Afternoon, everyone, and welcome to SECO's Q1 results for 2022, 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 dialing in, it's star nine on your keypad. I now have pleasure handing over to SECO's Head of Investor Relations, Marco Parisi. Please go ahead, Marco.
Thank you very much, Catherine. Good afternoon to everyone. I'm Marco Parisi, Head of IR of SECO. With me today, Massimo Mauri, the CEO, and Lorenzo Mazzini, the CFO. I will hand it straight to Max for the introduction.
Thank you, Marco, and welcome to everyone. I think the Q1 of 2022 was a very tough quarter. The reason why is because the shortage of the components, and a lot of pressure also on the cost in terms of transportation and other costs that we will mention later. Besides that, we grew in a very relevant way. In fact, we was able to collect EUR 42.8 million in revenue, with a 56% organic growth, and 45% like-for-like meaning including in the parameter all the acquisition that we did in 2021. The adjusted EBITDA was in the range of EUR 8.6 million, 20% of the net sales.
We've an 86% increase in 2021. Well, the gross profit margin incidence at 40% is really the first amazing result that we post. The reason why is because if you look our competition, they are losing margin in the range of between 5%-10% in terms of gross profit margin. It was possible by basically the growth of the SaaS business in a way, because we was able to collect EUR 3.7 million in the Q1 already, equal to around 9% of the total revenue. also because we was able to work with customers and pass through them a bigger portion of the increase in cost of the materials. Lorenzo will be more specific later on.
Well, I should say also having the CLEA business around 9% of the revenue, it's something that is showing by factor that our strategy in evolving the company into a service company is working. It's not only started, but is working. Actually will continue to accelerate further during this year. The annual backlog as of end of April was in the range of EUR 164 million. Basically 2.3 times the roughly speaking EUR 70 million that we had at the like-for-like basis in 2021. Well, I should say that May is going to be the all-time record month in order intake for SECO. We already collected over EUR 25 million in orders right now.
I will expect an amazing record month in order intake. It provides us a lot of visibility into the entire year, where at the moment, we confirm the EUR 200 million guidance. It also puts us in a very nice position to say that we will continue to accelerate our growth path during the Q2 of the year with EUR 51-52 million in revenue. It is equal to 70% organic growth and 51%-54% on a like-for-like basis. That is an amazing growth path that we see from the pipeline and from the order intake, from the design win. We also continue to collect a lot of new. It is very important the design win with bigger customers.
The growth path that we are collecting right now is something that we can keep for a long time. I think that's all as a first snapshot of the quarter. I would like to hand over to Marco that will provide you a better view on the strategy that we adopted successfully in the Q1 of-
The shortage. Please, Marco, go ahead.
Thank you. Thank you, Max. Well, like you said, of course, this period is very challenging for us, like for any other industrial company in the world. We made a number of strategic choices with the goal to ensure the continuity and the shipping to our customers, because we think this is the best way to reinforce our relationship with existing customers, our reputation, and long-term competitive advantage, and even to acquire new business opportunities, thanks to the fact that we have in-house productions and the components available. Let me stress this aspect because it's very important. This scenario is a unique opportunity to get new business, and in fact, in the last quarter, we started over five design wins with new customers that were previously going at some of our competitors.
These customers were nervous because they could not receive their goods on time, and they came with us because we were able to actually ship the goods. What does this mean in terms of numbers? We will see more in detail later on, but on the one hand, in terms of revenue, we have been able to match the strong growth of the order backlog. On the other hand, the overdue backlog is still around EUR 4 million of deliveries that shifted from Q1 to Q2. Of course, the market price of components did have an impact on the GPM of our edge computing business. Of course, this also meant that we have to significantly increase our inventory to make sure we can ship as many orders as possible and minimize our overdue.
We think this move is the best way to invest our cash flow in this kind of scenario. Before we move to the next slide, let me say, let us not make the mistake to assume that this GPM and inventory levels are normal for our business model. Because they have been strongly impacted by what is the hardest quarter of the year in terms of market scenario. Let us now see the highlights of our Q1 performance. Thank you, Max. The highlights of our Q1 performance. In Q1, we posted EUR 42.8 million of net sales with a total growth of 120%, and in particular, 56% on an organic basis and 45% on a like for like basis.
I mean, considering also the 12-month pro forma figures of the companies we acquired in 2021. Here, let me stress the fact that the edge computing business grew by 106%, while the SaaS continued to grow quarter by quarter at a very strong pace, and is now at 9% of the Q1 total net sales. Regarding the GPM, it more than doubled in size, thanks to the expansion of the revenue we have just mentioned, while on a percentage basis, of course, results have been strongly affected by the component shortage. Still, we are at 45%, 47%, which is in line with the 2021 full year results. Also, the price increases and the ever-increasing contribution of CLEA have helped the margins to hold up, proving that the business model is resilient.
Going all the way to the bottom line at the next slide. The adjusted EBITDA almost doubled in size from EUR 4.6 million to EUR 8.6 million in the Q1 . Again, this is an increase related to the fact that both the edge computing and the SaaS business has further accelerated in the last quarter. The margin is at 20% of revenue in Q1, and if we compare it to the Q1 of last year, the difference in terms of incidence is of course fully explained by the gross margin effect we just saw. Finally, a couple of words on the adjusted net income, which grew by 31% in Q1, 2022 versus 2021.
Here, in the Q1 , we have a higher D&A because among others, we started to amortize the Garz & Fricke customers list as a result of the PPA. Higher financial expenses, largely due to the G&F acquisition financing, and taxes calculated with a theoretical tax rate, which could lead to an upside once the actual taxes are calculated at the end of the year. This is a very short introduction on the numbers, so I will now leave the speech to Lorenzo to illustrate them more in detail. Thank you.
Thank you, Marco, very much, and good afternoon to everybody. Well, in this slide we present you our important sales growth that we recorded spread by geographical areas and end market. As we can see by geographical area, what is really important to stress is the fact that our important growth recorded in Q1 is well spread across all our geographic areas. All areas have been growing at a really important growth rate with no dependency of the growth from a single geographic area. Moreover, for what concern instead the breakdown of our revenues by end market, we can see two points to be for sure highlighted.
The first point is the well and important diversification that we have of our sales by end market, that this is confirmed, as you can see, also including the revenue of SECO Northern Europe, so previously Garz & Fricke. Moreover, what is really important is, like for the breakdown by geographic area, even in the breakdown by end market, all end markets, all key end markets are growing at really important growth rates. All are double digits, and in particular, you can see we really made a strong performance in vending, thanks to our presence in this sector for what concerns SECO, but in particular also to the fact that Garz & Fricke is really strong in this vertical. Thank you, Marco. If you can go to the next slide.
Thank you very much. Well, in this slide, instead we make a work that for us was really important to show you. We included Garz & Fricke revenue for the last two years, and we present you the sales by each quarter in the last two years to show you the important growth path that this group has recorded. We are pretty sure that in our competition, there are no other competitors that have growth in this way, leveraging on both edge product and in particular on the SaaS business, so on the IoT. Please consider that two years ago, so first quarter of 2020, we were around EUR 29 million, and now in this quarter we are at EUR 23 million. If we consider the average sales per year, we more or less increased by 1.5 times in just 24 months.
That is really a lot. In terms of like for like growth quarter by quarter, we are growing at a 5% rate quarter by quarter, so including also SECO Northern Europe. Instead, on organic way, we grew in the last 24 months by 7%. A point that I would like to stress that is important is, consider the fact that Q1 is historically for this group, the lowest quarter in terms of revenue. We are pretty sure that the average of our quarter will come soon to around EUR 50 million by quarter for the following quarters. Thank you, Marco, for moving to the next slide. Okay, in this slide, we present you a more detailed breakdown regarding our adjusted EBITDA. We recorded in the period a 20% of EBITDA margin. That, for us, is really a great result.
Really, really great result. Why? Because we are in an abnormal market condition due to the shortage as presented before by Marco and Max. We are recording an abnormal level of gross margin. Consider that we closed this quarter with a level that for us is a great level, an amazing result that is 47% in gross margin, the same level of gross margin respect to Q4 of 2021, even if the shortage is continuing. We put in place really important action with our customer in terms of increases the price, in terms of rebates, the extra cost that we are adding to the customer in a partnership and with a good relationship way. In particular, what I would like to say to you that our strategy in terms of price increase is not finished.
We have put in place additional action in terms of pricing for the next quarter. We are pretty sure that we reach the bottom in terms of gross margin profitability in this quarter, and we will improve gross margin again in the next quarter coming in due course to the level of the Q1 of last year. For what concerns last comments on this slide is on the adjustment to EBITDA. We adjusted the EBITDA of EUR 1.4 million. The adjustment are for that we did. EUR 900 thousand is due to the three-year stock option plan's actuarial value, so a non-monetary item like for the previous quarter. More than this, we recorded EUR 300 thousand of M&A transaction costs.
These are related to cost of the Garz & Fricke transaction mainly, and more, moreover to foreign exchange losses. A couple of words on our bottom line of our P&L, so adjusting net income. We recorded a group net income of EUR 3.2 million, so before minority interest. We recorded a total minority interest of EUR 700K. These are related, as you can see from the chart, only from Fannal. Why from Fannal? Because we have the 55% of Fannal. Moreover than this, we own a vehicle that owns Fannal, that is SECO Asia, which our percentage is of the 51%. On our point of view, EUR 300K relating to the percentage that we have in SECO Asia needs to be adjusted and bring our net income to EUR 2.7 million. Why?
Because we have an agreement in place with CMAS, that is our partner in SECO Asia, on which we can buy back their stake to a nominal value of the amount that we brought both up three years ago, that is EUR 3.4 million. The valuation on which we can buy back such share, such shares is not related to the profit and to the performance of Fannal. Even their remuneration is kept and fixed to 4.5% per year. At the end, the product that they give to us is a equity loan product. Thank you, Marco, for moving to the next slide. Just a couple of comments for what concerns adjusted net financial position.
We recorded an important increase in the period with respect to the period of end of last year, so December 2021. EUR 28 million increase. This increase is primarily explained by the increase in trade working capital. Actually, as you can see, the trade working capital increased by EUR 15 million. The most important part of trade working capital that grew was inventory. Inventory grew by EUR 12 million. Why this? This is due to the shortage situation and to assure our procurement of material to deliver the product to our clients. Please consider that in the last six months, the lead time of procurement from our suppliers more than tripled.
This strategy is the only strategy that can allow us to perform in such an important way and to take our important competitive advantage that we have against our competition and acquire new customers. Moreover than this, the bridge in the net financial position is explained by EUR 13 million by extraordinary items. EUR 7.5 million is relating to transaction cost of the Garz & Fricke acquisition that we did in the last quarter of 2021. Moreover than these are two treasury share purchases that in January of this year we recorded EUR 5.7 million of purchases. Please consider that all our plan of treasury share purchases amounted to EUR 9.5 million in total. A last word regarding the adjustment that we do on our net financial position.
These are the same adjustment that you have seen in the last quarter that we reported. Firstly, we adjust our net financial position due to VAT receivable. Because for us, VAT receivable is cash, because we have a non-recourse factoring line on which we can cash immediately VAT receivable. Due to the fact that we are always on a credit position on VAT, because due to the fact that we are a really strong export company, we always pay VAT to our suppliers, but we never charge VAT to our customer. More than this, we adjust, as usual, net financial position due to the new IFRS 16 that came out a couple of years ago regarding lease liabilities. These are all the lease agreements of the company. The last item is the derivatives.
We signed really important interest rate hedging derivatives to hedge the acquisition financing that we did for the acquisition of Garz & Fricke. This is a really important transaction that we did because consider that, actually considering the actual trend of forward-looking interest rates, the derivatives that we added as of today value more than EUR 2 million in terms of of market value. Thank you very much, and I leave again the speech to Max.
Thank you, Lorenzo. I think just to provide you a full update on the business, let me once again talk about our strategy. Our strategy is a strategy of evolution of the company, starting from a very nice offering into hardware, where we can combine things to create a human interface product. With a display, with an enclosure, with all the electronics behind. On top of it, we are spreading out our CLEA platform. The level of adoption of the platform is really good. We now are running over 40 projects with 40 different customers around the world. We are also working on developing a lot of different AI apps running on CLEA, providing a lot of value for our customers.
We will spread them, starting from the end of 2023, into the CLEA App Store to permit our customer to have a known distribution of these kind of apps, enabling them to sell the apps on their final customers. Basically to build their new business model into services. Well, saying that or coming back to the revenue. The revenue is growing and the backlog is growing more than the growth part of the revenue. That is a very strong signal about our future. We continue to see a very strong order intake month by month, and we are growing a lot our pipeline. The order business is very solid, and it continues to get traction with customers.
We are getting a lot of very big new customers, very big new design win that we will provide additional growth path in 2023 and in 2024. The other important, very good sign is the growth is coming from basically all the region. The China and the Asia market is performing in amazing way. Europe is growing very much, and U.S. is following. Actually in the last two, three months, we are seeing a strong acceleration also over there. In fact, if you look our design win that we are getting around the world, you can see that we now collect over EUR 65 million of new design win in basically very well equal spread into the three areas.
Also the pipeline that is continue improving is over EUR 300 million. The conversion rate in between pipeline and orders is getting better and better every month. Well, think about the software. This area is the most interesting one because, basically, we are getting a lot of traction. We have now over 500,000 devices in negotiation, but the very good news is half of it, 250,000, is under contract discussion. Meaning that we will sign in a very few weeks contract for additional 250,000 new devices. In the last month, we got over 10 new project on CLEA, very big, and 6 of them are coming from U.S. Meaning that we are starting to also collect bigger customers around the world, not only in Italy. That is extremely good.
There are customers now that are coming from Northern Europe, basically Nordics and Germany, which is again another strong signal that the diffusion of the platform is becoming bigger and bigger. We will further accelerate it entering into the industrial field, thanks to the important partnership that we signed with Camozzi. We will put on the market around 100 new apps for industrial application. These apps are basically amazing because they permit our clients to be ESG compliant, to save money with energy, to save money inside their industrial operation every day, and to start to transform the factory into a digital space. Which is basically exactly where we are going. In 10 years from now, we will have a lot of autonomous industrial factory.
Actually this platform is exactly the right building block to have inside the factory to start this kind of changes. Well, other important good news I think is the guidance for the second quarter. We are now already in the position to say that we will do something in the range of EUR 51-52 in the second quarter of the year. Why this is so important? For some good reason. One is it shows an organic growth around 70% and a like-for-like growth around over 50%. I think that's important because it proves that the growth path of the company is accelerating. Together with this acceleration, as Lorenzo mentioned, we expect a better gross profit margin, and we also expect an EBITDA growth a lot because the gross profit margin, but mainly because the operating leverage.
Meaning that we expect to have OPEX slightly higher in the range of EUR 0.5 million than comparing it with the first quarter. Getting a lot of new revenue around 9.8, meaning to have around EUR 4 million in terms of additional margin that will contribute to the EBITDA growth. I'm very optimistic about the rest of the year. Q1 was the toughest quarter of the year due to the components shortage. Now we basically secured a lot, thanks to the investment in inventory that we need, but we was able to get a lot of critical components already. Also because we're well expected to see better condition in the shortage markets by the end of this year.
Moreover, we are continuing to accelerate our growth path in the order intake into the backlog into the monthly revenue. It will provide us a very, very good visibility for 2023, and later on, for 2024. I would confirm also the guidance that I already provided during our capital market day to reach over EUR 400 million in revenue by 2025 organically. Meaning not considering the M&A. M&A continue to be a very important strategic leverage, and we will continue to look around. Now we are focused into AI apps because we really want to speed up our strategy and to create a very, very extensive CLEA App Store. To create an ecosystem that can create value by itself. That's basically the strategy. Thank you very much.
I think now we can, jump into Q&A session.
Thank you, Massimo and 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 before asking your question. Thank you. We have our first question today, comes from Anna Frontani. Anna, please go ahead, the floor to you.
Hi, good afternoon, everyone, and thank you very much for the detailed presentation. I will have two questions. The first one, Lorenzo mentioned that you are taking additional actions in terms of pricing over the next quarters. I was wondering if you can provide a little bit of color on that. What are you doing that will actually make you improve the gross margin in the second quarter? That is the first question. The second question is actually on the profitability for 2022. I think the last guidance we had was given at the time of the
Okay. Thank you, Anna. Let me start from the end of your questions. I think the guidance that we provide in terms of EBITDA is fully confirmed. As Lorenzo mentioned, the Q1 is the quarter where we have less revenue if you compare with the others. We will expect to continue to accelerate our revenue growth trend into the following quarters. You can imagine having the big portion of our OPEX, our labor cost, meaning we have it under very strong control. We can get a lot of additional EBITDA coming into the next few quarters. Regarding the action that Lorenzo mentioned, it was action that actually we already taken at the beginning of the year, where we did an additional price increase together with the customers.
Basically, you will see the result of it starting from April, so the second quarter of the year. It will provide a recovery in the gross profit margin, of course, on the hardware side. On the software side, the gross profit margin is still very high and what you will see is the quarterly revenue in the software side will continue to grow.
Thank you very much.
Thank you.
Thank you, Anna, for your question today. Our second question comes from Paolo Cipriani. Please go ahead, Paolo, the floor to you.
Good afternoon. First question is just a follow-up from the, on the marginality. I mean, with like, EUR 40 million around EBITDA for fiscal year 2022 should come around something of, 20% around that area EBITDA margin. Is that correct? The second is, regarding the backlog. The backlog, I mean, over the last three months, since February, seems to be something around, EUR 160 million, so like quite stable. Do you see any change in the situation? I mean, currently, given the economic scenario?
Well, in terms of profitability, we when we said forty million, EBITDA was not a forty million EBITDA, it was forty million plus, meaning that we will be above forty million. I don't want to provide any other details on it, but you can imagine something much bigger than forty. Second, in terms of orders, we got a lot of orders. Of course, we are accelerating also revenue by month as you can see.
Yeah.
The fact that we are stable in the orders is proving that we are growing stable in the order backlog is proving that we are growing a lot, but we are collecting a lot of orders as well. As I said in the beginning of the conference call, well, we got over EUR 25 million orders in the first basically two weeks of work in May. May looks very promising. We're expected to beat our EUR 27 million record in order intake in a single month that we got it in March. I think the business in our sector still super strong.
Okay. These EUR 27 million are above the EUR 164 of end of April?
Exactly. We got them in the first two weeks of May.
Okay. Thank you.
Thank you, Paolo, for your questions today. I have a question that comes from Marco Vitali. The floor to you, Marco. Please go ahead.
Thank you. Good afternoon, everybody. I have a couple of questions on the cash generation side. The first one is about the net working capital trend. Could we assume that the revenues have bottomed in terms of, let's say, the, or say it in other terms. Is this the worst quarter in terms of inventories stock up, or do you expect further increases over the coming quarters? The second one is on the extra one-off on the net financial position. Could you elaborate a little bit on what is the EUR 7.5 million impact from the Garz & Fricke acquisition? Thank you.
Okay. First of all, in terms of level of inventories, yes, this is a bottom, because, as I said, before, we got a lot of very important and critical components already in our inventories. That's important because these kind of components are basically a bottleneck for you when you go to production. If you miss only a single components, you are not able to basically ship and invoice the product. We did a very good level of stock into critical components. It will enable us to ship the goods in time, most of them by the next quarter. That's very important, and I think the level of inventories is really super high now.
We did an amazing job in collecting components because it's not difficult actually to find them. We can relax this inventory level that you will see will go down during the course of the entire year. The second question, can you remember it to me?
Yes. If you could provide, elaborate a little bit more about the EUR 7.5 million extra impact that you had on the net debt from Garz & Fricke acquisition. I was wondering what.
Okay.
This caused the-
Okay. This is due to EUR 3 million, around EUR 3 million of price adjustment, basically in between the equity, the enterprise and the equity value, basically this kind of adjustment. The others are advisors, you know, investment bank, legal, taxes, insurance, all the advisors that we used to secure the deal. Okay, thank you.
Thank you, Marco, for your question today. Our next question comes from Arianna Terazzi. Please go ahead, Arianna, the floor to you.
Thank you and good afternoon to everyone. Just a couple of questions from my side. First, of course, we understand that your business is accelerating and your offer is gathering a lot of interest from the market. However, just to have an update, from your point of view, is there any vertical that is showing a slowdown in investment, given the current scenario? The second one, a clarification on the EUR 3 million of the EUR 7 million revenues in IoT, in the first quarter. Maybe I missed it, but could you provide a split between non-recurring engineering and recurring revenues? Thank you.
All right. I think we are seeing an acceleration into the growth in basically all the sectors that we are following. There are new sectors like smart city, smart building that are literally booming. Industrial sector is very strong right now. All the sector like medical, like defense, transportation, vending machine, fitness. You should remember that many of them are coming out from the pandemic right now, so they are returning back to normal level of consumption, which is extremely good for a company like SECO because they need a lot of new product on the digitalization space.
I think the digitalization world is just in a beginning, and so is a very particular sector where we are not so scared about any kind of influence that higher rates can have on the growth, on the GDP, global GDP, because the digitalization is basically become a must for a lot of new companies. There is a huge market that is growing. In terms of SaaS business, the recurring revenue are slightly below EUR 1 million, and the non-recurring item are a big portion of the total revenue of CLEA. Because this revenue are NRE that customers are paying to develop for them specific AI apps. After this development, the recurring revenue will start. That's the model.
Thank you, Max. Thank you, Ariana, for your questions today. Currently, we have no further questions queued, so we will wait just a few moments to give everyone the opportunity. 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. We have a question from Matteo Bonizoni. Matteo, the floor to you. Please go ahead.
Thank you. Good afternoon. I have just a question. You have clearly
Yes.
The very clear reason behind the growth of the working capital. Basically, there was a growth particularly of inventories to face the current situation. We have this EUR 125 million adjusted net debt. I remember that, in the past you provided an indication for net debt to EBITDA ratio at the end of the year, around 2.5 times, which would be equal to around about EUR 100 million of net debt adjusted. Twenty-five million improvement from the current level. Let's say given the situation on the supply chain, components, and so on, do you think this is doable? This would clearly rely on a normalization of the working capital by year-end. Thanks.
I think the target is confirmed. What we can say right now is we will provide a further update on it later on. Because actually, what we are facing is a growth of the revenue and the order, the backlog and the pipeline that is actually stronger than expected. We will provide additional information and more color maybe at the end of the next quarter. The trend that we are observing is quite robust. Given the fact that the growth that we are facing is stronger than expected, we should elaborate a bit more on it going forward. Nowadays, we can keep it as per confirmed.
Of course, if we make more revenue and if we plan to make more revenue in 2023, we need also take action in terms of working capital. That's something that is for sure.
Thank you, Matteo, for your question today. We currently have no further questions. Therefore, if there are no further questions, I'll hand back to Massimo Mauri for any final comments before bringing this presentation to a close. Do you have any final comments, Massimo Mauri, for everyone today?
No further comments. I would like to thank you very much, all the people on the call, and having a great weekend. We will be in touch, whenever you want. Marco Parisi is, of course, available for any further follow-up that you may need. Thank you very much.
Thank you everyone for joining today. This presentation will now come to a close. Thank you.