Ladies and gentlemen, thank you for standing by. Welcome to Armac's video conference to discuss results regarding the first quarter of 2023. For those who need simultaneous translation, we have this tool available on the platform. To access, just click on the interpretation button through the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English.
For those listening to the video conference in English, there's an option to mute the original audio in Portuguese by clicking on Mute Original Audio. Again, for those who need simultaneous translation, we have this tool available on the platform. To access, just click on the interpretation button through the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English.
For those listening to the video conference in English, there's an option to mute the original audio in Portuguese by clicking on the Mute Original Audio. We inform you that this video conference is being recorded and will be made available on the company's IR website, ri.armac.com.br, where the complete material for our earnings release is available.
We would like to inform you that the participants attending the video conference will be in listen only mode during the company's presentation. We will then open the question and answer session when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this video conference regarding the company's business prospect, projections, and operational and financial goals constitute beliefs and assumptions of Armac's management, as well as information currently available to the company.
Forward-looking statements are no guarantee of performance as they involve risks, uncertainties and assumptions, and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors could affect the company's future results and could lead to outcomes that differ materially from those expressed in such forward-looking statements.
Today, we have Mr. Fernando Aragão, Armac's CEO, José Aragão, Chairman of the Board of Directors of Armac, Cássio Castardelli, CFO of Armac, and Gabriel Ferreira, Director of Investor Relations. Now, I would like to give the floor to Mr. Fernando Aragão, Armac's CEO. Please, Mr. Aragão, you may proceed.
Thank you. Good morning, everyone. Thank you very much for attending our video conference to discuss the results of the first quarter of 2023. I'm going to give you a brief introduction. As we have anticipated in the earnings results call of the fourth quarter, this quarter was affected due to natural conditions and also due to the schedule of the implementation of projects the company is working on. The revenues did not grow this quarter.
Of course, this is not something that makes us happy, but I would like to point out that our business is subject to those volatility in the schedule because there are complexities involved, and we are here to solve those problems to our clients.
This we have those complexities. In the first quarter, there was a perfect storm of factors that did not allow us to grow our revenue. We continue working on the year. We are very optimistic with the capacity of delivering all the capacities scheduled, and we are working on those fronts.
This is related to the financial dimension of our results. In terms of the strengthening of the organization, a lot of favorable things happened in this quarter, so we are focused on the safety of our operation, organizational safety. Our personnel is progressing in their careers, and we are developing our personnel, our headcount, which are the strengths of our company. In addition to the interest of the clients, we operate in cyclic model, taking into consideration the use of life of the assets.
This model is ever more consolidated to our clients, and we understand that there were many factors in this quarter in our implementation schedule. We see that these issues are focused on the second and third quarters.
We were not happy with the results, but we are very optimistic for the rest of the year. Yesterday, we announced an evolution, a very important evolution in the governance of our family and how we organize as controllers. We separated, segregated roles with shareholders boards. I continue in the executive board. I'm very enthusiastic with this new chapter. My energy is high, as we have always done. I'm going to turn the floor to José, my brother, so that he can make some comments on this evolution.
Good morning. Good morning, everyone. As Chairman of the Board of Directors of the company, it's such an honor to be here. I must confess that for many years before the IPO, this was the role that we were performing.
Now trying to explain the reasons and the theoretical reasons that this came so, and also from the academic viewpoint and explaining why we made those changes. Of course, IPO represented a major change in the structure of the company. It was a milestone. Since we went public, we already knew that there would only be one pathway for the company.
That we needed to become more professional, professionalize the company. We have very great comparative advantages that provide us with the avenue for growth, considering that we are going to do our homework. We compete with ourselves more than we compete with our competitors.
Obviously, for a family of founders, it's important to know what would be the right moment to make the company professional, to bring in great intelligences for the management and provide room for all the professionals that make this company this ever more wonderful and powerful. We have to know when to provide room to those people, and we understand this is so important.
It's a very important evolution for the future of the organization. This is an organization of roles. This is a very important step when we professionalize the company. The board starts to be presided by the controllers and from the strategic viewpoint, and also thinking of the long-term view. We need a view that would ensure sustainability based on a corporate logic, which is founded in our competitive edge.
We are maintaining this logic as the controller, and we also have a strategic vision on how to govern the company. For sure, this will help us a lot along the road. What makes me very comfortable is that in spite of this change, we are maintaining a structure which is very similar to that we had in the past. We made the transition from the co-CEO, and this was very assertive and very correct.
Considering that Fernando and I, as co-CEOs, we already shared all the major decisions of the company. When you need to make decisions involving two people, the speed would go a bit lower. We see that this is very important because nothing changes in our everyday business, but we can see is that there is an acceleration in the tactic of managing the company.
It was a very soft transition, so as to say, in our roles. Prospects are very positive as we see it, and this is the reason why we're making those changes. The board has senior members. We trust the board members, and I'm sure that Fernando is gonna continue doing a great job.
For the internal public that also attend our video conference, I can say that some things will change in the everyday business. I already play this role as a shareholder. People are going to continue seeing me and the company. There won't be many changes, but it's a strategic change. This is the reason that justifies the changes. For the market, I continue as the Chairman of the Board, and I'm going to continue interacting with you.
Thank you, José. Thank you for the trust. It's an honor to lead the company individually on our everyday business. Can I turn the floor to Cássio Castardelli , who is our new CFO of the company, concentrating all the responsibilities related to the finance I mentioned for him to discuss the results. Thank you.
Good morning, everyone. Thank you, Fernando, José, and the board for the trust you put in me. Starting the presentation of results for the first quarter of 2023 and move on to page 3. Armac ended the first quarter with a total of 9,498 machines, a net addition of fifty pieces of equipment. I point out that machines were purchased amounted to a CapEx of BRL 126.8 million.
Smaller sized machines were also sold. Gross revenue reached BRL 318.7 million, a growth of 47.7% compared to the first quarter of 2022, and 3.3% over the fourth quarter. EBITDA for the quarter was BRL 135.4 million, and adjusted EBITDA was BRL 119.9 million with a margin of 46.8%. Adjusted net income was BRL 26.2 million with a margin of 9% on net revenue.
Moving on to page four, we can see on the left that the number of machines remained practically stable compared to the fourth quarter of 2022. CapEx for the first quarter of 2023 of BRL 126.8 million, slower than the previous two quarters.
In line with the strategy of meeting long-term contracts and prioritizing the mobilization of equipment acquired in the third and fourth quarter of 2022. On page five, we can see the evolution of gross revenue and the graphs on the right, a small increase in the share of contracts for long-lasting activity sectors in our total revenue.
Moving on to page six, we present the gross profit of BRL 118.2 million, 38.8% higher than the first quarter of 2022, but 9.4% lower than the fourth quarter of 2022. On the right, we have the EBIT, which total BRL 78.2 million in the period, 28.9% higher than the same period in the previous year and 5.9% lower than the fourth quarter.
Here, I highlight the one-off effect of discount and the impact of rainfall on the first quarter revenues as the main effects. These effects impacted the other results metrics below. However, there is a positive prospect of recovery since the machines remain with the customers, so they were not lost contracts.
In addition to the execution of new contracts, it continues to accelerate and expected to start in the second quarter of 2023. The margins below remain robust, follow the movement of gross profit and EBIT reaching 46.2% and 30.5% respectively.
On page 7, we present the EBITDA of BRL 119.9 million in the quarter, a growth of 36.8% over the first quarter and a decrease of 5% compared to the fourth quarter of 2022. The EBITDA margin stood at 46.8%. On the right side, I have the managerial operating cash flow, which totaled BRL 71.1 million in the period, an increase of 12.8% over the previous quarter. The slightly lower result effect was offset by efficiencies in the working capital.
On page 8, Armac reached BRL 26.2 million net profit in the period with a margin of 9%. In addition to the effects of revenues still in the process of being implemented, which impacted operating results, the impact of financial expenses and the depreciation of a larger asset base.
Cash net income was 3.4% higher than the fourth quarter, totaling BRL 55.4 million, positively impacted by the payment of PIS and COFINS taxes with credit. Moving on to page 9, Armac ended the quarter with BRL 1.26 billion Net Debt, maintaining virtually the same leverage as in the fourth quarter. I reinforce that this is a level that brings us a lot of comfort. The company's efforts are in the direction of seeking even lower levels.
On the right side of the page, we have the amortization schedule, which demonstrates the quality and long-term nature of our indebtedness, as well as the average cost of debt, whose average spread for the period was 2.8% over the CDI.
Finally, on page 10, we have ROIC and ROE. ROIC for the first quarter was impacted by the lower operating results due to the expected and one-off effects of revenue and fixed costs, and also in the denominator due to a larger asset base reaching 23%. ROE was 17.9% in the quarter. Thank you for your attention, and I turn the floor over to the operator for questions. We are now going to start the Q&A session.
We'd like to remind you that to ask a question, you must click on the Q&A icon at the bottom of the screen and write your question to get in line. When being announced, a request to activate your microphone will appear on the screen, and then you must unmute your microphone to ask your question. We kindly request that the questions be asked all at once. Let's move on to our first question. It's from Lucas Marquiori, Sell-Side Analyst with BTG Pactual. We will open your audio so that you can ask your question. You may proceed, Lucas.
Hello, everyone. Thank you very much for the call. I have two topics to discuss with you. The first point that I would like to understand is the dynamics of sales of assets in this first quarter. It was a bit higher than the average, the recurring results in terms of % in the sales of assets. I would like to understand what was the rationale behind it.
Is this an opportunity to sell at interesting prices? Is there any need for the mobilization of the fleet which was not being included in the agreement? I would like to understand the reason why you sold those assets and also the quality of those sales in terms of pricing since it's a niche market.
My second question is the following: In some previous discussion, we made some comments about the windows of opportunity for sales, and you had some after the IPO, also considering the favorable prices by the buyers. I would like to understand if the buying conditions are favorable now? Are you looking at a new opportunity for purchase or are the prices very high? Is this related to your decision? These are the 2 points I would like to mention. Thank you.
Hello, Lucas. Thank you very much for the question. In relation to sales of assets, what's the rationale behind selling a larger number in the first quarter? This is a company that allocates capital, so we have to have a strategic rationale behind the allocation of capital.
We have to look at the capital structure and our properties here. My family has never sold not even a share, so we tend to be conservative in our capital structure. For this quarter, we had some delays in implementation and some points related to occupation, the rainfall that's affected our structure in the period.
In spite of this, the commercial team continues selling and selling a lot. Long-term contracts, which have been our focus growth. They demanded assets that are going to be implemented along the second and third quarters. There is an implementation delay that required assets that we did not have in stock. You know, our product line is very broad, as you all know. Those assets, when they were requested, we made their acquisition. That involved a substantial level of CapEx.
Since we allocate capital, and for us to have a conservative allocation of capital, we decided to sell part of the inventory to finance part of the acquisition of new machines and maintain the leverage of the company be lower than 2.5 times Net Debt/EBITDA. That explains the number, the higher number of sales.
We saw what we needed for the leverage to stay at 2.5 times. The quality of the sales were very good. The gross margins were above 40%, showing that our balance sheet is market at a very conservative level, and we had no problems in selling. If we needed to sell more to increase the CapEx, if necessary, we could have sold more.
We decided to limit the size of sales according to the capital structure that we needed, which is conservative. We understand this is our role as allocators of capital. We look at the capital, and if we need to recycle the capital to make distributions to different assets with better contract, we will do that.
In relation to the purchase windows, we understand that considering the purchase that we made in the first quarter, we are doing excellent businesses as we have always done with discounts, relevant discounts considering our scale. We are one of the largest purchasers of yellow line, not only in Brazil, but across the world.
We have access to capital, and the companies that operate in our sectors do not have that. We are purchasing at lower levels than last year, but still at significant amount. We see that even though we do not have something, problems that such as the pandemic that raised the inflation and it was very beneficial for us. We managed, since we are multi-brand, we use all the relationships. We managed to allocate the capital with a margin of comfort and security that will help us in the future as well. I hope I answered.
Yes. Yes, you did. Thank you very much.
Thank you.
Our next question comes from Lucas Barbosa, sell-side analyst with Santander. We'll open your audio, you can ask your question.
Good morning, José, Fernando, Cássio. Thank you very much for taking my question. Two questions on my side. First, in relation to the dynamics for this year. Could you provide the details in terms of productivity of the fleet?
Now thinking about the BRL 80 million of revenues that you have at least additional revenues contracted for the year, can you imagine a contribution margin which is larger since you have a demonstrative structure prepared for the quarter? The second question is related to your expectations for the fiscal reform and tax reform outcome. What would be the potential impact for you? Thank you.
Thank you, Lucas, for the question. In relation to the second quarter onwards, we expect relevant improvement in terms of revenue growth. The BRL 8 million are already contracted project, and this is likely to materialize in the second or third quarter. I would not be very precise when say when the occupancy rate would be, but it's above the first quarter.
The foundations are the same. As the projects resume, machines start operating again. In relation to costs, yes, we see a lot of opportunity for diluting costs because the company is already prepared for much larger revenue that it has been posting so far. We expect a contribution margin which is higher than the BRL 80 million. Of course, that we are considering that some projects have third parties and some don't.
In terms of corporate, I mentioned we need to dilute costs, and this is what we will do. In relation to the tax reform, as I see it's a bit too early to dimension the impact and the strategies, so as to minimize any possible impacts. As this topic advances in the discussions in Brasilia, we can provide more details down the road.
Perfect, Fernando. Thank you so much, and have a good day.
Our next question comes from Gabriel Rezende, sell-side analyst with Itaú BBA. We will open your audio so that you can ask your question. Gabriel, you may proceed.
Hello, Fernando, José, Cássio. Thank you very much for the space you give us. Two quick follow-ups related to Lucas' question, related to the sale of assets. Let me confirm if I understood correctly. Were the assets new that were used to purchase assets that you did not have in your inventory, you needed to make the sale?
No, they were not new assets. In our inventories, we do not have necessarily only new assets. What we call inventory is all the fleet which is not being occupied. From the inventory, we choose the assets that are older. You decide to sell some of those assets. Most of the time, they are older assets in order to finance a CapEx and maintain a capital structure according to what is necessary for the company. They are not new.
Okay, it's clear. This is why I see the large margin. Yes, I was trying to reconcile. Yes, maybe there was a little confusion in the way I explained. A second quick follow-up. I would like to understand the BRL 80 million that you mentioned for the next quarter. BRL 80 million per quarter. They are not going to be accompanied by substantial CapEx because they are contracts that are going to be implemented using the machines that you already have and that have not been allocated to the clients, right?
Yes, there can be some additional CapEx, they are going to be linked with more backlog of agreements, as we did in the first quarter. We had additional CapEx with additional backlog for the contract.
Okay. Thank you so much.
Our next question comes from Andre Mazini, sell-side analyst with Citi, with this following question: Related to good phase of agribusiness, do you have any plan to enter in the green line in the short term?
Thank you, Felipe, for the question. No, not in the short run. We are very focused in the execution. We are not looking at adjacent lines to those. We do believe that in the long run, the comparative advantages by Armac can look at those opportunities, but this is not the focus for this year.
Thank you. Our next question comes from Josh Milberg, sell-side analyst with Morgan Stanley. We'll open your audio so that you can ask your question, Josh. Josh, please, you may proceed.
Good morning, everyone. Thank you very much for the event. My question is related to the impact of rainfall. The drop of occupancy was driven by the implementation of machines. There was a delay in the operation of those machines, or was there any effect of the machines that were already allocated and they were idle?
You said that there is an average occupancy of 65%, Fernando. You said that you're not going to give this specific information, but what is the level that we can expect for the second quarter? Or what could be seen as a normalized occupation level, maybe providing more detail on the difference between contract of continuous use and asset sharing. Those would be my questions. Thank you.
Good morning, Josh, this is Cássio speaking. Thank you very much for your question. The first part of your question related to the reasons for the drop in revenue in this first part of the year, the rainfall and discounts have larger impact on the machines that were already located in clients whose productivity was lower. They worked fewer hours because of the rain, they were not able to do some tillage or some transportation.
The weather did not cause a drop in occupancy, but rather in the revenue and the number of hours worked. From the viewpoint of occupancy, average occupancy, as mentioned by Fernando, that reached 65% on average in the Q1. It's right now at this moment. At the end of next quarter, we're going to provide more details, but I can say that we're reaching a number higher than 70.
In terms of prospects for the year, we continue, as Fernando mentioned, we continue moving towards increasing the occupancy and recovering the productivity and the hours worked in the machines that were impacted by the rainfall. I hope I answered your question, Josh. If you have any other question.
Perfect, Cássio. Thank you very much for the call. Taking advantage of this opportunity, could you revisit the point of the continuous contract? What's the provision are set for the client to return the asset? I would like to understand how this plays out.
Yes, from the commercial viewpoint, I'm going to answer because I'm more in touch with those topics. I do not see any macro uncertainties in the sector in long-term agreements because these are sectors that are still growing. Brazil is extremely competitive in those areas, and they are not closing any plants. On the contrary, they are opening plants.
The contracts are firm. They have termination fines, which are relevant, that will justify the CapEx involved and also the dedication of personnel and the formation of teams. Some of the agreements are compensated according to production, and that generates a lot of value to our company whenever efficiency can be gained.
It's a higher complexity that differentiates us from the competition. When you have a quarter with diverse climatic events, you can have some impact on the revenue, but it's not an impact that is caused by a plant closed or machines being returned. These are conditions that are faced in the field. Sometimes it's difficult to reach the machine when you have to go on the country roads.
All those are facts that impact our field productivity. Now going back to my introduction in the beginning of the call, this is the reason why we lease at 5% and not 2% every month because of the complexities involved, climate adversities. We have very firm agreements. Is it clear?
Yes, it's very clear, Fernando. Thank you very much for the detailed answer, and have a good day, everyone.
I'll turn the call to Mr. Fernando Aragão for his final remarks.
Thank you very much for attending our video conference. We had an atypical quarter. Our focus is on the long term, which remains unchanged. We are focused on building an Armac, which is much bigger than it is today in 10 years.
We expect that after the implementations underway have already been completed, shows us a different vision for the next quarters, and we are going to continue focused on the execution of this plan. Thank you all.
The conference of the results referring to the first quarter of 2023 of Armac is closed.