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 First Half 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO of Wiit. Please go ahead, sir.

Yes. Good afternoon, everybody, and thanks for joining on the Wiit conference call. The Board of Directors this afternoon approved the results of the first half. We are very satisfied for the results. Of course, you can see in our presentation and confirm the high growth of the company and core business, strong growth. And Wiit and all our subsidiaries continue to improve EBITDA margin with upselling and cross-selling to our existing customers. We can go to highlights. And after the presentation, is the Q&A session. So we can start to see -- to jump to the Slide -- Page #3, where you can see the highlights. Strong -- we have strong acceleration of sales, 56% compared with the last -- the previous year, mainly driving for organic growth. We have a good selling in this period and the full consolidation of the acquiring company Etaeria [ consolidation ], you can remember we acquired in the 1st of January of this year. And the full consolidation of Matika we acquired [ in the last ] year. In terms of EBITDA, EBITDA adjusted growth to EUR 8.2 million compared with EUR 5.9 million previous year, plus 40%. Thanks to the level of optimization and organic growth, the main growth of EBITDA is achieved with the organic growth of the core business. And consolidated adjusted EBIT grew to EUR 4.3 million compared with EUR 3.1 million previous year, plus 40% the [ same-year ] EBITDA of growth of the last year. This is the increase in amortization. We have over EUR 1.2 million more amortizing, but we -- the growth in the internal EBITDA with more amortizing. The EBIT margin was 18.7% of the revenue. The adjusted net profit of EUR 3.2 million compared with EUR 3.8 million last year. But the last year, we have had a positive impact of the Patent Box of [ impact ] of around EUR 1 million. So if you deduct EUR 1 million than last year, the net positive this year was higher than last year. Net financial position, excluding IFRS 16 impact for rent, is debt of EUR 31.9 million compared with EUR 20 million of end of year '19. In this value, we have, of course, the impact of M&A, M&A impact is around EUR 13 million. The [ EUR 40 million ] is the acquisition of Etaeria and Aedera business, included all the future earn-out and the acquisition of the minorities. We spent EUR 4.1 million in dividend payment. And in the dividend, we don't include around EUR 16 million of the market value of owning share. The buyback was finished in June 21, 2020. And now the company started with a new buyback since 1 week. Strong company -- in terms of sales, we are a little optimistic for the second half because the commercial pipeline is growing. And at the moment, we confirm the estimates for the analysts for the end of the year. We can jump to the Page, okay, 5 about revenues. The revenues was EUR 23 million compared with EUR 14.8 million. We have a positive impact of EUR 400,000 for tax credit, the tax office consider it a contributor for the [ profitability ] of the last year to the [ SaaS ] segment. The market continues to be growing. The COVID impacts don't touch the business of the company. During the lockdown, the company continued to achieving a new contract for the smart working request for the customer and cybersecurity. So this is the first-half result, it's very, very strong. Another point important is the breakdown of the margin. If you jump to Page 6, you can see the Wiit holding the core business, the Cloud services, Wiit margin was 47.5%, higher than 46%, and continue to grow for the economies of scale we create in our model of business. But most importantly is the performance of the acquiring company, Adelante's EBITDA growth from 17.7% to 22.4%, Matika's EBITDA growth from 25% to 27.6% and Etaeria's margin at 20.6%. And this margin is not reflecting the economies of scale where we're running from July because when we acquired Etaeria, we identify EUR 1.5 million in terms of economies of scale and the [ regional ] scale beginning from the second half. So our expectation for the second half and for the next year for Etaeria is to improve EBITDA margin, thanks to the economies of scale we used with [ data center ]. Adjustments concern impact of tax credit is around EUR 100,000. So in general, EBITDA margin average going up is in line with the budget -- [ little bit of ] budget. The core business is running very well. 47% is a good result for us, situation from this result. And all the subsidiary company is [ improving ] in terms of all the figures. Net profit was EUR 3.2 million. I just see in the last year, we had a positive impact of EUR 1 million. So in the second half, our expectation is that we improve the net profit compared to the last year. We have the Patent Box standards for 5 years. And these figures, we adjusted a positive impact of the direct tax rate, tax rate of lower to 20% for the Patent Box agreement. Net debt. Net debt is impact of a strong generation of the cash flow for the [ consolidation ], EUR 8.5 million. It's the improvement . IFRS 16 effect is around EUR 5.6 million. The impact of acquisition, M&A, improved the earn-out and is EUR 13 million. And considering we have EUR 9 million inside our net [ debt ], the company can see to pay with owner share. So the debt is all inclusive in net [ EBITDA ], but it's not inclusive the value of treasury shares. At the moment, it's around EUR 16 million, considering the market value of end June, Group dividend of EUR 4.1 million and the CapEx expenditure of approximately EUR 4.1 million, mainly the new [ CapEx ]. I remember the company used expenditure CapEx for EUR1.5 million in maintenance and the residual are for the growth for the new contracts. Shareholding structure -- no. Okay. So the -- take away, we are ready for Q&A session.

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.

I would like to have some clarification on the organic growth trends in the second quarter. I guess there was an acceleration in respect to the first quarter. Then, I would like to hear something about the update on the M&A activity, especially for France. And I guess, also for the Italian market. You were in the pipeline, the acquisition of a cybersecurity company, if I remember correctly, if there is any news on that front? And third, on -- I mean, on the -- your confidence on the full-year [ consensus ], now you reached a very interesting EBITDA performance in the first half, EUR 8 million EBITDA, I guess, for the full year. I don't know if you are confident to, let's say, see a similar trend in the second half and basically roughly to expect the EUR 16 million EBITDA that would be a good estimate as of the current consensus set?

Okay. I answer first M&A. In the middle, I check, there's actually figures about organic growth. But M&A, we have a lot of the received payable at the moment, not only France. We opened new orders in Central Europe, specifically in Germany. And in Italy, confirm the analysis with the market, specifically in the cybersecurity sector. I cannot give you a specific timetable to [ successful ] M&A acquisition. But our view is -- our expectation is to close 1 M&A until end of this year. This is our -- at the moment, this is our general view. Of course, when you speak about M&A, if you don't have the for you, the share the moment, then we can share the table, and we hope to close 1 M&A, one important M&A, internal size for the end of this year. About the market expectation at the end of the year, we confirm then the steam is there -- then the market expectation consensus, around EUR 16 million EBITDA because we achieved over [ EUR 80 million ] in the first half, and this business uses the second half as more high prospect in the first half. About the first question, we have organic growth of 7%. But in terms of EBITDA, 16, much higher -- sorry, on EBITDA growth organic, 17. Okay, 17%. The revenue growth organic was 7%. The EBITDA growth was 17%. Okay. This is the organic route, depend a lot on single quarter, user market growth from 8 to 10, our expectation is continuing to grow organic in the range from 7%, high single digit to double digits. This is the range we want to achieve this year in terms of organic.

Thank you. Regarding the major contracts that you added in your pipeline, what kind of factors are you basically seeing growing trust, especially, I don't know, for smart working, cybersecurity services, if you notice an interesting growing demand, and so which industry, I don't know if it's more in the luxury sector or in other sectors? And another question regarding the general trends of the industry. There is an increasing interest from the government on the data center activity. There are discussions the single network around Telecom Italia, and they are also starting out the data center by end of October. And I don't know what are your latest thoughts on this? And also, the recent -- there are some rumors regarding the IPO on the Snowflake in the U.S., if you have any read across from these latest developments on the sector? Thank you. So basically, the customers that you have added and the recent developments in data center sector.

I think can answer this question about the market and the...

The first was the question regarding the business needs from -- rising from the customers. What we see is that the business needs in terms of smart working cybersecurity and the services connected to the focus of Wiit has spread across many different segments. Over in the last quarter, probably due also to the COVID, changed a little bit the priorities. What I saw is that a customer changed a little bit the business needs in terms of cybersecurity, with a higher -- and [ there is also ] core business continued in smart working, with a higher priority compared to other services provided by Wiit. The segments in the industry are, more or less, all the same. Yes, the luxury but also the industrial segments are -- has been impacted by the cybersecurity effect. And so from that point of view, industries are spread. And in different, the same impact and the same vision is for the second half. What I've seen during the last month is that we had some important tenders in terms of -- coming from the companies we acquired. So I've seen some important tenders, in terms of sizes, from the companies we have acquired. That means that we will put the new services on their portfolio, and that increase the potential opportunities for cross-selling. For the question regarding...

The data centers, I think the opportunity for the state to consolidate a lot of data centers state users in all the [ Florence ] regional healthcare, but I think...

But this is...

Long-term project...

But in general, is the confirmation that the cloud trends are no more just a private priority, but is in general priority for all the countries. Italy is probably a little bit behind France and Germany, and this is one of the reasons for the expansion of our view for the foreign countries. And this is just the confirmation that the cloud trends are in place. And the reason behind that business: Regional security, performances, scalability reasons. So this is a good point because that means that the cloud trend will be confirmed for the years to come. At the moment, Wiit is not -- does not [ color ] very well. And it's not interested to [ color ] the state segment, public sector because in Italy -- Italy is a state that is not a very, very good payable...

We are not for as for -- despite the...

Reality is that the public sector is a very small part of our business, and we have some -- the companies in the public sector are only in the north part of Italy in Lombardy, where the payment and the performances required are higher compared to the other one. So it's not really a priority industry for Wiit in Italy. Abroad could be different because, of course, France and Germany are -- central government public sector would be a different statement. We will see as soon as we will have a positioning in that market.

About that question of IPO in U.S. I don't know this company. I don't know what...