Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the WIIT nine months 2022 results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Alessandro Cozzi, CEO. Please go ahead, sir.
Good afternoon, thanks everybody for joining our call. Board of Directors of WIIT today approved the results for the first nine months of 2022. You can follow the presentation with the document I sent. I'm happy to give you some information about the highlights. In general, we are very happy with the results for the first nine months because they are totally in line with our expectations. The revenue growth roughly 61%, thanks to organic growth and acquisitions of new customers and the contribution of the new companies acquired in Germany in the last two years. I want to enter into this in more detail with more elements. We can jump directly to Page 3.
The results is achieved in Italy and Germany. We can see in the charts roughly 50% of the revenue is related to the Italian market and the residual in the German market. A little more in Germany, but we are very similar. In terms of profitability, we have 51% of the group EBITDA in Italy and 48% in Germany level. These more figures are reported. You have to consider that in Italy we have closed the last acquisition in the by the end of March at ERPTech. In Germany, we are shortly closing in September the acquisition of LANSOL. For in these figures, we have only 1 month of consolidated Germany, the last acquisition, and only six months of the Italian ERPTech.
We can go to the page number four. This is very important for our business. 79% of the revenue was recurrent in WIIT in Italy, and 77% at the group level. This means all the acquired company is running with the same model of business WIIT. That means multiyear contract with the client and large part of revenue are recurrent. We have only 21% of one-off revenue, means strong visibility for the 2023 figures, we are forecasted. Can go now to the page Number 5, sorry. Page 5. The breakdown of the revenue. Total revenue was 85% compared with the 53% of the first nine months, 2021. We operate in a constantly growing market. The organic growth was very good.
You have to remember that the first half, WIIT and the LANSOL, When we disclosed to the market, WIIT and the LANSOL, in the first half, we grew 14%. In the first three quarters, we grew 70%. That means accelerations of organic growth in our core business in Italy. In Germany, we have the same situation because myLoc, the first company acquired in 2020, grew 20% organically. In Italy, the total revenue grew only 2% because we have the effect of the rationalization of the turnover.
I remember that we are in the moment to reduce. We want to reduce all the business of low value, like sales of hardware and some consultancy business, and we increase a lot our core business with more high value service and more profitability for WIIT. The contribution of the companies acquired in the last two years was 23.5 million EUR related to GECKO and Boreus, and only 700,000 EUR related to LANSOL. It's only one month because the closing was in September. Four million EUR related to ERPTech, we have only six months. The full year result in more revenue for ERPTech is roughly EUR 8 million. For LANSOL, our expectation is 6.5 million EUR yearly value.
In terms of EBITDA, page Number 6, the EBITDA growth from EUR 21.8 million- EUR 29.8 million. EBITDA margin at group level was 35%. This is a little lower because naturally we have the dilution of the new acquired company, ERPTech in Italy and myLoc in Germany. For this reason, at the moment, the EBITDA is a little lower than last year. The personnel costs increased mainly from the new personnel of the acquired company. The big issue is the cost of energy. Naturally, in Germany, mainly in Germany, we have more cost of energy.
In the first nine months, we have roughly EUR 6.3 million of energy costs, compared with the EUR 3.1 million of the same period of last year. I just anticipate in this call we have covered this more cost with actually pass-through to customer, a contribution we saved a contribution from the German government for roughly EUR 800,000 in this period. We have compensated more cost with this very strongly organic growth. The breakdown of the EBITDA at the moment, after the merge of the parent company, we want to introduce this key parameter to disclose our profitability. Starting from this presentation, we give the market this breakdown.
Italy EBITDA was 36.8%, and German 33.2%. EBIT, Page 7, grow 30% from EUR 11.8 million- EUR 15.4 million. This is exactly in line of our budget. The EBIT margin adjusted was 18%. In this case, German EBIT was little higher than Italy because we have less amortization than Italy. The net profit was EUR 9.6 million compared with EUR 7.4 million in the first nine months, 2021. Page Number 8, net debt. The debt increased naturally mainly for acquisition go up from EUR 140 million- EUR 180 million by end of this year.
Mainly, for the acquisition of ERPTech, we spent EUR 4 million and loans of EUR 18.1 million. Company generated strong cash flow during this period. We spent money for a treasury share buyback for EUR 7.6 million. Payment for the last earnout minorities related to Matika, Adelante, and Etaeria for EUR 5.6 million. This is the last payment. Because now, after this payment in the year ending June and August, we merged all the company in which because we had 100% of all the acquiring company. The treasury share value is not included in these figures. If we take the value of the 30 September, it's approximately EUR 22 million.
We pay dividends for EUR 8.4 million, and we have IFRS effect for the rent of the space of the data centers, office, and general leases for EUR 10.4 million, very similar to the last year. The WIIT Group is not exposed to the risk of the interest rate because all the debt is the last part of the debt is related to the bond with a fixed rate of 2.3%. All the other debt related to the bank finance loan or related to the renting is a fixed rate. This contract is below 2% fixed rate. We don't have exposure in the variable cost of the money. We are ready for current day.
Thank you. This is Chorus Call conference operator. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press Star and One on their touch-tone telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions. Anyone who has a question may press Star and One at this time. The first question is from Aleksandra Arsova with Equita. Please go ahead. Ms. Arsova, your line is open.
Can you hear me?
Yes. Yes.
Okay, great. Thank you. There are just a couple of question on my end. I just wanted to understand better the growth in organic revenues and how this is, how the dynamics plays out with the decrease in gross margins in the third quarter. So as far as I understand, the organic revenue were accelerated in this quarter. So what are the main elements boosting the organic this organic revenue growth since until the first half of the year organic revenue was more, let's say, sluggish for certain components? And how do you explain, on the other hand, the decrease in the gross margin, so whether it's due to business mix or lower value-added activities or what else?
The second question is on the pipeline of other, let's say, of new contracts or partnership. Just yesterday you announced this new contract with InfoCert with Tinexta. Do you have in pipeline other big contracts? And maybe if you can give us some, a little bit of more color on the InfoCert contract, if this EUR 8 million are everything you will get or if you are negotiating for maybe something on top of that. Thank you.
Okay. About the first question about the organic growth, I confirm that the booking of the new order in the first half was very, very good. Thanks to this booking, the revenue increase a lot in the first quarter. You have to consider that we have always six months postponed the revenue compared when we start, when we sign the contract. The results in terms of revenue and the profitability in the first quarters is related to all the booking of the first and the second quarter. Okay. In general, the booking was strong.
I anticipate that the second question about the reduction of the profitability is totally related to the acquisition, because ERPTech is not running with the same margins. I give you an example. The myLoc recurring margin is itself 38.6%, the first nine months. Matika margin is 77%, myLoc 47%. But ERPTech, this is the last acquisition in Italy, is running with 15.2% in the first nine months. Because the synergy we have just defined is running by January 2023. We have EUR 3 million of cost synergy to achieve, but the results of this cost synergy will be next year, not in this balance sheet. Acquisitions, in general, the first year reduce a little bit our profitability.
By the second year, we start to increase the profitability for the cost synergy. This is the reason why the group level EBITDA is lower than last year. We have 2 new acquisition in the first year that the company acquired is not performing with the same margin of WIIT itself. About the first question about no-
No, also maybe the gross margin, because as I calculated it's about 57% in the third quarter. Is this the same explanation for, I mean, like, related to EBITDA or?
It's not gross margin. We disclose only the EBITDA margin, because we don't speak about gross margin in general. EBITDA margin.
No, sure.
Okay.
One can also calculate it, but, okay, no problem. Maybe we can get on it later.
Okay.
No, the second question was on InfoCert.
Okay, InfoCert and other pipeline. InfoCert is important contract, because it's a strategic partnership for the next seven years. InfoCert decide to put in the WIIT cloud the important core business infrastructure of the business of the company. The contract we start by first January 2023. We expectation to increase our revenue just in the first quarter. There is additional options to extend for other perimeters, probably in the next two months, or we can disclosure a very extensive contract because other infrastructure is very attached with the perimeter we just signed.
This is the first step, we have just scheduled with the customer possible evolution of two additional step to increase the value of the contract over EUR 13 million. To accelerate the migration of the customer, in this case, we starting to provide the services with the InfoCert facilities. We entering inside the actual contract they have with the InfoCert, and we want to use the data center of Padova of InfoCert for our customer base. In this case, we can accelerate the migration, and we can start to involve to billing for from the first quarter 2023. In general, this contract impacted sure the fourth quarter because there is something with one-time revenue from the migration.
In general, about the pipeline, I confirm what I saw when we disclosed the result of the first half. We are in very good level in terms of pipeline. There is other two or three important deals in the last phase, and we hope we can sign by the end of the year additional two deals. In general, the market is very growing and not only in Italy, because to be honest, in Germany during the first quarter, we have very good level of pipeline. Germany recovered what was a little bit late in the first half in terms of total amount of booking.
I see now the figures about the full- year 2022. The first quarter achieves a lot. During the summer in Germany, we closed two important contract and for this reason, the expectation for the full- year 2022, and particularly for 2023, we are very optimistic about the results we forecasted. The visibility we have now, thanks to this contract, the contract signed in Germany during the summer and the good level of pipeline give us confidence about the 2022 and we're sure that the first quarter 2023. The project for InfoCert impacted our revenue for the next seven months. It's a six-month period for the migration, and we have more revenue during this period.
Okay. That's clear. Thank you.
The next question is from Giorgio Tavolini with Intermonte. Please go ahead.
Hi. Good evening, and thanks for taking my question. I was wondering if you can provide more update on the InfoCert contract as a follow-up of the previous question, because I was wondering if should we expect a linear distribution of revenues along the seven year? I mean, it says assume EUR 1 million revenues additional in 2023, or even less, in order to just for our modeling purposes, what kind of margin accretion are you expecting from this kind of contract? The second question is on the M&A. You mentioned in the past release that the refinancing need about your refinancing need that you the acquisition in the period are using the available liquidity without any additional debt.
I was wondering what is your financial firepower for new M&A, with the current liquidity you have? The third one is on the, let's say, international landscape. International press last week was suggesting that many corporates are reducing, are slashing the IT budget spending, even on cloud services and on mission-critical services, just to cope with the financial constraints. I was wondering if you see any sign of downtrading from your clients or competition on pricing with your competitors. Thank you.
Pardon?
Infocert.
Okay. Starting from InfoCert, the contract starting with a value, yearly value over EUR 2 million the first year. At the moment we'll be reducing a bit from the first year. For this reason, we have the option under negotiation with the customer to increase with the second step the contract. It's not linear. We're starting with EUR 2.5 million yearly the first year. At the moment it's scheduled to reduce from the first year. We hope to sign a possible extension with other facilities, infrastructure, to remain to the same value for all the 7 years. At the moment it's more only the first 2 years, and it will be reduced from the third year.
The margin is a little in line with our standard, but we have a little more CapEx because, to accelerate the migration, we buy some infrastructure for the customer. We have two CapEx, one for the customer and one directly to increase our capacity. The profitability in terms of EBITDA is in line with our standard. Probably we have a little more CapEx because we decide to buy, to both some free servers from the customer and using that to start early to provide the service. The target is to start to provide the service January 2023. The first question about firepower.
At the moment we have naturally in the pipeline other targets in Germany, but the size of the target we are at the moment analyzing and some in the mid part, not early stage, but some more in advanced phase, is a small company with roughly EUR 5 million of revenue and EUR 1 million EBITDA before CLG. So the total price value expected, we can use our liquidity, and we don't need additional financing from the bank. This fortunately, because at the moment the market is not friendly, and the cost of the loan at the moment is roughly 4%-5%. We don't need
For this specific acquisition we are analyzing, we are in the hot phase. We don't see in general. The last question about IT spending by the customer. We don't see significant decrease of demand in Germany and Italy. The opposite, we will see that with the actual cost of energy and with the actual problem to deliver something, a hardware from the vendors, companies are looking to more cloud services. In general, what we look is a confirmation about our pipeline. We have the highest level of pipeline in the next three years. Now we close this InfoCert, and then that really, the value of pipeline decrease, but remain very, very high.
In general, we don't see an issue about requests, and we don't see an issue about price competition. Always, we work in a competitive market, in a competitive arena, and the pressure we live always in the pressure and competition, but we don't see an increase of competition or an increase of pressure on the price at the moment.
The next question is from Michele Baldelli with Exane BNP Paribas. Please go ahead.
Hi, good afternoon to everybody. I have a couple of questions. First one relates to the D&A. I saw that you posted roughly EUR 6 million per quarter in the last nine months. Can we assume that there will be another EUR 6 million posted also in the last quarter, so that the total should be closer to the EUR 24 million? Related to this, can you confirm also the guidance on CapEx? I remember it was something like EUR 30 million-32 million. If you just can confirm. Finally, last question is on the net debt. Can we assume that at the end of the year you should stay something close to the current level of EUR 180 million? Thank you.
Okay. D&A, Stefano, did you want to give more color about EUR 6 million a quarter?
Yeah. Also for the last quarter, we expect the same.
Level
same level. Yeah.
Okay. The expectation in terms of amortizing D&A is the same level as the first quarter. Okay. About the CapEx, at the moment we confirm the target, we stay until EUR 32 million. Consider that we have EUR 21 million after the first quarter.
EUR 21 million.
EUR 21 million is the CapEx during the first three quarters, and we expect to stay in our budget. I remember it is 31 million-32 million full- year. Consider that when we assign this budget, that includes the LANSOL. LANSOL don't need a lot of CapEx this year because we can confirm these figures includes included the inventory CapEx of LANSOL. The debt, I hope to stay a little below. Sure we stay 180, depend on the payment of the CapEx during the first quarter, the last quarter. When we do the CapEx, depend on the payment. We stay worst case 180 or a little low, but in general, this is the range.
If you add also the treasury share if we restart to
Yes
to buy.
180 is the gross debt, not considering the value of the treasury shares. At the moment is roughly EUR 24 million.
Consider, Michele, that we can continue to do buyback, also.
Yeah.
in the last quarter of the year. It means that being lower or around 180 by the end of the year.
Depend on buyback.
Depending on the buyback or CapEx, but in general terms of the buyback, but we want to consider that a positive thing.
Sure. My question, I should have been more precise, but yes, it was excluding any further share buyback. Yeah. Thank you very much for the clarification.
Sure. Perfect.
Additional M&A, Michele, roughly. If we have additional M&A, it's excluding this 180.
You see how many details I lose?
Yeah, we are not talking of extraordinary stuff.
Thank you.
The next question is a follow-up from Aleksandra Arsova with Equita. Please go ahead.
Yes. Thank you. Just a couple of other questions as a follow-up. Very last on InfoCert and CapEx. You were mentioning that you may need some more CapEx to run this project. How should we see the CapEx in the coming years with respect to let's say the pre-InfoCert situation, how much additional CapEx should we consider for this project? The second question is again related more to forward outlook. From what I heard, you're quite confident of reaching your let's say your objective for the end of the year. For the fourth quarter 2022, should we expect a similar or even a slightly higher EBITDA adjusted?
Similar to the third quarter, EUR 10 million-11 million. Thank you.
Okay. About this deal, we expect to have EUR 1.2 million or more CapEx for InfoCert. Usually is 20% of the value of the contract. You consider roughly EUR 1.6 million. In this case, you consider EUR 2.6 million of CapEx in three years, not only in 2022. We spend EUR 1.2 million up front and another EUR 1.6 million over the third year. In terms of
Sorry.
Yeah.
EUR 1.2 million in 2023, and then another 1 point-
EUR 1.5 million, EUR 0.5 million in the last six years.
Okay. Mm-hmm.
Okay? In terms of visibility of last quarter, as usual in our business, the last quarter is the highest of the year because of two effects. One side is the ongoing of all the contracts signed in the first nine months, and we have just a lot of contracts signed. The second is usual, corporations want to push up a lot in the last quarter because they want to use all the budget of the group and ask us to close certain projects in the last quarter. The sum of these two topics means our expectation in terms of revenue, in terms of EBITDA for the fourth quarter is higher than the first quarter. A little higher than the first quarter. To see that we have the migration of
Impacted the end of the fourth quarter value, and we have the run rate of the old contract signed in Germany during the first quarter. We have Germany's sure positive impact for the organic growth signed in the first quarter. In Italy is the same with the additional contribution of the InfoCert contract and the usual stability of the last quarter is usually the best of the.
Okay, thank you.
The next question is a follow-up from Giorgio Tavolini with Intermonte. Please go ahead.
Just a follow-up on the LANSOL. I was wondering if in the third quarter the contribution on top line was EUR 700 thousand. In Q4, is it fair to assume EUR 1.5 million or something similar for top line? What kind of a profitability you expect for Q4 from LANSOL?
The full- year's of LANSOL's EBIT is roughly six point. From the range from 6.5 million- 7 million yearly. We have to consider that the first quarter we consolidate only one month for EUR 700,000 and EBITDA EUR 250 thousand. Our expectation is to have roughly EUR 600,000 of EBITDA in the last quarter and revenue EUR 2 million. Because in this case, the last quarter was usually strong. Roughly in the range from EUR 1.8 million- EUR 2 million revenue and our expectation is roughly half million in terms of EBITDA.
Okay, great. Thank you.
The next question is a follow-up from Michele Baldelli with Exane BNP Paribas. Please go ahead.
Yes, thanks for taking that my further question. The price hike that you implemented in Q3, I was just wondering how much of the growth of sales is due to the fact that you probably pushed up pricing on some of the contracts after the increase of this cost in general? How much can you explain from this?
It's not a lot because we increased the with the pass-through only EUR 0.5 million yearly value. Consider that in the single quarter means EUR 0.5 million increase the price from the pass-through.
Okay. Thank you very much.
The last part is related to new booking and consider that this year we have a very positive element because usually in WIIT, the half of the booking coming from upselling and half of new logo. This year, we have over 75% of the new booking coming from new logo and only 25% of the upselling, which means the next two years we have more opportunity to increase value in the upselling services. This year is very good year about incoming onboarding of new customer. We have a lot of new customer this year.
Thank you very much.
As a reminder, if you wish to register for a question, please press Star and one on your telephone. The next question is a follow-up from Aleksandra Arsova with Equita. Please go ahead.
Sorry to bother you. Just the very last one. I will rephrase my very first question. So I know you don't give the gross margin, but if you look at the item purchases and provision of services, which is basically COGS, they increased like by 70% or more. On the other hand you have revenues increased by a little bit more than 60%. That was my question, why this did the COGS increased that much? It's due to the business mix or why? Thank you.
Yes, because this is changing the mix related to the acquired company. Consider that the company acquired is not run, was not running with the same model of business with WIIT. For this reason, the change the mix of the revenue means change the mix of the cost of the group in general. No? It's related to the acquisition.
Yeah, yeah, sure.
Please.
Okay. The one with 15% margin is the one with a business mix, with...
Yes. No. In general, ERPTech is another topic. ERPTech is a semi-turnaround situation because when we buy ERPTech it was running the same business model, but it was very, very inefficiently for the size, because in this business you need to have a big size to achieve profitability. If you are a company with only EUR 6 million revenue, you don't have the mass, the critical mass to achieve profitability. For this reason, inside WIIT, next year, ERPTech can receive EUR 3 million of cost synergy. If you consider a company with starting with EUR 1 million EBITDA, you add EUR 3 million, go up from 50% to 40%. The reason is the size in this case of the company. If you are smaller, you have the same cost of a bigger company.
You have the percentage cost, the management cost, and you can't achieve the same result. It's the size.
No, no, sure.
Opportunity leverage.
Okay, sure. Just for a minute. Okay, thank you.
Mr. Cozzi, there are no more questions registered at this time.
Okay. Thanks all for joining and we see you soon for the next update. Thanks a lot.