Morning everyone, and thank you for standing by. Welcome everyone to the earnings call for the Q3 2022 of Armac. Those who need simultaneous translation, we do have that functionality available at the platform. To access it, click on the button Interpretation on the globe icon at the bottom part of your screen, and then choose your preferred language, English or Portuguese. For those following up on English, you can mute the original audio clicking on Mute Original Audio. This video conference is being recorded and will be made available at the company's RI website, ri.armac.com.br, where the respective slide deck and release are available. During the company's presentation, all participants will be connected in listen only mode. After that, we'll start the Q&A session. To ask a question, click on the Q&A icon in the bottom part of your Zoom screen.
Write your name, your company to get in queue. When announced, a prompt to unmute your mic will appear on your screen. Then you click on it, unmute your mic, and ask your question. Question should all be made at once. Information in this forward-looking statements made during this call concerning the company's business outlook, financial and operating targets are based on beliefs and assumptions on the part of the company's management and also on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties, and assumptions as they refer to future events, and therefore depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, market conditions, and other operating factors might affect the future performance of Armac, and thus lead to results that will differ considerably from those expressing these forward-looking statements./
Today with us we have the company's executives, Mr. Fernando Aragão, CEO, and Gabriel Ferreira, RI and Corporate Finance Director. I'd like to turn the floor over to Mr. Fernando Aragão now. Please, sir, you may carry on.
Good morning, everyone. I think we are on mute now. Good morning, everyone. Thank you for participating in our results conference. First of all, I'd like to thank our clients, suppliers, and our team for the challenges that were faced and overcome in this quarter. At the end of the quarter, Armac celebrated 28 years of its foundation, more precisely on October 5th, 2022. We also celebrated one year of our IPO in this quarter, which happened late June 2021. In this one year since the IPO, we have multiplied our revenue, our EBITDA, and the net revenue by 3.5x.
That's an accomplishment to be celebrated by the over 3,000 people that compose Armac today. Very few companies in the market are able to sustain such a growth journey in three digits without sacrificing cash generation and profit. In addition, it is a great pride to be with you on a daily basis. This quarter, we overcome the mark of BRL 500 million in EBITDA and BRL 150 million in annualized net profit. That's a scale which is 25x- 100x larger than our typical competitors in the industry have. Our role will continue to be to revert that scale into benefits to our clients with lower rental prices in the market. In this quarter, our team delivered two important improvements in our results.
First one was a gain of 3 percentage points in our EBITDA margin, and the second, an operating cash generation, which was record-breaking, which allowed us to use many opportunities of investment which were negotiated before our IPO. The investment of BRL 538.5 million is a record one. More than the volume itself, what excites us is the quality of that, the investment. Machines purchased with a lot of safety margin at prices negotiated before the inflation we experienced in the past 18 months. That is without a doubt a major barrier to other companies venturing in our sector now. In my opinion, this is not the main barrier in any event. Lastly, this is just the beginning of our journey.
Opportunities in machinery in the yellow line are still very, very important and concentrated in sectors which are the engine behind the Brazilian economy. Demand continues to be high and we continue to prepare our structures looking at a growth cycle which will be sustainable in the long run. With that, I turn the floor over to Gabriel Ferreira, who will talk about our numbers. Thank you.
Thank you, Fernando. Good morning, everyone. I'll now move on to our numbers for Q3 2022. Starting on page three, I show the highlights of the numbers. At the end of September, our fleet reached 8,823 machines and pieces of equipment for rental, an addition of 1,301 assets when compared to Q2 2022.
The CapEx for the quarter was BRL 538 million, average monthly CapEx of BRL 180 million. With that, the update for nine months in 2022, we broke the barrier of BRL 1 billion in investments. In gross revenue, we saw a growth of 10% quarter-on-quarter, reaching BRL 276 million of gross revenue. 2x , 2.5x, rather than the result we experienced in the first quarter of last year when we grossed BRL 110 million. Gross revenue for rentals also showed an important growth, reaching BRL 255 million in the quarter. As for EBITDA, we broke another important barrier, reaching BRL 126 million in the quarter, and as a result, breaking the barrier of BRL 500 million in annualized EBITDA.
Looking at the adjusted EBITDA now, which excludes the result of the sales of assets, we saw a growth of 15% when compared to the previous quarter, reaching BRL 118 million, with an important margin expansion of 3 percentage points, reaching 51% in the quarter and resuming levels similar to the ones we had last year before the acquisition of Bauko. To conclude the highlights, we come to net profit, which reached BRL 39 million in the quarter, a growth of 26% when compared to Q2 2022. On the next slide, we see in detail the acquired fleet and the investments made throughout the quarter.
As shown before, we reached a fleet of 8,823 assets, an addition of a 1,301 assets in the quarter and 2,598 assets since the beginning of the year when we had 6,225 assets and pieces of equipment for rental, a growth of 42%, from the early beginning of the year. Such level of growth in fleet was reached through an investment of BRL 538 million in the quarter. In the nine months to date, we broke the barrier of BRL 1 billion invested in growing our operations.
Moving on to slide number five now, show our gross revenue for Armac, which totaled BRL 276 million in the quarter, showing a growth of 10% when compared to the previous quarter and 2.5x when compared to the BRL 110 million gross in Q2 2021, Q3, rather. Gross revenue for rental was BRL 255 million in the quarter, reaching BRL 700 million year to date since the beginning of the year. Revenue in the period is made up of 60% of long-lasting segments or constant segments such as agribusinesses, mining, forestry and food and beverages, and 40% remaining come from operations in infrastructure in line with the breakdown that we always seek to reach in our operations.
Now, moving on to page number six, where we will see the gross profit and the company's EBIT. Our gross profit reached BRL 116 million in the quarter, a growth of 70% when compared to the previous quarter and 170% when compared to the same quarter of last year. The EBIT reached BRL 82 million in the quarter, a growth of 14% when compared to the previous quarter and twice as much as the number experienced in the same quarter of last year. As for margins, both saw positive trend as a result of an efficiency gain in operations presented by the company, reaching 50% in gross margin and 36% in EBIT margin. Moving on to page number seven now, we take a look at the EBITDA and the operating cash flow in the quarter.
The company's adjusted EBITDA, which excludes the result of the sales of assets, was BRL 118 million in the quarter, a growth of 15% when compared to the previous quarter and 123% when compared to the same period of last year. This double-digit growth in EBITDA was driven by a growth in revenue and rental in the quarter, combined with another quarter of EBITDA margin gain, an expansion of 3 percentage points, as I said, and breaking the barrier of 50%, resuming levels close to what we had last year at 51%. Moving on to operating cash flow management, we have reached the record level of BRL 220 million generated in the quarter. As a result of an efficiency gain, which was important in managing receivables and of the working capital as a whole.
Such operating cash generation represents 187% of EBITDA generated in the same period. Now moving on to page eight, where we have net income and the cash net income, net income in the period. In the third quarter of 2022, net income reached BRL 39 million, up 26% from the previous period as a result of the growth, margin expansions, and a lower cost of our debt in the period. Net margins came out at 15.5%, an expansion of 180 basis points when compared to the previous quarter. The cash net income was BRL 70 million, a growth of 60% when compared to Q2 2022. Now moving to page nine, we are gonna see the company's capital structure.
We closed the quarter with a gross debt of BRL 1.8 billion and a cash of BRL 889 million, resulting in a net debt of BRL 552 million in September 2022. Considering that level, the EBITDA of the last 12 months have reached a leverage level of 2.38x, if we were to annualize the EBITDA generated in the quarter, that metric would fall dramatically, leading to a leveraging run rate of something close to 1.89x. In addition to a leverage which is quite distant from our covenants, we have a very conservative cash position, with enough reserve to cover the amortization of our main principal of our debt until the end of 2026.
The average cost of the company's debt in the quarter saw an important gain, which can be explained by the better quality of our liabilities after the raising of the CRA in July and also the prepayment of the first debenture. Also impacted by the deflation experienced in the period, which affected the cost of all the lines linked to IPCA index. Now moving on to slide number 10, and the last one of the presentation, we'll talk about the profitability metrics of the company. Starting by the ROIC, return on invested capital in the quarter was 28.7%, showing a slight gain when compared to the previous quarter, even considering the acceleration of their pace of investments in the quarter, which can be explained by the gain in margins and efficiency in management of the working capital.
Moving on to the ROE, we see a continuity of the increasing gains in return after the IPO in July last year. The ROIC in the third quarter in 2022 was 22.9%, a gain of 3 percentage points when compared to Q2 of this year. With that, we close the presentation of results for Q3 2022.
We now have the Q&A session. Once again, to ask a question, you have to click on the Q&A icon at the bottom part of your Zoom screen, write your name and your company to get in line. When announced, you will be prompted to unmute your mic. You will then follow the instructions and ask your questions. Please, we ask that all questions are made all at once, please. Our first question is the following. It comes from Gabriel Rezende from Itaú BBA.
He's a sell-side analyst. We'll unmute you now, and you can carry on and ask your question, Mr. Gabriel. You may carry on now. Gabriel, we have unmuted your mic. Can you hear us? We'll now move to the next question then. The next question comes from Lucas Esteves, sell-side analyst from Santander. Mr. Esteves, we will now unmute your mic. You may carry on.
Good morning, Fernando, Gabriel. Thank you for the presentation. Thank you for taking my question. I have a couple of questions about the CapEx that we've seen in this quarter, which came out way above what we had in previous quarters, reaching BRL 1 billion for the full year, which was the volume we expected for the whole year, right? My questions are, is this going to be a recurring amount for the coming quarters?
Do you still have room to invest within the purchase agreements that you have with the equipment makers in last year, or different terms going forward? Also, how much of the added fleet in the quarter has been already allocated per contract, and how much of that was to form a timely inventory level? What we can anticipate, what we can expect in terms of results going forward. Thank you.
Okay, Lucas, thank you for your questions. Yes, we did have a high volume of CapEx in Q3. In addition to the amount, I would like to highlight the quality. We bought assets at very good prices, at very good safety margins at the purchase prices, so we are very much reassured that we'll be able to deliver good returns in relation to the cost of capital, irrespective of the scenario. That safety margin in our purchase price is very important for our business.
We had an opportunity, it was very timely, as you said, because of negotiations we had ongoing before the IPO actually, which were clearly created a lot of value for the company in the short run, and with this will continue to be so in the long run, we believe. With the company's cash generation and with an improved margins, we felt comfortable to take on a little more risk and create a timely inventory level.
Those are prices that will never be like that in the future, and that's our strong belief. We have built this inventory in Q3. We still have smaller amounts of assets coming from those agreements to be acquired in Q4, but at lower numbers. Most of those assets are not operational yet. Usually, we have a time to revenue, which is around a few months. That's when we invoice the machine, transport the equipment to our workshops, prepare it for allocation, then rent the equipment to a new client. This is a growing company. We're acquiring new clients. All of that takes time to mature, and most of that CapEx for Q3 has not matured yet into revenue.
In the short run, we have our homework to do, an important revenue gain to bring from those high quality assets which we have acquired. That's the focus of the company in the short run. We will continue to use CapEx because there are other timely opportunities out there in Q4 and even in Q1 next year. Again, in the short run, that's the focus, to extract as much as we can from that revenue. The asset is in our balance sheet, but revenues have not made their way into our results yet. Have I answered your question?
Our next question comes from Gabriel Rezende, sell-side analyst from Itaú BBA. His question is, how can we justify the strategy of stocking even assets, increasing the inventory of assets? What will be the discount level vis-à-vis the current price of the asset, 20%, 30%, or 40%, in order for it to make sense? Does the opportunity cost also influence on that decision? Do you see any risk on the demand side for those assets acquired before? Used machinery sales, that's another question. The sale of used equipment. Can you explain that strategy in more detail? What you showed in the release, when you interrupted the life cycle of the asset at the fifth year, can we see that as the new threshold for the company, a five-year life cycle?
Okay, Gabriel. In terms of inventory building, everything we do, we want to create long-term value for shareholders, so that's how we look at it. I need to have a discount when I acquire those assets to make up for the return that I expect to have multiplied by the duration of the exit of those assets. I make a projection. In how many months I'll have those assets running, a revenue potential. This will give me a duration. I will multiply that duration by the return I expect to have from the investments, which I know very well, around 30% a year. That's our annual return.
I need to have a discount at the acquisition price, which is higher than that cost of capital that I have to demand. There is an opportunity cost which is taken into account, and it's quite high. In everything we do, that's how we approach that. A lot of safety margin, a lot of comfort, if I may. In this case, for those BRL 540 million in assets, the discount is way above those 30% times the duration for the exit of those assets. That's why we made that investment, and this is the way we think even going forward. About the sales of used equipment, the way we look at it is also related to having a safety margins of being comfortable with several different options to exit. The debt market rewards us with that, with providing ample access to credit at good prices.
That building of a safety margin, of a safety valve, if I may, it is built from a very high cash position, so our company sacrifices net income or part of the net income to maintain a cash, which is not proportional to the size of our debt. That's one of the ways to provide comfort as you operate the business. We also create a sales channel that will give you the option that, should we have a crisis or a change in scenario down the road, when you look in the long run, situations that might happen in 10, 15 years. That's how we manage the company, looking down the road. My family, José, the main shareholders of the family, we are long-term shareholders. We're not very diversified.
The way we think about the business is, there is no way this can go wrong, right? We need to have options for all possible scenarios, and that's what makes us more comfortable to work on a leveraged business. The leverage in the long run, that creates value for the shareholders, 30% return a year. With money 16%, right? I can maintain that level a little higher if I am confident in my ability to adjust my balance sheets should something happen, as I said. The math I have just described, and it's also part of our release, that math makes sense. It makes sense to have 30% a year for 97% of the fleet and use the 3% to create a channel, create relationships that reassures me that the whole asset is free.
It makes more sense than having 100% of the fleet sacrificing 3% in favor of having this confidence that my balance sheet is net. That's a no-brainer for me, right? I am sure that that's the way to go. As I said, we are long-term shareholders. I'm not looking at things for the coming months. I'm looking at potential things that might happen 10, 15 years down the road. When we get there, I look back and say, "Well, we could have built a channel back then." That's the rationale. This will create value to shareholders, a lower cost of capital and a higher leverage capacity because we have this channel in place.
As a complement to Fernando's answer, to Fernando's point, as for the sales of assets, our strategy is to sell assets to make sure we have a leveled fleet, homogeneous fleet. All the assets we are selling now, they are not part of our future strategy for that category. Either that or they became very small, a very small portion in that category, so selling those assets makes operating sense. We have a potential to increase margins. It is easier to manage the inventory after that. All those options combined helps us have a more leveled fleet. It does make operating sense and management, the management sense. We have our finger on the company's pulse at all times.
We act, we respond depending on the dynamics of the business, of the market, of course, taking into account new makers, the new families, the new machine makers that we are going to concentrate our business with, throughout time. That strategy makes operating sense, as I said, and that's why we will maintain this idea of selling only the assets that we no longer want to maintain within our fleet to maintain some uniformity in that category. We're not looking at one piece of machinery, we're looking at more, and some are becoming less and less relevant. It makes no sense to keep them in our fleet anymore, and this number will change as the company grows, of course. They're not gonna be part of our strategy anymore.
As to your first question, the first part of your question, there is no hard-and-fast rule, as you said. We have a deep understanding of the industry's dynamics. We've been working in the area for many years, my dad for almost 30 years, myself and Fernando for 10 years at Armac. We talk to equipment makers. We understand the dynamics of the sector. We have direct contact with them, and we are in a unique position to tap the best opportunities that the market has to offer. We will always use and leverage that knowledge, that expertise that we have to make decisions that are always looking at the company's best interest and also the best interest of our clients and of our shareholders. Our hard-and-fast rule, as you said, does not exist.
If it did, it would be easy to replicate, right? It's all based on our knowledge, our expertise, the opportunities we have created that we have identified in the market.
Next question from Lucas Esteves, sell-side analyst from Santander. Please go ahead, Mr. Esteves.
Thank you. Thank you for answering my first questions. I'd like to ask about profitability gains, opportunities that you have. We see that there is a variation. I'll start again. I'd like to understand the oscillation that you saw in productivity in the past quarters, especially in this quarter. I understand it is related to the fact that you're building a higher inventory, and also because you are working on contracts which presented lower profitability than expected. You are changing those contracts to more profitable ones going forward.
How much longer should we expect for that productivity level to resume previous levels, and what would be a normal level for you, in your opinion? Also, I'd like to understand if there is any chance of scale gain in margins coming from an operating leverage to have increased the structure of the company, any profitability gain coming from Bauko. If you could go into more detail on the profitability issue, I would appreciate it. Thank you.
Okay. I'll address the first part, and then José will address the second part of your question. About productivity. The company made an investment which increased its fleet in, from one quarter to the next by 25%. That's how much the fleet grew. While you're investing and growing your fleet in such a high percentage level from quarter to quarter, when you look at the quarter's productivity, it's like expecting a company that invested to open one store. You expect that single store to have matured those revenues the next morning. That's not how things work.
There is time for those investments to mature. If we were growing the fleet by 5% or 3% per quarter, productivity wouldn't vary that much. At the same time, you are creating less value for shareholders. We have to look at those things in a combined way. We're growing our fleet at a two-digit level per quarter, right? You need to wait for those investments to mature. When you see the drop in the quarter, that drop is coming from two factors, right?
We are making huge investments about growing the fleet by 25%, I repeat, which will mature throughout time, and also driven by a change of portfolio of clients where I had revenues but didn't have EBITDA, so that productivity made no sense. I'd rather not have that productivity and have the EBITDA, right? We live off EBITDA, not off revenues, right? We thought it was very valid to do that with our portfolio. That and CapEx both have time to mature. They are investments you make today, which will mature down the road. The 55% level of productivity, revenue over fixed asset, is not very far from what we used to have.
Months after the IPO, including, we had a leap in productivity in revenue, because the company worked for it, but there were contracts that were not generating the adequate level of cash. That number came back to 55%. Anything between 55% and 60% falls within our original plans. It does make sense. It is within what international peers achieve based on their assets, so we think it makes sense. While we have that growth quarter-on-quarter, we should expect those fluctuations in revenue. Before moving to José, what would be my idea about that drop in productivity? I am quite happy with Q3 results. We grew EBIT by 15%. We grew net income. We generated a lot, a lot of cash, knowing that there are plenty of assets which are not operational yet.
That's only, t he only way is up now, and way up, because those assets will work without growing our fixed costs. That's how I see it. That's great that the company managed to deliver that right level, and we have 500 million assets not operating yet. Where are those numbers going? Up, for sure. That's how I see it. Now I'll turn it over to José to address the other part of your question.
Okay. This is a company that has a lot to grow going forward. We are here for the very, very long term. We have proven that we are able to manage growth in the short run as well. Of course, the company will mature as time goes by. It is a living organism. It's a people organization, and it will mature with time.
We have been growing very fast actually. When I look at it, the company will grow a lot, right? The market is this blue ocean ahead of us. We are very well-positioned. Even though we are working hard and moving towards initiatives to improve operations, and we have been insisting on it since the beginning of the year, I am not looking at the margin gain in the short run. Of course, everything we do in terms of, operational improvement tends to improve margins, but I'm not going to look at 51% per quarter for next quarter. I'm looking at margin gains, increases of levels of margins in the long run rather. What we need to do today so that we can look in the long run and see margins at a different level in a scalable way.
For the quarter, 1% give or take, up or down, those are investments we're making looking to the future. What are those investments? Some initiatives will be paid back in the short run. The first pillar of that is the following. We are reorganizing our flowchart. What do I mean by that? That's something we've been doing for the past six months. This is a high growth company, that's the understanding of a significant size. We have learned to manage with a more horizontal flowchart, organizational chart, which mixes young people, very energetic, transformational professionals, adapt to technology, and also people who are extremely experienced, who came from benchmark companies in Brazil and who work with us today.
That mix, that combination, has been able to help us find very interesting opportunities, not only for the short run, but also for the future. That's been working really well. We are gaining maturity in terms of management as we adopt this view that respects the moment of high growth and also maturity, mixing professionals which are well renowned, experienced, and young people as well. That, as I said, has helped us improve the company. Another pillar in which we have invested significantly is our strategy to improve processes through technological initiatives.
I'm not talking only about our IT team, which is an amazing team just to be sure, but also I'm talking about the way it merges or it permeates all the other teams across the company so that we are able to revisit some processes, that we can increase the speed of the information flow, so that we can create a better governance, that we can measure processes better, so that we can improve the quality of the work of people so they need to use their brain rather than their skilled processes. As I said, to revisit processes and create options for the future. Those initiatives, even though we see results clearly coming in the short run, I wouldn't dwell on the quarter-on-quarter, but rather on how we change levels.
How do we scale those operations up? We're in an industry with so many barriers to entry. How can we overcome that with technology and a very mature organizational chart? That's basically it. Okay, thank you. Thank you for your questions.
Next question from Gabriel Rezende from Itaú BBA. I will read his question. A quick follow-up about the sales of used assets. The main criteria to select assets to be sold and the synergy with the remaining of the fleet. The age of the asset would be an important variable in your opinion.
Okay. The first concept that I would change, if I may, is that concept of the used assets that might relate to light vehicle sales and even light truck sales of used assets. They have their own standard of what they sell in terms of used vehicles, and they're usually very new assets actually. In our case, what we wanna do is to be, as I said, we have to prove to creditors and to ourselves in terms of comfort that our assets are net. They have liquidity. That's why I have to create a portfolio of clients across Brazil, have salespeople, processes in place.
I wanna do that selling things I do not want to hold. To do that, I'm not going to sell necessarily used assets. I'll have a different standard. I'll work on a timely basis and look at my fleet and say, "Where is there a pain for sale?" We hate selling things. We want to use the asset until the end of its life. I understand that creating that perception of liquidity is important. Where do we have the least pain when we look at the fleet? For which asset I would be okay if I let it go, right? We sell some things which have been around for a long time.
There are makes or brands that are no longer part of our CapEx priorities. If they're no longer a priority and I have 20 assets of that make, does it make sense for me to hold 20 assets in a fleet of 10,000? It does not. That's, those are the criteria which are very timely. The concept of an operation of used assets demands a scalable standard that will work in the long run, much less idiosyncratic looking at individual assets.
The idea is to have a positive outcome, to have a comfort in our portfolio of clients. If we have a client portfolio that's buying our assets or buying the assets we don't wanna have or hold, those 2% or 3 % of the fleet, if someday we need to adjust the size of our balance sheet by selling quality assets that we have, it'll be easy for us to do that. That's how we think about it. Not selling quality assets that can still be used and sell those assets we no longer want to have in our balance sheet. That's slightly different from the normal standard used vehicles market. That's a small amount, right? Just to be sure. I know that it's a small matter. It shouldn't be. It's almost irrelevant, right? BRL 21 million in the quarter.
Talking about a fleet, with BRL 2.7 million that we reach, late last year with way more than that. It represents very little. It doesn't make sense, right? To change our ways of doing things because such a small matter.
Once again, to ask a question, click on the Q&A icon in the bottom part of your screen. Write your name and company and get in line. When announced, you will be prompted to activate your mic, and then you will have a chance to ask your questions. Please ask all your questions at once. The Q&A session is now over. I'd like to turn the conference back over to Mr. Fernando Aragão for his final remarks.
Very well. Well, thank you all for participating in our conference call. On our side, I would just like to reinforce that we are working on a very long-term view. We're not making decisions for now. It's 5, 10, 15 years. We have 51% of the company. Our interests are very much in line, and we'll do the best for the business to create value in a long timeline. What we have discussed here today, the decisions we have explained, all of our rationale is based on that. How can I multiply the company in the long term? We're thinking 20 years. That's where we are looking to. Count on our hard work and our seriousness in making decisions that make economic sense.
Honesty, intellectual transparency. We think about our decisions. We do the math. This has always been the case in this company, and this is how we will carry on. Thank you once again for your trust, and have a nice day everyone.
Q3 earnings call for Armac is now over. The IR department remains available for questions or comments you still may have. Thank you for all participants, and have a nice day everyone.