TXT e solutions SpA

MIL:TXT

Q2-2025 Earnings Call

[Alice Lacey Freeman, executive]

Good morning, and welcome to our investors call. Today, we will be presenting the H1 2025 Results. Here with me, I have Daniele Misani, our CEO; and Andrea Favini, our Investor Relation. Before starting, I just wanted to remind you that at the end of this call, we will have a dedicated Q&A session. So, in the meantime if you have any questions, please feel free to paste your question in the Q&A section that you can find on the top of the Team, Microsoft Teams bar. That's all from my side.

Now I'm going to give my word to Daniele Misani, our CEO.

[Daniele Misani, executive]

Hello. Good morning to everybody. I'm very grateful for you attending this call for the first half of the year 2025 results. So we can start from the results that are very strong and consistent with our business plan. Please, next slide.

The total revenue are about EUR 190 million. So, a very strong performance in terms of top line in a growth of 37% with the same perimeter of the last year. In terms of organic growth, we have a growth of 9%. That is in line with our business plan and our guidance for this year. We have to consider that in the organic growth, we are netting some one-off activities that we have done last year that are not present this year. EBITDA is strong, EUR 27.5 million in growth of 57% from the same period of the last year. And it's good also the profitability in terms of margin because we are sustaining a margin above 14%, so 14.6% of the revenue, in line for the -- with the performances of the first quarter and consistent with our sustainable growth plan.

Next slide, please. The growth is good because it's also driven by all the division of our business. So all the offering are growing. If you look to the segments that we have, it's important to highlight that as a strategy, we want to make grow faster, the Smart Solution division because it's the more profitable one. And the track record of this first half of the year is good because with growth of 72% with this division with an overall top line of EUR 44 million. Also, the other division are growing, especially the more profitable one like the Digital Advisory that growth of 63% and the Software Engineering that is strong in terms of volume continue to grow, plus 22%, mainly due to the integration of the Webgenesys business.

In terms of EBITDA, also the growth is important to highlight that is better in terms of let's say, percentage with respect of the growth of the revenue, plus 57%. We grow in all the business line, especially in the Smart Solution one that is the most profitable with plus 75% with EUR 8.1 million with an overall EBITDA margin of around 18%, around 20%, our target. So also the other division are growing well with a good profitability overall that allowed us to reach the 14.6% as a total group results of the first part of the year. Next slide.

We continue to invest in R&D, in our solution. So it's a strong part of our strategy to have products that are ahead also of the competition with innovative technology. So we invested in the first part of the year, EUR 12 million, that is in growth of 75% with respect to the same period of the last year. This is due also to the integration of Smart Solution companies like ProSim in the aerospace and defense and [ DT ] values that has been integrated at the beginning of the year, both companies with proprietary assets, so with proprietary R&D facility. So we continue to invest in order to address the market strongly. We have a growth overall of 72% of this division. So the investment are bringing results also in the short term -- of course, the investment are made to have a competitive advantage on the mid, long term. So benefits will continue to grow during time in the next quarters and in the next years.

International revenue are EUR 31 million, 16% of the total. The percentage is lower than the last year because we integrated mainly domestic companies like Webgenesys and IT Value in this 2025. The debt adjusted is EUR 112 million with, let's say, already we have -- we continue with our buyback plan. So overall, at the end of the semester, we have more or less EUR 10 million counter value in euros of treasury shares, proprietary shares. So overall, our net debt is in line with the guidance, so it's below 2x the year EBITDA.

Overall, so the incidence of the different industry within our perimeter, we can notice the growth of the strategic areas for which we are investing more in terms of also proprietary solutions. So aerospace and defense, banking and finance and public sector are growing in terms of incidence with the overall total value of our turnover, while tech, industrial and automotive are, let's say, lowering their contribution. So they have continued to grow, but their incidence is lower than before. Martech is stable. So we continue with a good performance with a good growth, but let's say, the incidence about the market is in line with the data presented during the Capital Markets Day.

Some info about what happened after the closure and during the semester. First of all, I want to highlight that we invested with minority equity in a company with a specific offering and specific assets in artificial intelligence. So Altilia, we entered with minority stakes with a plan also and already agreements to reach the majority according to the results of the next few years. This company for us is strategic. So this is a strategic investment because, of course, we don't benefit today of, let's say, the result of this company in our profit and loss, but we will benefit in the future when we will increase our stakes in the company itself, but also some results will be addressed directly in our profit and loss because we do synergies with this company. This company provides a proprietary smart solution, is already present in several, let's say, industry, especially in the banking and finance segment.

So the plan is to integrate this asset with our software engineering capability to deliver these assets to big customers with complex projects. So we will benefit in the second half of the year of new projects coming with this very strategic knowledge about artificial intelligence, intelligence document management and digital transformation of processes by using generative AI. The transaction is suggested to a closing that will be completed in Q3 and probably in September.

In terms of next slide, please, in terms of business, let's say, all the division, as I said before, are doing and are performing according to plans. Smart Solutions, in particular, is growing, driven mainly by the aerospace and defense offering, especially the flight ops offering related to flight optimization is growing in terms of recurring revenue. And we have a very good contribution coming from ProSim for the training and simulation part with advanced technology to train the future pilots.

So it's a very strong momentum that we are addressing and investing in order to address mainly the aerospace and defense business, Smart Solution is international with long-term engagement and recurrent business. Also public sector growth in this domain because we acquired and integrated IT Value that has already a strong backlog and with the synergies with the other companies of the group is growing in terms of pipeline.

We want to continue to invest and to make grow this division faster with respect to the last performances in the last year. Digital Advisory is also performing well, driven, let's say, by the execution of many contracts won also in the past. So the backlog is very strong. So the team are growing in order to deliver complex transformation processes. And let's say, the results can be seen in the numbers of this division that is growing faster. And especially in the topics of cybersecurity and health care domain, there are contribution that are very important and we will grow later also during the second half of the year.

Martech also, business is growing and the offering that we have with Refine is increasing, and we are investing in order to export the same kind of offering also on international level by opening up offices initially in different, let's say, areas. First one will be in Emirates that will be opened just after the summer.

Software Engineering contribution is very strong, especially for the integration of Webgenesys, a very strong performance, let's say, company that is already integrated within the overall group. So we have a lot of initiatives that shares competencies, capabilities and access to market that are bringing results already in the first quarter -- in the first half of the year. And also the margins of Webgenesys are good, so improves the overall margin of the total group.

Next slide, please. I want to highlight that in May, we presented to the financial, let's say, community the business plan for 3 years. So the Capital Market Day was held in May. And let's say, we are very committed as a management team as a group to deliver according to promises. The guidance for the 2025, let's say, as part of the first half of the year is met. So we are growing more than 8% and with an EBITDA margin today of 14.6%. And also the visibility and the outlook for the second half of the year is positive in order to reach and possibly also go better than the guidance that we defined.

I want to highlight that our plan 3 years plan is a plan that makes up, let's say, a continuity -- consistent continuity with M&A, so aggregation of a very, let's say, focused company with good performances and assets to the market that and we want to continue to implement synergies across the companies belonging to the ecosystem of the group to grow faster than the average of the market. So our target is 10%. We are very near in the first half of the year and the outlook allow us to be confident to reach the results in the short and the mid-term of the plan. So our target for 2027 is to reach EUR 70 million of EBITDA in total EBITDA in 2027.

We are on the right path. We want to continue, and we are scouting for additional M&A. We are currently working on different, let's say, opportunities. So we are confident if we continue to work as a team like we are doing now with a strong, let's say, projects that everybody is, let's say, sharing, we can meet the result in the long term.

So I'll let Andrea from Berlin to have a -- and highlight a little bit more deep about the financial. Thank you very much, everybody. Andrea, it's up to you to go through the financials.

[Andrea Favini, executive]

Thank you, Daniele, and welcome, everyone, to the financial section of this conference call. Starting from the next slide of the section, we look at the EBITDA of the first half of the year, the evolution compared to the previous year. And as already broadly discussed by Daniele, starting from revenue, we recorded a significant growth of 26.8% with a normalized growth of let's say, approximately 9.4% and contribution from M&A of approximately EUR 44 million.

We have a significant improvement in the gross margin and this come from the different mix of revenues. In fact, the 2, let's say, division that grew during the period are the Smart Solution and Digital Advisory division, which by nature have a stronger, let's say, gross margin compared to the Software Engineering division. And also within the Software Engineering division there let's say activity with lower gross margin were terminated during 2025 and that brought to the significant improve of the gross margin from 32.8% in the first half of 2024 to 38.2% in the first half of the current year.

If we look at the indirect cost instead, we have the opposite effect. So all the, let's say, the single, let's say, class of costs increased more than the revenues. And in particular, research and development cost, the investment in our own Smart Solution grew by 75%, slightly outperformed the growth of the Smart Solution revenues. This is again because of the investment in some of the products are more for the future. So there are still some investment for which the return is expected in the next half of the year and in the future years.

Here is also important to comment that the 75% growth also comes from the positive -- from the contribution of the acquisition. In fact, as mentioned by Daniele, we have IT values and ProSim, but also Refine that in 2024 was only consolidated from the second half of the year. Also in terms of commercial cost, there is a significant growth. And also in terms of incidence, there is a growth of more or less, let's say, 2 percentage points. And this is also in the context of the accelerated growth to achieve, let's say, the organic growth and the overall growth of the top line outlined in the Capital Markets Day for our -- in our business plan.

In terms of G&A cost, general and administrative cost, the reported figure for the first half of the current year show a slight increase in the incidence of those costs, about 0.4 percentage point. And this is mainly related to some M&A activities as we were disclosing in the notes of the first quarter results. All these effects bring to the strong increase of 190 basis points of the EBITDA margin that grew from 12.7% to 14.6% in the first half of 2025.

Going to the next slide. Instead, we look at the bridge from EBITDA to the net profit. And in particular, let's say, there are less amortization and depreciation accounted for 2.7% of the revenues excluding of the course PPA and in this case we have a strong contribution coming from from IFRS 16 and of 1.6% of the revenues and we have also, let's say, the depreciation of other let's say tangible assets is 0.7% of the revenue and he said amortization and write-off excluding PPA are of a marginal value and only 0.3% of our top line.

So the EBIT adjusted, so operating profit adjusted stood at approximately 12% with a significant growth compared to the 10.1% of the same period of the previous year. Instead, when we look at the financial results of the period, there was, let's say, negative mainly for the effect of the interest and bank charges, which accounted for 1.6% of our revenues. And we have also, let's say, the impact of the FX losses. In particular, we have an effect on the, let's say, devaluation of the U.S. dollar and approximately 5% of the TXT Group business is denominated in the U.S. currency.

And we have approximately EUR 0.8 million of net FX loss compared to a positive EUR 0.2 million of FX gain in the same period of the previous year. So, if we look at the earning before taxes before the PPA before the allocation of PPA, we recorded 10%, so a significant improvement of 46.8% compared to the same period of the previous year despite the EUR 2.6 million of higher let's say net financial cost compared to the previous period.

Net profit adjusted, the tax rate is higher to approximately 22%. We expect that within the year, it will be normalized to 29% to 30%, but the effect of the, let's say, financial results together with the higher tax rate brought us to the net profit adjusted to 7.1%, in line with the previous year. So let's say, all the positive effect coming from, let's say, the business are offset by financial charges, FX losses and the higher tax rate. The net profit reported is also growing by 26.8%, so in line with the growth of the revenues. And the net profit margin is 8% constant compared to the same period of the previous year.

In the next slide, we can have a deeper look to the second quarter of the period, but all let's say, the main indicator are somehow in line with the first quarter of the year. And we can see that the revenue growth 26.4% with a stronger contribution from M&A compared to the organic growth if compared to the first quarter of the year. And also in this case, we have a significant growth of R&D cost of approximately 98%, but also the growth of the revenue of this specific let's say, division grew by more than 85% in the same period.

Also when quickly to the profit and loss of the quarter, there we can see that, all let's say, the indicator of to the EBIT are significantly improving, the adjusted EBIT reported in the period is 12.1% compared to 9.8% in the same period of the previous year and also in terms of pretax profit, we had significant growth of 120 basis points with an operating profit margin at 10.5% non-adjusted compared to 8.5% in the same period of the previous year.

Going to the next slide, we have the net debt is of year is of end of first half of 2025 and the adjusted net debt stood at EUR 112 million with an increase of approximately EUR 22 million compared to the EUR 90.7 million as of year-end 2024. And the change is to be attributed to the outflows related to acquisition for a total EUR 16.6 million and of course, to the buyback plan for EUR 2.4 million, the recognition of earnouts for EUR 2.3 million and the payment of dividend for EUR 3.1 million.

We have also have payables to interest and financial charges for EUR 3.1. In addition, during the first semester of the year, there was an effect on the net working capital that was a – with a seasonal increase of about EUR 11 million, mainly driven by the growth of trade receivable and work in progress with customers.

Within the net debt, we have as of end of June 2025, we have approximately EUR 15 million of lease accounted for according to IFRS 16, in line with year-end 2024. And as of 30 of June 2025, ROC included EUR 12 million of debt for earnouts and put call option for the purchase of minority interest.

The reported net financial debt is of EUR 122 million and this EUR 9.5 million higher compared to the adjusted figure following the reclassification of the equity investment held by TXT in Banca del Fucino, net of the portion for which binding proposal agreement has been signed, which was reclassified from financial assets in the adjusted net debt to fixed asset in the reported net debt.

It's important to align that the value of the stake in Banca del Fucino for [ EUR 8.0 ] million is now part of the other term financial -- other short-term financial assets because the binding agreement has been signed for the selling of 3.6 million of shares out of 7.7 million total shares at a price of EUR 2.20 per share, the share, full shares at the price of EUR 1.85 per share. So we have approximately 19%, let's say, revaluation of the shares. And the remaining, let's say, stake in Banca Del Fucino which share value is EUR 9.5 million is expected to be disposed over the -- to be sold over the next 12 months.

It's also important to highlight that during -- from 2021 up to 2025, the stake in Banca del Fucino also paid out, let's say, dividends for a total of EUR 850,000. If we move to the next slide, we will have a look at the balance sheet as of end of June 2025. In this case, in terms of fixed assets, we can see an increase of about EUR 18 million, which is mainly related to acquisition of the period, in particular, IT Values. And within the intangible asset, which value is EUR 178 million as of end of June 2025, we have EUR 153 million of goodwill and remaining EUR 20 million of customer relationship and that is that are also coming from acquisition, so basically goodwill are allocated to other intangible assets.

Tangible fixed asset is that are, let's say, steady compared to the year-end 2024, while the decrease in other fixed asset is mainly to be attributed to the effect of Banca del Fucino commented with the previous slide. In particular, other fixed asset consist as of 30 of June 2025 consisted of the investment in Banca del Fucino for EUR 9.5 million and investment in minorities for approximately EUR 5.2 million.

The net working capital, as we commented before, had a significant growth of EUR 11 million. And this growth is driven by the trend in inventories, which are work in progress with the customer for fixed price projects and the trade receivable, which overall grew by approximately EUR 14 million, and this effect was partially compensated by the increase in tax payable and other payable and short-term liabilities. But still this EUR 11 million, of course, is a negative impact in our, let's say, cash generation, but this effect is expected to be, let's say, somehow offset during the second half of the year.

In terms of shareholder equity, the difference is driven by the results of the period probably the effect of the repurchase and sales of treasury shares, while the financial debt is the one reported and commented with the previous slide.

If we move to the next slide, looking at the performance in terms of structure, no major changes compared to the same period compared to the year-end 2024 and also to the situation as of end of first quarter of the year. And in terms of performance of the stock in the first 6 months of 2025, the fixed share price recorded an official high of EUR 41.35 per share on 25th of February 2025 and the low of EUR 28.75 as of April 4, 2025.

As of end of June, the stock price was at EUR 34.35 per share. In terms of treasury shares as of end of June 2025, there were approximately 280,000, representing 2.15% of the issued shares. Treasury share were 314,000 as of end of year 2024 and the decrease of around 25,000 shares is to be attributed to the transfer of share in the context of M&A plan that more than compensate the effect of the share buyback plan.

In particular, in the first 6 months of the year in the context of the share buyback plan, approximately 60,000 shares were repurchased at an average price per share of EUR 35.13 with a total outlay of approximately 2.4 million. The dividend of EUR 0.25 was also paid on May of this year with a total outlay of approximately EUR 3.2 million.

This is all for the financial section of this conference call. Thank you so much for your attention, and now it's the time for the Q&A section.

[Alice Lacey Freeman, executive]

Thank you. Thank you very much, Andrea. Thank you very much, Daniele. Now let's start our Q&A session. We already received a question from Andrea Randone, precisely 3 questions. Now I'm going to read the first one. So, Andrea Randone asks, the Software Engineering business recorded organic growth of 4% in the first semester of 2025, but with a very different pace between quarters, around 10% growth in the first quarter and roughly a 2% decline in the second quarter. Could you explain what drove this change in trend? And on what basis you expect the second quarter to show a slightly better performance?

[Daniele Misani, executive]

Yes. Thank you, Alice, for reading the first question. So, let's say, the Software Engineering business is mainly related to big projects. And sometimes you finish a project, you start another one. So we have a different performance according, let's say, to the growth also because last year, Q2 was very strong in terms of total overall projects. And so it was very difficult also to beat strongly the results we did in the past.

Especially, we noticed, let's say, some slowdown, but it was already forecasted in the industries like the telco industry that is, let's say, now in a period of low investment aggregations and so on. So, we expect that to have a slowdown, especially in this area. And this effect, let's say, the growth in the second quarter, the overall, let's say, average. So, if we look to the entire year, let's say, in the average, we are still confident to grow about 5% to 6%, so to keep, let's say, the results growing because we also started projects during the Q2 that will benefit in terms of profit and loss in the second half of the year.

In particular, we started a very important big projects worth about EUR 5 million total, of which as far as today in the first half of the year, we have just EUR 500 in terms of turnover. So, means that a great part of this project will be delivered in the second part of the year and so will contribute into the growth of the overall, let's say, division of Software Engineering.

Speaking about the project that is coming from our investment in IoT, so Internet of Things in the industrial field for the monitoring of complex infrastructure through network of sensors and software platforms that we are delivering to a major customer here in Italy. So, at the end, we expect, let's say, even if first and second quarter, the performance is different, we are, let's say, confident to have an average of the year that is above 5% in terms of growth of this division.

[Alice Lacey Freeman, executive]

Thank you very much, Daniele. Now I'm going to read the second question from Andrea Randone. Could you elaborate on the rationale behind the partial exit from Banca del Fucino. Early indications pointed to a full disposal. What prompted the adoption of 2-step approach instead?

[Daniele Misani, executive]

Yes. Of course, it's the market that is making change our strategy. We didn't change the strategy. So we are, let's say, negotiating to sell the all, let's say, stakes that we have in Banca del Fucino. Let's say, for market reason, you know that the banking institution are regulated. So, the cap table is regulated in some way and if you have, let's say, more than a percentage of the shares of the bank, you need to apply to rules of Banca Italia, so and so on. For this reason, we find, let's say, an interested party that signed, let's say, the possibility to acquire a part of our shares, not the total amount. Otherwise, they would, let's say, address issues in terms of size of the participation within the overall bank.

So, for this reason, we take the opportunity to sell at least partially the signing, the offering that they made is, let's say, there are constraints. So it will be sold in the September, so we will finish this, let's say, approach because they are doing the checks with Banca Italia in order to have all the opportunity to increase the stakes in Banca del Fucino. And we are still negotiating with other parties in order to sell the remaining part, so the half of the bank that is still in our portfolio.

So we didn't change the strategy, but market opportunity allow us only to proceed with this 2-step approach because, let's say, the request was for a smaller amount of shares.

[Alice Lacey Freeman, executive]

Thank you very much. Now we have the last question of Andrea Randone. He has a question on our Capital Markets Day. So, Andrea is asking during the May Capital Markets Day, you outlined your M&A strategy to 2027. Could you update us on the expected timing for announcement of potential new deals?

[Daniele Misani, executive]

Yes. So as, let's say, discussed during the Capital Markets Day, let's say, we declared to have the opportunity to spend up to EUR 120 million in 3 years in order to may grow the company. And also, we explained that we will address initially in 2025 [Technical Difficulty], hello, okay. So we had some connection problem, I'm back with, let's say, the opportunity to have a small acquisition to be integrated quickly within our overall offering. So we already did at the beginning of the year, IT Value, that is a smart solution company. We invest in minority stake with options to grow in majority with Altilia, the company with artificial intelligence proprietary assets that we will deliver with synergies to the market together.

And we are working on a pipeline of possible opportunity for this year. In particular, we are working and we are through, let's say, advanced phase for a small acquisition international in the U.S. with a smart solution offering that will be integrated in our portfolio, smart solution of aerospace and defense. We plan to close this deal in the third quarter of the year. We are -- we have another small smart solution company that we plan to close by the end of the year.

So for 2025, we will add small entities, but very profitable and with easy integration within our overall offering. In order to, let's say, have a major and bigger, let's say, acquisition, we are speaking about 2026. We are working on 2 deals, but it's still in early stage, let's say, the negotiation and the structure.

So summarizing this year, we will have 1 to 2 small acquisition and the next year we'll become, let's say, more stronger in terms of also size and, let's say, offering with bigger deals. I hope that explain.

[Alice Lacey Freeman, executive]

Thank you very much, Daniele.

[Daniele Misani, executive]

We have other questions. I know that it's summertime, especially in Italy. I don't know for the international, let's say, players here. And if we don't have any other questions, I would, let's say, thank you for attending to this call. We are very committed to continue to deliver on promises on our guidance, on our business plan that we, let's say, already presented to the market. And happy holidays for everybody that is taking this time as a break. And let's see together again for the Q3 results in October.

Thank you, Andrea.

[Andrea Favini, executive]

Thank you, Daniele. Thank you, Alice. Thank you, everyone, for attending this call. Happy holiday.

[Daniele Misani, executive]

Thank you. Thank you very much.

[Alice Lacey Freeman, executive]

Thank you. Happy holidays.