Secoo Holding Limited

Thank you and good afternoon to all. As you will remember, back in September, we decided to guide the market toward a revenue target north of €180 million. That means achieving a net sales of at least €85 million in the second half of the year. Today, I'm happy to say that we are on track to meeting this objective. We added another €44 million of revenue this quarter and ended the first nine months just shy of €140 million. While this is down 14% year-on-year, it's worth mentioning that the stocking really started impacting us in the second half of last year, six months after the rest of our peers. This is why you should expect to see an easier comparable basis going into beginning of the next year our cfo lorenzo will later go deeper into the breakdown of our revenue but i want to point out that the continuous threatness of our software business which contribution to our overall top line is up another 200 basis point versus the last year I expect the recent announcement of our strategic partnership with both NSP and Raspberry Pi to provide a significant boost to their already growing clear adoption and revenue trajectory. And I will come back to this once we will discuss the numbers. Another important target of our guidance was to maintain our best-in-class cross-profit margin profile and the end of the answer gain above the 50%. I can confirm that we are on track to reaching that objective as well. The current macro environment continue to be challenged That's why I can assure that the entire management team of SECO is focusing on building a better and stronger company. OPEX are under control and allow us to show a better resilience and profitability this quarter. And the significant work we have done on the inventory also allow us to generate over 4 million in cash. And please consider that we had 1.7 million out of cash this quarter due to the investments that we are doing on the new building. Looking ahead, I echo my peers comment that we are seeing a business fundamental gradually bottoming out. And I'm very confident about the outlook and certain that the company we have built will fully benefit from the growth, which is coming back next year. Let me now turn it over to Lorenzo for a more in-depth look into our number this quarter. Please, Lorenzo, go ahead. Thank you. Thank you, Nat.

And good afternoon to everybody. Well, for what concerns our nine-month 2024 financial highlights, for what concerns our sales, we recorded a reduction of 14%. So the contest of low demand due to the interest rate scenario and due to the stocking trend in inventory of our customers is continuing. However, we are seeing the first sign of growth. recovery, and these trends are at the last stage. For what concerns our performance in terms of gross margin, in percentage terms, you can see that we increased by 260 basis points with respect to the ninth month of 2023. This is a really good performance in terms cross-margin terms, and is driven mainly by the resolution of the shortage context, and moreover, by an higher weight in our sale of the software part that, as we can see later, reached about 12% of total sales. That, for us, is for sure a good result. For what concerns Fed adjusted the EBTDA performance, Obviously, EBITDA was impacted by operating leverage. We closed in nine months, 2024, up to 15% profitability. However, I would like to stress and highlight the fact that, in particular, in Q3, we recorded a good control reduction in OPEX, in particular, in the production cost OPEX component. For what concerns that adjusted the income There is an easy point to be highlighted. Actually, the reduction is following line by line the trend on EBITDA performance. Moving to have a comment regarding our sales breakdown by geography and by vertical, we can see that despite the decrease of sales, the weight and the contribution to the geographies and to the verticals to our total revenues is maintaining and preserving. So, it's a demonstration of the fact that this low, this reduction of demand that we are seeing in the last months is not concentrated in a vertical or in a geographic area, but is almost equally spread out all the areas with some minor exception. The things that I would like to point out instead is that The opposite trend of the software part, which increased by 4% compared to the same period of last year, reaching 17 million, that for us, considering the startup of the software made some years ago, is for sure a good result in a so difficult macroeconomic context. Well, moving to give you some additional details regarding our adjusted EBITDA performance. As I already told, we're close to 15% in percentage term and 20.4 million. I think that I would like to stress and highlight and the action that we will continue in the future is the fact that in the Third quarter of the year, we reduced OPEX by 500K, mainly on production costs, thanks to action of internalizing our production from outsourcing and so producing more part of our product inside the company. And these allow us to reduce production costs and to increase profitability. Just a couple of comments regarding the usual no recurring item that we adjust to EBTDA. The total amount in the nine months of 8 million, 4 million. So the alpha is represented as usual actually by the stock option plan actuarial value, while 4 million is extraordinary cost mainly represented as you remember by the agreement we had with the tax authority in Q2 2024 for the tax period regarding 15 to 21 that allowed us to close all such period in terms of tax risk. So a good achievement in this respect. For what concerns that adjusted the net financial position and so on the other end, the cash generation of the company, I'm really glad to say that this was An excellent quarter for us. We actually recorded in Q3 6 million of cash generation, adjusting actually in a financial position for extraordinary payment that was represented by 2 million on the new plant that we are building in a way so to actually strengthen our production capacity and internalize production, reduce cost and increase efficiency. This $6 million of cash generation that brings us to an adjusted financial position after extraordinary development to $50 million. So, a really position totally under control was given mainly by a really good management of networking capital that reduced by $10 million with respect to the end of Q2 2020. and this mainly to a good reduction in inventory by 6 million respect to the beginning of the year, thanks to the values action that we implemented in the last quarter in order to reduce and optimize little by little our inventory and value and inventory rotation. Thank you very much for your attention, and I pass the speech again to Max Mauri, our CEO. Thank you.

Many thanks, Lorenzo, for your overview. Now I want to take a moment to restablish some fundamental message about our sector and the unique position we have built in SECO. Our reference market is driven by a secular trend which goes from the shift towards the interconnected solution to the industrial divide expected to provide a smartphone-like user experience. as well as more and more sophisticated system providing more value to their end customers, as well as the fact that all the data that the devices are generating can be used by customers to strengthen their revenue and to decrease the investments that they needed to make. to do to maintain the device on the field. This is why our addressable market is still expected to grow double digit for the future and why this fundamentally believe that we are operating within one of the most important and exciting niche of the market. In that context, we have confirmation every day that our 40 years track record in creating value for our client and acting as a trusted technology partner is facing the digitalization challenge is really paying off very well. So I really think that we are the only player that among the major global player we have a truly end-to-end offering. That is our way to create a long-term partnership with our clients. It's also our way to create a stronger relationship with them, bringing them a lot of value in creating a stronger relationship between R&D and innovation and focusing ourselves both on the hardware side at the edge and on the software side of the technology segment is allow us basically increasing our competitiveness and demonstrated our value for the customers every day. I think this is basically demonstrating that our business model is quite unique compared with all our comparable and competitors. And I think it will be and it's demonstrating that it's more resilient and very highly differentiated from the competition. In particular, I want to share some feedback that I got from the field on CLIA, the software stack that we built over a decade and we launched it in 2021. Over the past weeks, I sat down with most of our our counterparts at all the key silicon vendors in the US, Europe, and as well in Asia. And it is surprising to see how unanimous their field is. In a sector that is going through a structural changes from geopolitical tension to weakness in some key historical sector, silicon vendors are now very focused in extracting value from the software business. This is why CLIA is becoming very relevant for many of them. And thanks not only to the strengths of the tech behind it, but also because it's becoming very mature, very complete, and very flexible. And the number of success that we are getting from the market is increasing. The user use cases we are able to showcase are increasing. All these factors are really creating our platform as a benchmark for the industrial IoT market. This week was a very important week for Seco because we did an announcement of two milestone partnerships with both NSP and Raspberry. I will deep dive into each of these in a second, but I want to first reiterate the importance of this announcement, which the market may not have fully understood yet. Partnering with industrial leading players like NXP and Raspberry Pi is really key in our strategy because we'll enlarge substantially the adoption of CLIA among a lot of new industrial partners. I think this is important also because it's not only the recognition of the quality of our solution, but also is a key driver of our business that mutually benefit both the two, the party. When NSP said into the press release that this partnership agreement with SECO and on our CLIA platform will enlarge their value proposition, That's important. This is a very important statement, as well as when the CEO of Raspberry Pi mentioned that this is the first agreement they did after the EPO, and he commented that together we will deliver innovation on the software, on the hardware parts. That's another important statement. I think this kind of statement are very powerful And I think reflect the real value of the ecosystem that we are building because we are really creating a lot of combination in between Silicon Vendor, Cloud Player, and System Integrator to have a full ecosystem in place to really leverage across all the expertise of all these actors to really get traction into the market. Let me now share more details on the announcement we made on Monday with NXP. This has been years in making and comes back on a very long and detailed due diligence from NXP on CLIA, again proving how CLIA is really strong as an IoT platform. But in practice, how the agreement really works. So the idea is for NXP and SECO to have a unified go-to-market strategy on both hardware and the software. This is an integration relay, clear, begin, made available to all NXP silicon users from NXP. Linux for the BSP of the CPU to Zephyr for the BSP of the microcontroller. It means that each customer that is not using maybe a Seiko hardware can really build a solution using CLIA as an IoT platform because CLIA is really pre-installed into all the NXP devices. It's going to take a while to implement it, I would say it will be fully implemented by the first quarter of the next year, but it will strengthen for sure a big adoption of third-party customers into the CLIA solution. I think it's also important to mention that NSP is producing basically 700 million chips per year. So, We will provide more value together with an ESP in accelerating the innovation in IoT application, deploying AI model directly at the edge, and this is very important. And we will also deliver solution for vertical market to customers. All the combination of these factors is really important and will strengthen our strategy in the mid-term and in the long-term as really a unique positioning of SECO versus any kind of peers. Let's now jump into the agreement that we announced yesterday with RAS Verify. This is important because Raspberry Pi is basically producting a lot of devices every year. They sold already over 60 million units and they have a huge community to leverage too. So Raspberry Pi, after a deep due diligence, has endorsed our IoT platform as the best way to boost the user experience with a focus on the device management, data orchestration and artificial intelligence application. As such, CLIA is beginning a fully integrated into Raspberry Pi operating system, making it available and really freeable from any kind of Raspberry Pi devices very soon. I think the joint go-to-market strategy will address primarily the industrial and market, where both our company have a very relevant presence. The collaboration also includes the joint hardware development. We already started in the design of a new 10-inch HMI solution that will use their new CM5 model. And again, this is, we are expecting to have a very large adoption of this kind of HMI in the industrial market because it's exactly tailor-made to really match the requirement of this kind of customers. I can tell you that yesterday I was visiting the Munich electronic exhibition and the meeting with Eben, the CEO of Raspberry Pi. And we were both excited about this new partnership. And we commented that it is a very game changer for the market. so uh finally let me add a few words on the announcement we made together with polcom a few months ago during the embedded world in austin i think this is another important milestone of our capability to make innovation and to bring AI directly on the edge, thanks to the integration of the CLIA software suite. I think we will further come back to it later in the next few weeks, but I can anticipate that we are getting traction on Qualcomm and we have a strong pipeline And I think it will turn into agreement with customers very soon. So this is another demonstration of how we are capable to extract value for the customers and positioning Realiseco in a very unique way on the field. Well, we decided also to share our roadmap on both on the CLIA and on the hardware side of our product streamline. I think it's important to see how CLIA will work after the launch in September of the release of CLIA OS will deliver during the 2025 all the application that a customer really needed to deploy AI algorithm directly on the edge. And it will be the trend of the Nest for coming years where the customers really design solution for themselves and for they and the customers bringing value to their offer. Thanks to CLIA and to all the containers that we are delivering and we are expecting to be ready by the end of the first half of next year, allowing our customers to really build models and train them into the platform. It will be another important innovation inside CLIA and And thanks to it, I think we will further increase the adoption of the platform among many, many new customers. Let's jump now on the other side. Looking here, you can see how we are building a relationship across many, many different kinds of silicon vendors from Qualcomm to Intel to NXP to many of them. I want to stress the fact that all this solution will be available in the next few months. You will see really how all this offer is really focused on the edge AI, which will be the trend of the next three, five years and will be the way how the customers will bring innovation into the device thanks to the Seiko solution and thanks to our technology. So I think this trend will further increase the capability of Seiko to grow and also is demonstrating how Seiko is really at the forefront of the technology innovation in the edge computing market. So I think now let me make my last comment for the day before leaving the stage for the Q&A section. I think this year is a really difficult year. We are remaining difficult. We are now the full visibility on the year, and I can say we will reach and meet for sure the guidance that we provided previously to the market about our 180 million. In the next few months, our focus will be on delivering, uh and to beat the guidance and our commitment to our shareholders still a priority for us as the return of to the grow that we are expecting for the next year i think i am very confident looking ahead about our business, the quality of the management team, all the technology that we have and what we are doing that will bring Seco to definitely a better 2025 and a better future. So thank you very much for your attention. And I open now the line for the questions. Thanks again.

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 dialing in, it's star nine on your keypad. Once your name is announced, please unmute your line and say your company name before asking your question. Thank you. The first question today comes from Marco Vitale. Please, Marco, the floor to you. Remember to unmute your line.

Good afternoon. Thank you for taking my question. The first one is about the, say, outlook. If you can provide us some additional details regarding the commercial pipeline and also the degree of visibility that you have on the potential comeback in organic growth entering 2025, also taking into account the, say, easier comparison basis you should benefit from the next quarters. The second question is about the profitability trend. We have noted some improvement in the cost-cutting in OPEX, as you previously mentioned, during the quarter. I was wondering if there is any additional room to do more on this front for next quarter. and also how quick do you expect your cost base will adjust in the in a context of say recovery in growth and also in sales volumes last questions about cash generation we have noted an improvement in the free cash flow driven by net working capital. Do you think that there should be room for doing something better also in the next quarter? Thank you.

Okay, thank you Marco. Let me start from the cash generation. As you see the cash generation was really good during the third quarter of the year, mainly driven by the control that we had about the net working capital. In particular, we was focusing in reducing the inventories. This is a trend that we are expecting to continue also in the fourth quarter of the year, and also in reducing the day of payment from client, as well as here we are thinking to be closer to the optimal situation. So I do not see any improvements on the customer's payment terms. Instead, I see still we have improvements to decrease the level of our inventories. On the OPEX side, I can confirm that we did an extensive work in reduction cost in general and in OPEX. I think we will take benefits from it also in the last quarter of the year, but more important, in the entire 2025, we are building the budget right now will be more specific later in the beginning of the 2025. Anyway, I can say that we have room to improve the reduction of our cost because we are cutting OPEX also for the 2025. And just to conclude, I think in the 2025, we are working to restart with the growth on the top line as well as having a better OPEX, a smaller OPEX structure to be able to return back to our normal level of profitability we had historically speaking. So that's basically it. uh what we are doing in term of visibility we are collecting now all the numbers for the 2025 budget i can i can say to you that we will be more specific in the beginning of the 2025 general comments is The visibility is now increasing a bit, and we see the bottom of the business should be basically done by the third and the fourth quarter of this year, and we will certainly come back to a sustainable growth by 2025. We have already clear indication about it.

Thank you for this question, Marco. Our next question now comes from Arianna Terazzi. Please, Arianna, the floor to you.

Yes, good afternoon and thanks for the presentation. My first question is a follow-up on 2024 expectation as for profitability. You said you have full visibility on the full year and you're working to further improve your cost efficiencies. Then as for MTDA consensus is set at around 30 million euros for the full year. which implies a BTDA in the range of 10 million euros in the last quarter. Could you share your view on that? And then second, on CLIA, if you could give us more color on the third quarter performance, which marked... according to my calculation, a slowdown as for the software. I guess it could be linked to the NRE contribution, but I would like you to provide more color on that if possible. And then going forward, what kind of contribution do you expect from the recent partnership you announced, if you could quantify that in some way? And How should we expect the profitability to move from a gross profit margin perspective from CLIA, from this kind of partnerships? Thank you.

Right. So let me start to cover the last part of your questions and go back to you. step by step. So on the two partnership, I think both the two will increase significantly the pipeline that we have on CLIA starting from the 2025. I think the real value of this kind of partnership will start in mid-term speaking in particular starting from the 2026. I would expect to see the 2025 as an year where we will win customers extracting from the two partnerships we had signed. And in the 2026 year, really starting and getting traction with a lot of new customers coming from both the two partners. I think this is important because it's also the way how we are approaching all the non-SECO hardware users, and it meaning that we will it will open us a lot of new opportunity, touching base with new customers where we are not in contact, yes. With potential, a good return also for the hardware because we can enter with the software and we can go maybe back to the hardware later. So that's regarding the partnership. Regarding your question on... on the 2024 expectation and the 2025. As I said, for the 2025, we are already observing certain kind of KPI like the order intake and the book-to-build ratio that are back to a growth after a month where we observed a negative sign on all of those KPI. So during the third quarter of this year, both the two KPI are showing that we are reaching the bottom, giving us a good confidence on the 2025 results. About the profitability, we are expecting to see a quarter, the last quarter, more or less in the range of this kind of profitability that may be slightly increasing the profitability that we had in this quarter in terms of incidence revenue on ABTDA. So that's all. Regarding your last question, I can confirm that the revenue the revenue stream of CLIA is continuing to grow, the part that is referring to the recurring revenue part of the business, while the NRE, as was expected, is slightly decreasing due to the market condition. I would expect it to have more or less the same kind of trend also in the fourth quarter of the year, while we are expecting it because we are closing right now a couple of big new customers, and I hope to be in a position to announce them later during this quarter. So I would expect to see also the NRE contribution part back on track by the first quarter already in 2025.

Thank you for this. Our next question now comes from Paolo Vicentini. Please, Paolo, the floor to you.

Good morning. Can you hear me? Yes. Thanks for taking my question. I come back to the partnership you recently signed with Raspberry Pi and XPI. How do you think it will work in terms of satisfying the new customers that you're mentioning? Are you providing... The solution and your sales force will go to the client or is the company like Raspberry Pi or NXPI who provide support and use your solution? And how does it work in terms of revenue share of the software you eventually provide to the new clients through this partnership?

Thank you very much for your question, Paolo. So with NXP, we have an agreement based on it. We will make a revenue share on the software side. It means that the sales force of NXP will bring customers on our table. We will be supporting the activity of the NXP sales team in delivery clear to their customers, and they will make money from it. Whereas Power API is different, is an agreement under which we will deliver the solution on their website and to their community, meaning that their sales force will not act as a collector of orders, just opening the door to our sales force to go to the Raspberry Pi customers and to try to sell, upsell, let me say, clear to their hours. So I think the two partnerships from this point of view works a bit in a different way. The first one is really a revenue share partner under which The NSP Salesforce is fully incentivated in selling CLIA. The second one is a partnership under which we will enter into the Raspberry Pi ecosystem. But I think also this one will provide a lot of benefits because it will open us potentially to millions of developers that are using Raspberry Pi to play with every day.

But given the strong base you have potentially of new clients, are you thinking to improve your sales force to have more people on the project and supporting the new clients or not in terms of investment in people?

Yes, this is part of the plan as we go, as we will see the two partnerships and in general the market get interaction On CLIA, we will, according to it, we will increase our software sales force to be able to follow up all the opportunity. As we go, we will, for sure.

Thank you.

Thank you, Paolo, for your questions. We now have a question from Marco Maximilian Elser. Please, Marco, the floor is yours. Please, Marco, remember to unmute your line in order to talk.

Hello, good morning. Can you hear me? Yes. Thank you so much for taking my question. Thank you so much for your time. I think SEC is a very interesting business, and I had a question about the stock price. With all these exciting announcements, I'm assuming there's been a bit of a disappointment about the stock's little reactivity to all these news. What we noticed was there's been very little volumes in trading, lower than previous days without any announcements. Do you have any idea why this might be the case? Is it a lack of visibility? Thank you.

This is a question for you, Clarence.

Thank you very much, Max. Look, I think on our side, obviously, we've got two jobs. One is to fuel our pipeline in terms of new clients, new projects, new announcements. And then the second job is to communicate as clearly and as extensively as we can. On the two news that we issued this week, Monday NXP and Tuesday Raspberry, I can tell you it's been sent to a very wide audience and it's been echoed by a number of press entities, social media. So I think the news is out there. The difficulty, I think, from the buy side is to assign a value. to these announcements and that's why we spent a lot of time today to go through them, explain to you the ins and outs of how do these agreements really work and what benefit they would provide to us starting from next year and fully ramping up in 2026, then we are hoping that our covering analysts will be able to help us in educating the market on the value of these partnerships and that we will also take the words of the leaders on their side, people at NXP, people at Raspberry, who have confirmed the value of these announcements and what they can bring to both parties. So I think it's going to take time. We acknowledge that the market might want to see revenues and profitability coming in from these announcements before giving us the full credit. But on our side, we're extremely satisfied with where we are.

Let me add, Clarence, that we are very proud about these two announcements because I was dreaming to be able to deliver them from already many, many months. And finally, we were able to execute on them. And I think both the two are representing really a corner milestone in our strategy, in our deployment of the transformation that we are doing from an hardware company to an hardware software company. And thank you very much for your question, Marco.

Thank you for this question. So 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. As there are no further questions, I will now hand back to the speakers for any final comments before bringing this presentation to a close. Thank you.

Thank you very much, all, and we'll be in touch very soon. Have a nice day. Bye-bye.