EQS’s Q122 figures showed revenues ahead by 34% to €14.11m, with the growth boosted by the inclusion of the revenues generated by Business Keeper (a previous acquisition, Got Ethics, was consolidated from January 2021 and is therefore included in the comparative figure). Stripping Business Keeper revenues out, the organic growth rate was nearer 7%. In normal trading, this would be a disappointing degree of progress, but it should be remembered that the group is very focused on driving sales in whistleblowing solutions and these, as explained above, have been slow with the timing slippage on the implementation of the legislation.
These factors have led management to narrow the range of expectations for revenue growth for the FY22 year from 30–50% to 30–40% growth, equivalent to €65–75m moving to €65–70m. Our previous estimate was for €70m, which now lies at the top end of the range. Provided that the German whistleblowing legislation does proceed as currently anticipated, we are comfortable with maintaining our forecast at this level.
With the Q122 results, the group provided some valuable insight into the client recruitment process, timescales and costings, summarised in Exhibit 8 below. As this is styled ’fast track’, we imagine that it is not always so straightforward. What is clear though is the length of the expected retention, which reflects how complex it can be to switch suppliers once the systems are embedded. The €67k lifetime value is calculated using Q122 data, taking an average ARR of €4.3k for those 25 years, building in an annual inflationary increase of 3% and discounting at 8%, with a 4% churn rate built-in.
Exhibit 8: Fast-track customer acquisition journey
Stages |
Awareness |
Consideration |
Acquisition |
Lifetime value |
Touchpoints |
Paid search |
Landing page |
Demo |
|
|
Website |
Product page |
Negotiation |
|
|
|
Demo request |
Signing |
|
Timeframe |
2 weeks |
1 week |
2 weeks |
25 years |
Cost attribution |
€760 |
€560 |
€1,120 |
€67,000 |
Using the less-optimised cost of customer acquisition achieved in Q122 of around €11k, the ratio of lifetime value to acquisition cost is 6.1x, as shown in the Q122 results presentation. With scale, it is not unreasonable to suggest that customer acquisition costs should fall (at least until the market is highly penetrated), lifting this ratio further.
Exhibit 9: Q122 summary results and full year guidance
€m |
Q122 |
Q121 |
% change |
|
Full year guidance |
Investor Relations revenues |
|
|
|
|
|
Cloud-products |
2.56 |
2.20 |
16% |
|
|
Service-products |
2.25 |
2.68 |
-16% |
|
|
Total Investor Relations |
4.81 |
4.88 |
-1% |
|
|
|
|
|
|
|
|
Compliance revenues |
|
|
|
|
|
Cloud-products |
7.19 |
3.53 |
104% |
|
|
Service-products |
2.12 |
2.14 |
-1% |
|
|
Total Compliance |
9.31 |
5.67 |
64% |
|
|
|
|
|
|
|
|
Group revenues |
14.12 |
10.55 |
34% |
|
+30–40% |
EBITDA |
0.25 |
0.31 |
-19% |
|
€6–10m |
EBIT |
(1.77) |
(0.97) |
83% |
|
|
|
|
|
|
|
|
Personnel expenses |
9.41 |
7.05 |
34% |
|
|
New SaaS customers |
216 |
158 |
37% |
|
2,500–3,500 |
Total customers |
4,405 |
3,260 |
35% |
|
|
New ARR |
1.81 |
1.44 |
26% |
|
€11.0–16.0m |
ARR |
12.1 |
10.5 |
15% |
|
|
EBITDA performance in Q122 was in fact better than anticipated, reflecting lower costs as pressure was taken off the sales and marketing pedals as the urgency of tackling the German opportunity dissipated with the legislative delays.
As can be seen in Exhibit 9 above, personnel expenses are the group’s largest expense item at 67% of Q122 revenue, with the year-on-year comparison reflecting the additional employees from last year’s acquisition of Business Keeper. ‘Other’ expenses in Q122 of €2.79m including €0.6m of consulting costs relating to the fundraise in March. Excluding this additional consulting cost, the increase in other expenses was 31%, more in line with the underlying growth in group revenue.
Guidance for new ARR and for EBITDA were maintained at €11–16m and €6–10m respectively and we are also holding our EBITDA revenue forecast at €7.5m, which falls in the lower half of the range, implying a slightly more cautious assumption on margin.
Exhibit 10: Historical revenue progression and forecast by segment
|
|
Source: EQS Group accounts, Edison Investment Research
|
|
Exhibit 11: Segmental revenue progress and group revenue and EBITDA forecasts
Year end December (€k) |
FY19 |
FY20 |
FY21 |
FY22e |
FY23e |
Investor Relations |
|
|
|
|
|
Cloud-products |
5,286 |
7,849 |
9,504 |
11,642 |
13,680 |
Growth (%) |
0% |
48% |
21% |
23% |
18% |
Service-products |
8,717 |
9,818 |
10,012 |
10,513 |
11,038 |
Growth (%) |
0% |
13% |
2% |
5% |
5% |
Discontinued operation (ARIVA.DE AG) |
2,072 |
0 |
0 |
0 |
0 |
Total Investor Relations |
16,075 |
17,667 |
19,516 |
22,155 |
24,718 |
Growth (%) |
|
10% |
10% |
14% |
12% |
Like-for-like growth (%) |
|
26% |
|
|
|
|
|
|
|
|
|
Compliance |
|
|
|
|
|
Cloud-products |
9,332 |
10,696 |
19,826 |
34,244 |
48,280 |
growth (%) |
0% |
15% |
85% |
73% |
41% |
Service-products |
8,535 |
9,273 |
10,881 |
13,601 |
17,002 |
Growth (%) |
0% |
9% |
17% |
25% |
25% |
Discontinued operation (ARIVA.DE AG) |
1,425 |
0 |
0 |
0 |
0 |
Total Compliance |
19,292 |
19,969 |
30,707 |
47,845 |
65,282 |
Growth (%) |
|
4% |
54% |
56% |
36% |
Like-for-like growth (%) |
|
12% |
|
|
|
|
|
|
|
|
|
Group revenue |
35,367 |
37,636 |
50,223 |
70,000 |
90,000 |
growth |
|
6% |
33% |
39% |
29% |
Like-for-like growth (%) |
|
18% |
14% |
|
|
EBITDA |
2,554 |
4,760 |
1,742 |
7,500 |
18,000 |
Growth (%) |
|
86% |
-63% |
+331% |
+140% |
EBITDA margin (%) |
7.2% |
12.6% |
3.5% |
10.7% |
20.0% |
Source: EQS Group accounts, Edison Investment Research
Management’s medium-term guidance is for IR revenues to build at a CAGR of 13% over FY21–25e. This seems reasonable in ‘normal’ capital markets, with the ongoing migration to digital methodologies within business and continuing progress in cross-selling products within the IR COCKPIT.
Exhibit 12: IR segment growth target
|
Exhibit 13: Compliance segment growth target
|
|
|
|
|
Exhibit 12: IR segment growth target
|
|
|
Exhibit 13: Compliance segment growth target
|
|
|
The growth forecast in the Compliance segment combines organic growth at a CAGR of 22% FY21–25e, with the addition of (growing) Business Keeper revenues coupled with synergies quantified by management at €5–10m to FY25e.
Exhibit 14: Long-term revenue and EBITDA record and forecasts
|
|
Source: EQS Group accounts, Edison Investment Research
|
Cash flow dominated by M&A
With the emphasis on recurring revenues, the underlying cash requirements of the business are relatively modest and the broad spread of clients with relatively small contract values minimises the credit risk. The comparatively low level of operating cash flow is really just a reflection of the concentration of resource into investing to build out the medium and longer-term prospects.
This is clearly shown in the aggregation exercise below where we have looked at the sources and uses of cash for the five years FY17–21, where the scale of the M&A is apparent. As indicated above, Business Keeper was the largest acquisition to date by some margin, at a cost of €95m, of which €80m was paid in FY21 with the balance due in FY22.
Exhibit 15: Sources and uses of cash FY17–21
|
|
Source: EQS Group accounts, Edison Investment Research
|
During FY21, the group raised €43.9m in three capital raises, in February, July and December. These were for €13.6m at €38.00 per share, €22.4m at €38.00 and €7.7m at €41.00.
During Q122, the group carried out a further fund-raise of €45m gross, in part to facilitate the requirements of a new prospective cornerstone investor, Gerlin NV’s Teslin fund. To satisfy this, the deal was structured to be underwritten by other key investors, which only subscribed to the extent that, with a rump placing, they would end up where they wanted to be, thereby avoiding dilution. So, although visually a take up of 9.7% looks poor, this does not represent the underlying degree of support from existing shareholders. Gerlin took 42% of the issue and now has a 6.1% holding in the enlarged equity.
The other advantage of the transaction was that it did not require the major input of investment bankers, saving €2–3m on the deal.
An additional element of the rationale for this latest placing was to contribute to the funding of the potential proposed acquisition of a German firm (DFGE) in the ESG reporting space. This deal did not come to fruition due to differing expectations of the two parties (the then target has more of a consulting ethos), but future collaboration remains on the cards. The funds originally earmarked for this have been reallocated to the ongoing investment in whistleblowing plus the internal development of the ESG offering.