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 2022 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.

Good afternoon, and thanks, everybody, to connecting our call. Board of Director WIIT today approved the results of the first 9 months '22. You can follow the presentation with the document I sent. And I just happen to give you some information about the results. In general, we are very, very happy for the results for the first 9 months because they are totally in line with our expectation. The revenue growth roughly 61%, thanks to organic growth and acquisition of the new customer and the contribution of the new company acquired in Germany in the last 2 years. I won't answer in detail more elements, we can jump directly to the Page #3. The result is achieved in Italy and Germany. You can see the chart, roughly 50% of the revenue is related to the Italian market and the residual in the German market, little more in German markets are about similar. In terms of profitability, we have 51% of the group EBITDA in Italy and 48% in Germany level. These figures are reported. You have to consider that in Italy, we have closed the acquisition in -- by the end of March, ERPTech, and in Germany, we have shortly closed in September, the acquisition of Lansol. In these figures, we have only 1 month of consolidated Germany in Lansol acquisition and only 6 months on the Italian ERPTech. We can go to the Page #4. It is very important for our business, 79% of the revenue was recurrent in WIIT in Italy and 77% at the group level. It means that all the acquired company is running with the same model of business WIIT, it means multiyear contract with the client and large part of revenue are recurrent. We have only 21% of one-off revenue means strong visibility for the 2023 figures we have forecasted. You can go to -- now to the page #4 -- #5, sorry. It's 5. The breakdown of the revenue. Total revenue was 85% (sic) [ EUR 85 million ] compared with 53% (sic) [ EUR 53 million ] for the first 9 months 2021. And we operating constantly growing market. And the organic growth was very, very good. You have to remember that in the first half, WIIT stand-alone, when we disclosed the market WIIT stand-alone in the first half, we grew 14%. In the first 3 quarters, we grew 17%. That means accelerations of organic growth in our core business in Italy. And in Germany, we have the same situation, because myLoc and Mivitec, the first company aquired at the year 2020, growth 20% organically. In Italy, the total revenue grew only 2%, because we have the effect to the rationalization of the turnover. I remember that we are in the moment to reduce -- we want to reduce all the business at a low value, like for sales of hardware and something consultancy business and we increased a lot our core business with a more high value service and more profitability for WIIT. The contribution of the companies acquired in the last 2 years was EUR 23.5 million related to Gecko and Boreus and only EUR 700,000 related to Lansol. It's only 1 month because the closing was in September. And EUR 4 million related to ERPTech, we have only 6 months. The full year result of term revenue for ERPTech is roughly EUR 8 million. And for Lansol, [indiscernible] is EUR 6.5 million in the value. In terms of EBITDA, the Page #6, the EBITDA growth from EUR 21.8 million to EUR 29.8 million and EBITDA margin at group level was 35%. This is a little lower because naturally, we have the dilution of the new acquiring company, ERPTech in Italy and Mivitec in Germany. And for this reason, at the moment, the EBITDA is a little lower than the last year. The personnel costs increased mainly from the new parameter of the acquiring company. And the big issue is the cost synergy, not only in Germany, mainly in Germany, we have more cost synergy. In the first 9 months, we have roughly EUR 6.3 million of cost synergy compared with EUR 3.1 million of the same period of last year. I just anticipate in this call, we have covered this more cost with actually for exclusive customer, we saved a contributor from the German government for us roughly EUR 800,000 in this period. And we have compensated more cost with these very, very strong organic growth. The breakdown of the EBITDA at the moment after the merge of the companies, we want to introduce this key parameter to disclose our profitability. And starting from this presentation, we give the market this EBITDA breakdown. Italy EBITDA was 36.8% and German, 33.2%. EBIT, Page #7, grow 30% from EUR 11.8 million to EUR 15.4 million, and this is exactly in line of our budget. The EBIT margin adjusted was 18%. In this case, German EBIT was a little higher than Italy because we have less amortizing in the Italy. The net profit was EUR 9.6 million compared with EUR 7.4 million in the first 9 months 2021. Page #8, net debt. The debt decreased naturally mainly for acquisition, we up to -- from EUR 140 million to EUR 100 million -- EUR 140 million was the net debt by end of last year to EUR 180 million, mainly from the acquisition of ERPTech, we spent EUR 4 million and Lansol EUR 18.1 million. Company generated a strong operating cash flow in this period. We spend money for treasury shares buyback for EUR 7.6 million. Payment for the last earnout and minorities are related to markets Adelante and Etaeria for EUR 5.6 million. This is in the last payment. This now after this payment, in the year [indiscernible], we merged all the company because we had 100% of all the acquiring company. The treasury share value is not included in these figures. If we take the value of the September 30 is approximately EUR 22 million. We paid dividends for EUR 8.4 million, and we have an IFRS effect for the rest of this phase of the percentage of this for us in general leases for EUR 10.4 million, very similar of the last year. The WIIT Group is not exposed to the risk of the interest rate because all the debt is, the last part of that, that is related to the bond with a fixed rate of 2.3%, but all the other EBIT related to the large finance loan for related to the [indiscernible] is a fixed rate. All the -- this quarter is below 2% of fixed rate. So we don't have exposure in the variable cost of the money. We are ready for Q&A.

[Operator Instructions] The first question is from Aleksandra Arsova with Equita.

Can you hear me?

Yes. Yes.

Okay, great. Just a couple of questions on my end. I just wanted to understand better the growth in organic revenues and how this is -- how the dynamics plays out with the decrease in gross margins in the third quarter? So as far as I understand, the organic revenues were accelerated in this quarter. So what are the main elements boosting the organic -- this organic revenue growth? As is until the first half of the year, organic revenue was more, let's say, sluggish for certain components. And how do you explain on the other hand, the decrease in the gross margin. So whether it's due to business mix or lower value-added activities or what else? And the second question is on the pipeline of other, let's say, of new contracts or partnership. Just yesterday, you announced this new contract with InfoCert with Tinexta. So do you have in pipeline, other big contracts? And maybe if you can give us some little bit of more color on the InfoCert's contract, is the EUR 8 million are everything you will get or if you are negotiating for maybe something on top of that?

Okay. The first question about organic growth, I confirm that the booking of the new order in the next -- in the first 6 half was very, very good. Thanks to this booking. The revenue increased a lot in the first quarter. You have to consider that we have always 6 months postponed the revenue compared when we start -- when we signed the contracts. The results in terms of revenue and profitability in the first quarter is related to all the booking of the first and the second quarter. In general, the booking was strong. I anticipate that. And in the second question about the dilution of the [indiscernible] is totally related to the acquisition, because ERPTech is not running with the same margin with -- I'll give you an example. The myLoc -- WIIT margin is itself is 38.6% for first 9 months; Boreus margin 37%, myLoc 47%. But ERPTech, this is the last WIIT in Italy is running with 15.2% in first 9 months, because the synergy we have just identified is running by January 2023. We have EUR 3 million of cost synergies to achieve. But the results of this cost synergy will be next year, not in this balance sheet. Acquisition, in general, the first year, we reduced a little bit our profitability. By the second year, we start to increase the profitability for the cost synergy. So this is the reason why the group level, EBITDA is lower than last year. We have 2 new acquisitions in the first year, the company acquired and is not performing with the same margin of it itself. About the first question about...

Also maybe the gross margin because as I calculated it, it's about 57% in the third quarter. So is this the same explanation for -- I mean, related to EBITDA or...

It's not gross margin. We disclosed on the EBITDA margin because we don't speak about gross margin in general. EBITDA margin.

No, no, sure, sure. But 1 can also calculate it, but okay, no problem. Maybe we can get to this later. So the second question was on InfoCert.

Okay. InfoCert, another point. InfoCert is important contract because it's a strategic partnership for the next 7 years. InfoCert decide to put in the WIIT Cloud, the important core business infrastructure with these over the company. The contract will start by January 1 2023, so the expectations will increase our revenue adjusted in the first quarter. And there is additional options to expand for other perimeter, probably in the next 2 months, we can disclose a very, very extensive contract because other infrastructure is very, very attached with the parameter we just signed. But this is the first step that we have just catering with the customer, possible evolution of 2 additional steps to increase the value of the contract over EUR 13 million. To accelerate the migration of the customer, in this case, we're starting to provide services with the InfoCert facilities. We're entering inside the actual contract they have with the InfoCert and we want to use the data central parallel of InfoCert for our customer base. In this case, we can accelerate the migration and we can start to involve to do billing from the first quarter, but it will be free. In general, this contract impacted sure the first quarter because there is something worked on to revenue from the migration. And in general about the pipe. I confirm what I saw when we disclosed the results of the first half, we are in very, very, very good level in terms of pipeline. And there is another 2 or 3 important deals in the last phase, and we hope we can sign by the end of the year, additional 2 deals. In general, the market is very, very growing and not only in Italy because to be honest, in Germany, during the first quarter, we have very, very good level of pipeline. German recovered was little late in the first half in terms of total amount of bookings, but if I see now the figures about full year 2022, in the first quarter, as well as the last. During the summer in Germany, we closed 2 important contracts and for this reason, expectation for the full year 2022 and partly for 2023, we are very, very optimistic about the results we forecasted, because the visibility we have now, thanks to this contract. The contract signed in Germany during the summer and the good level of pipeline give us confidence about the 2022 and ensure that in first quarter 2023. With the project InfoCert impacted our revenue for the next 7 months. It's a 6-month period of profit migration and we have more revenue during this period.

The next question is from Giorgio Tavolini with Intermonte.

I was wondering if you can provide more update on the InfoCert contract as a follow-up of the previous question because I was wondering if -- should we expect a linear distribution of revenues along the 7 year? I mean, expect to assume EUR 1 million revenues additional in 2023 or in the less in order to just for our modeling purposes, what kind of margin attrition you expect from this kind of contract? The second question is on the M&A. You mentioned in the press release that the refinancing need -- about your refinancing need that you -- the acquisition in the period are using the available liquidity without any additional debt. So I was wondering what is your financial fire power for new M&A with the current liquidity you have? And the third one is on the, let's say, the international landscape. International press last week was suggesting that many corporate are reducing or flashing the IT budget spending even on Cloud services and our mission critical services just to cope with the financial constraints. So I was wondering if you see any sign of down trading from your clients or competition on pricing with your competitor.

Okay. First one is on InfoCert. The contract is starting with a value -- early value of over EUR 2 million in the first year. And at the moment will be reduced a little bit for the first year. But for this reason, we have the option under discussions with the customer to increase with -- in second step by the contract. So it's not linear. We started with EUR 2.5 million early in the first year. At the moment, it's clear to reduce from the first year, but we hope to sign a possible extension with other facilities infrastructure. We remain the same value for all the 7 years. The moment is more revenue in the first 2 years and it's EBIT reduced from the first year. The margin is a little in line with our standard, but we have a little more CapEx because to accelerate the migration, we buy some infrastructure for the customer. So we added 2 CapEx, 1 from the customer and 1 directly to increase our capacity. So the margin profitability with our EBITDA is linear and in line with our standard. Probably we have a little more CapEx because we decided to match both -- something serves on the customer and using that to start early to provide a service. The target is to start to the product services in January 2023. The next question about fire power . At the moment, we have naturally pipeline other target in German country, but the size of the target, we are at the moment analyzing and we are join in the mid part of the -- not early stage but somewhere in advanced phase is small company with roughly EUR 5 million of revenue and EUR 1 million EBITDA before synergy. So the price value expected is that we can use our liquidity and we don't need additional finance for demand. This quarterly because at the moment the market is not friendly and the cost of the loan at the moment is roughly from 4% to 5%. So we don't need -- for this specific acquisition we are analyzing, we are in the hot phase. We don't see, in general, the last question about -- it is spending by the customer. We don't see significative decrease of demand in Germany and Italy. The opposite, we see that with the actual cost of energy, the actual program to deliver something hardware from the vendors, companies are looking to more core strategies. In general, what we look is we confirmed about our pipeline. So we have the highest level of pipe in the next 3 years. Now we closed this InfoCert, and not really the value of contract decreased, but remained very, very high. In general, we don't see issue about request, and we don't see, it's about price. Obviously, we work in a competition market, competition arena, and the pressure -- we live always in the pressure in competition, but we don't see an increase on competition or increase on pressure of the [indiscernible] device for the moment.

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

I have a couple of questions. First 1 related to the D&A. I thought that you posted roughly EUR 6 million per quarter in the last 9 months. Can you assume that there will be other EUR 6 million costs obviously in the last quarter, so that the total should be closer to the EUR 24 million. And related to this, can you confirm this regarding on CapEx. I remember it was like something like EUR 20 million to EUR 22 million, if you just can confirm? And finally, last question is on the net debt. Can you assume that at the end of the year, you should say something close to the current level of [ EUR 180 million ]

Okay. D&A, Stefano, if you want to give more color about EUR 6 million in the quarter?

Also for the last quarter, we expect the same level.

Okay. Expectation in terms of amortizing D&A is the same level of the first quarter. Okay. About the CapEx. At the moment, we confirmed the target we stay until EUR 32 million. We see that we have EUR 21 million in the first 3 quarters.

EUR 21 million.

EUR 21 million is the CapEx during the first 3 quarters and we expect to stay in our margin. I remember it's [ EUR 31 million, EUR 32 million ] full year. Consider that when we signed this budget, we included Lansol. But Lansol, they need a lot of CapEx this year. We can confirm these figures included the inventory CapEx of Lansol. Net debt, I hope to stay a little below. Still, we stay EUR 180 million depends on the payment of the CapEx during the first quarter -- the first quarter. When we do the CapEx, depending on the payment, but we say worst case EUR 180 million or a little -- a little low, but in general this is the range.

And if you add also there revenue share, if we start to...

EUR 180 million is a gross net debt, but not considering the value of diluted share. At the moment, it's roughly EUR 24 million.

Consider, Michele, that we can continue to do buyback also in the last quarter of this year. So it means that being lower or around EUR 180 million by the end of the year....