TXT e solutions SpA

MIL:TXT

Earnings Call Transcript 2024-Q1

[Sanela Begic, executive]

Good morning, everyone. We'll just wait for a few more attendees to arrive.

[Daniele Misani, executive]

Good morning. Welcome to the conference call. Let's go Sanela.

[Sanela Begic, executive]

Okay. So welcome, everyone. So we did have another wonderful and exciting year where we started 2024 off with an excellent result for quarter 1. And it just confirmed our solidity of our fundamental business growth within all the financial indicators. [Operator Instructions] And here with me, I have the TXT Group CEO, Daniele Misani.

[Daniele Misani, executive]

Good morning.

[Sanela Begic, executive]

And also, we have Andrea Favini, the Investor Relations, who will be going through the results and the Q&A at the end of the session.

[Daniele Misani, executive]

Thank you, Sanela. Thank you for the introduction. So as said by Sanela, so we recorded the first quarter of the year very positive, in line with the growth that we had last year. That is driven mainly by the organic growth and the synergies that we are putting from all the company within the TXT ecosystems.

In terms of indicators, as said by Sanela, we had a good result in all the overall financial indicators in our business. First of all, revenues that recorded EUR 67 million total revenue for the first quarter with a growth of 28% with the same period of the last year.

Offshore, there are contribution coming from the M&A, but there is a strong organic growth in many divisions. That is 21.3%, very above also the expectation, driven by some factors that we will explain later. This is 21% more than last year, more or less EUR 11 million more than the same period of the last year.

In terms of profitability, we have sustainability also with respect to the last year is more or less the same percentage of the last year. The total amount of EBITDA is EUR 8.8 million that is equal to 13% of the total revenues.

Looking to the contribution of the different division to the growth. So as I said before, the overall is plus 28%, is driven mainly and strongly from the Digital Advisory division that recorded a growth of 50% with the first quarter -- with respect to the first quarter of the last year. Let's say that this business is a service-based business. During the last year, we had a growth on the main projects in this area that also recorded a good result in Q4. And so there is continuity in terms of project delivery that makes this division grow from EUR 8.7 million to EUR 9.9 million in 1 quarter.

Strong contribution comes also from the Smart Solutions division, so the product-based business that grew from 11.5% (sic) EUR 11.5 million to EUR 12.5 million. This growth is both organic, and there is also the contribution of the new acquired business in North America in Montreal in Canada, acquired in the last part of the last year.

The Software Engineering division that is the bigger in terms of volume recorded a growth from EUR 38.8 million to EUR 44.7 million. So it's an overall of 23% year-to-year.

The EBITDA value also in this case, we keep, let's say, the performance, the profitability around 13% overall, continuing to invest. So increased investment also in research and development of our proprietary solutions. There is a growth in all the segment, particularly, there is a strong result into the Digital Advisory division that improved the EBITDA margin, driven by the efficiency of the projects that ramped up from the beginning of the last year to the end of the last year. In this case, at the beginning of projects, you have the cost also related to hire people, train people and so on. But today, we have already, let's say, set up a system that is also profitable and is continuing to grow.

In terms of growth for the other division, also the division related to Smart Solutions increased the profitability. In terms of volumes by keeping, let's say, the EBITDA margin due to the investment that we continue to do in our product lines and also in the business that is less mature. So the smart solutions that are still at the beginning phase so with the mid, long term, let's say, plan in order to make them more profitable. In terms of profitability of the overall Software Engineering division, we keep the margins growing from EUR 4.5 million to EUR 5.2 million due to the increase of volumes in this area.

As I said before, we continue to invest because our solution, our vertical solution driven by technology. New technology requires investments in order to increase, let's say, functionalities and increase, let's say, market shares in this kind of domain. The total investment in R&D is EUR 3.3 million with a growth of 50% with respect to the last year, entirely expanded in our, let's say, profit and loss and balance sheet.

The Smart Solutions revenues strategic is EUR 12.5 million in growth of 34% with respect to the last year. This means that the investment we are doing are bringing value to the overall business of the TXT Group.

International revenues are EUR 18.1 million. That is 27% of the total driven also by a contribution coming from the new business in North America. So we are growing and for us is strategic to keep a percentage of our total revenues also for the international business.

And in terms of debt, we recorded an improvement. We did, let's say, not invest yet in M&A in the first quarter, because we are working on several opportunities that were not closed in the first quarter. So the cash generator brings us to a total net debt adjusted of EUR 28 million. It's important to, let's say, highlight the fact that we are continuing with our buyback program. So we are investing in acquiring treasury shares as far as today to the quotation at least last few days, because after the results, we had an improvement on the stock price. But we have a EUR 27 million equivalent of value in treasury share that we are planning to use them in order to continue our M&A plan in 2024.

In terms of incidence of the core markets, strong growth comes from the Aerospace & Defence industry. There is a growth year-by-year of 40% driven by, let's say, the service and the projects capability that we have and the contribution also and the growth of revenues coming from our Smart Solutions products that includes new products coming from the PACE team and the Canadian entity.

Industrial & Automotive is also growing 8% of the total revenue, is increasing by 11% with respect to the last year. Good result also in the banking and finance institution with our fintech content offering with a plus 21%. Public sector, of course, that is linked to our Digital Advisory, let's say, business is the main -- is the champion of the growth with a plus 54%. 29% of the total revenues are related to the Telco, Media & Gaming industry. Also in this, let's say, segment, we have a growth of 20%.

Nevertheless, also the context that is quite complex in this period, because there is aggregation of big player. We have a strong positioning, and we added also to this area, let's say, the offering coming from the acquisition of the last year of FastCode that is positioned in the cloud migration and cloud application that serve, let's say, the data and telco industry. And so we recorded also a growth in this segment.

In terms of the main business evolution and events and highlights of the driver of the growth, so let's start with the Digital Advisory that is growing by organic growth, so growing in terms of projects, activities and business, let's say, projects. There is a significant growth coming from the ramp-up of the business activities on the main contracts that we acquired in the past years, especially in the public administration domain.

This organic growth, of course, is expected to stabilize because we ramp up with the team even if we have still a good outlook in terms of new activities, because the backlog value as far as today is more than EUR 100 million on a multiyear basis. Some relevant projects in this area are related to the transformation and data migration, data quality and the transformation of processes for the main ministry in Italy. Particularly, we have activity with the Ministry of Environment and Energy and Security, for which we are, let's say, involved in a big project of management of environment and hydrological active risk management and data and process optimization.

We are working for the Polo Strategico Nazionale for the migration and tailoring of the system and the determination from, let's say, the local offices towards the centralized and overall national hub. We are working for the Ministry of Health, also supported by the PGMD company expertise in this field in order to optimize data flow from the regions and to support the strategic planning and the management of the overall National Health Services.

Of course, we are working on the backlog and the activities won in the past, but we are strongly active in acquiring new business with new tenders, either in the public segment, but also in the industrial segment or in the big institution at national level. And we are expecting to close further, let's say, big tenders in the next months in order to continue to increase our backlog and the sustainability of this business also during the next years.

The other, let's say, focus on growth is the Aerospace & Defence market that is segment in which there are a lot of investments and a lot of long-term projects. Our positioning in this market is solid. We have both the capability to work on complex projects driven by the new technology like artificial intelligence, virtual reality that support the systems of the future. And of course, our positioning also with the portfolio of our Smart Solutions for the civil and the defense aviation is positioning us in order to have continuity for the next future.

In particular, I want to highlight that the Smart Solutions offering recorded a plus 73% with respect of Q1 2023 coming from the organic business growth, in particular on the U.S. market for the airlines where our FPO application, that is the application to optimize route and give sustainability for the aircraft of the future, is growing in terms of new licenses, new projects and is increasing the market share in the segment of sustainability and fuel optimization. But also the other product lines are positioning very well and continue to grow.

There is also the new business that is positive coming from the acquisition we made in North America and Canada for the HMI Embedded Graphics business that outperformed with respect also to the, let's say, initial budget figures after the acquisition, thanks to the full integration in the PACE team in terms of sales and market reach. And of course, the positioning, strong position in the U.S. market, especially on the defense segment, is a boost also to continue to grow and to continue to offer value also internationally with our proprietary solution. Also, the Software Engineering, I said that growth because [indiscernible] strategic programs of the main OEMs and manufacturers in terms of new aircraft and new helicopters. And so we see a positive outlook in continuity also for the next periods.

Other highlights about the business related to some of our, let's say, excellence in our Smart Solutions portfolio. The Faraday solution that is the artificial intelligence-based solution for compliance for the fintech market prevalently recorded, let's say reached last year, the breakeven. And there is a strong growth in terms of annual recurrent revenues coming from the contracts signed in the past. And let's say this first quarter is positive with an EBITDA margin of about 20%. The volumes are still a little bit small with respect of the total of the group, but the position is very strategic.

We signed a new deal at the beginning of the year with a primary and important leading domestic payment institution in order to bring our technology within their processes. We also invested in continuing our diversification strategy also for the industrial, so the transformation and innovation of the manufacturing side. We signed a partnership in the first quarter with Aras Corporation that is a U.S. vendor of a PLM platform. We'll grow up with a team dedicated here in, let's say, in Italy to cover the European market. This, let's say, partnership is expected to bring value in terms of services and also projects and customization of subscription of the U.S. partner licenses within big customer in terms of manufacturing and industrial offering.

Also, let's say, the Telco & Gaming segment, as I said before, that is a particular one because, as you know, here, especially in Italy, there is consolidation of the main players in this segment. In this area, we are working together with this customer in order to serve the market. And the focus is mainly on the, let's say, cloud and data management application of, let's say, and, let's say, services across the cloud-based architecture. There is a growth significantly also in this area driven and contributed also by the acquisition of FastCode the last year that is working in this area since a while and also the strategic position of ENNOVA offering that is strongly in the customer base and is diversifying also the offer in terms to the synergies coming from the group.

In particular, in this area, we signed in the first quarter an important multiyear contract with a lead provider of, let's say, in the gaming segment, lead provider Italian in the gaming segment for services in digital services that we cover and give continuity and sustainability and also risk balancing with respect to the overall context of this segment, because it will allow us to continue to provide services with important volume also for the next year. This is the main updates.

So to sum up, we closed a very good first quarter, and we have a good outlook in order to continue during the 2024 by providing value for our customers and, of course, for you all as shareholders.

So I will let introduce the financial part.

[Sanela Begic, executive]

Yes, we do have Andrea Favini, which is Investor Relations. He'll be presenting the quarter 1 results.

[Andrea Favini, executive]

Thank you so much, Sanela. Thank you, Daniele. And welcome, everyone, to the live financial section live from the [indiscernible]. So today, we are starting from the profit or loss of the first quarter of the year and looking at the revenues as what is discussed by Daniele, in the first quarter of 2024, revenue reached EUR 67.1 million with a growth of 28.3% compared to the first quarter of 2023. On a like-for-like basis, revenue grew by 21.3% with acquisition contributing for approximately EUR 4 million.

Revenue reported in Q1 2024 include approximately EUR 3 million related to the resale of third-party software and [indiscernible]. And this activity had also lower, let's say, gross margin compared to the average of the group. And this is also leading, let's say, a slight decrease in the gross margin value that decreased from 24% in the first quarter of 2023 to 22.5% with a net decrease of 1.5 percentage points.

If you look at the direct costs, the main growth in the direct cost is recorded in the research and development costs. Here, as already explained by Daniele, we, of course, are keeping the investment in our, let's say, mature portfolio. But we're also investing in new technologies and new smart solutions that will bring benefits and profits, let's say, in future years.

It is also important to mention that within the growth of 51%, there is a strong contribution of technologies and businesses acquired during the last quarter of 2023, in particular, in Embedded Graphics business, the artificial intelligence-based training provided by the base Canada company and other solutions for which TXT invested during -- in the fintech domain, for example.

Commercial costs then recorded lower growth at a lower rate, approximately 6%. But it's important to mention that investment in the commercial and the management structure of the group were already in place from 2023 to drive the growth of revenues that is then visible already from the first quarter of the current year.

General and administrative cost also recorded a reduction as in the percentage value against the revenues. In fact, in the first quarter of 2023, general and administrative costs were approximately EUR 4.2 million with incidence of 8% against revenues while in the first quarter of the current year, the incidence of general and administrative is 7.3%. So there is a 0.7 percentage point reduction as an incidence of general and administrative cost, which is mainly coming from the efficiency gain in the holding structure and, let's say, the general services are provided in a more efficient way.

Looking at the EBITDA was equal to EUR 8.8 million in first quarter 2024 with an increase of 28.1% compared to the first quarter of 2023. And of course, this is already discussed, let's say, the strong growth that we reported in the Smart Solution -- in the research and development for Smart Solutions products, which will bring, of course -- we are positive that it will bring positive results already from this current year.

If you look at the EBIT of EUR 6.1 million, it's a discount, let's say, the effect of amortization of intangible assets for EUR 1.1 million, of which EUR 0.9 million were related to the purchase price of allocation in the context of the M&A plan initiated by the group in 2018 are also included within the amortization and depreciation, there are also, let's say, depreciation of tangible assets for approximately EUR 1.5 million, of which EUR 1.1 million were related to financial lease IFRS 16.

And then there is also impairment losses for EUR 0.1 million. So the EBIT operating profit, very important growth, 36%. And the EBIT margin -- the operating profit margin in the first quarter of 2024 reached 9.1% of revenue.

So the net financial result in the first quarter of 2024 has a negative balance of EUR 0.4 million, in line with the negative net financial results in the same period of the previous year. Financial expense in the first quarter of 2024 consists of EUR 1 million related to interest expenses and other bank charges and EUR 0.3 million related to the share of negative results of associated companies that are not consolidated in the profit or loss.

The financial charges of the period are partially offset by financial income from the fair value of trade security and in TXT portfolio of EUR 0.5 million, the fair value of the earnout paid during the period, EUR 0.1 million and effect of the net exchange rate differences for EUR 0.3 million.

If we look at the net profit, there is a strong growth of 41.2%. And the net profit margin is at 6.1% in the first quarter of 2024, up compared to the 5.6% recorded in the same period of the previous year. Tax rate remain constant at 28%.

If we move to the net debt as of end of March 2024, the net debt was equal to EUR 28.1 million. The adjusted net debt was equal to EUR 28.1 million, while the reported net debt was equal to EUR 45.9 million, a decrease of EUR 5.8 million compared to the EUR 31.4 million as of -- sorry, to the EUR 51.7 million as of end of December 2023. And this, let's say, reduction of the net debt is made related to the cash generated from the operation of the group, partially offset by the related to the repurchase of treasury shares for approximately EUR 1.5 million. Main items of the net debt as of end of March 2024 consist of cash of approximately EUR 41 million with an increase of EUR 2.7 million compared to the year end of 2023.

There are trading securities at fair value of EUR 26 million as of year -- end of first quarter 2024, with an increase of approximately EUR 1.7 million compared to the year-end 2023 mainly for the fair value valuation of the securities. The short-term financial debt that is at EUR 55 million with an increase of approximately EUR 2 million compared to the year-end 2023. So if we look at the short-term financial acquisition, it's a positive as of the end of March 2024 by EUR 11.2 million, up EUR 6 million compared to the year-end of 2023. The noncore financial debt as of 31st March 2023 is of EUR 57 million. And the net financial debt includes EUR 10.6 million of debt referred to IFRS 16, up EUR 0.5 million compared to EUR 10.1 million as of year-end 2023 and EUR 5.3 million of debt for earn-outs in [indiscernible] auction for the purchase of minority interest, down EUR 1 million compared to the year-end 2023, affecting after, let's say, the outlay for the earn-outs that have been paid in the first quarter.

If we compare the consolidated net reported financial debt against adjusted net financial debt, the adjustment of EUR 17.8 million is related to the stake in Banca Del Fucino, which that is constant compared to the year-end of 2023. So the net adjusted financial debt is EUR 28.1 million, down EUR 3.4 million compared to the net adjusted debt as of year-end 2023.

If we look at the balance sheet for the EBITDA against the year-end 2023 in the next slide, exactly. So we have fixed assets that are total EUR 130 million, pretty constant, steady compared to the year-end 2023. And within intangible fixed assets as of March 2024 of EUR 85 million, the main contribution is coming from a goodwill for approximately EUR 65 million and the customer relationship and IPs acquired in the context of M&A for approximately EUR 18 million. Reduction recorded in the period is to be attributed to the amortizations.

Tangible assets as of March [ 2023 ] were EUR 20 million -- EUR 21 million, consisting mainly on hardware and building, rental and lease contract of offices, car and printing following the adoption of the accounting standard IFRS 16. Tangible fixed assets are up EUR 0.6 million approximately compared to the year-end of 2023 following increased value of financial IFRS 16 recorded in the period. Other fixed assets consistent mainly of the investment in Banca del Fucino for EUR 17.8 million and the remaining consist of investment in minority.

Net working capital in the period is constant. So there -- is at EUR 40.3 million against the EUR 40.4 million as of year-end 2023. And if you look at the shareholders' equity, the increase of approximately EUR 5 million is related to the profit of the period and the net effect of the transfer and the repurchase of treasury shares.

If we then look at the performance of the TXT stock, the treasury shares and this holding structure available from the next slide. We can see that the holding structure as of March 31, 2024, remain constant compared to the previous -- to the year-end of 2023 with the Laserline, the financial vehicle of the Chairman, Enrico Magn, owning approximately 30% of TXT, managers owning 15% of which the main component is treasury share, transferring the context of the M&A plan initiated in 2018. Then there are L.V.O. Global Asset Managment with a stake of 3%. Treasury shares are approximately at 10%, and the market owning a 42% of stock.

And if you look at the performance of the TXT stock, so compared to the share prices of 31st December 2019, which was equal to EUR 9.66 per share, the share prices of end of March 2024 was EUR 22.44 (sic) [ EUR 22.45 ] per share. And the market cap as of end of quarter as of March 31 of 2024 was more than EUR 260 million. And in the first 3 months of 2024, the TXT share price recorded an official high of EUR 23.95 on March 25, 2024, and a low of EUR 18.48 per share on the 5th of January 2024.

If we look at the dividend and the share repurchases, the dividend of EUR 0.25 per share will be paid on May 22. So it's not visible from the chart. And the expected outlay will be of approximately EUR 3 million.

While treasury share as of 31st March of 2024 were EUR 1.2 million, representing a 9.4% approximately of the issued share. And the treasury share were EUR 1.3 million as of December 2023. And the decrease of about 82,000 shares is to be attributed to the consideration paying TXT share in the context of 2023 M&A plan net of the shares repurchased in the context of the buyback plan.

So in the first 3 months of 2024, approximately 154,000 shares were transferred to vendor and current manager of TXT in M&A plan and about 70,000 shares were repurchased at the average price of EUR 20.44 per share for a total investment of approximately EUR 1.5 million as visible from the chart.

And we just -- of course, the dividend that was already resolved by the shareholder meeting and commented over the last conference call of EUR 0.25 per share. So the dividend yield of 1.3% on the price as of end of the year 2023.

We are done with the financial part of this conference call. Thank you so much for your attention and now is the Q&A section starting.

[Daniele Misani, executive]

Thank you, Andrea. So I'll let Sanela -- so please post any question on the Q&A section of the chart. I let Sanela to read the question, and we are very open to answer to our shareholders.

[Sanela Begic, executive]

Thank you very much. And so we'll start off with the first question by [ Alessandro Orsini from Horizon SCF ].

So thanks for the presentation. Is it possible to ask for this affirmation published in your press second release? For the remaining 9 months of the year, TXT's management expects top line growth rates to stabilize at low double-digit levels. This affirmation is about quarter 2, quarter 3, quarter 4, 2023 or about the growth in the first quarter of 2024?

[Daniele Misani, executive]

Okay. So we, let's say, expect -- so the first quarter was very strong in terms of organic growth driven, let's say, by the growth of the comparison of first quarter to the first quarter. Of course, during the last year, we observed a strong growth driven by the projects that were ramping up during the year.

So the affirmation that we put in the press release is more a focus on the overall and the total growth of the year by considering the performances we had in the last year. So this kind of business, the service-based business, the project-based business is a business that ramp up with the growing of the projects and the, let's say, the status of the project that goes to the regime during the period.

And so the expectation is that we will have still growth according to our, let's say, guideline. But of course, with the rest of the first quarter will be a little bit lower, because first one compared to the first one of the last year is very strong. I think that answer more or less.

[Sanela Begic, executive]

Fantastic. And the next question we have is from [ Andrea Randone ]. The question is if we assume a 10% organic growth in the period from April to December 2024, we can calculate a 14% organic growth in the full year of 2024. Is this calculation correct to represent the lower end of your full year revenue expectations?

[Daniele Misani, executive]

It's a long question. So we separate maybe the answer otherwise it's a little bit difficult. So I think that the assumption made by Andrea is correct. Let's say our guidance is more or less around 10% organic overall, let's say, in overall business at all. Of course, at the end of the year, the strong growth of the Q1 will compute in order to have a better growth rate on an annual basis. And so the calculation more or less around 15% with respect to the last year can be a good, let's say, a good target that we can reach, given the growth that we had in the first quarter and the capability to continue to grow at 10%. So it's a correct assumption. Second point?

[Sanela Begic, executive]

So the second point, what do you see in terms of a margin trend evolution? And what are the business areas you expect to drive margin?

[Daniele Misani, executive]

Yes. For this year, let's say, our guidance was to have a growth -- a profitability margin around 14%. Let's say the outlook for the year is not to increase too much the percentage margin. Of course, by increasing the volume, we will increase the overall absolute value of the margins. But still, we are investing because the ramp-up of the project implies costs in terms of training of people, recruitment of people. So to ramp up projects and needs still investment in order to continue to grow.

On the other side, there is also the need to continue to invest in technology. We have a portfolio of Smart Solutions that are quite different, because we have more mature solution like in the aerospace that are growing, and they are positioning well in the market. But still, we are investing in the small business and technologies that are -- we will give -- that will give, let's say, contribution to the overall EBITDA margin in the mid term, so not in 2024, but from the 2025 more.

We continue to invest in R&D. As you noticed by our, let's say, data, we invested 50% more with respect to the last year same period, because we strongly believe that our Smart Solutions portfolio is a very, let's say, portfolio specialized solution. The technology of this solution is advanced. So we are speaking about artificial intelligence. So the age of the technology, so still investments are required. And so, let's say, the expectation of increasing of EBITDA margin should be, let's say, shifted for the next future in which we will have the contribution also of the smart solutions that are not yet, let's say, very profitable because the investment we are doing.

[Sanela Begic, executive]

Fantastic. And the third question, congratulations to the amazing organic growth rate in the first quarter 2024. Can you comment on cross-selling and upselling initiatives you're putting in place among your subsidiaries to achieve these results?

[Daniele Misani, executive]

Yes. Of course, the growth is due to the, let's say, to the business of each company in our ecosystem that is growing on their vertical, let's say, but a very important and strategic is the synergies. So cross-selling and upselling opportunity.

Just to make an example, a concrete example, the Ennova business that was focused mainly on the telco industry is in synergies together with the Digital Advisory, let's say, business for the public sector and let's say, the companies all participated by the government, let's say. We are speaking about the main institutions that are participated by the government for which, let's say, the market reach is based on tenders, public tenders. The expertise and the know-how of this kind of, let's say, approach to the business coming from HSPI, that is our main digital advisory company, is making -- giving the opportunity also to Ennova to offer the capabilities and the know-how that is within the Ennova group also towards new market segments.

So we acquired also a public tender for, let's say, an institution participated by the government, the Italian government on a good, let's say, volumes that compensate maybe some slowdown for the market segment or region of ENNOVA that was focused mainly on the telco operators that are today, let's say, under a change management process, let's say.

So this is again an example, but other examples come from the integration of the new acquisition. I said that the Smart Solutions offering for the Canadian entity Embedded Graphics and HMI for aerospace and aviation is working strongly together with the PACE team, especially in terms of, let's say, sales team. We joined and we merged, we opened up also offices in Far East, in Singapore last year in order to have the broader portfolio of offering offered by a single sales representative. So there are sales synergies that allow us to approach a broader market, let's say, in a number of possible targets by offering more with more smart solutions in our portfolio and more service capability opportunities.

Also for the business as usual, let's say, also historical, let's think about the quality assurance services related to the software quality assurance process that is a core competence in terms of the group since a few years. Also in this case, we leverage, let's say, the positioning of the other company in the market, in different markets with respect to the original ones. So quality assurance was mainly focused on banking and financial institution. Now this kind of service is offered also to the industry in general, so manufacturing I'm speaking about is offered also to the telco industry in which we are pushing, and we approached this market last year and is offered also to the public sector for which projects of quality assurance are now served by using the competency and the companies that we have in our portfolio.

[Sanela Begic, executive]

Okay. So we have another question from Andrea Randone. So Software Engineering, an important client used to be TIM, a company facing tough times. How have you achieved such a strong organic growth despite this factor?

[Daniele Misani, executive]

Okay, for, let's say, the business, of course, one of the most important is Telecom Italia as a customer. As I probably said also in previous discussion or meetings with shareholders, we are working for Telecom Italia, and we are working together with Telecom Italia towards end user, their customers. So offering services through Telecom Italia to end customers. Of course, this part is a bit, let's say, under pressure because the big change is coming from the customer itself. So that everybody knows, we have still a strong position in terms of service we offer that are in some parts of the business of Telecom Italia that requires continuity.

So we are, let's say, not recording growth with this kind of customer, but we are quite stable in our positioning. The growth comes from the cross-selling of the competencies that we were offering to these kind of customers, also to the other customer in the overall group. And there is also the contribution of synergies coming from the competencies coming from the new company, for example, FastCode that has a very good positioning for cloud application and data management that are also transferred to a broader customer base. So we recorded this result, thanks to this and thanks also to some activities that we were able to deliver coming from contracts we signed in the last year.

[Sanela Begic, executive]

Great. And we have another question from [ Alessandro Orsini ]. Can you repeat, please, the affirmations about EUR 2.7 million of amortization and depreciation? Where does that data come from?

[Daniele Misani, executive]

Okay, so for this -- to go deep in terms of content of this topic, I will ask Andrea if you can address this topic about amortization and depreciation? Please, Andrea.

[Andrea Favini, executive]

Sure. So basically, we have this EUR 2.7 million of amortization, depreciation and write-offs in the period first quarter 2024. And as also reported in the press release published yesterday, this includes intangible assets for EUR 1.1 million, out of which EUR 0.9 million are related to the purchase price allocation in the context of M&A. So basically, it's goodwill allocated to customer relationship and IPs mainly that are then amortized over a period between 6, 4-plus years. So this is the intangible part, so the amortization part of EUR 1.1 million.

Then we have the depreciation of tangible assets for an overall value of EUR 1.5 million, of which EUR 1.1 million are related to IFRS 16, so financial lease. And then we have the impairment losses, so write-offs of EUR 0.1 million. This is also reported in the press release. But if, of course, further, let's say, clarification or details are required, I'm happy to, let's say, follow up or discuss over this quarter.

[Daniele Misani, executive]

Okay. So I don't see another question, Sanela.

[Sanela Begic, executive]

Yes. So we did receive some questions earlier on through an anonymous person. So are there any updates about the last investment with Arcan Technology and Paladin AI? And is the investment in PayDo progressing as expected?

[Daniele Misani, executive]

Okay. We are speaking about the investment we made last year in Smart Solutions and in technology. Let's start from our Arcan technology that is an artificial intelligence-based platform in order to calculate technical depth on software. Let's say this is a -- we acquired the technology. So we are growing up in terms of market positioning and let's say, speech in order to reach a customer. We are investing in the platform. So it's still an entity that is not a breakeven, so it's still in the investment phase.

And let's say, our strategy is to invest in order to capture, let's say, growth in the mid to long term. Let's say we signed an initial contract also to adopt this technology during due diligence phases for companies acquiring software from software companies there, because our tool is capable to analyze a complex legacy software system and understand, let's say, the complexity and the technical depth related to this. So there is a possible channel to the market also for this. So we have a good outlook in order to continue to invest to make it grow, but the benefit in terms of profitability will come next year on.

In terms of Paladin AI, for example, that, let's say, is the technology also based for -- on artificial intelligence to map the skills of pilots during the training process. The technology, let's say, is quite mature with some initial customer. Now we are bidding with a defense player in order to use the technology within their own systems and to provide this technology as an integrated to the full solution of the customer that is quite significant in terms of volume. Of course, also in this case, is a mid-, long-term investment that position us as a very strong player that enable, thanks to the technology, to change the processes of the customer. Also in this case, we are still in the investment phase, and the results will come in the next future.

There was also some comment about PayDo that is the investment we made last year at the end of the year with initial minority shares and option. PayDo is addressing a good, let's say, moment in terms of sales pipeline and growth. Of course, we don't consolidate as far as today since we are a minority shares result of PayDo. But let's say, the strong pipeline, signature of new contracts that are also, let's say, published across the -- our channels in terms of press releases.

We think that it's another good asset that allow us to position to have possible in the future recurrent revenues. And it's also a driver for synergies with other companies, because is positioned with big bank institution at a high level and allow us to present the overall offering to these customers. So also in this case, there is potential even if not consolidated in our results as far as today, of course.

[Sanela Begic, executive]

Great. And so the last question we have, are there any news about the investment in Banca del Fucino?

[Daniele Misani, executive]

Banca del Fucino, yes. So nobody was asking and now we are also addressing this topic. Banca del Fucino closed, let's say, the last year profit and loss balance sheet with a very positive result, as is published on the main channels and is visible to everybody. So we expect to have from Banca del Fucino a dividend coming to us in the very next future that is worth more or less EUR 350,000 that will be, let's say, will contribute as a positive effect in our, let's say, financial gain.

As discussed also in the past, we are planning to sell this participation. And we have -- I make, let's say, a statement because we have agreed with the bank itself that has a commitment to, let's say, let us sell at least half of the participation during this year. So we have a commitment. And our plan is to monetize part of the participation during this year, during 2024 and by opportunity also to sell everything as soon as we have a good, let's say, also need for the cash in order to continue with our M&A plan.

[Sanela Begic, executive]

Fantastic. And I think that's all the questions that we have for now.

[Daniele Misani, executive]

Okay. Thank you, Sanela. Thank you, Andrea.

[Sanela Begic, executive]

Thank you.

[Daniele Misani, executive]

And to everybody because for us, it's very important to communicate to continue to share with you the results and the, let's say, the background of the results itself. So thank you very much, and see you soon to the next conference.

[Sanela Begic, executive]

Thank you.

[Andrea Favini, executive]

Thank you.