Growens SpA

MIL:GROW

Earnings Call Analysis

Revenue Growth and Margin Stability Amidst Challenges

In the first half of 2024, Growens reported consolidated revenues of EUR 36.9 million, up 3.6% from the previous year. Notably, SaaS revenue rose by over 19%. However, a negative EBITDA of EUR 0.7 million was recorded, mainly due to investment in the Beefree unit, which saw revenues increase by 20% to EUR 5.8 million. The company forecasts an ARR between $15 million and $18 million by year-end, aiming to maintain margins similar to last year. With cash reserves at EUR 23 million, the focus is on stabilizing margins instead of aggressive revenue growth in a challenging market.

Navigating Through Changes: First Half of 2024 Results

The first half of 2024 has been a period of transition for Growens. The company reported consolidated revenues of EUR 36.9 million, up by EUR 1.27 million, a modest increase of 3.6% compared to the same timeframe in 2023. Notably, when excluding revenues from the sold Datatrics business unit, growth appears stronger at 6.8%. Foreign revenues continue to dominate, constituting 79% of the total, driven by growth of 3.4% or 6.9% when excluding Datatrics. Recurring revenues saw a significant uplift of 19%, indicating an encouraging trend in sustainability and customer retention.

Growth Breakdown: SaaS vs. CPaaS

The growth in revenues can be attributed to two primary business lines: Software as a Service (SaaS) and Communications Platform as a Service (CPaaS). The SaaS segment has shown impressive growth, exceeding 19% and contributing 16% of total revenues. In contrast, the CPaaS segment displayed a modest rise of 1.2%, making up the bulk at 81% of total revenues. This divergence in growth indicates strategic positioning in more lucrative segments, like SaaS, that could improve margin dynamics in the future.

Cost Considerations: Expenditure Dynamics

The increase in total operating expenditure to EUR 8.7 million from EUR 6.9 million last year primarily stems from heightened administrative costs linked to M&A activities and services rendered to former subsidiaries. This investment is critical as it aligns with the company's growth strategy despite increasing costs in research, marketing (up by 18%), and R&D (up by 27%). Management is balancing this by focusing on long-term profitability and efficiency.

Margin Pressures and Earnings Outlook

Unfortunately, despite revenue growth, profitability remains under pressure with consolidated EBITDA recorded at negative EUR 0.7 million, worsening from negative EUR 0.29 million in the same period last year. The main contributor to this was the EBITDA loss at Beefree, which stood at approximately EUR 1.7 million. Additionally, negative earnings before taxes reached EUR 2 million, impacting net profits which totaled negative EUR 1.8 million after tax provisions. Investors should be aware that while growth is evident, profitability requires close monitoring.

Financial Position: Strong Cash Flow but Growing Costs

As of June 30, 2024, Growens holds a robust net financial position exceeding EUR 23 million in cash, though this reflects a notable decline from EUR 42.1 million at the end of 2023, attributed to strategic investments and cash distributions. The decrease is largely due to payments related to the 2023 fiscal year’s fees, a substantial dividend disbursement of around EUR 10 million, and increased receivables. Such aspects merit investor attention, as effective cash management influences future operational flexibility.

Business Units: Agile Telecom and Beefree

Within business unit performance, Agile Telecom generated EUR 30 million in revenue, displaying a slight increase of 1.3%, although challenges persist with market dynamics affecting margins. Commitments to maintain last year's margins indicate a focus on strategic efficiencies rather than aggressive revenue growth. On the other hand, Beefree reports a rapid revenue increase of 20% driven by market volume growth, though it grapples with substantial negative EBITDA. The annual recurring revenue for Beefree is projected to hit USD 15 to 18 million by the end of the year, remaining in line with prior guidance.

Strategic Initiatives: Future Guidance

Going forward, the company’s strategic initiatives are geared towards enrichment across all facets. Management emphasizes maintaining margins, particularly for Agile Telecom, which currently faces a challenging market landscape. This outlook comes alongside a steadfast commitment to improving the client base and service offerings, particularly for Beefree, which plans to enhance its integration with HubSpot. This strategy aims at capturing additional market share while maximizing customer engagement. Investors should watch for the forthcoming preview data, scheduled for release on October 10, 2024, which will provide further insights into performance metrics and future forecasts.

Earnings Call Transcript 2024-Q2

[Micaela Capelli, executive]

Okay. Great. So good day, everyone. Welcome. This is our usual call to comment on this release data. And as usual, we have Mr. Monfredini, our Founder, Chairman and CEO and CFO with us; and Mr. Gorni, who's our Founder and CEO. And we'll start commenting the data and then leave room for questions. [Operator Instructions]

So I would leave it to Matteo to introduce, to comment on the figures, and thank you very much for being here today.

[Matteo Monfredini, executive]

Thank you, Micaela. Good afternoon to everyone, and thanks for being here. I'm going to introduce the first half 2024 results starting from profit and loss.

First of all, I would like to underline that the profit and loss data for the first half of 2024 and 2023 are not directly comparable as they refer to a different consolidation perimeter. Data for the first half of 2023, that include the results of the Datatrics business unit, which was sold in October 2023. At the same time, the balance sheet, the 2023 comparison column, does not include Datatrics because it is related to 31st December 2023.

So in the first half of 2024, Growens consolidated revenues amounted to EUR 36.9 million, show an increase of about EUR 1.27 million or plus 3.6% versus the same period of 2023. If we do not consider revenues in 2023 economics, of Datatrics, the increase would have been higher of about EUR 1.1 million, showing an increase of 6.8% versus the same period of 2023.

Foreign revenues amounted to EUR 29 million, representing 79% of total revenues, growing by plus 3.4% or 6.9% without Datatrics versus the first half of 2023. Recurring revenues amount to EUR 5.7 million, growing about 19% without considering Datatrics revenues.

As usual, our revenues are divided into 2 business lines, SaaS and CPaaS. Without considering Datatrics the first half of 2024 growth of the SaaS line exceed 19% for an incidence -- for a 16% incidence on total revenues, whereas the CPaaS line grew 1.2% for 81% incidence on total revenues.

Other revenues grew by about EUR 1.05 million compared with the same period of 2023. And this growth is mainly related to non-repayable grants and reallocation as well as non-business revenues related to the disposal of the ESP and Datatrics businesses.

Going forward, we can see the cost of goods sold that shows an increase of EUR 424,000 for the first 6 months of 2024 compared with the same period of the 2023. So the first margin or gross profit shows an increase of EUR 843,000 more or less, or plus 11.7%, with a revenue incidence of about 22%, up 12% compared to 2023.

The first half of 2024 total operating expenditure amounts to EUR 8.7 million compared with EUR 6.9 million in H1 2023. This increase is mainly due to some una tatum and general admin cost deriving from the M&A activities and from service provided to former subsidiaries subjected to divestment and then reinvoiced based on specific contractual agreements. There are also some other minor increases in business-related costs like license, wage increases, or long-time incentive allocation.

Other cost items negatively impacting total expenditures are related to the development of Beefree business, especially in terms of sales and marketing and research and development. Sales and research and marketing cost -- sorry, okay, research and marketing cost increase of about 18%, and research and development, plus 27%.

Consolidated EBITDA is negative by approximately EUR 0.7 million in the first half of 2024, compared with EUR 0.29 million in the first half of 2023. The main negative impact on these results is due to Beefree EBITDA that is negative for approximately EUR 1.7 million and is in line with the investment we planned.

Earnings before taxes is negative by EUR 2 million after EUR 0.6 million of net financial income and EUR 1.9 million of depreciation. IFRS 16 related amortization amounted to EUR 0.3 million, growing by 9% year-on-year, while research and development amortization grew by 13% to EUR 1.5 million.

Net earnings or net profit in the first half of 2024, after current and deferred taxation estimates, amount to minus EUR 1.8 million. The allocated tax figures are, as usual, derived from the aggregate amounts of individual taxation applied on each legal entity.

Okay. Going to consolidated net financial position as of 30 June 2024. The net financial position exceeds EUR 23 million cash, decreasing versus the previously recorded net cash amount of EUR 42.1 million as of 31st December 2023, with the variation largely influenced by different factors.

Firstly, the cash payment of fees and commission pertaining the 2023 fiscal year, but made in the first half of 2024, related to the execution of extraordinary transaction for the sale of the ESP businesses and the partial voluntary takeover bid for approximately EUR 1.4 million.

Secondly, the payment of the first tranche of the extraordinary dividend for approximately EUR 10 million.

Third, the capitalization of research and development expenses mainly related to Beefree for approximately EUR 2.5 million.

Fourth, the increase in receivables from customers, from approximately EUR 2.1 million.

And lastly, the investment of excess liquidity in low-risk financial asset for approximately EUR 4 million.

Figurative debt from the IFRS 16 adoption amounts to EUR 1.6 billion, if you consider the short term and the long term. Cash and equivalents exceed EUR 27.6 million. The adjusted net financial position also shows as we showed in -- as is shown at the 31st December 2023, escrowed amount as a guarantee of certain obligation related to the sale of the ESP business to TeamSystem. The amount -- this amount is [ EUR 6.47 million ].

Going deeper in the business unit figures, you can see that Agile Telecom business unit posted the biggest revenues of ca. EUR 30 million, increasing by 1.3% over the same period of the previous year. The profitability of the first quarter 2024 was affected by some negative market dynamics resulting in performance below expectations and below the previous year.

However, it benefited from the correct reduction taken in the second quarter to return to the excellent levels of the previous fiscal year. And this will allow us to -- for a gradual recovery of overall margin which is still ongoing.

The fastest business unit is BEE, with a 20% increase in revenues at EUR 5.8 million or USD 6.2 million revenues, driven by increasing volumes. The annual recurring revenue amounts to USD 13.6 million as of June 2024. And as I said before, the EBITDA margin is negative for ca. EUR 1.7 million, and this generate a significant impact on group marginality, making it negative.

These numbers are in line with -- for the moment with the guidance we have published in April 2024, so we are confident to stay inside the numbers we confirmed previously.

And that's all from my side.

[Micaela Capelli, executive]

Thank you very much, Matteo. I would leave it to Nazzareno to comment on how the business is going and where we're going for now. Thank you very much.

[Nazzareno Gorni, executive]

Thank you, Micaela. Good evening to everyone. A few updates from our 2 business units, starting from Beefree, the Beefree activity is concentrated on the execution of the plan that we announced, and in particular, in this last quarter, in the following quarter, we will focus our attention on the HubSpot user base.

So as you know, Beefree app is connector with HubSpot, which is a quite famous CRM and marketing automation system. And many clients of HubSpot are using already Beefree app, and we want to expand this client base by improving the connector and by implementing marketing initiatives that will attract more and more HubSpot clients. Also attending HubSpot INBOUND Conference in Boston.

The second initiative in this quarter is related to RGE. As you know, the Really Good Emails company website has been acquired a few months ago. And now we want to exploit this huge user base. We already organized a few events, both online and off-line. And so it's promising, but still we are at the beginning. As you know, the sales cycle is not so fast, especially for larger companies. So it's too early to draw a line and understand the real impact in terms of our numbers.

And finally, we also have the SDK product. On that regard, the focus now is to increase the API usage. As you know, the SDK has a pricing model related to the number of seats plus the number of features. But we also have a usage related to the CDN traffic, so the amount of traffic that our clients generate, but also related to the number of API used by our clients.

So let's say it's something that the developers -- that allow the developers to interact with the application through APIs, or application program interface. Those APIs have a specific price, and we charge for those. And we introduced a few new APIs and now we are developing some also marketing initiatives in order to increase this usage from our customer base.

Then we have Bee -- Agile. Agile Telecom, as you know, operates in a market that is not very flourish, the CMS market is globally, but also in Italy, is decreasing. So this makes this market a bit challenging for us. We are working in the direction we already announced. So we want to improve margins, and most of our efforts are related now to keep at least the margin we had in the previous year. The first quarter was not good, as Matteo shared, but the second quarter was better. So we are confident that we can keep this margin level also in Q3 and Q4.

On top of that, Agile is evaluating possible investments in order to increase the number of direct clients through other solutions. And this will allow Agile to, let's say, more recurring revenues, like Beefree. And that at least the goal of these initiatives that we are evaluating. So it's very early stage, but this is an investment that we could plan for the future.

And then we have the M&A activity. On that regard, the strategy has not changed. We are still opportunistic in both the sales side and the buy side for both business units. We have very active discussion at the moment. So the scouting activity is an ongoing activity, and -- but we have no news on that side. And that's all.

[Micaela Capelli, executive]

Thanks very much, Nazzareno. And I would leave some room for a few questions that have arrived through our email address.

And I would start from Beefree. You mentioned several details already, and thank you for that. But you -- can you give some more color on how the integration with Really Good Emails is going, please?

[Nazzareno Gorni, executive]

Yes. As I shared, we are just at the beginning. We made some, let's say, edits to the Really Good Emails website in order to start collecting traffic and move that traffic towards the beefree.io website, so in order to increase the number of fleets. Those activities have not ended. So it's an ongoing activity that is not ended, so we want to improve that.

And on top of that, we are also -- we already organized a few events that not only enable Beefree to expose the Beefree activities and tools and products to the RGE user base, but also it's important, those events are important because this community, the email community around Really Good Emails is also providing good insights and feedback that can be for sure used in defining our future strategy.

So as said, we are -- it's too early to draw a line and to understand the real commercial rate of this user base.

[Micaela Capelli, executive]

Thank you very much. And as for Beefree also. Can you give us more color about what to expect for the second semester -- second half of the year?

I think we can be qualitative here in terms of financial expectations. And I can give this indication also that we are going to release third quarter preview data on October 10. So there will be an interim check in there as per where these ARR is going.

But if you can give us some more color with respect to the end of the year, I think that would be great for analysts. Thank you very much.

[Nazzareno Gorni, executive]

Yes. We can say that the guidance, the outlook that we provide in terms of ARR growth, which was -- the target was $15 million -- the range was from $15 million to $18 million at the end of the year in terms of ARR. We confirm this target. And so while in terms of initiatives, I think I already shared the main initiative that will help us to get to this target.

[Micaela Capelli, executive]

Perfect. Thank you very much. And also, there was a question about the repricing of Beefree SDK, which happened, of course, after the closing of the first half of the year. Would you give us some qualitative views on how it's going?

[Nazzareno Gorni, executive]

Yes. It's just started because it was planned for the July 1, but actually has really started in August. And so just at the beginning. As usual, the price increase was quite substantial. And we had some churn already, but it was expected. It's normal in this case. And the churn is not that high for the moment. So we can say that the price increase at this time is a successful change.

[Micaela Capelli, executive]

Thank you very much. And now we switch to Agile Telecom. Which trend are you expecting for the second half of the year in terms of turnover margins, please?

[Nazzareno Gorni, executive]

Well, the focus for us is to at least to keep the marginality we had in the previous year. And so we are working in that direction. And the second quarter is quite promising in that regard. In terms of revenue growth, it's not a focus for us. As you know, in that market, revenues is -- doesn't matter too much. So we believe that we -- I don't know if I can tell, but I can say that, I mean, it's not probably going to grow, but it's not a problem for us. We are focusing on margins.

[Micaela Capelli, executive]

I think it's really thorough, and thank you for the explanation.

Now we have some -- a few details concerning an information that was released in the financial reports. And it is about our change in the stake into Beefree, which was raised by like 0.4%. And let me just take this question.

The question was, why was it not separately communicated into a press release?

And the reason why is that because the amount is irrelevant with respect to regulatory standards. And of course, the change was released, was communicated into the financial report. So you did not see it in a specific press release because it was considered any relevant information by financial threshold standards.

A further question which I would address to Nazzareno is about the frequency and strategy of future meetings with the financial community. And well, let me take this part.

Why are we not participating to the [ NexGens ]? We do not participate to [ NexGens ] usually, but to other conferences dedicated to bigger companies. So in any case, this year, you will not have seen us at the [ NexGens ], but a different conferences.

But I would leave it to Nazzareno also to comment on the adjustment in strategy in Investor Relations, please.

[Nazzareno Gorni, executive]

Yes. I believe that our focus now, at least my focus now, should be more related to the business. So that's where I think it's better to spend most of my energy and my time. So that's the reason why, during this phase, this period, the ARR activity is not as maybe last year, for example.

[Micaela Capelli, executive]

Thank you very much. I think there are no further questions and I think we answered all the questions. If there's any more -- well, at least we're not as active as in the past in this transitional period. But of course, you can reach out to us in any case. We've got this [e-mail] e-mail address, and we'll try and be as responsive as always and address all your questions and concerns. And you'll find the recording for this call soon on the website for your check.

And I would thank everyone to -- who have participated into this meeting for being here with us today. Thank you, Nazzareno. Thank you, Matteo. And we'll speak soon. And the next appointment is, of course, October 10 for the release of the quarterly preview for the third quarter. Thank you very much.

[Nazzareno Gorni, executive]

Thank you.

[Matteo Monfredini, executive]

Hello to everyone.

[Micaela Capelli, executive]

A great continuation of the day. Thank you.

[Nazzareno Gorni, executive]

Thank you.