EQS Group AG

XETRA:EQS

Earnings Call Transcript

[Andre Marques, executive]

[Presentation]

Good morning, everybody, and welcome to the earnings call for the Q1 2022 of EQS Group. I am Andre Marques, the CFO of the company. And together with me today are Marcus Sultzer, our COO.

[Marcus Sultzer, executive]

Good morning.

[Andre Marques, executive]

Great. Let me start with our belief that's the foundation of everything we do basically. We strongly believe that integrity and transparency creates the most important corporate capital, and that's trust. And everything we do, everything we develop is driven by the purpose to support our customers in creating that trust. And that's why we are so convinced that we can become the leading European cloud provider for global corporate compliance and investor relations solutions. And just by 2025 that's our midterm goal, we are fully committed to that goal. And it's one of the very few markets, the markets we are in where there still is potential to become that because the compliance, the governance, the ESG market, the investor relations market is a market where we already have a leading position in certain markets, and we can -- and certain product areas and we can expand that.

So today's agenda. We'll start with an update on the highlights of Q1, which I will do. And then Marcus will lead you through the whistle blowing case and give you an update where we stay and what to expect for the next months. And then I will give you an outlook on 2022 and on the upcoming years in terms of financials and sales KPIs. And then as always, we are happy to receive your questions. You can send them through. You can already send them through now by clicking on the left side on to the question mark and then submit your questions via the chat function.

So let's jump into the highlights of Q1. So the big highlight of the first quarter in terms of the financing of our company was the capital increase, the raise of EUR 45 million we did in March. With subscription rights, there was a very challenging environment, as you know, but we're very happy that we managed to conclude that. And that capital increase was mainly for paying debt back, which we had taken for the acquisition of Business Keeper last year and brought down our net debt to now EUR 28 million, which leads to an equity ratio of around 50%, up from 38%.

On the operation -- on the operational business side, we had, in terms of revenue in Q1, still a low quarter for 3 main reasons: Reason one, we had -- due to the overall environment, we had a challenge in the IR services business. There were headwinds when it comes to IR projects, no IPOs, of course. And the second reason was still a weak deal closing and whistleblowing. And main driver, of course, is here in our key market, Germany, the transpositioning of the whistleblowing law and still not in place. And the third reason is a revenue shift in the filing business from Q1 to Q2. So that's something that within the overall half year 2022 should be compensated then in Q2.

So that's the revenue side, the top line side. On the bottom line side, the EBITDA was even a bit better and led to an even more stronger operating cash flow, which has 2 main reasons: On the one side, we had -- due to the delay in the implementation of the law, we had less spendings on that side in marketing and sales. And on the other side, we had beneficial product mix in terms of a strong growth in the SaaS business and investor relations, but also in compliance and on the other side, a decrease in the services business. Additional prepayments, everything we close is prepayments and that leads -- led to a strong increase of the operating cash flow.

If we look on to the KPIs of Q1, the key KPIs if we put that a bit into a perspective year-on-year, and that's what we see here. We clearly see that we had a strong hike in the number of SaaS customers. We acquired and we acquired organically nearly 1,000 whistleblowing customers since the beginning of 2021. And on the other side, we had -- through the acquisition of Business Keeper, which was consolidated by the middle of 2021, in July, we had around 260 customers that we acquired with this, which is still low, as mentioned, due to the closing, the number of SaaS customers and of ARR, but compared to last year, again, a significant increase. And that's what we then see on the revenue side that compliance is growing strongly on the one side by the acquisition, but also organically, we had an increase of around 20%.

Investor relations on the other side. Also double-digit increase on the cloud product business, on the COCKPIT business, and on the other side, on the services business, a double-digit decrease. So overall, around flat. But yes, the mix for us, beneficial for EBITDA, and that's what I already mentioned, EBITDA, the EUR 252,000, a bit below than last year, but a bit better than what we expected actually.

Looking onto the main P&L and balance sheet figures on an aggregated level. We see that revenue and operating expenses are growing or have been growing year-on-year on the same speed. One driver is the acquisition of Business Keeper. The other driver is the investments into marketing and sales and infrastructure. So this is going to change from the second quarter onwards. We will have a higher increase of revenue versus the operating expense. Again, here to mention, you can see the EUR 2.5 million operating cash flow. It's a very strong number and driven by the prepayments from customers and by the beneficial product mix overall.

So recurring revenues as part of total revenues has increased from 82% a year before to 86% in Q1 2022. So that's quite an impressive increase. And as mentioned, with the acquisition, we, of course, had a strong increase in the balance sheet, which you can see on the total asset number. And with the capital increase, we could reduce the net debt to EUR 28 million from above EUR 70 million by end of the year, and equity ratio is now again in the range of 50% to 60%, which is the range which we like and feel comfortable with.

Looking a bit more detail on the EBITDA bridge. We can see that in Q1, the main impacts were, on the one side, one-offs we had from the capital increase, with less than EUR 300,000 additional expense -- one-off expenses. On the other side, again, an incremental contribution of our operating business by still having high investments of nearly EUR 200,000.

So that's the overall picture of Q1 in terms of financials and now I am now very happy to give to Marcus to, yes, see what's the whistleblowing case in the states at the moment.

[Marcus Sultzer, executive]

Super. Thank you, Andre. Yes, let's have a look at the market first. A huge opportunity. We have 50,000 companies in Europe falling under the whistleblowing regulation in the first step. These are companies above 250 employees. And there are going to be another 200,000 companies in 2 years when companies starting from 50 employees have to implement whistleblowing systems. And what we want to achieve is to win 5,000 customers out of this market. And the assumption behind is that we believe 50% of the target market will implement the digital system and we want to win 20% of those companies. We strongly believe that this will bring us into a market-leading position in Europe.

We started conquering this market in 2017 with our own whistleblowing product, grew organically over the years. We, as you all know, acquired Got Ethics in Denmark and Business Keeper in Berlin. And that brought us up to 2,000 customers roughly at the moment, bringing us already into the pole position and bringing us in the position of market leadership as a European vendor.

Yes. This chart shows the customer growth. You see that half of these 2,000 customers -- almost half of these 2,000 customers were acquired in the past 16 months. We won almost 1,000 customers in this period coming closer to the whistleblowing regulation. And you see a spike in the fourth quarter in terms of customer growth that's for us nicely explainable that's on the one hand because typically in the SaaS business, there is a strong fourth quarter. And of course, the deadline, 17th of December, where the EU directive started, was approaching. And many companies said, okay, then we have to act and then we have to implement the system. And that helped us in the fourth quarter. We didn't see that continue in the first quarter, but we strongly believe we will see this repeating this year as well.

And as Andre shared already, customer numbers compared to what we guided this year in terms of new customers are not that strong yet, but when you look at this chart showing you the state of the law transposition across Europe, then that's very explainable, and to us, very understandable. Most of the markets have been transposed and almost none markets have an effective law in place yet.

Our key market, Germany, we finally saw a draft law, which is circulating in the ministries and consulting bodies at the moment, but we do expect this getting into effect only in the third quarter.

We had the good news in France, where the government transposed the law already, but offered the grace period and companies are only forced to have whistleblowing systems in place by September. Again, when you look at the other core markets, so core markets for us, those markets where we have offices and teams in, then it's only Denmark where the law is really effective. And all the other markets are in the process or didn't even start. But we do believe that in all our core markets, we will see the law transposed until the end of this year.

Then while deal closing is not that strong yet, we still see a strong pipeline increase. We have now over 2,000 sales opportunities in the pipeline. So these are potential deals the sales team is working with. So it's not a lead level anymore. It's very specific cases where companies just did not decide because they said we want to see what's finally written in the law, and they're going to wait for that moment. But once that comes, those opportunities will turn into deals and that makes me and makes us very confident that with this pipeline, we already cover a big portion of what we want to achieve this year.

And when you look at the fourth quarter spike where we had a lot of pipeline building that makes us additionally confident because that happened because, on the one hand, the law was approaching and we had Denmark where the law started on 17th of December, and we had a lot of deals coming, especially through partners giving us also the confidence that the whole partner business will work.

And as a reminder, we said out of the 3,000 whistle-blowing customers we want to win this year approximately, 1,000 we want to win directly through direct sales. Another 1,000 through our partner, Bundesanzeiger in Germany; and the other 1,000 through other partners. So that pipeline shows we made good progress, and we are in position to execute on our guided goals once the law is transposed.

To do that, and we communicated this for many months already, we invest a lot in sales, and we also invest a lot in marketing. Sales alone cannot do it in compliance. We need marketing to generate inbound leads so that our salespeople can work with, as we say, warmer prospects, which showed an interest already. And what you see here in this chart is in the gray area our accumulated marketing spending since first quarter 2021 until end of the first quarter this year of EUR 3.3 million. This is marketing spendings we invested dedicated to whistleblowing. And on the other hand, you see the accumulated pipeline we built during this period of time. And this is EUR 6.1 million in potential ARR. So we are quite happy that with every marketing euro we spend, we basically build double of the ARR pipeline.

[Andre Marques, executive]

No. That's impressive.

[Marcus Sultzer, executive]

And breaking this down for you a little bit more specific into one, yes, I would say, typical case -- future typical case, we have to say, the company is called Hardeck. I'm not surprised if you don't know this company, I didn't know it either.

[Andre Marques, executive]

Me too.

[Marcus Sultzer, executive]

Yes, you neither. It's a company, a typical German SME mid-sized company, family-owned, 1,500 employees. They have 4 furniture stores in the Northern half of Germany. So these are these customers we want to win in this wider market. And when you look at the journey they went through, that it's from a nowadays perspective maybe not the most typical journey because it was fairly fast. Five weeks from visiting one of our websites, they are clicking one of our paid campaigns to deal closing.

At the moment, we have about 3 months period to deal closing, but we do believe the more we get closer to the regulation, the faster companies will decide. And that's why it nicely reflects what we are actually spending there. We spent EUR 2,500 from the first marketing touch point over converting them into a product request they issued to us. And then the sales team making demo, of course, discussing contract and sign it.

So EUR 2,500, we have to invest for such a customer who then signed a contract of about EUR 4,500 ARR turning into a lifetime value of EUR 67,000.

So we do see that at the moment, we are spending a lot, but once we turn all the pipeline into customers, that is absolutely worth doing.

[Andre Marques, executive]

It's really a great ratio for such fast-track example.

[Marcus Sultzer, executive]

Exactly. And yes, I am going to just mention, we have here in a Q1 data example, looking at customer acquisition costs, lifetime value of customers, and of course, what they churn over the years, what we have to discount over the years. So at the moment, based on our Q1 2022 data, we have a whistleblowing customer lifetime to acquisition costs of about 6x. We do strongly believe that this will even increase once we see the deals flowing in.

[Andre Marques, executive]

Yes, I mean, if you see here, you have customer acquisition cost of EUR 11,000, but only having this 148 customers of the first quarter. I mean we clearly see due to the delay in the implementation and that there is not this short closing cycle, what you have shown with the example just in a minute. And there we saw that it was EUR 2,500 customer acquisition costs, so seems like that, clearly, the number will drive up, and then we will have another ratio. But also 6, I think it's not a bad number as for now.

[Marcus Sultzer, executive]

Absolutely. And I mean that's not all when you could go to the next slide, Andre. That was just a view on whistleblowing. For everyone to remember, whistleblowing is our first step getting a foot into the door driven by the whistleblowing regulation. But we want to work more with those customers. Once they bought our whistleblowing system, we want to put them on to the Compliance COCKPIT with a lot more features and functionalities around policies, around approval processes, risk, training third party. So it is only one piece we are delivering now to our customers. One important step. That's why we need to win this market. If we don't win this market, others will do, and we know how sticky it is, and we know how much companies, especially in the small- and medium-sized segment look for one-stop shop solutions to manage their compliance.

And this is what we are going to deliver with our Compliance COCKPIT. We will migrate all these whistleblowing customers to the Compliance COCKPIT platform. From the middle of this year, new customers will be already onboarded on the Compliance COCKPIT. And then we will be in the -- really in a pole position to show them, to teach them all the additional functionalities and there are logical connections. When you do whistleblowing, you need a code of conduct, a whistleblowing policy. You touch approval processes immediately. And we have the supply chain law coming where there is a lot of requirements on a channel to report on policies you need to have in place on training. So there is very good links to get this going. So we are just in the beginning, and everything we are doing right now is helping us in the years to come.

So far, the insight...

[Andre Marques, executive]

Sounds really impressive. Thank you for the great insights, Marcus, on to where we are staying with the whistleblowing case. And I mean that exactly underlines our outlook, right? By the way, we haven't changed anything on the new SaaS customers number, on the new ARR number and basically only narrowed down because of the weak Q1 start, the revenue growth to 30% to 40% from before 30% to 50%. Because it's heavily back-end loaded in the sales piece because we have this delay in the law, but it's going to come. The pipeline is full. We can see that. We know how the ratios are in terms of conversion. We are having to spend and the sales force in place. So now it's really just a timing topic that is going to realize stronger in the second half of 2022. And that's why we're really totally convinced and confirm here our outlook of 2022.

And what's also important, Marcus already mentioned that we have the Compliance COCKPIT. And that's the next big thing coming after the whistleblowing case, where we then run these customers onto the platform, and we can, of course, increase then the average share of wallet with the customer.

And what does it mean in terms of investments we are currently doing, and it's something we also want to make a bit transparent that currently around 20% of our staff is only working on topics where there is no existing revenue generated. So we have the new product teams developing new products and working on the modules that we will see in Compliance COCKPIT, but also further than on ESG. We have new countries, which we have just set up for new acquisition, for new business, such as Spain, Italy. We have the whistleblowing wave overall, where we have a lot of customer success and other people that are now just working on new acquisition. So also future revenue that's going to come up.

And all these things, they account for around 20% of what we are currently having on staff and thus also as investments on the P&L, but the return will only come the years after. And that's why we're also very convinced about our outlook for 2025.

For sure, after the whistleblowing case, we have then to bring the customers to the platform, and that's then our main task. But the potential there is clearly big. We can raise the revenue significantly coming from EUR 31 million in 2021 in compliance. We will then come close to nearly EUR 100 million of revenues in that area, driven by the regulation, by the whistleblowing and then the Compliance COCKPIT cycle.

And in Investor Relations, we still believe we can grow above market. We're now currently in the IR services. Of course, we have a difficult environment with no IPOs. But we, on the other side, see also that our SaaS business is growing double digit. And it's going to be the bigger piece of the IR segment, and it's going to continue to grow like that. So we're still confident that we can grow in the midterm in an average rate of 13%.

And that finally will also lead to an operating leverage, which is clear, and you have seen there are certain investments we're doing, but they still will bring in the future only the revenue. And then operating leverage will come now year-by-year. EBITDA would step up, and we will reach at least 3013% in 2025.

So that's from the operational business update of Q1. And now just a little hint. We're very proud that this year, this day today, we published our first sustainability report. So that's really great. And thanks to everybody working so hard on that. We have to say a lot of people involved, you can imagine that collecting the data for the first time, aligning on the way how we slice the information to a nice report that is nicely readable, but still having a high standard covering all the GRI of course.

That was really a hard one. Yes, but so happy now with the outcome.

[Marcus Sultzer, executive]

And yes, and important, yes, for us as a company, sustainability is extremely important. But also for our customers, we get more and more questions in RFPs, in pitches, what are we doing? Do we have a sustainability report? Do we have activities in this direction? How do we measure it? So it was a really important step for us. It showed us how much struggle the companies will have when they do this the first time. And it confirmed that it's really good to offer support into this direction and that will be a great market coming in.

[Andre Marques, executive]

Absolutely. Yes. So just a very sneak peek review here on the KPIs and we will jump into your questions. Yes. So we are, of course, very proud about this 1 tonne of carbon emissions per employee. That's a record number. I mean we are really best in breed in terms of the comparison of the industry. Of course, it's driven also by COVID last year still, and this will be very challenging to come to these levels. Most probably this year would be too challenging to achieve this level because, of course, colleagues want to travel, want to meet up in person again. But I think it gives us a clear direction on where we're already staying in all the initiatives, the way we work, the way we collaborate, the way we deal with the resources is already quite efficient compared to others, and we will continue to work on that. And now that's a long-term piece that will also, at one point, end up into our KPIs, of course.

[Marcus Sultzer, executive]

Taking the train to Paris next week. So we're excited.

[Andre Marques, executive]

Exactly. 5.5 hours instead of planes, exactly. That's very important.

Yes, a great example. And that's it from our side. So thank you so much for your attention. We are now very happy to receive your questions. Just a little reminder on the left up, you have a question mark item, and you can click on that and then you can submit your questions via our web chat function, and we are happy to answer that.

So I will have a look. There are already the first questions coming in. And yes, it looks good.

[Andre Marques, executive]

So the first question is on the pipeline. So we have Dale Robertson from Chelverton Asset Management. Thank you, Dale. So the question is the 2,269 leads or pipeline in whistleblowing, you have, help me understand how qualified they are. What level of dialogue you have with them and so on?

[Marcus Sultzer, executive]

Yes. Thank you for the question. I'll take that one. So the pipeline, that's basically across the different stages in the pipeline. Yes, from a very initial stage until basically close to signing. Usually, salespeople open a sales opportunity once a demo was done. So the customer really had a specific interest in the product and the salesperson decides, okay, that is a real chance in closing this. Without going into the details of every sales stage, we say that about 30% to 40% of the pipeline we convert into deals.

[Andre Marques, executive]

Okay. I think that was clarified. Good question. Then I will continue first with the questions on the operational business and the whistleblowing. So we have another one coming in from Fiona from Edison. France had a grace period for companies to comply. Do you expect Germany to do the same. You want to take that one?

[Marcus Sultzer, executive]

I'll take that one. Thank you, Fiona. Yes, we don't know for sure. The current state in Germany is that until middle of this month, so basically now, the feedback and consultation phase ends. And then the question is how fast it goes through government. Our sources say these are consultants like KPMG close to this whole legislative process. They say that maybe they manage before the summer break to transpose the law, maybe not. But if not, then it will start with immediate effect. So we currently assume that within the third quarter or until the end of the third quarter, the law will come into effect and will require companies immediately to have whistleblowing systems in place.

[Andre Marques, executive]

All right. And the next one comes from Knut Woller. That's actually a couple of questions. So let me structure them a bit in terms of first starting to continue with the whistleblowing case and then we go up to the other areas. So let me see. Yes, maybe the one is generally on the performance of the -- okay. There's actually no whistleblowing. It's more on IR, and let's do the IR side.

[Marcus Sultzer, executive]

Let's go one by one.

[Andre Marques, executive]

Let's go one by one. So IR remained well below your original target in Q1 2022. You grew revenues in the range of 10% to 15%. Which drivers do you see to accelerate growth given an ongoing adverse capital market environment?

Yes. So here, clearly, Q1 is the one that is the strongest affected and by the business -- project business. Why is that? Because we have a lot of report business and also we had quite a lot of IPOs last year in Q1. There will be still some in Q2, but it's not so much a topic for the second half. So that's one point where we are more confident now getting into Q2 that the IR business is going to pick up.

Then we still have a double-digit growth in the area of cloud products, which means the IR COCKPIT. The IR COCKPIT SaaS fees we have with the companies, they are still increasing. We add client by client, though it's not IPOs. Now it's mainly foreign markets where we add clients. And of course, we will also improve functionality and by that drive also the fee, which we charge for that.

And that also leads me basically to the question on the price increases. So which price increases do you have factored in, in your contracts to offset wage inflation? So we have 2 elements, right? I think...

[Marcus Sultzer, executive]

Yes, I can take that if you want.

[Andre Marques, executive]

Yes, yes, go, ahead.

[Marcus Sultzer, executive]

We have 2 elements contractually. So we have an annual price increase possibility based on the IT cost index in Germany or respective markets. So this we can do every year at renewal. Plus we have an extraordinary price increase possibility up to 10%, where we have to inform our customers in advance, but that's contractually factored in. And as a third component, beginning of this year, we started to run an extraordinary price increase campaign with the goal to increase prices by 10% across products and markets. We have executed this well, for example, in the news business already. We have done this with customers in the first quarter. So that's a process where we have to negotiate with customers because they do not have this all in place, but this is how we kind of offset and will offset the inflation.

[Andre Marques, executive]

And the impact, of course, of the increase is not directly 10% of revenues, right, in this year, but it's something that it's, of course, subject to the negotiation on the one side and also then coming during the course of the year. So the full impact will most probably only be seeable then in the upcoming year 2023. So that's just important to understand for modeling these kind of increases.

Yes. And then the question, which follows here is the cut off, the upper end of your revenue guidance. Is that due to the IR or the delay of transposing of the EU directives in Germany?

Yes. Basically, we have these 2 elements. It's not so much about the delay of the transposing of the directive. We have not expected that the directive should come into place in Q1. But what we see just lower closing. We see pipeline is healthy. So for us, it's totally fine. If the law now expected to come in Q3, we can still close this deal this year, and that's why we don't have an impact on the ARR figure or the number of customer figure. But the later we close, the less revenue we can consider in the year. And that's why we narrowed it down, and that's why actually we had the big range from 30% to 50% because there was this uncertainty. And what doesn't help a lot, of course, is that we have headwinds in IR that is the second element here.

[Marcus Sultzer, executive]

Yes. So it's very bold.

[Andre Marques, executive]

Yes. Yes. And then a question on Russia here. Can you give some more color on the potential headwinds from your operations in Russia?

[Marcus Sultzer, executive]

Yes. I mean, currently, we continue our operation. We decided not to do the new business. We get quite a number of business requests, though, from Russian companies because we have an entity there, and we are not sanctioned. So we can still operate, but we have made the conscious decision not to do that. We continue to serve our customers with existing contracts. They are still paying. Our team is in place. So the impact, Andre, maybe over to you, impact we might see on the revenue side will be very minor, right?

[Andre Marques, executive]

Absolutely. I mean the overall business had a 2% share of the overall revenue of Q1, and we believe, of course, that's going to decrease during the course of the year. The existing business is stable, very profitable business, and that's for sure. But overall, for the full -- achieving the full range in terms of revenue and in terms of EBITDA, it's not really relevant. It is another headwind, so to say, of course, if we for some -- for any reason would decide then in Q3 or other to not continue. That's something that could be. We haven't decided yet. For now, we are running it, as Marcus mentioned. But that, of course, would have a little impact, but not having such an impact that we would have to discuss on the guidance side.

All right. Then let's move on, I think, with some topics here on the pipeline still. Okay. When does usually pipeline translate into revenues? What's the average time frame, asks Paolo Cipriani from CP Capital.

[Marcus Sultzer, executive]

Yes. I can take this. Thanks, Paolo. So as mentioned earlier, we have currently an average cycle to deal closing of 3 months. With the fast-track customer, we saw it's just a bit more than a month. And usually onboarding in this SME segment is a matter of hours. If we have to discuss with the customers, it may be a matter of days. And all the customers have contracts in place that basically the contract starts with signing. So that's why once the deal is closed, the -- it turns into revenue.

The only exception is the enterprise segment. So for the very large customers where we have lengthy projects -- setup projects. Then there may be different deals but the majority of deals we are expecting this year is in the SME segment anyway.

[Andre Marques, executive]

Then a question from Akash from P&R on the unit economics, customer acquisition versus lifetime value. You mentioned you're targeting 3,000 customers this year with 1,000 organically, 2,000 through partners. How would the cost of customer acquisitions through partners compare to the organic customer acquisition?

I think here, we have to split a bit the partner side. We have 2 models here in place. The one is the managed services model, where we basically get the share of the revenue and the costs and the other share of revenue is even not part of our P&L. So that's like clean coming in, right? And then there is the other model, which I think more lawyers and auditors.

[Marcus Sultzer, executive]

Yes. Which we call referral model, where basically the partner gives us the lead. So we don't have a lot of effort for lead generation. We, of course, do a bit of marketing activities, and we have a team of 5 partner managers across Europe to work with these partners. But basically, this initial step is done by partners. And we then only have to do the deal closings or contract negotiation, a demo of the product where we have seen in the example before that was just 2 weeks. In some cases, it's a bit longer.

But so this partner business, we are depending on partners on the one hand. We have a bit of uncertainty left for now. But on the other hand, especially for the smaller companies, and that is where we work with partners, we reduced dramatically on customer acquisition costs. This is why also we decided for this model because companies below 500 employees are not willing to pay that much money. On the other hand, they need a consultant on their side to help them. And for us, it makes economically totally sense to do that. So that's why we are very confident that this will be a successful channel. We have seen this in Denmark. It works once the regulation starts, and we're going to see these customers coming.

[Andre Marques, executive]

So then it's mainly more a fixed cost piece actually on our side that we have a team that is taking the partnership topic right. We have a technical infrastructure that supports to make that more efficient, right, and then...

[Marcus Sultzer, executive]

Exactly.

[Andre Marques, executive]

But yes, it's even not so much an acquisition cost, right, at the end.

Yes. And then a question coming in from Lukas Spang from Tigris Capital GmbH on the profitability. So profitability in Q1 was still quite low and below run rate for the full year. What will be the main driver for higher profitability in the coming quarters?

Yes, clearly, the operating scale, so the -- while on the cost side, there are not so many differences between the different quarters, so to say, Q1 is clearly the weakest in terms of overall revenue. And why is that? There are different reasons because a couple of drivers we have in the compliance product field, we have also in the IR field are somehow driven by peaks in terms of publication of information or in terms of activity on the customer side. So we have peak months April and May. So Q2 is clearly having 2 strong months. We have a year-end business in the compliance products in Q4. And as Marcus mentioned, also on the sales side and everything towards Q4, we have a stronger push because that's typically a SaaS thing. And that also could lead to certain revenues then coming in on that side later. So it builds up, and that's -- that has been normally in the past the same way.

Then we have a couple of -- we have a question on Business Keeper integration coming from, just a second -- coming from Dale from Chelverton again. How integrated is Business Keeper with the rest of the operations? Now that you own it, what degree of confidence do you have over synergies?

I can take that or you want to start with?

[Marcus Sultzer, executive]

Yes, maybe I'm starting exactly where we're standing on the integration and then you can talk about the synergies. Yes, so the company is not legally but on the personnel side, fully integrated into the group. Teams are basically working together. And the Business Keeper product, BKMS, we have -- we made our enterprise offering product, yes, because it's anyway used by a lot of enterprise customers already, and we're going to continue offering this to enterprise customers because of the flexibility the product offers. But teams are integrated. Kai Leisering who is managing the office in Berlin is part of the extended management team. So there's close collaboration across all units.

[Andre Marques, executive]

Yes, exactly. And that's also true for all the operational pieces and the admin element. This year, we still have the merger to do. So the next topic for this year is to merge it into one entity and to have basically a Berlin branch. And with that, we will have certain synergies in terms of operating payroll, the finances and reporting topics and so on and so forth. But I would not say that they are so significantly. On the tax side, as Marcus mentioned, we have the 2 offerings. We have the enterprise offering, and we have the SME or broader market offering, and we separate these 2. And that's why in the first step and short term, there's also not a lot of synergy on the cost side here in terms of IT integration.

But of course, we are looking into the topic as a whole. So we had done -- we have done 3 acquisitions, as you know, Integrity Line in 2018 in Switzerland, Got Ethics in Denmark, now Business Keeper. So there is potential in the midterm to integrate and migrate customers in a proper way so that we have also certain cost synergies on the IT side in the back end. But that's last thing we are focusing at the moment. So now it's not about maximum integration but really about customer acquisition.

Yes. Then we have a couple of topics -- a couple of questions coming on the DFGE update, which we shared with the news today that we're not going to buy DFGE and our progress on the ESG software development. So there are a couple of same questions, so I think we can answer them at once.

Yes, so as mentioned today in the news, we didn't come to an agreement. We did vast due diligence here. We checked everything. For us, it's, of course, very important because DFGE business approach as a consultancy differs from what we offer as a tech platform, and there are certain reasons where we believe that this makes a lot of sense in this market in ESG because of the customers and we have experiences with our report as well are at a stage where they still need a lot of input from consultants how they should do and set up the reporting from where to get the data, how to streamline, how to create an efficient process and to set up. So for us, it totally -- makes totally sense, but still it's deviating and that's why due diligence and the way we look on cost structure and team and the setup is a bit different from a classical tech or just customer asset acquisition we did in the past.

And based on the due diligence, we had a certain pricing expectation, which didn't match with the founders, and we couldn't agree on a common price level that fits for both. And that's why we are basically now not working anymore on finding an agreement to acquire DFGE, but further looking on how can we cooperate because we still believe it makes a lot of sense to cooperate but by keeping both as separate companies and not acquiring.

And our ESG strategy is in place. We have published that in February. We are fully committed. We believe that's the next big thing after the Compliance COCKPIT for us. It's a huge market that is opening up. Legislation is coming, is already seeable on the horizon. So we have the CSRD that totally fits into our strategy. It's the same customer group that we are now acquiring with whistleblowing and then with the Compliance COCKPIT. We are a governance provider with everything we do since the very beginning, so we totally fit there.

We have the track record and the trust of our customers to help them in these areas. So we believe it's a great opportunity for us, and we are already developing. In that area, we have a small software team that is building up. And now we recently hired a very experienced consultant that build up the ESG offering for Deloitte in the last 10 years. And I think we're really happy about that, and we see that as a good chance now.

[Marcus Sultzer, executive]

Yes, absolutely. And timing is one of the most important factors and timeliness valuations of companies are down. The Corporate Sustainability Reporting Director, CSRD, is very, very likely to be delayed a year. So we have time to execute. We work on the partnership with DFGE. We couldn't agree on the acquisition price, and we are building our team to be ready to help companies with -- to comply with the CSRD.

[Andre Marques, executive]

Yes. And then a follow-up on the DFGE topic in terms of the capital increase. So Akash from P&R asks, we raised around EUR 10 million of the capital increase for the acquisition of DFGE and to push on ESG, and how will this EUR 10 million be used. So first, we raised EUR 45 million. Out of those, EUR 39 million were for payback of the vendor loan of Macquarie of the seller off Business Keeper and payback of our loan or the part of our loan to Commerzbank and EUR 6 million were left for the ESG topic and also for the DFGE acquisition.

Yes. So the funds are in place, and we will look further how we work with that. And obviously, we are pushing and continuing on the ESG strategy. We believe now continuing in-house will lead to most probably a bit lower invests. We'll split invests over a certain period of time. So it will not come everything in once like it would be with an acquisition. And it gives us now a certain buffer in this field to act. But for now, there is no concrete alternative acquisition or everything related to that in place.

Then just a technical question, I think, on the total number of shares in issue now. So we have around 10 million of shares. There is no dilution included, and there hasn't been any dilution in terms of options or anything else. That's a question from Dale from Chelverton.

And then I think we have one more question left. Back to Russia again. Knut Woller asks on the Russian business, if we would have any extraordinary one-off costs if we would then -- if we close the business there, like other companies have shown.

So the business is fairly small. We have running contracts that we would need to stop them. We would need to either stop employing our people or reallocate them partly to other activities and maybe also other offices I mean, we're still hiring people. And for us, it wouldn't make sense not to look at the opportunities we have with the existing team there at, of course, another location. And then basically, fixed costs are very small and the running costs, and they should not be significant. So there would be a lack of the revenue for a certain period.

And on the other side, still the run costs, but we don't have any long-term liabilities and long-term contracts in Russia, which we would need to pay over a long time. And we don't -- also don't see any fines or anything that could hit us in terms of additional one-offs for closing the business.

Yes. So that was it. I think quiet. A lot of questions. I hope we could answer them. And if there is any follow-up question coming up on your side, as always, we're very happy to answer you them afterwards. Just send that through by mail. I think it's the easiest and the quickest.

Yes. And we wish you a great weekend ahead.

[Marcus Sultzer, executive]

Yes.

[Andre Marques, executive]

Looking forward to talk to you and to see you virtually latest on our AGM, which is the 28th of June. We will just next week publish the invitation by the Bundesanzeiger. 28th of June will be the AGM fully virtually and Q2 figures, half year figures then in August again.

[Marcus Sultzer, executive]

Yes, hope we could give you confidence that we're really on track with our whistleblowing focus this year. Thanks for all the questions, and then see you latest on 28th of June.

[Andre Marques, executive]

Bye-bye. Thank you.

[Marcus Sultzer, executive]

Have a great weekend.