Secoo Holding Limited

Welcome to SECO's Q1 2025 results presentation and business update. Before I hand over to your host today, please be advised there will be an opportunity to ask questions at the end of the presentation. In order to do so, please use the raise hand function on your screen or for those signing in, hit star nine on your keypad. I now have pleasure handing over to Clarence Nahan, SECO's head of investor relations. Please go ahead, Clarence, the floor to you.

Thank you very much. Good morning to you all, and thank you very much for joining us on our quarterly call. During this presentation with our CEO Max Mari and our CFO Lorenzo Mazzini, we will discuss the financial performance for the first three months of this year. We will also provide you with a detailed update on our business and the trends we anticipate going forward. So the key message we want to pass on today is that we are now in a position to confirm a clear rebound in our business. In fact, both our revenues and our gross profit margin for the quarter came above the guidance we had provided to the market back in March. And most of our P&L KPIs continue to put us in the very top decile of our sector. CLIA continued to progress, now contributing 13% of our revenues. And our EBITDA also showed a strong rebound quarter on quarter, now back above the 20% margin. We also want to take this opportunity to address some of the questions we received from investors during our latest roadshows. On US tariffs first. As you know, the US is still a relatively small part of our business at around 14% during the first quarter. We have already confirmed with most of our largest clients in the area that we will pass through any tariff impact onto them, which they have agreed to and demonstrate our strong pricing power. We actually expect this region to grow in 2025 and can confirm that our budget is already mostly covered by contracted orders. On the outlook as well, where for the moment there is no change to our stance, we want to define it as cautiously positive. All our KPI confirm a positive trend and we are back to delivering quarterly performance in line with our historical levels, confirmed by the guidance we provided this morning to investors of 50 million euros in revenues for the next quarter. With this, I will leave the floor to Lorenzo to take us through our financial results in greater detail.

Thank you, Clarence, and good morning to all. Let me provide you with the key highlights of our Q1-25 financial KPIs. Starting with our net sales, we closed the quarter in line with Q1-24. But more importantly, we recorded a 7% growth versus the fourth quarter of last year. This growth was true across almost all geographies and verticals. Software revenues also increased respect to Q4, now contributing 13% of our total sales. As per the gross profit margin, a strong performance in the quarter has put us far above the 50% guidance. This is in part due to the growing contribution of software sales. Another important KPI is the rebound in adjusted EBITDA margin at 20%. Paolo Davide Farah- driven by our operating leverage effect with OPEX actually stable respect to Q4 24 and Q1 24. Finally, please note that our adjusted net income, as usual, is a less relevant metric as at this time of the year, taxes are calculated with theoretical tax rates and interest incomes do not include gains over derivatives on the financing facilities due to the hedge accounting. Moving on to our revenue breakdown, I would like to point out two important items. First, our software sales are now reaching a 13% contribution in Q1 2025, the highest level since our launch of the software business. Second, thanks to the recovery in demand following the end of the stocking, we enjoyed a double digit growth in almost all the countries versus the same period of last year. This is true with only one exception, that is Germany, where we still see a delay in the recovery of demand. Now let's pass commenting our adjusted eBTDA performance. Our profitability margin is back at 20%. The gap with respect to Q1-24 is explained only by the difference in gross profit margin. This demonstrates that the 37 million of revenues we book in Q1 created an inflection point in our EBITDA margin. And therefore, going forward, the more we increase our sales, the more profitability we can generate thanks to our operating leverage. On adjustments to EBTDA, these quotes are almost all represented by the stock option actuarial value. Finally, touching upon our net financial position, it continues to be fully under control with the leverage below two times EBTDA. The increase in the quarter respect to 2024 year end can be primarily explained by the increase in trade receivable due to many factors. One of these is a reduction in the use of non-recourse factoring. An important point that I would like to point out in the closing of this quarter is the level of net working capital. In one year, we were able to reduce net working capital by 20 million. Thank you very much for your attention and I pass through the speech to Max again.

Hi, good morning to all and thank you very much, Lorenzo, for your explanation. In this section, I want to share my perspective about our business performance for the start of this year, as well as some outlook forward into the second quarter. But first, I want to share with you my vision for SECO If you think which is the most important driver for our sector in the next decade, it will be for sure the AI. And the use of the AI at the edge is about to radically transform the industrial sector. But being said, you may have noted how slow is the adoption so far. And I think this is mainly due to the fact that what is missing is actually the high level of customization that OEMs are requiring. And that has come by defining the use case tailored to their specific needs and then market. And this is exactly where SECO is distinguished itself with our end-to-end offering solution and the ecosystem that we are building around CLIA. We see ourselves as one of the most important AI enabler and partner that will enable our customer to unlock the potential coming from this transformation. And if we go to the next slide, thank you very much. I'm more than ever confident that our strategy is the right one to capture the acceleration in the demand. We are now a leader in the highly integrated edge system and this means that we are considered by customers as a true technology partner. We are providing more value-added service to our clients thanks to our CLIA software suite and the ecosystem we are building around it. And this evolution will continue. This strategy will lead to gain more market share and grow the stream of recurring revenue opportunities for SECO. And this is how the strategy will pay off creating a stronger value creation for our company. CLIA is a key pillar of this strategy and now I want to show to you which are the results of CLIA more in detail showing as a first time the contribution of the recurrent revenue part in this business. We steadily progressed since the launch in the 2021, the increase of CLIA on our top line, reaching now the 13% of our revenue. Within CLIA revenue, as you know, we are getting an NRE as per implementation fee, which our client pays in the initial phase of the adoption process. And then we get the subscription portion, which is usually contracted over a 10-year period, and this recurrent revenue monthly fee. The drivers for the continuous access of CLIA are clear. One, the existing clients renew their CLIA subscription, like for example BTDA. Second, as new clients endorse CLIA as their reference IoT platform, like for example Hitachi did. And third, as we include new partners in our ecosystem like for example we did with Raspberry Pi or NIAX. I expect that the contribution of this recurring portion of the revenue to continue to improve fueling both our top line and our margin. All this strategy is obviously rely on our top tier one customer list, with whom we have been doing business for many, many years, sometimes over decades. So focusing now on our KPI, as you can see in this slide, the order backlog continue to show a positive trend during the course of the first quarter. This is a V-shaped recovery I had mentioned in March already, confirming that the stocking is indeed behind us. In fact, I'm positively surprised by this rebound, as most of our clients are now back on track to a very historical level. All our major markets are enjoying this dynamic with maybe the inspection of the German market. The Dutch region remains weaker right now, but we are expecting to see a positive evolution going forward due to the local stimulus that are starting to have an impact. I'm also impressed by the record level of projects we added to our pipeline during the Q1, some of which we should be in a position to announce very soon to the market. All of this is driven by high demand for new products from industrial players, especially for edge AI applications. Let me now conclude this slide where I can show to you how we did already successfully for a couple of quarters. I want to share with you the financial guidance for the next set of results, which will be published later in September. we are expecting to have a revenue over 50 million in the second quarter, always maintaining our 50% plus gross profit margin target. This means that we will go back to delivering quarterly performance in line with our historical level of profitability, returning back to a consistent quarter-on-quarter profit and growth trend line. This is something that is really important to me. And this is also the demonstration of the strengthness of our equity story and the business that we have built at SECO. With this, I want to thank you again for attending this call, and I suggest we could open the line for questions. Thank you very much.

Thank you to the management team. 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 state your company name before asking your question. Thank you. The first question today comes from Marco Vitale. Please, Marco, the floor to you.

Good morning, thank you for taking my question. The first one is about the, say, top-line outlook. When capturing the true second quarter guidance of 50 million, you will probably be able to deliver the stock results say after uh in the low single digit area i was wondering uh whether you still see the current consensus numbers uh for the career uh quantity double digital uh creature or maybe sugar The second question is about the, say, business pipeline and the conversation you are having with clients. The, say, trend of the backup is very encouraging. I was wondering if you have noted any, say, experience in the conversation with clients starting from April when the, say, the new set of targets have been announced.

Thank you. Okay, so let's first follow up on your first question. We will be in a position to provide to the market a full guidance for this year later in September when we will present to the financial community the result of the first half of the year. Anyway, as we said already in March, and I can confirm it, we are expecting the growth progressively accelerate during the course of the year with a good progression quarter by quarter. And this is confirmed by all the KPI that we are monitoring. So I have no reason to change the statement that we already did in March. On the second question, based on the conversation we are having with customers, we are noting that there is a huge request of product and a huge request of new project that is coming almost across all the region and in many sectors. We do not see any kind of impact yet from the tariff. We were able to pass through it basically changing the way how we are shipping the goods to US customers. We already changed with all of them the way how we are shipping and based on the new rules, we are shipping our goods directly at the border of the US and they are now paying, if any, cost for importing the goods into the region. And this was basically accepted by all of them. So I think what is really important now for our sector is also noting that most of our competition, historical competition, is coming from Asia. And therefore, in this tension that we are facing in the geopolitical situation, we could have a positive impact, especially for customers based in Europe and based in the US against the competition. So thank you very much.

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

Yes, good afternoon. I hope you can hear me. Thanks for the presentation. You beat gross profit margins guidance and also based on the last conference call comments, the guidance on gross profit margin, even of above... at least 50% even for the second quarter looks cautious. Is it fair to expect a 53% gross profit margin also for the second quarter? In the sense, also as a follow-up from a previous question, but on a margins perspective, I would appreciate comments in terms of difference margin contribution from orders, which will translate into revenues in the coming months. And then I would ask a clarification on the book to be label. We shouldn't in the first quarter you showed in the in slide there 14 Thank you.

Okay. So let's start from your first question. So first of all, we already provided guidance for the second quarter where we are expecting to be well above the 50% margin. We could not be more specific because the gross profit margin is really driven by the sales mix. So many factors that are quite impossible for us to predict the 53, 52, 54, 55. It's really difficult to predict. So let's have as an expectation that we will beat once again the guidance we already provided. That's for sure. In terms of evolution of the book to build and the orders, I can tell that also April, went well above the previous year in terms of order intake confirming us once again that the stock is now over and our position on the market in terms of technology offering is really starting to pay off. In terms of margin of the orders that we are acquiring, we see, for example, the medical sector is growing quite significantly, well above the 50% year-on-year, and the medical market is one of the most a beautiful market in terms of contribution on the margin. So therefore we are expecting to keep a very good margin and a good profitability across all the next three quarters. Another important topic that I would like to outline is the incidence of the OPEX and the cost control and the cost cutting that we execute successfully during the course of the last decade. three quarters of the 2024. In fact, if you double check the level of the OPEX, the OPEX are quite stable compared with the last quarter of the year, even if we added more than 3 million in revenue, meaning that we are really saving money in terms of cost versus revenue. enabling us to have a very positive contribution in terms of leverage, operating leverage. So thank you very much, Arianna.

Thank you, Max. Thank you, Arianna. Our next question now comes from Bharat Nagarjai. Please, Bharat, the floor to you.

Thank you. Just a quick question. I think you referenced this just now, but in April, just wanted to understand how the book to bill and the order book trended, given Advantage just this morning reported like slightly slower 9% growth in Europe. So just wanted to get some color from you as to how April has progressed for SECO. And then secondly, when do you expect to see a bump in clear recurring revenues? recurring revenues from all the new wins and partnerships that you announced in the last few months. And lastly, just a quick housekeeping question on the fixed costs. I think you again referenced this just now, but in terms of fixed costs for the rest of the year, do you expect any significant changes in terms of hiring or anything else? Thank you.

Right, so April was affected by a lot of banks holidays because Easter and other banks holiday that we had in April. So therefore the April numbers needed to take it in count. That's being said, we had a very positive April, both in terms of revenue and order intake. And as a second question, it was related to the cost, I think that our costs are fully under control. You can expect more or less the same level of ABTDA, sorry, of OPEX also for the next quarter. Please consider that OPEX will for sure slightly increase due to the increase of the revenue. But this will also unlock the operating leverage. So we will see our profitability for sure better because higher revenue are absorbing the OPEX leverage. better than in the past, that's for sure. Going forward, I think in the second half of the year, we will start to grow slightly our OPEX in terms of fixed cost with some hirings because we had a very positive trend of also design win that will enable us to really grow faster in the 2026. And therefore, we want to prepare our internal structure to be able to support it. On the clear side, I think we will see a progressive increase in the recurring revenue part of our business. And definitely, we will see a good bump of it at the beginning of the 2026 when we will have the positive contribution of some customers that will start to enter in mass production, adding a significant layer of recurring revenue to the existing one. The existing one anyway, you will see the progressively growing quarter by quarter as we go into the 2025.

Thank you, Barth, for your questions. We now have a question in the chat from Aviat Basha from Long Road. The question is, how does the company see the demand in the com slash sum market?

Yes, the sum market represents around 12% of our total revenue because we are really focused in a value added offer, meaning that we are selling more system. A part of it, we see, as I told you before, a big demand that is coming from some, especially related to new products, generation of CPU that are integrated already the functionality to run AI at the edge. More in deeper, I'm referring to on the smart model, for example, to Qualcomm, the new generation of Qualcomm and the new generation of Intel are for sure going in this direction and are reaching very good demand from customer as well as the new generation of cheaper based on NXP. On the ComExpress side, I think Intel, AMD right now are going pretty well. And we have a very good expectation about a new ComExpress based on Qualcomm that we will launch later in the second half of the year that we are expecting to be a killer application in many verticals. and we are quite excited about this product going forward.

Thank you, Eviat, for this question. 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 give the word back to the speakers for any final comments before bringing this presentation to a close. Thank you.

Thank you very much to all for participating. As always, our AR team stays at your disposal for any further questions you may have. And see you soon. Bye-bye.

This presentation will now come to a close. Thank you.