Brockhaus Technologies AG

Hello, ladies and gentlemen, and welcome to the Brockhaus Technologies AG Investor Update Call. 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 Marco Brockhaus.

Thank you, and good afternoon, everyone. Welcome to Brockhaus Technologies' earnings call for the first quarter of fiscal year 2023. Before we begin, I would like to point out that the slides we are presenting will afterwards be published in the investor relations section of our website, rockhouse-technologies.com. After our presentation, we will open the call to questions from your side. To be fair to everyone, please limit yourselves to one question plus one follow-up. Thank you very much in advance. And before we present our results, I encourage all listeners to review the legal notice on page 2 of our presentation, which explains the understanding of forward-looking statements. Additionally, please refer to note 6 of our annual report 2022 on page 85 for a discussion on alternative performance measures, as well as the reconciliation of non-GAAP figures, especially adjusted EBITDA and adjusted EBIT. Please note that our EBITDA and EBIT adjustments only comprise share-based compensation, cost of the acquisition of subsidiaries, income from the sale of real estate, as well as accounting effects from purchase, price, location. 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 2022 page 59. Flipping over to page 3 and into the usual summary. After a record year 2022 for Bauhaus Technologies, we are very happy to say that our growth trend has also been unchanged in Q1 of 2023. We generated revenue of €33 million in Q1 2023, which represents organic growth of 41% compared to Q1 of last year. Adjusted EBITDA grew over proportionally by 70% to €9.6 million, corresponding to a high adjusted EBITDA margin of 29%. Adjusted EBIT also increased by 72% to €8.6 million corresponding to an adjusted EBIT margin of 26%. Margins on group level have thus expanded by around 5 percentage points as compared to Q1 last year. Before adjustments EBITDA amounted to €10.4 million and EBIT to €5.8 million. EBIT is especially influenced by PPA amortization. On the back of this strong development, starting into the year, we confirm our group forecast 2023 with revenue between €165 million and €175 million and adjusted EBITDA margin of 35%. The operating development in Q1 as well as the growth forecast for the full year clearly underline the resilience of our business models in the market environment with so many uncertainties as is currently the case. Lastly, due to our positive margin development in Q1, we further reduced the net leverage ratio within the group to 0.7 times adjusted LCM EBITDA. This equips us with significant non-diluted financing capacity for future acquisitions. A potential share repurchase et cetera. But more on this later in the presentation. With this brief summary, turning over to the next page and handing over to Harold, who has our finance department.

Yes, thank you, Marco, and welcome, everyone. Let us jump right into the quarterly revenue analysis on page four, starting at the top with bike leasing and an increase in top line by more than 50%. The main driver, of course, was the higher number of new bikes facilitated over the company's digital platform. That was some plus 40%. However, we also had a base effect in last year's Q1 when accounting for a green bond securitization had a negative, however, cash-neutral P&L effect. and this did not reoccur this year. Proceeding to ISSE on the bottom chart, as you can see, we are more than 14% above last year, but the interesting part on that comes in the regional sales grid, so let's discuss that on the next page. Here, however, first to buy season, top chart, As you might know, so far the company has been focusing on Germany only, with first steps of expansion to Austria, where bike leasing became market leader quite quickly after the market entrance. Therefore, all revenue here relates to the India region, of course. At ISIS-E, the material driver was the very strong performance in the US market, where revenue essentially doubled. This shows the impressive rebound in the American market, which was heavily impacted by the pandemic in the past. EMEA and APAC showed a minus in top line of 0.2 and 0.6 million euros. However, management sees those decreases as typical fluctuations during the year and not as a structural issue. So in all three regions, the demand situation indicates a significant upswing now that COVID is over. Turning to the QNL table by segment, in the first two columns, we see that bike leasing converted the high top line growth also into a significant uptick in margins. Growth profit margin is plus nine points and EBITDA is plus seven percentage points above last year. Proceeding to the next two columns to the right, as I just see the growth profit margin was a bit down on last year. However, as in revenue fluctuations in growth profit margin during the year can be observed as I just see quite regularly. On EBITDA level, the margin decreases more significant. This result is primarily from increased costs for trade shows and travel combined plus half a million euros. In addition, the company is working on migrating to a new ERP software system, which accounted for additional 120,000 euros. Also personal expenses increased due to commission payments resulting from the positive business development and the adjustment of salaries in response to the increased cost of living. This accounted for the personal costs accounted for some further 400,000 euros. Let it be noted too that this is a strong base effect in it. So the comparison as well for the last year sucks. In last year's Q1, EBITDA margin of IHSE was extraordinarily high, and this of course makes the comparison with the prior year period more difficult. We put the quarterly margin development in our quarterly statement as well. Please bear in mind that this development is completely in line with ICSE's internal budget, and we expect margin to level out over the remaining fiscal year on a clearly higher level. So this expectation is also backed by the very positive order situation, but Paul will tell you more on that later on. Lastly, to further counter the right central functions cost, were essentially in line with the 2022 level, so no significant changes to be reported there. In conclusion and summing up on the Controlled Debt Group level, revenue was 33 million euros showing a substantial increase of 41%. Growth profit margin was at some 63% and adjusted EBITDA margin was 29%. bringing the group to an adjusted EBITDA of 9.6 million euros. The group's adjusted EBIT of 8.6 million euros corresponds to a margin of 26%, as stated before by Marco. When you compare the last figure here to the number which you might have in your model or in your report, please bear in mind that following the sale of TALA, end of 2022, the P&L items need to be reclassified retrospectively. So according to alphabet five, all revenue and cost contributions of Pallas must be excluded from the respective line items of the P&L and are shown in one total under the name of income from discontinued operations. Since this has to be done for the numbers of the prior year, too, you have a nice, like-for-like presentation of the results, but also a difference to historical reports. Please also note that last year we adjusted for the effect of purchase price allocation, or PPA, in buy-to-usings revenue. which was quite substantial in fiscal year 21 and 22. This PPA effect by its nature is diminishing over time. And in order to avoid differences between our KPIs and IRS, we no longer make this adjustment currently and going forward. For your financial modeling purposes, if you might need that, the amount of the decreased earnings due to the value setup will still be reported, of course. In this Q1 statement, you find the figure on page 13. Last but not least, our cash balance at the end of Q1 amounted to more than 65 million euros. And that brings us to the next page on financing structure. Going left to right in the chart, our net debt from loans. end of March amounted to 87 million euros. Subtracting cash with a net debt from loans of 21 million, adding to that 14 million from other financial liabilities as well as 2 million from a net debt of lethal financing brings us to 38 million euros in total net debt. If you compare that to the current last 12 months EBITDA, This corresponds to leverage of 0.7 times, and since our target corridor reaches up to 2.5 times, this is a very comfortable level in our view. This concludes the financial update. I'm happy to answer your questions later on, and now hand over to Paul, who is in charge of our acquisition team.

Yeah, thank you, Harald, and also welcome everyone from my side. As usual, let me provide you with a quick deep dive on our two business segments over the next couple of pages, starting with the significantly larger one here on page eight, namely bike leasing. Bike leasing achieved a record Q1 in 2023 in terms of basically all financial as well as cooperating KPIs. As mentioned earlier by Harald, Bike Leasing not only grew their revenue by some 52% to 25 million euros, but also at the same time extended its EBITDA and EBIT margins by 7% or even a bit above 7% versus Q1 last year. The most important non-financial KPI that drives Bike Leasing's top line, however, is the number of bicycles that were facilitated through their digital platform. After an already strong growth coming from Q1 2021 to 2022, we again grew the number of facilitated bicycles by from 41% in Q1 this year to a total of 28,000. Those facilitated bicycles, on the other hand, are only a function of the customers that are onboarded to BikeLeaving's digital platform. BikeLeaving has now reached a level of around 47,000 corporate customers for individual corporates up from 54,000 end of 2022, at 45,000. Those corporations employ more than 2.6 million people that subsequently have access to our solution now. Keep in mind that when we signed the acquisition of Bike Living in June 21, the number of corporations on the platform still stood at around 25,000, so a massive uptick since then. Cash and cash equivalents of bike-living amounted to around 18 million euros at the end of March 2023. This level, however, is distorted by a high refinancing backlog of approximately 14 million euros as per the same cut-off date, which is a usual fluctuation due to bike-living's strong seasonality. Given the strong growth in order bicycles from their customers, this refinancing backlog has also grown significantly, but is expected to reduce once the seasonality, let's call it plateau, has been reached towards the end of Q2. So far on bike leasing, and moving over to the next page, 9 on IHFE. IHFE continued its rebound after the lifting of most traveling contact restrictions globally, with a top line of some 14.5% in Q1-23. As seen earlier by the regional splits presented by Harald, this was mainly due to a very strong development in the Americas region, where IHSE broadly doubled its revenue as compared to Q1 last year. While revenue continuously developed positively, adjusted EBITDA margin was below the previous year period. This is mainly due to, as Harald mentioned already, planned expenses for increased trade show and travel activity, whose impact, however, on order intake will of course only be observable with a time lag, as well as a group-wide IT project. As we are talking about planned expenditures, however, this had already been taken into account in our four-year guidance, and it does not surprise. Lastly, as we already announced in corporate news a couple of weeks ago, IGSE won its largest single customer order in the company's history in April from a national air traffic control agency. On the back of this, IHSE has started into the second quarter and thus the second quarter of the year with a record order backlog of some 13 million euros coming from around 6 million euros at the end of last year.

So this shows the very positive development at IHSE this year. So after the deep dive into our two segments, let me now give you also a brief update on our current M&A activities.

As a general reminder up front, we generally source transaction opportunities from three different channels. Namely, first, the access screening of trade shows, fair and corporate events and proactive approach of companies by our acquisition team. Second, our industry network, built in over 20 years in the German technology space. And lastly, third, our M&A advisor network. Currently, we are in the early stages of analyzing three potentially interesting companies, that seem to fulfill our strict acquisition criteria, all of which would represent stand-alone investments alongside bike-using and IHSE, and are sold as part of such M&A processes. So, no add-on acquisitions in that respect. One business with an EBITDA margin of approximately 50% within the environmental technology space, where, as you know, in which we have made good experiences in the past with, for example, Pala, a software business with an even higher EBITDA margin of around 58%, as well as a net tech business with a 25% margin. While our deal flow continues to be strong, as usual, and we stick to our envisaged run rate of, let's say, one or two transactions per year on average, you can be assured that we will remain as strict as before when it comes to identifying the right acquisitions for Broker Technologies. With this, I'm handing back over to Marco for our outlook.

Yeah, thank you, Paul. Flipping over to the last page of today's presentation, our forecast for fiscal year 2023. As already briefly mentioned in my opening remarks, we confirm our group forecast for 2023 on the back of the positive development observable in Q1 this year. We plan with revenue of between €165 to €175 million in fiscal year 2023. which corresponds to a growth corridor of between 16% and 23% compared to the €143 million of revenue in 2022. We expect the adjusted EBITDA margin to remain at a high level of 35% for this year, corresponding to an adjusted EBITDA range of between €58 million at the lower end of our guidance and 61 million Euro at the upper end. Please note that this forecast assumes that there will be no change in the scope of consolidation within Rockhouse 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. Also, as mentioned earlier, please remember that we will not adjust our revenue for effects resulting from PPA anymore and previous year's figures have been adapted accordingly. We are very happy about this strong start to the new year, especially when considering the challenging market environment. We are convinced by the resilience of our business model and our ability to source and acquire and successfully develop technology and innovation champions within the German Mittelstand. 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.

Yes, 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 nine star again. I'll repeat once again, please press nine star in order to raise a question. And I have the first questioner is Mr. Stefan Augustin of Warburg Research. Please go ahead.

Yes, hello. It's just actually two questions. Very quick ones. The first one is to the refinancing backdrop. You mentioned before the right understanding simply to assume that this $14 million of higher refinancing backdrop will therefore effectively aid cash flow shifts from the first quarter to the second quarter. Is that the right understanding of that?

This is Harald from the company, hi. In general, yes, however, I would point out the non-recurring or the extraordinary part of that financing backlog would be more the 8.8 or some 9 billion euros. So some, yeah, the financing backlog is absolutely normal for the company. However, at the end of Q1, it was really extraordinarily high due to the effect we explained.

It's even quicker to comment on that. So the 40 million of refinancing backer, you can basically think about it as the week thereafter, it's already turned into cash again. But what actually leads to this high backlog and this continues to be high going into April and will come down, as I said earlier, when we reach this, let's say, peak phase of the summer weeks. Once it has reached this peak, it will then really general or will be seen in cash flow because, I mean, if you turn this backlog as per 31st of March into cash the week thereafter, there's another week of strongly increasing business volume coming in, right? So as long as we didn't have reached the peak of the seasonality, there will be, yeah, you will have a high refinancing backlog, and then it will come down again towards the autumn month.

Okay? Okay, and then... So as a follow-up, if I look into your current cash position, it would be quite okay to find mostly normal exhibition. So when we progress into the year and by choosing actually generates cash and IHSE generates cash as well, would it be a certain idea if you have touched a little bit on the share buyback to generate the idea that If there is no other transaction coming up, once this operational cash flow comes in, we can use it partially or let's say every quarter for a different form of investment that is readily available.

Maybe Mark will jump in here. My answer to that is that might be the case. As Paul mentioned earlier, we have a good and interesting deal flow. Whatever is there and if it's an attractive target, we would use it for that. Otherwise, we have the allowance to repurchase stocks, so we could do one or the other or both. we will decide from time to time. But we have the allowance from the shareholder meeting, so we could go ahead and leave the change.

Okay, thank you very much. That would be from my side. Thank you.

At the moment, there are no further questions. Therefore, I will repeat. Ladies and gentlemen, if you still have a question to stage, please press nine stars. We have one more questioner. It's Lasse Struden of Berenberg. Please go ahead.

Yes, hi, good afternoon. Just a question on sort of the growth run rate at bike leasing and how you see that going forward. I mean, you're growing the platform incredibly quickly. So I'm just wondering, is there kind of an update you can give on how you're, or how you're faring versus the sort of bigger competitor? I think she said in the past that bike leasing is is the number two player. So if you have an update on how the competitive landscape is developing, that would be interesting. And also for IHSE, you commented on the fact that you see the margin profile sort of improving or stabilising at a higher level than the rate of the year. Is that largely just for operating leverage and kind of the seasonality of the business which comes to be H2-weighted? Or could you just give a reason as to how that development will help us.

Maybe to start with the first part of the question relating to the competitive environment of bite losing. Yes, we've been growing very strongly and we still have a lot more of the market untapped so far. Several of you listening will probably remember that we showed Last year also a study by the Lord, it was from summer last year, that I think came out at some 21% or 22%, if I remember correctly, of employees within Germany that only have the option, irrespective of which provider, to lease a bicycle to their employer, while something above 60% of employees would be willing to do this. So at that time, it was a 3x in the addressable market only in Germany, not talking about Austria, where we've expanded to. So this is the reason why the growth rates continue to be so high in terms of corporates on board, in terms of bicycle facilities, etc. Has the competitive environment shifted in any way or changed? not that we are aware of. It's still the same players that were active in the market when we acquired Bike Using. It's the market first mover, Jobrat, that is the clear number one, then followed by us as the clear number two, and then thereafter there is, let's say, a handful of medium-sized players that are, however, according to our information, significantly behind us. And then there's maybe another handful of very regionally focused players that are pretty small to be honest. But nothing has changed there. I think everyone's growing very attractively. What has, however, changed is the market composition in Austria, where also some players have expanded to. However, we can say, at least according to our information, we are the market leader in Austria. So we work quicker than most others there. And we also see very nice development over there. So while it has taken some time for the stone to get rolling, so to say, it is now accelerating and the number of corporates that are on board in Austria is picking up nicely. The second question and the quality wasn't that good. If I remember correctly, you were asking for where do we see the marginal improvement throughout the year coming from IHSEs. If that is coming from operational leverage, what was that? Yes, exactly right. Yes, so multiple points. I mean, we have commented why the margin is below previous year in Q1, and that is mainly due to the expected and planned costs or expenses that we had in Q1. And so also leaving aside operational leverage, if you just exclude those costs, margin is already looking significantly different than it has been in Q1. So this is one fact, but of course, I mean, the more revenue we do, the more top-line we do at IHSE, the more margin actually is coming out of that due to operating leverage. And we have a certain revenue or top-line expectation, which is why we also believe that margin should improve throughout the year.

Yeah. Great, that's helpful.

One more follow-up, if I may. We've seen recently a lot of European software assets being bid for by private equities. I'm just wondering if you've seen a change in your discussions with M&A advisors or within your network in terms of competition for some of these assets, because there does seem to be a lot of interest in European software assets, which have come in at cheaper multiples over the past year or two. I'm just wondering if you can give some color on what you're seeing on that side of the business for you guys specifically. Sure.

So for us, as we said also in the last earnings call, if I remember correctly, and as usual for us, the pipeline is always a given. So we always have a full pattern of transaction opportunities. Over the past month, nothing that led us to really pull the trigger from a quality perspective. Starting into the year, also end of last year, you had a very it's a two-sided situation in the market. So Brilliant Assets felt like they even achieved premium multiples as compared to the months and years before, while businesses that were, let's say, not premium or mediocre on the other side, there wasn't really any closing announcements. So either you get a very high multiple or the transaction fails. That was a very simplified picture that we saw. What we see now is that Q1 was a bit more quiet, but starting in Q2, the M&A process activity has re-accelerated quite a bit. The three examples we showed a couple of minutes ago were all three from M&A processes, structured M&A processes. where there is according to our information a lot of interest but what we've also heard is that even in the let's say option processes prices start to come down a bit which is good for us because I mean we are well equipped on the balance sheet side to acquire they are starting to slightly come down a bit but nothing as you have seen maybe in public evaluations or in venture valuations or whatever, so it's still far away from those impacts, but let's say one or two multiple terms maybe, we are starting to see come down, but still the competition, as you mentioned, more and more PEs bidding for software assets, not only in software, but basically all the businesses we look at, because we are so picky with our criteria, there is fierce competition whenever you are in M&A processes.

Great, thanks so much. There are no further questions in the queue. I hand over back to the company.

Yeah, thank you very much, everyone. All right, if there are no more questions. Thank you. Yeah, thank you again. And let me say we are very happy about our development. And thank you for your questions and attending today's earnings call of Bokal Technologies. I would like to use this stage and moment to thank our employees within the group for their outstanding work and performance, as well as our shareholders for their continued trust and support. Thank you. Goodbye and have a great day.