Earnings Call: Q2 2023

Aug 11, 2023

Summary

Revenue rose 36% and GMV 40% YoY, while adjusted EBITDA nearly tripled and margin reached 17.7%. CapEx fell 50%, and management kept guidance unchanged pending clarity on integration synergies.

Hello, everyone. Thank you for joining us for our second quarter 2023 earnings conference call. For those who need translation, please click on the interpretation button on the bottom toolbar, and the slides in English are available on the chat or on our IR website. I'm Fabio Bortolotti, CFO of Infracommerce. The results we announced yesterday, the audio of this call, and the slides that we'll reference will be made available on our IR website. Joining me today is Kai Schoppen, our Founder and CEO. After the company's presentation, there will be a Q&A session. Should any participant wish to pose a question, please raise your hand to join the queue, and you can also send your question in writing through the Q&A box. Before I turn the call over to Kai, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance, constitute forward-looking statements that are based on a range of assumptions that the company believes are reasonable but are subject to uncertainties and risks that are discussed in detail in our CVM filings. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties, and assumptions as they relate to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors could cause the results to differ materially from those expressed in such forward-looking statements. Also, during the course of the call, we'll discuss non-IFRS performance measures, which should not be considered in isolation. For a consolidation of these non-IFRS measures, please refer to the tables at the end of our earnings release. Now I'd like to turn the floor over to Kai, who will comment on the main highlights of the quarter. Kai? Thank you, Fabio. Good afternoon, everyone. This has been a special and transformational quarter for Infracommerce. Our results show the strength of our value proposition in Brazil and in the rest of Latin America. In addition to the company's ability of changing the mindset to focus on profitability and cash generation without sacrificing growth, we are more than on track with our commitment to deliver a year with strong EBITDA generation and lower levels of CapEx, as mentioned in the guidance released to the market. I want to thank the Infracommerce team that worked really hard in recent months to make the impossible possible, working on efficiency, profitability, and growth all at the same time. As you can see on slide number 5, our revenue grew by 36% this quarter, offsetting the exit of part of an important customer, like we mentioned in the past. We believe this is a major accomplishment, especially considering that the e-commerce and retail market, in general, was impacted in Q2. Our adjusted EBITDA reached BRL 53 million, a threefold growth as compared to the second quarter of 2022, and this is fruit of our work to reduce expenses and gain efficiency. Our EBITDA margins achieved 17.7%, more than double the same quarter last year. Our GMV also grew, going up to 4.3 billion, up 40% against the second quarter of 2022. Even with growth of business above 35% and the acquisition of Ecomsur to strengthen our presence in Chile and Mexico, we reduced the headcount in about 12% as a fruit of the synergies. And finally, we closed the quarter with a record of 758 customers. Moving on to slide number six. Our profitability gain and cash generation plan is a transformational agenda for the company. After months of hard work, we can start to see the first results of this plan. As we explained in Q1, the goal of this project was to improve our cash generation, going from BRL 120 million to BRL 140 million on an annualized basis. Up until the end of June, we have already realized BRL 88 million of that amount, which accounts for 70%, and we are confident that we will reach the rest in the coming months. After the first quarter release, we also identified an additional potential of BRL 36 million on an annualized basis, in further savings that we expect to capture next year because of the implementation timing. The potential target saving is now from BRL 156 million to BRL 176 million, split between OpEx and CapEx. On the next slide, you see the status of the guidance. Fabio will give you a breakdown of the financial results of the quarter. Now, on slide number seven, I would like to highlight the trend of transforming the company and the delivery status of the indicators mentioned in the guidance released to the market. In terms of adjusted EBITDA, we grew to BRL 52.9 million this quarter. Almost tripling this number compared to the second quarter of 2022, and even above the fourth quarter of 2022, which is seasonally stronger due to the Black Friday event and the holiday season purchases. We continue reducing our CapEx, reprioritizing investments, reaching BRL 29.5 million this quarter, down 50% year-over-year. This reinforces the tendency to decrease this number reported in other opportunities, and indicating the conclusion of the M&A integration. With the results we achieved so far, we are very optimistic about achieving or exceeding the indicators mentioned in the guidance. Added to the first quarter's numbers, we have an EBITDA of BRL 79 million. We have reached half of the guidance considering the center of the range, just like the accumulated CapEx. The EBITDA minus CapEx indicator is at plus BRL 17 million the first half of the year, so close to the target center, even considering the sixth month, which is seasonally inferior. Now Fabio will give you further details about our financial results. Thank you, Kai. Let's move on to slide number nine, where I will give you further details about our financial highlights of the quarter. As Kai mentioned, the second quarter of 2023 had a mix of strong growth with operational margin gains, even with a challenging e-commerce and retail market, not only in Brazil, but in the whole of Latin America. We had a 40% growth in GMV and 36% growth in net revenue, achieving BRL 300 million this quarter in earnings. The highlight was Latin America with strong organic and inorganic growth, but all of our business units had consistent growth. A major highlight of the quarter was the EBITDA margin, which adjusted to the non-recurring costs of terminations and M&A, reached a level of 17.7%, more than double the level of the previous year, and with a five percentage point gain against the first quarter of 2023. It is important to mention our team's mindset, that is seeking synergies and reducing expenses as part of the scope of the project mentioned by Kai. Now on the next slide, SG&A minus net revenue, excluding depreciation effects, improved by 8 percentage points, going from 47.5% in Q2 2022 to 39.5% in Q2 2023. CapEx continues to be reduced with an over 50% drop against the amount invested in Q2 2022. In addition to gains in SG&A, we also had improvements in gross margin, which together led to a 9.2 percentage point gain in our adjusted EBITDA margin this quarter. On slide 11, you can see that we adjusted our net profit for the non-recurring expenses of M&A and terminations and the goodwill amortization, which is a non-cash effect on our P&L. Although we do not have the complete result of this project because the headcount changes were made in May only, we can see that our loss was lower than the banking financial expenses of BRL 30.8 million. Considering the last month of the quarter, these amounts are very close to the break-even, which is what we are seeking. We also had a significant reduction in interest rates with a major impact on this indicator. Now on slide 12, you can see that our CapEx is divided into infrastructure, logistics, and technology. The last concentrating most of our resources since our logistics structure does not require too much CapEx. Since the integration of the acquired companies has already happened, CapEx dropped by 50% to BRL 30 million this quarter. The most significant drop was in infrastructure CapEx. Since last year, we made heavy investments to consolidate our distribution centers of the acquired companies, which are not going to be repeated at the same levels this quarter and from now on. On slide 13, you can see debt and cash position. We closed at BRL 226 million reduction against the previous quarter. In spite of the growth in net debt that we reported last quarter due to seasonality, this quarter, we had growth below 5% in the amount of BRL 17 million, which is basically what we reduced in terms of M&A commitments. We should mention that the second quarter has not captured 100% of the reductions yet, because most of them started in May. The quarter also had high costs of terminations of contracts. In addition to cost rationalization, expenses and investments, we are also implementing initiatives to optimize working capital, actions that should enhance operational cash generation to the company. In addition to the company cash, we also have a balance of credit of tax deposits to recover totaling BRL 125 million that we are focused on monetizing in the coming quarters. Now I turn the floor back to Kai. Okay, now on slide 14, I would like to emphasize some of the main points that we have already mentioned. As I said earlier, Infracommerce is experiencing a very important and transformational moment. In addition to organic growth and margin expansion, the advances in our products to gain efficiency and profitability make us excited, and we are confident that we will be able to achieve profitability and cash generation much earlier than expected. We still have a long way to go, but we are confident about where we want to get and where we will get with our business model and the execution capacity of our amazing team. Now, let's start our question and answer session. So once again, if you wish to pose a question, please click on the raise your hand tool icon here on Zoom, and the questions will be answered in the order they are received. You can also send us your questions in writing by clicking on the Q&A button. Please wait while we poll for questions. Our first question is by Gabriela Morais with Itaú BBA. Please, let's enable her microphone. Good afternoon, everyone. Can you hear me? Yes, we can hear you well. Thank you for taking my question, and congratulations on your results. We actually have two questions on our side. The first is about growth, especially in Brazil. The macro scenario here is very challenging, as we all know, but I'd like to hear about the prospects for this industry to recover here in Brazil from now on. What are you expecting? Now, the second question's about guidance. You've mentioned that the guidance does not include M&A. Now, with this consolidation and the new savings strategy, is there any type of upside to this guidance from now on? Thank you very much. Okay, I'll answer the first part of your question. Thank you for your questions. They're really interesting. Talking about the retail and e-commerce industry, traditionally, when interest rates are high, the retail segment is more hardly hit. I think that we're still in the aftermath of the COVID-19 pandemic, because the levels are similar to those during which we had a complete lockdown or partial lockdown of stores. I am optimistic about a recovery. I believe that the e-commerce market will resume growth, and if I were to define how much this e-commerce market would grow, I would say we would have an upward trend with a major peak and then a small drop. I think that we are going to have a linear growth of the e-commerce market in Brazil. We just need to leave behind the rest of the COVID-19 pandemic impact. For the rest of Latin America, we're seeing greater levels than in Brazil, especially Argentina, because they're still lagging 3 to 4 years behind Brazil, so the addressable market in those countries is much greater. We work on the direct-to-consumer segment here at Infracommerce, so we operate websites of industries. We are a digitization player, a decentralization player in the supply chain. When we have high interest rates and hiking inflation rates, in which margins are under pressure, this direct-to-consumer or such decentralization becomes a more profitable market. If you can boost sale in this channel, you can offset part of the margin pressure effect. So our business model, both in Brazil and Latin America, is now going through a very positive moment because that would be a solution to the macroeconomic condition right now, in addition to having direct-to-consumer as a trend. We have a challenge in e-commerce and retail market, but Infracommerce is operating in a segment that is being benefited by this macroeconomic trend, and we hope to continue acquiring new customers, and the other countries were able to help us achieve the growth that we shared with you. Now, about your guidance question. Indeed, the M&A had not been included in the guidance because the release was pre-closing, and we're just starting the integration process. The PMI program in Latin America is already ongoing, and we want to gather further details of the synergies against the investments that might be needed for us to capture those synergies. So we decided not to change our guidance, being conservative here, although we have a great result of the guidance in Q1, which is historically inferior than Q2. So for now, we decided not to change the guidance, and once the conditions are clear, we may make the decision of reviewing the numbers. Perfect. Thank you very much. Thank you. Please wait while we poll for questions. If there are no further questions, we would like to thank our IR team for preparing this material, and thank you all for joining us. As usual, should you have any other questions throughout the day or the coming weeks, we're here available for you. Thank you very much.