Earnings call transcript: Seco SpA sees 7% growth in Q1 2025

Seco SpA, with a market capitalization of $23.89 billion, reported a 7% growth in net sales for Q1 2025 compared to Q4 2024, with software revenues now contributing 13% of total sales. The company’s gross profit margin exceeded 50%, significantly below its impressive last twelve months margin of 76.2%, while its adjusted EBITDA margin rebounded to 20%. According to InvestingPro analysis, the stock appears overvalued based on its Fair Value calculations, despite showing strong year-over-year revenue growth of 33.26%.

Key Takeaways

• Seco SpA’s Q1 2025 net sales grew by 7% compared to the previous quarter.
• Software revenues now account for 13% of total sales.
• The company maintained a gross profit margin above 50%.
• Adjusted EBITDA margin improved to 20%.
• Seco SpA reduced net working capital by €20 million over the past year.

Company Performance

Seco SpA demonstrated a solid performance in Q1 2025, with a notable 7% increase in net sales from the previous quarter. This growth was primarily driven by an increase in software revenues, which now make up 13% of total sales. The company’s focus on AI at the edge technology and partnerships with companies like Raspberry Pi and Nayaks contributed to its strong performance. Seco SpA’s strategic positioning as an AI enabler and technology partner has helped it maintain a competitive edge, particularly in the industrial and edge AI sectors.

Financial Highlights

• Net sales: Increased by 7% compared to Q4 2024.
• Software revenue contribution: 13% of total sales.
• Gross profit margin: Exceeded 50%.
• Adjusted EBITDA margin: Rebounded to 20%.
• Net working capital: Reduced by €20 million over the year.

Outlook & Guidance

Seco SpA is optimistic about its future performance, expecting Q2 2025 revenues to reach €50 million while maintaining a gross profit margin above 50%. The company anticipates progressive growth throughout 2025, with acceleration expected each quarter. Full-year guidance is set to be provided in September, indicating confidence in its growth trajectory.

Executive Commentary

Max Mowry, CEO of Seco SpA, emphasized the transformative impact of AI at the edge on the industrial sector, stating, "The use of AI at the edge is about to radically transform the industrial sector." He also highlighted the company’s role as a key AI enabler, saying, "We see ourselves as one of the most important AI enabler and partner." Additionally, Mowry expressed confidence in the company’s revenue targets, noting, "We are expecting to have a revenue over €50,000,000 in the second quarter."

Risks and Challenges

• Geopolitical tensions: These could impact global supply chains and tariffs, although they may benefit European and US-based companies.
• Market saturation: Increasing competition in the AI and edge technology sectors could pose challenges.
• Potential tariff impacts: Seco SpA is optimizing shipping strategies to manage these risks.
• Economic conditions: Broader macroeconomic pressures could influence demand across various sectors.

Seco SpA’s Q1 2025 performance reflects its strong position in the market, driven by innovation and strategic partnerships. The company’s focus on AI at the edge technology and its ability to maintain robust financial metrics suggest a positive outlook for the remainder of the year. For deeper insights into Seco SpA’s financial health, valuation, and growth prospects, access the comprehensive Pro Research Report available exclusively on InvestingPro, part of their coverage of over 1,400 US equities.

Full transcript - Seco SpA (IOT) Q1 2025:

Moderator/Host: Welcome to Seiko’s Q1 twenty twenty five Results Presentation and Business Update. Before I hand over to your host today, please be advised there will be an opportunity to ask questions at the end of the presentation. In order to do so, please use the raise hand function on your screen. Or for those signing in, it’s star nine on your keypad. I now have pleasure handing over to Clarence Nhan, SECO’s Head of Investor Relations.

Please go ahead, Clarence. The floor to you.

Clarence Nhan, Head of Investor Relations, SECO: Thank you very much. Good morning to you all, and thank you very much for joining us on our quarterly call. During this presentation with our CEO, Max Mowry, and our CFO, Lorenzo Massini, who will discuss the financial performance for the first three months of this year. We will also provide you with a detailed update on our business and the trends we anticipate going forward. So the key message we want to pass on today is that we are now in a position to confirm a clear rebound in our business.

In fact, both our revenues and our gross profit margin for the quarter came above the guidance we had provided to the market back in March. And most of our p and l KPIs continue to put us in the very top decile of our sector. CLIA continued to progress, now contributing 13% of our revenues, and our EBITDA also showed a strong rebound quarter on quarter, now back above the 20 margin. We also want to take this opportunity to address some of the questions we received from investors during our latest road shows. On US tariffs first.

As you know, The US is still a relatively small part of our business at around 14% during the first quarter. We have already confirmed with most of our largest client in the area that we will pass through any tariff impact onto them, which they have agreed to and demonstrate our strong pricing power. We actually expect this region to grow in 02/2025 and can confirm that our budget is already mostly covered by contracted orders. On the outlook as well, where for the moment there is no change to our stance, we want to define it as cautiously positive. All our KPI confirm the positive trends, and we are back to delivering quarterly performance in line with our historical levels, confirmed by the guidance we provided this morning to investors of €50,000,000 in revenues for the next quarter.

With this, I will leave the floor to Lorenzo to take us through our financial results in greater details.

Lorenzo Massini, CFO, SECO: Thank you, Clarence, and good morning to all. Let me provide you with the key highlights of our q one twenty five financial KPIs. Starting with our net sales, we closed the quarter in line with q one twenty four. But more importantly, we recorded a 7% growth versus the fourth quarter of last year. This growth was true across almost all geographies and verticals.

Software revenues also increased respect to q four, now contributing 13% of our total sales. As per the gross profit margin, a strong performance in the quarter has put us far above the 50% guidance. This is in part due to the growing contribution of software sales. Another important KPI is the rebound in adjusted EBITDA margin at 20%, driven by our operating leverage effect with OpEx actually actually stable respect to q four twenty four and q one twenty four. Finally, please note that our adjusted net income, as usual, is a less relevant metric as of this time of the year.

Taxes are calculated with theoretical tax rate, and these interest incomes do not include gains over derivatives on the financing facilities due to the adjunct counting. Moving on to our revenue breakdown, I would like to point out two important items. First, our software sales are now reaching a 13% contribution in q one twenty five, the highest level since our launch of the software business. Second, thanks to the recovery in demand following the end of the destocking, we enjoyed a double digit growth in almost all the countries versus the same period of last year. This is true with only one exception that is Germany, where we see where we still see a delay in the recover of demand.

Now let’s pass commenting our adjusted EBITDA performance. Our profitability margin is back up 20%. The gap with respect to q one twenty four is explained only by the difference in gross profit margin. This demonstrates that the 37,000,000 of revenues we book in q one created an inflection point in our EBITDA margin. And therefore, going forward, the more we increase our sales, the more profitability we can generate, thanks to our operating leverage.

On adjustments to EBITDA, this quarter are almost all represented by the stock option actuarial value. Finally, touching upon our net financial position, it continues to be fully under control with the leverage below two times EBITDA. The increase in the quarter respect to 02/2024 year end can be primarily explained by the increase in trade receivable due to many factor. One of these is a reduction in the use of nonrecourse factoring. An important point that I would like to point out in the closing of this quarter is the level of net working capital.

In one year, we was able to reduce net working capital by 20,000,000. Thank you very much for your attention, and I pass through the speech to Max again. Hi. Good morning to all, thank you very much, Lorenzo, for your explanation. In this section, I want to share my perspective about our business performance for the start of this year as well as

Max Mowry, CEO, SECO: some outlook forward into the second quarter. But first, I want to share with you my vision for SECO. If you think which is the most important driver for our sector in the next decade, it will be, for sure, the AI. And the the use of the AI at the edge is about to radically transform the industrial sector. But Spain said, may have noted how slow is the adoption so far.

And I think this is mainly due the fact that what what is missing is actually the high level of customization that OEMs are requiring, and that is come by defining the use case tile tailored to their specific needs and then and then market. And this is exactly where SEQO is distinguished itself with our end to end offering solution and the ecosystem that we are building around CLIA, we see ourself as one of the most important AI enabler and partner that will enable our customer to unlock the potential coming from this transformation. And if we go to the next slide, thank you very much, and more than ever confident that our strategy is the right one to capture the acceleration in the demand. We are now a leader in the highly integrated edge system, and this is means that we are considering by customer as a true technology partner. We are providing more value added service to our client, thanks to our CLIA software suite and the ecosystem we are building around it, and this evolution will continue.

This strategy will lead to gain more market share and grow the stream of recurring revenue opportunities for Seco. And this is how the strategy will pay off creating a stronger value creation for our company. CLIA is a key pillar of this strategy, and now I want to show to you which are the results of CLIA more in detail showing as a first time the contribution of the recurring revenue part in in this business. We steadily progressed since the launch in the 02/2021, the increase of CLIA on on our top line, reaching now the 13% of our revenue. And we think CLIA revenue, as you know, we are getting an NRE as per implementation fee where which our client pays in the initial phase of the adoption the the adoption process.

And then we get the subscription portion, which is userly contracted over a ten years period, and is a recurring revenue monthly fee. The driver for the continuous access of CLIA are CLIA. One, the existing client renew their CLIA subscription, like, for example, BTDA. Second, as new client endorse CLIA’s very reference IoT platform, like, for example, Hitachi did. And third, as we include new partners in our ecosystem, like, for example, we did with Raspberry Pi or Nayaks.

I expect that the contribution of this recurring portion of the revenue to continue to improve, fueling both our top line and our margin. All this strategy is obviously rely on our top tier one customer list, which with Voom, we have been doing business for many, many years, sometimes over decades. So focusing now on our KPI, as you can see in the in this slide, the order backlog continued to show a positive trend during the course of the first quarter. This is a v shape recovery I had mentioned in March already confirming that the the destocking is indeed behind us. In fact, I’m positively surprised by by this rebound as most of our clients are now back on track to very historical level.

All our major market are enjoying this dynamic with maybe the inspection of the German market. The Dutch region remain weaker right now, but we are expecting to see a positive evolution going forward due to the local stimuli stimulus that are starting to have an impact. I’m also impressed by the record level of project we added to our pipeline during the q one, some of which we should be in a position to announce very soon to the market. All of this is driven by high demand for new product from industrial pay player, especially for edge AI application. Let me now to conclude this this slide where I can show to you how we we we did already successfully for a couple of quarters.

I want to share with you the financial guidance for the next set of results, which will be published later in September. We are expecting to have a a revenue over 50,000,000 in the second quarter, always maintaining our 50% plus gross profit margin target. This means that we will go back to delivering quarterly performance in line with our historical level of profitability, returning back to a consistent quarter on quarter profit and growth trend line. This is something that is really important to me. And this is also the demonstration of the strengthness of our equity story and the business that we are we have built at Seco.

With this, I want to thank you again for attending this call, and I suggest we could open the line for questions. Thank you very much.

Moderator/Host: Thank you to the management team. We now have an opportunity for questions. As a reminder, if you would like to ask a question, The first question today comes from Marco Vitale. Please, Marco, the floor to you.

Marco Vitale, Analyst: Good morning. Thank you for taking my question. The first one is about the, say, top line outlook. Once capturing the 02/02 second quarter guidance of 50,000,000, then you will probably be positioned to deliver the the start the start, say, after the low single digit variance. I was wondering whether you still see the current consensus numbers for the full year, pointing to double digit growth at region, or maybe we should incorporate a more, say, the copy path.

Had the the second question is about the, say, business pipeline and the conversation you are having with clients. The, say, trend of the back of this very very encouraging. I was wondering if you have noted any, say, speech in the conversation on that. The clients are starting from everyone, do you say, the new set of targets been announced? Thank you.

Max Mowry, CEO, SECO: Okay. So let’s first follow-up on your first question. We will be in a position to provide to the market a full guidance for this year later in September when we will present to the financial community the result of the first half of the year. Anyway, as we said already March, and I can confirm it, we are expecting the growth progressively accelerate during the course of the year with a a good progression quarter by quarter. And this is confirmed by all the KPI and that we are monitoring.

So I have no reason to change the statement that we already did in March. On the second questions, based on the conversation we are having with customer, we are noting that there is a huge request of product and a huge request of new project that is coming almost across all the region and in many sector. We do not see any kind of impact yet from the tariff. We was able to pass through it basically changing the the way how we are shipping the goods to US customers. We already changed with all of them the way how we are shipping.

And based on the new rules, we are shipping our goods direct directly at the border of The US, and they are are now paying, if any, cost of for importing the goods into the region. And this is what’s basically offsetted by all of them. So I think what is really important now for our sector is also noting that most of our competition, historical competition is coming from Asia. And, therefore, in this tension that we are facing in in the geo geographic geopolitical situation, we could have a positive impact, for customers based in Europe and based in US against the competition. So thank you very much.

Moderator/Host: Thank you, Marco, for your question. Our next question now comes from Arianna Terazzi. Please, Arianna, the floor to you.

Arianna Terazzi, Analyst: Yes. Good good afternoon. Hope you can hear me. Thanks for the presentation. You beat gross profit margins guidance, and also based on the last conference call comments, the guidance on gross profit margin even of, above at least 50% even for the second quarter looks cautious.

Is it fair to expect 53% gross profit margin also for the second quarter? In the sense, also as a follow-up from a previous question, but on a margin’s perspective, I would appreciate, comments in terms of different margin contribution from orders, which will translate into revenues in the coming months? And then I would ask a clarification on the book to bill level in the first quarter that you showed in the in slide 14. Thank you.

Max Mowry, CEO, SECO: Okay. So let’s start from your first question. So first of all, we already provide a guidance for the second quarter where we are expecting to be well above the 50% margin. We could not be more specific because the gross profit margin is really driven by the sales mix. So many factors that are quite impossible for us to predict the 53, 50 two, 50 four, 50 five.

It’s really difficult to predict. So let let’s have as an expectation that we would beat once again the guidance we already provided. That’s for sure. In terms of evolution of the book to bill and the orders, I I can tell that also April went well above the previous year in terms of order intake, confirming us once again that the the stock is is now over. And the the our position on the market in terms of technology offering is really starting to pay off.

In terms of margin of the orders that we are acquiring, we see, for for example, the medical sector is growing quite significantly well above the 50% year on year, and the medical market is one of the most beautiful market in terms of contribution on the margin. So therefore, we are expecting to keep a very good margin and a good profit profitability across all the next three quarters. Another important topic that I would like to outline is the incidence of the OpEx and the cost control and the cost cutting that we execute successfully during the course of the last three quarters of the 02/2024. In fact, if you double check the level of the OpEx, the OpEx are quite stable compared with the last quarter of the year even if we added more than €33,000,000 revenue, meaning that we are really saving money in terms of cost versus revenue, enabling us to have a very positive contribution in terms of leverage operating leverage. So thank you very much, Liana.

Arianna Terazzi, Analyst: Thank you, guys.

Moderator/Host: Thank you, Ariana. Our next question now comes from Bharat Nagar. Jay, please, Bharat, the floor to you.

Bharat Nagar, Analyst: Thank you. Just a quick question. I think you referenced this just now. But, in April, just wanted to understand how the book to bill and the order order book trended, given Advantik just this morning reported, like, slightly slower 9% growth in Europe. So just wanted to get some color from you as to how how April has, April has pro progressed for Seco.

And then secondly, when do you expect to see a bump in clear recurring revenues recurring revenues from all the new wins and part partnerships that you announced in the last few months? And lastly, just a quick housekeeping question on the fixed cost. I think you again referenced this just now. But in terms of fixed cost for the rest of the year, do you expect any significant changes in terms of hiring or anything else? Thank you.

Max Mowry, CEO, SECO: Right. So April was affected by a lot of banks’ holidays because Easter and other banks’ holiday that we had in April. So, therefore, the April numbers needed to take it in count. That’s being said, we had a very positive April both in terms of revenue revenue and or the order intake. And as a second question, it was related to the cost.

I think that our costs are fully under control. You can expect more or less the same level of ABTDA sorry, of of OpEx also for the next quarter. Pre please consider that OpEx will, for sure, slightly increase due to the increase of the revenue, but this is will also lock the operating leverage. So we will see our profitability for sure better because higher revenue are assort absorbing the OpEx better than in the past. That’s for sure.

Going forward, I think in the second half of the year, we will start to grow slightly our OpEx in terms of fixed cost with some hirings because we had a very positive trend of also design win that will enable us to really grow faster in the in the 02/1926. And, therefore, we want to prepare our our structure, internal structure to be able to support it. On the clear side, I think we will see a progressively increase in the recurring revenue part of our business, and, definitely, we will see a good bump of it at the beginning of the 02/1926 when we will have the positive contribution of of some customers that will start to enter in mass production, adding a significant layer of recurring revenue to the existing one. The existing one, anyway, you will see the progressively growing quarter by quarter as we go into the 02/2025.

Moderator/Host: Thank you, Bharat, for your questions. We now have a question in the chat from Eiviot Basha from Longroad. The question is, how does the company see the demand in the comsum market?

Max Mowry, CEO, SECO: Yes. The some market represent around 12% of our total revenue because we are really focused in a value added offer, meaning that we are selling more system. A part of it, we see, as I told you before, a big demand that is coming from some, especially related to new generation of CPU that are integrated already the functionality to run AI at the edge. More in deeper, I’m referring to on the smart model, for example, to Qualcomm. The new generation of Qualcomm and the new generation of Intel are for sure going in this direction and are reaching very good demand from customer as well as the new generation of chip based on NXP.

On the com aspect side, I think Intel, AMD right now are going pretty well. And we have a very good expectation about a new Comesprex based on Qualcomm that we will launch later in the second half of the year that we are expecting to be a killer application in many verticals, and and we are quite excited about this product going forward.

Moderator/Host: Thank you, Eiviet, for this question. So currently, we do not have any questions queued, so we’ll wait just a few moments to give everyone the opportunity to ask a question. As there are no further questions, I will now give the word back to the speakers for any final comments before bringing this presentation to a close. Thank you.

Max Mowry, CEO, SECO: Thank you very much to all for participating. As always, our a AR team stay at your disposal for any further question you may have, and see you soon. Bye bye.

Moderator/Host: This presentation will now come to a close. Thank you.

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