There is also a significant difference in the EV/GP ratio calculated using gross profit. The point was simply that the stock’s valuation is modest, meaning it doesn’t have high profitability expectations built in.
After that summer of '21, times have been very exceptional, with interest rates rising and war in Europe. Especially the year '22 was difficult for Serviceware, as licenses collapsed and profit was destroyed. Now in Q1, even though licenses collapsed, EBITDA still improved, which indicates how far along the SaaS transformation is, a struggle the company has endured for a long time. This is why profitability development has appeared subdued: as SaaS improved, the high-margin license business declined. It has been difficult to assess the development as the company does not report their profitability separately.
The weakening of GM % is indeed due to the growth of the SaaS segment, which includes low-margin 3rd party products like AWS and CrowdStrike. SJJ sells these to the German Mittelstand market. Internationally, only proprietary software is sold. Due to this “pass-through billing”, GM comparison with other pure SaaS companies doesn’t quite work. When selling third-party software, salaries, other expenses, and depreciation should scale well, because all costs for third-party software are already in COGS.
The SaaS transformation is expected to be completed next year. In my forecasts, licenses will then fall below 10% of revenue, which will boost profitability development and growth figures at the company level. Scalability will also become more apparent when the figures are not muddled by the license business moving in the opposite direction.
GM % will likely weaken slightly further as the SaaS share grows, unless international growth takes off, where only proprietary software is sold. Growth is accelerating constantly, and the order book saw a significant jump in Q1. Despite the weak GM, strong growth consistently leaves a bit more on the bottom line at the EBIT % level, which supports the company’s journey towards that 10-15% EBIT profitability. I believe that Q2 profitability will show a clear improvement if licenses do not collapse as sharply as in Q1.
Has anyone in any way tried to model how this contract liabilities section correlates with sales growth in future years? Contract duration is on average 1-5 years, so there will certainly be a lot of variance and plenty of changing factors.
Last quarter, it was already over 100 million euros. Growth was almost double compared to last year, so it’s probably fair to expect reasonable growth.
It hasn’t turned into sales lightning fast, meaning contract durations have apparently lengthened somewhat. The direction is good, however, even though growth is presumably slower in other quarters.
And here’s an updated sales chart:
License and maintenance are declining, SaaS is growing, but as others have already mentioned above, could it just be largely “pass-through billing” with unfortunately weak margins?
Mega deals are coming in for AI solutions from outside Germany. In these, the gross margin is over 80% according to management, per the last financial statement webcast, because third-party software is not sold abroad, only their own. If more of these can be secured, profitability will improve!
Those deals outside Germany are indeed sweet due to their high GM % profile. This year, by the way, has seen a record number of major deal announcements. With high-margin growth, earnings should start to scale strongly.
There’s a good thread about SJJ on Twitter, I’ll put it here too:
The stock is indeed attractively priced. In my baseline scenario, revenue grows by 15% p.a. for the next 3 years. With GM at 50%, this would leave a maximum of 7.5% ebit % contribution; a realistic level is probably around 3%, as other costs will also increase. This would mean approximately 160m in revenue in 2027, and with a 10% ebit expectation, it would yield 16m in ebit. In terms of valuation, this would appear as ~ EV/EBIT 7.
In the bull scenario, international growth accelerates, and GM% would improve through this, as the share of high GM % increases. In this scenario, revenue would grow by 20% p.a., and the earnings contribution would be ~8% at the ebit % level annually. This would mean 179m in revenue in 2027, and with 25% EBIT, 45m EBIT. In terms of valuation, this would appear as ~ EV/EBIT 2. When also considering the cash flow accumulated over 3 years,
Serviceware SE successfully advances SaaS transformation in strong H1 of fiscal 2024/2025 – AI as a growth driver
• SaaS/Service sales revenues rise significantly above average by 30.5 percent to
EUR 42.8 million; SaaS/Service revenues in Q2 reach record level of EUR 22.0 million
• Total sales revenues up 10.3 percent to EUR 55.5 million
• EBITDA rises by 18.6 percent to EUR 1.9 million
• Order backlog as of May 31, 2025, up 21.3 percent to EUR 97.8 million compared to November 2024
• Numerous new customers gained for AI-native ESM Platform
• Expansion of international activities progressing well according to plan
• Annual forecast reaffirmed
Good report from SJJ; results improved even though licenses dropped almost -50%. EBITDAC 0.7M vs PY -0.3M. Profit improvement accelerates once licenses churn out, and with these drops, they will no longer create significant headwinds next year, which will also increase the profit improvement potential. SaaS growth is at a very strong level, and apparently AI engine sales are not yet fully reflected in the figures, as only “first customers live”, so this also supports H2 and FY26 growth!
Apparently, the Quirin analysis opens from the link, from there you can check how they get Serviceware’s target price of 27.50 eur. Well, growth and profitability do that
I’ll also include it directly here
A 7-figure/multi-million megadeal is coming from outside DACH; in these, the gross margin (GM) is high, as there’s no 3rd party software involved. This is also from a completely new growth area outside IT Finance!
Hereward Burgers, Managing Director Serviceware Benelux: “When an existing partnership is expanded so significantly, this highlights the capabilities of our AI-native platform and the customer’s high level of satisfaction with it. That’s why we are particularly pleased to be taking the next step toward outstanding digital-based services with this customer in the healthcare sector. We see further potential for Serviceware in this customer relationship and in the healthcare sector as a whole. We are very pleased that our solution enables patients to receive faster diagnosis and treatment.”
Really strong profitability improvement, EBITDAC 1.7m vs 0.7m, more than double from the comparison period! The order book also continued QoQ growth, even though the mega hospital deal is still missing from these figures. First report where the sjj result starts to scale more strongly. Things are going well, and may they continue!
Sales are slowly chugging upwards, now the slope has steepened a bit, and the biggest impact seems to have come from license sales. I’ll have to add the financial figures at some point!
It’s also always a positive sign that one doesn’t need to capitalize one’s own work on the balance sheet to show better profitability. I suppose one can continue as an owner with reasonable confidence. This isn’t a growth rocket, but steady hard work.
So, there are hardly any past expenses “hidden” in the balance sheet to burden future income statements.
And, somewhat conversely,
today’s profitability is cut not only by traditional sales costs but also by current expenses arising from SaaS integrations, which generate revenue and margin for the income statement “only sometime in the future.”
when SaaS sales are growing, one could assume that the aforementioned upfront costs against future revenue are disproportionately high compared to today’s revenue.
I’m not entirely sure what those items in the assets are. I would assume they are mainly license fees paid in advance by the company, against which are the advances received from customers, but there might also be own work included. Other intangible assets likely correspond to development expenses, and companies making losses tend to book them there, but these were already decreasing in May. If those SaaS contracts no
