Earnings Call: Q1 2021

May 5, 2021

Earnings release

So good morning, everybody. This is Robin from Puget speaking. Maybe good afternoon or good evening for some people outside of North America. We're today having our call related to our Q1 financial results. We thought it would be a good idea to present today and talk to you our figures. It's the first time we present our figures in the way topicus.com is currently as is. Q4 was still TSS. So we thought it would be appropriate to do that. We won't make it a quarterly habit. When we talk about topicus.com, we talk about the whole group. And when we talk about Topicus BV, we talk about the Topicus operating entity. So thank you all for attending. We don't have any presentations. We have Jamal Baksh, our CFO, on the line and we have Dan Dijkhuizen, our CEO on the line. And yes, we would go right away into Q and A. Your first question comes from Thanos Moskopoulos of BMO Capital Markets. Your line is now open. Hi, good morning. Congratulations on the spin off and congratulations on what seems to be a strong Q1. So maybe my first question is, can you update us on the current thinking and potential timing of the Dutch listing? Yes. I think we kept that open as an option. We're still considering it. We're not in a hurry. So I think we will pick that topic up further. Might have been of interest to European shareholders. But again, we keep that open and have no concrete time line yet. Okay. And a question for Dan. I presume you'll continue implementing many of the core aspects of the Constellation and TSS strategy. But given that you're coming to the organization as an outsider, I'd also imagine that there are going to be some nuances in terms of how you implement the strategy versus what Robin might have been doing previously. And so can you clarify whether that's the case and what some of those nuances might be in your approach? Yes. Thank you. Dan here. Actually, when we merged On January 5, Paul Nordemann, the operating group CFO of Topicus B. C. And I We're the actually the scouts that went into the ecosystem of CSI and TSF. And we actually took the role as The real newbie, new kid on the block. So we went through the best practice days and all the knowledge sharing activities that CSI and TSS has built up in the past 26 years. And actually, we are making a selection of practices that we are going to implement at Atotka's operating group with yes, maybe some flavors with respect to organic growth. Okay. But it sounds like flavors are still to be determined as you're working through the process. Yes, they do. Okay. And then can you comment on how the pandemic has been affecting your ability to deploy capital and how that dynamic is perhaps evolving in recent weeks? Yes, I don't know to who you point the question, but here is Robin. So this is then, I think, for t.com as a whole. Yes, I think nothing changed compared to last year. So the pandemic is now 1 year going on. I think I would signal the same situation as is. We continue to try to nurture our leads, visit companies, but we do it now digitally. And yes, we still continue as we did in 2020. All right. Thanks. I'll pass the line. Thank you. Your next question comes from Paul Steep. Your line is now open. Good morning. Thanks for doing Thanks, guys. Don, maybe for you first. For Topicus BV, could you give us a quick history list? And I know I think different people are at different places in terms of their understanding. And I think what people are most interested in is talking about The growth that you achieved with the organization clearly organically, can you maybe just walk us through some of the progression at Topicus in the last maybe 5 or 10 years, maybe not all the way back, but that would be a great starting point. Okay. Well, thank you. Yes. Topicus, as it is today, was found or Topicus EV, as it is today, was founded in 2,001. And it kicked off with a cell philosophy, putting technological talent at the core of those cells, put some entrepreneurism into that cell and create actually new product in little market niches. And by means of Cell division, Topic has had a double digit growth in the 1st 10 years of its existence. And it went into markets with high administrative burdens like education, health care and financial services. The approach of Tapicus as this niche player actually well, took off and became successful and by means of a strategy of adjacencies, so getting into other sub verticals attached to the one that Tapica served. They will manage to enlarge market share actually at in those markets and managed to onboard new clients or new client groups within those sectors or domains. And as of 2015, we still have those different cells with our own captains, but sometimes in the same industry. And we decided to make the next step and create actually vertical market platforms based on those vertical market software cells and to interconnect those different solutions with each other, which actually resulted to additional efficiency gains for our clientele and also improve the efficacy of the different processes that we supported with our software. And that's why we created those For what we call divisions of Topicus BC being Healthcare, Financial Services, Education and Social Services. That's great. If you're open short, Mary. No, thank you. That helps. And I guess maybe The one other follow-up for you is, how should we think about growth within core Topicus BV in terms of Obviously, you've got leading share in the Netherlands from what we can tell in those four verticals that you've identified. What's the potential Organically go beyond the Netherlands or should we think that the Topicus portion Topicus BV portion, sorry, of the entity will pivot and use even more M and A going forward? Well, from an organic point of view, there are actually strategies threefold. Be aware that the topic is BC kicked off in some way boring back office situations with high administrative burdens And is actually climbing the value ladder. So from back office software, we move to value adding primary process features and sometimes even content solutions. So if you take education, for example, we started in the back office, the financial back office of primary education with our solution. And we're now moving out to student tracking and actually learning that learning systems as well. So there's potential from an organic point of view. And the same counts for Healthcare and our Financial Services solutions. That's strategy part number 1. Part number 2 is moving into adjacent verticals. So we have a track record, for example, in mortgages. We moved into the wealth management market through a takeover in 20 'seventeen. And now we're moving from wealth towards the pension market, which is heavily related, of course, to the Wealth Management market. So that's our second strategy. And the third one is a strategy of selected internationalization. No, I'm Dutch. So sometimes we jump on the back of the bike of our clientele, And we follow our clientele to another country. For example, in Financial Services, A large financial institution is using our product in the Netherlands and is deploying our product now in Belgium, for example, and We'll do the same most probably in Spain or Germany in the near future. That's great. And then I guess my final one to Maybe both you and Robin. What do you from both of your perspectives coming from separate companies, What do you think the greatest opportunity in bringing the companies together is that maybe people haven't appreciated or that you're seeing from the inside those of us out here can't fully appreciate in terms of the opportunity long term for the new topic. Thanks, guys. So I think at the outset, our idea was that we have 3 operating units, topic is BV, one of them and the 2 existing TSS operating groups as well. I think they have a different history, a different culture. So at the outset, we said we want to continue what we're both doing wells, PSS part and the top just BV part. So that's the main strategy. And we think there can be cross fertilization by exchanging best practices. And I think there are many best practices, but to put it simple, I think you know the organic growth Topgolfi is demonstrating that has our interest at the site of TSS. And I think what TSS has been doing historically, there are different elements which might have the interest of Topicus BFE. And I I think, in the classical style as we did already within Constellation, we continue now as well. It's a decentralized model. And we think that curious managers, curious employees. They will look for deals best practices. They will exchange them, and that's how we hope to pick it up. So I don't think it's something which is not appreciated by the outside world. It's only something which will need to become more crisp over time, I would say. I don't know, guys, do you have to add something to that? Would you like to add something to it? Yes. I would like to add that. Although TSS is more an acquisitive company and Topgus B. C. Is coming from an organic perspective. From a cultural point of view, we're quite alike. So the tremendous amount of autonomy on the business unit level is something we find very important in both companies. The high degree of collegiality is important and the element of sharing knowledge. And We will not enforce synergies. We won't enforce come togethers. We will facilitate it, encourage it. And actually since January 5, You see groups working in the same domain, working in the same vertical, coming together, looking at each other's product. Some people. The topic is that the back office product, they see that they have a front office product and they see what they can do together and improved product and customer intimacy with our clientele in the different segments that we serve. Thank you. Your next question comes From Paul Treiber of RBC Capital Markets. Your line is now open. Good morning and thanks for taking my questions. Just first one for Robin. I think most of us, most investors are familiar, quite familiar constellation and its practices and strategies for acquisitions. Just want to hear in your words, for Topic going forward. Should we think about the strategy for acquisitions, the hurdle rates, even how Constellation may allocate acquisitions between the operating groups. Should we take that as being similar or identical to what Constellation does? Or do you think you're going topic as well alter that strategy or put its own sort of a twist on that strategy over time? I think this I give you the short answer. I think it's similar. So we have been part of Constellation. We're still part of the Constellation ecosystems system, and we continue as we did. And doctors BV will align to those processes and approaches as well. And that's it. We simply continue as we did. And could you elaborate a little bit more on in the prospectus, there was a conflict of interest section that did indicate that Constellation is able to allocate acquisitions between the operating groups. Yes, specifically, are there any I know you can't get into the details of that, but are there any regions or verticals that would be off limits to Topicus or explicitly off limits or that would restrain Topicus in your view, for your growth objectives? No, I don't think there are any restrictions. It's only stopgifts.com itself decided to focus on Europe because we think Europe has its challenges but also its advantages. And we're the operating group based in Europe. So that's why we decided to focus on Europe. And other constellation operating groups are active there as well. So we simply have to do a good job, and that's where we're hired for, and that's what we have to do. So and I know what you're referring to in respect of conflicts. I think that's more in case of, but so far we haven't encountered it. But there might be one day a situation. I can't give you concrete example yet. But Monday, it might be. But currently, it hasn't been on the table. And just a last one for me. The stock since the spin out has done very well. Finance Terry would say that the cost of capital is now very low for the company. Are there any considerations to issuing equity from treasury to take advantage of the environment and maybe your new lower cost of capital? Well, Jamal, is that one for you to answer? I'd just say, short answer would be no at Similar to Constellation, the way we think about it because of what our cost of capital is. Everything we do from an investment perspective is return on invested capital, and It's cash on cash. And so yes, at this point, there's no thoughts about issuing equity. Your next question comes from Robert Pains of Richardson listings to more senior exchanges in the near future. Yes. There's no plans to move to The TSX Board. Like from our perspective, things are working fine. And I understand that there's some funds that aren't able to invest in the company as a result of it being on the Venture Exchange, but it's not top of mind for us for it to move it to the TSX, if that's what you're asking. Yes, or NASDAQ proper? Definitely not NASDAQ. Okay. Thank you. Your next question comes from Richard Tse of National Bank. Your line is now open. Good morning, everyone. This is Amir calling in for Richard. So I just had two questions. So I know Paul kind of touched on this. So just regarding, like you guys have, like the regions that you're operating in and then Constellation is also operating in similar regions. Is there any guidelines of how you guys would deal with potential conflicts in regards to the acquisitions if they were to come up? Well, I think we try to avoid conflicts by having clear rules, so how we play our M and A games out. And I think that's pretty clear to all our M and A folks. And if there are something contentious there, then I think head office will decide where it goes. But most of the times, that's I would say those kind of issues are very limited. So I think it's mainly by having clear rules how it works. And we all know that we're all working on different geographies, and Europe has clearly been one of them. Okay. Got it. And these roles have existed for years, right? I mean, we've had 6 operating groups, each with their own M and A teams. I mean, this isn't something new that we're having to We've dealt with this before. And I know some investors have brought up, well, now because we only own Constellation only owns a portion of the topic, Does that create a conflict? But you could also say Constellation only had a there was a minority interest in TSX as an operating group for years, and we dealt with the same situation. So this is not something new that we had to come up with. We're just continuing on with processes and rules that existing in North Devon Tyson. Okay. Thanks for that color. And then just a last one for me here is that given that you guys smaller footprint that you think you should be able to grow faster than Constellation over the next 3 years? We hope so. But you can do, I think, the math in ways. I read that story before. We're a little bit smaller, and we are where Constellation was, let's say, 10 years ago. That's one theory. Another theory is consolation is composed of 6 fee.coms. So what's the difference? And they even have a head office attached to it, which deploys capital as well. So hard for me to judge. I think we, as t.com, simply have to do what we have to do, and hopefully, we do it better. But our sisters operating groups are doing a good job as well. So let's see. Okay. Thank you guys so much for the color. I'll pass the There are no questions over the phone. Presenters, Please go ahead. So I'm going to say thanks, yes. Thanks everybody for yes, go ahead, Rob. Yes, sorry, I missed that. Yes, everybody, thanks for attending and thanks for taking the time and for asking your questions, and I hope we could provide you with helpful answers. And I wish everybody a nice day. Thank you. This concludes today's conference. Thank you all for joining. You may now disconnect.