DigiTouch S.p.A. (DGT) Earnings Call Transcript & Summary

Good afternoon, everybody. Okay. Now it's perfect. So sorry for the call maintenance. I think now it's fine. So I take out my face from the camera. And I'm referring to the document that we shared this afternoon regarding our 2019 net financial results. So I hope everyone in front of you have the document conference call fiscal year 2019 consolidated financial results. I'm Simone Ranucci Brandimarte, the President of DigiTouch, and today in around 30 minutes, I will try to explain you where we are, what we have been achieving within 2019, which are our priorities for 2020 and for the future. And I will try as well to answer to some of your questions, if any. I'm now at Page #3 of the document I'm referring to. But here, in a few words is described DigiTouch as a full digital platform company. Over the last 2 years, we have been achieving significant results in terms of positioning, in terms of increasing portfolio, in terms of growing our capability to answer to all the digital transformation needs of our clients. We have 220 professionals and 2 offices in Italy. Our market offer is divided in 3 areas: first, technology and business analytics; second, e-commerce, content and service design; third is digital and performance marketing. So we are able to support medium and large clients in designing their digital offer, implementing this digital offer and supporting their promotion and marketing of their product offer from this design to financial and management, all over the value chain. We have been achieving since the, say, the IPO of 2015, important milestones. We have been growing not only through our group but also through acquisitions. The acquisitions have been instrumental to increase our product portfolio and our capability to grow our market offer that you have already seen is quite sizable. We have been, let's say, acquiring the 5 companies. I would say the last one was Meware in 2019. The last 2 acquisitions have been extremely successful because they are bringing the area of technology and data that, as you can see, is there. And it is growing more, not only in DigiTouch P&L, but all over the market. And as you can imagine, our appetite for M&A is just upward. If you look at the market where we are, we can see interesting data. We are active in digital marketing services, in software marketing, in system integration and hosting. We have been trying to decline these markets in terms of number over 2017, 2018, 2019, trying to identify as well the immediate target market for DigiTouch in every service line. The good news is this market has been growing significantly double digit, all over they are in the last 3 years. But the great news is that it is supposed to continue its growth, and honestly, up to now, the forecast have been always bet by the reality. The average yearly growth should be around 10%, 15%. And we really expect that the digital transformation area in these 3 segments will be most probably the fastest industry in Italy over the past 3 years. As you have seen this morning in the yearly meeting in Industria, considering also the general situation, the investment has been announced in terms of expectation in 3 areas: one is health, the second is infrastructure, the third is digitalization, where we are one of the core actor in digitalization on development of medium and large clients. COVID-19 impact. Unfortunately, we are living in more difficult times. This has an impact all over the industries, of course, has an impact also on DigiTouch and on its clients. We can actually divide in 3 kind of impacts. The first is short-term positive, then there is an increase of digital communication. The reality is that everything is moving online, also like retailers are closing their shops but increasing the digital communication. There are -- there is some acceleration in some sectors in terms of marketing, but there are some delays in others. And in general, this is the moment where every client is questioning about these real capabilities of facing new digital opportunities. And there are many areas, especially in the retail and financial sectors are investing in assessment of their digital properties and the short-term quick wins in order to optimize their go-to-market. So this has a positive impact in DigiTouch's business. On the other hand, there are also some negative impacts. Some sectors are simply freezing like travel, for instance, and everything that is related to travel or urban mobility, for instance. So these are, let's say, industries that are freezed are not definitely willing to invest significantly in this moment. So clients that are belonging to these categories are less effective in our P&L during these weeks. Said that, we need to look in the future with a very strong optimism because the medium-term impact of this overall crisis will be a sizable increase on digitalization investment, an increase in digital marketing budgets, an increase for focus on e-commerce and content network and experience of outsourcing. Outsourcing means being faster, outsourcing means be more effective and more controlled. So we are extremely positive on how at the end of this crisis, the company will be able to grow. On the other hand, we are actually very cautious to face this year during this moment of complexity. But as you can imagine, digital transformation can be the answer to the new style of leading and doing business as well. So DigiTouch as full digital platform company is based on, say, 6 pillars. One is consulting, second is technology, performance, business analytics, creativity and omnichannel strategy. As you -- the ones of you that know DigiTouch better know that we are divided in different brands by operating independently in the market with strong synergies among each other. The main -- companies that we are operating -- the companies that are operating under the umbrella of DigiTouch are: DigiTouch Agency, of course; Performedia, both acting on media; E3, acting on digital PR, social media and content, Optimized Group that is the market leader in digital technology; and Purple Ocean and Meware. Purple Ocean and Meware both belong to the [ core DI ]. So today, DigiTouch is presenting itself over 3 areas -- over 3 business lines. One is digital marketing that, as you well remember, is the original business line of DigiTouch, where we are coming from. Here we're asking the strategy, data-driven media in performance marketing and analysis tracking. The second area is the one for which there is a strong demand in these days is e-commerce and content. Interfaces, e-commerce solution, user design, brand experience, data-driven creativity. The third, where we expect an important growth over the next years, and as you have seen, the data has overperformed in 2019 is technology and data. Business analytics, artificial intelligence, cybersecurity and business process automation. As you can see the 3 lines together are extremely logistic and working together on practically the majority of our clients. The goal of the commercial effort, as you can imagine, is trying to increase every single client average value through cross-selling and up-selling activities of different business lines. The good news is that today, cross-selling, up-selling is working very well. The additional good news is that the cross-selling, up-selling is happening only on 20% of the core customer base. That means we have a significant upside for our growth. In this business, it's important not only developing your own technology but also partnering with the best-in-class. And in general, strategic partnerships in DigiTouch have been always a priority. We have a very strong relationship with Google, Facebook and Amazon. But through the acquisition of Meware and Purple Ocean, we became also good partner of SAS. We are actually a business partner of Red Hat, and we are always more close to, let's say, large technology leader. We remain one of the market opinion leader like a member of IAB, member of Netcomm Forum. After 13 years of presence in Italy, we can say the initial brand is extremely relevant in the digital seen in the medium or large clients here. On the other hand, the investment done on owned technology are important, especially on business intelligence with machine learning. Machine learning remains the core of our technology offer, in particular, through our platform, cognitive platform, that is helping medium, large clients in analyzing data, extracting a prediction pattern, supporting them in decision in terms of acquisition, retention, up-selling and cross-selling. Today, it's extremely effective and remain a critical asset for the future. We are operating in Italy. So if you look at our market, I'd say our, say, P&L, which is at 90% and more is generated on the telemarket. On the other side, the investments that are coming from growth more clearly related to supporting Italian sites going abroad is growing. In order to leverage on this growth, we became partner of an international network of agencies that is not only supporting DigiTouch in delivering products in different locations but also on addressing international partner, say, as a unique body. We don't have or we have not planned in our industrial plan 2018-2020 international investment. We look positively at the opportunity of increasing our presence abroad. This will be probably objective of our next industrial plan. Differentiating factors, what our clients have in terms of perception about DigiTouch. Well, expertise and consultancy mix, strong management, multi-disciplinary team, focus on data-driven customer experience, data approach and, let's say, a profitability over 3 years. If you look at Chart #12, you can see our client portfolio in just one single slide. And you can see that, let's say, the client portfolio is extremely balanced as typically is -- are in the history of DigiTouch, but the majority, historically, finance and insurance have been the most relevant industry in the last 18 months. Retail and e-commerce have been growing significantly. But on the other side, if we have a specific expertise on retail, and if we have, let's say, long-term history in finance and insurance, we want to grow on telcos, hopefully, as well. We see pharma and health care as a large opportunity for this year. We are already growing in the food and beverage and consumer goods industry. In general, we expect to add vertical industry-based approach and improve our capabilities industry based. If you look to -- go to Page #14, we enter in the section of DigiTouch financial results for 2019 that has today been discussed and approved by the Board of Directors of DigiTouch. You will see on Page #14 now, the group looks like today. We have different entities which are fully controlled. We own 51% of Purple Ocean S.r.l. and 60% of Meware. Under the share side, we have actually 2 nonstrategic participation in Open Gate Italia and MediaMob. At Page #15, you can see our performance over the last 3 years. To be honest, we are extremely proud of these numbers because we have been able to grow more than our competitors. And the growth has been not only absolute in terms of numbers but has been relative in terms of the business lines. Our capacity to grow our technology and data have been -- will be instrumental to catch all the opportunities of the future. So revenues have been growing over last year from EUR 32.2 million over a lot -- a little less than EUR 39 million. EBITDA was EUR 4.9 million, and last year, it was EUR 5.75 million. Net result moved from EUR 268,000 to EUR 766,000. Now not only growth but also our growth in line with the industrial plan. So the ones of you know our industrial plan, I'm sure we have noticed that 2017, 2018, 2019 numbers were fully aligned with what we forecasted when we presented our investor plan in October 2017. And honestly, this is not obvious if we look at the markets, but especially if you look like -- if you look at the high-growth, innovation-driven markets like digital transformation. So we are pleased of the growth and pleased to have been in line with the target. Net financial position is minus EUR 2.5 million, quite balanced if we consider our EBITDA level. If you go to Page #16, you can see in detail our DigiTouch profit and loss. Total revenues for '19 is around little less than EUR 39 million with a growth of 21%. In terms of cost structure, the operating cost show a limited change of 13%, but personnel costs increased by 66%, of course, because this is due to the Meware aggregation as well as extremely instrumental to support our growth that we see, thanks to that, we will be able to or be extremely competitive even more. You can see from the numbers as you can see -- and you will see from 2020 number, also you will see in the future. Adjusted EBITDA of EUR 5.75 million. Strong increase in pretax profit, plus 82%; and consolidated profit, plus 186%, equal to EUR 765,000 compared to EUR 267,000 in 2018. So quite positive. Now if you look at the DigiTouch balance sheet at Page #17, we'll see, let's say, that fixed assets in 2019 grew by 5% from EUR 14.2 to EUR 14.9 million against a continuous reduction in goodwill deriving from equity investment, an increase in intangible assets of 30% was recorded from EUR 4.28 million to EUR 5.56 million. Operating capital saw an increase on net working capital that accounted to around EUR 4 million, largely due to the strong growth in turnover. Strong reduction in liabilities and net financial position of EUR 2.5 million. Page #18, you can see the detail of such net financial position. And as you can see, we have been repaying the POC on 16th of March, fully executed. And it's actually in terms of cost, we have a strong advantage because as you remember, our POC was financed with 6% year-over-year. So we're quite [ participating ]. So the structure is well, let's say, balanced, meaning EBITDA on net financial position of less than EUR 2 million. If you look at Page #19, you can notice something interesting that is reflecting the market. This is reflecting the assumption that we had based on our industrial plan some years ago. So in general, Advertising Services are not growing. So in 2019, there was a slight decrease. Performance Marketing growth -- are definitely growing because actually the demand is significantly increasing double digit, but especially technology and data. So this chart reflects market movement, market evolution. And so I think strong capability of DigiTouch management in order to identify, address and implement change in the product mix in line with such changes, okay? Because the acquisition of Purple Ocean, the acquisition of Meware has been instrumental to increase our capability in technology and data, support the other business lines with technology assets and will be able to present ourselves with the 3 integrated business lines to digital platform company that, let's say, not all is growing but also as of today, a balanced business model, that is less variable and on the seasons and as well the prices, as a matter of fact. Moving forward, DigiTouch has always been -- and I'm now at Page #20. We recognize more innovation. And in these days, we are extremely active in webinars, supporting executives and C-levels in understanding better some critical market trends. And our webinars, as always, are extremely successful. So not only delivery, not only as a commercial activity but also opinion leadership on the key executives. In order to be leaders on innovation, it's very important to innovate. This is exactly what DigiTouch is doing, as you see from our, let's say, balance sheet and also, let's say, from the investment size, we are always dedicating more than EUR 1 million to investments a year. Today, we have focused on natural interfaces; voice skills; IoT; predictive models based on machine learning, artificial intelligence; and blockchain. We believe that out of this area, we will be able to define the next wave of growth of our company in the future. The competitive arena, well, is changing. It's changing significantly. I'm now at Page #21. There are 3 categories of clients -- of players. The first are the ones were named advertising agencies that they are moving into technologies, WPP, Dentsu, Publicis, Havas, OMD. Then, we shift to technology -- digital technology is fast and furious. But anyhow, they have a very strong geographic footprint but very strong cost. So their flexibility, on the let's say, pace of movement is limited by very heavy structure. Then there are consulting firms. They are as well moving to technology where they are already, as a matter of fact, but to digital services and digital advertising as well. The best one is definitely Accenture. It is fast and is -- with Accenture Interactive, quite effective. But in general, they focus on very large clients as the other one. Said that, they have been a large number of players that are independent Italian players that are, I would say, growing in the market. Few of them have been able to grow technology and marketing together in order to present itself with an integrated offer. DigiTouch Group has been extremely successful in this increase of upgraded perimeters. Others, not really, okay? So we have laid a strong competitive advantage with respect to all the other players that you see in this area of this route. To be honest, our product offer is much more complete and sizable with respect to the other names that you can see here. So we believe today to have an extremely -- extreme important opportunity in order of market growth. We believe in market consolidation. That's why we are acquiring the companies that can be, let's say, integrated in our perimeter. We believe that one day, we will be integrated ourselves as one of the larger group. But this is not the moment. Because if you look ahead of us, 3, 5 years, we see only highways in terms of growth. Business priorities for the company is definitely mostly 2, let's say. And allow me to have this chart since a couple of years because actually, they're always the same. One is innovate and upgrade the offer, so omnichannel. We -- yes, we have a strong ability on digital. But digital today is a wide world that is not just technology, but it is a new way to approaching the business. Data-driven marketing analytics. 2 years ago, it was just a keyword. Today, we have plenty of revenues coming from this area. And technology services as well, they are instrumental to the 2 previous priorities. Then we want to aggregate, increase customer base in terms of enlarging our clients and increasing the average value of our client. We want to empower our technology capabilities, and we want also to scout with wide attention in the international expansion. 2020 outlook, considering COVID-19. I'm now at Page 23. Well, here, it's difficult and not mature to give forecast. As you well know, and today, I say, we are young with respect to larger companies. And we take -- we've done a lot of -- used to follow the guideline of the older and more mature organizations. And in these times, no one is providing any kind of forecast. What I can tell you that in the crisis, there is a strong awareness that digitalization should have been a priority. It is a priority and will be a priority of the future. And working with qualified partner, we are able to provide an integrated offer of technology, e-commerce and content, and digital market is the answer to everyone that wants to grow fast in terms of digitalization. So if you consider 2 points above, I'm quite comfortable to say that we -- for sure, we will face some complexity of some of our clients. But we use this time to increase quality, value and penetration in terms of relationship with the key decision-makers and with the key organization. Said that, so actually, in few words, optimism as usual because we are in the market that is growing. Now if you look at Page #24, after 23 charts of happiness, we get very sad. Because in general, our multiple is low. And since some months, we are strongly undervalued. So I believe that there is an opportunity for our stock title to raise up very rapidly. And I look forward to that in order to, let's say, increase, let's say, in general, the competition size. And I'm very optimistic that soon or later, the stock value will follow the performances that you have seen and be consistently growing in line with targets over the next 2 years, 3 years. I'm now at Page #25. This is another qualitative chart. In general, if I have to invest on some stocks, I would invest on stocks that are similar to DigiTouch because, let's say, it's technology-driven, it's in a fast-growing market, the management team is professional and knows what they are doing. It's definitely in an aggregation move. As I said, we have been closing 5 acquisitions over the last 5 years. And as I said, we have still appetite to continue to increasing this trend. And then the market. The market is growing. And as I said, all of the positive forecasts have been up to now backed by the reality. So it's a nice market world to be, in few words, to be honest. Said that, I hope to have been able, and I'm now at Page #26, and I hope to have been able to give you 3 messages. The company has been, over the last 3 years through organic growth and acquisition, increasing from the offer product portfolio, improving its positioning in the market. Second, the company has been consistent with its economic results over the last 3 years with respect to the industrial plan and with respect to market expectation. Third, the company has a very clear path of growth based on cross-selling, up-selling, increase of average client value, acquiring new clients and still aggregating new players in order to improving -- getting new clients from third parties, and increasing average value for client through additional services, up-selling and cross-selling. Though these -- with a few upsides that are based on internalization, for example, on developing of new technologies, for example. So as a key manager of the company that has been very optimistic and, let's say, despite all market scenario, we look at a future that is heavily quite positive for sure in short term, but also -- sure in near term, but also in the short term. So I thank you for listening to me all over this 30 minutes, and I will be happy to answer some of your questions.

They have notified me that you should have -- that probably you have to write to the address DigiTouch Investor Relation. If you know or if you don't know, I'll tell you now. If you have any questions, please feel free to write in investorrelation@digitouch.it (sic) [ investor.relator@digitouch.it ]. I will receive your questions. I'll give you a few minutes, I want to. Just to check if... Okay. I'm just waiting that the potential questions are coming. Okay. The first question is here, actually. I mean it is -- but this is about current COVID-19 scenario, which level of confidence do we have in 2020? Well, I think I've been answering to this question. So in terms of maturity, in the, let's say, responsibility, it's very difficult to give any kind of forecast. I can say that there is a stronger optimism and our offer is central in the shift that has been accelerated by this crisis. Again, I will say that a large part of our offer is not seasonal, like other technology and operation. I can also say that there is a strong demand in, let's say, assessing and improving through quick wins the digital presence. On the other side, I cannot deny that some industries like travel, mobile -- mobility are suffering now. So let's say -- additionally, let me say that if we look at how the organizations are working these days, smart working. Well, DigiTouch Group has been active in smart working since 3 years. So for us, this is something more than business user. So to be honest, this is something that is not affecting our performance, control, action in any case. I can understand in other -- in organizations that this can be, let's say, a problem. But not in our case because we have been already working -- is smart working since 3 years. Okay, other question? Okay. So remember to write to the Investor Relation if there's any additional questions. Okay, there is another question is why there is a decrease of Advertising Services in 2019? Well, actually, this is something that I have been already announcing that in -- 1 year ago in the yearly conference call like today, we want to increase in terms of marginality. One of our major efforts have been to rationalize and cherrypicking the best clients in advertising that have been able to guarantee a proper marginality. So we don't need to grow, in many cases, increasing the number of clients. We want to have wide counterpart and are able to provide us the right level of marginality. So in advertising, we have been working on necessary additional sales front in order to increase marginality, decreasing the revenues, limiting the number of clients. And in general, it's very clear that Advertising Services are suffering -- had been suffering because now it's stabilized -- had been suffering a bit within marginality, while technology and data are growing significantly as a margin. And that this is exactly the kind of exercise that we have been able to do, and thanks to that. We are now more balanced. We will be always more balanced. Any other questions? Okay. I don't see any questions. So let me just check in terms of security with my colleague if this is also the case. Okay. Perfect. So we had a thorough check [Foreign Language]. Perfect. So there are no additional questions. DigiTouch, myself and all the management is always at your disposal. I believe, actually, we like to dedicate time to our investors and to all the counterpart that are interested about our company. Please feel free to write us, to me, to Investor Relations and for who will dedicate time to you. With this, I thank you for your attention. I wish you a good afternoon and preservation of the day. We'll be looking forward to the next call, where we hope to be always positive in terms of performance. Thank you so much, and have a nice day. Bye-bye.