Earnings Call: Q1 2023

May 12, 2023

Summary

1Q23 revenue reached BRL 212.7M and adjusted net profit rose 9.2% YoY. Insurance and Promotiva-led credit distribution grew strongly, while restructuring targets BRL 40M in annual savings amid financing and credit-market risks.

Good morning, everyone. We bid you welcome to Wiz conference call concerning the results of the first Q23. We have here with us Mr. Marcus Vinícius Oliveira, CEO, and Mr. Lucas Neves, CFO and IRO. We inform you that this event is being recorded, and all participants will be in listen-only mode during Wiz's presentation. Then we will begin the Q&A session, when more instructions will be provided. This meeting is being transmitted only via webcast, and you can access it at ri.wiz.co, where you have available the presentation. The selection of the slides will be controlled by yourselves. The replay of this meeting will be available as soon as it is finished. We remind you that the participants can register via website questions for Wiz that will be answered after the end of the conference by the IR. Before proceeding, we mention that forward-looking statements concerning Wiz business perspectives, projections, operating and 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 the general conditions as well as the sectors and other operational factors may also affect Wiz future results and cause them to defer materially from those expressed in such forward-looking statements. I would now like to give the floor to Mr. Marcus Vinícius Oliveira, who will begin the presentation. Please, Mr. Oliveira, you may proceed. Good morning, everybody. Welcome to our earnings conference call for first Q 2023. Before I give the floor to our CFO, Lucas, I would like to share with you a short message. We started the year of 2023 focused in adjusting the company to the challenging macro economical scenario of the country, simplifying our model of action and searching to gain efficiency and synergy in our operations. Therefore, we intended to increase value generation to the many partners we have in our subsidiaries and capture value for our shareholders. We revisited our strategic planning and consolidated cycle of acquisition of the last years. We segmented our activity in three pillars: distribution of insurance, credit, and consortium services, and also intended to align our communication to the new strategic design and searching simplification. We reviewed our materials to make the results public. Also given more emphasis to the result of the parent company and its participation in each societária in such a way of highlighting results generation to the shareholders. In this quarter, in the insurance segment that represented 48% of consolidated net revenue in the quarter, we grew more than 30% as compared to last year, thanks to maturation of our business and to the vertical expansion by means of the new business units integrated to the group, Omni One Corretora, Polishop Seguros, and Paraná Seguros. We are excited and we believe that our new operations will contribute for the growth of Wiz and will help us to expand our presence in new markets. At the same time that we recognize the relevance of the vertical of insurance distribution in our proposal values, we understand the importance of the new pillars to leverage results delivery. In this sense, profiting from our expertise in distributing financial products, we did important movement at the end of 2022, acquired Promotiva, unit that acts in managing the network of banking correspondents to sell products from Banco do Brasil, strengthening our vertical distribution of credit and consortiums. In its first complete quarter of operation, Promotiva sold more than BRL 2.1 billion in credit and consortiums, tripling the presence of Wiz in the segment. For this year, the unit will have the challenge of expanding and increasing operational performance, searching for new partners, qualifying distribution network, investing in technology, and expanding the credit distribution agreements. Aligned with the objective of increasing operational efficiency, we finished in April an important project of reviewing the cost of the company that resulted in a reduction of about 17% of our task force, besides the reduction of physical spaces and renegotiation of contracts. We hope that these actions generate for the company an annual savings in costs and expenses of about BRL 40 million against what was our last year extending margins. Also along those lines, we did in the last month, some actions focusing on increasing tax efficiency and governance of the company, such as approving the payment of interest on equity and incorporation of the subsidiary with Perseus. That will also simplify our societária structure and governance. We finished this first quarter delivering the adaptations necessary to our model of business for the challenges of the year of 2023. For the next periods, we will be focused in capturing gains of maturation and synergies of our units, implementing strategies of increasing penetration in distribution channels, diversifying the portfolio of products and technological progress. We are aware of our challenges and cheerful, very cheerful with what is yet to come. I would like to give the floor to our CFO, Lucas Neves, who will contribute giving more explanations and contributions about the results of our first Q 2023. Thank you all. Thank you, Marcus. Good morning, everybody. I am going to begin the presentation of the financial part with slide number 3. We will be talking about the events and operational highlights of this period. First of all, I would like to highlight important project that we had this first quarter, centered in a more efficient operation capturing scale gains. We conducted in the first quarter an intense project of aligning our organization structure to the strategy of the business of the group, generating a reduction of about 14% of our headcount, and 17% when we excluded new hires that were admitted because of the acquisitions that we did throughout 2022. Besides that, we readjusted our offices and renegotiated important contracts. As a result, the adjust in this quarter will bring an annual economy of about BRL 40 million against 2022. Following, I also highlight that from this quarter on, we present the result of the group divided in the three pillars of acting: insurance distribution, consortium and credit, and services. This change is part of the strategic review conducted in the beginning of the year by the company to simplify and have more transparency in communication with the market and other stakeholders. The historical data were reintroduced, and besides that, we did alterations in the calculation of some indicators. Besides more detail in the composition of the result of parent company, the history reported by the company until December 31, 2022, remains on the previous publications. Speaking very quickly about our operations, I would like to emphasize in this quarter the segment of credit consortium. This segment had a growth of more than 1.54x in EBITDA. This result was boosted by the beginning of the activities of Unidade Promotiva after finishing the acquisition in December 2022. The unit reached BRL 21.2 million in net revenue ex commissions, strengthening the result of credit consortium segment in our headquarters. In spite of adverse economic scenario, Promotiva sold more than BRL 2.1 billion in credit consortium, result above what we had in the last quarter. Lastly, aligned with the objective of operational efficiency and simplifying our societária structure, on April 11, 2023, our Assembleia Geral Extraordinária approved cooperation with Perseus Biotec, according to relevant facts published on that data. This movement intends to simplify the organizational structure and using gains in efficiency and scale. Slide 4. We show the financial highlights in 1Q23. Net revenue reached BRL 212.7 million, BRL 161 million of current operations, ex ReadyCash, a result 32% higher than 1Q22. In insurance, the new business units pushed the results, adding BRL 10.2 million in net revenue, ex commissions, and BRL 5.8 million in EBITDA. At last, in credit, we reached BRL 3.3 billion in volume of credit and consortium sold, generating net revenue of BRL 29.5 million in the quarter, a growth of 1.2x against last year. Slide 6, a summary of consolidated results. We see that EBITDA had a growth of 13.4% against 1Q22. From this year on, we include in the calculation for EBITDA the lines of other revenues and expenses and equity and owners, reintroducing the historical data of the company. In the 1Q23, EBITDA was pushed by the net revenue reached on that period. It was partially compensated by costs and expenses that were extraordinary. As I have mentioned before, in this quarter, we had an intense project of aligning, of reducing costs and expenses that should bring savings of about BRL 40 million as compared to last year. We had a retraction of 32% in the year because of worse performance in some lines, especially financial result, as an effect of recognizing financial expenses from loans hired by the company and debentures issued by Wiz, as well as the effects generated by the result of counting the acquisitions done by the company. Now slide 7, we saw the effects considered for our adjusted vision. In EBITDA, we did an adjustment of BRL 9.7 million concerning severance costs, extraordinary costs recognized on that quarter, effect of organizational restructuring done by the company, as I have mentioned before. In net profit, besides the effects mentioned in adjusted EBITDA, we adjusted effects that were not recurrent and no impact on the cash that happened in the lines below the EBITDA. So we closed the quarter with an adjusted net profit of BRL 71.1 million, a result 9.2% higher than 1Q22. Slide 8. We evaluate the composition of the result of the parent company. The operational results of this company come from the runoff of ready cash operation added to corporation expenses and equity and earning of the results of the investees of Wiz. In 1Q23, the parent company had a reduction of 60.8% in net profit against 1Q22, impacted especially by the financial expenses because of interest rates and accounts payable balance because of the last acquisitions. The result of the quarter was impacted by increase in costs and expenses, especially because of severance costs. In equity and earning, we highlight a growth of 10.9% in insurance against 1Q22, effect of migration of the unit BRB Seguros, as well as the entrance of new units and bank insurance. Slide 10, we began the presentation of the result open per segment, reconciling the result per segment and the consolidated result is in the annex of this presentation and in the earnings release. In 1Q23, 73% of net revenue came from our current operations. The business units consolidated by Wiz for insurance represented 48% of our result. This segment, mainly encompassing new operations, has long-lasting exclusivity contracts and high potential of result generation. Comparing to the same period of previous years, we saw a large movement of diversification of results allied to a continuous growth in revenue. This was only possible because we focused in delivering strategic objectives of the company. Slide 11. We again present operational development of our segments. Beginning by insurance, we reached in 1Q23, BRL 103.5 million in liquid revenue of commissions, a growth 31.8% higher than same period last year. This was affected by the performance of BRB Seguros, 26.4% increase or BRL 10.2 million against 1Q22, emphasizing continuous growth of credit and residential insurance. We also had a positive impact from Wiz Corporate that presented a growth of 48.8% or BRL 6.5 million against 1Q22, reaching in one quarter the highest result of its historical series. We also had a positive effect in the beginning of the operations Omni One and Polishop Seguros since December 2022, that added BRL 10.1 million. The insurance segment reached an EBITDA of BRL 66.5 million, 36% above what was presented in 1Q22, with a gain in margin of 2 PPs as a result of the focus of the company and its subsidiaries in increasing the efficiency of the group. In 1Q23, excluding the extraordinary costs of layoffs in the units of the segment, the EBITDA of the insurance segment was BRL 69 million, 41% higher than 1Q22. Slide 12. We will present the units that act in distributing our consortium credit, Promotiva, Wiz Parceiros, and Venanp. In 1Q23, we reached BRL 29.5 million in net revenue ex commissions in credit consortium, a growth of 120.1%, BRL 16.1 million as compared to the same period of the previous year, emphasizing the beginning of the operation Promotiva since December 2022, that in the period added BRL 21.2 million. Promotiva acts as one of the managers of banking correspondents for Banco do Brasil managing a network of more than 400 Cobans to distribute personal credit, insurance, consortium, and other services. This unit reached historical record in credit volume and consortium sold, BRL 2.1 billion in liquid net production. Increase in medium ticket in sales and personal credit, as well as new contracts. Segment of credit consortiums reached an EBITDA of BRL 15.7 million, 166.9% above what we had in 1Q22, and boosted by the beginning of the operations of subsidiary Promotiva. In the quarter, minus BRL 0.7 million was recognized from the result of the equivalence of participation of the Banat subsidiary. In 1Q23, excluding the extraordinary severance cost of Wiz Parceiros, EBITDA of the segment would be BRL 16.5 million, 180% above 1Q22. Following to slide 13, we present the segment of services that encompasses Wiz Conseg and operation of in run-off of Redecard. In 1Q23, segment of services presented a step back of 6.4% or minus BRL 1.9 million in net revenue commissions against 1Q22, impacted by the decrease in revenue from services granted to clients of insurance corporate. After an atypical volume of casualties in 1Q22, as well as less headcount in allocation of manpower, reducing the revenue of proprietary solutions. In EBITDA, emphasized in the quarter for a reduction of 0.1% in cost and expenses, effect of the reduction of 20.8% of the headcount of Wiz Conseg. After the efforts of optimizing the structure in search for more efficiency. Due to that, in the quarter, we registered termination costs that were extraordinary, that should not happen in the next periods, generating margin gains for the unit. In 1Q23, excluding the extraordinary cost of layoffs, the EBITDA of the segment would be BRL 2.3 million, 23.3% less than 1Q22. Lastly, about the run-off Redecard, we present a result of the stock of revenue concerning the sales conducted until February 14, 2021. In the quarter, this line added BRL 50.9 million in EBITDA to the company, a result 1.8% above the 4Q22, due to the reduction in the volume of chargeback on the product Prestamista, boosting the net revenue of the same period comparing in 2.8%. Slide 14, I would like to emphasize some points about the result of corporate and below EBITDA. In 1Q23, the line of G&A expenses of the corporate was a total of BRL 23.2 million, 14.1% above 1Q22, boosted by extraordinary cost of termination in the period, effect of the reduction of 18.5% in the corporate headcount throughout the quarter. Excluding extraordinary costs of layoffs, we would have a reduction of 11.7% in expenses as compared to the 1Q22. In other revenues and expenses, variation of minus 78.5% presented in other revenues and expenses as compared to 1Q22, was due to an effect carried out last year when a reversal of the provision for reversals of commissions of the product Prestamista in the unit BRB Seguros happened, generating a positive result of BRL 5.6 million in the same period. Lines above EBITDA, I emphasize financial result. In 1Q23, we had a negative financial result, BRL 30.1 million, due to more expenses in that period. As compared to the same period of the previous year, although expenses lines had grew because of the effect of interest increase and also in balance cards because of the acquisitions and loans, because of that acquisitions. Slide 15 represent the composition of our flow cash flow. In working capital, variation of BRL 52.5 million in working capital was due because of the reduction of the balance of accounts payable because of what was accumulated unit BRB Seguros. Beside reduction in the balance of social obligations and contracts, and because of the payment of PLR for the workers in the first quarter concerning 2022. In investments, the flow of BRL 9.4 million is due to the payment of partials of accounts payable of acquisitions in the company, partially compensated by the positive effects generated in cash flow because of the adjustment to present value and the monetary updating of the acquisitions by the company. In loans, 10.9 million flow presented is concerning the payment of the third partial of interest in the first issuing of the debentures of the company, BRL 18.2 million, as well as the payment of BRL 1.9 million in financial tools and swap contracted by a subsidiary is partially compensated by the interest recognized in this period. We finished the quarter with a consolidated cash balance of BRL 252.8 million. We finished this presentation. I would like to give the floor back to Stefania, who will moderate Q&A. Thank you. Thank you, Lucas. Now we begin Q&A. We remind you all that for questions, you send your question by the icon of Q&A that is in the webcast platform. Questions will be answered as they come. Please wait as we receive the questions. First question from Ricardo Russio from BTG Pactual, and also one from Dr. Alexandre Basses from BB Plane, and another one from Sir Richard. Could you give more details on how Wiz sees its situation of liquidity and service for this year? Does the company have enough cash for that? Hi, Ricardo. This is Lucas Neves, CFO. Thank you for the question. Ricardo, the company has a liability of BRL 134 million to pay plus dividends. We understand that the first half of this discussion, we just finished this quarter, it is to take this action of operational efficiency, reduce the structure of cost of the company so that we can increase cash generation. We are comfortable with 2023, but we do understand that we have some debts and acquisitions. We have to discuss the capital structure, be it in the short term to face our obligations after 2023, or because in the medium and long run, we can finance the growth of the company. We have seen that in the last few years, we were quite efficient in allocating capital and acquisitions that generated value for the shareholders. For instance, Votorantim, BRB and many other transactions. For 2023, we work with the scenario of extending to our obligations. Second question, also from Dr. Ricardo Russio and Dr. Alexandre Basses. We noticed that the final stake of Promotiva reduced in this quarter. It is a subsidiary of Wiz, and now it is the equity stakes in Promotiva. Could you give more details on the discussions to get to the structure? This is Lucas again. Wiz Corporate, which is how we say our corporate insurance, already work above the Brazil. All the corporate renovation by Wiz Brazil is done by Wiz Corporate. So much of the structure of the design and prospection of this deal was done by the team of Wiz Corporate. In this associative model that we have with different businesses, we understood that it should be part of the business, be it in cash generation or in the obligations that we need to pay the acquisition. We maintained this format that was designed for this transaction. Dr. William from Itaú BBA. My first question has to do with the many transformations that happened in this quarter. The company incorporated Promotiva, Omni, Polishop Seguros, and there were adjustments in the teams in the offices. So it is a bit complex to compare with previous periods and identify what would be the figures for the company in the future. Could you talk about these changes in terms of effects and results? What levels of results could we expect for the coming periods? Thank you for the question. We try to have this discussion. We know the company went through a large transformation these past few years, and we have to find a baseline. One of the things that we demonstrated in our release were the cost of layoffs. Forgetting the adjusted EBITDA, we would have a fairer base for comparison. The second result we brought was to give you an idea of how much savings we expect in one year. We will save BRL 10 million per quarter. If you just put aside this adjusted EBITDA and add in this saving, you have an EBITDA that is closer, and it can grow in a scenario of more credit offering. It may decrease if the credits was more restricted. It is a good line for comparison. Talking about the beta, reminding you that when you look at the financial result, it is impacted by interest rates and by the payment schedule that we have from now on. Another question from William from Itaú BBA. My second question has to do with the financial result that has pushed back profit in the last quarters. What is your expectation to sustain your financial results? How can we project this for the next quarters? Financial results of the company are the variable is affected by two points, interest rates and the open volumes that we have of obligations. This year, as I said, about BRL 130 million in obligations that reduces. Does not really change, but with the expectation we have of a drop and the interest rate, we understand that this is going to give us a marginal improvement in the next quarters. The more structural change will happen next year. Question by Guilherme Grespan from J.P. Morgan: How should we think the effective rate of taxes for the next years? This quarter is above the last years. Thank you for the question. Just to contextualize, when we compare the revenue and the basis of our revenue taxes, it was higher than the previous years. The APV of the company, adjustment of present value, the APV is not deducible for the taxes. That increases the effective alíquota. There is a second point, which is BRB, that is quite relevant for our results. This year, it enters the real profit and that increases the effective alíquota. We believe that this year, on what was decided on top of on capital, we hope that the structure increase between APV and this change in tax regime for BRB can be compensated by this adjustment on interest on equity. Could you clarify the change in level of revenue in Inter Seguros along taxes and reductions? When you sell consortiums, you consider that some clients will not pay. We sold more, so it increased. We hope this delinquency will decrease in the next quarters. We are selling consortiums on that channel, but we do not think it is going to go back to 10%. We think it is going to be a little bit above that, but it will become more normal. Thank you. Question from Jose Daronco. Congratulations for the results and new way to show the results. Two questions. One, about the adjustment on the first Q 2023, do you believe the total adjustment has been done, or will we see more reduction in headcount? Thank you for the question. Any opinion we have here, we work in services, and we have a perception that the culture of Wiz and the way we work are very important for us to generate value in the channels where we act. We are very careful with this adjustment that was done in first Q. We have a company that grew a lot in the last years. As service providers, it is very important to consider the human capital. We did an important adjustment, but in a very careful way. We had some adjustments that were done in April. We understand that we did the necessary adjustment. There may be something here or there because we have 12 business that are in different segments of in economy, in banks and services, but we understand that the material adjustment has been done in this first Q. Okay? Second question by Jose Daronco. Banks have decreased the credit, but in 1Q 2023, there was not much impact in insurance. What do you see for the next years? Excellent question. Wiz, most of its operations, I do not know if you noticed that we gave more disclosure per segment. Our line of insurance is dependent on credit origins. The product, Prestamista credit, is important in our results. The message we want to convey is that this is one of the value proposals that we have when it reaches a channel. We can reach new products, we can accelerate the recurrence of products that are not directly connected to credit, and it is much of what we have been doing in the channels that we associated with in the last few years. We want, throughout time, to reduce this credit dependence. We did not notice in the first Q a change of credit origin. We are not responsible for this type of credit. Our partners are responsible for it. Much of what we do to look for efficiency in the company, and we talked a lot about this here, to reduce the adjustment of number of workers and also on equity. We reduced the offices, we renegotiated contracts so that we are prepared for any scenario, some are restrictive scenario or a scenario where everything is maintained. Our view is that if there is a reduction of credit, it is most likely that it is going to happen in the next few years and throughout the whole year. We see the second half in a more positive way, since all the market points towards a reduction in interest rates. The financial system will originate more credit, and Wiz may benefit from that. Another question from Eduardo Grandiro from Calice. Why have the taxes increased so much over revenue in this quarter? This is important. We have paid more attention to the net revenue because the dynamic with the acquisition of Promotiva changed a lot. Promotiva has a large revenue and it distributes this to the channel that does payroll-deductible credit. When you look at the gross revenue of the company, it was more than BRL 400 million of gross revenue. So with Transact around BRL 1.6 billion a year, that naturally will increase the volume in the company. The net revenue of the controllers has decreased because of higher expenses. Can we expect a change in the policy of dividends? Thank you for the question. All this is being discussed within the context of capital structure in the company. It is something important to be discussed, how we want to finance our growth, how we want to face the obligations that we have in our hands. We understand that the payout of dividends are within this discussion. Although we do understand that it is natural that the payout is a real metric to generate value to our shareholders. This discussion is important. We are discussing it with the board, along with all the other discussions that we have to discuss this equity control. To ask questions, send your message by means of the icon Q&A that you have available in the webcast platform. Please wait as we collect the next questions. Excuse me, we close now our earnings conference call. We thank you all, and have a good day.