Growens SpA

MIL:GROW

Earnings Call Transcript 2023-Q3

[Micaela Capelli, executive]

[Audio Gap] year 2023. We do have Mr. Monfredini and Mr. Gorni here with us to comment the latest data. [Operator Instructions] Thank you very much for joining us. So to start with, I would leave the stage to Mr. Monfredini for a quick comment on the freshest data so far. Thank you, Matteo.

[Matteo Monfredini, executive]

Thank you, Micaela. Good afternoon to everyone, and thanks for being here. Today, we are going to comment the 9-month period ended on 30 September 2023 results that, as a result, the sale of Growens' mail service provider activity to TeamSystem SPA as well as the sale of 100% of share capital of Datatrics to Spotler group. We treat companies sold as discontinued operations in accordance with the IFRS 5 accounting standard principle.

So it's important to say that the numbers I'm going to count on are only figurative because they do not include the sold perimeter that is accumulated in specific items. Specifically in the income statement, the activities that constitute the discontinued operations have been reclassified under the line EBITDA from discontinued operation that you will find just before the bottom line or the earnings before taxes.

Additionally, it should be noted that the existing relationship between discontinued operation have been treated as the relationship between independent parties and that the economic items related to the discontinued operations also include the effect of the elimination of this -- the consolidated relation of such a relationship, also call it intercompany.

Therefore, in Growens 9 months results, all financial data for the first 9 months of 2022, has been restated to a lower comparison in the same perimeter with the data of the first 9 months of 2023.

So let's move on the main results of the first 9 months ended on 30 September 2023. Revenues, as usual, are represented by SaaS and CPaas business lines that from this report are represented by BEE business unit and Agile Telecom Business Unit, respectively.

Consolidated 9 months 2023, profit and loss posts total revenues around EUR 54.6 million, showing a decrease of 5% compared with EUR 57.7 million in the same period of 2022. This result was mainly driven by the plus 14% growth of SaaS business line for a 13% incidence on total revenues and the 8% decrease of the CPaaS business line, for an 85% incidence on total revenues.

The consolidated recurring revenues from SaaS product subscription with [ 13.4% ] (sic) [ 13.6% ] of total revenues and amount to ca. 7.3 million, growing 14% year-on-year. The Beefree Business Unit posted a like-for-like revenue growth of 16.8% at constant EUR/USD exchange rate, thanks to volume increase. Annual Recurring Revenues amount to USD 11.6 million as of September 2023 with an increase year-on-year of 14.4%.

Agile Telecom keeps on focusing on increasing margin, even in spite of short-term top line growth. This result was possible through the use of lower-cost sending channels And therefore, also lower turnover even not -- even if not proportionally. Foreign revenues amount to EUR 44 million, representing 82% of total revenues, essentially stable if compared with the previous period. Gross profit grew over 19% in the first 9 months from EUR 8.7 million to EUR 10.4 million and is positively affected by margin recovery of the CPaaS Business Line.

Consolidated EBITDA equals to minus EUR 0.4 million in the Q3 2023 and EUR 0.3 million in the 9-month period ended on 30 September 2023, decreasing by 169% and 61%, respectively, versus the same period of 2022. EBITDA margin was impacted by costs for the focus on Beefree's development. On the other side, on the greater impact of holding costs on the remaining business units.

The group structure that we built with 5 business units now is less optimized, but we are in the process of accelerating growth in BEE and having more strategic skill inside is a competitive advantage. Earnings before taxes amount to EUR 61.7 million in the first 9 months of 2023, positively impacted by the cash-in from the disposal of the Email Service Provider and Datatrics businesses, closed and announced on 13 July and 20 October, respectively.

The consolidated net financial position as of 30 September 2023 amounts to EUR 57.4 million and it's noncomparable with the previously recorded net cash amount for EUR 65,000 as of 31st December 2022. The adjusted net financial position that you will see at the end of the table, net of figurative debt from IFRS 16 adoption for EUR 1.3 million and added to the escrow amount for the ESP business disposal for EUR 4.6 million would exceed EUR 63.4 million.

Cash and equivalents amounted to EUR 62 million. The current financial position has decreased by EUR 0.95 million, mainly driven by the reduction of the current financial liabilities for right of use IFRS 16 while the noncurrent financial position has decreased by EUR 1.6 million mainly driven by the reduction of long-term debt and partially from the noncurrent financial liabilities for right of use IFRS 16 adoption. That's all from my side.

[Micaela Capelli, executive]

Thank you very much, Matteo. I would now leave the stage to Nazzareno for a quick comment on the overall strategic view behind those figures and what's next for the business unit, what you see before switching to the questions from the public. Thank you very much.

[Nazzareno Gorni, executive]

Thank you, Micaela. Good evening, everyone. Regarding the news in this last quarter, of course, today, the partial tender offer is starting. And on that regard, I can only say that since the announcement of this partial tender offer, already 2.4 million shares has been traded. So nearly 90% of the overall shares that we will buy back.

And relating to the business units news. So now we have only 2 business units. And let's start from the first one, Beefree. In this quarter, we completed full rebranding, including the renaming of the 2 main products, the Beefree up and BEE SDK. We also attended 3 important events in-person in the U.S. and in Ireland. And those events was -- were mainly related to be Beefree SDK, so they hold the Plugin.

So to evaluate the results and to appreciate the results from these events. Of course, we need to wait a few months because the sales cycle of Beefree SDK is quite long. And we also released an important connector. So now Beefree is connected with Salesforce, which is a system very well known and very requested by some of the clients. We also completed the Okta integration, which is a single sign-on for enterprise customers that I hope will help in increasing the number of enterprise clients.

And finally, we almost completed the 3-year investment plan that we started drafting a few months ago. And for now, we cannot share that we confirm the EUR 15 million investment the next 3 years organic investments that we are going to invest mainly in R&D and marketing and sales.

Then regarding Agile Telecom. As Matteo has said, margins are higher, mainly because we -- the traffic mix is different. So now we privilege the higher-margin routes over the high volume routes. But we need to highlight that is still a quite volatile business because it's very mature, but there are changes, especially changes this year in regards the Italian Regulations. So the Italian Authority for Telecommunication is changing some rules. And this could done on foreign centers, which are a big part of the telecom business.

Also, the high-margin channels that this year, Agile Telecom is leveraging are not completely stable. So we are not totally under our control. So that's something that could change in the future. And on top of that, mobile carriers could -- especially Italian mobile carriers, where we have a lot of traffic may increase in the future their price and this could affect also the overall Agile Telecom business. So in view of those risks and volatility, we are going to experiment new channels. So we want to add new ways to generate margins such as RCS -- RCS and RBM which are the newest channels and Telegram.

So those are the experiments that where we are going to invest in the near future. And of course, in terms of organization, Agile Telecom is already a very light and efficient organization, and we are going to keep this structure -- this cost structure for the future. That's all from me.

[Micaela Capelli, executive]

Thank you very much, Nazzareno. And as usually, it's been very swift and effective. And I would now switch to a few questions that come from the audience. First of all, thank you, everybody, for attending today. And a couple of questions from David. Can you please discuss the apparent deceleration in the revenue growth in the third quarter in the context of increased investments that we have made in BEE so far. So please let me remind everybody that while being under a public tender offer, we are not in the position of releasing any further guidance and any figurative hint on what is coming next and what is coming for the future that is not already covered in the offer document.

So for any forecast or for any detailed information, we kindly ask you to confront and to get back to the offer document as there will be no further guidance and as per any different as per what is covered in the offer document as per forward-looking statements.

As per the current situation, I would now ask Nazzareno to comment on what's going on in Beefree in case of, of course, increased investments and the current growth level?

[Nazzareno Gorni, executive]

Yes. So in this quarter, we had some positive effects coming mainly for a few big clients that signed since August and September, and that gave a boost in the ARR business. And at the end of September, we also changed a little bit the free edition. So we changed the thresholds before we gave 10 assets for free. Now the free edition has unlimited assets, but we limited the number of exports. And we hope that this change will increase the conversional rate, so the issue between free users and paid users still it's quite early to say, but we hope that this is the right move to increase also the growth of Beefree in the coming months.

[Micaela Capelli, executive]

Thank you very much. And following that thematic spread. I would ask you to comment on the conversion of free users for Beefree.

[Nazzareno Gorni, executive]

Yes, that was the comment. So in the past, in the last year after the launch of the free edition, we saw the number of users increasing like before. But the sales and revenues not growing at the same pace. So there was a gap that was increasing between the number of free users and the number of paying users. We decided to change the free plan now, and we are going to do other changes in the pricing in the coming months in order to be able to monetize more from this large user base. Those are experiments and so we cannot tell nothing more, let's say.

[Micaela Capelli, executive]

Sure. Thank you. So of course, again, I'm afraid you're asking questions about expectations and forecast and guidance. And we are currently unable to answer those questions. We could address some detailed questions on minor issues. So we didn't come up with a detailed split of business unit results as per what we usually do.

Of course, the revenues are very easily referred to be free as per the SaaS revenue line and to Agile Telecom as per the CPaaS revenue line. In this specific period of time, we were not able to work out the separate EBITDAs due to accounting issues we experienced in applying IFRS 5, which required loads of adjustments in order to account for discontinued operations.

We will resume in the next reporting season, delivering appropriate figures and detailed figures, which cover both revenues and margins for divided by business units. But unluckily, it was not possible to deliver them now. Let us say that we might expect a continuing trend as per what we saw in the first half of the year report. So as per expectation, as I mentioned, it's not very easy for us to comment on expectations or our forecast being any better or worse than consensus estimates as per the time being.

Of course, we can provide some details, and I would ask Matteo to comment on the content of the other current financial assets which accounts for roughly EUR 43 million in the financial statement. Where is that liquidity allocated at as for the moment?

[Nazzareno Gorni, executive]

Yes. Thank you, Micaela. Of this, EUR 43 million, EUR 38 million is allocated in cash deposit, while the other EUR 5 million is allocated in low-risk Italian and corporate bonds.

[Micaela Capelli, executive]

Thank you very much. So I would still ask Nazzareno to comment further and to give a bit more detail concerning the current deceleration in the 3 figures with respect to 20% growth in first 6 months which is average to 16% in the third quarter or first 9 months? And can you comment on each specific factor that might have affected this.

[Nazzareno Gorni, executive]

Yes. The conversion rate for sure was the main reason for that. On top of that, also in terms of top of the funnel. So visit to the websites and organic visits. We see a decrease -- not a decrease. We see a slower growth, let's say and this is reflecting also in conversions and paid users. So it's to affect commercial rate and top of the funnel website visits -- organic visits.

[Micaela Capelli, executive]

Thank you very much. I would also add, for the sake of clarity, that, of course, we are not yet able to see in those specific figures that we released last week. The growth that we expect from enhancing our investments in that we cashed in the majority of the -- of course, the income for the sale of the ESP business in late July. And of course, investments that are being made well, the bulk of the biggest investment has just started. So we still can benefit and see and appreciate the effect of those investments in actual figures yet.

So a further very interesting question. Do you think the top of funnel deceleration is reason is in the economy? Or is there any impact from artificial intelligence or anything else. And regarding this, I would ask Nazzareno to comment on the initiatives we have in this space of artificial intelligence please.

[Nazzareno Gorni, executive]

Yes. Thanks for the question. It's more about top of the funnel deceleration. In terms of GPTs, so AI, ChatGPT and so on. We started working on integration with ChatGPT firstly, but with a traction that is open to other systems like Jasper or Bright IO and so on. And I don't believe that AI will disrupt entirely our sector. At the moment, it's not possible to ask ChatGPT to create an e-mail template from scratch. This is something we are -- of course, we are working on in terms of research.

Because the reason is that anyway, even if you have AI preparing an e-mail at the end, the final review, the final editing, the final design will still require email template builder -- visual builder. So at the end, the last step will be anyway is visual builder. So we don't expect a disruption from this, but more, we expect that our clients could, in the future, appreciate some cool AI feature within Beefree that we will allow them to create the message faster, maybe translate in other languages and a few other things that will make the entire process more efficient.

[Micaela Capelli, executive]

Thank you very much. So can you please comment on the seasonality of Beefree's performance? Well, on the average seasonality we experienced in the fourth quarter.

[Nazzareno Gorni, executive]

Well, usually, the third quarter is a bit slower because of the summer months. But I have to say that in the past in September, we were able to sign important contracts. So overall, I don't see much seasonalities in general or for Beefree. I don't know if Matteo, are you agreeing?

[Matteo Monfredini, executive]

Yes, I agree.

[Micaela Capelli, executive]

And Matteo, you have a further question for you. Can you give us a hint on the yield of the cash deposit for EUR 38 million?

[Nazzareno Gorni, executive]

Yes. Of the EUR 38 million, we have EUR 18 million that is related to the OPA, the actual operation and is a short-term cash deposit. We have a yield of 3.5%, while the other amount, the EUR 20 million amount have yielded of more or less 3.9%, 4%.

[Micaela Capelli, executive]

Thank you very much. And I might take a further question, which is asking us if we are able to care if any have the founders have decided to tender shares in the offer.

No information whatsoever concerning the aspect was shared with the company so far. So we are not able to make any educated guess on that. Also, there was a question concerning Mr. Pronti's updated shareholding. In context of the tender offer, we were updating shareholder information. So we got a voluntary communication from Mr. Pronti delivering a 7.99% ownership in the company, which we promptly reflected both on the website and on the documentation that was filed with the authorities and mainly counsel.

We might not -- we may not rule out that he changes his ownership again because there is no obligation to communicate any change between 5% and 10%. So as per what we know now details -- it is the updated situation, but we cannot rule out any variations into BEE and there is no obligation for anybody to communicate that to us. So it's -- this is the best picture we're able to deliver so far within the context of updated information that we filed within the offer document.

So as per financial and accounting data, I would ask Matteo for some minor clarifications concerning the 9 months results. So is the net laws as tied to Datatrics [ CEO ] already included in the data. And on the other hand, is the EUR 1.6 million cash-in included in the net financial position?

[Matteo Monfredini, executive]

Okay. Yes. Thank you, Micaela. The first question I can answer that in the 9 months, profit and loss ended on 30 September has been included only the capital loss calculated from consolidation difference that corresponds to an amount of more or less EUR 2.7 million. The other part of the capital loss will be accounted in the separated financial statement because it was an intercompany though. And for the EUR 1.6 million inside the [indiscernible], they were not included because the amount was collecting on the 20th of October.

[Micaela Capelli, executive]

Sure. So to summarize, since we just delivered consolidated accounts, only a part of the capital loss concerning Datatrics was included, and it's summarized in the discontinued operation results. So you will see it as a synthetic result, whereas a portion of that will be evident in the individual account for the parent company, first of all, whereas the cash-in effect, so the positive cash contribution of EUR 1.6 million that were cashed-in at the end of October is not yet included in the liquidity in the net financial position. Thank you very much, Matteo.

One further question. How is M&A scouting progressing with respect to target companies for Beefree? Of course, we can give qualitative information here.

[Matteo Monfredini, executive]

Yes. Yes, sure. Well, on that regard, we are seeing opportunities in Europe, but quite expensive around 3x ARR. So maybe too expensive. And we are working on smaller opportunities, much smaller that could be merged into Beefree in the future. That's what I can say.

[Micaela Capelli, executive]

Thank you very much. And I think we have one further question that we can address. I'm afraid that the answer will be quite similar too much over it already about the intention to propose the distribution of any dividends in 2024? And Nazzareno, can you please comment on that?

[Nazzareno Gorni, executive]

In terms of dividends, we don't have any plans while distributing dividends at the moment.

[Micaela Capelli, executive]

Meaning there is no -- there is not a position yet concerning whether we are going to distribute or not a dividend plus we could not be in the position of communicating that guidance now.

And checking back on queue questions. Of course, there's many questions concerning guidance about our expectations on Beefree's business and how we intend to run the business. Maybe Nazzareno, you could provide some qualitative aspects with respect to keeping the business at breakeven or opportunistically spending more margins in the future, although we may stick to the data that we already delivered.

[Nazzareno Gorni, executive]

Well, since we are going to invest more or less EUR 5 million per year in the next 2 years. Let's say that margins for sure will be affected negatively because even today, in terms of cash flow is already negative. So we are going to invest.

[Micaela Capelli, executive]

Of course, there will be an expectation of accelerated growth from our investments. Getting back to review potential further questions. I would say that we're pretty done with all the very good questions that came in today. I would advise anyone that has any further items to address, to do so now. Otherwise, we could be in the position of closing the call. And as usual, you'll be able to find the recordings on our website for future reference in a couple of days.

No further questions. Well, as usual, we're available to connect to us via the [e-mail]. We cannot answer that question, and I'm sorry, I might get back to the author of the last question personally to address further details and thank you very much for the time being.

And thank you, Matteo, thank you Nazzareno and thank you, everybody, for attending. We will make some time to follow up and we'll try to be as accurate as possible in the coming communication.

So as we reminded at the very beginning of today's call, today, the acceptance period for the tender offer started, will be communicating, releasing partial results weekly. And then we'll see whether it's effective to proceed like that in the coming weeks. So thank you again, everybody, for attending and will be available soon again. Have a great afternoon, everybody. Bye-bye.

[Nazzareno Gorni, executive]

Thank you.

[Matteo Monfredini, executive]

Bye.