Wiit S.p.A. (WIIT) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Wiit Full Year 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO. Please go ahead, sir.

Yes. Good morning, everybody. Thanks to join our -- joining in the conference call for the results full year Wiit. Today, the Board of Directors approved the full year results '19 of the company, we are very happy for the results. I start with the highlights and the second time, we have a session -- Q&A session, if you can question about the results of the situation. So consolidated revenue of the group was EUR 33.9 million, increased compared to EUR 25 million of the previous year and growth of 34.4% expected during the year. The pro forma revenue grew 3.5%. But later, we can see with a different mix of revenue and we can achieve a good result in terms of profitability. This result is related to excise in the client upselling, new client acquisition and the acquisition -- and the consolidate for the first alpha of Matika we acquired in July of '19. Consolidated EBITDA adjusted of EUR 13.2 million comparing to EUR 10.4 million last year, growth 26.7% compared of the last year. The margin of revenue is 38.9%. [indiscernible] profitability and the level of optimization achieved in the organization. This is very important because the acquiring company, of course, running with a lower EBITDA expected Wiit. But in consolidated, you can see later in the pro forma adjusted, we can increase the total consolidated results, adjusted EBITDA pro forma grew 12.9%. Margin sales is 36.6%. Consolidated EBIT adjusted of EUR 6.8 million compared with EUR 5.3 million in '18, growth of 27.3% and a margin of revenues at 20.1%. Adjusted net profit of EUR 6.7 million -- EUR 3.8 million 2018. Growth 73.9% with respect to the previous year. Thanks to operating income and the positive patent box effect close to EUR 1 million the impact -- the positive impact of the patent box in this year. Net financial position, excluding the impact from the application of IFRS 16, the rent of the space office for EUR 5.5 million, the debt of EUR 20 million compared EUR 3.3 million the last year. In this value, we don't consider the valuation of a treasury share in the portfolio. Last year, the company continued buyback and on the end of the year, we have approximately EUR 12 million of own share at the market value of 31 December '19. To be clear, when we speak about the adjusted EBITDA, we excluded all the impact of the cost to [indiscernible]. The company is talking in the main market since April. We're excluding the extraordinary costs about M&A and the PPA allocation, the depreciation of the goodwill we introduce in this balance sheet. So you can follow in the jump -- in the Page 4 of our presentation. Strong revenue growth this year 54% -- the contribution of market for 6 months is around EUR 3.7 million. So the organic growth is very strong. And the pro forma revenue growth 3.4% lower expected total reported, but with a different mix of revenue, the acquired company, you can see later -- in the slide later. Change the mix of the revenue, sell more value services and reduce the sale of hardware or the service with lower margin. So the impact you can see in the page later, increased more the EBITDA margin. The EBITDA margin reported growth very fast, 23% to EUR 13.2 million, Slide #5. By the pro forma, we included all the acquisitions since 1st January '19, considering important market positions and the margin pro forma growth 12.9%. So the revenue pro forma growth, the EBITDA margin, 12.9%. So the change of mix revenue achieved the results. Very good the result of the single acquiring company. Market improved the margin from 20% to 25%, for example, and that margin is improving from '19, we've see Adelante from 15% to 17.7%. So the total EBITDA margin pro forma growth very well because from 33.5% to 36.6%. This is the result to the good strategy because we in this -- just in this first 6 months, we consolidated the credit company. We start upselling the high-value sales with to the customer base of the acquiring company and the other services with lower value, and this is the result. The EBITDA margin pro forma going up very fast. The Chart #6 about net results. This is, of course, the bottom down, the results is the bottom -- the net profit growth from EUR 3.8 million to EUR 6.7 million. In these results, we have an impact of patent box referred the last 5 years. The impact is EUR 1 million, but the positive news is that in December, we renewable with the tax office, Italy tax office, the agreement for the patent box for the future another 5 years. So we expect to reduce tax rate considerably in the next 5 years. Net financial position is, of course, impacted for the M&A activity. the company, continuing the strategy to grow organic. But with M&A, we want to achieve a faster strong growth in terms of revenue. Of course, the M&A is financed with the company. So in this year, the net financial position, we closed EUR 20 million, excluding the impact of IFRS 16, but we spend -- we included this net debt with EUR 7.9 million about the minorities payable and the future earn-out. We assume in this balance sheet, we pay [ every filling out ], so we insert all in the debt earn-out, but we can pay a large part of them, EUR 6 million of earn-out, we can use the treasury service we have owned and -- so we haven't paid our net debt EUR 12 million of value to share, but we can use to pay the debt. Strong operating cash flow generation of EUR 11.8 million. The CapEx expenses are total under control because we spend approximately EUR 5 million related to new orders and to improve the new quarter. We hope to use the next month, our new [indiscernible] working. But EUR 5 million is absolutely under our estimate in our budget. The business model Wiit create economy of scale because we don't need -- we don't demand CapEx proportional to the business growth. Our facilities, the centers are currently 40% occupational rate, okay? And so we don't need a important additional CapEx to provide service for the new customer coming in our company. In this year, the buyback program, of course, it's been completed for a total value of EUR 4.3 million, and we have now 2.5% of the share capital of the company. We use this treasury stock to pay the minorities, the earn-out. And of course, for the future M&A, we forecasted to use this treasury to pay a large part of the enterprise value because at the moment, the negotiation we have another situation. Now the remainder, we proposed to pay in treasury. We receive a lot of interest from the seller to serve with share in -- to pay the enterprise value. So this is [indiscernible] I think we are ready to Q&A session. Thanks.

[Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.

Just a few follow-up on Matika and Adelante margin levels. I appreciate that you were able to increase the profitability of Matika up to 26% and Adelante roughly 18%. Do you expect to reach a further increase, I mean, more in the region of the weak -- strong profitability [ 46 ]? Or is something that you will -- I don't know, you will achieve with synergies over time? The second question is on patent box. You said that you expect a tax benefit for the next 5 years as well with a strong reduction in the tax rate. Could you please quantify the impact, I mean, in terms of tax rate reduction? Should I expect a similar reduction in tax rate as witnessed in the last year and this year. And lastly, do you see any impact from the coronavirus? I mean in terms of M&A pipeline growth, you said that you expect to close an acquisition in France or in the rest of Europe, I don't know. Do you see any delay, any risk of delay for this M&A activity?

Okay. Thanks for the question. The first question about the margin of the Wiit, Wiit -- I'd say, the Board is running now at 46% EBITDA margin, I think we can improve a little better, but we have at the moment, a high situation in a higher range, it's not possible to achieve a lot more. But in the next 2 years, we want to accelerate the integration of the foreign company. I think Adelante, Matika and the last one we acquired in January. We had a lot of synergy in terms of cost. So we think we can increase the EBITDA margin of the acquiring company so we can increase the average of the EBITDA margin growth. And so if we think we have a space to increase the average from 36.6% more. But I think we have a lot of space to increase with margin 46% is very, very high. The second question about patent box. I have not very, very clear the benefits. But in our estimate, the tax rate, we forecast in the range from 14% to 16% tax rate, depends a lot of the business because the impact in terms of tax in Italy is very complex, depending on -- if the government renewal or no, -- the super amortizing of the CapEx is one issue. It's one -- so it's also simple to define Italy very, very clear tax rate. But sure, we have 55%, 60% of EBIT of lot of profit with the exclusion of the patent box. So our expectation is in the range of tax rate from [ 14 to 16, 17 ]. This is there. About the third question on the coronavirus. I think Francesco can add any information. I introduced that sure, we expect -- our expectation is to a little delay in the process because with this situation in France is very similar like in Italy, and the duties process is simple to begin. Francesco, do you want to...

Yes, yes, I do agree with you. We are continuing to work very hard on M&A, both in Italy and abroad. And we don't expect any significant negative impact, except what Alessandro was just mentioning we are expecting a delay of a quarter or maybe 2 because as you can easily imagine, it's not easy at all to negotiate to do due diligence and other -- and all the other phases that we have to complete in an M&A process without moving especially when we are talking about cross-border M&A. So in short, we are still working on the targets we had before and both in France and in Germany. Some new potential targets in the meanwhile, emerged both in these 2 countries and in Italy. So we are quite positive, and we know it could be also -- we could also have a little advantage in terms of negotiation of the price because as you can easily imagine, this situation will lower the expectations of the sellers. So to sum up, up today, we don't have any negative expectation on M&A process.

Okay. Just a follow-up on the outlook for 2020. So you do not expect any major disruption from, if I understood correctly from the coronavirus? And do you expect to increase the buyback program for 2020, just to return extra cash to the shareholders or to use them for a mini purposes? What do you expect?