Earnings Call: Q3 2024

Nov 7, 2024

Summary

Q3 revenue reached a record BRL 399.5M, managerial EBITDA rose 18.4% YoY, and IFRS profit was BRL 3.1M for a second consecutive quarter. Portfolio growth, digital expansion and debt-cost management support the outlook, while disruption in the south weighed on revenue.

You know that Estapar is a reference when it comes to parking lots in Brazil. What if I tell you that Estapar is a lot more than just a parking lot, and the secret is right here in the palm of my hand. Through Zul+, the new Estapar app, you pay for parking, you reserve parking space in airports, concert arenas, and then you can use Zona Azul in many municipalities. You can go through the toll without lines. You pay many things, and you can also hire the auto insurance through the best insurance companies in Brazil. There is still a lot more for those who use the app. It's Zul+, it's not like Azul, Zoo, whatever. It's Zul+. That's awesome. Driver, just download the Zul+ app and have a more practical life. Everything for your car in just a single place, Zul+ and Estapar app. Good morning, everyone, and thank you for waiting. This is Estapar's third quarter 2024 earnings release presentation. For those of you who need simultaneous translation, we have a tool available in the platform. To access the feature, just click on the interpretation button in the globe icon at the bottom of your screen and choose your preferred language, Portuguese or English. For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on mute original audio. We would like to inform you that this video conference is being recorded and will be available in the company's RI website at ir.estapar.com.br where the complete material of this earnings release is available. You can download the presentation also using the chat icon in English as well. During the company's presentation, all participants will have their microphones disabled. Following the presentation, we will begin the Q&A session. We would like to highlight that the information contained in this presentation and any other statements that may be made during this presentation related to business prospects, projections, and operating and financial goals of Estapar are based on the beliefs and assumptions of the company's management, as well as information currently available. Forward-looking statements are no guarantee of performance as they involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect Estapar's future performance and lead to results that differ substantially from those expressed in such forward-looking statements. Here today are Emilio Sanches, CEO, Daniel Soraggi, CFO, and IRO. Now I'll turn the floor to Mr. Emilio Sanches to begin the presentation. Thank you. First of all, I would like to thank you all for joining us. Good morning. I'm very pleased to have you with us in the third quarter earnings release presentation. We are now heading to the highlights of the quarter on slide 5. It wasn't too different from the last quarters that you've been monitoring us. All of the indicators are in the right position. Our revenue reached almost BRL 400 million in the last 3 months. This was another record revenue. We grew 13% vis-à-vis the previous year. We believe that we will continue to grow in that same pace. We have new contracts. We are working very diligently in terms of same-store sales. The company is on the right track, and as a consequence of all that, maintaining the costs, we grew almost 20% in terms of our EBITDA. EBITDA grew 18.4% versus the third quarter of 2023. As a consequence, Daniel will elaborate more on that, we are introducing many actions to reduce credits and to grow regardless of increases in interest rates. We are very certain to be on the right track. As a consequence of all this work is that we are able to reverse our losses. So we had BRL 14 million in losses, but now the company is posting profits, and we have been insisting on this topic every time we talk to investors. A good company is a company that generates profits. Therefore, we are very pleased with what we have been doing so far, and we hope that this trend will continue going forward. Our churn, the average of the last quarters is very low, so we are very efficient. Our commercial team is very efficient, not only in terms of their capacity to bring new contracts on board. We had 18 new inaugurations in only three months, but we are also retaining the existing contracts. So when you have a renewal of a contract, this is just as important as having a new business. So we are focusing on gaining new contracts and renewing existing contracts. Again, I should congratulate our commercial team for their efforts. Also, we have our digital platforms. We are growing again. We grew very much. I think in the beginning of this presentation, we showed a video and we are very happy with that new campaign. That is a very well-orchestrated campaign done by our marketing department. This is the launch that started yesterday. We are very pleased because our digital platforms will become increasingly visible, and it reached almost 20% of our total revenue. Almost 20% of our total revenue comes from the digital platforms. When we refer to that, we are not just talking about TPV, we are talking about everything that comes through payment platforms. Meaning, parking payment tickets, Zona Azul. This is a part of the digital platform rather than TPV. Now, moving to the next page, this is just an overview of everything we are doing in terms of new businesses. There are so many things that it would not even fit in a single slide. I think the main message is that we are in Brazil. We are very strong in São Paulo, in Rio, and the main capitals. But here, we are also showing some operations, a lot of malls. Some people were saying that we are not very much present in the malls, but that is not true. We are present in a very important shopping mall in São Paulo, Butantã, Central Shopping, and there is São Leopoldo Mall in Rio Grande do Sul, one hospital in Vila Velha. We are also present in a very important commercial center in Paraíba. Therefore, that means that we are coming in strong in the north and northeast. Our target is to be present in all municipalities of the country, operating in very good performing assets. Next slide 7. Here, we give you some more color about the growth of Zletric. We have almost 60% of stake in Zletric. This was an investment that we did in the past, and here we show you that this business is growing substantially. But results are yet small when compared to the total revenue of the company. This is an asset that is a plus in terms of services. This is what we have in our parking lots, and this is an additional service. We have more than 1,000 charging stations scattered throughout the country, and this number is growing monthly. in the future, this will generate increasing quality to our clients. We have more electric cars moving around the city, and this is an additional convenience to our customers. Revenue grew 70% when compared to last year. When the numbers give a leap, that represents a lot. But we are talking about a net revenue of BRL 1.4 million. So in the long run, this has proven to be a very assertive move. Next slide shows our digital platform, Zul+. Totally integrated. We just updated 6.2 million users in the Zul+ platform. Here, it's only Zul+, it does not contemplate the other platforms. So if you add the others, we should add another 5 million. But this is only Zul+. This represents 13.5 million transactions in the quarter alone. And we keep on growing. We reach almost 20% of our revenues coming from digital platforms. And Zul+ net revenue, and this only contemplates Zul+'s digital platforms. And only that alone, we grew 70%, reaching almost BRL 8 million in the third quarter, and this number will continue to grow. And with the recent launch of our marketing campaign for Zul+, this campaign aims at giving more visibility to this platform. We want to add more clients, and the clients can pay for parking through Zul+, they can reserve parking space. And Butantã Mall and Morumbi Mall are also utilizing that. People are reserving space through the app, and clients that go to the mall by car, they can use the platform. So we are present in the main assets offering excellent services. And with that, we increase our revenue. Well, moving on, I would like to refer to two internal actions by the company. Here at the company, we talk a lot about Zul+, digital products, and our growth. But also there is another investment in our back office. This year, we launched that in the third quarter, we launched two tools that will enhance quality. Quality in terms of accounting information, and it will help our employees. We launched Estapar+Você. This works both in the web and through the app. This platform is only for our Estapar employees. What does it mean? We reach 6,400 employees, and every single employee uses the app. Therefore, every information about Estapar, be it the inauguration of new areas, documentation, payment slips, Healthcare information, our institutional portal, every single information an employee needs, and even information on gym and training is at the palm of their hands. And what does that mean? A company that is spread around the country, present in more than 90 municipalities in Brazil, through the app, they will receive assertive information. Information that has good quality. Sometimes, in the past, the information wouldn't get to where it had to be because there was a lot of noise in between. But now, everyone knows when somebody has a birthday, or if they want to look at their payment slip, they don't have to call someone at HR to get that information. They just look at the app. The information is readily available. They can also use the chat. I think this will increase engagement. It will enhance quality, meaning that we are looking to take care of our employee. With that, we've been looking at our turnover and the turnover is going down. With the app, we'll be able to capture additional information and reduce the turnover cost, which is very common in a company with so many employees. We are very pleased with this new action. I'll turn the floor to Daniel, but before he talks about the financial and economic KPIs of the company, I would also like to refer to the deployment of a system that Daniel introduced this year. As with any deployment program, in July, we deployed the ERP Oracle Cloud. That was a very successful deployment. Hi, good morning. This is Daniel. It's 11:15 and I'm here live. We are here to talk about Estapar's results. We posted another very good quarter, this third quarter of 2024. On the topic of digital transformation, Emilio was talking about Estapar+Você and the new digital platform. This has to do with the digital information of the company, both in-house and outside. Given our size and our presence all over the country, all of that requires us to be up to speed with the digital world. We were working with Oracle for a few years, but in 2023, we made a decision to migrate to ERP to support our growth. Our growth ambition is very robust and to support this growth, we have to have the state-of-the-art information, what is best in the market. After a year and a half into that project, we had the go-live of this new ERP. It's Oracle Cloud with a new governance level, a new level of integration and processing capacity for everything that we aspire for this company. Not only for this year, for the coming years as well. Emilio said that an ERP migration goes through an adaptation process. Our assessment is that this adaptation process is moving quite well. On day one, everybody was trying to understand how things would work. But 3 to 4 months into that migration, we are now reaping the benefits of this deployment. Therefore, I am very sure that this new tool will be able to support the company and will enhance our governance and improve our operations. This is what we need. We need to deliver trust and reliability. Now let's move to our results for the quarter. I often start talking about the operation part of the company and the results. By the end of September, we ended that quarter with 731 operations and we grew more than 30,000 parking spaces on a quarterly comparison. This growth comes especially from a segment where we are trying to grow more, which is lease and manage. There will be a slide on that alone, but this just shows how the company was able to achieve such impressive results. This is followed by capital allocation with less intensive growth, but better payback and better returns. In addition to that, the company has to maintain a very active portfolio and a healthy size. The churn in the third quarter of 2024 was 0.26%, compared to other quarters. What does it mean, a churn of 0.26%? It means that even though we are losing contracts or contracts are losing, are escaping our base, these contracts are very, very small and not very significant. That's why the company continues to grow and will grow going forward. Now moving to the next slide 14. Here we talk about what is our portfolio like. Our portfolio is growing on the side of less intensive capital, which is lease and manage. We started the year with 55%. Now the number is 58 and we believe that 60% is what should be expected if we want to have a balanced portfolio going forward. This is the main aspect that allows us to have good bottom line margins quarter-on-quarter. Moving to slide 15 now. Our quarterly net revenue reached BRL 399.5 million, grew 14% quarter-on-quarter. For the ninth consecutive quarter, this revenue growth and the growth of the portfolio, we increased the number of parking spaces by 30,000. Now we have an increased flow of vehicles and a more adjusted average ticket. It's also important to say that we have new revenues. Revenues that are coming from Zul+, our digital platform. They are now part of our net revenue, and this is also something that contributed to our growth, and it will contribute even further going on to the next quarters. Now, slide 16. It's not enough to grow revenue if you're not very disciplined with your costs. In the third quarter of 2024, we grew our cash gross profit by 12% when compared to 2023. The stable gross margin went to 27.3 to 26.8. In the quarter, there were some one-off expenditures. We don't have anything non-recurrent, but we believe that there is still room for this margin, not maybe to go back to 27%, but it will continue to grow going forward. This difference in basis points is more related to very specific expenses in the third quarter, some related to the migration to the new system. But what we could expect is the gross profit of the company will grow going forward. Next slide, we talk about EBITDA. Here, we talk about all of the operating and admin expenses of the company. We posted BRL 77.2 million of managerial EBITDA, we reached 19.3%, so the margin grew from 18.5 to 19.3%, and this has to do with what I said before. The main characteristic of the managers of the company is that we are all very focused on posting quality results, and our discipline in terms of capital allocation and cost is very rigorous because this is part of our DNA. Certainly, this is reflected right here. Our operating and admin expenses are very much in line. We are growing margins and we are growing nominal terms. Now, next slide talks about FFO. This is almost like a proxy of the company of how much cash the company generates. We grew almost 56%. I mean, the company is growing in operating terms, and we have a very balanced capital cost. That's why we grew 56%. Therefore, in the quarter, we reached almost BRL 56 million in FFO with a margin of 14%. We could also anticipate further growth of the company by looking at this indicator, not only nominal terms, but also general terms as well. What matters. At the end of the day, what matters is a good company is a company that posts profits. In the second consecutive quarter, we posted an IFRS profit, accounting profit of BRL 3.1 million against a loss in the previous quarter. The trend, when you look back previous years with capital allocation discipline and strategy and assertive growth, this is now being reflected in our results. BRL 3 million is a result that is still far from our full potential. We still have a lot of growth to deliver. But we went from being negative to a very good positive position. We are very pleased, and I would like to extend my congratulations to our team because they are serving our customers very well. They are very disciplined when it comes to the execution of the strategy. Thank you and congratulations. This is a combined result, and everyone should be congratulated. Speaking about our cash flow and debt position, we are very much disciplined in terms of capital allocation and the way we manage our cash. We started the quarter with BRL 300 million in cash and we ended it with BRL 271 million. Our cash position was high vis-à-vis EBITDA. CapEx is BRL 41 million, and this is linked to our lease and manage. Most of all, we also posted growth with concessions, with the concession of Zona Azul in Mauá that is about to operate right now. I'm very excited with this operation, and we will be able to present the full potential of our Zul+ app. In the other lines, there was a variation in net debt. Not only we're generating cash to boost the growth of the company, but we also want to amortize our debt. Interest payment, BRL 31 million. This is our commitment to our creditors. Moving to slide 21, it's very important that we talk about our liability management, and this is what is helping us to move into the profit line. This has to do with how we are managing our liability. Our debt has been flat, stable in the last two years, and our net debt level should be very much similar to what we have today. There should be a slight reduction starting next year as we are earmarking some capital to amortize the debt. This will allow the company to grow, but to have a healthy growth. This is behind the stability of the net debt. Maintaining net debt, it's important, but we have to have a healthy net debt. That means that this will have a lower financial cost. We are working a lot with our creditors, and our creditors have been supporting the company in the past 10, 15 years, since the company started to fund itself in order to grow. With that, we were able to reduce this cost of spread and CDI. It was 2.78, 2.6, 2.5. But this is a job that doesn't end this quarter, but this is a continuous work. We will look at our liability based on negotiations and strategies. We are very sophisticated in terms of seeking for capital structures that are healthier for the company. Therefore, for the next quarters, we should expect a continuity of that reduction of spread and CDI. We are trying to have the lowest cost possible. Our cash position was BRL 271 million, and the amortization schedule is very much balanced. We look at all of these things, the balance of the debt, the cost of the debt, and the amortization schedule. With that, we are able to maintain a low cost of our debt and have the best possible cost. The next slide has to do with ESG. In the past few weeks, for the first time, after a very serious work done by an independent consulting company, we talked about the 8 material themes. We are now very much focused on sustainability. As leaders in the parking lot space, we have to be the leaders in this area. After talking to external and internal stakeholders, we have identified 8 material themes. These 8 material themes are related to the social spectrum. We are present in more than 90 municipalities around the country, with more than 6,000 employees, tens of families. Here we have health and safety, talent appreciation, diversity and equity. All of these topics are totally integrated to our sustainable development goals. We are committed to eliminate all of the impacts and to commit to the sustainable development goals. This involves ethics, and we also have to include environmental responsibility and climate change. In our IR website, we have a very dedicated session dedicated to ESG and sustainability. The company will continue to report on its commitments and indicators. In the coming years, with the new CVM regulations, we will also report on our balance sheet. This ends my part of the presentation, and I'll turn the floor back to Emilio. Thank you very much again to all of our employees, clients, partners that have been with us throughout this journey, helping us to deliver good results, to deliver better quality and better services, all of that with a lot of efficiency. Thank you very much, Emilio. The floor is yours. Thank you, Daniel. We still have a Q&A, right? Daniel will be with us during the Q&A session as well. Just to conclude with a closing remark, Daniel already mentioned some of the highlights, but the numbers are good. They're not excellent, but they're good numbers. We were able to grow revenue. We're a bit frustrated because we thought that we would be able to post better revenue numbers, but because of the problems in the south, the number was not so high. EBITDA and the net income of the company, we are not yet totally satisfied. Even though we are constantly talking to our creditors and they are praising our results and the work that we are doing, we still have a lot more to do in all fronts. Daniel gave us an overall view in terms of the investment on the administrative side, the deployment of a new ERP, more modern. It's not that the previous one wasn't good, but we decided to invest on a new ERP to allow us to be a little bit faster. The employee app. We are doing a lot of things, and we are already thinking about new things for 2025. We are becoming stronger on the commercial side, operating side. We are confident that we are delivering good results. The bar is very high. Therefore, we hope that we can surprise you quarter on quarter. I would like to thank all of our more than 6,000 employees. This is a combined effort. The results reflect the effort of every single employee, and everything we are posting now is a result of the work we are doing. We are constantly celebrating good results. I mean, liability management, we have CDI plus 4.5, and we drastically posted a reduction in our cost of debt. The new debt are being taken at a much lower cost, and this is the funding to pay for previous debt. Looking into the future, certainly we will continue focusing on new businesses. There is a lot of room for further opportunities in Brazil. Our organic growth is well executed. Our Zul+ app, the digital platform, is a very important drive for 2025. 2024 was a year of study, tests, and analysis, but 2025 will be the year where we want to create even more value to our customers, both B2B and B2C. Our digital products have a great future going forward. With that, I would like to thank you all for joining us before we get into the Q&A. We are certain that we are on the right track. We are very pleased, and you should expect even better news in the near future, because rest assured that the next quarters will have great numbers, and you will be very pleased with the results. I'll wish you all the best. Now we go into the Q&A. I see that we already have some questions. Thank you, Emilio. For questions, the participants should click in the Q&A icon in the bottom of the screen, and once your name is announced, just open your microphone and ask your question. We urge you to ask all your questions at once. Thank you. First question comes from Luis Felipe, an individual investor. The question is: Given your current cash generation and your balance sheet, what was the rationale in terms of getting BRL 50 million in additional debt this quarter? Well, Felipe, thank you for your question. Our liability management means that we want to get cheap funding to pay for more expensive debt. So we had 9.5% of prefix interest rates. Operations like that are helping us to reduce our marginal cost of debt. It's part of the work of the liability management to take on new debt. We are always looking at two months ahead of time. I'm looking at my amortization schedule, and when we see that we have a very advantageous line of debt to take, we will take it. So we are taking debt at lower interest rates to pay for higher interest rates debt. This liability management work is becoming easier every year, or I would say less difficult. Our credit analysis that is passed on to our creditors is improving quarter on quarter. Therefore, this work is becoming less difficult, which is also good. When I say that it's less difficult, this is not just our merit. It is also a merit of our creditors because we are complying with everything that we say that we do. He's got another question. The tangible investments is mostly related to software. Do you anticipate lowering that type of investment with open guidance? Well, we do not give guidance, but I can probably comment on your question. If you look at our cash flow, there is an investment of about BRL 60 million. Every year, we separate part of our budget to invest in technology. It was not only in 2024, but also in 2023 and in 2025 and 2026, you should expect us investing more in technology. We don't spend for the sake of spending, but we are very selective. We choose the projects where we want to invest, and this just represents part of that investment of BRL 60 million. I would say that will be almost less than half. BRL 60 million is what we spend every year in technology. The other part of intangibles, Felipe, that means investments in new businesses. When you pay for a concession or a grant area to exploit contracts, the accounting result will be intangible. The right of use of that space. We do the upfront and then we explore that asset for X number of years, and then we need a contract. Estapar has always done that. We will continue to do that, but the name of the game is simply allocation. Once we have that allocation, you see that our intangible or the property, the asset is well-balanced in our P&L. We are investing even less than the amortization numbers. This is a lighter portfolio, I would say. Thank you, Daniel. Carlos Ejida from Condor has the following question: I would like to ask you to give me an outlook of what you see for 2025. What would be the main drivers for results and the main risks? He also wants you to comment on next year's interest rates. If you see some adjustments in terms of your investments, would you delever your cash flow, or do you see any other possibilities considering increased interest rates? Carlos, long time no see. Suddenly you come with a question. Very good. Thank you. Well, trends for 2025. We don't give guidance, but as I was saying before, we continue to focus on new businesses. We want to focus on growing the company. We also want to grow our digital platforms with an eye on costs, meaning that we want to focus on good contracts, good investments. Also looking at your question on interest rates, we want a return that could at least pay for the cost of the debt, and something that can give us a larger margin. This would be the challenge of any businessman. You have to know how to make investments that will give you a better return or a higher return when you factor in or you calculate interest rates. We have to see whether we will reduce the debt if investments do not give us a higher return. You have to make choices. The cash is finite, so we have to make decisions together with our financial and commercial area. Depending on the size of the investment, we have to take it to the board of the company, and our board is very active and very close to us whenever the subject involves investments. We've been doing that in the past years. This is part of the company's discipline, and it has been so since day one. It's nothing new. Therefore, I am sure that we will make the right decisions, always thinking about the company's financial health as a whole. If interest rates go up a lot, well, too bad, because there will be a time when returns will not be so good. But I don't think the interest rates will escalate as much. It won't be anything different from previous years. I think the other question was about de-leveraging by generating cash. One of our goals is to de-leverage. We've been de-leveraging. We had numbers much higher than what we posted now. That's the trend. But we don't want to be a company with no debt and no growth. We have to reduce the debt by de-leveraging, but at the same time, we want EBITDA will grow. If EBITDA grows, we will maintain our net debt. We just have to manage things well. We achieve good results by doing so, and we hope to continue doing the same thing. Risks are the inherent risks of the business. Sometimes we lose a business here and there. There is a contract that is not renewed. There might be changes going forward, but these are risks that are managed every day, every single hour. But there is nothing new in this scenario. We don't anticipate any eminent risk or different risks. Thank you, Emilio. João Morais, sell side from Citi, has the following question: "What is the future of your gross margin? What is the strategy to continue growing and to keep at levels above 20%? How do you see the gross margin going forward?" Thank you, João, for your question. Well, to maintain a growing margin is a challenge for any businessman in Brazil, growing revenue and at the same time control costs. The main driver that we anticipate to maintain margin growth is by growing the number of operations. We will increase the revenue top line, and then we will be able to amortize fixed costs. This is the main driver. We also have the strength coming from pricing, and that helps us. This comes in the line of revenue and that revenue line. We've been pursuing that. Our digital business grew 70% on a year-on-year comparison. So we have new revenues with the same cost structure, and this helps us to grow the top line. Then when we look at the cost line, we have the direct costs, which are just natural, and then we have indirect costs. We are very disciplined with these indirect costs. Our operating management structure is capable to support our portfolio, and maybe it could even support our portfolio if it grows twofolds. This equation, the margin divided by revenue, will deliver a better number. So growing the number of operations is the main driver, new revenues, and also reaping all of the operating benefits by having a more modern system, investments in technology, and so on. The company has to grow, but it has to grow on a healthy way. The lease and manage segment has a lower margin when compared to other segments, but that doesn't mean that we are abandoning the other segments of long-term contracts. We will continue to do so, but with great discipline. There is room for margin improvements. I'm not going to give you numbers because we don't give any guidance, but there is still more room to grow more. We are very confident and very excited going forward and going into 2025. Thank you for your question. Well, I would like to conclude by thank you all very much. Once again, we delivered a very sound quarter. I would like to extend a special thanks to all of our more than 6,000 employees, our operations department. They are really outstanding. People are praising them all the time. I think we have a very unique operations team. No one can match our parking employees and our parking company. Estapar is very unique and an outstanding company. I'm very pleased with what we are delivering. The quality of our numbers, the operating efficiency, financial efficiency, and visual efficiency throughout all of our operations. We deliver everything with state-of-the-art technology. Estapar's team is really outstanding. If you have the opportunity to meet our people, you see that they are unique. They are one of a kind. We were able to turn around the company given the pandemic and other setbacks. Congratulations once again. Thank you for joining us. Now I'll turn the floor back to Rafael so that we can conclude this video conference call, and also to thank our IR team. They do an exceptional work. Thank you, Emilio. With that, we conclude our video, our results earnings release call, and our IR team is available to answer any further questions. Thank you all for joining us, and I would like to inform you that December 11, we will have the second Estapar Day in a partnership with APIMEC. You can access our IR department if you want any further information. Thank you all very much.