Hypoport SE ($HYQ)

[Audio Gap] to our Q&A session regarding our Q1 results. My name is Jan Pahl, I'm Head of IR with Hypoport. And together here, I'm with Ronald Slabke, our CEO. We are happy to welcome your questions, receive your questions and answer them. Today, you have the opportunity to type in your questions via the chat function. So free just to raise some bullet points. So you do not have to type in a lot. Just a few bullet points, and I'm absolutely sure that I can understand what you mean what you want to ask and I will highlight and read this out to Ronald. If you have however, any technical issues in typing in and using the chat function, are you also free to send me an e-mail and I can also while this way I'll speak and transfer these wordings and questions to Ronald. So this Q&A session will be recorded and I will start the record in a few seconds. And I see that the first one is typing. So right now, in the meantime, we will hand over to you maybe to run for a short introduction. So I now was start the record and a few seconds on that you are big card is now. So please.

Yes. Welcome from my side as well to this Q&A session here regarding the Q1 financial results of Hypoport. We had a very vital discussion here 2 months ago when we released the final numbers for 2025. So looking forward for your areas of interest and to deep dive in our numbers for Q1.

Great. And just as a reminder, you can use the chat function out if you have any problems with this. Don't hesitate to forward your questions via e-mail to me and I can see that someone is timing. So we will wait a few seconds for the first question. And as a reminder, bullet point is absolutely fine. You do not have to tie in or what.

We got the first question from an investor side. What percentage of your volume was tied to a large bank who is not offering mortgages or reducing their mortgages and sure everyone who is knowing us on the call is aware which bank this is. But so what percentage of our volume is tied to the large bank, is not longer or is reducing their of mortgage offering?

And let's say, we can't comment on the performance of individual partners of us. This it's simply not possible to disclose this information. What we can share is that the market share of private banks in Germany over a period of -- here in this comparison, 10 years, went from 20% roughly to 10%. And so the change in the attractiveness of mortgages for private banks and their allocation of equity changed massively over this period and especially over the time 2023 until now. So that's -- it's a shift and it's a massive reduction in transaction volume for private banks in total here.

All right. I hope this answers the question. We got another 1 in the same topic a little bit, but a little bit more specific. So because of the downturn on Starpool at least, the key question is, at what point does it make sense to restructure or exit the joint venture rather than continuing to this track. Is there a scenario that, for example, Starpool can become loss-making in 2026?

Let's say the entity is a pooling business where a number of people is assisting specialized advisers, so mortgage brokers tied to German bank, Deutsche Bank as an entity. So tied agents, tied mortgage advisers or they are free, but to have a preferred relationship with Deutsche Bank and because of this use Starpool. . In general, there's a change in the volume as well the necessary support functions and Starpools are growing or has to be reduced. And we are in the content process of adjusting this to the necessary volume of support. So the adjustment is regularly done. So there is no midterm risk that this entity will be loss-making. In the end, it contributes to the overall transaction volume and enables us to address these markets. And actually, when you think about the tied agents as well to its passively address this market. And because of this, there it doesn't make sense to, let's say, shutdown or crushing the existence of this joint venture as long as our partner is doing mortgage business at all. And I have difficulties to imagine a German retail bank of the size and of this balance sheet to exiting the mortgage business fully. This is difficult to understand how such a retail bank would work long term.

Right. So thanks for this and hope this also answer the question. However, if not, feel free to reschedule this. And bring this up to top. Once again, we got another question. It's a little bit more to the overall market. So about interest rates in Germany here. and how the mortgage volume is progressing in April, being in May of at least how in a little bit more plain words, how is Q2 performing here on mortgage business?

Yes. Let's say, in general, what we can say is that Q1 was volatile because of the interest environment. So during the short period of, I can assume in here a little bit, the short period of January, February with declining interest rates, people hesitate to finalize the application and close the mortgage contract because it gets cheaper, while they wait. And in the moment, when interest rates were starting to rise, and this was linked to the Iran conflict, then lots of applications are closed fast. . So we had a volatile environment with a very strong March, similar to the Q2, Q1 2025. So Q2, it's pretty normal that after a period of sharp rising interest rates and fast decisions from the consumer side, then you have time of, let's say, less active business a week or two. And then everything returns to normal. So I would say, from this what we see for now, yes, it slowed down as expected after March. And actually, it's as well visible on, for instance, super numbers that has happened. But we are more or less back to normal already again. So with this volatility on the overall macroeconomic environment and interest rates, this is nothing unusual anymore from a market environment. So we -- from my perspective right now, I would say we see a pretty normal second quarter for this year.

Okay. Great. So I hope this answers the questions or this question. We've got another one, which is more a little bit. Okay. There's a follow-up. So Q2 2025 was weaker, so weaker as Q1 '25. So do you expect a slight decline in volume from Q1 to Q2? And next question is, might be Q2 versus Q2 last year be down as well?

So let's say, the first question is, I would say, easy. We have a seasonal activity in the market. Q1 is very typically a very strong quarter. So a lot of people over the Christmas season decide to start to look into the idea of homeownership and then execute during the period of February, March. So that's pretty normal. Plus in the second quarter, we have Eastern, we have holiday seasons. We have a lot of let's say, single days, which are holidays. So the number of working days is lower in the second quarter than the first quarter. So both combined creates usually a slightly weaker second quarter than the first quarter was. And this is over a period of the last 20 years, you can say. So I would expect at Q2, which is below Q1 numbers. So the comparison with last year, it's more difficult. This is not decided by now how we performed compared to last year. Last year had the same effect that we had a strong March because of sharp rise in interest rates and the weaker start in the next quarter. This is well documented already. For now, I don't see that it's -- that we know already that it be a possibility to predict if it will be similar or not -- it will close enough or below last Q2. Let's say, what is certain -- it's not a dramatic change compared to last year in both directions.

Great, Jack. So I hope this answers the question. I'll try to group it a little bit. It seems we do not have on this high level of macroeconomic and interest rates, so any questions, but there are 2 others, which are a little bit more deep dive. So we are now diving into the appraiser service it's about value AG. So congrats on reaching the breakeven at value. Is the plan to continue running this business at breakeven?

No. The plan is to more and more automate all processes which are necessary in the valuation process. And with this, generate a lot of automation and Value and margin in this business. But this is not something you do in a reregulated environment on a, let's say, a monthly or quarterly basis. So there needs to be done work. We expect Value AG to be next year profitable full year, how profitable we will see when we went through the process of automating the processes during this year to which level of productivity we come up under them. And let's say, long term, it's a platform business where there is no human labor needed. Besides this, what the regulator forces us to and there is a lot of potential to bring down the cost of all products and this is during the valuation process for mortgage as well as homeownership and buying process in total.

Right, very clear. No other questions on a press service on mortgages. So we hope maybe there's another one. This is more on a group level. Let's jump with a deep dive more into insurance because this is the next one. So a little bit specific question on the volume, which is validated. So maybe it's the next slide, yes, exactly. So the validated volume, which is now up by 29%, growing to EUR 2.5 billion in Q1. So does this mean that -- so advising is more likely to use. Can you give us a sense of the revenue model once this policy is validated. And what does the economic look like per billion of validated volume versus migrated volumes. So where is it different? So the migrated volume is 5.7% here. So what are the economics behind these 2 different numbers?

Yes. Okay. This is -- let's say, the first, what's the difference between these numbers. Let's say, via acquisitions, via winning clients, we have roughly EUR 9 billion of intrusion premiums Yes. is in our systems, which were previously provided often as a license-based software solution. It's a locally in start on-premise, and therefore, now close to 10 years, we migrate this to the cloud. So this migration to the cloud to our centralized SaaS infrastructure creates the first KPI, the EUR 5.7 billion is premium volume, which is from the side of the sales organization brought to the -- to our platform. . This is growing numbers of insurance companies, we have interfaces and are able to validate the information provided by the sales side about, let's say, certain contracts. So if we are able to match the information that in the sales side information, so contractual number and certain ideas to the insurer side, then we create validated volume because then we are able to sink the information of both worlds, so the sales side world and the insurer back end side growth. And we can be certain that all information about the contract is just through valid. And we can then highly recommend to use this information to optimize processes up to the advice process for the consumer -- if this is a fitting insurance policy. So the EUR 3.2 billion, which are not validated, these are just one-sided information where neither an interface to the insurance company is missing or the specific contract could not be matched to an identifiable contract in the back-end system of the insurance campaign. So this said, the pricing model, which we use is volume-based. And depending on the intensity of the usage of the platform. So how many modules you use around your contractual volume and especially in the area of the validated volume, the, let's say, core value are created. We charge a percentage of the premium volume annually or let's say actually we charge on a monthly basis, but we agree on an annual transaction fee and the average is for now 10 basis points. So actually pretty similar to the mortgage world. This is still low because of the low level of usage of modules in the platform. which we have to as well sell to the clients. And the more validated volume is there, the more attractiveness, the modules around gets attractive because, especially on the validated information, you can automate more and gain more efficiency while on an not validated data set you risk to get liabilities in acting on them.

Absolutely. So there is another follow-up at least. So on this validated volume. So when does it generate a meaningfully different margin profile, a little bit fuzzy what this means. But so when it is kick off a little bit more.

Yes. Let's -- you see the dynamic. So for now, we can -- on all levels of this KPI work on it, we can migrate more volume from the sales side. There are still roughly EUR 3 billion left on non-SaaS solutions out there, so license based, and we can win new partners to migrate to the platform. So changing the top line on the sales side. We are able to, because of the higher volume within the platform, attract more and more insurance companies to provide interfaces to validate. . There is unfortunately painful process if this validation fades on certain contracts. So sales side and insurer have to manually think what they -- what's happened to this contract, which should be there, but wasn't found. But as well, this is ongoing and improves the quality of the data and increases the volume of the verified contract. And let's say, plus, let's say, when something changes in the insurance volume, value of contracts, this is automatically adjusted. So this 2.5 goes up as well if the premiums were consumer services, which usually happens more or less on an inflation level. Yes, we are in a constant process of offering our modules to this and increasing with this, the incremental margin that we have. And let's say, the goal is significantly higher than this 10 basis points, which we see right now. So this is on all levels, we are working and what is meaningful -- from the dynamic of the last years, we see that it takes too long without massive changes on both sides. So the sales side and the insurer side to support the platform more to enforce the usage of the platform. and the intensity of the usage. And for this, we are in strategic talks with parties to set smart insurer as the standard in this industry to bring this to this point. For now, we were not successful to bring the platform to this unquestioned position within the market. Will this happen? Yes, in some moment. In which year, with the track record which we have by now, I'm not certain for now.

All right. Very clear. Thanks. So we are leaving the segment insurance platform now more on a group level, so deep dive and expenses. So our operating expenses were flat versus Q1 last year. So operating expenses, like personnel, own work capitalized and so on. Is this due to seasonality as the question? Or are there other reasons?

No, let's say, in general, we are very focused on keeping our costs under control. We are right now not in a strategic expansion mode, you can say. We don't add additional platforms. We don't explore new areas outside of our pretty wide portfolio of platforms that serve this free industry already. And there is still a lot of work that needs to be done to bring all of them in a profitability level that meets our expectations. And because of this, let's say, costs are under control. And I would say that there is no -- there were no special events in Q1 last year or Q1 this year, which mislead that we are keeping this control on our cost base.

Correct. So another 1 on the group level is -- that is a target to doubling our EBITDA gross profit margin until 2029. And so do you include any price increases for Europace to achieve this target, meaning increasing from 11 basis points today to, let's say, 1.4 or so? And if yes, what to this magnitude should we expect?

Yes. So yes, I would say the core drivers of this rising profitability are execution of business models where we for now heavily invest or are in an early stage still of the rollout and don't receive at the full scale of our expectation, the return for our investments, which we made in the last year. So this is the main part of this. So actually just finishing the work which was prepared already and getting to the point that we see our effort in our; P&L. Besides this yes, we expect for a lot of additional functionality, integration that we delivered to get a return for the additional value we create for our partners. I would not call this price increase. it's linked for now to raising the value that we offer them. Best example, we -- just in a couple of -- 2 weeks ago, so still in April, we released a product which you know as ready as Europace I as a bundle for mortgage brokers. -- as well within the target group of bank branches. So bank branches, banks are able to book the Europace I bundle now as well for the advisers in the branches. And this is linked to a 25% higher transaction fee for this bank for this volume. So we don't see this as a price increase. We see this as additional value that we develop and provide and to get the fair share for -- from our partners for this. From a purely financial perspective, P&L perspective, yes, it means more revenue with the same transaction volume. And yes, this is part of our strategy. and we just talked about value. It's a great example for this to improve and expand the features of our platforms and with this, receive a higher revenue per transaction.

Right. I hope this answers the question. If not, please feel free to come back. We stay on a group level, but are a little bit more into deep dive into a cash flow statement. So on the cash flow statement Q1, the noncash income expenses line is at EUR 5.6 million plus versus minus EUR 0.2 million in Q1 '25. So it's pretty big swing at least of nearly EUR 6 million in a single quarter. So what is about this item has also been largely volatile for the full year? Can you explain a little bit what actually is in this slide and why it's so large in Q1?

Yes. Okay. No. These are commission payments, actually often pass-through commissions as well to a certain extent where we, after a full year is over, receive let's call it, bonus commissions from banks. And if it's for our own sales organization, so Ventures network, most of this stays with us, part of this goes to the ventures fees if it's for cooperating partners of Hypoport and our pooling businesses there, most of it goes to our partners. . And depending on when a bank transfers this payment to us and then we forward these payments to the subcontractor, the stock broker, it creates some volatility in our cash flow statement.

Right. So kind of follow-up, not from the same investor, but on a topic, and it is a follow-up. Do we expect working capital to be a drag on cash flow in Q2 to Q4 this year like it was last year, at least.

Yes, let's say, in general, we don't expect is any drag of working capital beside that, when we grow by 10% top line, that we usually grow as well by 10% on the working capital because of these flows of commissions and the time lag between receiving and forwarding commissions. So on a quarterly basis, this may vary. And then you just mentioned last year the -- so just look on the -- please look on full year. This is pretty helpful, not on certain quarters because as soon as the payment was done in a different quarter, it creates their volatile information. Remember no drag from the working capital side, this is really short-term transfers always.

Yes. So thanks for this. next 2 questions on Europace back again. So can you give us a little bit more examples on how we can increase our revenue per transaction beyond this form on a name price increase and also the next one, we can maybe a little bit combine is could you clarify a little bit now what is Europace I you just mentioned.

So -- let's start at the end and then maybe get to the wider perspective. So Europace 1 is a bundle of features in the Europace system. It starts at the consumer front and within the consumer app, there are certain features enabled. When you choose Europace 1, for instance, the chat function to communicate automatically with the consumers, there's a feature that enables you to offer your consumer and monitoring of properties that comes to the market fitting to his needs and his financial abilities, so that he is fast informed about something that meets this criteria and is able to act faster than other consumers. But as well features within the systems like AI, which is recognizing what type of documents they were provided by the consumer app or the adviser via its user interface and automotically checks if it was still opened with the bank and sets the necessary processes to automatically bring this to the product provider if necessary. So automate the flow of documents, just as an example. So it's a bunch of such a feature. Whole product is online described -- the whole bundle is online described on the website of Europace as well. And it's something where we charge advisers a fee of roughly EUR 1,000 per year to use this bundle. And as I said already for bank branches, it's bookable for a higher transaction fee. One feature is actually Value AG, automated value model of Value AG. So to get during the whole process and which each information provided and acquire valuation for this automated valuation for this property in the application. Okay. So this is what is Europace 1. And it's a good example for how we for now expect to go forward with additional features in the platform and additional use for providing them. So there will be a Europace 2 in some moment, and there will be additional bundles, and we will optimize these bundles in the interest of users and us benefiting from it. So we expect to continue this strategy. So with every feature that we add with -- so every automation that we provide, every integration that we provide along the value chain to put a small price tag to it or to combine multiple of these features to a bundle and enabling this way to book them all together for discounting, you can say, compared to a single usage.

So there's a follow-up. Okay. So the price increase you were mentioning with Europace 1 is really charging the adviser, not the banks. So do you have any additional offering to the bank so that you could lead a better monetization of Europace.

Yes, a variety of features already, nothing that we bundled by now. So for instance, automated property valuation is a very typical additional feature, which we offer already right now and which you can book. So let's say, there is a, you can say, a growing list of additional functionality or services even that you are able to book as a bank as well to enhance your experience and your speed and your -- improve the certainty of your decisions during the process on the platform.

Right. Thanks for this. No more questions on Europace or price increase, but there's someone typing. Maybe we can wait another second. Yes. On Europace, any updates on the market share on Europace -- so do we expect to outperform the market this year?

Yes. Let's say, we expect to outperform the real homeownership market in Germany here. We see that we are, let's say, the brokers take market share. We expect to brokers to take market share and even improve, increase our market share within the broker segment, because of, let's say, adjust net positive migration of structures to our platform. We see as well that in the savings bank industry and in the corporate bank industry, we just have a migration path in a positive way. So we are not losing any partners in both of these groups, and we are not losing any brokers as well. So the only significant change was the decline of the market share of the private commercial banks here in Germany, especially one big partner of us, where we still serve the whole volume in the standardized private mortgage business. But this was shrinking over the period of the last 3 years now, you can say. So we expect to take market share because of the ongoing dynamic in all 3 sectors. And to be honest, we expect as well a growing market share of private banks again in Germany and that we expand our market share there.

Very clear. However, any follow-up on this. We got the same, a little bit of the same topic. Any updates on Interhyp. Do you see them operating their platform to all brokers in the future?

Yes. Just I want to mention 1 thing here on this call as well. It was in the German Q&A, and it feels strange to not share as well in the English Q&A even when the German one was recorded, but it will be difficult for you to head.

Seems we have lost Ronald, meaning his connection. Trying to bring him back.

I was all the time just -- he was the opinion to change my devices. It did it last 2 months ago, he did it as well once -- so today, he did it as well on -- so I just said that. So we had on German Q&A a question regarding Targo Bank. And jbecause it was leaked that they are right now going -- starting their long announced mortgage initiative together with their acquired subsidiary, OLB, -- and the question in the German Q&A was what impact it may have on Hypoport Europace transaction volume. And I could just say, we can't comment on single partners. But yes, it's well known in the market that OLB is using Europace to run their business. And it's very very known in the industry here that Targo Bank for now 2 years prepared to enter the mortgage market here. And this was what was leaked now is the cooperation of these 2 entities belong to the same French banking group as an initial start for Targo to enter the mortgage business. And with this said, I expect a positive outcome for us. And it's great for the market when another large foreign bank joins the German mortgage market and provide more business especially when you see how private banks, originally, the German private banks declined their volume. So there is a need as well, and there's a space for more banks providing mortgages in an efficient way, in an automated way with the right technical infrastructure behind this. So this, I think this should be shared here even when nobody is able to ask the question. So the next question was Interhyp. Interhyp just a couple of days ago, I didn't announce it was as well a leak that they reduced their workforce that they are, let's say, I would say, struggled to meet the profit expectations of ING Group and need to restructure. They want to reduce their workforce by more than 10% right now. As you may be aware, while we operate franchise system. They have hired advisers in branches, which they typically rent it. So it has a different kind of cost base. And they right now adjust and restructure their business. So part of the question was, do we see that they are more aggressively entering the platform market? No, we don't see this. Actually we don't see interhyp for a couple of years now as a competitor on the platform level. They are still in some old corporations there, where they do a similar business, but these corporations are I would say, roughly 10 years old, and they are still continued, but they are -- they didn't attract new clients on this level, and I don't see them even trying to do this.

Absolutely. This was a little bit more linked to the bank side. What is about the brokers, the independent brokers because this was also part of the question. Now do we see or do we expect the to offer the platform to all of these brokers.

So -- now in general, they do this as a pooling offering with their pooling entity. So the pooled entity is -- and actually our poolers, staff pool -- quality pool and the last or the next, there an answer to this offering of Interhyp and you can say today, Starpool and are similar, big pooling organization in the German small intermediary broker market. So our incremental gain in market share in the broker segment here over the last 10 years from 50% to 60% is linked to the fact that our pooling organizations or pooling organizations is adjacent using Europace, we are pretty successful in taking over volume from pool. So I don't see here any shift in the market, the poolers running on Europace have a very competitive offering for small intermediaries.

Thanks for this. For this, help us clarify a question -- just as a reminder, if you have a question, you can type this into the chat or this via e-mail to me, it seems that no 1 has any issues in using the chat form because I don't receive any questions here. This last 1 which is more on capital allocation. Maybe this is a good 1 to handle now. It's great to see that we set up the share buyback program in Q4 and Q1. How much do we still have altest -- and are we still active in a moment.

So we have an authorization to buy back 10% of our shares with the last authorization. We bought just... Yes. fraction of this, though we still have roughly 9% outstanding. And on the agenda for this year's Annual General Meeting is again to get approval to buy back 10% so to renew this to have a fresh 10% potential to buy back shares. And yes, the current share price is attractive for share buyback.

Yes, right. So we are asking for the next 1 for another one. Are we still active while the current or the last share buyback program is closed? So this is it, EUR 10 million. So are we active? Obviously, we have some intention on this and asked the AGM for this. So hope this clarify the question. And as a reminder, you can talk your question until the chat, we have still a good audience here. So it seems our Q&A is pretty interesting.

Maybe Jon please ask up until today. Thanks to inside regulation, we were conflicted to start a new share buyback program. And if there are any information within the company who locks us as an insider as a company, we can't start to do what. So that makes it a little bit tricky to find an opportunity to start buyback programs in a pretty dynamic environment, let's say.

Thanks for this background information, very important. And just a follow-up on this. Ron, do you know if your shares are available through your custodians for short sellers. So it seems that you -- were shares .

Yes. No, my shares were not available for short sells.

This, that's another one. What is the theoretical firepower to continue share buybacks? Good theoretical question, right?

Let's say, it's -- as you can imagine, there are multiple layers of how to finance a share buyback. So it's the ongoing operational cash flow. It's the opportunities to finance things or via loans or via selling as well noncore businesses. So there's a wide variety. So fire power is significant, I would say. And the question is what we are able to materialize and let's say, keep as well a healthy risk balance, especially when it comes to long-term loans.

Correct. Very clear. Now any follow-up questions here on share buyback, capital allocation or operating business, feel free to type it into the chat. Since for now then no more question. I don't see anyone typing. So I would like to hand it over to you, Ronald, for maybe some last wording to close this Q&A.

I will say thank you for the activity we had again, vital exchange. And this is great. This is a positive development, I would say, especially in the English Q&A. Happy to continue this in 2 months when we release our half year numbers. and be certain, we will stay focused on keep growing this company and keep costs under control and bring all what we had in mind to life and monetize it. So thanks for your attention, and see you here in 2 months.

Thank you. Take care and bye.