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 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO. Please go ahead.

Good afternoon, and thanks, everybody, for joining this conference call. the Board of Directors WIIT approved the results of the sales the 9 months. And you can follow the results with the presentation I sent as the last year. With me, our CFO, Stefano Pasotto; and Head of Sales Enrico Rampin. At the end of the presentation, we have a Q&A session. You can do submit questions. So I'll start with the highlight of the presentation, 9 months results the sales growth persistent with 12.7%. But the good news is that WIIT improve more proportion of the revenue and growth 26.5%. The margin of the sales was 39.2% and increased a lot compared over the last year. The results in terms of revenue, if you can show later in a specific slide as a result of the small consolidation of the M&A, but the large part of the growth is thanks to the organic growth. Organic growth was, very, very high, particularly in Italy. But to be honest, German they recover a lot the figures during the summer seasons. Consolidated EBITDA was EUR 37.7 million, plus EUR 26.5 million compared with EUR 29.8 last year. [ Reduction ] and more proportional growth of the revenue, thanks to the consolidation of focus on the cost synergies, more high value services. And we are reducing all the revenue with low value, for example, [ hardener ] sales and consultancy business. Cost synergies is consider that we fully integrate all the Italian regular entity. And this result is a result of this success in terms of integration of the different company. The margin revenue is 39.2% compared with 35% is our goal because our target was to achieve 40% in 2 years. And just in this current year, we are very close to our target. Consolidated EBITDA EBIT was EUR 21 million plus EUR 36.8 million compared with EUR 15.4 million. Margin on our revenue is 21.9%, we improved over 2 points compared to last year. Depreciation of EUR 16 million increased [ EUR 2.5 million ]. And adjusted net profit was EUR 11.6 million, plus EUR 21 million. In part of it a bit for main interest because we are a part of the debt is a variable rate. Fortunately, last part of the debt is now in our bond fixed rate 2.37%. The net debt gross was EUR 199 million compared to EUR 180 million. This amount includes the global asset acquisition for EUR 67 million. CapEx for EUR 18.2 million, very, very lower compared to last year. payment of dividend, EUR 7.8 million, and the residual part earn-out of ERPTech acquisition, EUR 700,000 and a strong treasury share back from EUR 15.2 million and sales of part of them for EUR 6.7 million. You can go to the -- jump to the Page #5, the breakdown of revenue. German business now is just over 55% of group revenues. Remain the main market for WIIT, and we want to continue our development of this market because it's what I just to say in the past, is the main market in Europe for the cloud business and it's a growing market. Italy is 44%. But in terms of profitability, you can see Italy remain higher than Germany is 19.6% because EBITDA margin in Italy is 46% compared roughly 34% in Germany. In Italy, we just are totally exposed in our [indiscernible] business. EBITDA margin in Q3 is over 50%. In Germany, we are more traditional at the moment, but we are improving a lot the profitability in Germany. EBIT margin is similar. Italy and Germany. We achieved EUR 9.5 million in Italy and EUR 11.5 million in Germany 22.4% in Italy and 21.8% in Germany. Because in Germany, we have less amortizing. This is very important to the Page 6. the breakdown of revenue. Italy had EUR 35.6 million of annual recurring revenue, that means 83% of total revenue Germany is higher is EUR 48 million and is 92% of the revenue. If in these figures, we exclude the consulted business Gecko because in Germany, we have only one single company that they are doing the business of construction business, 100% of the cloud business in Germany is recurrent. WIIT Residual 17% of [indiscernible] because we have a last part of the revenue to clean about our sales hardware, and we have a big process of migration because the size of the deal in Italy is bigger than Italy. That means when we've seen -- we sign a new contract, we have more project management to migrate the new client in our case [indiscernible]. Revenue Page #7. Okay. What I anticipate from the beginning, a large part of the growth is related to core revenues, organic road. In Italy, we grew 10% organically -- thanks to the very, very strong booking in terms of sales for the first 6 months. Germany recovered a lot during the summer and the revenue core grow to 8%. In terms of sales, we are going to the end of this year with a record level of the sales when we just closed the full year target by the end of August. At the moment, we want to increase it a bit our forecast in terms of sales for the end of this year. driven by Italy because Italy overachieved the target. Germany is in line with the budget. The contribution of the position is very, very low, is EUR 5.3 million and EUR 3 million of global assets. Last part of organic growth of the revenue is driven by organic growth. EBITDA, Page #8, growth faster than the revenue, million. EBITDA margin was 39.2%, excellent from my point of view. Because iteration of our cloud services not really give us the balance in terms of leverage business because the business is very, very leveraged. We can do a lot of -- the scale of the business is very, very high, and the cost increased less than the revenue. The EBITDA margin in the first 9 months was 46% in Italy compared with 37%. And in Germany, 33.9% compared to 33.6%. But in the Q3, Italy is running 52% and Germany is running 34%. We're increasing a lot of profitability in Q3 and we increased the average over whole 9 months. This profit could be sustainable. I think the last quarter, we can obtain similar results. EBIT increased a lot from EUR 15 million to EUR 21 million, and EBITDA margin in terms of EBITDA margin, we increased the profitability from 18% to 21.9%. Roughly 3% because we are reducing the CapEx. We just anticipated that because last year, we had a lot of CapEx for expanding our capacity in terms of data center, we built the second one in Milan, and we built the first 1 Tier 4 in [indiscernible]. We end this investment -- that means that we want to close the year with a full CapEx below EUR 20 million, and we will maintain this level of CapEx for the following years. Net profit increased [ 21 ], not with the same not so fast because we are a little impacted about interest rate. Interest rates impacting 2 points more because of the part of the debt that we pay real interest rate at the moment, we are paying from 5% to 6%. [indiscernible] adjusted because in our definition and EBITDA, we included the value of the treasury share is EUR 150 million consider that our target will be to close the end of the 2023 with [indiscernible] close to 3x net debt to EBITDA. And at this level, we can achieve these targets. So the EBITDA target at the end of the year is 50. And the treasury share value at the 30 September was lower than margin price. Just with the [indiscernible] price, we are very close to achieve 3x net debt EBITDA. In this debt, we include -- we have a lot of strong operating cash flow generation for EUR 35 million, CapEx of EUR 80 million acquisition of global assets in January for EUR 7 million. And there were residual part of equity investment in quite for EUR 700,000. Dividend payments EUR 7.8 million treasury share buyback EUR 15 million and sales of a new share in July from EUR 6.7 million. What I just anticipate, last part of the debt EUR 150 million [indiscernible] of 2.37%. Thanks for all, and we are ready for a Q&A session.

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

A couple, if I may. The first one is on the sustainability of the current margin going forward? I mean after this 9 months results, the consensus expectation of the EUR 153 million revenue [ EUR 50 million ] EBITDA imply something like 53% profitability in Q4 after 59% in the 9 months. So do you think an upward the revision of the EBITDA could be possible to reflect increased profitability in Q4, perhaps thanks to the factor that you are seeing Italy overachieved the target Germany is more and less in line. So should we expect some room to improve Italian profitability [indiscernible] for to, let's say, to lead at least EUR 52 million EBITDA in -- for the first half. The full year, sorry. The second question is on the consensus expectations in 2024. Current consensus is projecting EUR 144 million sales EUR 56 million EBITDA. This imply roughly 59% margin. It is very close to the 9 months results level. So, I was wondering if you see -- if you are [indiscernible] with these expectations.

Okay, Giorgio. To be honest, we are at the moment, we have a very, very high visibility in terms of last quarter. But you have to consider Q3 is a little impacted for the [indiscernible] topics about the vacation cost of employees. So we have a little more margin Q3 because we have less cost of people for July typically in Italy, not in Germany, but in Italy is vacation period. But with the currently pipeline, I think we can share [indiscernible], the EUR 15 million EBITDA for the consensus and naturally -- at the moment, the visibility we have for the [indiscernible] is very, very high, close to EUR 56 million EBITDA. It depends a lot on the closing or the new pipeline -- from the pipeline. The pipeline is good at the moment currently we have very good pipelines. But at the moment, we confirm the figures to '24. And in case of a strong close from the pipeline perspective in the next 5 months, we can increase a little bit our estimation. But depending on the timing. that we have always -- we have 9 months deferred the revenue from the booking. Chinese results is a consequence of a very, very good booking Q1 and Q2. So it depends a lot if you close from starting from the day to January, the contract or something contract will be deferred the next year. Because if we close the contract in next year, we have only one quarter next year in our current [ trading ]. So depending a lot on the timing. In general, the division we have, the fixed pipeline continues to stay high in Italy, in Germany is in line with our expectations. But the Q3 is partially positive for a little seasonally for the vacation and a good sales in the first quarter. Sure, we have full visibility for the Q4. I think Q4 is very, very similar of Q3. Because we have just in running a lot of contracts and our expectation is to start to add -- to end some immigration we have in the middle probably Q4 is very, very positive. For the full year, '24, I think we want to maintain the expectation EBITDA margin from 39% to 40%. Germany next year, it could improve 2 points for the reduction of the cost energy and in Italy can stay in the range from 46% to 40%. [indiscernible] Is a little higher for the less cost of voice.

The next question is from Domenico Ghilotti with Equita.

A couple of questions. The first is related to the so-called nonrecurring sales. So I see that they are going down. I presume that part of the Italian nonrecurring is structural. So you were mentioning the migration. So we should expect and to be something structural. So I wonder if you have already completed almost completed the process of cleaning up the law of low value-added phase? Or if you see still a negative impact in Q4 and 2024. The second question is on the recent contract that you have announced that you issued a press release a few days ago. So if you can just elaborate and clarify on the contract. And that's it, in general, it sounds like you see a good pipeline, but I would like to have your comments on the current pipeline?

Okay. I start to answer about the question after I go to Enrico Rampin about more color about the pipeline. We are [indiscernible] clean the revenue. We have a residual EUR 2 million to clean but we are very, very close to [indiscernible] for this process in Italy. In Germany, we have -- confirmed businesses are not really nonrecurrent or remain nonrecurrent. But in this consulting company, we have a part of the services we want to carve out this part in [indiscernible], and we want to clean this part of revenue. Additional EUR 4 million of revenue we want to reduce in the next 2 years. In Italy, we are very, very close to the end of the process to clean up the revenue and remain actually the part of the transition where we sign a big client, we are of the client part of the cost for the transition. And for example, PAM, we discussed the market, the money from PAM. Our target is to migrate by the end of this year. Probably EUR 0.5 million contribution to the project migration.

But in general, we have during the year a lot of new clients with mid large deals and all these clients do have a migration project and being a large product migration is longer from 1 side but means anyway, a one-off that we ask for the partial contribution for the activity that we are going to plan for the migration and normally it takes from 3 to 5 months. Coming to the second question, the last -- when we shared the signing of a new deal. So this a very important and very large legal term here in Italy. The project is quite large because it was already a client for a small part of services. And this new project is at the end of the day is the full migration to a full private [indiscernible] cloud we integrated cybersecurity services. So -- the client will belong completely to ease for the for the technology, for the services for managing all the critical application will be, of course, full based on the critical regions [indiscernible] belonging to WIIT and these services will be fully integrated with cybersecurity. So it's. It's an important step. We are quite proud of this journey, not only because it's a very important legal company in Italy, but also because this is a confirmation of our presence into the legal market in Italy that remains an important step. And it's a market where the privacy, the security, reliability is a mandatory part on their own business.

Just a follow-up on this. So the selling point in this case to -- for the upgrading services was so the possibility to offer fully secure and control environment. So cybersecurity?

To consider that this client was a client acquired with the area our company we acquired in 2020. And [indiscernible], we moved the line from the [indiscernible] because the client was bigger -- and when clients started to work with our direct sales and sales understood that, okay. Now I have a full portfolio service and I want to enter in with this and increase the [indiscernible] service this client was a client -- in this area. [indiscernible] was a company now if names WIIT indirect channel probable service in indirect channel.

And if you remember, we disclosed during the summer that we expanded the footprint of our services with the private cloud would include the critical cybersecurity. That means premium zones where the client belongs not only to data center Tier 4, but fully integrated demand services and integrated with cybersecurity. This is 1 of the examples of the deals that we are signing this month where the clients more and more are looking for the reliability overall with the integration with cybersecurity. This is something we'll arrive also into the market for the SaaS services. For example, this is also one of the part of the offering that we are in our lab, we are testing with a fully integrated cloud native platform for the new investment for software companies, for example. So it is one of the first example. We have several other clients that we are signing with a similar deal. And my feeling is more and more during the coming quarters that clients would appreciate this kind of offering.

And you are commenting in general on the pipeline?

Yes.