Tinexta S.p.A.

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the Tinexta half-yearly financial report at the 30th of June, 2024. 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 Joseph Mastragostino, investor-relator. Please go ahead.

Good afternoon and good morning to the folks in the U.S. Thank you for joining us in the next First Half Results presentation. Here with me today is Donipol Group CFO. Good afternoon, everybody. As a reminder, all the relevant documentation of the First Half 2024 results can be downloaded from our company website and in the Best Relations section. For the purpose of this call, I will go over the first half 2024 highlights and updates, although instead we'll go over the first half 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. A recording of this conference call will also be available on our company website, and it will be posted upon completion of this call. Given that you all have the available documentation, I would turn to page four of the presentation to go over some key data of the first half 2024 results. Revenues came in at $203 million, growing 11% versus prior year. EBITDA adjusted was $34.4 million, with a decline of 9% versus the prior year. EBITDA on a reported basis was $25.5 million, and EBITDA adjusted was $19.5. Net profit on an adjusted basis was close to $12 million. Important to highlight is the free cash flow of continuing operation, which was pretty much $26 million in terms of free cash flow. Net financial position is at $276.9 million versus $102 of the fiscal year 2023. Let us turn to page five. On page five, we give you a bit of a summary of the first stage highlights and updates. Therefore, we're updating the market following the first six months. Aside from some of the numbers that have already been mentioned, I would concentrate on EBITDA adjusted, which was, again, $34.4 million. The decline of 9% was mainly impacted by ABF's contribution combined with CS's less favorable revenue mix, and business innovations known seasonality. We will discuss extensively on a business unit by business unit basis to try to understand what has affected the decline of the first stage results. It is important to highlight that on the positive term, there was a partial offset of a very strong performance from Digital Trust, which I think did an excellent performance, both in terms of revenue as well as EBITDA. EBITDA reported was $25.5 million with a significant decline from the prior year, but that includes $6.5 million in non-recurring items. EBIT margin came in at $17 million. Adjusted net profit on the continuing operations base was around $12 million. Let's highlight, I think, both the leverage ratio, which is to be defined as a peak for the year, which came in at 2.78 times, but I think it's important to highlight how the free cash flow was pretty decent coming in at $26 million, but more significantly, I think, is the LTM-based adjusted free cash flow, which was still more than $60 million, more close to $60.3 million, $60.4 million. Top line still growing on all three divisions, notwithstanding what we just said. Again, very good performance on a digital trust base, which grew 18.4%. Still, again, witnessing operating leverage on an EBITDA base, which grew 21%. So I would say excellent maintenance of margin. It's not an increase in margin. which reached 28.8% in terms of the first half results. Cybersecurity grew around 6.5% in revenue. EBITDA was 4%. We will discuss about the margin, but it was around 9%. Business innovation obviously grew mid-single, so we're around 7%. It needs some explanation. We will give extensive explanation in terms of how EBITDA progressed in the first half. In terms of recent events and updates, this is on a one-age basis. You all know that in January, we finalized the 74% purchase of AVF. In February, we launched a new strategic operational advisory business in the SMEs and reached, in April, you know, 100% of Yoroi Swastikans and Corvalis. As a reminder, the 100% ownership of Eurois, Western, and Corvallis is already reflected in the net financial position. Just as a reminder, the Board of Directors also authorized the purchase and disposal of Treasury shares. Turning to page six, I think this is more of a graphic representation of the results. Most of the numbers have already been highlighted. Let's concentrate mostly on seven. Slide seven shows you obviously the cadence of the different quarters. We did not purposely remove this slide because we wanted to highlight to the market how important, again, for us is the second half of the year. Second half of the year, in the last three years shows 60, 61, and 63%, so I'm talking about 2H generation of EBITDA. This year, this percentage is going to be even more important. As we know, the second half will be important both for, you know, the divisions in the case of business innovation, first and foremost, and then also in terms of cyber. We highlighted the contribution or the missed contribution of ABF in that dotted line on the right because it kind of shows you where the miss is and obviously the percentage of the second quarter in terms of the midpoint of the initial guidance that we provided in March. We will have time to discuss about that. At this point, I will leave it to Oldone, which will kick it off from page 9 of the census, you know, analysis of the PNL. Oldone?

Okay. Thank you, Joseph. Good afternoon again. So here, after the introduction of Joseph, we go through the PNL of Q1 24 that we compared both to 23 as well as, you know, on the same perimeter basis. As Joseph said, you know, Q1 showed positive revenue growth over the previous year, but the revenue mix that happened then was slightly unfavorable. In cybersecurity, we, within the implementation services, we deliver more products as a resale of product services and this unfavorable product mix has definitely impacted the results. The same I would say occurred within business innovation where the expected decline in the rates on subsidized finance, and this was definitely expected, has not properly replaced by the 5.0 sales motion we have, and this has impacted the margin. I would say these are the two main drivers, and I will divide later on that impacted the results. If we go through the P&L, We do see that we have a quite significant increase in terms of third-party costs where the percentage of revenue landed in the region of 40% on the same perimeter basis. mainly driven, I would say, mainly driven from the revenue mix and partially driven for a potential better management that we are planning to have in the second part of the year. As far as concerns personal cost, I would say they are definitely, you know, although the revenue, they grow in the same period, they came not as expected. They are under control with an incidence on the revenue that is almost the same over the period. We are in front of a business where part of the revenue has been shifted to Q3 and Q4, and this is something that year over year is definitely emerging quite clearly. And so when we talk later on, we will see which action we are going to take on these subjects. ABTDA landed at 25.5 million euro and this has been impacted as already highlighted during Q1 by the fees related to the ADF purchase as well as, you know, other costs in terms of slightly layoff of people that we have done in some specific areas. Depreciation, amortization, and provision, we have no significant difference from what we do expect. I would say is continuing the level of investment from business union in order to support the continuing innovation of our portfolio of product and services. And I would say especially we will see then in terms of capital, especially digital trust is, you know, investing quite heavily in order to continue to maintain the best of capabilities in its portfolio of products. Financial charges, here we have a mix. Definitely we have some positive financial income coming from non-recurring items as we had some decline in earnouts that occurred during Q1. And when we are talking about interest, obviously the net financial position moved quite significantly compared to the year-end 23, but the level of interest is under control, so the increase is very light. Overall, we came to a net profit of continued operation that is positive, and we benefit here from, you know, a tax anticipation that we have done in order to get better tax relief in the next years. Here we have page 10. the adjustment, you know, from the reported income to the adjustment in the stated results. As you can see, we have several impact here. And I would say, you know, I will concentrate the focus on the three last numbers. of the column 1H24. So basically we have relief over and out for 3.9 million euro. Then we had to rectify the amount we have in our books on defense tech driven by the lower market value of the company, related obviously to some results, and then we have the tax effect, the non-recurrent taxes that I already mentioned. If we go to the balance sheet, I would say that The balance sheet is running as expected. We have no major variances compared to our expectation. Obviously, our net invested capital went up 26%, mainly driven by the acquisition we have done both in ADF and in Lenovis. for a total amount of 150 million, so basically this is the driver. And I would say very important to mention is that our working capital management, again, help us to generate a positive cash flow. This is a key indicator that we are monitoring, and so when you look at the cash generation on short term, you know, we know that the first half has been slightly impacted by the drop in the EBITDA, but the net working capital has been properly managed also during the first half. Net financial position, as I mentioned, is driven by the acquisition we have done over the period. In addition, you know, we distributed almost 30 million dividends over the period. You know, total shareholder equity obviously is declining due to the significant distribution of dividends during the month of June. The net financial position, we talked about it, and I would focus on free cash flow on continuing operations. You know, technically, we do see a slight decline compared to previous year, but still, as already Joseph mentioned, we were able to deliver on an LTM basis a free cash flow well north of 50 million euro. And so we do have in this first half a slight decline, but it's mainly driven again by the delay of ABTDI booking. And like I said, we properly manage the working capital. And I would say in the first half, we accelerated our investment in the most, you know, profitable and stable division, business unit that is digital craft as we continue to invest in order to renew, you know, our services, our infrastructure, and the products that we are bringing to the market. I would skip the page 13. Like I said, it's a graphic analysis of what we have already seen. I would say very important is to look at the net financial position LTM bridge. So, the group has invested over the last year more than 200 million. So, the group basically at mid-23 has squeezed the net financial position close to zero. So, we had room for investing, and so we completed the acquisition of Ashertia, EVF, and Lenovis over the period. And then, as you can see, you know, we generated more than $50 million as adjusted free cash flow from the operation. We were able to distribute dividends in the region of $30 million, and then for the rest, we do not have major difference compared to the previous year. Now I think it's time to move to page 16, and I will jump immediately to page 17 in order to start to comment on operational performance of our business. Like I said over the last 10-plus conference calls, we do have a further positive performance from Digital Trust. Both InfoCert and Visura, the two main legal entities in the group, have delivered a significant increase with an operational leverage, a very interesting operating leverage. So, on a same perimeter basis, you can see here that the growth in the revenue has been 9 percent, which is very aligned to the previous quarters. with the ABTDA going up in double digits. If we add Asherzia, you know, basically the ratio has doubled and, you know, the component of revenue coming from international is increasing. But I would say even more important is that the solution related to both legal NAIT and legal SEPT, as well as GO-SIGN, has continued to grow significantly over the last half year. You know, here, you know, the ABTDI increased close to 20% with a very interesting ratio in terms of profitability. So I would say here, definitely, again, a brilliant quarter and a brilliant delivery. Cybersecurity. In cybersecurity, we all know, and I think you all learned over the period that this is basically a segment of the IT business, and the IT business has a significant acceleration driven by the spending on the budget by the customer in the second half of it. Definitely, we are not that happy about the absolute results of ABTDA in the first task, but again, we are talking about 800K euro difference or even less compared to previously. So, here, like I said before, the driver has been mainly So we were in a position to deliver more products and services. Services will come later on during the second half. And so this has been the main drivers. I would say here we have a few things also to improve, and already we put in place action to improve it. And what I would say, if we look ahead and look in the head versus the second half, I would say that we ended up the first half with a very promising backlog of orders. This is something for which we are very glad about that. And we do believe that we have all the opportunities and capabilities to deliver, as it happened also in 23, a very strong second half. So here, you know, again, we did not deliver exactly as we expected, but, you know, the gap is huge. absolutely not relevant and, you know, the second part of the year in terms of profitability is like two and a half times the first half. So this difference is something that is not a worrying thing also because, specifically because we have a very strong backlog as an opening balance of second half. Let's move now to business innovation. Here the situation has to be explained. First of all, I will keep for a second apart ADF, and then we start to talk about, you know, the traditional core business of the business innovation. We, within our internal plans, we already knew that ADF the lowering of the rates in the tariffs on Industry 4.0 was going to happen. We were fully aware of this and we factored it in our first half projection and in our full year projection. So this has been known. Obviously, we put in our original budget quite interesting business from Industry 5.0. And this has taken or is taking more time in the approval process from the public bodies in order to be available. This is something that has impacted our first alpha and this is probably, is definitely the main driver of the results if we take apart ADA. Obviously, this is putting us in an even more challenging situation. I think everybody here is going to remember, you know, the very strong second alpha we delivered last year. And here, you know, the NICSI is changing during Q1, so a lower contribution from subsidized finance, a higher contribution from new businesses that we developed, you know, definitely was able to keep a certain level of revenue, but this was impacting in terms of ABTDA. Again, here the last, I would say, June and also the information we have from July in terms of incoming orders are very promising. And so we are in a position where we will be not in a position to fully recover. you know, the gap of Q1, but we are in a position to perform the second half accordingly to the original plan and probably being slightly below the original budget, mainly driven by this. Obviously, the second part of the year is going to be very, very, very challenging. But, you know, people around the table, I think everybody knows T-NEXT. Everybody knows what Warrant and Business Innovation were able to do. delivered in the last part of the year, both in 23 and even in 22. So we are reasonably confident at this point in time to project still results not far from the original plan we have here. If we talk about ADF, again, here Obviously, we are very disappointed. Sorry, I'll move to page 20 now. Obviously, we are very disappointed of the results. This has to be very clear and cannot be different. So we had a delivery in the first task well below our expectation. very closely, we are working very closely with the management of the company. And we, everybody is aware that the political environment in France during the first month of the year I would say during the full first half has been not the best condition where to work. So basically there has been a government change in January and we all know and I would say that what happened in close to the end of the February with the city's significant budget revision that was a public information around, you know, a possible cut of 10 billion euro has definitely impacted in two ways. The first way was a significant slow in terms of projects accepted. On the other hand, also on the much more selective way of assessing projects. So, although the level of, you know, backlog was very positive, then the percentage of projects that were filed and then won was below the expectation driven mainly by the political situation around, you know, the public bodies that reacted at this cut. in slowing down the acceptance and, secondly, to being much more selective. Obviously, again, it happened also in order to create, unfortunately, the perfect storm. The dissolution of the National Assembly at the end of June and the election was another Having said that, obviously, this has heavily impacted the results. That is very clear. And the results are, yes, like I said, we are very disappointed about that. But we are putting a lot of effort in order to start an immediate and strong recovery in the second half. Here, definitely, this situation allowed us to swap out of the balance sheet 23 million of financial debt. As you know, with this information, we are not going to have earn outs. And this is definitely reducing our capital investment. Second, this has been seen from the local management as a postponement in the range of six, nine months of the planned delivery. But we are working closely with the manager in order to put pressure on this. And also we slightly review also the value of the put and the end of the period because obviously this is something . I think this is very, very important. So again, not happy at all about what's happened here. monitoring and working, monitoring closely and working hard on the subject, obviously we will keep you updated and we do expect a reverse of performance in the second part. I would say that and, okay, I will comment a bit also when Joseph will go through the update of the guidance. Okay, I leave now to Joseph for the closing remarks.