Ferrari N.V. (NYSE:RACE) Q1 2024 Earnings Call Transcript May 7, 2024
Ferrari N.V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Ferrari 2024 Q1 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Nicoletta Russo, Head of Investor Relations. Please go ahead.
Nicoletta Russo: Thank you, Sandra, and welcome to everyone, who is joining us. Today, we plan to cover the Group’s Q1 2024 operating results and the duration of the call is expected to be around 60 minutes. Today’s call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Picca Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website and at the end-of-the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today’s call are subject to the risks and uncertainties mentioned in the Safe-Harbor statement included on Page 2 of today’s presentation and the call will be covered by this language. With that said, I’d like to turn the call over to Benedetto.
Benedetto Vigna: Gracious, Nicoletta, and thank you everyone for joining us today. I just came back from Miami, where I spent one week together with our clients, the fans, the sponsors, including HP, our new title sponsor and all brand enthusiasts, you should have been there with me and all Ferrari colleagues, you would have been experiencing the brand power of the prancing horse. Indeed, for the first time in our history, [Technical Difficulty] company racing, sport cars, and lifestyles have been working in unison together to provide all the people in Miami a truly unique experience. But before sharing with you more detail about this fantastic event, I would like to thank our Ferrari colleagues for their outstanding work and dedication, our clients for their loyalty to our brand and all our partners, suppliers, dealers and sponsors.
Without their tireless effort and dedication, the strong results we present today would not have been possible. So let’s start with the financial results of the first quarter. We can say that is a strong start to the year with double-digit growth on key metrics. Thanks to an even more robust product mix and a strong trend in personalization. Three are the key highlights. One, total revenues reached approximately Euro 1.6 billion with flat deliveries. This once again pays testament to our strategy of value-over-volume. Two, we enjoyed strong profitability with EBITDA at Euro 605 million and three, industrial free-cash flow generation reached more than Euro 320 million in the quarter. The order book on our current models continues to be very strong with a normalization in-line with our expectation with almost all models substantially sold-out.
And in the last week, we opened the order book for Dodici Cilindri Coupe and Spider. For the first time for our range models, we unveiled the Coupe and Spider together because we want to leave the freedom of selection to our clients. The first feedback from our two new models has been extremely positive. Several clients have said, it’s not a matter of either or, we love both. I talked with clients from all over the world, from China, from Korea, from U.S., from Europe, they were all astonished by both models. Our new Dodici Cilindri are amazingly beautiful and high performance. They are the perfect blend of tradition and innovation, elegance and sportiness. Our client opinions are obviously paramount, but I am also proud to say that the Roma Spider has been recognized with the Red Dot Award, best of the best in the product design category.
And the Ferrari SF90 XX Stradale and one-off KC23 have also been awarded Red Dot Awards. All these are truly innovative vehicles enabled by R&D innovation. And in fact, in 2023, just in Italy, we submitted 181 patent application once every two days. And always on the subject of innovation, last month, we inaugurated the E-Cells Lab in collaboration with University of Bologna and NXP Semiconductors. This laboratory will make a significant contribution to research in electrochemistry and the project reflects the importance of collaboration between academic and the business worlds. But there is much more in it. This lab will foster innovation in our local area and help us to build the skills of the future. Talking of technology collaboration, we have renewed our partnership with SK On, a leader in the field of high-performance cell manufacturing with whom we have collaborated for many years and we will continue to innovate further.
As you can see, we are firing on all cylinders in the execution of our business plan and product development. But perhaps I should instead say we are charging ahead because in 2024, we will set another significant milestone in our electrification journey. In fact, on the 21 of June, exactly two years since our last Capital Market Day, and as we promised you during all our previous calls and meetings, we will inaugurate our new building. This state-of-the-art and highly flexible plan will assure us of the flexibility and technical capacity in excess of our needs for years to come. Here, we will handcraft the dedicated electric axles and batteries that will power future Ferraris, exactly like we promised you two years ago. A special thanks goes to all the colleagues that have been able to maintain the building schedule despite all the difficulties we experienced in these turbulent times.
It has not been easy, believe me, but they made it happen. Moving to the next page, the picture shows clearly the essence of one Ferrari Ethos. And believe me, there is no better way to exemplify it than our recent activities in United States. As I told you at the beginning, last week, Ferrari hosted an unforgettable series of brand experiences in Miami, which immersed international clients, sponsor, dealers and brand enthusiasts into the Ferrari universe. It began with Cavalcade International, one of our most prestigious driving events, which attracted about 70 Ferraris and their owners from all over the world as they drove together through the scenic landscape of Nashville in Tennessee first and later in Florida. The journey culminated in Miami with the world premier of the Ferrari Dodici Cilindri and the Ferrari Dodici Cilindri Spider.
Our new two-seater Berlinetta powered by front mid naturally-aspirated V12. These models are the perfect embodiment of the prancing horse DNA offering a comparable performance and entering with sophisticated design. You should have seen the emotion of all our clients. My words would never be capable to transmit to you those emotions. These events were accompanied by a privileged view of the latest fashion capsule collection inspired by history of racing on American tracks and the vibrant energy of Miami. The capsule collection had a warm reception. It was nice to see most of our clients wearing many pieces of our lifestyle collections during the long weekend. And last but not least, a fortunate few clients had the opportunity to live the Miami Grand Prix to its fullest with exclusive and elegant hospitality of Casa Ferrari right at the heart of the race.
I’m also proud to say that the Miami Grand Prix was the start of a new partnership. HP has become our title sponsor with a multi-year collaboration that encompasses a shared commitment to innovation, trust and excellence as well as commitment to sustainable future from carbon neutrality to the education of the next-generation. In HP, we have found the same values which make it an ideal partner. I know them since more than 20 years and for both our companies, people are at the center of whatever we do because it is only people who are able to blend together the tradition and innovation. Not all of our clients foresee and brand enthusiasts were able to attend the event in person. Thus, we reached them through social media channels to nurture their sense of belonging.
Lastly, before moving on, I would like to thank you, our shareholders for your continued trust and among you, I’m delighted to welcome around 4,700 new shareholders among our dear colleagues. Indeed, around 98% of our employees have taken advantage of the broad-based share ownership plan launched by Ferrari that I described with you a few calls ago. This initiative demonstrates our desire to foster the sense of belonging that makes us unique and underlines once more how we continuously strive for excellence. And on this note, I hand over to Antonio to review the Q1 2024 financial results. Please, Antonio.
Antonio Picca Piccon: Thank you, Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 5, we present the highlights of the first quarter results of this year. As you can see from this page, the first quarter saw shipments flat to the prior year, while revenues and profitability grew double-digits. As Benedetto mentioned earlier, the robust mix was the main driver. Let me briefly go through the main highlights. Revenues of Euro 1,585 million, up 11%; adjusted EBITDA of Euro 442 million, up 15% with a 27.9% margin, 100 basis points higher than last year. Net profit of Euro 352 million, leading to an adjusted diluted earnings per share of Euro 1.95, up 20% and adjusted EBITDA of Euro 605 million, up roughly 13% with a solid margin at 38.2%.
And finally, strong industrial free-cash flow generation of Euro 321 million. Moving to Page 6, we can now add more color to the shipments number of the first quarter. As usual, the geographic breakdown reflected our choices of both volume and product allocations in the different markets. As a result, deliveries increased in EMEA by 39 units, in Americas by 35 units, rest of APAC was almost flat and allocations to Mainland China, Hong Kong and Taiwan decreased by 79 units. Moving to the product portfolio overview, during the first quarter, the Roma Spider continued its ramp-up phase, while the Purosangue reached global distribution. Deliveries of the 296 family continued, sustaining the 46% hybrid share. The allocations of the Daytona SP3 increased in the quarter in-line with our plans and above the average for the rest of the year.
Lastly, some models were approaching the end of their rise cycles, namely the SF90 Stradale and the 812 GTS. The SF90 XX Stradale, the SF90XX Spider and obviously the newly-launched Dodici Cilindri Coupe with start contributing at their respective pace this year, while the 12Cilindri Spider was from 2025. On Page 7, you can see the net revenues bridge, which shows a 13% growth versus prior year at constant currency. The increase in cars and spare parts was the most relevant contributor, driven by the richer product mix and country mix as well as higher personalizations. In the first quarter, personalizations came in strong and in-line with our expectations of approximately 19% in proportion to revenue on cars and spare parts. The main contributors were the Purosangue and the total carbon finish for the Daytona SP3.
Sponsorship, commercial and brand increased thanks to the higher sponsorships for our rating activities, partially offset by the lower Formula 1 ranking achieved in 2023 compared to 2022. With regard to sponsorship, the additional contribution is provided both from new sponsors and different phasing of sponsors signed last year. Other revenues were flat with improved contribution of financial services offset by the decrease of the sales of engines to Maserati whose supply contract expires at the end of 2023. As previously flagged, within the other revenues, we have now reclassified any receivable sales of engines to third-parties whether for sport cars or racing. Currency had a negative net impact of approximately Euro 25 million, mainly due to the adverse dynamics of the Chinese Yuan, Japanese Yen and U.S. dollar versus the Euro.
Moving to Page 8, the change in adjusted EBIT is explained by the following variances. Volume was slightly negative, mainly reflecting lower range models deliveries. Mix and price positive for Euro 123 million, thanks to the robust product mix sustained by Daytona SP3. As a reminder, we show in this bar the whole contribution from the Daytona pillar, including the volume variance, the increased contribution from personalization and a positive country mix mainly driven by Americas. Industrial and R&D expenses grew Euro 29 million, led by innovation expenses mainly for our sports cars development as well as higher depreciation and amortization. SG&A increased Euro 12 million and mainly reflected the ongoing development of our digital infrastructure and organization.
Other positively contributed for Euro 6 million. The increased contribution for sponsorship and the release of prior year car environmental provisions in the USA, the latter worth approximately $10 million were partially offset by the lower Formula 1 ranking achieved in 2023 compared to 2022. Lastly, the total net impact of currency was negative for Euro 23 million. Now turning to Page 9. In the first quarter, our industrial free-cash flow generation was strong and reached Euro 321 million. It reflected the increase in profitability, partially offset by CapEx for Euro 195 million, Euro 45 million higher than last year and in line with the pace of development of our products and infrastructure. Capital expenditure during 2024 will develop more linearly compared to our usual guidance, particularly as we start spending for the new Spain shop.
And second, a moderate increase in net working capital, mainly led by trade receivables. At the end of March, the company was in a net industrial cash position for Euro 38 million, not-withstanding Euro 136 million of share repurchases occurred in the quarter and residual impact from currency and IFRS 16. Following the Annual General Meeting approval in April, the dividend distribution of approximately Euro 440 million was paid on the 3rd of May, thus impacting the balance sheet of the second quarter. Finally, let’s move to Page 10, which confirms the guidance for 2024. We are really pleased by the solid Q1 performance, the continued strength of the order book and the positive business trends also emphasized by the enthusiastic reception of the Dodici Cilindri and the great partnership started with HP.
On this basis, we do look with great confidence at the next steps in the execution of our plan for the current year and beyond. I thank you for your attention, and I’ll now turn the call over to Nicoletta.
Nicoletta Russo: Thank you, Antonio. We are now ready to open the Q&A session. Please, Sandra, go-ahead.
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