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

So good afternoon, and many thanks for all those who have connected to this call. Today, as usual, our CEO, Max will take you through the main updates in our business. And before that, our CFO, Lorenzo will run you through a detailed analysis of our financial performance. But let me start with the snapshot of our Q3 numbers. There are 3 messages we want to convey today. First, our top line, which recorded another acceleration in growth compared to the same period last year. Second, our continuous margin KPI progression with both gross margin and EBITDA reaching their best levels in 2 years. And third, our guidance for the end of the year, which we are in a position to reconfirm both on top line and gross profit. To complete this picture, we also wanted to reiterate some of the key milestones we achieved in the past 3 months. On the business side, this includes the launch of our first joint product with RaspberryPi, the Pi Vision based on the latest CM5 chip. We also launched our Clea Vend telemetry platform, consolidating our historical leadership in that vertical. And more broadly, our Application Hub continues to fill with a growing number of algorithm, on track to reach our target of over 150 dedicated solutions by early next year. Let me now hand over to our CFO, Lorenzo, for a more in-depth look in our numbers.

Thank you, Clarence, and good afternoon to all. Let's take a look to the key financial highlights on the 9 months 2025 KPIs. We are up 5% year-on-year on sales with a plus 9% in Q3 '25 with respect to Q3 '24. Increasing from the plus 6.5% of the second quarter of '25, respect to the second quarter '24. The growth is coming from all main markets, under recovery on 2024 overstocking context with the exception of Germany, which signs a minus 30% year-on-year. Software business is growing for the recurring revenue part, a plus 11%, driven by the progressive increase of the connected devices to the platform. For what concern, gross profit margin, really good performance is recorded in Q3; 25 with a 55 percentage profitability. This thanks to multiple factors: the contribution of software sales, a positive sales mix in edge computing on profitability terms and good purchasing results on electronic components. But most important for us is the EBITDA indicator. We are plus 50%, 5-0, year-on-year with a 22 percentage EBITDA margin recorded in Q3 '25. Key driver of this result is the operating leverage over decreasing OpEx, thanks to lower manufacturing costs recorded quarter-by-quarter during this year. Adjusted net income increased by about EUR 10 million year-on-year, primarily as a result of the EBITDA performance. I want to point out the reduction of interest expenses in the period by EUR 600,000, thanks to the progressive deleverage and to the [ official rate ] reduction. Passing to commenting the sales trend by area. It's important to point out that year-on-year, all key geographic areas grew at more than 20%. The only exception is Germany featured by a difficult economics and industrial context, which registered a minus 30%. Please consider that even EMEA, excluding Germany recorded a growth higher than 20%. Having a look to the end market, our key verticals experienced a double-digit growth, Industrial and Medical, in particular. The only exception is Vending, impacting by the destocking matter over a German customer. Let's pass to the adjusted EBITDA performance in the 9 months of 2025. We recorded that 21% in profitability terms with a really strong 22.2% in Q3 '25. Other than sales and gross margin, the main driver of these results is the EUR 4.6 million OpEx reduction, this excluding nonrecurring items. The other contributor to this achievement is the production efficiency consider that manufacturing costs decreased by EUR 2 million compared to the same period of 2024. For what concern, the nonrecurring adjustments in these 9 months are almost all represented by the stock option actuarial value. For what concern instead net financial position, in the third quarter, the group had a cash generation of EUR 2 million, adjusting the KPI, but the growth investment of the 2 new plants in Arezzo and China for a total consideration of EUR 3 million paid in Q3 '25. On financial side, I want to point out that the good leverage ratio just above 1x EBITDA calculated on the last 12 months. Thank you very much for your attention. I pass the talk to Max to continue with our presentation.

Thanks, Lorenzo, and good afternoon to everyone. Now let me spend some time discussing our business and its prospects going forward. As you know, we are standing at the crossroads of technology revolution. Artificial intelligence is transforming the industrial sector, unlocking new ways to operate, optimize and scale business. Whatever is smart automation immersive human-machine interaction and real-time data monetization. All these are enabling faster, smarter decision and driving a dramatic transformation into the industrial field. But despite this potential is a matter of fact that the adoption of the AI in the B2B nowadays remain slow. Why? Because OEM faced a fragmented tech stack, a poor interoperability in the complex stakeholder coordination, legacy system only the added to the challenge. That's why the winners in this space want to just offer powerful technology, they will radically simplify its adoption. And this is where I think Seco will mark a significant difference. And this is our mission to really become the better partner to simplify the usage of the AI at the edge. Through the years, my vision for Seco has been to offer a fully integrated end-to-end solution. Now we are really there. Everything is ready, and I think thanks to it, we can really simplify and accelerate the adoption of edge AI for the OEM. In fact, with our Modular Vision HMI system and our own stack software framework, Clea, together we will -- all the recent launch of our dedicated AI algorithms Hub store. They will really offer an end-to-end solution, ready to be implemented into the OEM and solution and product. So this is where our [ strategy ] in R&D will mark a significant differentiation factor between ourselves and the rest of the competition. And thanks to our decade of expertise, we bring now verticals know-how, interconnected solution, enabling new business model to accelerate further the growth of the recurrent part of our software business. So if we go to the next slide, here, we prepared some example to make it simpler in terms of comprehension for everyone. This is divided and we will see it in 3 different kind of vertical, but you can imagine something similar, of course, for any vertical. This is where our capability to digitalize the product of the client, both on the hardware and on the software side, really make a huge difference also in terms of user experience. So the picture is extremely clear. I don't want to say too much else. Just everything that you can see here is digital payment, tailored refilling, dynamic pricing, predictive maintenance, all this kind of value-added service unlocked [ tends ] to our software suite, Clea. If we go to the next slide, we can see, in fact, how the vertical for the vending space Clea Vend is working. And this is an example of how our platform, which is hardware-agnostic works and really provide smart data and AI analytics ready to be used and leveraged by our customers. Moving forward, I think this is another good example, taking it as a reference example for any kind of industrial factories. Here, you can see how we -- for Galbusera's, which is an Italian producer. We really simplify their production line, combining Modular Vision with Clea being able to directly showing on the production line, a lot of essential KPI, quality, production, so on and so forth to really help the customer to increase efficiencies as well as production numbers. Another strong example on the energy is, of course, what we are doing with Hitachi Energy, where basically we combine, again, our strong expertise on the hardware part producing for them -- designing and producing for them an integrated grid computer to manage the distribution of the energies across the second station as well as integrating all the data [ within ] Clea. This is providing an unparallel solution to really help the customer to manage a lot of complexity and a lot of interaction between [ themselves ] and all their business partner. So I think looking this as such an example and thinking about what we are doing into the Application Hub. You can really understand which is the potential, which is completely and expressed right now of our software offering. As we go, we are continuing adding new application made by Seco and also by partners to our Application Hub, which will be launched later in the beginning of January '26. And it will lock another piece of complexity providing the capability to the customer to really implement AI on a device very quickly and in a super simple user-friendly way. All in all, all of these such solutions are always hardware-agnostic. And this is important to be able to cover also from a software prospective customers that are not using Seco hardware eventually. So finally, let me introduce our launch on the RaspberryPi Modular Vision. This is an amazing new product, low cost, to cover the industrial demand. We will start to sell it during the first quarter of the next year. And of course, we are expecting to have an acceleration of our organic growth thanks to this one, this product, which is, by the way, 1 of a family of new products that we are launching right now, and we will expect to receive orders and therefore, revenue in the forthcoming quarter. This is important also to mention in this product, it's available, Clea. So the framework is already [ pre-styled ], potentially available with a few click for any customer. So let me go into the investments that we are doing into the production side. In this picture, you can see the new facility, which is located near by Arezzo, our headquarter, at 3,500 square meter, very new building that will be up and running by the beginning of the second quarter next year and will increase our production capacity by 50%, and we'll provide those additional savings in terms of cost, reaching efficiencies at the maximum level. I think we can go now to the KPI of the company. We have a solid KPI. I think this is kind of KPI are really helpful to understand also which could be eventually the future of our growth. Looking the backlog and the order intake, you can appreciate, but it is up by 10% year-on-year already. And our book-to-bill continue to be healthy and all this key indicators are really confirming the good trend and the -- of growth that we can keep in the near future. Just to conclude my speech and leave space for a Q&A section. I want to reiterate and fully confirm our guidance, which is set at EUR 200 million plus in a constant currencies FX. I think we cover all the main topics of this publication, and I'm now happy to take some questions, if any. Thank you very much to all.

[Operator Instructions] First question today comes from Mr. Marco Vitale.

The first 1 is on the outlook. We appreciate that you have confirmed your full year guidance. I was wondering if you could provide us some additional insights on the order intake trend? Also, what are the business pipeline as we are heading to 2026? The second question concerns the profitability. Once again, you have delivered very strong operating leverage and also very healthy gross profit margin. Going forward, do you still expect, say, additional margin expansion coming from operating leverage? Also, take into account that you will ramp up the new capacity -- the new plant in Arezzo also in the first part of the year. So I was wondering if this could have some, say, headwind in terms of profitability expansion going forward?

Thank you. So about the revenue, we are expecting to -- the last quarter of this year, very strong with our revenue well above EUR 50 million. It will drive us into a lending figures which is fully confirmed, which is reflect and beat potentially the guidance. I think all the orders are already there. It's a matter of execution. We are executing well right now. So I have no doubt that this part will be covered by the end of the year. In terms of profitability, the good trend that we are having, I would expect it to continue because, in some ways, structure in terms of business model. As we go, we will continue to increase piece-by-piece proportionally on the revenue side that is coming from the software. And it will provide us additional headroom to improve our profitability. As well as the new building, I would assume to see it fully working by some times in May next year, it will drive in the second half of the year, of course, efficiencies and saw a reduction in terms of our production costs.

Next question today comes from Mr. [ Filippo Mazzoleni ].

I have a couple of questions. The first 1 regarding CapEx, out of the EUR 33 million one-off plan, could you please share the split between tangible and intangible and indicate when the remaining EUR 7 million is expected to be spent? I mean, in the second quarter 2025 or the first quarter 2026 or later? And secondly, on gross profit, could you give a bit more color on the business mix driving the margin improvement and on the savings achieved on purchasing?

Right. I will cover the 1 on the gross profit, and we'll let Lorenzo to cover the 1 on the CapEx. On the gross profit side is splitted between a mix of 3 positive factors. One, as I said, is the software. The other 1 is because we are able now to buy components at a better price without reducing the price to the customer, and this is giving us an additional headwind. And the last [ battle locally ] is, of course, due to a mix in the sales were medical and defense are more present against, for example, industrial or vending. And those 2 verticals, of course, provide us definitely a better margin than the others. So as a mix of the 3 is due to the -- this such results in the gross profit. The bottom line, I think, a good portion of it is long-term sustainable.

Yes. So thank you, Max. So having a look to the CapEx for these first 9 months 2025 and the split between tangible and tangible, we recorded about EUR 12 million in intangible CapEx on which, as you know, the biggest part is represented by the R&D capitalized over standard product. The residual part is tangible CapEx, and on this residual part, EUR 3 million are represented by development extraordinary CapEx relating to this new plant we are developing in Arezzo and China. For sure, the plant in Arezzo is pretty much bigger respect to the 1 of China. So the bigger part is relating of this EUR 3 million to the new plant in Arezzo.

The next question comes from Ms. Arianna Terazzi.

Yes, can you hear me?

Yes, we can indeed.

Presentation, Max. First, I would ask a clarification and expansionary CapEx. The plant in Arezzo will be ready next April. But when you -- but could you recall us when this production site and the new lines in China will be at full regime. And to avoid misunderstanding, is it possible to know what revenue level can we assume when at regime? And lastly, and second and last, a follow-up on profitability and cost. So far this year, you were able to manage well components purchase. But I was wondering if you could provide more color on this front and an update on cost dynamics?

All right. So about the production capacity, we basically -- we will close our production facility in Tregozzano, which is another place nearby Arezzo as well, and we will start in mass production, basically 100% of activities in May into this new plant, which is again nearby Arezzo. And we will add starting from January also an assembly factory in China. Thanks to these 2 adoption, we have enough production capacity to product internally around EUR 350 million in revenue. So we thought it was good for our company to make these investments now to prepare ourselves for the next 3, 5 years where we see a potential very strong growth and to make these investments right on time, it's important to be ready to capture the grow later as it will come. In terms of gross profit margin, mainly our capability to [ strategize ] their relationship with the key silicon vendors, which are partners of Seco like Qualcomm, Intel, NXP, and many others is providing us also the capability to buy components, CPU processor at a lower price or let me say, at 1 of the best price available to the market. It is giving us a competitive advantage in terms of pricing. And of course, headroom where we are improving our gross margin on the existing customers. I don't know if it is enough, Arianna, or do you want more?

Thanks, very clear.

The next question comes from Mr. Bharath Nagaraj.

I have a few, please. One is just a follow-up on the net new capacity. Sorry, I think you said you're shutting down, if I'm not wrong, 1 of the old factories. And this -- the new 1 that you're building will take its place and you start production from May. So in terms of the net new capacity increase, what would that be? Is that 50% still? Or is that lesser than that? That's the first question. And second 1 is around -- could you speak about any looming supply chain risk, for example, this Nexperia export ban, which seems to have now been lifted and also higher memory prices in the industry. How diversified is Seco in terms of the supply chain? And the last one, just a further clarification on the CapEx, should we kind of assume -- we have EUR 20 million approximately of CapEx currently for 2025, 2026 each year, should we just increase EUR 5 million for each year for the new capacity that you're trying to build? Just wanted to make sure that I get that right.