Hansen Technologies Limited (HSN) Earnings Call Transcript

Thank you for standing by, and welcome to the call Hansen to acquire 100% of Digitalk. [Operator Instructions]. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Andrew Hansen, Global CEO and Managing Director, to begin the conference. Andrew, over to you.

Thank you very much, and welcome to everyone to have a quick discussion on our ASX release on the acquisition of Digitalk this morning. I'm joined here by Richard English, our CFO; and Niv Fernando, our Chief Financial Officer. [indiscernible] And excuse me, guys, as my voice is rapidly going with laryngitis at the moment. Number one, I'd like to probably call out a bit of a thanks to our small team of M&A team, both with Niv Fernando and Sam Hansen. I think the diligence they do into looking at acquisitions and working with people to find strategic and complementary businesses is paramount to Hansen's success over such a long period of time. So we're very pleased to talk specifically around this business today. So as you probably read in the announcement, we've acquired 100% of Digitalk Group Holdings in the U.K. They operate in 2 particular spaces of the communications market, which we'll go into in a moment. The enterprise value of the transaction was GBP 33.1 million, approximately AUD 66.4 million, and that's been funded through a combination of both cash and debt. So Digitalk will become a wholly owned subsidiary of Hansen Technologies. And in time, we'll be actually ran under that vertical, which is actually managed by Scott Weir, the President of our Communications Marketplace. Look, like all deals in Hansen, we've spent a long time looking at this business, then working with this business. And it's an interesting business because it was actually founded over 30 years ago. So the buying off another founder-led business was actually quite complementary to us and certainly a call out to the management team running a very successful, profitable growing business in the marketplace. It will be earnings adjusted per share immediately accretive on the business. And for the financial year '25, they did report unaudited revenue of approximately GBP 10.5 million. 90% of that was actually recurring with a cash EBITDA of approximately GBP 3.3 million as well. So that's on a multiple -- Richard, that's approximately 10x the enterprise value of the business on a cash EBITDA basis. The 2 SaaS offerings specifically is around the MVNO, which is a marketplace, which is growing and expanding. And this is a fantastic opportunity for Hansen, not only with our existing customers, but the customer base, which they actually have themselves. They also deal in the wholesale marketplace as well. So the 2 products, they own all the IP, very similar to what Hansen is always looking to where they own their own IP and have good contracts with customers going forward. The cloud-based wholesale services, et cetera, they have quite a large number of customers around the world in that marketplace as they deal with all the reconciliation between carriers as they go forward. So certainly, strategically, and the reason why Niv and Sam were so interested in the business because it's the hallmarks of what Hansen's likes. It's right in our bull's eye: The communications, its SaaS offering, owning the IP and both in growing marketplaces. And it certainly expands our recurring revenue. Their revenue model is very similar to what ours is. And it certainly strengthens our cloud-first proposition. And some of the conversations we've enjoyed with the executive team of this business is how we can help them through our network and our global footprint to help expand their business beyond our shores. So at the very start, as I said, this is very complementary to Hansen's existing business at the moment now. So we're very excited about it. I think the MVNO software businesses as telcos around the world are looking to expand their business operations by having resellers using their network is actually a growing marketplace for us, and one which I know Niv probably sits at the very heart of our growth aspirations of this technology adding to what we're actually doing. Look, we look forward to welcoming the digital team to Hansen's. We do know that we're still waiting on a small regulatory approval since one of the customers is a government-owned business in the U.K. This is just standard procedure. So whilst the announcement goes out today, the Digitalk staff all now today and will be presented to tonight. But like some of these things, the official of us taking over the business will kick off probably, I think, before the end of December at this stage, guys, is that about right?

Yes.

So on that, we're very excited about the opportunity. It's -- I think, once again, our -- the time Hansen takes and to be disciplined around approaches and how we've expanded our business has always played out. It does also show we're constantly talking to people because these things take some time to work their way through to make sure it's the right sort of deal. So as I said, very strategic, earnings accretive, SaaS software in our marketplace and certainly ticked all the boxes, what Hansen is actually looking for. So on that note, unless I sped read that without my voice going, which is a surprise to everyone sitting in the room, they're probably happy about it. Is there anything else we'd probably add before we ask any questions, Richard?

Thanks, Andrew, and thanks for battling through with laryngitis. Just a couple of questions -- some responses around the financials. So Andrew mentioned the acquisition of GBP 33.1 million. That's on a cash EBITDA multiple of 10x. And for those that follow Hansen, we think that's a pretty compelling price to pay for a business. We are currently trading around 12. So we're very happy to acquire a business of this quality for that multiple. In terms of the impact for FY '26, sort of high-level numbers, we're looking to close probably around mid-December. So based on that, the FY '26 impact to the Hansen Group is around AUD 11 million to AUD 12 million, recognizing that we don't yet own the business, and we're not exactly sure if it will close on the 15th, but that's just a ballpark estimate. Cash EBITDA around $3 million to $4 million. The business is profitable and growing. For those that have done some research already, it is -- it does have a good strong trajectory of growth. The Hansen existing business, we've been saying for a while, growing 5% to 7% organically. We think this business has the potential to be at the top end of that growth, so 7% or above. And leveraging our global sales platform across all our markets, I think, will help accelerate that. It's not to say that this is the last transaction. We've got plenty in the pipeline. We will talk shortly to some of this transaction and the work that went into it. But we have a strong pipeline. I think this goes to show that we continue to be very prudent with the way we invest shareholders' money. We have seen many assets come across our desk over the last 3 or 4 years. And we have a pretty high hurdle for what we would be willing to transact. So congratulations to the team, Sam and Niv, Sam Hansen and Niv Fernando, who, about 18 months ago, really kicked off some further pipeline analysis and have worked closely with the team over the last 5 months. This is a natural fit for Hansen, and we're thrilled to invite Digitalk into the Hansen Group. Maybe Niv, just a couple of quick words, and then we'll throw over to questions.

Thanks, Richard. So look, I think this acquisition is right down the middle of the fairway for Hansen. It's a profitable business, cash generative and with high recurring revenues. It's a complementary product set, as sort of Andrew mentioned, has Tier 1 customers. And I think also importantly, there's a strong cultural fit. A lot of the Digitalk team have been with the business for a long period of time. So very similar to Hansen. So as we are going through the diligence with the team, had a very good sense of that strong cultural fit as well. So I think with that, we might open up to questions.

[Operator Instructions] And your first question comes from the line of Evan Karatzas of UBS.

First one from me. Just -- can you just sort of outline or provide some more information just how similar the product, the software product offering of Digitalk is to the existing Hansen communications software product? And then just speak to, I guess, the cross-sell opportunity or any other synergy opportunity that you see from this acquisition as well?

Yes. Evan, it's Niv. So look, the product set is actually very complementary to our existing product set. So they've got sort of an MVNO platform that's out-of-the-box SaaS offering, which is something that we can sort of add to our product portfolio as well as the wholesale operating. So it's very complementary. Look, in terms of cross-sell and upsell opportunities. With that complementarity, what it means is there are some clients that we have within our portfolio that we could look to offer these products to. And I think, also, we can look at things like our catalog products, for example, offering that to Digitalk's existing customer base as well. So I think they are the 2 sort of broad opportunities.

Okay. That's good. And then final one, just around the -- can you just speak to if there's any earn-out involved or if the management team -- existing management team is staying on? I'm just trying to understand how the vendor lock-in or earn-out -- potential earn-out works as well?

Yes, there's no earn-out in the business at all. We've -- I've met personally and some of the other execs of Hansen have met with the executive team. So they will just slot into normal Hansen's process. The CEO is actually still working with us. We've got him on an advisory board capacity going forward, which we're happy to because as said, this is probably emotional -- this is 30 years in the making of this business for Justin, and he's a great operator. And he sees what Hansen has. And one of his attractions to what we have is just that global size of our business. So we don't want to lose him completely from that advisory point of view and his contact point of view. But no, there's no earn-out. The management will just become career Hansen people like we normally manage and just has an ongoing role.

Your next question is from the line of Josh Kannourakis of Barrenjoey.

Congrats on the acquisition. Just a couple of quick questions for me. First one, just on customer mix. So you mentioned a little bit about the reseller market as being a big focus. Could you maybe just give us a little bit more detail around the sort of breakdown of the customer base and how we should sort of think about where it is now versus Hansen's existing customer base?

Well, a lot of our communications customers are actually the prime. It would be like Telstra, et cetera. The MNVO marketplace are people who resell off the network. So they are people who don't own the network who resell under their own brand, and there's thousands and thousands of them around the world. So clearly, one of the opportunities we see ourselves with our own communications customers is to be able to offer them an out-of-the-box solution for resellers. So that, to us, is probably, as Niv touched on, is very, very complementary to what we're doing as well now. As far as the wholesale marketplace, there's 100 plus. So what they primarily do in simple terms is they deal with buying and selling minutes from each other. So you get off a plane, you start using the Telstra network, and you're from Telecom New Zealand. So that's actually, once again, in simple terms, working out who owns what. And so there's that monthly reconciliation, which takes place. So a lot of the major telcos around the world would use them for the wholesale reconciliation.

Got it. No, that's really helpful, Andrew. And just in terms of, I guess, opportunity within this sort of segment of the market, like in terms of the product set they've got, is there anything else that you mentioned catalog being one thing that could easily slot in. Is there anything else in terms of what you view as product expansion opportunities within the suites?

Look, we probably thought initially -- the thesis we have because it's such a good-run business, the thesis is might really answer one before, dealing with our own customers are saying we have an out-of-the-box because we've already got a relationship with those customers. The MVNO marketplace is a growing marketplace. It's because the overall investment into 5G and potentially 6G, most communication companies are trying to find other revenue sources or people to actually use their backbone of what they're doing. And we've never really had an out-of-the-box solution for that marketplace. And that's probably one of the exciting things we actually see. And it's a global offering. One of the problems a lot of businesses have and under Justin running the business, it was U.K.-based. And I'd tell you, it's a very expensive thing to try and set yourself up in America or Asia or even in different parts of Europe because it's just -- and that's what Hansen is going to bring to the table because we've already got that distribution network in place. I think the next step to your question is where does CPQ catalog and some of our Tier 1 products actually go. There would certainly be opportunities to do it, but the very first step we would actually be doing, as we always do, is let's embrace our new staff, let's embrace the customers we've actually got. They've got a fantastic pipeline. But what we want to do is be able to provide global expansion. And even that was very clear on our thesis and certainly talking to the executive about it.

Yes, I think that's right, Andrew. And I think for the existing customer base, it's a good story because it's -- with Hansen as an acquirer, you're getting a business that intimately understands your space. So it should be positive for the existing customers, too.

Got it. And just one final one, guys, just in terms of competition in this space. Like who would be the sort of big players that operate in this sort of out-of-the-box MVNO market?