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 9 Months 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, Chief Executive Officer of WiiT. Please go ahead, sir.

Yes. Good afternoon, everybody, and thanks for joining in the WiiT conference call. This morning, the Board of the WiiT approved the results for the first 9 months 2020. It was a good result. We are very happy for the figures. I anticipate the highlights you can see in the presentation we sent this afternoon. The Chapter #3, the highlights of the revenue growth strong 47% compared to the last year. And the margin improvement in all the acquiring company that we acquired in the last 18 months. Consolidated revenue was EUR 44.8 million (sic) [ EUR 34.8 million ] compared with EUR 23.7 million, plus [ 47.3% ] and particularly focused in the high added-value service of Cloud services, cross-selling in the new customer, basically in the acquiring companies. And of the important, the new name we closed this year in the Cyber Security business because the new logo was all in the last 2 quarters is in the Cyber Security business. The EBITDA margin adjusted was EUR 12.4 million compared with the EUR 9.5 million last year, plus 30% (sic) [ 30.3% ] compared with the 9 months of last year. Thanks to the level of optimization achieved in the enterprise centered business and begin with the cost synergy because we begin to migrate all the data center business of WiiT area in the WiiT data center. The margin overall on revenue was 35.7%, a least decrease as expected last year because the acquiring company is running a little bit lower margin than main [indiscernible]. Consolidated EBITDA adjusted was EUR 6.4 million compared with EUR 5 million last year, 29.6% of the revenue. Sorry, the growth was 29.6% of the same period of last year with a margin on revenue of 18.5% higher than last year. Adjusted net profit, EUR 4.3 million, compared with EUR 5.3 million of last year. But last year, the company had a benefit for -- positive benefit for Patent Box effect for approximately EUR 1 million above. Net financial position, excluding the impact of IFRS 16 for the rent space and of course, in our net financial position, we include all the impact of the last acquisition of myLoc in the -- all the debt was EUR 83.9 million included all the finance for the acquisition of MyLoc and all the [indiscernible] of MyLoc business. In these figures included the earn out and the acquisition for Etaeria and Aedera business acquired in the January 2020 and not considered all the value -- the actual value of the treasury share. As you can see that the actual market value was EUR 23.7 million, and we can use part of that to pay a large part of the earn out -- the future earn out. In general, the sales -- the commercial pipeline is growing. And later Enrico Rampin can explain more on the sales outlook for the last quarter. But in general, the pipeline is fine. It is at the same level of the last year, but a little bit better. And the company achieved at the end of September, a very good rating ESG from Sustainalytics of our balance sheet and the rating was lower risk in terms of ESG impact. Now we can jump direct to the Slide #5 and we have explained already on the sales, revenue growth, 47.3% is on Slide #5 and constantly, the market is growing with project Cloud in Italy. But in Germany and in France, the same, is growing in the range of -- from 10% to 15%. Organic growth of WiiT was 13%, and the residual is the revenue for the M&A. The main impact is for upselling to existing customer. And we inserted a new logo in the Cyber Security business in the last -- particularly post the lockdown, because the lockdown impact generated a lot of request from the new customer to protect the IT environment for external cyber effect. Stock of selling of business customer. And in particular, in the business area, we begin -- we began to upsell to the Etaeria client with WiiT Cloud Business. EBITDA, the Page #6, EBITDA growth, 30% (sic)[ 30.3%] to EUR 12.4 million compared versus EUR 9.5 million last year with high concentration of Cloud services. The main growth of the EBITDA is incurring from the Cloud business. And we have a good cost synergy in the set of business, which we terminate to migrate all the data center business [indiscernible] -- in the middle of the summer, end of July, and we begin to receive economy scale in term of cost. WiiT margin is substantially in line with 2019 at 45.3%, a little improving compared with the 9 months last year, a little decrease expected in the first quarter of last year. But for WiiT [indiscernible] is single quarter because the impact of the [ una tantum ] business can increase or decrease a little the EBITDA margin in the single quarter. Last year, we had a good [ una tantum ] receivable for the project. And at the moment, we forecast for the end of the year, the EBITDA margin of WiiT in line with the last year in the range from 45% to 46% of the end of the year. Very important is the improving margin for all the acquired company. For example, Adelante increased from 17% to 22% (sic)[ 17.7% to 22.1% ], 9 months. Matika increased from 25.7% (sic0 [ 25.6% ] to 27.8% and Etaeria margins at 20.5%. But considering that the migration of the data center is starting in July. So our expectation is to increase the margin next year. Adjustments concern is EUR 0.5 million (sic) [ EUR 0.4 million ] of revenue of overall impact of tax credit and the M&A nonrecurring costs for EUR 2.1 million. The last part is the cost of the myLoc transaction, and we included in balance sheet in the September of this year. We can go to the net profit in Slide #7. The profit was EUR 4.3 million compared with EUR 5.3 million. In the last year, we have a positive impact on the Patent Box for EUR 1 million. If you exclude this impact of benefit, the net profit was very, very similar. And this year, we have over EUR [ 1.2 ] million of more amortizing in the same period. With more amortizing, we have the same net profit. Net debt was EUR 93 million includes all the IFRS impact. We had a very strong operating cash flow, because in 9 months, we generated EUR 10.8 million of cash flow. The impact of the IFRS 16, the rent, space, the office included the Germany business for EUR 5 million. I ask to my CFO, yes, approximately EUR 4 million is the impact of the last acquisition in Germany for a total EUR 9.2 million, and the impact of total acquisition of myLoc value for EUR 55 million, okay? This is included in the IFRS impact, okay? And including the total impact of the acquisition of the Etaeria and Aedera business for EUR 13 million. The EUR 13 million, we included all the value of the future earn out linked to the achievable result over the next 3 years. The CapEx was approximately EUR 6.4 million included the Germany branch. So we are openly in line with our expectation a little lower than our budget and is very good. The group dividend payment of EUR 4 million (sic) [ 4.1 million ] in May. And the buyback, we have the buyback running. The impact in terms of -- to cash, we used EUR 2 million cash to finance the buyback. And in the last quarter, the program is starting for an additional EUR 2 million. The present share value at actual market value is EUR 23.7 million. And we can use part of that particularly for the payment of the [ land ] earn out and Matika minorities earn out starting for the first half of next year. Okay. In general, we can, Enrico, if you can add some information about the sales situation and general COVID impact. And later, we can proceed with the Q&A.

Yes. Thanks, Alessandro. As already shared during the previous conference call, we are not currently used to share detailed information regarding the booking of the company. But in general, what we are seeing into the market that we confirm the resiliency of the business. That means that this year, the sales pipeline still remains good -- in this quarter still remains good. In general, the new booking is in line with the growth of the company compared to the previous years and compared also to the average private cloud growth rate. What we are seeing is that all the companies are growing. All the companies within the group, of course, we don't have a very long history in terms of comparison for part of the group. But in general, what we can see is that they are currently growing. We confirm that over the month, there has been a little bit of a change of the mix of products and services that the clients are asking to us because the Cyber Security is becoming more and more part of the business continuity risks the clients have to cover as a gap. The expectation for the remaining part of the year is remaining good. The pipeline is still in place and the things are running. Of course, there is a little bit of unknowledge of what is the expectation for the COVID impact and the things are going to -- what's going to happen in Italy. But at the moment, we don't see potential situation that may face a warning in the new booking itself. As mentioned by Alessandro, also the one-off activities normally are the upgrades of the end projects that the clients normally used to do during the year. They changed a little bit their scheduling of the activities over the months because there is an impact, of course, in their planning -- internal planning as usual. But we do not currently see any warning also in this case. So we stay positive. And we have seen a very good first touch points with our peers in Germany, the market seems good. The confidence of the business is still good. Also, if they are experiencing more or less the same COVID impact as we are facing in Italy in terms of lockdown, but they already see -- are seeing the results of this October, and it seems that they are still remain good. I don't know if there is something else, of course, Cyber Security, we already shared and -- but we still...

[indiscernible] to Francesco for a quick update about M&A?

Yes, if you want, I can add something, a very brief update on the M&A operations. Well, let's start from the beginning. We are pushing very hard on the integration and positioning benefits that are resulting from our latest acquisition, and I'm referring specifically to myLoc in this case. As you are probably saying, the company appears to be very good from all points of view. And just to name a few, the management team is, for sure, very capable. And they immediately integrated with us and also as Enrico was saying, commercial activity appears to be proceeding very well, even in this very peculiar period we are all in. But apart from this, we are also very -- we were also pleasantly surprised by the goodness of the automation platform that they developed. And we knew that was something good in that perspective, but we've been very surprised to see how good it is. And we plan to use this platform also in other companies of the group and in particular in its area. And in other words, we are finding cost synergies in Italy that we have not planned, and this obviously makes us very, very happy. And we are definitely very happy by the acquisition of myLoc. But talking about the future and other new options, our pipeline of new potential targets continues to be full of options, let's say, so. For sure, we would like to leverage our new position in Germany, and therefore, we are focusing heavily on consolidation options there. But we are also having a look at other value markets in Central Europe. And in this perspective, we are also seriously looking at some opportunities in the Software-as-a-Service space. And more specifically, this Software-as-a-Service opportunities are related to our traditional business, I mean, infrastructure and Cyber Security. And one of these opportunities seems to be particularly tasty. And that's almost it. And just to sum up, I could say that if possible, the acquisition of myLoc has increased our appetite on our -- and our determination to acquire market share in the most attractive markets in Europe. And as always, we cannot promise anything except our maximum commitment to bring new opportunities for strategic growth as soon as possible. And that's almost it.

Perfect. Thanks, Francesco. We are ready for a Q&A session.

[Operator Instructions] The first question is from Michele Baldelli of Exane BNP Paribas.

I've got a couple of questions. The first one, a simple one. I start from the simple. So basically, the number of treasury shares that you have on the books at the end of September, if you can give us the right number? And the second is on the contribution on the top line on sales in Q3 of the newly acquired Etaeria and Aedera, if you can provide these details, please?

Okay. Okay. About the first question, a number of treasury shares. First of all you have overall? Yes. We have 36,000 is the number of shares we owned at the -- well, I want to check the exact figures. I remember 146, but -- okay. The second question about the top end of Aedera, okay? Overall, this Aedera business is -- the revenue for the 9 months was EUR 5.6 million in Etaeria and the EBITDA is 1 point -- EUR [ 1.152 ] million overall is EBITDA. EUR 5.6 million, the revenue of Etaeria and 1.15, okay? The only share is roughly -- this is the figure Aedera -- this is the end of September. The owner share was 136,000, but consider that in the start of November, we'll start a new program to purchase, and we buy -- we bought additional 100...

Yes, we are at 144,000 up to now.

Okay. I don't know if you've got also the data for the H1 on the sales of Etaeria by the chance because I didn't remember for Q3.

EUR 3.6 million. The first quarter was -- EUR 3.6 million is the revenue for the this one.

The next question is from [indiscernible] of FL Investment Group.

First, congratulations for a great set of results. I have 3 questions, if I may. Do you have any comment on the recent SAP warning showing more prudent mood towards cloud penetration? My second question, could you give us an update on the M&A, especially deals that were in advanced stage in France and Spain, have you given up on it? And finally, what is the potential earn-out amount to be paid to myLoc?

Okay. [indiscernible] for SAP. Enrico you can share your -- our perspective and outlook.

We've seen the declaration of SAP, but we don't believe that currently, WiiT will be impacted by this sentence -- the statement for different reasons. The first one is that, we are in a hybrid cloud provider, and we are focused on many different application space, application in general -- this is critical application. I mean, SAP is focused in large corporates. The second -- and this is one of part of feature. Normally, our clients are used to choose the provider that can guarantee them the capability to have the governance overall, the landscape -- application landscape that is of normally made of several many, many important applications for the logistics, departmental application verticals. So not only SAP, e-commerce platform are normally non-SAP, business intelligence are normally outside. So in general, we are not impacted. And in reality, the businesses which belonging to SAP itself is...

20% of the [indiscernible].

Yes.

It's a tool to enter the customer, but we manage all the applications, not only SAP.