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

[Audio Gap] over 60% of the group revenue. And over 91% of the group's EBITDA. That is to say that the margins of the software is significantly higher. And is in line with our growth following the strategic plan. A second very important plan is a loyal customer base. Our customers remain with us over time. And we have our attention rate that is very close to 100%. This allows us to increase the renewable of our customers over time. increasing our profitability. The third element is the international expansion. On the bottom left, you see a significant data as our General Manager will explain more in detail. We have a stability situation for the revenues where we have mix in Italy and broad mix, which is in favor of the both side, which is next to [ 30% ]. This was a choice that we made also in our strategic plan, and we are very happy about it. And last but not least, [ Pillar ] is the expansion of the margins and there is the potential for further growth due to our growth strategy especially [indiscernible]. This is scalable and has the marginality possibilities. You can see further dates on the slide and the important you to say is that the situation regarding revenues is such a stable, but the EBITDA is of about 8% compared to the first semester of last year. So it's comparable to the growth of revenues. Going on to next slide. Our portfolio of products and the solutions we offer our customers. We have 3 pillars. The first 1 is [indiscernible] solutions. These are solutions that offer customers that need customized solutions on in medical record is based on the product but it's so customized it is more similar to our product. And all of these Surefil products follow the same line. Then we have a product that are scalable and we are scaling at the international level. And they are grouped in 3 areas, the blood area which includes substances of human origin. We have technologies both on [indiscernible] and on the donor side, the Dynoxic side, liberation provision system, emerging pathology and so on and a compute in the critical care area. This is our software powerhouse which constitutes about 63% of our revenues. Then we have a strategic diversification area, which is a margin to the software side because it includes care, which is our particular business. And it includes software to managing Dr. [indiscernible], which is very relevant to manage your calls. Going on to the next slide. this important slide according to me. And this talks about our AI strategy. We are a business that has been on the market for over 40 years and offers clinical solutions. Our strategy then is to gradually increase our solutions, making them more functional, thanks to the use of AI. This function increases Armen to [indiscernible] may more power for the tools. So we get to the medical customers we have to give more speculative to our patients. And there is a debate in the accord this is related to the time that do dedicated to the administrative side. And there is talk of administrative burnout because if a doctor spends over 10 minutes preparing our report they need more -- a lot of time, and this is the time they cannot dedicate to the patients. We have some examples. We have solutions. You can see, for example, [indiscernible] on our medical fish that allows the doctor to talk with the artificial intelligence that prepare standardized future preparing using the language and the operations they use. We made an experiment in an important hospital in Lombardy and this -- did a very satisfying results. We also have [ predict ] in [ Apulia ] for the neurodegenerative diseases. And all these applications of the AI in the clinical field. need to take into account the 3 fundamental aspects. First of all, the ethical side I think it's pretty easy to understand, but it's essential we were maybe the first in Italy in 2025 to receive the certification covering this ethical side. Then we have the side of data sovereignty and governance because when we apply AI, we also need to be careful about where our data are put into and how they are managed. We are very careful about this. And we sort of open market the possibility of putting the data in a specific mine. And we were the first in Italy and in the Board [indiscernible]. The third slide, the LLM side. Did you see the AI agent that is used? LLM is a large language model and usually as are the application that is used for the empowerment. In short, we will launch HLM that is specific for our domain. And this will give a quality on a better output. So we have a very clear and precise strategy. Taking into account ethical aspects, data sovereignty and then had to be a vertical to be more functional for results. Before going on to the results, last comment on my side concerning our geographical footprint. At the moment, we are present in 18 countries. But we reached about 70 countries overall. And we have a vision between public and private. This is pretty relevant. We took both in health care and other clients. About 70% are special customers. So this is also explained fundamental aspects of our current positioning, what are the pillars, the softer house products and solutions, our AS strategy and our footprint. So now I will leave the floor to our General Manager, that we talk about what is the yielding in terms of results.

Thank you. Hello, everybody. Thank you, Andrea, and thank you to our CEO. Because this framework allows us to better understand the data that I will now present. Please show the first slide. I would like to express a bit some messages that represent the colocation of our group in this year that are in line with our strategic plan. First of all, we are a software company. So even if in Sara Group, there are also business lines that can seem unconnected to software Actually, there is a line between them. We have a software company, and we offer technological solutions. So this is the connotation of our group. We are an IT company. that is growing. And in Italy, it is the first player. We -- it's all about 1/3 of all tons in the country, and we cover our position in the market that is very interesting. And at the same time, we are also working a lot broad because [ Anderson ] is growing, especially [ Voca ] is covering a lot of space in Europe together with our other reality, DPP which is in use and which follows the award. Another important thing is that when we published the industrial plan, we announced that we would have followed a reorganization path because we have been growing in the last few years, thanks to over EUR 800 million investments and buying a lot of companies but due to the speed of the market at the moment, we grew by evolution. We said that we had to integrate and we delete a new operational model that there were some more levels on the corporate side on the job workflow side. We are incorporating businesses that we acquired for the years. We are reducing the sites industrializing processes to increase both EBITDA and margin, both in terms of quality and volumes. Because growth as we generated synergies, but this path will allow us also to give the company as an organizational structure, keeper of facing much more important growth already from 2027. This organizational model is already producing value. even if we are not yet in line with the aims that we put ourselves. So we are already looking at 2027 with double-digit growth factor. Now let's have a look at the financial data that we have characterized IFRS semester. Revenue are EUR 256 million, down 1.1%. It's [ otopathological ] data. It's led to 1 choice because we had to think clearly about the model that we wanted to adopt to make our growth more scalable because we have our customer portfolio that covers the whole health care ward going from recliner record to food safety and security. So we have a chance of really about how we want to integrate these businesses that seem to be different, but there are some linked by the fact that they are linked to the health and awareness of citizens. So we decided to adopt and implement this new organizational model. So we consolidated on the cost side. We reduced our corporation with Exela providers. We focus on our efforts in reorganizing our factories. We worked on corporate costs and in Italy, because abroad continue to grow. In Italy, we generated economies and improvement in efficiency that allows us to improve our EBITDA. I expect some questions about the RPM, which has no impact on this because the growth plans over for this year were already decided both in Italy and abroad to support the health care system in a sustainable way because this is a main system of the economy of our contracts. In the IT world, the resources are growing year-over-year. And this is very important. So the 3% royalty net income reflects the growth in income. But it is linked to model that will be applied also to other countries. So there is growth from 19.9% to -- from 18.1% to 19.9% of the EBITDA margin and this reflects the results of our strategic plan. We had already advanced and we had already explained that we expected an increase in the EBITDA margin, and this is happening. We imagine that 2026 would have been -- would have seen an impact in the accelerator of revenues. But we see that is we will receive, we will have an increase in the second half of 2026 because our results are better than we expected. For this revenue quarter, 26% is covered by revenues coming from abroad. [indiscernible] rose by [ 2% ] in line with our plan. And to should reach about 30% of our overall revenues. And today, 37% of the revenues on the software side is coming from abroad. So EBITDA is positive. But we have one loss revenues, but this is not due to pathological reasons. And we had to phase is to start again with our new plan. Going on to next slide. And we can see that the software is driving our results. It has a margin of 22% compared to the rest of the group. So the margins on software is growing. Even it is that are up impact. And below, you can see the details of the 2 main business lines linked to revenues, the core on software solutions and software products. As you can see, Software Solutions goes to -- from 69% to 75% and the solutions in the Italian market. Over the years in Italy, we were awarded a lot of important projects. And we realize important projects we are higher volume to make the country more infrastructure. we delivered these projects, but more are coming. Only yesterday, a new tender was published. And what we imagine is that the national as well part will have growth in the recurring markets. So delivering large projects allowed us to increase our skills in time. And if this is 75% is now 69%. Over the next years, we foresee recurring revenues and also new contracts? In our projections, there is no estimate about tenders that we may be awarded. Then we have software products strongly over the growth that goes by product lines. And -- this allows us to grow a lot abroad. So it went from 25% to 31%. So in the organizational process, the focus is on the efficiency that we are already acquiring, but also on the perspective of Concur market that will be mainly made of recurring revenues. Now let's see how the 2 business lines are going and the distant from software. But in fact, they are -- the first 1 is automation and ICT. ICT includes the stock management services. And these are the IT solutions that we offer customers and automation. They are about 18.6% of the margins with a word about 1.5% and 0.9% margin in the care side. So this is very linked to the clinical side to the therapy side and the logistics side. So at the moment in our country, there is a constant that has not been awarded yet. That includes more people -- more companies that would be avoided, and we are 1 of the main companies in Italy. And this creates our expectations and strong automatization sector that is growing. Here we have a connection even if these races are not [indiscernible], but the [indiscernible] software, including therapies and [indiscernible] targets is frankly linked with the softer aboard. [ The other stream is cashtream ]. And for us, I always say that is of a riser and also in this kind of is the software is driving the market. Because in the future, there is talk of a health care system that is more local that takes care of the citizen of the care and therapies. And for us, this is the main channel. And it software allows us to invest in the haircare offer that is growing. The amount of services that is growing expansion is a technology to manage this curve so that the health care offer is also capable of rate demand. care is going because today, we are choosing the where we want to expand our skills. Where the customer doesn't want to use new technologies. We have -- we also have certified solutions of invoice in consents made the difference. -- to create more inclusivity and more productivity. But many customers don't have this sensitivity. So at the moment, we left the region. And the replacing care does not impact our EBITDA. The region had an impact that was almost next to 0. And we are not -- we are not running any risks because we have closed so that the new company that is replacing a -- takes care of everything we left us. So we were also awarded a very important tender that will be at EUR 400 million. This will allow us to reach double digits in the next years. And it's in an area where we are not very present at the moment. And this will allow us to have a positioning very important because when we talk about access to care, we are in a position to deliver a technological solution that allows the entities to generate more values for everybody. So the care is decreasing due to our own choices because we closed on contracts that don't want to follow the innovation trend that is locator the market today. Going on to the next slide. This is the outlook of our financial situation. So this is due to the fact that we chose to optimize. Net working capital is growing by EUR 42.5 million. And then we see also that is increasing. The next slide allows us to understand it even better. Here, we see a bridge. We closed last year with a financial position of EUR 386 million. we had improvement in DDA of EUR 50.9 million. Then there is the impact of the which is due to the contract assets. In 2025, we reduced the old product assets of about EUR 110 million. and we generated new revenue because -- and this is still specifically to the Italian situation. So in 2026, we have the same dynamic. In the first semester, we -- almost EUR 50 million of FDA, but we generated almost the same because hence the aggregation of the demand because it the procurement was well managed by the hospital, the entity that had some necessity. And now there are business that publish new tenders. That are worth EUR 500 million to EUR 1 billion. And they are awarded in a way that are not in line with the needs of our customers. So when gas has a need and needs is a provider. This can generate delays. And when there are new projects activated with our customers, these are rigid and complex formula. That is a double burden for us. because these entities have some requirements for fee that are very rigid those the time for receiving our payments. So the invoices are generated late -- so even if the payment times are expected in the 6 years, the time to receive the payments of the invoices are delayed. So there are new -- and now the equipment is divided into 2 components with the tenders and who distributes the resources. And the final users -- something is not [indiscernible] there is also some activities in the works at a political level. But we believe that in the future, this situation will be improved -- because we see that very large projects with auto CapEx we did closing time versus 2 to 3 years will be covered with the recurrent revenues or other systems because we have been working on this side. And we will overcome this problem. But the increase of the net working capital also is impacted by this factor. Also in the chain from [ 396 428 ]. It is also due to higher cost of the providers because since sustainability is very important in this environment. In some cases, we have to pay in advance some providers very financial difficulties. Then we see that is increasing due to the payment of taxes. We also CapEx that this year remained constant compared to last year, even if the EBITDA is growing we have CapEx that are tangible leads to the creation of our headquarters and investments made in Italy. We have an automation component related to the creation of robots. That manage medicines best into oncological treatments. And this is a market that is in high expansion. Then we have a net interest of EUR 11 million. So our financial position is of EUR 425 million. What I can say is that compared to the end of the last year, but we foresee positive citation because economic results are there, but our customers need to close their balance sheet. We mainly invoiced in the last 2, 3 months of the year. So we will have an important impact at the end of the year. So we will reconcile and generate more cash in the last part of the year. So the situation is generally positive, and we expect improvements in important improvements in the second semester, also linked to the release the evolution of our platforms that is foreseen in the second semester. We are working on the 2027.And ahead, we expect a return a double-digit return on our growth because the operating model was implemented can but improve and expand it and scale also in other countries and in the rest of the world that are already focused on the growth products that generate more growth. And the market abroad with other time frames completely different from the Italian market. I think I have concluded the financial side.

Thank you, Matteo. Thank you, Andrea. I will ask you the questions that we received from -- and Matteo, you cannot relax because the first question for you have in part already replied, but I asked the same concerning care. Is it possible to give more details on the strategic area, if the decrease in revenues is due to the time frame of the contact? And another question to this is the level of revenues and the margins we somehow normalized was the transition of the new contracts will be completed. Can you answer, Matteo?

Yes. As I have anticipated, concerning care, we are moving on to director. The first one is this investor where customers are not sensitive to the use of technology because technology today allows us to improve productivity. So the decrease you have seen is due to a choice to go on. We were talking about a contract that we were awarded 5 years ago. And we start with that contract because we saw that the customer had no way to understand how the market is evolving. But we have also won an important tender with a EUR 400 million to contact with a double-digit growth. And this is a great occasion for us because on the one side, software allows us to credit infrastructure and offer solutions on the other side, but we -- we understand that the real issue is the demand because we don't need more doctors, but we need systems where software is really helping. Because the system can be solved only when the citizen is taking care by operating centers where we are already organized. So does it allow us to understand if it's possible to follow this part. Otherwise, we follow other choices. Care for us is a strategic system to look at the medium to long term, how the management of the conical patients can be managed to avoid everybody thesis the hospitals.

There is another question on [indiscernible]. Considered it is lower than the average of the group. The positioning of GP is always targeted abroad. Do you believe it's possible to leverage the software.

There are two sides to consider. The first also strategy value, as Matteo said lately. And the other one is that assets must be valued. At the moment, we have margins that are not excellent. These are a typical business, but we qualified that the tenders that we are being awarded and better selection, the choice of getting out of some contracts that had lower margins and enter new contracts will allow us to have a better relativity. And then we will be able to think about even if at the moment, it is not the order today, but we are thinking about this at the moment.

Thank you, Andrea for you also the next question -- this concerns software. Can you comment on the trend of growth in the revenues in the first half year of tics and delineated the expensive drivers for the second half of the year.

2026 was the implementation of the operating model. Clearly, growing as we are changing and that changed the performance of car. Just to give an example, while we are changing the engine is pretty complicated. In fact, because a little more on the margins. the expecting, as Matteo said before, is that this will change. It will change more in Italy, it will change more abroad than in Italy. Because Abel will continue to grow double digits, and we can continuing to grow also in Italy. The second part of the cost is related to the drivers, exactly the diverse for acceleration. When we implement a new operating model, it is made with a certain strategy and not just to do so. And in this case, we have an expectation that the operational change that we made in Italy will have a synergic effect there will increase revenues at the addressing costs. So we'll see an effect. And this is the fundamental average. Different position and defense prices in the area, that will yield us better results as been entered 2027.

Matteo, the next question is for you. Concerning net working capital, do we have a higher visibility on the evolution of contract assets that we -- that you also talked about during the presentation and the high level for the business? And when do you foresee the values to slow down.

This contract assets is being faced by many points of view. A strategic theme is that large projects were delivered. And in those products, the quarter of recurring revenues was pretty irritant. Now that the projects are in place, and we need to deliver further systems, data privacy and so on. This will increase the recurring revenues that generate immediate cash for us. So already 2027, we foresee an important growth of these recurring revenues that will allow us to be less dependent on the FDA phenomenon. On the other side, at least in our country, we have a structural issue of a customer. It is the usually pays in tons that are very slow for us. there is already a target national level because companies all over Italy are software from this and large companies usually survive, but smaller companies usually software and maybe to close. So the possibility is to have tenders in the future to be paid with the SaaS modality.