Earnings Call: Q1 2024

May 10, 2024

Summary

Q1 revenue rose 8.9% YoY, while adjusted EBITDA and adjusted net income increased 29.1% and 44.5%. Insurance and consortium growth, cost reductions and platform development supported performance; management cited H2 seasonality and continued Promotiva growth.

Everyone. Welcome to the conference of Wiz Co regarding the results of the first quarter of 2024. If you wanted to follow the simultaneous interpretation, click on the interpretation globe on the bottom bar of the screen. After clicking this button, choose the language of your preference, English or Portuguese. If you are listening to the video conference in English, you can mute the original audio by clicking on the button Mute Original Audio. After the presentation of the results, we will start the Q&A session. You can send your question via the Q&A icon on the platform, which will then be answered by Wiz Co's representatives present in the meeting. If your question is not answered during the video conference, the investor relations team will contact you later to address them. Before proceeding, we'd like to clarify that any statements that may be made during this video conference regarding the company's business prospects, operational and financial targets are based on the beliefs and assumptions of the company's management, as well as information currently available to the company. Forward-looking statements are not guarantees or performances. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that economic conditions, sector conditions, and other operating factors may affect the company's future results and could lead to results that differ materially from those expressed in such forward-looking statements. Today, we have Mr. Marcos Vinicius de Oliveira, CEO, Lucas Neves, CFO and Investor Relations Officer, and Stefania Fernandez, Superintendent of Investor Relations and M&A Operations. Now, I turn over to Marcos Vinicius for his presentation. Mr. Marco Vinicius, you have the floor. Good morning, everyone. Welcome to our earnings conference of first quarter 2024. Before I turn the microphone to Lucas, I'd like to share with you a brief message. I'm really happy to share with you the results and advances we made in the first quarter of 2024. Our focus was directed to the four strategic pillars we made for the year. To optimize profitability of the business, promote generation of new business, strengthening synergy of the group, reinforcing capital structure, and boosting the continuous evolvement of our technological platform, Wiz Pro. In the first quarter of the year, the company dedicated itself to progress in those pillars, paving a good performance for the year. At the moment, we have net revenue increase in the main segments. In insurance, we had an advance of 19.3%, while in credit consortium, we reached growth of 20.8%, both compared to the previous year. With the fact of the annualization of structure optimization initiatives reported a fall of 13.1% in our cost and expenditures, consolidating our EBITDA of BRL 157.8 million in the quarter, 40.1% above the previous year, with an expansion of 15.2 percentage points in margin. Those numbers reinforce our commitment with the delivery of profitability together with growth. As a highlight in our operations, Inter Seguros reached 1.9 million clients, consolidating its position as the major insurance digital operations in the country. Wiz Corporate almost doubled the volume of premiums in the quarter, showing the growing strength of Wiz in the corporate insurance market in Brazil. Still, Pernambucanos Seguros, one of our most recent units, is still breaking records, delivering growth of 22.1 times in issuance of premiums when compared to Q4 2023, its best historical level. With regards to generation of new business and strengthening of synergy among the company in the group, since 2023, we had 39 business that contributed to expansion and diversification of our operations, reflecting our commitment with sustainable growth. In this period, we also strengthened our liquidity. We are committed to keep a good financial management to generate long-term value. We reached a comfortable cash flow position in the year, and this is together with controlling companies and all the results and initiatives for 2023, so we can strengthen the cash generation of the parent company. We are also taking advantage of business opportunities of investments that we may have in the future. Aligned with our value proposition strengthening and competitive edge by means of technology and innovation, we made advances in the development of the platform Wiz Pro. In the sales module, we integrated new products, and we started the sale of home and residential services. And assistance products. In the module management, we made available a functionality that is complete for the management of commissioning. In the end, in the module operations, we implemented improvements in the commercial funnel, and we integrated the service via WhatsApp. With that, two units of the group already started integrating the platform in their commercial routines, leveraging results and reflecting our bet in the power of technology to drive our leadership in the market. Lastly, it's essential to emphasize the importance of our corporate culture, represented by Wiz Way. This is the ninth consecutive year that we have the certificate, Great Place to Work, which emphasize our commitment with a positive and collaborative working environment. Together, we reinforce this year our commitments with ESG practices, a priority that encompasses all areas in our activities. The adopted initiatives are well-aligned with our objective of not only growing as a company, but also of doing so in a responsible and sustainable fashion. Continuous focus on results, synergy, and continuous innovation, and also to boost our strategy. It lead us to get results that are more and more expressive. This success is a testimonial of the dedication of our team that is resilient and united, that faces challenges every day and overcome them. We are determined to influence positively the financial market of insurance in the country. We are navigating in a challenging environment, but also molding a promising future sustained by our culture. Now, I turn the floor to Lucas Neves, our CFO, who is going to show the results for the period. Lucas, onto you. Thank you, Marcos. Good morning, everyone. I will start the presentation on the financial part with the slide number three, and I'll be talking on the events and operating and strategic highlights of the period. First of all, I'd like to highlight the progresses we had in the proprietary digital platform of Wiz Pro. This is one strategy to promote speed, technology, and effective results to our distribution channel. The platform offers three modules: sales, management, and operation. In sales, we integrate new products, optimize, and generate lead, and we start the sale of car and home insurance and assistance products. In the module management, we make available a complete functionality of commissioning management. Lastly, operations. We implemented improvements in the commercial funnel, and we integrated service via WhatsApp. Currently, Paraná Seguros and Wiz Parceiros units are already integrating the platform in their commercial routines, optimizing processes and leveraging results. I also highlight the surprising performance of Promotiva and Paraná Seguros units. Both of them have recently completed one year of operations. Paraná Seguros presented a 6-fold growth in premiums issuance when compared to Q1 2023, its first complete quarter of operation. Focus on client, the unit launched products and integrated the insurance sales journey to the context of the bank. Promotiva expanded 72% its commercial network and reached 690 bank correspondents and production distributed throughout the country. The unit presented growth in 37% in net revenue of commissions, expanding not only credit and consortium products, but focused on operations and complementary products such as insurance. Lastly, the highlight to Inter Seguros unit that once again overcame historical milestones, showing consistence in its delivery. The portfolio of active clients reached 1.9 million, with expansion of 96% versus the same period of last year. Only in the first quarter of this year, we reached BRL 52.3 million in gross revenue, 30.3% above Q1 2023. Inter Seguros business model has been proved to be scalable, and it combines accelerated growth to the dilution of expenses and revenue. After readjustment of cost and expenses during 2023, EBITDA margin is accelerated again, rising from 72% from Q4 2023 to 79% in the same period. The unit has made innovation in many areas of the bank app, aiming at fully meeting the client needs and demands for protection products, and maintaining a surprising experience and strengthening the positioning of the largest digital insurance operations in the country. Slide 4. Now, the financial highlights for the first Q of 2024. We had BRL 231.7 million in net revenue, a growth of 8.9% compared to the same period of last year. Excluding net revenue runoff of Caixa, it is BRL 181 million of revenue, is 13.3% above Q1 2023. This growth was driven by the performance of insurance, an increase of 19.3% in revenue by the segment credit on consortium, representing a growth of 20.8% versus Q1 2023. A highlight to adjusted consolidated EBITDA, BRL 151.8 million in the period, a growth of 29.1% when compared to the same period of 2023. Adjusted consolidated net income reached BRL 102.7 million, 44.4% higher than the same period of 2022. Slide 6, we have the summary of consolidated results. The first quarter of 2024, we reached EBITDA of BRL 157.8 million, 40.1% above Q1 2023 as effect of good commercial performance of our business unit and focus on operational efficiency, with a reduction of BRL 13.9 million in costs and expenditures. Consolidated net income, we saw a growth of 94.2% in the quarter, driven by the good operational result, as well as a best financial result in the period that I will delve into later. The parent company net income reached BRL 37.5 million in the Q1 2024, 168.6% higher when compared to the same period of the previous year, with expansion of BRL 23.5 million. Slide 7, we can see the considered effects for our adjusted view. In this quarter, we did not have adjustments in EBITDA, just adjustments in the Q1 2023 regarding severance costs. Net income, we had adjustment in non-recurrent effects without impact in cash on the lines below EBITDA. A highlight to adjustments of D&A that added BRL 35.1 million in the quarter as expenses of amortization of intangible assets recognized by the acquisitions of BRB Seguros, Promotiva, and other business units. In the financial results, we adjusted the effects of the adjustments to present value, AVP, of future installments of the acquisition costs of the company's investments, as well as the effect of the fair value adjustments of accounts payable for acquisitions, monetary updates of accounts payable for acquisitions, and exchange rate fluctuations on contracted financial instruments. In income and social contribution tax, we have here the lines of D&A and impairment and financial adjustments, financial results. We closed the quarter with adjusted net income of BRL 102.7 million, a result 44.5% higher than Q1 2023. Slide 8, we see the parent company's accounting result. The Q1 2024, the parent company registered BRL 66.3 million in EBITDA, representing an increase of 39.9% vis-à-vis the same period of 2023. This good result arises from the focus of the company in operating efficiency, with a capture of BRL 14.5 million in savings of costs and expenses compared to Q1 2023, and the record commercial performance in several business units of the company, driving the line of equity method. In this line, the parent company recorded BRL 34.1 million, a result that is 34.4% higher than that presented in Q1 2023, due to a better performance in equity stake in the results of subsidiaries. In contrast, the recognition of equity equivalence from the realization of identifiable assets previously recognized in depreciation and amortization, having been reclassified to the equity method line from Q4 2023. In net income, the parent company reached BRL 37.5 million in Q1 2024, representing a growth of 168.6%. This performance was driven by the performance in EBITDA, especially by the better performance in financial result. As an effect, as the reduction of financial expenses related to adjustment to present value, AVP, and recognition of positive effect arising from fair value adjustments of earn-out installments and acquisitions accounts payables based on projections of acquired business. Slide 10, we start the presentation of the results per segment. Conciliation of the result per segment in a consolidated result can be found in the attachments of this presentation and release of results. In the first quarter of the year, 78% of net revenue arose from our current operations. The business units that are consolidated by Wiz in the segment insurance represented 53% of our current result. We keep observing a strong movement of diversification of results, together with continuous growth of revenue. This performance was only possible due to the focus and the delivery of strategic objectives of the company. Slide 11. We keep on presenting operating performance of our segments. Starting from insurance, we reached in the quarter, BRL 123.1 million in net revenue of commissions, a growth of 19.3% vis-à-vis the same period of last year. This performance is a result of another record performance quarter of units. A highlight to BMG Corretora, a growth of 41% vis-à-vis first quarter 2023. BRB Seguros, 16.6% compared to the same period of 2023. Wiz Corporate, with a gross revenue of BRL 31.3 million, a growth of 40.6% vis-a-vis the same period of last year. Wiz Corporate almost doubled the value of issued premium, closing the first quarter of 2024 with BRL 178.5 million in premium. A highlight to Inter Seguros, which had BRL 52.4 million in gross revenue, 30.2% higher when compared to the same period of last year, representing BRL 8.1 million in equivalence for Wiz in the period. Lastly, Paraná Seguros that reached gross revenue of BRL 12.9 million in Q1 2024, adding BRL 2.2 million in equity method for Wiz. Slide 12. We are presenting units that work on distribution of consortium and credit, Promotiva and Wiz Parceiros. In the quarter, we reached BRL 35.6 million in net revenue in commissions in credit and consortium segment, a growth of 20.8% vis-a-vis the same period of previous year. EBITDA of BRL 20.8 million, a growth of 32% regarding the same period of 2023. These results reflects a good performance of operations of Promotiva, reaching BRL 29 million in net revenue ex commissions in the quarter. Higher historical revenue of the unit. Wiz Parceiros reached net revenue ex commissions of BRL 6.6 million in the first quarter of 2024, 20.7% inferior to Q1 2023, reflecting impact of the fall of 39.9% in volume of sales of consortiums. Slide 13, we have segments of services comprised by Wiz Concept and the operations of Rede Caixa Run Off. In the Q1, we had a retraction of 14.2% in net revenues of commissions in relations to Q1 2023, impacted by the line corp solutions, credit solutions, as well as telesales, which had the main impact, the relocation of stock revenue and renovation of home insurance of the former Rede Caixa operation as operations of Caixa Run Off. Unit keeps focus in profitability of the business, discontinuing lines with low performance, and investing in improvements with the relationship with clients and excellence in service, and focusing in areas of greater potential of growth. The unit closed the quarter with EBITDA of BRL 1.2 million, expanding 83.9% versus the same period of 2023, with a margin of EBITDA of 2.6 percentage points. Lastly, on Rede Caixa Run Off, we had a result of revenue regarding the sales until February 14, 2021. In the quarter, this line added BRL 47.9 million in EBITDA to the company, a result that is 5.8% below the first quarter of 2023 due to a decrease of 4.4% in revenue of operations. Slide 14, we highlight the main points on the corporate results below EBITDA. The first quarter of 2024, the line of administrative general expenses of the corporate totaled BRL 8.9 million, BRL 14 million below the first quarter 2023. As a result of the review performed on Wiz Co for the optimization of the structure, in line with the strategy of the company to seek operational efficiency and well-aligned with the corporate strategy of the group. Below EBITDA line, the BRL 3 million increase in depreciation and amortization in Q1 2024 is primarily due to the recognition of amortization of the non-controlling interest in the identified assets acquired by BMG Corretora and BRB Seguros transaction. The financial results, the first Q 2024, we had the financial results of -BRL 21.5 million, a drop of BRL 8.6 million vis-a-vis first quarter 2023. Mainly due to a reduction in financial expenses related to adjustment to present value, and also reduction of interest rates from loans and debentures. It also had an impact, the adjustment to fair value to earn-out installments in acquisitions accounts payable based on the projections updated in the acquired business. Lastly, our expenses with IR/CSLL in the period had a growth of BRL 18.2 million vis-a-vis the first quarter of 2023 due to a better result in the period. In the first Q 2024, we had an effective rate of 36.9% as an effect of nondeductible expenses for the purposes of income and social contribution tax assessment. As adjustment to present value, capital losses and payments of earn-out installments. Slide 15, we have the composition of our cash flow in the quarter. In investments, the flow of BRL 10.8 million arises from the disbursement of BRL 5.9 million due to the acquisition of the remaining interest in Wiz Concept, former Wiz BPO. Those values were partially offset by positive results generated in the cash flow arising from the accounting of adjustment to present value and monetary adjustments from the acquisitions made by the company in the amount of BRL 16.7 million. In financing, the flow of -BRL 15.4 million here is related to the payment of the fifth installment of accrued interest of the first issuance of companies' debentures in the amount of BRL 15.9 million, and the payment of BRL 7 million in interest and amortization of principal from loans contracted by the company and their subsidiaries. Being partially offset by accrued interest by debentures recognized in the result in the period in the amount of BRL 7.6 million. In the quarter, BRL 19.3 million were disbursed in dividends to shareholders, non-controlling shareholders of our controlled companies. Lastly, in the quarter, we ended with the consolidated cash balance of BRL 366.6 million and BRL 190 million in cash of the parent company. Now we start Q&A. I turn the floor to Stefania Fernandez, who will start Q&A. I'd like to remind you that to participate, you can save your question through the Q&A on the chat that will be addressed by Wiz representatives here on the call. Stefania, the floor is yours. Good morning, everyone. Welcome to Wiz Q&A. We start with the questions we received here from the chat. The first one is from William Barranjard from Itaú BBA. Good morning. Thank you for the call and for the opportunity. I have two questions. I'll ask the first one, we answer, and then I'll come back for the second. The first one is on the income and profit of Promotiva. It has been growing the last quarters. Can you recap the reason? If possible, could you explain a little bit more and how this should be happening in terms of speed for the next quarters? Marcos, can you answer this one? Hello, William. Good morning. Actually, Promotiva, since the first quarter of 2023, has been accumulating growth in revenues and profit. Also focused in the commercial expansion investment of technology to sustain this growth. We have had growth to 690 co-brands that represented 71%, all with productions. We believe that the next quarters certainly will follow this trend, and we will keep pursuing continuous growth that we have been having since the first quarter. I would like to add something to that. As we see a higher reduction in interest rate, we have a margin for people to have loans, so we can increase capillarity. This tends to be favorable to the growth of Promotiva. Second question is still sent by William. On runoff, can you tell us a little bit more on how the result of this line should be behaving throughout the year? Thank you, William. The runoff is really important for us to provide stability for Wiz and provides great predictability. This is made by a portfolio of life insurance and residential insurance. We have already had some historical quarters, and you can see that this runoff has had a drop of about 8% a year. This is quite reasonable to how much it has been dropping the last quarters. I would like to remind you that if you want to send a question, just access the Q&A icon, and when we receive the questions, we are going to read the questions and address them. Next question is from Vitor. Good morning. The company for the year 2024 will be focusing on the objective of changing the debt profile, extending deadlines, and possibly reducing costs. Is there any possibility of real capital increase by issuance of new shares? Yes. It is important to put into context on the debt of Wiz. We have made great work on reducing the net debt. In the first quarter of 2023, we have BRL 704 million, and now in the first Q of 2024, we have a debt of BRL 566 million. In one year, we reduced 20% of the net debt of the company. If you divide that by EBITDA, by interest of BRL 100 million, BRL 400 million, you see that the leverage of the company is less than one time the EBITDA. We have been working more on the profile of the debt rather than the size of the debt. Yes, we have to assess the debt, and we have been assessing the topic this year. Specifically talking about capital increase, this is one of the ways of the company to fund its growth and reduce leverage. There are other ways that we can also do it, and this is a decision that has to be made by the board with the controlling group. This is an option, but it is one of many alternatives that we can use to fund the growth of the company. Thank you, Lucas. Next question. When compared to the fourth quarter of 2023, there was a considerable drop in the insurance net revenue of 17%. Is there a component of seasonality? Thank you for your question, Jair. Yes, we do have seasonality. That is the seasonality of our partners. The second half of the year in Brazil has a greater consumption pattern. People consume more, and the credit market is more active in the second half of the year. We expect that the result of the second half of Wiz in all years tends to be better compared to the first half, and explains a little bit this seasonality trend that you asked about. Next question. Is there any perspective on the growth of results of BRB Seguros given the possibility of follow-on of the bank this year? This is a good question. BRB has presented a good result this year. If you look at the first Q of 2023, we are growing more than 70% in net income. As the bank reinforces capital structure, this is serving the credit portfolio. Consequently, it leads to insurance operations. Any news in this regard is a good reinforcement. Perfect. Next question from Alexandre Bastos from Cura Capital. Good morning. Congratulations on the results. The company has got some verticals where losses is the case of Wiz Conseg and Polishop Seguros, for instance. Is there any strategy of way out for those units? You mentioned two cases that have different conditions and situations. I will speak a little bit about them. Wiz Conseg is the operations in which we buy resales of cars business. We had losses in this business due to the model of acquisitions we had. One part was when we acquired the business, and one part that we have been paying throughout time, we use priority dividends to pay them with its own cash. This priority dividend is included in the result, so you see the negative result. When you look at the performance of Conseg, we have a mixture of the operational performance and the disbursement that we have to pay to buy the channel that will be for many years generating revenue for us. Conseg is a consistent case of success. It has been growing in all those quarters. We are expanding our activity in the segment, so we are not concerned about it. It is just related to the strategy we use to buy the business. In terms of Polishop, it is not doing so well. If you saw in the news, we see that the channel has been having a worse performance than expected. We see that inside Wiz. Those are two different cases. I hope I have helped you. Thank you, Lucas. Next question from Victor Nogueira. Is it feasible to talk about the possibility of acquisitions in the year 2024? Victor, this question, we receive that oftentimes, and it is important to answer it. We have a pipeline that we are always looking into in terms of new opportunities and in terms of our core business. We check whether this is what we are looking for inside our capital structure. I would say that, yes, it is likely and possible, but it has to be a business that has a close link with our model of activity and that we believe that it may happen. Thank you for your question. Next question from Leonardo Piovesan from Quantzed. Can you talk a little bit more on the perspective of Wiz Parceiros? Thank you, Leonardo, for your question. We had a quarter that was quite hard on Wiz Parceiros. Since the beginning of last year, we have an agenda that is really focused on bringing production to consortium administrations that are of good quality. Quality, we need recurrence of payment. We wanted to bring clients that are going to be paying everything so we can be remunerated at a level that makes sense to their operation. This has jeopardized a little bit our production, but we see that the business has to be sustainable for the whole value chain of consortium. We expect improvement in the results. We have many fronts, and we believe there are many other ways of us leveraging the results throughout the year. Thank you. Once again, I'd like to remind you that you can send questions using the Q&A feature. Next question, Leonardo Piovesan. What is the possibility of you raising the payout of the company? Thank you, Leonardo. Just putting into context, this is related to the capital structure of the company. We did a movement to reduce the payout from 50% to 25% recently, and this is well connected to what I've said on capital structure and how we are not concerned about the size of the debt, but the profile. If we improve the disbursement of cash and acquisitions we have, we have the option of allocate the excess of capital in new acquisitions, as Marco said, or we may distribute and remunerate better investors. This is related to our capacity of finding new business and return rates that are good for us. If you can find good business, we are going to address that during our meetings. If you understand that those opportunities are not really feasible and we have opportunity to remunerate people better, we will do so. We talk about it, and we do so. Well, after this last question, we close this video conference. I thank you for your participation. Have a nice day.