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 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.

Good afternoon. Thanks everybody, to joining our conference call. The Board of Directors this morning approved the final results 2020. With me are our [indiscernible] our Sales Director; [indiscernible], the COO. And we can -- on the end of the presentation, there is the Q&A question, we can answer all the questions you need [indiscernible] presentation. Starting for the highlights. You have received the presentation. You can follow the presentation with your [indiscernible]. Starting for the highlights, Page number 3. Strong growth in sales confirmed for full year, the sales growth, 54% compared with last year and a very important [indiscernible], the increase of the order backlog to over EUR 100 million, increased over 50% compared with the previous year. The cost of adjusted revenue was EUR 52 million compared with EUR 33.9 million in 2019. And thanks to the organic growth, consider that in our business, the market is growing over double digit and the company continuing in their organic growth. The cross selling with all the acquiring company was well, because we're starting to sell our [ cloud ] value services to the customer base of the acquired company. And of course, there is a good contribution from myLoc business, our German last acquisition only for the last quarter, but the results you can see later, was very, very well and increase the result of the group level. Consolidated EBITDA growth faster to EUR 18.3 million compared with EUR 13 million last year, 38% plus compared to 2019, and thanks to the focus on cloud services, thanks to the accounts of scale of our business model and the cost synergy. Remember that all the acquiring company, particularly in Italy, we have forecasted a lot of cost synergies. And in the last year, we began to achieve part of them. EBITDA growth to EUR 9 million compared with EUR 6.8 million last year, plus 33% with a margin or annually 17.2%, despite the increase of amortizing and depreciation from EUR 6 million to EUR 9 million. So we increased amortizing, but we increased our EBIT margin. Adjusted profit EUR 6 million compared with EUR 5.6 million. Consider that we have not the impact -- the positive impact of Patent Box being determined because we are at the moment to renew the [indiscernible] benefits. In these figures, we don't include the -- with determinate positive impact. Net debt, of course, including the IFRS 16 for the rent of [indiscernible] in Italy and abroad in Germany for EUR 9 million was EUR 95 million compared with EUR 25 million. This value is particularly impacted the -- of course, the German acquisition of myLoc for approximately EUR 55 million and all the Etaeria business of Aedera included the future in [indiscernible] for approximately EUR 13 million. In this value, the evolution of the treasury share is not quantified. And the real value at the end of December was EUR 24 million. Backlog, EUR 100 million, but we increased it EUR 32 million, okay? Now we can go in the detail to Page #4. At this stage, it is important because of the pro forma results. We can explain exactly the figures with the assumption of full consolidation of our German business, myLoc since 1 January 2020. The pro forma range was EUR 65.4 million, EBITDA pro forma adjusted was EUR 24.7 million and confirmed trends and the achievable of the results of 2021. Pro forma EBITDA adjusted was EUR 12.4 million, 19% of the revenue and pro forma net profit, EUR 9.3 million. We can go to Page #5. We haven't impact in terms of COVID. Considering the model of business with high recurring revenues of the WIIT that we have over 88% of the revenue or current major long term contracts and we would -- and expose with [ blue chip ] customer, we don't have a relation with the small new business. We have not -- [indiscernible] recording 2020 results in terms of use of use of [indiscernible] or in terms of net debt. So the company was [indiscernible] revenues and the figures confirm that. We can go to Page 6, but revenue was exactly what the market expectation forecasted last year to EUR 52 million and positive organic revenue growth. Later, we have a single slide where you can see the single -- how's running the single business or civil company acquired and with the group. Cyber security and the smart working driven, particularly the organic growth last year. Company changed a little bit in the model and stay more [indiscernible] working and reduce the [indiscernible] of the office, but request more service internally for [indiscernible] to able to working smart and in the last year, we closed a lot of our contract. You can see in our public disclosure in the market about Cyber security and smart working Cloud. Cross-selling was started. The first contract with the acquired company was signed in [indiscernible], but the returned in [indiscernible]. Then in the first quarter of this year, we signed another company important in acquiring company's customer and we think in the next 2 years, we can improve the strategy and increase a lot of the sales in all the customer require. In general, M&A is very, very successful story for WIIT because we don't buy all the customer and EBITDA margin. But with the integration in terms of sales and the operation, we can create more value. EBITDA adjusted, Page #7, a 38.8% is the average. Of course, you have considered that the breakdown -- the margin breakdown where -- with the margin is 44%. If you compare with the 42.9% is not exactly like-for-like because the figures last year, we included all the revenue in the company. And in this view, we changed the accountable and we deduct, of course, all the revenue in front of intercompany. So the margin -- real margin is exactly the same with the same accounting. Adelante increased from 17% to 21%. Matika margin was 27%. And Etaeria is the last company we acquired in January, running 19.5% but in the margins we approved last week, it just forecast for -- for 2021 and increase the margin to 22%. So the first year is a transition year. We started to migrate all the infrastructure in [indiscernible] center in July. And just in the first quarter, we will see an increase of the margin of the current business. MyLoc is a very, very such a certain point, 43.9% is the result of the last quarter, but the full year result was 45%. And we hope in Germany, we can see often such a story in our business. We are turning this business from Germany with a very positive impression of the first contract with the customer myLoc. We begin to hire a new sales director, and we are very, very optimistic in general for the market in general. Just a concern about EUR 400,000 is related to the tax credit for the cost of goods of the tax office for the [indiscernible] last year. And M&A nonrecurring cost is EUR 2.4 million is the cost of advisory of the good diligence in Germany and all the costs related to the 2 acquisitions we completed still. Okay. Net profit, Page #8, EUR 6.1 million compared with EUR 5.6 million without the Patent Box benefit. We don't include in the figure of 2020 the Patent Box if we obtain from the tax office, the same vantage of the last 5 years, we can [indiscernible] obtain a tax rate in the range from 16% to 18% of the gross profit. Debt increased strongly to EUR 95.3 million, mainly for the acquisition effect of multiple German business and acquisition of Etaeria. Consider that we spend EUR 55 million from myLoc and EUR 13 million for Etaeria included all the future now -- is now like is just achievable and we spent EUR 10 million CapEx. EUR 10 million will include all the 2020 CapEx of myLoc for roughly EUR [indiscernible] million and EUR 6 million is the capital [indiscernible] exactly what the analysts had forecasted in the data analysis. So we are paying exactly the figures of the market expectations in terms of value EBITDA, EBIT and pure CapEx. Treasury share -- I'm sorry, and we spent roughly EUR 4 million in treasury share buyback, of course, impacted the net debt because all the treasury share value is not included in our liquidity. The treasury share value at market value at the end of December was EUR 24.3 million. In terms of net debt, we are adjusted, of course, inside all the finance covenants we have negotiating our contract with the [indiscernible] bank, and we are absolutely in comfort zone. Consider that in the financial covenants are [indiscernible] all the [indiscernible] future, all the impact [indiscernible] and therefore is [ excluded ] all the cash of the share. So the ratio net debt EBITDA to clearly understand how is the covenant, we are 1.6x the net debt-to-EBITDA in the currency, we are 3.2x. We are absolutely in [indiscernible] space or in for additional M&A in the future. Okay. Take away, in general, full year results 2020 are in line with our approved budget in general with more expectation, internal revenue, internal EBITDA and net debt to EBITDA. Market continuing in a positive trend to growth because the company continued to push in the cloud application and our view -- so that in the first quarter, the visibility we have in this quarter is good. And at the moment, we are very comfortable to confirm what is the market expectation for 2021. At the moment, we have a positive outlook for the first quarter in terms of sales, and we see it in the second quarter of the group. Okay. We are ready for the Q&A question, of course.

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

Just a few clarification on my side regarding the organic growth in the fourth quarter and in -- at full year level? The second one is on dividend. I was expecting a 60% payout, i.e. think you slightly revised the payout ratio may be due to the different definition between adjusted and reported this year that you had an important impact on your reported bottom line. So if it's the correct interpretation. And the third one on basically the subsidiary profitability? Do you expect additional improvement this year in respect to 2020 levels for Matika, Etaeria and Adelante?

Okay. [indiscernible] about organic growth. I can give you some of the time -- about the fourth quarter, WIIT organically, first quarter growth, 21%. The revenue adjusted was roughly EUR 7 million, EUR 7.05 million. In general, for the full year 2020 organic growth was 14%. This is the organic of WIIT. And we don't term up at the moment, organic with a single company because consider that Matika we acquired only in July '19, and we have the result full year. Next year, we compare it exactly the full year of the acquiring company. But the WIIT is EUR 27 million is a large part of the business. The second question about dividend. Sorry?

Yes, I was asking on dividend. Yes.

The dividends, sorry. [indiscernible] consider that we have extremely covenant, we had to reduce the payout because we can pay 60% only if the [indiscernible] does stay under one [indiscernible] time. We stay actually at 1.6x. So the [indiscernible] is 30% is roughly EUR 1 instead of EUR 5 for share. This is the proposal of the Board for the shareholder meeting in May because the finance governance is limited the possibility to pay out over 30%.

Alessandro. Sorry for asking you. Could you remind me the exact -- because I didn't get the covenant threshold. What is in terms of the lines of EBITDA?

For the dividend, for dividend?

No, no, no. Just the covenant for that your maximum...

We want to stay under 3.2x net debt to EBITDA. But the definition of net debt is not the net debt of our balance sheet because in the contract, we exclude all the IFRS 16 impact. We exclude the future amount but we include in the liquidity, the cash, the value of the diluted share. So for the banks, the net debt to EBITDA was EUR 41 million, not 1.95. We are 1.6x -- 1.65x net debt to EBITDA compared with EBITDA pro forma. And the covenant was if the ratio is over 1.5x. There is a limited to payout of 70%. If we stay under 1.5x, we can pay 60%.

And what about the profitability of your subsidiaries that you based on January and February trends? If you expect further improvement.

Yes. So I consider that our Etaeria business migrate all the facilities, the infrastructure from external to center to our facility at the end of July. So the [indiscernible], we have only for the second half and for the 2021 is full year results. So on [indiscernible] synergy, we have improved our margin. But in general, Etaeria business run very well. We closed over 1.6 million of new bookings and in this business, the booking is always anticipated a lot of expected revenue. All the book of 2020 is a revenue -- it's more revenue for 2021. So the expectation of this is to improve a lot the margin Etaeria in terms of absolute EBITDA, but in terms of percentage, from 19.5% expectations to increase to 22%, 23% EBITDA margin. Okay. Matika is just around in 27% can achieve sure more, but it just is a good factor and Adelante is just increasing from 17% to 21%, we closed what we -- last week a contract with the [indiscernible]. We cannot name the name of the customer because there is disclosed -- a non-disclosed agreement, but we had another important name in the station [indiscernible], a client of Adelante when we started to sell our [indiscernible] services for the critical application landscape. Okay. So in the 2021, the mix of cost synergy because we use more of our facilities and increase of cross-selling create our optimism in terms of expectation to increase the margin of the current company. And we think we can stay to the same level or a little better.

The next question is from Hugo Voillaume of Raymond James Asset Management.

Yes. I was just wondering, I think that you started to answer the question yet on the myLoc acquisition. To what extent can you grow the margin, do you have any target? And my second question is on your net debt to EBITDA. Do you have any target also in terms of ratio ever in absolute term or in the -- with the adjustments that you make with and out, et cetera?

Okay. Okay. About the margin of myLoc is [indiscernible] because the starting point is 45%. In our consideration is in the next years -- in the next 2 years, we want to invest in terms of OpEx because we have higher and all the skills, we required in local to be able to propose our high-value services. So in the short term, we don't see to increase the EBITDA. But in the medium term, and when we speak of the medium term, it means 2, 3 years, we can increase that because our revenue services, of course, push up the margin of the myLoc, but not in the short term. Now we had to -- need to hire and of course, if you can maintain the same margin, but with all the employees we need, we are happy. In terms of debt, how is our strategy? We want to maintain under 3x ratio to net debt to EBITDA. It's been important to us to have a very healthy -- financial healthy company because we manage the head of the company. Our competitor is IBM, [indiscernible] is very, very big corporation spread globally, and it's important for [indiscernible] for our customer to be sure that joining WIIT, but enjoying safe. So high debt is not a good choice of a provider [indiscernible] issue or at your acceptable and with our model business with long-term contract with -- you can see that we have [ EUR 100 million ] of backlog for the company, have a good visibility for the next 4 years, we can already paid the EBITDA in [indiscernible].

And just in terms of synergies with myLoc, could you like quantify it for now because I understand that you have to invest in the short term to do some recruitments, et cetera. But like in the medium term or like in the immediate term, what could be the immediate synergies and the near-term synergies?

Yes. We have same synergy in environment because we want to expand the business myLoc to our core business for cloud, for [indiscernible], sure, okay. In terms of sales synergy, yes, midterm. But meantime, we are, of course, M&A in our DNA, and we are looking in Germany for an additional target company smaller than myLoc. In this case, we can create synergy cost because we can use more the [indiscernible] of myLoc. Consider that, we was last week in Germany, and we are very, very happy [indiscernible] that there is a second campus of Germany in terms of size. So the first campus is a clinic in Frankfurt, the second largest campus to the center is the myLoc. So we have a good asset. And in case of M&A in Germany, that is, of course, in one of our issue on the table. We can create cost synergy, we can switch off the center of the acquired company and create the same mode of Italy. In Italy, we acquired a company with the center, which we switch under the center or we switch off from an external center, the same in Germany [indiscernible]. Sales in terms of expand our solution to the customer base of myLoc and cost in case of M&A.

The next question is from Michele Baldelli of Exane BNP Paribas.

I have 2 questions. The first one relates if you can give us the details of the sales level achieved by [indiscernible] and the one of Matika in 2020, please? And the other one relates to the one-off costs, if I'm correct, they are around the EUR 2 million. But if you can just precise them, it would be great. And the third one is about how much PPA amortization is there in the depreciation, amortization, please?

Okay. I'm sorry about the second question, the audio was not good. If you can repeat the second question.

Yes, sure. It's related to the one-off costs that you had this year for the M&A. If you can confirm that they are EUR 2 million or if you can give the precise amount?

Okay. Okay. So thank you. The first question about the revenue of the current company. So it's a second Etaeria closed 2020 with EUR 7.5 million revenue, Adelante EUR 6.7 million and Matika EUR 9.6 million revenue. The second question about one-off, I confirm that one-off was -- second -- EUR 2.4 million. EUR 2.4 million is all the M&A cost for the 2 transactions, myLoc and Etaeria.

EUR 2.7 million?