Good morning, everyone, and welcome to Positivo Tecnologia's conference call. Today we will be talking about our third quarter of 2023 earnings results. We have with us today Hélio Rotenberg, the founder and CEO of the company, Caio Gonçalves de Moraes, CFO, Mariel Andrade Dias, VP of Public Institutions Businesses, and Norberto Maraschin, VP for Consumer and Mobility. We will have a brief presentation and then open the floor for a Q&A. If you would like to ask a question, you can send it to us in writing by clicking on the Q&A button, or you can let us know through that same button that you would like to ask your question live, and then we will allow you to unmute yourself. We will pass it over to Hélio, who will begin the presentation.
Good morning, everyone. This was a challenging quarter, I would say. The market has been challenging. This market has been quite complex. If you read the latest news about what is happening in Brazilian retail, you can imagine what we are experiencing. If you read what is happening in Manaus, the drought that they are facing there, you can imagine what we are experiencing too.
This is a much more challenging year than what we expected, but we have continued to perform. We have continued to have positive results. Our EBITDA margin is going up. Despite having less income, we are generating cash, we are generating EBITDA, and this is making us very happy. If we compare ourselves to the rest of the market, I would say that we are doing well. Our gross revenue has been BRL 1.033 billion, which is lower than last year. But as a reminder, last year we had some one-off effects, so we are doing quite well.
EBITDA has stood at BRL 122 million, so it was an increase versus the second quarter, and a bit lower than the third quarter of 2022 because we had a one-timer last year that was positive and a negative one-timer this year. We have a lower leverage ratio, so our indebtedness is going down. We are generating cash, quite a bit of cash, BRL 150 million in this quarter. Excuse me, BRL 105 million.
Although we are stocking up for the fourth quarter, which tends to be stronger. Our guidance has been lowered, but we still expect acceleration in the fourth quarter. Orders have been made, and there is a high likelihood that they will take place. So we are building up our inventory for the fourth quarter and still generating cash and doing well. As a reminder, this is our business model. We have a commercial area where we sell PCs.
This is our origin. This is where we came from. Hardware-as-a-service as well. We have been diversifying more and more in this market. Servers are also starting to be sold in this modality. They are starting to be rented. We have payment solutions which are doing very well this quarter, as we will discuss. We have Positivo Tech Services gaining traction, gaining momentum in our services area. Educational technology, servers and solutions, tablets, and Positivo SEG.
I will discuss this further as Positivo SEG doesn't have a lot of revenue yet, but it is included in a larger plan. We have planned to have a smaller beginning and increase later on. Consumer health with smartphones and feature phones, PCs, accessories, smart home and tablets, and special projects, which include ballot boxes. We started to deliver some of them this quarter, and there are some that will still be delivered on the fourth quarter.
This is gaining traction. There are other special projects, and we have been working to build lottery terminal solutions. Self-service kiosks are starting to provide results. We are looking at smart cities, and this is all in special projects, which will begin as soon as we conclude the ballot box project. We believe we will have another order, but meanwhile, we will balance it out with other specific projects. Let me tell you a bit about the commercial side, and then we will talk about consumer and public institutions with the VPs sitting next to me. To give you an overall perspective, we had a reduction in our gross revenue, less on the run rate, but more in special projects.
Talking about corporate sales, selling to corporations, there was a reduction, and this has essentially been caused by some special projects, but this has also happened in small companies which really have taken a hit with the high interest rates. We saw a reduction in computer purchases this year, and it is becoming stronger. We still have Positivo Tech Services gaining new contracts. We just closed a great contract with a company in Belo Horizonte, a franchise company. We are starting to gain some momentum in that area. We have retailers joining us from a different area that does not deal with computers, so we are very happy to have them now. Servers and solutions, 30% of revenue in the HaaS modality. We have PSS Connect, which is our relationship program, and 20% of revenue is coming from new resellers.
This shows that it is working well, that we have been able to go into new channels. In payment solutions, we are in six out of the eight buyers in the market. It is a significant pipeline, and this pipeline will be more significant in the fourth quarter. Norberto will tell you about that. Positivo SEG with Securicenter integration, we are implementing the channel program. It is complex in the beginning. We are doing very well, and we are getting more resellers and integrators, some from leader and others not from leader.
That is great because there are many integrators and resellers that are not in the same program as the market's leader. We have a high likelihood of absorbing it to our line. Our product line is starting to expand. We are starting to create solutions with Positivo and third-party products. It is doing very well. It is still at the beginning.
It is not representative yet, but we are following our plan very well. We concluded the Securicenter integration very well. Just to give you a single example of what we really like, which are integrated projects, where we supply computers to aggregate services. It is almost like we are receiving that area of computer science outsourced to us. We did it with SESI, with HaaS, and we hope to expand it to more schools next year. I will let Norberto tell us a bit about the consumer area specifically.
Good morning, everyone. The consumer area, as everyone has seen, is very challenging considering the market that we have had for the last quarters. I could give you some context, but I hope to show you what we have been doing. This transformation plan that we have been having at Positivo. There are three major drivers.
Our three biggest clients are going through big challenges, and that has an impact for Positivo. We can see that there are still competitors with a lot of inventory, which is not the case for us. We were able to liquidate our older products in the first half of the year, but we're still seeing weaker demands. The main reason for that is lack of credit. These are the biggest challenges that we face, and we're facing it this way. We believe that retailers will migrate to brick-and-mortar stores that can provide credit to consumers. Earlier this year, we started strengthening our relationships with regional retailers who are gaining market share, who have more well-rounded operations, and we've been able to grow in capillarity and volume with these regional retailers.
We're also making a strong effort in direct sales, which means our eight direct sales websites, but also the main marketplaces in Brazil. As a highlight for the quarter, I can tell you that Positivo is the first manufacturer in this category that is integrating its ERP system with Neres and Mercado Livre in the full commerce category. What does that mean? It means that our computers, tablets, cell phones, and all smart home devices can be delivered within a day in capital cities like São Paulo. This gives us a lot of speed, and this is paid directly to Positivo. Of course, we're trying to avoid having conflicts between channels, so we have exclusive SKUs for this direct sales modality. This is one of our major highlights. We have been making strides.
We tripled year-over-year, and we know that there's still a lot of good things to come. We're very advanced in comparison to our competitors. When we look at the market scenario, when you have a lot of inventory with old products, usually the player who brings in innovation wins. We flip the switch on our portfolio across all segments. With PCs in our Vision line as we presented at Positivo Tech Day, but also tablets where we're gaining market share very well, even with a repressed demand, with a reduction year-on-year. A better performance in tablets, not only for children, but with the new VAIO tablet. We're very happy to say that our sales are doing well. We're also launching Infinix. Many analysts said that Positivo would be unable to sell our smartphones at around BRL 2,000.
With Infinix Note 30 5G, we are sold out. We're all using it. It's an extraordinary product. We are going into product categories that we were not present before, so we're able to do it very well, and that's why our margins are improving. That's why our inventories have been at very good levels. Finally, in consumer, given all of these challenges, what we've done is buying less. Hélio says that it's better to be short than to have too much. We probably could have had higher revenue, but when in doubt, we buy a little less. Since we have no leftover products at home, you can defend your margins better when you have negotiations with retailers and the different channels. This is just a brief summary, focusing on what we've done. This transformation has really provided good results.
The investor relations team has shown this to you. With every quarter, we have recovered our margins and also revenues for the consumer segment. We hope from now on that we will be able to expand our market share even further and also our profitability. Mariel will tell us a little bit about public institutions.
Good morning. Concerning public institutions, we have had a weaker quarter because the comparison was last year's elections, which normally carry a high volume. There was also a large purchase for government infrastructure. We also had delays in inputs, especially because of the drought in Manaus, and there was a backlog of some orders because of changes in the government. The backlog is at BRL 1.4 billion for the year, which is an expectation of strong revenue for the fourth quarter.
Inputs are coming in, and we expect to have high revenue in November and December. Our pipeline is at BRL 5.5 billion, and we believe it will continue to grow because digital transformation is only beginning in the government. There will be a need for infrastructure for all of the citizens to receive these services. That's basically it when it comes to the government.
Financial highlights. All right. As was said before, we're going through a very challenging macroeconomic scenario. Interest rates are going down, but they're still quite high and consumers are indebted. We can see how that affects our gross revenue. We have grown 13% versus the second quarter, which shows a gradual recovery in the consumer market and also in special projects. Payment solutions is a highlight, so we grew 82%.
With services including RaaS, we also had 13% growth in the third quarter versus the third quarter of last year. The next slide will discuss our gross profit and gross margin. As we experienced last quarter, gross margins have remained robust. This is due to a better revenue mix in the company's direct channels, good margins in PCs, and the public and corporate portfolios are better. We also had a higher weight of special projects. Raw materials have also been at better prices than before. Of course, if we're talking about EBITDA, the same dynamics impact our service. Our EBITDA, excuse me. It grew even with the smaller revenue, which shows that we're structurally better when it comes to margins. We reached 14.3% in our EBITDA margin, which is very robust despite a challenging macroeconomic scenario. Net profits.
When we look at this in comparison, this quarter with the last quarter, we have to highlight that in the third quarter of last year we had BRL 19 million in gains from the TRS liquidations, so an equity swap that we used to buy shares, and we started liquidating that in the next quarters. If we eliminate that impact and the residual impact that we had, that was BRL -4 million in the third quarter, our profit for the third quarters of each year would be completely stable.
That's important to mention. I'd also like to highlight that we had lower financial expenses this quarter in comparison to the previous ones. Also on a nine-month basis, and this is due to the amortization of more expensive debt that we've done, but also on our efforts in liability management, exchanging shorter instruments for longer instruments that have a lower cost.
Also important to highlight here is the lower operational costs and the negative foreign exchange variation. This gave us gains in gross margins. The same variation when we look at the nine-month figure shows that we are very well in line with what we did before. Looking at some more elements in our balance sheet, looking at the reduction of our inventory. When we look at working capital reduction, we have had constant reductions, BRL 91 million during this quarter, which represents BRL 314 million in four months. Even with this reduction, we are seeing an increase in our inventories. This is correlated to our projected sales for the fourth quarter. Most special projects are being sold now in the fourth quarter, and we also have major public institution projects, and there are end-of-the-year events that impact consumption.
If we only have special projects for the next months, it would be lower than what we posted in the second quarter. Also, suppliers are balancing this, and we can see on the right-hand graph a reduction of our working capital, which leads to better operating cash. 105, as was said before, BRL 105 million, which is a total of BRL 425 million in the first nine months of the year. That allows us to have amortization for the most expensive debt. We had 64, which represents 250 million in the first nine months of the year. This debt reduction has allowed us to reach an indebtedness level below BRL 900 million for the first time since the first half of 2022, and this allowed us to reduce our leverage to 1.6x , which is lower than the 1.7x that we had in the second quarter.
We have 57% long-term debt versus 51% a year ago. We are speaking to some credit banks to give us credit lines with longer terms and lower costs to reduce our financial expenses, which will impact us for the next quarters and years when it comes to the company's financial costs. That concludes the financial highlights, and now we are going to talk a bit about our guidance review. This was said by Hélio. Why did we wait this long to review our guidance? Maybe we needed to conclude the third quarter and understand revenue dynamics. We had the first month concluded, October. We have given you some figures in the release, and if we compare this to the average revenue for the third quarter, there is a strong acceleration since it represents BRL 300 million, more or less.
We are hopeful about November and December to be able to meet this new guidance. Of course, this guidance was a lower review because of, as we said, high interest rates still, retailers facing issues, small and medium-sized companies still having trouble accessing credit, and also the severe drought in Amazonas, the worst one in 151 years. It is not just simply a regular drought, and also postponement of purchases by public institutions.
This, of course, is another delay since our pipeline is still hot, as Mariel said. When we add all of these factors up, we do need to review our guidance to between BRL 4.6 billion and BRL 4.8 billion, and before it was BRL 5.5 billion- BRL 6.5 billion. We are still confident that we will deliver a strong quarter with diversification and healthier margins than what we had in the past. I will pass it over to Hélio for his final remarks.
To add to what Caio said, when we provided this guidance in the beginning of the year, we expected to have a much more solid year across all areas. In public institutions, we didn't expect there would be so much retraction, especially in Secretariat of Education that didn't buy tablets or notebooks this year. In the corporate area, large special projects and servers didn't begin yet. We had one that we expected, but they didn't begin, such as Petrobras. We had to postpone some projects, and we expected to have much more consumption. We didn't expect it to deteriorate just as it did, even with the news we heard yesterday about how retailers are behaving. They're being much more conservative, reducing their days in inventory, and all of that added up to that. Finally, we had this drought in Manaus.
It's the worst in 121 years because that's how long it's been measured. It's incredible to see the Negro and Amazonas River to be unnavigable. This has never happened, and we never saw it up until two months ago. Two months ago, people said that it wouldn't affect navigation, but it did. To give you an idea, the ships that came from the Panama Canal to offload in Manaus, when they saw the drought, they had to go to different ports. They distributed our containers to Pará, Ceará, and we're receiving them so that they can be sent to Manaus. Most of the business has been postponed there. We're still optimistic, but unfortunately, we had to reduce it. On the other hand, we're trying to maintain our margins, our cash generation, and our profits.
We've been able to do it, contrary to many of the peers in the market. Our revenue has been impacted. Our EBITDA margin has maintained its upwards trends. We're having more robust balances. Cash generation has been at BRL 425 million. We've had more initiatives to reduce the cost of debt, and we might have more news on that later, and we expect to have a strong fourth quarter. We believe that this guidance has been reviewed very well. What we expect, BRL 4.6 billion- BRL 4.8 billion, but there's still some to be defined. That's what we had to say. We're still very optimistic as a company, and that's important to say. We didn't lose sight of our biggest mission, which is diversifying the company. We're still very strong across all of our lines. We're still strong in services. We're still growing there.
We have ambitious plans in that area. When it comes to security, as I said, we're starting a journey. It's supposed to be significant within a couple of years, but we're remaining strong. We believe we will win. In servers, the third S of those three S's is still performing well. We didn't have the special projects that we expected, but we have been growing year-on-year. We will continue to grow, and as we're starting to allocate servers, we see that growth has been going even better.
The payment device market has been very good. People have been replacing their machines, and we've been leading there, and we're selling more and more. We'll probably have robust figures for the last quarter. Diversification has been working. We're focusing on it, and I think we're going to have very good surprises in the future of the company at its new level. We did have to reduce it a bit, but we intend to grow and provide more profitability. Thank you.
Thank you, everyone. We'll now continue with the questions and answer session. If you'd like to send us a question, you can click on the Q&A button on the lower part of your screen. We have a question from Marco Nardini, who's going to ask his question live. Go ahead and unmute yourself.
Good morning, everyone, Hélio, Caio, and the Positivo team. Thank you for taking my question. I have a couple of questions. The first is what sort of revenue do you expect for your ballot boxes business? We believe that this will have a relevant impact. The second question is about Positivo SEG.
If you can tell us a bit about your first impressions and your experience with the Securicenter and what you expect. Thank you.
I've answered some of your questions during the presentation. The fourth quarter's basically done. We have high expectations. We've done very well in October, and the greatest question mark is the drought in Manaus to see how much we're going to be able to recover, and we have some outstanding orders. We don't provide margin guidances, but it seems to be a positive trend, especially in comparison to the mix in the third quarter. Considering Positivo SEG, we're doing well in the plan, but it will still take some time for it to be significant. We're starting small, and we have to attract integrators. The Securicenter, the purchase is doing very well, but it's difficult to start from the beginning. But it will still take some time for it to be reflected in our margins.
Great. Thank you, Hélio.
Thank you, Marco.
The next question will be asked by André Salles from UBS. Go ahead and unmute yourself.
Thank you, Rafaella. Hi, Hélio and Caio, and the team from Positivo. I just want to ask about your expected revenue for the quarter. If you look at the BRL 1 billion that you had in the third quarter, and to try to bridge to the BRL 1 billion or BRL 2 billion that you're waiting for the fourth quarter, what would be the major drivers? I'd just like to understand where that strong growth is you expect it to come from for the fourth quarter. I also have a question about the drought in Amazonas. Do you see that as having a higher impact in the fourth quarter or-
Sorry, André, I wasn't able to understand your question.
Sorry, I was asking about the drought in Amazonas, if you expect it to be limited to the third or fourth quarter, or if you think that this situation will last longer.
Okay, so public institutions will be strong, the curve will be stronger, and retail is also strong. We also have stronger payment machines. That's basically it. Those are the four areas that are growing. Considering the drought, we expect to see the consequences appearing from October to November, but probably not from January on. The river has started to rise, and we believe that by December it will be normalized. But that may affect the cost of our raw materials for some time because we had to redirect many things to avoid the port of Manaus.
Thank you, Hélio.
Thank you, André.
The next question was sent in writing. He is asking about Positivo's vision on the investments in technology that the government will take for 2024, if it should include HaaS services, educational, and so on, and if you think part of the guidance was postponed for next year.
Yes, part of the revenue was postponed for 2024. I will let Mariel answer the rest of the question.
Yes, part of the government is migrating to buying services, so many ministries are doing that. We also see a good pipeline for services overall to provide IT for the government, so we believe there is a lot of revenue to come there.
Great. Thank you.
The next question is from Miguel Noronha, an investor who has a question for Norberto. He says, Good morning. Thank you for your presentation. What are your bets on Infinix? Since it has a higher price, you are going into a very competitive market. What is your competitive advantage to win there, and how do you expect to continue to grow in a decreasing market?
Margins for smartphones are tighter when you have cheaper products. As you have a better portfolio, usually your margins recover slightly. It is not a market that has great margins, but working capital there is faster than in other parts of the company. So we have more frequent purchases. Yes, the market is going down in Brazil, and it is important to say that this is the official market, right?
We do not see such a sharp drop in the total Brazilian market, but when we look at the official market, which is where Positivo plays, we sell products across all price levels, and that really increases our addressable market. Why is Infinix a winner? Transsion is a group of three smartphone brands, and it is the only one that is growing 20% year- on- year in the world, while all other major players are going down. So Transsion is very competitive and very competent at defining its portfolio. Transsion is the third biggest in mobile devices. So they are providing excellent quality products, that is the first point. They are two or two times, two and a half times higher than the rest of the market, and we have great features, and they are very competitive. So we have not seen many sell-in or sell-out barriers.
The brand is still the challenge because not many people know Infinix, so our investments have been concentrated in creating the brand. Our Always On campaigns have a lot of media, and we have continued to do that, so to make this brand more well known. Peer-to-peer has given many effects to our growth. We can give you some data. There are some retailers that have had 15%-20% market share.
So with every retailer we go in, we are aiming to become more relevant, to break the barrier of this market share so that they will focus on [Non-English content] Infinix. So I think I gave you a very comprehensive answer related to the product, the price, and the advertisement that we have been making. Of course, we are conservative. We're not risking high volumes because we want to really generate this feeling that the product sells well, and that we need more inventory. This is an effort in a huge market, and we're going to win not on the short, but on the medium and long term.
Thank you, Norberto. Here's another question for you from Claudio Stahnke. Can you tell us a bit more about the payment solutions industry? How is it growing?
Well, payment solutions is very interesting. I'm very enthusiastic because we have a unique technology in the world. Positivo was the first company in the world that went from Android devices to bank security devices for payment methods. We revolutionized that. We were the first in 2016. This gave us an expertise. We have a number of engineers working there with a lot of development in intellectual property.
Positivo's payment devices have a lot of investment, they have a lot of software engineering. When we go into major clients like Rede, Cielo, Stone, and they start to notice that the performance of our product stands out, their total cost is much better than their competitors for Positivo, then we start to see a gradual migration from old suppliers to better market solutions. Now I can say that we have the best payment solution in Brazil. We are the global benchmark. Our enthusiasm is because in all clients, we are growing in share, and the clients we didn't have are now opening their doors to us.
It's a machine that can last for five years in the market. It needs to come back to our labs so that we can have safe keys inserted and so on, and that generates recurrent revenue. The margin that we receive from it is about one-third of total margins. We have two-thirds in hardware sales and additional margins in recurring services, break and fix, and some added values, such as managing these machines in the field. This is something that has surprised us positively. We have a brilliant team, and this is one of the avenues that is working very well.
The next question is from Octávio Moreira, a shareholder. The question is for Norberto again, consumption and retail. I understand that you're not just waiting for a crisis in retail to pass. What are your perspectives for consumer channels in the next year? How do you expect to navigate this turbulent scenario?
Demand is weaker, and we don't believe it will be much higher next year. It might even drop next in some categories, but it is there. We have to capture it wherever it may be. We see that there is a major trend in online. Our categories are moving towards online. We've developed a portfolio in differentiated products through different channels. Our online channel, when I tell you that Positivo is integrating with full commerce, we have to integrate with Amazon, Magalu, and all major marketplaces. This is our goal. We want to triple this channel. It's expanding, and for us, this is clearly a great trend. Most of the Brazilian consumption is funded by credit, and it's still being paid. Retailers that can provide credit, regional retailers are growing 70% year-on-year in credit, 70% with this crisis.
But how do they do it? Is their defaulting going up?
No. There are many retailers who are growing, who are giving credit, and who have lower default levels.
We are going to become stronger there with this group of retailers. We have a great portfolio. We have a dedicated team to give better products and services so that they can grow along with us. With all of that, we believe we will have an even less turbulent 2024 than 2023 was.
Thank you. The next question was received from Renato Franco, an investor. He says, Good morning. Thank you for taking my question. How much can we trust on these expectations for the fourth quarter, since the second quarter conference, you also showed a lot of confidence for the third quarter?
Sorry for giving you so much confidence, but that's what we expected. I wouldn't say that it's the same now because now it's all within the company. The confidence interval will have a strong likelihood of being carried out.
Great. The next question is from Victor Romero. You generated operational cash from the beginning of the year. Will it become stronger at the end of the year? And what do you expect in working capital for the fourth quarter and for early next year?
Yes, in the last calls, we've shown how our working capital remains flat, right? We have a first quarter that consumes cash. Some of it is consumed throughout the year. In the fourth quarter, we also consume it because we have many events at the end of the year. We believe that this year will follow a similar trend. We are consuming cash. We're accelerating a bit more to have a stronger fourth quarter. But in the first quarter of 2024, as we receive the sales that were executed in the fourth quarter, we will reduce our leverage. We are generating cash, especially in this 15-month cycle. As a reminder, the fourth quarter is strong, and we're transforming these sales into cash in the first quarter of 2024.
Thank you, Caio. We have no further questions. Hélio, would you like to wrap up?
Well, thank you for listening. We are still very optimistic about the company's future. Diversification is the reason why we do what we do. We, I think, are executing this very well, and this will make the company different in a few years with revenues from other areas, and that makes us predictable every year. Thank you.