Exasol — Winning new business despite COVID-19

Exasol (DB: EXL)

Last close As at 22/11/2024

6.07

−0.15 (−2.41%)

Market capitalisation

148m

More on this equity

Research: TMT

Exasol — Winning new business despite COVID-19

Exasol made solid progress in H120, growing annual recurring revenue (ARR) by 18% half-on-half and 30% year-on-year. Overall revenue declined 8% year-on-year as the number of perpetual licences signed fell, in line with the company’s strategy to focus on subscription licensing. Cash proceeds from the recent IPO contributed to the €40m net cash position at the end of H120, providing more than adequate funding to support the growth of the company until it reaches cash flow profitability.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Exasol

Winning new business despite COVID-19

Software

Scale research report - Update

25 September 2020

Price

€18.6

Market cap

€402m

Share price graph

Share details

Code

EXL

Listing

Deutsche Börse Scale

Shares in issue

21.6m

Net cash as at 30 June 2020

€40.3m

Business description

Exasol is an analytics database software developer with more than 175 customers in 30 countries. Its headquarters are in Nuremberg, Germany, and it has offices in the UK and the US.

Bull

Industry-leading product.

High customer retention.

Large and growing addressable market.

Bear

Small compared to competitors.

Loss-making.

Share overhang.

Analyst

Katherine Thompson

+44 203 077 5730

Exasol made solid progress in H120, growing annual recurring revenue (ARR) by 18% half-on-half and 30% year-on-year. Overall revenue declined 8% year-on-year as the number of perpetual licences signed fell, in line with the company’s strategy to focus on subscription licensing. Cash proceeds from the recent IPO contributed to the €40m net cash position at the end of H120, providing more than adequate funding to support the growth of the company until it reaches cash flow profitability.

Growing proportion of recurring revenues

Exasol reported H120 revenue of €10.1m, down 8% y-o-y due to a higher proportion of subscription licence deals signed compared to H119. Recurring revenue made up 90.7% of H120 revenue compared to 64.2% in H119 and ARR increased 30% y-o-y and 18% h-o-h to €20.8m in June 2020. Despite COVID-19 restrictions, the company signed up 16 new customers in H1. Exasol reported EBITDA of -€15.0m for H120 (H119: -€5.1m); and excluding one-off items, adjusted EBITDA of -€1.8m compared to €0.8m in H119.

Targeting ARR growth of 36% in FY20

The company is targeting ARR of at least €24m by the end of FY20, which implies 36% growth y-o-y and 15% growth compared to the end of H1. Consensus forecasts for FY20 imply either stronger growth in ARR or a higher contribution from non-recurring revenues in H2. Since the end of H1, the company has made a small acquisition (€0.9m cash): yotilla (based in Germany), which has developed a software solution to automate the creation of data warehouses based on pre-defined criteria. Exasol plans to sell this alongside its core product to new and existing customers.

Valuation: Reflects growth prospects

Exasol has traded above its IPO price since listing in May and is now 96% higher than its listing price of €9.5. On an EV/sales basis, it is trading at a premium to the average for German software peers, although it is more in line with high-growth peers. Compared to US SaaS software peers, it is trading at a discount despite faster growth prospects.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

Adjusted EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/18

17.7

(0.6)

(0.06)

0.0

N/A

N/A

12/19

21.6

(13.9)

(1.33)

0.0

N/A

N/A

12/20e

27.4

(19.1)

(0.28)

0.0

N/A

N/A

12/21e

43.3

(9.5)

(0.30)

0.0

N/A

N/A

Source: Exasol, Refinitiv

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Review of H120 results

Exhibit 1: Half-year income statement

€m

H119

H120

y-o-y

Revenue

11.04

10.13

-8.3%

Other operating income

0.10

0.22

112.6%

Cost of materials

(1.10)

(1.00)

-8.7%

Gross profit

10.05

9.35

-7.0%

Own work capitalised

0.89

0.95

6.0%

Personnel expenses

(12.88)

(18.61)

44.5%

Other operating expenses

(3.22)

(6.71)

108.7%

EBITDA

(5.15)

(15.02)

191.9%

D&A

(1.08)

(1.04)

-4.1%

EBIT

(6.23)

(16.06)

157.9%

Interest income

(0.43)

(0.17)

-61.0%

PBT

(6.66)

(16.22)

143.7%

Tax

(0.02)

(0.01)

-60.0%

Net income

(6.67)

(16.23)

143.2%

Gross margin

91.0%

92.3%

EBITDA margin

-46.6%

-148.3%

EBIT margin

-56.4%

-158.5%

Source: Exasol

Exhibit 2: Revenue breakdown

€m

H119

H120

y-o-y

Recurring revenue

7.1

9.2

29.6%

Other revenue

4.0

0.9

-76.2%

Total revenue

11.0

10.1

-8.3%

Recurring/total

64.2%

90.7%

26.5%

Source: Exasol

Exhibit 3: Adjusted EBITDA reconciliation

€m

H119

H120

EBITDA

(5.1)

(15.0)

Add back:

Share-based payments

5.9

10.1

IPO expenses

0

3.1

Adjusted EBITDA

0.8

(1.8)

Source: Exasol

Recurring revenue growth

In H120, Exasol reported an 8% decline in revenue year-on-year. Subscription licences increased by 30% y-o-y whereas perpetual licence sales declined 76% y-o-y (see Exhibit 2). The company’s preference is to sell licences on a subscription basis and it only sells perpetual licences if there is a specific customer need, which was the case in H119. ARR (recurring revenue for the month x 12) increased by 30% y-o-y and 18% h-o-h to €20.8m in June 2020. The company noted that it won 16 new customers and signed 38 new partners in H1.

Large one-off items skew results

Personnel and other operating costs were significantly higher year-on-year due to one-off items. In Exhibit 3, we show a reconciliation to adjusted EBITDA. Share-based payments consist of provisions for stock appreciation rights granted to executives and employees and are included in personnel expenses. Excluding these provisions, personnel costs increased 23% y-o-y, reflecting the increase in headcount over the course of H119. IPO expenses are included within other operating expenses; excluding these costs, other operating expenses increased 13% y-o-y. Excluding one-off costs, adjusted EBITDA reduced from €0.8m in H119 to a loss of €1.8m in H120.

IPO proceeds provide a healthy cash position

The company ended H120 with a net cash position of €40.3m, compared to a net debt position of €1.6m at the end of FY19 plus €3.1m in shareholder loans. Cash flows from operating activities consumed €4.8m in H120 (this includes the €3.1m of IPO costs and €2.4m initial payment of stock appreciation rights) and investing activities consumed €1.2m (mainly capitalised development costs). In its May IPO, the company raised gross proceeds of €48.5m from the issue of 5.1m shares and €2.7m from the sale of 285k treasury shares, both at €9.5 per share. After this, the company repaid substantially all debt.

Stock appreciation rights (SARs) – €13.7m provision to date

The company has three share-based remuneration schemes in place:

SAR Executive Board programme: we estimate that c 975k SARs have been granted. The holders of the SARs are entitled to a payment equivalent to the value of the share price less €1; this can be in the form of cash or equity. An initial cash payment of €2.4m was made in H120. The scheme runs until August 2022 when the final payment is due. As at the end of June 2020, €9.7m of this had been provided for. We note that a total of 881,794 shares were contributed to the company prior to the IPO for use in this scheme. 285,000 were sold as part of the IPO greenshoe, generating proceeds of €2.7m, which more than covered the initial payment. A further 596,794 shares are held in treasury and can be sold or issued to contribute towards the final payment, reducing the net cost of the programme.

SAR employee programme: employees are entitled to 579,000 SARs. The equivalent value of a SAR is €13 so the total cost of the programme will be €7.5m. It will be paid out over three years, with 30% due in May 2021, 40% in May 2022 and 30% in May 2023. As at the end of H120, €4m had been provided for.

Executive Board stock awards: the number of shares to be awarded is linked to annual base remuneration and a factor dependent on the performance of the Exasol share price, up to a maximum level. Payment of the entitlement is over three years.

Events since the end of H120

In August, the company set up a Swiss subsidiary, Exasol Schweiz AG, based in Zurich. This will be used to distribute Exasol products in Switzerland. The first sales employee started working there last week.

Exasol acquired 100% of the shares of yotilla GmbH, headquartered in Cologne, paying €900k in cash. Yotilla has developed a software solution that enables the automatic construction of a data warehouse based on given parameters. Three employees instrumental to the development of the solution were also part of the acquisition.

Outlook and changes to forecasts

The company took action in Q220 to respond to the restrictions imposed by COVID-19, with most staff working from home. Despite this, the company signed up 16 new customers in H1 and expects to grow ARR to at least €24m by the end of 2020.

The one set of forecasts in the market has not changed post-results, forecasting revenue of €27.4m for FY20. Based on the revenue generated in H1 (€10.1m) and the recurring revenue target for year-end, in our view this forecast assumes either that the ARR target is beaten or the company generates a high level of non-recurring revenue in H220.

Valuation

We compare Exasol to two groups of peer companies: US SaaS software companies and German software companies (which are a mix of SaaS and traditional software models).

We note that the US SaaS companies are much larger in size, both in terms of market cap and revenues. They tend to report recurring revenues at a higher level than Exasol (which reported 70% recurring revenues in FY19), anywhere from 80% to 100%. As Exasol shifts more of its business to subscription licensing, and sells more via the channel (so it does not undertake implementation work), it should see its recurring revenues increase as a percentage of revenues; in fact in H120, this had already increased to 91%. Of the 40 US SaaS companies included in the averages, 11 were loss-making in the last reported year. Exasol is forecast to grow revenue faster than the group average and is trading at a discount on an EV/sales basis for both years.

Exhibit 4: US SaaS software metrics

Market cap

Revenue $m

Rev growth (%)

EBIT margin (%)

EV/sales

EV/EBIT

$m

LY

CY

NY

CY

NY

CY

NY

CY

NY

Average

22,378

1,146

27.9

22.8

3.5

9.7

15.5

12.4

249.8

109.6

Median

7,975

577

23.2

22.5

7.4

9.8

14.0

11.4

44.8

63.2

Source: Refinitiv (as at 21 September). Note: Average EV/EBIT excludes loss-making companies.

The German software peers are all profitable at the EBIT level. Those with a market cap sub-€1bn are forecast to grow revenues at an average of 9.7% this year, compared to Exasol’s 26% growth forecast, and are forecast to grow on average 14.2% next year. On an EV/sales basis, Exasol is trading at a premium to the group average, but looking at the higher growth peers, the valuation looks more in line.

Exhibit 5: German software peer metrics

Market cap

EV

Sales growth (%)

EBITDA margin (%)

EBIT margin (%)

EV/sales (x)

€m

€m

CY

NY

CY

NY

CY

NY

CY

NY

Exasol AG

406

362

26.8

58.0

-60.6

-14.8

-69.0

-21.7

13.2

8.4

SAP SE

166,462

176,004

2.3

7.8

34.2

35.2

29.1

29.4

6.2

5.8

TeamViewer AG

8,552

9,013

17.8

20.1

52.3

54.6

45.4

49.8

19.6

16.3

Nemetschek SE

7,548

7,692

5.2

13.6

27.7

29.3

20.1

22.7

13.1

11.6

Software AG

3,144

2,852

-3.9

1.9

23.2

24.6

19.1

20.6

3.3

3.3

RIB Software SE

1,268

1,168

22.4

18.4

25.9

26.1

13.2

16.0

4.4

3.8

Mensch und Maschine Software SE

919

935

7.0

11.2

15.4

16.4

12.1

13.1

3.6

3.2

Atoss Software AG

986

967

17.0

16.0

31.1

32.8

26.7

28.4

11.6

10.0

PSI Software AG

391

363

-3.3

8.3

11.2

12.1

6.4

7.8

1.7

1.5

IVU Traffic Technologies AG

283

257

8.1

8.3

15.6

14.4

13.5

12.5

2.7

2.5

init innovation in traffic systems SE

318

333

15.5

13.2

14.8

14.9

10.7

11.4

1.8

1.6

Cyan AG

99

94

11.3

33.2

35.7

38.9

7.7

24.4

3.1

2.4

USU Software AG

254

243

8.7

12.5

9.5

11.1

4.9

7.9

2.3

2.1

GK Software SE

158

182

9.0

13.8

14.4

16.3

6.8

9.5

1.4

1.3

Serviceware SE

152

123

14.1

11.3

5.9

6.4

3.2

3.8

1.6

1.5

Average

9.4

13.6

22.6

23.8

15.6

18.4

5.5

4.8

Median

8.8

12.9

19.4

20.5

12.6

14.5

3.2

2.8

Average market cap <€1bn

9.7

14.2

17.1

18.2

10.2

13.2

3.3

2.9

Median market cap <€1bn

9.0

12.5

14.8

14.9

7.7

11.4

2.3

2.1

Source: Refinitiv (as at 21 September)

We note that Snowflake, a key competitor to Exasol, came to the market (NYSE) on 16 September. Its IPO was very well received, with the price range moved up during the process from an initial range of $75–85 per share to a final price of $120. This valued Snowflake at $33bn and generated gross proceeds for the company of $3.9bn. Since IPO, the share price has soared and currently stands at $226.74 giving the company a market cap of $63bn. No consensus forecasts are yet available for the company, but based on the last reported quarter’s revenues (three months to 31 July 2020 $133.1m; annualised $532.4m), this values the company on an annualised price/sales multiple of 118x. Snowflake is loss-making; revenue growth was 174% for FY20 (year ended 31 January) and 121% for Q221 (quarter ended 31 July 2020). Prior to its IPO, Snowflake had already raised $1.4bn over several investment rounds, providing significant funds to drive growth. Exasol’s recent IPO provided the largest cash injection in its history, putting it in the position where it can now accelerate its sales and marketing efforts.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Exasol

View All

TMT

Exasol — All systems go

TMT

Exasol — Analyse this

Latest from the TMT sector

View All TMT content

Research: Financials

Ernst Russ — Ship utilisation remains high

In H120, Ernst Russ (ERAG) recorded a 39% increase in revenues, mainly driven by the accounting effect of the full consolidation of the Elbfeeder JV, following the acquisition of an additional 2% stake in July 2019. The positive impact from expanding ERAG’s own fleet to 14 vessels, which more than doubled the income in the shipping segment, was partially offset by the disposals of non-core activities as part of streamlining the business. Together with the headcount reduction and other cost-cutting measures, it translated into an operating profit and net profit for the period of c €1.8m, against losses reported in H119. Management guides for a positive operating result in the low single-digit millions for FY20.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free