Ambipar Participações e Empreendimentos S.A. (AMBP3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Ambipar's earnings call for the second quarter of 2024 -- 2025, sorry. We have Mr. Joao Arruda, the CFO; and Pedro Petersen, our Investor Relations Director at Ambipar. We'd like to let you know that this earnings call is being recorded, and you can replay and listen to the recording on the company's Investor Relations website. [Operator Instructions] Before we proceed, I want to remind you that certain information in this earnings call can have projections or forecasts on future expectations. Such information is subject to risks that are known and unknown that could make certain expectations not become concrete or be substantially different than what was expected. Now we'll pass the floor on to Mr. Arruda as he begins the presentation. Please, Mr. Arruda, you may proceed.

Dear investors, welcome to Ambipar's earnings call for the second quarter of '25. We ended the semester with relevant advances even despite a scenario of high interest rates and more moderate economic activity. The period maintained a trajectory of operational consistency, growth in the volumes of treated waste and in the provision of industrial services. We continue to integrate our environmental services platform, focusing on the quality of customer service and financial discipline. For the fourth consecutive quarter, we've maintained stable leverage, closing the period at 2.5x net debt to EBITDA. Now we'll move on to the quarter's highlights. The net revenue was BRL 1.8 billion, a growth of 25.2% compared to the second quarter last year and an increase of 1.8% from comparing with the first quarter of '25. We reached an EBITDA of BRL 585.7 million, an increase of 34.2% versus the second quarter of '24 and 6.1% compared to the first quarter of '25. Our EBITDA margin reached 33.1%, which was an expansion of 2.2 percentage points compared to the second quarter of '24. Our operating cash flow reached BRL 431.9 million with the cash flow before financing, which considers operating cash flow discounted from leases, CapEx and acquisitions of BRL 103 million. Our operating ROIC, excluding intangibles, reached 28.8%, an increase of 0.6% and our consolidated leverage was stable, reaching 2.56x net debt-to-EBITDA. Besides this, our average term ended at 5.3 at the end of the quarter. And these -- and the ramp-up of the industries continued to contribute to these excellent results. On the next slide, we'll approach the operational KPIs, and then we'll get into the results. And in Environment, the volume of treated waste grew 64.9% with a highlight of specialized handling and metals, also levered by contracts in the mining sector and also Scrap Metal Capture segments. We maintained a volume value almost 4x greater than that for the final destination. And our consolidated average ticket increased 6.3% compared to the previous year. On the next slide, we'll show you response results and our utilization rate of labor reached 81.3%, an increase of 15.7% in regards to the second quarter of '24 and slightly above the previous quarter. This raised the revenue per employee to BRL 113,000, as you can see on the center of the page. On the right side of the page, you have the mix of revenues being concentrated as subscription and field services, representing almost 99% of the total revenue, which reinforces the predictability and the resilience of this division in the business. Now let's move on to the next slide. We reached a consolidated net revenue of BRL 1.8 billion in the second quarter of '25, which grew 25.2% in regards to the same period last year and 1.8% compared to the previous quarter. In the half year comparison, we grew 30.9%, reaching BRL 3.5 billion in net revenue. As you can see, Environment was the subsidiary that most contributed with the growth in the year. Despite this, the response team continues to work in different geographies to accelerate growth and especially in North America. Now we'll head to the next slide where we will talk about our EBITDA and the margins. The EBITDA in the second quarter of '25 reached BRL 585.7 million, representing a growth of 34.2% compared to the second quarter of '24 and 6.1% compared to the previous quarter. In the semester, our growth was even greater. We had growth of 40.3% compared to the previous year, reaching a consolidated margin of 32.4%. The margin also performed satisfactorily, and this was basically supported by 4 factors: greater contribution from Environment, which valued metal waste, sold carbon credits from reforestation and expanded specialized handling of materials, all services with higher margins. Then secondly, the best international performance in response, initial efficiency gains from the Connecta project and integration of people. And finally, some work that we began to perform for contractual and price adjustments. On the next slide, we're going to talk about our net income. In this quarter, we had a loss of BRL 134.1 million. And in the first half of the year, we reached negative of BRL 210 million. We believe that the most appropriate comparison would be the half yearly one, where we present certain stability about higher financial expenses, which is an indication that the efficiency in organic growth should have compensated for the higher financial burden. Now on our next slide, we're going to talk about our CapEx. This quarter, we were able to keep a strategy of centralizing our investments in equipment and vehicles in the holding to expand scale and improve negotiations with suppliers. In the quarter, our CapEx reached BRL 271.9 million, which is influenced by the anticipation of purchases to ensure price and availability. In the first half of the year, our CapEx as a percentage of our net revenue was 13.3%, a level that is closer to our historical average. Let's move on to the next slide now about cash flow. So our cash flow before debt services, as you can see on the right side, was BRL 282.3 million in the first half of '25, which is BRL 161 million above the first half of last year. So we saw cash conversion growth, and this will allow us to close the gap for cash generation to handle the financial expenses. And once again, our integration and efficiency efforts are going to be super key in this process. Now let's move on to the next slide where we can talk about the level of debt. So we were able to keep our leverage relatively stable with a slight increase from 2.5x to 2.56x. We're going to continue the deleveraging process, seeking to operate with even lower levels of debt, cutting down costs and prioritizing investments that can generate profitable growth. In a high interest environment, we're pleased to maintain stable leverage, relying only on operating cash generation. Now we'll head to the next slide to talk about our debt profile. So in this quarter, there were no significant issuances or amortizations. We had an extended debt term of over 5 years, and an index based on CDI, mainly. Our robust growth with ongoing cut on costs and eventual interest rate cuts should lead us to cash generation growth and possible potential deleveraging. Now we'll head to our last slide, where we can talk about our strategy, which is focused on 5 main pillars: our teams, governance, integration, financial discipline and clear communication. As a team, we've been increasingly in tune and focused on generating results from operations, our service -- our shared service center and also at the corporate level. I want to highlight reinforcements in the governance, health and safety teams that have really raised our level. In governance, we've been implementing a global hotline, which is the highest standard to guarantee that what's right is practiced in all geographies and positions. In regards to integration, we're really happy with 22 incorporations of entities that took place up until June this year to have more efficiency in our tax processes and integrating processes and functions. In financial discipline, we kept our leverage stable and we were able to standardize our performance assessments for managers based on cash flow generation. Now in communication, we've been talking more, but we've also been listening more. And in our roadshows with investors, we've heard from the market about the importance of remaining focused internally and evolving in our governance. Both of these agendas are priorities for the company. In '25, we've seen more challenges than what we expected. Tariff and political disputes, uncertainty in industrial activity and higher interest rates, which are all obstacles that we're going to overcome anchored by our solid business model. We remain committed to strengthening Ambipar and generating sustainable value for shareholders. I also want to thank our employees for their daily commitment that makes this all possible. Now I'll open up for Q&A.

Now we'll begin our Q&A session. [Operator Instructions] And this is for -- our next question comes from Andre Ferreira, Bradesco BBI.

If you could talk about the savings that you expect that the reorganization may?

Andre, this is Pedro. I just want to recap here and talk about the corporate restructuring with the acquisition of shares from the minority shareholders in our operational subsidiaries. But this is a transformational movement, and we've been very excited about this. It effectively transforms Ambipar in a partnership, aligning everyone is considered key to the delivery of our results. We've already seen a major difference ever since the announcement in the alignment, team spirit and with everyone involved in the reorganization. Now the team involved has already been participating in relevant projects that are essential to our journey for integration and cash generation. And here, I'm talking about process revision projects, personnel efficiency where we review responsibilities, merits, eliminate exceeding amount of people in certain positions. And so these are all units that are going to be incorporated, merging the same tax ID, which should lead to tax savings as well, sharing fleets also of customers. And when you add up all of these effects, it really is very relevant how we've been seeing this internally. It's just important to highlight that we're still completing some documentation and approvals in this process so that we can complete this corporate restructuring. But within our strategy for the completion of this process, even despite financial expenses, it's a real essential and transformational move for the group.

If I could also add on, Andre, thanks for the question. The first step and the first big lever for value creation here and gains should come from this project that focuses on accelerating the reorganization of the companies we already have as we've seen up until June this year, we performed 22 incorporations of tax IDs -- corporate tax IDs all in Brazil, what we call the CMPJ. In Brazil, we have 180. We've already done 22. So we're able to accelerate this process prior to this reorganization, but we should accelerate this even more with the speed of the incorporation once we complete this process. So as Pedro mentioned, we're still in this completion and closure process. Now that's the first big value lever, then we would be able to generate fiscal savings as these numbers become more material, we'll be able to provide this to the market. If you look at last year, our tax expenses and what we spent and what we should end the year with due to this reorganization and the savings is really material. This is an important number. We're not going to bring this to the market because we don't have the final number yet. But as you all know, we've been supported by CWC in this process. It's an important vertical. The next vertical that will also enable significant gains in this process, as Pedro mentioned, is the elimination of roles and positions that have 2 people doing the same things, basically. Personnel is definitely an asset, but also a big cost weight. So we need to search for synergies whenever we can and capture these. And that's another vertical we've been looking at carefully in detail since this process is ongoing. And finally, one thing we've been also looking at is equipment allocation in different verticals. When I had the minority shareholders, this was a challenge in the process where you naturally would centralize the use of equipment in the group, but that's mainly due to the guidance that's been coming along, and we've been now able to allocate this in a more centralized manner. So that brings in important gains. And as we advance, we'll share this information in the market. And finally, the centralization of other relevant costs, procurement and supplies in a more centralized manner, something we're looking at carefully with a big focus. And once we've completed this process, Andre, we would then provide more clarity from a financial perspective and the numbers also. So these should be the big value creation levers as well.

Our next question is also coming from Mr. Andre Ferreira at Bradesco BBI.

What do you imagine will be the leverage curve in the end of '25 and '26?

Andre, I think it's important to give you a broader perspective about the last exercises in the company. We've been really focused on this in-house and our cash generation efficiency projects with the goal of reducing leverage through the different strong points we have and cash generation of the business itself. So if we look at 3 or 4 quarters back, as presented in our presentation, we've been reducing our leverage in this longer term. And more recently, with the interest rates as we grew a lot over time, we incremented the company's debt level to be able to handle this growth. We have been paying higher financial expenses. But basically, in the last quarter, we had a bit of stability in this metric. And that is what we've been working on now, and we consider to be satisfactory if we look at substantially higher financial expenses than what we had last year. So the company's cash generation and the EBITDA growth has allowed us to keep a pretty stable leverage.

Now if I could just contribute to this, Pedro, when we look at this result, we see it was very successful, and this is a reflex of the work we've been doing and these efficiency projects as well to bring in more results for the group before the debt service. So if you look at this, Andre, you'll see in our free cash flow before our debt services in the first semester last year compared to this year, there was an increment of BRL 460 million. And what this means is if you look at our EBITDA for the first half of the year last year before the debt services, you have a metric of 15% cash conversion as we call it. In the first 6 months of '25, the cash conversion went from 15% last year to 25%. So of course, we've been working on this and this is not Ambipar's privilege exclusively, but we're facing a more adverse interest scenario. We're all in this scenario, and that has kind of eaten away from these gains, and we've been delivering this in the financial services. So we looked at the historical results. And that's not only for this quarter, but the last 4 quarters with very stable results. So we should be very close to the history.

Our next question comes from Mr. Andre Ferreira at Bradesco BBI.

Could you guys talk about the increase in the CapEx and net revenue in the second quarter? If it was a one-off or if you -- and what you imagine will be the recurring number for 2025 in the second semester in 2026?

Andre, Pedro, once again. We have some different contract engagements going on that take this CapEx a little upwards, let's say as well as we -- you'll see that we performed more CapEx through the holding because we've been trying to have this strategy to centralize our procurement to negotiate with greater scale and provide predictability to our suppliers and of course, providing more predictability with a more clear partnership and higher volumes and better prices as well and savings for Ambipar whenever we buy vehicles in our overall fleet. So basically, we've noticed -- we've been working on this efficiency route in investments as well. But in this quarter, specifically and in this process, we have anticipated a few procurements with 2 suppliers specifically due to these processes with our contract and renewals in our fleet. If we were to exclude these accounts, we'll be talking about a CapEx level that's relatively similar with the previous quarter. So we continue to be very focused on keeping our investments with a level that's more similar to the recent history. And when we occasionally have this increment, we transition to the holding and structure this segment with more scale and predictability with our suppliers. So just to add on here, this is a bit of the result with the integration and also bringing in a bit more predictability in this process for equipment acquisition. So in this quarter, we have a one-off effect with the centralization because we had 2 purchases with important suppliers, but in a more centralized manner for different verticals in the group. Prior to this work was reorganizing our shareholding structure, as we mentioned previously, the idea had been to bring in more safety, better cost conditions, not only for CapEx. As I mentioned, it's an important project, but also for different initiatives with purchases of tires, energy, maintenance. And this is the new guidance in the company and so that's just to share a bit of the results in the quarter. We should really be pursuing this and what we've been communicating with the market in regards to our CapEx for the year.

[Operator Instructions] Our next question comes from Mr. [indiscernible] Securities.

Could you explain what is driving CapEx intensity for both the expansion and maintenance in 2025 with CapEx reaching 13.3% of our net revenue in the first half of '25 versus 9.5% at the first half of '24? What would be the CapEx guidance for investments in '25? And do you expect to have a free cash flow that's positive after cash interest for 2025?

Thanks for the question. I think we've covered CapEx a bit in the previous question. But just to highlight this a bit more, we expect to and have been working on keeping historical levels. So we don't provide guidance as a company policy, but it's what we've been working on a lot. So just this quarter, we had this increment when it comes to centralization and efficiency, and this can happen. But if you look at longer horizons, the trend, we've been working towards is to keep up with the historical levels. So in regards to cash flow, 2025 is still a more challenging year. We've been handling a peak of interest rates where our debt is exposed, our bonds are hedged according to CDI, about 90% of our debt is indexed and we had an increment that was very significant for financial expenses. But with all of the efficiency projects we've been working on internally, we hope to have a stronger year throughout 2025 and especially if we have a reversal or reduction in the interest rates in Brazil.

[Operator Instructions] Next question is from [indiscernible].

Could you talk about the evolution of our response margins in North America?

Thanks for the question. We're excited with North America. And it's important to remember, we have new leadership in the region that's been working in that market for 20 years with a lot of proximity with the port sectors, infrastructure sectors, refining, oil and gas. And so more and more, we've been working on this and grown our pipeline of contracts in these sectors. Our view is that from now on, we'll really be commercially successful in more long-term contracts in the region. Then in regards to margins, naturally, when we grow our revenue, the region will have scale gains, and that should also lead to healthy margins. In this quarter, specifically, we had a bit more of nonrecurrence. You can see there was a bit of a reversal in the expenses, which is why we're above normalized levels. But if we look at contracts and what we see as healthy operations in that region, we should consider historical levels that are in line with peers in the region. We would be talking about double-digit levels, however, below what was achieved in the semester.

[Operator Instructions] The next question is from at [indiscernible] Securities.

Do you imagine any negative or positive impact in both areas in the company? Any increases in acquisition costs or operational expenses, some impacts in revenue generation or gross margins?

Thanks for the question. Our company has a characteristic of being a service provider, protecting our customers environmentally or from a labor safety perspective, and that's a very unique characteristic of our business. So we don't have that many transactions, let's say, among or between countries. We don't export that many services or equipment and we provide services locally. So we don't expect substantial impact of the tariffs in our business. But we also don't expect increases in cost of supplies or operational expenses because these are mainly equipment fleets, vehicles, and we haven't seen significant inflation of these goods. And these operational expenses are really connected to personnel. And so in these initiatives, very little impact. And generally speaking, that's what we've noticed. But in regards to the revenues or margins, when we consider our characteristic of services, capacity in all of the different sectors, this is a demand for services geared towards sustainability, waste management, recycling, environmental compliance, cleaning, industrial cleaning, maintenance of facilities and monitoring. So we have a lot of diversification geographically in services. So at this moment, when we see like some customer sectors that maybe have variations, demand, but once again, there hasn't been relevant impact in revenues or margin.

[Operator Instructions] The Q&A session has ended, and we'll pass the floor on to the company for their final remarks.

Well, to wrap up, I want to thank all of the Ambipar employees for contributing daily to sustainability and safety of our customers and the overall society. The earnings call of Ambipar is officially ended. We want to thank you all for your participation, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]