Chief Executive Officer, Telit Cinterion
Telit Communications PLC TTCNF CEO Paolo Pino on Q2 2020 Results
About Paolo Pino
During a Q2 2020 results presentation, Paolo Pino, CEO of Telit Communications, stated that the company was not considering dividends or buybacks due to economic uncertainty, emphasizing a focus on "value creation" through business growth. He also discussed the company's strategy of creating competition between its manufacturing facilities in Vietnam and China, including a partnership with Foxconn, to manage production costs and mitigate risks related to US-China tensions. Pino highlighted the company's recent transformation and its focus on bundling services and technology upgrades, particularly 5G, which he described as central to future projects. He noted that an investigation by the FCA (likely a reference to the Financial Conduct Authority) into events from 2017 had concluded with no enforcement action against the company.
Transcript (36 segments)
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Interviewer0:02
Good afternoon ladies and gentlemen, welcome to the telecommunications PLC results presentation for the six months ended June 30, 2020. Investors are in listen-only mode; questions can be submitted via the Q&A tab. The company will review all questions. I'd like to hand over to Paolo Del Pino, CEO, and Yariv Dasma, CFO.
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Paolo Pino0:53
Thank you. I'm Paolo Pino, CEO. I've held senior roles at Pirelli, Wind Telecom, and Telecom Italia. I'm proud to lead Telit. In the past two years we underwent a major transformation, fixing structural and strategic issues. Our board is now strong with members like Marco Patuano and Gil Sharon. We planned 10% revenue growth but faced COVID-19. We acted quickly to cut costs, including salary reductions for management. We protected EBITDA and cash. We launched One Edge, an integrated hardware and services IoT solution that has won several awards. Our R&D is more efficient, and we achieved global 5G certifications. We're focusing on edge and 5G, which will transform society. Our connectivity business is growing with improved profitability. We're confident in delivering profit growth.
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Yariv Dasma14:47
Good afternoon. Revenue was $166.9M, down 7.4%, primarily due to COVID-19. Cloud and connectivity revenue grew 12.3% to $21M. Americas revenue grew 1.7% to $89.6M; EMEA down 10.3%; APAC down 24.4%. Gross margin improved to 35.2% due to better IoT product margin and a higher services share. Adjusted EBITDA improved by $2M to $18M thanks to cost savings. Cash profit increased significantly to $5.9M. Operating cash flow was $22.4M, improving from an outflow of $11.8M last year, driven by better receivables collection. Net cash rose to $56.2M. Balance sheet remains strong. Capital expenditure was $10M. We see no major changes in working capital aside from direct purchasing initiatives.
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Paolo Pino22:24
To summarize, we've undergone a major transformation. Our mantra is bundling—double play, triple play—and technology upgrade with 5G. The FCA investigation into 2017 events has been closed with no enforcement, removing a cloud. We are on track to deliver full-year profitability in line with board expectations. We aim to create value for shareholders and be the strong player in the market as it recovers.
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Interviewer25:52
Thank you. Please continue submitting questions. Investors can provide feedback after the session. I have two pre-submitted questions. First: Do you see further room for margin expansion and what is your target?
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Yariv Dasma26:48
Margin improvement can come from better hardware gross margins, though limited, and a mix shift toward services, which have margins more than double hardware. As services grow faster, overall margin should improve.
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Interviewer27:47
Second: Can you give an example of what you've done for a client, and revenues associated—one-off versus recurring?
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Yariv Dasma28:00
Over 80% of services revenue is recurring. Hardware is one-time, but designs lead to repeat orders over the product cycle.
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Interviewer28:50
Paolo, could you address the question about the relationship with the two largest shareholders: Ron Liangtai and Uzi Katz?
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Paolo Pino29:26
We have a normal relationship with both. They are on the board via Mr. Yang and are collaborative, focused on value creation. There is no interaction with Uzi Katz except as an investor.
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Interviewer30:21
Next question: working capital levels and expectations?
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Yariv Dasma30:37
Working capital is normalized. We don't expect major changes. Direct purchasing initiatives may require some investment but can improve margins.
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Interviewer31:27
Second half expectations?
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Yariv Dasma31:36
We cannot provide guidance, but Paolo's message on profitability is clear. Many companies have withdrawn guidance. We recommend looking at analyst estimates.
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Interviewer32:11
Question on interim dividend?
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Paolo Pino32:34
We are not considering dividends or buybacks now due to uncertainty. We focus on value creation through business growth and will consider actions that contribute to that.
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Interviewer34:03
Question about One Edge—functionality and first-half revenue?
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Yariv Dasma34:18
One Edge was recently launched; no substantial revenue yet. Paolo can add more.
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Paolo Pino34:40
One Edge bundles modules, connectivity, and platform into one device. It protects our hardware business and transforms it into recurring revenue. It helps defend against competitors and grows organically.
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Interviewer36:47
Question about the new CM in Vietnam?
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Yariv Dasma36:58
Yes, it's up and running since March via Foxconn. This improves supply chain competition and reduces risk between China and the US.
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Interviewer38:02
Question about services business profitability?
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Yariv Dasma38:11
Services margin is around 70%, split 60% connectivity, 40% cloud. The business became profitable last year and will be profitable this year.
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Interviewer39:14
Product portfolio changes and technology evolution?
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Yariv Dasma39:22
Majority of revenue comes from 4G products; 2G/3G is insignificant. We have a strong 4G market share, positioning us well for 5G.
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Interviewer40:44
Question about 5G designs?
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Yariv Dasma41:00
We already have several 5G product designs.
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Interviewer41:15
Mix of services and hardware going forward?
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Yariv Dasma41:26
Services are about 10% of revenue, growing. Gross profit from services is around 25% and could reach 20% of revenue organically.
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Interviewer42:22
Question about connectivity evolution?
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Yariv Dasma42:32
We are moving from reseller to managed core network, offering better flexibility and pricing. This should increase attach rate from current to 10% short-term, 25% potential.
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Interviewer44:20
Question about different 4G modules?
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Yariv Dasma44:28
Most 4G revenue comes from Cat 1. Some products are global, some region-specific based on technical and market factors.
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Interviewer45:28
We've covered all questions. The company will publish answers. Paolo, please wrap up.
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Paolo Pino46:00
Thank you. The key is integrating hardware with software and connectivity—that's our game changer. We're executing and allocating resources to innovate our portfolio. This industry has huge opportunities. Thank you for your time, and I hope to meet you in person soon.
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Interviewer47:31
Thank you for updating investors. Please provide feedback. This concludes today's session. Good day.