Seco S.p.A. (IOT) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you very much for joining us today for Seco's first half results call. As usual, our CFO, Lorenzo Mazzini, will cover the key items of our financial results followed by our CEO, Max Mauri, which will share with you a detailed update on our strategy as well as some trends on our business. About our first half number, please let me highlight that this will be the sixth quarter in a row where we delivered top line and gross margin numbers ahead of our guidance. We delivered a solid first half performance amid supply challenges. To be specific, we made in the period significant investments into working capital with strategic purchase of memories and PCBs, managing supply shortages of these components. We will dive in more details in each of these KPIs in a second, but the 3 key messages we want to share are pretty clear and are here in the slide. The fiscal AI era is here and the partnership that we announced -- just announced yesterday with Mura with a new revenue stream, which will start on 2027 is a proof of it. The second message is that our exposure to structural growth trends like energy grade infrastructure, aerospace and defense is growing. And the third message is that our new PCBA plants in Italy and China are now fully operational, enhancing capacity and customer proximity. I now hand off the mic to Lorenzo for the presentation of our financial results. Please, Lorenzo.

Thank you, Marco, and good afternoon to all. Let's start having a look at the group's financial highlights in the first half of 2026. edge computing business recorded a plus 6 percentage year-on-year growth despite the difficult situation on the procurement market for memories in particular. I wanted to stress that despite the shock in prices and lead times, which implied significant renegotiations with customer and supplier, we was able to serve the market, preserving our margin and recording such growth. Useful to report that software recurring revenues grew in the first half of 2026 compared to the first half of 2025 by 13%, growing and increased usage of our CA software framework. A positive result comes from gross profit margin. We was able to improve it despite the important increases recorded bill of material cost level. We successfully passed part of our cost increases to customers. The group benefit in the period of a positive sales mix in margin terms. Adjusted EBITDA reported in the period a slight reduction explained by a discretion increase in OpEx. The group increased its indirect personnel headcount by about 20 people respect to the first and to support the strong pipeline and logistics to support the opening of the new plant production plant near to point out that part of such logistic expenses will be reabsorbed from the next quarter which is expected a better operating leverage driven by the volume expansion we are forecast to comment our sales breakdown in the first half of 2026, I want to highlight the good growth of EMEA from a geographical standpoint. It was mainly driven by the rebound of German market, which is in terms of weight, the most -- regarding the split by vertical, continues to have a great diversification with the industrial sector being for sure the most dynamic one. Analyzing our first half 2026 profitability performance, the EBITDA margin records a reduction of about 1.5 percentage driven by higher personnel costs. The driver was spending over research and development to support the future growth and over logistics for the setup of the new production near. Part of such logistic indirect cost will be recovered already from the third quarter on which we expect to benefit a good operating leverage level. adjusted net financial position after extraordinary production CapEx growth by about EUR 6 million respect to year-end due to inventory expansion. Strategic stocks of critical memories were implemented to put in deliveries to customers. Moreover, the expansion of material lead times drive the necessity of increasing inventory levels. The about EUR 18 million of higher inventory was counterbalanced by a solid cash generation impact at the end of the semester, the adjusted net financial position by EUR I close my remarks underlying that despite this growth in net debt, our leverage position remained close to 1x EBITDA, so a level of real excellence. I thank you for your kind attention, and I pass the floor to Max to continue our presentation. Thank you very much.

Thank you, Lorenzo, and good afternoon to everyone. Let me now walk you through what are, in my view, the key highlights of this publication. The first half was a resilient, a solid top line in a very complex supply chain environment. the momentum is now clearly accelerating. We expect an all-time high EUR 60 million revenue in the third quarter, is a 25% progression year-on-year. Order intake is at a record level as well, up 55% year-on-year and in absolute terms around EUR 50 million. This gives us a good visibility for the coming quarters and behind. And the gross margin is rebounding too, back on 56% in the second quarter, up almost points or 400 basis points quarter-on-quarter, addressing any concern on our ability to source key components and pass through the price impact to our clients. I think what is important is the fundamental behind these numbers are solid. The recurring revenue is up 13% year-on-year, and our book-to-bill is 1.4x. We have also secured more than 50 new design win with different new customers and new logo. And we have internal production capacity now up to EUR 350 million. In short, the business is healthy and is gaining traction. Most importantly, this performance was achieved in a particular complex supply chain environment. During the first half, the electronic market continued to face component allocation constraints and significant extended lead time from the key silicon vendor, driven especially by the growing AI demand for data center infrastructure. In this context, we proactively secured strategic inventory of critical components I really think the EUR 18 million that we increased in revenue are really good and like a goal right now to be able to fulfill and beef the customer demand. This gives even greater value to the results delivered and work done position us well to continue executing our growth strategy in the period ahead and gaining a competitive advantage. So we discussed about physical AI already in the past, but now is tangible just started. And I really think that this end market will be a strong new end market for our company. I think physically means when the machine started to perceive and interact with the reality. And this is exactly where the SEC offering and our technology is really competitive. And I think we are one of the best company as per our positioning in the world to really succeed in this new vertical I think all our new products are AI powered by design. They use next-generation chip, and they have dedicated AI computing building. It's opened new market for Seco, robotics, drone, aerospace defense and many other will come. I think this will accelerate our growth path into '27 and beyond. We believe Seco is really uniquely positioned by -- by combining our hardware together with our CLIA platform to fulfill the market demand. Our strategy is simple. We build a scalable portfolio across different kind of silicon vendors and different kind of technology to really intersect growing end markets. Looking better this strategy, we are splitted across many verticals, but the most important one are, for sure, industrial automation, aerospace and defense, robots and drone, energy, medical and smart device in general. In every one of this, we offer hardware within AI building -- and more importantly, we are offering also our CRA platform on top to an end-to-end unique solution. In terms of partner Intel, Qualcomm, NP and others, I think it's important to mention that our strategic partners are starting to pay off. I think thanks to that partnership, we can serve many customers with different kind of needs using the same strong platform. And this is how we can reduce the risk, increasing the ROI on our R&D investments and scaling our growth capacity. So let me give you a concrete example, the autonomous factory. So this is the vision under which we will see smart camera, AI-powered screens, robots and mobile vehicles all work together. This is our real ecosystem and is where Seco is present in every part of it. The market is going definitely in that direction. This is one of the key of our future strategy. And I think that it's really important to mention 70% of our customers tell us they want a technology partner, not just a supplier. Why? Because the level of innovation required is pretty high. And the growth number along this such vertical is pretty high. Robotic investments are expected to roughly double every year through the 2030. I think this is a very huge opportunity, and we are built to perfectly capture it. So why we are so confident? I think because we are offering something unique. So Seco is now covering the entire value chain that is critical for a client. from the powerful edge AI hardware to a dedicated software framework to deploy AI directly on the device at the edge and a unique marketplace of AI algorithms. Together, this is a full stack from hardware to intelligence to value-added services that customers can really build along our technology. I think it's important also to underline that thanks to the strong partnership, the technology partnership that we built over the last 5 years with the main silicon vendors, this kind of ecosystem is becoming even -- talking about developer community, here is a good example how we want to grow. And I think the partnership that we are building are really playing like an ecosystem. For example, the work that we did with A and Qualcomm, Arduino, by the way, is one of the largest developer community in the world. And I think having this such of community behind it is very good for prototyping. But when they are ready to scale from prototyping to industrialization, from samples to mass production, this is where -- so in -- and this is where our product and the fact that we design our product pin to pin compatible both on the hardware and software side, meaning that the migration is smooth. There is no need of writing any single line of code. This is where the value for the customers is huge, accelerating the time to market, reducing their investments. So let me now show you another example on a new edge AI mission-critical controller that we are building together with Intel. This is a rugged device. It's a fess. It's run on battery and works in the field. It is the latest Intel Panther Lake technology, and it has on device AI for situational awareness. This opens the door to high-value defense application and very big large customers. This example, I think, represents the entire Seco strength and competitiveness that started from the design, integrating rugged system, advanced electronic design as well as HMI display. So now we arrive at the major announcement we made last Friday. I think Seco has signed a strong strategic partnership with Neura Robotics, a European leader in cognitive and humanoid robotics. Seco will deliver custom Qualcomm-based solution. Our product will be inside all the 5 neural robot types, humanoids, personal assistant, robot arms, mobile manipulators and quadruades. In the humanoid alone, 5 Seco models are on board. So our content grow with the complexity of the robot. We are covering from the brain to the smart of the robot where basically Neura, which is a unique technology from Neura is really having the Nurse platform that is basically replicate the functionality of a neurologic human-centric infrastructure into the robot. Well, our computing is interact with the platform and make it happens in a daily basis life. I think it's important to mention that mass production is planned for the first quarter 2027 already. I will give you more colors on the number in a while. We are also planning to deploy this robot inside our own facilities. And I think Nora is one of the best robotic company in the world, definitely #1 in Europe, but really fighting to be a leader, a worldwide leader. And I think we are really proud to have -- to be a core technology partner for them and to help them to scale in a huge mass production expected for the forthcoming years. I think it's important also to give you an update on our operation and our production capacity. As you know, we have increased our footprint and production capacity in Europe as well as in China. We have now basically new plant up and running, giving us a total full capacity to reach up to EUR 350 million in revenue. I think now -- okay, now it's time to have a look to the number. I think our incoming backlog is clearly improving up 55% year-on-year in a July year-to-date basis. And our book-to-bill ratio has been constantly above 1, which is now 1.4 to be precise, already for many months. This is not a onetime spike. This is a healthy consistent trend that will continue over the course of the forthcoming quarters. Now our guidance for the third quarter. We confirm our revenue of about EUR 60 million, plus 25% year-on-year. This will be the highest quarterly revenue in the Seco history. I'm really proud about this. Looking ahead, I can anticipate that visibility on organic growth keeps improving. This growth is broad-based, has come from many different end markets and new logos. By looking at the order intake and book-to-bill KPI and factoring the new partnership, I think I feel confident in stating that the market estimate for the 2027 are a bit behind schedule. So before we will share a complete view on the 2027 later this year, as I hint on what is coming, just let me add that the new agreement will count for not less than additional EUR 25 million revenue already in 2027. So I think you should take it into account when you make estimation on -- so now on. Let me close here, and thank you again for your attention. We are now happy to take your questions.

[Operator Instructions]. The first question today comes from Marco Vitale, from Mediobanca.

Just one from my side. You spent -- in your final remarks, you mentioned that you have a strong pipeline and the visibility is flowing over the organic growth trajectory. The question is, how confident do you feel that the EUR 60 million revenues per quarter could be the new run rate over the coming quarters and whether this will support, say, operating leverage to bring the EBITDA margin consistently above 20% level over the next quarters?

I think having the EUR 60 million in revenue in mind is clearly that we will come out with an EBITDA above 20% because the operating leverage which is actually pretty strong considering 75% more or less of our OpEx fixed OpEx. So therefore, our operating leverage is significant, especially when we go over EUR 50 million. I think looking ahead, as I said, the market consensus was basically expecting -- so to be in the range of EUR 245 million in 2027. Now I am adding at least EUR 25 million in revenue coming from the partnership. So therefore, I think the magnitude by quarter will be even higher of EUR 60 million each. We will see how proportionately the growth will be deployed into the 2027. I would say I would like to be more specific on it later during the year. But generally speaking, I think the expectation that we are having for -- as a mix in between our strong demand and strong pipe order intake book to build together with the new big partnership with are now facing target at least EUR 270 million for the 2027.

The next question now comes from Adrian?

Excellent. Really interesting and happy to see that you have new partnerships. My question regards those partnerships. From the previous meetings we had, my understanding was that your new big partner was Raspberry Pi with the Art Win Board. In this presentation, seeing that it's used mainly for prototyping, I'm wondering if something didn't go quite as you hoped with this partnership and how it works with Qualcomm. I'm very happy to see that you're doing pin-to-pin compatibility, but I was wondering about this particular partnership.

Right. So first of all, I'm sorry, maybe you are making some confusion because Raspberry Pi and Arduino are both -- so partnership are 2 different players, actually competitors between them. All of them are referring to the developer market. Difference in between is with Raspberry Pi, we built a PiVision, which is entering now into the mass production phase, which is definitely good because it's adding new revenue out of this partnership with Raspberry Pi [indiscernible] pin-to-pin compatible IQ 8 design that we did based on Qualcomm chipset, it's a completely brand-new product, meaning that we are receiving a lot of demand out of it from basically all the region. Keep in mind that we will be in mass production with IQ 8 later in 2027, starting by the end of first half. So therefore, to see the results of the partnership we did with Aarduino joining the program works with Aarduino Qualcomm owed company. We will attend second half 2027. Just to complete the picture, it is normal in our sector that when you make a partnership, you will see results after more or less 2 years from the beginning of the partnership because this is typically the time to market that you need to wait until to grab it. I think also looking into the past, what we announced the big partnership we did a few years ago with Qualcomm is definitely now starting in having the first big payoff, but I can tell you it's just the beginning, more to come. Thank you very much for your question.

We will now move on to the next question. The next question comes from Aleksandra Arsova.

Couple of follow ups. The first one is again on the collaboration with [indiscernible] on top of your revenues for next year, do you expect to have maybe some additional R&D or CapEx in order to develop new partners you already with the existing capacity innovation you carried out recently. And the second one is maybe some color on Germany. You mentioned that Germany showed a little bit of recovery. Just maybe some more color on what you are seeing in Germany and what kind of growth over the coming

First of all, about Nora, I think we are well covered in terms of growth CapEx already for the entire 2027 at least. We are now working on the '27 budget under which we are evaluating eventually growth CapEx to sustain not the '27, but the '28 and forthcoming demand, not only from Nora, but from all the new logo, which are not so that we are now analyzing, and we will come out with a clear plan later this year. I don't remember exactly Germany. So the Germany, I think, is going well, and this is also a structural basically change, meaning that a good portion of the increasing into our order intake is coming from there as well as looking at the pipeline, we are expecting to see Germany growing a different growth in the '27, definitely better than in the near past.

Just a follow-up again on CapEx. So currently, I assume like 20 million, 25 million per year of CapEx for the next year something that...

That's correct as a basis.