GPI S.p.A. (GPI.MI) Earnings Call Transcript & Summary

[Interpreted] Good morning, and welcome, everyone. My name is Lorenzo Giollo, Investor Relations Officer at GPI. [indiscernible] the first result [indiscernible] GPI [indiscernible] description [indiscernible] results of [indiscernible] and we also have our Q&A session planned. [Operator Instructions]. Next slide, please. GPI plans and deliver software solutions for hospitals, nursing homes, pharmacies and health care authorities to support them in digitalization to grant better care and to reduce costs. We are currently in -- Italian leaders in terms of healthcare software, and we are among the main players in Italy. We grew by 23.4% CAGR divided by organic and inorganic growth. Looking at inorganic growth, we invested EUR 400 million in terms of merge and acquisitions in the past 7 years. GPI -- the past Italian rivals in terms of margin and revenues. Our growth allowed us to have 9,000 customers across 70 countries. Another important aspect is Care, which is a key enabler for market access and customer engagement. We provide apps, portals. Care is the enabler for 30 million Italian -- 1 Italian out of 2 interacts with GPI for appointment booking and first contract. GPI is a multinational now with a long-standing growth in terms of revenues and margins. And recently, we improved, thanks to our higher focus on software. Next slide, please. This is the framework of our strategic offers, and it is divided into 3 pillars. We have software solutions, which need project-based approach with high personalization level. We designed software solutions for hospitals as well as treating and care solutions such as social care, telemedicine, et cetera. And we also manage 30% of hospitals in Italy through admin booking, HR, et cetera. And we also developed Data Analytics and Intelligence Solutions that are crucial to deliver appropriate care. The second pillar is based on global products with high margin. They allow us to be more standard and they provide a higher margin. The main product will be blood and substances of human origin. In this case, we are amongst the first 3 players globally. We have customers worldwide really. Then we have diagnostics, we offer software for labs and imaging software as well as software for pathology with digitalization that allow us to provide speedy care. Then we have critical care, so we connect the software to all devices of the hospital. And in this space, we are really strong in tackling hospital issues when it comes to operating features, intensive care and anesthesia. Then our third pillar, which is diversification, business diversification, which is based on other business areas. Care and telemonitoring, which has really high-margin ICT and Cyberdefense. This means maintaining the devices and, of course, Cyberdefense to support and defense to support and defend the data and then automation robotics for pharmacy warehouse automation for pharmacies, retailers, hospital pharmacies and if you received a latest press release, we approached wholesalers as well. Next slide, please. This is our global footprint. We currently work in 70 countries. Of course, Europe is our main market than the Americas, and we are developing a clientele in the Middle East. We increased our share -- international share. GPE has 22% of revenues coming from rest of the world. Software has 35% of international revenues. And you can see we have mainly health clients, public or private, so health care authorities, hospitals or nursing homes for private health care. And then we have a smaller size of non-health, both public and private. Our business model is oriented to proximity. We have over 50 offices in Italy, and we have offices in 18 countries out of the 70. This is the overview of our company. I'd like to now leave the floor to our Director General, Matteo Santoro.

[Interpreted] Good morning, everybody. Thank you, Lorenzo, for providing context. This is very helpful for me. I would like to convey some information I believe to be helpful. Those who know us know that GPI has been implementing some novelties in 2025. We started a new growth. In the past, we grew exponentially. We understood by intuition and thanks to the observatory we have and thanks to market research as well. We understood that the global market would also affect the world of health care. So we needed to face the issues. So in the past, we carried out over 55 extraordinary operations. We grew exponentially, and this allowed us to take part to new concept tender, which is our R to the access currently. So we -- after we grew, we decided we needed to consolidate the volume of activities we generated, thanks to acquisitions as well. So 2025 is the year of organic growth. The industrial plan was based on the concept of organic growth and it aims at consolidating and optimizing and producing value, thanks to synergies. We might take into consideration some smaller but interesting operations. So the first half, so on organic growth, we are leaders in our market. In Italy, we cover 14% of shares of the health care market. We are still maintaining our health care DNA. We are, however, expanding on foreign markets. We've always said that our mission is to become a global company. So we entered the France market, the U.S. market, and we also want to consolidate our position in the Middle East. So we are growing organically while guaranteeing quality and innovation to our solutions. the market acknowledge our value. So our products are all ECN certified, MDR certified. They are all based on cloud platforms if the customer wishes so. These platforms are based on micro servicing infrastructures, and we are also strengthening them through investments in AI because we see this new asset as an element to increase productivity of our solutions. So we make -- we are sure AI will make our solutions even more performance based. We won some concept tenders and contracts that allowed us to work on volumes and turn into products, solutions that once were customized. For example, medical record for [ General Mardia ]. It was very challenging because it involved 17 hospitals and a wide -- high population. We are growing according to our plan. We will work on growth of margins, which is something we are achieving currently because some of the synergies we've developed through inertia, thanks to the relationships we built and the jobs we've done in order to become a single big growth. We are very focused on financial aspects. We want to generate revenue because at first, we focus on dimension. And the first half compared to previous years, revenues were affected by investments due to concept contracts. We maintain a good balance. We didn't generate, but we didn't absorb cash either. So it was very important for us. June 30 was a date for assessing the results of the Consip contracts. We were able to generate invoices we accumulated through concept contracts. And we generated other contracts assets through the activation of other Consip contracts. We are participating in other 2 tenders. So we started Healthcare 2 and Healthcare 4 in terms of contracts. So we can be very happy with our financial results because we moved to a very balanced situation and thus without making things more efficient. We are still out planning them that will be active by 2026. We acquired 2 new bonds to extend long-term debt maturities. We don't have imbalances anymore because all investments are covered by these bonds. So this is the scenario. We maintain our position as a key player for digital transformation, which also means working on a health care system that has to be universal, accessible to everyone and increasingly cheaper with better results. Next slide, please. Maybe that's the slide everyone was waiting for. So the first half is half with sustained growth. We had an acquisition, which was in the pipeline and which had a EUR 5 million impact. We see that revenues are growing by 9.1%. So we are moving from EUR 236.4 million to EUR 257.9 million. And our main driver for this growth is software, which accounts for EUR 156 million revenues. EBITDA is growing more than revenues, thanks to our business mix because since we have this large portfolio, we can focus our commercial activity also on the sale of solutions that have high margins, so diagnostics, critical care in France. So solutions that can be delivered immediately with good margins. So EBITDA goes from 40.7% to 46.7%, so an increase by 14.8%. This is a very important result for us because we are looking at organic growth. This is aligned with our plan. We are performing slightly better than the plan. We had an increase in expenses in some areas, but we can see the software accounted for EUR 5.7 million. We have plus 90 bps in terms of EBITDA margin [Audio Gap] for EBIT. So moving from EUR 7.8 million to EUR 16.6 million. Net income is EUR 3.5 million with a growth [Audio Gap]. Next slide, please. Now let's deep dive on our business units. As I said, software is our driver of growth. We are a tech company. So of course, we take into account other business types that are integrated that are ancillary to us, but software is our core. So we moved from EUR 138 million to EUR 156 million. EBITDA is growing by 15.6% so going from EUR 37 million absolute value to EUR 43 million. We're looking at half-on-half, the first half of '25 versus first half of '24. We see recurring revenues above 52%, and we expect an improvement in the second half because in the first half, we delivered a series of solutions for [ Sanitauno, ] but this project is finished. So this delivery will generate maintenance in the future, so recurring revenues. And we will focus on those in the next few years. Our retention is really interesting, 96% and we have a ratio of tender win that is above 40%, 44%. Looking back, EBITDA covers 91.2%. So work perfectly aligned with our plan. Our customers in Italy are public. In the foreign markets, we have more private customers. So we have 79% of foreign customers and 21% of private customers. Next, please. You can see the breakdown of our software solution. So the leading aspect is HIS, therefore, hospitals. Why they are so crucial? Because we -- of course, we have to take into account the seasons of tenders. So the first tender was about the medical records. So this really accounts for the first cluster, the first tender. Then we are growing also in blood and diagnostics, which had a significant growth in Italy as well then treating and caring, managing and critical care. This is mainly a focus in France with Evolucare, but we are creating synergies for the Italian market. So we expect interesting products -- interesting results from this product line. So we have a wide range of products that covers all the needs of our customers. So moving from medical record to booking systems or creation of financial statements. And we also provide other non-health care software and services. Foreign market will be our focus for the future. Italy is already consolidated. So of course, we will want to strengthen our -- the delivery of our products. We want to strengthen our portfolio amongst our customers. Rest of the world is growing. It accounts for 35% of the software total revenues. So over 1/3 of our revenues come from the rest of the world, 25% Europe, excluding Italy. This involves Evolucare in France and Germany, Austria and Switzerland. And then we have 10% customers for Europe, especially for blood in the U.S. and Mexico and Saudi Arabia. We have 300 hospitals using our solutions for blood. So the rest of the world is a point of reference in terms of global growth. And we want to grow using our products rather than our solution. Here's a deep dive on the other business areas of our group. One is Care. It is always difficult to describe it strategically, but the presence of Care is not connected to margin. But to our vision of health care for the future, 1/3 of the population worldwide suffers from a chronic disease. So in Western countries, in emerging countries as well. And this percentage of population absorbs almost 75% of all health care resources. So chronic diseases need to be managed and optimized. And this is something that affects all companies, all part in all countries. So for care managing for access to hospitals, especially for chronic patients accounts for 20 billion. So I think there's a good market there. For us, Care is an innovative channel for our technological solution because care is like an operational center. So we need to leverage this and use more technology. We're doing that in other countries. For example, for managing diabetes patients. So for EUR 14 per day, we have 70% revenues. So technology allows for the management of diabetic patients. We are -- here, we're talking about engagement, coordination and citizen empowerment. So this allow us to work on the demand and improve our offer. Care is stable in terms of revenue. There is a slight improvement in terms of efficiency. But Care is strongly linked to our strategic vision and with the evolution of health care in the future. So we can't really ignore this aspect. Other 2 areas, we have our automation, so robot automation for pharmacy management and ICT. So it's maintenance, assistance, testing for companies and for our clients. There appears to be a slight decrease, but this was due to the fact that we had to prioritize, want to grow while offering secure -- safe. So this decrease has not to do with how the business is going, but to the allocation of resources [indiscernible] capability in terms of Cyberdefense. Yes, we're looking at some financial highlights. Net working capital grew by EUR 50 million more or less compared to previous years. The growth is not as proportional as the growth of revenues. We have an increase of FTE, and this is due to the new arrangements and contracts. So we believe that this is positive looking at how we are operating. We see a reduction of equities because there is a redistribution of dividends. And then let's look at the next slide where we explain the bridge. We closed 2024 with EUR 332.7 million. EBITDA was EUR 46.7 million. We bought a small portion of [ Tesi, ] which is now 100% GPI, and we acquired also [ Mondo ADP, ] which has to do with HR. It is a very liquid company. So this allow us to grow the HR work [Audio Gap] . So this small -- we had the small operations. Then we had other nonfinancial operating assets and liabilities. Taxes accounted for 9.4% -- EUR 9.4 million, then CapEx intangible is EUR 12.4 million, and tangible CapEx, EUR 9.7 million. This is the effect of Policura Hospital. This is the first hospital of the group. This is a tool we want to use to better understand clinical processes and better understand how our solutions can be improved. And of course, we will test new products there to guarantee sustainability. So this is a pilot project. And we are in a region where there's a need for a hospital. So all the -- that are basically booked. So we will investigate an innovation there because it will be a highly functioning hospital. Then dividends approved EUR 15.9 million and EUR 10.7 million net financial interest and other elements. So the net debt is EUR 340.4 million. I don't see this as a negative aspect. I think we are growing organically. So when you see a growth by EUR 10 million and 14.8% in terms of EBITDA and considering the investment we had for the acquisition of Mondo EDP, I think this is a fairly strong position. I hope everything is clear. With the implementation of this plan and with the consolidation of this plan, I think the first half was represented a change that can still be deemed as something positive. We have now a recap of the strategic business plan.

[Interpreted] Thank you, Matteo, for walking us through the results of the first half. I think there's underlying [Audio Gap] our business plan is based on 4 pillars. Our plan goes from 2025 to 2029 to 5 years, and it is based, as I said, on 4 pillars. The first is the consolidation of the national leadership position in Italy when it comes to software. We'll increase commercial activities for our customers through cross-selling, upselling and trying to gain, well, not that many new customers because we're almost everywhere, but we will introduce innovation. We are investing in artificial intelligence. We don't think it is something as a stand-alone, but an innovation that can be applied to our products. So AI will provide new features to our processes, will support decisions, will support diagnostics and care activities. We, for example, implemented voice recognition and recognition of pathologists and the use of predictions to then better manage A&E. We also had capture additional value from recent acquisition through Evolucare. We mentioned the vertical global products, the products that are accessible everywhere. They will be imported in all geographies. We have some areas that are a priority for us, France, these are called DACH countries, so Germany, Austria, Switzerland, Spain, Mexico, the United States, Middle East. So we want to improve our pricing, was mentioned by Matteo already, but it is the enhancement of the organizational model. We are trying to shift our mentality. We've always been project-oriented, but we'll become product oriented. So we'll have to rearrange our job. And we do think as a global company, so not Italy first and the rest of the world, we will have to think globally. My colleagues already mentioned this, but the word of care is focused on telemonitoring virtual care to keep patients at home in order to reduce costs. Cyberdefense is also important when it comes to ICT to protect patients' data and to have safe services. And then we will also invest in automation. It will not be limited to pharmacies, retailers or hospital pharmacies, but we will look at automation of oncologic infusion drugs. This is a particularly interesting innovation. Next slide, please. These are our targets. Looking at 2029 in terms of revenues, CAGR is expected to be above 8% with revenues above EUR 700 million. We want to have a rest of the world share of 30%. Margin will be above 25% in order to create an efficiency to support solutions that are -- have a higher margin. CapEx will be around 79% of revenue. This is quite standard for the sector. We will increase our ROIC surpassing 15% while maintaining the debt, so the ratio between NFP and EBITDA below 2.5x. So the strategic business plan has a sustained growth with a strong focus on rest of the world and a strong focus on increasing value. That's it for me. I'd like to leave the floor to Lorenzo Giollo. He will manage Q&A.

[Interpreted] We received many questions. You can still send more should you need to do so. I'm going to read the first question. The first is about 2025 guidance after the first half. What's your minimum target? Matteo?

[Interpreted] I said that the first half is in line with our targets and is even better, and we hope that we can really attain our target. So we will respect and attain our plan.

[Interpreted] In the press release a few days ago, I guess, it states that some software projects are being delivered and implemented, but you're also starting new projects. Do you expect a linear trajectory? What is the revenue share for the first half of 2025 derived from Consip agreements and contracts?

[Interpreted] As I said, the breakdown of revenues divided by product lines is affected by the Consip tenders. We finished the first tender for 2025. We started with [indiscernible] and [indiscernible]. We don't expect to have void, but it will depend on our clients. We might slow down in some areas, but currently, our production structures are at capacity, and looking at industrialization, we expect to have efficiency rather than voids. Looking at revenue share and [indiscernible], we're looking at EUR 82 million for 2024 coming from Consip. In the first half, we're looking at EUR 46 million.

[Interpreted] Thanks, Matteo. Another question to you. Related to software, which is our main area. So the growth of domestic software, thanks to Consip, is really a source of satisfaction, but it requires a lot of capital. If you cannot really manage the capital because there are delays, will prices change?

[Interpreted] These are variables you can't control. In all tenders, we often base our success and the price. Of course, we will look at timing for receiving for being paid. So we want to compensate the price and other aspects. When we won the tenders, we did because of the value of our technical offering. So in some cases, the market decides the value. In the medium and long term, of course, we should consider the [Audio Gap].

[Interpreted] A question for the care area. i think you partially answered this. During the presentation, [Audio Gap] looking at the shift in purchase from public opposition. Do you still need care because there aren't players in this space. Will you disengage via a natural attrition? So will you still participate?

[Interpreted] I appreciate some investors are a bit of allergic to care. But we are a tech company, but we are interested in how the world of health care will evolve over time. So [indiscernible] hospital [indiscernible] don't get treated. So while in the hospitals, we treat pathologies. Care represents a tool, a channel, a way to interact with citizens. So we do not [Audio Gap] and over half of Italians go through our systems to book an appointment. The Care is a channel to build an innovative business model for Care. We're not interested in Care. In some context, we are stopping using it if the customer doesn't want to use technology and the management of the services.

[Interpreted] Looking at CapEx in the first half of 2025, CapEx had high results, so 11% compared to 7% that was planned. You had fixed assets. Can you give more information of EUR 10 million for materials? Is it the hospital you just opened in Basilicata? What's the rationale for CapEx in 2025, 2026?

[Interpreted] I confirm that we will respect the plan forecast in terms of CapEx incidents. Of course, with CapEx contracts, we received massive contracts, and we invested highly because with this type of procurement, our customer focused not as much on CapEx. So this allowed us to invest to create products. So it is not about an overestimate of CapEx. We are -- we created -- we made them based on revenue generation for the future we will have recurrent revenues. So CapEx has to be looked in the long term. So as per the plan, the incidence of CapEx will be 7% or 9%. This could be improved if AI will allow us to create solutions with a quicker turnaround. EUR 10 million tangible assets are related to the hospital in Basilicata, purchased devices. It is quite a big hospital. It's 70 beds. We also refurbished Policura in Taranto, our diagnostic center. And we also bought the automation company that will produce robots for the preparation of infusion cancer drugs. This has already been discussed, so I won't go at length into this. Looking at invoicing in the press release, I think this refers to the latest press release. You mentioned an accelerated invoicing for Consip. I think we had to wait the end of the National Recovery and Resilience Plan because we were struggling to receive invoicing because it was very complicated in terms of bureaucracy. So the end of [ NPRR ] forced clients to deliver. After this first deadline, I hope that the client will invoice in a quick way, but that's my own impression. Let's see what happens.

[Interpreted] [Audio Gap] efficiency in the press release. You mentioned that the new structure will be operational from 2026, and this is aligned with your projects. Can you please give us more details about this base, what are the benefits you expect to see?

[Interpreted] Well, we are rearranging our activities based on of countries, geographical areas with a commercial connotation. So Italy or GPI USA or GPI Iberia will sell the whole portfolio of products. So each country will have commercial location. At the same time, we'll centralize all factories even if in different areas. So to make things more efficient, we have 7, 8 platforms for blood. Over the course of the years, we want to reduce them in order to reduce costs. So we want to make things more efficient in terms of energy and we'll centralize corporate activity, which is very fragmented because we have several legal entities that will disappear over the course of the years because we want to foster the sense of belonging to the same group. So in terms of finance, HR, we centralize everything, and this will save significant money for the group.

[Interpreted] I think this will be my last question about strategic partnerships. Possible purchase from France? What will be the timing in terms of update? Price, can you confirm?

And we give a deadline in the press release in July. We mentioned -- it was mentioned public acquisition offer. We don't have real information about the dialogue with potentially interested partners. As soon as we have more information, we will, of course, communicate that to the market.

I'm going to read this question. This is about the outlook and the opinion on cash flow generation distribution over the next years.

[Interpreted] As implied, NF calculated in 2029 versus 2027 in Slide 18, implies an increase of financial position targets and plans. But I'll leave this to you. As I said, the plan is oriented to strengthening and developing synergies and making things more efficient. So we want to generate cash flow. However, in 2029, we expect to see NF EBITDA debt to be lower. Our goal is to have 2.5% ratio. Of course, if something extraordinary happens, we can't know that. But the growth is also associated to financial position. We work with public customers, and there are delays in payments. So of course, cash management is a bit different. Our goal is to maintain the NFP EBITDA ratio below 2.5x. So we will, of course, respect our targets and plans.

[Interpreted] I don't see further questions. So thank you very much, Matteo and Fabrizio. Thank you very much to all of you for your attention. Thank you for asking your question. GPI is a strategic health care company focused on software. We are an increasingly big player in Italy and Europe, rest of the world. We are always happy to receive your questions or requests via e-mail. Thank you very much for your attention once again, and I wish you a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]