Growens S.p.A. (0MU.F) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to our usual investor call. The increased demand on the latest results, which were published last Monday after the last Board meeting, which passed the first half 2023, profit and loss on balance fee and cash flow statements. Let me welcome Mr. Monfredini and Mr. Gorni, respectively, our Chairman and CFO and CEO. And I would leave again to hand out a brief comment on the data, and then we'll be able to take a few questions. Thank you very much.

Thank you, Micaela. Can you share the press release, please. So good afternoon to everyone, and thanks for being here. Today, we are going to comment on 2023 first half results that, as a result, the sale of Growens' mail service provider activity to TeamSystem SPA will treat companies sold as a discontinued operation in accordance with the IFRS 5 accounting standard principle. So it's important to say that the numbers I'm going to comment on are only figurative because they do not include the sole parameter that is accumulated in specific items. And specifically, in the income statement, the activities that constitute the discontinued operations have been reclassified under the line item net result from discontinued operation that you will find just before the top. In the balance sheet, the asset and the abilities related to the mail service provider business have been reclassified under asset and liabilities for sale. The balance sheet figures as of 31st December 2022 have not been restated. In the cash flow statement, the cash flow generated by activity that constituted a discontinued operation have been reclassified into dedicated items located at the bottom of the. Additionally, it should be not that existing relationship between this continued operation have been treated as a relationship between independent parties and the economic and balance sheet items related to discontinued operation also include the effect of the elimination of the consolidated relation of such a relationship. This relationship -- we named this relationship usually Intercom. Therefore, in Growens consolidated half year report all financial data for the first half of 2022 has been restated to a low comparison in the same period with the data of the first half of 2023. Whereas the balance sheet debt as of 31st December 2022 are in line with those published in 2022 financial statement. So let's move on the Mail results for the semester ended on 30 June 2023. The 2023 first half profit and profit and loss, sorry, posted total revenues around EUR 35.6 million, showing a decrease of 5% versus the same period of 2022, which reached instead EUR 37.4 million. Such results is driven by the growth of the SaaS component of 11.6% for 16.5% incidents on total revenues, counterbalanced by the CPaaS contraction by 7.3% for an 82.7% incident on total revenues. So the Agile Telecom business unit posted the biggest revenues of about EUR 29.6 million, decreasing by 7.3% over the same period of the previous year. Focus on profitability of contract has allowed for a good recovery in the relative margin, which have nearly doubled, as you can see in the table. We had EUR 1.4 million of EBITDA versus 700 -- more or less EUR 700,000 after the year. The fastest-growing business unit once again was Bee with a 20% increase in revenues at EUR 4.8 million or USD 5.2 million, driven by increase in volumes. The annual recurring revenue KPI amount grew USD 11.4 million as of 4 August 2023. The Datatrics business unit revenue instead decreased by 13.5% or about EUR 166,000 in absolute value. Foreign revenues amount to EUR 28 million, representing the 79% of the total revenues, substantially stable compared with the previous period. Recurring revenues amount to 17% of total revenues, growing of about 12%, with an increased incidence of 2% versus the previous period. And see that -- let's go on with marginality. In the first half of 2023 consolidated EBITDA, as you can see, amounted to EUR 0.3 million, growing by EUR 195% versus the first half of 2022, with an incidence on -- of 1% on revenues. While the gross profit grew by about 17% or EUR 1.05 million in absolute value. Both gross profit and EBITDA margin are affected by a variety of factors. Firstly, the material margin recovery of Agile Telecom, substantially doubled. Secondly, sales and marketing on search and development investment growth mainly tied to the focus on Beefree's data. If you see a result by business unit, the main contribution in 2023 EBITDA margin comes from Agile Telecom, which ended the first half with EUR 1.4 million, while completely is more tight and amounts to EUR 123,000. That extended lost about EUR 625,000 improving results compared with the first half of 2022, but not in line with our expectation. As a consequence of that, given the impact of general depreciation of research and development costs amounting to EUR 1.3 million as well as further impairment of the goodwill on data tricks amounting to EUR 1.3 million, EBITDA is negative for EUR 2.9 million. Net earnings from continuing operations in the first half of 2023 after current the -- taxation estimates also amount to EUR 2.9 million negative. Finally, we have a consolidated net financial position as of 30 June 2023. That is positive and amounts to EUR 3.3 million. At that means that decreasing tests, the previously recorded amount of EUR 66,000 negative as of 31st December 2022. This negative valuation is mainly influenced by the bridge on contracted to meet the financial needs of the group, pending the closing of the sale of ESP business, which resulted in a net inflow after amounts held in escrow over EUR 72 million. The aforementioned short items liabilities were, therefore, accepted during the month of July. So it was only a transitional situation. Finally, the figurative debt from IFRS 16 adoption amount to EUR 2.9 million. And we can note that cash exceed EUR 11.6 million. And that's all from my side.

Thank you very much, Matteo. I would like to underline a general contest comment that there was no option for us to decide to present those data in any other way because agreeing upon that with the audit firm BDO, which gave an opinion today alongside the financial statements. There was no other way to present those data, but that to include the sold businesses as discontinued operations. So they're still in the financial statements, but our present are presented and represented as discontinued operations. So there was no other option for us than to present financial data this way, which we also get a good flavor of what is going -- what the group is going to look like in the future. So we highlight the operating performance of the remain businesses, which as far as free and data tricks are concerned, still make up the SaaS division and Agile Telecom makes up the CPaaS division as well. So that's the overall view that we really cared about giving. I would maybe to Nazzareno to give a few context words about what we've done recently, what we've done would be what we've done after the ESP sale and some highlights from the future. Please excuse everyone. If we cannot get into further details. As you all know, last Monday, a resolution was passed to launch a partial public tender offer on our treasury shares. So information is really deeply regulated in this period, and we may comment a little bit, but please understand that if we cannot answer your questions about guidelines, it's because we have high -- a huge backup period than being. Thank you very much.

Thank you, Micaela. As usual, when -- if you have any question of dots, you can use the chat button here in the new tool or you can send an email to the Investor Relations address. Regarding the activities in the last few months of our business units, we can start with the Beefree. The first news is that we completed or branded -- we rebranded Beefree before it was Bee content design. Now the product name and the business unit name is Beefree, and the plug-in, so the version, white-label embeddable in other solutions called Bee Plug-in now is called Befree SDK, software open kit. So that's the first thing that we released. We also attended a couple of important events, exhibitions recently, one in California and another one in the U.S., but related to Beefree for designers, hosted by [indiscernible] an important CRM market automation player. And both events were very successful in terms of potential and visits and opportunities on both sides, SDK and Beefree. And of course, to have the full -- the same results, we need to wait a few months to appreciate the results from those events. Another important thing that Befree released is the change in terms of the free addition. As you know, we released a free edition back 1 year and few months ago. And since then, the number of paying clients started growing a bit slower than before. And this is due to the ability to convert clients or users from free to paid. To address this issue, we just released this week new free edition that now basically the threshold for the free users is no longer the number of assets [indiscernible] page created, but the number of exports. So the number of times that the users basically export the created asset in other application to publish or to sell those messages. And we hope that this change will improve the conversion rate from free to paid. But of course, it's too early to have any data on this. And of course, we started drafting the plan to invest into Befree part of the proceeds from the TeamSystem sale. We decided to invest in organic growth, EUR 15 million in the next 3 years, so 2024, '25, '26. And this investment will be mainly related to R&D, especially looking at the AI capabilities and integrations and of course, market and sales. Then we have Datatrics. As you saw from the material presentation, and at is still struggling in terms of growth. We appointed a new Chief Head of product a few months ago, and he completed together with the Head of Engineering and analysis. That basically highlighted some issues in the platforms in terms of functionalities and bugs. And this is causing still quite a high level of churn, which is, of course, affecting a lot the growth, which is not there yet. So now we are going to invest in terms of R&D in order to fix those issues on the platform, hopefully, to stop the or at least improve the churn rate that we have today that is capping our growth and ability to return to at least breakeven. So Datatrics also had a quite important reduction in terms of people. I believe that it's around 10 people less than before and then the beginning of the year, and this is helping in terms of EBITDA improvement. As you can see from the results from Matteo, the EBITDA is now a bit better than before. But still, of course, we are not happy about the situation. And then we have Agile Telecom. Agile Telecom figures are very good in terms of EBITDA. This was our strategy to work towards margins rather than growth in revenues. And this is happening. I want to highlight that both revenues and margins for Agile Telecom are still a bit volatile. There are a number of factors that are not under our control that can affect those results in the future. So it's not easy to have accurate prediction on Agile Telecom. On top of that, we have a new regulation from the AGCOM, the authority of the communication in Italy, that is quite challenging for Agile Telecom because it's changing the way that foreign senders are able to deliver messages to Italy. And this regulation is still at the very beginning, and we are trying to discuss with the authorities to find a way to improve this because basically, companies abroad now should basically open an Italian legal entity in order to deliver messages in Italy using the alphanumeric sender. So this is quite disruptive for the industry. And we need still have to assess the impact on our results for Agile Telecom. Another good news about Agile Telecom is the migration that has been completed. So the full platform infrastructure, which is our own intellectual property and fully developed by Agile Telecom, not relying on internal/external supplier, has been completely migrated on the cloud, and this allow us to have a better performance, material availability, but also to have a platform that in the future might be sold or branded on my license to third parties. So that's a good opportunity for the future for Agile Telecom. So overall, as I recapped, stronger investment in Beefree, EUR 15 million in the next coming years, while for Datatrics and Agile Telecom, the strategy is not changing. We still are working on the ordinary business and the usual strategies. And of course, we have also the M&A -- our opportunities, both on the buy side and on the sales side that we will address in an opportunistic way, basically, as in the past.

Thank you very much, Nazzareno. And your last word allowed me to connect to one of the very first questions we got, connecting to the EUR 15 million expected investment on the Beefree, which, of course, will both cover both CapEx and OpEx for these organic development. Of course, it's more difficult to estimate expected investments in external growth. But as far as internal growth is concerned, please rest assured, there will be both sales and marketing, strengthening and R&D strengthening, especially to integrate artificial intelligence plug-ins and further help to designers in order to develop even better content using -- leveraging on the Beefree platform. So thank you very much, guys, for the presentation so far. I will go on browsing through the questions with that today, keeping up with the financial side. And if you agree, I would take the very first one, which mentions, do you expect to apply IFRS 5 principal also in full year 2023 results? Well, of course, there's no expectation we can have concerning that. We can expect that the -- we will agree with the audit firm that data from now on will be exposed in order to highlight the actual contribution of the ongoing businesses. And in the very last case, we'll be highlighting the dismissed -- the discontinued businesses' contribution as a created line in the financial statements. This way, you might as well conditionally be able to appreciate the overall group result amount, as it would have been had the old ESP business stayed in because the last line in the full reported P&L still shows the overall results with the whole group contribution. Whereas, you can appreciate the new group parameter as it is now. So my expectation would be that this type of exposing results will go on and will make clearer and clearer the business units that we stick on to. Another question which trends we expect in -- for Agile Telecom. Do we expect to get back to growth by maintaining similar margins? As far as we can tell, I think that we've already covered this topic with Nazzareno answers. Of course, we've said several times that the SMS market is quite volatile. And of course, it's no trouble to gain rapid sales growth despite margins. So the first focus will always be on margin, and we'll see what happens with the growth. Nazzareno, would you like to add some color on that?

No, that's correct. Our focus is the marginality. As you said, it's quite easy to increase revenues with the SMS traffic just putting a very low price, you get a lot of traffic and revenues, but that's not our goal. Our goal is to increase the marginality. So -- but it's not easy because it's a very mature market with quite large players. And so we are a very small team, 17 people, very smart. So they did a brilliant result this year, the beginning in the first 6 months. But not easy to tell about the future.

All right. So thank you very much. We have a further question. With respect to Datatrics, which is the book value of the -- well, growing share at the end of June?

Yes. Thanks, Micaela.

Matteo, would you like to answer that, or -- okay, you can go on like that. After the last impairment, I think we have a net value of the ownership in Datatrics.

Yes. The value is, at the moment is at EUR 2.9 million after the last impairment.

Thank you very much. Following further questions we got on [indiscernible] is that I would like to further highlight that when a company performs impairment tests and withdraws part of ownership values for some holdings in certain subsidiaries, there is no choice about that. So we do not make a choice concerning that. It is an obligated path that we need to follow when we assess that the permanent value attributed to the subsidiary is no longer sustainable in the long term. So it's a process that needs to be assessed from time to time. And when the time comes and if the case arises, we do make impairment valuations, and we do write off partial values if this is the case. Thanks so much. So we go on with a further question. There seems to be a favorable IPO momentum for SaaS companies in the U.S. We've seen Instacart and Klaviyo IPOs. What is your overview, and I think this will be up to Nazzareno to comment, what is your minimum size view for a SaaS company to be eligible for the financial market in the U.S.?

Yes. I think it's not only a matter of size. Today, the best cases in the U.S. as are companies with also a very good profitability. And in the coming 3 years, for sure, we will have a decreasing profitability and margins because we are going to invest, as said, EUR 15 million in 2 years. And so that's the first point. The second point is that I believe -- but this is just my opinion -- that until the ARR and recurring revenue is lower than EUR 80 million, EUR 90 million or EUR 100 million, I think an IPO in the U.S. is quite difficult. Or at least it's doable, but I believe that the results would not be so impressive like Instacart or Klaviyo that we just saw this year.

Thank you very much. Once and for all, I would like to comment on all the questions that we got concerning the partial tender offer and current stock pricing. As we mentioned several times, there is a very narrow regulatory path that we need to follow at the moment. So every step was taken by hearing the advice of our legal and financial advisers. The price was decided unanimously by the Board of Directors following the issue of an independent fairness opinion, which was also reviewed by the Board of Statutory auditors. And so I really think there is no reason to comment further on what we cannot control, which is the market. What we can control now is the process, which needs us to submit an offer document to Consob because growing software, growing standard on treasury shares exceeds EUR 8 million threshold in value. So it's mandatory to file an authorization process for the set of information with Consob, which is the Italian regulatory authority. And so we have a process in front of us which will include 20 calendar days for us available to submit the document. And then 30 to 15 days for Consob to release the authorization to publishing the document. And then the launch of the offer period, which might happen across the month of November, which could last from a minimum 20 trading days up to a maximum of 40 trading days. So I think this makes it very clear. And so I would switch back to financial questions because, of course Marco's got a clarification. And Marco you're totally right. So we actually mistook the book value for Datatrics with respect to the goodwill. So book value is EUR 4.2 million, and goodwill is EUR 2.9 million. And of course, that will be the figure that was partially written after impairment. Can you please, Matteo, comment?

Sorry, can you repeat the question?

Yes. The question is, if you can clarify what is the overall book value of Datatrics and the book value of goodwill. So we have figures here, EUR 4.2 million book value and EUR 2.9 million goodwill.

Yes. We have -- the difference -- I think the difference is between the -- sorry, I don't remember the term in English, consolidation, the consolidation, the difference between the value of the asset that is in the separated balance sheet of Growens SpA and the same value that we have in consolidated balance sheet, that is different because on 1 side, we have the value of the company that we have as an asset. On the other side, we have the difference between the asset and the -- the [Foreign language].

Adjusted value.

Yes, the asset value. Yes. And so it's 2 different value.

Thank you very much.

I don't know if I was clear.

So the overall book value will be correctly, EUR 4.2 million.

Yes.

Thank you so much.

Yes.

Thank you for clarifying. Are there any further questions? Any other curiosity, or -- I mean, we're always available, that you can drop us an e-mail at [email protected]. And of course, we are aware that the press release was about a transitional perimeter for the group. We will make sure that we release as much information as possible compatibly with all the restrictions we're currently subject to. And of course, if there is no further questions, I think we might close the session. And of course, as usual, that will be available on our website for replay and possibly in a transcript for. I would thank both Matteo and Nazzareno for being here with us today and everyone who participate in the call. Thank you so much for your interest and business. Thank you again.

Thank you. Bye.

Thank you.

Thank you.