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

Good afternoon, everyone, and welcome to SECO's full year results and business update presentation. [Operator Instructions] I now have pleasure handing over to your host today, Marco Parisi, Head of Investor Relations. Please go ahead, Marco.

Thank you very much, [ Catherine ]. Good morning to everyone. I'm Marco Parisi from SECO. Together with me today, Massimo Mauri, the CEO; and Lorenzo Mazzini, CFO. So I will hand immediately the speech to Max for the presentation. Please go ahead, Max.

Marco, thank you very much. So basically, the 2021 was a very busy days and we act also in a very difficult environment because the shortage of the components and the COVID. While I should say that nevertheless, these such problems, we posted a very good end year results, making also a lot of things during the year. In fact, we launched CLEA. We went public, successfully completing the IPO in May. We did 2 acquisitions, very important. One was Oro Networks, now SECO Mind USA to accelerate the clear strategy on AI. And the other one was Garz & Fricke in Germany, which is now SECO Northern Europe. So the full year results are something that are very significant in my mind. We posted EUR 116 million revenue with 46 increasing into the 2020, of which above 28% organic growth, and EUR 25.3 million of adjusted EBITDA, which is increasing by 60% versus the previous year, and the weight is 23% on the total revenue. I think also it's important to mention that [Technical Difficulty]

Massimo, can you hear us?

The group has continued to, as I said -- Yes, I can hear you.

I was just checking. I think you may have dropped out for just 1 moment, so.

Okay. Sorry. So the -- as I said that the results are impressive in my mind, especially the Q1 where we are accelerating a lot. The growth path over the year -- or actually, we accelerated already into the second -- the entire second half of 2021, and we are continuing to accelerate our growth path also in the 2022. These results are above the guidance and the peers grow path. And well, I should say that we did a guidance in the beginning of 2021 when we went public. Well, we revised it 2x, increasing it 2x during the year. And in the end of the story, we beat it finally, so it's really a great result. Despite the condition on the shortage and the increasing into the price of the material, we was able to maintain our level of gross profit margin basically due to 2 things. One was the fact that we did a 2x price increase versus customers, which was well offset from most of our customer base. And another one was, of course, the increasing into the revenue about the -- our SaaS business, which is the clear business that is producing a better incidents in terms of gross profit margin, which is around 80%, providing us a higher margin contribution. In fact, CLEA was -- grew in the last quarter at EUR 2.2 million, which is implied a growth of versus -- 60% versus the previous quarter. And on our pro forma basis, meaning including the result in the software that our network did in the first half, which are not included in our P&L, well, we already posted EUR 7.5 million, roughly speaking, million in revenue, which is a good starting point for the 2022. We -- as I said, we completed and integrated to M&A, and we will see later on how the Garz & Fricke acquisition and integration is going. Well, coming to the [ 2022 ] but the visibility is increasing not only in 2022, but also in 2023. We have a very robust and significant growth -- organic growth. And while I confirm the official guidance for the first quarter, which is in the range of EUR 41 million, EUR 42 million in revenue, which is -- means 53%, 58% in organic growth and overall, 110%, 115% in -- on the result increasing, and also in a like-for-like, is something in the range already of 40%. Meaning including Garz & Fricke results in 2021. Well, this visibility increasing is also confirmed by the order backlog. The order backlog is growing, is continuing to grow together with the order intake, together with the pipeline. We have a pipeline of well above EUR 300 million now. We have a lot of new customers and the 6 customers as well. Well, the order backlog is EUR 157 million at the end of February, which is 2x higher versus the previous one in February. It was [ EUR 60 million ] something, [ EUR 69 million ], [ EUR 65 million ], [ EUR 68 million ], something like that, already including -- in the perimeter, all the acquisition that we did in the 2021. Another important good news is, for sure, CLEA. CLEA was a very nice product when we launched it in 2021. While now is definitely successful product, we have a lot of positive feedback from the customers that are using them. And also now, we have a very impressive pipeline with over 0.5 million of devices in -- under negotiation, which above 200,000 of devices very close to be put into contract. We also signed an important industrial partnership with Exein. Exein is a start-up with operation in Italy and in U.S. as well on the cybersecurity. This startup is backed by, among others, the private equity of Porsche. They have a very cool technology that we will include in all our products, hardware and software part, accelerating the SaaS model on our business model. We would be in a position to sell and to offer Exein's solution starting from the second half of the year, and we expect it will provide additional growth in revenue and EBITDA margin in the future. Well, I think maybe, Lorenzo, you want to continue and to dive us into well-detailed numbers?

Yes, yes. Thank you, Max. For what concern our key financial highlights, how we can see here, total revenues. Total revenues recorded data of EUR 116.3 million in 2021, with a strong growth of plus 46% respected to the same data of the previous year, so year-on-year. The total number on 2020 was EUR 79.5 million. A point that has to be underlying on this part is, for sure, a strong acceleration of sales that we have, in particular, in all the H2 of 2021. We grew more than 50% in all both the quarter, Q3 and Q4. But in particular in Q4, the acceleration has been really important with a growth of 113%. Another point that has to be underlying for sure is our revenue from software. Even the revenue for software has a type of increase, and the path of increase really important during the year. For sure, obviously, this growth is due to the fact that we launched our new application, our new platform just in the beginning of the year. But what is really significant for us is the fact that in the last quarter of the year, CLEA generating revenue of EUR 2.2 million in just a quarter. That, as you may understand, is a really material and significant amount of revenue in a quarterly basis that for sure will increase in the next quarter of 2021. Good distribution and good diversification of our sales across our geographic area. As you know before, this is a key features of, let's say, our business and our revenues. Coming from, let's say, a lower level of our P&L, so commenting our performance in terms of gross margin. Gross margin increased on a year-on-year basis, plus 48%. We recorded the level of EUR 53.1 million in 2021, respect to EUR 36 million in 2020. In relative terms, our gross margin has been stable on the '21 respect on the '20. For us, this is a really strong performance and resiliency of our business because, as you know, since in particular, Q2 of the year but increasing a lot in Q3 and Q4, the shortage component situation of electronic components impacted a lot the cost and giving an important inflection rate on our components. What we have been able was not easy, but we succeed in this operation where we rebate a big part of our increase in cost components on our customer, taking, let's say, a real fair and transparent strategy. So showing them where the market goes and so applying an important increase, firstly, one in Q4 -- in Q2, sorry. And secondly, one at the beginning of Q4. This allowed us to maintain our gross margin level. Another point that for sure, give us an important results in terms of profitability has been, as you know, the increase of software revenues that has an above average profitability in terms of gross margin. Going to the bottom line of our P&L, so talking about adjusting EBITDA. Even EBITDA growth a lot in the year, 59%. We recorded at a level that for us is really exceptional and really great for this year. That has been -- sorry, EUR 25.3 million in 2021 with respect to EUR 15.9 million in 2020. But what is more important for us that been so difficult here in terms of, let's say, COVID waves that, as you know, even if this year, COVID was a little bit less respect to 2020. However, the COVID impacted many countries on an alternative way. And moreover than this, the shortage situation, but giving these 2 factors exploiting operating leverage, and we have been able to increase our EBITDA margin from 21% to 23%. So important growth in profitability. On bottom line levels. So for what concern adjusted net income, it grows by 47%. We had results of EUR 11.5 million in 2021 with respect to something slightly below EUR 8 million in 2020. Thank you, Max. For what concern in this slide, I go a little bit deep on our total revenue performance, in particular, in terms of geography and go -- and then in terms of end markets. A point that I would like to stress that has been a really important for us is that due to the difficult shortage situation, we closed the year with EUR 116 million of total revenues but we can do -- and we could do more. Actually, we closed the year with EUR 4 million of overdue backlog. Consider that this is, for sure, an extraordinary level for us because if you consider the level of overdue backlog in 2020, this figure for us was not material. It was below EUR 0.5 million. So in a normal condition, we could do a growth that was even higher than the important growth that we recorded. Going to the revenue by geographic area. As you can see, our most important geographic area increased really well. So EMEA increased by 61%, APAC increased 92%. I would like to spend a couple of words regarding APAC, in particular regarding Fannal that, as you know, is our company in China that produce advanced touch screen display technology. Consider that the company grew at 50.2% year-on-year, and based on this, 37% of intercompany sales. So selling our touch-screen technology across all the clients, all the offer of SECO, so with a great integration performance of this technology in SECO product. Moreover, than this, Fannal recorded a really interesting sales of its touch screen displays along a third-party customer, and the growth of Fannal on this, let's say, business line was at about 71%. Going to the revenue and the sales by end market, we see clearly that some end market really drew a lot, in particular, Fitness, plus 27%. Vending and Distribution, 130%. About Transportation, 34%, and the Industrial area that includes many industrial company grew up 100%. What have been the key driver of this growth? The first of this, Max has said before is, for sure, an increase in penetration of SECO product in the offer of our -- of many of our some key clients. I give you some example of this. let's say, name that double, let's say, almost double the sales in 1 year. An example is a system as a [ group ] or another example is [ NXO ] that is a really strong transportation producer. More than this, there are a lot of new names in terms of new customers that finished the R&D development part and starting generating revenues in this revenue breakdown. One of these, for example, is [ Datalogic ], another 1 is [indiscernible], that is a really strong industrial producer -- Danish industrial producer. Thank you, Max. Well, going on EBITDA evolution, as I said before, we closed the year at EUR 25.3 million, plus 60%, almost respect to 2021. More important for us, EBITDA margin, 23%. We have an improvement of 160 basis points in EBITDA margin with respect to 2020. How we achieved this operating leverage? Actually, as you have seen, our gross margin has been stable. We could do a little bit better if we do that -- we didn't have the shortage. However, I think that this great performance, instead of gross margin under a shortage environment situation and increasing the EBITDA of 2 percentage points, shows the resiliency of our P&L in difficult market conditions. And in particular, let's say, the expected growth of profitability under normal condition exploiting the operating leverage that, let's say, this year, generated [ in 2 points ] in increase in EBITDA margin and stable gross margin. Thank you, Max. Just the last couple of words regarding our net debt position. We closed our net debt position of EUR 97.5 million obviously in increase respect to 2020. Why? This is mainly due to one important acquisition realized in the year. This has been the acquisition of Garz & Fricke with a cash consideration of about EUR 100 million that has been financed through a dedicated acquisition financing. Moreover this, as you remember, we acquired another company, this Oro Networks in June 2021, obviously, with less important investment. A point that I would like to stress on an important way in this slide, however, is our cash flow from operations. Cash flow from operations increased by 33% 2021 with respect to 2023 -- sorry, 2021 respect to 2020. This is despite an important investment that we have been done in net working capital because consider that in the year, with respect to 2020, we invested [ EUR 15 million ] in net working capital. Why is this? This is due to the shortage situation, because we were obliged to bring materials and components a lot in advance with respect to normal condition in our inventory to assure deliveries, to assure continuous of production. But despite these increasing net working capital and this investment that we made, that we have been able to increase our operating cash flow generation. Thank you, Max, for -- and deliver the speech to you again.

Thank you very much, Lorenzo. So just for be precise, I think the total cash consideration of Garz & Fricke acquisition was EUR 160 million as per a total consideration in the acquisition about EUR 180 million. So thank you very much, Lorenzo, anyway. So let's now discuss about the future. But to understand the future, we needed to understand where the company is going. Well, if we look at the last quarter of the year, we can look on a very superior organic growth. We did EUR 45 million in revenue, and this is important to note the level of EBITDA. The level of EBITDA was above EUR 11 million and over 90% versus the same quarter of the previous year and around 25%, close to 25% of the revenue already. This is important because show, which is the level -- the operative leverage that you can see in the next future, looking the growth that is of the circulatory. And this is the growth -- and this growth is very strong, as you can see from the order backlog. I think that is definitely impressive. And we are growing in a very spectacular way, thanks to a growth into existing customers by adding product and a lot of new customers that are coming. And starting, as Lorenzo mentioned before, finishing the design win phase and entering into mass production. We will see also progressively during the 2022 to -- and 2023, many new customers starting generating additional revenue in a very long-term way. It means that we can expect to have a superior organic growth in the 2022 and ahead. Looking how the backlog is growing by region, well, it's basically growing everywhere. We are looking at another acceleration coming from Fannal, which is the best performer of the group. But we are also noted an acceleration into SECO Northern Europe due to the contribution of the SECO Group to [ DX ], Garz & Fricke business, and also on a very nice acceleration in the U.S. where we are getting a lot of traction in acquiring new customers. Based on this order backlog, we have here the guidance for the first quarter, where we think to be able to growth at the range of 53%, 58% and EUR 41 million and EUR 42 million in revenue. I think we can do something better, yes? Let's see what's happened. We still have, roughly speaking, 9, 10 days of work to deliver it. We are rushing. And anyway, as you know, the first quarter is the quarter where... [Technical Difficulty]

Massimo, I think we may have lost you. Can you hear us, Massimo? I think he's [indiscernible]

Is doing for the entire area. Sorry?

I'm sorry, Massimo, we just lost you for the last 2 minutes.

Really?

Yes, I'm sorry. I don't know if you wanted to just go over the last couple of sentences. It's for everyone's benefit.

All right. I'm so sorry. I don't know why the connection is so [ weird ]. Anyway. I think that it's important to repeat that EUR 41 million, EUR 42 million is the first quarter, above 40% of the revenue of the previous year. Well, if we look at the entire year, we will see, thanks to a strong organic growth and a strong backlog and a very important 2022, we will release a guidance very soon in mid of April, but our expectations are increasing every month. Well, let's talk now about what we are doing in SECO Northern Europe, which was Garz & Fricke. Well, we are accelerating basically our grow path. We are ahead our integration plan already. It will be fully completed by the end of the 2022 when we will go live on SAP, but we already achieved a lot of things that we look at into the due diligence. And actually, the company is performing better than our expectation and better against the business plan that we did during the acquisition process. Also, I would like to stress that we already got around EUR 2 million of synergies cost, and you will see them during the 2022 result. And we will got the rest because we are already working on them, which are relating mainly on purchasing costs mainly due to the integration in between SECO Northern Europe and Fannal, where Fannal will provide them touch display panel. We are also launching the payment system solution, which is Carrefour. We plan to launch it in the third quarter of this year globally. We are finishing all the certification. This is, again, another product that will provide a revenue in a SaaS model, so recurring revenue which are -- and other, piece by piece, we are increasing with the kind of business. And what's next? I think we really are stay into the day 1 of our company. There are a lot of things to do, a lot of things that are coming. We are continuing our strategy that is a unique strategy nowadays in the sector where we are scaling up the value chain with our offering that is an edge -- from the Edge to AI. And with a portion of SaaS business, that will continue to increase year-by-year. My vision is to have a company, by the 2025, well above the EUR 400 million in revenue. And why? Because I think that we can grow medium term at a superior way, well above 25% in the combination of the next 3, 4 years. Plus, we will continue to use the leverage of M&A that, as we see from the past, it is creating a lot of value for our company and for our shareholders as well. We will provide a full year guidance in April, as I said, and the reason why is because we want to look very careful all the KPIs and all the numbers. Bottom line, we are facing in a very interesting acceleration of the organic growth and also, a strong acceleration into the CLEA business in many, many verticals. We started already in Smart Cities, thanks to the agreement with Pizzarotti, where we are working in different areas of collaboration. In vending coffee fitness, we started working with Technology on very much machine and VR. Industrials, with very different and various customers. And Medical with AR, which is one of the most important customers for the group. For all these reasons, we will provide an update on the 2023 clear targets in June where we think to be able, actually, to raise a lot the targets that we already given to the market in the path. Our position, as I said before, is quite unique. And this is the reason why we are accelerating a lot our grow path is because the customers like to have a company that can provide to them all what they need. Not only to have a product on the field that is digitalized, but also having an end-to-end solution that can provide to them output, analyzing their data. In fact, if you look at the competition, you can find many, many competitors on the module. A few many into the capability to offer what we call a system and integrated product with an HMI. And well, a few many -- if you look at company that are able also to get the data from the Edge and put the data into the cloud, which is 1 of the 3 important things that CLEA is doing, but no one except SECO that can offer you the entire solution, an end-to-end solution of working in a very plug-and-play way. That is so important, and it is the reason why this company will be definitely a market leader in the next 2, 3 years. I think another important step of evolution of our business model was achieved very recent with the industrial partnership with Exein. Thanks to it, SECO will start very soon in selling its product, both hardware and software product, with the Exein software solution on top on demand. Meaning that customers that wanted to have the solution of Exein, we can do something around EUR 1 per device per month or something better, if they acquired also the CLEA stack. So if you acquired the Exein solution into CLEA, you can have an advantage in terms of cost. Of course, you can choose to buy only hardware with Exein inside. Well, this is definitely another important step because is going to match a demand that is coming from customers. And in my mind, I think really, we will have a lot of demand of security when you see millions of devices that will be connected with CLEA in the next 2, 3 years... [Technical Difficulty]

Apologies. We seem to have lost Massimo there just for a moment.

Well, you should be able to [ do this ]. Sorry?

I'm sorry, Massimo, we just lost you for a couple of seconds there.

Oh, my God. Okay.

I think it happens. But yes, if you'd like to carry on?

I think more to come in the future because we -- in the short term, we are working into an M&A with a focus on AI, a company that can accelerate further the CLEA go-to-market strategy. We are continuing into the evolution of our business model with a superior organic growth. And well, I think the partnership is a way to accelerate our grow path, and we are working to additional partnership in 2, 3 couple different direction. I think also we are -- we did already a lot of work that we are doing now, the last mile of the work that we need to perform to start to generating revenue with Olivetti that we will expect to reach the first contract from them in this period. And also, we are targeting 2, 3 different options of big business, thanks to the European recovery plan. Again, it could have 3 years of visibility. We are working on it, I will let you as soon we can conclude something. I think, just to close my point and give the space to the questions answer, I would like to say that, well, I think in the 2025, we will have a company with a good portion of revenue already into SaaS due to the software business. I think from the 2025 up to the 2030, well, at that point, we will further evolve our business model because I think at that point, the market will be ready to have also hardware-as-a-service. And I think the long-term strategy is to create a technology company with a SaaS business model for the entire revenue-wise. That's the long-term goal that I have. Thank you very much for your attention. Now, I hand over to the Q&A.

Thank you, Max. We now have an opportunity for questions. [Operator Instructions] The first question today comes from Anna Frontani.

Anna Frontani from Berenberg. I have 2 questions. First, can I ask for a little bit more color on the 500,000 units pipeline for CLEA? How concentrated is that in terms of customers? And if you can provide the split between clients in the early discussion phase and maybe the ones that are actually implementing the solution? And second question on M&A. Can I ask if we should expect more bolt-ons coming through in 2022? And in light of that, how do you think about your balance sheet and deleveraging?

All right. Well, regarding the first question, we have now a lot of customers in the range of 10,000, 20,000 devices per year. On top of it, we are very close with a couple of customers that are well above 100,000 devices per year. So given that, I think 1 of these big customers, we will be able to close it soon. It will be a very big customers into the dollar markets, and where we plan to connect well above 100,000 devices in the next couple of years. And well, on top of it, we have several different customers with several different discussions that we are now in place, and we are literally looking and increasing into this kind of business. Regarding the M&A, we plan to finance the acquisition that we are discussing now, it's small, so we can manage with our balance sheet. We also expect to be able to generate cash during the year in a sufficient level to deleveraging our balance sheet to give us enough space to continue our M&A activities. Since we see that from the past, from the acquisition that we did in the past that actually are giving us a lot of extra value, and also the SECO Northern Europe is starting accelerating a lot. I think we can look also something bigger in the future, and if we find something bigger, we will come back for sure to the market. Why not? It could be an option, a good option to continue to generate value. It's not something that we plan to do in a short term anyway.

Our second question today comes from Lucas [indiscernible]

Congratulations on the results. A few questions for me. So first 1 on the revenue growth and maybe the guidance for Q1 2022. Could you give us a sense of how much percentage growth is coming from the price increases and how much is the underlying unit growth? Because obviously, as we go further into the year, that sort of the pricing element in 2023 will -- by the way, I'm assuming you do not expect the same level of price increases throughout the sort of the medium term. And so the second question on the software revenues. So if you look at -- if we look at pro forma revenues with Garz & Fricke, the software was EUR 7.2 million, which is significantly ahead of any estimates that are out there. Can you comment on what software solutions Garz & Fricke brings? And sort of what do you expect that to grow, let's say, if we were to use the EUR 7.2 million pro forma base into 2022 just for the software bid? And maybe another 1 on the software. You run multiple pilot programs for CLEA with Garz & Fricke customer base and ahead of the IPO, mainly with previously mentioned Technogym. Could you give us some update on how the conversion of those customers that have been piloting the AIs going ahead?

All right. So let's start from the last question. We are doing a lot of discussion with different customers. In the end of the story, the conversion rate is very, very good because all the customers that decide to test CLEA in their application domain, in the end of the story, they decide to use it. So that's incredible. Of course, it's any customer you needed to spend the time with, because you need to put him in a position to actually test CLEA specifically on their application. At that point, you need also to elaborate on the artificial intelligence, creating something customizing for these customers. This is the reason why it's not -- we cannot transform interest into revenue in a second, but as you know, we are adding into industrial space. So with industrial time, we will have 1 year, and in 2023, we will see amazing results coming from software. This is -- was your last question. Can you repeat for me the previous couple of questions, so I can cover them?

Yes. So the first 1 was on the split in the revenue growth for the unit growth and the pricing growth? And second 1, comment sort of on the Technogym progression? And whether commercial terms are sort of agreed or signed, because you mentioned this during your presentation?

Right. I think, first of all, into the split of revenue, you are referring to Garz & Fricke. The biggest contribution from Garz & Fricke at the software level is related to the payment system, KarL4. Well, we are finishing to integrate it into CLEA. We will have it integrated into CLEA by media. At that point, we will start to sell -- upsell, let me say, CLEA to all the German customers that are now using the payment system. It was in the plan from the beginning. Actually, the R&D works is speed up in the -- on time. So we will start to upsell CLEA on these customers starting from June 2022, meaning that we will see the result in the 2023. But it's for sure, we will convert most of them at least, if not all of them, into CLEA by the end of the year. About Technogym, we did a significant progress into the discussion with them. We provided -- and we got already initial contracts on developing motion control, thanks to CLEA, and others -- they like. And basically, the discussion is progressing extremely well. And when we will have additional information, we will for sure release them at the right time. But up to now, what I can say is the discussion is well advanced.

And last very quick one. On your Q1 guidance, how much growth is coming from the unit, so device growth? And how much is coming from the price increases that you sort of put on your customers due to supply chain issue?

I think you should be thinking this way... [Technical Difficulty]

We seem to have lost Massimo. Massimo, can you hear us? Apologies for the technical fault today.

Around, where -- and I don't think we will revert. So I think we can be able to keep it in a long way. Anyway, it's in the range of 8%, 9%, 10%, something like that.

Our other question comes from [ Matteo Bonizzoni ].

I have some questions. First of all, I would like to know if you can provide a pro forma 2021 revenues and EBITDA? I was estimating something in the range of EUR 145 million revenues and EUR 32 million of adjusted EBITDA, just to check if makes sense? The second question is, you have said clearly that you will provide an updated guidance in a few weeks, basically in a few days. I'm just comparing your previous -- your current guidance, let's say, the 1 that you provided when you announced the Garz & Fricke acquisition, with more than EUR 180 million revenues and more than EUR 80 million EBITDA for this year with a backlog increase. Because this -- if I calculate correctly, this guidance implies around 25% growth of revenues on a recurring basis, basically like-for-like, no? But the backlog is currently up more than 2x on a like-for-like basis. So I mean, either we will have a slowdown, a material slowdown of this backlog growth in the next few months or it seems that this EUR 180 million revenue guidance, which you provided, could be outdated or too prudent. Can you comment on that? Then I would like to ask a question as regards the software revenues in 2021, which on a pro forma basis, were EUR 7.4 million. What is the split between nonrecurring engineering, which I think are still the large majority, and recurring fees? And do you have any indication at this stage on the software revenues for 2022? Or also in this case, shall we wait? And then I would like to know -- 2 quick questions. Why is it, it's on the CapEx, which we should expect for 2022? And the other 1 is on the minorities because basically, minorities are absorbing more than 30% of your net profit. I think it's Fannal, but can you confirm? And what is your stake in Fannal directly, indirectly? I think you -- there are large minorities there, just to be able to model properly the estimates going forward. Thanks.

Can you hear me?

Yes.

Yes, we can hear you. Massimo, apologies, you're on mute.

Can you hear?

Yes, we can hear you now. Please go ahead.

Okay. Perfect. So regarding the pro forma basis, yes, it was, roughly speaking, EUR 144 million something in the revenue and something less actually, EUR 32 million in EBITDA, adjusted EBITDA, the 2021. About the guidance, we will provide, as I said, a guidance in April. You should keep in mind that the guidance that we gave to you was a guidance in October. Since October up to now, as you see, the backlog is increasing, the pipeline is increasing, the order intake is increasing, the revenue by month is increasing, so I should expect also the guidance will increase. It's only a matter of magnitude because we want to be careful, but it could be a very interesting money to the guidance that we will provide. And anyway, we will give you a super solid guidance because we are double checking everything 3 times. I don't know -- Matteo, sorry, if you can repeat for me additional question?

Yes, the second question was on your EUR 7.4 million pro forma software revenues in 2021, no? Including the entire year for Garz & Fricke and ORO Networks. Can you provide a split between nonrecurring engineering, which I think were still a large majority, and fees? That's the question, then I would like to know...

I think EUR 5 million are coming from nonrecurring engineering fee, and couple of million from recurring revenue. But as you may know, starting from recurring revenue, you will have recurring revenue later on. So that's a very good point.

Yes. And just 2 final questions, very, very quick. They were on CapEx for 2022. Because it's not easy to project structure, let's say, capital intensity of our business, including intangible CapEx going forward. And the minorities, because we have seen that 30-plus percent of net profit was absorbed by minorities, which I think it's the -- the minority is in Fannal mostly, but can you just comment on that?

Yes. In terms of minorities, we have a 45% of minority in Fannal and 30% in both the 2, the SECO Mind, okay? But just for your knowledge, we have in all the 3 [indiscernible] option to be at 100% at the right time.

[ Matteo ], was that all of your questions?

There was just CapEx that was left unanswered.

Yes. CapEx, maintenance CapEx are in the range of -- you should consider something in the range of 2.5% of the total revenue for the year as per maintenance CapEx. In terms of growth CapEx, you should see something in the range of EUR 3 million, EUR 4 million this year because we are investing into Germany to actually -- in implementing our quality and production -- additional production capability during the years. And in China, because we need to invest over there because the business is growing a lot.

And we just go over to [ Roberto Pondelmari ].

Okay. I have just 3 questions from my side. The first 1 is on the -- just the most recent update on supply chain post this war breakout. Is it making it things worse than before the war, which were already a little bit of a problem? And also in addition to that, on China, are you having any issues related to that, given what we read about with the COVID breakout? That's the first question. The second question is looking at Slide 10 of the presentation, adjusted EBITDA, in the bridge of adjusted EBITDA growth, there is EUR 3.4 million which you call contribution from FX and other nonrecurring items. Can you please expand a little bit on how this breakdown? And in addition to that, can you update us on the amount of capitalized R&D costs you took in 2021 and remind us of the 2020 amount?

Okay. Well, about the supply chain, I think it's important to say that the situation is tough. It's very tough. It was tough in the 2021, and SECO was able to drive in a very consistent way into this situation. 2022 expectation are for a progressive improving into the condition. Was -- is not the case right now, so the situation is tough, still tough. Anyway, we continue to dive into as we did in the past. And regarding the war, actually, the war was -- will create a positive effect into the supply chain because the components that are going into Russia, they are coming back and they are available on the markets. And also, SECO was able to get a bigger stock of important -- very important components a couple of weeks ago due to it, and regarding the COVID situation in China, which from my understanding, is solved right now. But of course, caused a delay into shipment, especially from Shanghai. Okay. Regarding the Slide #10, which I'm going to go there just for the benefit of everyone.

Max, if you want, I got it. Roberto was asking the delta on foreign exchange and nonrecurring items, as you wish.

Yes. We discussed it many times, but go ahead, Lorenzo.

Yes. Thank you. Roberto, let's say, this delta of EUR 3.4 million is the delta between the nonrecurring items of 2020, that was at about EUR 3.1 million, and the nonrecurring items of EUR 6.6 million of this year, 2021, okay? In 2020, the biggest part of nonrecurring item was primarily related to the stock option plan of the actuarial value of the first line of management. For what concern is that the EUR 6.6 million of this year, about EUR 3 million is related to the stock option plan of the first line of management and all the management team. Another part is related to the stock granted that has been given on a freeway to all employees on the IPO. And the rest of the part, the biggest part, is the transaction cost related to the acquisition of Garz & Fricke. So this EUR 3.4 million is different from the amount of nonrecurring items of '21 with respect to '20.

Right. And just to complete there, Roberto, on questions about the capitalization. The capitalization level for SECO is stable, and as I said many times, is in the range of 80% -- 80% of revenue. Please keep in mind that we obtained a couple of million of this year into other revenue that are coming from grants from R&D. Together with the [indiscernible] rules, it should give to all the investors the security that SECO is making a lot of innovation, a lot of R&D even if we are capitalizing only the portion that are related to actually -- to product, standard product, but will continue to generate revenue long term speaking.

Our final question comes from [ Alessandro Tortora ]

First of all, let's say, some follow-up, okay, I would need, if you don't mind. The first 1 is on the last point. You touched on the R&D capitalized. So basically, we can, let's say, think about, as of today, a sustainable level of R&D capitalized at around 80%, as you said? Just a confirmation. The -- I don't know, Max, if you want to go 1 by 1 and then just...

Yes. Yes. One by one is definitely better. So the first question, the answer is yes.

Okay. Perfect. Second point is on, if I have to think about, let's say, the gross margin trend over this year, also because last year, if I remember well, it was like very high in the first quarter. And then, let's say, gradually normalizing. Can you help parse to have an idea also because, if I understood well, you should have a sort of carryover of the price increase, okay, you made in the last quarter also in this first part of the year?

Yes. We should expect to see the gross profit margin increasing into the year, especially in the second half of the year. So our expectation is to have a lower gross profit margin in the first half comparing with the higher gross profit margin in the second part of the year.

Okay. Okay. Then the -- the third question is on Fannal again. I know there is a put and call, let's say, scheme side. Considering the very strong results of Fannal, is it already a good timing maybe to think about purchasing the rest of the minorities?

No. And the reason why, Fannal actually, we have a plan. It was a EUR 2 million company when we have -- EUR 2 million in revenue, really, and 0 EBITDA when we acquired it. Finally, this year, in the 2021, we posted over EUR 12 million in revenue and EBITDA in the range of 24%. Well, I think the plan that we have in Fannal is to be above EUR 20 million in 2022 and to continue to grow. It is going in a very spectacular way, and I think it's not the right time to acquire it because we have the CEO of the company that owned the majority of the stake that we need to buy, and I don't want to demotivate him. Anyway, we are creating a lot of value also for thinking to the future, because we have a 5-year contract of put and call that is -- it is at 8x the EBITDA. So we have a lot of -- this is a very accretive deal when we will execute it.

Okay, and then considering, let's say, I know that the guidance, let's say, you take the guidance you disclosed in the coming weeks. But going, let's say, forward about the medium term. If you think about your vision on 2025, is there a minimum level of, let's say, software sales you have in mind that could be satisfactory for the company percentage, I would say?

Well, software is growing extremely well. Hardware is growing extremely well. So it's really difficult to cover this question in the right way, and I'm not the people that like to give a number in a random way. So it's not the right timing yet because we are growing a lot, and I would prefer to cover it later in 2023 because we will have a lot of things that we need to keep from now to the 2023. At that point, we will be in a very good position to make an assumption. Not now.

Okay, and if I understood well, we should also have, let's say, the update you mentioned before CLEA in June, is it correct?

Absolutely because...

[indiscernible]. Okay please, please. Thanks.

No, no, because we are now in the final mile of discussion with a lot of customers. So I, again, I don't want to comment pipeline. I would prefer to comment contracts.

Okay. Okay. The last question -- sorry, the last, let's say, the last question. But if you can give us, let's say, also an update on Telecom? Because when we discussed about this partnership, clearly, there was a clear pipeline, let's say, year-over-year on Telecom. If you can, let's say, give us also an update on, let's say, this year or maybe just the activation of the project you are making with Telecom?

I think we may have lost Massimo for 1 moment there. Let's see if he comes back.

No, I'm here. Can you hear me?

We can hear you. Please go ahead.

Okay. So the Telecom Italia, as I said before, the partnership is going well, even if it's not producing orders yet. We will see the first orders coming very soon. And I'm not able now to see if we will do the EUR 10 million that was expecting by the partnership this year, maybe less. Anyway, the good news is we got a lot of orders coming through additional new customers that we are getting every quarters, every month literally, so it's not a big issue. Anyway, we will have a very big, important meeting with them in a couple of weeks. At that point, we will have a better vision on the partnership effect. My expectation is to keep the effect as we discussed, and we announced together in the September, only keeping a minor delay into the first year stuff. That should be the outcome. But I will update the market as soon as we will have the meeting with them in a couple of weeks.

Okay. Okay. Last 2 questions, it's really -- Yes, please.

No. And by the way, the KKR offer is something that creates a bit of delays, as you can imagine.

Okay. And the last 2 are just quantitative, let's say, question. The first 1 is on D&A side. If you can, let's say, help us to understand, if in 2022, there will be some PPA amortization impact on your numbers related to Garz & Fricke? And also the tax rate, I see you have a very low tax rate for this year, if you can help parse to have an idea on tax rate also?

This is a question for Lorenzo. Lorenzo, if you can.

Yes. Yes. Thank you, Max. [ Alessandro ], for what concerned the PPA of Garz & Fricke, we had more or less a consolidation difference of about EUR 157 million to be allocated. EUR 24 million has been allocated to the customer list, okay? Gross customer list was valued EUR 33 million, okay? And this EUR 33 million will be amortized during a period of 25 years, okay? We calculated then deferred tax liabilities over this EUR 33 million of 30% that is the average tax rate of under German tax law, okay? And so for the next year, you can imagine that we need to accrue amortization and to release the taxes along this period. This is for what concerns PPA. Sorry, if you can repeat me the other question? It was about tax rates?

Yes, the level of tax rate for this year, considering, yes, what you got in 2021.

Yes. For what concerns that tax rate we have, this year, a really good tax rate. I think for main 3 points, okay? The first point, as you know, is, for sure, all of the costs related to the IPO that can be, let's say, capitalized in the shareholder equity. However, all these costs are deductible from the tax base. The other point is that we estimate this year, for the first year, the Italian tax consolidation rule, and we gain a benefit of about EUR 400,000 from tax consolidation, okay? And last point is, for sure, all nonrecurring items related to the transaction cost of Garz & Fricke, okay? So considering that for the next year, if in the case, we will not have, let's say, extraordinary operation like capital market or M&A, for sure, the tax rate will come back to a normal level. So it will increase respect to this year that, as you see, has been further below the 20%.

Okay. Sorry, Lorenzo, so I didn't get it. For this year 2022, the expectation is for a level of, let's say, considering...

Yes, for this year, if we will be in the case not to have extraordinary operation, the tax rate will increase above 20%. While, if we will have it, I will be able to manage it below 20%. I think something below 25%, considering the benefit that I'm having from the Italian tax consolidation rule and the growth in Italian entities.

Okay. Thank you. Thank you very much. It was a very long and productive call. Thank you to all the participants. If you have a further any question, don't hesitate to drop down an e-mail to Marco Parisi. See you soon. Bye-bye.

Thank you, everyone, for joining today. This presentation will now come to a close. Thank you.

Thank you. Bye.

Bye.