TXT e-solutions S.p.A. (TXT) Earnings Call Transcript & Summary

Welcome, everyone, to the call with investors, and we'll share the results of the first half of the year. And so here, I have with me TXT Group's CEO, Daniele Misani...

Good morning.

And also our investor relator, Andrea Favini. And so if you'll share the first half of the numbers towards the end. And just before we do get started, if you do have any questions, please write to us in the chat, and we'll endeavor to get back to you at the end of the call. We already had some questions prior to the call. So one of our colleagues will just put them through in the chat. And now I'll present you through to our CEO, Daniele Misani.

Thank you, Sanela. Thank you. Welcome, everybody. So I'm happy to share the results of the first half of the year for the TXT Group that are positive. So we continue with our plan of diversification and growth driven by synergies. And the good results are the good results that are coming from the work of a very strong team. So I want to thank all our managers of our ecosystem, because in our collaborative environment, we can create value for the customers as a consequence also for all the shareholders. So thank you to do all the team of -- all the managers, all the people that are working with us, because we're getting good results because the teamwork that we are putting together. In terms of revenues, we have a strong growth, so EUR 138 million, with a growth of almost 30% with respect to the last year. And the growth is driven by the synergies. So -- and the organic growth is important KPI because, from the same perimeter, we grew by 21 -- almost 22%. So a growth of EUR 23 million that comes from the synergies of the group, within the group, at the same perimeter of the last year. In terms of margins, the EBITDA margin is 12.7%, and we had EUR 17.5 million in the first half of the year. That is a growth of 25.7% with the same period of the last year. So good results in the main indicators. Looking by the contribution of the different divisions of the group, what is important to say, the growth is given by all the segments that we have. So plus 28% in the Software Engineering division in terms of top line; plus 32% in the Digital Advisory division, that is growing mostly organically, so very good results. And plus 31% in terms of growth for the Smart Solutions division that has also some contribution from the acquisition that we did last year. In terms of EBITDA, so the EUR 17.5 million are also, in this case, driven by the contribution of all the divisions, with the best performance given by the Smart Solutions, let's say, division. So our products that are generating more margins because the growth of the top line in terms of number of subscription and licenses sold. So the Smart Solutions division is growing of 42%, the Digital Advisory is growing with 35%. So with an increase in terms also of EBITDA margin, in general. And the Software Engineering division is growing, but with, let's say, impact on the top line EBITDA margin because, let's say, we are growing faster. So the efficiency also of the overall performance has to be tuned. And this first half of the year, we put in place also some investment in terms of commercial investment that had an impact on this, let's say, KPI. As I said, we continue to invest. So in order to have a growth in the Smart Solutions division, so we invested more than last year. There is a 50% more investment in research and development of our proprietary solutions, with a total of EUR 7.7 million. The Smart Solutions revenues, as told before, is growing, so 31% and recording a EUR 25.7 million. It's important to highlight also the growth of the international revenue, also by the contribution of the international acquisition we did last year. We recorded, for the first half of the year, almost EUR 40 million international revenues that are the 29% of the total revenues of the group. In terms of net financial position, so the debt is still sustainable. So we have an adjusted position of EUR 37 million debt. But I want to remember that our buyback program is still in progress. So we are still investing in acquiring our shares. So the treasury shares at 31 -- 30 of June were almost EUR 31 million. So if you look to the debt, we have treasury shares that compensate the debt in terms of debt to banks and, let's say -- so we have still power to continue to invest and to grow also by external lines with new acquisitions in the second half of the year. In terms of the core markets, still, we have the strong, let's say, footprint in the Aerospace & Defense and the Public Sector that are the champions of the growth for the group. So Aerospace & Defense is growing 38%, so year-by-year, and public sector is recording 35%. The Industrial & Automotive, let's say, segment will be 7% of the total amount of the revenues of the group is stable with respect to the last year. The Fintech domain is growing also, plus 22%. And the Telco & Media is also growing, that is recording a 31% growth were respect of the same period of the last year. So all the market segments are positive. There is a positive outlook also to continue in the second half of the year at the same speed. What is important to say also, we did some extraordinary operation that I will tell you later a little bit more details. We open up a new division. So a new market that is more across industries is a market related to the MarTech offering. So the digital technology applied to marketing and sales with 2 acquisitions. And we expect the pro forma, let's say, contribution of this new division of about EUR 30 million in 2024. Some, let's say, more flavor about our outlook and, let's say, the M&A that we did in the first half of the year. So as I said before, one of the good results that we had in the first part of the year, driven by the synergies and driven by our strategy is the growth in terms of organic growth, so same perimeter. The 22% is pushed a lot, especially by the Digital Advisory division because, especially in the Public Sector as a result of the backlog that we acquired with big tenders in the past years, we are growing fast. The Public Sector recorded a 35%, more or less, of growth year by year. But also the Aerospace & Defense is pushing with multiyear programs, and we recorded in the first half of the year, plus 28.3% of growth, that is also some contribution coming from the acquisition. These 2 areas are the most, let's say, pushing in terms of growth. Of course, we are growing also in the other segment, and we have a positive outlook to continue even if in the second half of the year, since the volumes are ramping up, there will be a slightly decrease in terms of percentage of growth. But looking for the whole year, let's say, we have a strong results that will come at the end of the year from both these divisions. As I said before, we decided in our strategy of diversification to have the core in the technology. As you know, we are a digital innovator. So we use the technology in order to improve the processes and the products of the customer. Our decision is also to extend our reach to large customers by adding also competencies and technologies in the marketing and sales, let's say, domain. So opening up by acquisition, a new division, with the acquisition of I MILLE, Uasabi and Refine that were completed at the end of the first half of the year and that are now in the integration process of the group. And the benefit of the acquisition will be -- will impact on our results for the second half of the year and for the future, of course. The total amount of this acquisition is a pro forma of EUR 30 million for the 2024, with a good, say, margins. And they are, let's say, integrated I MILLE and Uasabi in our Digital Advisory division, because they are creating consultancy agency that use the technology in order to improve the performances of the customers. Whilst Refine is a company that has proprietary technology and the business is based on the proprietary platform that contains, let's say, a lot of innovative technologies and it will be integrated into the Smart Solutions division in terms of segmentation. Looking a little bit deeper in these 2 acquisitions, I MILLE and Uasabi are 2 creative agencies, especially I MILLE a long story on the market in Italy and also abroad, with some operations in Europe, in Spain and South America. It's a historical company with a very strong brand and very strong positioning on the market. It is a global creative consultancy agency. What we want to leverage on this, let's say, company is the presence on the market with big customer and to leverage the synergies also with the customer base of the other company of the group in order to provide this kind of services, so this kind of advisory also to the whole customer base that we have in the group with a strong competence-based companies. Uasabi, in particular, is a boutique, very focused on the new generation. So using the technology and creativity in order to address the new generation, the next gen, so by using new media channel. So it's very focused, very particular also in terms of competencies within the competitor in the market. And we -- altogether, these 2 companies had a turnover of 2023 about EUR 11.6 million, growing, and a margin, EBITDA margin approximately about 13.5%. So they will be integrated. And they work together with our other companies in the Digital Advisory division in order to offer to the large customers that we have in the portfolio, a holistic approach, so more competencies and more value. Refine instead -- is a company operating in the same segment in terms of market, but with a proprietary platform. So it's a proprietary platform to automate marketing activity, empowered by artificial intelligence, and provide a wide range of services to primary customer and to primary player in the market. And we see a lot of opportunity of synergies of the creativity given by I MILLE and Uasabi, together with the technology provided by Refine, in order to build, let's say, a unit that's unique in some way in the market that can address and capture opportunities stronger with respect also to the competition. 2023 revenues of Refine was about EUR 16.7 million, growing with respect to the past and margin approximately 20%. Our outlook for the 2024 is continued in terms of performances, but growth in terms of top line, because the synergies that we have put in place since a few months since they entered in the group. So our, let's say, strategic view on this unit is to have a technology-based company that mix capabilities of creativity, consultancy, advisory, together with the technology, to propose to our large customer base more value, also in some departments that previously were not addressed by the TXT Group. And speaking about communication, branding and marketing and sales department that, before the opening up of this division, were not addressed by our offering. So it's complementary with also opportunity to grow at international level. Because both, let's say, I MILLE and Uasabi are already present internationally. Refine has a technology that can be exported towards other countries. And so in our strategy is also to leverage on the group positioning in international level in order to expand the MarTech business outside from Italy very strongly. International is a part that is, let's say, important, very important in our strategic plan. I want to update you about 2 main, let's say, occurrences that we had in the first half of the year. First of all, we decided to increase our stakes in ProSim that was already a minority stake, let's say, investment that we did several years ago. We are integrating ProSim into the PACE Group. So in order to strengthen a very specialized player for aerospace and aviation in terms of Smart Solutions, in terms of products and technological products. So we increased our stakes at 60%, taking the majority. And our goal is also to consolidate the results coming from ProSim starting from the second half of the year. And we have, let's say, an outlook of pro forma of EUR 3.5 million. So it's a boutique with very high level and highly technological programs that can help the aviation industry in order to innovate processes, and we want to exploit the synergies within the PACE Group in order to be more effective. Also, a small update about the acquisition that we did last year related to Embedded Graphics business that is growing fast globally. So first 6 months of 2024, this, let's say, business unit generated EUR 2.5 million that are consolidated in the number. All the business is international, especially in North America. And especially in the Defense segment, we have a good outlook to continue to grow. The revenues of the first half the year were better also than the budget before the acquisition. And let's say, they are taking benefits of the overall infrastructure of the ecosystem of the group because also the Embedded Graphic business is integrated within the PACE Group organization. And we are creating, let's say, a significant player, international, providing value to customers by using the technology. These are the updates of the main events of the first half of the year. So I am happy now to introduce Andrea, our Investor Relator, that will go through the financials. Please post any Q&A in our chat. So just push the button on the top of the Teams on your browser, okay? And I'm here after the review of Andrea about the financial in order to answer any questions that you want to make. Thank you very much. See you later.

Thank you, Daniele, and welcome, everyone, to the financial section of this conference call. Starting from the profit and loss of the first 6 months of the year, as broadly discussed by Daniele, revenue grew by 28.8% to EUR 138.2 million. In terms of gross margin, we have, let's say, a reduction -- a drop of 2 percentage points from 34.8% in the first half of the previous year to 32.8% in the first half of 2024, and this is to be attributed to the different mix of, let's say, revenues and to the growth of some of the activity with a lower profit margin, gross profit margin. This trend should be slightly recovered in the second half of the year. In terms of indirect cost, research and development costs grew significantly, plus 50%. This is both related to the first and the second quarter. And this is also related to the M&A plan that was, let's say, implemented by TXT in 2023 and 2024, second half of 2023 and first half of 2024, which includes our new, let's say, product line, both, let's say, less mature product like Arcan or more mature products like the Embedded Graphic business. So in terms of commercial investment, there is also a growth of approximately 10%, with an overall investment for commercial marketing, let's say, activities of EUR 11.5 million, equal to the 8.3% of the overall top line of the period. General and administrative costs decreased in terms of incidence of revenues from 7.9% in the first half of 2023 to 6.9% in the first half of 2024. And given this, let's say, trend in the gross margin and the indirect cost, the EBITDA margin was slightly lower, 0.3 percentage point in the first half of 2024 compared to the first half of the previous year, with an overall absolute value as of EBITDA as of 30 June 2024, equal to EUR 17.5 million, plus 25.7% compared to the same period of the previous year. In terms of amortization, depreciation and write-offs, which amounted to a total of EUR 5.4 million in the first half of the year, those are mainly related to, let's say, depreciation related to PPA, purchase price allocation of EUR 1.9 million in the first 6 months of the period. Then there are EUR 2.2 million of depreciation related to the IFRS 16, so mainly building and car under lease. And the depreciation of fixed asset is at approximately EUR 0.9 million -- fixed -- tangible fixed asset other than leased, let's say, assets. In terms of other intangible other than those allocated PPA, we have a EUR 0.3 million in the first 6 months of the period. Given the 3.9% incidence of amortization and depreciation, the operating profit standing at 8.8% as of end of June 2024 to EUR 12.1 million. Then we have a significant growth, of course, of 35.6% also because the overall, let's say, growth of amortization and depreciation is much, let's say, lower than the one of the revenues recorded in the period. In terms of financial results, the financial result in the first 6 months of 2024 had a negative net balance of EUR 1.3 million -- previous slide, please -- mainly due to interest expenses, bank charges and the result of minority interest. In the first half of 2023, the financial results show instead a net positive balance of EUR 1 million, which was mainly related to one-off financial income related to acquisition. Financial expenses in the first semester of 2024 consists of EUR 2.2 million related to interest expenses and other bank charges. And EUR 0.5 million related to the share of negative result of associated -- not consolidated in the text here, let's say, profit and loss. The financial charges of the period are partially offset by financial income from the fair value of trading security heading the portfolio and earn-outs for EUR 1.2 million and the effect of the net -- and the positive effect of the net exchange rate difference for EUR 0.2 million. We have a pretax income of almost EUR 11 million at 7.8% of revenues with a tax rate at 26% approximately. So the 6-month closure with a net profit of approximately EUR 8 million equal to 5.8% of revenues, which equals to 17.2% increase compared to the first half of the previous period. Of course, the strong effect is coming from the financial results, which are, let's say, turn from EUR 1 million positive to EUR 1.3 million negative in the last 6 months. Moving to the next slide, we have the results of the second quarter of this year, which show revenue of EUR 71 million with an increase of 29.2% compared to the same quarter of the previous year. And also in this case, the organic growth was really significantly stronger at more than 22%, with double-digit organic growth in all the operating division, which led to this, let's say, important effect in the quarter. The same effect that is, let's say, visible at the half year period is also in terms of gross margin is also present in the second quarter, which showed a gross margin of 22.1% versus 25.6% in the same period of the previous year. And also the trend of the, let's say, indirect cost is, let's say, somehow following the trend recorded in the first quarter. We have a strong acceleration in the R&D investment. The commercial cost increased significantly as well. And instead, in terms of indirect G&A cost, we have a slight decrease because last year, there were many effort and investment for international acquisition and, let's say, due diligence, which impacted significantly on the G&A incidence on revenues, which -- second quarter of 2022 stood at 9%, which is well above the trend and the average of the TXT Group. The EBITDA of the second quarter of 2024 was of EUR 8.7 million at 12.3%. Also in this case, we, let's say, discount the strong investment in commercial and marketing activities in the period. The group attended many exhibitions compared to the previous year also to promote the new products and the new, let's say, entities that entering the ecosystem recently. And also in terms of R&D investment, there is a stronger, let's say, push to really promote the -- let's say, the Smart Solutions portfolio with a return on the investment expected already from the second half of the year. As described before by Daniele, the growth of Smart Solutions is, let's say -- is lower than the [indiscernible] investment. We fully expand in our profit and loss the R&D. So we expect in the, let's say, short to midterm to have -- to benefit from the investment done in this first 6 months. If we look at the amortization, depreciation and write-off also in this case, the main, let's say, component for the tangible part is the PPA equal to EUR 0.9 million. And there is also IFRS 16 for EUR 1.1 million and EUR 0.5 million of depreciation of fixed assets. Those are, let's say, the main items of the depreciation for the period -- or the second quarter. The same, let's say, impact, let's say, discussed for the half year period in terms of financial results. It was affected in the second quarter. In fact, in the second quarter of 2023, there was a strong, let's say, positive component coming from the, let's say, adjustment of deferred value of earn-outs, you can call -- their securities. While in the second quarter of 2024, we have approximately EUR 1 million of negative result, mainly attributable to the financial costs and the financial interest for EUR 1.25 million. Also in terms of taxes and -- taxes at approximately 20 -- the tax rate at approximately 24%, with net profit margin at 5.4%. Also in this case, the strong, let's say, different impact of financial result has a strong impact on the net profit, which is, let's say, stable in the second quarter of 2024 compared to the same period of the previous year. In terms of net financial debt, the adjusted net debt as of June 30, 2024 is equal to EUR 36.9 million, an increase of approximately EUR 5.5 million compared to the EUR 31.4 million as of December 31, 2023. And this increase was mainly due to the disbursement during the period related to the purchase of treasury shares for EUR 2.7 million, the payment of dividends for EUR 2.9 million and the cash outflow at closing for the acquisition of I MILLE and Uasabi for EUR 7.1 million, excluding asset financial -- in the net debt. Those, let's say, disbursement has been partially offset by the cash generated by -- from operating activities. The main items of the net debt as of end of June 2024 consists of cash, of course, for EUR 47 million and with the major Italian banks and up approximately -- almost EUR 10 million compared to the year-end of 2023. Financial instrument at fair value at EUR 27 million as of end of the first half of 2024, with an increase of EUR 3.4 million compared to the year-end 2023, mainly for the fair value valuation of those trading securities. The current financial debt is basically of EUR 58 million, mainly referring to the short-term portion of bank loans and stable compared to year-end of 2023. And in terms of noncurrent financial debt as of June 30, 2024, it is equal to EUR 73 million, up EUR 16.6 million compared to the year-end 2023. It's also important to inform that the net debt as of end of June 2024 includes EUR 10.8 million of debt related to IFRS 16 with an increase of EUR 0.7 million compared to the year-end 2023. And now EUR 9.7 million of debt for earn-outs and [ put-call ] option for the purchase of minority interest, with an increase of EUR 0.9 million compared to the value at the year-end 2023. The consolidated reported net debt as of end of June 2024 amounted to EUR 56.2 million, an increase of EUR 19.3 million compared to the adjusted net debt of the period. And the main difference is related to the reclass of fixed investment in Banca del Fucino, among fixed assets for EUR 17.8 million. If we move to the next slide, in terms of balance sheet as of end of June 2024, we have intangible assets at EUR 92 million, and those intangible assets consist mainly of goodwill for EUR 73 million and commercial relationships, and IP linked to PPA and M&A for approximately EUR 16 million, 1-6. The increase of the period is to be attributed to the acquisition of I MILLE and Uasabi, net of the amortization of the period. In terms of tangible fixed asset as of end of June 2024, we have at EUR 22 million and the amount consists mainly of other 1 building and 1 rental, and lease contracts for offices, car and printers following the adoption of the accounting standard IFRS 16. Tangible fixed assets are up EUR 1.6 million compared to year-end 2023, mainly following the increased value of financial [ lease ] IFRS 16, and recorded in the period and, of course, the acquisition of I MILLE and Uasabi of the depreciation of the period. Other fixed assets consisted mainly of the investment in Banca del Fucino, with fair value of EUR 17.8 million. And the remaining value consists of investment in minority. Value is stable compared to the year-end 2023. In terms of net working capital, the group recorded a growth of EUR 2.7 million. And this is to be attributed to, of course, the acquisition of I MILLE and Uasabi, partially offset by the absorption of the net working capital as of year-end 2023, which historically, let's say, at the group level, gets reduced over the year to then increase again around the fourth quarter, around December. The main changes are related to the inventories, which are, let's say, the work in progress on the customer projects, fixed price projects. And there is, of course, in the same context of a bit of absorption of the net working capital and reduction of the trade receivables. And those, let's say, are the 2 main effect at the net working capital level. We have an increase on severance and other current liabilities, mainly related to the severance indemnities accrued on, let's say, Italian workforce. And in terms of shareholder equity, we have an increase of EUR 4.4 million, which is basically, let's say, related to the profit of the period plus, the net effect of the changes in the treasury share, let's say, the net between the repurchase and the transfer of treasury shares in the period. And of course, the net financial debt reported in the balance sheet is the unadjusted financial debt at EUR 56.2 million, discussed before. Moving to the next slide. We can -- we have the shareholding structure as of end of June 2024, which is basally in line with the one discussed over the end of the -- end of March. Treasury shares are stable at 10% of the share capital. Laserline, the financial vehicle of [indiscernible] is also stable at 20%. And there are no, let's say, changes to be discussed within our, let's say, share capital. In terms of performance and market data performance of the stock and the market data, in the first 6 months of 2024, the TXT share price recorded in official high of EUR 26.5 per share on 14th of June 2024, and the low of EUR 18.48 as of January 5, 2024. As of the end of June 2024, the share price was equal to EUR 24.25 per share. Treasury shares as of 30 June 2024, were equal to 1.27 million, representing 9.8% of the issued share, and treasury share were 1.3 million as of year-end 2023. And the decrease is to be attributed to the consideration [indiscernible] in the context of -- in the 2023 M&A plan. Net of the share repurchase in the context of the buyback plan, and in fact in the first 6 months of 2024, approximately 154,000 shares were transferred to vendors and current [ measure of 16% ]. And about 125,000 shares were repurchased at the average price of EUR 21.89 per share for a total investment of approximately [indiscernible] million. Of course, the dividend of EUR 0.25 per share on May 22 of this year with a total outlay of approximately EUR 2.9 million. So let's say, the sum of dividends and treasury share repurchase sum up to EUR 5.6 million. I think that's all for the financial section of this conference call. Thank you so much for your time and your attention. Now is the Q&A section about to start. Thank you so much again.

Thank you very much, Andrea, and thank you to all who sent their questions through. So we'll just get through some questions now. And so here, I have with me Daniele Misani.

I hope that are easy questions.

Let's hope. So the first question we received in the e-mails is what specific synergies do you anticipate will drive the growth and value creation?

Yes, as part of our strategy is to build an ecosystem of companies that are, let's say, vertical excellencies. So in each company, we have a specific go-to-market, specific offering, specific competencies, and let's say, the value and the creation the growth is made by synergies among companies. So for us, it's important to address a larger customer base because when you add companies, you add also customers, of course by offering, let's say, complementary solution to customers. And so we are investing also in terms of commercial activities in order to exploit the commercial synergies among the company of the group. The growth overall of the first half of the year is related mainly to 2 segments. So Public Sector and Aerospace & Defense. The outlook is positive. And so for this year, they will be the major contributor of the growth -- of the entire group. And of course, we have also the benefits coming from the new division related to MarTech that will be consolidated in the second half of the year.

Fantastic. And so now we have the second question here. So where do you see the future of TXT Group?

It's the same as before.

Sorry about that.

So you missed the first one, I think.

Okay. And so...

This one. Okay.

Yes. So how much does the Public Sector business rely on the National Recovery and Resilience Plan?

Okay. So in terms of the business, the Public Sector, let's say, we have a strong footprint on, let's say, main central public -- central entities of the Public Sector and also local entities or the Public Sector that are not driven by the National Recovery Plan, but are mainly a business that has continuity because it's based on the fundings that the government puts in order to innovate, transforming the technologies, the public institutions in general. So we have, let's say, an impact of the National Recovery Plan, especially on the health care segment because the national recovery fund in Italy has been used in order to finance the activity of innovation of the health care segment. More or less -- let's say, with the overall Public Sector, more or less 20% can be considered business based on the National Recovery and Resilience Plan, mainly for the health care. Of course, we know that this part will be substituted in order to continue to go for the future. But also in terms of funding for the health care domain, there will be part also for, let's say, the strategy of the Italian government in order to provide foods that are not relying on National Recovery and Resilience Plans, but will be generated in order to continue to improve the segment. So out of all the business over the first half of the year in the Public Sector, let's say, 20% is relying on the National Recovery Plan. So looking to the overall turnover of the group is a small part. So we are speaking about EUR 4 million out of EUR 138 million.

Fantastic. And so we do have another question, which is quite a long question. So I may just have to do it segmented.

It's from Andrea Randone, so he's asked too many questions. It's not just one, it's a list of questions. Maybe split it because -- okay.

And so I'll start with the first part of it. So in light of the first half of 2024, your financial year 2024 guidance seems very cautious on revenues and more challenging on the EBITDA, the margins. So can you elaborate on this matter?

Yes, in terms of guidance, let's say, we started the year also in the budgeting phase looking for growth, okay? And as far as today, the half recorded strong results, better than, let's say, the expectation that we had during the budgeting phase. Let's say the more contribution as, let's say, unexpected contribution in some way was related to the telco industry because, especially in Italy, telco is undergoing a lot of merging of big companies, splitting of big companies. So the market is still, in some way difficult to understand. So in our strategy, we preferred to get new business in order to position ourselves also for the future because all these changes as a risk factor, of course. And so for us, it was very important to position ourselves, get business in order to give continuity independently of the new setting of the customer in this field, let's say. And so we recorded a strong growth also in this area. That was unexpected at the beginning of the year, but was made by the strong work of the team that allow us to position and take position in a market that is, let's say, stable in general. So it was a very good result by the telco team. Of course, on the EBITDA margin, we get some pressure because the investment, because the costs are coming also for the acquisition that we made in the past. So the integration costs that mainly are related to commercial activities, so new initiatives, new people, exploiting synergies among the company. And so this put a little bit on pressure in terms of overall EBITDA margin. Even if we have, as you know, as business is seasonal. And we historically had -- we have historically a fourth quarter very strong. So in the last year and the year before was like this. So it's a challenge. So we have still to do the results for the first quarter, and there is a risk factor, of course. But if you can deliver as promised the fourth quarter stronger, we think that the overall year can meet also the EBITDA margin, let's say, that we have in the guidance.

Fantastic. And so you may have already answered this question, but I'll ask it anyway. So you've closed several acquisitions and you're working on new deals. How do you internally manage the integration process?

Yes. Our governance model is based on network of enterprises. So when we integrate the company, what we do is specifically integrate the general services, so administrative -- administration, finance, HR, that are managed at holding level and offer the services to the company. Of course, there is a period in which we have cost because this process to move, let's say, the activity related to general services toward the holding needs to change system, needs to implement projects of transition, migration and so on. But in our approach, there is no strong integration in terms of go-to-market. There are strong integration in terms of general services. And what we put on top in terms of integration is so restructure, let's say, in order to explore synergies. So we have people that try to put together different companies in order to make an approach more or less to the customer base, so we have commercial costs more. And of course, what we put together is competent centers in terms of technologies that are already in the group and are offered to the companies that enters in the group as a service, let's say. So the integration is more, as I said, related to general services, while the commercial and tech synergies are driven by, let's say, initiatives that put together the competencies of the company of the group.

Fantastic. And so we have the third question. Are you targeting new M&A activity more in Italy or abroad?

We are growing -- in our strategy, we grow abroad on the areas in which we are strong. For this reason, the acquisition that we made also in the past were more related to the aerospace and defense, that is our bread and butter, let's say, because we are recognized as a strong player in this field. And for new business, we prefer to open up activities in Italy. So the acquisition of the I MILLE, Uasabi and Refine, our Italian business, with some, let's say, footprint international, but we open up a new business locally in order to have less risk in terms of governance and knowledge of the market. For the next future, we have a pipeline, we are working to strengthen the division that we have already have. But mainly for, let's say, for the 2024, the targets are Italian-based with small business outside because what we want to do is strengthen the Aerospace & Defense globally and empower, let's say, the other division that has already a small footprint outside of from Italy, strengthened them. In particular, the market -- one market division. One part of the strategic plan is we leverage on the already existing small presence internationally, but to grow with this division also internationally.

Fantastic. And then we have the final question and a very long one. So can you remind us your current cost of debt financing, the maximum leverage you're considering and the market conditions for new credit lines?

Okay. And so I ask help from our investor relator, that is more a financial guy, but I can start to answer too, yes. She is laughing because Andrea is not, let's say, in the main screen, but is not so happy calling inside. But in general, what -- besides the cost of debt, the leverage, as we said in the guidance, is to have a debt that is up to 2x, 2.5x the EBITDA as a maximum. Today, we have a net financial position that -- with the projected EBITDA of the 2024 is less than 1x. So we have still the ability to continue to invest in order to reach this. Moreover, we have our treasury shares that we can use in order to do other M&A. So -- and in terms of credit lines, so now -- is in a period which is not convenient. Like in the past, even if we are able to get credit lines grew at good, let's say, in a good way. I don't want to tell too much because it's part of our job also to get this good relationship with the banking institutions that they are happy to provide us credit lines, and we are also having conditions that are, in some cases, better than the average market conditions. So Andrea, I don't want to -- if you want to add something about this topic. I'll let you...

Yes. And of course, we have, let's say, open -- constant open, let's say, discussion and negotiation with the banks. Of course, it depends also on the size of the new credit lines that we are demanding to the banks. But in general, yes, we're waiting maybe like it's a reduction of the rates. But for now is, of course, close to more or less 5%, let's say, rate. And again, we are trying to combine, let's say, different institution with, let's say, different duration, and so on to a better, let's say, make as much as efficient as possible. And of course, that also depends on the size of those new borrowing. But this is a question from Andrea, of course, we can then, with the financial report, provide a bit of more visibility on the new, let's say, laws that have been, let's say, granted to TXT recently and a few more information. But in general, yes. Now we are also negotiating for new credit lines. It's not a surprise that we are still actively looking for new M&A. So based also on the size of, let's say, the M&A and the laws, so we are, let's say, somehow having a different options on our table.

Thank you, Andrea.

Thank you, Daniele.

So I want also to highlight a little bit on this. If you look at our [ EBIT ], it's better than the same period of the last year. We have, let's say, more impact about, let's say, interest. And -- so I ask maybe to show the slide, okay? And let's say, there is an impact. If you look to the results of 2024 with respect to 2023 about the net financial extraordinary income, that is also related not only to the, let's say, to the money we spent for interest for the credit lines, but also because in 2024, we had, let's say, a discounting of an earn-out of one of our company. And so in last year, we had a positive impact on this part, while this year, we are in a negative impact. So this discounting of this earn-out was about EUR 1.2 million. So if you look -- of course, we increased the credit line, so we have an impact of increased volumes of credits and so increased volume of interest. But the main let's say, impact was related to the discounting of this earn-out of one of the companies that we have in the group.

Fantastic. And now we'll move to the next question. So can you please explain to us what is the main focus of your R&D spending?

Okay. So in terms of R&D, we recorded an increase with respect to the last year. The increase is partially also given by the fact that we are starting to consolidate the Canadian entity that is a product entity with an R&D. So there is an inorganic, let's say, incremental R&D. But our strategy in R&D is to improve our Smart Solutions portfolio. So the R&D investment is related to the Smart Solutions division, mostly. So 95%, less some initiative internal to the other vision in order to create competencies to create assets. And this is because we want to increase the value of the Smart Solutions portfolio that we have in our, let's say, offering. And as you know, our Smart Solutions portfolio is based on innovative technologies. We are speaking about artificial intelligence. We are speaking about cybersecurity. So all these, let's say, platforms need continuous investment to improve and to stay ahead with respect to the market. So if we look last year, we invested also in some companies with less mature -- less maturity of the Smart Solutions itself. I'm speaking about the artificial intelligence-based companies that are Arcan and Paladin AI for 2 solutions in different market segments based on artificial intelligence. Of course, the investments are tuned also to the maturity of the product itself. So products more mature, like our, let's say, Flight Plan Optimizer have less investment in percentage with respect to the less mature products. So there is a mix. And the total mix is increasing because we want to have more effective, more variable products in order to address strongly the market. So -- and the results so far are good, because if you look to the growth of the Smart Solutions division, is, let's say, taking market share, so it's growing. And of course, also the margins of this unit after expanding all the R&D costs are increasing, because increasing the volumes of subscription and licenses, of course, there is an improvement of the overall margin.

Okay. And then there is another one. So how do you envision the integration of I MILLE Group and Refine into the existing TXT ecosystem? And what are the key synergies that you anticipate will drive the value creation and growth?

Yes, as I said during the presentation, for us, it's a complementary offering with respect to the existing offering of the group, even if the common, let's say, factor is the technology. So the synergies that we look in the short terms are more related to the market. So we have the possibility to address large customer not yet in the customer portfolio of TXT Group, by approaching them and offering the rest of, let's say, the competencies that we have within the team. And of course, we want also I MILLE, Refine and Uasabi to offer more to the existing customers because all the technologies and the product lines we have in the group are, let's say, in some way can be vehiculated to customers by using the existing relationship of this companies towards the market. In terms of technological synergies, of course, there is the possibility of this company also to leverage on the competence center of the TXT Group related, especially artificial intelligence that is a domain for the market industry that requires investments. So the competence that we have within the group will help these companies in order to improve their go-to-market and their own offering towards the market. So the 2 main lines are the commercial synergies and the technology as a group, we can provide to them in order to be more effective.

Okay. Fantastic. And so circling back to R&D, which we've already discussed, what was the focus of the R&D investments which made it grow so much? Is there any portion of the decline in the EBITDA margin -- EBITDA -- sorry, margin which is related to recent acquisitions.

These are 2 different questions. So R&D, I already explained before. So the investment growth is growing the portfolio solution, and we push more on the less mature products in order to make them profitable in shorter terms. These are the drivers. In terms of the portion of decline in EBITDA margin is related to recent acquisitions. So more than the recent acquisition is more related to a mix of activities and the fact that we increased volumes also in the Software Engineering division that is less, let's say, performance also with respect to the same period of the last year. This is because we increased the volumes. We acquired also, as I said before, a positioning stronger in the telco domain in order to derisk the future since there are many, let's say, movement in this kind of segment. So there is a mix of contribution about the overall margin that is slightly less than the same period of the last year driven by some business activities. And the cost of the acquisition in terms of, let's say, initiatives and progress that starts in order to integrate, for example, general cost related to the transaction itself, the cost of the transaction, plus, let's say, all the cost that comes from the integration of the IT system, ERP and all that stuff in order to make them, let's say, in line with the group policies. So I think that, as I said before, the fourth quarter usually stronger for the TXT Group. So the overall items for the year can be met if you work properly and if we deliver on promises, also the overall business in the last -- in the second half of the year.

Okay. And we do have 2 new questions. Can you provide some update on the potential sale of the Banca del Fucino and so -- and the Banca del Fucino stake? Similar question with regards to the multi-insurance products.

Okay. Banca del Fucino, as I said in the previous calls, we are working in order to dismiss it, of course, because we are growing, we need more also -- capital in order to do extra -- more M&A, let's say. And so we are in negotiation in order to dismiss it. We plan to dismiss before the end of the year, if not all, a strong part of this kind of investment. In terms of the multi-insurance products, so for this question, I am more a businessman, so I ask to Andrea to help me on this topic, please.

Yes, here, basically, we are not, of course, investing any more. Those are products that are coming from the past. So we are, let's say, quarter-by-quarter, evaluating those -- coming to the maturity. Of course, we monetize them. But yes, so we can expect within this and next year, those amount to go -- I mean, to go down significantly in the range up to 1.5 years, so up to the end of 2025. So this year, it's like Banca del Fucino, the end of 2025, the amount should be -- maybe not 0, but close to that.

Thank you, Andrea.

Now we do have the final question here. So...

Final. Maybe someone will post something else.

Let's hope. And so what about the Capital Market Day? I believe September was an option. Should we expect something before the year-end?

Yes. So we are discussing in order to present it before the end of the year. So for, let's say, organizational issues, also because we decided this year to close, let's say, the first half of the year later with respect to the past -- if you remember. We usually closing in August this year. Also for the acquisition we made, we decided to do it in September. So there are some black periods. We are also undergoing with other M&A. So we are still working -- our team is strongly working on other M&A. So we decided to shift from September. As far as today, we haven't yet communicated the date, but we are planning -- let's say, and our plan is to do for sure, before the end of the year. Now the target date is end of November. That is a good period because we close also the third quarter. And if everything, we will have some other M&A, that if we close also this kind of deal, is a period in which we can disclose our business plan with more -- let's say, with more information in order to avoid to overlap some black period or to not provide the full information also related to the M&A pipeline that we have. So end of November, as far as today, is the target period. So no more questions, Sanela?

No, no more questions.

Okay. No. So if everybody needs more information, of course, we are more than open to share this kind of information to you. Please write directly our Investor Relator, Andrea, that will be happy to answer to you. Thank you very much. So it's many quarters that we are giving positive results. We are working hard in order to continue with this kind of, let's say, results quarter-by-quarter. So thank you very much. Thank you, Andrea. Thank you, Sanela.

Thank you, Daniele. Thank you, everyone.

Thank you.

See you for the Q3 investor call. Thank you very much.

Thank you.

Bye-bye.