Earnings Call: Q3 2023

Nov 13, 2023

Earnings release

2023. We do have Mr. Monfredini and Mr. Gorni here with us to comment the latest data. Please let me remind you, as usual, that you can send out your questions either on the chat here on the side in the conference call tool or via the email address, investor.relations@growens.io. Thank you very much for joining us. To start with, I would leave the stage to Mr. Monfredini for a quick comment on the freshest data so far. Thank you, Matteo. Thank you, Micaela. Good afternoon to everyone, and thanks for being here. Today, we are going to comment the nine-month period ended on 30 September 2023 results, that as a result of the sale of Growens email service provider activity to TeamSystem S.p.A., as well as the sale of 100% of share capital of Datatrics to Spotler Group, we treat companies sold as discontinued operations, in accordance with the IFRS 5 accounting standard principle. It's important to say that the numbers I'm 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, EBT, from discontinued operation, that you will find just before the bottom line or the earning before taxes. Additionally, it should be noted that the existing relationship between discontinued operation have been treated as the relationship between independent parties, and that economic items related to discontinued operation also include the effect of elimination of the consolidated relation of such relationship, also called intercompany. Therefore, in Growens nine months results, all financial data for the first nine months of 2022 has been restated to allow a comparison in the same perimeter with the data of the first nine months of 2023. Let's move on the main results of the first nine months ended on 30 September 2023. Revenues, as usual, are represented by SaaS and CPaaS business lines that from this report are represented by Bee business unit and Agile Telecom business unit, respectively. Consolidated nine months 2023 profit and loss post total revenues around EUR 54.6 million, showing a decrease of 5% compared with EUR 57.7 million in the same period of 2022. This result was mainly driven by the +14% growth of SaaS business line for a 13% incidence on total revenues, and the 8% decrease of the CPaaS business line for an 85% incidence on total revenues. The consolidated recurring revenues from SaaS product subscription weighed 13.4% of total revenues and amount to EUR 7.3 million, growing 14% year-on-year. The Beefree business unit posted like-for-like revenue growth of 16.8% at constant Euro-USD exchange rate, thanks to volume increase. Annual recurring revenues amounts to $11.6 million as of September 2023, with an increase year-on-year of 14.4%. Agile Telecom keeps on focusing on increasing margin, even in spite of short-term top line growth. This result was possible through the use of lower cost selling channels, and therefore also lower turnover, even if not proportionally. Foreign revenues amount to EUR 44 million, representing 82% of total revenues, essentially stable if compared with the previous period. Gross profit grew over 19% in the first nine months from EUR 8.7 million to EUR 10.4 million, and is positively affected by margin recovery of the CPaaS business line. Consolidated EBITDA equals to minus EUR 0.4 million in the Q3 2023, and EUR 0.3 million in the nine-month period ended on 30 September 2023, decreasing by 169% and 61% respectively versus the same period of 2022. EBITDA margin was impacted by cost for the focus on business development, and on the other side, on the greater impact of holding cost on the remaining business units. The group structure that we build with five business units, now is less optimized, but we are in the process of accelerating growth in Bee, and having more strategic skill inside is a competitive advantage. Earning before taxes amounts to EUR 61.7 million in the first nine months of 2023, positively impacted by the cash-in from the disposal of the ESP and Datatrics businesses closed, and announced on 13 July and 20 October respectively. The consolidated net financial position, as of 30 September 2023 amounts to EUR 57.4 million, and is not comparable with the previously recorded net cash amount for EUR 65,000 as of 31 December 2022. The adjusted net financial position that we see at the end of table, net of figurative debt from IFRS 16 adoption for EUR 1.3 million, and added to the escrow amount for the ESP business disposal for EUR 4.6 million, would exceed EUR 63.4 million. Cash and equivalents amount to EUR 62 million. The current financial position has decreased by EUR 0.94 million, mainly driven by the reduction of the current financial liabilities for right of use IFRS 16, while the non-current financial position has decreased by EUR 1.6 million, mainly driven by the reduction of long-term debt and partially from the non-current financial liabilities for right of use IFRS 16 adoption. That's all from my side. Thank you very much, Matteo. I would now leave the stage to Nazzareno for a quick comment on the overall strategic view behind those figures, and what's next for the business unit, what you see before switching to the questions from the public. Thank you very much. Thank you, Micaela. Good evening, everyone. Regarding the news in this last quarter, of course, today, the partial tender offer is starting. On that regard, I can only say that, since the announcement of this partial tender offer, already 2.4 million shares has been traded, so nearly 90% of the overall shares that we will buy back. Relating to the business unit news, now we have only two business units. Let's start from the first one, Beefree. In this quarter, we completed a full rebranding, including the renaming of the two main products, Beefree Up and Beefree SDK. We also attended three important events in person, in the U.S. and in Ireland. Those events were mainly related to Beefree SDK, so the older plugin. To evaluate the results and to appreciate the results from these events, of course, we need to wait a few months because the sales cycle of Beefree SDK is quite long. We also released an important connector. Now Beefree is connected with Salesforce, which is a system very well known and very requested by some of the clients. We also completed the Okta integration, which is a single sign-on for enterprise customers that I hope will help in increasing the number of enterprise clients. Finally, we almost completed the three-year investment plan that we started drafting a few months ago. For now, we can only share that we confirm the EUR 15 million investments in the next three years, organic investments, that we are going to invest mainly in R&D and marketing and sales. Regarding Agile Telecom, as Matteo has said, margins are higher, mainly because the traffic mix is different. Now we privilege the higher margin routes over the high volume routes. We need to highlight that it's still a quite volatile business because it's very mature, but there are changes, especially changes this year in regards to the Italian regulations. The Italian Autorità per le Garanzie nelle Comunicazioni is changing some rules, and this could have an impact on foreign senders, which are a big part of the telecom business. Also, the high margin channels that this year Agile Telecom is leveraging are not completely stable, so we are not totally under our control. That's something that could change in the future. On top of that, mobile carriers, especially Italian mobile carriers, where we have a lot of traffic, may increase in the future their price, and this could affect also the overall Agile Telecom business. In view of those risks and volatility, we are going to experiment new channels. We want to add new ways to generate margins, such as RCS and RBM, which are the newest channels, and Telegram. Those are the experiments where we are going to invest in the near future. Of course, in terms of organization, Agile Telecom is already a very light and efficient organization, and we are going to keep this cost structure for the future. That's all from me. Thank you. Thank you very much, Nazareno. As usual, it's been very swift and effective. I would now switch to a few questions that come from the audience. First of all, thank you, everybody, for attending today. A couple questions from David. Can you please discuss the apparent deceleration in Bee revenue growth in the third quarter in the context of increased investments that we have made in Bee so far? Please let me remind everybody that while being under a public tender offer, we are not in the position of releasing any further guidance and any figurative hint on what is coming next and what is coming for the future that is not already covered in the offer document. For any forecast or for any detailed information, we kindly ask you to confront and to get back to the offer document, as there will be no further guidance any different as per what is covered in the offer document as per forward-looking statements. As per the current situation, I would now ask Nazareno to comment on what's going on in Beefree, in face of course, increased investments and the current growth level. Thank you. Yes. In this quarter, we had some positive effects coming mainly for a few big clients that signed this August and September, and that gave a boost in the ARR business. At the end of September, we also changed a little bit the free edition. So we changed the thresholds. Before we gave 10 assets for free. Now the free edition has unlimited assets, but we limited the number of exports. We hope that this change will increase the conversion rate, so the ratio between free users and paid users. Still is quite early to say, but we hope that this is the right move to increase also the growth of Beefree in the coming months. Thank you very much. Following that thematic thread, I would ask you to comment on the conversion of free users for Beefree. Yes. That was the comment. In the past, in the last year, after the launch of the free edition, we saw the number of users increasing like before, but the sales and revenues are not growing at the same pace. There was a gap that was increasing between the number of free users and the number of paid users. We decided to change the free plan now, and we are going to do other changes in the pricing in the coming months in order to be able to monetize more from this large user base. Those are experiments, and we cannot tell nothing more, let's say. Sure. Thank you. Of course, again, I'm afraid you keep asking questions about expectations and forecast and guidance, and we are currently unable to answer those questions. We could address some detailed questions on minor issues. We didn't come up with a detailed split of business unit results as per what we usually do. Of course, the revenues are very easily referred to Beefree as per the SaaS revenue line and to Agile Telecom as per the CPaaS revenue line. In this specific period of time, we were not able to work out the separated EBITDAs due to accounting issues we experience in applying IFRS 5, which required loads of adjustments in order to account for discontinued operations. We will resume in the next reporting season, delivering appropriate figures and detailed figures which cover both revenues and margins. for divided by business units, but unluckily it was not possible to deliver them now. Let us say that we might expect a continuing trend as per what we saw in the first half of the year report. As per expectation, as I mentioned, it's not very easy for us to comment on expectations or our forecast being any better or worse than consensus estimates as per the time being. Of course, we can provide some details, and I would ask Matteo to comment on the content of the other current financial assets which account for roughly EUR 43 million in the financial statement. And where is that liquidity allocated at as for the moment? Yes. Thank you, Micaela. Of these EUR 43 million, EUR 38 million is allocated in cash deposit, while the other EUR 5 million is allocated in low risk Italian and corporate bonds. Thank you very much. I would still ask Nazareno to comment further, and to give a bit more detail concerning the apparent deceleration in the Beefree figures with respect to 20% growth in first six months, which is average to 16% in the third quarter or first nine months. Can you comment on each specific factor that might have affected this? Yes. The conversion rate for sure was the main reason for that. On top of that, also in terms of top of the funnel, so visit to the website and organic visits, we see a slower growth, let's say. Yeah. This is reflecting also in conversions and paid users. So it's to affect conversion rate and top of the funnel website visits, organic visits. Thank you very much. I would also add, for the sake of clarity, that of course we are not yet able to see in those specific figures that we released last week, the growth that we expect from enhancing our investments, in that we cashed in the majority of the income for the sale of the ESP business in late July. Of course, investments that are being made, the bulk of the biggest investments has just started. So we still cannot benefit and see and appreciate the effect of those investments in actual figures yet. So a further very interesting question. Do you think the top of funnel deceleration reason is in the economy, or is there any impact from artificial intelligence or anything else? Regarding this, I would ask Nazareno to comment on the initiatives we have in the space of artificial intelligence, please. Yes, thanks for the question. It's more about top of the funnel deceleration. In terms of GPT, AI, ChatGPT, and so on, we started working on integration with ChatGPT firstly, but with a structure that is open to other systems like Jasper or Write.io and so on. I don't believe that AI will disrupt entirely our sector. At the moment, it's not possible to ask ChatGPT to create an email template from scratch. This is something where, of course, we are working on in terms of research. The reason is that, anyway, even if you have AI preparing an email, at the end, the final review, the final editing, the final design will still require an email template visual builder. At the end, the last step will be, anyway, visual builder. We don't expect a disruption from this. More, we expect that our clients could, in the future, appreciate some cool AI feature within Beefree that will allow them to create the message faster, maybe translate in other languages, and few other things that will make the entire process more efficient. Thank you very much. Can you please comment on the seasonality of Beefree's performance, on the average seasonality we experience in the fourth quarter? Well, usually the third quarter is a bit slower because of the summer months, but I have to say that in the past, in September, we were able to sign important contracts. Overall, I don't see much seasonalities in general for Beefree. Thank you very much. I don't know if Matteo, are you agree? Yes, I agree. Thank you. Thank you so much. Matteo, I have a further question for you. Can you give us a hint on the yield of the cash deposit for EUR 38 million? Yes. Of the EUR 38 million, we have EUR 18 million that is related to the actual operation, and is a short-term cash deposit. We have a yield of 3.5%, while the other amount, the EUR 20 million amount, have a yield of more or less 3.9%, 4%. Thank you very much. I might take a further question, which is asking us if we are able to share if any of the founders have decided to tender shares in the offer. No information whatsoever concerning that aspect was shared with the company so far. We are not able to make any educated guess on that. Also, there was a question concerning Mr. Pronti's updated shareholding. In the context of the tender offer, we were updating shareholder information, so we got a voluntary communication from Mr. Pronti, delivering a 7.99 ownership in the company, which we promptly reflected both on the website and on the documentation that was filed with the authorities, namely Consob. We may not rule out that he changes his ownership again, because there is no obligation to communicate any change between 5% and 10%. As per what we know now, it is the updated situation, but we cannot rule out any variations intervene, and there is no obligation for anybody to communicate that to us. This is the best picture we were able to deliver so far within the context of updated information that we filed within the offer document. As per financial and accounting data, I would ask Matteo for some minor clarifications concerning the nine months results. Is the net loss tied to Datatrics sale already included in the data? On the other hand, is the EUR 1.6 million cash in included in the net financial position? Okay. Yes. Thank you, Micaela. For the first question, I can answer that. In the nine months, profit and loss ended on 30 September, has been included only the capital loss calculated from consolidation difference that corresponds to an amount of more or less EUR 2.7 million. The other part of the capital loss will be accounted in the separated financial statement because it was an intercompany loan. For the EUR 1.6 million inside the PFN, they were not included because the amount was collecting on 20 October. Sure. Thank you very much. To summarize, since we just delivered consolidated accounts, only a part of the capital loss concerning Datatrics was included, and it is summarized in the discontinued operation results. You will see it as a synthetic result. Whereas, a good portion of that will be evident in the individual account for the parent company, first of all, whereas the cash in effect, so the positive cash contribution of EUR 1.6 million, that were cashed in at the end of October, is not yet included in the liquidity in the net financial position. Thank you very much, Matteo. One further question. How is M&A scouting progressing with respect to target companies for Beefree? Of course, we can give qualitative information here. Yeah. Sure. Well, on that regard, we are seeing opportunities in Europe, but quite expensive, around 3x ARR, so maybe too expensive. We are working on smaller opportunities, much smaller, that could be merged into Beefree, in the future. That is what I can say. Thank you very much. I think we have one further question that we can address. I am afraid that the answer will be quite similar to what you have heard already about the intention to propose the distribution of any dividends in 2024. Nazareno, can you please comment on that? In terms of dividends, we do not have any plans about distributing dividends at the moment. Thank you very much. Meaning there is not a position yet concerning whether we are going to distribute or not a dividend. Plus, we could not be in the position of communicating that guidance now. Thank you so much. Checking back on a few questions. Of course, there is many questions concerning guidance about our expectations on Beefree's business and how we intend to run the business. Maybe Nazareno, you could provide some qualitative aspects with respect to keeping the business at breakeven or opportunistically spending more margins in the future, although we might stick to the data that were already delivered. Well, since we are going to invest more or less EUR 5 million per year in the next three years, let's say that margins for sure will be affected negatively. Because even today, in terms of cash flow, it is already negative. We are going to invest. Thank you. Of course, there will be an expectation of accelerated growth from investments. Yeah. Getting back to review potential further questions. I would say that we are pretty done with all the very good questions that came in today. I would advise anyone that has any further items to address to do so now. Otherwise, we could be in the position of closing the call, and as usual, you will be able to find the recordings on our website for future reference in a couple days. No further questions. Well, as usual, we are available to connect to us via the investor.relations@growens.io. We cannot answer that question, and I am sorry. I might get back to the author of the last question personally to address further details. Thank you very much for the time being. Thank you, Matteo, thank you, Nazareno, and thank you everybody for attending. We will make some time to follow up, and we will try to be as accurate as possible in the coming communication. As we reminded at the very beginning of today's call, today the acceptance period for the tender offer started. We will be communicating, releasing partial results weekly, and then we will see whether it is effective to proceed like that in the coming weeks. Thank you again everybody for attending, and we will be available soon again. Have a great afternoon, everybody. Bye-bye.