Exclusive Networks SA (EXN) Earnings Call Transcript & Summary

Okay. Ladies and gentlemen, dear shareholders, good afternoon. On behalf of the Board of Directors of Exclusive Networks, I would like to wish you a warm welcome to this Annual General Meeting. I would like to start by expressing, on behalf of the Board of Directors, our warmest thanks for the trust you have placed in Exclusive Networks. As last year, the Annual General Meeting will be held in English. But of course, headphones are available to follow the discussions in French, if you wish. The Annual General Meeting is also audio broadcasted in both languages on the company's website to allow our shareholders, who are unable to attend in person, to participate remotely. I would like to thank those of you who have dialed in to follow this important event in the shareholders' lives remotely. I would also like to thank our shareholders for their mobilization over the last few weeks, in particular, for your votes. I therefore declare this general shareholders' meeting open. I've now finished my brief introductory remarks, and we'll open this Annual General Meeting more formally. Firstly, in line with the regulatory requirements, we will set up the committee of the meeting. I will chair the shareholders' meeting, and I would like to ask Mr. Pierre Pozzo, who represents the company Everest Holdco Limited, the shareholder who represents the largest number of voting rights, and Mr. Paul-Philippe Bernier -- okay, to -- who will be here shortly, who represents BPI to act as scrutineers. I would like to thank them for accepting these functions. I propose to appoint Mrs. Nathalie Buhnemann, Group Chief Financial Officer of Exclusive Networks as Secretary of the meeting. The company -- the committee is thus fully constituted. Mr. Jesper Trolle, Chief Executive Officer, is, of course, present at my side on behalf of the company. The companies Deloitte and Mazars, the statutory auditors of our company, were duly convened. I would like to thank Ms. [ Nadia Laadouli ] and Mr. Marc Biasibetti, representing the joint statutory auditors for their presence here today. They will read you the statutory auditor's reports during this general meeting. I will now give the floor to the Secretary, Ms. Nathalie Buhnemann, to report on the documentation made available, the agenda of the shareholders' meeting and the quorum.

Thank you Barbara. Ladies and gentlemen, dear shareholders, good afternoon. I would like to remind you that you have been convened to this General -- Annual General Meeting by decision of the Board of Directors of March 21, 2024. And Paul-Philippe there, so we can have the meeting. Yes. Thank you. The agenda of the General Meeting and the text of the resolutions were published in the notice of meeting in the French Gazette, Bulletin des Annonces Légales Obligatoires, on April 21, 2024. The Notice of Meeting was also published on May 15, 2024, in the French Gazette, Bulletin des Annonces Légales Obligatoires, as well as in the Legal Notice section of the newspaper, Journal Special des Societes. The regulatory documents and information, which are currently displayed on the screen, have been sent to the shareholders and were published on the company's website 21 days ahead of the present meeting in accordance with the French rule. They were also made available to the shareholders at Exclusive Networks' registered office 15 days ahead of the meeting, in accordance with the French regulation. With regard to the 2023 universal registration document, I remind you that it is available on our website, and you can also obtain a copy on request. The joint statutory auditors were also invited to attend by registered letter with acknowledgment of receipt. The list of shareholders is also available to the shareholders. The attendance sheet will be put at the disposal of the shareholders as soon as it is final and certified as accurate by the members of the committee at the end of this meeting. In accordance with the legal provisions, the required documents are deposited before the committee. I also would like to remind you that the shareholders who could not attend today's Annual General Meeting and vote in the meeting were able to cast their vote before the meeting, either by voting remotely by sending the instruction by post or by Internet via the secure vote access platform or by giving a power of attorney to the Chairperson of the Board of Directors or any other proxy of their choice. On the quorum now, I would like to point out that the total number of shares to be taken into account for the calculation of the quorum is 90,663,421 shares, which represent the same number of shares having voting rights. This Annual General Meeting is convened on first notice, it requires for its ordinary part, a minimum quorum of 20% of the shares, with voting rights corresponding to 18,132,685 shares. And for its extraordinary part, a minimum quorum of 25% of the shares, which represent 22,665,856 shares. After considering the votes and powers of attorney before the Annual General Meeting, the online votes and the votes by correspondence, I note that the quorum provision stands according to the attendance sheet at 91.81%, representing 83,240,543 shares. A definitive quorum will be given to you just before the votes on the resolutions. In order to allow those shareholders who could have been delayed to attend and vote at this meeting, we will wait until the end of the presentation of the auditor's report to decide on the number of participants. Consequently, having met the quorum required by law, the meeting is legally constituted and can validly deliberate as a combined general meeting. Next one. The agenda of the 2024 Annual Meeting is currently displayed on the screen. 16 resolutions will be put to your vote this year. As already mentioned, the resolution were published in the Notice of Meeting on April 24 and May 15 as well as in the convening notice. The ordinary general meeting will be asked to vote on the usual resolutions of the Annual General Meeting, such as the approval of the financial statements for the year 2023, the allocation of income, the compensation of the corporate offices and the authorization to the company to trade its own shares. You will be also asked to deliberate on the appointment of the company KPMG as auditor to replace Deloitte, and for the first time on the appointment of the auditors that would be in charge of certifying sustainability-related information. On an extraordinary basis, you will be asked to vote on the renewal of the authorization to the Board to grant free shares to employees and/or to the corporate offices of the companies and/or to its affiliated companies. Of course, we will come back to this topic during the Annual General Meeting when the resolution will be presented. In the interest of the discussions, I propose that the authors of the reports of the Board of Directors on the preparation and organization of the work of the Board are excused from reading them. I confirm that no shareholder has exercised his or her right to have items or draft resolution including on the agenda of the general meeting. I now give the floor back to Mrs. Barbara Thoralfsson to present the program of this Annual General Meeting.

Thank you, Nathalie. Now Mr. Jesper Trolle, the Chief Executive Officer, will start the presentation with the key events of 2023 and the group's business performance. Then the statutory auditors will present their reports. There will be a Q&A session where you will have the opportunity to ask questions. And we will conclude our meeting with the presentation and voting of the resolutions, which will be led by Nathalie Buhnemann. I remind you that the text of the resolutions is included in the notice of the meeting. I now give the floor to Mr. Jesper Trolle, CEO, to provide you a detailed outline of the company's activities in 2023.

Thank you, Barbara, and also from me, welcome to everyone here and those of you who are with us online. So 2023 was a record-breaking year for Exclusive Networks in both sales and profitability. For the first time in our company's history, we broke through the EUR 5 billion gross sales barrier, and I'm happy to report that we delivered on and exceeded all of our guidance given for the full year. What 2023 really shows is that the model we have is scalable, and we operate within the fast-growing cybersecurity market. This is a market that is impacted by companies' wish to protect themselves, but also due to things like generational AI and geopolitical tension around the world. So this is our second full year as a publicly traded company, and we continue to outperform the markets that we serve and deliver against all of the growth targets that we have set at the time of our IPO. This performance really is a testament to all of our 2,800 people around the world and their hard work and their dedication, and I would like to use this opportunity to thank them all for the work they do day in and day out to serve our ecosystem and our customers around the world. With that, let's take a look at the 2023 highlights. So gross sales were up 16% on a constant currency basis to EUR 5.15 billion, an exceptional performance after the strong achievement in FY 2022, with net margin reaching EUR 468 million and the strong -- up 13.9% year-on-year and with an adjusted EBIT of EUR 186 million, up 20.6% year-on-year, which shows the operating leverage in our model. I'm proud to say that this was a record-breaking year for both sales and profitability. And as I said before, we exceeded the guidance for the full year. This renewed growth strategy that we have put in place in the Americas and that we spoke a lot about during the IPO, continue to yield strong results, with gross sales up 30% year-over-year to EUR 689 million, further strengthening our ambitions to continue to develop this important market. One of the key success metrics that we have in our business is our ability to retain our vendors and our customers. Our 2023 retention rate continues to be strong, with net vendor retention rates at 113% and our net customer retention rates at 112%, showing that majority of the growth we have has been derived from our existing vendors and our existing customers, resulting from our ongoing strong relationships and the stickiness of our model. We also welcomed 2 new companies to Exclusive Networks with the acquisitions of Ingecom and Consigas in Ireland in the second half of 2023. Both of these are excellent fit to our business, and they have performed strongly so far as part of the Exclusive Network's family. Finally, we managed to generate an exceptional EUR 254 million of adjusted operating free cash flow, while continuing to reduce our leverage ratio, reaching 0.8x at the end of December 2023. If we take a step back, Exclusive Networks has had a strong track record, with 10 years of gross sales CAGR at 31% on a reported basis. The solid long-standing sustained momentum really comes down to 3 fundamental drivers. First, we see CIOs continue to see cybersecurity as a top spending priority. You can see this in the large and growing addressable market that we serve, which continues to create headroom for growth for our business. Secondly, we have a unique model and a strong value proposition, and it's built on services and our highly technical know-how within the cybersecurity industry, with a high ratio of engineers to sales ratio. This explains why we've been able to build a best-in-class portfolio of vendors as well as a strong and diversified route to market with more than 20,000 downstream partners, of which more than 6,000 are new partners that we have added during the course of the last 5 years. And thirdly, it's clear that Exclusive Networks has a proven long-term growth levers that are further accelerated through acquisitions, with 20 completed acquisitions over the last 10 years. If we talk a little bit about the markets we serve and the growing ecosystem that we operate within, you can see here on the left side of this chart that the size of the market at the time of our IPO, and on the right-hand side, you see the size of the opportunity in 2024 as laid out in various research reports. We currently estimate that our serviceable addressable market is around EUR 50 billion. Our ability to continually grow our addressable market through vendor acquisition and expansion, geographic expansion and M&A, has seen us almost double our serviceable addressable market during the last 4 years. Over that time, Exclusive Networks have grown faster than the market, more than doubling our gross sales in the last 3 years, which comes back to our unique model and the strength of our value proposition. The acceleration of digital transformation with leveraging of the cloud and now also Gen AI continues to challenge security team's ability to secure the new expanded perimeter and new digital infrastructures. Today, every enterprise across the world depends on IT and data. And according to recent studies by IBM, an average enterprise use up to 60 different cybersecurity tools in the cybersecurity infrastructure. We're also seeing more regulatory requirements that are being introduced by governments and industry bodies around the world to drive more disclosures and more transparency on cybersecurity breaches. The macro drivers for cybersecurity clearly remain structural and long term, demonstrating why cybersecurity has today become a boardroom and a CIO priority for most global enterprises around the world. So in summary, 2023 was a strong year for gross sales and profitability and our company -- for our company and with continued solid prospects, allowing us to push -- to publish a solid guidance that I will now present. For FY '24, considering the current market conditions, which are still challenged by some level of macroeconomic volatility and lack of visibility, we now expect that our gross sales will grow in the range of 10% to 12% at a constant currency rate. We expect our net margin to reach a range between EUR 500 million and EUR 550 million, and we expect our adjusted EBIT to reach a range between EUR 200 million and EUR 210 million. And all of this should generate an adjusted operating free cash flow of 80% of adjusted EBITDA. With that, let's take a step back and recap 2023, which again was a very strong year for Exclusive Networks. As I said before, the long-term drivers remain solid within the cybersecurity industry, and it continues to be a top priority for businesses and CIOs and CEOs around the world. We continue to have multiple growth levers with a best-in-class vendor portfolio and some of the strongest vendor relationships in this industry. Our unique place within a large and growing cyber market and a strong track record, which leans heavily on our great people and our highly technical skill sets in cyber. I'm excited about the opportunities ahead of us for 2024 and what these will bring for our talented people, our vendors, our partners and our shareholders. With that, I want to thank you for your time today, and I will now hand it over to the auditors for their review of the 2023 accounts.

I can just introduce Mr. Marc Biasibetti, who'll present conclusions on behalf of the auditors.