Equus Total Return, Inc. Price & Performance (EQS)

Hi, Achim. Pleasure to be here. Welcome from my side as well.

Yes, looking very much forward to the next 45 minutes. We will start with a summary of the next month. Then, of course, the year 2023 is the year of whistleblowing. We will go in detail looking into all aspects of the disappointing wave. And then, Andre, you will end the session with the outlook and then our Q and A.

As always. Great. So maybe just a short reminder at the very beginning. So on the upper left side, you see a question mark button. And when you want to place your questions. You can do that already now or you do it later. So just as an info for the beginning. All right.

Let's start with the summary and the highlights of the 9 months 2023. So finally, the whistleblowering wave is here. Finally, the whistleblower protection laws are enforced and especially in our main markets, that's Germany, Austria, it's Spain and Italy. All these markets implemented the laws in the middle of this Tia. And despite the fact that the laws were postponed for 18 months, still it came as a surprise to many companies. And we're seeing that the demand is picking up month by month. We're still not there where we believe we will be, but the dynamic is really increasing and we see now numbers of 100 new customers per week. So really fantastic to see that we are well positioned to grab now this market and right in the supply wave.

Yes, absolutely. And together with this growth and new customers and new ARR. We also see EBITDA picking up as planned. And the business is very scalable. We always say that and We can see that in the figures. And that's a great, I think, a great outcome what we see that this dynamic now is picking up. Main investments are done. So the ramp ups are done. And now we see costs growing at a significantly lower rate than revenue. And that brings the margin up. So very happy about this highlight in the 1st 9 months.

And this will develop Will continue.

Over the next quarter.

Quarter by quarter, nicely and surely. Yes, and then we had the merger of Business Keeper. After 2 years, we finally could merge the entity legally, and that's really a nice piece for a lot of colleagues working or having worked in different systems. And now finally, we will make this way more efficient, having all the processes in the one system. Great. So as always, the KPIs for the 9 months, nicely on track with new customers. I mentioned the dynamics, new ARR growth. Very recurring, our business. As always said, we are already at a rate of 89% and it's going to continue to improve further because the growth is driven by subscription revenue, as you know, with high gross margins. Coming from the field of compliance, so you see on the lower end tile on the left, you see the 18% growth in compliance. So that's the core driver. Specifically now with Q3, we saw an increase and acceleration in the whistle blowing growth, so compliance cockpit. And EBIT and revenue in Investor Relations, stable. So we see now step by step an improvement at a low level. Also here important to mention that the product mix, same as in compliance is better now.

So we are growing quarter by quarter with the subscription rates, whereas the project business is decreasing. In the mix, it's kind of stable development, but with a higher quality of revenue. Yes. Looking on to the IFRS figures for the 9 months, we see 15% revenue growth in line with the expectation. EBITDA picking up strongly and translating into a great cash flow. Also the free cash flow is higher than EBITDA and nearly tripled year on year. So that really makes me proud and it really shows the quality of the business. So on the one side, scalability, but also then having subscription being paid in advance for a year leads gives us an incremental cash flow that we get and we can use it to invest from our customers.

That's the beauty of assess business model, right? You see the success in the free cash flow. On the other hand, we see also if new contracts coming quite late in the quarter, then of course, you have a delay in the revenue. And this is also what we are seeing, right? We see the dynamic now, but it doesn't reflect immediately in the revenue numbers.

You're totally right. I think that's a good point to mention here again. I mean, what we see revenue recognition comes always with a slight delay and that's why we also have as KPIs these sales figures where you can really see where we are currently as of today, what's the dynamic. And then with a bit of lagging, you see it in revenue recognition. But that's then sure. I mean, that's something that is just a timing effect, so to say. Yes. On the balance sheet, which is key, of course, for my role, we see quality of the balance sheet is increasing. Cash has built up versus the last year. It's on a stable level versus the end of the year. And on the other side, we are decreasing that debt as planned and yes, running with a comfortable equity ratio, I would say. Looking into more details on the EBITDA number, we see that there are slight effects in some areas, a bit more of in the one area, a bit lower capitalized costs and so on. But the key impact, the key driver is the incremental operating growth leading to a higher EBITDA and having, of course, the cost discipline on the other side.

So we are nicely on track for the full year. And If we look into the two areas and we wanted to give a bit of sense here also, normally we publish the EBITDA performance on an annual basis. But also here, we showed now an LTM number, which is Q4 plus 9 months, just showing a bit of dynamic. And what we see, strong growth dynamic, which you can see here on the bars, picking up for compliance and EBITDA margin is stable. Why is that? Because we are investing everything we can invest in our overall framework. As you know, we have financial debt, so we have to respect certain covenants. And that's why we invest everything we can up to a certain amount, and that drives our growth, of course. And in Investor Relations, and that's really nice. We said that in the past. We will now turn this into a cash cow with a quick increase in profitability, and you can see that nicely here, yes, year on year. This is really great to see, especially when you know that the market and the revenues not really increasing. It's a stable market. We see that there are practically no IPOs that the capital markets kind of in general, struggle, and we can increase the profitability quickly.

So that's snow brain surgery. We are doing what we told before, shifting resources from investigations to compliance and making investigations more profitable over the upcoming quarters. And of course, the goal is to reach the 30% EBITDA margin in Investor Relations and in Compliance, and we are totally on track here.

Definitely. All right. The whistle blowing growth, impressive and acceleration in the last months, right?

Yes, especially in the last months, even the last weeks, we see now per week kind of new customers in the area of 100, so 100 new customers per week. That is, of course, fantastic, and we are very confident that this will go on not only until the end of the year, but we have a lot of indication that it will go far more into 2024, 2025 because it will take time until all companies, and we're talking here about 250,000 companies in Europe, will really know about this law and then make sure that they apply and comply with this law on the data protection side, but also data security and making sure that they use a digital solution, which is, of course, best practice. Yes, new customers. The number is increasing. That's on the left side. And of course, this also translates into a strong increase in new ARR. You see the dynamic. 3rd quarter looks good, percent plus.

But maybe just to also have in mind here, new customer growth doesn't translate 1 to 1 into new ARR because the partner business is contributing now with the loss being in place and with a high number of customer growth, but Lower ARRs and average there.

As expected. As expected, totally. Let's look into the partner business. We see that now since the laws are in place, partners are active now. They are in the market. They are doing their marketing, they're doing their sales. And of course, this translates into high numbers of new customers. It is also as expected that I mean, we discussed this before once for why is the partner business not picking up. And the partners always came back by saying, look, we will wait until the law is in place. Now the laws are in place and now we see that the numbers our increasing. When we look back a year ago, we always had, well, if a noise in place, we will see maybe 3 months before and 3 months afterwards, we see this spike. That's not the case here. And why is that? We come from an Investor Relations business, right? The first 17 years, we focus on Investor Relations. So our target group were stock listed companies. And with stock listed companies, we know that they want to comply on time. So when there's a law, they will have everything in place when the law is in effect.

Here, when you talk about the broader market, all companies from 50 employees upwards, it's different. 1st days look into this, if they are aware, what are the fines? What do I have to do? Do I really want this law? Does it help me to fulfill my goals. Is it a hassle? And there are many discussions. And there is, of course, a lot of resistance, especially family owned businesses. There's a lot of resistance of implementing a risk of growing solution, but the pressure is increasing from different stakeholders. We see the whistle blowing law. We see also supply chain laws where you also have to offer a whistle blowing channel. And it comes from ESG, it comes from employees, it comes from partners. So this is a process that will go on for years now and this is the reason why we believe there will not be this spike. This will be more a marathon over the next years.

I can only confirm that. I mean, yesterday, I was at an event for CFOs and finance people and talked to a lot of SME CFOs. And I was really surprised that, again, a couple of them are even not aware of the law. Others are still discussing if this is necessary, if it makes sense, how to do it. And only very few really have something in place and that these are companies with several thousands of employees, yes? So it really confirms that the kind of listed companies. They are always top notch in terms of regulation and what they need to do and how to comply. But with the non listed, it's a way longer way to go, but that's also great because it means that we have potential for a longer time to grow with them.

Yes. If you just look at our core market, Germany, we have around 500, 600 stock listed companies, and we're talking now about 50,000 companies.

That's a crazy number for us.

Great. So, coming back to our growth journey, we always said, when we started in 2017 with our compliance business, we want to grab the market. And we saw this huge opportunity with the upcoming whistle blowing doors. So, all companies have to comply, right? All companies from 50 employees upwards. So step number 1, grabbing the market, getting out there and collect as many new customers as possible. This is what we are doing. This is of course in many areas not very efficient, because the goal is number of new customers. This is our main goal. And then newer ARR, this is also very important goal. But our goal was not over the last years to be as efficient as possible. So now, we go into step number 2 after the whistle blowing wave, onboarding all these new customers onto our newly developed compliance cockpit, where we offer all the major workflows that you as a compliance officer need in order to comply and in order to run an efficient compliance program. And this will be a wonderful step upwards for us in ARR per customer, of course. And of course, also the stickiness. And it will help us to understand how to develop this compliance cockpit further and in which areas we can deliver the most value to our customers.

So this will be step number 2 in our growth journey. We'll talk about the compliance cockpit about within the next quarters years to come. And then, we will look also into the broader ESG space, where more regulation is upcoming, like the CSRD that says that all companies with more than 500 employees have to report on sustainability. So sustainability reports will be mandatory in the EU with all companies with more than 500 employees. So also a huge market and also a huge opportunity for us. Definitely. And we didn't even talk about the supply chain topics, which is kind of bridge between compliance and ESG.

And we saw that with IR, there was also a kind of bridge. And that makes it so interesting for us because we really understand the journey of our customers also, our potential future customers. Right. Yes. How does it translate into our KPIs, right, this future outlook Achim presented basically? So for this year, we confirm our outlook on our major KPIs. And also for the midterm outlook, we are totally fine and in line with our expectation, building up profitability strongly with a nice double digit growth driven from compliance and Investor Relations improving on profitability significantly over the next years. It. Great. So that was it from our side. Now we're really looking forward to your questions. So, Achim, let me have a quick look. Which question came in first? All right. So we already have a couple of questions coming in. So the first one comes from Janik Siering from Stifel. Could you talk about just a sec. Could you talk about upselling wins? How has the demand for the compliance cockpit developed since the whistle blowing law was introduced? So we have these two questions. 1st a small yes, on the maybe one step back since we are, of course, the whole company is focusing on grabbing the whistleblowing law, the wave.

The idea is not to focus on up and cross selling at the moment. All our marketing efforts, all of our sales efforts focus on getting as many customers as possible. And these are, of course, the low hanging fruits. That means sales cycles are short and sales people don't have to invest too much to convince customers to buy this product. But of course, it is our goal to up and cross sell. Up and cross sell will be more in focus within the next few quarters when the wave is over. But we already see that when we present the Wizzaboin product and tell our customers that this is part of a compliance program within our compliance cockpit. They are, of course, very anxious to look into the other workflows. And they are telling us, oh, this is great. This is also a good argument to work with you in the reserve bank space when I know that with the next topics, I can also run a compliance workflow on your cockpit. So yes, we see more and more companies buying more products than just the disciplined product, but it's still a small number. So we're talking about numbers in risk manager.

So our supply chain growth, we talk about policy manager, proven manager, where we have more and more companies that buy this product or look into it. But it's not at the rate that is now important to communicate and to report on because it's not part of the story at the moment. But it gives us the full confidence that this is what companies want to have. Everything within one platform, all the data in one platform an audit trail on one platform. They're reporting data protection, everything in the cockpit. It makes a lot of sense, and it's not difficult to convince customers that this is the future.

Yes, great. Maybe then a follow-up question from Quint Waller from Baader Bank on that topic. How long do you expect will it take to convert the majority of your customers to the whole cockpit?

It's not our goal to convert the majority of our customers. We always said 5,000 whistleblowing customers and then convert 1,000 of these 5,000s onto the compliance cockpit. If we achieve that, then we are fully in line with our forecast.

And another related question on the topic from Fiona from Edison. Where our customer where customer has been introduced by partners. Do further upsells of cockpit benefit that partner or does it go to us directly? How is it done?

We have different partnership models. And there's a referral model where it depends if the partner still wants to do up and cross selling, then he would also benefit for it. Then we have managed partners. They are definitely interested in up and cross selling and also will benefit from that. So our goal, of course, is to be aligned with our partners. And of course, our goal is also not to spend too much money on the level below companies of less than 500 employees.

Employees, yes.

And therefore, this partner model is really important for us.

And that's also another question from Fiona on how we determine which ones we do directly and indirectly. And that was, as you said, Achim, basically on the number of employees. So that's the main, the core KPI for distinguishing between which ones we want to target directly because we believe they are in our sweet spot in order to roll out the whole platform with all workflows and which ones are below, Which we then tend to let be addressed by partners. All right. So cockpit is a big topic as we can see. Then moving further to here is a bigger amount Questions couple of questions coming from Martin Hellsrich from Ambrosia Invest. You report average 100 new customers per week. Can you narrow us down the planned number of new customers for the whole year, 2000 to 3000? Well, let me start with that maybe. I can do that. So here, Achim mentioned this average 100 new customers per week. So that's what we experienced in some weeks. It's not like experiencing this every week, the last 2 weeks. We don't know if it will be like this every week or maybe we come to an average of 50 or less.

We cannot say for sure. But if you look into this one chart, so you know, on the one side, we reported for 9 months 1331 Whistleblowing customers and 1395 SaaS customers total. And then you also had the October number in the chart, which is around 400, so you could add this up and then you know where we are at as of October. And now the goal is 2000 to 3000. And what we can say is we feel comfortable in achieving our goals. But I think that's all what we can say. More precise, it's not possible. What are the new customer figures? October, November, yes, I think that's related to it. October. We have presented November, we can tell. How do you how high do you estimate your market whistleblowing in the various markets. Here, we look differently. We don't look we also look into geographies, but we look a lot into the different customer groups. The bigger the customer, so more towards enterprise and multinational, the higher our market share, the lower, the more fragmented is the market. And we have local competition, but the big ARRs, of course, so the ARRs are also allocated more Towards the bigger customers.

Absolutely. So we have a strong market share, and we are the leading provider in Europe with the enterprise and multinationals. That's for sure. But it is, in the end, Europe very fragmented and it's very difficult to get the numbers. That wherever we look into and wherever we can have some access to data, we see that we are in any country in the EU on in a leading position.

And then the last question is on partner business for Martin Helfrich. It's a framework agreement was concluded with how is customer acquisition in the public sector developing?

Yes, positively. There, of course, especially the PKMS system. It's a very strong brand. And it is the brand in the public sector, at least in German speaking world. And that partnership helped us, of course, a lot. And we are also working on partnerships on a kind of country level in Germany, so on the state level. And that's also very promising. You have to keep in mind that many states don't even have a implement with employing law now, and there's a lot of room to grow in the public sector.

All right. Then getting to the Another question is on the customer dynamics. So important topic for everyone, and we also see that, of course, and we talked a lot about it. So Dirk Verbeessen from Evaluation Capital Management asks, the run rate of the new ARR clients has increased to 100 per week now? As mentioned, this was an example, an explanatory week or weeks. We don't know if this is going to be the new, new and it's going to stay like that, so please be cautious a bit with this. It's my task as a CFO always being sure that you don't overestimate it. We will see. We don't know yet. And what regions are driving the dynamics? We see dynamics that what we mentioned already, but the question is now what regions are driving these and whether you particularly see the acceleration, which are the markets?

It's Germany and Italy at the moment, where we see the strongest increase, where we also have strong partnerships in place. And I'm very confident that this will continue over the next quarters because this is also the expectation of our partners.

All right. Then Last question I have here from Knut Waller. With regards to your guidance 2023, where are you currently feeling the most comfortable low end, midpoint or high end. I can take this one. So It depends on the KPIs. So we have several KPIs. And for some, we are comfortable with the low end. For some, we are comfortable with the midpoint. And for some, we are comfortable with the high end. It. And I mean, for us, most challenging to reach a high end would the revenue recognition. As Achim mentioned, we have this midterm legislation coming into force and then we saw the pickup now rather in August and more September, October even. So this will translate to revenue, but revenue recognition is then, of course, a bit delayed. EBITDA wise, we are good on track, and we are showing this, I think, nicely. It's a bit connected to revenue, but not only. And then we have the sales figures, and I think here you can see the dynamic, and we feel very comfortable with the guidance. It. Right. Let me have a quick look if there are any other follow-up questions, but So far not. 11:30 sharp.

Very efficient.

Very efficient. It. Please feel free to drop any questions afterwards by mail to me and the team, and we are happy to follow-up, of course, on that. For now, Just want to thank you for your participation.

Thank you very much. Great to see that we had so many participants today and so many questions. Looking forward to report on the full year with most probably fantastic figures. And hope to see you at one of the conferences the next weeks.

It. Bye, everyone. Thank you. Bye bye.