Earnings Call: Q2 2023

Aug 11, 2023

Summary

Q2 EBITDA rose 13.7% YoY as cost controls offset weaker bancassurance commissions; adjusted net profit grew 5%. Management expects H2 improvement with credit recovery and lower rates, while acquisition-related financing costs remain a drag.

Good morning, everybody. Welcome to Wiz Co earnings conference call for the second quarter of 2023. We have here with us Mr. Marcus Vinícius de Oliveira, President, CEO, and Mr. Lucas Neves, CFO and IRO. We inform you that this meeting is being recorded, and all participants will be in listen-only mode during the presentation. Then we will begin Q&A sessions where more instructions will be provided. This meeting is being transmitted only via webcast. It can be accessed at the address ri.wiz.co, where the presentation is presented. The selection of the slides will be controlled by you. The replay of this meeting will be available as soon as it is over. We remind that participants can register via website questions for Wiz that will be answered after the end of the conference by investors' relations areas. Before proceeding, we would like to mention that forward-looking statements that might be mentioned during this conference concerning Wiz's business perspectives, projections, operating, financial goals are based on beliefs and assumptions of the company's management and on current available information. Future considerations are not guarantees of performance, and they involve risks, uncertainties, and assumptions since they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts must understand that general conditions as well as the sectors and other operational factors may also affect Wiz's future results and cause them to differ materially from those expressed in such forward-looking statements. Now I would like to give the floor to Mr. Marcus Vinícius, who will begin the presentation. Marcus, please, you may proceed. Good morning, everybody. It is a pleasure to have you all here for this earnings conference call for second Q23. In the last month, Wiz completed 50 years, and we are very proud to celebrate our history of growth, transformations, and many achievements. In this half a century, we developed a unique business model sustained by a bold and dynamic culture, becoming a company that is referenced in bancassurance, consortium, and credit in Brazil. In a semester that was marked by reduction credit production in Brazilian market, we delivered consistent results. We achieved an EBITDA of BRL 125 million in the last quarter with a growth of 13.7% against 2022. A performance connected to the launching of many new products in strict control of cost and expenditures in bancassurance. Highlight for our Inter Seguros that we invest on, that reached 1.5 million clients in portfolio only one year after reaching 1 million clients. This landmark reinforces its capacity of growth and the position of the largest digital bancassurance operation in the country with 23 digital products. Wiz Corporate, our vertical of insurance for legal customers, reached a 50% growth in net revenue as compared to the first half of last year. This performance consolidates the strategy focused in offering products that generate recurrence as well as the success that we have obtained in offering products of insurance for legal entities and bank channels. In credit consortium, leveraged by the business unit Promotiva, we have sold more than BRL 6.4 billion in credit consortiums in the first half of this year. What represents a growth of 78% against the same period of last year, consolidating our presence in the sector. Paying attention to opportunities in our environments where we act and reinforce the reputation of our teamwork, we launched in the first half the campaign, One Plus One Is More Than Two. Together We Make It Happen. This campaign aims at promoting an important cornerstone of our culture synergy, increasing our operational efficiency and generation of new businesses. This year alone, we have celebrated more than 25 business among companies in our group, and we understand there are many opportunities to be captured. In the perspective of operational efficiency, the initiatives of optimizing our structures conducted in the first semester generated relevant results and will be important to maintain profitability of our businesses. We delivered in the second quarter EBITDA margin consolidated of 61.9% with growth of more than 6% against the same period of last year, reinforcing our capacity of generating cash and resilience for more challenging periods. We go to the next semester aware of the challenges that we have ahead. However, confidence in the economical growth of this country, especially in the face of the expectation of reducing interest rates, thus resuming concession of credit. This context favors our business as it pushes forward the opportunities of selling insurance in the bancassurance segment and reduces the cost of debt. We are optimistic with the perspectives of acceleration of our results for the second half. At last, I would like to reinforce here my gratitude to the board, Wiz's, and everybody who throughout these 50 years collaborated to construct one of the largest companies of the insurance segment of the country. We are excited for the next 50 years of our story. Now I invite Mr. Lucas Neves and Stephanie Fernandes, who is superintendent of IR, to comment on financial operational results of the second quarter. Thank you, Marcus. Good morning, everybody. I'm going to begin the presentation of the financial part on slide 3, where I'll be talking about the events and strategic highlights in the period. Marcus has mentioned part of the highlights in the CEO message, so I'll be short. First, I would like to reinforce the importance of the internal campaign, One Plus One, More Than Two. Together we make it happen. This campaign reinforces one of the cornerstones of our culture, synergies. We understand that synergies among our units potentialize our results and make us generate more business. In this sense, I emphasize that we have conducted more than 25 business within the group, and many opportunities are being analyzed for the next quarters. Along operational efficiency, the initiatives implemented throughout the year have generated an economy of about BRL 8.1 million in the quarter, that we will keep capturing in the next periods. Another important thing of this period was the 50th anniversary of Wiz. We are proud of our history of transformation and resilience that consolidated itself in a reference company in insurance sectors in Brazil. In this half a century, we grew from a monoclient company to a through insurance company specializing in bancassurance and distributing consortium credit, and also providing products and services to the insurance market. We act in a broad way to extract value from different channels, generate opportunities, and potentializing businesses with dynamics, synergies, and expertise in the market. To celebrate this date, we launched Revista Wiz, a special edition with a retrospective of our history and what we expect for the coming 50 years. Talking quickly about the presence of Wiz, where it acts in the year to date, our business units traded more than BRL 1.2 billion in issued premiums, 23.7% growth as compared to the first half 2022. That reinforces the relevance of Wiz Co in this market. In credit and consortiums, we met a volume of BRL 6.4 billion sold in the year to date, a 77.9% growth as compared to the first half of 2022, much influenced by the acquisition of Promotiva. Talking about operations, I would like to emphasize in this quarter the units Wiz Corporate and Inter Seguros, which Wiz Corporate reached the historical landmark of BRL 134 million in issue premium with a 37% growth as compared to 2Q22. The unit reached a 50% growth in commissions net revenue. This performance of the period consolidates the execution of focused strategy, focused in offering products that generate recurrence in establishing relevant commercial partnerships, especially in bancassurance, pushing the opportunities of our business. Inter Seguros reached an important landmark in its history, more than 1.5 million clients in the portfolio. Only one year after having reached 1 million clients, a record of more than 340,000 sales in the quarter has pushed this result in the consistent of digital products that Inter has in its portfolio. Inter Seguros keeps strengthening its position with the most complete portfolio of digital insurances in the country, and it added two new products, the Pet Health Plan and Insurance Prestamista PJ, integrated to legal customers. Slide 4, financial highlights for 2Q23. We registered BRL 413 million in gross revenue in this period with a growth of 55% compared to the same period last year. Net revenue, we reached a level of BRL 202 million in the quarter, 2.8% higher than 2Q22, and BRL 415 million in the year, a result 11.4% higher than the first half of 2022. In insurances, the results of the quarter were impacted by a drop in commissions net revenue in units of bancassurance, and this effect was partially compensated by the growth of 50.7% of Wiz Corporate by the consolidation of new businesses that started this year. At last, in credit, we reached BRL 3.1 billion in credit volume and consortium sold in the quarter, generating a net revenue of BRL 29.4 million, a growth of 110.4% as compared to last year. In the semester, we added BRL 6.4 billion in credit and consortium. Slide 6, consolidated results summary. EBITDA increased 13.7% when compared to 2Q22. From this year on, we included in the calculation of EBITDA, the lines other revenues and expenditures, and equity and earnings, representing the historical data of the company. In 2Q23, EBITDA was pushed by a 15.1% drop in G&A after efforts done to achieve more operational efficiency and gain scale, aiming at higher profitability in our segments. As we have previously mentioned, we followed our project of aligning our corporate structure, looking for more operational efficiency and capturing scale gains. Finalizing the readjustments, we had a reduction of about 17% in our headcount. Talking about consolidated net profit, we have a reduction of 24.7% when comparing the quarters and 28.6% in the semester impacted by worse performance in the lines below EBITDA, especially financial results that were impacted by the financial expenditures, loans, and increase in interest rates because of the acquisitions that we did in the last periods. Slide seven, we see the effects considered for our adjusted visions. EBITDA, we did not adjust this quarter, reaching a growth of 15% as compared to 2Q22. When you compare the semester after adjusting BRL 9.7 million concerning extraordinary termination costs we had through 1Q23, we also registered a growth of 20.5% when compared to the first semester of 2022. In net profit, we adjusted the non-recurring effects and with no impact in cash that happened in the lines below EBITDA. We closed this quarter with adjusted net profit of BRL 72.4 million, a result 5% higher than 2Q22. In the semester, we reached the growth of 1.6% on the same figures. Slide eight, composition of the parent company. The operational results of the parent company come from the run-off of the operation Rede Caixa and of Wiz Parceiros that was incorporated in the parent company on this quarter. We also add the corporation expenditures and equity and earnings of the results from investees. In 2Q23, the parent company registered a reduction of 24.4% in net profit as compared to 2Q22, impacted especially by higher financial expenditure effect of increase of interest rates and accounts payable balance of acquisitions due to all the expanding plans of the company. 15.1% increase in adjusted net revenue and 163% in the cost of line of the same period comparing to the same period last year, come from the incorporation of Wiz Parceiros in the quarter. In equity and earning, reduction of 28.7% in insurance against 2Q22 was due to the smaller result of the bancassurance operations in the period, what was partially compensated by the new units that were incorporated at the end of last year. As mentioned previously, because of the performance of Wiz Corporate. Slide 10, we're going to present the result per segment. The consolidation of the result per segment and consolidated result can be found attached to this presentation and in the results release. In the first half 2023, 75% of net revenue was due to our current operations. The consolidated business units by Wiz Insurance, Wiz Seguros, represented 48% of our current result. This segment, made of mainly new operations, has exclusivity agreements of long-lasting ones and high potential to generate results. Compared to the same period of the previous years, we notice a movement that is strong in diversification of the results aligned to continuous growth of our revenue. This performance was only possible because we focused on delivering the strategic objectives of the company. Slide 11, we follow presenting operational performance of our segments. Initiating by insurance, we reached in 2Q23, BRL 96 million in net revenue of commissions, a drop of 6.6% as compared to the same period last year. Effect mainly of the performance of BRB Seguros, minus 28.8% or BRL 18 million against 2Q22. This is totally linked to the performance of Prestamista. This performance was partially compensated, as previously mentioned, by the unit Wiz Corporate that reached a growth of 50.7% when compared to 2Q22, as well as the beginning of the operations Omni1 and Polishop Seguros. Insurance reached an EBITDA of BRL 62.8 million, 16.3% lower than 2Q22, and a margin drop of 7.6 pp, as mentioned previously, impacted by the performance of bancassurance units. Slide 12. We will present the units that act in distribution of consumption credit, Promotiva, Wiz Parceiros and Banriponto. In 2Q23, we reached BRL 29.4 million in net revenue ex-commissions in credit consortiums, a growth of 110.4%, BRL 15.4 million as compared to the same period of the previous year, emphasizing the results of the operation of Promotiva that added BRL 19.6 million in revenue in the quarter. Promotiva acts as one of the managers of bank correspondents in Banco do Brasil, and in the 2Q23 already had a network of more than 490 Cobans to distribute products of individual credits, insurance, consortiums and others. This unit reached BRL 1.6 billion in net production of individual credit, a growth of 17% comparing to 2Q22. 441 million in consortium letters were sold. This result came from the strategy of the unit expanding the agreements. The segment of credit consortium reached an EBITDA of BRL 15.5 million, 187% higher than 2Q22, pushed by the beginning of the operations of Promotiva. Slide 13. We present segment services with Wiz Concept and Run-Off Caixa operations. In 2Q23, the segment of services had a retraction of 11.6%, BRL 3.4 million in ex-commissions net revenue as compared to 2Q22, mainly impacted by retraction of televendas revenues, telesales, and soluções corporativas, corporate solutions. In EBITDA, a reduction of 4.7% in G&A, effect of reducing 23.2% in the headcount. In our view, we understand that the first semester of Wiz Concept was kind of blurred because of the layoffs that we had, and we expect that throughout the second half of 2023, Wiz Concept will go back to the levels it had previously. About Run-Off Caixa, we present the result of the revenue inventory concerning sales as of February 14, 2021. This line added BRL 49.8 million in the quarter in EBITDA to the company, a result that was 1.7% lower than 2Q22 because of increased costs and expenditures. Slide 14, I would like to emphasize some points about the result of the corporation and below EBITDA. In 2Q23, the line of G&A resulted in BRL 7.3 million, 66.2% less than 2Q22 and 27.2% less than in the semester. These results are due to a reduction of 30% in the headcount of the corporation throughout the first semester of this year. This reduction is because of reviews we did in the structure of Wiz Co. Aligned with the strategy of the company in search for better efficiency and aligning the structure of the corporation to the business strategy of the group. We also had extraordinary positive effects in the quarter, BRL 8.2 million from the incorporation of Wiz Parceiros. Lines below EBITDA, I want to emphasize financial result. As mentioned before, in the second quarter 2023, we had a negative financial result, BRL 30.7 million, due to more financial expenditure of the period. Comparing to the same period of 2022, we had an increase in financial expenditures because of increased interest rates and also loans and acquisitions to be paid because of the acquisitions that the company had in that period. In IRPJ/CSLL, internal revenue and social contribution of net income, we increased BRL 6 million due to the cooperation of new businesses in the group and also change in taxation of subsidiary with BRB Seguros, and with Wiz Corporate. Besides that, in the second 2022, there was a positive effect in internal revenue and social contribution of net income because we changed the understanding about the payment of long-term incentives of the executives. The effective alíquota of 2Q23 was 35.8% because of the increase in non-deductible expenditures for IRPJ/CSLL. For the whole year of 2023, we hope that payment of Juros sobre o Capital Próprio will reduce the effective alíquota of Wiz Co. Slide 15, the composition of our cash flow in the quarter. Investments, the flow of 20.7 million from the positive effects generated cash flow from the adjustments to present value and currency updating by the company. In dividends, negative variation 30.1 million was due to the payment of 10.1 million from the full share of dividends and Juros sobre o Capital Próprio from the net profit from 2022 that was approved in our general assembly in April, and 20 million dividends to shareholders that are non-controllers from our companies. In loans, the flow of 3.7 million is regarding 5.1 million payment in swap instruments by our subsidiaries, partially compensated by the paying interest as a value of 8.8 million. We finished three months with a consolidated cash of 321.1 million. I finish here, and I would like to give the floor to Stephanie Fernandes, who will moderate Q&A. Thank you. Thank you, Lucas. We will now open for Q&A. To ask questions, you may send your message by the icon Q&A in the webcast platform. Questions will be answered as they are received. Please wait as we select the questions. First question, Ricardo Spiegel from BTG Pactual. What can we expect for the next quarters in terms of dynamic of revenue? Could you talk about the efficiency works that Wiz has been paying, and what can we expect of tax rates for the next quarters? Good morning, Ricardo. This is Marcus Vinícius de Oliveira. Excellent question. Actually, our view is quite positive for the second half and for the coming quarters. We are quite impacted by that reduction in Brazilian market, a reduction of 15%. We see a recovery for the second half. It was positive in June, not mentioning the new products that are sold by our vertical companies. We believe that although we are not able to determine exactly when this is going to happen, we believe that the productivity improvement will come through, considering that the credit share has improved in the second semester. Ricardo, your second question about effective alíquota, thank you for the question. In the first quarter, we had 37%+. In the second was 35%. The increase we had in effective alíquota regarding last year is related to two factors. The first one, we have two subsidiaries, which is Wiz Corporate and BRB Seguros. They both last year had lucro presumido. Now they have lucro real, so that increased the effective alíquota of the company in about 25.6%. In one item that we have discussed, we understood that we could reduce the effective alíquota for 2022, what explains the increase compared to last year. Now talking about the future, what we see is that we are going to have two positive effects. One is we pay rates or Juros sobre o Capital Próprio, and we had a small payment in the first quarters, and we are going to have a payment of about 21 million reais for Q3. So that will reduce the alíquota. From then on, we incorporated Risparciais in Wiz that will reduce the tax alíquota of Wiz. We expect that instead of 35%, 37%, as we have seen, we will operate closer to 30% in the third and fourth quarter. This is what we see as far as effective alíquota is concerned. Thank you for your question. Second question, also about taxes. Mr. Gillespie of JPMorgan, how much do we expect on effective alíquota of taxes? We noticed an increase after subsidiaries have new regimes of tax. Is there a space of optimization to compensate that increase? In response, Mr. Lucas Neves again. I think I have sort of answered your question. I just forgot one comment. We are looking to the effective alíquota of Promotiva because we hope to work in a reduction of it in the second semester, but when we have this information, we will communicate. It's a bit of what I have commented. We expect to operate close to 20% of effective alíquota in the coming quarters. Another question, William Barranjard from Itaú BBA. We have two questions. First, regarding the moment of insurance sector, we see in these last quarters a deceleration because of worse credit origin. Do you feel anything for the near future? When do you think we're going to have a growth in the sector? Also about improving G&A, we see a drop because you have a project to gain efficiency from the first Q. Is this improvement already coming from the total benefit or for the next quarter, it's going to improve even more? Thank you for the question. I think Marcos has answered a bit about our top line and reinforced that we are optimistic for the second half and for 2024. We're looking at the speed of optimist as the interest rates drop and the credit generation comes back. We want to have more months and more reductions in Selic to have a better diagnosis. Talking about G&A, we had given this discount in the first quarter. We talked about annual reduction of 40 million reais. We had many layoffs, so it was not very clear. We could not capture everything inside this quarter. From now on, we have a cost structure that's cleaner, and that's what we should see from now on. We finished the quarter with over 1,000 workers, and we did all the adjustments we could. The downsizing and the focus on operational efficiency that we could do, we have done in this first half. So we expect to maintain these levels of profitability from now on. We saw the SG&A that is around 15 million-20 million per quarter. Thank you for your question. Next question, Mr. Anderson. Could you further elaborate the relation between the gross revenue increasing 55% and the commissions increasing 250%? Thank you for your question. We had something that we closed in the end of the year, acquisition of Promotiva, and there was a structural change. Between this mix of gross revenue and net revenue, Promotiva receives from Banco do Brasil all the revenue that we're going to convey to the bank channels. The rest, we pass part of it, and Promotiva has part of it. And what I give back to Coban. In our understanding, since this is the first year, last year, we did not have this kind of functioning, the net revenue becomes a better instrument to see the growth of the company in the top line better than gross revenue as compared to previous years. Next year, this will be more normal because I'm going to have Promotiva for 2 years. But we understand that for 2022, it makes more sense to use this rationale of net revenue because we added much gross revenue and cost because we acquired Promotiva. Also from the same person. Although in adjusted net revenue, there was increase in the semester. For the shareholders, that's what impacts in dividends. Any expectation of reverting the trend of this consolidated net revenue for the coming years? Thank you for the question. The revenue or the profit that generates the base of dividends is from the parent company. As we have previously mentioned, since we no longer have the contract with Caixa, we made quite a few acquisitions in the last few years. For that, the company has a debt and obligations with the partners to buy these channels. We have exclusivity for 15, 20, 50 years with some of these channels. This balance of accounts payable generates expended. Selic is very high, so it impacted on our net profit and also on the revenue of credit users. The company, in a scenario where we have a reduction in Selic, we expect to grow our net revenue, as we have mentioned, a decrease in financial expenditures, and with lower costs, we expect to really improve that from now on. Mr. Cristiano, what's the debt of Wiz? Thank you. Good question. I mentioned that on the previous question. When we look at the consolidated balance, Wiz has accounts payable for acquisition about BRL 290 million in the short run, and debentures and accounts payable and acquisition in the long run, a little bit less than BRL 500 million, and consolidated cash BRL 284 million. As I have mentioned, we have an important volume of balance of accounts payable because we acquired from Bmg, Promotiva, BRB, and many others that were acquired in the last periods. Part, if you look at the explanation we have there on financial results, we detail where we talk about the debt cost. It's a mix. Some acquisitions that we have, they don't impact on the debt. It's a nominal value. Debentures, the balance we have on loans, we have a CDI cost, 2.5 around that. As when you think about the current Selic, we have a financial cost of close to 16%, part of our accounts payable. Thank you for your question. Mr. Eduardo and Mr. Jomar ask, "How do you intend to do the payout?" Thank you for the question. What's the big thing here? How does this process work? The net profit of the parent company that we use as a base is the minimum value of payout that we have used for a few years, and that's in the statute of the company, is 50%. When we finish each year, we have an assembly and we distribute what's in the statute. We have mentioned changes in payouts, but right now we use what's written in our norms, 50%. We understand that this discussion is part of a larger context that talks about the capital structure of the company and how the company can go back and make other acquisitions in the future. We understand that this batch of acquisitions we did, we generated value for the shareholders. Businesses grew a lot after these acquisitions, and we need resources to finance new cycles of acquisitions. We understand that more than paying payout, there is a discussion of the inorganic growth that we want to do to continue doing what we have been doing well in these past years. Mr. Leonardo asks, "Could you further elaborate on the Run-Off Caixa?" We have mentioned quite a bit. If you have more questions, you can talk to our department. The Run-Off Caixa, we have a long partnership with Caixa for a long time, and throughout that partnership, we accumulated clients that pay premium every month. When they finish, when they close, no client gave commission to Wiz. However, this inventory that we had, we have a partnership. While the client is paying this premium, Wiz pays the commission or receives the commission. As people pay, it reduces throughout time, and it's an important part of the results of the company, and we use much of this cash generation to finance the growth of these last acquisitions. Thank you. To ask questions, you send your question through the icon Q&A that you can find on the platform, and the questions will be answered as they arrive. Mr. Pedro asks: "Does Wiz have a plan to issue new debentures?" Pedro, thank you. This is Lucas again. I mentioned a bit that we understand that payout, issuing debts, debentures, or a new debt, that is all part of a larger discussion, which is the capital structure. How do we organize the payment flow to generate cash for the company, and how can we prospect new business opportunities in the market? We have expanded a lot, so the discussion whether we will issue debentures or not depends on our main discussion that we have with the board, which is how do we define a capital structure that we can capture value for our shareholders. Thank you. Mr. Cristiano also asks: "Much was mentioned on the last quarter about improving the capital structure of the company. Is there an advancement on that?" Good morning. This is Marcus. Capital structure today for the company is one of the most important topics that we have faced. It is on the administration board that will be dealing on this subject with the controller shareholders and coming to a conclusion as necessary so that we can go on with our business volume and new acquisitions in the future, and organizing all the capital structure of the company. Right now, this is what we have, but for sure, we will bring this subject and decisions about this topic until next quarter. One additional comment, we talk a lot about capital structure. We have something important here, which is we have focused a lot in operational cash generation because that's important in the discussion of capital structure. Operational cash generation is important, was about 73 million reais. It's an important part for us to balance all this discussion on capital structure. Thank you.