Good morning, everyone. Welcome to our First Quarter Earnings Teleconference of Intelbras. My name is Bruno Teixeira. I am the head of our IR in the company, and it is a privilege to be here with you. We have with us our Chief Executive Officer, Altair Silvestri. He is going to be joining us for the whole of the call. We have our Chief Financial Officer, Rafael Boeing, Paulo Daniel Corrêa, our Head of Safety, and Henrique Fernandez, our Head of Communication, who is joining the call directly from China. He is on a business trip. Marcio Ferreira, our Head of Energy. We are here to start our earnings call. This video conference is being recorded, and it will be made available on the company's IR website, and you will also be able to find the slides there.
You will be able to download the PowerPoint presentation, and you will also be able to download the video on the website later. For the Q&A session, we recommend that the questions be sent using the Q&A icon at the bottom of the screen. Please write your name, your company, and the language you are going to be asking your question in, and we will organize the questions as they are sent. When you are called out, a pop-up for you to unmute will show, and you will be able to ask your question using your microphone. The information contained in this presentation and any statements that may be made during the conference call about the business perspectives, forecasts, as well as operating financial targets for Intelbras, are based on the beliefs and assumptions of the company's management and on the currently available information. 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 come to pass. Investors should understand the general economic and market conditions, as well as other operating factors, may affect the future performance of Intelbras and lead to results that differ materially from those expressed in such forward-looking statements. Now that we have clarified these points, I will start the presentation, and we will later have the Q&A session. Starting with the highlights of the first quarter in 2023. We had an increase in our revenue that was shy of 20%, with BRL 1.036 billion. Our EBITDA was also very interesting, with a 37% rise year-on-year, brl 143 million, and our net profit 34% higher year-on-year, just over BRL 132 million.
Even in this quarter, where our revenue is normally short of our expectations, we see good results. We can also see the results in our ROIC at 25%, 26% already in the first quarter. As for our revenue, we like to look at our history to show how the revenue is performing. We can see the different quarters in the course of the year as well. We deduct non-recurring revenue, which may stem from specific projects or some additional revenue that is not seen as recurring revenue. That 19.7%, without these recurring items, the non-recurring items, pardon me, becomes 19.1%. We have the same points here being shown for our EBITDA. The impact on our EBITDA figure is virtually nil, 37.1% higher year-on-year. When we look at our EBITDA margin, we climb from 12.1% to 13.9%.
That's an interesting improvement that we see in operations. We have been seeing cost reductions since the second quarter 2022. This new level of costs with shipping costs and so on, all of that will impact our gross margin and the growth of our EBITDA figure. We see that our expenses are well under control. With all of that, we see an increase in our EBITDA margins. Now we'll see the breakdown of our separate businesses. When we look at safety and security, that accounted for 23% of our revenue. It's an increase over 2% in the gross margin. The items that had been worked on last year continue this year. We can see opportunities in projects and solutions in our different verticals, corporate projects, and we see all of our access control penetration.
When we look at the results even in the quarter-on-quarter comparison, pardon me, the year-on-year comparison, comparing the quarters from the first quarter 2022 and the first quarter 2023, we see that we have good figures. We see that security is performing slightly under the fourth quarter 2022. We have virtually kept the same level of revenue, which is great for an operation as important as our security operations. When we look at communication, that accounted for 22% of our net revenue, we also see an increase. We resumed growth. Last year, we had had a dip in revenue, but we have started this year with an increase in our operating revenue, net operating revenue, and also with improvements on margins. The same rationale in electronic costs and FOB and shipping costs.
More updated costs also contribute to this improvement in our margins. In this first quarter, we have cleared the C-band and Ku- band. If you want to exclude this extraordinary revenue, you can see the revenue increase slightly over 12%. This is also running as per plan in communication and in security. Lastly, our Intelbras Energy and Power segment that accounts for 51% of our net revenue. We have to remember that here we have inorganic revenue from the last quarter. This is the last quarter that we have this type of report. If we had not reported the Renovigi revenue, we would see a dip of 8% in revenue. We see quite clearly that the start of the year had less demand in microgenerators and the resellers sales funnel, and they were mainly installing and working with the sales funnel.
After there was this regulatory change, this funnel decreased. This funnel has to be reestablished with a broader project cycle. What we see is that there is a moment where there's a bit more struggle in power and solar power and solar energy. This is a market that is more difficult. It certainly will give more opportunity to those who add value to their offerings and who really perform their business professionally. Another point that is worth mentioning is that the gross margin. We had the expectation that we should expect a gross margin that was more similar to what we had in the third quarter. In this quarter, we still see an impact from the cost reductions and also a revenue mix with power contributing a bit more in this BRL 187 million. We see 23.3% in the gross margin.
A s usual, we have a breakdown of our organic and inorganic operations, right? This is the last quarter where we are going to be breaking it down, because as of the second quarter, all of it is going to be Intelbras Energy and Power, be it the controlling or the controlled companies. We see this breakdown here and the margin has these two aspects, the energy mix and the cost. From Renovigi's perspective, their inventory turnover is a bit lower, so the inventory turnover was stronger in Intelbras and the impact on costs is clearer. It is clear to us that we have Renovigi with a performance that is going to be lower than Intelbras's. Y es, that is it. As for the cash flow, we go from BRL 1.5 billion at the end of last year to BRL 1.3 billion this year with operating cash generation.
It is worth mentioning that we are very attentive to our inventory management. Our inventory value is quite stable, and we are very careful when we are forecasting revenue as we had, for example, the expectation of more solar energy revenue, and we want that to be controlled and not have an impact on our inventory. All of our procurement team is very attentive to that, as is the operations team. We had this expectation of higher revenue that didn't come. When we look at loans and funding, we have almost BRL 100 million in amortization and JCP and the dividends paid in March. They are the main points that we are working on to or that had this impact on the cash reduction. When we look at our CapEx, we have the expansion of the Tubarão facility. We have our new plant there.
Just reminding you that JCP is Portuguese for interest on equity. In the second quarter, we will probably see the production run better here at Tubarão. This is a picture of our plant at Tubarão, showing that is already in operations. This is a cable production that is doing one of their fiber optic cable. We always like to say, as for our perspective, that we keep our eye on the sellout. That is key in our strategies, and we have been working with that. The channel looks at the business within Intelbras as something that is very positive, and we see that sellout is going well. That goes beyond the figures that we can see here in our reports. It also can be seen in the market in general.
It is no use to just be looking at figures without really getting a whiff of what is going on out there, and without feeling the temperature of what is going on in the market. We work out and then work together with the distributors so that all of the demands can be met, and we will continue to work together with them and work hard on this year. Of course, always seeking to have operating efficiency, and the company is organized to grow in revenue and in results. These two lines need to be constant. We are working in the field so that the results that we see in the first quarter continues in the rest of the year. This is the end of the presentation, and we can now start the Q&A session.
Just like to remind you that if you would like to ask a question, you can click the Q&A icon at the bottom of the screen. Please put in your name, your company, and the language you are going to be asking the question in, and we will coordinate the questions so that everyone can have their questions answered. Bernardo, an XP analyst, has a question. You may unmute, Bernardo, please.
Hello, everyone. Good morning. Thank you for taking my question. I actually have two questions about the solar energy segment. You had a slowdown in revenue in this quarter, and you mentioned that, and that was quite clear actually. But the dip in Renovigi is also in line with what we see in the Intelbras brand. Can you try, though, to talk a little bit more about the commercial front in Renovigi? Looking forward, can we expect a bouncing back from Renovigi? Can you also talk a little bit about the level of activity of the segment in April? I would like to hear that. These are my questions. Thank you.
Would you like to start, Altair? You are on mute.
All right. Okay. Good afternoon, everyone. I am just going to say a few words and then give the floor to Marcio. He can speak about that on better authority. We did expect a slowdown in solar energy in the first quarter. But the slowdown was greater than expected. The excitement, the promotions, and discounts given at the end of the year caused sales to be made sooner, and the stores to be emptier this year, because they were too full at the end of last year.
As the whole market is adapting, I see that as positive. I had always said that the market would not be able to sustain all of these players, that there would be consolidation. So it is positive for us because this consolidation is going to be accelerated. We see many vendors that are giving up in the market every day. So the market is more selective, it is more exacting, more cautious, and that favors companies like Intelbras that is better structured and works focusing on the long term. Consumers seek to find this type of trust and not the gold rush that there was last year. Our concern this month and next month are really to prepare for the coming years. We want to get more market share in the markets we operate. So we are confident that this market is going to bounce back. The good news is that this selection is expedited, right? What we thought would happen in six years is going to be happening in six months, possibly. Marcio?
Good morning, everyone. As Bruno said, Renovigi had a slowdown, as did Intelbras, because of market conditions as Altair said. We see this recovery in April, especially in the number of quotes and the simulations run on our simulators. That all has been rising. So we see that there is more interest as Altair mentioned. As for Renovigi's recovery, yes, that is also part of our plans. We want to continue to invest in or go back to investing in marketing of the brand, and we will continue with two independent brands. At the end of the year, we are going to add items to Renovigi's portfolio, and mobility as well. Renovigi will continue to be invested in, and it will continue to be an independent brand.
That is very clear. Thank you, Marcio. Thank you, Altair.
Thank you, Bernardo. We now have Leonardo, the UBS analyst. You may unmute.
Good morning, Bruno. Good morning, everyone. Thank you for taking my questions. I also have two questions. First, I would like to talk a little bit about the increase in margin in security and in communication. The company has this competency of planning for inventory and sales in the long run. Is there any other internal action in the company that is contributing to the margin growth and improvement in productivity, so that may be recurring in the future? The second question has to do with the Tubarão plant. You have fiber optic cables there. What is the expectation of this part of the business in communication, and how long do you think it will take for you to get to the size you expect to get?
As usual, I am going to say a few words before I give the floor to Henrique, our Head of Communication. In communication, we see that the margins bounce back because of a strategic decision that we have made. We did not want to wade into this price war. We continue to focus on more corporate markets, and communication is going through an interesting moment. We see changes, new products being launched, new partnerships being forged. That really gives us a promising outlook in communication. The cables factory is taking off. We have good perspectives for it to get to 100% capacity. The whole communication department is also working to improve in cost and productivity. Henrique?
Good morning, everyone. Good morning, Leonardo. Thank you for your question. Another item that contributed to the increase in margin was a strategy we had at Intelbras to increase the department of solutions and projects, the verticals. That really supported communications in increasing its margins on top of what Altair mentioned. The fiber optic cable is an important market in Brazil. We can see the amount of fiber optic cables we see on the posts in the streets. We aim at over BRL 500 million revenue in this business. We have a bold strategy. We want to be a very strong player in this market. There is a constant, relentless work to be productive and improve costs and raw materials. This is our plan in fiber optic cables. In this quarter, we aim to start producing the UTP cables too.
With that, we can give a complete, thorough solution to installers, also for internet providers. These cables go everywhere, also in security, and this is something that is well widespread in the Intelbras projects. I think Paulo could talk a little bit about the security margins. That is one of the points that Leonardo raised.
Just to complement it, Leonardo. This increase in productivity will permeate the whole of the company, not only one or two departments. In security, we were able to normalize our raw material supply. We have been able to reduce shipping costs. That was impacted at the end of last year or in the second half of last year with some impacts that there were. That has an impact not only on direct shipping costs, but in the productive process as a whole, that becomes more stable. W e now, with the cables, can be part of projects that have more value added, and that's also one of the factors that will contribute to the increase of our margins.
That's crystal clear. Thank you, Paulo and Henrique , Altair and Bruno.
All right. We have a question from Felipe Cheng in writing. He's asking us about the solar energy performance in the first quarter, if we see that, say, for example, March was better than February or better than January. I think we can talk a little bit about that, Marcio. How we see the second quarter perform. Then there's a second question about the margin increase. But I think we can start with the solar power question.
All right. I'm going to touch on the solar power question and also start answering the second question as well. March was better than February when it comes to results. As I said just now, the expectations for the second quarter look better, too. But they're still weak in comparison to the fourth quarter 2022, because the market's changed. We have a new reality now with the changes in legislation. But we have jumped on the bandwagon for all of the excitement that was last year. But we're not a company to operate in fads, right? We're a company that looks for consistency. So we continue to operate consistently to grow in the long run. Even if the market changes, that is an opportunity that we have to get even better shares with high-quality products and services. And that has to do with what Altair said. We see that the market will have changes now. There will be players that will be cleaned out.
There are players that can't import, can't generate cash, and can't offer after-sales services. So when we look at our process and everything has an edge on top of the competition, every process or every element in our process, then we see that we really can increase our market share in this way. A s for the margin, I mentioned this in Investor Day last year. Energy is not only solar energy. We have UPSs, we have other products that are part of the energy business. We have some smart energy elements. Energy has been delivering this year with good sellout, with balanced inventories out there in the field, and that has led to the well-balanced results in the gross margin as well in energy.
All right. Cheng, I think he can also speak. Can we unmute his microphone, please?
Hi, everyone. Can you hear me?
Yes, we can hear you.
Thank you for taking my question. I'd just like to understand those margin dynamics, not only the solar element, but also in other segments. Is this something that would carry over the rest of the year, or do you see the gross margin in this quarter a bit unusual, a typical? It should probably go back to other levels that we have seen in other quarters.
All right. Cheng, as for margins, we know that the margin won't worsen our history. Intelbras has a history of constant margins, and the margin in this quarter possibly with the work that is being done to improve productivity and all, maybe the margin will remain the same. But we guarantee that it will not be worse than the average last year. So we always want to have a good historical trend in our margins.
All right. I if I may ask one last question, how relevant is this power segment within energy? You have an 8% dip in the year-on-year comparison in energy. How can we then understand the difference between solar energy and power?
I think Marcio can complement on that front. When you look at off-grid solar, which is not the one that is connected to the grid, of course, we have a process of investment and launches that has novelties all the time. That's a very strong growth trend we see for the coming years. We can't say exactly what the share is going to be in the company's growth, but it's certainly going to be accounting for substantial growth in solar energy, be it on-grid or off-grid. Marcio?
Exactly. We don't go into that level of detail in the report, but I can tell you that the energy line, excluding solar and comparing to other fronts in the company, well, it shows a very good gross margin. Only solar energy has a lower margin. I think that's an important point. It has been growing by the month. The solar market decreased a little, so it had an impact on revenue. When we look at the future in the coming five years, this is going to become a very important part of the business.
All right. Thank you.
Thank you, Cheng . We have Lucca from the Bank of America. I think Altair got disconnected. While we wait for him to get back. Oh, there he is. So Lucca, you may ask your question.
All right. Good morning. Can you hear me? If I may ask two questions as well. The first is, looking at the customer profile, thinking of the solar energy, do you see any difference with one sector being more impacted than others, or the dip has been more general without any specificity? Thinking about communication, could you give us an update on how we see the CPE/FWA market? Are there new projects that have been ordered for the coming years?
All right. If I may start with the solar question. Our biggest business has always been homes and small businesses, and that's where there has been the biggest impact. There was this argument that solar energy was going to be taxed. After January 7, we need this customer to understand that a payback is still going to be excellent.
He's still going to be able to reduce his energy bill by 95%, and that the payback, in the worst-case scenario, is going to be delayed in six months time. But compared to any other investment, it's still a very beneficial investment. When you look at microgeneration, up to 5 MW, it's a moment where there are loads of projects going on. We have got a very heated pipeline, but that's not our core business, in energy. We have been seeing some projects in the micro and small plants as well, and the pipeline is, as I said, heated. When you think about the CPEs and 5G markets, they're still quite incipient. The main operators have bought these products. They are testing it on a larger scale now.
They see how things are working, and we see some major companies already buying CPE 5G to work on some problem with database or to have a redundant connection, a contingency. We see that the competition has got lower prices, and that's going to help boost the 5G and CPE in the market. This is the 5G scenario.
If I may just ask a second question. You just said lower prices, right? What do you mean with that?
In electronics, we see there's an over 20% dip. Lucca, you had also asked. But we still have good requests, good in our sales funnel. We have over BRL 15 million in there. So we're producing and delivering as the operators grant us authorization. The providers are delaying a bit, but soon they will catch more momentum. Anything else, Lucca?
No, that's all. Thank you.
Leonardo, you may unmute. Right, you have a second question. Can you please allow him to unmute?
Hi, Bruno. Thank you for taking this follow-up question. It has to do with the question I already asked, but can you just add some color on how the verticals channel is going in the security segment? That would help us understand the growth in margins.
I'll tell you. Let me just say a few words. This is a market segment that we tapped into only about two or three years ago. It's a segment that we continue to invest in and train people for. We have been seeing a good reaction with strong growth. This growth is going to continue without a shadow of a doubt, especially with all of the investment that we're making. Also, has got better margins. Paulo can also complement this answer because security has been a driver in this vertical segment, but it is something that's really pulling the company as a whole.
Altair mentioned an important point. Security is often an area that will kick off a project, and it's a commercial area that's always looking at the bigger picture, right? 360. We want to give clients and customers a thorough solution, right? Communication, energy security. Security has been growing more than other channels. It's the segment that we have been investing more strongly in the past three years only, but the profitability has been rising. So it's really becoming more robust. But we see there's still a lot of room for growth because it is a relatively new channel with about 10% of our revenue here.
But the history and the forecast show that this is going to be ever more relevant and more important to our results. It's growing over 70% a year. There's a comment we made at Investor Day. When you look at the size of the market when it comes to money, it's quite large, right? It's a new market, and we don't compete with other distributors in the regular market. You can have distributors working on regional projects. So we have another strength which is having the suppliers in the region, right? D istributors, pardon me, in the region. Just piggybacking on what Bruno said, we have our directed work, and there's also this work around training our distributors more and more so that they can go middle and higher because they're in the region, so they can act in larger projects, right? With Intelbras supporting them. So it is Intelbras distributor and resellers working together so that we can increase penetration and relevance in the channel. This is also a strategy that has been adding to the verticals strategy.
Very clear. You said 10%, and you meant 10% in security, right? But you had a question about communication as well, right?
In communication, it accounts for a little less, but it is close to security. But we aim to have this segment accounting for over 20% for the whole of the company in the future.
Thank you very much for your answer and the details. Thank you for taking my question, Bruno.
W e have a question from César Davanço . Can we allow him to unmute, please? César from Santander.
I think he got disconnected.
No, he is here. César, can you unmute and ask your question? Let us just give it a second.
Hi, everyone. Thank you for taking my question. On solar panels, we see some plants are opening and the polysilicon has dropped in price. That could have an impact in pricing of the solar panels as well. Do you see that happening in fact? If so, do you have any clarity on the potential impact there could be and how that would be passed on to customers as well?
Yes, we are monitoring the polysilicon price as we have been monitoring it since November last year. We have had inventory with more aggressive prices, and we always try to get to a minimal margin, and we are attentive to the market as well. We have a number of tools to monitor the price of commodities abroad, and as I have been saying in many meetings, we are always seeking to get to operating excellence and seeking to have lower inventory levels so that we can absorb changes in cost more quickly. We are very attentive to the logistics so that we can have a higher turnover. We have a really well-equipped team to monitor commodity prices.
I f I may say something too. In the past years, we see a different trend in cost. We see an increase in volume. We see then a decrease in costs. Increase in volume and decrease in cost, right? Solar saw a decrease in cost for five years, and now in 2021, we saw prices go up, also because of the increase in the global demand and with companies struggling to get supplies. N ow we see this downward trend again. This happens to every business line, and solar is no different.
All right. Thank you.
Thank you, César.
All right. I see no further questions in the Q&A list. Now I give the floor to Altair for him to make the final remarks of this first quarter earnings call.
I would like to thank you all for joining us for our call this quarter. I would also like to clarify that this fright that the market had in solar energy, seeing that solar power went down, and that may cause some negative expectation. But that is not what we see in Intelbras. We do not like these easy markets with a lot of excitement and crowds chasing after fads. We like solid infrastructure.
We have a strong brand with sustainable growth in the course of years, and we believe that solar energy, having this decrease, it will contribute to our strategy at Intelbras. It's going to be more selective market, and we're going to tread this path, increasing our solar energy market share, especially in the off-grid market. The company is not only solar energy, right? We have six business units, and security is getting more market share, new products, new markets, and it's doing really well in the verticals. Communication is also full of new products, factories, businesses, new markets. This is a lot more promising than it seemed to be last year. In the energy department, as Marcio said, there is a lot going on.
There were some items that made this year a bit harder at the start, but that's something that we all had already predicted last year regarding costs and structuring. We could look at that, these items that are structure, cost, productivity, improve company's performance. We're able to continue to strengthen our channels, our culture, our Intelbras way to be. Being modest and servicing customers. We have concluded the 10-year outlook, right? What Intelbras will be like in 10 years' time, where we'll be operating and how big we'll be. We are very confident that we're going to continue to see growth that is similar to what we have seen in these past 10 years. That's it. I'll see you, or we will see you, on our next video conference. I wish you all a great day.
Thank you, Mr. Altair. All right, this is the end of our first quarter earnings call, and we thank you all for joining, and we wish you all a great day. Thank you.