TXT e solutions SpA

MIL:TXT

Q3-2025 Earnings Call

[Andrea Favini, executive]

Good morning, and welcome to our Investor's call. Today, we are going to present the results of the first 9 months of 2025 and the third quarter of the year. Together with me is CEO, Daniele Misani, who will introduce...

[Daniele Misani, executive]

Good morning.

[Andrea Favini, executive]

Good morning, Daniele, and we will introduce the results, main business updates. I will then go deeper into the financials. And at the end of the call, there will be a Q&A section and you can leave your answer in the dedicated chat that is available in the meeting room. We will wait just a few seconds more, and then we will start with the investor call. Thank you so much for joining.

[Daniele Misani, executive]

Thank you, Andrea. First time we are together in Berlin.

[Andrea Favini, executive]

Pleasure to be here.

[Daniele Misani, executive]

So thank you, everybody. Good afternoon. It's an unusual time. So usually, we have the presentation the day after, but we decided to go in the afternoon just after the approval of the results. So we can start with the presentation about the 9-month results. In terms of revenues, we recorded EUR 281 million with a growth of about 30% with respect to the same period of the last year.

So there is a contribution of the acquisition we did last year, of course, but there is also a continuity in organic growth driven by synergies among the companies of the group. We recorded more or less 10% of growth that is plus EUR 18 million with respect to the same period of the last year, like-for-like perimeter. In terms of EBITDA, that is our focus also for our, let's say, long-term plan. We are, let's say, improving a lot the operational efficiency, we are driving, let's say, the business with added value with respect to high, let's say, volumes, but less margin business.

So we recorded EUR 41.1 million in terms of EBITDA in 9 months, that is a growth of 50%. It's important to highlight that the EBITDA is growing better than the revenues. This is due to our strategy to focus on our Smart Solutions and high-value services we deliver to customers in order to have an overall profitability that we reached the target of 15% during the plan, and we already recorded for the 9 months a 14.6% in terms of EBITDA margin.

If we look to the overall, let's say, market segments and divisions that we deliver to market, Also, the growth is driven by the 2 more profitable units within our, let's say, ecosystem, especially the Smart Solution part is growing at 46% year-to-year from EUR 44 million to EUR 64 million in terms of, let's say, turnover.

Also, the digital advisory is growing fast, so plus 58%, EUR 48 million against EUR 31 and also the software engineering part is growing with a plus 17%. In terms of EBITDA, there is, let's say, the same increase in terms of, let's say, contribution. The Smart Solution part is growing of 56%, EUR 13.1 million against EUR 8.4 million. This part is high profitable. So it's more than 20%, considering also that we expand all the investment in our Smart Solution portfolio.

The Digital Advisory part is EUR 6.5 million, 14% as an EBITDA margin. And the software engineering part is 21.5%, 13% overall. So all the divisions of the group are growing and the EBITDA margin and the EBITDA in terms of absolute value is growing faster than the revenue, means that there is more operational efficiency and more, let's say, focus on high-value digital transformation programs with respect to, let's say, volume-driven, let's say, projects. We continue to invest. Also the investment in our Smart Solutions division are increased in a significant way with respect to the last year, plus 70%. So we expanded -- fully expanded in our profit and loss, EUR 18 million of investment in our proprietary solution. And also the revenues are already giving, let's say, a contribution in the short term.

So 46% of growth of the Smart Solutions revenues. Of course, the investment is more mid, long term because we believe strongly that our proprietary assets are a driver of growth, positioning, lock-in in the customer base. And so the investments are needed in order to have a cutting-edge solution in order to solve complex problems of our customer base. International revenue are growing in first 9 months are more or less EUR 46 million. That is 16% of the total revenues. And we keep, let's say, a quite stable net financial position, so a sustainable debt. Overall, the adjusted net debt is EUR 120 million. I want to highlight that we are continuing our buyback program because for us, it's important to acquire also shares in order to continue to invest in M&A and acquire new companies.

Overall, let's say, the treasury shares with the evaluation at 30 September is equivalent to EUR 9 million more or less. So EUR 190 million net debt adjusted with EUR 10 million of treasury shares already in. In terms of core market incidence for us, as we discussed during our Capital Markets Day, it's important the positioning, especially in fast-growing areas like aerospace and defense and the banking and finance of the fintech offering overall that are strongly, let's say, growing and we have a lot of opportunities that will be captured in the short and mid long term.

The other division, let's say, the diversification among the different industries is quite stable, according to the last year. So we have, let's say, major growth for the fast-growing part, maybe some slowdown in the Telco, media and gaming department, but the rest of the market is still growing in a good way.

In terms of evolution and subsequent events, we have to announce, let's say, that we are starting with the scale-up, let's say, projects of the MarTech division. So the first step was to open up in the, let's say, Emirates area. We opened up offices in Dubai that started to go to market in September. It's, let's say, a start-up a NEWCO that we open up with the aim to use, let's say, the technology Smart Solution that we have built and delivered to Italy across, let's say, other countries. First country is Dubai, so the Emirates area. This part is doing already well.

So we plan to have a breakeven of the investment in the current year. And TXT will be, let's say, a majority shareholder starting from 2026, and we will start to consolidate this offering also in the next year. So the investment will give a contribution on a midterm, so not immediately, but let's say, the first steps are good. And this one is just the first of the investments that we will do to internationalize the MarTech business. So we will open up similar initiative in other countries focused especially in Europe and South America.

In terms of, let's say, business across the division, we have a good, let's say, growth from all the segments. So as you know, we are focused in delivering our and speed up the transformational projects by using our Smart Solutions in the first 9 months of 2025, we recorded a good, let's say, results related to aerospace and defense Smart Solutions that are embedded within big defense programs and aerospace programs. And we are negotiating good contracts that will bring value in the next quarter and in the next years.

Also the fintech initiative to get international business related to Smart Solutions, specifically focused on the digital payments area are bringing the results. So far, we had investments. So still in our profit and loss, we can see some pressure about the investment we are doing. The last quarter of the year, we will get the first low-hanging fruit. So we will have the first, let's say, good deal that will be consolidated in Q4 results. And the pipeline for the next year is quite strong and will be one of the driver of the growth in order to meet, let's say, the expectation we already set with our industrial plan.

Also, the other segments are doing good. Specifically, I want to highlight the increase of the business related to extended reality and virtual reality for which we closed a quite important deal with a major health care industry that is global, that is summing up with other big initiatives that we have into the aerospace and defense environment. So it's a value proposition that is fast-growing. There are a lot of opportunities also related to major events that will come next year related to defense, security and so on.

So the training technology powered by XR and virtual reality is an asset that the customer are continuously increasing investment in. So we have a good, let's say, forecast for the next period. Digital Advisory is one of the driver and the stronger performance with respect to the 2025. So our backlog that we acquired in the past years related to the public sector, specifically the central public sector and the local public sector and also the health care are, let's say, are being converted into revenues because -- we have a stronger team.

We are growing fast. There are a lot of projects related to digital transformation in which we put competencies, know-how. And so we are delivering according to promises and the digital advisory part, especially into the public sector is growing faster than the average of the rest of the group.

Of course, also the MarTech domain that is quite new for us because it was included in our portfolio last year. Also in the second part of the year is getting a boost in order to position ourselves as a new player in this field, recognized by the customer and giving them value that is a mix of industry knowledge and technological competencies that are delivered to their main programs.

Software engineering that is the bigger, of course, with maybe an average EBITDA margin lower than the rest of the division of the group. It's still a stronghold of the group, especially for the aerospace and defense for which we have a long-term engagement with customers with good profitability, but also in the other industry, we are providing value. Also for the public sector, for which we added the capabilities of software engineering, software development that were not present in the past in our offering.

And also, we have -- we see -- we recognize the growth related to the industrial and the production and manufacturing and so on, for which IoT, Internet of Things, sensors, artificial intelligence are a driver for which companies are investing, and we have, let's say, clustered the solution that we have built in and acquired with the acquisition we did in the last few years in a stronger value proposition and is perceived like a driver for us and for the market for growing not just this year but also for the future.

So overall, it is, let's say, results that are in line with our business plan for the next 3 years. I would like to have Andrea maybe to focus on the financials to share with you some details about the numbers. So Andrea, take the stage.

[Andrea Favini, executive]

Thank you, Daniele, and everything for you. So looking at the profit and loss of the first 9 months, in particular, looking at the EBITDA of the first 9 months and the revenues. So as broadly discussed by Daniele, overall top line grew by 28.2% with, let's say, a reported organic growth slightly below the 4% and the normalized organic growth close to the 9%.

In terms of gross margin, we recorded a slight, let's say, increase from 32.6% to 27.9%, and this is driven mainly by operational efficiency gains over the last years. Looking at the indirect cost, as already broadly discussed by Daniele, we are accelerating the investment in our R&D, so in our Smart Solutions portfolio. And the overall growth of the investment compared to the same period of the previous year is of 70%, 7-0. And also the incidence of R&D investment on revenues grew from 4.8% in 2024 to 6.3% in the first 9 months of 2025.

Of course, also the, let's say, the incidence of Smart Solutions is higher, especially considering that in the last year, companies such as Refine and ProSim with a heavy, let's say, R&D investment were consolidated only partially in the 9 months. Looking at commercial costs, also here, the growth outperformed those of revenues. So we have a 46.4% growth year-over-year. And also in this case, the commercial costs are, let's say, allocated mostly in the fast-growing area or in the area with a lot of potential.

We're speaking about the market with internationalization, but we are also speaking about business development in the Asian market for our Smart Solutions and in the Italian, let's say, landscape to strengthen, let's say, the, let's say, coverage of the domestic territory when it comes to the public sector.

In terms of G&A costs, general and administrative, we recorded a growth both in year-over-year growth, which outperformed the revenues, but also as an incidence. And here, we are still, let's say, allocating part of the investment to the M&A, both for the, let's say, pre-closing, so the due diligence activities, legal costs and so on, but also for the post-closing as there are still ongoing activities to integrate the newly acquired company into the TXT ecosystem.

Looking at the EBITDA. So as broadly discussed by Daniele, we are at EUR 41.1 million with an EBITDA margin of 14.6%, which equal to about 180 basis points more compared to the same -- to the same, let's say, KPI of the previous year. If we move to the next slide, below the EBITDA, we have of course, a strong impact from amortization, depreciation and write-offs, mostly coming from IFRS 15.

So if we look at the operating profit adjusted, so the EBIT adjusted, which only excludes PPA on acquisitions, we are at 11.6% versus the 10.1% of the same period of the previous year. And here, there is a strong out of the EUR 8.4 million of amortization, depreciation and write-off excluding purchase price allocation, EUR 5 million are related to IFRS 16, also growing in this latest quarter, but we will look at that a bit later.

Another strong component is coming from depreciation, EUR 2.1 million, and those are mainly referred to, let's say, hardware used by the, let's say, teams in order to deliver and to support, of course, the growth, other than some, let's say, building investment in the buildings. Looking at the amortization and write-offs, we recorded a growth compared to the previous year, but because I included EUR 0.5 million of restructuring costs related to a reorganization plan that was implemented and closed during the third quarter in the context of the public sector segment.

In particular, there was a consolidation of, let's say, the structure and the teams to have a more, let's say, synergic ecosystem around the public sector offering. So as we discussed, the operating profit adjusted, which exclude PPAs, EUR 22.8 million, 11.6% of revenues. And if we look at the financial results, we have about EUR 4.8 million of net financial costs, and those are mainly related to net financial charges, meaning interest on bank loans and financial charges, which were of about EUR 5.6 million, netted by financial income for about EUR 0.8 million.

The losses on FX rates are stable compared to the 6 months because in the third quarter, the exchange rate U.S. dollar-euro was quite stable. So let's say, in line with the 6-month results. We have a financial income coming from M&A and in particular, related to the adjustment of the fair value of an earn-out that was linked to revenues with some defense contract, which have been postponed also in terms of -- from the customers also in terms of earn-out, we have, let's say, a lower debt at its fair value.

In terms of result from minorities, we have a negative result of EUR 0.2 million, which is better compared to EUR 0.5 million recorded in the same period of the previous year. If we look at the net profit adjusted, which is, let's say, again, excluding only PPA effect, we are at EUR 21 million, EUR 21.1 million with a net profit adjusted rate at 7.5% of revenues. Also in this case, we recorded a better performance compared to the revenue growth. In fact, we have a net profit adjusted growing 42.8% in the period.

As we look at the net profit reported, amortization related to PPA were EUR 5.7 million in the first 9 months with a strong acceleration in the Q3 of -- in the latest quarter, Q3 of 2025 because in that quarter, there was the allocation of PPA related to a company acquired in the second half of 2024. I'm speaking about Refine and I MILLE. We expect a further increase of PPA as soon as the allocation of the goodwill of Webgenesys will be reflected into the books.

So the reported, let's say, net profit stood at 5.5% of revenues, in line with the previous -- the same period of the previous year, despite the different, let's say, financial results and PPA impact.

If we move to the next slide, we focus quickly on the third quarter of the year. And in this quarter, we recorded a 13.6% top line growth. Of course, here in the third quarter, all the companies such as Refine and I MILLE are included in the 2024 perimeter. So we are looking at, let's say, additional perimeter related to Webgenesys and IT Values. And also in this case, let's say, the growth of the gross margin is very significant, also thanks to the positive contribution of the newly acquired companies.

In terms of indirect cost, the trend is particularly visible for research and development cost, which grew at a similar rate compared to, let's say, the first half of the total 9 months. Instead, there was a more, let's say, consistent growth in terms of commercial cost, which grew slightly more than revenues and G&A costs instead are, let's say, somehow following the same trend recovery in the first half of the year.

So the EBITDA margin of the third quarter was at 14.7% compared to the 12.9% of the same period of the previous year, plus 28.9%. Looking at the operating profit adjusted, we also had growth, 26.6% and also about 110 basis points in terms of adjusted EBIT margin. As I discussed before, we can see from this quarter a strong acceleration of PPA, which includes also the amortization of intangibles related to the first period from the date of the acquisition up to the third quarter. That's why this value is 3.4% of revenues, but is including also amortization related to previous periods.

If we look at the financial charges here, we have to keep in mind that on the EUR 0.9 million of net financial charges are offset also by approximately EUR 1 million of fair value adjustment of earn-outs. So let's say, the net of this one-off effect coming from M&A, you will look at more EUR 1.8 million of net financial charges, mainly interest on bank loans.

So if we look at the taxation, we have a slightly lower tax rate compared to the first 6 months, and we expect to have a similar rate also for the Q4 of the year. And if we look instead at the net profit adjusted, excluding PPA here, particularly significant due to the effect in this specific quarter of PPA. We are looking at the net profit adjusted, which is EUR 7.6 million, growing 53.9% compared to the same period of the previous year and the net profit adjusted margin at 8.2%.

If we move to the next slide, looking at the net financial debt of the group as of end of September 2025. Overall, we recorded a drop compared to year-end 2024 of EUR 29 million. And the main impact that, let's say, drove this reduction in the net debt -- the increase of the net debt are, of course, the effect of the net working capital, which grew by EUR 18.4 million in the period, and we will comment it in the next slide, but are also included, let's say, outflows related to acquisition and the international business development for total EUR 18.4 million, of which EUR 13.6 million related to the acquisition of IT Values.

Then there is the repurchase of treasury shares for EUR 3.3 million. The payment of dividend for EUR 3.2 million, the payment of interest and other financial charges for more than EUR 5 million as well as the recognition under IFRS 16 of new lease contract for the home office amounting to EUR 3.3 million. For sure, all those, let's say, allocation of capital investment more than offset the cash generating during the period, but we expect a reversal of the trend and the working capital absorption in the fourth quarter of the current year.

It's important to note that as of September 30, 2025, financial assets include approximately EUR 8 million related to the TXT equity interest in Banca del Fucino, the sale of which initially was expected by end of September 2025 and is now with the new plan and the new agreement, this binding agreement is actually ending end of December 2025.

So we expect to monetize this part of the investment in Banca del Fucino by end of this year and the remaining part, which is accounted for as adjustment to the reported net financial debt is expected to be monetized by the end of 2026. If we look at the net debt by nature, it's important to highlight that in our EUR 120 million of net debt are included approximately EUR 18 million of -- about EUR 19 million of IFRS 16 debt, plus EUR 3.4 million compared to the previous year and about EUR 11 million of debt related to earn-outs and put and call, about EUR 1.8 million higher compared to year-end 2024.

In terms of financial assets, we have about EUR 83 million of cash and cash equivalents, mainly hold in major banks in euro. And we have trading securities at a fair value of about EUR 12 million. And the other short-term financial assets is the stake in Banca del Fucino for which the amortization is expected by end of this year and for which we have a binding selling agreement.

If we look at the financial liabilities other than IFRS 16 and earn-outs and put and call, which we already commented, we have a financial loan for about EUR 200 million, and we have other minor financial debt for about EUR 1.5 million. Of course, in this picture is not included the treasury shares that, as commented before by Daniele are used to financing our M&A plan and are of about EUR 9 million with the price of EUR 3.20, which was the price at September 30, 2025.

Moving to the next slide. In terms of balance sheet as of September end 2025 and a comparison with year-end 2024. In terms of fixed assets, we have an overall increase of EUR 16 million, which is mainly driven by the intangible assets which as of September end 2025 are of about EUR 178 million with an increase of about EUR 18 million compared to year-end 2024, mainly for goodwill accounted for in the period following acquisition, partially offset by EUR 6.4 million of amortization of the period.

The total goodwill accounted for among intangible assets as of September 2025, it's about EUR 144 million, EUR 145 million. And the remaining items are mainly related to customer relationship and IPs allocating for PPA processes, so still related to M&A. Tangible fixed assets grew by EUR 3.9 million, and the growth is mainly related to the different, let's say, IFRS 16. As we commented before, we have a growth of EUR 3.4 million compared to the year-end and this is mostly the reason of the increase in the overall tangible assets figures.

In the other fixed assets, there is an effect, of course, of Banca del Fucino because year-end 2024, it was fully accounted for as another fixed asset among fixed assets. And now a part of it, about EUR 8 million is considered as a financial asset within the net financial debt.

As we said before, the net working capital was, let's say, growing significantly by EUR 18.4 million in the period, and that causes a slowdown in the cash conversion compared to the current plan. We are monitoring it. And of course, it's visible that the reason of this increase is mainly attributable to inventories, which for us, it's work in progress with the fixed price customer projects and on trade receivable.

The sum of these 2, let's say, items brought to an increase of about EUR 23 million, partially offset by the increase in payables. Of course, here, we expect a slightly, let's say, better off during the fourth quarter of the year, but it's also important to say that compared to the last year, let's say, we have -- we are growing areas where DSO are higher compared to other -- the average of the group. And I'm speaking about the public sector and speaking about defense market, defense domestic market. But of course, the management has a strong focus on monitoring and let's say, fastening, let's say, the conversion of profit into cash.

Moving to the next slide. We have, let's say, a shareholder structure, which is somewhat in line with the half-year, so no major changes. There was a further repurchase of treasury shares in the latest quarter -- in the third quarter, which brought us to a total buyback investment of, let's say, EUR 3.2 million, EUR 3.3 million in the quarter, split more or less heavily during the 3 quarter of 2025.

And we have also, let's say, in terms of market data, as we already discussed before, the share price as of September end 2025 was about EUR 0.20 per share. Looking at the performance of the TXT stock and treasury shares in the first 9 months of 2025, TXT share price recorded an official high of EUR 41.25 on 25th of February 2025 and the low of EUR 28.75 as of April 2025.

In terms of instead of treasury shares as of September 2025, the TXT Group has approximately 300,000 treasury shares, representing 2.4% of the issued shares. And treasury shares were about 315,000 as of year-end 2024, and the slight decrease is to be attributed to the transfer of TXT share in the context of the M&A plan that more than offset the effect of the share buyback plan.

So in the first 9 months of 2025, approximately 90,000 shares were repurchased at an average price of EUR 24.17 with a total outlay of approximately EUR 3.2 million. As a reminder, the dividend of EUR 0.25 per share was paid on May with a total outlay of approximately EUR 3.2 million. We are done with the financial section of this investor call. And now to you, it's time for the Q&A section.

[Daniele Misani, executive]

So thank you. So I remember you that you can put Q&A live on the Q&A session of, let's say, this company call. We have some questions coming from Andrea Randone. So the first one, so we can publish thank you.

[Andrea Favini, executive]

For you of course, Daniele for 2026...

[Daniele Misani, executive]

It's very long...

[Andrea Favini, executive]

It's very long, so I can split in more questions.

[Daniele Misani, executive]

Into pieces.

[Andrea Favini, executive]

Yes. So first part of the question for 2026 and 2027, the guidance you presented in May 2025 is assuming a double-digit organic revenue growth rate. Can you confirm this target is still reasonable? Can you provide -- okay.

[Daniele Misani, executive]

Let's start with the first part. Okay. So overall, we presented a 3-year plan, so where the average from 2025 towards 2027 is an average 10%, let's say, organic growth. Of course, it depends on the periods. Some periods are fast-growing, some lower. For sure, in our plan is included also some boost in the organic growth coming from investments that we are doing, specifically the scale-up of the MarTech division, the fintech part related to digital payments, plus the several initiatives we have internally in the other division to deploy new technology towards customers.

So we are at the beginning of the plan. We still have to recover from the one-off activity we did in 2024. And setting off these activities, we are growing at more or less 10% because the overall growth was yes, EUR 20 million, moreover with the like-for-like period. And there is also, let's say, a contribution coming from the growth from, let's say, the synergies we are doing with the newly acquired company.

So not fully consolidated last year, but consolidated this year that are growing. So specifically, Webgenesys and IT Values in a cluster together with HSPI. So the companies in the public sector, the cluster of the public sector was strengthened in 2025, of course. And we have a common growth that, let's say, in terms of organic like-for-like will be visible more next year with respect to this year because this year, there is still, let's say, the fact that the previous year were not present.

So we think and we are confident for the initiatives that are ongoing that we will have, let's say, better results starting already from the Q4. I want to remember also that Q3 was particularly, let's say, strong last year for several, let's say, opportunities and activities we did in Q3 2024. This year is still strong, but of course, the comparison is huge. So it's very difficult to have the same, let's say, growth we captured last year.

But overall, we are confident to give, let's say, better numbers in terms of growth starting from Q4 and for sure for the 2026 on, okay, because the investments are starting to have a return, yes. Specifically, also for the digital finance, digital payments part, for now, we are still in investment in the 9 months. So we have the costs of the certifications of the development of the software we are putting in our offering.

First revenues in terms of significant revenues will come in Q4. And also the budget we are doing for the next year is quite positive because we have a pipeline of opportunities that can bring organic value next year. Another topic, for example, also for the industrial part that is connected also to the public sector for IoT in order to monitor infrastructure is a business in which we are investing in terms of development of software assets to be effective for the market.

And we, let's say, consolidated in the first 9 months, some, so less than EUR 1 million in terms of turnover, but still from Q4 and the next year, there is a backlog of already acquired opportunity that will be, let's say, consolidated in the results of Q4 and the next year that will bring, let's say, a continuous growth.

So we are at the beginning of the plan. So we are doing let's say, this compensation of one-off activities still growing in the overall, let's say, segments we are. And we are quite confident to continue to grow according to the guidelines we gave in the plan.

[Andrea Favini, executive]

Thank you, Daniele. I think you already partially answered to the second portion of this first question from Andrea. Can you provide more color on the project pipeline giving you confidence about business acceleration in the coming months?

[Daniele Misani, executive]

So I already spoke about IoT...

[Andrea Favini, executive]

Yes. The business evolution that was discussed before was a little bit more by division. So we have strong opportunity in aerospace and defense for Smart Solutions, FinTech and let's say, yes. And of course, these IoT projects and Digital Advisory is growing faster already and of course MarTech internationalization.

So net working capital absorption remained quite high in the quarter. What are your expectation for year-end 2025? consensus forecast for the net financial position at year-end 2025 are a touch below the corresponding level at year-end 2024. Does it make sense? So these are 2 different questions. So let's start for the -- yes.

[Daniele Misani, executive]

Okay. So related to net working capital. So already Andrea during his presentation of the financial results, give some flavor about net working capital absorption. We have also to look inside the numbers. So if you look to trade receivable with respect to, let's say, inventory, we are fast growing in trade receivable. This means that we are putting in place several actions in order to be more effective in terms of invoices to customers and so on.

So we have strengthened the internal organization in order to be more effective in terms of invoicing and getting the money as soon as possible. Of course, there are some effects coming also for the different mix of the activity we have in the portfolio with respect to the last year. So the exposure and the size of the public sector with respect to the total size of the group has increased a lot with respect to the last year.

So this is a part that is under pressure for, let's say, the difficulties in getting and advanced fixed price projects according to the timeline already agreed with customers. So it's an area of focus that we are very, very, let's say, working on in order to improve as much as possible. But for sure, for this part of the year, this is a major pressure with respect to the last year.

We see and we forecast a better improvement for the Q4, for example, specifically for the cash generation also because, let's say, the number of due invoices is bigger, so it's growing. So probably we will capture and we will have a cash in of these due invoices. Of course, there is an effect related to the customers. Some of the customers that are fast growing are maybe the not so best payers in some way. So this is an effect that we can -- we have and we want to manage as much as possible.

[Andrea Favini, executive]

Yes. Not the best payer, of course, are all like blue-chip customers. So the question is not the pay or not, it's just the possible delays are very, very secure receivables. It's just sometimes a matter of a few weeks or few days of delay, which brought us to a cutoff date, not very.

[Daniele Misani, executive]

And I want to highlight also that we are not using, let's say, financial instruments like factoring, for example, so far because still we have good cash and to manage the working capital, our, let's say, suppliers and our employees without so much pressure because we have cash to do that. But of course, if we continue to grow and this situation is, let's say, more impactful in some way, we are evaluating also possibilities to do some factoring with, let's say, some let's say, some...

[Andrea Favini, executive]

Financial expenses.

[Daniele Misani, executive]

Financial expenses, but to improve the overall situation to have a more relaxed, let's say, working capital management.

[Andrea Favini, executive]

And it's also true that year-end last year, some of the companies that were acquired during the period were also leveraging on some factories, which we stopped. So we also have this effect comparing, let's say, last year net working capital with the current year net working capital.

[Daniele Misani, executive]

And let's go back for the net financial position question.

[Andrea Favini, executive]

So consensus forecast for the net financial position at year-end 2025 are a touch below the corresponding level at year-end 2024. Does it make sense? So year-end 2024, we were at about EUR 108 million reported. Now we were at EUR 129 million.

[Daniele Misani, executive]

So still in 2025, we -- so far, we did an acquisition, so I value that was EUR 13.5 million, something like that. There is a higher pressure in the net financial position coming from IFRS 16. Specifically, there is a good contribution coming from the opening up of the new headquarters in Rome that started from this year. There is a EUR 3 million -- EUR 3.3 million coming from that of the long-term rent for the offices that we have in Rome.

We changed also and we increased expenses in our headquarter internationally in Berlin moving from one side to a more, let's say, suitable one just a few months ago. So there is some impact coming from IFRS expenses plus the earn-out part also that is impacting more than in the 2024. Of course, there is a cash generation that so far is a little bit is lower than we expected during our plan.

So in average, first 9 months, the free cash flow conversion is about 30%. Last year, we were about 45%, something like that. So this is due, as we have discussed before, mainly to the major exposure to the public sector. So for sure, this is a part we have to address. And I think that is reasonable to have this result because it's not only -- there is a mix of less cash generation and still investments that are ongoing in order to manage the growth.

Besides the IFRS 16, we have increased the R&D investment of 70% more than last year. So there are -- we are still investing in order to grow. And also the initiative that we are launching in order to scale up our Smart Solution offering at international level requires investments. So 2025 for us is a year in which still we are under pressure, not mainly from M&A, but also for internal investment in order to sustain an organic growth strong to meet the requirements of our plan.

[Andrea Favini, executive]

For 2026, do you have action in mind to improve net working capital management? I think that was also...

[Daniele Misani, executive]

Already discussed.

[Andrea Favini, executive]

Yes. And of course, also with the growth of the public -- sorry, with the Smart Solution, they are, let's say, DSO are way shorter. So of course, as we will acquire, let's say, new business in Smart Solutions, that will also, let's say, better off our overall cash generation.

[Daniele Misani, executive]

We have another question from Tommaso Nieddu.

[Andrea Favini, executive]

Yes. So Smart Solutions revenue growth, I believe, we were slightly below the market expectation, but very strong margins in the quarter for the division. Can you give us more color on that? Is it for a mix? the partial [indiscernible] okay, sorry...

[Daniele Misani, executive]

So about Smart Solutions, I don't know the expectations of the market. Of course, we set an expectation as a long-term, let's say, growth of an average of 17% in the duration of the plan, in the 3-year plan that is, for sure, not reasonable just in 1 quarter. What we expect for the plan is the growth and the scale up of the solution that we have on a broader, let's say, customer base, specifically at the international level. So let's say, the 17% growth as an average will be an average that we will reach after we scale up, of course. Still in the, say, 9 months, the growth of the Smart Solutions part is significantly...

[Andrea Favini, executive]

Organic growth is about 10.5% and overall of 46%...

[Daniele Misani, executive]

So we get some, let's say, expectation also to close some deals that are shifting, specifically one in North America that is quite important that will bring value on a long-term basis that we didn't sign in the first 9 months, but is -- I don't want to sell because I am.

[Andrea Favini, executive]

Conservative.

[Daniele Misani, executive]

Conservative, but there is an important boost for some mature product in North America. So we are still confident that the ramp-up that we will have during the next period will improve the average growth that we recorded in the first 9 months.

[Andrea Favini, executive]

Then the partial sale of Banca del Fucino has been postponed to year-end. Can you clarify on why that?

[Daniele Misani, executive]

Yes. So let's say, our agreement with the buyer of the stakes that we have in Banca del Fucino has an agreement that was ended at the end of the quarter, so in 30 September. We had some issue related to regulations. So one was about to do the handover, the time to check all the regulation shifted. So the -- let's say, the agreement was extended at the end of the year in order to complete all the checks for the regulation and close it.

So still, we have a binding commitment of the buyer to acquire the shares. We accepted to shift because we are happy to sell the shares. And of course, it's just regulatory issues or bureaucratic issues, we are more than happy to wait a little bit. But still, we are confident to sell the shares by the end of the year, at least the part we have already declared disclosed, but we are in negotiation also to extend, let's say, the sales of an additional amount to the same buyer that probably will -- if everything goes okay, will be completed during the first quarter of the next year.

And of course, we are very active in order to sell the entire investment that we have in the bank. So there are several interested parties. We are still negotiating with them. First of all, we want to close this first batch by the end of the year. And then we are more than committed to divest all, let's say, the stakes so far we have in the bank.

[Andrea Favini, executive]

Thank you, Daniele. Next question, can you give us some updates on some of the business you're launching, for example, NewPos and others?

[Daniele Misani, executive]

Yes. So probably we have already answered when was posted this question, but give some flavor also for the MarTech issues, the IoT one, XR and VR was part of the presentation for which we are getting new contracts. I already told that we are in final negotiations for a good deal for the aerospace and defense business in North America. NewPos...

[Andrea Favini, executive]

Evidence-based training was very interesting.

[Daniele Misani, executive]

Yes, we have, let's say, invested last year in innovative platform, Smart Solutions for evidence-based training of pilots, so AI platform that collect data around a pilot from the training path, so from the simulators, whatever they do in classroom, but also collect data from the operation of the pilot.

So data coming from aircraft recording the performances they have with the machine, with the airplane. So this kind of platform was selected by a defense player. And so we are very -- so we have already negotiated. So there are just the final steps in order to sign a first deal in a defense business for which the platform will be used for the next-generation pilots to be trained and to be, let's say, followed up across all the lifetime in order to increase efficiency of pilots and also efficiency of the training process to keep pilots as much as possible aware to the new challenges that we will face.

So this is another example. Another example, maybe NewPos spoke a little bit, but I want to give more some flavor. First 9 months were made by opening up partnership at European level with players in different countries -- we are speaking about Spain, U.K., Germany, for which we negotiate already possible delivery channels through Europe.

We are still investing in technology because there is a mix of -- in the joint venture of hardware coming from our partner and the software components, innovative software components that are made by TXT that are still under the process of certification, mainly for the different countries because it requires -- since the digital payments area is an area that is strongly regulated, so still needs certification in order to be operated across different countries.

So 2025 for us is still a year of investment. We will have the first, let's say, significant revenue in the last quarter of the year, speaking more about EUR 2 million turnover, more or less. So the first batch of delivery that we will do in Italy. But the pipeline is growing for the next year, the expectations are good.

[Andrea Favini, executive]

Thank you. We have another question from Tommaso from Kepler. Working capital absorption decelerated in the third quarter. Do you have some visibility for the fourth quarter?

[Daniele Misani, executive]

So we have already said something, but...

[Andrea Favini, executive]

Yes. I think in the first half of the year, as we mentioned, there was also this effect coming from the discontinuity of some, let's say, factoring program from some acquired company. So this is, of course, visible in the third quarter when this effect is somehow fading away. Fourth quarter of the year, looking at, let's say, the first month almost in a half, it looks better compared to the -- for sure for the first half, but also compared to the third quarter.

So unfortunately, we have some very big customer, let's say, some of the main customers, which weight in terms of working capital is high. So it's enough a delay of, I don't know, a week, the collection of a big let's say, number of invoices. So difficult to say, but for sure, the monitor it's strong. And looking at, let's say, half the way, so mid of November, the trend, it's better, of course, than compared to the first half, but also compared to the third quarter of the year.

So we have, let's say, good visibility. If we look at the receivables from, let's say, schedule perspective, it's positive. So we just need to, let's say, keep an eye on a receivable that will be due close to the year-end and try not to have delays on that, let's say, items to secure a better cash conversion.

[Daniele Misani, executive]

Okay. So far, we don't have other Q&A. I don't know if someone still have to ask for something, we are available. Otherwise, you can send, let's say, any questions to our Investor Relator, and we will be back to you very quickly. So thank you very much for attending the conference call. I hope that these results are in line with the expectation.

We are working hard in order to capture the opportunity and be more, let's say, effective quarter-by-quarter. So far, so good. So it sees that we delivered a quarter better than the previous one. And we are very committed in order to continue to do that for the next period. So thank you very much, and let's meet together again for the yearly results in 2026. Thank you.

[Andrea Favini, executive]

Thank you, everyone.

[Daniele Misani, executive]

Bye-bye.

[Andrea Favini, executive]

Bye.