Company description: Global regulatory tech provider
EQS is one of the largest global providers of digital solutions for investor relations, corporate communications and compliance functions. These are products designed to automate and simplify processes for those individuals working on the technical administrative aspects of running a corporate concern, enabling them to meet all regulatory requirements and freeing up their time to deal with matters that require more than simple information processing. By ensuring the product suites provided are constantly updated for the latest regulatory compliance changes and are delivered via intuitive interfaces, EQS should continue to add value for its users. Originally centred on investor relations (which in Germany and some other markets includes functions covered in other jurisdictions by the company secretary or equivalent), the group’s products and services have been expanded across the related areas of governance, risk and compliance. The definition of investor relations (IR) includes financial and corporate communications, particularly in the form of news feeds, websites, webcasts and media. The compliance part of the group provides the technical (cloud-based) infrastructure for corporate clients to fulfil their legal and regulatory requirements.
The group was founded in 2000 in Munich, initially building a strong market position in its home markets of Germany, Switzerland and Austria before starting to build its presence in overseas territories. EQS looks to position itself as a partner with its client companies, working alongside them to solve issues and reduce inefficiencies, rather than simply as a supplier whose interest may not extend beyond the initial sales timeframe, with a growing emphasis on providing software-as-a-service (SaaS). The shift away from paper-based information to digital channels of communication between corporate entities and their various stakeholders is a key driver for growth. The honed business model is focused on building subscription and annually recurring incomes as a proportion of the whole, increasing the quality of the earnings.
EQS’s solutions and services enable over 21,000 companies worldwide to fulfil complex domestic and international corporate information requirements securely, efficiently and on a timely basis. It has expanded both organically and by acquisition. The acquisition of ARIVA in July 2016 broadened the target markets to include financial institutions, but this concern was sold in July 2019 as it no longer fitted neatly with the corporate strategy. In Q317, EQS acquired a stake in the owner of the fourth-largest US news service, Accesswire, and in December that year bought Swiss-based Integrity Line (€5.0m), a leading provider of cloud-based whistleblowing systems.
For Q319, it employed an average of 364 people, up from 346 in Q318 (pro-forma numbers post the disposal of ARIVA from 1 July 2019). Its headquarters are in Munich, Germany, with further offices in Hamburg and Kiel and in Zurich (Switzerland) and Moscow (Russia). In December 2015, the group purchased Obsidian IR in the UK (price undisclosed), giving it a foothold in that market. In the Far East, the group has operations in Singapore and Hong Kong. More recently, it opened offices in New York and Paris, giving it the global network needed to enable it to offer the solutions sought by some of the largest multinationals. The group’s technical operations are based in Munich, Germany, and Kochi in India. The largest number of employees (between 150 and 200) are involved in web, back-end, platform and software development. There has been a substantial project to upgrade the EQS COCKPIT cloud-based platform through FY17–20, with a total project investment of €8.8m (recently revised down from €9.3m).
Exhibit 1: Geographic mix Q1–Q319
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The German market accounts for most of group revenue, as shown above. For Q1–Q319, domestic revenues were up by 9% (adjusted for the ARIVA disposal), with international revenues ahead by 19% on a client base of 1,188, up by 21 on the previous quarter. The US is an increasingly important part of the mix, with the Integrity Line offering opening more doors. The downside is that the larger requests for proposal that EQS is being invited to join inevitably require more time and expense to prepare, while having a more extended conversion cycle. The strong reputation that German firms have for technology, data management, security and organisational skills gives EQS an advantage that helps offset its relatively small scale. EQS’s offering is not restricted to any particular sector verticals and clients of note include Bridgestone, Puma and Glencore.
Building recurring revenues
The group reports in two segments: IR and Compliance. The IR segment includes financial and corporate communications products, in particular news, websites, webcasts and media. Compliance encompasses all products that companies require to fulfil legal or regulatory obligations. These include reporting and publishing obligations (Disclosure), filing with the German Federal Gazette (Filing), Insider Manager, Integrity Line and Legal Identity Identifier (LEI) workflows.
Under these definitions, around 80% of group revenues are defined as recurring (84% in Q319, rising to 86% for the larger German customers), being mostly related to cloud subscriptions or licences, such as news distribution, workflow modules, data services, webcasts and/or webhosting. The balance is accounted for by projects or set-up fees such for products, websites, platforms, reports and/or media.
EQS INSIDER MANAGER has now been rolled out to 14 countries and had over 650 clients at the end of September 2019. Integrity Line has already been sold into more than 200 clients. However, sales have been slower to build than hoped as it is primarily sold to larger organisations, which have more cumbersome procurement procedures. Work is ongoing on a similar but simplified solution for selling into SMEs.
Exhibit 2: Compliance COCKPIT elements
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These elements are combined within a dashboard that enables the client to assimilate and manage the various compliance aspects within one system, whereas they would previously have needed to be monitoring multiple applications. Within EQS’s framework through to FY25, Policy Manager and Integrity Line are projected to have the strongest growth trajectories, along with Insider Manager.
Exhibit 3: Investor Relations COCKPIT elements
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While growth in the individual elements within management’s projections are relatively modest (4% for IR tools, 9% for media), the real advantage for the client is in time and efficiency, holding all these aspects together in the cloud and managing via a dashboard.