Brockhaus Technologies AG

of our website, brockhaus-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. 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 6 of our Annual Report 2022 on page 85 and page 19. Onwards of our Half-Year Financial Report 2023, for 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 sale of real estate, 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 2020, starting on page 59. So, flipping over to page three to give you a brief summary of where we stand. As you can imagine, reporting on another record quarter for Brockhaus Technology is a real pleasure. And I have to say I'm proud of what our teams across the segments, bike leasing and IHSE, and ourselves, Brockhaus Technology, have achieved. We as a group once again delivered highly profitable top-line growth across all segments. The group generated revenue of €143 million in the first nine months of 2023, which represents organic growth of 31% compared to nine months of last year. Adjusted proforma EBITDA grew even stronger by 35% to €55 million, corresponding to a high margin of 39%. Adjusted proforma EBIT increased equally strong by 35% to €52 million, corresponding to a margin of 36%. Margins on group level are fast, broadly speaking, one percentage point higher than last year. Before any adjustments, EBITDA amounted to €53 million and EBIT to €39 million. Please have in mind, the unadjusted EBIT is especially influenced by purely consolidation-related issues. PPRs, so purchase price amortization. That's very important to know. On the back of this strong development so far, we expect full year 2023 to come out at the upper end of our revenue forecast of between 165 and 175 million euro, with a continuing high adjusted EBITDA margin of 35%. Even though I keep repeating myself, the operating development in the first nine months, as well as the growth forecast for the full year, as well as our medium-term outlook for 2025, clearly underline the resilience of our business model. And strict focus on technology and innovation leaders in a market environment with so many geopolitical and macroeconomic uncertainties as is currently the case and as I know in my career wasn't the case before. Our net leverage ratio within the group was further reduced on the back of strong organic cash generation and amounts to only 0.3 times adjusted LTM EBITDA as per end of September this year. And this despite the fact that we spend €8.5 million on the acquisition of two sales agents of bike diesel in Q2 this year. This conservative balance sheet composition equips us with significant non-dilutive financing capabilities and capacities for future acquisitions, but also for a potential share repurchase or such other acquisitions. With this brief summary, turning over to the next page and handing over to Harald, who heads our finance department.

Thank you very much, Marco. Welcome everyone from my side too. Let us jump right into the quarterly revenue analysis here on page four of our presentation. As you can see, we had an absolutely tremendous quarter. Both companies not only continued their growth trajectory, but even increased their momentum. On the top chart, you can see that bike leasing even outperformed the strongest quarter of last year, so Q3, by plus 35%. Also, IHSE on the bottom chart grew by 28% compared to last year's Q3. And with this development, I think I can say we are quite very, very happy. Jumping to the next page for the regional sales split. First to bike leasing, no surprise here, the company does business in Germany and Austria, and the year-to-date growth in revenue was 33%. At IHSE, the absolute material driver continued to be the very strong performance in the US. where revenue grew by almost 90%, so plus 88%. EMEA showed a very solid development and was essentially on last year's level. In the APAC region, revenue was still down by 46%, which is almost the exact same value as in the first half of the year. And as pointed out three months ago, again, this is due to the general trends of decoupling of the Chinese economy. Other factors also include the below average growth in economic output, coupled with the crises in the construction industry and the general reduction in investments of the local Chinese district governments. Turning to the next page with the P&L table or segment income table. In the first two columns, we see that Byte Leasing's gross profit margin increased from 62.6% to 64.5%. This is due to the fact that the company acquired two external sales agencies in the second quarter of this year. And as a result, sales provisions are no longer paid to these agencies, which decreases cost of bike leasing. And those costs are presented above gross profit in the P&L. So a margin increase from those acquisitions. On the level end of EBITDA and EBIT, the margins decreased a tiny bit. And this is because in Q3, by pleasing terminated the contractual relationships with a third sales agency. The company expects that it will have to pay a compensation for that termination and accrued a one-off expense of 1.8 million euros accordingly. Proceeding to the next two columns to the right, segment security technologies or IHSE. And here the gross profit margin was higher than last year. However, such deviation is nothing out of the ordinary for the company. What is more interesting is the development of the EBITDA and EBIT margins, which are both up four percentage points compared to last year. As you might recall in the first two quarters, margins were significantly lower. That's because trade fair activity was somewhat front loaded in this year, and that was reflected in the operating expenses in H1. And what we see now is that when you don't have that many really, really large events and revenue comes in nicely, IJSE's margins are more than well on track. If you look at the third quarter only, IHSE had an EBITDA margin of 36.2%. Going to the right two further columns. In the central functions, expenses increased a bit, which was caused by higher consulting fees, as well as marketing expenses with the goal of raising the brand awareness and popularity of Brockhaus technologies. In conclusion, and summing up on the consolidated group level, so very far right columns, revenue was 143 million, showing a substantial increase of 31%. Growth profit margin was at 67%, and adjusted EBTA margin was 39%, bringing our group to an adjusted EBTA of 55 million euros. The group's adjusted EBIT of 52 million euros corresponds to a margin of 36%. On a technical note, I repeat myself now, but it's still important if you have other values in your model. When you compare the last year figure, so 9M 2022, to numbers which you might have in your analysis, please bear in mind that following the sale of Pallas and of 2022, the P&L items need to be reclassified retrospectively. So according to IFRS 5, all revenue and cost contributions of PALAS must be excluded from the respective line items of the P&L and are shown at the bottom of the P&L in the line item income from discontinued operations. Therefore, you have a nice like-for-like presentation of the results, but a difference to our historical reports. Last but not least, our cash balance as per end of September amounted to 74 million euros, which is almost 16, more than one quarter before in June 2023. Hopping to the next page with a summary of our financial leverage. The debt from loans amounted to 89 million euros. Subtracting cash leaves you with a net debt from loans of 14.5 million, adding another 14 million from other financial liabilities. and subtracting 8 million euros of net financial assets from leases brings us to 20 million euros in total net debt. If you compare that to the current last 12 months or LTM EBITDA, this corresponds to a leverage, as Markus said in the beginning, of 0.3 times. Quick reminder, Three months before, so in summer, the leverage ratio was 0.7 times. So leverage has come down quite a bit or quite substantially. And this was driven, of course, by both. First, a strong or very strong cash flow in Q3 and also a continued growth in EBITDA. This would conclude the financial update. I'm happy to answer your questions later on and hand back over to Marco.

Thank you, Harald. Yeah, thank you very much for this financial deep dive. 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, bike using. Bike using achieved another record nine months in 2023. in terms of both financial as well as operating KPI. As mentioned earlier by Harald, bikes not only grew their revenue by 33% to some 113 million Euro, but also the numbers of bicycles that were facilitated through a digital platform, which grew by 32% year over year to a total of 131,000. This also means that bike leasing already surpassed the full year numbers of 2022, in which bike leasing brokered around 118,000 leasing contracts, with one full quarter still to go in 2023. Those facilitated bicycles on the other hand, are only a function of the customers onboarded to Bike Leasing's digital platform. After a strong start into the year, Bike Leasing continued its onboarding speed into Q3, and as per end of September, stood at around 56,000 corporate customers, B2B customers, up from around 45,000 end of 2022. Those corporations employ more than 3.2 million people that subsequently have access to our solutions. Keep in mind that when we signed the acquisition of Bike Living in June 2021, the number of corporations on the platform stood at around 25,000. So we more than doubled that number since the acquisition. Lastly, cash and cash equivalents of bike leasing significantly grew to 32 million after a level of 19 million euros per end of June 2023. This is especially driven by the reduction of a seasonality-related high refinancing backlog that we faced end of Q2 and which has been normalized again, leading to immediate cash inflow. Please keep in mind that this comfortable cash cushion is already after the payment of around €8.5 million on the acquisition of these two external sales agencies in Q2. The comfortable liquidity situation is also the reason why Bikeleasing did another voluntary early repayment on a senior acquisition loan in October that was taken up as part of the acquisition in 2021. and has now repaid this loan in full. This means that just 23 months after acquisition, two out of three debt tranches taken up for the financing have already been paid by Bike Leasing. In addition, the full repayment also means that the customary restrictions on a possible distribution of dividends by Bike Leasing to its shareholders as part of the original loan agreement were lifted as well. Moving on to the next page for a similar update on IHSE. After already strong Q1 and H1, IHSE further accelerated its organic growth into nine months. The plus in its top line of 22%. As seen earlier by the regional splits presented by Harald, this was mainly due to a continued very strong development in the Americas, while EMEA was broadly on the same level as last year. Only the APEC region, especially driven by China, remains more difficult given the decoupling tendencies from the rest. but also the still below average growth in economic output paired with crisis in the construction industry and the general reduction of investments by the local Chinese district governments. Important to highlight is that nine months 2023 represents the strongest nine months since 2020, which at that time still included the last pre-COVID quarter of Q1 2020. This is especially impressive when considering the currently difficult situation in Asia, where IHSE did significant revenue pre-COVID. This underlines that the demand for IHSE as a global technology leader in KVM technology and the growth tailwind in its market remain intact, and the rebound is continuing. The adjusted EBITDA margin of 26% extended by 4 percentage points as compared to the previous year's level of 22%, despite planned expenditures for trade shows and a group-wide IT project in Q1. This is mainly due to the strong top-line development and resulting fixed cost regressions, as Harald mentioned earlier. Lastly, we remain confident optimistic for the year as well as months to come on the back of a continued high-order backlog of around €10 million. Flipping over to the last two pages of today's presentation. Our forecast for fiscal year 2023 as well as our medium-term outlook for 2025. As already briefly mentioned in my opening remarks, on the basis of the strong development within the first nine months of the year, we expect the full year to come out at the upper end of our forecast range with revenue between 165 to 175 million euros. The upper end of this range would correspond to an organic growth of some 23% as compared to the €143 million of revenue in 2022. We continue to expect the adjusted EBITDA margin to remain at a higher level of 35% for this year. At the upper end of our revenue range, this would correspond to an adjusted EBITDA of around €61 million this year. Please note that this forecast assumes that there will be no further change in scope of consolidation within Brockhaus Technologies. The reason for this approach is the difficulties, as mentioned before, in predicting the nature and scope of our future acquisitions. We do not believe that any estimates in this respect are sufficiently reliable. Coming to our medium-term outlook 2025, In order to provide additional transparency for our investors on the expected medium-term developments at bike leasing, IHSE and thus our whole group, we published a medium-term outlook 2025 in June this year, additionally to the annual guidance. By 2025, we target revenue to increase to a level between 290 to 320 million euros. This compares to revenue of 143 million euros last year, and at the upper end of the forecast, 175 million euros for the current fiscal year 2023. I think this underlines our growth ambitions with both bike-using and IHSE projects. Profitability is also supposed to continuously increase due to operational leverage, and we aim for an adjusted EBITDA margin of around 40% for the 2025 fiscal year. In 2022, this margin was almost 35%, a value that is also targeted for this year. This would increase the adjusted EBITDA from €50 million last year to a value of approximately 120 million Euro or more by 2025. As for our annual forecast 2023, this medium term outlook refers to the group as it stands. So again, we are assuming that there will be no change in the scope of consolidation. All in all, I have to say we are very happy about this strong development, 2023 so far, especially when considering the challenging world geopolitically and macro-community environment. We are convinced by the resilience of our business model and our ability to source, acquire, and successfully develop innovation and technology 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. Thank you very much.

Thank you. Ladies and gentlemen, if you want to submit a question, please press 9 followed by the star on your phone. If you want to remove your question, please press 9 followed by the star again. nine, followed by the star.

So the first question comes from .

Apologies if I missed it. Can you just talk us through the strength in IHSE and Q3 in the Americas? Just to give some details around, is there any big project that's driving that? And what's kind of the run rate, I guess, going forward that we should expect also for the profitability, which was much better for the quarter. And then my second question would just be around, you know, kind of the deal environment and deal flow and kind of what you're seeing in the market at the moment in terms of potential acquisition targets for broadcast. Thank you.

This is Yannick speaking in charge of operations at Brockhaus Technologies. So to address your first question, there was one larger project which we reported in the half year H1 presentation, which was air traffic control in the US, which was the overall biggest single order we received. However, if you look at the total amount of projects and total amount of deliveries we had in America, you can see there's an overall growth in that specific reason, not only due to one Lighthouse project, but also for, let's say, additional business. Because you can see there's a big rebound in the US, and this shows also in the IHCP portfolio we sell over there.

And of course, for margin output, unfortunately, we do not guide by segments.

Yeah, exactly. And Marco, if I can just add to it, Maybe coming back from pre-COVID level now, we have developed over the last couple of years since COVID started a lot of sales activities to have a nice monthly sales basis for IHSE, which is very nice. And as Harald said, we can't provide you with any forward-looking statement on the single company. However, you had a third question, which was about the market environment. Maybe let me answer that quickly. Market dried up in terms of acquisition opportunities. However, as always before, we have in every given time a handful of potential targets, as we are working on right now on one specific one. However, we can't tell you if this will end up positively or negatively. Market, I would say, is in a, acquisition market is in a kind of strange situation where you find super, super expensive targets, especially on software as a service, recurring revenue and models, where you see big dried up in the market for non-recurring revenue models. That would be my conclusion. And as always, you know, we are very restrictive and selective when it comes to acquisition, which we can demonstrate nicely now in what we have achieved over the last three and a half years since our view and six years since foundation of the company in terms of organic growth and profitability.

Okay, maybe just one follow-up. Maybe I can ask it a different way, I guess, in terms of capital allocation strategy. You already mentioned that by cleasing through the payment, the payoff of the second debt tranche is no longer restricted. So is this a sign that you're, I guess, considering other caps allocation, some decisions in terms of buyback dividends, et cetera, in place of, you know, I guess a slower market on the acquisition front. Thanks.

Yes, we would do this if this makes more sense than do an acquisition. We would definitely consider that, but we will bring this up once we plan to do it. Currently, as I just mentioned, we are working on one specific acquisition, and let's see where we get to.

Okay, thanks very much.

You're welcome.

So the next question comes from Stefan Augustin from Warburg Research.

Yes, hello, and just a follow-up on that. let's say, a specific opportunity you work on, is that something we should consider to be a bit more sizable or rather a smaller one? Can you give a bit more color? Anything is welcome.

Hello, Mr. Augustin. No, I can't. No, I can't.

Okay.

And I don't want to.

The next one would be when it comes to bike leasing, how far are you done yet with the resetting of the leasing contracts to have that variable interest component?

Yeah, I can take this. It's Paul from Workhouse. so we i think we already explained in one of our earlier calls that just to give everyone a bit of background to the question that bike leasing switched their contract basis around beginning of the year because in the past we we had to let them manually adapt the the the leasing factors for new contracts so that's only applying new business and what is the leasing factor that's the implicit let's say interest rate a consumer pays when he or she loses a bicycle And we had to manually adapt this rate or this implicit interest rate for whenever the refinancing rates would go up or go down. In order to just save the time to do this manually, because as you can expect with the amount of corporates we have on the platform and the amount of underlying contracts, that's quite some work and process hassle. Bike Leading switched to a variable system or a floating system, so whenever interest rates, central bank rates go up or down, the implicit rates for the new contract float accordingly up or down. And all new corporates that we've onboarded this year, which are quite a few, I would say, are already running on the new system. And since the beginning of the year, we are in the process of changing the, let's call them, old customer contracts around as well. This is still ongoing. Let's say seasonality related. a cool down in business volume helps because there are just more people available internally to help with the switch. But this is still ongoing. So we have already changed a lot of corporates around, but this will probably take some time until the beginning of next year to really change 100% of the corporates around.

Okay, thank you. And possibly a last one also coming back a bit to the capital allocation. I'd say if you generate continuously cash like you do at the time, would there be a debt level where you would start to pay down the remaining acquisition financing debt on bike leasing because you think it would be sufficient to go with that kind of cash capability into all the negotiations you have.

Yeah, sure. Marco, maybe to take this. Yes, sure. I mean, given the cash flow of dyke easing, I'm talking now about the last debt tranche we have here to reduce debt. That's clearly the case, clearly the aim to do. And coming back, I think it was Lasse Studen or yourself, Mr. Augustin, on the question of capital structure. I mean, given acquisitions, the acquisition must be a very, very good one. It has to earn a lot of money. And if I see Bernberg's target price of 40 euros and yourself of 69 euros, you have a lot of room to go. And given the operational and strategic outlook we just gave for 2025, I think one of the best deals on the table is share repurchase, right? So we have a couple of opportunities which we look at and we then will decide and the market knows what we decide on and what we do. If I see our share and see your both price targets of 40 and 69, I think there's room to go.

Okay, thank you very much.

So, the next question comes from Lucas Spang from Tigris Capital GmbH.

Yes, hi, good afternoon, gentlemen. I have just one question concerning the bike leasing termination of a sales agent. Can you explain why you did this and if you have any further plans concerning this topic?

Yeah, let me answer that. I mean, you cannot force someone to be acquired, right? You need to both sides to agree to a transaction. We, of course, are aiming to acquire the sales agencies in order to really internalize the teams, the know-how, etc., but not at every price, so to say, right? And the option, so we want to end this system of sales agents. And I mean, if you cannot strike a deal with them, then the alternative B is to just terminate the running contract, which is a bit more, let's say, a hassle internally, because what that means is the contract runs for another six months after you terminate it. you or the sales agent has the let's say legal claim to a compensation at the end because you as a corporate terminating the agreement take them there let's say basis for work so that's legally clarified that's why we have have a provision for that now in our numbers as Harald explained yeah and that's it but two have been acquired in Q2 one has been terminated and you can be sure we are working on solving the remaining two that we still have as well. Okay, there are still two. Correct. So we had initially five sales agencies, and three out of five are already solved today.

And can you give us any indication in terms of the size of these two left ones?

The other ones? It's comparable to the two that we acquired in Q2. So it's one larger one and one smaller one. OK, thanks.

So it looks like we have no more questions at the moment. So I would hand over back to the conference host.

Okay. Thank you. If there appears no more questions, thank you all for attending today's earnings call of Blockhouse Technologies. I would like to use this stage a 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 very much and goodbye. Have a great day.