AgroGalaxy Participações S.A. (AGXY3) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for standing by. Welcome to the earnings conference call for the third quarter of 2025 of AgroGalaxy Participações S.A. under Judicial Reorganization. I would like to highlight that simultaneous translation is available on the platform for those who need it. [Operator Instructions] Please note that this video conference is being recorded and will be available on the company's IR website at www.ri.agrogalaxy.com.br, where the complete materials for our earnings call can also be found. The presentation is also available for download in the including the English version. [Operator Instructions] We would like to emphasize that the information contained in this presentation as well as any statements that may be made during the video conference regarding AgroGalaxy's business outlook, projections and operational and financial goals are based on the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not a guarantee of performance because they involve risks, uncertainties and assumptions as they relate to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect AgroGalaxy's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, we are joined by the following executives of the company, Mr. Eron Martins, CEO of Galaxy (sic) [ AgroGalaxy ]; and Mr. Luiz Conrado Sundfeld, CFO and Investor Relations Officer. I now turn the floor over to Mr. Eron Martins.

Good morning, everyone, and thank you for attending another earnings call talking about the third quarter of AgroGalaxy. Please let's move on to the first slide. One more. Perfect. So the format that we use, we did the second quarter presentation the same way, with the same format, but let's update a little here for you. We finished the last quarter with an order portfolio of BRL 231 million to be invoiced 3 last months of the year. And this portfolio accounts for a big participation of soybean because September and October, we see the crops of soybean. We are performing very well in the South because of the rain season. And in the Cerrado, there is a little delay, especially in Goiás because the rain season was a little delayed and not so constant. So great news. We keep using barter operations as one of the core lines of business of the company. We finished the month of September with 62% of our mix with barter operations. We have an advantage here because we do not discuss pricing, but barter exchange helps with the negotiation with the producer, but it helps a lot with our collection and line. We have great news, and Conrado will share with you at the moment of his presentation. But since we've been migrating our negotiations to that mode, it's great. So our net revenue is a little inferior to the last quarter of last year. And you have to remember that we had our full structure before the Judicial Reorganization here. There's an impact from the reduction of the size of the company, the impact in inputs and grain origination and billing of grains. We keep with the resale that prioritize sales of specialties, and it's 13% of our sales mix. And this quarter, we have a little less margin because we brought some liquidity in the inventory of specialties because some suppliers they left the company. So it allows us to make room for new suppliers, and we keep adjusting our structure. We are collecting everything we've done the first 3 months. And we have 69% less SG&A expenses when compared to the same quarter last year. So I had the opportunity to share with you last presentation some market overview. So we have an open market for soybean, especially for crop chemicals. This is Agrinvest information. We had 81% of the crop chemicals with 19% up to happen. So it's the biggest gap in the recent years. The market has been talking a lot, our competitors, too. This year, the producer waited to negotiate all the crop chemicals for their crops. Now -- so this is a different year, and it requests some additional in logistics because we need to have a replenished inventory to serve the situation. And we can see that in the South that now the rain season is back. So when the sun returns, we have to use that. And the off-season harvest of corn, you see the market in Mato Grosso. So it's about 55%, 60%. And we can participate in this market because many of the inputs are still to be negotiated. So talking about profitability for the producer, this is very, very important. So this delay in negotiations, this producers are very cautious because they're seeing a lower profitability when compared to the last years. So there was a little improvement in this profitability, 1 PP, but we're talking about 11%, 12% when it comes to soybean and 9% to 10% in this off-season harvest. What's important for us to see here in this graph, this off-season harvest is not an option. It's mandatory. When the profitability is slow, it's a complement for the producers' income. So we understand that there are some challenges in Cerrado because of the rain season, but there is a big potential for this corn market. And we cannot forget with the advent of using corn in ethanol production. There's a very big opportunity for the producer here. So the second harvest or the off-season harvest that we call, small harvest in Brazil, it used to be optional, but now it's mandatory in times of low profitability. So now Conrado will show you some numbers. And at the end, I'll return to see you a strategic view for the end of the year, and we are open for Q&A session.

Good morning, everyone. It's glad to be here with you today presenting some results. Some great news for you. We've been able to comply with the releases deadlines. We've been able to do that recently. So congratulations on that to the team. So when we compare the revenue compared to the quarter last year -- so last year, in Q3 '24, we had BRL 1.2 billion, almost BRL 418 million. It was a big reduction. But this BRL 1,400 million, it's aligned with what the company was expecting. because we had some cut out and it's a suitable number for the budget that we have over the year and suited for our now installed capacity. So when I look at the right side, when you see the gross profit and the gross margin, the delta compared to '24 is very relevant, but the gross profit is BRL 2.6 billion. It's still low. But when we look at the inputs for the margin, like the dotted light green line, when you imagine in a comparison to Q3 '24, it's very different. But when we compare to our projection under our Judicial Reorganization, it's a little below. But when we see the green box on the side, it's the gross margin in new products that we bought this year. So we had an 11.8% on average for all the inputs for the new inventory, it's not -- we exclude here cash sales in old inventories. So there is a slight volume to be done on Q4. So we keep selling the old inventory, of course, with a lower price because this inventory were bought last year, probably before the Judicial Reorganization plan. So they are within the plan. So the monetization of this inventory is very important for the cash because our cycle of cash is really good. So selling this inventory brings the margin a little down, but it makes sense for our cash. So the sales with the new inventory has a very good margin, and there is a very relevant part of about 10% of revenue that is cash sales. So it has a lower margin, but it doesn't get into working capital. So sometimes I buy in installments, but I sell in cash. So it makes sense per plan. So it shows that the company is performing consistently with a very good margin within our projections for what we see -- with what we call new sales. That's the majority of our portfolio now. And for the next quarter, [ we count ] a little more. So when we see 0.6% in margin, the grain operation that had a good volume in Q3 will have a bigger volume in Q4 and the grain operation margin will see now in Q4 because everything, the absorption of the cost of fixed cost is absorbed in Q4. So the grain operations will contribute to the margin in Q4. So when we see SG&A and comparing it with Q3, it's a big comparison. Because in Q3 '24, we had a very different size compared to now, but we had some results that were recognized and then we filed the Judicial Reorganization. But the most important thing here in this number of BRL 55.8 million excluding the provisions for expected credit loss in CLD, it shows that we've been reducing quarter-by-quarter our structure, especially in fixed costs and variable costs, too, but especially in fixed costs. Because when we see that BRL 1 in revenue doesn't mean BRL 1 for cash. So part is profit, part is cash. So BRL 1 reduced in SG&A is BRL 1 of profit. So we had this objective to show like entering next year with a structure of fixed costs reduced, and we could meet that plan, that deadline. When we compare with the revenue, it's not that healthy, but this is within the expectation we had. So it's natural that this expectation goes always better. We've been designing a new projection for expenses. We want to reduce cost and expenses. But when we look at the right side, you see the adjusted EBITDA and you see a big variation, it's natural. So we're going to see 2 slides further, the effect on this PE CLD future, and I'll give [indiscernible] on that later. So the main highlight here is the mix of specialties. So 13.2%, 2 digits. It's very, very high reduction on fertilizers. We've been operating with a big margin for fertilizers. And it's -- we have a big participation, a big share in seeds and crop chemicals. So it's a very, very healthy for Q3 '25. This slide, we haven't showed you before, but it's a very interesting slide for you to see. This is the default curve only for the sales that we would receive in '25. So the gray line is the same picture for '24. So here, you have some reflects from this new methodology of collection process -- of the collection process and new method for managing the credit portfolio of the company, and we are proud of what we are doing in the credit portfolio. It's natural that in March and April, you have a delay. And in September, we had a high level, this delay. But when we see that this number is coming down. So it's natural that in August, September, it goes up a little when compared. So this curve tends to be a little lower from the cross-selling pool, but we're very confident on this collection process. It's natural that we had some favorable wins. The producer had a good harvest with a good reasonable profitability, paid their bills, but we had a better credit portfolio and a collection and billing process better and added to our barter operations. It helps a lot. But when you see this provision for expected credit loss that complemented the EBITDA in Q3 '24, what we have provisioned for credit loss is about 40% is related to this curve billing that you can see now. Now the most part of that receivables is that [ portfolio of 4 ], those receivables. So part of this portfolio we monetized, part is being used as collateral in some operations, but the billing and the collection process attends this whole portfolio. So moving on. Lastly, this is the last slide for the financial results. We saw --- we showed that to you on Q2. That's just a slight variation. On the left side, we have some net obligations, not necessarily debt, but all the obligations of the company, reflecting our capital structure that remains. So we ended Q1 before -- the recognition of effects of the Judicial Reorganization, we had BRL 4.2 billion in net obligations. So that's the dark light part. It's like suppliers, accounts payable, the link -- the light green is some financial obligations and bank obligations. And on the right side, you see Q3 '25, BRL 1.8 billion. It's a very relevant difference. and BRL 935 million is accounts payable to suppliers -- BRL 995 million, I mean. And BRL 935 million is for financial structures. It's very important to show that the maturity for both obligations goes from 10 to 16 years, depending on what the credit shows under the plan. But this yellow box is a very important highlight, as we issued some debentures in 5 series, and we are expecting to issue a new debenture. The first was about some suppliers and financial agents. So we had BRL 917 million in debentures. And from out of those BRL 917 million, BRL 559 million are convertible into shares -- those debentures, I mean. So this number is higher when compared to what we said in Q2. So the most important part here is that the maturity goes from 10 to 16 years, depending on the category of creditors and BRL 559 million are convertible. So the creditor has to convert. But -- however, when we see the obligations in suppliers and loans, it's within this board in nominal terms. We don't recognize it as equity. For now, we didn't recognize this convertible. So we are following the CPC guideline. And in the future, we'll treat that as equity or equivalent. So for the financial results is that I'm open to questions later but now I turn the floor back to Eron.

Thank you, Conrado. Thank you for the explanation and the numbers. Let's talk about strategy and a panoramic view for the end of the year. So we show you again the map that I showed you 2 weeks ago, nothing too different. We are present in 9 states that are strategic states in our operation with 63 stores, 14 silos and 1 seed unit. And next slide, let's talk a lot about the 2025 landscape. So this market is a little lagged. You see that soybean is still open, especially for crop chemicals. So I believe a lot in the resupply, additional restocking because of the rain season. And because of the profitability of the producer and the effect of the 2 latest years, it's been a very big challenge. So we use a lot like from hand to mouth, but we understand that the producer is a little cautious. So it delays, it lags a little the decision of buying inputs in crop chemicals. So we see soybean as an open market. Obviously, the harvest is an opportunity. And we seek to reach the numbers that we planned under the Judicial Reorganization. We're not going to change our strategy and prioritizing clients with a lower default risk with best credit chances. So we are trying to lower the default rate. It's the focus on our strategy. So we're focusing on regions with lowest climatic challenges, and we're trying to be very strict in our credit portfolio. We have credit. Of course, it's a little tighter. We see that in the agriculture business. Everybody knows that. But we happened -- we waited, expected a little more credit limit, but we are trying to use that and the requirements from the suppliers is a little higher. We increased our requirements too. But the reality is that even having a credit, it's very -- we need some guarantee. And in the previous harvest, we had 20, 30 days to formalize the collateral. But it was a traditional way because the producer waits to buy later. And then you -- as a consequence, you buy later. So you have some bottlenecks that is the collateral authorization. But still, we are fulfilling our commitments with the producer. We sell with margin. We sell to people that have a better rating. But of course, we sell only what we can deliver, and this is our commitment. So the last minute buyer because the competitors couldn't serve them or because they couldn't find credit, even if we screen and approve that, if we can't deliver, we can't sell we've been doing that because of the logistics bottleneck due to this delay in negotiations. So this year-end closing is directly linked to the ability to meet demand for restocking. So -- we are -- our inventory is replenished in South where the restocking is very important, but everything depends on the off-season harvest. And the main variable that we've been monitoring is the rainfall season. It's delayed in Goiás and in the [ Minas Gerais ]. So that's the reason why the off-season harvest is still waiting to the site. But we are connected to serve and attend the necessities of the producer. And because the off-season harvest is not optional anymore, it's mandatory for the producer to balance the impact lower profitability this year. So the last pillar here is efficiency and adapt our structure to be a little leaner, a little more agile. We are focused on that. So we could reach that at the end of September. We got a level of fixed cost that we expect only to 2026. It doesn't mean that we are stopping here. We are still improving. We want to go to BRL 3.5 million reduction from '26 on. Because we understand with the improvement of our processes, we can have this extra cut in the expenses, and BRL 3 million reduction per month is a BRL 3 million margin for EBITDA that we can bring home. So this is what we wanted to share with you for market overview and strategies, and we are open to the Q&A session.

[Operator Instructions] There's a question from. I will read. So it's from [ Fabus Graby ], investor. I'm an individual investor. How much in this reduction for those obligations come, in fact, from payments from operational generation? And how much of that comes from default negotiated under the Judicial Reorganization? Is it obligation, maturity or compulsory extension to the creditors?

When you compare Q3, there is a little amortization because, of course, we had some amortization and suppliers, but the majority, I would say, a little over 95%, it is due to the readjustment of our payment structure under the Judicial Reorganization. So there is some extension in the terms. And every condition that brings a tax benefit against market, every asset and liability in long term has to be brought into present value. So you have a benefit from the Judicial Reorganization. That's what we call haircut, but there's also a benefit in terms and rates against market conditions. What we cannot -- we didn't present there is every -- all the convertibles from debt into equity, it's under obligation, but it will move from net obligations to equity in the future.

[Operator Instructions] Our next question comes from [ Gustavo ], investor.

I have an investment called CRA with AgroGalaxy that is due to September 17, '27. Is it possible to receive the value?

[indiscernible], [ Gustavo ], the CRAs or reprofiled as any other obligations that the company has under the general credit portfolio. So every creditor that participated in our receivables due that we were selling to third parties under the organization. So the investors and the creditors of CRA will receive the nominal value of CRA 2 years of maturity and 8 years of amortization and plus the additional capital, there is an upside depending on how this portfolio performs. But if you didn't participate into this additional investment, we received the best value, if I'm not mistaken, in 3 years, plus 13 years of amortization. So there's a haircut there.

The Q&A session has concluded, and we would now like to hand over to the company for final remarks.

Thank you. Thank you very much. I saw some names here. So the picture that we present here is a common picture in the market. The steel market influenced for the events of '23, '24, but we could get back on rails, and it means that we are focused on a better mix. We've been working on reducing expenses and act under -- on the working capital to readjust our inventory to reduce it a little and our receivables to default rates that are healthy. So working on the last quarter of the year, we are focused on attending the final of the harvest because we see some opportunities, especially in crop chemicals. And we want to participate in the off-season harvest because due to the rainfall season, it will be the complement of the income of the producer.

Thank you once again and have a great week. Good morning, everyone. The video conference for the disclosure of the results for the third quarter of 2025 of AgroGalaxy Participações S.A. under the Judicial Reorganization is now concluded. The Investor Relations department remains available to address any additional questions or concerns. Thank you all for participating and have you all a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]