Earnings Call: Q1 2023

May 10, 2023

Summary

Q1 revenue grew 10% and adjusted EBITDA rose 57% YoY to BRL 26 million, despite weak market conditions and a major client departure. Lower CapEx and May cost reductions support the goal of EBITDA exceeding CapEx in 2023 and debt repayment beginning in 2024.

Hello, everyone. Thank you so much for being with us in our teleconference for the first quarter 2023. Again, good morning. My name is Fabio, CFO at Infracommerce. The results we announced yesterday, the audio in this call, and the slides we will use as a reference will be available in our investors relations website. We have Kai Schoppen and Marcelo Korber present here today. After the presentation, we will be available for Q&A. Should any of the participants want to ask questions, please use that feature on Zoom and get on the queue by raising your hand. Your question may also be submitted in writing. Before handing it over to Caio, I want to let you know about our prospective statements. Any topics that are discussed today that will be a commentary about future plans and operational and financial goals, these are all based on suppositions, beliefs, and premises that the company's management believes to be reasonable, but they are, of course, subjected to risks, and those are discussed in detail in the documents. Future considerations are not guaranteed of performance because they depend on circumstances that may or may not occur. Investors should understand that industry conditions and other operational factors may affect the company's results and may lead to results that are different from the ones that are expressed in the future prospects considerations. Besides, during the conference, we will discuss some measures that are not included here. They should not be considered in an isolated manner. For anything that is outside of the IFRS standards, please consult with our release. Now Caio will take the floor, and he will talk about the main highlights in this quarter. Thank you. Good morning, everyone. I want to thank everyone that is present here. We have good prospects on cash flow and profitability in the last few months. 2023 began at a great pace in a year that would be very important for the company. The first semester is on track, as far as our planning. Our commitment is to deliver a very strong EBITDA year with good levels of CapEx as well. As you can see on slide 5, we grew our revenue by 10% in this quarter, despite the effects of a very important client moving forward, like we said before. A good result, especially considering that the e-commerce market and the retail market as a whole really suffered in the first quarter of 2023. Our adjusted EBITDA is to the tune of BRL 26 million, growing 57% compared to the first quarter of 2022. This is very much in line with the guidance that we presented to the market. Our GMV also had a growth that was above the first quarter of 2022. Our fintech is moving forward in a very good way. BRL 1.2 billion was processed in our payment solutions, also an increase above 50% compared to the previous year. Finally, we conclude our quarter at 669 clients versus 572 one year ago. In the next slide, we are showing the progress in terms of our objective in the year, which is achieving an EBITDA above our CapEx. Besides expanding our EBITDA, something that has been happening since last year, and we saw that on the previous slide, we are also delivering a reduction of CapEx as we promised. The CapEx on the first quarter is 31% below the first quarter of 2022 without compromising our growth. For this reason, one of the most important metrics this year is also with EBITDA less CapEx, and that is on track. Slide number 7. I would like to go back to what we promised to the market in the last 2 years. We are moving forward with our master plan of reconciliation in the market by gaining scale and reaching break-even. Since the IPO in 2021, our focus was on aggressive expansion to gain a very significant scale. As a result, we elevated our EBITDA from BRL 20 million to above BRL 100 million in 2022, and we delivered so. 2023 would be the year where the EBITDA goes beyond our CapEx need, as it was announced on our guidance. The plan for 2024 is also the same. Throughout 2024, we are going to generate enough cash flow to be able to start paying the debt that our company has. This has always been our master plan, and it continues to be so. As an important step related to that strategy, we had a very relevant development with our break-even project now in May with a significant reduction of our expenditures, which is going to be detailed further on this presentation. With that being said, I'll hand it over to Fabio, our CFO. He's going to tell us about the financial highlights. Thank you, Kai. Now, slide number 9. These are the financial highlights in the first quarter of 2023. This quarter was very much in line with our expectations. As a matter of fact, pretty much in line despite being a seasonally weaker or slower quarter, and despite the market being bearish, we grew on GMV to 18%, and we grew on revenue 10%. If it weren't for the big client that moved further, that segment would be even higher and completely organic. However, as we have said before, gaining margin and profitability is our number one priority. In this sense, the EBITDA expansion of almost 60% shows that our direction has been very successful. Our EBITDA margin was 12.2%, very much above the 8.5% that we presented on the last quarter last year. Moving on to slide number 10. This is the net profit breakdown. You have the non-recurring expenses, including M&As, and also the financial cost in our operation. The graph above isolates those effects and shows the adjusted net result of the company. In the first quarter 2023, we had BRL 61 million, still very impacted by the situation in the market, and also the consolidation of M&As. With a significant reduction in CapEx that we showed in the previous chapter, and with the increase in EBITDA that came since last year, we're going to have an important reuptake on that adjusted net profit in the next months, even though we still have a challenging interest rate scenario. Now, slide 11, we are detailing our investment here. Our CapEx is basically divided between logistics infrastructure investment and technology. The latter being what concentrates a lot of our resources, because our logistics structure doesn't require an elevated maintenance CapEx. With the advance of our M&As, CapEx has dropped over 30% compared to the first quarter last year. It's at BRL 32 million compared to BRL 47 million the same period last year. These numbers do not yet reflect the reductions that recently happened now in May, where we changed our priorities in several investments and longer paybacks, where the impact will be more visible in the third quarter. Now in this way, we are right on track for the guidance to BRL 120 million to BRL 140 million in CapEx, as we informed in our Investors Day, even considering the recent reductions we had last week. Slide number 12. This is the cash and net debt. So first quarter, we closed at BRL 268 million compared to the last period. You can see the numbers here. Net debt concluded at BRL 405 million, and that growth is expected due to the seasonality of the business, especially in the first quarter. Historically, we had a very challenging period in the first quarter because of the reversal of the fourth quarter, which is strong due to Christmas and Black Friday. The trend is that this will be reversed in the next few quarters and years. The cash flow for the next quarters, as well as the reduction in expenses, indicates that there is no need for further fundraising for the company in the short term. Now on slide 13, I'm going to give you further detail on that initiative which we implemented now in May. So we have a break-even project since last year, which is on track. We have good efficiency and synergies. It's been executed with focus. In this sense, we accelerated the synergies of M&As. We reprioritized investment and projects with long payback. We readjusted the corporation structure to gain efficiency and operating leverage to become even more agile. And our focus is on the core business and monetizing our client base. The majority of these initiatives have been implemented in May, so there is no impact on this quarter's numbers yet, but that sets the tone for the next one. One example of such actions is our reorganization on May 5th, which resulted in the laying off of hundreds of people between contractors and our own staff. So that saves BRL 6 million per month alone. And with that should account for a savings to the tune of BRL 120 million to BRL 140 million, which really impacts our cash flow. Now, going back to Kai for the final remarks, and then we'll have our Q&A session. Thank you, Fabio. Infracommerce is going through a very important period at this moment. Besides the organic growth and expanding our margins, the advance of our efficiency projects and profitability, that makes us very optimistic that in even a short term than we expected, we'll be able to attain the profitability and cash levels we expected. We have work ahead of us, but we are very much confident that we will deliver our break-even plan. Thank you. Okay, Kai. So with that being said, we would like to move on to Q&A. If you want to ask a question, please raise your hand on the chat and we can call you out. Questions will be answered as they come through. But you also have the option of writing your questions and we can read them out. So I will be waiting until we collect the questions. Our first question comes from Gabriela Moraes from Itaú BBA. Gabriela, please ask your question. Good morning, Kai. Good morning, Fabio. Thank you for answering our questions. We have 2 points we would like to raise. First, we saw a great performance on the top line, especially B2B, and also considering the regions LATAM and Brazil. Can you please elaborate a little further on the main drivers for that performance? If you can, that would be great. The second point is the take rate. We saw a drop on the take rate, which is probably related to the mix and the larger B2B share, but if you can please elaborate a little further on that as well. What is that development like from your perspective? Thank you. Thank you for your question. Well, I think the first point is, at the end of the day, as we always say, the B2B market and the LATAM market, they are lagging a little bit behind when compared to the B2C and the e-commerce market in Brazil as a whole. This market is a little more mature and has a lot of potential. What we see is that you have some growth rates on LATAM and B2B that are above the e-commerce and B2C rates. We were very fortunate to take a position as one of the first companies to be able to attain this mega trend of B2B. What we are doing is riding this wave on the bet that we did in 2016 to this day. The superior growth, I think, is related to that. To your second question, can you please remind me? Oh, the take rate. Okay. The take rate, as you have mentioned, the take rate is related to the different services that are provided. Remarkably, on B2B, we do not offer logistics service. When we work with a B2B client, we usually sell the e-commerce platform with a payment with BI and some e-commerce management components as a focus for that solution. With that, the take rate is much lower than a B2C operation in Brazil or Latin America. If the B2B grows a little more than B2C, that only means that on average, that take rate will drop a little bit, which is not to say that it will have an impact on our margins. As you can see, our gross margin has increased in the first quarter, and that happens also because of that mix, because usually B2B has gross margins that are slightly higher due to the fact that there are less embedded services in our B2B solution. Thank you, Kai. It is clear. We have a second question coming from Jonas from Credit Suisse. Go ahead, Jonas. Good morning, Kai. Good morning, Fabio. We have 2 questions on our side. First is a bit of a follow-up to the previous question. We know that the result was impacted due to a major client leaving your portfolio. We want to know your take on the take rate and the growth from this moment forward. The second question is, what is the driver to lower the CapEx in the next few quarters? Well, as you can see, our numbers are very much focused on reducing CapEx and reducing expenses, and really on delivering on our mega goal for 2024. We are not focused on growth at the moment. For this year and the next year, I think you're going to see a growth that is lower than the previous years. We also mentioned that that was part of our master plan in the past. We were going to continue to grow, but less so than in the previous year. At the end of the day, the take rate, and considering the clients like this one that left, the take rate, I think the trend with it is to take a slight drop. If you look at this isolated factor, I think we are looking better in terms of our onboarding of new clients. The new clients that come in, they tend to have a superior take rate. The clients that left, they are reducing the take rate. We are expecting that both these effects will be offset through the year, and our take rate is going to be at the level where we see it now. Okay. Thank you. Also, a question from Carlos David here on the chat. What has the company done to attract investors and to get a broader range of investors? Well, I think that obviously, considering the moment in the market, this is a very challenging moment. What we did was we had a lot of investors that were concentrated. They had redemptions, and they had to divest not only Infracommerce, but also many other divestments. We have been working to increase our investors base. Up until recently, you can see that our liquidity increased quite a bit in terms of the number of shares traded, and this is a trade-off from a more scattered investors base. This is really important for us to pick back the pace. Considering our capital in the stock exchange, I think it's really important for us to have those investors that are taking small positions. Given the low liquidity, it's hard to take up a huge position at this moment, but these are investors that are ready for the uptake when we see a reversal on the interest rates and the market overall. We're working to have this diversity in our investors base, and we are trying to seize the moment that the market is in right now. When the reversal happens, we'll be ready. If anybody has additional questions, we're going to take a minute to receive them, and we'll be back shortly. Since there are no more questions, Kai, would you like to say your final address? Yes. Thank you so much, everyone. We know what our mission is. As we have done in the past, we are going to deliver on what we promised. Thank you. Thank you everyone. Have a good day.