M&A Announcement

Jul 15, 2020

Slides

Hello, this is Oliver Schein. Welcome and thank you for joining. I have Stephan Geide with me, our CFO. Hello. So thanks for joining today. Today, we would like to give you an update on a strategic acquisition that we've just signed, which we thought might be interesting for you. So sorry for the short notice of invitation, but that's how the things went during the day. So we decided today that we acquire Ubimax, a German based technology player, technology startup with some decent size already in the field of augmented reality, variable IT, IT at work and also moving into IoT technologies. What they do, they have a solution which is called Frontline, is effectively IT support based on wearables for frontline workers. This can be workers in production environments and service environments and logistics. So really clearly targeted towards certain verticals based on augmented reality and variable IT, which we consider to be a very interesting field. If you remember, in our discussions we had with you, we were talking a lot about our strategic growth areas based on our connectivity platform. We named particularly IoT and augmented reality and of course TeamViewer remote management and monitoring. Here, we're now doubling down on the augmented reality IoT space, which we consider to be very attractive. So it's expanding our product offering very clearly. It allows us to provide solutions for even more use cases to our enterprise and medium sized customers. There is a distinct new addressable market. If we look at the market studies and the quantification, our market quantified as going to be €30,000,000,000 in 2020 3 based on the use cases that we have already been serving. So now we're adding more use cases in the augmented reality field, which from the market studies that we know of is probably around another €10,000,000,000 or so. So it's a significant increase in our addressable market. And it's providing know how, process know how, software technology and also solution delivery capabilities for the enterprises. So we believe it's a very, very attractive play and a very attractive company, Ubimax, in this field. And clearly, they have been awarded certain prices in the past. They clearly quoted by their customers as being the leaders in their field, very high productivity solutions. And that's we feel together with our offering, which is also high ROI and very scalable. As you know, we believe it's a great combination to build a joint technology leader in these fields coming out of Europe. I'd like to hand over to Stefan to talk a little bit about Ubimax and their customer base. Yes. Let me give you some background on Ubimax and why we are so excited about the acquisition. It's really for us entering into a space which we consider an adjacent space. As you might know, we've entered that space with our pilot product 1.5 years ago and pretty soon gained quite some traction around those augmented reality use cases. And Ubimax is a fantastic expansion of those use cases. So where is Ubimax and how large is it? It was founded 6 years ago. It's based in Bremen, northern part of Germany, around 90 employees. LCM billings of around €9,000,000 slightly cash negative and operating in a market which is expected to be around SEK 20,000,000,000 by in a couple of years. So what do they offer? Basically, they have a solution, a platform solution, which is called Ubimax Frontline, on top of which they have developed industry specific solutions, which we're going to show you in a minute. They are led by a very strong management team, the 3 founders, who are, I would consider, real visionaries in the AR space and have really been influencing that space very significantly, all of them all 3 of them will stay with us and will actually assume very senior management roles and really share our vision to create a German or European based technology leader. I think we've been extremely impressed with our customer reference calls and the enterprise customers they have won. I mean, you can see the accounts, Schlumberger, DHL, John Deere and the likes, very strong customer base, typical ticket size, 50,000 to 100,000 or significantly north of that with very substantial cross and upsell opportunity and super low churn. So very exciting customer use cases. Let's talk about that on the next slide. What they are offering, as I said, they have their frontline platform basically, upon which they released so far 4 different tailor made solutions, xPick for supply chain, xMake for manufacturing and field service and remote support, x Inspect and xAssist. I think what's quite common throughout those different products is that productivity gain they provide are really substantial. If you take a look at Coca Cola, for example, one of the key accounts of xPick, they have basically due to the usage of xPick, achieved a picking accuracy of close to 100%. And you can imagine this is such a key process for Coca Cola Bottling Company and such a productivity increase and reduction of failures in the manufacturing process is provided super significant ROI for those customers. And that's basically a very consistent theme throughout their larger customer base. Maybe talking a little bit about the platform and how we think about the technology advancements that we're getting. So on the next page, you see a picture of how we think about the global network, the connectivity network with the 1100 plus routers that sits underneath of it. And then we have the shared platform of common services that actually form the UI sorry, the USP of TeamViewer. So the IP around making connectivity happen all around the world between all the devices. So that of course is being used across all the different modules. And then as you know, we are trying to carve out certain modules for certain use cases might be horizontal across industries, might be for certain industries. Most prominent, of course, or very prominent in the last few months with corona was the remote access piece to work from home, the meeting piece, video where we had some extra demand, but of course also monitoring. And then the pilot in the augmented reality space and the IoT space. And Ubimax in that sense is providing more use cases, more solution modules, as Stephan just mentioned, X Inspect and so forth, which will then sit on our platform, which will allow customers to buy the connectivity for all their devices. And on top of that, a module to drive workforce efficiency in the respective fields, but also the IT remote managements, which we already have and work from home, all under the Tensor umbrella brand at some point where we allow for managed connectivity, conditional access, very high security. So this is the vision. Additional use cases, additional solutions on the back of our global connectivity platform, and that's where we share the joint vision with the Ubimax team that their process know how, their industry knowledge, their data analytics capabilities in their respective field can be married with our horizontal platform, easy to use platform, and that will give them more scalability and add more vertical knowledge and a broader solution portfolio. So on the next slide, the strategic rationale. I think this is really a transaction which ticks all of the box for us. And I think we talked to many of you about what kind of acquisitions we would consider, and this really ticks all the box. We always said we would be looking into technology acquisitions, and that's clearly one. It provides us or entry into a significantly larger TAM. We acquired the global market leader for AR based enterprise wearable solutions. All customer reference calls clearly confirm that this is the company to go for in that space, resulting in a significant TAM expansion, as we just explained. I think we've been impressed by the business critical know how they developed over the last few years due to their very tight integration into the processes of the customers, the very tight workflow integration. And this resides in a very high customer stickiness, as I said, super low churn and very high net potential rate. That's why we see a significant cross sell upsell potential. A, we can obviously sell their products or their platform into our large enterprise client base. At the same time, they have a blue chip customer base where we can obviously up and cross sell our existing Team Europe product portfolio. Very exciting is also their future innovation, especially around data driven workflow solutions. Think about all of the knowledge they gain, how to improve business processes in logistics, in production environments and how you can share that with other customers and really provide even more added value going forward. Financially, they've been close to breakeven the last couple of quarters. They should be profitable for the remainder of the year, although barely profitable. They have a high net potential rate of more than 140% and are clearly growing above market growth. And as I said, we believe we have found a very strong and experienced management team who shares our vision and who will become a key part of our senior leadership team. Let's talk about the next slide or go to next slide, where you again see just in the summary the benefits of this acquisition. It results in the TAM expansion. We will realize go to market synergies. We can address and access and enlarge enterprise customer base. And we will integrate their products into our TeamViewer platform. And it gives us finally another verticalized product similar with our IoT product and remote management. This is yet another verticalized product on top of our platform. On the right hand side, you can see the Ubimax billing split for 2019. It's a pure subscription business with additional professional services and implementation services. They need some implementation services together with the customer to integrate into their back end systems like in SAP or Oracle. But more of their more than 50% of their billings are subscription billings. They nearly doubled in 2019, and we expect them to double again in 2020. And obviously, they should grow significantly faster or faster than TeamViewer because they operate in a market which is growing faster. So we'd expect them to grow 45%, 50% CAGR in the next few years. Then maybe to wrap it up, transaction highlights. Valuation, we pay on a cash and debt free basis, EUR 136,500,000. This represents a north of 12 times on a 2020 billings basis and below 10 times on 2021. So I think overall, a very reasonable valuation. Clearly, the company is young but has already gained quite some market reputation. It's a very strong customer base and shows significant acceleration in their subscription billings. How do we pay that? €85,000,000 will be taken from cash from the balance sheet basically. So we pay roughly 60% in cash. We can easily or comfortably finance that from the existing cash position. And €50,000,000 or €50,700,000 will be paid by issuing 1,070,000 shares from the existing authorized capital with subscription rights excluded. Management retention, very keen to have the team on board. The Ubimax founders are locked in for the long term. They will assume key management positions. They also get a log up for their share consideration up to 3 years with yearly vesting, and they will also participate in TIMEO long term incentive plan. Timing on this transaction. We expect closing to occur sometimes in Q3, probably towards the end of Q3, means we consolidate their results fully probably starting Q4 2020. Yes. So I think clearly, from our perspective, we are very excited with this transaction. It's very important for us to find a a company or what's important to find a company that is bringing us great technology, strong customer traction, whether it's a good cultural fit. I think you know that the TeamViewer culture is very special. People are very, very entrepreneurial and driven and have been very eager to generate growth and innovate. And we found we should look into companies that bring the same, and we're convinced that Ubimax does so because it has been gaining awards. It's very positively discussed by media and by customers. So therefore, we believe they are really subject matter experts in their field, and that will accelerate our development in this. We're very happy that the management team will engage, which is, of course, key to success going forward. We believe the price is fair. The size of the transaction makes sense, and the cultural dimension should actually work out very well. So we're very positive with this, and we believe that we significantly strengthened our solution delivery and solution development capability in certain enterprise verticals, which is clearly one of our strategic goals and will lead to a time expansion. I think with this, we'll probably open the floor for any kind of questions that you might have. And the first question is from Stacy Pollard, JPMorgan. Your line is now open. Please go ahead. Thank you very much. A few questions from me. First of all, what happens to your pilot product? Is there overlap or does UB Max sort of replace it? And will you run UB Max sort of independently or will you properly integrate them together? Second, profitability. Now I'm assuming fairly low, but is it a big negative number? And then what kind of profitability would you expect from the UVAX business in say the mid term? So I don't know, 2 or 3 years down the road, given that it's an enterprise business, could we expect same kind of economies of scale or margins that you're getting in your core TeamViewer? Or is that something we need to adjust? So yes, thank you for the question. So on pilot, we will definitely continue with the pilot product. Whether it will be the same name over time, that remains to be seen. But pilot comes with a very strong functionality, which is instant connectivity on tablets, mobile phones across all the major operating systems. So very much carrying the TeamViewer USB, and that will continue. On top of that connectivity, Ubimax will bring additional business process solutions for digitizing enterprises. So our view is that we will integrate these 2 into AR IoT product suite. And when we talk about integration, like you say, we will talk about proper integration. So we've clearly laid out a plan over time to make it an integrated solution stack. Anyway, also from an organizational perspective, we will work as one leadership team over time and run the business as one leadership team. So we're really big fans of single culture integration, and we will do the utmost to integrate it properly. And maybe from an economics perspective or financial model perspective, we very consistently said that we would sacrifice some margin for longer or faster top line growth, and I think Ubimax provides exactly that. They've been nearly doubling their billings in last year. And despite that fast growth and unlike many other technology peers, they've been close to breakeven. So if you actually add billings growth and free cash flows, it's close to €100,000,000 And from that perspective, doesn't really dilute our combined top line and margin profile. I think that that's important for us. Clearly, it will be somewhat dilutive, probably not so much in this year, but with the full consolidation contribution in the next fiscal year, it will be somewhat dilutive on our EBITDA margins. But closely examined their go to market model and the customer relationship and the customer lifetime value of their customer is extremely strong. So I would certainly expect that they will become a very profitable business. Whether they're quite going to achieve Team U. S. Margin, that's probably tough, yes, given that we have a very unique business model, yes? But I'm certain that they can achieve a very decent profitability. But again, the combination of top line growth and margin really ticks all boxes for us and will not be diluted for us. I mean one thing we're really good at or have been good at at TIMVIA over the last 15 years is somewhat distilling the solution for different customers and different industries to a product sized scalable software as a service model. And I think many of the kind of technology startups are in a phase where they have very good pilot installations, so pilot meaning proof of concept. They have a mix of consulting, hardware and software as a service. And they kind of are on the verge to productize and scale their solutions such that they can read the economics that get close to our economics. So now I think by combining these two businesses, I think we bring this knowledge to a company that is just about to have a significant share of software as a service. So they're coming out of this, call it, proof of concept pilot phasing more and more. So we believe a very good moment in time. But on top of that, we will bring all our knowledge to scale go to market, to productize the offering, to make it as horizontal as possible while maintaining the industry specific knowledge that is needed. And I think that can be a very winning recipe for profitability for both businesses going forward. Thank you. And the next question is from Mohammed Mualala of Goldman Sachs. Your line is now open. Please go ahead. Great. Thank you. Hi, Oliver. Hi, Stefan. Just a couple from me. Maybe could you talk a bit more about the sort of cross sell, upsell synergies? How much kind of customer overlap you have and where is the kind of complementary aspect of the customer base that UB Max brings? And in terms of the one of the things you've talked about is kind of deal sizes kind of increasing in IoT. How big of a driver will this be towards driving that and driving more kind of enterprise penetration? And then secondly, on the growth, right now, it's sort of roughly the revenue mix is fifty-fifty between subscription and then hardware and services. On Slide 8, you talk about that shift that mix shifting considerably to kind of 80% subscription. How is that going to happen? Are you going to look to kind of farm out the hardware to others? Or is it simply the subscription line grows even sort of faster than the overall billings? Yes. So thanks. Krosstelabsa, where's the complementarity? It's really TeamViewer Tensor, which you know very well and we've shown the deal size is above 10,000 and also the top 50 deals. TeamViewer Tensor is allowing for managed connectivity. Once we're in a customer with that managed connectivity, we are really trying to sell additional use cases. And that can be remote management of IT, that can be meeting, that can be work from home, and it can be the whole field of augmented reality where we have pilot at the moment. And that's the complementarity where we can combine the connectivity that our platform brings with industry specific solution in an end to end one stop shop, so to say. A bit of integration needed, but that's clear and that's always the case. But we will have very complementary offerings and to be able to serve larger organization. From a customer base, if you look through the logos that Ubimax have, large organizations, mostly large organization, enterprise, that's also the area where we want to grow. The customer overlap is probably high, but we might be in, in a very small ticket, which is also what we always talk about. We are present in most organizations in most markets anyway, but to a smaller extent, and then we try to expand. So now we come from the one side, might be small ticket today, connectivity, Euimax comes from the other side, business critical solution, bigger ticket size. And I think there's a natural way of combining that and growing into the large enterprise. But deal sizes, as Stefan mentioned, dollars 50,000, dollars 100,000, dollars 150,000 So a tilt I would say, a tilt towards the higher end of the TeamViewer deal size. We are going to develop into this, and we are developing, as you know, biggest customer well above 500,000 euro now, more and more regularly 6 digit deals. But that's already what is regular in Ubimax on a smaller scale. So that will allow us to have a better solution portfolio for large enterprises. But I think there will be an element of scaling down their solution and productizing it and using our significant subscriber base of 500,000 subscribers and sell product type part of their solutions into these subscribers. And then And maybe from the billing perspective, Mo, I think what we've clearly experienced is that once Ubimx lends to the customer and actually has a chance to show their value add, those customers are very sticky and buy and roll out the product on a significantly larger basis. DHL is a point in case. I think they start off with less than 100,000 are significantly more than that in the meantime because they roll it out across their sites. And they roll it out actually because the product is now productized in such a way that any new site can be deployed with very little professional services. So that will actually result in customer strategic. I think in the past, they just basically sold it to make it easier for the customer, but that's not a strategic part of the business of the business plan. And those are the reasons why this business will become an 80% subscription billings business. Great. And maybe if I can squeeze one in. On Q2, it seemed like that kind of developed to expectations. You talked about kind of that normalization of demand. I know you talked alluded to that in the month of April. Are we seeing much more of a steady flow in terms of the kind of billings growth on the kind of core now based on what you've seen on Q2? Yes, I think that's a good summary, Mo. Indeed, I think exactly as you said, April very strong, May June then the expected normalization, July started well. So that's exactly what we've been seeing. Okay. Thank you. Yes. Of course, one thing I'd like to add on Q2, we should, of course, not forget that we in most many markets, in many countries, we still have corona significantly. U. S, I think we don't need to discuss how the situation is there. So I think Q2, we have to see in light of the corona effect on enterprise deals, where there's certainly in some markets, I guess, some hesitation to procure, plus the effect that we have said that while corona is on in markets, we don't do any free to pay monetization. So we have completely abstained from that in most markets, except China, which I think we discussed. So these two factors together and then coming out of that quarter with this result that you're seeing here makes us very happy. Okay. Thank you very much. And the next question is from Gustaf Holberg, Berenberg. Your line is now open. Please go ahead. Hi, everyone. Thank you for taking my questions. I have just couple as well. Firstly, just on the integration time line. So I know you talked about the deal closing in Q3, you expect. In terms of integrating the sort of Ubimax platform, if you will, or Ubimax software stack onto your own, how long do you expect that to take? And how much work do you envisage that, that will be for you? So integration time and overall, I think if we look at into 3 phases, there will be quite some joint go to market communication early on. The second phase will really will clearly be about cross sell enablement for the different sales forces in the kind of mid market but also enterprise sales forces. And then, of course, there will also be integration work in the back end on CRM systems, digital assets and the like. Overall time line, we've given ourselves 1 year to get it fully done. But the main focus, of course, will be the 1st 3 to 6 months where we talk about go to to really try to reap these benefits soon. I should really try to reap these benefits soon. And as a result, I mean, how do we assess that? We don't consider it to be a big integration. I mean, Ubimax has an organization of 90 people, very R and D driven like we at Team URR. So we'll integrate the R and D teams that deal with augmented reality. We have the different sales forces in different countries. Wouldn't consider that to be a terribly difficult integration. All right. Super. And then just on kind of the outlook for M and A, I guess, as well. Are you happy with the M and A situation right now? Or could you see yourself doing more deals this year? Or is this sort of it for now? I wouldn't say it's sort of it for this year. But clearly, now we focus on Ubimax and getting started jointly, frankly. But I think what we learned over the last couple of months as part of this exercise is that there are many exciting technologies out there which would fit into our longer term vision, I would say. Yes? Now I think we start with an acquisition, which ticks really all of the boxes for us, yes? Fantastic technology, strong customer base, strong entrepreneurial culture, not too big, but also not too small. So I think it's really good for us to train our M and A model. Maybe there's something more coming this year or not. I can't really tell, yes. Okay, fine. And then just a final one on Q2 as well. I wanted to sneak in a question. Just in terms of the number there, could you give us any indication on the split between new billings versus renewals? We provide that update really with our Q2 results early August. But I wouldn't expect any major changes there. All right. Thank you. Quarter. And the next question is from George Webb, Morgan Stanley. Your line is now open. Please go ahead. Good afternoon, Stefan and Oliver. A couple of questions for me, please. Firstly, on the Evomax acquisition, can you customer through to that then being used in actual work about the time line for turning that back on in most markets through the rest of this year? And then also, if there's anything you can give us in terms of what impact that had in your Q2, that would be very helpful as well. Thank you. So UBMX go to market is enterprise sales, clearly direct sales force and working with partners, partly integration partners, distribution partners, but mostly it's really direct touch I think sales so very, very comparable to our newly built enterprise sales force that we started 1.5 years ago. Sales cycle, I think there's the way they describe it is like 2 different sales cycles. If you really look at a very first proof of concept installation of their solution until the first full license, I think with all the deployment and all the work around it, from what I learned, Stefan talked to customers, but that can easily be 6 to 12 months. So it takes a while clearly because it's mission critical. Where they are at the moment is that in many of their existing customers, they have gone beyond that stage of proof of concept. So they are embedded now, and customers have made it a solution, which is then rolled out by manufacturing plant, by bottling facility, by warehouse, by repair center. And then, of course, this is then upsell where the sales cycles are significantly shorter and we talk more 3 to 6 months, which I think overall is also again quite comparable to what we see in our case. So very fresh digitalization projects take long, upsell opportunities cross sell opportunities are faster. And of course, there's an overlay of corona now, which we all need to understand, especially in the U. S. Over the next quarters or so, but so far, all good. Free to pay, not sure I got your question. So fully right, we haven't we've not used it at all, forced free to pay it in the first two quarters, except for a few tests in China in Q2. Very marginal contribution there, however, because we're also focusing on other things in China. So I think the straight answer is in Q2, Force Free to Pay was 0. And maybe just on that, can you give us any color in terms of how much that how much of a headwind that actually was then in terms of your growth in Q2? Look, that's hard to quantify because we I think as we discussed in the past, we do these campaigns when we feel the free user ecosystem is in a good place. We feel that in a certain market, we should run campaigns, try them, test them, refine them. So there's always some activity there. In the past, historically, very rough cut. The 4th free to pay contribution per year was around €20,000,000 in billings or so. So we have not realized almost anything in the 1st two quarters. Naturally, Q1, we were swamped by demand. 2nd quarter, very sensitive situation. So we haven't realized anything of that. So now having said that, I wouldn't suggest that now the second two quarters, there is an extra EUR 20,000,000 flowing in from that because markets are still in difficult phases. So some markets are done for the moment with corona, I would say. Some other markets are in deep trouble, especially the U. S, a big market for us, our biggest market. And then everybody is wary of the 2nd wave and so on. So we will make steps less price sensors try out things and see what the result is. And so in the next two quarters, I would assume there is a contribution. We can't tell you now how big it will be. And we will, of course, like always, shed put more light on this the more we learn as we go along. Thank you. And there are currently no further questions. And the next question is from Sven Nag Barclays. Your line is now open. Please go ahead. Good afternoon. Thanks for taking my question. I just have a quick one on the outlook. You clearly had another strong quarter and you mentioned July started well. So there's clearly upside pressure building to the full year guidance. Have you considered upgrading it? Or maybe what is holding you back? Well, I think today, we really want to speak about the Ubimax acquisition because that kept us pretty busy the last few weeks, if I may say so. And I think we provide full guidance and full year outlook when we announce our Q2 results early August. I think that's a better time than to address those questions. And we also have a better feeling of how July shaped out. It's early days in July still, but by then we have more than onethree of the quarter already under our belt and can probably better forecast the remainder of the year. So Yes, please bear with us on this one. I mean, normally we would be in week 2 of a new quarter. We have fully analyzed the previous one, and we have a good sense of how we started. Frankly, it's all been overcast a little bit at the moment by us being busy in the last 2 weeks, 10 days with this transaction. So we need to kind of form a view and see also how some markets behave over the next 2 weeks. And then I think beginning of August, we can give you view on this one. And we do not have any further questions at this point. So I hand back to the speakers. Yes. Thank you very much for your questions and for interest. So going to talk again soon, I guess, beginning of August. And yes, all the best. Stay healthy. Thank you. Stay healthy. Thank