Tinexta S.p.A.

Good afternoon. This is the course call conference operator. Welcome, and thank you for joining the Cinexa Group Consolidated Results as of the 31st of March, 2024 conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. If anyone needs 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 Mastrogostino, Investor Relator. Please go ahead, sir.

Yes. Good afternoon. Good morning to the folks in the U.S. Thank you for joining us in next year's 2024 First Quarter Results presentation. Here with me today is Don Ebaldi, Group Chief Financial Officer. As a reminder, all the relevant documentation for the First Quarter 2024 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 quarter 2024 highlights and updates, so Don instead will go over the first quarter 2024 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, and the recording of this conference call will also be available on the 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. So starting from page four, you see we have provided you guys with classic key data per quarter. We start with double-digit down growth in terms of revenue, which reached almost $100 million and $98.4 million. Maybe the adjusted came in at $15.4 million, growing around 3%. versus the prior year. EBITDA on a reported basis was close to $9 million and EBIT adjusted was around $8.1 million. I think it's worthy of mention that net profit on an adjusted basis reached $6 million and even more interesting is also the free cash flow adjusted on a continuing operation base which reached a very considerable $27.2 million in the first quarter. That financial position came in at 240, and this is a fully function of the acquisition that you all know, which is related to ABS, which was closed in Jan of this year. At this point, I will be turning to page five of the presentation. Most of the comments of the numbers that you see here have obviously been commented, but I would actually start by talking about the first quarter from a qualitative perspective, right? The first quarter represents a gradual start of the year, and that was mainly driven by the well-known seasonality. We will need to stress the fact of the seasonality during this quarter and also in perspective in terms of what the year will be. And we have dedicated actually a slide on this, and we would like the market to be very accustomed to the seasonality of our quarters going forward. I think it's also important to highlight that, you know, that the adjusted net profit on a continuing operation base is the real, you know, performer in terms of indicator when we look at the various numbers. Obviously, we have to give out if it's out-reported, if it's out-adjusted, but on an adjusted basis, I think it's important to highlight how adjusted net profit is obviously a much better indicator. NSP over LPM is, again, a function of the most recent acquisition. We're up at 2.32 times, which is, again, a function of the recent acquisition. Going to the different divisions, Adone will give you a deep dive, but let's start by saying that the top line on all three business lines grew, starting from digital trust. Digital trust kicked off the year very strongly. It grew 21%. And even more important was EBITDA, which reached 36% with a very excellent EBITDA margin, which was around 31%. Again, another historical high for the division, so kudos to Digital Trust because they have started the year very well. Cybersecurity grew nice and healthy 16% in revenue. EBITDA hit a plus 10% and the margin was around 10%. Even in cybersecurity, we must highlight that there is some seasonality, and it is more pronounced in the latter part of the year. Business innovation posted a single-digit growth, around 4% growth, and obviously in revenue, and EBITDA came a bit over 1 million. We'll extensively discuss about the dynamics about business innovation. In terms of the most recent events, I'm on the bottom part of slide five. We reached 100% consideration of the three cybersecurity companies, namely Yoroi, Swapkin, and Covalent. As a reminder, there is no impact in terms of Net Financial Position because it is already included in the Net Financial Position at the date of the acquisition. We also, during the quarter, launched a new strategic and operational advisory business for small and medium enterprises. We all did, obviously, are aware of the fact that we announced a very large acquisition and completed it in January. It is about 74% of AVF. And the board of directors today approved the start of the share buyback program, which we will execute according to market dynamics. Now, going to page six, I think page six represents more of a, you know, a graphical representation of the numbers that we already highlighted. So, mostly important is to turn to page seven. Now, we, I think this is, we should focus extensively on page seven because it represents, first of all, the history of the group from, you know, an EBITDA perspective in particular because that is what we will be concentrating on. But the most important thing here is the weight. The weight of second age in the last three years has considerably grown. It was 60%, and I'm talking about the EBITDA adjusted, you know, in the second age, so that includes third quarter and fourth quarter of the year, was equal to 60% in the fiscal year 21. It was 61% in the fiscal year 22. And even more important was last year in 23, where the overall weight of the second HUB-TAO was 63%. This year, as you can see, we started the year, as we announced, in the most gradual way. The overall weight of the single quarters can be found on the bottom of each histogram. And you can see that the first quarter for this year represents around 12%. of the data considering the midpoints of the 2024 adjusted EBITDA guidance. So as you can see, the overall relative weight of the second age will be even higher this year. So we want the market to be acquainted with that. And that's also one of the big elements, I think, of our business model. Remember, business innovation has a relative weight, which is obviously very important and much more significant in the second quarter, in the second H. So as you can see, the cadence of the single quarters shows a very light first quarter, a bit more pronounced second quarter, and then the big, obviously, between Q3 and Q4, mostly being around fourth quarter. So we want the market to be accustomed to it. We are preparing the market for it in order to have a much more, I would say, gradual outlook for the market. Let me stop there. Let me leave it to Adonis to do a much more deep dive onto the numbers. We also will go give you a nice outlook on the adjustments so that you have a very clear P&L, and then we'll wrap it up through some Q&A. Adonis?

Thank you, Joseph. Good afternoon, everybody. Thank you for joining us for this conference call. You know, I will start from page nine, where we have the The income statement, Joseph already explained how different business units, and then I will further dive, but you see the revenue is going up by almost 5%, mainly driven by all the business units. In terms of ABTDA adjusted, definitely we overperformed the previous year with a different perimeter. And as you can see here, we have a mix that I'm going to explain that is the explanation for the drop of the ABTDA margin. You know, basically as a revenue mix during Q1, we had more businesses more business from the business unit with a lower ABTDA margin. And also in the cybersecurity, we deliver a revenue mix with more weight from the product that are carrying definitely a lower ABTDA margin. Overall, the EBGDA landed at 15.4 with 15.6% EBGDA. Definitely, as Joseph clearly stated, overall we deliver the best ever EBGDA margin from digital trust, the EBITDA margin from cybersecurity was definitely aligned to the previous year, again, driven by a worse revenue mix with more product. And if we look at business innovation, definitely there we have a lack of profitability driven by the by two things. First of all, the first quarter of ABF is negative in terms of TDA, something that we already accepted very clearly. Revenue for the first quarter accounts for 5% of the total revenue, so you have a lower absorption or fixed cost during Q1. Second, as revenue leaks from warrants, again, expected with lower weight from the subsidized finance has driven a lower EBITDA margin. We do see this as a temporary situation. Also, because the industry 5.0 that we expected to start in Q1 has been, I would say, approved, but definitely delayed at the end of May. So from that on, I think we could compensate the lower revenue that we are generating in subsidized finance. In terms of non-recurring costs, this has been a quite heavy quarter. Obviously, we completed the deal with ADF, clearly the largest deal ever of Tinexa Groups, and this brought quite a important cost of a transaction. Basically, in our view, it's an additional cost of the enterprise value, but accounting-wise, we have to book there. In terms of depreciation amortization, the incident is slightly above previous year. Here, the continuous level of investment to improve our products and solutions is there. And but, you know, we do see these honestly as we expected. Net financial charges improved compared to previous year. Part of this is driven by a favorable adjustment of an amount of for 1.1 million. For the rest, we are not yet being impacted from the new financing that will start from early May. Definitely, our level of indebtedness was very low at that time, with very low interest rates. thanks to the IRS that we put on that. And in the meantime, we were able to monetize the cash available with some time deposit. Let's move now to page 10 in terms of net capital invested. So if we see our balance sheet, basically, We have a net capital invested of not far from 700 million euro. One-third is financed by the net financial position, and two-thirds are total shareholder equity. The increase of net invested capital is totally, I would say, driven by the acquisition of ADF. that I may recall is about 155 million euros. And on top of that, we have to consider that this includes also the net working capital that is positive by almost 20 million euros. So the net financial position landed at 240 million euros. as we clearly expected. And I have to underline that the free cash flow, as Joseph stated, especially the adjusted free cash flow was very positive with a strong growth compared to the previous. Shareholder liquidity is 451 million euro. and obviously includes the results of the period as well as the put adjustment that we have in our share today. If we move to page 11, I will keep your attention to the adjusted trick and show the continuing operation. We deliver a very strong growth in terms of 20%. So it means that obviously what we voiced and how our revenue of Q4 has been cashed, actually obviously during Q1, improving the performance compared to the beginning. And this is a very important indicator to us. If we look at the last 12 months, no, the Q1 brief, sorry, again, as I mentioned, is here with a strong adjusted free cash flow and the significant investment in ADS. If we look at the last 12 months, first of all, I think we need to highlight that the adjusted free cash flow is 61 million euro. This is a very solid a strong figure that supports you know our capability of converting cash converting our mtga into cash so this is a very important feature so we were on top of this net financial charges over the last year was basically close to nil and again this is the result of the very disciplined approach to the net working capital. Dividends accounted for $32 million, including also the minority. Obviously, the largest change is within the acquisitions. So basically, we have almost $250 million, so all the debt is driven by this. And with the acquisition of ADF for $155 million, the acquisition of the 20% of the minority of defense tech at $25 million, and Asherzia, including obviously both ADF and Asherzia, including the put and call that we have there. We don't have other major changes over the last year, and you can see here also the profit of 3.4 million related to the OCI data. So let's move to a deep dive to the business unit. As I mentioned here, you know, very quickly, We have seen Digital Trust, let's say, overperforming. Cybersecurity, considering the Q1 is, you know, the weakest quarter of the year, still delivered what we were expecting. And we have, you know, business innovation driven by the key factor that I already mentioned, but I will deduce. So let's move to Digital Trust. As we say now, probably we are talking about the last 10 quarters, you know, the performance of digital trust has been extremely positive. You know, we have seen over the last 10 quarters the revenue going up in the range of 8% to 10% with the EBITDA constantly better for percentage point more. and also in this quarter on, I would say, on a life-for-life basis was up almost by 12% on organic basis. If we add the performance of Ascetia, that is obviously in Q1 speaking day results, the performance being 21% with 36% growth. I would say that all the different components of the business went very well. Also, the activity in France were positive. Also, the activity we have in Visura growth the range of 10% in the revenue, 15% on FPTTA. You know, I would say everything is moving accordingly to what's expected, continue to deliver results with very nice operating leverage. and all the product lines moving very strong accordingly to our plans. We have no significant comment here. It's not reiterating the capability to deliver strong results. We continue to invest significantly to support future products, future development, and support the customer's solution, but this is not impacting our capability to a stronger cash conversion driven by the fact that the working capital here is negative. So Q1 continues very strong, aligned with the last 10 quarters, I would say, very well. Let's move to cybersecurity. Also, we are, again, although, you know, Q1 is not the most important quarter, we continue strong in terms of growth, with a range of 60% with the WTGA going up 10.1%. Obviously, we are not having uh worst margins if we look at business by business uh obviously during q1 we deliver a mix between services and products that is uh more weighted on the product than the services and this is the reason why the EBITDA margin is dropping from 10.2 to 9.7. This is not absolutely a trend. It's an occasional situation, and we do expect, you know, the EBITDA margin move accordingly to our expectation and delivering an improvement compared to results as 20, 23 as a percentage of rent. We continue to develop our business in the pure cybersecurity solutions with positive indicators from the customer, from the customers, and obviously also in the digital transformation side of business, we are continuing very strong and positive. Our pipeline is increasing compared to previous year. And we do expect also in this segment a better delivery than this. So overall, I would say positive results and, you know, good pipeline, you know, to address Q2 problems. Let's move over on business innovation, obviously, from From the external standpoint, you know, it's quite tricky to understand the figures. I try to be very clear, or at least as clear as possible here. First of all, I think it's worth to recall to everybody that last year we delivered in Q1 5 million euro EBITDA, and then we ended up the year with 51 million euro. So Q1 is not at all you know the the main part of the business and so this is to be Everybody must to be very aware of this Second as a revenue mix We do expect it at this from at the start of the year the Q1 has been weaker as as definitely subsidized finance as a lower rates that was clearly expected. And potentially, we could have expected a better start of the new industry 5.0. This is going to be delayed by two, three months from our initial expectation, but we are very confident this year is just a matter of of to implement the new regulation. For the rest, I think that as I explained it before, the ADF result is negative in the first quarter, but again, you know, the seasonality of ADF is basically a mirror of the seasonality So therefore, obviously, we will expect a very strong Q4 and Q3 as Joseph anticipated during his part of the presentation. So, obviously, not the best start, but no other indicators that, you know, this is a threat to the delivery of full ER results. I think, you know, this is all. I would say very positive is the cash flow of this part of business during Q1. This means that we are collecting properly the first part, the last part of 2023. Now I will revert back to Joseph, and then we will be ready for the Q&A part. Thank you, everybody.