Simcorp A/S

CSE:SIM

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the SimCorp A/S First Quarter 2022 Results Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, CEO, Christian Kromann. Please go ahead, sir.

[Christian Kromann, executive]

Thank you very much, and Good morning to everybody. Let's get cracking, and let's go through the slides and then do the Q&A at the end of that. So, as normal -- so first and foremost, the disclaimer. You've seen that many times before. It's always important. I don't think we have to take you through it. So we're going to do the Q1 highlights. I will do that. Then Michael will go through the financial review and the outlook, and then we will open up for Q&A. Let's go through the Q1 highlights first. First slide, where we talk about our forward-looking KPI, the ARR number that we -- during the last couple of quarters, as explained to you, that's the key KPI inside SimCorp. That's how we steer from, and that's how -- also how we make investments. So obviously, pleased to say that, that's continuing a high growth rate, which is also a pretty good mirror on how our business is overall developing. So we see a 10.4% year-on-year increase in ARR to EUR 283.2 million, and that also corresponds to -- still a little bit more modest, but also a good change in our revenue signed on contract, up to EUR 356 million. As we also discussed in the beginning of the year, we'll continue to track the standard KPIs at the very least to make sure that you also understand how the fundamentals of the business look in the traditional way. So let's quickly go through that as well. So we come in to -- come through Q1 with a very nice uptick on order intake. Some of it is linked to some renewals, but some of it is also linked to generally new business, both in terms of net new business out of existing customers, but also 2 new SimCorp Dimension customers were signed, and actually one SimCorp Sofia customer was signed in Q1. There's a few extra customers going through that I would also talk a little bit about later in a slightly different context. That leads to a traditional revenue growth of 4.3%, which, I guess, is exactly what we expected inside SimCorp. It's almost on krona and euro, as we would say, in Denmark, on budget. So it is pretty much a normal Q1 where you're dusting off a little bit after the party in Q1 -- in Q4, and then getting ready to build new pipeline for another party in the later part of the year. So nothing has really changed there from a license point of view. EBIT lands at EUR 15.5 million. That's relatively a direct function of the order intake and the fact that there's a few renewals into it. And then we have 2.5% increase actually in our software maintenance, which is a good evidence that we maintain to have a very solid customer base staying and being sticky with us. We also continue to have growth in our professional services of just under 4% in Q1 -- free cash flow, which I know Michael will come back to in his part of the presentation. If we clearly look at the new client generation, as I said, 3 customers signed in Q1, 2 Dimension, 1 SimCorp Sofia. That was actually the first North American customer in quite a while, which we're quite excited about. There will be some information coming out about this customer shortly, which is actually super exciting about a new way to approach some of the segments in North America, but that will -- you will have to watch our space in a couple of weeks from now. We've also continued to sign more business into Q2. Actually, Sofia has continued to sign more customers, but there is also more waiting in the pipe. But I think as a whole, H1 is expected to be a little bit slow, almost as normal as we also talked about in the beginning. We're also continuing to sign channel play customers as part of the redistribution agreement, and I would also quickly touch on the other announcement this morning, which is yet another initiative that brings us further into the channel play opportunity. So we say on -- if you just count the number of people that are increased in terms of people that are using SimCorp Dimension, it's obviously going up quite nicely. But given that some of these customers are coming in through a different way of selling, you start to see the real impact of service transformation into our revenues. And to kind of continue that part of the conversation, we also signed 3 customers on our -- on the investment accounting service we announced a couple of quarters ago. So we're, obviously, truly excited about the fact that we can build a service so fast that 3 customers are willing to basically jump on the wagon relatively early on in our development cycle. I would say those customers have been carefully selected. So they're actually somebody we can take live with a high credibility and build basically credibility around the entire platform. And the first one is actually going live shortly, which, for people that know SimCorp for a while, would realize that this is a different time to value than we are talking about compared to normal SimCorp Dimension. This is the area where we take full responsibility of producing the accounting entries. We do it in a multi-jurisdiction or multi-asset capability. It's a technology-enabled service, which is obviously important in this context, because we're using our own software to fundamentally automate the customers' processes, and then in the end allowing them to concentrate on their business, which I'm also going to come a little bit back too. I also want to say quickly related to overall market opportunity. There continues to be a very solid transformational drive from our existing customers that we are translating into both licenses and services. So we are very confident in that. We're also very pleased to see that for the first time after COVID that we see a real portfolio of qualified opportunities coming out of North America. We are tracking that quite carefully. Now it's all a matter of will the customers, in fact, make decisions. And then it's obviously also a function of our competitiveness and our ability to win them. But as I said a couple of times today, there needs to be business on the table in order for us to be able to win it. And for the first time now in almost 2 years, there is now a real portfolio of qualified opportunities in North America. And I'm actually going there on Sunday, which is my third trip this year. So real positive development on that side. Let me take you through a couple of kind of more strategic ways of explaining what we are doing. And a lot of these things are obviously evolving as we speak, and our overall readiness to have a very exciting deep dive with all of you when we get to October 6, with -- and also I know Anders will say a few words about a little later in the presentation. So, in the essence, we are obviously spending all of our time understanding how the markets are developing both for us from an opportunity point of view, but in the end, also how it's developing from our customers' point of view. It's becoming clear and clear, well as amplified by the current volatility or the current whole market situation, I think it is, but it actually started right before that. Our customers want to focus on the core, and they want us to help them focus on the core. So whether that comes from market drivers, inflation, sustainability, fee cost pressure, new regulations, whatever, or the fact that they are changing their strategic outlook to be more multi-asset, to include passives or alternatives into what they do, or whether it's operational concerns about access to people, access to knowledge or overall potential that we hear quite often, cyber-risk, all of these things is pointing in the same direction that our customers and our prospect wants us to take a substantial bigger role in that all the way from operating the platform. But as we also just talked about, investment accounting as a service, they want us to take responsibilities for the parts of what they do that they don't see as differentiating in their business. So in essence, focus on core. If we then put that into a SimCorp context, you ultimately have traditional versus new. So the tradition is the on-premise software which from time-to-time we still sell. We still have traditional ALF licenses coming out of our existing customer base. But when we look across the board, it is quite clear that this is shifting towards Software as a Service. On a traditional outsourcing area, I think SimCorp has never really tapped into that, but we can see the market is really changing. That what you really want is your partner to use their technology to enable your business services. Because if the only thing you get is just cheap labor running the same legacy platform, then you're not really getting any business agility out of it. So everything we do now is centered around Software as a Service and technology-enabled services, and we are slowly, but surely, also changing the way that SimCorp operates to take full advantage of this opportunity in the market. To give you a good view over how we think about things and what is on the shelf, if you will, we've created this slide to give you a flavor of outlooks inside the stomach of SimCorp as it currently stands. What does the sales people have in their back when they go out and speak to customers. And this basically looks like this. You have our SimCorp Dimension, our reporting engine, our data management, and then you also have Sofia that just won a new customer for the first time in a while. And here, it's ultimately the old school customers running the technical operations, customers running the business operations. Still exists, as you all know, still a big part of our existing customer base is operating that way. But it's also clear that they are moving to the right in different speeds. So from a SaaS point of view, SimCorp Dimension is now fully established. We're doing a lot of things with Azure and all these things, but it exists in the market. I think we just crossed more than 35 customers that are running SimCorp Dimension that way. But we also have Coric and Gain being delivered through a SaaS engine. And there we now have crossed 55 out of the 300 combined customers we have here, where SimCorp is fully responsible for the technical operations. I think that area will continue a lot more towards automated testing and standardization. But already now, we are responsible for the operational side. But still, the client is responsible for running their business and configuring their business. And then we've got the new kids on the block, which is also evolving. And here you would also see some exciting news coming out in a couple of weeks, where that part of the portfolio is also evolving further up the value chain of our customers. Starting with data management, that is the most mature, while it's now around 15 customers; investment accounting as a service, 3 customers were the first ones going live. And then you can start to guess on where we will go next on that one. But that will soon be clarified. But that's where SimCorp not only take the technical operational responsibility, we also take the business operational responsibility. And the beauty of all of it is that all of it can co-exist in different delivery models, and we see more and more customers actually going that route. Even existing customers that still run the core of SimCorp Dimension themselves, but they are acquiring and subscribing to our services around that, all the way to actually, in the end, out-task some of the functions to us. And that's ultimately what we are now scaling the organization to be able to do. Let me do a few words around the MoU that we have signed with an existing APAC customer. We, obviously, know what the name is, but there is some confidentiality on the customer side that we need to get through. But in not too distant future, the full setup will be revealed. It's super exciting. And it's yet another proof point on the platform mentality that we are trying to engage with as SimCorp. Here, we talk about a customer that we've had for a while. They've done an extremely successful implementation of SimCorp with our help, and they now find a real opportunity in the market to leverage that platform in a much more bigger way. And that -- what that gives SimCorp is obviously it gives us some -- quite a substantial deal to allow our customer to take that route. But it actually allows us to reach both from a geographical point of view, but also from a TAM point of view, which makes it completely exciting. What is a little bit new here is that we've decided to co-invest with the customer into a newco that takes over that operational responsibility. We actually think it's a really good use of capital, and we're quite excited of going in and test that. Will we do that across the board everywhere? Of course not, because then you suddenly will start to erode the platform opportunity that we've been in, where you start to kind of select what partners can go. In the end, neutrality is quite important for us. But in this particular case, it actually makes really, really good sense. So we look forward to share you much more information about this in a couple of weeks. It wouldn't be right for me to go through Q1 without talking about Ukraine. Last time we talked, we talked about having a plan in the drawer that if s*** hits the fan, then we would take it out. At least at that point, I didn't expect s*** to hit the fan, but a few weeks after it did. I can only express -- yes, strong, strong feelings about what I think about that. But in the end, my duty is to ensure that SimCorp's employees are well taken care of, and that's exactly what we've done. We've chosen to single out the costs that we are spending on this, not because we -- it's a one-off thing, it's a special circumstances, but we believe it's important to signal that this is real. Status currently is that half of our staff -- roughly half of our staff has gone to Poland, where we are taking care of them, including facilities and everything required, but there's also still a relatively large part of our staff that are still in Ukraine, but in the Western part of Ukraine. And then there's a few examples where family situations is forcing them to be in other places. And this will continue until it doesn't continue anymore. Right now, there's actually a feeling that some people might want to go back, and we have asked them to hold their horses, because as we didn't expect the war to happen in the first place, it's fair to say that at least I don't know what to expect will happen next. The good thing about all of this, if there is any good thing, is that we are very close to be at 100% productivity, which I have to say is a big shout out to our Ukrainian colleagues, that they are capable of working this amount of hours during a war situation. So from a SimCorp operational point of view, we are very close to where we should be. So in the end, I guess, an okay story, but obviously, taking the viewpoint of our staff is obviously still an absolute nightmare and very difficult to deal with. I also quickly want to take you through what we managed to do for the first time in a while as well, was to have our so-called famous IUCM, which is an annual get together of customers and partners and SimCorpers. This year, we were actually sold out for the first time in a very long time, which basically means that people really want to get back together and see each other. It's clear that the travel patterns has changed a little bit. So it became very much a European event, which also means we are repeating some of these things in our other regions later in the year. But it was really cool, and the buzz was just phenomenal amongst this group, including both predominantly clients, but also a couple of really cool prospects. And those words, Michael, over to you to give a bit more deep dive on the numbers.

[Michael Rosenvold, executive]

Yes. Thanks a lot, Christian. And I will move on to Slide #16 for those of you following the slides. And as Christian said, the first quarter was as expected and also what we communicated last time, we had this call where we said that both Q1 and H1 we expect that to be modest development in these 2 quarters, and then we are back-end loaded and also as normal. So in Q1, we had a 4% increase in our revenue, both reported revenue and in local currency, and the margin was around 13.5%, again, both in reported and in local currency. If we go to the next slide, Slide #17, the order intake, if you look at the picture on the right-hand side, you see -- you clearly see the pattern where we have, by far, the highest order intake normally in Q4, and normally also starting the year relatively modest. But despite that, this year, we were having order intake, which was -- an order intake which was the double size of last year. But also, as Christian said, to a very large degree due to early renewals of 2 agreements in North America, where we will revenue recognize that when the old subscription agreement is expiring, which will be in 2023 and in 2027, respectively. And you will say the reason why we do the early renewals is, of course, also because we do some upselling in connection with doing the early renewals. So that's a good thing. And then it's also creating security that we will pull on these agreements for a longer period. If we go to the next slide, Slide #18, the order book, you also see that the order book is increasing. It's increasing by EUR 8.5 million compared to the last quarter Q4 2021. And if you look -- go 1 year back, it has increased by EUR 32 million. Of course, part of it, and a large part of it is due to our subscription services like Datacare and so on, that, that is growing. And as we revenue recognize these services over time, that will automatically add to the order book and have the order book increasing. And for CDD, so client-driven development, we have a quite stable order book. So we have revenue recognized something and then we have added a little more -- added something as well. So a stable order book for CDD. Next slide, Slide #19, showing the different revenue streams. And Christian mentioned earlier on, a focus and increase both in software update and support and in professional services. And then you can say, hosting and other fees are growing quite a lot, as we are having more and more hosted clients onboarded. And when they are getting onboarded, we are then also revenue recognizing that activity, and thereby, we are increasing the hosting and other fees. For the license part, we are lower than last year at the same time. And that is primarily due to -- last Q1, we had some early -- we had some renewals in North America, which was revenue recognized in Q1, which you could say, inflated the add-on license last year. That's the primary reason for the lower license revenue this year. This can also be seen on the next slide, Slide#20, where you can see that the additional regular license sales is going up. It's EUR 6 million compared to EUR 5 million last year. And then on this slide, you see the impact from one conversion we did in Q1, where there were new conversions last year, and a lower impact on renewals due to the large impact in Q1, 2021. On Slide 21, we have the cost development, and as expected we have an increase in costs in Q1, primarily impacted by investments into the future where we are investing into our -- we are investing in our SaaS offering, including not least, investment accounting services. And we also had some additional costs related to supporting and helping our Ukraine colleagues, which Christian also talked about earlier on. For the cash flow, we had a cash flow of -- free cash flow of EUR 20 million, so higher than both EBIT and net profit, which is very normal because we do some annual invoicing in the beginning of the year. But we also had some, you can say, main invoicing this year due to ERP implementation in some countries, which means that, that cash inflow will come a little later this year. And then at the same time, we had some timing of income, taxes, payments and salary-related tax payments where we paid them in the beginning of the year instead of in Q4. We -- instead of paying them in Q4 last year, we paid them in the first quarter. So there was a timing of payments in Q1. Then my last slide before we go to the Q&A. That is the full year guidance. So we are maintaining our guidance with one exception. The exception is that the exceptional extra costs related to Ukraine, which we believe will be around EUR 3 million to EUR 5 million for 2022, then we maintain our guidance, which we stated in our Annual Report 3 months ago. And you can say, we paid -- we had extra cost of EUR 0.8 million for the first quarter. But in reality, that was primarily in March because of -- you can say, when the war started. And we expect for the full year that the cost on an annualized basis will be between EUR 3 billion and EUR 5 million in supporting our people. And then you can say the last thing, which Christian also mentioned, that he said Anders would mention, but I think I will take it now where I have the word. Please save the date. We will have a Capital Market Day in -- at October 6, and we will host that in London, as we believe London is probably the best location for most of you. So it's easy for you to either get there, or you are there already. So we hope to see as many of you as possible in October, in London. And now we will hand over to the Q&A.

[Operator]

[Operator Instructions] Your first question today comes from Daniel Djurberg from Handelsbanken.

[Daniel Djurberg, analyst]

I have a question starting with the pipeline. You gave some positive comments that the early sales pipeline, i.e. the funnel is improving, not least in North America. And I was wondering if it's possible to somehow quantify this in terms of anything, number of meetings or number of -- and somehow to quantify, have you measured this?

[Christian Kromann, executive]

The way we -- as you would imagine, we are running a funnel. And the way we track that in SimCorp is what we would say is kind of a qualified opportunity, and that's become -- that's when it becomes real. That's typically an RFI and RFP. And it's that number that I'm saying that is now back at pre-COVID level. I don't think we disclosed what that number is because then you start to calculate the wrong way anyway.

[Daniel Djurberg, analyst]

And perhaps a question to Michael on the cost side. So as the marketing cost is up, obviously, on back of traveling, meetings and sales commission being up. So I think it's up 260 basis points year-over-year. Should we expect a similar lift around 200 to 300 basis points compared to sales also in the coming quarters of 2022? Or will we perhaps see some leverage on -- from sales commission?

[Michael Rosenvold, executive]

I hope it certainly goes up because if that goes up, it's because we are selling more. But joke aside, I would say Q1 is a little special in terms of Q1, 2021. Some of the revenue we took there, that was actually something we sold in 2020. And therefore, also, you could say the commission paid on that was expensed in 2020. So we didn't have that much in Q1, '21. And then in Q1, 2022, we had -- we pay commission when we do the order intake and not when we do the revenue recognition. And that means that I would expect less increase in sales and marketing costs for the rest of the year. But hopefully, it's still going up quite dramatically because we simply want our sales people to travel and have leading activities. And as Christian also said, for the first time in 2 years, we hosted our IUCM. That is not -- there is a cost related to having such conference, but it's absolutely worthwhile. And again, that should also fuel selling to -- especially existing clients going forward. So, a long answer. I expect sales and marketing costs to go up, but less than what you saw in Q1 percentage-wise.

[Daniel Djurberg, analyst]

And if I may ask you also a question. I'm really impressed by you, how you have managed the Russian aggression in Ukraine with your employees and so forth. And my question is really, there is also obviously a cyber warfare out there trying to -- from both sides, I guess. But can you comment if the risk for your operations has increased, come back on this cyber warfare? And have you seen any -- have you had any incidents or something that would be worth talking about?

[Christian Kromann, executive]

Yes, I think it's a good and relevant question. So of course, this is something we are following extremely closely. We have an IT security team who is doing nothing else than monitoring such things. And I think we have taken some preventive actions. So we have closed all of our lines to our office in Ukraine. So the way people are, you can say, working, is from a safe -- or a relatively safe environment, and we don't have, you can say, an open Internet door to our office in Ukraine. So we are taking preventative actions, and we haven't seen -- and I think that I can say very clearly, we haven't seen an increased activity in attempts in any way so far. And it's something we, of course, is monitoring.

[Georg Hetrodt, executive]

I think we're all just doing pretty much the same as what the customers are doing, it is that they are pushing their operational environment to kind of a well-recognized cloud provider. And what we are doing is building our services on top in Azure for those exact reasons. We are also pushing our internal environment onto Azure for that reason. And that's actually the key selling point to our customers when they go from on-prem to As a Service overall.

[Operator]

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

[Hannes Leitner, analyst]

Maybe you can just double down on the sales pipeline in the U.S. It sounds like very encouraging and -- I hear Christian, traveling 3 times over there. That seems good. Is it also something to last? And maybe you can talk about the different customer cohorts within that group. And then the second thing is just like on those cloud or SaaS investments on operations. At post full year results, you were not able -- or at least you didn't want to quantify what kind of upside it is there. Just like thinking -- putting this in context also with the inflation environment a little bit preloading the Capital Markets Day in October, can you talk about, should we expect that growth accelerates from here? Will this be supportive? Or is this a measure just to keep trying to take the 10%-ish constant currency growth going forward?

[Christian Kromann, executive]

Yes. Good questions. So let's start with North America. I think we touched briefly on it last time, is that a couple of different steps, actually all them leading up to the 6th of October. But obviously, I will share what we know, all right. So I guess, I felt that especially after COVID also that I wanted to have a reevaluation of the size of the opportunity in North America. And, yes, I don't think about the pipeline as such, I think about what is the market opportunity if you take our current definitions of the market, which typically we -- a little bit depending on when you ask us, but somewhere between EUR 15 billion and EUR 20 billion under management is kind of where our market starts. So the team has done that quite diligently the last couple of months, and has actually come to the conclusion that the size of that addressable market has gone up a bit, which actually, to be honest, surprised me a bit. But reality is that there might be mergers and consolidation going on, but there's quite a few asset managers and investment managers that has gone from very small to now reaching that floor, that makes it interesting for us to speak to them. So there's no doubt in our mind, the North American market remains a very important part of our growth story. So that's kind of step number one. And we're obviously going to share data on that once it's fully qualified. As you would imagine, the next step is now how do we invest our money to maximize our probability of winning in that market. And that's basically what we are now working on as part of our normal strategy process. And that kind of breaks that market down to asset owners versus asset managers, what type of asset managers, bank treasuries and all the kind of those good sections. Plus the fact that you need to have a good understanding is this front-to-back story that sells, is it the servicing story that sells, and all of these things. And there are certainly some trends that indicate that it was a good decision to make -- to go down the services path. Now we need to build credibility around that services part so we can combine that with our software offering. And I think that's probably one of the bigger decisions we have to figure out, how do we amplify that also from a geographical point of view. But that's somewhat also why the MoU discussion is quite interesting, because that's actually one example of how you can amplify your reach and your credibility about your service by taking an additional -- an existing customer and take that -- take out that service. So I would say market is intact. There's RFP/RFI processes to the same level of pre-COVID. Now the real hard core decisions that we are working on is, how do we add additional capacity to the investments that makes us maximum competitive in that space. And that's really work going on now, so we can be a little bit more outspoken about what should you expect as a good result out of North America going forward. So we don't sit and talk about something that was said many, many years ago. So that was that one. Then the services transformation, as we spoke about. So we just -- we've come from -- and I think we talked about that journey a couple of times where you go from a -- kind of a standard install on-prem relationship, you add basically more licenses because they want to do more front to back, more multi-asset, [ you see ], what have you. Then you add the Software-as-a-Service element, and then you potentially add some business process as a service, but data management on top. That journey, we kind of done 3, 4, 5 times now with customers that has committed, and that's where I think the last time we said that it's not uncommon to see a triple of the run rate, potentially even quadruple, based on what you get. So we kind of feel we have a value proposition in that space. Then the question is how do you scale that? Because, as I think we also said, we have around 250 customers that are still on-prem. And if we take them one by one, then I will be, I don't know, 150 years old before we've done and I don't expect to work that long. So somehow, there's a scalability discussion inside that we needed to be clear. But it fuels our growth massively, but it comes with the costs. And I think that's the other big discussion, how do we make that scalable and profitable? And I think all of you have said, now you need to explain how you intend to do that, and that's also what we are working on. We actually just earlier today announced to the wider organization that we are basically doubling down on the SaaS transformation and in what ways we're doing it. So the opportunity is there, not to sound arrogant, but it's almost how quickly can we grab that opportunity and still deliver quality. I think that's for me the essence of it, because if we go too far and start to onboard stuff and people get a bad experience, then it goes very quickly the other way. So I think that's the way you have to see it. For every quarter it goes on. I'm pretty certain that there will be some new strategic transformations -- transformational deals that would start to give you more data to feel how this is looking.

[Hannes Leitner, analyst]

Maybe just to follow up on both topics in terms of headcount. Do you see that you have been replacing or hiring in the U.S. the right salespeople? And then also, in terms of the SaaS opportunity, does this demand a new breed of employees and engineers?

[Christian Kromann, executive]

I would say, I hope we hired the right salespeople. In North America, we've recently been through a restructuring and we got some good existing talent mixed up with some good external talent. Now they have a pipeline in front of them, and now they need to show that they are the right people. And what was the other question, Hannes? What was the other question, Hannes?

[Hannes Leitner, analyst]

Just in terms of the SaaS capabilities, do you need to hire the new people or is that you can transform existing employees?

[Christian Kromann, executive]

No, but – yes -- and that's a very, very good question, right, because that is really down to the bottom of the foundation of what we are doing. We need a lot of good people that really understand SimCorp, and we're lucky to have a lot of good colleagues there. But it's also clear, we have -- we need to have substantial amount of new talent to kind of get -- because it's kind of a 2-way street. How do you build that capacity in a credible way, and how do you make it profitable. So it's both a growth and a cost of optimization task. And it's not super straightforward, but we are hiring some good people at the moment.

[Operator]

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

[Poul Jessen, analyst]

I have 2 questions. One question is about the full year and the guidance. And of course, you talk about an improved pipeline, and especially in North America. My question is more, given the macroeconomic uncertainty, you see when you look out the window and fill-in cycle, which typically is quite long. Do you see a higher-than-normal risk on delivering on the full year? Or is it just a normal business as you see it?

[Christian Kromann, executive]

No. I think there's 2 ways to look at that. So the first one, and I think I've also said that a few times the last quarters, is that, SimCorp is now in a situation where it's not kind of black and white, whether we win the right ILF deals anymore. But it's still important to win ILF deals from a competitive point of view and fuel the engine. But from a financial results point of view, we have a lot of handles, if you will, also in the existing customers, to do that. And I think that's from a risk point of view, especially given that the -- I don't know what the right word is, the volatility across multiple sectors is also driving our existing customers to do these transformations, actually makes us quite feel okay about that. But it's -- we want to win in America, and we said that for years, right. So that's also why I say, now the deals are there. Will they, in fact, make the decisions, now that some of their fees are under pressure given that the valuation of their portfolio is down, and can we win? And both have to point -- it's not fun to win at a process where they then don't make the decision in the end, which unfortunately we've seen a few times. So it's a good question, Poul.

[Poul Jessen, analyst]

And then a more structured one. You have now been published these ARR numbers, so phenomenal quarters, so that we can do 1.5 years, I think, on year-on-year growth. And I know that you are more backward looking than others. But if we compare it to at least the 4 peers who also publish ARRs, you consistently over those 6 quarters have grown at the lowest rate in the market and your numbers include conversions. What's your take on any potential structural issues? Why you are behind on the growth rates?

[Christian Kromann, executive]

Just from a technical point of view, ARR is not -- you don't get any ARR effect from conversions. So just to make that clear, that has no impact on ARR if you do a conversion. But you are right. We do see some of our peers. They have been growing quite fast. I think for some of them, they are in other segments than we are. And then you can, of course, argue are you in the wrong segment, but that's the segment we are in. So -- and then I think for some of them, they are also growing with our profit. So that's, of course, a strategy as well we would like to grow with profit. That's, I think, because we are, in many ways, a more mature organization than some of the peers. And then I will say -- finally say that our peers, they are growing more than us. It shows that there is a potential for us and there is a market for us as well.

[Operator]

[Operator Instructions] Your next question comes from the line of [indiscernible] from Goldman Sachs.

[Unknown Analyst]

A couple of questions for me. So first one mostly on cash flow. So you flagged sort of delayed invoicing and payments. So how should we think about the working capital for the rest of the quarters and this full year? Do you expect some sort of reversal in Q2? Or this is something that you're observing that will carry on? And then second one on the memorandum of understanding that you've signed. Will the sort of combined entity have some sort of preferential pricing for licenses and sort of SaaS solutions from SimCorp? And is it going to come at the group level gross margin? Or is there sort of some better pricing that you will offer to that combined entity?

[Michael Rosenvold, executive]

So I can start with the free cash flow. I think for the last 3 years, at least, we have had an improvement in our working capital. So you can say we have really optimized our working capital for quite a long period. And of course, there is a limit to how much you can do. You can do -- you cannot do it forever, improving every year. So I think the level we had last year is close to what we believe is optimal from a cash flow -- from a working capital perspective. Then you can say the timing between Q4 and Q1, that will be permanent. So that will not regain for the receivable part, there, we believe, to regain some of it during the year. So if you look at the receivable, that should be better during the year, and for the tax-related part, which will be either on the tax line or accruals, that would be something we cannot regain. Then for this Memorandum of Understanding, it's on normal pricing terms. There's no special discounts or anything like that. So -- and that was actually -- that is quite important for us because we do also have other clients in this field. So it has to be -- on a market control way we are dealing with this. So -- and that's also the case in -- for this deal. It's a market pricing and no special discounts.

[Christian Kromann, executive]

It's the knowledge and the experience of the client that is going to make this competitive.

[Operator]

There are currently no further phone questions. I will hand the call back to you.

[Michael Rosenvold, executive]

Great. I think we actually have 2 questions here on the webcast. The first one is from [ Moran ]. Basically says, if I understood correctly, markets needs are moving more and more towards customized solutions. If this is right, how do you explain this trend? What is the reason for that?

[Christian Kromann, executive]

Yes. But then I certainly need to improve my communicative skills because that's pretty much the opposite of what I was trying to say. So good that you asked. So I think for us, it's more a matter of the fact that our -- the clients that we serve, they want to focus on their core part of their business. Then they basically want to outsource or our task, if you will, the non-core part of the business. And here is where we step in because utilizing our own technology, we can automate that and standardize it. And -- but it's -- in the whole environment, it's an assumption that through our knowledge, we can actually standardize it. So it's pretty much the opposite actually. Right.

[Michael Rosenvold, executive]

And then the second question is from [ Hansen ], who says. Firstly, thank you for the detailed info about the key office. It seems like you're handling the crisis very well until now. So thank you for that. Where are the people doing the investment accounting services placed?

[Christian Kromann, executive]

So the way it basically works is that the investment accounting services ultimately subscribing to the SaaS services from SimCorp. So the SaaS service is delivered through a global organization now, close to being one of the biggest ones inside SimCorp actually. So that's everywhere, and it's global and it's 24/7 because it has to be. Then the additional layer on top, ultimately to deliver the investment accounting services is people with accounting and business knowledge. And then we basically hire them where they are. Quite a big part of them sit in London and the U.S., and we're also now building up a commercial organization that is global. So it's that mix that makes it quite powerful.

[Georg Hetrodt, executive]

But also the -- as the BPaaS, people -- the people who deliver the platform, the daily services, they're not in Ukraine. They're all outside of Ukraine.

[Christian Kromann, executive]

Yes, that's a good point at all. So that's Georg Hetrodt, our COO that commented that we are -- we have no business operations interruptions from our Ukraine location at all. Okay. So I think that was all -- great questions as always. Good to talk to you. And hopefully, you now put a big cross in October 6, but we also obviously see you and talk to you before that in August. So take care, everybody.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.