Tinexta S.p.A.

Good afternoon. This is a course called Conference Operator. Welcome and thank you for joining the Tenexa Group Consolidated Results at the 30th of June, 2023 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. Please go ahead, sir.

Thank you, operator. Good afternoon and good morning to the folks in the U.S. Thank you for joining Tenex's first half 2023 results presentation. Here with me today, Odone Pozzi, Group Chief Financial Officer. Good afternoon, everybody. As a reminder, all the relevant documentation of the first half 2023 results can be downloaded from our company website in the investor relations section. For the purpose of this call, I will go over the first half 2023 highlights and updates, but instead we'll go over the first half 2023 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 four of the presentation. As you have all received the information, revenues in the first half 2023 came in at 182.5M, growing 9% versus prior year. EBITDA adjusted came in close to 38M, growing 2%, but more importantly, EBITDA on a reported basis grew 6%, reaching almost 35M euros. Net profit came in at 45.4 million, growing over 200%, mostly on the proceeds of Revalota, as you all know, which we communicated to the market in the month of March of 23. Net financial position came in at 52.6 million, improving around 32% versus prior year. The prior year figure is here on the bottom right, 77.6 million in the fiscal year 2022. Turning to page 5, some of the numbers here have been commented. I will draw your attention mostly to adjusted free cash flow, which definitely O'Donoghue will deep dive and provide us with more detail. But adjusted free cash flow of continuing operations came in at 29.3 million, growing 27.4% versus prior year. On an LTM base, adjusted free cash flow continuing operation was 55.7 million, which was another historical high. In the first half of 2023, digital trusts continued to register solid growth, posting a plus 12.4% growth in revenue. EBITDA on an adjusted basis was 15.5% in terms of growth. The EBITDA margin was superb, hitting 28.2%. Cybersecurity grew 15.8% in revenues. but obviously did much better in EBITDA on an adjusted basis. It continued to register a strong rebound, growing more than 59% versus the prior year. The EBITDA margin was 11.3%. Business Innovation posted a 1% growth in revenue in terms of EBITDA. The EBITDA registered in the first half of 2023 was $16 million. EBITDA margin was 29%. We'll discuss about the, I would say, the evolution of EBITDA in just a second. In terms of the most recent events and updates, as you know, we finalized the acquisition of the 65% ownership of Acercia Limited. So we have now welcomed Acercia into the group. We also signed a 50-50 joint venture agreement with Digital Magics for investments in innovative startups. and we also completed the acquisition of the 40% remaining stake of Certudolf, reaching now 100% ownership of the share of capital. Turning to page 6, as a reminder, we have commented most of these numbers. It must be said, though, that the comparative data of the first half of 2022 have been restated in relation to the completion in the fourth quarter of 22 of the identification of the fair values of the assets and liabilities of CERTIROP, EVALUE Innovation, as well as FERABIT as of the consolidation of the first of May of 22. Now, I would like to draw your attention maybe to one of the most important slides that we have on the deck, which is slide seven. On slide seven, we think this is an important slide, and we would like to highlight the cadence and therefore the back-ended weight of our EBITDA. As you can see, the relative weight of 2023 on a quarterly adjusted EBITDA basis is perfectly in line with that of the last two years. which clearly show how the first two quarters evolved versus the third and even more so the fourth quarter. The assumption relating to the average weights of 2023 considers the midpoints of the guidance on a 2023 EBITDA adjusted basis. As you can see, the first quarter's weight was 14% and the second quarter's weight EBITDA was 22%, exactly in line with 2022 and 2021. Let me turn it now to Adon. I don't know if you have any other comments on this slide, Adon?

No, definitely what Joseph said is very important. We feel comfortable with our guidance that basically was confirmed. What's happening in the first half is aligned basically with our projections. And definitely as we expect to grow specifically in the most important way in the cyber security is going to have most of the profitability by the end of the second part of the year, the same exactly what happened last year in business innovation. So definitely we are going to face a very important Q3 and Q4, but we feel comfortable with the achievement of the geysers. Okay, so after Joseph highlights, we go to page nine. We have our income statement for the first half. The revenue went up Like we said, close to 9%. We are very glad about the results of all the business units. Definitely the growth of digital trust as well as cybersecurity were very strong. And overall, if we look at our top, let's say, 15 products, they increased their weight on the total revenue. This means that our strongest products are performing well. And honestly, when you have a strong product, you should be in a position to deliver strong margins. You know, looking only at the first half is not, like we said, very so relevant as we are looking for the full year. In terms of costs, we see that the cost of service basically remains the same in terms of as a percentage of revenue at 36%, while we have a slight increase in the cost of personnel as an incidence. But, you know, this We see this as a timing as we prepared our infrastructure to address the futures revenue in the second part of the year. The part of our recurring cost is slightly below the previous year as we incur in lower M&A activity, but this is not a projection for the full year. In terms of depreciation amortization, definitely we have more amortization on intangible assets. we are investing quite significantly in terms of product development, in terms of system improvements, and therefore, you know, we are incurring a couple of million more in amortization. We have to consider that almost 50% of this amortization are related to the PPA. It means that part of the goodwill that we allocated after the acquisitions on specific assets. So this is something that is a non-cash item, definitely, and this is going to reduce basically the level of risk for future impairment. We are very happy about the handling of the financial charges. You know, despite an increase of the interest rates, we are reducing our financial charges. This has been driven by two main items. The first item is the fact that we improve our net financial position compared to previous year, but I would say Even more important for us is the fact that we basically almost fully covered our exposure in terms of rates and therefore basically as of now we have a cost of debt in the range of slightly above 2% while we are able to invest all the cash that we have available at 3% rate. So it means that honestly we are getting a benefit from this. And we believe that by the end of the year, we could be in a position to almost bring this figure to zero. If we go down to the P&L, we have the income taxes that are higher the previous year, but last year we benefited from the francamento that we have done on one of our largest companies. and the tax relief that we registered help us to have a better tax impact. But as of today, we have no at all significant permanent difference on this. During the first half, we also registered the profit from the sale of Revaluta, and so the net profit is up to 45.4 million for the first half. In terms of balance sheet, the net investment capital dropped last year from Q2 to Q4. Now this year it's going up again, but this is only driven by the new investment that we have done, especially with defense tech, as is mentioned here at page 10. and the investment in the acquisition of digital software license. Very positive, and I will deep dive later on, is the working capital management that decreased from the beginning of the year of 11 million that helped to deliver a very solid ordinary cash flow. Net financial position dropped by 25 million. There are several matters that has driven to this. Definitely the freak issue has been very solid with a significant growth compared to previous year. Then we had the capital increase of Bregale, as well as the disposal of Revaluta. On the other side, we had the dividends that accounted for 33 million dividends distributed, acquisition for 26 million, mainly driven by DefenseTech. And this is what has driven, basically, the net financial position. Shareholder equity basically went up because of the profit of the period and the breakout capital. If we move to page 11, as you can see, I already commented a bit the net financial position. I will focus now on the free cash flow. First of all, all the business units improved their free cash flow. compared to previous year, and this is a very good index indicator for us. Second, we put an extremely strong focus on cash collection. You know, this is over the last 12 months, you know, the interest rates increase has driven, you know, our clients to be, you know, a little bit later in paying us, but we reacted very strong, and we were able during the first half to significantly improve this. CAPEX has been slightly above previous year as part of our continuing investment in order to improve our products for our customer as well as solution for internal management. to page 12 basically is the same. I will jump to page 13 to show you the net financial position LTM bridge. So basically, the adjusted cricash row from continued operation over the last 12 months has been close to 56 so this is a very good indicator for us it means that we have a very solid cash flow generation that is supporting our results my financial charges are definitely a very thin very thin line we were able to distribute the dividends quite significant significant dividends of course the drop of our Net financial position has been driven by the sale of Inolva and Revaluta. We continue to purchase treasury shares to serve the stock option program for the management. And I would say these are the most important items to which we have to add the Bregal second branch of the share capital increase that was completed during Q1. Last year in July, we had the completion of in TESA San Paolo share capital increase. So basically, On an LTM basis, the ratio between net financial position and the PZDA is just around 0.5 times. So this is in front of a very strong, you know, Capability to deliver activities in cash is very strong. Our net financial position is very low. And so our strategy to continue to invest and to continue to pursue M&A development is in a very, very solid and clear position. Now we'll try to dive into the three business units. We have already commented the total group performance, and we have seen basically out of the three divisions, we have two of them that have performed really well. Digital Trust, if you go back, over the last three, four, five presentations is delivering a very steady and solid growth. With every quarter, the revenue growing more than 10%, and the ABTDA growing even more than the revenue. And cybersecurity delivered also a very encouraging and strong first alpha. And then we will deep dive to better analyze the situation of the business model. So let's go into page 16, into digital trust details. Like I said, Revenue went up 12.4%. InfoCert, obviously, is driven this growth, growing more than 50%. But, for example, also Visura has been able to deliver a revenue growth in the range of 20%. So most of the legal entity of this segment went up in a very strong and solid way. Same help code also into the ABTDA with, again, the ABTDA margin going up now from 27.4 up to 28.2, and this is a very, very encouraging performance. Let's say that overall, if we look at InfoServe, the off-the-shelf performance went up by, let's say, 14%, and the DTM went up by 17%. So this means that our strategy is very solid. Our sales force and our capability to deliver are recognized by the customer. And I would say even more, we have a very strong capability to convert ABTDA into cash. And in fact, this business area, as also a negative working capital, it means that we are running very fast in terms of collection. This first half has been, like I said, very solid, and we have a lot of confidence in delivering the second half results and the full year results. Cybersecurity. So after six months, now we are in a full position to confirm that what we said one year ago is definitely happening. Like we said last year, during Q1 and Q2, we invested massively in hiring new people specifically focused on cybersecurity. And, you know, I remember most of you were putting a lot of question of this, but we had clear our strategy and we implemented it. You know, the manager of the cybersecurity was able to handle the, you know, the incorporation of these new people and these new activities, and we started to build up backlog for this. You know, in so starting for from Q1 23 and conferred in Q2 23, you know, our revenues are going up at 16%. That is, you know, a performance well above the market of the cyber security as we were very confident to do. We are pleased to say that all the three companies of the business unit has recorded a very strong ABTDA growth. All three of them were going up, and as a combined segment, we went up close to 60%. that we are talking still about small numbers, but as small numbers were last year, but the numbers are becoming bigger and bigger, and the EBITDA margin went up from 8% to 11%, and the best is next to come in the second part of the year. The group has also signed an agreement with Google Cloud that put us also in a position to develop further opportunity together. The second part of the year will be, you know, critical for us, definitely the delivery of Defensio that was launched on the market that represents a part of our revenue and profitability of the second half. The portfolio is encouraging. We were growing among the different business units of the cybersecurity. We are growing significantly in the segment cybersecurity compared to other, you know, information technology activities. So, this is the situation. Obviously, H2 will be the most important alpha of the year, but we enter into the second part of the year with a much better position compared to previous year with a much higher battle and already with customers that has a lot of confidence. If you look at the business innovation, we have a slightly different situation. We know that warrant is the most important part of this business and if we look at the revenue the revenue are up uh one percent first of all the the markets the the markets where a warrant and other legal entities are operating are very different from Here we are talking about consulting business and we are not talking about pure tech and digital business. Although we are definitely investing and being more exposure also in consulting for digital innovation. So the revenue went up 1%, like I said, compared to our expectation for the first part of the year. Definitely what we are slightly missing here is revenue that could have been, could have come from, you know, a potential register of players into this market that has been delayed in terms of, you know, low. Nevertheless, you know, the company is performing well. The part of the digital business is going up from 3 to 7 million euro revenue, helping us. We had a lack in terms of revenue on the business of subsidized finance, that is the business with the highest profitability, and therefore the revenue mix has influenced quite significantly the margin of the first half. also the contracts for internationalization services, as we expected already, were down. We do expect in the second half of the year, you know, the capability to recover this delay compared to the previous year and to help overall the group to deliver results within the guidance of uh that we share with the market in the first at the beginning of the year and we are going to we we come to the the border director that as uh uniquely today as confirmed by this year and now, you know, I completed my part. I leave to Joseph for closing remarks, and then, obviously, we will be fully available for any questions.