Ailleron Q3 2023 – revenue growth supported by FinTech and Technology Services

• The Ailleron Group generated PLN 340.6 million in consolidated revenues after three quarters of 2023 (up 17% year-on-year), including some PLN 251.6 million (74%) in revenue from exports (up nearly 14% year-on-year).
• In the third quarter of this year alone, the Group maintained its high level of revenue compared to the same period in 2022 and reported PLN 114.4 million.
• The FinTech segment, excluding revenue from the Pekao contract, proliferated in the first three quarters, from PLN 40.1 million in 2022 to PLN 49.6 million in 2023 (+24%), and in Q3 2023 alone, growth accelerated to 32% (from PLN 15.1 to 19.9 million).
• The Technology Services segment (Software Mind Group), despite the difficult environment, maintained growth and generated revenues of PLN 289.2 million (up 19% year-on-year).
• The level of revenues expressed in PLN in the third quarter (as well as in the entire period of the first three quarters) was significantly affected by the strengthening of the PLN against foreign currencies.
• After three quarters of this year, normalized EBITDA amounted to nearly PLN 51.5 million (a 22% year-on-year increase).
• Ailleron Group’s net profit (excluding one-time events) amounted to PLN 24.5 million, compared to PLN 28.5 million in the same period of 2022 (down 14% year-on-year), the decrease in net profit is mainly due to higher financial costs incurred in servicing the external financing that Software Mind took out to finance M&A projects (year-on-year increase in the EURIBOR reference rate) and the impact of balance sheet valuation of balances denominated in foreign currencies due to the near peak this year in USD and EUR exchange rates as of the balance sheet date.
• One-time charges and provisions significantly burdened the Group’s results due to the declaration of termination of the agreement with Bank Pekao SA.

–The third quarter was challenging, but we generated solid financial results despite the difficult market environment – a slowdown in the IT industry and a strong zloty exchange rate. Our effectiveness is evidenced by the increasingly strong position of our two key segments: Technology Services and FinTech. Each of these areas responds to customers’ current needs, which allowed us to achieve predictable revenues – after three quarters of this year we generated nearly PLN 340.6 million in consolidated revenues. Technology Services revenue in the third quarter (PLN 94.1 million) calculated in PLN is comparable y/y, despite the perceived pressure on operating margins by the strong zloty exchange rate and the market situation – says Tomasz Król, Board Member and CFO of Ailleron SA. – The FinTech segment, on the other hand, excluding revenue from the Pekao contract, grew dynamically in the first three quarters from PLN 40.1 million in 2022 to PLN 49.6 million in 2023 (+24%), and in Q3 2023 alone the growth accelerated to 32% (from PLN 15.1 to 19.9 million). The achieved financial results certify that the economic and financial situation of the Ailleron Group is stable and the business is profitable. Export sales continue to dominate with increasingly higher sales dynamics – adds Tomasz Król.

Revenues achieved in Q3 2023 were the result of strong organic growth, as well as the consolidation of companies acquired in M&A processes. In the period under review, the Group benefited from long-term partnerships and agreements, thus avoiding the risks associated with short-term contracts and the occurrence of the so-called bench. The Group’s results were also influenced by products using solutions in the cloud model based on artificial intelligence, machine learning, or data science. The Ailleron Group’s net profit (excluding non-recurring events) amounted to PLN 24.5 million, compared to PLN 28.5 million in the same period of 2022 (down 14% year-on-year). The decrease in net profit is mainly due to higher financial costs incurred in servicing the external financing that Software Mind took out to finance M&A projects (y/y increase in the EURIBOR reference rate) and the impact of balance sheet valuation of balances denominated in foreign currencies due to the near peak this year in USD and EUR exchange rates as of the balance sheet date.

–It should be noted that the currency situation over the past few months has been extraordinarily uncertain and has challenged the Group’s performance. Almost every Polish business, whose revenues are primarily from exports, has faced similar events. Not insignificant is the fact that the Group has a foreign currency loan, the quarterly valuation of which, at near peak levels of the EUR exchange rate at the end of September, had a negative impact on the Group’s achieved net result. The financial and liquidity situation of the Ailleron Group is stable. Most customers pay their receivables on time, so we have no payment backlogs or liquidity problems. We also paid out a record dividend of over PLN 12.3 million this year – says Tomasz Król, Board Member and CFO of Ailleron SA.

The reported operating loss of the FinTech segment after three quarters of 2023 was PLN 4.9 million. Due to the termination of the contract with Bank Pekao S.A., there was a revenue and asset adjustment of nearly PLN 3 million, including trade receivables and contract assets. The operating result for the first nine months of 2023 was still burdened by project costs (including team costs) under Corporate Banking for Bank Pekao S.A. (PLN 5.9 million). In addition, as part of the third quarter, Ailleron made an allowance for doubtful debts, which directly charged to the FinTech segment result. Eliminating from the results the negative impact of the executed contract in the Corporate part in the form of project costs (PLN 5.9 million) and the allowance for doubtful debts (PLN 0.9 million), the achieved result at the FinTech segment level would be better by PLN 6.7 million and would reach a positive level of about PLN 1.8 million.

–The third quarter results show that the FinTech segment development strategy yields good results. We have decided to develop products and create solutions tailored to our customers and visible trends in the market – hyperpersonalization, automation, and multi-channel communication with the customer. We are implementing the first projects using commercially generative AI. We are not afraid to say that we are the first choice for the banking sector in high-tech solutions – says Piotr Piątosa, Vice President and COO of Ailleron SA. – In the FinTech segment, the level of realized revenue in the analyzed period was at a higher level than in the 2022 period, amounting to PLN 49.6 million, an increase of 13%. The Financial Technology Services that Ailleron offers, with the use of state-of-the-art systems like LiveBank and the application of low-code tools and AI and ML components, including GenAI, are in line with the industry’s future – adds Piotr Piatosa.

The Software Mind Group’s Technology Services segment, which operates as part of the Group, generated sales of around PLN 289.2 million after the third quarter of this year despite the challenging market environment. It is a 19% growth compared to the same period in 2022 (PLN 242.4 million). The effect of the consolidation of acquisitions that Software Mind made is not included in the results until March 2022. Operating profit after the three quarters of 2023 amounted to PLN 39.9 million, compared to nearly PLN 37 million in the same period last year. The third quarter itself was slightly weaker in margin due to the absence of at least the settlement of long-term contracts in the Amplitiv segment (which includes telecommunications customers), which took place in Q2 2023. The Technology Services segment is performing steadily and generating significant cash – at the end of the third quarter, it was about PLN 103 million (net cash of about PLN 28.3 million).

-We are on the threshold of a technological breakthrough that will revolutionize every branch of the economy. With the Group’s current structure, we are benefiting from both the growing needs of digitization and digitalization, as well as the decreasing cost of technology development – which involves the use of AI and proprietary technology solutions. There is no denying that companies like ours will drive the future – adds Piotr Piątosa, Vice President and COO of Ailleron SA.

You can see the video from Ailleron’s results conference here (in polish language).

We also encourage you to read the quarterly report.

Nearly 75% of the Group’s revenue comes from foreign markets. In Q3 2023, export sales amounted to more than PLN 251.6 million, achieving a year-on-year dynamic of nearly 14%. The Ailleron Group provides services to more than 200 clients in 40 countries and employs more than 1,500 specialists in Europe, the United States and South America.

Ailleron SA is a capital group listed on the Warsaw Stock Exchange. Its subsidiary Software Mind provides software development services for innovative companies from Western Europe and the United States (including from Silicon Valley) and – under the Amplitiv brand – for the telecommunications industry. Software Mind is developed jointly with Enterprise Investors – one of the largest private equity funds in Central and Eastern Europe. Ailleron focuses on comprehensive software development services for banks, leasing companies, fintechs and other financial industries, mainly in Europe and Southeast Asia. It creates innovative IT solutions based on cloud technology and artificial intelligence. Ailleron’s clients include banks such as Santander, CitiBank, BNP Paribas and Standard Chartered.