Earnings Call: Q2 2023

Sep 21, 2023

Good afternoon, everyone, and welcome to our usual investor call, deemed to comment on the latest results which were published last Monday after the last board meeting, which has the first half 2023 profit and loss, and balance sheet, and cash flow statements. Let me welcome Mr. Monfredini and Mr. Gorni, respectively our Chairman and CFO and CEO. I would leave to them to hand out a brief comment on the data, and then we will be able to take a few questions. Thank you very much. Thank you, Micaela. Can you share the press release, please? Good afternoon to everyone, and thanks for being here. Today, we are going to comment on 2023 first half results, that as a result, the sale of Growens' Email Service Provider activity to TeamSystem S.p.A. will treat companies sold as a discontinued operation in accordance with the IFRS 5 accounting standard principle. It is important to say that the numbers I am going to comment on are only figurative, because they do not include the sold perimeter that is cumulated in specific items. Specifically, in the income statement, the activities that constitute the discontinued operation have been reclassified under the line item net result from discontinued operation that you will find just before the net profit. In the balance sheet, the asset and liabilities related to the Email Service Provider business have been reclassified under asset and liabilities up for sale. The balance sheet figures as of 31st December 2022 have not been restated. In the cash flow statement, the cash flow generated by activity that constituted a discontinued operation have been reclassified into dedicated items located at the bottom of the statement. Additionally, it should be noted that existing relationship between discontinued operation have been treated as a relationship between independent parties, and that the economic and balance sheet items related to discontinued operation also include the effect of the elimination of the consolidated relation of such relationship. We named this relationship usually inter-company. Therefore, in Growens' consolidated half-year report, all financial data for the first half of 2022 has been restated to allow comparison in the same period with the data of the first half of 2023. Whereas the balance sheet data as of 31st December 2022 are in line with those published in 2022 financial statement. Let us move on the main results for the semester ended on 30 June 2023. The 2023 first half profit and loss, posted total revenue, so around EUR 35.6 million, showing a decrease of 5% versus the same period of 2022, which reached instead EUR 37.4 million. Such results is driven by the growth of the SaaS component of 11.6% for 16.5% incidence on total revenues, counterbalanced by the CPaaS line contraction by 7.3% for an 82.7% incident on total revenues. The Agile Telecom business unit posted the biggest revenues of about EUR 29.6 million, decreasing by 7.3% over the same period of the previous year. Focus on profitability of contract has allowed for a good recovery in their relative margin, which have nearly doubled, as you can see in the table. We had EUR 1.4 million of EBITDA, versus more or less EUR 700,000 of EBITDA. The fastest growing business unit, once again, was Beefree, with a 20% increase in revenues at EUR 4.8 million, or $5.2 million, driven by increasing volumes. The annual recurring revenue KPI amount to $11.4 million as of August 2023. The Datatrics business unit revenues instead decreased by 13.5%, or about EUR 166,000 in absolute value. Foreign revenues amount to EUR 28 million, representing 79% of the total revenues, substantially stable compared with the previous period. Recurrent revenues amount to 17% of total revenues, growing of about 12%, with an increase at the incidence of 2% versus the previous period. That said, let's go on with marginality. In the first half of 2023, consolidated EBITDA, as you can see, amounted to EUR 0.3 million, growing by 195% versus the first half of 2022, with an incidence of 1% on revenues, while the gross profit grew by about 17% or EUR 1.05 million in absolute value. Both gross profit and EBITDA margin are affected by a variety of factors. Firstly, the material margin recovery of Agile Telecom substantially doubled. Secondly, sales and marketing and research and development investment growth mainly tied to the focus on Beefree's development. If you see a result by business unit, the main contribution in 2023 EBITDA margin comes from Agile Telecom, which ended the first half with EUR 1.4 million, while Beefree contribution is more tight and amounts to EUR 123,000. Datatrics instead lost about EUR 625,000, improving results compared with the first half of 2022, but not in line with our expectation. As a consequence of that, given the impact of general depreciation of research and development cost amounting to EUR 1.3 million, as well as further impairment of the goodwill on Datatrics amounting to EUR 1.3 million, EBT is negative for EUR 2.9 million. Net earnings from continuing operation in the first half of 2023 after current deferred taxation estimates also amounts to EUR 2.9 million negative. Finally, we have a consolidated net financial position as of June 30, 2023, that is positive and amounts to EUR 3.3 million positive. That means that decreasing versus the previous recorded amount of EUR 66,000 negative as of December 31, 2022. This negative variation is mainly influenced by the bridge loan contracted to meet the financial needs of the group, pending the closing of the sale of ESP business, which resulted in a net inflow after amounts held in escrow over EUR 72 million. The aforementioned short items liabilities were therefore settled during the month of July, so it was only a transitional situation. Finally, the figurative debt from IFRS 16 adoption amount to EUR 2.9 million, and we can note that cash exceed EUR 11.6 million. That's all from my side. Thank you very much, Matteo. I would like to underline as a general comment, that there was no option for us to decide to present those data in any other way, because agreeing upon that with the audit firm, BDO, which gave an opinion today alongside the financial statements, there was no other way to present those data, but that to include these sold businesses as discontinued operations. So they are still in the financial statements, but are presented and represented as discontinued operations. So there was no other option for us than to present financial data this way, which will also give a good flavor of what the group is going to look like in the future. So we highlight the operating performance of the remained businesses, which as far as Beefree and Datatrics are concerned, still make up the SaaS division, and Agile Telecom makes up the CPaaS division as well. So that is the overall view that we really cared about giving. I would leave it to Nazzareno to give a few context words about what we have done recently, what we have done with Beefree, what we have done after the ESP sale, and some highlights from the future. Please excuse us, everyone, if we cannot get into further details. As you all know, last Monday a resolution was passed to launch a partial public tender offer on our treasury shares, so information is really deeply regulated in this period, and we may comment a little bit, but please understand that if we cannot answer your questions about guidelines, it is because we have a huge blackout period pending. Thank you very much. Thank you, Micaela. As usual, if you have any questions or doubts, you can use the chat button here in the Demio tool, or you can send an email to the investor.relations@growens.io address. Regarding the activities in the last few months of our business units, we can start with the Beefree. The first news is that we rebranded Beefree. Before it was BEE Content Design, now the product name and the business unit name is Beefree. And the plugin, so the version white label embeddable in other solutions, called the BEE Plugin, now is called Beefree SDK, Software Development Kit. So that is the first thing that we released. We also attended a couple of important events, exhibitions, recently, one in California and another one still in the U.S., but related to Beefree for designers, hosted by HubSpot, an important CRM and marketing automation player. Both events were very successful in terms of attention, visits, and opportunities, on both sides, SDK and Beefree. To have the full results, we need to wait a few months to appreciate the results from those events. Another important thing that Beefree released is the change in terms of the free edition. As you know, we released the free edition back one year, a few months ago. Since then, the number of paying clients started growing a bit slower than before, and this is due to the ability to convert clients or users from free to paid. To address this issue, we just released this week a new free edition that now basically, the threshold for the free users is no longer the number of assets, email templates or landing page created, but the number of exports. The number of times that the users basically export the created asset in other application to publish or to send those messages. We hope that this change will improve the conversion rate from free to paid. Of course, it's too early to have any data on this. We started drafting the plan to invest into Beefree, part of the proceeds from the TeamSystem sale. We decided to invest in organic growth, EUR 15 million in the next three years, so 2024, 2025, and 2026. This investment will be mainly related to R&D, especially looking at the AI capabilities and integrations, and of course, marketing and sales. Then we have Datatrics. As you saw from the Matteo presentation, Datatrics is still struggling in terms of growth. We appointed a new head of product a few months ago, and he completed together with the head of engineering, an analysis that basically highlighted some issues in the platforms in terms of functionalities and bugs. This is causing still quite a high level of churn, which is, of course, affecting a lot the growth, which is not there yet. Now, we are going to invest in terms of R&D in order to fix those issues on the platform, hopefully to stop, or at least improve the churn rate that we have today that is capping our growth and ability to return to at least breakeven. Datatrics also had a quite important reduction in terms of people. I believe that is around 10 people less than before, than the beginning of the year. This is helping in terms of EBITDA improvement. As you can see from the results from Matteo, the EBITDA is now a bit better than before. Still, of course, we are not happy about the situation. Then we have Agile Telecom. Agile Telecom figures are very good in terms of EBITDA. This was our strategy, to work towards margins rather than growth and revenues, and this is happening. I want to highlight that both revenues and margins for Agile Telecom are still a bit volatile. There are a number of factors that are not under our control that can affect those results in the future, so it's not easy to have accurate prediction on Agile Telecom. On top of that, we have a new regulation from the AGCOM, the authority of the communication in Italy, that is quite challenging for Agile Telecom, because it is changing the way that foreign senders are able to deliver messages to Italy. This regulation is still at the very beginning, and we are trying to discuss with the authorities to find a way to improve this because, basically, companies abroad now should basically open an Italian legal entity in order to deliver messages in Italy using the alphanumeric sender. This is quite disruptive for the industry, and we need still to assess the impact on our results for Agile Telecom. Another good news about Agile Telecom is the migration that has been completed. The full platform infrastructure, which is our own intellectual property and fully developed by Agile Telecom, not relying on external supplier, has been completely migrated on the cloud, and this allows us to have a better performance, better availability, but also to have a platform that in the future might be sold or rented, or by license to third parties. That is a good opportunity for the future for Agile Telecom. Overall, as a recap, a stronger investment in Beefree, EUR 15 million in the next coming years. While for Datatrics and Agile Telecom, the strategy is not changing. We still are working on the ordinary business and the usual strategies. Of course, we have also the M&A opportunities, both on the buy side and on the sell side, that we will address in an opportunistic way, basically, as in the past. Thank you very much, Nazzareno. Your last word allows me to connect to one of the very first questions we got, connecting to the EUR 15 million expected investment on Beefree, which of course will both cover both CapEx and OpEx for Beefree's organic development. Of course, it is more difficult to estimate expected investments in external growth. But as far as internal growth is concerned, please rest assured there will be both sales and marketing strengthening and R&D strengthening, especially to integrate artificial intelligence plugins, and further help to designers in order to develop even better content leveraging on the Beefree platform. So thank you very much, guys, for the presentation so far. I will go on browsing through the questions we have had today, keeping up with the financial side. If you agree, I would take the very first one, which mentions, do you expect to apply IFRS 5 principle also in full year 2023 results? Well, of course, there is no expectation we can have concerning that. We can expect that we will agree with the audit firm that data from now on will be exposed in order to highlight the actual contribution of the ongoing businesses. In the very last case, we will be highlighting the discontinued businesses contribution as a separated line in the financial statements. This way, you might as well provisionally be able to appreciate the overall group result amount as it would have been, had the old ESP business stayed in, because the last line in the full reported P&L still shows the overall results with the whole group contribution. Whereas you can appreciate the new group perimeter as it is now. My expectation would be that this type of exposing results will go on and will make clearer and clearer the business units that we'll stay committed to. Another question, which trends we expect for Agile Telecom? Do we expect to get back to growth by maintaining similar margins? As far as we can tell, I think that we've already covered this topic with Nazzareno. Of course, we've said several times that the SMS market is quite volatile, and of course, it's no trouble to gain rapid sales growth despite margins. The first focus will always be on margin, and we'll see what happens with the growth. Nazzareno, would you like to add some color on that? No, that's correct. Our focus is the marginality. As you said, it's quite easy to increase revenues with the SMS traffic. Just putting a very low price, you get a lot of traffic and revenues, but that's not our goal. Our goal is to increase the marginality. But it's not easy because a very mature market with quite large players. We are a very small team, 17 people. Very smart, so they did a brilliant result this year, the beginning, the first 6 months, but not easy to tell about the future. All right. Thank you very much. We have a further question, with respect to Datatrics, which is the book value of the Growens share at the end of June? Yes. Thanks, Micaela. Matteo, would you like to comment on that. You can go on like that. After the last impairment, I think we have a net value of the ownership in Datatrics. Yes. The value at the moment is at EUR 2.9 million after the last impairment. Thank you very much. Following further questions we got on this respect is that I would like to further highlight that when a company performs impairment tests and withdraws part of ownership values for some holdings in certain subsidiaries, there is no choice about that. We do not make a choice concerning that. It is an obligated path that we need to follow, when we assess that the permanent value attributed to the subsidiary is no longer sustainable in the long term. It is a process that needs to be assessed from time to time, and when the time comes, and if the case arises, we do make impairment valuations, and we do write off partial values if this is the case. Thanks so much. We go on with a further question. There seems to be a favorable IPO momentum for SaaS companies in the U.S. We have seen Instacart and Klaviyo IPOs. What is your view, and I think this will be up to Nazzareno to comment, what is your minimum size view for a SaaS company, to be eligible for the financial market in the U.S.? Yes. I think it's not only a matter of size. Today, the best cases in the U.S. are companies with also a very good profitability, and in the coming three years, for sure, Beefree will have a decreasing profitability and margins because we are going to invest, as I said, EUR 15 million in three years. That's the first point. The second point is that, I believe, but this is just my opinion, that until the ARR, annual recurring revenue, is lower than EUR 80 million, EUR 90 million, or EUR 100 million, I think, an IPO in the U.S. is quite difficult, or at least it's doable, but I believe that the results would not be so impressive like the Instacart or Klaviyo that we just saw this year. Thank you very much. Once and for all, I would like to comment on all the questions that we got concerning the partial tender offer and current stock pricing. As we mentioned several times, there is a very narrow regulatory path that we need to follow at the moment. Every step was taken, by hearing the advice of our legal and financial advisors. The price was decided unanimously by the board of directors, following the issue of an independent fairness opinion, which was also reviewed by the board of statutory auditors. I really think there is no reason to comment further on what we cannot control, which is the market. What we can control now is the process, which needs us to submit an offer document to CONSOB because Growens' offer, Growens' tender on treasury shares exceeds EUR 8 million threshold in value. It's mandatory to file an authorization process for the set of information with CONSOB, which is the Italian regulatory authority. We have a process in front of us, which will include 20 calendar days for us available to submit the document, and then 30 to 15 days for CONSOB to release the authorization to publishing the document. Then the launch of the offer period, which might happen across the month of November, which could last from a minimum of 20 trading days up to a maximum of 40 trading days. I think this makes it very clear. I would switch back to financial questions because, of course, Marco's got a clarification, and Marco, you're totally right. We actually mistook the book value for Datatrics with respect to the goodwill. Book value is EUR 4.2 million, and goodwill is EUR 2.9 million. Of course, that will be the figure that was partially written off after impairment. Can you please, Matteo, comment? Sorry, can you repeat the question? Yeah. The question is if you can clarify what is the overall book value of Datatrics and the book value of goodwill. So we have figures here, EUR 4.2 million book value, and EUR 2.9 million goodwill. Yes. I think the difference is between Sorry, I don't remember the term in English. Is the consolidation. Sure. The consolidation difference between the value of the asset that is in the separated balance sheet of Growens S.p.A., and the same value that we have in consolidated balance sheet, that is different because on one side, we have the value of the company that we have as asset. On the other side, we have the difference between the asset and the The asset value. Yes, the asset value. Yes. It's two different value. Thank you very much. I don't know if I was clear. The overall book value would be correctly EUR 4.2 million. Yeah. Thank you so much. Yeah. Thank you for clarifying. Are there any further questions? Any other curiosity? We are always available. You know that you can drop us an email at investor.relations@growens.io. We are aware that this press release was about a transitional perimeter for the group. We will make sure that we release as much information as possible compatibly with all the restrictions we are currently subject to. If there is no further questions, I think we might close the session. As usual, that will be available on our website for replay and possibly in a transcript form. I would thank both Matteo and Nazzareno for being here with us today and everyone who participated in the call. Thank you so much for your interest in business. Thank you again. Thank you. Bye. Thank you.