Inderes as an investment - CEO Q&A

[mikaelrautanen]

Hello forum members!

My name is Mikael and I am the CEO and co-founder of Inderes, the company behind this service and most know for the equity research. We are ourselves also a publicly listed company eating our own dogfood so if you are interested about Inderes as an investment, I am here to answer your questions. There is already a lively discussion on our Finnish side (we have over 5000 owners), but here we can discuss in English

To get to know us you can read the SEB commissioned research report about us: Inderes - Finnish market done; pan-Nordic next - SEB

Here you can access our latest results presentations in English (we currently publish releases only in Finnish): Inderes Oyj

[mikaelrautanen]

We lowered our guidance this week as our events business is taking a hit this year after two years of strong growth. Recurring business continues on a healthy growth track. It’s a tough market and we’re not immune to it, but we are all fine here at the offices.

SEB research note gives a good summary on the reasons

lowers-guidance-ranges-new-ebita-mid-point-34-below-seb-estimate.pdf

[mikaelrautanen]

Welcome to follow our Q3 business review presentation (in English) next Tuesday

Inderes – Presentation of Q3 business review 2022

[mikaelrautanen]

Q3 was good despite the market conditions

Revenue grew by 18% (41%)
• Share of recurring revenue was 64% (59%)
• Growth in recurring revenue was 30% (27%)
• Project revenue grew by 1% (65%)
EBITA totaled EUR 0.6 million (0.5) and accounted for 20.6% (20.6%) of revenue

Presentation material: https://inderes-ir-pages-prod-assets.storage.googleapis.com/inderes/documents/Inderes_Q32022%20EN%20Presentation.pdf

English presentation of our business review now available:

Inderes - Presentation of Q3 Business Review 2022 1.11.2022

[mikaelrautanen]

SEB’s update report: https://www.inderes.fi/fi/system/files/company-reports/inderes_011122_1.pdf

[mikaelrautanen]

We joked with @Verneri_Pulkkinen at the office that before we get the discussion rolling here I’m ready to be like Tom Hanks on a desert island

[Verneri_Pulkkinen]

[Verneri_Pulkkinen]

Today we can warmly welcome 23 new colleagues to the team!

Inderes Oyj

"Inside information: Inderes accelerates its internationalization by acquiring Financial Hearings and Streamfabriken, the Board of Directors decided on a directed share issue related to the acquisitions

Inderes has today signed an agreement to purchase the entire share capital of Svenska Financial Hearings AB and Streamfabriken AB, Streamfabriken Oy and Streamfabrikken AS. Financial Hearings is the market leader in producing investor relations events in Sweden. Streamfabriken acts as the production company for Financial Hearings and serves other customers in the online events market in Sweden, Finland and Norway. The companies employ 23 people in total. The combined revenue of the acquisition targets including intercompany sales was about EUR 3.9 million and EBIT around EUR 0.9 million in 2021. Both companies are net debt-free. With the acquisitions, Inderes expands its platform to cover over 400 listed companies in the Nordic countries.

Financial Hearings has operated in the Swedish financial sector for 30 years and arranged over 10,000 investor events, which has built a unique contact network and industry knowledge. The company’s customer base consists of over 200 mainly Swedish listed companies that use its services to execute result releases, AGMs and CMDs.

Streamfabriken is a production company specialized in high-quality technical execution of online events that operates in the same location and in close cooperation with Financial Hearings in Sweden. The company also has four employees in Finland and a recently established company in Norway. The companies have been using the Videosync software platform developed by Inderes in their broadcasts for years.

“In Sweden, Financial Hearings and Streamfabriken have done what Inderes and our subsidiary Flik have done in Finland: democratized information by making listed companies’ investor events available to all investors. It is an honor to be able to take these companies forward that have been built over decades with a long-term vision of openly serving investors and listed companies,” said Mikael Rautanen, CEO of Inderes.

“Financial Hearings delivered the first webcast of a Swedish investor event in 2000, which launched a new era in the financial sector. I am proud to be able to transfer Financial Hearings to a new generation of entrepreneurs in the financial sector after working with investor events for 30 years. Inderes shares our vision of a Nordic player and the companies share the same values,” said Per-Erik Holmström, the main owner and founder of Financial Hearings.

“Inderes has shown that it can provide an excellent framework for an online event production company to grow and prosper. With the production teams in Helsinki and Stockholm, own studios and own software platforms, we will be able to serve customers in the most demanding event concepts in the Nordic countries in the future,” said Janne Jaakkola, CEO and founder of Streamfabriken.

Inderes has made an almost corresponding transaction in 2019 when it acquired Flik Media Group. Thus, the company has a strong understanding of the acquisition target. The value creation of the transaction is expected to be based on the following factors:

• Personnel. The employees of Financial Hearings and Streamfabriken will be able to work with a broader service offering internationally as part of a growing business. The internationalization of Inderes opens new career opportunities for the company’s employees.
• Community. After the arrangement, Inderes has a stronger basis for building an Investor Community in Sweden. In addition, after the transaction, Inderes’ platform will have increasing new content on interesting companies.
• Customers. The webcasts of Financial Hearings’ customers will be connected to the Inderes platform in the future, allowing them to reach a wider investor audience. Together, the companies are able to help customers with a wide variety of investor communications needs. Inderes’ current customers will be able to reach wider audiences as the platform expands in the Nordic countries.
• Shareholders. The acquisition has three key value creation mechanisms for owners. Firstly, expanding customer relationships to cover higher value-added studio broadcasts will generate additional sales potential, of which Inderes already has a track record in Finland. Most Financial Hearings’ events are currently based on cost-effective audiocasts. Secondly, the production value of the events can be raised with the software solutions developed by Inderes and external costs can be reduced. Thirdly, Inderes’ extensive service offering that covers key investor communications functions, opens opportunities to provide more comprehensive solutions to the customers.

The structure of the transaction

The total purchase price for the acquisitions is EUR 8.2 million and net debt-free purchase price is EUR 7.3 million. 19% or EUR 1.6 million of the purchase price will be paid in Inderes Oyj shares and the remaining EUR 6.6 million in two cash installments. To pay the purchase price, Inderes Oyj’s Board of Directors resolved based on an authorization from the Extraordinary General Meeting on a directed share issue in which the sellers were offered a total of 48,787 new Inderes’ shares at a subscription price of EUR 31.92 per share. The subscription price was determined based on the volume-weighted average price (VWAP) of Inderes’ shares between June 29 and September 28, 2022. The shares have a 12-month restriction on the right of disposal. The second installment of the cash consideration, i.e. EUR 2.9 million, will be paid within 14 months of the signing the contract, i.e. in February 2024. The transaction does not include an additional purchase price. Inderes financed the transaction with cash, own shares and a bank loan of EUR 2 million.

The number of shares issued in the directed share issue corresponds to approximately 2.99% of all shares in Inderes Oyj before the share issue and approximately 2.90% of all shares after the share issue. As a result of the directed share issue, the total number of shares in Inderes will rise to 1,681,404. The new shares will be registered in the trade register on or about 21 November 2022 and the shares will be trading together with the old shares on the First North Growth Market Finland marketplace maintained by Nasdaq Helsinki Oy on about 22 November 2022.

Both acquisition target companies are owned by their founders and key personnel. Johan Wallinder, CEO of Financial Hearings, and Janne Jaakkola, CEO of Streamfabriken will continue working for Inderes. The founder of Financial Hearings Per-Erik Holmström will independently lead the IR Global League project that focuses on coordinating IR events of listed companies. Peter Sergel continues as the Country Manager of Inderes Sweden. The company’s intention is to keep the Financial Hearings brand for the time being."

[Thomas.Westerholm]

@mikaelrautanen in reference to these recent acquisitions in Sweden how did you approach the alternatives of entering the Swedish webcast space organically versus entering via M&A? Are there significant entry barriers in this business?
Also, what are the main sources of synergies you expect to derive from these acquisitions?

[mikaelrautanen]

Thanks Thomas!

We went in this year with both tracks: organically while at the same time looking at M&A. Since Financial Hearings is so strong in this sector, there weren’t many alternatives in the IR webcast market specifically.

Techically the entry barrier to webcast market is pretty low one could argue, but especially in the IR segment the actual entry barrier comes from loyalty of customers. If the company has a reliable vendor with whom it has worked with for many years (that gets the job done at a reasonable price), why bother changing? Imagine an IR manager going to say for CEO ”I changed the webcast vendor to save 1000€” and then when the live event starts and CEO gives presentation for important stakeholders and something fails… You rarely change the vendor if things work and you have build routines.

This what we learned about Financial Hearings + Streamfabriken customers when we looked at the market. They are very loyal due to great service. This is the biggest entry barrier. Together we will improve it by upgrading the services further and by building broader audience/distribution for the broadcasts - just like we have done in Finland in the same market.

Synergies come from 1) lower service costs due to our own software solution particularly for telco, 2) upgrades of productions for example to our new studio, 3) additional services and 4) bigger scale to serve customers on Nordic level in demanding event productions (Streamfabriken+Flik).

[mikaelrautanen]

I had a deep dive to our business model with HCA analyst, the discussion can be watched here:

Inderes – Deep Dive: Understand the business model

[mikaelrautanen]

Welcome to follow our financial statements presentation live on 8 February at 1:30 PM (CET)

Inderes – Presentation of year-end report 2022

[mikaelrautanen]

We have now started monthly reporting of revenues to provide more transparent and realtime information to our shareholders. January-February revenue was up by 52%.

Inderesin liikevaihto kasvoi 52 prosenttia tammi-helmikuussa 2023

[mikaelrautanen]

AGM done and all clear! The AGM selected Nina Källström as new Board member, Nina comes from Wolt and has great experience on scaling digital business models internationally. Also, the AGM voted “Mauri”, one of our most liked community members on the forum, to be part of our nomination committee for the next term. This is a reflection our community-driven approach, we involve our community to develop this company on all levels.

Photos from AGM afterparty

Inderes Oyj:n vuoden 2023 varsinaisen yhtiökokouksen ja hallituksen...

[börsen84]

Hey @mikaelrautanen !

There are many different companies in Sweden that conduct analysis.

Could you tell me how Inderes generally differs from other analysis firms? Why do you think that one should read your investment materials and stock analyzes?

Thank you in advance for your response!

[mikaelrautanen]

Thanks for the great question! I’m so happy to have first questions here

Our differentiation is based on the recipe we’ve applied in Finland:

1. Independence, i.e. critical views also. We accept to lose business because of publishing also critical views or negative ratings on paying clients. We must prove for the investors that the research is unbiased, every day.
2. Quality and activity. The research is high-quality and very active. It starts with the in-depth report and the analyst update reports and on top of that the we do interviews, sector reviews, news comments etc. This all continues with the analyst having dialogue with our community on the Forum. So it is not just writing a research report and publishing a PDF to the internet hoping someone reads it: you need the whole spectrum of heavy research reports, complementing easy-to-consume content and engagement with the audience.
3. Reach and trust. We compete to win the investors. We know how to reach the investors, but reach is useless if investors don’t trust the research.
4. Research is in our core. We have no wealth management, trading or corporate finance business. Connecting investors and companies is our core business. This is the passion where this company once got started.

Why should one consume our material? I’ll leave the judgment for the audience! Go read the research, challenge the analyst on the Forum and see if Inderes helps you in understanding the company better and in becoming a better investor. We also publish stock recommendations and in history we have been acknowledged for outperforming the market, but we don’t get all of them right and sometimes we fail terribly. So use the our material and service in a holistic way, don’t blindly follow recommendations, make your own judgements and have fun!

[fredde]

Hi @mikaelrautanen , much appreciated that you take the time to answer questions here! I have a few questions with regards to the swedish market, where Inderes is starting to expand to.

Firstly, I think that Inderes has done an amazing job on the finnish market, so well in fact that the opportunities for further growth in Finland have become small. As Inderes, at least to some extent is a growth company, international growth is the logical next next step. Since the strategy is to expand to Sweden, my question is how do you think the finnish and swedish markets differ and how can you be confident that the amazing success that Inderes has had in the finnish market will continue in Sweden? I dont think only high quality analysis is enough, since a lot of competitors also have qualitative analysis on companies there. One could argue that a part of the success on the finnish markets comes from the founders having knowledge of the finnish markets and a so called “kotikenttäetu”. This wont be the case in Sweden.

Also, how much do you think the the investment case going forward is depending on success in Sweden? I would imagine it being quite a high risk for investors, if penetration of the market isn’t as expected. Finally, how is success in the swedish market measured? What metrics should investors follow?

Thanks a lot.

[börsen84]

Thank you, Mikael. I really enjoyed your answer.

I get the impression that your analysts strive to be as realistic as possible. This is really important to me because I think analysts around the world are often too bullish, if you know what I mean.

Employee satisfaction is important to me. Can you tell me if employee satisfaction is high there? High pay isn’t always enough, as employees need to enjoy their work. A good employer attracts the best talent.

[mikaelrautanen]

Very good points! Many of them we will address in our capital markets day on May 26, you are warmly welcome (invitation)! I’ll give some quick thoughts.

On one hand it is like you said, we don’t have the early mover advantage, small entrepreneur team (that has no other options than to succeed), the home field advantage etc. On the other hand, we are no longer an unknown startup with 24 year old guys dressed in Tiger of Sweden trying to convince listed company CEOs to buy a service they have been used to get for free: there was no market when we started. I believe the playbook in ramping the new market will thus be very different. Times are different and we are very different, we need to play on the strengths that we have today as a stronger publicly listed company, without forgetting the core values that made this a successful company in the first place.

A big difference is that until 2019 Inderes used to be one product company: commissioned research. Now we have five main products covering most of the IR function: research, quarterly events, online/hybrid events, agms and IR software. Events is actually our biggest revenue now and we see big potential in developing this business in Sweden where we are the market leader. Going to new markets, our long term ambition is to build the full flywheel with all products for the IR and the digital service for investors. But we are not only dependent on research, we have many levers to pull for growth as we ramp different parts of the flywheel. And also in Finland, we still have room to grow with this offering we’ve build during last 3 years though we have ramped up the market penetration pretty quickly.

That said, we are very humble with the fact that we are deeply rooted in Finland and we need to transform into an international company, and it’s going to be a big transformation for us. Just like when we founded the company we had no experience in building business, now we are in a situation where we have no experience building this business on international level (or we do have individuals with experience of international business, but the CEO has only his curiosity).

The metrics we look (in addition to the backward-looking revenue and EBITA numbers) at is number of IR clients, revenue per client and community size/engagment. We’ll come back to these as well in the CMD!

Now my quick thoughts are becoming pretty long… thanks for the question this also helps us in clarifying our messages and thinking for the CMD! I’ll move to spend the weekend with my family, @börsen84 I’ll get back to your question next week! Have a nice weekend

[mikaelrautanen]

@börsen84

Employee satisfaction is important to me. Can you tell me if employee satisfaction is high there? High pay isn’t always enough, as employees need to enjoy their work. A good employer attracts the best talent.

Coming back to this. We do employee survey every 6 months. One question “I would recommend Inderes as a workplace” scored 5,5/6 in the last survey. We’re doing good overall, but we do have the normal challenges any growing organization has.

Our organization model is a bit different from traditional and it is described in our Playbook. We have been building a self-management / self-organizing model since 2017, insipired by other successful companies and theories such as Teal. This type of organization works for many and it attracts like-minded. But if you are looking for a job in stable environment where you are being told what to do by the boss, or if you are a manager looking for a position where you get status and control over people, we are not the place for you