Wiit SpA

MIL:WIIT

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the WIIT First Quarter 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO of WIIT. Please go ahead, sir.

[Alessandro Cozzi, executive]

Thanks. Good afternoon, everybody, and thanks for joining in this conference call. And with the Board of Directors this morning approved the results for the first quarter 2022 and you can follow the presentation that I sent. I can start with the highlights.

The growth in sales was 48%, very, very good results. Thanks for the organic growth of the parent company WIIT plus 9% in terms of sales, thanks to the company extensions, acquisition of new clients and the termination of the migration of the contract signed in the last quarter, for the last year. And the strong contribution from the Genreal companies acquired during the last year.

The consolidated revenue was EUR 26.4 million compared with the EUR 17.7 million last year. And the consolidated adjusted EBITDA was EUR 10 million compared with EUR 7.2 million of the first quarter of last year plus 40% and a very, very good result. This result is the result of the concentration on into services. The optimization of the level in the process and the continued growth in our core business in high-value services and reduce the lower value of the more generalist service sales in the history of all the acquired company.

The marginal revenue was 58% compared with the 40% of the full year 2021, but increased compared with 35% of the last quarter 2021. Of course, the acquisition of the 2 new company in Germany, reduce a little bit the margin. But in the first quarter, we just improved the margin in our balance sheet. The consolidated EBIT was EUR 5.7 million compared with EUR 4.1 million last year, plus 31%. And the margin on revenue was 21.7%. This result is the capital of the 1.3 million of more amortizing related to the CapEx will be late last year.

And the adjusted net profit was EUR 3.2 million exactly the same over the last year. But to consider in this year, we have more cost of interest rate for the issue of the bond in October last year. So we are more amortizing and more interest related to the bond. The adjusted net financial position, including the IFRS 16 for approximately EUR 11 million was EUR 147 million compared with EUR 140 million. In these figures, we include the total debt of the acquisition of ERPTech of 6 million and the new investment in CapEx for EUR 7.3 million and we have an additional EUR 3.7 million of total share the buyback we have achieved in the first quarter.

If you consider the value of the treasury share portfolio, [indiscernible] EUR 41 million are the market value of the end of March 2022. You can see revenue in this slide, in the #5. The exposure in the German market is very strong. We achieved in the first quarter more revenue in Germany than Italy, they break down the EUR 14 million revenue in Germany and EUR 12 million in Italy. And EBITDA level we achieved more EBITDA in Germany than Italy, EUR 5.2 million in Germany and EUR 4.8 million in Italy. Germany will be our natural market for the next 3 years. And we confirm that is exactly the market when we want to push our business in the next 3, 4 years.

In terms of sales, the recurring revenue was 86% of the total revenue. All acquiring company in Germany is running with high percentage of recurring revenue. And you can see here at the group level, the recurring revenue is exactly the same of the domestic revenue, 86.3%. And the one-off is related to the project of migration or [indiscernible] for sales harbor and software. It's only 13% of the revenue.

I can jump now to the slide about the description of the EBITDA breakdown, EBITDA growth 40% compared with 7.2. I want to give you more color about the single company with us, margin breakdown. With margin with the parent company from 42.6 to 39.4. This margin is reduced because in the first quarter, we have a nonrecurrent one-off of selling hardware, from a positive EUR 100. If we exclude this nonrecurrent revenue with a very, very low margin the margin was 41.5%, it's actually very similar of the full year 2021. The Matika margin improved a lot from 30% full year 2021 to 43 of 8% in Q1 individual. This result is very, very excellent from our point of view. From the concentration of the high radio services and on reducing the cost because Matika begin to operate with our data center and starting to create cost synergies.

Etaeria is our indirect channel growth from 25.4% to 27.8%. In this case, we are extremely happy because in direct channel, of course, have a lower margin than week because they have to pay the margin of the channel, 28% for -- and that sales is a very, very good result for our point of view.

Adelante decreased a little bit from 22 to 15. In this case, we have exactly the sale of the hardware reduced a little bit of the EBITDA margin by the phenomenon for the first quarter. And MyLoc is our main company acquired in Germany. The EBITDA decreased from 47% to 38%, mainly for the electrical cost -- the cost of the electricity in Germany because we have only for the first quarter, roughly 900 [indiscernible] or more cost compared of the Q1 2021. We have a past due half of them to the customer, but they have them in part of the parcel of the margin.

If we exclude the increase of the cost, the EBITDA was 53% consider that we have just agreed with the local electricity carrier industrial dumper to fix the price forward for the next 4 years, and we just have reduced the price of the energy for the year 2024 and '25. But in this balance sheet, we don't consider the averaging of this cost.

Mivitec is the company we acquired in Monaco mission in July last year. The margin increased from 21.8% to 29.7%. Thanks to the cost synergy achieved for the data center business. And for this business, we start -- we won a new deal in very important in mission area, and we started to build in the first quarter, this new deal. Boreus margin is very similar, but the company we acquired in November last year from 37 to 47 is very, very stable. And Gecko margin from 30% to 33.7%. Gecko margin had the capacity increase the rate of the consultancy because they use at the moment, the shorter of the skill and ask more rate at the customer and the customer are checked to increase the rate.

For this reason, the EBIT margin or the EBITDA of Gecko increased 10%.

EBITDA is EUR 5.7 million compared with EUR 4 million. And net debt, EUR 147 million include the total cost of the EBITDA from EUR 6 million in 6 million, we have to consider that EUR 4 million we just paid and 2 million is in and out close. We pay only in case of the company achieved future results from our new customers. But we would all the price -- the full price included in our net debt is just achievable the earnout.

Strong operating cash flow generation in the first quarter CapEx for EUR 7.3 million is acting in line of our budget. I'll remember that the couple for the full year, the earning estimate will be EUR 32 million yearly and EUR 7 million is roughly in line of the our budget estimation. The treasury share buyback was from EUR 3.6 million. And we closed the acquisition of the residual 20% minorities related to Matika and this area for EUR 3.5 million. With this acquisition, we have had the possibility to merge this company with. And this morning with another Board, we approved the merger of all the 3 Italian companies in a single legal editing Wiit. The start of the merger will be middle of July and with the first January in effect.

Residual share value approximately EUR 41 million is not included in the cash accounting. We are here with Rampin with me, our Sales Director and Francesco Baroncelli, Head of M&A. I close the presentation, and we are also ready for Q&A sessions. Thanks.

[Operator]

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Giorgio Tavolini of Intermonte.

[Giorgio Tavolini, analyst]

Good afternoon everyone or good morning for those connected from the U.S. I was wondering if you can give us more flavor on your contracts? Are they linked to the inflation since, I mean, the CPI in Italy is trending towards the 6%. I was wondering if you are compensating, I mean, the inflation costs also passing through part of the inflation to final customers?

The second question is on the cyber security I was wondering if you are seeing any additional push from the current external environment in terms of the higher demand from your customers? And in particular, what portion of revenue do you generate from the cyber security services?

And the third one is on energy, how confident you are to pass through final customer, the residual portion of energy prices, for example, in Italy that are not covered or not fixed through the contracts?

[Alessandro Cozzi, executive]

Okay. Thanks. So to answer the first question about inflections. We have in the large part of our contract in Italy specifically larger to charge inflection of the customer, but we don't cover totally the real increase of the inflections, okay? Because the deflation is in Italy is the last 3 years was there at the moment, it's roughly 2% something contract, we have the possibility to charge half of the [ ESAP ] inflections in some cases, 100%. But to be realistic, we don't cover it totally the total cost of inflections.

The second about cyber security. We have a good surprise in the market because we continue to sign a new contract with a new logo and particularly new logo in the first quarter for some securities. The customer increased the request to cover with the security service or software, the disputes of the company. Fewer the lot of us back at the moment in Mivitec company increase and increase as worth about -- [indiscernible] is the customer and understand is now the timing to buy services to ensure the company. And the total revenue in the new sector or it is at the moment roughly EUR 5 million Consider that in Italy, we have roughly EUR 60 million revenue 8% of the revenue is related to the cyber security service is increasing double digit.

The third question about the cost of energy. In Italy, we can't assure the customer including energy. But in Italy, it's not material. Consider that we have in total Italy is below EUR 1 million the total cost of energy. The large part of the cost of energy for WIIT group is in Germany when we have 12 center and order 2,000 square meter in Italy. The problem is in Germany. The half of the increase we just agree with the customer, we just over charging the customer and the residual is compensated with the organic growth of the company, but it's not possible to over charge totally.

[Giorgio Tavolini, analyst]

Many thanks, Alessandro.

[Operator]

The next question is from Michele Baldelli of BNP Paribas.

[Michele Baldelli, analyst]

It is related to the growth of the top line in the sense that looking to the Slide #7 of your presentation is that Mivitec, Gecko and Boreus contributed to roughly EUR 8.6 to EUR 8.7 million of additional growth which is the kind of growth at a group level that you achieved. So can you confirm that the rest of the business was pretty flattish an increase. Can you give some color on the expected growth for the coming quarters because Q1 was a little bit low probably and it doesn't take into transition the new contract, can come out during the year. Thank you.

[Alessandro Cozzi, executive]

[indiscernible] for the growth, we have a part of the growth related with the organic growth on it yourself. -- itself. For the company with growth 9% organically. The other part is related with M&A with Mivitec and the Boreus and the Gecko.

[Unknown Executive]

Okay. Sorry, Michele. Just to clarify, consider that, as you know, when we give organic growth, we give 9% of organic growth that is only related to week's stand-alone the parent company. The remaining part of the growth is related to Adelante, Matika, MyLoc that was growing more than 9% in the first quarter and to the addition of the new acquired company Gecko, Boreus and Mivitec.

So the 48 -- more than 48% is a mix of different growth. As you know, we give visibility of the nonorganic part that on that case is related to Mivitec and Gecko and Boreus. And we gave the organic growth only related to WIIT. The growth is also coming from the other companies. I don't know if it was clear.

[Michele Baldelli, analyst]

Yes, thank you very much.

[Operator]

The next question is from Domenico Ghilotti of Equita.

[Domenico Ghilotti, analyst]

Follow-up just on the previous question. So the point that was pointing out is that if I -- based on your indication of Mivitec and Gecko and Boreus. If I add this contribution to Q1 '21, I'm already at EUR 26.4 million, EUR 26.3 million. So that's why we struggle to understand the organic growth implied in the actual number of Q1 '22. So there is something to say that is missing or that to be factor in that is not clear to us.

And second question on the energy cost. Is the Q1 '22 at a stable number. So it's something that, given the current scenario, we have been able to stabilize because I remember that you were mentioning some hedging and new contracts that we are kicking in, in Germany, in particular in Q1. So I'm trying to understand this is, say, the run rate that you have secured for the rest of the year?

And third question on the organic, you were pointing to something like more of low teens or 10, 11% in the previous call. So what is behind the potential? So do you confirm it and what is behind the potential acceleration in organic growth?

[Alessandro Cozzi, executive]

Okay. I will to give you an answer about the organic growth. MyLoc is a company we acquired 2 years ago grow organically 22% this quarter, we grow 9%. The last acquisition in from Germany, Boreus and Gecko are stable because this company at the moment we are improving the sales cycle. We are hire sales, but we knew that when we bought the company stable internal revenue. MyLoc grew 22% very well and WIIT 9%.

The second question about the energy cost. While we have just fixed price for the 2024 and '25. And with this price with the same consumption, we reduced the energy price for roughly 800,000 hour early. But in these figures, we don't include the average of these 2 years forward price. At the moment, the auditor is not -- we don't have the authorization of the auditor to average the price in our balance sheet. So at the moment, we insert the actual price fixed for the 2022 and 2023. But for the -- the other 2 years, we have adjust the contract with the carrier to reduce the price. But in these figures, it does include the benefit Okay.

The other thing about Matika and Adelante, we are used a little bit that I know because they are focusing more in hardware sales and then we will reduce the hardware and hardware sales. Because for this reason, market and margin were up strongly to 40% because we are going to sale lower hardware and low value services and increase the high-value service of the WIIT portfolio services.

[Unknown Executive]

This is the reason why we have a mix of key performances in the first quarter. That is explaining the 48% related to the growth and the 9% to organic only WIIT. Part of the mix.

[Alessandro Cozzi, executive]

But you can see that after July, when other company, our margin is more easier to disclose all the numbers because at the moment, we have 4 different regularity inside the [indiscernible] company, a residual of the old business to resale and some hardware,software with a very, very low margin.

[Domenico Ghilotti, analyst]

From the flavor on the organic growth?

[Alessandro Cozzi, executive]

Yes. At the moment, we confirm the range from 10 to 4.5 [indiscernible] from WIIT itself and naturally business. Consider the sales pipeline is at the moment stronger, the booking of new orders in the first quarter was totally in line with our expectation. And the mood is -- it's the opposite of all the mood on the market or mood of the world. But in general, we see very, very interest from the company to put in the cloud to move the cloud some application and to buy some service security services in general mechanical services.

[Unknown Executive]

At the moment, there's no visibility of slowdown of the request of the demand into the market for the visibility that the are American payments [indiscernible] of sales.

[Domenico Ghilotti, analyst]

Okay. May I have a follow-up on the CapEx side, are you on track with the CapEx that you announced in the previous call. So a EUR 7 million was the in line with my expectations, but I'm trying to understand if there is any update in terms of timing or total value of CapEx foreseen for this year?

[Alessandro Cozzi, executive]

Yes. So our expectation is to be in line with the EUR 32 million of the full year. But consider that in this EUR 32 million, we include 5 millions of extraordinary CapEx related to the build of the new data center, 1 million and the first 4 in Germany. The EUR 12 million are extraordinary EUR 20 million is the normal CapEx and 7 million is the part of this CapEx line. It's one, I'll give you an example, 1.5 million is related to extraordinary CapEx for the EBIT of the [indiscernible] Germany and EUR 5 million half or ordinary.

[Domenico Ghilotti, analyst]

And very last question on -- because I saw that if i'm not wrong, in the net financial position at the end of March, you have already included the ERPTech M&A is correct?

[Alessandro Cozzi, executive]

Yes, it's correct. We include the full price of EUR 6 million, but consider that EUR 6 million is included in the future earnout for 2 million hours. We just paid EUR 4 million at the closing data. But in our net debt, we included the future possible earn-outs for EUR 2 million.

[Operator]

[Operator Instructions] The next question is a follow-up from Michele Baldelli of BNP Paribas.

[Michele Baldelli, analyst]

Just a couple of follow-ups. First one is on the ERPTech. The sales were present in Q1 is just the balance sheet that is present. And the second question relates to MyLoc. Why the margin was down in the first basis point in the first quarter. Can you elaborate, please?

[Alessandro Cozzi, executive]

Okay. ERPTech is not included in the economical because the closing was by the end of March. We will include only the debt to close to buy the company, but we don't have a fact a cost, et cetera. MyLoc margin decreased only for the increase of the cost of energy because we have 900,000 [indiscernible], more cost in the Q1 for energy cost and the destination for the full year is to increase roughly 300 million hour. If you don't averaging the cost for the next 4 years because we accounted the full cost, we don't consider the benefit to averaging the cost energy for the next 4 years.

The half of this cost is charged to the customer.

[Michele Baldelli, analyst]

Okay.

[Operator]

Mr. Cozzi, there's another follow-up from Giorgio Tavolini of Intermonte. Please go ahead.

[Giorgio Tavolini, analyst]

I had a very evergreen question on M&A. If you are looking at additional targets after the recent ERPTech acquisition, both in Italy or in Germany. What opportunities are you looking at -- and I was wondering also if you see any additional benefits from the technologies that you acquired on [indiscernible] through Gecko and Boreus from your latest acquisition in Germany? And what kind of application?

[Alessandro Cozzi, executive]

Francesco can answer the question because he is the Head of the M&A.

[Francesco Baroncelli, executive]

It's a pleasure. Starting from the fact that we just acquired, as you perfectly know, a company here in Italy. And Italy is still an interesting geography for the development of our activities having said that, Germany is still the core of our search is still the focus of our M&A opportunities -- of our M&A operations, sorry. And yes, the pipeline is -- of potential opportunity is very dense, probably it's the year -- this year is the year with the most opportunities in these first 5 months, we had probably more than 10 opportunities on which we were very close to an unbinding offer or a general expression of interest, just to say that we have a lot of opportunities and -- but let me also underline that this is the way we want to develop our M&A in Germany. We want to be more selective because we don't have any specific pressures to buy a company. It has always been like that WIIT group is growing a lot also organically.

But especially now that we have a very good presence in Germany, it's important to add something relevant either in terms of our profitability or in terms of technology. And let me explain this a little bit better. As far as the profitability is concerned, we are currently having a look at 2 possible acquisitions in Germany, more or less in the same segment that we've been investing so far. So managed services or infrastructure as a service provider. Just to say that in this case, we will be successful, it will be an additional revenues in addition of customers, but also a potential source of strong cost synergies. But on the same time, are also very active in searching in capacities and the skills to improve the number and the capacities of our team in Germany.

I'm literally referring -- I'm namely referring to our software skills. I have 2 targets and one it's very interesting of a Saas provider -- change be successful. This will be a major step for our position in Germany because so far, as you perfectly know, we are more focus in Germany and on infrastructure rather than on [ SFP ]. That is our distinctive skill. But we have plenty of opportunities.

So in short, to make a very long story short, the pipeline is very dense. And as I was saying before, we are very selective. Let me also add that we also have some opportunities in the Software as a Service space. You know that we have a business unit that is focused on document management. And we would like to increase our position in not only the business unit or in Italy, but also in Germany. So part of our search is also focused on finding this kind of services. If it's clear enough or if you have other questions, obviously, feel free to ask.

[Giorgio Tavolini, analyst]

No, very clear.

[Francesco Baroncelli, executive]

And you also asked something on the.

[Giorgio Tavolini, analyst]

The latest technologies that you acquired on these ops, if I -- no, I mean the Kubernetes.

[Francesco Baroncelli, executive]

Sure. Sure. As we said, it's an important class of skills we add to the company, probably we were not so aware of the opportunities we acquired in terms of positioning because Kubernetes and in general, what is called DevOps. It's not only an important trend in Germany but it's also an important trend here in Italy. So in short, when we acquired earnings '22 we were mainly focused on Boreus in terms of revenue skills and profitability because that company is very particularly in line with what we do here in Italy but also Kubernetes, Gecko namely has been a very nice catch the company is running well.

The profitability is still very high. As Alessandro was mentioning, the company is able to reach higher prices for the services that it is offering, but at the same time, being in the very low part of Germany also means low salaries. So the profitability is still very high and maybe it will also increase in the future. There is a strong demand in the market for this kind of services in Germany and also here in Italy. So we are very happy.

I think in the next few months, we will have a better understanding of how to use these skills, not only in Germany, but also in Italy, probably.

[Operator]

The next question is a follow-up from Domenico Ghilotti of Equita.

[Domenico Ghilotti, analyst]

My first question is a follow-up on M&A. So I wonder if the situation, the market the rating that we had on listed companies in the last few months is affecting some way also discussions on the M&A side so maybe if expectations remain as before or in any way, so if you can comment on that? And the second question is on the MyLoc organic performance, so the 2020, 22% is very strong. I presume so part of this is related to the pass-through of energy costs. Is it correct?

[Alessandro Cozzi, executive]

Start to answer the last question is correct. Exactly. Part of visioning is related to the pass-through of the cost synergy is correct. In terms of rating, the private market is very -- it's more stable than the public market in general. The business probably multiply is very similar in the -- when the market is in peak or...

[Francesco Baroncelli, executive]

Yes, we don't see any significant impact of the rerating of public listed companies to the private market, as Alessandro was saying, but I'm saying that we've always been very, let's say, lucky to obtain very good multiplier. So it was also not expectable an extra lowering of the multiple we were buying at. I mean we bought a company at 6.-something times the EBITDA, so a very low multiplier compared to others. So -- but below that number, it's very tough to grow and -- so in short, we don't see any effect, to be honest.

The only effect that we see is that, as I was saying before, in this first part of the year, we've been invited in literally tens of tenders or we've been contacted by a private seller which means that the company is gaining a strong momentum, not only in Italy but also in Germany and also elsewhere in Europe. I mean, we're gaining momentum as an acquirer, as a necessary acquirer. So we are quite impressed by the number of potential deals we have on our table, to be honest.

[Domenico Ghilotti, analyst]

Okay. No, my point was that maybe in the past, you had excluded some targets that because requests were, let's say, out of Russia so were out of your multiples, okay. And so maybe now they are a bit more ready to consider also the lower multiple.

[Francesco Baroncelli, executive]

It has a sense what you're saying, obviously, but still, we don't see any specific effect because -- as always, we'll be very selective in our search which means that price was really the last part of our search. So we never keep or lost an opportunity for the price, but mainly for the composition of revenues of the -- I don't know if alessandro said it, but today, we really skip the 2 opportunities because they are not in line with our search to significantly of opportunities, one also in a new geography but still, unless they are completely in line with our business model, we don't own. And if they are, price is quite always the last problem that we have because we have several ways to commit the seller to the future.

So price is important, multiplier are important obviously. But so far, we -- all the targets that we thought were in line with our search, we found a way to win that tender.

[Operator]

Mr. Cozzi, there are no more questions registered at this time.

[Alessandro Cozzi, executive]

Okay. So thanks, everybody, for joining us, and see you soon for the next call. Thanks, and goodbye.