Good morning, and welcome to our conference call to talk about our third quarter 2022 results. I am Bruno Teixeira, and it is a privilege to be with you today. We have Mr. Altair Silvestri with us, our CEO, Rafael Boeing, our CFO, and Paulo Daniel Correa, the superintendent for security, Henrique Fernandez, superintendent for communication, and Marcio Ferreira, superintendent for energy. All of them are here so that we can get started with our earnings results call. This conference is being recorded and will be made available on our IR website, along with the presentation. You can already download the presentation at this point. At the end of the call, we are going to upload the video. For the Q&A session, we recommend that your questions be sent using the Q&A icon at the bottom of the screen.
Please write your name, company, and what language you are going to be asking the question in. The questions will be answered as we get them. When your name is called out, a pop-up will show for you to unmute your mic if you choose to ask it using our microphone. The information contained in the presentation and any statements that may be made during the conference call about the business perspectives, projections, as well as operating and financial targets for Intelbras, are based on the beliefs and assumptions of the company's management and on currently available information. Forward-looking statements do not guarantee performance. They involve risks, uncertainties, and assumptions as they refer to future events and therefore depend on circumstances that may or may not occur.
Investors should understand that 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 we are done with these initial clarifications, and then I am going to start with the actual presentation, and the Q&A session will follow. We will start with the financial highlights, then the EBITDA performance. We will talk about the segments. We will talk about inventories, cash performance, CapEx, and perspectives for the end of the year. First of all, our financial highlights. We have had results that are in line with our plan for the year. Robust revenue growth, which was accelerated by the takeover at the end of the year, the acquisition we had of Renovigi. We have 49.2% revenue here in net revenue.
When it comes to EBITDA and net income, the takeover has not yet contributed very much. These are basically organic results. Our EBITDA was BRL 148 million in the third quarter, a 66% increase year-on-year, and a 38.8% increase in net income, getting to BRL 122 million. Our ROIC continues on a growth trend. Our capital structure after the IPO is robust, and we are improving our ROIC. It is 22.9%, and excluding the Renovigi acquisition, it would be over 26%. We also have our historical data for revenue, and we have the extra revenues here with the KU band converters being sold, the BRL 33 million that you can see highlighted in blue, and the BRL 31 million in the third quarter 2022. So it is a substantial increase in revenue in these nine months and in this quarter. From an EBITDA perspective, we also have our historical data.
13.5% growth in the first nine months of the year. In the first six months of last year, our EBITDA was stronger due to the pandemic and all of the expenses that were not coming to pass at that point. Now, with the comparison, when we will have third quarter 2021 and third quarter 2022, we see an increase of 66%, almost 67%. Here we have our EBITDA performance showing how this indicator has improved. It is quite clear that the EBITDA increase has to do with an improvement in the net, or rather gross profit with substantial margin growth. The expenses don't grow at the same pace as revenue, which leads to an EBITDA margin increase. We continue controlling our expenses really well, and we have clear gains or efficiency gains in our operations.
We now have 13.1% EBITDA margin in the third quarter 2022. Now, looking at each of our segments with the business highlights, we can go into further detail when we get to the Q&A session. Security accounted for 44% of our revenue this quarter. There is a substantial increase year-on-year, and the margin is also very good. When we look at the gross margin, we are on the same level as the previous quarter. This operation has been running well. It has really been delivering good results. Projects and our verticals have really been an important part of our growth. Sell-out in distribution is still very robust, and it applies throughout the Brazilian territory. This is also seen with the end consumers and the stability in cost and prices that we can see in the third quarter, that also reflects in our gross margin.
As for communication, it accounted for 22% of our revenue this quarter. The main highlight here is that we are back to growing organically in comparison to third quarter 2021. We had this additional revenue, BRL 31 million, with the KU band converters, which is important for the 5G development and the whole of the Brazilian territory. This is still for the capital cities, and in the coming three, four years, we are going to see the C-band cleansing take place on a national level. On the C-band, rather. We are also working on operating efficiency for communication. We knew that this year was going to be harder from a growth perspective. From the first quarter, we have been taking decisions around working well with the margin and with the expenses. We can see that there are very robust margins in communication and very interesting operating results.
From a logistics chain perspective, even though this point has not been addressed fully or solved fully, we see substantial improves that can also be seen in our inventories as we are going to see in a moment. Lastly, energy. It accounted for 34% of our revenue. This has to do with the recovery of the gross margin. We saw a dip in the second quarter in the energy segment, but now we can see the margin bounce back.
The revenue is growing well as per the plan of our organic operations. We see the Renovigi operations running below the expectations for revenue for this quarter, but as we strengthen our strategic services and focus on sales, these first five months had operations being reestablished, so inventory management, financial management, and now we are really focusing on sales to start driving revenue again. It is a strong operation delivering good margin and revenue.
As the Renovigi report is new, we have this table here to try and show what is organic and what is Renovigi operations. Our main focus is in getting the culture aligned and organizing the operating costs within Renovigi. Our main focus was really to align Renovigi costs and culture, and we see a trend to improve revenue, so we have to work well with our Renovigi partners. We can see that the margins are improving or recovering, clearly, in both businesses. In the second quarter, there was a dip in margins, both for our organic operations as well as for Renovigi, but we see this improvement of the margins for both of them in the third quarter as well. As for inventories.
Well, during the pandemic, we invested more robustly in inventory so that we wouldn't lose sales because of the lack of materials or because we didn't have them in our inventory. We see this cycle growing up to the middle of the year in 2022, and as per our plan and cash flow, we wanted to go back to our regular operating levels when it comes to inventory levels. So we have 152 days for the third quarter 2022. This is a point that we are going to see in a moment. We're already generating good cash generation at the end of the quarter, improving or surpassing BRL 100 million. Our assumption here is really to maintain the cash strong. It's always a point that's very important to us, and we can see these results in the third quarter.
As for CapEx, a point worth mentioning has to do with investments and expansions. This is also running according to plan. In the second quarter, part of the acquisition of Renovigi took place, and in the course of the third quarter, we were in that period without payments, and now payments are going to resume in December. So the expansion CapEx is as per the plan, and we have it at 2%, and the maintenance CapEx slightly below 2% of net revenue. Now to conclude the presentation and start the Q&A session, I'd like to talk a little bit about the fourth quarter expectations. We see growth opportunities in all product categories, and we have been talking about strategic planning for the coming five years and the company vision and view for the next 10 years on top of the 2023 budget and plan discussion.
We have this broken down by product category, and then we add them up and we really see opportunities for all of our business lines. We have very good perspectives to continue to grow in 2023 and the next five years at least. The 10-year plan is also a very optimistic one. We have a very realistic expectation of what is coming, and there is good growth to be seen. In the fourth quarter, we'll see the CPE, or the 5G CPEs. We should get the first payment at a substantial or more substantial volume. We now have the completion of the integration process with Renovigi. We will be able to have an operation that is very close to what it will be like in 2023 at the end of 2022. The fourth quarter is still a challenging quarter.
We see that the outcome of the elections is still to be understood. Many of the highways are blocked right now, and there was a lot of uncertainty about who was going to win the election. The World Cup is also coming soon. Because of the World Cup and the matches, sometimes the people have days off and the market slows down a bit. But we have our team out ready out in the field, ready to work and deliver more, but we are observing these other factors that are outside of our control. But our expectation is to conclude the year really well and to start 2023 doing well.
Now I am going to stop sharing my screen, and we will be able to start the Q&A session. All right. Just before we start the Q&A session, I would like to remind you that this is the beginning of the Q&A session.
If you want to ask a question, we ask you please to write your name, company, and language, and we will go through the questions that we get. So Bernardo from XP, he would like to ask a question. Alini, can you unmute him?
Good morning, everyone. Can you hear me?
Yes, we can.
Thank you for having my question. I have actually got two questions. The first has to do with solar energy, focusing a little bit more on Renovigi. I understand that you are doing well with the Intelbras brand, but Renovigi is still struggling a bit. There was a dip in the revenue levels, and that caught our attentions. You deliver BRL 40 million revenue below the second quarter, right? So can you just add some color here?
Can you give us some color about what October was like, what our expectations for the fourth quarter can be like, especially for 2023? Would it make sense for us to expect it to bounce back to the BRL 180 million, as you indicated at the moment of the acquisition? The second question is also about the solar segment. The gross margin recovered well, especially in this solar segment. To your mind, is there room for more growth and profitability? What can we expect for 2023?
Good morning, Bernardo. Good morning, everyone. I am going to start answering this question. This is an important subject. I am going to start the question, and then our superintendent for energy will complement my answer, right? Marcio Ferreira. Starting with Renovigi.
This acquisition was slightly more complex when it comes to culture, processes, and controls adaptation, even though it was a company that was already audited and there were some contractual issues that needed to be discussed at length, and there was, so to speak, a bit of time wasted there with all of this discussion. Now, thankfully, this has been completed. Everything has been agreed on. But all of these points that needed to be ironed out, all of these processes that need to be aligned, well, we really believe that the toughest part is behind us now. That's over. We see improvements now in this month that is coming to a close. We have good expectations for the coming months. Marcio is a very knowledgeable man. He knows very much about the market.
We have one executive that was transferred from Intelbras to Renovigi, focusing very much on the market. We have good expectations there. We are really achieving our targets. We learn constantly, as I always say, and we are very careful, very cautious with the solar segment. There are many players there. It is a bandwagon everyone wants to jump on because there's a lot to sell and very little control, very little cash management, so we need to be cautious, and we need to preserve our profitability. This market will get consolidated, and those who have a strong brand, a good cost management, good capital, these are the ones that will prevail.
But till the end of the year, we expect to conclude of Renovigi and Intelbras getting us to the standard and to the level that we need to be when it comes to negotiation with partners, logistics, productivity. The trend is to continue to improve our margin. Marcio, can you please complement it?
Altair has already summarized it really well. Our focus for Renovigi is sales. We had a lot to align in these five months, and that was to be seen in these results that were not so good. The expectation that we have for next year is really to go back to the level that you mentioned, which is the original plan. We needed to adapt in 2022, and we are prioritizing margin, and we don't want to sell at any cost, right? That's not what we stand for.
That doesn't apply to Renovigi or to Intelbras. That can be seen in the slides that Bruno showed. As for the margins, the first half was rather complex. At the end of the year, we were very eager, right? We bought a lot at the supermarket, so to speak, and the first quarter wasn't too good. There was a lot of fluctuation when it comes to FX, foreign exchange rates. We focused on quality sales, cost adjustment, replenishing our inventories as we needed to. We continue to have margin as a focus.
That's crystal clear. Thank you, Marcio. Thank you, Altair.
Thank you, Bernardo.
We have Andre Salles, UBS Sell Side Analyst.
Good morning, Bruno and Intelbras team. Can you hear me well?
Yes, we can hear you well.
Thank you for having my questions. I have got two myself. The first has to do with security, specifically the projects. What is your expectation for investments with the sales team for this sub-segment, so to speak? Do you believe that it's sized at the right size already? How big is the opportunity with the new sales channel? The second question has to do with inventory. Considering the current context for the business, what inventory levels do you deem ideal for the company as this downward trend persists?
Andre, I am going to start answering the question, and then I'd like Paulo, our superintendent for security, to complement my answer. Security is one of the main segments for Intelbras, and we know we're market leaders, but we have many projects in the pipeline, and one of them is the project vertical. We're growing at good rates, 90% a year. Of course, we don't have the full structure.
Every year we're investing more, and we're going to double our infrastructure in this project segment. This is a new segment. It's one that we're tapping into now. We didn't have a slice of that pie, and it looks very promising from looking at our portfolio with our team, with a culture that is so different, right? Because of our culture, we're also doing so well, and we're going to continue to invest every year. As for inventory, and Rafael can complement that later, I believe we have reached the normal levels. There are holidays now at the end of the year, and we need to buy some things earlier, but we're back to normal levels, I would say. Paulo or Rafael first.
Yes, sir, inventory levels should be back to normal levels. Ideally, a little less than what it is, but as Mr. Altair said, I believe that the level should be close to 150 days, maybe a bit fewer than that, but it's not going to change much, I would say.
Altair already said it really well. Security is a very strategic pillar for us. We have been investing in it for a long time now, and it's been improving by leaps and bounds. The projects that we're working on for the next year is something that we're going to continue to invest in because it's proven to be very effective. When we look at cameras, CCTV, access control, software communication, that adds a lot of value to customers. That's a new market we're tapping into, and that's really gaining ground in the security segment.
As we look at our timeline, we see that our results are going to get more and more robust. We have a lot in project and security, but also when it comes to access. Facial recognition, digital locks, and that's really integrated with the solution. It's a new area and full of potential for the company.
Crystal clear. Thank you, Paulo, Altair, and Rafael.
All right. Next question then, so Cristian Faria, Itaú BBA analyst.
Thank you, Bruno. Thank you, everyone, and good morning. I've got two questions as well. Looking at our performance in solar, considering the Renovigi acquisition, how is it that this performance relates to that slide that we had from the time of the acquisition, those BRL 2 billion that were expected, if we can still expect that result when we get closer to the end of the year?
The second question has to do with 5G. With the C-band cleaning, right? You have already got a positive impact. How long should that positive impact be on the company's top line, and what level of impact should we expect?
Go ahead, Marcio.
The original plan with BRL 2 billion is going to be achieved. We're going to do as planned. As we said, we could accelerate our movement, but we decided to be more cautious because of the margin. We didn't want to sell at any cost just to get to the top line. We were looking for to get to a better bottom line. The BRL 2 billion was for 12 months, so that's one important comment. We can't expect anything around those lines for 2022, but for 2023, we expect growth to be resumed. Operations are going to be running well and sales as well.
We are going to climb back to our growth levels. With what we are going to be doing in the next two months, we are doing well. There was a bit of a difficult moment with the adjustments with Renovigi, but we are very confident. The plan delayed a bit, but it is going to bounce back. As for 5G, our superintendent for communications can talk about that, but in 2023, we do not plan to or do not expect much from that when it comes to sales volumes. We are really seeing a lot going on in that front. Maybe we will accelerate, we will be prepared for this acceleration if it comes, but we do not expect too much volume in this first year. As of 2024, then yes, we would expect more volume.
We have that five-year objective to have 20% of all of the 5G accounts installed in Brazil, and we are going to have a substantial share of this market.
Henrique, please.
Hello, Altair. Good morning. Good morning, Cristian. Good morning, everyone. 5G is a process, right? Especially for the carriers. They first set up the product there, and then they have to start some load tests for the CPEs, and they need to start testing with higher and higher volumes. We have already delivered a few hundred CPEs to some operators, and we are in this process of really understanding how things are going to work. This is a very important market, and we have very good expectations. With the cleaning of the C-band, which is the second part of your question, we have the KU converters. These are products that are not in our plan. They are additional revenue.
9 million parts are the demand, and we expect to get at least 20% of that. We will see some revenue there as per this expectation, similar to what we had this year, possibly higher. As 5G goes into smaller towns, moves away or expands, not only from the capitals. It is not going to only cover the capitals. We had the first bid for capitals, and that is not the largest volume. As we get away from the capitals or penetrate other cities as well, we will increase the volume. The cycle should be completed in about four years.
Just if I may, Bruno. When we look at the Renovigi tables, we saw that there is still some room for gross profit, right? For that to converge to Intelbras. Considering how the business is leveraged, will there be more conversion to the net profit or do you need to continue to invest more in that line? My point being, if you converge a little, you could get to a 14% margin, and the company is at 13%, which is higher than the 11% that we had two quarters ago. What I am trying to ask is, should we expect Intelbras closer to 14% or 13% when we look forward?
Are you talking about the company as a whole or what?
Yes.
Rafael, I think you should get that question.
We should probably be closer to 13% when it comes to margin. I do not think we are to expect an increase there. It is a very competitive market. As Marcio said, we are working to improve that, but it is a competitive market. For that reason, we do not expect volumes to grow too much, because volume will translate into smaller margins as well. Renovigi has a better structure now. With the improvement in revenue, we can improve revenue, but at the end of the day, we are working conservatively and not expecting the margin to surpass 13%. We have the margin of the company, and it is a company that is growing above 20% a year, and it is going to continue to grow at the same pace. It calls for investments.
Investments in projects and verticals. This is infrastructure people. You add them today, and the results will be yielded six months, one year later. These are investments. Our company does not invest much in machines and physical infrastructure, but we invest in people, and that has an impact on our expenses. That is why we work like that. We are also investing in improving our controls, our internal control systems, ERP, sales, and a number of things that will also improve in the course of time, and that also entail costs. They will all entail costs, yeah.
Thank you, everyone.
Thank you, Cristian. We have a question in writing from Cesar. You would prefer to use your video, right? Cesar, feel free to start your video and unmute.
Hello, everyone. Congratulations on the results. My first question has to do with the solar segment. You spoke about the perspectives you have for next year. Solar energy has grown less in result than expected in the year, at the start of the year, pardon me. What are your expectations for 2023? We hear there may be some certification that will be created in the solar segment, which would help Renovigi and Intelbras, right? Have you heard anything along those lines?
Marcio?
Around this certification, I have read a few articles also related to carbon reduction. Some banks had problems with frauds, be it because of installers or clients. We look after our network. We certify them ourselves. We do not have any relation with BGV at this point. But it could create more, like a more solid structure. But we have had very little delinquency in our network. Now, you also mentioned the expectation of next year not being too good, maybe because of changes in legislation. If that is not what you meant, please correct me. But we are focusing on small and medium businesses and residences, and houses. For this consumer that will generate the energy during the day and consume it, the payback is small, and solar installation continues to be perfectly possible.
For those who have those solar farms, the impact is a bit bigger because they will generate it at one location and sell it elsewhere, then the payback will change. But this is not the market that we are inserted in. We are focusing more on the small and medium shops and businesses. Of course, there is still a learning curve. In the first quarter, we will understand better how the market behaves. But our 2023 growth expectation is one of acceleration, even bigger for Renovigi. The solar market, at the start, the consumer had very few options to buy from. Now we have more options, right? At the beginning, they would buy whatever option that was at hand. Now they can really understand that solar devices are not the same, that they need 25 years security right from the company.
They should know that the brand will be able to really solve their problems regardless of what distributor they bought it from. That will really help consolidate the companies that will prevail.
Yeah, that's what I meant really. What we heard from the banks is that there is a consolidation with major brands because smaller players are really disappointing with frauds and all. So that is, even if the market didn't grow too much, consolidations would be unavoidable. If I may ask one more question, how about CPE pricing?
Henrique, please.
Well, the CPEs are new in the market, right? So there are few companies that have that with a chip, with a microchip, high technology. So we have a very competitive price when we compare it to the competition with similar characteristics. But what are our future expectations? With technology progressing, the CPE prices should go down. We're working to develop a new chip so that we have a CPE with all of the features it needs to have at a lower cost.
All right. Thank you, everyone.
We have one more question. That's the last question that we have, a question from Aman from PenderFund Capital. The question is in English. I'm going to answer in Portuguese, and Renato, our translator, will be interpreting into English. The question has to do with our outlook for solar businesses in 2023 and beyond, given the change in regulations. I think Marcio touched on this in his answer before. One of your competitors is also saying here sees growth slowing down going forward. So he'd like to hear our thoughts on the outlook.
What we expect, what we see here when it comes to the changes in the regulatory environment, the competitiveness that we have in the solar segment, and I will add something here, the interest rate. I think it's an important point to talk about. Interest rates were high this year, and the expectation is that interest rates should decrease. So I'll add this to his question so that we can talk about it.
All right. I think that these changes in regulation, they don't influence much on the consumer payback. To us, the interest rates are more important than this expectation from the carriers. We are very optimistic for next year, though we are, of course, careful.
We will be prepared to keep the same growth level that we had this year, and we can count on a smaller growth considering this moment we're at with consolidation, with the interest rate adjustments. This psychological effect is created that things are being bought earlier. Those that are buying earlier, they are already planning for their budget and they want to get it done soon so that they don't have to plan for the next rates they have next year. But most people haven't even started preparing their budget yet, so they don't even know about these rates, these changes. So when they get quotes, the payback is going to make sense. The interest rate is in a downward trend. As for the second quarter next year, as of, pardon me.
We have the company well-structured when it comes to competitiveness, and we will be much better prepared at the start of 2023 than we were at the start of 2022, so we are very confident. Marcio, can you complement?
You are right, Altair. The more the share is closer to the energy bill, the more sales we get. That was accelerated with the interest rates being too high and the bill was higher than the share to be paid, or the installment, so to speak. We see that solar energy really makes sense. When you put money in it, especially for assets that can be paid at shorter terms or in a shorter timeline, that really makes sense. It really is useful when it comes to return on investment. So we are here and we restate, we reaffirm to the market that we are focusing on small and medium businesses and residences. We are not slowing down because of the regulatory framework.
I was going to say that exactly. The main point for the question, Marcio, is having the generation and the consumption simultaneously to that. Those in that setting are hardly impacted by the changes in regulation. So most our clients are residences, small and medium businesses and shops. So they have generation happening at the same time as the consumption, so the payback is not going to be affected even if there is a change in regulation in January.
We have one more question here, and we still have some time. This question comes from Cesar. He is talking about our indicators, what we call innovation indicators, the percentage of products that have been developed and launched in the last 12 to 24 months. Can we talk a little bit about innovation? I think that would be good.
That is one of the indicators that we keep track of. The speed at which new technologies come up is very high, and there are always products that will, so to speak, kill the previous one because they are more competitive, they are better, and that happens constantly. It is worth reminding our investors that we are getting to the end of the plan for our next five and 10-year plans, as Bruno said. We have 54 product categories, and we have one plan for each category as if it was a company of its own. I would like to say to you that we are very optimistic about growth for these years to come. In five years' time, the percentage of solar energy should be the same or slightly more than what it accounts for the company today. So we are not a solar energy company, right?
We have a number of projects ongoing. We have a number of new businesses ongoing, new markets we will tap into, and we are very optimistic from a general perspective for every category. I can see that you are concerned about the solar segment, but we are growing and will grow in all of these categories. We do not depend solely on solar energy.
Excellent. We do not have any new questions, so I would now like to give Mr. Altair the floor for him to make his final remarks. You started the Q&A session saying that October was a good month, so maybe we can talk a little bit about short-term expectations, right? The fourth quarter and the outlook.
This was a very good month that we finished now. We have six units plus three companies. There was Renovigi, but we have clarified that the performance was not great, but it is recovering well. The market did well, and the question preying on everyone's mind is what the market is going to be like. Business people thinking about investments and consumers who can consume. Should they wait a little to see what the new president is going to do?
What this new government is going to be like. But looking at how things are going, looking at the market, everything is going well. We expect to finish this quarter as per our plans, and we will start 2023 better prepared. If there should be a crisis, well, as we have said before, Intelbras does really well when there is a crisis. There are a few competitors that are well-structured, but there are very many competitors that are not well-structured. Marginal ones.
Adventurers, so to speak, right? They are not really, amateurs almost. The market will stay with those that are better prepared. Even if 2023 is not a promising market, we still believe that we will do really well. Thank you everyone for joining our call, and we are going to be presenting very good figures. Thank you, everyone.
Well, one last question popped up saying there are challenges. I think you just touched on the challenges, right? I think this question has been answered. Thank you everyone for joining our call for the third quarter results, and we are available should you need any further clarification around any point that was not clear enough. You can contact us. Once more, thank you very much for joining, and have a great day. Thank you. Bye-bye.
Thank you. Bye-bye, everyone.