Secoo Holding Limited

for joining us today. So as you know, this morning, our board of directors approved our set of first half numbers for the year. And in the next hour or so, together with Lorenzo Mazzini, our CFO, we will run you through these figures, leaving ample time for questions at the end. We will also share an update on our recent business performance, as well as some insights into the outlook for the rest of the year. confirming our positive stance on the rebound in 2025. But first, let me hand it over to Massimo Mari, our CEO, for the key takeaways of these first six months.

Thank you, Clarence, and good afternoon to everyone. In the past quarter, as for the rest of our peers, we continue to navigate in a challenging market environment with inventories digestion still beginning underway. This driving some prolonged weakness in demand across all the geographies and industrial verticals. As such, we saw the decline this quarter of the revenue and it ended the first six months at 95.3 million. This was largely expected and we managed to mitigate its impact thanks to the strictness and the resilience of our business model and client base. In particular, the expansion of CLIA, our software business, delivered a profitable, steady growth with a contribution in excess of 13% of the revenue And the clear it's also allow us to improve again our overall gross profit margin by over 300 basis point versus the same period the last year at 52.7%. As we are building our business for a long success, we have continued to invest in our structure. in our OPEX. Therefore, the incidence of our OPEX had a negative effect this quarter on our adjusted ABTDA. For the first half of the year, this figure ended at around 60 million, close to 15% of the revenue. I expect our operating leverage will play again in our favor as we will see revenue pick up into the next year. As we present this number, I want to insist on the fact and in this tough contest that our number one priority is to continue to lead by innovation, create value for our customers and deliver long term profitable growth to our shareholders. We are operating in a very fragmented sector with only few comparable listed stock. so i think we we combined it together in in a slide just to show uh two point against the performance of the two company listed in taiwan advantech and daddy link I think from a revenue perspective, the straightness of our business model has allowed us to be significantly more resilient, both on the 2022 when we were growing more than the competition, also now when we are decreasing, yes, but less on the competition. I think this is also important to look at the gross profit margin, where thanks to our position as industry leading into innovation and our unique business model, we were able to outperform the market. all in all in the gross profit margin as well as the growth that we reached on it over the last two years. This is also thanks to our unique business model that we built around the transition from model to system before and from system also to an end-to-end hardware software solution thanks to CLIA we launched just three years ago. I will come back tweet when we will talk about the business update later. And as well, we will provide you the guidance for the end of the year. And we will share with you also a positive view on the 2025 where we are expecting to bounce back in a normal revenue of growth for our sector. But for now, I leave the floor to Lorenzo to present to you in more details our numbers. Please, Lorenzo, go ahead.

Thank you. Thank you very much, Max. And good afternoon to everybody. Let's have a look together to our key financial allies in the first half of 2024. For what concerns the net sales that we are reacting now is decreasing due to the market context featured by high interest rate which caused a decrease in demand and the stocking trends across all customers all geographies and all industries with really limited exceptions so this is something related to uh the market the macroeconomic trend i think so that we would like to uh point out is for sure uh degree we recorded in the first half of the year regarding our software business which increased by uh 17 percent respect to the same period of last year uh just a couple of words regarding our gross margin performance in particular on relative terms as max already said we increase the gross margin by more than 300 basis point 312 In particular, this is due to mainly two factors. The first is the higher incidence of the software business or revenue that reach 13%, a percentage never reached in the past. And moreover, tends to more favorable market condition for what concern the components that reduce month by month their costs. For what concerns that our performance at adjusted the EBITDA margin, on relative terms, you can see that we have a reduction. This reduction is explained by two main factors. Firstly, obviously, a negative operating leverage effect over our OPEX due to the decrease in sales. Francesco D' And, secondly, and importantly, we have in particular in huge shoe and I Gary incidents of a diet, the production costs of viable production costs over say it's due to an on for an unfavorable production needs in this quarter. Just last words regarding net income. You can see the figure relating to net income. I would like to highlight just a point on this matter that is the tax calculation. Here taxes are calculated with the theoretical rate. So just applying the corporate tax rate of the different company with consolidated. So these adjusted net income do not include all the benefits that we can have in a full tax calculation that, as usual, we are going to perform for the end of the year. Let's pass to the next slides and let's have a look all together to our breakdown of sales that we recorded in the semester by geographic area and by market. An important message that I want to pass here is that we have no differences of respect to the other quarter or to the other reporting period. So the decrease that we are facing in sales is equally spread in geographic area and in markets. So it's defined that this comes from macro market condition. Our customers stay with us. We are just, I like some exception that is vending and fitness that performed really well because these are two niches in which we have important and big customer that performed, let's say outperformed the particular market context. Just the last word on these slides is the performance of CLIA, 12.6 million in the first half of the year, 13% of sales, with for sure a positive contribution to our profitability that will continue for the future. uh adjusting the ebtda here we reported as usual the bridge respect to the first half of 2023 uh i want to comment to matters the the first matters is uh something that they already highlighted before so the fact that this decrease in percentage term of about uh seven points for four points is explained by direct production costs that increase in the second quarter due to an unfavorable uh product mixing sales the second comments that i would like to make is Just a specification regarding the adjustment to ABTDA. As usual, we adjust the actuarial value of the stock option plan and we adjust the extraordinary transaction cost. The biggest part of 3 million is explained by an examination that we had from the tax authority starting at the end of last year and we close the agreement on June of this year for a cash payment of 2.3 million plus an accrual of 600 that our auditors ask to us. What is important and what I want to highlight is that this examination So we have no tax risk up to 2022. And I think this is a pretty important agreement that the company reached for a sum that is for sure reasonable. uh let's go to uh my last slide of this presentation that is our performance in term adjusted net financial position that on the other hand we can see the cash generation of the group in this period you can see that we close the um Second quarter with 61 million in net financial position adjusted, respect 57.3 with let's say an increase of 3.6 million. However, we have to highlight that these figures have been affected by Extraordinary payment, one I have already said before, that is the 2.3 million paid to the tax authority, Italian tax authority. Other than this, we paid a 1.8 million dividend to our final minority. And moreover, under this, we spend 500K to acquire the land for our new plant. So adjusting these extraordinary cash out in the period respect to the first quarter of 2024, we generate more or less 1 million of cash. Last word regarding our leverage, that is absolutely under control. If we do the last 12-month calculation, we are at about 1.4 million, despite the fact in this half we are decreasing EBITDA. I leave the speech again to Max, and thank you very much for your attention.

Many thanks, Lorenzo, for this detailed review. And I want to take the opportunity to give you an update on our business and the strategy. Let's start first from the industry, so our market. I think it's important to outline that we are at the core of one of the most exciting niches within the tech industries. The projections that we are observing are made by external analysts that are really foreseeing a structural growth that will benefit very soon for a very long term. I think the era of the IoT is still at its very early stage of adoption. Therefore, we will see plenty of room of improvements of the opportunities as well as the growth that we are expecting to see as a double digit for a foreseeable future, especially within the industrial application. Maybe we can go to another slide. Thank you so much. I think it's important also to outline the fact that we are, and here you can see an example of our important customer in the medical sector, just to outline that we are basically perceived as a mission critical partner for our customers. This is true and this is why the long period of relation with our customers is one of the key characteristics of our business. I think That is the key message of this slide and I think it's important also to see that this is true across many different kinds of vertical markets with many different kinds of customers where Seco is really growing with them for a very long time. and this is particularly true if we go also in this slide where we summarize basically which was the pillar of our growth over the past five years and you can see that we are growing because we are of course growing with the existing customer base, increasing our share of wallet. We are growing because we are getting new customers. And when we get new customers, we are growing because it's new. So it's generating an additional portion of revenue. but after it we will continue to grow into these customers producing basically an additional layer of growth i think this is important because our business model it's a very strong business model and we will already demonstrate it over a lot of results that we posted in the last five years and we will continue to demonstrate it despite also the difficult market condition that we are facing which is something that is coming from after years of growth that we benefit. And maybe we can go to the next one. Here we summarize in some way which are the key, I would say, design win that we got in the last six months that will be starting to generate revenue already in 2025. As you can see, this kind of design win are made basically and build across many different kind of geography, many different kind of industries and also application. And it is exactly how You can consider Seco as a technology company that is really able to win a business in Japan or to win a business in Europe, to win a business in the US in a different market, penetrating new customers and creating a long-term sustainable growth. I think it's important also to make a recap on the software side. And when it came up to CLIA, we recognized that there was a lot of expectation on the market. at the time of the IPO, but from there our strategy has not changed and we are continuing to believe this is the natural evolution of our industries and that having a complementary offering makes us much more relevant for our customers. And this is true and this is something that will continue to grow as we go because this market is really in the very beginning of the development phase. So we will see as we go benefits that are coming from this as such of product and this is such a strategy more and more relevant. uh we are we were ahead of the competition we we stay now uh very ahead of the competition and uh this is true because we are continuing to implement our our product as we did a few days ago with the launch of CLIA OS and we will continue to do it also by the end of this year and the beginning of the next year we are planning to launch very relevant innovation within our platform, as well as we are working for providing a news flow in the near future about important agreement that we are closing and signing with big partners on this part of business. The business grew anyway in the 20% last year and is continuing to grow close to 20% also this year. We are expecting it will continue and also will potentially further accelerate starting from the 2020. also because we are working in some way to enlarge our ecosystem of partners, building a group of players at a different level in between the chip maker, the cloud, partners and the system integrator channel that all in all are creating an ecosystem of players that actually enable CLIA working well inside the customer's infrastructure, providing us a lot of pipeline growing a lot of new opportunity that's this kind of ecosystem is actually producing quarter by quarter.

Thank you very much, Max. So summarizing this presentation and looking ahead, we are fully committed to going back to double digit growth. and capture the rebound in demand that we expect for our industrial sector. Our strategy, as you know, relies on three key pillars, starting with our edge computing business, which, on top of a normalization of volumes, will be fueled by design wins with both existing and new clients. The hardware side will also benefit from the tailwinds provided by the increasing need of computing power at the edge to run AI models, a product segment on which we have been one of the first movers. On the software side, CLIA will continue to get traction as it is gradually adopted by a larger share of our clients, as well as pushed from a larger pool of partners within our ecosystem. On that topic, you should expect regular updates in the coming months. Finally, we expect M&A to be a key focus next year as we continue to position ourselves as a consolidator within the sector, like we have done successfully in the past five years. Touching upon the ESG topic, this is core to our strategy for long-term profitable growth. and a key focus of our management team. In fact, we fundamentally believe that digitalization and sustainability go hand in hand. To our product offering, we pride ourselves to be at the forefront of helping our clients to increase their efficiency, reduce their waste production, and optimize their energy consumption. As such, we are already recognized by two major rating agencies, as amongst the best in class in our sector, and we will continue to work on improving these ratings. Finally, we feel it is the right moment to guide the market towards our forward-looking performance. We believe this increased transparency is necessary in order to continue building long-term and healthy dialogue with our shareholders and with the broader financial community. We expect the second half of the year to be broadly in line with the first, as we see order intake gradually materialize. And this should allow us to end 2024 with revenues in excess of 180 million euros. Our gross margin is expected to remain above 50%, an industry-leading level which we are very focused on maintaining. Going into next year, the company is geared to capture the full benefit of the expected rebound in demand, which should allow us to go back to delivering 15% organic top-line growth combined with a return to our historical profitable levels. I might want to stop here to leave enough time for Q&A and take this opportunity to thank you very much for our attention. The floor is now open to questions.

thank you to the speakers today we now have an opportunity for questions as a reminder if you would like to ask a question please use the raise hand function on your screen or for those selling in at star 9 on your keypad once your name is announced please unmute your line and say your company name before asking your question the first question today comes from Daniele Macari his question is in terms of order level do you see a recovery

Well, looking at the order intake book, first of all, it's due to the different kind of lead time in terms of material. It was 45 weeks one year ago, and it is now 12, 11 weeks. So it's very difficult to compare the level of orders Anyway, we had in August a first sign of recovery with a monthly order intake. It was over 10% growth versus the 2023. and with a book build ratio back to one which is the first sign of recovery i would say it's too early too early to say it is a clear sign of it but it's a first sign let's see how uh september and october will go And at that point we may be more specific on it in the next conference call that we will host later in November. Thank you very much.

Thank you for this. Our next question today comes from Mr. Marco Vitale. Please, Marco, the floor to you. And remember to unmute your line. Thank you.

Hi, thank you for taking my question. It's Mark from Mediobank. I hope you can hear me. The first one is about the outlook. You were mentioning that you're planning a second part of the year to be broadly consistent with the first part. This implies still a negative trend in organic growth. I was wondering if you could provide us some details about where we are in terms of customers stocking and what is still driving this negative top line growth waiting for us a rebound in intake. The second question is about profitability. You mentioned earlier that you don't see any need to adjust your OPEC space as you're confident in a demand recovery. I was wondering if we should expect a similar level of AVD emerging in the second part of the year, similar to the first part, or there is room for doing something uh better and then the third the last question is about the capex plan if you see any uh need to adjust your plan or your body uh confirming the around 20 million capex for this year thank you okay uh thank you marco so let let's start uh from the last question so it was uh about capex we decided to to stop basically any

extraordinary capex so we did it already one month ago and and so i i would expect to see a decrease into our capex level it will be materialized for sure in the second quarter of the year in terms of profitability we are expecting to have the same kind, more or less, of profitability. Even if we could have rumors of improvements in the second half, because as Lorenzo mentioned before, we had a certain kind of cost that was in some way an extraordinary cost that we suffered during the first half of the year, in particular in the second quarter. see a room of improvements. And we are also making a spending review. But I would like to say that we have a good level of OPEX in the medium long term speaking. And I really focus the company now in restarting in building a stronger 2025 and hopefully we could leverage in a better end market. And so let's see how the order intake will be in the next quarter, but I would expect a rebound in 2025. So looking just to complete my answer on the profitability, let's assume the same kind of profitability, even if we can have some rooms to improve it for sure. About the first question, it was regarding the 2025 growth. So we have already secured a list of new customers that will start to generate further revenue, additional revenue, I would say, in 2025, both on the hardware and on the software side. A part of it, I can make to you a clear example. We have a bigger customer, one of the biggest of the company, top three customers in terms of level of revenue that is acting on the medical side of the business. It is a 25 years old customers. And this year, this customer is down by 80% From the normal level. As you can imagine, it is only driven by the level of various inventories that due to a combination between the COVID and the shortage reached a very normal level. Well, we just received yesterday a confirmation from the customer that this is over finally, and the customer will restart to go at the full speed already in the first quarter of 2025. Let's keep it as an example. We need it happens basically in any customers. I would say at least 60-70% of our total customer base was in this kind of situation this year. our capability to generate new business was definitely destroyed by the negative growth that we performed on a very long-term customer base that we had, which is at the minimum level of spending with Seco across and over the last 10 years. which is, by the way, a very uncommon situation that we were forced to face. I'm thinking it will progressively be out by the end of this year, early next year. So let's see. Maybe I can be more specific again in November. but we are definitely positive about the 2025 pushback. Pullback, sorry.

Thank you for this. We now have three questions from Arianna Terazzi. Her first question is, just to avoid misunderstanding, the guidance on 2025 guidance is referring only to the organic growth, am I right?

Yes, it is correct.

Our second question then is, could you please share more details that concretely support your confidence as of today about double digit growth in 2025? On top of the design win you mentioned, which if I understood well, could not become revenues entirely in 2025. And aside from the expectation on the market growth, is there any additional indication or figure you can share in terms of order intake?

Francesco D' Yes, I think I already covered the previously all of these such of. Francesco D' elements that composing the question, so I would like to go to the next one, so thank you very much for the question I think it's already covered.

Laura Ballottai, Perfect she just has one more question, which is, and also how the mix you expect would allow to reach the gross margin, you see, for 2025.

I think as we observed already in 2024, our gross profit margin is expanding, but it's expanding because of structural evolution of our offering from one side in the hardware driven by the switching between boards to system, and from another side on the software, driven by the adoption of the recovery revenue base, which is growing basically every quarter on CLIA. And the mix in between the two is giving us a situation where we are extremely confident that this kind of expansion of the gross profit margin can be sustainable also for 2025. And thank you very much for the questions.

Thank you. Our next question then comes from Filippo Pazzini. His question is, for 2025, will we see also recovery margins as well as revenue as given by your outlook? And also, can you give more color on the debt situation and its evolution? Thank you.

Right. So first of all, in terms of margin, as you may know, 70% of our OPEX are fixed cost, mainly wages people. And therefore, when we will see the revenue bounce back to the normal level, at that point, we will see the margins coming back. uh where we were at the historical level during the 2023 2022 that's uh that's something that is uh mathematic uh in terms of um The other question, it was related, I don't remember well now. OK, the NAPDEP. OK, the NAPDEP expectation is to be more or less stable slash to be able to generate some cash also in the second half of the year. As you see, In the second quarter, we are actually generating 1 million of cash net-to-net, meaning excluding the extraordinary investments. We are not planning to have further extraordinary investments which are not planned in the second half of the year. So I would expect to see a positive contribution on the cash generation. Therefore, I would expect to see a net financial position fully under control by the end of the year. And thank you very much.

Thank you for this answer. We now have a question which is, can you give more examples and explain why they are key? Before this, I'm sorry, there was you're mentioning your ecosystem for the software and how it is helping to push more adoption. Can you give more examples and explain why these are key?

Yes, just to give a couple of examples of it, we now have a good pipeline with a very advanced discussion with four new customers that are coming from Google, which is our partner on the platform, Google Cloud. It's providing us So new customers that we were on the table to touch directly. And thanks to Google, we have now four very well advanced discussions with four important potential customers for the platform. as well as some of the system integrator that you are observing on the slide also them are basically providing customers application and market opportunity that we are following so these are two clear example how we are playing on this as such of ecosystem. Just to be maybe more specific, I can mention you a couple of examples also of the kind of and user experience we are working on. One is on the car wash opportunity. There is a bigger car wash company in the US that is looking for monitor with an IoT infrastructure. all very sharp. We are talking about something in the range of 5,000 to 10,000 points, which is an example, and we are facing it with one of the system integrators that are on the slide. On Google, we are talking with two, three customers in the sector of the energy sector, as well as a consumer sector, as well as coffee sector. So we have different kind of of application where our platform, it's important for the customer to build a full IoT ecosystem from the edge to the cloud. That is basically the kind of contribution that the ecosystem is providing. And I would expect to see a sort of snowball effect on it as we go, as much as we build SaaS SKs, happy customers, we will have more adoption and more pipeline to build. Thank you very much.

Thank you. Currently, we do not have any questions queued, so we'll wait just a few moments to give everyone the opportunity to ask a question. Thank you. As there are no further questions, I will now hand back the word back to the speakers for any final comments before bringing this presentation to a close. Thank you very much.

I think thank you very much for everyone for connecting with us. Clarence is, of course, at the disposal for any further follow up you may need. Thank you. Thank you again and good afternoon to all. Bye bye.