Tinexta S.p.A.

Good afternoon. This is the course call conference operator. Welcome, and thank you for joining the T-NEXA first quarter 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Joseph Mastragostino, Chief Investor Relations Officer of Tenexa. Please go ahead, sir.

Thank you, operator, and good afternoon and good morning to the folks in the U.S. Thank you for joining Tenexa's first quarter 2023 results presentation. Here with me today, Odone Paul Group CFO.

Good afternoon, everybody.

As a reminder, all the relevant documentation of the first quarter 2023 results can be downloaded from our company website in the Master Relations section. For the purpose of this call, I will go over the first quarter 2023 highlights and updates. Odon instead will go over the first quarter financial results as well as the business unit's performance, providing us with a deep dive. The last part of the call will be dedicated to Q&A A recording of this conference call will also be available on our company website, and it will be posted upon completion of this call. At this point, I will kick it off by turning to page 4 of the presentation. Let's start by saying that the comparative data for the first quarter 2022 have been restated in relation to the completion of the identification of the fair values of the assets and liabilities of 4-Value SBA, of Financial Consulting Lab SRL, Cert Europe SA, and of course E-Value Innovation. The comparative data for the first quarter of 2022 have also been restated for the reclassification in the results of the discontinued operations of the Credit Information Management Division, following binding agreements for the sale subsequently concluded between August 22 of Inolva and March 23 of Revaluta, as indicated on our press releases. At this point, you can see that First quarter results were very robust. Revenues came in at over 80 million, roughly 86.1 million, growing 10% versus prior year. EBITDA adjusted came in at 15 million. Even more representing is probably EBITDA, which was 13.5 million, growing 17% versus prior year. Net profit was very strong, and it accounts in particular from the proceeds of Revaluta, and it came in at close to 40 million euros for the first quarter. Net financial position was virtually zero or close to 3.8M versus the 77.6M of the fiscal year 22. Turning to page 5, given that we already commented both on revenue and EBITDA, EBIT came in at growing 25.5% versus prior year at 4.3M. The net profit of continuing operation grew 57% and posted a 2 million mark. Net profit, as we said, was 40 million, and it was very strong, mainly driven by the capital gain from Revaluta. In terms of adjusted free cash flow continuing operations, it came in at around 23 million, substantially in line with the prior year. Even more representative is probably the LTM of the adjusted free cash flow continuing operations, which was very healthy at 50 million euros. The start of the year was very strong, with the top line growing in all business lines. Digital Trust continues to register strong quarterly growth. Renews grew close to 12% versus the prior year. EBITDA grew even more, around 12.3%. Outstanding was the EBITDA margin, which was 27.4%. Cybersecurity strongly rebounded, growing 14.9% in revenues and even more so in EBITDA, registering an exceptional growth of 79% versus prior year. The EBITDA margin was around 10.2%. Business innovation grew 6.4% in revenues and EBITDA came close to 5 million with a margin of around 20.4%. In terms of the most recent events and updates, we remind the market that we completed the signing of the 65% of Assezia. We will complete the closing very soon. We finalized the transfer of the 95% of Revaluta de Grif, and it was March 7th. And we completed the closing of the 20% stake in DefenseTech for approximately 25 million euros. On page six, you see a graphic representation of the most important KPIs of the quarter. Again, most importantly, we think is adjusted free cash flow, which was very strong for the quarter at around 23 million. Now, I'll leave it to Adonis to start from page eight. Adonis?

Hello, good afternoon again, everybody. Thank you for joining us. As anticipated by Joseph, as you can see here at page eight, the P&L of the group for Q1 compared to prior year. Definitely the revenue was up at 10%, basically aligned to our expectation. And if we go in details of the revenue, definitely we had a very strong growth both in digital trust and cybersecurity, while business innovation continue on a single-digit revenue growth. In terms of cost, as you can see here, basically the percentage of revenue is not changing too much, even though we have to consider that Q1 is the lowest quarter in terms of revenue of ABTDA of the group. The EBITDA achieved 15 million euro at 17.4%, growing 3% compared to previous year. We will deep dive later into result by business in order to analyze that. The stock option or recurring costs are down significantly compared to previous year due a lower M&A activities of D completed during this period. Depreciation, amortization, and provision are growing compared to previous year, but keeping more or less the same incidence on revenue. Financial income, as predicted during the presentation of the plan, we started to invest our liquidity. As of today, we are investing our liquidity in time deposit, getting a positive income that is above 2% that is higher than the cost of our debt. In terms of financial charges, as you may see in the document, in the quarter report, in financial charges, we accounted here more costs for earn out. And this is, again, even though the cost is a good sign, it means that the companies are performing better. And as well as some leasing costs that are interest related to leasing costs are booked here. Net income of continuing operation is growing from 1.3 to 2.1 million, and during Q1, we completed the disposal of credit information division with the sale, we completed the sale of Revaluta, posting a 35.7 profit about this, So the net profit is close to 240 million. Definitely, if we move to the balance sheet, what at page nine, definitely you will see here that we are keeping the net investment capital basically aligned to the end of the year, but our net financial position has dropped finally has predicted to zero when, you know, basically we were helped by this, by the freakish flow of the business around this quarter, as well as the capital increase of Regal that completed what agreed during the agreement with them and the disposal of Reval. shareholder equity went up to almost 500 million euros. So when we look at the results of Q1, definitely we are very happy of the performance. We will deep dive later, but revenue is going up. Digital trust continue for, you know, now is many quarters in a row where the revenue and the ABTDA are growing more than double digit, and we had basically, as predicted again, the rebound of cybersecurity, where obviously here is clear that the cost that we put in the P&L last year to enable the growth of the following year is now happening exactly as predicted. Very important here is to state that, you know, the business is developing as agreed. Business innovation, I would say, is lower than previous year. But again, here we are talking about the business unit that is delivering the largest amount to EBITDA, and the first quarter amounted for 10% of the total year. So we have some kind of different scheduling. We have also to remember the last quarter, you know, the group was able to deliver 35% growth quarter on quarter. Net financial position going basically to zero is another important achievement that, you know, stands as a platform for future development as anticipated during our plan presentation. Net financial position, as you can see here, went down. uh to to three million euro and the free cash flow has been again uh very positive as we deliver basically 22 million 23 million of adjusted free cash flow in a quarter definitely q1 is one of the best quarter in term of figure flow as, you know, basically we collect all the revenue that we deliver in Q4. So it was a very, very strong Q1 both in 2022 and 2023. For your reference, last year we generated more than 10 million out of the working capital. This year we generated more than 13 million out of the working capital. And this is, again, very, very positive news. If we look at the bridge of our Net financial position, the free cash flow from operation is close to 23. Financial charges, again, very limited, mostly related to, you know, interest related to leasing and earn out. And then we have the disposal basically of revaluta. No other major amounts here. we have the external investment in intangible assets through a partnership that we put together with CLEEFS. Also, if we look at where we stand, I'm going now to page 12, where we're standing basically one year ago. We had a total debt of $230 million. Now we are basically 2-0. was able to, you know, through the disposals, you know, basically of Inolva and Revaluta, so basically at the end we were able to cash more than 170 million euro, and we had a free cash flow of 50 million euro on LTM basis that has been absolutely positive. Having said that, I would move to basically to business units. As you can see here, basically digital trusts continue to go up quite significantly in terms of revenue in close to 12% and more than 12% in EBITDA. InfoCert, the most important part of this avenue, is up more than 15%. We had also good news from the Spain business that despite very little compared to the other business, was able to grow up more than 20%, as well as the business of Visura is very solid and stable. and went up quite significantly. In terms of ABTDA adjusted, we were able to deliver better results. In terms of cybersecurity, the revenue started to go up quite significantly, and this was driven by the cybersecurity business compared to the the digital business and this is what actually we were expecting so as we anticipated here basically we are late six nine months compared to our uh initial plans but now i would say that q4 22 and q1 23 are aligned with our expectation now we we are in the phase where we are delivering definitely significant improvement of ABTDA. Obviously, most important part of the business is going to occur in Q3 and Q4, but we feel very confident about this. Business innovation is kind of positive in terms of revenue growth. In terms of ABTDA, we are Slightly below is part is a mix of revenue. As you know, we are adding new businesses with a lower margin. and partially is, you know, decisionality of the business compared to previous year. So, we are following this, but as you have seen very clearly during Q4 last year, the Q4 is the key moment of the business, and this is what we are . Going a little bit deep diving on digital trust, we have to say that the performance at page 15, the performance was stronger on all accounts, both in terms of industry and products. Definitely, we are growing quite significantly in the public administration, as well as we are performing such a consolidation in finance and utilities, and we are growing very strong in the identity and onboarding service. At the international level, we are continuing to improve our sales to our European clients. We are not yet consolidating Asherzia, for which we are designing we are expecting the closing not too far to happen. But already from the commercial standpoint, we are working very well and we are preparing the future consolidation of Hachette. Again, this Q1 has been another very solid uh quarter for digital trust continue to grow uh double digit body in revenue added dda and now this is you know we feel very very comfortable on delivery of results of this activity cyber security this is uh good news i remember quite a lot of questions during the The plan presentation, you know, Mr. Comasti with his team were able to put together a very clear and ambitious plan. And Q1 has been exactly, has been delivered exactly what we expected. We are very happy about, although the numbers, you know, still are small for the seasonality, we are very confident as a, You know, the revenue came in a very organic way during the quarter. The pipeline is improving, and also the cost control and delivery of EVTDA has been perfectly matched with the plan. So we registered a very positive performance. especially on the cybersecurity lines. I mean, both advisory implementation services and managed security services, as well as PRODAN. And this is a very, very good indicator. All the three companies of the business unit performed well. So this is a very positive situation. Part of the direct business, you know, we, during the month, of March, we T-NEXT Cyber signed an important partnership with Google Cloud. This is even more, you know, an indicator that, you know, our business, our capabilities, our skill are recognized from such an important partner. So this partnership will allow the business unit to consolidate its position as a reference of the cybersecurity arena in Italy. And so this will bring our solution to the Google Cloud marketplace. So let's say that, you know, again, the ABTDA was more than 2 million, basically doubling compared to previous year. I would say even more important, ABTDA in Q1 is already above 10%, so this is a very good first step towards the delivery of the budget that we put together. So again, we can say here as anticipated, some quarters ago, we had a delay of six, nine months in delivering what is expected. But now, the first three months, and I would say even April, is expected to be a month definitely aligned with our expectations. Business innovation. As you know, this is the business unit that is delivering the largest ABTDA during the full year. Q4 has been a very, very strong Q4. In Q1, as anticipated, we worked quite a lot in organizing ourselves. We ran the merger among five legal entities. We designed a new organization that will best fit our customer needs. We integrated, you know, the two main acquisition of 2022 that are an answer, a planet in order to develop the digital area of the business. And now, you know, we are basically approaching the market in an even more integrated manner, exploiting the possible opportunity that are on the market. The revenue in the area of the business innovation was, let's say, positive in most part of the business. Warrant went up compared to previous year. The only area that was already anticipated that is shrinking a bit is the area of service to P&E for internationalization. This is shrinking a bit, but this was something that was expressed. In terms of profitability, this is a very scalable business, as you I definitely understand. It means that during Q4 basically is a consulting business, but part of this consulting business is, you know, as a success fee, the most important part of a warrant. And, you know, so Q1 and Q2 are, you know, let's say quite weaker. quarter compared to the final part of the year, and we do expect, you know, again, business innovation to deliver as expected during that day. So, honestly, very promising Q1, very solid Q1 in InfoSec and cybersecurity, and business innovation delivering what we expect as our calendarization, I would say strong, continuous strong cash conversion, and I would say now we are at zero net financial position that has been a great achievement. It is a very important platform for future development.

Okay, so now we turn to the last part of the call, so we can turn to page 19, where substantially following the very robust first quarter results, we are confirming our guidance. There's a summary page, and we want this to be very clear and crystal clear. On a 2023 versus prior year basis, revenues for 2033 are expected to grow organically anywhere between 11% and 15%. EBITDA adjusted anywhere between 8% and 12% versus prior year, and that is as of December 31st, 2022. The net financial position over adjusted EBITDA is going to be expected cash positive with dividends in the realms of 30% of net profits. we remind the market that our plan, which was presented in March, includes an inflation estimate of around 6% for this year. On the bottom line, you see instead the 2025 outlook, which stays intact at low to mid double digit. On the revenue line, that is a 2022-2025 CAGR, EBITDA adjusted to be expected for the time period at double digit, cash positive in terms of leverage ratio, and a dividend policy of around at least 35% of net profit by the end of the plan. On the 2022 and 2025 CAGR assumption timeframe, the assumed estimated inflation is around 3%. So we wanted that to be clear to the market. On the other slide, on page 20, I won't go over them, but those are the divisional expectations that stands still as we speak. At this point, I will leave it to the operator to open the Q&A session in order for us to start answering any of the calls.

Thank you. This is the course call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. To remove yourself from the question queue, please press star then two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time.

Our first question is from Isacco Brandilla with Mediabanca.

Please go ahead.

Hi, good afternoon, everybody. Thank you for taking my questions. I have two questions. The first one is on the strategic partnership with TRIF, just if you can provide a bit more color on how the partnership works and potential contribution going forward. The second question is on CAPEX. You had quite important investments in the first part of the year, of course, a big part related to the CRIF digital software platform. Can you give us a sort of guidance on CAPEX for this year?

Thanks. Hello. Hello. Isako Odone here.

You know, if we talk about, you know, CAPEX, I would say I will split this in two parts. In fact, as you may have seen, basically, there is a part that is our recurring part that has been in the range of 5 million euro. growing compared to 2.5 million euros last year, but perfectly aligned with what we expected. You know, we are expecting capex in the range of 18-20 million per year. The 13 million euro investment is, you know, a one-off capex, so basically has been an investment in a software, in a platform of CRIF, for which we announced there has been a joint press release where basically we entered into a partnership in order to work together to this. So basically the last part of the partnership that we engaged, so basically we acquired the software in order to provide services to CRIF clients and this is part of a commercial approach for which we are addressing our both customer on this. So you may consider this more than the capex actually as part of like a little bit more as an acquisition of a part of the business. Definitely, we already had revenues related to this and a margin that help our results. The third question was, sorry, Isacco, I miss you.

No, actually, it was just a couple of questions, so one on the CAPEX and the other one on the Seymour-Colon-Carrif partnership, but I guess you already answered.

Thanks a lot. Thank you. Thank you.

Our next question is from Renato Gargiulo with Stifel.

Please go ahead.

Yes, good afternoon. First question on digital trust. You were mentioning a growing public administration market, also thanks to and RRP. I was wondering here if you can assume an acceleration going forward. What's your visibility on that? And in terms of profitability, you have seen a positive sales mix in the first part. Would it be still a good profitability driver going forward? Or as you were saying before, we should consider still operating leverage and scalability of the business as the main driver. Then the second question is on defense tech. If you have any update on that, you were anticipating that you were starting a common plan to develop industrial and commercial synergies. After the closing, I was wondering if you have any more indication. You were saying that in the business plan, you were not including any impact. If there could be any coming from synergies over the next quarters. Then the third and last question, clearly on M&A, as you were saying, and now you have almost zero net debt. An update on your strategy. What are the main markets you are still considering? Could you make another potential acquisition in France or Spain or anything else? Thank you very much.

Okay, let's start from, you know, PA. Definitely, you know, digital trust is working, honestly, 360 degrees trying to address both, you know, I'm talking about digital transformation management, of course. is approaching large corporate banks and PA. With PA, I would say we are working very well. We are getting orders, we are getting new customers. We are not going to disclose, we are only to disclose them on commercial side, but definitely this is a continual activity of getting new order, new clients that is obviously helping us to increase our portion of recurring revenue and having a more and more stable and steady growth. PNRR was already part of our expectations, and so far we are very happy, very confident, and we think we will continue. Then anticipating now if you can do 1% more or 1% less is too early, but it's not changing the picture. The company, the business unit is very solid, is grow constantly and there are no big jump in term of revenues or ABTDA. So the company is very solid, very strong. It is continued. So results are there as well. The cash conversion is very, very positive. The second question, if I'm not wrong, was on sales mix. You're talking about the digital trust of the group as a whole. Yes, no, digital trust, digital trust. The sales mix is not changing too much. I would say that looking at one single quarter, you know, also for us it's not, you know, more or less we have the solid, you know, split between off-the-shelf and digital transformation management. Digital transformation management is growing a little bit faster, but, you know, we are looking at this on a bit larger horizon. No, we do not expect a significant change. Our strategy is always the same, and we are addressing it in a positive way. Maybe I will leave to Joseph on defense tech of M&A. Obviously, for us, we knew, but it's still an important achievement having achieved basically zero debt. The group is ready, is further ready, even more ready to run M&A. I would say that at this point in time, we are scaling up the targets of M&A our investments you have seen that with the defense tech you know if we you combine the first part with the potential uh second part of the call we are talking about about above 100 million euro and uh now uh you know we are and we did this important step already at the end of last year with the closing that just occurred I would say that our strategy is always the same main focus on digital trust on international development and you know even q1 is reinforcing our our strategy second is potentially if there is an opportunity to to support the international expansion of the business innovation, and if we found out the right deal in Italy for cybersecurity, we go ahead. If I have to think as a percent of allocation, definitely the opportunities we are pursuing. We may have internationally foreign forces are, you know, the most important targets as of now. During Q1 has been also completed the share capital increase of Bregal that now accounted in total for 100 million euro. So everything now is ready to continue our process to identify targets and then trying to complete the deal.

Right. The other question, Renato, was on defense tech. As you guys know, in April, we completed the closing of a minority stake, which is obviously 20%. 25 million is the equivalent economic value of it. It must be said that we are talking about a listed company on the other side, so prior to any sort of closing, and any sort of authorization in terms of, you know, from a legal perspective, we couldn't really do much now before that, even though we had already started our talks even before the deal. Now, we are now a minority shareholder. We need to say that. That is a fact. At this point, we have an open conversation, open tables, where we have a dedicated team on both sides of the companies that are obviously deep diving into the product offering, into the eligibility of the product offering from a defense tech standpoint, as well as from an extra cyber standpoint. Let us all recall what our CEO said during the March presentation to the market. Obviously, we are undergoing a full assessment of the technology, of the compatibility of the technology from Defense Tech, which obviously has a different type of audience versus a commercial audience that Tinexta Cyber has. So I would say that we are fully in line with the execution part. Now, just to re-echo a little bit what Adonis just said, you know, everything that we said I would say a month and a half ago during the plan is now happening and is now a fact. And I think defense tech is exactly also in track or on track, I would say, in terms of understanding how these synergies are actually going to play out once the offering are going to be, I would say, united together on the market. We really can't say much more than that, and I'm sure the market can understand, and we'll keep you posted on any further developments.

Yes, perfect. Thank you. Yeah.

Our next question is from Carlo Maritano with Intermontes.

Please go ahead.

Good afternoon, everyone. You already answered most of my questions, but I still have one. I was wondering if you could help us understand how much of the growth in cybersecurity innovation is organic and how much is coming from the smaller position you completed during last year.

I would say that, you know, The growth, I would say, is mostly organic. We are not talking... The growth is coming all from the, let's say, cybersecurity part of business, and this is very important. And now the company has been merged into the dealer. Now it's very difficult to say because on one side, you know, some products of the company we acquired has been sold through the sales force of Corvalli. So, we consider basically as full organic and will be more and more during the year.

Carlo?

Go ahead.

Mr. Maritano, your line is still open.

Okay. Okay. Thank you.

Once again, if you have a question, please press star then 1 on your telephone.

No other further questions?

There's one question, sir, from Timothy Pedroni with Scherzers. Please go ahead.

Hi. Hello. Just actually a sort of broad question about AI, generative AI. Is there any thinking within the company about how, again, generative AI might impact any of your business divisions? And I know this is a very sort of broad discussion, but is there anything that you think that might be aided or computed away from a large uptake of AI from you or your customers? Just trying to understand.

uh how to think about this uh this is a very good point uh uh we have to say that during q1 we try to you know several companies of the group started you know as each company has a very diff that very different focus and kind of customers and applications most of the companies already started some projects on AR as a tool to improve, let's say, productivity or a tool to fasten some activities. Now we are trying to let this kind of innovation to develop And also, but as a group also, we are trying to monitoring them and to channel in the right direction, not to duplicate efforts. But in this period, I think it would be even more beneficial to basically let people thinking out of the box and trying to catch all the opportunity that the high can bring. nothing still you know solid there we have an innovation committee that has been held every every month that to keep the the the steps add on this so as of today we have no let's say product or solution to bring to the market based based on ai but you know all all the companies are working this

Got that. Thank you. You're welcome. Any other questions?

Mr. Mastarbostino, there are no further questions registered at this time.

Okay. Well, thank you. And we would like to thank you for connecting to the Nexus conference call. If you need any additional information, please don't hesitate to contact us. And have a good afternoon to all of you.

Thank you. Thank you everybody. Talk to you soon.

Bye.