, if I could, please. Just on the Evident Q4 book to bill 111%, you mentioned some of these are multi year contract. Is there any chance you can give some guidance as to what the average contract length is in that Q4 book to bill number?

Filip Sal, Chairman and CEO, Atos: It’s difficult to you know what, usually the large deal is around four years. I would say that is above SEK 30,000,000 per year. The length is on four to five years. On average, I would say five. So if it’s two, five, EBITDA and it will be probably longer for TKF.

After that for the small deal, it’s difficult usually, it’s less than one year.

Adam McGarry, Analyst, Bank of America: So within the Evident number even within the Evident number excluding TECF Foundation, there will be several multi year contracts?

Filip Sal, Chairman and CEO, Atos: Exactly, exactly, yes.

Adam McGarry, Analyst, Bank of America: And then when you calculate this book to bill ratio, is that all just on an annualized booking number? How do you then compare it to revenues in the quarter?

Jacques Francois, Group CFO, Atos: Yes, yes, yes. This is on an annualized basis, yes.

Adam McGarry, Analyst, Bank of America: Okay, great. Perfect. That’s it for myself. Thank you.

Jacques Francois, Group CFO, Atos: No, thank you.

Conference Operator: Thank you. There are no further questions at this time. I would like to hand back over to the speakers for closing remarks.

Filip Sal, Chairman and CEO, Atos: Okay. Thank you again, everybody, for this time. You can still ask a question if you want. I think it is very important to say that ’24 is over. I think it has been, of course, a very painful year for the company with a lot of ups and downs, I would say, news and concern news and whatever.

I think now we are back to a normal company with a level of debt that is, I think, a decent. Of course, we will, let’s say, make the leverage will decrease. And that’s, of course, our goal. And it will decrease, in fact, already starting in 2025 and, of course, much more, I would say, in the coming years. As I said, the team is ready.

The strategy will be almost finished. I had a board yesterday, in fact, where we had a long period presentation and the transformation is in place. And it’s going to yield, in fact, some results, of course, I would say, as early, of course, of ’25. So I’m quite confident. I think we have a very strong company.

If I can say, I would say when I joined the company roughly five months ago, for me the strength of this company is the client base. That is, I would say, unbelievable. I’ve been already touring Asia, in fact, Europe, of course, and U. S. And I’ve seen a lot of clients.

So I think I’m quite confident that now these clients want, I would say, Atos to be back. And I would say, of course, we have a strong also workforce and that was a patient that has a lot of skills. I think we are probably sometimes over delivering, which I think is great in terms of quality, which I think it’s a good sign. And definitely, I think it gives, I would say, quite a good path for the future. So I’m quite confident, I would say, on the rebound of Atos, it will be the revival of this very nice company.

And as I say, we will give you more flavor, of course, of what we’re going to do in the coming year in May. I don’t know if there are any operator, any other questions or remarks from anybody?

Conference Operator: As a reminder, it’s. But there’s no questions at this time.

Filip Sal, Chairman and CEO, Atos: Okay. Then thank you again for your time and attention. Have a good day. And I will see, of course, first, I think there will be the Q1 results by the April. And then I will see all of you, I hope, in Paris.

Have a good day. Bye bye.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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