Tobii AB (publ) (TOBII) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to this Q&A session. We're broadcasting here from the Tobii office out in Danderyd, outside of Stockholm. I'm Fredrik Ruben. I am the CEO of Tobii Dynavox. And together with me on this Q&A session I have...

Magdalena Rodell Andersson, I'm the CFO of Tobii.

I'm Henrik Mawby, I am the Head of IR with Tobii AB. And I just want to take this moment also to highlight that we will be hosting a Q&A session after this call. Please use the Q&A function in your top right corner on the team's window. And there is a time lag between you posting your question and we seeing the questions. So please post them as we go along in the call, so we can start off the Q&A session immediately when we reach that point in the call.

That's great. All right. So today's topic is about the acquisition that was announced after the closing of the market yesterday, Thursday, about the daughter company, Tobii Dynavox, which I'm the CEO of, has entered an agreement to acquire the Belgian headquartered company, Acapela Group. I will run through some slides here, and then we will open up for a Q&A session. So first of all, Tobii Dynavox, the division within Tobii, which we are -- have announced that we intend to split out and list separately on NASDAQ Stockholm quite soon. We are the world leader in assistive technology for communication, meaning that we'll provide solutions for people who have speech and communication impairments. We are roughly 500 people in the Tobii Dynavox team. Last year, we had a turnover of just under SEK 1 billion. We're operating globally in some 60-plus markets. And we are -- typically, our products are prescribed for by various kinds of either public or private insurance systems. We are the market leader in our segment with roughly a 40% overall market share. However, in some of the subsegments, we have both smaller and bigger market shares. So to the topic of this call. As -- right after the markets closed yesterday, we issued a press release stating that Tobii Dynavox has entered into an agreement to acquire Acapela Group, which enables us to innovate much more on the communication aids market in which we're present. I urge you all to read the press release, which is available on our website because there we also give a little bit more of a rationale on the reasoning. But I will also try to cover some of that in more depth during this call. So briefly, the Acapela Group is the leader in speech and voice synthesis solutions. And they offer these speech and text-to-speech solutions into 3 verticals. The first vertical is in accessibility. So that's for the types of products that Tobii Dynavox produce. And yes, we are a deep and an ongoing partner since quite some time. But these text-to-speech solutions are also used in applications such as transport. The call out on trains and public transport, et cetera, stations, et cetera, but also in customer interaction, such as call center solutions and like. Acapela has a portfolio of some 200-plus custom-developed voices in some 30-plus languages. Acapela is fairly R&D and development-heavy company. And just to name a few other advancements. They have a broad portfolio of children's voices, which, of course, is critical to the field of accessibility in which we are active. But also voice banking, which is a function on when you are about or you assume that you will eventually lose your voice, there is a way for you to record and store and make a digitized version of your voice, but also very high and also more personality-based custom voices for corporate customers or for individuals. This is a market which has existed for quite some time. And up until now, this has been very much a handicraft to develop specific voices. However, Acapela has made some significant advancement in deep neural network and machine learning so that you can -- with the use of technology, basically, you can, in a much better, faster and higher quality way produce more voices. Acapela stands out to what some of the other text-to-speech providers in the way that Acapela solutions can be run embedded in a product, in a device, not just in the cloud or on the web, which is, of course, critical to the use case of, for example, Tobii Dynavox's users, where the voice is basically bundled into the communication aid that you have mounted on your wheelchair and bring with you when you're out and about. So there is a fairly big technical and practical difference in the offering of Acapela here. So if I look what this merger will look like? Well, you have on one hand, Acapela, roughly 50 people in the team. Headquarters is in a town called Mons, an hour outside of Brussels in Belgium, but they also have staff in a few other markets, including France. They had a revenue of roughly EUR 6 million last year at a profit margin or EBIT margin of 14%. And comparing that then to Tobii Dynavox, we are predominantly an assistive technology company. And we're, as I mentioned, roughly 500 people in our team, and we have headquarters here in Stockholm -- or outside of Stockholm, but also quite significant presence internationally, too. So why do we think this is a good idea? And this is, of course, a dialogue that has been going on for quite some time. Well, we are both, at the base, technology companies, but we share a very common vision about what our products can do to impact humanity. And we see that we have both complementary tech but also other complementing factors. One of those factors, which is tremendously important here is the cultural fit. I am very convinced that we have 2 organizations who are extremely mission-driven, and it's, of course, very evident what our products eventually does to our customers and our users. Our products are highly complementary. Acapela products are already, and since well over a decade available as one of the choice options for voices in Tobii Dynavox products, along with other text-to-speech providers. And we believe that us working together will enable us to innovate much, much more because this is one of the most critical elements, of course, in a communication aid. We, of course, believe and hope that the larger footprint and large organization of Tobii Dynavox will enable us to expand also Acapela stand-alone sales. And again, innovation is key here because the stigma that a very robotic or unnatural sounding voice can create to someone who's forced to communicate through a communication aid, of course, is evident. I think we've all seen examples of that. And if we can innovate and not just bring more natural sounding voices together but also other nuances of what a voice may sound or feel like could actually make a huge difference. Quickly on numbers. So the deal structure, which was communicated yesterday is that we pay upfront cash, EUR 9.8 million to acquire 100% of the shares in Acapela. That is done through partly 80% of the shareholders, who have already agreed with us, but also through a drag mode agreement, which is part of this company's Articles of Association, sorry for that. This -- the EUR 9.8 million include cash and debt. And as of now, they roughly have a EUR 2 million cash position. So we can do the math exactly on how much we're paying. The sellers is a mix of the current staff, which we, of course, are very impressed about and hope and wish and feel a huge opportunity that they will be a part of this new organization eventually. But there are also some investors and institutions from the early days when this company was founded. The closing of this deal is expected to happen sometime after the new year. And that is because we're doing pre-filings for relevant authorities when it comes to merger control, et cetera, to make sure that we have no such hinders. So again, the actual deal is anticipated to close some time during the first quarter of next year. That's all I intended to mention on this call. So hence, I turn over to either Henrik, yourself or the audience to see if there are any questions either for myself when it comes to the company and the deal. But again, we also have Magdalena in the room since we did a directed share issue to finance this deal in part, at least, and if there are any other questions. So I think we have at least hopefully, the right audience to answer whatever questions you may have here. Henrik?

Thank you, Fredrik. And with that, let me remind you, there is a chat function, and there is a Q&A function. Please feel free to use both to ask questions. And if you like -- would like to ask them verbally instead, I should have -- if we have the active systems functioning today, I should have the opportunity to invite some of you in as well. I see we have some of our analysts on the call. So please feel free to indicate or write your questions in the chat. We'll give it a minute or 2. I think there is about a 40-second lag here. So I will have to keep on talking.

But that -- we had some questions that popped in, I guess, also earlier this morning. So maybe we could start there...

Yes. Sure.

To kind of prime the...

Absolutely. So let's do that. And there are a lot of questions on the transaction, which is understandable. So maybe we dive into one of those. And it's -- let's start with why did you not choose to bring in even more to really future-proof the balance sheet and alleviate any concerns that people in the market might have?

Right. So this relates to the SEK 300 million directed share issue effect that happened after the markets closed yesterday.

Yes.

Maybe I'll hand over to you, Magdalena, to talk about that.

Yes. And of course, that is one end of the question why didn't you bring in more, and the other end of the question, why did you bring in slightly more than the acquisition because we made this acquisition yesterday, as Henrik mentioned, on around EUR 10 million or SEK 100 million. And then we made a small acquisition earlier this fall, Phasya, of around SEK 40 million. So we have made acquisitions now of around SEK 140 million. And then we wanted to go out and do this share issue. And going into the spinoff, we thought that while doing it, let's see also if the investors are interested, and we saw a big interest. Then we thought it was a balanced number sort of to add another SEK 150 million in order to strengthen the balance sheet for each company going forward. So it was some way we tried to be balanced in that and not taking too much, but then taking a bit more than just the acquisitions.

And of course, we don't want to dilute too much on a low share price either.

No. Exactly.

Okay. We have one question coming in here. And it was not addressed in the call. Can we ask if the capital raise is adequate to fully support the demerger of Tobii Dynavox and RemainCo, Tobii, until the RemainCo reaches a cash flow inflection point, i.e., will there -- or is there no more capital needed in Tobii RemainCo?

We are now planning this split with the intention of having 2 sound companies going forward with 2 sound businesses and 2 sound balance sheets. And within Tobii RemainCo, we have -- Tobii Dynavox have shared their targets going forward. We have not done that yet within Tobii RemainCo, we'll do that on the Capital Markets Day at the end of November. But we believe that we see 2 very sound companies going forward and that we will have 2 sound balance sheets in those companies.

Yes. I can just emphasize that. We -- from a Tobii Dynavox perspective, having a very solid both cash generating and profitable business. That is, of course, not going to be an issue, but we have also made the calculations that we feel quite at ease with exactly the cash position of both entities post-split. Otherwise, this would have been a bad idea frankly, yes.

And Daniel Thorsson, I'm going to allow you in. I see you have a question here. So I'm allowing you into the call here. And hopefully, if you -- yes.

We can hear you. It should work.

So first a question on Acapela acquisition. Is there any risk of competition authorities denying the acquisition as we saw in Smartbox a few years back?

That -- I think, we are wiser today, and I think it's a relevant question, but that is also in spite of the fact that this is a merger, which in most jurisdictions, is well below whatever thresholds and de minimis rules that you have. This technically shouldn't be an issue. But more importantly, the situation between us, supplier and customer in this setup is according to us and our advisers, not subject to any merger control issues. But we would rather be better safe than sorry in this. And hence, we are splitting the deal in a signing phase and a closing phase, and the closing is contingent upon an approval from any relevant merger authorities.

Okay. So it looks better this time, at least.

We should remember that Acapela Group and Tobii Dynavox, we are not -- there is no horizontal competition or whatsoever between us. We're partners and suppliers of components -- or sorry, of voices into our products. So it's a highly different setup than we experienced before.

Okay. Excellent. And just to clarify, the price that you pay, you said that you pay EUR 9.8 million, and then you say that they have EUR 2 million cash. So I guess the enterprise value is EUR 7.8 million, right?

You know your mathematics, yes, sir.

And with that, there is actually no more questions as of right now.

No?

So I think we will leave it at that. And I think maybe concluding remarks from you, if you have any.

Yes. Again, we realize these are busy days with reporting periods, et cetera. We wanted to give this opportunity, of course, to you in some sort of consistent way share this message. Having said that, we're here for you. So if there are other questions or comments or thoughts that you would like to get answers on, please don't hesitate to reach out. If you don't already have our contact details, Henrik Mawby's contact details is in every press release that we always issue. So Henrik will happily forward any such questions directly to me or Magdalena or whoever is relevant here. Great. With that, thank you. And for those of you who are closer to the weekend, have a good weekend. Bye-bye.

Bye. Thanks.