Tinexta S.p.A. (TNXT) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Tinexta Group consolidated results at June 30, 2022 conference call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Josef Mastragostino, Chief Investor Relations Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, and good morning to the folks in the U.S. Thank you for joining Tinexta's first half 2022 results presentation. Here with me today, Oddone Pozzi, Group Chief Financial Officer of Tinexta. As a reminder all the relevant documentation of the first H 2022 results can be downloaded from our company website in the Investor Relations section. For the purpose of this call, I will go over the first H 2022 highlights and updates. Oddone then will go over the first H 2022 financial results as well as the business units performance, providing us with a deep dive. The last part of the call will be dedicated to Q&A. A recording of this conference call will also be available on the company website, and it will be posted upon completion of this call. At this point, I will kick it off by turning to Page 3 of the presentation. 1H 2022 registered a good set of results, setting the pace for delivery. Please note that in order to allow us to complete analysis possible throughout the presentation, first H 2022 June results are compared both on a like-for-like base as well as on June 2022 base, which includes all of Tinexta's companies in addition to the newly acquired ones. Also, we must say that, as we had mentioned during the last conference call, the financial comparison data has been restated, taking into account the disposal of the Credit Information & Management division and emphasizing the results on a continuing operation base. This, in other words, means that a more meaningful like-for-like base comparison has been carried out between the years 2022 and 2021. On the P&L for instance, you will find a line item highlighting at the -- at net income level, the result of discontinued operations. So turning to revenues. Revenues came in EUR 168 million in the first half of '22, posting a healthy plus 20% versus prior year. EBITDA adjusted came in at EUR 37.1 million in the first half of '22, posting a near 21% increase versus prior year, mainly driven by Digital Trust and Innovation & Marketing Services. EBITDA was EUR 32.6 million in the first half. EBITDA adjusted margin was 22%, mostly in line with prior year. EBITDA margin was 19%. EBIT was EUR 19 million, and EBIT margin was around 11%. Net profit of continuing operations, which is the most ready and available performance indicator, was EUR 13 million, posting a very healthy plus 22.3% versus prior year. The net profit was EUR 16.6 million. Net financial position came in at EUR 266.7 million and includes all the recent M&A operations, but not the proceeds from the sale of Credit Information Management. Free cash flow of continuing operations was EUR 16.1 million and this number includes nonrecurring taxes and costs as well as greater investments. On an LTM base, free cash flow of continuing operations was EUR 45 million. All business lines continue to grow again in the first half of '22. Digital Trust grew 21% of revenues. EBITDA grew much more at around 35% versus prior year. Cybersecurity grew 6% in revenue. And EBITDA in at around EUR 3 million with posting a margin around 8%. Innovation & Marketing Services posted a very strong plus 32%, 33% in revenue, with EBITDA rising close to 17% and a margin of 36%. Then following, we have the recent events and updates. As you all know, yesterday we signed the closing for the sale of Innolva to CRIF for an equity value of EUR 170.1 million, gross for Forvalue's incorporation into Warrant Hub. We also gave some nice sensitivity on total net cash effect on the NFP, which will be around EUR 228.8 million and improve the estimated financial position of RE Valuta. Oddone will go into the details, more update during the presentation. In terms of the recent events, we also had Plannet, which was a recent acquisition under Innovation & Marketing Services. This was for a total enterprise value of EUR 6.5 million, fully paid in cash plus an earn-out on 2024 results. We also highlighted a partnership between InfoCert and CRIF, which we'll talk about in a second. From a human resources standpoint, as of June 30, 2022, the group employed around 2,200 employees, which excludes Credit Information Management. Going to Page 4, we are highlighting some of the most recent acquisitions. As you all know, Enhancers, for example, was signed back in March 16 -- 16th of March '22. More recently, we acquired Plannet in June -- on June 21 of this year. The most important takeaway from this slide is that we are creating additional manufacturing pole, which basically are able to provide to our clients a one-stop shop, which is obviously a very important aspect of Innovation & Marketing Services business. Today, we offer them consultancy, we offer them the opportunity to actually [indiscernible] the actual consultancy services to [indiscernible] of Innovation & Marketing Services. Going to Page 5, we are highlighting a very interesting partnership that we did between InfoCert and CRIF. We have been vocal about this and we signed the actual -- the partnership with CRIF and said that industry, obviously, offer information. And we would also envision some partnerships, and here we are, we delivered a partnership between InfoCert, which first Certification Authority in the EU, together with CRIF, which is, as you all know, a leading company in KYC services. And the reason of the partnership focused on the launch of an integrated onboarding and Know Your Client platform in the financial services sector. More recently, on the 1st of August, so just a couple of days ago, even though it was not material in size, we also announced the acquisition from Tinexta Cyber, particularly from Corvallis, a few smaller companies, namely, Lan & Wan Solutions as well as Teknesi. Both of these are, as we always mention, part of the mobile acquisitions of the Cybersecurity division. Now let us go to Page 7, where our Oddone will describe in detail the transactions of the closing of Innolva, which was signed yesterday.

Absolutely. So yesterday, we performed the third step of the of sale our Business Information division. The deal was that we sold the 100% of Innolva, 75% by Tinexta, 25% by Intesa San Paolo. The net proceeds from the deal of Tinexta was EUR 170 million. This is, indeed, the first step of deal. In the meantime, basically before the deal, Tinexta, basically, Innolva sold Forvalue to Warrant Hub that will be since now the company that will hold the Forvalue business. We, as mentioned, the reason, the will to continue the partnership between Banca Intesa and Tinexta. And we do expect reasonably that, that could be the opportunity to have an investment of Banca Intesa in Warrant Hub in order to continue the partnership where Forvalue is now allocated. So to make it simple, when we let completed the full deal of the sale of Credit Information Management as well as the move of Forvalue from Innolva to Warrant as well as the potential investment, Intesa. The net positive impact on the net financial position of the group is expected to be in the range of [ EUR 230 million ]. So the [indiscernible] EUR 170 million of the sale of Innolva has been performed, then we do expect, as already shared with the market, that 95% of the sale of RE Valuta could bring to the group around EUR 52 million, including the net financial position of RE Valuta. Obviously, the group got the acquisition from Innolva to Warrant for EUR 48 million of the sale of Forvalue. And then we do expect a potential investment of Banca Intesa that could be in the range of equal to the Intesa [indiscernible]. So this should all together could generate at the end of the process a net improvement of the net financial position of the group in the range of [ EUR 230 million ]. I will be available later on during the presentation if additional information will be needed. If we move to Page 7 (sic) [ Page 8 ], basically you can see here what happened during Q1, as anticipated by [indiscernible]. So overall, if you look at the results the first half, basically we had all the key main indicators where we have performed in excess of 20%, in revenue, in EBITDA adjusted as well as in net profit of the continuing operations. So we see this as [indiscernible] semester, that is helping us to lead for a bright future for the second part of the year. All indicators are basically overperforming the previous year performance. If we move to Page 9, we can go on to the P&L to basically -- sorry, we can go to the P&L where basically you see here the revenue growth, which is 20%, where most part of the growth in basically for the Digital Trust is around 21% and IMS growing by 33%. Cybersecurity group, by percentage, is not far from the market [indiscernible]. The EBITDA adjusted grew by basically 20.6% with an EBITDA margin of 22.1% compared to 20% of last year. So we continue to improve our performance year-on-year, a slight improvement also at the EBITDA margin. Group EBITDA grew at a lower pace because we changed the [indiscernible] enabling the M&A activity. Depreciation, amortization, still at the [indiscernible] of us declining from 8.7% to 8.1%. And we include, obviously, also the amortization driven by the PPA on both years. In terms of financial charges, we have to check between impact of the new valuation of amounts related to basically the quality that affected the result in the range EUR 0.6 million to EUR 0.7 million. The rest of the financial charges is just EUR 100,000 above previous year. This [indiscernible] basically we implemented coverage of our financing. So basically 88% of our financing is covered and therefore, we were able to lean to it in a very strong way the change of the interest rate. In terms of the income tax, if you see compared to previous year in net profit of continuing operations, a strong decline because we applied to the [indiscernible] that basically to improve our tax impact for the semester, so was impacted in a positive way for EUR 2.7 million. Therefore, as discontinued operations seems to decline at a significant, but in reality, the result was positively affected again by the [indiscernible]. On a comparable basis, the decline was from EUR 4.1 million to EUR 3.3 million in terms of net profit. In net profit [indiscernible] very important for future cash generation in the semester from the [indiscernible]. I will move now to Page 12. From Page 12, where we have a net invested capital and financial position and shareholder equity. Net invested capital is not yet affected by the disposal of Credit Information, even though in the detailed balance sheet, the Credit Information business [indiscernible] and this are capped all EUR 150 million net. That basically increase compared to previous year, mainly driven by the acquisitions in the first half. That decision acquisition, I recall you, value in the [indiscernible] basically all the [indiscernible] in Innovation and Marketing Service for a total amount of almost EUR 60 million. In terms of net working capital, the situation was basically [indiscernible] with no impact. And this is [indiscernible] if we compare this with the growth of the revenue in excess of 200%. Net financial position has a lot of different phenomena around them. We delivered a positive free cash flow of more than EUR 23 million as well as the increase -- the decrease of net financial position by [indiscernible] during Q1. In the meantime, we went through acquisition of new companies for EUR 60 million and distributing dividends and also an adjustment on net financial position because of the new leasing contracts for the rent of the new building in Milan, [indiscernible] Q1 2023 will be the new exporter of the company in Milan. And you see here that the whole show. We have a [indiscernible] impact on the net financial position because of the derivatives that implemented, as I mentioned before, and this amount will face the increase of cost for interest and so basically how our P&L will be very -- in a very low way impacted. Shareholder equity improved, obviously, by the results of the period, minus [indiscernible] and obviously includes also EUR 70 million increase of [indiscernible] investment in InfoCert. I will say that already the [indiscernible] net financial position, the free cash flow. We had another [indiscernible] improvement of the free cash flow. If we use exclude [indiscernible] travel cost and we had [indiscernible] in order to perform the [indiscernible] costs. And so this has been another semester we make improvements of the cash flow generation from [indiscernible]. I would say that I will be going to the comments of the different business units, so I will move to Page 17 [indiscernible] business units. Let's go now to page 17 and go to Digital Trust. So first half for Digital Trust, [indiscernible] very important semester. So results are definitely outstanding. The revenue went up by almost 21%, and EBITDA went up by 35%. This is a very strong confirmation of the quality of the assets we have in our portfolio, the commercial capability and the capability of improving much faster compared to the revenue. In this scenario, also the new acquisition of InfoCert, it has been extremely profitable, even above the average profitability of Digital Trust So proud of our capabilities to penetrate clients to provide first-class performance to [indiscernible], enable Digital contribution to going up on a like-for-like basis for more than 15%, and this is definitely a very outstanding result. If we move to Cybersecurity. As already anticipated during Q1 presentation, during last part of Q4 and Q1, we accelerated significantly our organization in the Cybersecurity. So we went through a massive recruiting campaign, both [indiscernible] as well as the still [indiscernible]. And here, we put together -- we had the rejection of several people in this area. Results, we already have seen our [indiscernible] improving month after month. Definitely, in terms of revenue still, we are growing 6%. And if you consider that the market is going up in the range of 7%, 9%. We are not far, but our backlog order went up more significantly. So we are expecting in the second half of the year an acceleration here. But that we have [indiscernible]. The EBITDA is below previous year because of this investment in people. So basically, we constitute a new division in Corvallis for cybersecurity and we expect the delivery of the results during Q2. So do we expect to grow pretty significantly by the end of the year in the Cybersecurity. If we move to Innovation and Marketing Services. In this area, revenues went up from EUR 42 million to EUR 55 million, to maintain a growth of 33%, EBITDA going up almost by 17%. Definitely, basically [indiscernible] went up quite significantly, while we do have said [indiscernible] deliver results aligned with 2021 in the first half, and we're expecting the second half to significant grow from Warrant Hub and that should help us to deliver exactly the plans that we shared with the market at the beginning of the year. The result is positive and even the new acquisition that we have signed in Spain will [indiscernible] and perform very well [indiscernible] our expectation. So [indiscernible] the growth also very strong, and we believe therefore this leads to our expectations.

Okay. Great. So turning to Page 22, we have some closing remarks. Following, obviously, the performance of the first half '22, we expect to have a strong second half 2022 performance, and we have gladly confirmed the guidance that we have provided. In terms of the guidance, we're actually giving you even greater detail this time around providing you, first of all, with a guidance that is calculated on the restated range. That means that the 2021 restated revenues were EUR 301.5 million, restated EBITDA adjusted was EUR 76.5 million. And therefore, from this starting point, we guide the market to a 2022 like-for-like basis growth revenue between 10% and 12% in terms of growth, based on the numbers that I just said. EBITDA adjusted is expected to grow on a like-for-like basis between 8% and 10% versus prior year. And with acquisitions, the growth is even greater with revenues expected to grow in a rate between 21% and 23%, and EBITDA adjusted even more, around 25% and 27% growth versus prior year. This will give us a result in terms of net financial position over adjusted EBITDA of around 0.6x.

Maybe, only on this point, you have to consider the 0.6x is basically driven by the acquisition [indiscernible], including in the first [indiscernible], the market, the acquisition of [indiscernible], the acquisition of Plannet, [indiscernible]. So basically, without which, we were talking about the net financial position in a range of EUR 15 million to EUR 20 million negative. So this driven by the acquisition. Driven also by this acquisition increase expected growth [indiscernible] now in the range, 25% to 27%.

At this point the presentation from our side is over. We can open the Q&A session number. Oddone and I will be more than happy to answer your questions.

[Operator Instructions] The first question is from Renato Gargiulo with Stifel.

My first question is on Digital Trust. The division performed very well in the first half. I was wondering, looking forward, in the medium term, can we assume double-digit growth plus organic sales as a sustainable rate? And what are, in your view, the biggest, let's say, upside risks potentially in acceleration? Just to make sure the current recovery plan or cross-selling synergies with Cybersecurity are in different mix. The second question on -- yes, the same question on profitability. We have seen a strong operational leverage in the first half. Are there any particular reasons to be, say, not prudent or conservative going forward? Or we can assume a similar trend? Then on Cybersecurity, you were citing a strong order intake, a strong order backlog. I was wondering how much visibility you have on this side until year end. Then a very last question on -- if you can give us an update on your M&A strategy. Clearly, following the disposal of the [indiscernible] business compared to your previous indication of [indiscernible] potential firepower over the plan period of up to almost EUR 500 million. So if you can give an update, are you still focusing on digital transformation marketing services? Or in terms of countries, where do you see the best opportunities in terms of moving forward?

Okay. Thank you for your question, Renato. Let's say that we delivered a very strong first quarter in Digital Trust. This is -- basically would align to our expectation. I would say that we are seeing on the same guidance we shared during the plan presentation. So basically, we do expect to be [indiscernible] from double digit in the revenue, to overperform the [indiscernible]. Obviously, you can understand easily that you can have 1 deal that's falling in the first half or in the second half, it's very difficult to predict at the beginning of the year. The point is that we share with the market a much faster growth [indiscernible] compared to the rest in Digital Trust, and this is exactly what happened. Then if by the year-end, we will be 12%, 13% or 15% growth, honestly, it's very difficult to set now. As of now today, we are slightly overperformance, our expectation. We are not planning to change our guidance here, but honestly, probably we could deliver slightly more and slightly less, but this is the situation. Yes, honestly, very confident, very positive and -- but we are not changing our guidance significantly. The second question is on cybersecurity. Like I said before, in the process, we deliver a [indiscernible] last year. Following this, we decided to accelerate investing in human resources. We brought them on board, and now they are starting deliver. So our backlog is improving [indiscernible]. And we track, we will be able deliver results in significant growth compared to the previous year. Also here, if we are going to deliver upcoming [indiscernible] according to [indiscernible]. But what we are seeing is a trend [indiscernible] that in encouraging. All the 3 divisions are performing with proper results, performing properly according to our expectation. So compared to our market, we are on plan. So also, here, we are confident that the result of -- by the year-end which show a significant improvement compared to previous year.

For that matter, Renato, in the second quarter, we already highlighted a very strong plus 18.8% in terms of adjusted EBITDA versus prior year, which is already reaping the benefits of these increased investments that we did between Q4 and first quarter of this year that Oddone was referring to. So we are pretty confident in getting there, as we said, by year end.

Absolutely. As we talked from -- internationally, our strategy [indiscernible] the state of [indiscernible] will significant deleverage for the group, which is [indiscernible] already, like I said, we are dropping our net financial position [indiscernible] including the acquisition of Forvalue from Warrant Hub [indiscernible] and the potential retention of Intesa [indiscernible]. Now our problem is to improve our international [ chapter ] in Digital Trust, this is priority one, definitely. And so we are missing at some targets, and we are working stronger on these targets. For Innovation & Marketing Services, basically, we completed the 3 acquisition, bringing on board more than 300 people since January. So we need to [indiscernible] at least not to let them [indiscernible] and integrate. But we are very happy also of the value of acquisition and also the integration of [indiscernible] and Plannet to use -- proceeding at a very interesting phase. So also, here, we could complete the sophomore acquisition [indiscernible] as well as the right opportunity to come at the international level, we will look at very carefully. On the Cybersecurity, the thought is basically on the Italian landscape as of now. We completed that -- Josef mentioned in his presentation that we completed two small acquisitions in order to enlarge our capability, [indiscernible] on the infrastructure part and network. This is very important because this combined [indiscernible] our offer of Cyber Security with networks, and this is important. We are looking at potential target also here. So our M&A strategy is continuing, if we have even more opportunity, but honestly we have to balance the fact to invest, the capability to continue to deliver the right performance. So we are progressing. We already delivered [indiscernible] to beginning of the year, the 6 or 7 acquisitions. So it's 1 acquisition per month, and we aim to continue.

The next question is from Russell Pointon with Edison.

I have 3 or 4 questions, please. First one is on [indiscernible] I think the revenue contribution was a bit lower in Q2. Is there anything that's a concern there? Or is that just at movement around in the quarter as defined in the business? Second question, perhaps at the risk of looking foolish if you're making an announcement in the next day or so. It's 9 months since you announced the [indiscernible] investment in Digital Trust and it's 6 months since you received so many investment. Could you give an update on what is happening there? Because I think at the time, you highlighted one potential benefit to the deal was [ accelerated ] pipeline of deals, and I would have seen it what's happening in the market over the last few months, prices have come down a bit. So is the level of activity, is there anything you might have expected by there by now? My second question, just going back to the Cybersecurity. The slight growth [indiscernible] is about 30%. Could you just give some indication of how big that backlog is and what kind of month you've got visibility on? Because when you look at your cost base, I think year-on-year cost base is only up about 10%. So is that indicative of the leverage in the business of 10% increase in the cost base? You can get an effect of 30% increase in revenue in the second half? And my fourth question is with respect to IMS. You talked about creating a digital marketing pole. Could you talk about how many more services and how much investment you think needed there in order to create that digital marketing pole? Because digital marketing is an ever-expanding market.

Maybe I start with the investment looking at the cooperation with regard very positive. We are working together quite frequently. Let's say, that on potential use end markets, we are looking together, we are looking, we are working together, and we are very active in trying to find projects as well as to negotiate potential deals. This is something that you can [indiscernible]. On top of that, we are glad of the results delivered in the first half by [indiscernible]. Obviously, as we mentioned, we work together with regarding post-merger integration. We set up a plan of for the merger integration, and this went very well. So we have a very good integration, and we are delivering the positive results, both in terms of revenue as well as the EBITDA margin. So honestly, the investment set it off. The goal is to expand international. We are very glad with the results [indiscernible].