Brockhaus Technologies AG

Good afternoon ladies and gentlemen and welcome to the Brockhaus Technologies investor update call regarding the quarterly statement Q1 2022. At this time you are on a listen-only mode. The floor will be open for your questions following the presentation. Now I hand over to Marco Brockhaus.

Yeah, thank you very much and good afternoon everyone. Welcome to Brockhaus Technologies earnings call for the first quarter of 2022. Before we begin, I would like to point out that the slides we are presenting will afterwards be published in the Investors Relations section of our website, brockhaus-technologies.com. After our presentation, we will be open the call to questions from your side. To be fair to everyone, please limit yourself to one question plus one follow-up. Thank you very much in advance. Before we present our results, I encourage all listeners to review the legal notice on page two of our presentation, which explains the understanding of forward-looking statements. Additionally, please refer to note seven of our annual report 2021 on page 86 for discussion on alternative performance measures, as well as reconciliations of non-GAAP figures, especially revenue before PPA and adjusted EBITDA. Please note that our EBITDA adjustments comprise only share-based compensation, cost of the acquisition of subsidiaries, cost of equity transactions, as well as accounting effects from purchase price allocations. For information on risk factors that could cause actual results to differ materially from forward-looking statements, we kindly refer you to the section on risk and opportunities in the Management Report 2021, page 56. Flipping over to page three and into the usual summary, after successfully expanding of our technology group end of last year by two additional subsidiaries, namely Bike Leasing and KVM Tech, the first full quarter after their consolidation was an absolute record quarter for Brockhaus Technologies with respect to all KPIs. The significant growth of our quarterly figures compared to the previous year's figures was also the reason for our ad hoc announcement last Friday afternoon. The regulatory need to do so is based on the market abuse regulation, MAR, and the German issuer guidelines, even if the development is in line with a company's annual guidance, as in our case. Broca's technologies generated 28.8 million Euro in Q1 of revenue and represents growth of 166% compared to Q1 2021. Adjusted EBITDA grew over proportionately by 844% to 7.6 million Euro. This corresponds to a continued high adjusted EBITDA margin of 26.3%. and a margin expansion by 18.9 percentage points. A deep dive into the individual segments will follow over the next slides. On the back of the record numbers achieved in Q1 2022, we hereby confirm the full year guidance with revenue between 140 to 150 million euro and a continued high adjusted EBITDA margin of 35%. We are also happy to announce that the integration of bike leasing was successfully concluded within the first quarter of this year and the Q1 performance was within our expectations, hence the confirmed guidance. With respect to M&A activity, our multi-channel deal sourcing approach is resulting in a continuously filled deal pipeline and we are currently in the early stages of analyzing three potentially interesting businesses that might fit into the focus of Brockhaus Technologies. With this brief summary and introduction, turning over to the next page and handing over to our Head of Finance, Harald.

Thank you very much, Marco, and welcome from my side to everyone. Let's jump right into the quarterly top line analysis on page four of the presentation, starting at the top with Weiklesing, indicated here in the light green bar. So revenue before PPA was 17.5 million euros. in Q1 of this year. The last year figure of Q1 2021 is not available, unfortunately, since bike leasing only generated financial information according to German GAAP until when we obtained control over the business in the acquisition end of November last year. But of course, we will give you a picture on the underlying growth of operating KPIs on the next page. Proceeding to IHSE in the middle of the page, so the orange bar, here we are happy to report that revenue continued picking up with the revocation of many COVID-19 related travel restrictions, social distancing, and so on. The increasing customer demand, especially in the Western Hemisphere, resulted in a revenue increase of 20% to 7.2 million euros. Revenue of Pallas in the bottom chart was down 15% on the very strong last year Q1. Back then, top line was boosted by sales of test rigs for face masks. But also on that, we have some more background for you over the next slides. Clipping to page five. So before we obtained control over bike leasing, in the acquisition end of last November. Beikleasing was a typical private mid-cap company. As you might be aware, both monthly accounting and IFRS books, in addition to the already mandatory German GAP books, can not reasonably be expected in such a situation. This makes it sometimes challenging to generate all historical comparables from before the acquisition. As mentioned before, we drew up the essential operating KPIs of bike leasing and hope this still gives you a feeling for the very, very strong growth momentum of the business that we see. In terms of customer base, bike leasing increased the number of corporate customers connected to its platform to a total of 34.5 thousand. 2.6 thousand of those corporate customers were onboarded in this year's Q1. So that corresponds to an increase of customer base by some 8% in only three months. Those corporate customers with access to Bike Leasing's digital platform employ a total of 1.8 million people. On that basis, bike leasing facilitated the leasing of 20,000 new bikes in Q1 of this year. For comparison, that is 65% more than in the first three months of last year. As we mentioned in our call earlier, and can also be taken from our public reports, bike leasing's new business volume is subject to significant seasonality. where most sales are generated in the warm second and third quarters, with temperatures and weather conditions in Q1 and Q4 apparently seem to be less appealing for people to think of a new bike. In order to put that seasonality into numbers, we have plotted on the right-hand side of this page the number of new bike leases facilitated by the company in the last two years, so 2020 and 2021. Highlighted at the bottom of the bar, so this dark blue section, you can see the fraction that each respective Q1 accounted for. Looking at the last two years, only some 14% and 15% respectively of new bikes were facilitated in Q1. This might give you a feeling for the further potential development. On the next page, we conducted a somewhat longer-term analysis of Q1 revenue for PALAS. Starting in 2017, the business has shown continuous strong growth fueled by their superior certified measuring technology for fine dust. Beginning of March 2020, the market encountered substantial delays, especially in public procurement projects, when the first COVID lockdowns emerged back then. Shortly after that, Pallas came to market with its test rigs for face masks. The revenue of those still substantially affected Topline in the first quarter of 2021. So revenue now in Q1 2022 came down a bit lower than that, but when looking at the long-term development and bearing in mind the COVID distortions explained, I think we are looking at a solid high growth development. Flipping to page seven for the regional split. As you might know until now, BiPleasing has been focusing on Germany only with first steps of expansion into Austria having been made. So all revenue here apparently relates to EMEA region. IHSE in the chart below saw a very positive market development in EMEA, where revenue increased by 19% to 4.1 million euros. The most significant pickup of demand was reported for the Americas, where COVID did hit hard during the last two years, and sales grew by 75.6% to 1.9 million euros, showing that the market is opening up further. APEC was the only challenging region where new lockdowns, of course, hampered business, with revenue decreasing from 1.5 to 1.2 million euros. The effects described on the page before had the most significant impact on the EMEA region, and that is simply because most mask test rig business in 2021 was in EMEA. Americas saw strong growth of more than 50%, however, still on a yeah, relatively low absolute level of some 600,000 euros. Turning to the segment table, I think we covered revenue conclusively on the last slide, so let's go straight to profitability. Bike leasing had a gross profit margin before PPA of 52.5% and an adjusted EBITDA margin of 33.6%. Both values are clearly lower than the full year numbers, which we disclosed for the past years. Bearing in mind, however, the seasonality pattern that we elaborated on earlier, I think this should not come as a surprise. In addition, the major part of new business in Q1 2022 was financed through securitization in the form of a green bond. This structure allows bike leasing to refinance much cheaper, quicker, and more flexible, and therefore that promotes the company's strong growth. With unchanged cash inflows at point of selling the securitized lease receivable, this source of financing does however not meet the requirements for derecognition from the balance sheet of those securitized lease receivables. which therefore remain on our balance sheet. Income from those leases is therefore recognized over their term, which is generally 36 months. Even though this process is identical from a liquidity point of view, in the accounting perspective, this is in contrast to a forfeiting transaction with a derecognition of the release receivable. which involves the realization of nearly all income from the corresponding lease at the time of the respective forfeiting, so in T0. Therefore, in the current period, lower income is realized in favor of higher income in the future. At IGSE, growth profit margin was 78.8% and that's substantially above last year's 64.7%. In the prior years, quarter one, there were several unfavorable shifts in the product and customer mix. In addition to currency related effects, those all worked against us last year. And apparently, these effects did not reoccur this year, so that the margin developed very nicely. At 28.7%, the adjusted EBTA margin was also significantly up compared to 2021 as well. This was primarily due to the increasing growth profit margin, of course, and the substantially higher top line level. A Pallas growth profit margin of 78.1% turned out somewhat lower. This is primarily a result of a lower change in finished goods and work in progress, as well as a lower number in own work capitalized compared to last year. With 23%, the adjusted EBITDA margin was also lower in addition to the reduced growth profit margin as just explained. This was mainly due to the interaction between lower top line and the existing fixed costs. Lastly, in the central functions, costs were somewhat lower, which was essentially due to decreased expenses for external due diligence provider, which saw a bit less activity in Q1 of this year. In conclusion and summing up on the consolidated group level, pro forma revenue before PPA was 28.8 million euros, up 166% compared to last year. Gross profit margin was 63% and adjusted EBITDA margin 26, bringing up the group to an adjusted EBITDA of 7.8 million euros. As per end of March, the group had a cash and cash equivalents of 26 million euros. And this concludes the financial update. I'm handing over to Paul, our head of the acquisition team, and I'm happy to answer your questions later on.

Thank you, Harald. So after that comprehensive financial overview, let me now give you a brief update on our current M&A activities. Again, as a brief reminder up front, we generally source transaction opportunities from three different channels, namely A, the active screening of trade fairs, shows and corporate events and proactive approach of companies by our M&A professionals. B, our industry network, which builds on over 20 years in the German technology space. And C, our M&A advisor network. We are currently in the early stages of analyzing three potentially interesting companies that seem to fulfill our strike acquisition criteria. A digital platform business with around 40% EBITDA margin, which, by the way, we already showed in the last update call around about two weeks ago, an environmental technology business with around 40% EBITDA margin, and a coating technology business with about 25% EBITDA margin. While the first and the third transactions are being marketed as part of the structured M&A process, the second business from the environmental technology space was sourced by the team at an industry trade show earlier this year, where we are therefore in bilateral discussions now. While our deal flow continues to be strong and we stick to our envisaged run rate of one or two transactions per year on average, you can be ensured that we will remain as strict as before when it comes to identifying the right acquisitions for Brockhoff Technologies. To underline this, you might have realized that two out of three potential acquisition targets that we showed in our last earnings call two weeks ago have already vanished again from that overview. This is because we identified topics during the diligence that do not fit our strict set of criteria and led us to declining on the transactions. So you see that this regular update we are providing here is subject to fluctuation and only a snapshot of the current topics the team is analyzing out of the broad funnel. We do not feel any pressure to do acquisitions, as you know, but we'll only pull the trigger when we are 100% convinced by business, its technology and management team, like in the case of bike leasing or KVM tech last year. And with this, I'm handing back over to Marco for our outlook.

Thank you, Paul. Flipping over to the next page. As we announced in our annual report two weeks ago, we expect to generate revenues of between 140 to 150 million euro in fiscal year 2022 and corresponding to a growth corridor of between 11 and 19 percent compared to the pro forma revenue of 2021 of 127 million euros. Adjusted EBITDA margin is expected at 35%, corresponding to an adjusted EBITDA range of between 49 million euros at the lower end of our guidance and 53 million euros at the upper end. Please note that even though we do expect to complete one or several acquisitions in 2022, this forecast assumes that there will be no change in the scope of consolidation within Brockhaus Technologies. The reason for this approach is the difficulty in predicting the nature and scope of future acquisitions. We do not believe that any estimates in this respect are sufficiently reliable. As already mentioned in my summary at the beginning of this presentation, Q1 2022 was within our expectations, and we hereby confirm the full year forecast for fiscal year 2022. That concludes our presentation, and we are now happy to answer your questions. For that, I would like to hand over to the operator again. Thank you.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. If you wish to withdraw your question, please press 9 and star again.

please press nine and star to register for a question.

And first question comes from Lukas Spang from Tigris Capital. Over to you.

Lukas Spang Yes, thanks. Good afternoon all together. My question would be on the financial structure of the bike leasing you mentioned in the presentation and also in the report and you said that you have a higher earnings contribution in the mid term or at the end of the contract so how do you see this in terms of short time profitability at bike leasing and compared to this can you give us an indication or a rough percentage how much of your contracts you financed via the Green Bond in Q1.

Thanks. Hi, this is Harald. I would like to answer the second part of the question first, because I did not quite get the first part, but I will just refer to that. And for Q1 2022, really essentially all of the new business, so essentially all of the new business was financed by the Green Bond. So it was a really great high fraction.

The first part of the question was if you see for bike leasing in the short term some pressure on the profitability due to this structure of financing.

Yeah. So no, actually we do not. It is always a mix. So what you do in what quarter. So actually when... When looking at that, it was a financing structure that you can see as, I think it's called securitized liabilities, also in our notes to the financials 2021. And so that is, I would not say a one-off, but that fraction is full. So that securitized liability has come to an end, and we are now more underway conventional forfeiting and that conventional forfeiting is the It's not better in margin, but it's more margin upfront so more More results in t0 when you generate and refinance the lease correct, maybe just that from my side it's Paul here and as you know less technical on that side and

But the end of what Harald said is very important. I mean, the cash inflow we get is in option A doing a forfeiting and option B the same. So really unchanged. Also, the process itself is very comparable. But just under IFRS, it differentiates between the one being fully revenue in T0 and the other one being deferred over 36 months. So, of course, the later, the securitization part that is deferred over 36 months, initially leads to a lower margin, even though the cash flow is unchanged. But of course, you earn that margin over the next month then. So it's, so to say, recurring revenue. But also very importantly, there was a point for Q1 now. So this securitization, this green bond with a large German insurance is now full. And since already, let's say, the last days of Q1, we are back to the traditional refinancing types like forfeiting. OK.

Can I ask a second question or should I go back in the queue? Sure, go ahead. My second question would be on the Palast business. You mentioned the decline in revenues for test benches. Can you give us an idea or indication how much was the decline in this business area?

um very significant decline i mean that's what we've already said i think in our last two reports or so that the business with the mask testing rigs and there was of course covet 19 fueled has reduced to a much more lower level it will always remain a new product line of palace right so this is clearly the case and it's now also being applied for general protection maps so not only a covet face mask but it's on a significantly lower level. And you get a feeling for that also if you look not in our Q1 report, but in our full year report into the product split of Pallas. What you see there is that the revenue achieved with a fine dust monitor so the conventional and business of um palace has picked up quite significantly last year already with the revenue coming from a filter test rigs reducing and um to to answer it qualitatively you can be sure that from the q1 2021 a very significant part of revenue was filter test rigs for face masks and that in this q1 a very small fraction is resulting from face mask test rigs. Okay.

So if we saw a 20, let's say 23% decline in 2021, was this higher in the first quarter, 22, the reduction?

The reduction of revenue from face masks, you mean? Yeah. Yeah, that was higher than 23%.

That's from my side. Thank you.

The next questioner is Stefan Augustin from Warburg Research. The floor is yours.

Yes, hello. Actually, I would start with a follow-up on Mr. Spang's question on bike leasing. So, what I understood so far is when we return to more normal refinancing, that will obviously have a positive impact on the EBITDA margin as we recognize all the profits in the first period. And the second technicality here is, is it On the other side, we don't see, let's say, all the sales of the total contract in that one period. But we only see, let's say, the booking of the profit. So the revenue booking of the four-fated lease is exactly the same as in the EBITDA, but we should not have the idea that then, let's say, suddenly you book the total expected lease payments over the next 36 months in that respective quarter. Is that right?

Yeah, correct. So when we talk about the two options, so forfeiting against securitization, when we are in the forfeiting option and we sell off the receivables and get cash inflow in T0 and have all the return in T0, the return in our case is the net return, so to say. So the The additional return you generate from selling of the receivables. So you have a, let's say, selling price and a value in which this receivable is in your balance sheet. And the delta between the two is your revenue. So it's a net representation, so to say.

Okay, great. So that would be the first one. The second question I would have, if I may, is actually on the working capital development of all the three businesses. So at Pala, the working capital remains quite high. And my question here would be, is this still due to, let's say, some products on the way to China? The second would be in IHSE, I would say the working capital increase is due to the backlog and the higher project pipeline that is worked on. And then would be the last question. Could you elaborate a little bit on the working capital increase of bike leasing? What's behind that one?

Yeah, certainly. So the reasons that you pointed out for Parlesant, IHSE are part of the story. The other part, of course, is that compared to, let's say, the years before, high working capital level overall is, of course, because the companies, as maybe everyone else out in the market, are keeping up with their warehouses in order to stay ready to deliver. So that is the essential reason for the increased level. And for bike leasing, it is essentially the flip side of the seasonality. So when we start into the year 1st of January, everything at bike leasing is at comparably low levels. So there is not a great backlog of bikes between the lease has started and the refinancing has not been paid out yet. And there is not a lot of, let's say, receivables from used bikes being sold and stuff like that. And when Q1 ends, so let's say in the last days of March, the business ramps up. So then the people start getting out and buying their bikes and, yeah. generating so to say or ramping up working capital for the company and that really has an effect of course i mean you see it in the cash flow statement but that is something that uh usually levels out during the summer and then comes back down uh when you approach winter so that is that is really the seasonality okay thank you very much and uh i'm uh

We really think that the additional KPIs for tracking the operational performance of bike leads are helpful. So thank you very much for that. Very welcome.

At the moment, there are no further questions. So for any additional questions, please press 9 and the star key.

please press 9 and star if you have any additional questions. There are no further questions.

All right. There appear no more further questions. Thank you all very much for attending today's earnings call of Brockhaus Technologies. I would like to use this stage and moment to thank our 447 employees within the group for their outstanding work and performance. And goodbye and have a great day. Thank you very much.