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Research: TMT
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.
Exasol |
Winning new business despite COVID-19
Software |
Scale research report - Update
25 September 2020 |
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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.
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Consensus estimates
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% |
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Tax |
(0.02) |
(0.01) |
-60.0% |
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Net income |
(6.67) |
(16.23) |
143.2% |
|
Gross margin |
91.0% |
92.3% |
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EBITDA margin |
-46.6% |
-148.3% |
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EBIT margin |
-56.4% |
-158.5% |
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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: |
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Share-based payments |
5.9 |
10.1 |
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IPO expenses |
0 |
3.1 |
|
Adjusted EBITDA |
0.8 |
(1.8) |
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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:
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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.
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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.
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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) |
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€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 |
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Median |
8.8 |
12.9 |
19.4 |
20.5 |
12.6 |
14.5 |
3.2 |
2.8 |
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Average market cap <€1bn |
9.7 |
14.2 |
17.1 |
18.2 |
10.2 |
13.2 |
3.3 |
2.9 |
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Median market cap <€1bn |
9.0 |
12.5 |
14.8 |
14.9 |
7.7 |
11.4 |
2.3 |
2.1 |
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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.
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Research: Financials
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.