Good afternoon, everyone, and welcome to SECO S.p.A. Full Year 2022 financial results presentation. 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. I now have pleasure handing over to Massimo Mauri, CEO.
Hi to all and welcome to the conference call. It's a pleasure for me today to present our result. Let's jump into the presentation. 2022 was a very complex year, where, despite the shortage of the components that we faced, we was able to grow in a very strong way. Top revenue at EUR 201 million, which was 43% of organic growth. The adjusted EBITDA came at 22% of the sales, and 74% versus the last year at EUR 44 million. I think our growth was well distributed over all the verticals. We did a lot of things during the year.
One of the most important was deal with a lot of supplier to acquire the components well in advance to be able to ship them to the customers. That's what we did. We was able to maintain the capability to serve the customers in the right way. Beside it, the cash generation was equal to 7%, which was basically made in the last three quarters. There is another important good sign, that is the inventory level is going down, decreasing by around EUR 7 million in the last quarter. This is due to the supply chain that is improving. The average lead time is moving from 54 week, it was the peak, at 27, where we are right now.
We are expecting to see it back to the normality, which is 12 week in a couple of quarter. Beside all the things related to the shortage, we was able to keep our gross profit margin stable. It's proving that our business model is resilient to the... I kindly ask to all the people to put themselves in mute if not it's difficult. Sorry about it. I was saying that the fact that we was able to keep the gross profit margin stable and basically to protect our margin, even in this such a difficult scenario, was really important because prove that our business model is solid, can resist to external shock.
The Clea business grew a lot, moving from EUR 4.5 million that we did it in 2021, up to EUR 18.5 million, equal to 9% of the total share in 2022. The order backlog is EUR 170 million end of February, which is up about 8% versus the previous year. On it, let me explain, just because you needed to compare Apple with Apple, that in 2022, the order backlog was so big at that time because of the lead time. The lead time was, as I said, 54 week, so the customer at that time was forced to cover a larger period of time.
Meaning don't make the mistake to keep this backlog as an indication of our future growth level, which is not true, because this backlog is covering a smaller portion of period of time comparing with the previous one. We have a weighted pipeline about EUR half billion only on the hardware. This is a pipeline covering 2023, 2025. It is in addition to the backlog, it's a pipeline where you can appreciate that EUR 370 million are very close to be contract. 30% of this pipeline is came from new customers, providing us a lot of visibility on the future and a lot of indication that the business will continue to grow at a very superior growth path. I already commented the supply chain.
I don't want to stress it again. Let's go on the results. As I said, the results, in my opinion, are pretty good. Net sales was EUR 200.1. Gross profit margin in the range of 47% at EUR 94.3 million. EBITDA EUR 44 million, 22%. Net adjusted income at EUR 20.5 million, almost double from 2021. Well, I think, on the spreadsheet of the result and looking the revenue, you can see how the growth was very well distributed over all the area and a lot of the verticals that we are covering. The vending was the best performer sector, especially due to the fact that this sector recover a lot from the COVID and the pandemic situation.
also industrial performed extremely well, and medical fitness, many others. It's very. This is a strength of the company, the fact that we are very so fragmented in terms of vertical. We are very horizontal in many, many vertical, in some way anti-cyclical to the end markets. maybe Lorenzo, you want to commented few slides on the economics and balance sheet parts.
Yes. Thank you, Max. Thank you very much, and good afternoon to everybody. Let's have some additional comments on EBITDA performance. As Max already said, we've closed 2022 at EUR 44 million. A really important result for us. What was most important for us is the EBITDA margin. We close the year at 22% of profitability with a really slight decrease in respect to the data on which we closed 2021. These, thanks to the important operating leverage that we gain during the year. You can see these in the chart in the low part of the slides, with operating leverage impacted for about 5%. These give us the opportunity to counterbalance the slight decrease that we had in gross margin in relative terms.
Obviously, due to the complex scenario in which we operated during all the year due to shortage. Thanks to God, we are looking some first but important signal of reduction of the issue of the shortage. Operating leverage also, give us the opportunity to counterbalance the impact of other revenues, in terms of sales, because we keep other revenues stable at more than EUR 4 million, like 2021. You know, in the other revenues, we count all the grants that government grants that we gave over our R&D. The absolute term was stable, but obviously the relative term reduced. Just last comments on this slide regarding EBITDA adjusted.
What are the adjustments that we did to the EBITDA, like all other coworkers, the most important part is the three-year actuarial value of the stock option plan that counts for about EUR 2.1 million. Other than this, the residual part is mainly represented by extraordinary costs related to the M&A transaction that we did during the year. In particular, the Camozzi asset purchase deal that we closed, as you know, in July 2022. Thank you, Max, for moving to the next slide. Thank you. Well, adjusted the Net Financial Position, we closed 2022 at EUR 118.8 million.
We are really happy of these results, because as you see, despite the shortage, we have been able, from Q1 2022, to improve quarter by quarter our Net Financial Position, generating from Q1 2022 overall EUR 7 million of cash in these three quarter. This is an important result considering the shortage situation that is remaining, is improving. Lead times, again, our suppliers are still high, are improving, but far away from the level of two years ago before the shortage. A data that I would like to stress is our financial leverage.
Net Financial Position adjusted, divided EBITDA adjusted with respect to 2021. We decrease the leverage of four notches from 3.1 to 2.7. Another good data on our, let's say, balance sheet performance. I give the speech again to Max. Thank you for your attention.
Okay, thank you, Lorenzo. Let's talk about the 2023 business. As we already discussed the 2022. As a business update, I think it's important to mention that we expected to see the first quarter of the year with a year-on-year growth of 30% on the revenue. I think that's is coming after the 43%, and it is all organic. It's in a very important growth path. We see we are facing a robust demand both on the edge computing and on the Clea business. I can say that the Clea business will be in the range at end of the Q1 of EUR 6 million already. Being already well over, well above the 10% of the total revenue.
Most important point that we are observing is the recurrent part of the Clea business is increasing. You will see it already from the Q1 results. On the business model, which is very important to me, we signed the two important partnership, one with Axelera and the other one with Google Cloud. I will be more specific on it in a second. I think the Clea platform as a standard product, as an iOS, is really something that is providing benefits to customers because it's flexible. It's something that customers can really personalize by themselves. This is something that is exactly matching the kind of request that we are getting from the market.
To continue to evolve the business model and to continue to pursue our mission, which is the mission where we want really to anticipate the demand of our customers, we will launch the Clea Store in April, and we will present it during an Investor Day that we will organize in May. I think that will be important as a further evolution of our business model. I think, just for the people that are not familiar, so familiar to our story, this is the hardware part of our business where we build what we call it the system. 70% of our revenue is coming from this. The rest is coming from software and the building block of the hardware part that we design and produce all of this product mostly internally.
We are making a system together with the display, the case, all the electronic inside for many, many different kind of customers. Here you can see some example on the fitness, on the bowling, coffee machine, industrial, medical machine, voting, transportation, and so on and so forth. Well, let's focus on the partnership. We signed the two important partnership. This one is a partnership with Axelera AI. This company, they are a private company. They already did EUR 50 million of capital increase. They designed a new generation of processor specifically to run AI algorithm. Why this partnership is so important? Because two points. One is because these guys selected two companies around the world in our sector. One was SECO, and the other one is Advantech.
That is definitely stating that we are considered from a third party like a market leader in our space. Is also very important for our future because starting from 2024 and going forward, we will start to sell a lot of product that will be based on AI processor designed by Axelera AI. They will be considered very like an add on to existing hardware, meaning existing customers. We will provide to the customer the capability to run AI on the edge. Why this is so important? Because it's so simple. If you run AI models on the cloud, it will cost you 5 times, 7 times versus running them on the edge.
Running them on the edge will be possible only adding additional hardware because the existing one, you are using it to run the customer's application. You don't have enough computational power inside your computer now to run additional AI algorithms. This kind of algorithms will generate a lot of value for the customers, and customers will increase a lot the demand of algorithms, well, this is a solution that we are working on, and that will be another revenue stream that we will add from 2024 and going forward. A month ago, we signed in a very important partnership with Google Cloud. This is a partnership with the European part of Google Cloud. We will try to extend it at the global level in the second part of the year.
We are now focusing in creating success story with customers. This partnership is important for few reasons. One is because these guys did an extensive technical due diligence on the platform provided, and we are so proud that this giant said that our platform is so good they decided to enter into a business partnership with us. Second, because Google Cloud will use Clea to substitute the IoT Core. It was the platform, the IoT platform that Google will dismiss officially from July 2023. They will propose Clea to customers and it will accelerate our growth on the software. Last but not least, thanks to the fact that we was selected by Google, it provide us a lot of visibility on the system integrator world.
We are acquiring a lot of partnership with system integrator, which is so important in our business model because the system integrator will go to the customers and run the last mile of the installation of Clea, which is something that we did by ourselves nowadays because we was in the beginning. From now, we are building an ecosystem of partner that are really providing us a lot of help in the short-term, our go-to-market strategy. Moreover, we are creating an ecosystem also with AI startups or company that are making algorithms on the AI, because our strategy is to sell the platform, leaving the third party to make AI apps or customization and leveraging on our standard solution to make it very scalable and to achieve a bigger critical mass in a shorter period of time.
This is what we are building on Clea. Clea is really an open standard platform that can provide a full stack of ecosystem to the customers, bringing to them a lot of value. Together with our hardware, is a really and a unique end-to-end solution, which is something that the customers really need in their future to improve the performance of their devices on the field and to reduce the cost of the maintenance of these devices as well. We will launch, as I said, the Clea Store. It will be important for 2 points. 1 is because we are enabling all the third-party ecosystem that we are building in making money because the Clea Store will be a marketplace where all the third party can publish app, publish solution, and sell them to our customers.
It's also important for another reason, because we will provide customers with a unique technology infrastructure to enable them to sell services by themselves. Meaning that we will have a lot of private app store customer-branded to enable customers to sell solution apps by themselves, leveraging on our tech infrastructure. In that case, we will retain 25% of the total revenue generated by the private store. It is fair and well-received from customers. As I said, the backlog is growing. Is growing, but it's not the same kind of backlog. Basically, this backlog is covering a less period of time that the backlog that we had at the same time last year. Don't make the mistake to think that the 8% will predict the growth pattern that we will have during the course of this year, because it's not true.
We will grow much more. On the weighted pipeline, what is really important is we have 30% of it is based on new customers. That is so important because predict extremely well that we will continue to grow in our business. When you get a new customers, you are adding a revenue line that will stay there for at least five years or more. It's very solid what we are building, something that will continue to grow progressively in a very nice way. I think, why invest in SECO? There are a lot of things that I can say just to conclude my speech. We are inside a digitalization trend which has just started. We are a technology enabler for our customer, meaning that we are bringing a lot of value on the customer's table.
We have a unique business model. We are really well-positioned to be a winning player in a new market that will be formed in two, three years from now, but will be a market where the solution will make the difference, meaning to be able to provide hardware, software all together from the edge to AI and providing customers an end-to-end solution will be the real difference in between SECO and the rest of the competition. Thank you very much for your attention. Let's start now with the Q&A section.
Thank you to the management team. We now have an opportunity for questions. 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, state your company name before asking your question. The first question today comes from Mr. Marco Vitale. Please, Marco, the floor to you.
Good morning, all. It's Marco from Mediobanca. I will start with three question, actually. The first one is on the gross profit margin. Actually, we were expecting a sort of an improvement, a sequential improvement in Q4, while we saw a decline. I was wondering if you could provide us what additional colors on what happened in the quarter and how we should look at these figures over the coming quarters. The second question is on the CapEx, if you could provide us an overview on an outlook on the investments that you are planning to do across this year, if there is some specific projects in addressing to expand your production capacity across your main geographies.
I have a technical question, maybe for Lorenzo. I noted a jump in D&A, probably should be attributed to the PPA related to some ops. If you could provide us what could be the full impact for 2023. Thank you.
Good afternoon, Marco. Let's start from the end. I will cover all the three anyway. Let's start from the end. D&A. D&A, you should understand two things. One is, there are a certain kind of D&A, like the price allocation for Camozzi, that we are accrue them only at the end of the year, not during quarter by quarter. This is true for the P&A, but it's also true for staff that we have, but we not accrue during the year. You can easily double-check it. Also with 2021, it was more or less the same.
Thinking this way, the D&A that you are observing the first nine months are not the total D&A of the company because in the last quarter, you ever have some sort of more of D&A because of the mechanism of the accrual. That's what regarding the last question. Regarding the gross profit margin is super easy, is driven by a product mix. This is more correlated to the kind of product that we are delivering. As I said, we have customers where the price increase will enter in force only on January 2023. The contribution on the hardware that we had in the last quarter was slightly, you know, over these customers. It the mix of it will affect slightly anyway the gross profit margin.
On the CapEx level, the expectation for 2023, you can keep, around EUR 12 million for the R&D CapEx, around EUR 6 million for the CapEx related to the product-production, and around EUR 2-3 million for the IT CapEx. That's, that is the CapEx.
Okay. Very clear. Thank you.
Okay. Thank you to you.
Thank you, Mr. Vitale, for your question. Our next question today comes from Tytus Żurawski . Please, the floor to you.
Hi, Max. It's Tytus from Goldman. I've got two questions. First one, if you could quantify the shortage impact on Q4. The reason I'm asking is because your order backlog as of February was broadly flat versus what you reported in October. Could you provide more color on that? Is it because you're able to ship more as supply chain is normalizing or is there something else at play? How is your order intake trending? My second question is on M&A strategy. As you continue to deleverage your balance sheet, could you provide us an update on your strategy and what sort of targets are you looking at? Is it more on the software side or hardware side? Thank you.
Okay. Let's talk about the backlog. As I said before, the backlog is a way is different. Meaning, the backlog that we observed in 2022 was a backlog that cover a larger period of time. I don't know if it is clear, but the backlog that you have now is covering less period of time. Meaning, if you look the backlog, the backlog that you are observing right now is not really comparable with the backlog that you had last year because of the shortage. Customers are now giving you maybe 6 months of order against 1 year of the order that they gave to you last year. The backlog is not comparable. You are compare apple with orange. That's my message on the backlog.
On the order intake, February went extremely well. It was a month of EUR 26 million-EUR 27 million of order intake. That's just to give you a sense on the order intake. The order intake is strong. I think... Don't remember exactly which was your question on M&A. On M&A, yes. I think, 2023, we will be focused on executing our business plan in deleveraging the company, which will be completely executed by the end of this year.
At that point, we will return back on M&A side starting from the 2024, I should say, as always, that my target is an hardware company in the US to leverage on the dimension and to leverage on the opportunity to upsell Clea on top a larger customer base. That's in a snapshot on the M&A.
Thanks. That's very helpful.
No, thank you very much.
Thank you for your question. Our next question today comes from Mr. Matteo Bonizzoni. Please, Bonizzoni, the floor to you.
Hello. Hi. Sorry, it's not Matteo, it's Matthis Sarrazin from Crédit Mutuel Asset Management. I guess it's a problem of link. Anyway, just a question on the Clea and the slowdown, the second shelf slowdown in Q4. Could you please give us some colors on that regarding the amount of revenue that you made in Q4? Second question, still on that. Could you give us the mix in the revenue between the kind of upfront fees that you get in the beginning of the project and the share coming from more recurring revenue? Yeah, that's it. Thanks.
Absolutely. First of all, the revenue in Q4 was in the range of EUR 3.7 million about Clea Q4. As always, 15% of it was recurring and roughly speaking, 85% was one-off related to NRE charge. It was slightly down from the previous quarter because of the dynamic of the customers of the projects. We are observing already EUR 6 million in Q1 this year related to the Clea, and the good news is, in between 30%-40% of the EUR 6 million are related to recurring revenue.
The 2023 will be a year where you will see the recurring revenue part growing, start growing, because we have different customers that are entering into rolling out the solution on the field. That will provide you a lot of recurring revenue that will come during the course of the year.
Are you happy with the current development of new project with Clea? If you have any colors on that?
I am super happy. Think in this way, we have, three... On the other side, we have 450 customers active now as a total. Okay? On Clea, we have, 20 customers only right now. The good news is, we have around 50 customers that are testing the platform and using the platform for free right now for three months. We observed in the past a very good conversion rate in between the test phase and the production phase. Let's see what will happen, but I'm really excited about how Clea is growing. Think also that we are acting in a B2B space where the velocity of the customers is not so fast as it is in the B2C market.
As you may understand, it's gonna take time from the commitment to the rollout of the solution on the field. On the other side, once you will have the solution on the field, you will be there for a very long time. My opinion is the development on Clea is largely positive.
Okay. Thank you so much.
Well, thank you to you.
Thank you. We currently have three questions in private from Miss Valérie Lefebvre. Her first question is: What is the price impact on the growth in 2022? For 2023, how do you expect the evolution of the growth quarter per quarter? Her last question is: What size of company do you look at in the U.S.?
Let's see the price impact was in the range of 7% of the total in 2022. We do not provide a quarter by quarter indication, we are happy to say what we already said, that we are observing a 30% of year-on-year growth in Q1, which is, in my mind, after the 43 that we did in 2022, a very strong growth path that we hope we will continue to keep for the entire year. Let's see what's happened. That's the only indication that I can give to you right now. About the last question was regarding the size of the company. This is something that we will look into 2024. Size-wise, I think something in between, $40 million up to $60 million annual revenue. That's the ideal size for us.
Thank you. Our next question now comes from Mr. Marco Vitale. Please, Mr. Vitale, the floor to you.
Thank you. Just a brief follow-up. You were talking about that the focus in 2023 will be on deleveraging. I was wondering if you could provide us any sort of guidance or specific target that you have on the target of leverage that you expect by year-end or say in other terms, what is an average incidence on net working capital on sales that do you expect over the year? Thank you.
I think, as you may understood, the level of working capital on sales that we have right now, in 2022 is really abnormal. It was 44%, and I think we will be back progressively to the historical one, which is in the range of 37%, 36%, 38%. That's the range which is pretty normal for the company that is like SECO that is growing at our growth path.
Since the lead time of the components is improving in this go to the normality, I think the working capital, net working capital on sales will follow with maybe couple of quarter of delay, but will follow. It's already started because we decreased the inventories in Q4 by EUR 7 million. You will see this progressively, this EUR 7 million progressively jump into cash in the next, four, five, six months. This is a trend that is already started, but we will continue to observe it for the entire year.
Okay. Thank you. Very appreciated.
Thank you, Mr. Vitale, for your question. Our next question today comes from Matteo Bonizzoni. Please, the floor to you.
Sorry, he didn't book any question. I don't know why... Sorry, it's the problem of the name. Matthis Sarrazin is speaking again. A question on Clea App Store. Could you just give us some colors, if you have any, regarding the level of CapEx that you still have to invest to develop the platform? Maybe the business model, I understand that you will take a 25% take rate on revenue from customer. What level of profitability do you think you can achieve here? What will be the OpEx that you will have to pay to maintain the platform? Yes, some details on the business model.
Okay. Let's start from the beginning. Basically, the Clea Store CapEx are already done. Basically, the Clea Store is ready. Is in the test, internal test phase. It's working well, it's done. Nothing else to maintain it. We will have cost of, you know, of people and cloud services. The cloud services will be strictly correlated to the users, the volume of the business that we will be able to achieve. In terms of pro-profitability at covering the OpEx level of the Clea Stores, it's all pure margin. Think in this way. At a certain level, you will have only pure margin.
I think 2023, this is a full investment, that you already had in 2022, because we started the development already from 1 year ago. You already have all the costs in our PNL. You will see the revenue will start maybe last part of 2023, for sure in 2024. The first portion of the revenue will cover the cost, but after it, there are plenty of space to make money. The profitability in terms of gross profit margin will be 100%.
Okay, thank you.
Thank you to you.
Thank you for your question. There are currently no further questions queued, so we will wait just a few moments to give everyone the opportunity to ask their questions. Thank you. As there are no further questions, I will now hand back to the management team for any final comments before bringing this presentation to a close. Please go ahead.
No, thank you very much, to everyone for your time today. We will be in touch. We are always available for any further, you know, question that you may have. Please follow up directly to Marco Parisi. Thank you very much. See you soon. Bye-bye.
Thank you everyone for joining today. If you do have any follow-up questions, please do reach out to the team. This presentation will now come to a close. Thank you.