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Edited Transcript of SIM.CO earnings conference call or presentation 23-Aug-19 9:00am GMT

Q2 2019 Simcorp A/S Earnings Call

Copenhagen O Sep 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Simcorp A/S earnings conference call or presentation Friday, August 23, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Klaus Holse

SimCorp A/S - CEO & Member of Executive Management Board

* Michael Rosenvold

SimCorp A/S - CFO & Member of Executive Management Board

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Conference Call Participants

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* André Thormann

ABG Sundal Collier Holding ASA, Research Division - Analyst

* Daniel Djurberg

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Hannes Leitner

UBS Investment Bank, Research Division - Equity Research Analyst of Software

* Poul Ernst Jessen

Danske Bank Markets Equity Research - Senior Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Q2 report 2019 conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Friday, the 23rd of August 2019. I would like now to hand the conference over to your speaker today, Klaus Holse. Please go ahead, sir.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [2]

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Very good. Thank you very much and thank you to all of you joining this call where we're going to talk about the second quarter and the first half of the year for SimCorp. So if that's what you're dialing in to listen to, you're on the right call. If not, then you might have other uses, but let's get going.

And if you move to the next slide, you will see the disclaimer that we normally give for this type of calls on forward-looking statements and so on. I think that most of you have seen more than one of these, so we'll quickly skip it rather than read through it.

And then looking at this -- the next slide, you will see the agenda. First, we will give the highlights for Q2. I will do that. Then Michael Rosenvold, our CFO, will give a more detailed deep dive on the financials, and then we'll go through the outlook. And finally, we'll do a Q&A session at the end that we will have conducted by the moderator of this.

Moving on to the next slide, that kind of gives you Q2 at a glance. And as you can see, order intake was up from last year. So we are EUR 6.4 million up from last year at EUR 22.6 million. That covers 4 new SimCorp Dimension clients and 2 new SimCorp Coric clients. All in all, 6 new customers. And as we get to the [slide] list, you will see half of this coming from North America.

Revenue growth of 30%, significantly up from last year. EBIT up at EUR 32.3 million for the quarter and EBIT margin of almost 30%. In professional services, we are back to solid growth, 11.7% in this. And then the 12-month rolling forecast on software updates and support is growing 11.2%, and that's because we continue to have customers that we sold in past quarters and years that goes live on the system and starts paying maintenance. So we are also happy about that. We see that as a success of our implementation effort at the customers. The free cash flow is down from last year, mostly a change in contract assets and larger CapEx. Michael can get back to that if you want more details on this.

If we go to the next slide, we consolidate the Q2 into the first half of the year. There, you will see that it's now 6 new Dimension customers, because we had 2 in the first quarter, at a total order intake of EUR 44 million. Revenue growth for the first half, 19.2%. And EBIT at almost EUR 59 million, an increase of EUR 21 million over last year. Order book is about from last year at EUR 46 million.

And then given the slower growth in professional services in the first quarter, the accumulated growth in professional services is 8.4%. In reported currency, more, of course, but the 8.4% in local currency. Free cash flow is about flat from last year, down EUR 1.1 million, but almost flat from last year.

So, overall, we would say that the first half of the year is a solid start of the year. And as you know, some variability in the inflow.

If we move to the next slide and talk about new clients. This is where the main difference is from last year. Last year, we had only signed a couple new clients when we got to this point in the year. This year, we've signed, as I said, 6 new Dimension clients and 2 new Coric clients in the first half and then another Coric client here in the third quarter.

The clients, we've kind of disclosed them as we have gone by. So BLI in Luxembourg, Hydro-Québec, Korea Investment Corporation has all been disclosed. And then -- and other undisclosed investment manager, this time in the U.K., came in Q2 as well. Two SimCorp Coric deals in the U.S. So all in all, in the second quarter, 3 deals in North America, a deal in the U.K. that we've had a tough time in for a while and then we are happy to see Asia growing with a significant deal in Korea. Q3 is off to a good start with a Coric deal in Singapore. So again, an Asia deal, so we're starting to see good traction with the teams we have in Asia. So all in all, good intake for the first half of 2019 compared to 2018.

If we move to the next slide. Then we also announced, in addition to the Executive Management team in SimCorp, Christian Kromann joins us on August 1. Christian has a long career in this type of business. He spent 17 years with SunGard and has had an international career with them, living in many -- in a few different countries and has good coverage of that. The last 3 years, Christian has been the CEO of a software business that sells to insurance companies, so kind of more on the policy side of things than on the asset management side, but very, very strong insight into our market and so on. Christian joins us and will run all of our commercial activities and sales and marketing and so on, with all 5 market units reporting to him and marketing as well. We're very happy for Christian to join the company and we expect to see good returns from that.

We move to the next slide. Then, as you saw, we also made an announcement in June, on June 6, that we would acquire AIM Software. That deal has closed in the meantime, so that's good, closed on August 1. So that's in the books of the third quarter, so you don't see any of this in the first half, as we just talked about.

AIM Software does data management. I'll show you a slide in a minute on how it fits into what we do. We're taking over about 75 employees, but also 45 or 4 -- about 40 contractors that sits with a third-party provider, where the enterprise value of the deal was EUR 60 million. And the way we financed this is through some of the cash we have at hand and a deploying of some credit facilities that we have on extended credit facilities.

The impact, as we announced previously, is that we expect additional 2% growth in revenue, but a negative impact on EBIT by 1% for '19, given some of the integration costs and some of the nonrecurring costs we have with the acquisition. In 2020, we also think it's going to be a lower margin than the rest of the SimCorp business, and then as we get into '21 it will be neutral for the business. They'll get to the same margins as the rest of the SimCorp business by then.

If we move to the next slide, Slide #9. It kind of shows how GAIN fits into what we do today and kind of what we do today, front, middle, back, and so on. Then what you see is that feeding kind of the business that SimCorp does with our customers today is a large set of data, there's reference data from all of the various instruments that our customers invest in. There's price data, there's corporate actions data, there's legal entity data, so there's quite a bit of data that needs to kind of be in the system as the base for the investment that the customers does. And as many of you probably know, then our customers get these data from many different sources, they get them from Reuters, they get them from [FIX], they get them from Bloomberg, they get them from stock exchanges and so on.

And for them to kind of clean this up and get to a kind of golden copy of this data is not always easy. And at the same time, the cost of acquiring these data keeps going up. So for them to be able to get to a golden copy and be able to manage where they get data from, manage the licenses for this is an increasing importance for them. So we think it's a good fit because there's a need for this. And having it integrated so that we, as we do with the GAIN product cleans up the data, and has it automatically fed into SimCorp in a standard model, makes good sense. As you have seen, we've partnered with them for a while, so we know how to do this. We've got a number of mutual customers that I'll show in a minute as well. So that's kind of how it fits into SimCorp.

If we move to the next slide, then it kind of talks a little bit about the opportunity we see. The market for enterprise data management is a market that is growing. And in that sense, a good market to be in. So -- and we've got a market-leading product in that space, so that's good for us. It gives us client access. The data management decision is often coming before the decision on a managed -- kind of the investment management system. Often, the process our customers go through is they decide on the operating model, are they going to be in-sourced, are they going to be outsourced, what's the operating model they'll have. And then once they've decided this, they go through a selection of a data management solution. And then after that, the investment management system. Now we get into that pipe a little earlier and can have the discussion at an earlier stage. So that's good.

We think that it enables us, from a product point of view, to be better in interacting with our customers. We also think there's an open platform play as we're building APIs for SimCorp Dimension and so on. Now we can also give access to data, so we think that's good.

So that's kind of where we're going. We know the company quite well, given that we've worked with them in the past so we don't think there should be any big surprises in this. And I would say, in the first 3 weeks of being a part of our company, we've not seen any big surprises. So all in all, we think it's a good kind of tuck-in acquisition that we made.

We move to the next slide, there's a little bit of new information in the one we've tried to depict kind of the SimCorp Dimension customers, the SimCorp Coric customers and the SimCorp GAIN customers. So the SimCorp GAIN customers are these customers that we're now getting from AIM.

And where you -- what you see here is the overlap between all of them. So if you look at it, there's really 6 customers out of all of these customers that have all of the products. So that means that there's quite a bit of cross-sell, upsell opportunity in this. You can see that between GAIN and Coric , there are 3 customers in common. There's optionality there. For the SimCorp Dimension customers, there's only with SimCorp GAIN, there's 14 customers in common. There are 26 customers that doesn't have Dimension. And then there's 176 customers that doesn't have AIM. There's quite a bit of cross-sell, upsell opportunity as you will see from this slide. A new slide that has a little bit more detail than we've given in the past, so I hope that's useful for all of you.

If we move to the next slide, then you will see we are ready for Michael to give us a more detailed view of the financials. So I'll hand it over to you, Michael.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [3]

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Thank you, Klaus. I will start on Slide 13, which is quite a simple slide as we don't have any M&A impact in Q2. So the only, you can say, change from reported numbers through organic numbers are the FX impact. And if we -- the [all] conclusion is that we did have a strong growth and a solid EBIT margin improvement in Q2. So in reported numbers, 32%, and then tailwind from FX adjustments of 1.9%, so the organic growth of 30%.

Looking at the EBIT margin, we had a tailwind in reported numbers of 0.5%. So organic margin was 29%, which should be compared with the 17% we had in Q2 2018. So a quite significant improvement in the quarter.

But of course, in a quarter, single deals can have a big impact on margin. So of course, we do need to have the longer side on and not only looking at a specific quarter.

If we take the 6 months, that's at least a longer period, so double up compared to the quarter, then our organic growth was 19%, so still pretty solid. And EBIT margin, organically, of 27.6%, which is comparable with the 21.6% in 2018. So there, also an increase of 6 percentage points also for the first half year.

Then I move on to Slide #15, where we have the order intake. And as you can see, both in Q1 and in Q2, we had a higher order intake than comparable period last year. So EUR 7 million more in Q1 and EUR 6 million more in Q2. This was primarily driven by new licenses as we had a quite successful start of the year in 2019 compared to very few new license deals in the first half of 2018.

On the other hand, you can say, in Q2, add-on order intake was slightly lower than last year. But that was also due to we had a very big order intake in Q2 last year in Central Europe. So that's the main difference between Q2 2019 and Q2 2018 in terms of additional license sales order intake. Client-driven development has been quite modest in Q2, which it also was in Q2 2018, so EUR 1 million compared to EUR 0.6 million.

And then there were no conversions from perpetual licenses to subscription licenses in the order intake in Q2 2019. It's a little bit different with revenue recognition, but in the order intake, there was no impact from conversions in Q2.

Then moving on to Slide #16, where we show the order book. Compared to the order book of -- in end of March 2019, it has gone down with approximately 1%, so that means we have revenue recognized of EUR 1 million more than when we started the period. But it's worth mentioning that the significant order we signed in Asia in Q4 2018 has not been recognized in Q2, but has been recognized in Q3 as the condition was met in July 2019 and not as expected in June 2019. So it was pushed 1 month with meeting the conditions.

Of the order book of EUR 46 million, CDD orders account for EUR 18 million, so you can say, in the order book, there is quite a lot of CDDs.

Then moving on to Page 17, where we are giving a little more detail on the different revenue streams. It is quite clear that it is the new license deals which are really fueling the growth in both Q2 and in the first half year. So this is, of course, related to what Klaus mentioned earlier on with the many deals we have made in the first half. So it seems like, in 2019, we have been able to spread out the new license deals more evenly among the quarter, which has been a target for many years. So -- so hopefully, we are now seeing a new trend, but let's see. We need some more years to see that.

I think very importantly is that our software updates and support, our recurring revenue, is in local currency organically up by 12%, so that's pretty neat. And also we have seen professional services now having double-digit organic growth rates again, with a 12% growth in Q2 2019.

Then a specification on Slide 18 of our additional license sales where you can see that the revenue recognition from add-on licenses is actually going slightly up from Q2 2018 to Q2 2019 by EUR 2 million. Included in this number, there is a conversion of EUR 1.6 million, which is related to an additional license sale we did in 2017, where we couldn't income-recognize before 2019, so quite a while ago. But that still means that, also, excluding this conversion, we are having a higher revenue recognition from additional license sales than we had last year or slightly ahead.

Then looking into the cost picture. We -- I would say the highlights here are that if you take the organic development, we have a cost increase of 10% for Q2 and we have a cost increase of 9% in local currency in the first half. And especially, sales and marketing cost has increased quite a lot in Q2 2019. And that's, of course, related to the high level of new subscription sales in the quarter.

There is a small amount of EUR 0.3 million in onetime costs related to the acquisition of AIM, which is included in admin costs, which, of course, is impacting the growth in admin cost. But I will also say that admin cost is up due to we are spending some money right now on system implementations, and thereby admin cost is going up.

Then moving on to Slide #20. As Klaus said, a quite stable performance compared to the year before. And I think maybe the most important number to mention here is the 12-month rolling cash conversion, where it was 85% in end of Q2 2019. And if you might remember, our guidance for the full year is between 60% and 80%. So you can say the 85% is okay related to what you should expect for the full year. And the reason why the cash conversion is less than 100% is, of course, due to our contract assets and thereby the revenue recognition we do on subscription licenses.

Then my last slide will be on Slide 22, where we have the full year guidance. And as you have noticed in our company announcement sent out last night, we upgraded our expectations for revenue by 2% over the lower end and in the higher end. So our guidance is now 12% to 17% compared to our last guidance of 10% to 15%. And included in the 12% to 17% is a 2% growth related to the acquisition of AIM Software, as Klaus explained early on.

For the EBIT margin, we are increasing our guidance with 0.5 percentage points, both in the lower end and the higher end, so we are going from 24.5% to 27.5% to 25% to 85% (sic) [28%]. Here again, there is an unchanged 1 percentage point negative impact from the acquisition of AIM Software due to the initial lower profitability and the one-off integration costs.

Then we have, based on the exchange rate prevailing at the end of July, estimated that the currency fluctuations will have a positive impact on revenue growth of 1.5% and on EBIT margin, 0.4%. So you can say the reported numbers should then be 1.5 percentage points higher and 0.4 percentage point higher than in our outlook if these exchange rates remain throughout the year.

This was the end of our presentations and -- presentation, and now we hand over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of Daniel Djurberg from Handelsbanken.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [2]

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My first question, congratulations for strong results. And the question would be, your comment on the healthy pipeline, can you give us some more granularity on this from a geographical perspective, year-over-year change or anything that we can -- more comments on the healthy pipeline.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [3]

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Let me see if I can do that. So on a healthy pipeline, it's -- you need to kind of think through and say we've had a good first half of the year where we've done some good deals. And we continue to see our pipeline being strong around the world. So we've got

(technical difficulty)

specifically North America seems to be on a good trend. Specifically on the asset oversight, we see some good trends with pension funds and so on in the U.S. kind of moving so that we're happy with. The rest of the world also has a good projection in pipeline. Asia continues to move. We see some move in Southern Europe. Northern Europe, on the existing customer side, seems on a good track and less so on new customers, given where we are in market share and so on. But overall, I would say the pipeline is healthy and good and supports the guidance we've given for the year.

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Daniel Djurberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [4]

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Okay. And if I may, one more question. In the quarter, you signed a Dimension deal with Hydro-Québec in the public utility sector. To me, can you talk a little bit more on the opportunity in this segment, i.e., is it already involved in the 1,200 customers focus on -- that you focus on investment managers? Or is this the public utilities, it is more of an opportunity on top of that.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [5]

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The Hydro-Québec deal is interesting in the sense it's the first of kind of corporate pension plans that we signed. And in some countries, specifically in North America, you have quite a few of either corporate pension plans or corporate -- big corporate investment program. So in that sense, it's interesting that that's an opportunity for us as well. If you go to some of the big companies like [GE] and so on, they've got these big pension plans. And given that we've been able to do this, that seems like an opportunity for us as well. It's not an expansion of the universe as such. There might be a few here and there. There's not like it's 100 new, but it gives us the opportunity to go talk to these.

Also, there are companies that we've not done this so far, but there's also some of the big companies that have quite big investment arms like a Microsoft and an Apple and so on. And that's another thing you can pursue, and that looks like these corporate pension plans in some sense. So it's back to the asset owner space being on move, and that's a good opportunity for us.

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Operator [6]

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And the next question comes from the line of Hannes Leitner from UBS.

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Hannes Leitner, UBS Investment Bank, Research Division - Equity Research Analyst of Software [7]

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Yes. Congrats to the good result. Could you talk a little bit about -- on your pipeline, how it's shaping up for the rest of the year and then looking into 2020? And then regarding your gross margin, it improved slightly year-over-year in the first half. Should we expect this to continue throughout the year and what you have done that the gross margin has improved? And then regarding the headcount, is this a leading indicator that you are getting more confident into next year?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [8]

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Thank you. So on -- first off, on the pipeline. I think I said a little to the question Daniel asked and -- it's a healthy pipeline. We'll see how many of the deals in the pipeline that closes and how many that transfers into 2020. But also for 2020, we're building pipeline and so on. So we'll see how that goes, we'll give you guidance on 2020 when we get to the annual report. But there's still a sensible movement in the market.

The gross margin that goes up is because of licenses. So you see a different composition of our business where more is licensed in the first half than it was last year, and that kind of drives up the gross margin as such.

The growth in headcount is probably twofold. One is that we're hiring into professional services and so on to deliver the projects we've sold. And some as you've seen with what we did in Asia, what we did in Korea and so on, there are some big implementation projects that needs to happen in this. And at the same time, we're doing more operational services with our customers, so that's part of the hiring. And then you're also seeing a significant increase in our R&D staff, and that's because we're making an investment in R&D. We think we have a unique opportunity right now to also bring SimCorp Dimension to the cloud and future-proof the product. We're making a little bit of an investment in that as well and growing R&D based on this.

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Hannes Leitner, UBS Investment Bank, Research Division - Equity Research Analyst of Software [9]

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Just a quick follow-up on the last point. You mentioned the cloud, I think you signed now the first customer on your Dimension as a services. Maybe you can talk us through how far are you with the development? Is this rather more to be considered as a pilot customer? Or is this already on the full level as your on-premise Dimension?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [10]

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So what we said on this is that it's more naming convention with our colleague, it's SimCorp Dimension as a service. It is kind of what we termed the ASP business in the past. And this is another customer in that space. And we've so far signed 20 customers up for that type of service. So it's a growing part of the universe that wants us to host and run their systems, and we're doing that. We are running it as we did with the ASP. So that's working quite well. The cloud side we'll -- that will be a while before we have a true 3-tier cloud and so on. We'll have to get into 2020 before we start delivering that to our customers.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [11]

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We do actually have one of our customers on the public cloud with our own involvement.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [12]

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That is true. Yes. So you can say, technically, [two] actually. So technically it's possible.

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Operator [13]

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And the next question comes from the line of Poul Jessen from Danske Bank.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [14]

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I have a few questions. If we start by the guidance for '19. You raised it by 2 points in both the low and the high end and you have 79% of your business secured by contract. And if we include the reversal to come in Q3, then it's 81% compared to 77% at the same time last year. I was just wondering, that you gave a spread of 5 percentage points from high to low end, does that indicate a higher risk than earlier or higher uncertainty on it? Or how do you look at that -- what's your quality of the pipeline versus contracts? Then on the guidance as well on the backlog side, how much do you by now expect to be taken from the backlog? More than the 10 we -- more than the 10 we know? Or shall we see more coming in from the backlog in the numbers? That's the first 2.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [15]

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Yes. So if we try to answer the first one, the first one on the guidance on kind of the 5% difference. That is because that is kind of the spread that is really there. There's a number of deals that we're looking in our pipeline in Q4 that are they signed, it will bring us to the high end of what we expect. And then if that doesn't materialize, then we could end up in the low end of the range, so it is really a range that we're guiding. And whether we get to one end or the other is really dependent on the deals we sign in the fourth quarter, as that's still a big quarter. Even though we've done more in the first couple quarters than we have done in the past or in some years in the past, then fourth quarter is still a big quarter. So that's why you see the spread there. Then we'll see, as we get closer to the fourth quarter, whether we are able to narrow that. But so far, we think we need that spread in guidance.

Then how much do we take from the backlog? We know that, in the third quarter, we are taking the Asian order out of the backlog, so that we know for sure. Whether we then -- some of the deals we sign in the third quarter and the fourth quarter, whether some of these deals are going to end up having conditions to be met, that then move them into the next quarter, we don't know at this point. We don't know how much comes out of the backlog. And again, this is back to the 5% spread that if you could be in the situation that in the fourth quarter we actually sign a number of very nice deals, so the order inflow comes and then it gets put into the backlog and goes into the next year. So that -- it is that variability in the business that gives us the spread and it is why we can't tell you what comes out of the backlog.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [16]

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And I would say, in last year, not as big as the Asian one, but we had a very big additional license sales, which we income-recognized or revenue-recognized in Q4. So every year, you will have these. And I fully agree that the Asian one is of course significant, but we also had a significant one in Q2 -- sorry, Q4 2018. And I would say, are there more uncertainty or less uncertainty, you can say that the 5 percentage point spread is exactly the same as we had last year. We also have a 5 percentage point spread last year. So you can say, mathematically, it's the same uncertainty.

And as you know, we are extremely dependent on Q4. And the exact timing of when we get the signatures in Q4 is, of course, by nature, still a bit uncertain, and that's the reason for the larger range. And then, finally, what we do experience is that there are more involvement of external consultants in the process. And the more parties in the process, the more uncertainty about the exact timing, so that's why you have some kind of uncertainty.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [17]

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Okay. Just based on the case that, last year, you added EUR 20 million to the backlog. And EUR 20 million on EUR 400 million, that's also quite a percent on where you get within the range. So [just wondering] what were involved in the base for the guidance, so to compare the outcome versus the guidance. Moving on to AIM, you include that from the third quarter. It's 2%. But how much should we see in the gross margin and how much will be below the gross margin of the cost as it's more or less flattish on EBIT?

And then on the slide you gave with the opportunities for cross-selling on IAM (sic) [AIM], there's clearly an opportunity of selling AIM into Dimension clients. Should we see any opportunity to sell the other way, I guess, that the transition costs are too high, that Dimension should be able to sell the other way around. So it's just to be certain, is it -- it must be mostly selling AIM into the Dimension clients?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [18]

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So if I take that one first and then we give it to Michael to kind of answer whether it's gross margin or not. Then I think the cross-sell opportunity is there. But as you say, it's a -- there's a bigger opportunity of selling SimCorp GAIN to kind of SimCorp Dimension customers than the other way around. That you saw from kind of the circle chart I showed a little early on. There's more SimCorp Dimension customers than there is AIM customers. The SimCorp Dimension customers are more invested into our universe than SimCorp GAIN customers. So it's clearly that direction.

That doesn't mean that we're not going to every SimCorp GAIN customer that is out there that is not a Dimension customer and now sending our Account Management team out there to have that conversation. We're integrating the GAIN team completely into the business, which means that the SimCorp account managers that we have today will also get these GAIN customers as their territory, so let's see. I'm not expecting that they all convert to SimCorp Dimension, but it gives us an opportunity to go talk to them.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [19]

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And I think for the first part of your question, in our guidance, we have been quite clear that there is a lower initial profitability, and that also goes for gross profit. And then there are one-off costs, so you're right. In the beginning, you will see a dilution on both the gross margin and EBIT margin. And then, of course, the aim is to increase the sales, as Klaus just said. And thereby, you will also increase the gross profit.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [20]

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And what line will they go into on the revenue? Will it be licenses or...

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [21]

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It will go in all lines. So this is a business very similar to our business. So the business will both have license sales and they will have consultancy services. So it's part of their selling that they also do professional services and implementation.

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Operator [22]

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And the next question comes from the line of André Thormann from ABG.

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André Thormann, ABG Sundal Collier Holding ASA, Research Division - Analyst [23]

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Congratulations with a good quarter. My first question is the sale of front office in the U.S., how do you see that moving, yes, currently?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [24]

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Yes. So front office in the U.S., we are getting traction on that. We're selling that as part of the deals we're selling to asset owners in the U.S. We see front office being part of this. It's kind of the full, front to back solution that we typically end up selling to these customers. And you see that, with the Hydro-Québec deal, is also a front-to-back deal, fully integrated deal. So that is what we see.

We continue to sell front office to some of our existing customers. We still haven't done one where it's front office only or front office IBOR only in the U.S. So there, we still need to find the first one of those and celebrate that we won over (inaudible) BlackRock in a direct competition for front office only. But we think that given that we're building the reference base with our existing customers in these front-to-back customers, then we're increasingly showing that we are not just a European front office, but also a truly global front office system.

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André Thormann, ABG Sundal Collier Holding ASA, Research Division - Analyst [25]

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Okay. And then maybe in relation to the U.S. also, are you seeing the competition increasing in this quarter or is it status quo?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [26]

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Are we seeing the competition increase? The competition is -- I would say the competition is getting clearer every quarter. So the competition becomes more and more clear that it is BlackRock Aladdin we're competing with. And it is our friends at State Street that bought Charles River. That is the competition and the market dynamic is moving that direction. The ones who doesn't have an integrated system or doesn't have a plan to have an integrated system, like State Street has, are increasingly challenged in the market, I would say.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [27]

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And I think we know now all deals going on and we are getting approached and invited to all deals. So we are really a relevant player in the North American market today.

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André Thormann, ABG Sundal Collier Holding ASA, Research Division - Analyst [28]

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Okay. So you get -- so just to understand that you're getting invited now to all deals in the U.S. and you weren't getting invited?

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [29]

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(inaudible) relevant, all relevant, where we have a realistic chance to play the game. But it just means we are well recognized. So if you ask the competition who they believe are the competition, then they will mention us as one of them.

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André Thormann, ABG Sundal Collier Holding ASA, Research Division - Analyst [30]

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Okay. And then maybe my last question. In terms of your asset manager pressure, are you seeing an increase or status quo this quarter?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [31]

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That's hard to tell. We're not an asset manager, so we just get to talk to them and we get to read in the press what they think. And I think everything that's reported in the press kind of says that it's not getting easier every quarter.

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [32]

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If you look at our client wins, they are both asset managers and asset owners. So it's not like asset managers are not seeing this. Of course, there are some not seeing the systems, but there are also asset managers seeing the systems and our clients as well asset managers are also well represented on our both wins, but also in our pipeline.

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Operator [33]

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There are no further questions at this time, please continue.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [34]

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Okay. If there are no more questions, then I'll ask Anders if there is anything on the Internet or not.

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Operator [35]

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We have one more question which just arrived. And the next question comes from the line of Poul Jessen from Danske Bank.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [36]

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I have some -- a few questions on the revenue lines. Professional services, which is doing quite well, can you say something about how much is from the outsourcing line and how much is related to new contracts? What is driving the high growth? And then on the software upgrades, you had last year an increase of 5% and an aggregated installed base, but you are growing your maintenance fees by 12% in local currencies, so that's much higher than what the base is growing. What's driving that? And then finally, on the ASP line where you're now getting traction, how should we see the ASP and other line in the next few years? Is that going to grow by the levels we have now or is it just the beginning on the hosting business?

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Michael Rosenvold, SimCorp A/S - CFO & Member of Executive Management Board [37]

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I can answer these questions. For professional services, it's really driven by new license deals. So we won a lot new license deals in December, and we have had a good start of the year. And also for some of the existing clients, that is ongoing project. So the growth in professional services is primarily driven by new license deals.

In terms of the increase in software update and upgrade -- sorry, software-supported upgrade, it is also driven by when clients are going live. So sometimes the maintenance is kicking in at the go-live date or you're getting the full maintenance when you go live. So that's why we have seen a huge increase in that line. And then finally, ASP, you can say from being almost invisible or very insignificant, now with 20 deals signed and several of -- or many of those now live, then that line is, of course, increasing. So -- and also, further out in years as we do offer cloud, then you should see that line be much more significant than today.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [38]

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If you think about the new clients we signed, then now at least half the clients we sign is like this. So you will see an addition of some clients every year, and we're starting to see the first of our existing customers also migrating. We've done migration of a couple of our existing customers as well.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [39]

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Okay. And then coming back to the maintenance. When you say it's a question of timing right now, if you look at it on the longer horizon, shouldn't we see the relationship of the increase in the maintenance or the installed base being closely correlated long term to the growth in the maintenance fee?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [40]

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Yes.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [41]

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That was a yes?

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [42]

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That was a yes, yes.

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Operator [43]

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We have no further question at this time, you can continue, sir.

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Klaus Holse, SimCorp A/S - CEO & Member of Executive Management Board [44]

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Very good. And I hear there is no questions from the web either, which means that we are coming towards the end of the call. So a big thank you to all of you for calling in, listening to this, and also for a number of good questions. Thank you for that. And for those of you that are in the European jurisdiction where the weekend is approaching, I hope you have a great weekend.

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Operator [45]

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Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.