Earnings call transcript: Rai Way Q1 2025 sees revenue growth, net income falls

Rai Way SpA reported its financial results for the first quarter of 2025, revealing a 1.7% increase in total revenue to €70 million. Despite this growth, net income fell by 5.3% to €22.6 million. The company’s stock responded with a 1.14% decrease, closing at €6.13. According to InvestingPro analysis, the company currently trades near its Fair Value, with an overall financial health score rated as "GREAT". The decline in net income and increased operational costs were key factors in the market’s lukewarm reaction.

Key Takeaways

• Revenue increased by 1.7% year-over-year to €70 million.
• Net income decreased by 5.3%, impacting investor sentiment.
• Stock price fell by 1.14% following the earnings announcement.
• Strategic initiatives in digital infrastructure and CDN services are underway.
• Personnel and operational expenses saw significant increases.

Company Performance

Rai Way’s performance in Q1 2025 was marked by growth in revenue, particularly in its digital infrastructure segment, which saw a 3.1% increase excluding non-recurring items. The media distribution segment also contributed with a 1.6% rise. However, the company’s overall profitability was affected by a decline in net income and rising costs.

Financial Highlights

• Revenue: €70 million, up 1.7% year-over-year
• Net Income: €22.6 million, down 5.3% year-over-year
• Adjusted EBITDA: €46.9 million, flat year-over-year
• Net Debt: Reduced to €116 million from €128 million
• Leverage Ratio: 0.6x

Market Reaction

Following the earnings release, Rai Way’s stock price declined by 1.14%, closing at €6.13. The stock trades near its 52-week high, with a P/E ratio of 5.67x and a price-to-book ratio of 0.74x, according to InvestingPro data. The market reaction was tempered by the decrease in net income and increased costs. For deeper insights into Rai Way’s valuation and performance metrics, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Outlook & Guidance

Rai Way maintained its full-year guidance, anticipating healthy growth in its traditional business sectors and CPI-linked revenue increases. The company is focusing on expanding its DAB network and pursuing diversification initiatives, aligning its development CapEx with the previous year.

Executive Commentary

CEO Roberto Cicato emphasized the company’s focus on industrial aspects and synergy in potential mergers. CFO Adalberto Pellegrino highlighted the importance of securing contracts with a positive impact for the following year. An unidentified executive mentioned efforts to accelerate decision-making for smaller customers.

Risks and Challenges

• Decrease in net income could impact future profitability.
• Rising personnel and operational costs may affect margins.
• Ongoing merger discussions with EI Towers could introduce uncertainty.
• Market competition in digital infrastructure and content distribution networks.
• Economic factors such as energy prices and inflation could affect costs.

Q&A

During the earnings call, analysts inquired about the commercialization of edge data centers, potential merger with EI Towers, and strategies for managing operational costs. The company’s responses highlighted a focus on strategic growth and cost efficiency.

Full transcript - Rai Way SpA (RWAY) Q1 2025:

Conference Operator: welcome, and thank you for joining the Railway First Quarter twenty twenty five Results Analyst Webcast. All participants are in listen only mode. And after the presentation, there will be a Q and A session. At this time, I would like to turn the conference over to Mr. Andrea Moretti, Head of IR of Railway.

Please go ahead, sir.

Andrea Moretti, Head of IR, Railway: Thank you, Maria. Good evening, and welcome to everyone. As we presented our yearly results and 2025 guidance less than two months ago, today’s presentation will be relatively short and focused on the Q and A. As usual, today’s speakers will be Railway’s CEO, Roberto Cicato the CFO, Adalberto Pellegrino and Giancarlo Benucci, Chief Corporate Development Officer. Let’s first start with the financial and operational overview of the quarter.

Please, Mr. Cicatto, the floor is yours. Good evening to everyone from me as well. Starting with the financial result, which will be explained in detail by our CFO, Alberto Perelegrino. The trends and the driver observed in the first quarter are fully in line with expectation, in particular.

At revenue level, we continue to maintain an inertial CPI plus growth profile.

Roberto Cicato, CEO, Railway: The growth exceeding CPI came from rising tower hosting volumes driven by radio broadcaster, fixed wireless access providers and public administration. The first marginal contribution also came from diversification. EBITDA remained flat even considering the solid underlying operating leverage and profitability of the traditional business. This was due to some items, diversification related cost in line with the expectation and full year guidance as well as to higher energy tariffs. CapEx level were low, both for maintenance due to the typical seasonality of the first quarter and for development, reflecting the negotiation phase for DAB projects and the completion of the first phase of the new project rollouts.

In the quarter, with no dividend payment, low CapEx and low maintenance activity, free cash flow generation is typically high and reached €22,000,000 From an operational standpoint, even though only two months has passed since our last update, I’d like to take a moment to share few developments interesting. Talking about diversification, after a long period of testing, we have entered into negotiation with some major content providers to use Railways CDN to distribute video traffic across Italy under framework agreements. In one case, a discussion at really at an advantage stage. And consider that in a market already served by other players, relevant players, solution reaching this stage of discussion with certain parties seems to confirm the distinctive features and value proposition of railway as we identified from the very beginning. From a traditional business perspective, after the already announced finalization of the contract with dry, we are starting activities for the significant expansion of DAB network, which will keep us busy in the coming year.

At the same time, as clearly showed by our quarterly result, the usual market trends and the focus on operational efficiency remain confirmed. I am also happy to announce that in mid April, the relocation of our headquarter to the new offices in Rome was completed. Let me say that this will contribute to strengthen our corporate identity, better communicating our brand and enhancing the quality and the productivity of our employees. Last but not least, as it is well known, during the quarter, the industrial analysis regarding a potential merger with eight hours have been initiated and activities are currently progressing. The quarterly financial result and operational progresses Arlo has to confirm the expectation for 2025, which I will reiterate in more detail at the end of presentation.

But before this, our CFO will go through a much detailed overview of results. Please, Roberto, go ahead.

Adalberto Pellegrino, CFO, Railway: Thank you, Roberto, and good afternoon to everyone. We are now on Page five, which provides an overview of the financial results for the first quarter of twenty twenty five. I would skip it and go straight to the details of each metric as usual. So let’s see together Slide six that show the trend of core revenue, which increased by 1.7% to EUR 70,000,000. 1 year after introducing the new business line breakdown, aligned with the industrial plan view, starting this quarter, we are discontinuing the previous customer base classification in our financial communication.

In any case, please consider that the contribution of RAI to railway’s total turnover was around 84% in the quarter. Starting with the Media Distribution segments, revenues increased by 1.6%, reaching EUR 61,900,000.0. The additional growth beyond the CPI that was equal to 1.2% is mainly due to non core elements. Regarding the Digital Infrastructure segment, revenues amounted €8,100,000 The segment market EUR 2,500,000.0 increase, mainly driven by the growing contribution from radio broadcaster, fixed wireless access provider and public administration as well as the first results from commercialization of Edge Data Center. The recorded increase rise to 3.1% when excluding nonrecurring items, typically prior year adjustment that last year were higher than this year.

Let’s move to Slide seven on OpEx. We see a 4.4% increase in the overall cost of railway lending and EUR 23,200,000.0. Breaking down the OpEx, personnel costs were up 8.3%, which drops to approximately 4% when excluding capitalization. Such an increase was due to reinforcement in the workforce, perfectly in line with the assumption that we included in our industrial plan. Other operating costs remained essentially flat, 10,500,000.0, despite increasing costs related to the launch of the diversification initiative and the higher energy cost, both offset by one off nonrecurring items in any way in a context of constant monitoring of the company’s cost base.

Slide eight, we recap as usual the profit and loss till the net income, and we may see that the dynamics just described translate into an almost flat adjusted EBITDA at EUR 46,900,000.0. Slightly below, we underline the D and A, which keeps its growth trend quarter by quarter following the increase in CapEx connected to diversification and to development initiatives on the core business. As concerned, the financial charge in Q1 twenty twenty five, thanks to the Central Bank cuts, the cost of our debt is lower than the amount recorded in the last year first quarter. Including an equally flat tax rate, net income, as we have seen in the previous slide, came in at EUR 22,600,000.0, down 5.3% quarter on quarter, perfectly in line with the trend already envisaged in the industrial plan we have approved in 2024. Let’s finally move to Slide nine, where our financial performance is represented.

You all know that the first quarter of each year, railway typically generate cash because the dividend outflows take place in the following quarter in May. Moreover, CapEx activity is typically weak in the first three months of each year. And this quarter is perfectly in line with this trend, showing also CapEx amounting €4,000,000 and also considering another typical absorption of working capital for almost EUR 14,000,000, the net debt at the March reached EUR 116,000,000 compared to EUR 128 at the end of twenty twenty four, bringing the leverage ratio to 0.6x. I’ll now hand it back to Roberto for the guidance and final remarks. Please, Roberto.

Roberto Cicato, CEO, Railway: Thank you, Roberto. We are now on Page 10. As anticipated, the guidance for the full year provided in March remains valid. In the last months, energy prices have proven to be still quite volatile. In the first quarter, we also recorded some additional nonrecurring benefits, but overall nothing measured to change today the positive outlook already shared with you.

Therefore, we guide for the usual healthy underlying growth of our traditional business, mostly compensated at adjusted EBITDA level by two FX, slightly higher expected energy tariff and the higher dilutive impact on EBITDA on the diversification initiatives in line with the assumption of the industrial plan. In particular, first, in the Media Distribution segment, the Rye fixed consideration will benefit from CPI leak, while other components will be supported by the DAB coverage extension and rising GDN contribution. In the Digital Infrastructure segment, we expect the CPI plus growth with the plus coming from data center rising contribution. On the OpEx side, the increase will be largely related to the diversification initiatives, while on the traditional businesses, the inflation will be modest and mainly due to electricity tariff. On the CapEx side, maintenance CapEx level will be a few million euros above the normalized level of 67% of sales due to some extraordinary and nonrecurring activities.

The development CapEx are expected broadly in line with last year and mainly devoted to the AB rollout and diversification. So, let me say that the guidance is there and I think that now it’s now time to answer to your question and thank you for your attention.

Conference Operator: Thank you. We will now begin the question and answer session. The first question is from Giorgio Tavolini of Intermonte. Please go ahead.

Giorgio Tavolini, Analyst, Intermonte: Hi, good evening. Thanks for taking my questions. So the first one is on the if you can provide an update on the commercialization of edge data centers. In Q4, you talked about multiyear revenue backlog of around €6,000,000 So I was wondering if there was any relevant update on this And the second question is on consolidation. Actually, we got a very encouraging update from EI towers regarding their harmonization of the perimeter of the activity.

So they extended their perimeter to the ownership of the active equipment. So I was wondering if it was somehow a precondition for considering a potential merger. And the second question is that now that the two parameters of the master service agreements are aligned, I was wondering if you see any remaining differences was to be fixed, such as, for example, the contract duration. Now your contract expires in 2028, that contract expires in 02/1932. So there are there is a space for an harmonization on that side and probably also on the CPI link.

I was wondering if you have any thought on that front. Thank you.

Unidentified Executive, Railway: Ciao, Giorgio. I keep the one on the data centers commercialization. Let’s say that our commercial activity keeps on growing in terms of offering, so proposal and in terms of creating a reseller of ecosystem. Basically, we explained the dynamics of the market during the last presentation and the direction has not changed as of today. We are also looking for some, let’s say, solution to accelerate a little bit the decision making process of smaller customers, but the like introducing some YaaS services that goes slightly beyond collocation.

But generally speaking, there are no major changes and the commercialization is going on.

Roberto Cicato, CEO, Railway: Considering the question that you addressed regarding the consolidation, let me say that from what we have read, it seems that the model is evolving towards ours as we hone the active equipment to use it by RAI. So, this makes the scope of the business even more comparable. But let me say, the perimeter that we know are anyway different. To give you an example, we are managing all the radio management of the network, including site and active equipment. And this is presumably different between the other part.

So this is the answer that I could give you. Considering the other point, let me say that we are not in the condition, of course, to answer to your question. Let me say that the analysis are ongoing. And as Luis already said, the focus is particularly on industrial aspect and synergy.

Giorgio Tavolini, Analyst, Intermonte: Very clear. Thank you very much.

Conference Operator: The next question is from Milo Silvestre of Equitasium.

Milo Silvestre, Analyst, Equitasium: Yes, good afternoon everybody. Just two questions. The first one concerns hyperscaler data center. So if you can elaborate more on that and if you have received all the authorizations that you are waiting for? And the second one is a follow-up on the edge data center.

So if you have, let’s say, a target in mind for the full year in terms of revenues.

Roberto Cicato, CEO, Railway: Thank you for the question. Let me address the hyperscale story. We have some good news because, let me say, this week, just received the positive completion of the in Italy, we call Conferencia Lizzervitzi, that is milestones in the authorization process. So, it’s another good step. But you know that the bureaucracy in Italy is pervasive.

And so, we would like to wait for the next steps, maybe easier, but one milestone was the closing and the positive closing of Conference de Servizi, we just complete the past week. So I will address this issue when we will have really the final permission to start to build.

Adalberto Pellegrino, CFO, Railway: On the second point As concern your second question, I would refer to our diversification initiatives of both Edge and CDN. And in the year of the service launch of 2024, we made hundreds of thousands of euro. In 2025, we expect to go above 1,000,000. But in any case, I would not focus on the accounting value of our revenues in 2025. What will be key is to work in order to close contracts with a positive impact on the following year.

So the overall yearly value of the contract that we will sign, that is clearly key in order to guarantee the growth of our top line consistently with the trend of our industrial plan.

Conference Operator: The next question is from Andrea Beloli of Banco Acros.

Andrea Beloli, Analyst, Banco Acros: Yes. Thank you for taking my question. Good afternoon, everybody. Andrea from Banca Acros. We just started the coverage yesterday.

May I just have a quick one on OpEx? If I understood well, higher energy tariffs impact for €1,100,000 additional cost in Q1. And but I see that operating costs other operating costs remained flat year over year. Then I was wondering if you can give us more color about eventual efficiencies that there has been in other costs. Thank you.

Adalberto Pellegrino, CFO, Railway: Hi. So as concerned, the OpEx, yes, basically, have an impact on the energy cost of approximately EUR 1,000,000 quarter on quarter, that’s correct, as well as an increasing trend, of course, of the OpEx related to the diversification initiatives. All these negative impact on our OpEx has been basically offset by some one off that we had prior year adjustment, higher than the value recorded in the first quarter twenty twenty four. This is the most important impact. Then we also have a few hundred euros of impact coming from our focus on cost cutting and, generally speaking, on control on our cost basis.

And this is the overall impact of all this trend is basically neutral at when you see the other OpEx overall figures.

Andrea Beloli, Analyst, Banco Acros: Okay, clear. Thank you.

Conference Operator: The next question is a follow-up from Giorgio Tavolini of Intermonte.

Giorgio Tavolini, Analyst, Intermonte: Hi. Just a follow-up on the energy prices. I was wondering if you confirm your assumption on the energy prices for 2025. In your Q4 presentation, you were assuming EUR 125 per megawatt tower. I don’t know if it’s still the case or you are seeing rising energy prices when excluding the spread in green energy auction and so on and so forth.

Adalberto Pellegrino, CFO, Railway: Broadly speaking, we are more or less in line with the amount that you just mentioned.

Giorgio Tavolini, Analyst, Intermonte: Okay. Thank you.

Conference Operator: Please click on the Q and A icon on the left side of your screen. Gentlemen, there are no more questions registered at this time.

Andrea Moretti, Head of IR, Railway: It’s fine. Thank you, operator, and thank you all attendees. We look forward to seeing you in our brand new headquarters whenever you travel to Rome, and wish you a pleasant evening. Thank you. Goodbye.

Conference Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices.

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