Exclusive Networks – H1-24 Financial Results

Exclusive Networks reports solid double-digit growth in H1-24 Accelerated momentum in Q2-24 and APAC back on growth track FY24 Outlook confirmed

Regulatory News:

Exclusive Networks (Paris:EXN):

OPERATING PERFORMANCE

Double digit Gross sales growth:
- €2,564m, +10% reported
- +11% at constant currency
Net margin grew to €235m at 9.2% of Gross sales
Adj. EBIT at €88m, at close to 38% of Net Margin

CASH PERFORMANCE

Adj. Operating FCF close to 50%
€330m Gross cash end of H1-24
Leverage ratio at 1.0x Net Debt/Adj. EBITDA

Exclusive Networks (Euronext Paris: EXN), a global leader in cybersecurity, today announces its financial results for the half-year ended June 30st, 2024. Please note that management will not be holding a conference call on August 1, 2024, as originally planned.

Jesper Trolle, Chief Executive Officer, commented: “I am pleased to announce that we had a strong first half of the year, amidst continued soft market conditions. Gross sales growth accelerated steadily over the first half, positioning the business well for second half of 2024.

As a result, we remain close to our long-term target of adjusted EBIT margin of c.40% with high cash generation. Our momentum reflects the dedication and resilience of our teams around the world, whom I thank, and who remain laser focused on driving growth for the ecosystem. During Q2, we saw our APAC business return to growth, and we are confident in the renewed growth momentum in this important region.

This outcome reflects the strength, diversification and resilience of our business model. Our reputation as a trusted partner is valued by vendors and customers alike, with retentions rates consistently above 100%, laying the foundation for our continued growth.

During the 1H of 2024, we completed the acquisition of Nextgen Group in ANZ and APAC. The integration is well underway, and we are pleased to announce that they contributed to a full first quarter in our books and boosted our Gross Sales growth to 11%1.

The continued emphasis on cybersecurity by CIOs, combined with our unique business model and established growth strategies, positions us well for sustainable growth and success. Looking ahead to FY-24, we remain optimistic about our prospects and are confident in achieving our full-year guidance."

____________________ 1 Variation at constant currency is computed using H1-23 rates applied to H1-24 Gross sales. The USD, GBP and PLN evolved as follows: 1EUR: 1.081 USD; 1EUR: 0.855 GBP, 1EUR: 4.317 PLN respectively for H1-24 and 1EUR: 1.081 USD; 1EUR: 0.877 GBP, 1EUR: 4.626 PLN respectively for H1-23.

Q2-24 GROSS SALES

in € million

Q2-23

Q2-24

Variation

Reported

Constant Currency1

EMEA

897

969

+8%

AMERICAS

158

173

+9%

APAC

166

+73%

+75%

GROUP

1,152

1,309

+14%

Q2-24 IFRS Revenue

in € million

Q2-23

Q2-24

Variation

Reported

Constant Currency1

EMEA

275

221

-20%

-19%

AMERICAS

+7%

+6%

APAC

+4%

+5%

GROUP

378

330

-13%

In Q2-24, Gross sales were €1,309 million, an increase of +14% year over year on a reported basis, +14% at constant currency. M&A strategy has fuelled our growth in Q2-24 up to 6.6% including NextGen acquisition. Most of the organic growth was driven by business with existing vendors in their current geographies (+5.3%), and to a lesser extent to vendor expansion (+1.7%), which is a combination of vendors entering into new geographies (+1.2%) and new vendor relationships (+0.5%). IFRS revenue is down 13% at Group level due to the market trend in Hardware business benefitting to higher growth in Software and Support & Maintenance.

H1-24 PERFORMANCE

Gross sales and adjusted profitability metrics are non-GAAP measures. Revenue and Net margin are reported in IFRS format. Full results as per IFRS are presented in the Appendix along with the reconciliation detailing the differences with non-GAAP measures. Please refer to the glossary at the end of the press release for further explanations.

in € million

H1-23

H1-24

Change

Reported

Constant Currency1

Gross sales

2,331

2,564

+10%

+11%

Revenue

776

723

-7%

-6%

Net margin

222

235

+6%

% Gross sales

9.5%

9.2%

-34bps

Adj. EBIT

+5%

% Net margin

37.8%

37.6%

-28bps

Adj. net income

+2%

Gross sales were up 11% at constant currency and up 10% reported at €2,564million. The major part of the growth was organic volumes, with existing vendors in current geographies (4.9%), and vendor expansion (+1.3%), composed of vendors entering into new geographies (+0.6%) and new vendors (+0.6%). The remainder of the growth is attributable to pricing effect (-1.0%), to recent acquisitions (+3.8%) and to currency effect (-0.6%).

Vendor and Customer retention rates1 in H1-24 remained above 100%, reflecting the continued engagement of our channel partners. Net vendor retention rate2 on a rolling 12-month basis at H1-24 was 107% (vs 131% in H1-23) with net reseller retention rate1 on a rolling 12-month basis in H1-24 at 106% (vs 130% in H1-23).

In H1-24, Gross sales mix grew towards Software and Support & Maintenance, in line with the strategy in place and confirming the relevance of the value proposition. Hardware on a rolling 12-month basis decreased to 22% of the Group (vs 26% in H1-23), Software was up at 51% (vs 47% in H1-23) and Support & Maintenance was 27% (in line with H1-23). Cloud-based business accounted for 34% of the Group in H1-24 on a rolling 12-month basis, up 5 points compared to H1-23 in line with our digital growth strategy.

IFRS Revenue as reported in the Consolidated Financial Statements considers the recognition of the sales of Software licences and Support & Maintenance on a Net margin basis as per IFRS as explained above. IFRS Revenue reached €723million, down -7% reported due to the decreasing Hardware business mostly in EMEA and APAC.

Net margin was €235 million in H1-24, representing an increase of 6% year on year, reflecting the strong execution with a consistent mix evolution of geography and deal size despite a challenging competitive environment.

Operating expenses increased by 7% to €147 million, below Gross Sales growth, aligned with tight monitoring of the cost structure. Investment have been done to extend capabilities especially through NextGen, control on costs is a key factor for the Group.

Adjusted EBIT rose to a record €88 million, up 5% year over year. Adj. EBIT margin over Net margin stable at 37.6% reflecting investment in capabilities in NextGen. Excluding these specific investments, operating leverage would have been at 38.0% slightly increasing year over year.

Adjusted net income was €46 million, representing an increase of 2% year over year, resulting mainly from the Adj. EBIT growth partially offset by higher financial expenses and income taxes.

__________________ 1Defined as rolling 12 months Gross sales generated in year N from vendors/customers active in year N-1 divided by rolling 12 months Gross Sales from the same vendors/customers in year N-1

H1-24 PERFORMANCE BY REGION

in € million

H1-23

H1-24

Change

Reported

Constant Currency

EMEA

Gross sales

1,822

1,979

+9%

Revenue

566

519

-8%

Adj. EBIT

+4%

AMERICAS

Gross sales

298

314

+5%

Revenue

115

123

+7%

Adj. EBIT

-17%

APAC

Gross sales

211

271

+29%

+31%

Revenue

-15%

-13%

Adj. EBIT

-4%

Total

Gross sales

2,331

2,564

+10%

+11%

Revenue

776

723

-7%

-6%

Adj. EBIT

+5%

EMEA (77% of the Group): Gross sales were €1,979 million, up 9% year on year, following a slower growth in market in Q2-24 and slippage of some large deals into Q3-24. The profitability grew at a slightly lower pace, with Adjusted EBIT rising to €92 million, up 4% year on year, consequent to the competitive environment and pressure on margin levels.

AMERICAS (12% of the Group): Gross sales were €314 million, up 5% year on year, the region rebounded after a low single digit growth in Q1-24 to +9% in Q2-24 supported by the progressive ramp up of both new and existing vendors and the continued high local market demand. The Adj. EBIT decreased by €1m to €6m resulting from the investment in Sales & Operations to generate the next phase of growth.

APAC (11% of the Group): Gross sales reached €271 million, up 29% year on year, driven by the integration of NextGen as well as the initiatives implemented locally leading to a positive +8% growth at constant rate in Q2-24 on the organic perimeter of the business. The Adj. EBIT decreased slightly by -4% reaching €10m for H1-24 impacted by a less favourable vendor mix and market share regain in ANZ.

H1-24 CASH FLOW AND FINANCING

Adj. Operating Free Cash Flow reached an inflow of €45 million in H1-24, compared to €105 million in H1-23 mainly driven by the increasing working capital requirement and the geographical mix. Consequently, the ratio of cash conversion is 47% in H1-24 vs 116% in H1-23.

Leverage: Financial gross debt at June 30, 2024, was €532 million (vs. €516 million at end Dec. 2023), with Cash & cash equivalents at €330 million and Net debt at €212 million, including the acquisition of NextGen. This resulted in a leverage ratio of Net Debt / Adjusted EBITDA of 1.0x compared to 0.8x as of Dec 31, 2023 and 1.3x as of June 30, 2023.

FY-24 OUTLOOK

Amid the current environment still challenged by macroeconomic volatility (inflation, interest rates, geopolitical uncertainties), the Group is aiming to achieve for the FY 24:

Gross sales growth in a range between 10% and 12% at constant currency
Net margin in the range between €500 m and €515 m
Adj. EBIT in the range of €200 and €210 m
Adj. Operating FCF above 80% of Adj. EBITDA

Consolidated Financial Statements

The Board of Directors approved the consolidated financial statements on 23rd July 2024. The consolidated financial statements have been audited.

APPENDIX

H1-24 CONSOLIDATED P&L

€ million

30 Jun 2023

30 Jun 2024

Revenue

776

723

Costs of purchased goods and services

(552)

(484)

Freight on sales

(3)

(4)

Net margin

222

235

Personnel costs

(97)

(108)

Other operating costs

(39)

Amortization of intangible assets

(30)

(29)

Depreciation and amortization of tangible assets

(7)

Recurring operating profit

Non-recurring operating income and expenses

(5)

Operating profit

Finance debt costs

(14)

(13)

Interest on lease liabilities

(1)

Other financial income and expenses

(11)

(14)

Financial result

(26)

(28)

Income before taxes

Income taxes

(6)

(5)

Net income

Net income attributable:

- To the owners of the parent company

- To non-controlling interest

Earnings per share attributable to parent company (in €):

- Basic earnings per share

0.18

0.15

- Diluted earnings per share

0.18

0.15

H1-24 CONSOLIDATED BALANCE SHEET

€ million

31 Dec. 2023

30 Jun. 2024

ASSETS

Goodwill

297

369

Other intangible assets

1,055

1,052

Property, plant and equipment

Right-of-use assets

Other non-current financial assets

Deferred tax assets

NON-CURRENT ASSETS

1,444

1,493

Inventories

220

185

Trade receivables and related accounts

1,381

1,376

Income tax receivables

Other current financial assets

Cash and cash equivalents

369

330

CURRENT ASSETS

1,989

1,921

ASSETS

3,433

3,414

EQUITY AND LIABILITIES

Share capital and share premium

976

Retained earnings and other reserves

(47)

(15)

Group net income

Foreign currency translation reserve

(13)

Equity attributable to the owners of the parent company

959

975

Non-controlling interests

(1)

EQUITY

961

974

Other non-current financial liabilities

500

480

Non-current lease liabilities

Non-current provisions

Other non-current liabilities

Deferred tax liabilities

253

261

NON-CURRENT LIABILITIES

776

764

Trade payables and related accounts

1,583

1,539

Other current financial liabilities

120

Current lease liabilities

Current provisions

Current tax liabilities

CURRENT LIABILITIES

1,696

1,676

EQUITY AND LIABILITIES

3,433

3,414

H1-24 CASH FLOW STATEMENT

€ million

30 Jun 2023

30 Jun 2024

OPERATING ACTIVITIES

Net income

Adjustments for:

- Depreciation, amortization, impairment and change in provisions

- Financial debt costs & interests on lease liabilities

- Income tax expenses

Other adjustments and non-cash items

Income taxes paid

(10)

(14)

Cash flows from op. activities before change in working capital

Change in working capital

(39)

NET CASH FROM OPERATING ACTIVITIES

INVESTING ACTIVITIES

Additions to property, plant and equipment and intangible assets

(3)

Disposals of fixed assets

Changes in other financial assets

(0)

Interests received

Acquisition/(disposal) of subsidiary, net of cash acquired/(disposed of)

(32)

NET CASH FROM INVESTING ACTIVITIES

(2)

(33)

FINANCING ACTIVITIES

Dividends paid

(1)

(0)

Disposal (acquisition) of Treasury shares

(25)

(1)

Proceeds from issuance of bank borrowings & from other financial liabilities

Factoring liabilities

(35)

Short-term financing

(2)

Interests paid

(14)

Repayment of bank borrowing & other financial liabilities

(24)

(25)

Other cash-out flow from financing activities

(5)

NET CASH FROM FINANCING ACTIVITIES

(79)

(32)

Effects of exchange rate fluctuations on cash and cash equivalents

(1)

INCREASE IN NET CASH AND CASH EQUIVALENTS

(1)

(38)

Net cash and cash equivalents at the beginning of the period

263

358

Net cash and cash equivalents at the end of the period

262

320

GLOSSARY

Gross sales:

Gross sales represent revenue recognized by the Group on a gross basis for each revenue stream.
Net of returns, discount and rebates.

Revenue:

IFRS 15 revenue.
Vendor Support & Maintenance and Software licenses margin accounted for revenue.
Net of returns, discount and rebates.

Net margin:

Revenue less costs of purchased goods and services and freight on sales.

Adj. EBIT:

Recurring operating profit before amortization of intangible assets, adjusted for non-GAAP items.

Adj. EBITDA:

Adj. EBIT restated from Depreciation of tangible assets.

Adj. net income:

Net income restated for non-recurring operating IFRS 15 and non-GAAP items, net of taxes.

Adj. Operating FCF:

Operating Free Cash Flow before tax and adjusted for non-recurring items.

Cash Conversion:

Adj. Operating Free Cash Flow / Adj. EBITDA.

Non-recurring items:

Items defined as unusual, abnormal and infrequent, of limited number and presented separately in order not to distort the understanding of the Group’s underlying performance.

CONFERENCE CALL

As mentioned at the beginning of this press release, please note that management will not be holding a conference call on August 1, 2024, as originally planned.

Regulated information related to this press release and presentation is available at https://ir.exclusive-networks.com/

PROVISIONAL CALENDAR

Q3 Sales: 5 November 2024

About Exclusive Networks

Exclusive Networks (EXN) is a global cybersecurity specialist that provides partners and end-customers with a wide range of services and product portfolios via proven routes to market. With offices in over 45 countries and the ability to serve customers in over 170 countries, we combine a local perspective with the scale and delivery of a single global organisation.

Our best-in-class vendor portfolio is carefully curated with all leading industry players. Our services range from managed security to specialist technical accreditation and training and capitalize on rapidly evolving technologies and changing business models. For more information visit www.exclusive-networks.com.

DISCLAIMER

This press release may contain forward-looking statements. Such statements may include projections, estimates, assumptions, statements regarding plans, objectives, intentions and/or expectations with respect to future financial results, events, operations and services and product development, as well as statements, regarding future performance or events. Forward-looking statements are generally identified by the words “expects”, “anticipates”, “believes”, “intends”, “estimates”, “plans”, “projects”, “may”, “would” “should” or the negatives of these terms and similar expressions. Although Exclusive Network’s management currently believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking statements are subject to various risks and uncertainties (including, without limitation, risks identified in Exclusive Networks’ Registration Document available on Exclusive Networks’ website), because they relate to future events and depend on future circumstances that may or may not occur and may be different from those anticipated, many of which are difficult to predict and generally beyond the control of Exclusive Networks. Actual results and developments may differ materially from those expressed in, implied by or projected by forward-looking statements. Forward-looking statements are not intended to and do not give any assurances or comfort as to future events or results. Other than as required by applicable law, Exclusive Networks does not undertake any obligation to update or revise any forward-looking statement.

This press release does not contain or constitute an offer of securities for sale or an invitation or inducement to invest in securities in France, the United States or any other jurisdiction.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240723092026/en/

EXCLUSIVE NETWORKS

Investors & Analysts Nicolas Leroy Global Communications Director ir@exclusive-networks.com

Media FTI Consulting Emily Oliver / Jamie Ricketts +33 (0)6 28 73 45 15 +44 (0)7976 718 948 exclusivenetworks@fticonsulting.com

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