Good morning, everyone, and thank you for waiting. Welcome to Aeris Earnings Conference call for this second quarter of 2024. Here with us today there is Alexandre Negrão, CEO, and José Azevedo, CFO and Investor Relations Officer. This event is being recorded, and our participants will be in a listen-only mode during Aeris presentation. After that, there will be a Q&A session when further instructions will be given. Should any participant need assistance during this call, please send a message using the chat on the right side of the screen. Before proceeding, let me mention that statements made in this call regarding the business outlook of the company, operational and financial projections and goals, are based on the beliefs and assumptions of Aeris management. Forward-looking statements are not a guarantee of performance.
They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Macroeconomic conditions, industry conditions, and other operating factors could also cause results to differ materially from those expressed in such forward-looking statements. Before starting the presentation, on slide three, we have today's agenda. We start with the highlights of the second quarter, talk about operational performance, then the results of the quarter, and then we end with the Q&A and concluding remarks. Now I turn the floor over to Mr. Alexandre Negrão. Mr. Negrão, you may begin your presentation.
Thank you, Laís. Good morning, everyone. Once again, welcome to our conference call for the earnings. Now moving on to slide number four, where we talk about the highlights of the second quarter. Speaking about the improvement in our operational efficiency due to the restructuring of processes.
This is something we've been doing in the last 18 months, and we've been addressing this topic for a while now, and that starts to be reflected in our KPIs. All operational KPIs of the company have shown an improvement on a quarterly basis in terms of efficiency, and this is the result of an increase of 8.8 percentage points in our Gross Margin. The operational performance reflected in the EBITDA margin, which increased by 8.5 percentage points compared to the first quarter, also shows an efficiency in reducing fixed costs of the company. In addition to the result in operating costs, there was an improvement in fixed costs. And also there were some one-off revenues regarding the end of old contracts and the beginning of new contracts.
In addition, there was a reduction in financial expenses of 25%, which is significant. This is a snapshot of the improvement in our working capital management, which, as a result, causes us to improve the financial management of the company. Now on slide five, we talk about the operational performance. We are at 2.7 GW deliver LTM in the second quarter of 2024 and 11.3 GW of backlog. Now moving on to slide six, we see the average megawatt for wind turbines. It has dropped a bit from 4.9 at the end of last year to 4.7, which reflects the end of the contract with Siemens Gamesa, as disclosed by the company, which was the wind turbine of the highest power manufactured by Aeris. Now, moving on to slide seven, we talk about the production lines.
The main highlight in this quarter, in the third quarter, the new production line will be in operation. Now, moving on to slide eight, I now turn the floor over to Azevedo, our Financial Officer.
Thank you, Alexandre. Speaking about our second quarter result on slide eight, we had a revenue of BRL 422 million, EBITDA of BRL 70.6 million, with a margin of 16.7%. CapEx of BRL 17.9 million, in line with expectations, and a loss of BRL 3.1 million. Moving on to slide nine, we show the company's revenue. I believe everyone is aware of the latest news. There has been a reduction in new projects in the wind sector, in the domestic market, and due to this fact, our revenue fell by 18% when compared to the-...
First quarter of 2024, and in the year to date, the drop was 36.3% compared to the first half of 2023. Our services unit has been growing over time and contributing to improve operating margins. Now, moving on to slide 10, we show the comparison of price in BRL per megawatt and the cost of direct materials, and we see a greater difference in the pass-through due to the increase in the exchange rate. On slide 11, we show the EBITDA of BRL 70.6 million, and when compared to the first quarter, EBITDA increased by 66% with a margin of 16.7%. This excellent result is due to the improvement in our production process, generating greater operational efficiency, as Alexandre explained previously. Moving on to slide 12, we show CapEx in the period. We invested in this quarter BRL 17.9 million.
Part of this investment went into the new Vestas production line as planned. On slide 13, we show the evolution of inventories. There was a reduction of BRL 51.1 million in raw materials, and that's one of the reasons that increased our need for working capital, and there was an increase of BRL 11.3 million in work in progress and finished products. This increase is due to the start of production of prefabricated goods for the new Vestas production line. Moving on to slide 14, we ended this quarter with a cash balance of BRL 977.2 million, which is enough to cover short-term obligations. Leverage for the period was 2.8 times, a reduction of BRL 223 million in the net debt, and we invested BRL 47 million in the repurchase of the debentures.
With this, we have reached the end of the presentation, and now we'll start the Q&A. Thank you.
Thank you, Azevedo. Ladies and gentlemen, we'll now start the Q&A session. If you want to ask the question, please use the chat located on the right side of the screen. Should you prefer to join the conference call to ask the question using the microphone, please request the audio using the chat. The first question is from Ricardo, from Kairós Investimentos .
What are the expectations to resume activities in the foreign market, especially the United States?
Good morning, Ricardo. Our expectation for the international market is to gain traction, as of next year. Since the United States launched the incentive package called IRA in July 2022, some delays happened in issuing all the regulations, and they were... The rules were established, this year.
They just ended now in July. So we start to see the orders coming from the complex owners. There is a delay, let's say, between the package being launched, the definition of the rules, and the installation process itself. So we remain confident about the U.S. market. We are really confident that the U.S. market and will be great for Aeris in the future years. U.S., the U.S. market is expected to double or even triple in size in the coming years, and certainly, there will be a shortage of blades to supply for the market, the U.S. market. Today, the U.S. market is supplied by Mexico and the U.S. itself, and that will start to change as the demand increases. This demand will also go to other countries, such as Brazil and India, for the U.S..
So we believe that in 2025, we'll start selling to the U.S., increasing in 2026 and 2027.
The next question comes from Ramon.
Good morning, Aeris. Congratulations on your results. What is the impact of MP 1,212 announced yesterday? And companies have more than 36 months to start operations, and there's a discount. What's your opinion on the topic?
Good morning, Ramon. This publication was actually in line with what we expected. We expected something between 10GW and 14 GW. So the publication of the law was 11 GW, that will be commissioned in the next five years. But this is the minimum amount, so we're talking about a market of 2 GW-2.5 GW in the next five years.
And I believe that the Brazilian market in 2024, 2025 will be lower than that or smaller than that, and then will increase. So this is a good indication that despite market not being as strong as it was in 2022 and 2023, it is still a market that shows the prospective good prospects for coming years. So we believe that this provisional measure is positive.
The next question is from Fernando from Galápagos.
Congratulations. The cash generation seems very solid. Given the background of repurchase of debentures we saw recently, should we expect new repurchases shortly?
Good morning, Fernando. We actually are continuing. We started changing the capital structure with the follow-on last year. After that, we have announced the FIDC, FIDC, which is a total amount which a total amount of BRL 250 million company-owned FDIC.
We're taking other measures for fundraising, so we are fully interested and continue to work on the repurchase. Because one of the goals of the company is to deleverage as much as possible from now on, and so that we can start growing again. It is very important because we see a solid cash generation, and a most of it comes from the release of working capital, suppliers, and things as a whole. So our goal is to prepare to start growing again, since there is a demand due to our backlog. In 2025, we know that there are new production lines that will become operational. So we have to be prepared for 2026, and then again, working capital will be needed. So this is what we're working on. So yes, whenever there is an opportunity, we will repurchase.
Next question comes from Marcelo Arazi, from BTG Pactual.
How is Aeris getting ready for this new market dynamic, greater exposure to international market? Could that also help in services, revenue from services?
Well, good morning, Marcelo. Yes, Aeris is getting ready for the international market. But just a reminder, the domestic and international market contracts are the same. We seek the same customers, both for the domestic and international market. What happens is a price negotiation, because we do have some incentives. So for exports, price competition is different. So we are getting ready. We have an improvement in operational efficiency and operational indicators. And what we need is to access the international market more effectively. And we believe that in the next five years, the growth of Aeris will be guided by the international market.
We believe it's very feasible to say that in the future, 50% of our revenue will come from the international market and 50% will come from the domestic market. In addition, there's also services. Yes, we are working more on service and showing a greater... the share of service revenue in the company's total revenue is increasing. It used to be 2%, and now it has increased. And there has been an increase in service revenues at very solid margins, and this is something that also helped to have a significant improvement in the EBITDA margin in this year. And I don't know if everyone knows, but the service is operated not only in Brazil, but it's in the United States as well. There are two service segments, Service Latam and Service USA.
Service Latam is based in Fortaleza, but we have served other countries, such as Colombia, Mexico, and the U.S. base is in Houston, to serve the U.S. market. The U.S. market is ten times bigger than the Brazilian market, so there's a huge capillarity, a lot of competition, but the volumes are bigger. We started this operation in 2018, and we're growing organically year-on-year. So we believe that the U.S. market, along with service, will pose a great opportunity for Aeris, but the service market is very important.
The next question comes from Lucas.
Congratulations on the result. I would like to understand the initiatives to reduce cost of direct materials. Also, in that line, there has been significant contribution of advances to customers working capital.
Okay, the improvement in the production and cost of materials has to do with the entire project that we started 18 months ago, that involved two things. We had a consulting company to do the zero-based budgeting. That involved all the analysis of costs and negotiation with suppliers, inventory levels. So we implemented that project, and in order to adjust all that cost, including inventories, it takes some time. And due to the pandemic, we ended up having higher inventory levels because of the lead time of goods that came from other countries, so. And another point was another consulting company engaged, that was to improve operating processes. So, and now the results are beginning to show. So these are the two project, projects that we started that are we see the benefits of these projects now.
You will see that, the lower need for working capital for the new lines, and at the same time, that we will have more efficiency, because today we work with a different inventory level. So all of that plays a role. As for advances to customers, we basically had, as Alexandre mentioned, end of some contracts and beginning of other contracts. And with that, we always have some extra revenues. And the ramp-ups, they are recorded as advances. So this is the explanation.
Next question is from Fernando, from Galápagos Capital.
A significant point I saw in the result was the issue of a debt of BRL 250 million, close to DI + 3, plus swaps. What are the characteristics of maturity of this debt?
Just one point, the amount is not BRL 250 million, it's BRL 150 million. It's basically a debt we have with Santander Bank, that we renegotiated, and it was lengthened for the next 24 months, paying the same in 24 months. That's it.
This concludes the Q&A session. I would now like to turn the floor over to Alexandre Negrão, CEO, for his final remarks.
Well, thank you for attending the call. Your side. As in the other results, earnings or earnings calls, we continue to work to improve our processes, to make the company more efficient in terms of operations as well as working capital management. In addition, all of you can see what's going on in the domestic market and in the global market as well.
There is a reduction of the wind industry in Brazil, and this, the same wind industry has still not grown in the United States and Europe, which is the promise for growth in the next five years. So once again, our projections as well as the market projections, say that the U.S. will triple the wind energy production in the next five years, and Europe will more than double, if you consider onshore and offshore plants. So we continue to work firmly to continue to sell and increase sales in coming years, thinking mostly of these two markets. And we also continue to work so that services continue to grow consistently as it has been growing. Furthermore, we remain confident and firm in equalizing the financial structure of the company, giving its new size, and we are also preparing ourselves to grow.
As, as David mentioned, in 2023 and 2024, we've been able to release working capital. So in addition to operating results, with this working capital being released and made available, we are generating consistent cash. And as of next year, we'll need to increase working capital, and the company will continue to produce operating results. But since we're starting new projects, we'll need more working capital. So we continue to face challenges and remain confident, because this is a very strategic industry, not only for Brazil, but for the whole world. So there are few players in the market today that are able to meet the needs of the Latin American market, as well as the U.S. and European markets. There are few players in the world, and Aeris has a very strategic plan and project to serve these markets.
So we remain confident, and we continue to work hard to increase our portfolio of customers and our sales pipeline. And we continue to improve and become more efficient, and there was an improvement in 40% of revenue, or rather there was a drop in revenue, but we improved our margin significantly. So this is very important for us, for the company as a whole. So thank you again for your presence, and we see each other in three months.
Thank you, Alexandre. This concludes Aeris conference call. We thank you all for attending.