Wiit SpA

MIL:WIIT

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Wiit's First Quarter 2020 Results Conference Call.. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, Chief Executive Officer of Wiit. Please go ahead, sir.

[Alessandro Cozzi, executive]

Good afternoon. Thanks, everybody, to be with us today to discuss about our Q1 2020 numbers. The Board of Director approved this morning the results. And let's start from Page 3 with our highlights. The first quarter is very good for us. We have a strong relation in sales, 49.8%, mainly driven for the organic growth and the consolidation of the 2 companies we acquired the last year, Matika in July and Etaeria in the 16 January of this year.

The consolidated adjusted revenue is EUR 11.2 million, compared with the EUR 7.5 million previous year. And thanks to organic growth and acquisition and up selling logistics of existing clients. In these numbers, we include an extraordinary impact -- positive impact of tax credit for EUR 400,000. The consolidated EBITDA grows very fast, 41.8%, EUR 4.1 million compared to EUR 2.9 million of Q1 2019. Thanks to the high economic scale of our business and the operational process and service and the margin improvement of the acquiring company.

In the following slide, we can see the results of the single company. But the consolidated margin on revenue is 36.2%, in line with our budget. The consolidated adjusted EBIT grows very fast, the same, 45.7%, compared the same period of 2019 with a margin on revenues of 19.3%. Adjusted net profit of EUR 1.6 million, compared to EUR 2.3 million. But in this case, last year, we have a positive impact of the patent box for the last 4 years for approximately EUR 1 million. If we exclude this impact, the net income is better with respect to last year.

Net financial position, excluding the impact of IFRS 16 for approximately EUR 6 million is at EUR 29.4 million, compared with the EUR 20 million of the end of last year. This value includes the total impact of the cash out of acquisition of Etaeria for EUR 13 million. And in this EUR 13 million, we include all the earnout achieved -- something -- the result achieved of the -- in the future of this area. And in this net debt, we don't include the total impact of the only shares and quantified in approximately EUR 10.8 million at the market value at 31 March, okay?

We can go to the -- for the COVID 19 updating the Chart #4. All the employees are in remote working from 24th February. We maintain a minimum field procedure in the data center to guarantee the continuity, but only 2% employed on field in the company. Considering the type of business of the company with long-term contracts and a large part of the business in recurrent revenue, we haven't impacted -- financing impact in the first quarter -- in the Q1. The Q1 results confirm that one, because the result is in line with our budget and in line with the market expectation.

And for the second quarter, we had a high visibility in terms of revenue. And we hope -- we think that we have an impact in the second quarter, too. The impact of the new client division could be occurred only if the competence continue behind the first half of the year, but the impact is only for the new logo. The other side, in the first 4 months, we have increased -- a strong interest for the registering customer from the nonworking cloud business and the cybersecurities.

In the first quarter, we signed an import contract with our customer for the smart working for about [ EUR 1 million ] of contract long-term finance. In April, we signed a first contract in cybersecurity with one of the 60 new customers we acquired with the last acquisition in January, the Etaeria.

In terms of credit collection, we might -- constant monitoring of the situation of the customer and the receivables. You can see in the following slide in the financial, we haven't a material impact at the moment in terms of receivable in terms of net working capital.

We can go to the Slide #5. We already discussed about the revenue.

Please go to Slide 6 to look in more detail, the EBITDA composition and margins. On Slide #6, the EBITDA margin growth very fast, 41%, while with -- recent acquired company are more focused in the high value in the cloud services, and we reduced the sales and hardware software with low value and optimized the processes and operating services. Improving margins with margin slightly decreased to 42% mark is a strategic allocation of the top 60 Etaeria clients, we decided to transfer the invoice of all these customers in Wiit it to accelerate the upselling.

So if you exclude this strategic allocation, the margin was 46.4%, higher than the margin of last year, 46%. Very good results of the -- all the aquired company, because Adelante growth from 17.7% last year to 21.9% Q1 this year; Matika growth from 25.6% to 31.1%; and Etaeria margin of stable 18.1%. But in Etaeria, we expect to achieve the common scale starts from the Q1 2021. We have EUR 1 million of EBITDA margin in terms of the new scale, but we can achieve this one when we expired the external contract with the services in Q1 '21. So Etaeria can recover a lot of margin in the following years, and we are very happy for the results of Adelante and Matika.

We can go now to the chart net debt -- sorry, net profit in Chart #7. And net profit was EUR 1.6 million, compared with EUR 2.3 million. But in the last year, we included in the first quarter, a positive impact of patent box for approximately EUR 1 million. So if we exclude the impact of EUR 1 million, the net result was better than last year. The reported net profit of EUR 1.7 million reflects the impact of tax credits for EUR 400,000, the impact of M&A cost of Etaeria. And another information, we renewed all with the tax office, the positive impact of the patent box for the next 5 years.

Net debt. Net debt was EUR 35.4 million compared with EUR 25.5 million. The impact -- this EUR 35 million include the impact of IFRS 16 effect of EUR 6 million. Last year was EUR 5.5 million. The total impact of acquisition and related earnout value of Etaeria with EUR 13 million. In this quarter, the company generated strong operating cash flow with EUR 3 million. We spent approximately EUR 2.8 million in CapEx, mainly related to new business, lower maintenance CapEx and a lot of new business. And we don't include in this net debt, the real value of treasury share approximately EUR 10.8 million at the market value of the 31 march. At the moment, it's more -- it's very high, I think it's EUR 14 million pricing today.

So this is all, we can go to the Q&A session. With me today, there are Enrico Rampin, our Sales Director; Francesco Baroncelli, Head of the new market and M&A; and Pasotto, our CFO. We are ready for the eventual question.

[Operator]

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

Mr. Tavolini, have your phone unmute. Mr. Tavolini, I'm sorry we can't hear you, can you try your mute button. [Operator Instructions] We have a question from Giorgio Tavolini of Intermonte. Mr. Tavolini, I'm sorry we can't hear you.

[Operator Instructions] The next question comes from Gabriele Berti of Banca IMI.

[Gabriele Berti, analyst]

I have just one question. Can you provide any update about any potential impact of net debt or potential delays in payment from your clients regarding the current market scenario?

[Alessandro Cozzi, executive]

Yes, of course. At the moment, we haven't a material impact in net debt close to 0. In terms of a delayed payment, we have conceded 3/4 of customers and the late payment of the contract. But the other side, we extend the duration of the contract. The strategy is to help the customer in this difficult moment. We consider the customer to pay not the usual 60 days, but 120 days, but we ask you to enlarge the duration of the contract 1 year to 2 years.

At the moment, unfortunately, we haven't impacted in terms of bad debt in terms of [ bankruptcy ] overall. So the customer of Wiit we are big customer, of course, many sector like luxury or retail this quarter is not happy quarter, but we have the visibility in terms of [ bankruptcy ] or very, very hard created situation.

[Gabriele Berti, analyst]

Okay. And can I ask just one more question. Which is the organic growth in the first quarter?

[Alessandro Cozzi, executive]

That organic growth or the Wiit balance sheet is around high single-digit percentage, close to 9%. We have the pro forma settlement, because we have the data of the last 2 acquisition company, and we haven't had the possibility to disclose their pro forma. But it's close to 9%.

[Operator]

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

[Giorgio Tavolini, analyst]

Apologies before for the technical problem that I had. I was wondering if you had any update on the cybersecurity opportunity. You recently talked about an opportunity in Italy to buy an asset in order to strengthen your positioning on the [ CESAAS ]. So I also heard that you acquired new contracts and in particularly on the cybersecurity, you already have some roughly EUR 3 million annual revenue from these services. So I would like to know if you prefer to strengthen your positioning through M&A or you're also targeting an organic development through the customers that you are acquiring to the recent acquisition?

The second one is obviously on M&A. I mean you talked about the target to double the revenue in 2 years' time, achieving a critical mass of EUR 100 million. Should we expect any speed up of the M&A campaign in France in the next quarter? Or I mean, there is some freeze of the activity?

[Alessandro Cozzi, executive]

Okay. in terms of sales of cybersecurity. We closed it a very good contract in April with one of the top 50 top clients of Etaeria. Cybersecurity is one of the main driver -- reason in this period, because the company work is smart working and want to increase the level of security. So we don't disclose the contract, because it's not the material, but this is a contract we did EUR 0.5 million, so it's not cheaper. It's more the contractor cheaper or too small.

In terms of M&A, cybersecurity is one of areas we are looking for the target. The discussion is always [ continued ]. But at the moment, all the M&A is not so simple to continue, because we haven't the possibility to meet the physical meeting with the sellers. Of course, in M&A, it is necessary to meet, to discuss under the deal in the physical meeting. So we think part of the lockdown in June and July, we can continue the conversation. And my expectation is for the second half of the year to continue the M&A. We don't stop the product, of course, we have -- Francesco can add any information about the strategy in Italy and the France.

[Francesco Baroncelli, executive]

Sure, sure. If you want -- can you hear me?

[Alessandro Cozzi, executive]

Yes.

[Francesco Baroncelli, executive]

Yes. Just going a little bit back to what Alexander was saying on the customers we are acquiring, thanks to the latest acquisition, that is a clear sign that apart from the cost synergies, we are putting in place. It seems that we are also able to leverage the customers of our acquisitions, which was one of the promises we did to the market, even if we never forecast the specific figures. But in short, we are very happy that things are moving also on the revenue side, let me say in this way, of the M&A activity.

So this is something I wanted to stress. Having said this, going back specifically to the M&A freezing is not the proper word, but for sure, this specific situation is slowing down a little bit, because as Alessandro was saying, it's not easy at all to manage the transaction without physical meetings. It takes days to complete a review of trivial aspects of an LOI. Usually, it takes minutes, sometimes to work on the similar features. So we are a little bit slowed down. But as I will explain in a few minutes, this has also a positive in brackets outcome.

But talking about France and Italy, both these specific targets we were working on before are still there. We are working tough on both these 2 targets and things are moving. To be honest, we will try to keep alive both of these 2 opportunities, and we will decide at the very last moment, which will go first. It will depend from the situation. I mean France is, for sure, the main target for our M&A operations for this year. But in -- and for this reason, it has a priority. But depending on how difficult it will be in the next month to move from Italy and vice versa. We will decide then consequently if we will go first with France or Italy.

So it's very tactical what we are doing now. But for sure, both targets are still there. We are working with the legal teams. So we are working on a preliminary due diligence. So we are moving step by step closer to the target -- to the end target, I mean, to the signing of the binding documents. Alessandro is probably right in the sense that we forecasted signing before the summer break, but we think that probably the end of the year will be the reasonable time frame for signing an LOI. And we don't have to forget that there could be also some negative impact on our targets came in from the coronavirus outbreak. And this is what I was mentioning before in terms of positive outcome of the situation. I was meaning that we are trying to gain some time to analyze better figures to see if they are resilient to this shock or not.

So in short, it's always hard in M&A to forecast a target, in this scenario is even more difficult to do that. We have to be very cautious. And as I always remember to myself and to my team, we are not forced to close a deal unless we are not more than sure that this will bring us some value. The company is growing, is going on a stand-alone basis. We have to integrate the latest acquisition. So new targets, we have a pipeline very dense of potential acquisitions, both in Italy and abroad. Let's take our time to decide what it is best for us.

[Alessandro Cozzi, executive]

In short, we want to analyze the results of first half year, because the coronavirus is opportunity to understand the resilience of the target. At the moment, we are unsure to understand the target that we acquired is very resilient like Wiit. This is all.

[Giorgio Tavolini, analyst]

I had another question, if I may. I don't know if there is a space for another question?

[Alessandro Cozzi, executive]

Yes, yes, of course.

[Giorgio Tavolini, analyst]

I mean on the organic growth, I guess you had a very impressive acceleration in Q1 in respect to last year. But I guess it's fair to assume a slowdown deriving from the pricing effect on some contracts where you extended the duration, so you have maybe lower pricing, but longer duration...?

[Alessandro Cozzi, executive]

No, no, no, sorry, Giorgio. We enlarged the duration, may not reduce the pricing. At the moment, we can see a delay in terms of payment and we increased the duration of the contract, but we don't reduce the value of the contract.

[Giorgio Tavolini, analyst]

I see. So we should expect an acceleration, I mean, or something like 9%, 10% growth for the next coming quarters?

[Alessandro Cozzi, executive]

It depends of the new logo, because the organic growth is the mix of selling a new business. The new business, of course, is more difficult with the customer at the moment, our major part of customers are stopped, are not running. It's not so simple to sign with the new logo.

[Enrico Rampin, executive]

Yes, Giorgio. I'm Enrico Rampin. So what I'm seeing in the pipeline is that the customer -- the pipeline is increasing in terms of number, in terms of new customers, new potential deals. What I see is that there is a little bit of a delay in the final decision. So that means it takes a little bit more time, because they are not so -- they are trying to understand what is the impact for their companies in the quarters to come.

So we are rising up the number of opportunities in upselling and also into the new logo. The acquisition of Etaeria is increasing the number of opportunities in direct selling and also through the channels we have. We attended a very, very important tenders during the last 2 months. What I'm not reach -- so I'm -- how to positive on the results in terms of sales. What I'm not really -- I can't understand perfectly today is the timing, because it will depend on the numbers of Q2 for the clients for the market in Italy.

But in general, I'm quite happy, because we are increasing number of opportunities that means that the customer are anyway looking for this kind of services for smart working, cybersecurity, but also for the project on the cloud on the core activities of Wiit on [ SAP ] or into the business continuity services.

[Operator]

The next question is from Rohan Haritwal of Allianz Global Investors.

[Rohan Haritwal, analyst]

I just had 2 quick questions with regards to cash flow. Can you give us an idea of the EUR 2.8 million that was used up in CapEx, how much of it, if you can give us a brief idea of what it was used for?

And in terms of working capital, how does it start looking once you start extending your credit terms? Overall, do you consume more working capital? Or do you adjust it with the receivables?

[Alessandro Cozzi, executive]

Okay. In terms of CapEx, in the quarter, we spent EUR 2.8 million, the large part order of CapEx, okay? Looking at capital, I see the balance sheet capital is stable with EUR 2 million is compared with the end of last year of EUR 1.7 million. Considering in this quarter, we consolidate the receivables of the new acquiring company. So we have a little increase in net working capital, why we consolidate the new company or the new credit for the company. Cash flow in the quarter here is EUR 3 million, the net free cash flow is EUR 3 million in the quarter, is in line of our margin, our expectation, because we have the impact in term of net working capital.

And the last question is about credit loans available or -- at the moment, the company has EUR 16 million cash on the hand, and we have EUR 30 million of line of credit available. EUR 30 million, EUR 10 million for CapEx -- is the CapEx line and EUR 20 million is for M&A, financing our M&A. Bank financing, the half of them is a bullet in 6 years and the half is amortizing. The rate -- interest rate is 2.3% for the bullet and 1.8% fixed interest rate for the amortizing. This is a growing bank loan variable.

[Operator]

Mr. Cozzi, there are no more questions registered at this time, sir. I'll turn the conference over to you to make any closing remarks.

[Alessandro Cozzi, executive]

Okay. Thank you, everybody, for the conference call, and see you again next -- for the next -- for the first half. Thank you. Buh-bye.