Exclusive Networks SA (EXN) Earnings Call Transcript & Summary

Ladies and gentlemen, dear shareholders. On behalf of the Board of Directors of Exclusive Networks, I would like to wish you a warm welcome to this Annual General Meeting. This is the second general meeting since the company is listed. 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 broadcast 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 you -- 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. And Mr. Olivier Breittmayer, who represents the company, HTIVB, the 2 shareholders who represent the largest number of voting rights to act as scrutineers. I would like to thank them for accepting these functions. I propose to appoint Mr. Vincent Savesi, Group General Counsel and Secretary of the Board of Directors of Exclusive Networks as Secretary of the meeting. 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 company's Deloitte and Mazars, the statutory auditors of our company were duly convened. I would like to thank Mr. Jean-Marie Le Guiner and Mr. Marc Biasibetti, representing the joint statutory auditors for their presence here today. They will read you in the statutory auditor's reports during this general meeting. I will give the floor to the Secretary, Mr. Vincent Savesi, to report on the documentation made available, the agenda of the shareholders' meeting and the Board.

Ladies and gentlemen, dear shareholders, good afternoon. I would like to remind you that you have been convened to this Annual General Meeting by decision of the Board of Directors of April 17, 2023. 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 May 3, 2023. The Notice of Meeting was published on May 19, 2023 in the French Gazette, Bulletin des Annonces LéGales Obligatoires as well as in the Legal Notices section of the newspaper, Journal Special des Societes. The regulatory documents and information, which currently display on the screen have been sent to the shareholders and were published on the company's website 21 days ahead of the present meeting. They were also made available to the shareholders at Exclusive Networks registered office, 15 days ahead of the meeting in accordance with French regulation. With regard to the 2022 universal registration document, I remind you that it is available on the company's website, and you can also obtain a copy on request. The joint statutory auditors were also invited to attend by registered letter with acknowledgement of receipts. 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, we're able to cast their votes before the meeting either by voting remotely by sending their [ strengths ] by post and 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 90,635,135 shares which represents the same number of 90,635,135 voting rights. As this General -- 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 18,127,027 shares and for its extraordinary part, a minimum quorum of 25% of the shares, which represent 22,658,784 shares. After considering the votes and powers of attorney received before the Annual General Meeting, the online votes and the votes by correspondence. The quorum provision stands. And according to the attendance sheet, at 91.88% which represents 83,283,726 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. The agenda of the 2023 Annual Meeting is currently displayed on the screen. 24 resolutions will be put to your vote this year. As already mentioned, the resolutions were published in the notice of meeting on May 3 and May 19 as well as in the convening notice. The ordinary general meeting will be asked to vote on the usual resolutions of an Annual General Meeting, such as the approval of the financial statements for the year 2022, the allocation of income, the ratification of Mrs. Nathalie Lomon, cooptation as directed by the Board on April -- on April 17, 2023, and the appointment of Mr. Paul-Philippe Bernier as Director. The compensation of the corporate officers and the authorization to the company to trade its own shares. On an extraordinary basis, you will be asked to vote on the renewal of financial delegation to the Board to increase the share capital of the company and an amendment to the company's article of incorporation regarding the holding of meetings of the Board of Directors. Of course, we'll come back to these topics during the Annual General Meeting when the resolutions are 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/her right to have items or draft resolutions included on the agenda of the general meeting. I now give the floor back to Mrs. Barbara Thoralfsson to present the program of this annual meeting.

Mr. Jesper Trolle, Chief Executive Officer, will start the presentation with the key events of 2022 and the group's business performance. He will then present the 2022 financial results and the 2023 outlook and strategy. The statutory auditors will present their reports. There will be a Q&A session where you will have the opportunity to ask questions. We will conclude our meeting with the presentation and voting of the resolutions, which will be led by Mr. Vincent Savesi. 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 2022.

Thank you, Barbara, and welcome to everyone in the room and to everyone who has joined us remotely today. So 2022 was truly a momentous year for Exclusive. We delivered on our ongoing mission to be the trusted cybersecurity specialists to help drive what we call the transition to a totally trusted digital world. During the year, we continued to see some rather extraordinary events like the ongoing war in Ukraine and also a lot more geopolitical tensions. And all of this led to an increase in cybersecurity awareness and therefore, also an increase in cybersecurity spending, which lifted the whole market as a whole. Our first full year as a public company saw us continue to outperform the market and deliver on the growth plans and the strategy that we put in place at the time of our IPO. This performance is a testament to our amazing teams around the world, and I would like to pay tribute and thank them all for their hard work and their dedication for delivering these outstanding results. With that, let's take a look at our 2022 highlights. Our gross sales for the year were up 38% year-on-year, reaching EUR 4.5 billion with net margins reaching EUR 411 billion, up 29% year-on-year and adjusted EBIT, likewise, up 29% year-on-year to EUR 154 million. I'm delighted to say that this was a record-breaking year in both sales and profitability for the company and that we were exceeding the revised guidance that we set for the full year of 2022. We also finished the year on the back of 3 consecutive quarters of EUR 1 billion sales across the last 3 quarters of the year. The renewed growth strategy that we put in place in the Americas region continues to yield strong results for us. Gross sales here were up 53% to more than EUR 500 million which now makes this our second largest region after the EMEA region. One of our key success factors is the ability we have to retain our vendors and our partners. And in '22, we achieved a net retention rate for our vendors of 136% year-on-year, which is up from 113% in 2021. Our net customer retention rate was 133% versus 112% in the prior year. These are important metrics because it shows that our model is very sticky, and we are adding value to our vendors and our customers and that we are doing more and more business with them year-on-year. And finally, we managed to generate an exceptional EUR 200 million of operating free cash flow while continuing to deleverage our company reaching 1.6x at the end of December of 2022. Moving on to our regional performance. We continue to see strong achievements across all of our 3 regions. EMEA reached EUR 160 million of EBIT on a EUR 3.5 billion of sales, increasing by 38% and 40%, respectively. This region experienced a remarkable growth with strong contribution from all countries, including becoming the first region ever to reach more than EUR 1 billion of gross sales in one single quarter in Q4 of 2022. This is a result that should be highly commended. Americas, as we just talked about, posted outstanding growth, with gross sales up 53% year-on-year, reaching EUR 532 million, accounting for now 12% of our global gross sales. The region achieved the highest growth in adjusted EBIT, up 62% year-on-year, which is due to a significant increase in our vendor portfolio and our partner base, which is yielding strong growth momentum here. And finally, in APAC, we achieved sales of EUR 450 million, up 12% -- 16% year-on-year, sorry, and a 6% growth in profitability. The ability we have to consistently outperform the market is within our unique business model. We like to call this the exclusive flywheel. This is underpinned by 5 key focus areas. One is the best vendor portfolio in the industry. Secondly, it's about vendor acquisition. Thirdly, it's about expanding with our existing vendors into more geographies and we wrap this around a full-service portfolio and complemented with strategic M&A. We call this the flywheel because each of these 5 elements are all interdependent and all interconnected. And they are the ones together that allow us to continuously expand our addressable market. Our vendors today includes industry leaders in each of the segments. Fast-growth scale-ups and also new disruptive vendors that are coming to market across all of the leading cybersecurity sectors. Our ecosystem downstream consists of more than 25,000 specialist partners. We are talking about telcos, global system integrators, value-added resellers and more and more MSPs and managed service providers. We believe that this diverse ecosystem of our vendors and partners gives us the most holistic cybersecurity solution and the broadest routes to market, allowing us in turn to serve companies across all markets across the world. Over the last 5 years, the successful execution of each of these elements have allowed us to achieve compound annual growth rates of 18% versus a market growth rate along the same period of 14%. This slide illustrates the size of the cybersecurity market, but more importantly, within it, exclusive growth opportunity. The TAM is the Total Addressable Market of Enterprise Cybersecurity Solutions, the SAM or the Serviceable Addressable Market is the part of the market that goes through what we call the 2 tier value chain in which Exclusive operates. And within the SAM, you have what we call Exclusive Network Serviceable Addressable Market. which is part of the market that we can today address based on our current vendors and our current geographies of operations. On the left side here on the slide, you see that at the time of IPO in '21, the market was estimated -- or sorry, it was estimated the size of the opportunity. And in '23, you see the growth of the market according to the industry analysts in the various research reports. As you can see, there is still ample opportunity for Exclusive to continue to grow within the SAM, and we also will continue to expand the SAM as we are onboarding more vendors and the cybersecurity market is growing as a whole. Over the last 3 years, as you see on the slide, the addressable market for Exclusive have grown by 1.5x, demonstrating the opportunity that we have in front of us. I just mentioned how we are continuously evolving our portfolio to offer holistic cybersecurity solutions for today's problems and also tomorrow cybersecurity problems. Our portfolio of cybersecurity innovators covers all of the leading segments within the cybersecurity market. And as you can see, in 2022, we significantly outperformed the market growth in each and every major cybersecurity segment. Network Security, which is the largest segment today, 19 billion market in -- $90 million market is where we are probably most well known due to our very long-standing and very strong relationships with 2 of the leaders, Fortinet and Palo Alto Networks. But as you can see, even with this strong market, we managed to outgrow the market by 2.5x. Endpoint Security is another segment that is enjoying a lot of growth. It's a market that today is going through a massive transition away from legacy antivirus technologies as more and more end points are coming online. Here, we are working with one of the leaders in the market, SentinelOne, and we continue to see strong growth in this very fragmented market segment. And finally, DevSecOps, which is a smaller but a newer segment, Here, our acquisition of Nuaware back in 2020 have allowed us to continuously accelerate or growth and continue to grow faster than the market by almost 5x. If I move on to the outlook for 2023, we expect that our full gross sales for the year will reach -- will be above EUR 5.150 billion. which implies a growth rate of about 14% year-on-year. We expect that our net margins will be in the range of EUR 450 million to EUR 465 million, and we expect that our adjusted EBIT will be in the range from EUR 172 million to EUR 178 million on the high end. Based on these numbers, we expect to generate a free cash flow from operations of 80% of our adjusted EBITDA. So in summary, if I wrap up, I would say FY 2022 was a strong year and a record year for gross sales and profitability for our company. Our cybersecurity specialization, combined with global reach and global scale, continues to give us a strong unique selling point, which can only be characterized as a market that still is highly fragmented and highly complex. The consistent and the sustained growth that we are demonstrating is due to our strong execution and our proven ability to continuously grow our serviceable addressable market. As we move through 2023, we expect cybersecurity budgets to remain resilient and continue to grow faster than the overall IT sector, as CIOs around the world continues to prioritize cybersecurity spending ahead of other IT investment priorities. In fact, many analysts are still predicting that the total cybersecurity market will continue to grow at double digits in the years to come. And as you hopefully all have taken away, this gives Exclusive plenty of opportunities to continue to drive long-term growth above the market, and we believe that we are well perceived to capitalize on this. With that, I want to thank everyone for your attention. I'll hand back over to Barbara.

Thank you, Jesper. Jesper and Exclusive Network CFO, Nathalie Buhnemann, will be staying with us in case we have any questions for them later. Now let's continue with the agenda. Mr. Jean-Marie Le Guiner and Mr. Marc Biasibetti , our auditors are present in the room. I invite Mr. Mark Biasibetti to present their conclusions.

Thank you. Ladies and gentlemen, good afternoon.

Marc, just before -- just to add, I would like to point out that to all intents and purposes, the statutory auditors' reports on the 2022 statutory and consolidated accounts, as well as the special report on the regulated agreements are reproduced in their entirety in the 2022 universal registration document and were posted within the legal deadlines on the company's website under the Investors tab. You can also find the additional reports on the financial delegations on the company's websites. Marc, the floor is yours.

Thank you very much. So ladies and gentlemen, good afternoon. On behalf of audits from Deloitte and Mazars, I'm going to present our conclusion of our audit for the year ended December 31, 2022. First of all, I would like to remind you that our firms Deloitte and Mazars and their networks audit the financial statements of the group's significant entities. To this end, we have implemented a little approach that takes into account changes in the restructured and the economic environment in which the group and its subsidiary operates. Our approach is adapted to exclusive activities and business services and to its organization. We confirm that we have conducted our audit in accordance with the requirement of the French law. And finally, I would like to confirm that our audit conclusion has been presented to the executive management, the Audit Committee and the Board of Directors. So for the ordinary general meeting, we have issued 3 reports, the first one and the second one are relating to the parent company financial statements and to the consolidated financial statements. There are key matters -- we -- for the parent company is based on the valuation of the equity investment and for the financial -- the consolidated financial statement is on the measurement of the recoverable amount of the goodwill and trademark and on the revenue recognition. You will find detailed description of these matters and the procedure performed in our reports. We confirm that the estimate made by the management are reasonable and that the application or the regulation have been complied with. We also confirmed that we have no comments to make on the management report, the corporate governance report and the other documents addressed to shareholders. In conclusion, we certified without qualification and observation that the annual financial statement and the consolidated financial statement are truthful, and that's this financial statement give you a true and fair view of the results of operations for the year and 31st December 2022 and for the financial position and assets and liabilities of the group at that date. We also issued -- we also issued a special report on regulated agreements briefly, what we can say is that we have no comments as soon as the absence of new regulated party agreements have been mentioned and as soon as -- they are -- the absence of any agreement authorized also in prior year. For the extraordinary general meeting, we have issued 3 reports, the first on the delegation of authority to the Board of the Director to decide on values issue of share of security with or without preferential distribution rights. So it's Resolution 15 to 20. The second report on the delegation of authority to the Board of Directors to decide on an issue of ordinary share of security reserve for a member of the group savings plan, Resolution 21. And the third report on the delegation of authority to the Board of Directors to issue share other security, giving access to the company's capital in the context of an employee shareholding operation, Resolution 22. And we have nothing to report on those resolutions. Thank you for your attention.

Thank you, Mark. I would like to point out that the company has not received any written questions prior to this general assembly. I therefore, give the floor to those of you who wish to ask questions. Please raise your hand. So that you can be identified and the hostess can bring you a microphone. As indicated in the introduction to this meeting, you can ask your questions in French or in English. The floor is now open for questions. All right. It does not seem that there are any questions I now give the floor to the Secretary of the Committee of the Annual General Meeting, Mr. Vincent Savesi, to present the resolutions and the results on the vote of each resolution.

Thank you. So we can now proceed to vote on the resolutions. For the sake of simplicity and efficiency, I will present the resolutions for voting without reading the full text of each resolution. I will announce the vote and then we will consider the next resolution. On the final quorum -- sorry -- okay. So on the final quorum, we have the same quorum as the one communicated previously. I will give it back just for the sake of numbers. So the attendance sheet represent 91.88% which represents itself 83,283,726 shares of the capital and of the voting rights. Before proceeding to the vote, we will show you a short video explaining how to use your smartphone or your voting pad. [Presentation]

Dear shareholders, the badge you received when enrolling to the meeting is strictly personal. Flashing its QR code will display a secure and personalized web page on to your smartphone screen. Your shareholders code, the number of votes that you own and/or represent will appear in this page. If you have no smartphone, you will receive a voting pad. It is strictly personal as well. Your shareholders' code, the number of votes that you own and/or represent are loaded into your voting pad and they will appear on its screen. When a voting session starts, 3 colored keys similar to the ones on the voting pad will appear on the screen of your smartphone. The green key corresponds to a vote yes. The yellow key corresponds to a vote abstained. The red key corresponds to a vote against. After reading the summary of each resolution, we will immediately proceed to its vote and we will announce the vote is open. At this moment, you will see a progress bar on the screen, indicating the time left for voting. Once the progress bar will be complete, we will declare the vote is closed, and you will no longer be able to vote. The results of the vote will appear on the meeting room screen a few seconds after the closure of the vote. Final request, please return your badges and your voting pads when leaving the meeting room.

And before proceeding to the vote on the resolution, we'll have a mock test with one question and will let you familiarize yourselves with the virtual voting pads or your smartphone or the physical voting pad. If you are using a smartphone, it is important that you see the 3 colored voting keys that appear on your device is green. Please raise your hand in case of not appearance of such colors and the technician will solve your issue or provide you with a physical voting pads. We'll now proceed with the test. The test question is, are you satisfied of the fact that the 2023 Exclusive Networks Annual General Meeting is held on the company premises. The vote is now open. [Voting]

And 100% in favor. So we'll now start with the votes. We will vote on the first resolution, which concerns approval of the annual financial statement of the year ending December 31, 2022. These accounts show a loss of EUR 8,735,656. The vote is open. [Voting]

The vote is closed and in favor of 99.99%. The first resolution is therefore adopted. The second resolution is to approve the consolidated financial statement of the year ending December 31, 2022, which shows a group share profit of EUR 36 million -- sorry, EUR 339,960 (sic) [ EUR 36,339,960 ]. The vote is open. [Voting]

The vote is closed and the second resolution is adopted with 99.99% of the votes. The third resolution aims to allocate the result of the financial year ending December 31, 2022, to retain the earnings. The vote is open. [Voting]

The vote is closed and the resolution is adopted with 99.39% of the votes. The first resolution concerns the approval of related party agreements concluded during the year 2022 on the basis of the auditors' special reports. In this regard, we ask you to note that the absence of any other related party agreements and commitments entered into our authorized previously and during the financial year 2022. The vote is open. [Voting]

And the first resolution is adopted with 99.99% of the votes. We will now proceed to vote regarding the governance, notably the changes in the Board of Directors. We start with the fifth resolution regarding the ratification of the cooptation of Ms. Nathalie Lomon as Director. This cooptation was decided by the Board of Directors on April 17, 2023, and to replace Nathalie Buhnemann, who resigned, following a nomination as Group Financial Officer of Exclusive Networks. Ms. Nathalie Lomon is appointed for the duration of Ms. Nathalie Buhnemann remaining terms of office until the Annual General Meeting that will be called in 2025 to approve the financial statements for the financial year ending 31st December 2024. You can see the profile and the skills of Ms. Nathalie Lomon on the screen. The vote is open. [Voting]

The vote is closed. And the fifth resolution is adopted with 97.37% of the votes. By the sixth resolution, we'll ask you to appoint Mr. Paul-Philippe Bernier as new Director for a 4-year term office in compliance with the company's Article of Incorporation. The profile and the skills of Mr. Paul-Philippe Bernier are currently displayed on the screen. The vote is open. [Voting]

The vote is closed and the sixth resolution is adopted with 99.45% of the votes. We'll now proceed to the vote on the resolutions relating to the compensation of corporate officers and application of the say-on-pay procedure. Under the terms of the seventh resolution, the Board of Directors submits for your approval, the information on the compensation of all corporate offices as contained in the Board of Directors' Corporate Governance report, which is included in the 2022 Universal Registration Document. The vote is open. [Voting]