Earnings call transcript: Exosol AG posts first profitable year in Q4 2023

Exosol AG (EXSL) reported its first profitable year during its Q4 2023 earnings call, marking a significant turnaround with an EBITDA of €2 million and a net income of €300,000. The company achieved a total revenue of €39.6 million, reflecting a 13% year-over-year growth. The stock has shown strong momentum, delivering a 44.91% return over the past six months. According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value calculation, suggesting potential upside for investors. Despite the absence of specific earnings per share (EPS) forecasts, the company’s strategic focus on AI capabilities and operational efficiencies has been pivotal in its improved financial performance.

Key Takeaways

• Exosol AG achieved its first profitable year with an EBITDA of €2 million.
• Total (EPA:TTEF) revenue grew by 13% year-over-year to €39.6 million.
• Operational costs were reduced from €41 million to €38 million.
• The company is focusing on AI integration and in-memory architecture enhancements.
• Exosol plans to target a 70% portfolio focus on verticals by the end of 2025.

Company Performance

Exosol AG demonstrated robust performance in Q4 2023, achieving profitability after multiple years of losses. The company’s revenue growth outpaced its operational costs reduction, leading to a net income of €300,000. With a strong current ratio of 11.59 and a beta of 2.02, the company shows solid financial stability despite higher market sensitivity. This performance is a testament to Exosol’s strategic initiatives, including the integration of AI capabilities and streamlined operations. InvestingPro subscribers can access 12+ additional key metrics and exclusive ProTips about Exosol’s financial health and growth potential.

Financial Highlights

• Total ARR: €42.3 million (4% YoY growth)
• Total Revenue: €39.6 million (13% YoY growth)
• EBITDA: €2 million
• Cash Balance: €15 million
• Net Income: €300,000
• Operational Costs: Reduced from €41 million to €38 million

Outlook & Guidance

Looking forward, Exosol AG expects mid-single-digit growth in 2025, with a target EBITDA of €3-4 million. The company aims to return to double-digit growth post-2025, building on its current revenue growth rate of 5.66%. InvestingPro offers comprehensive research reports with detailed analysis of Exosol’s growth prospects and peer comparison, available exclusively to subscribers. Exosol plans to increase its focus on regulated industries, such as finance, healthcare, and telecom, growing these verticals to 70% of its portfolio by the end of 2025.

Executive Commentary

• "We achieved €2,000,000 of EBITDA last year and have also been able to be profitable in each quarter," said Jan Dirk Henrich, CFO, highlighting the company’s financial turnaround.
• Jorg Tevis, CEO, stated, "We are extending our core engine so that customers can run AI workloads as close as possible to the database," underscoring the company’s innovation focus.
• "We’re aiming to get back to double-digit growth once we completed that transition," Tevis added, indicating future growth ambitions.

Risks and Challenges

• Potential seven-digit ARR loss from a retail customer in H1 2025 could impact financials.
• The global on-premise market is growing at a modest 2.7% CAGR, which may limit expansion opportunities.
• Exosol faces competitive pressures in the EMEA region, requiring continuous innovation.
• Economic uncertainties may affect IT investment decisions, though no macro hesitation was reported.

Exosol AG’s strategic focus on AI and operational efficiency has positioned it well for future growth, despite potential challenges. The company’s ability to sustain profitability and adapt to market demands will be crucial in maintaining its competitive edge.

Full transcript - Excel Trust Inc (EXL) Q4 2024:

Sarah, Moderator/Call Host: Good day, ladies and gentlemen, and a warm welcome to today’s earnings call of the Exosol AG following the publication of the preliminary financial year figures of 2024. I’m delighted to welcome CEO, Joktewis, and CFO, Jan Dirk Henrich. So the gentleman will speak shortly and guide us through the presentation and the results. And afterwards, we will have our Q and A session so that you have the opportunity to ask your questions if you may have. So having said this, mister Tevis, the stage is yours.

Jorg Tevis, CEO, Exosol AG: Thank you, Sarah. Good afternoon, everybody. Thanks for joining us for our quarterly call, investor call, where we provide the updates on the preliminary 2024 figures as well as an outlook on our current business and how we expect the year 2025 to shape. So today, I’m here. I’m Jorg Tevis, the CEO of Exosol.

And with me is my colleague Jan Dirk Henrich, who’s our Chief Financial Officer. So here’s our disclaimer. Please read through it at your own convenience. Next (LON:NXT) slide. So let me talk about 2024.

So this has been the second year that I’ve been CEO of Exosol. As most of you know, I joined at the beginning of 2023. Our number one goal was to get the company back on solid ground and achieve profitability on our path going forward. So we’re very happy that we actually achieved that goal. So the key milestone in 2024 that we communicated to the capital market at the beginning of last year is that we want to be profitable in EBITDA for the year 2024.

We achieved that goal. We actually came in with an EBITDA of €2,000,000. That was over what we initially thought. So that’s a really good outcome. And not only did we achieve a 2,000,000 ARR, we also had a positive net income and cash flow as well.

So the company has come out of the loss making territory through the years ’twenty one, ’twenty two, ’twenty three. And we’re also committed and we will confirm today that we remain this journey and continue to drive a profitable growth for the company. So that’s our check mark on on the first accomplishment. The other data that we have, the other key data points is our overall ARR. So we ended the year with a total of €42,300,000, which is an overall growth of 4% year over year in comparison to 2023.

This is something that we also guided to the market where we said at the beginning of the year that we would achieve a single digit growth year over year. We continue to look at the business and push growth, obviously, in conjunction with the profitability aspect. Our total revenue grew 13% year over year. So we ended the year with EUR 39,600,000.0 in revenue. And due to the profitability and the positive cash flow, we actually increased our cash balance to EUR 15,000,000 end of period, so end of twenty twenty four.

We have undergone significant efforts to sharpen our strategic thinking and positioning. And I’ll walk you through more details on the following slide. But we have a clear focus, and we’re doubling down on the things that have been working well for us, specifically around on premise and hybrid verticals in which customers are using us today. That’s in the verticals of finance or financial services, banks, insurance companies as well as healthcare. We have in those verticals, we’re actually seeing strong growth momentum in 90 with 90% year over year growth.

We were able to sign 10 new customers with a total value of $700,000 in those focus verticals. And we have been able to do over EUR 5,000,000 of upselling, which includes one significant deal with a major financial institution here in Germany at a total contract value of larger than 10,000,000 at the five year ARR commitment. So we do have, we’re seeing a higher churn rate in non focused verticals, which impacts the overall net ARR performance. So while we’re seeing the growth in the focused verticals, We’re also seeing some decline of flatness in the non focused verticals. The execution of the financial and strategic execution in 2024 also gives us the foundation to reaccelerate our ARR growth in the years after 2025.

So basically, what we’re going through right now is a phase of shifting focus and that will pay off on a going forward basis. Next slide, JD. So we’ve as part of our outreach, I think it’s important dear investors, to also that you see how we’re presenting the company to customers and prospects. So we’re sharpening the who are we, what is Exosol. Let me quickly read that to you.

Exosol is the world’s most powerful analytics engine, purpose built to handle the most demanding data workloads at an unmatched price performance ratio. What’s important to note in here is that we are focusing on the term engine. So we’re really helping customers on several key use cases to solve their needs in the analytics space. Next slide. So what are the challenges in today’s data architectures?

We separated that into three major buckets. First and foremost, cost is always a key challenge for any enterprise. And compute cost in the data analytics field is a significant challenge. So the exploding computing costs for customers or companies that are have migrated to the cloud. So typically, in the cloud, there are pay as you go or consumption based pricing models, which is very convenient when there’s initially when people start the process.

But over time, as more data, more users get onboarded to a solution, these costs can get really high. So we’ve heard from a lot of existing but also from prospects that the cost going through the roof and that this is a major challenge pain point for customs. The other important area is regulatory and compliance requests. So the cloud, as it stands, is an open field and customers who have tight regulatory requirements would still want to maintain control over that in their own data center. So keep their data on premise in their own data center.

This actually with a lot of the uncertainty that’s going on in this world right now, it’s also a trend that we’re specifically seeing actually here in Europe and Central Europe. So it actually plays into certain companies or customers looking for a solution that they can control better, where data doesn’t go into cloud systems. And then last but not least, it’s the in time delivery of the right data to the business. So it’s not just pure performance, it’s making sure that multiple data sources in large enterprise get combined and that insights that are being generated out of these data sources are being delivered to the end user in the enterprise in time. So high frequency of timely data updates, that’s a key requirement that many enterprises have today.

So let’s move over what are we doing and how are we helping customers. So these are the four key use cases for our, Exosol Analytics engine. First of all, and you remember, that we’ve talked about this in in previous conversation as well, is when there is the need to boost analytics and AI workloads in an existing stack. We had the espresso campaign that basically exactly spoke to this acceleration use case. Exasol analytics engine is really good in helping customers to accelerate their existing data analytics workspace.

So that’s the first part. The second part is modernization. A lot of companies have been using data analytics, data warehouses for ten, fifteen, twenty years. So systems like Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT) SQL Server, IBM (NYSE:IBM), DB2, Teradata (NYSE:TDC), these systems have been in place for a long time. And each technology at a certain point comes to a point where companies and customers think about modernizing that infrastructure.

So our use case is for those customers who are working on modernizing their existing data stack, but are not going full native to the cloud. That’s where we come into play. That’s where we have a place in the overall data analytics workspace. Optimizing. So, see the coins there.

So the cost factor for every enterprise is a big deal. And as I said on my previous slide, one of the key challenges that companies have is exploding costs in the cloud. So there’s a trend that actually started in The U. S. Last year.

It’s called repatriation. And we also see this more and more in Europe, which means that customers are considering moving back certain workloads from the cloud to an on premise solution. They might not just move they might not move everything back, but some companies are handpicking select workloads and doing them on premise again. So this trend, we’re going to see continue because cost is going to become over time an even bigger factor. So one of the key use cases for us where we come into play that we help customers on their journey, on their repatriation journey to basically save costs.

And then the last one, also very important is the secure and running workloads, AI and data analytics workloads in a truly secure environment that customers can control directly. Specifically, the all the new AI use cases that enterprises are working on right now, there’s a lot of fear and concern that proprietary data, confidential information is leaking out to the outside world. So again, one of the key use cases where we are helping customers is to run these AI ML workloads in a secure environment. Next slide. So let’s talk more about our Sharpen customer focus.

So what we’re doing, what we started in 2024, and what we’re now in the process of implementing as our key strategy is a focus on a certain type of customer. So we’ve sharpened and narrowed our ICP, so our ideal customer profile. And what you see here is who is that customer. That customers are on premise and hybrid customers in industries with a strong regulatory influence driving near term growth potential. So which industries are that?

It’s banks, it’s healthcare. Those industries have a very high regulatory influence. And

Speaker 2: to

Jorg Tevis, CEO, Exosol AG: a certain degree, slightly lesser, also telecom, utilities, and public sector. The we have two segments. So there’s the group of customers that clearly goes on premises first. So all they do is run their data analytics in their own data center. That’s our sweet spot.

But we’re also serving customers who have a hybrid first approach. Hybrid in this case means that they using both on premise as well as cloud solutions together. So some data stays in their own data centers, some data goes to the cloud. And this is either being separated by internal use cases or as I just explained, customers do that because they are saving costs for some expensive workloads they keep on premise other workloads they’re moving to the cloud. So we offer our customers both options.

So they can run our analytics engine on premise, they can run it in the cloud. So the hybrid first is the secondary segment that we’re going after. And on the regions, we clearly see a lot of demand and a lot of in the DACH region, so in the German speaking countries, but also Nordics, UK, and Ireland. We in ’twenty four, we also started in Middle East. Middle East is actually, specifically when it comes to the on premise segment, very interesting for us.

And there’s also The U. S. Market that has both the requirements coming from specifically healthcare. We have a couple of customers in the healthcare space in The U. S.

And also the financial services space. So that is a sharpened focus that we’ve undergone through. So in the past, we haven’t really pushed ourselves to that strong focus on customer our active marketing and sales activities that we’re currently driving as an organization is geared towards that ICP, that target customer with very specific metrics and targets. And then, I think maybe to to to say a few more words on how we’re doing that, we’re basically going there where those prospects are. So it is, it is events.

It’s outbound marketing that we’re doing to specific verticals. So that also means that we’re not doing, let’s say, the infamous shotgun approach. So we’re not trying to win business in all different areas. We’re really focused as an organization, as a commercial organization, and as a product organization to go after that specific customers. Next slide.

So one question we often get, okay, how weak is that market? And are you gonna be able to actually generate enough growth for the company on a going forward basis by narrowing our focus. That’s, I think. And I think what you see here on this chart is a view on where is the market and how does this particular market developed. So this data is only the on premise market.

So as I just explained, there’s also an additional hybrid element of it. But if we just stick to the on prem market, what you see on the left side, the overall global market is for on premise is $17,000,000,000 USD. In the regions that we are operating, it’s $11,000,000,000 And we believe that there’s an obtainable market. So customers that are in their journey switching to a more modern data analytics solution is roughly US3 billion dollars So that’s the overall obtainable market for us. You see on the right side, we have a prediction that the market keeps on growing.

It doesn’t grow in double digit, but it grows in a meaningful way. So 2.7 CAGR, which lets the market grow into 3.2. So we believe we are in a growth market. We are also replacing certain solutions in that specific market segment. So for us, we’re currently at the 42 or 40, yeah, million AR, there’s enough growth for us in that space.

That’s, I think, the message of this slide. That through proper execution and focused execution, we have enough runway to ultimately, which is our goal, to bring back the company to double digit growth. Next slide. So this is a view of our business that I think should help you to understand what’s working well and how are we transitioning the current business. So what you see here is the if you just look at the percentages for now, we’ve kind of separated our business in focused verticals, which is the aforementioned financial services, health care, public sector versus the non focus vertical.

The nonfocus verticals are the ones that are retail and e commerce type front. The some of these were verticals for the reasons I described will remain in the segment that we’re good at, which is on prem and hybrid. But others have the opportunity to go cloud native. That’s an area where we are most likely not going to win business. So what you see here is this trend.

In that focused vertical business, we have actually very healthy business number. So we have a gross upsell rate 130%. We have a single digit churn rate 6%. We have net revenue retention of 125%. And we have a CAGR of 27% over the past three years.

So that’s good. When you look at the one below, you see that this is actually dragging down overall numbers. And the result is something that is basically the mix of it. So this is a process. In 2025, we will continue this process.

So we expect that by the end of the year, this ratio is probably going to be a 70%, thirty % ratio. So we are going through a transformation process and the future growth of the company will be on us focusing on the dark blue bar, so the focus verticals on a going forward basis. Next slide, JD. So this is another view of what happened in 2024. And we kind of split this between new customer and up and cross selling.

So basically, a business that we’re doing with existing customers. So let me talk about the new customer acquisition first. Again, we doubled in our focus verticals, so most of them actually come from the banking insurance space. So we really got some nice traction there. And we have several six digit initial deal value acquisitions in that space.

In the up and cross selling, so you see that we had forty four and forty three customers upselling. So existing customers who basically increased their spending with us, and the total numbers basically stayed flat in 2023 and 2024. So out of these customers, we generated an incremental ARR of 5,600,000.0 in 2024. This includes one the one large deal that I already mentioned, where we had a significant upsell with one of the largest German regional banks. Next slide.

Alright. I hand over to JD, and, I think I will come back at the end of the presentation. JD, you’re on mute.

Jan Dirk Henrich, CFO, Exosol AG: My apologies. Thanks, Serak. I’m very happy to talk to you today. Let me run you through the numbers of 2024 in a little bit more detail, and also specifically building on some of the things that Jorg pointed out with respect to the strategic focus that we’ve given our business and how that translates into the numbers that you’re seeing both in 2024 and also what we’re expecting for 2025. So I usually start my section with talking about top line.

Let me twist it around a little bit this time, and actually start with the bottom line because as Jorg mentioned in the beginning of the presentation, we’ve achieved a very important milestone last year. 2024 marked the completion of a very long and also very burdensome journey back to profitability. We’ve achieved €2,000,000 of EBITDA last year and have also been able to be profitable in each quarter. Last year, bringing this journey of almost more than €30,000,000 negative EBITDA in 2021 total to a successful conclusion and setting us up for a good journey moving forward. This obviously also translated into a positive change in liquid funds.

Now technically speaking, we already had that in 2023, but back then, this was only due to the fact that, as many of you recall, we conducted a capital measure in the first half of twenty twenty three. So 2024 was the first time as well that we genuinely generated positive cash flow from our operations, further aided by stronger interest income as I will comment later on a little bit. So this was an important conclusion of the journey. And as I’ll later talk about, we also plan to continue that journey and further build on our profitability while fully focusing on reigniting growth and getting back to a double digit net growth as well. These changes translated themselves all the way down to net income as well.

So this is our p and l view. And as you can see at the very bottom right hand side, we did not only generate positive EBITDA and cash flow last year, but also a positive net income, which improved significantly by €8,500,000 to plus €300,000 This even stronger improvement compared to the EBITDA improvement was helped along by a continued decline in depreciation and amortization. As many of you recall, we are not capitalizing R and D expenses anymore, so the legacy capitalizations are gradually written off and the depreciations are decreasing. At the same time, we also had a stronger interest income in 2024 by roughly €400,000 because we did not burn cash anymore and were therefore able to also invest that cash with a little bit more longer terms and get generate higher interest income. So we were profitable on both EBITDA net income and cash flow level.

If we look at how this was generated, you can see that it was a combination of further improved top line. You can see that our recurring revenues in the P and L increased by almost EUR 5,000,000, which was heavily driven as well by the strong business signings that we had at the end of twenty twenty three, which then became P and L effective in 2024, driving a revenue growth that succeeded our net ARR growth, last year and as a consequence also improving net gross profit significantly. At the same time, you can see that we further streamlined our cost base. Total cost now in terms of OpEx was at roughly €38,000,000 compared to almost 41 in 2023, so that’s a €3,000,000 improvement. And as well, this concludes a long series of efficiency measures that we implemented over the past three years and that we generally also concluded with the end of last year.

We feel that the organization as it is in place right now sets up sets us up well for our plans. So as you will see that our cost base will largely remain flat in 2025, and the efficiency measures that we’ve implemented actually allow us to start selectively reinvesting in important topics, most importantly in R and D and product, where we want to stay competitive and make sure we invest in fields like AI and also for the improvement of our core product. But the efficiency measures put us in a position to be able to do that without increasing the total cost base next year in any way. So this kind of concludes my start on the bottom line. Let’s reorient ourselves back to the top line because with this achievement of solid profitability, which is here to stay, we can fully concentrate our minds on reigniting growth and completing the transition journey that Jorg talked about.

Let me start with our classical quarter by quarter view on ARR. I’ve talked a lot about the seasonality in our business in the past and it has materialized itself again last year. So the ARR decline in the first half of the year is what we anticipated in our guidance at the beginning of the year. Our contracts with customers typically are fiscal year bound. So if any churn happens, it typically kicks in in the beginning of the year because contracts drop out

Lukas Spang, Analyst: of the

Jan Dirk Henrich, CFO, Exosol AG: portfolio, whereas new contracts are signed towards the end of the year in Q3 and Q4. And this is exactly the kind of dynamic that you see unfolding here. The larger churn in Q2 was actually a bigger customer in The UK that we expected to churn and that hit us there. And in the second half of the year, net growth returned significantly driven by the focus verticals that Jorg has talked about and in Q4 in particular as well with the big deal that was concluded in the finance sector. If we look at this a little bit more in terms of our classical subscription metrics, it illustrates very well what I just talked about.

So you can see that in total on the left hand side, we generated EUR 7,600,000.0 of gross new business last year. If you recall the numbers that Joerg showed with you showed you of how much growth we generated in the focus verticals. And if you translate that into these numbers, it means that 70% of our new customer growth was driven by the focus verticals and 85% of our upselling performance was driven by the focus verticals, which really goes to show kind of where the strengths lie and what works really well and what we want to build on, whereas the downselling and the lost customers are concentrated in the non focus verticals. And I will talk about this portfolio shift a little bit more in a minute. On a net basis, however, if you look at the upsell rates, in total, we had a net revenue retention of roughly 100.

So the upselling performance in the focus verticals was kind of eaten up by the churn and downselling in the non focus verticals and the net growth has then generated was generated by new customers in the focus verticals. We also had an increased average ARR churn rate of roughly 15% driven by the non focus verticals. So you heard, Jorg talk a little bit about the sweet spots of our customers or the types of ideal customer profiles and that they are very strongly concentrated in EMEA as well, but he also talked about that there’s a huge market with those in The US. I think if you look at the regional performance of ARR last year, you can see that growth was basically driven by EMEA, which is not a surprise because we have a bigger established base in these focus verticals in that region as well. North America developed flat last year, which is largely because the team was not yet as fully focused on this new strategic focus that we laid out and is only now only starting to reorient its pipeline efforts in that direction.

The market is there as Jorg talked about. In fact, the on prem and hybrid market in The U. S. Is estimated to be almost twice as big as in Europe, but it needs a very targeted approach, especially obviously because our the relationship between our team size and total market size in The U. S.

Is even starker than in EMEA. But we’ve defined a very specific initiative for North America for this year. We do plan to get back to net growth in North America in 2025. For example, one key initiative focuses on going after algorithmic trading houses or quantitative traders in the big financial centers on the East Coast. We have two flagship clients in that field or established clients in that field.

And it’s a very interesting customer profile because those companies are very protective of their data. They’re very protective of their algorithms. They often run their own on premise technology stacks, and it’s a sales initiative that we’ve defined for ourselves to reignite that growth in North America. So if we continue the perspective that Jorg already started sharing with you and thinking about our growth separately for the focus verticals and our journey there and the non focus verticals. You can see here that in 2024, we generated almost 20% growth in the focus verticals, whereas the non focus verticals had a net decline of 12%.

But you can also see if you look at the development over the years is that the shift from the focus to non focus verticals in our portfolio has accelerated over the years. And by end of last year, we were already in a position where almost 60% of our business was related to the focus verticals. For 2025, we expect to continue on this path. So for the focus verticals, we again plan for strong double digit growth, whereas we do see continued decline in the non focus verticals, particularly because legacy customers in the retail space tend to migrate gradually into native cloud environments because it better suits their purpose. On a net basis, that means that we again plan with mid single digit growth for next year based on this combination.

But based on this dynamic, we expect that the focus verticals by the end of this year will already have a weight of 70% in our overall portfolio, which also means that gradually in the midterm, the strong and healthy fundamentals and dynamics in the focus verticals will start to translate into accelerated net growth on group level as well. And that basically leads me straight over to our general perspective for 2025, where as mentioned for ARR, but also for revenue, we expect mid single digit growth again for this year, whereas on EBITDA terms and profitability, we want to million in 2025, which then sets us up both in terms of portfolio structure at the end of the year and profitability to return to profitable double digit growth in the years after 2025 with continued healthy performance in our strategic focus field. And with that, I would conclude my summary of the financials and hand over back to Jorg to talk a little bit about the midterm perspective of our product and summarize the key takeaways.

Jorg Tevis, CEO, Exosol AG: Yeah. Thanks, JD. We shared some of our views on the numbers, but I also wanted to take a minute to walk you through, besides what we the pure financial performance, where are we currently moving and driving innovation for the company. So remember, our heritage is really, it stems from maximal speeds to our unique in memory architecture, the scalability through our massive parallel processing architecture, and our ability to deploy our product or engine on premise in the cloud and SaaS environments. One thing that’s really important for a lot of customers is the minimal administration.

So our product, our core product is self tuning. It has auto indexing features. So that’s basically what we have. That’s the core. That’s the engine that Exosol has been basically building over the last twenty years.

Where are we going? And I’ve shared in several occasions that AI is gonna become a key factor for all customers, but also specifically for the customers that we are targeting and focusing our activities. So even in the most regulated and most conservative environment, companies are currently working on ringing in AI into their overall data analytics world. So we’re responding to that. So we are working on our product roadmap that we’re sharing with prospects, that we share to the market that is adding more AI capabilities to our core product.

We’re not building an LLM by ourselves, so don’t worry, we’re not gonna invest €500,000,000 in in training complex LLMs. However, we’re we’re extending our core engine so that customers can run AI workloads as close as possible to the database. We’re gonna bring that into the database so they can combine the benefits of the new modern AI methods with their corporate data that sits in their data center in an Exosol database. So we will have GPU support for running user defined functions in Exosol this year. So this is going to be a very exciting feature that will come to the market later this year.

And we’re also helping customers on some key use cases. So this is a high level presentation of our roadmap. I should also mention that we are going to have an extra soul experience event in May this year, in which we then will talk to the broader market about details on our product roadmap. Next slide, JD. So key takeaways.

I think we talked about this first time after the IPO. We generated profitability. Strategy on focus on core customer groups is paying off. We continue our profitable path throughout 2025 with the target of growing at least by 50% to 3,000,000 to 4,000,000 EBITDA. And we’re aiming to get back to double digit growth once we kind of completed that transition from away from the non focused verticals into focused verticals.

Jerry, if there’s anything to add other than otherwise, I would end our presentation and open up the floor for any questions. Thank you.

Sarah, Moderator/Call Host: Thank you so much for your presentation and the dive into your results. So we will now move over to the q and a session. So if you would like to speak directly to mister Tevis and mister Henrich, just raise up your virtual hand. Or if you’ve done them by phone, you can do this by pressing star key nine followed by star key six. And you also have the opportunity to place your questions in our chat box.

And we already received the first question from Robert Jan van der Horst. So you should be able to speak now.

Robert Jan van der Horst, Analyst: Yeah. Can you hear me alright?

Jan Dirk Henrich, CFO, Exosol AG: Yes. Yes. Robert.

Robert Jan van der Horst, Analyst: Hi. Hi, guys. Thanks for taking my question. So only one more or less housekeeping one. You mentioned that you want to increase R and D costs on the one hand, but also that the whole that the cost base as a whole should be rather flat in 2025.

So I was thinking that are there costs shifting around? And maybe related to that, also saw on the slide with the P and L more details that you had some asterisks mentioning ZAR 700,000.0 in restructuring cost last year. Do you expect that to kind of disappear in the current year? Or are there still ongoing measures?

Jan Dirk Henrich, CFO, Exosol AG: So maybe starting with the last question first. No. I think we’ve completed our journey in terms of measures. Yeah? So, I mean, we always keep a small amount of budget for for severance and any budget, but this is mostly then, let’s say, performance related changes, but not position reductions.

But in terms of putting the organization into the shape that we want it to be, we completed our journey largely by end of last year. So what’s happening is because we implemented those measures in the course of the year, the full year impacts of those measures will only translate themselves into next year. But then we are reinvesting some of those savings into strengthening the core strategic focus areas that I mentioned and the net result as it unfolds in the P and L then is basically a relatively flat, is a flat total cost position. Now if you were to look at the composition of that, of that cost base in 2024 versus then 2025 when it’s finished, you will see that G and A and sales and marketing are on a little bit of a lower level compared to twenty twenty three four, whereas engineering and product are on a little bit of a higher level, but it’s not going to be major shifts.

Robert Jan van der Horst, Analyst: Okay, perfect. Understood. And a follow-up question. I mean, due to seasonality, right, So the ARR growth will be mostly in Q4. So it’s quite a long time until we will see where on the mid single digit you land.

But in general, looking at how the market’s development, how budgets for these kinds of investments develop, do you see any changes, any idea that maybe 2025 will be even better than the 19% growth we saw in the Spokus verticals last year? Or is it still muted or more or less on the same level than last year? Just to give us your gut feeling about how the focus markets are looking right now.

Jan Dirk Henrich, CFO, Exosol AG: I would start with a comment that in the discussions that we’re having with customers, I would say a macroeconomically induced hesitation to invest is not something that we see systematically. Yeah? So I think on the topics that we’re talking to customers, they keep investing into their data stacks. They keep investing in getting into shape for the analytics world of the future. So I would say general hesitation on IT investments from a macro or market sentiment perspective.

I don’t see. Joerg, man, feel free to chime in, but that’s not a fact that is dominating our internal reviews when we talk about our top line initiatives. There’s definitely a push to modernize tech stacks in the focus verticals. It’s an ongoing process. There’s many outdated systems there.

So I would say the potential for us to convert more markets to us in the focus verticals is definitely given. And this is what we’re banking on and we’re obviously aiming to hit and or surpass the 19% that we achieved last year. Yeah? At the same time, the same level of modernization of TextX is going on in the non focus verticals as well, which is kind of driving this continuous shift to native cloud solutions in the parts of that world. And that in some leads to the accelerated shift in weights in the portfolio that I outlined to you.

Okay. But the opportunities are definitely there for us to grow in the focus verticals.

Speaker 2: Okay, perfect. Thank you very much, guys. That was very helpful. I’ll go back to the queue.

Jan Dirk Henrich, CFO, Exosol AG: Thanks, Robert.

Jorg Tevis, CEO, Exosol AG: Hi, Robert. Thanks. I think we had a question from Philipp Weiland in the chat. Should we should I take this? Okay.

Yeah. So the first question is let me just read it. I’m not sure if everybody has access to it. At January, you announced that you hired a CRO and a CMO. Could you tell us about their roles and tasks and maybe about your strategy collaborate with sales partners?

So first part of the question, CRO, we actually didn’t hire so the person is Henrik Jorgensen, who actually has been with us since December 2023. So he’s been with Exosol for well over a year. What we actually did in 2024, we streamlined our sales organization. So previously, we had so we hired Henrik originally as the leader for Europe. And in parallel, we had a sales leader for North America as well.

So during 2024, we made the decision to part ways with the North American sales leader and basically assign that territory also to Henrik. And in the process, just to clarify that role, we basically gave him the global sales responsibility. So he actually wasn’t a new hire. We actually saved costs by parting ways with our actually very expensive North American sales leader. And so it had a positive effect on the cost side, but it also helps us streamline our go to market activities across the region.

So one thing that we actually identified, we had slightly different approaches in Europe and North America. And with having a single threaded leader now responsible for all of sales across the globe, we have clearly a clear ownership. So that’s the CRO. That’s why we made this move. On the CMO side, we did have a marketing leader in the past, someone who was with us and who actually left the company back in, I believe, April.

And we were working on a replacement. And so Lars Milne, who joined us in November, is basically filling that void. So from a cost perspective, we’re basically, I think, sharpened our focus. They both have strong backgrounds in the data analytics field. Henrik’s been the lead in Central Europe for Tableau for a decade.

And Lars actually also worked at Tableau. And most recently, he was at OneData, which is also a company in the data analytics space. So they’re both experts in the field that we’re in. And they are actually helping us specifically on the implementation of the strategy that we outlined, the focus on key verticals and the implementation throughout the commercial organization. The last part is sales partner.

We have some strong partnerships. We have a really good partner in Austria that actually helps us there to drive new business. But that’s certainly an area where we are pushing harder. So as part of Henrik’s role is to also extend the partner business for Exosol.

Sarah, Moderator/Call Host: Alright. Thank you so much. So let’s move on with Lukas Spang. So he would like to speak directly.

Lukas Spang, Analyst: Yes. Hi. Good afternoon to both of you. Hi, Lukas. I would take my questions one by one, if that’s okay.

And I would like to start with the ARR development in 2025. Can you please guide us a little bit more in detail about how you think about the ARR development and the special seasonality in 2025? Is this, let’s say, more similar to the 2024 seasonality and development or should we more think in more pronounced ways in terms of weaker H1 and more pronounced in the upper side in the second half?

Jan Dirk Henrich, CFO, Exosol AG: Do you want me to answer that first and then we jump to the next question? Yeah, okay. So I think in terms of the way it’s gonna play out, it’s going to be similar pattern wise to 2024. So we expect a declining ARR in the first half of the year To which extent and whether it’s going to be stronger compared to 2024, it depends on the new business closings that we can achieve in Q1 and Q2, which at this stage we can’t fully predict yet. Let’s say pipeline wise in terms of potential, we have potential to structure in a way that it looks similar to last year.

But it could also be that it looks more slightly more pronounced than last year because there’s one larger retail customer shifting away from us to a native cloud solution. But we’re also at the same time discussing new potential revenue streams with that customer. So the level of pronunciation that you’re going to see at this stage, I can’t predict, but it will definitely we will definitely see a decline in ARR in the first half followed by a growth in the second half.

Lukas Spang, Analyst: Can you give us a rough indication of the large customers you will lose in the H1?

Jan Dirk Henrich, CFO, Exosol AG: I mean, one is our is a large retail customer in the EMEA region, and that’s a seven digit value ARR that’s moving away from us. It’s been a very big customer with us in the past. And as I said, the level to which it’s going to be on a net net basis also depends on outcomes of discussions we have with them on building alternative revenue streams with them. Okay. But it’s definitely a seven digit ARR customer moving away from us gradually.

Lukas Spang, Analyst: Okay. Then on the employee base, what is your expectation for 2025 and what was the number for end of twenty twenty four?

Jan Dirk Henrich, CFO, Exosol AG: End of ’20 ’20 ’4, we were 180 people roughly in the budget. We’re planning with around 170. So but that doesn’t mean that we’re going to part ways with 10 colleagues in the course of 2025. This was because a number of efficiency measures that we implemented in 2024 were still on the books, but the measures are all basically implemented. But on average, we’re calculating with between one hundred and sixty five and seventy FT feet feet

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Jan Dirk Henrich, CFO, Exosol AG: feet E five, I’m sorry.

Lukas Spang, Analyst: Okay. And then on product side, last year in our discussions there was also the product Utila.

Speaker 2: Is

Lukas Spang, Analyst: there any update from your side?

Jan Dirk Henrich, CFO, Exosol AG: Utila was actually one of the products that we decided in the context of the strategic focus that we implemented to shift away from. So as you recall, Yotilla was a technology that the company acquired, I think, five years ago and was trying to develop and implement it and commercialize it. I think one thing we learned in the context of our strategic thought is that the synergetic value of that product with the core offering that makes us strong and that makes us grow in the focus verticals is not significant. And at the same time, fully commercializing that product would basically mean investing in a full scale separate business line, which we decided not to do moving forward. So we decided to shift also the development resources on that product to the core focus fields, which is part of the shifts in costs that I outlined also as an answer to Robert’s question.

Jorg Tevis, CEO, Exosol AG: JD, look, I think we have one more question maybe from Johannes Riess, and I think we’re out of time. So maybe we take this one more question, and then we’ll conclude the call.

Lukas Spang, Analyst: Okay. Thanks.

Sarah, Moderator/Call Host: Alright. So let’s move on with Johannes, please.

Johannes Riess, Analyst: Hey. Good afternoon. Maybe one or two questions. The first, again, on the topic of partnerships, in the past you also partnered with analytic partners like Tableau. Any update to this?

Do you still work closely with Tableau? And in the partnership strategy you mentioned you want to get stronger, how much is also the focus to find partners which are strong in your verticals like banking, IT service companies who are focused on the banking area like GFT, for example?

Jorg Tevis, CEO, Exosol AG: Yes. Good question. I think we’re actually engaging with GFTs. Thanks for bringing that up, because you’re absolutely right. That makes sense.

They are strongly focused on financial services. And as part of the strategy for us to be successful in that space is to also work with the right partners, specifically companies. We actually looked at joint customers. We identified quite a few, but then there’s also some of our customers that they are not in and vice versa. So that actually is a good example where a focus strategy actually helps us also to select the right partners.

So we’re doing that specifically to answer that question. And I think, yes, doing more on the partner side is something that we’re actively pushing on. I mentioned earlier that we have the Exosol experience in early May in Berlin. And the partner participation for that experience is actually very crucial. So we have several key partners that have already committed to be there and talk together with us to the participants, which are both existing customers as well as, well, potential customers.

So yes.

Johannes Riess, Analyst: Second question regarding some non focus areas. How much they will come down maybe even in the years after and how much maybe the pressure has increased or maybe some acceleration of the move to the cloud by an offering like SAP Data Cloud, which was announced a week ago or so.

Jorg Tevis, CEO, Exosol AG: Yeah, I think well, again, it’s I think different by vertical. I think there’s some verticals that are moving to the cloud much faster, much more aggressively than others. So you’re not going to see major German banks moving to the cloud. But you will certainly see, let’s say, players in the e commerce field moving, if they haven’t already moved to the cloud, accelerate that move. So I think that, that why I think it’s important that we look at the ICP.

And it also means when you have an ICP, an ideal customer, whoever doesn’t fit in there, at least we shouldn’t go actively after that because we’re most likely not gonna win. I mean, that’s one of the lessons over the past year or past two years. That’s why we’re focusing our organization.

Johannes Riess, Analyst: And so non strategic verticals will further decrease after 2025, yes, most likely?

Jorg Tevis, CEO, Exosol AG: Yeah. That’s I think that’s that’s what we showed. We had this this, so I think what, what we showed on JD’s slide was the seventy-thirty split that will continue. So it’s really hard to predict what ’26 will be. Maybe it’s going to be eighty-twenty or something along these lines.

But we haven’t we’ll see. Okay.

Johannes Riess, Analyst: Thanks a lot.

Lukas Spang, Analyst: Thanks, Johannes. Thanks, Johannes.

Jorg Tevis, CEO, Exosol AG: Then, I would say we conclude this call. Sarah?

Sarah, Moderator/Call Host: Yes. For sure. So we are, I guess, a bit over the time. But with this, thank you everyone for joining and you’ve shown interest. So have a safe and healthy rest of the week, and we say goodbye.

Jorg Tevis, CEO, Exosol AG: Thank you.

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