Brockhaus Technologies AG

Ladies and gentlemen, and welcome to the Brockhaus Technologies update call regarding the first nine-month results in 2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Marco Brockhaus.

Yeah, thank you very much, and good afternoon, everyone. Welcome to our earnings call for the first nine months. of 2022. Before we begin, I would like to point out that the slides we are presenting will afterwards be published, as usual, in the investor relations section of our website, rockhouseminustechnologies.com. After our presentation, we will be open 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-GAP figures. Especially revenue before PPR, purchase price allocation, adjusted EBITDA, and adjusted EBIT. Please note that our EBITDA and EBIT adjustments only comprise 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. With that, flipping to page three and into our usual summary. After a record first half of the year, we are very proud to say that Q3 continued this momentum, resulting in new record levels with respect to all key performance indicators in the first nine months of 2022. We generated revenue before PPA of 125.8 million Euro in the first nine months of 2022, which represents growth of 268% compared to the first nine months of 2021. adjusted EBITDA grew overproportionately by 835% to 47.6 million euro. This corresponds to a continued high adjusted EBITDA margin of 37.9% and a margin expansion by 23 percentage points compared to the previous year. At the same time, adjusted EBIT increased by 1,115% to €44.5 million and free cash flow pre-tax also grew by over tenfold to €27 million compared to €2 million last year. Before adjustments, preliminary revenue was €123.2 million with EBITDA of €44.5 million and EBIT of €29.8 million. There you see EBIT is affected especially by purchase price amortization. A deep dive into the individual business segments will follow over the next slides. On the back of the strong operational development and continued profitable growth across all business segments, Within the first nine months, we announced last week that we expect to exceed the previous four-year forecast. We now expect revenue before PPR, purchase price allocations, of between 150 to 155 million euros versus the previous forecast of 140 to 150 million euros for fiscal year 2020. This corresponds to growth of between 19% to 23% as compared to the pro forma revenue of 2021. The previous forecast growth was expected to be between 11% and 19%. With regards to the adjusted EBITDA margin, we confirm the current forecast of 35%. In addition, we are looking at an unchanged strong balance sheet quality of Brockhaus Technologies, with cash and cash equivalents of €22.9 million as of end of September, despite bike-using having made several early voluntary repayments on one of the acquisition loans in the total amount of around €21 million this year. This was only possible to the strong organic cash flow of that company. In view of the very challenging market environment, including the continued pandemic measures, especially in China and lockdowns, war in Ukraine, the energy crisis and inflation and rising interest rates, our operating development clearly shows the high resilience of our business model. Even though the share price development in this current environment does not reflect the outstanding operational development, we are proud of and convinced by the value of our technology group, which is also observable in the analyst estimates. Ladies and gentlemen, with this brief summary, turning over to the next page and handing over to my colleague Harald, who heads our finance team.

Thank you very much, Marco, and welcome everyone from my side too. Let us jump right into the quarterly revenue analysis, starting at the top with bike leasing indicated by the light green bars. And here we see a further very strong Q3 with a revenue of 35 million euros, which is essentially in line with second quarter. There is one significant difference between the top line mix, however, that I would like to share some detail on. In Q3, the number of bike contracts facilitated through the bike using platform was 38 million euros. and therefore a bit lower than in Q2, which was 41,000. Still, Q3 had slightly more revenue, which is due to the sale of leasing assets returning after lease ends, as well as sale of some legacy non-bike business of our leasing subsidiary. As you might recall, Hofmann Leasing, so the leasing entity Hofmann, was only acquired by Bike Leasing shortly before we acquired Bike Leasing themselves and Hofmann Leasing has some legacy business that does not relate to bikes but to other leasing assets. Such revenue from the disposal of leasing assets is by nature low margin and that is why Bike Leasing's EBITDA margin was a bit lower in Q3 as compared to Q2. but all the details on that you can find in our 9M report on page five. Still, the chart shows meaningfully the seasonality that you would expect from numbers of bikes distributed during warm months versus cold months of the year. Proceeding to IHSE, As you can see, the company continued to outperform every last year's respective quarters and also shows increasing top line during the current year throughout. This adds up to a year-to-date growth of almost 20%. Most pleased, I think, we are with the recent performance of Pallas, though. As you might recall, we are facing really tough comparables here with substantial sales from COVID mask test rigs in last year. In Q3, however, Pallas saw such high volumes from the conventional fine dust products that the COVID product decline was completely compensated in the year-to-date view. In 9M 2022, the company therefore is back to a slight growth at some plus 1.2%.

Listen to the next page with the revenue by region.

As you might know so far, so as per today, ByteSeizing has been focusing on Germany only. The first steps of expansion into Austria And therefore, all revenue here relates to the EMEA region. Proceeding to ISSE in the middle of the page, EMEA revenue saw some growth to 12.4 million euros. The great news, however, is the strong rebound in the US, where after COVID effects last year, the top line jumped by 80% to more than 8 million euros in revenues. In contrast to that, APEC is still hampered by pandemic countermeasures, especially in China. At Pallas on the bottom chart, we see a very nice development of international revenue. So America grew by 32% and APEC by almost 70%. The decrease in the EMEA region essentially reflects the missing COVID-19 product business. which mostly related to the company's whole market in the last year. Turning to the segment P&L table, revenue, I think, was presented comprehensively on the previous slide, so therefore let's focus on profitability here. Byte Leasing had a growth profit margin of 64%, an adjusted EBITDA margin of 48%, and an adjusted EBIT margin of 46%. At IHSE, growth profit margin was up some 2.5%. This was mainly due to unfavorable customer and product mix effects last year, which apparently did not reoccur this year. EBITDA margin, unfortunately, did not quite live up to a level that we would be happy about. Main reasons for that are higher cost for trade fairs, direct sales, and marketing activities, which did not incur last year because of the pandemic. Additionally, higher personal expenses impacted the margin, which are mainly attributable to the recently acquired and still relatively small KVM tech. Also, despite this year's rebound top line is still not on our target level, which has a corresponding margin effect in interplay with the company's fixed costs. Palas has pointed out, reached last year's top line level again, and margins are essentially in line as well. So growth profit margin is a bit lower due to a lower change in inventory. However, the Pallas management's diligent cost controlling still led to a slightly higher EBITDA and EBIT margins. Lastly, in the central function, costs were somewhat lower, which was essentially due to lower expenses for external providers of due diligence advisory. In conclusion, and coming up on the consolidated group level, so very last column, Revenue was 126 million euros, as pointed out before, up some 270% compared to last year. Growth profit margin was 67% and adjusted EBITDA margin some 38%, bringing our group to an adjusted EBITDA of 47.6 million euros. The groups adjusted EBIT of 44.5 million euros, makes a margin of 35% compared to 11% a year ago. At the end of September, the group had some 23 million euros in cash. Please bear in mind, as Marco pointed out before, that this is also after payment of voluntary early repayment of acquisition loans by bike leasing of some 21 million euros. So those are already subtracted here. Lifting to the net debt overview, here you see the update and the structure of our financial leverage. All in all, we reduced net debt by some seven and a half million euros. In relation to our last year's EBITDA, this corresponds to a leverage of 2.3 times, which is perfectly in our target corridor. And when you compare that net debt figure to an EBITDA within our forecast range for the whole year, leverage would come down to only some 2.1 times. So we feel this is pretty satisfying financing structure. This concludes the financial update. I'm happy to answer your questions later on. And I now hand over to Paul, who heads our acquisitions team. Thank you very much, Harald, and also welcome everyone from my side. Let me provide you now with a quick deep dive on our three business segments over the next couple of pages, starting here on page 8 with bike leasing. Before we obtained control over bike leasing with the acquisition end of November last year, bike leasing, as is very usual for a private German mid-cap company, was only accounting according to German guests. as mandatory for any private German company. Therefore, in the previous quarters, no comparable IFRS figures, so last year's quarters, IFRS figures are available for the private series 9M 2021. However, as before, the continued strong growth trend of bike leading can be clearly illustrated by operating KPIs. The most important KPI that drives bike leading's revenue is the number of bicycles that are facilitated through their digital platform. In the first nine months of 2022, this number of facilitated bicycles grew by 43% to around 99,000. As you can see from the previous two years, the first nine months of a year typically comprised over 83% to 84% of the total number of facilitated bikes in a year, in line with the strong seasonality of the business among the weaker Q1 and Q4s and the stronger Q2 and Q3s. Important to note how I have ideas that the first nine months of 2022 are already around about 20% above the full year 2021, with a full quarter still to go. With respect to the number of onboarded corporate customers on the platform, which is an important indicator for future business, Lightning has now reached a customer base of around 43,000 corporate customers, up from slightly below 40,000 as per H1. Those corporates employ more than 2.4 million employees that now have access to our solution. Keep in mind that when we signed the acquisition of Bike Leasing in June last year, the number of corporations on the platform stood around 25,000, so we've increased that quite a bit since then. Lastly, as already briefly mentioned in the opening summary and by Harald, Bike Leasing, on the back of its strong organic cash flow, was able to make another early voluntary repayment in the amount of 15 million euros on one of the acquisition loans we used as part of the last year's acquisition. Based on this repayment in Q3, paired with the last repayment in Q2, already totals around 21 million euros that were voluntarily repaid by bike-using alone. Thus, highlighting not only the high profitability, but also the strong cash conversion of the B2B syntax. Over to the next page for a similar deep dive on Pallav. So 9M 2022 represents the strongest first nine months in Pallav corporate history, even above the COVID-19-infused nine months last year, in which Pallav showed a very high number of filter-marked catchphrases. Without accounting for the COVID-fueled business, which shrunk from €3.1 million last year to only €500,000 this year, as you can see on the right-hand side in the grey bar, which is a reduction of over 18%, the core business of Palas with optical instruments for ambient air measurement still continued to grow double-digit with a strong plus 27% in the first nine months, after having already grown plus 39% the year before. So the strong double-digit growth trend hands us unbroken, even though distorted on a total basis by the extraordinary business last year. In addition, revenue within the core business in 9M would have even looked better if the Chinese market would have not been affected by a month-long lockdown. Resulting in delays not only with respect to order intake or revenue recognition, but also related to the ongoing certification process of Pala's core product fleet, which will shift to next year. Until this certification is obtained, TALAS cannot tackle the market for certified governmental air quality measurement, so to say it's the bread and butter business in India and America, for which China is one of the biggest markets globally. Moving over to next page 10 for a similar deep dive on ISSE. After two years of pandemic with wide-ranging travel and contact restrictions, IJSE and KDM Tech continue to expand the rebound growth already shown in the first half year to a plus of now 20% in the first nine months. As you can see from the quarterly revenue development depicted on the right-hand side of the page, all Q1, Q2, and Q3 in 2022 were the strongest quarters since outbreak of the COVID-19 pandemic early 2020. Adjusted avatar margin remained high at 22.4%, however, as also Harald mentioned before, is still significantly below the target pre-COVID level of 35%. This, as said earlier, is mainly due to increased trade choice in the post-COVID, which is a good thing, but the cost associated with it and the inclusion of the so far lower margin KVM tech. Lastly, the supply chain for electronic parts, especially FPGA chips, still remains very challenging and cause delayed revenue recognition. Consequently, despite the strong revenue recognition in Q3 with some 9.2 million revenue, order backlog at IHSE still remains at a very high level of approximately 10 million euros, which on the flip side provides visibility and makes us optimistic for the Q4 of 2022. After that, hopefully comprehensive deep dive into our segment, let me now give you also a brief update on our M&A activities. As usual, 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 team, B, our industry network, which is built on over 20 years in the German technology space, And lastly, C, our M&A Advisor Network. This being said, we are currently in the early stages of analyzing three potentially interesting companies that seem to fulfill our strict criteria. Two of them represent standalone investments and one is a potential add-on for an existing business segment. Whereas two opportunities were sought from our M&A Advisor Network in the frame of typical structured M&A processes, One of those depicted here was sourced proprietary through our industry network. One business with an EBITDA margin of approximately 25% in the security technology space as a potential add-on for IHSE. A software as a service business where the margin under IFRS is still to be analyzed. And a third company in the environmental technology space with a around 50% EBITDA margin. So very high margin business. 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, we can be assured that we will remain as strict as before when it comes to identifying the right acquisitions for Brockhoff Technologies. This can also be seen by the turnover of our deal flow, comparing this presentation on 9M to our last presentation on H1, where you can see that all three opportunities that we showed in our last earnings call presentation have been declined on 5T. With this, I'm handing back over to Marco for our forecast.

Thank you, Paul. Yeah, flipping over to the last page of our today's presentation, our forecast for fiscal year 2022. As we announced in our last week's ad hoc release on the back of the strong operational development, we now expect to exceed the previous forecast for 2022. Rokon Technologies now expect to generate revenue before purchase price allocations of between 150 to 155 million Euro in fiscal year 2022, compared to the earlier guidance of 140 to 150 million Euro. This corresponds to a growth corridor of between 19 and 23% compared to the pro forma revenue of 2021. At the same time, we confirm the expected adjusted EBITDA margin of 35% for the full year, corresponding to an adjusted EBITDA range of between €53 million at the lower end of our guidance and €54 million at the upper end. Please note that 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. The operative development within the first nine months of 2022 was strong and despite the generally challenging environment, we are convinced by the resilience of our business model. Let me state this again. The performance of our subsidiaries year-to-date underlines this clearly. Therefore, we raised our full year guidance. 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 star on your telephone keypad. If you would like to withdraw your question, press 9 star again. I will repeat once again, if you want to raise your question, please press answer. And the first questions are coming in. The first questioner is Mr. Stefan Augustin of Warburg Research. Please go ahead, sir.

Yes, hello, gentlemen. My question, first question is actually on the net death development between the age one result and the nine months result. It obviously showed a strong BPA development. However, compared to the Q2 standalone and the Q3 standalone, the net death reduction was a bit below my anticipation. that I'm missing here or that one could point out.

Yeah, thank you for your question, this is Harold. That was essentially due to a, of course, cash flow effect that is not reflected in the P&L. We commented on that in the net assets section of our 9M report. However, not stating the figure. And this is, so the effect is due to the increase of other current assets as per reporting date. And the effect only for the Q3 in that position was a bit more than nine million euros. So negative cash flow from increased other current assets. And the reason for that was record date effects from value added tax refund claims. For the one point and for the other one, Bike Leasing had claims against their refinancing partners. So for one refinancing front, the forepaying, so the sell-off of the lease receivables was already conducted on September 30th. However, the payment was made only a few days later. And that is why there is a, yep. A bit effects like that are always on our balance sheet. However, as per 30th of September, it was the first time significant. As for today, that has resolved. So it was a record day effect.

So I can expect actually this close to 10 million additional cash in queue for them.

I can comment on forward-looking, but I can tell you that there is an increase in other current assets of 9 point something million between end of June and end of September, and I do not think that this effect is sustainable.

Let's project that. Thank you. And the next one is actually on bike leasing. Do you think you can keep the pace of the onboarding up at what we have seen in Q3 going forward? And when could we actually look for the rollout of other products in this space? So let's say the electronics part that you were eyeing to put on top of the bikes.

Paul here. Hi. First part of the question, can we sustain the growth of onboarding more customers to the platform, is of course a forward-looking statement that we feel difficult to do. But let me put it like this. The market is still very much – there's still a lot of white space there in the market to be captured. I think in our last quarterly update call we also referred to a study by Deloitte that they've done where they come out to some, I don't know, slightly above 20% or so of the market being captured at the time of their study. So there is still a lot of room to be captured. Second thing I would like to highlight is that we have, in absolute terms, onboarded more corporates to the platform this year than last year. So the absolute growth is actually growing. And there are no information that would lead to me being bearish on the growth rate potential in that term going forward. Because coming back to my earlier point, there is just so much space to be captured in the market. And we're only talking Germany. Austria has kicked off quite successfully as well. And yeah, as the first part of the question, the second part of the question, was with regards to new products on the platform, which I'm not sure if we have highlighted that before in one of our earlier calls, but we have a rather clear priority waterfall when it comes to bike leasing. Priority number one is onboarding as many corporations to the platform as possible, full stop. Why is that? Because they don't churn. The reason why companies churn from bike leasing platforms is because they closed down business. As you might remember, we have small customers starting from, I don't know, three employee electrician businesses up to 40 companies. And of course, smaller companies can also close down. And those are the only customers that we lose. But the rest sticks in it because there's really no argument for a corporate to change the running system. So priority number one is onboarding as many corporates to the platform as possible. And the most obvious growth path thereafter is increasing the pickup rate of already onboarded employees to really use our solution. So making marketing within already one customer. And then only thereafter, at priority number three, come new products that we add to the platform. So add, for example, personal computing items, iPhones, iPads, smartwatches, laptops, whatever you name it. And we are, of course, focusing on that as well. So it's not a priority waterfall. We only do number one, and then whenever we are finished with it, we go over to two and then three. But we do everything in parallel. But we are still in the development phase of this third strategic pillar, and we will launch it as soon as we feel we have a scalable solution in place.

Okay. Thank you very much.

Next we have Mr. Lukas Spank of Tidworth Capital. Please go ahead.

Yes, hi, good afternoon, gentlemen. My first question is related to the tax quota. If I got it right, you had a positive tax effect in Q3, so very low tax quote in the first nine months. So I wondered why this is the fact, because in the first half of the year you had a very high tax rate, so can you please explain why this was the case? Yes, certainly.

This is essentially due to the extensive attacks that deferred taxes on our books. Especially when you look at, there are two major issues. The one is purchase price allocation effect. So what you might see on our balance sheet, we have deferred tax liabilities, so passive election of several tens of millions of euros. Those are not liabilities that we have to pay anyone at any point in time, but those are a technical counter position towards purchase price allocation assets. So that's stuff that you have to value when you buy a company that you never, ever in usual course of business are allowed to capitalize, which is customer-based, basic technologies and brand names and domains and stuff like that. And when unwinding those assets through depreciation and amortization, that gets you substantial tax income. That is not real income, but you have to reverse the liabilities through profit or loss. That is the one effect. And the other effect is that of course, Well, of course, when you transfer the figures of byte using to Alprox based on, I don't know whether you take German Jeff, which is pretty close to German Texel and stuff like that, you get really, really high differences in conversion there. And that's what has text effects too. And the last one. being a non-tax income or a non-taxable or whatever income of the unwinding of the earn-out liability with regards to the acquisition of KVM tech where we have an earn-out liability that we worked in. Does that help? I know it's partly technical.

We should see this as a one-time effect. Certainly. Okay. And then the second question is on your M&A type or on your M&A possibilities. The first part of the question would be, can you give us a number of the liquidity situation in the holding? And the second part of the question is, how do you see your financial headroom concerning M&A targets if they, on the one hand, send a loan acquisition and, on the other hand, add on acquisitions.

Sure, maybe let's start with the second part of the question first. So what capacities do we have to finance new transactions? A lot. In two-fold as an answer. So with regard to smaller add-on acquisitions, like we've done with KDM Tech, for example, in the past, our businesses are standing at, yeah, sufficient, let's say, financing a quota, be it liquidity on the balance sheet, be it debt capacity that they have in their JARO levers. We have very much few levers to, I think Harald mentioned in the presentation, 2.3 times taking last year's EBITDA to current leverage. And you might remember that we were talking about 2.5 times where we feel comfortable. and can sleep well. So both in terms of cash and cash equivalents on the balance sheet as well as with regards to debt capacity, add-ons are no problem. Moving up to the holding and considering new platform deals or opening new business segments, so to say, with new transactions, this is, of course, also possible. Coming back to the point of debt capacity there, I'm not sure. I think if you take The guide is our range that we have for a full year and apply that to our leverage. We are already down to 2.1 times even without any further deleveraging assumed. So new transactions, we always believe if you have the right deal, you will always find financing for that. And especially with regards to debt capacity, we have no issue financing new transactions.

Okay, and then coming back to the first part of the question.

That was again the liquidity situation and the holding.

As per reporting dates, what I can tell you was some 4 million euros.

There are no further questions at the moment. I will repeat once again, ladies and gentlemen, you can still state your question by pressing 9 star.

There seem to be no further questions in the queue.

All right. All right, then. Thank you very much. Thank you all very much for attending our day's earnings call, forecast technology. I would like to use this page a moment to thank our employees and within the group for their outstanding work and performance. I believe we as a group did great, as well as our shareholders for their continued trust and support. And yeah, goodbye. Have a great day. Thank you very much.