Release Date: November 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TXT e-solutions SpA (FRA:TXE, Financial) reported a strong revenue growth of 37.8% for the first nine months of 2024, reaching 220 million euros, which matches the entire revenue of the previous year.
- The company achieved a significant organic growth of 26.5%, driven by synergies and aggressive market positioning.
- The Smart Solutions division experienced a remarkable 50% growth, contributing positively to the overall margin.
- TXT e-solutions SpA continues to invest strategically in R&D and commercial activities, with a 56% increase in R&D investments compared to the previous year.
- The acquisition of Web Genesis is expected to enhance the company's presence in the public sector and strengthen its software engineering capabilities, with a robust order backlog of over 200 million euros.
Negative Points
- The EBITDA margin faced pressure, decreasing to 12.8% due to significant investments in growth and non-core activities with lower margins.
- The gross margin declined from 25.6% to 22.6% year-over-year, impacted by a higher incidence of service revenues and non-core activities.
- The net financial position showed an increase in debt, with an adjusted net financial debt of 60 million euros as of September 2024.
- There was a temporary delay in the collection of trade receivables, affecting cash flow and working capital.
- The company's net profit margin decreased slightly to 5.5% from 6.1% in the same period of the previous year.
Q & A Highlights
Q: What would be the TXT margin excluding the one-off sales for 10 million? And what can we expect on the margin assuming the growth in 2025 normalizes at 10%?
A: Considering the non-core activities of about 10 million, the EBITDA margin would be slightly better than 13%, approximately 13.2%. For 2025, assuming growth normalizes at 10%, we expect to return to our guidance of around 14% or better, driven by higher-margin divisions like smart solutions and contributions from acquisitions like Web Genesis.
Q: After the impressive growth recorded this year, what can we expect for 2025? And can you explain what is included in your order backlog?
A: Growth will normalize to slightly above 10% to 12%. Our order backlog is strong, with 70% to 80% of next year's business already secured, particularly in the public sector with multi-year contracts. The backlog includes contributions from Web Genesis and existing divisions, ensuring continuity and stability in revenue.
Q: Can you summarize the impact on your net financial position from recent acquisitions, including cash flows, future obligations, and treasury shares?
A: The acquisition of Web Genesis involves a cash outlay of about 37 million, with a net cash impact of around 30 million after considering acquired cash. We have arranged a loan to manage this, bringing our net debt close to 100 million. Treasury shares will be used for part of the acquisition, reducing our treasury share count.
Q: What do you expect in terms of net working capital evolution, and how are newly acquired companies in terms of working capital?
A: We experienced pressure on cash flow in Q3 due to delayed payments from a major customer, which will be resolved in Q4. Newly acquired companies like Web Genesis have leaner working capital structures, which should help stabilize our overall working capital at around 20% of sales.
Q: Can you comment on the surplus in organic growth regarding the software engineering division and the EUR10 million in non-core activities?
A: The software engineering division's growth is partly driven by non-core activities in the Telco and gaming sectors, which are one-off projects with low margins. Excluding these, organic growth is around 20%. The division also benefits from strong performance in aerospace and defense, capturing more market share than expected.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
