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

So good afternoon, everyone, and thank you very much for joining us today for what should be a very exciting earnings call. As usual, our CEO, Max Mauri, will share with you a detailed update on our business. And before that, Lorenzo Mazzini, our CFO, will cover the key items of our financial results. First, let me briefly take you through the key takeaways from the past six months. Our operating performance reflects yet another period of solid execution and progress for our company. In the first six months of the year, net sales reached EUR 98.4 million, an increase of 3% year-on-year. Notably, the second quarter alone delivered EUR 51.2 million of revenues, above our guidance and a sequential 9% increase over Q1. Clea revenues stood at EUR 12 million, contributing 12% to our overall top line. Our gross profit margin improved year-on-year to 53.4%, remaining well above our guidance. And our adjusted EBITDA reached EUR 20.1 million, steadily maintaining a margin above 20%. As we maintained a strong focus on working capital efficiency and cash generation, we closed June with a stable net debt position just north of EUR 50 million. On the innovation and launch pipeline, we have also made important strides. Clea 2.0 represents a major upgrade to our embedded operating system, becoming a key part of our software framework. We have also launched our Application Hub, a new digital marketplace designed to accelerate the deployment of AI Edge applications and our developer center, a centralized portal to simplify access to products and service documentation. Looking ahead, we remain on track to deliver on our full year guidance. We expect to exceed EUR 200 million in revenues at constant FX, while maintaining a profitable growth with gross margins above 50%. Let me now hand over to Lorenzo to review these numbers in detail.

Thank you, Clarence, and good afternoon to all. On this page, you can see the key highlights on first half 2025 financial KPIs. Starting with net sales, we closed the semester up 3 percentage compared to first half of 2024. But consider that excluding the German region, featured by a lower recovery on the 2024 overstocking market context, the growth registered was up 40%, 4-0. The positive note is that starting from this quarter, we are seeing the first sign of recovery of that region, so German too. Software revenues contributing 12 percentage of the total revenues with an increase by 6 percentage for the recurring portion versus the first half of 2024. For what concern a gross profit margin, a strong performance far above 20% were registered, thanks to the contribution of software sales and a positive sales mix in profitability terms. Really important for us is the EBITDA margin performance recorded in the second quarter of 2025 with a 21 percentage results, which brings the EBITDA margin in the semester at 20.5 percentage, plus 4 percentage points and 27 percentage year-on-year in growth compared to the first half 2020 EBITDA results. The key driver for this performance was the reduction by EUR 2.5 million of OpEx respect to the first half of 2024 and this despite higher sales. This reduction was mainly possible due to a lower use of outsources and so an increase of in-house production. For what concern adjusted net income, we featured by an important increase compared to the first half 2024, primarily as a result of the EBITDA performance. However, I want to point out the reduction of interest expenses in the period by EUR 0.2 million. Financial income decreased in the period compared to the first half 2024 by EUR 1 million due to the dividend distribution of our controlled company final executed in the same period of 2024, so an extraordinary item. Passing to comment the sales breakdown, it's important to point out the significant recovery and expansion after the destocking context of all geographical areas, recording year-on-year growth by more than 20 percentage in all markets with the exception of Germany. However, as I highlighted before, the first sign of rebound is now also coming in the German market. On the software part of the business, the important item is the increase of recurring revenue from 32 percentage up to 37 percentage of total software revenues in the first half of '25 with respect to the first half of 2024. Passing to EBITDA, adjusted EBITDA performance in the first half of 2025, we recorded a 20.5 percentage in profitability terms with a strong 21 percentage in Q2 2025. Other than sales and [ GM ] and gross margin, the main driver of this result is, for sure, the fact that we were able to reduce outsourcing expenses for external manufacturing by EUR 1.6 million with stable direct production personnel costs. This brings the group to an important exploitation of operating leverage and getting back on a strong profitability result. On adjustment, results are almost all represented by stock option actuarial value. For what concerns net financial position, this increase in the half respect to 2024 year-end by EUR 9 million, primarily explained by the increase in trade receivables. This growth is driven by the rise of sales and by a sales mix effect over payment terms across the different geographies. The first half of 2025 closed with a really good leverage ratio, which is standing to reach 1x EBITDA. Thank you very much for your kind attention. I pass the call to Max to continue with our presentation.

Many thanks, Lorenzo, and for your presentation, and hi to all. Now let me focus on our business and the key milestone we have achieved so far this year. I want to insist on three pillars to illustrate the strength of our performance. First, our financial. A lot has been already covered, but it's important to realize that our second quarter is the best quarter we had in over two years. And that this result has been achieved without compromising on our margin, which continue to improve both at the gross and at EBITDA level, showing a very robust business model. Second is our pipeline. Client interaction is as strong as it has been ever with both order intake and design win at all-time high. Third, the record number of strategic products we delivered during the last six months is really impressive and is really driving our innovation together with our long-standing partner, paving the way for an exciting future. As such, Seco is consolidating its position as a top player in the digital transformation market. This has been years in making, but the piece are now all coming together. The key driver is, of course, the Edge AI that we are able to deliver to the customers, thanks to our end-to-end solution and thanks to our unique value proposition, mixing together our long-term expertise on the hardware, all the Clea framework together with all the AI that we are capable to deliver, thanks to our applications -- apps and our developer center. So in fact, integration of AI at the Edge will be a huge driver for the coming years. And this is where our end-to-end strategy will make and is starting to make a real difference versus competition. Clients work with us because they recognize our unique ability to reduce complexity and speed up AI adoption, shortening their time to market. We also know we have a modular offering able to integrate hardware, display and software altogether. I think all in all, this is really a strategy where we will continue in the future to unlock a significant value for our shareholders. Now let me illustrate how these three bricks come together from a successful go-to-market strategy, starting with the hardware. Here, you can see the modular vision. We already discussed it before the summer, but I want to reemphasize the fact that this is a modular solution that can cover for 7-inch to 21-inch all of the requests into the HMI market. It gives to the customers really a strong flexibility that they need on both the dimension as well as the computing power with the latest chip technology available, dramatically cutting their time to market. For us, this is a scalable offering, which build on all our expertise and has the potential to further drive both revenue and margin. This is also a perfect platform for Seco to monetize its software framework Clea and push it into the new phase of growth. This revolutionary piece of hardware has been designed to leverage on the unique ecosystem of partners we have grown over the years. Today, they are all on board to support the rollout of the modular vision. The truth is and we all have-- interest in a faster and broader adoption of AI at the Edge. And this is why from Intel to NXP, Qualcomm, Raspberry Pi and the others, all of them are really coming together to find ourselves at the center of a real step change in the way our OEMs think about their AI strategy. And I will show you in a minute, this partner are also the key to bring new customers and accelerate our growth path in the near future. So this integrated offering really come together with the launch of both the Application Hub and the Developer Center. These are two key milestones for our Clea framework, which have been announced in the recent week. The Application Hub is designed to work as our marketplace on which OEMs can buy and deploy ready-to-use software and AI algorithms specific to their needs. The Developer Center is on the other hand, our centralized portal to streamline access to our product and with all the technical resources and service documentation available for all our ecosystem. Together, these two pillars aim at to simplify the development and the management of the entire our digital service offering. And this will be a significant driver of our Clea revenue going forward. So how does all that translate into value for our stakeholders? So first of all, let me confirm once again that our business is back on track, enjoying significant momentum and that our order backlog has been at all-time high as well as the order intake in the past six months. This is visible from the KPI shown on this slide. But behind that, I can confirm it personally from conversation that I'm having with our largest customer. And this is why at this point in the year, we are able to confirm our full year revenue guidance above EUR 200 million at the constant FX. This will be a significant achievement for our company going back to deliver a strong profitable growth and putting the slowdown due to OEM destocking well behind us. This result will also be one of the best in the company long history and will mark the beginning of a new chapter of our growth. A growth that will be drive by a more diversified client base and from a broader mix of solution, both at the hardware and at in the software side. And it will be important to fuel our margin improvement as well. To that end, I want to start giving you some insight into the pipeline we have built for the 2026. As of today, we have already identified and secured over EUR 20 million of additional revenue won with both new customers and from new projects with existing clients. This is a significant number, and this is a business volume which represents a great achievement from all the team. Some of this projects will allow us to enter into new verticals like energy, for example, or water pump. In another end, also, it will allow us to strengthen our leadership into other markets where we are already well present. We will continue to diversify our top line across a greater number of geographies. Looking at some of this design win in details, you can appreciate that this means for Seco going forward. Let me give you a couple of example. On the top of this page, you see that one of the largest projects we have won, it's with a new client, a major player located in APAC. We will supply them with a display for a new digital cockpit in their new generation of motorcycle, basically an energy motorcycle and this will be really an innovative solution for us. Another important milestone is that we won a project with an existing customer in Europe on the oil and gas vertical. From them, we have designed a unique solution for a real-time methane leak detection system, which is based on Clea. This has put us at the forefront of the innovation in this sector, and we are expecting to see revenue coming from this one already in 2026, but it can potentially grow much more in the '27 and going forward. So I think as a conclusion of this presentation, I really think that we are fully satisfied about the momentum of our company, and we're looking forward to continue to execute in line and beating the guidance quarter-by-quarter and to continue to increase the visibility and the profitability of our business. So thank you very much for your attention. We are now happy to take some questions, if any.

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

Marco Vitale from Mediobanca. Two questions from my side. The first one if you can provide us some additional comments regarding the business pipeline for the rest of the year also 2026, should we expect still a progressive acceleration in organic growth throughout the third and fourth quarter of the year or something more linear going forward? And also [indiscernible] spend a few additional words on the business pipeline that you were referring to the previous [ slide on 2026 ]. The second question is on profitability. You noted that the gross profit margin remains firmly above 50% threshold. Should we expect the say favorable business mix driven by Clea to support the faster gross profit margin expansion? Or should we expect at this point, the bulk of margin expansion to come from operating leverage consider a very strong level achieved for the margin? And final question is more general capital allocation. Now that it looks like that business recovery is well -- is proceeding well in line with your expectation, should we expect the focus to remain on organic growth? Or do you see room for starting some M&A talks for [ 2026 ]?

Marco, thank you for your questions. So first of all, your voice was not perfect. So I try to reply to your questions. So starting from the last one in terms of capital allocation, we are fully concentrated on our organic growth, even if we still have a good pipeline of potential M&A. So I do not expect to see nothing on this by the end of this year, but potentially next year could be an year where we could come back on the M&A side as well. So on the margin side, I think profitability in terms of gross profit margin will be stable during the two remaining quarter. I think price of the memory are going significantly up and it could affect a bit our gross profit margin even if we are expecting to balance, it also makes sense, thanks to very good operational level and as well as cost control. In terms of growth, I confirm we will see an acceleration of the growth during the second part of the year as we confirmed our future guidance just released earlier this morning. So thank you very much again for your questions.

Our next question today comes from Arianna Terazzi.

Max, during your speech, you mentioned lower external production, maybe it was mentioned by Lorenzo. Can you elaborate a bit on this and on your production capacity and spare capacity level? And then second and last question from my side is on Clea. Where do you expect the weighting on net sales to land in the current and next year, considering the software revenue cycle, the shift towards recurring revenues and also the business pipeline you mentioned?

So first of all, on the software side, the software part is continued to grow, and I'm expecting to see it continuing during the second half of the year. It's too early to speak about the 2026 even if we already secured also on the software side, they didn't be present in our presentation, but we already secured a couple of very good and big design win also on the software side and more to come. But it's too early to say where we will be in the 2026. It's a growing path for sure. How fast it could be, we will see later. On the cost side, I think we are increasing our internal production capacity as we announced also one year ago. And it will be progressively increased also between the end of this year and the very beginning of the next year, adding potentially another EUR 120 million at the gross revenue to be made all internally. And it will squeeze also going forward our OpEx with a very positive contribution at the operating leverage at the EBITDA level.

Our next question now comes from Bharath Nagaraj.