Q+A Hansen Technologies’ managing director on ‘a great year’ and how AI could transform it
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Hansen Technologies (ASX:HSN) Hansen specialises in delivering enterprise billing software solutions to the telecommunications and utilities industries globally with more than 600 customers in 80+ countries.
The share price of HSN has rallied more than 16% in the past six months along with global tech stocks and following a strong FY23 result.
Stockhead caught up with managing director Andrew Hansen to talk about the company his father Ken started in 1971, growing a successful tech company and how artificial intelligence (AI) could be transformative for HSN.
In FY23 revenue $312 million was up 5.3% with NPAT of $43 million, up 2.1%. Can you talk us through the HSN financial results for FY23 and outlook for FY24.
“FY23 really has been a great year,” Hansen says.
“The growth isn’t just about the numbers, it signifies our ongoing commitment to innovation and customer satisfaction.
“What’s even more promising is our outlook for FY24.
“We’re thrilled to report that we’ve not only maintained but also expanded our customer base with new logos and renewals from existing customers.
“This showcases the trust and confidence our clients have in our solutions.
“Our revenue streams remain robust and highly predictable, with approximately 95% being recurring in nature.
“Our underlying EBITDA margin for the year stands at an impressive 31.9% and an even stronger 33.5% in the second half of FY23.
“This highlights the efficiency of our operations and the stability we’ve achieved in our workforce.
“One of Hansen’s key strengths is our consistent ability to generate profitable cash flow, and this year has been no exception.
“We continue to reduce our debt, reaching a net debt position of zero by the end of FY23, and we’ve even become net cash positive since July 2023.
“While we still have some borrowings we’re capitalising on favourable currency exchange rates to retire them as quickly as possible.”
With more than 30 years of experience in the family business, can you share your strategy for growing a stable, profitable tech company despite the recent trend of fast-growth valuations?
“Absolutely, I’ve been part of this business for over three decades, and our journey has been shaped by a commitment to stability, profitability, and steady growth rather than chasing rapid expansion,” Hansen says.
“In an era where young tech companies often prioritise fast growth at the expense of profitability, we’ve held true to our core principles, and looking to return on capital as our bench mark.
“First and foremost, our decision to list the company in 2000 was a strategic move that allowed us to accelerate our already successful mergers and acquisitions strategy.
“While our ownership structure may have changed, the fundamental values upon which Hansen was built remain unchanged.
“We pride ourselves on our ability to quickly integrate acquired businesses and their people into the Hansen culture.
“We’ve created a global community where every individual is valued, and we prioritise giving our people a voice in the decisions that affect them.
“We have a steadfast dedication to our core values of stability, profitability, and at the heart of this our approach is a ‘customer-first’ mindset.
“This philosophy has led to exceptionally low customer churn rates.
“We take the time to truly understand our customers and their needs.
“We’re deeply ingrained in their financial processes, and we take our role seriously.
“Many of our team members work in close collaboration with our customers, becoming an integral part of their operations.
“Our focus is also centred around meeting market demands with cutting-edge products.
“We are meticulous about ensuring a stable and reliable return on investment for all our product development efforts.
“Our customers rely on us for innovation, stability and dependability, given our central role in their operations.”
HSN’s strong revenue track record and steady growth over decades are well-known. With your preference for acquisitions over building offices from scratch in new countries, are you currently eyeing potential target companies, and what makes this a favourable time to buy?
“We’ve built a reputation for highly predictable revenues and a track record of sustained growth and profitability over the decades,” Hansen says.
“Our approach to expansion involves not just organic growth but also strategic acquisitions that can bring value to our customers and shareholders.
“Currently, we’re actively exploring opportunities within the communications and energy sectors, and we’re also considering the potential addition of a third vertical.
“Our focus though remains on identifying companies that can not only contribute to our profitability but also foster innovation and growth.
“Now, why is it a good time to consider these acquisitions? Well, it’s partly due to the changing financial landscape.
“With the cost of capital on the rise, we’re observing a decrease in valuation multiples for target companies.
“However, in this environment, it’s crucial for us to be even more diligent in assessing the synergies we can achieve from these acquisitions.
“We’re doubling down on our due diligence efforts, ensuring that any potential acquisition aligns with our strategic goals and can bring added value to our organisation.
“We won’t stray from our careful and patient approach to M&A.
“Shareholders appreciate our disciplined approach, and I like to think this is a testament to our commitment to responsible growth.
“The exciting part is that we have a robust pipeline of potential targets, and we’re actively engaged in various stages of due diligence with many of them.
“It’s a dynamic and exciting time for HSN as we continue to explore opportunities to enhance our presence and bring more value to our stakeholders.”
In 2021 HSN was on the receiving end of a bid from PE fund BGH, but after a due diligence period, takeover talks collapsed. Is a takeover for HSN still an option in the foreseeable future?
“Well, it’s an interesting question,” Hansen says.
“In 2021, HSN indeed attracted interest from a private equity fund, BGH.
“They conducted an extensive six-week due diligence period, but ultimately, the takeover talks fell through.
“It’s essential to understand that, as a publicly listed company, we’re essentially open to being bought or sold every day, depending on the interest in the market.
“Regarding the BGH bid, it’s worth noting that they didn’t uncover any red flags during their due diligence process.
“I believe they recognised that Hansen is a well-run business with minimal excess to trim.
“Our stable growth isn’t just a fleeting trend, it’s a core characteristic of our company.
“In the end the transaction did not work for either party, so we both walked away with a handshake.
“As for the foreseeable future, we’re not actively seeking a takeover.
“Our recent financial results presentations clearly indicate that we’re focused on pursuing growth both organically and inorganically.
“Hansen has a long history of stability, profitability, and cash generation.
“We operate with the belief that these attributes will persist, making us a solid investment for the long term.
“While we remain open to market dynamics, our primary focus is on maintaining and enhancing the strengths that have made Hansen the success it is today.
HSN began by storing computer tapes for businesses in the pre-Internet era. By 1990, it was facing challenges, and you came on board to lead the turnaround. Can you describe the situation at the time?
“Back in 1990, when I first stepped into Hansen, the company was facing some significant challenges,” Hansen says.
“We were in a tough spot, with just one customer and not owning any IP.
“In fact, the initial intention was to consider shutting the business down.
“However, upon closer examination, I discovered something quite remarkable.
“We had a team of incredibly talented and dedicated employees who possessed a wealth of skills and expertise.
“It quickly became clear that these skills could be leveraged to explore new opportunities in the market and build upon our subject matter expertise.
“So, instead of closing shop, we made the pivotal decision to embark on a journey of acquisition and expansion.
“It was a turning point that eventually led us to where we are today.
“This transformation was driven by the recognition that our people and their skills were the foundation for our future success, to which I am extremely proud of.
AI has revived the tech sector globally this year. However, continued economic challenges and global tensions have seen investors rotating out of late. How does tech weather these challenges?
“The resurgence of the tech sector in 2023 is undoubtedly driven by the pivotal role technology plays as an enabler across various industries,” Hansen says.
“We see it firsthand in the sectors we serve, such as energy and communications.
“Technology is the driving force behind innovation and the rapid progress of what were once considered commodity products.
“In particular, the profound changes happening in renewable energy and the rollout of 5G are generating increased demand for our software and services.
“To capitalise on these opportunities and effectively navigate the uncertainties posed by rising interest rates, potential recessions, fluctuating energy prices, and global geopolitical tensions, we’ve adopted several strategies.
“We’ve expanded our sales team, strengthened our sales support infrastructure, and maintained careful investments in our product roadmap to stay at the forefront of technological advancements.
“Our approach remains focused on efficient cost management and continuous innovation in market-leading products. We’re also committed to acquiring new solutions and, above all, ensuring unwavering customer satisfaction.
“These pillars of our strategy will help us maintain stability and resilience as we navigate the ongoing challenges in the tech sector.”
How do you seen AI impacting HSN into the future?
“The impact of AI on HSN’s has the potential to be transformative,” Hansen says.
“We’ve always been at the forefront of innovation, and AI is no exception.
“We’ve taken significant steps to harness the power of AI and machine learning.
“Our team now includes experts in data science and AI who are instrumental in shaping our AI strategy, with a strong focus on delivering a return on investment for our AI initiatives.
“In fact, our commitment to AI is already evident through proof-of-concept projects running within our organisation.
“We’re actively piloting AI capabilities that integrate with our existing ecosystem, and we anticipate these initiatives to start delivering business benefits during FY24.
“While we’re in the early stages of AI adoption, the efficiencies, and possibilities it offers are exciting.
“For instance, tasks like creating test cases for new development, which used to take days or even weeks, can now be accomplished in a matter of hours with AI assistance – it’s a game-changer.
“However, it’s crucial to exercise caution and measured progress at this relatively early stage of the AI evolution.
“We’re committed to responsible and purpose-driven AI implementation to ensure we maximise the potential benefits while mitigating risks.
In June you transitioned from managing director and CEO to managing director with former CFO Graeme Taylor stepping into the CEO role. How has the move for both you and Graeme gone and what has it meant for HSN?
“The transition has been a long time in planning,” he says.
“It frees up my time to focus on our strategic growth agenda, including our M&A activities.
“Graeme is a long-standing Hansen executive has been doing an outstanding job assisting with Hansen’s day-to-day operations.
You’re on the record as saying you don’t intend to step back yet but are planning for succession, recruiting younger executives, and also your two sons are involved in the company. How long do you think you’ll stay on and what do you think the future looks like for HSN?
“That’s right I have no plans to step back.
“With Graeme now actively engaged in the day-to-day business I can really focus on my passion of growth and M&A and my goal is to continue acquire value accretive businesses that will ensure Hansen continue to grow and prosper for many years to come.
“We do also have a team of dedicated capable and experienced executives working for the company.
“Another example of our successful succession planning is our current CFO Richard English.
“Richard had been with Hansen for many years and him moving into the role of CFO freed up Graeme’s time for his progression into the role of CEO.
“Yes both my sons have joined the business after acquiring experiences outside of Hansen, their close association their whole lives with Hansen enabled them both to hit the ground running.”