Armac Locação, Logística e Serviços S.A. ($ARML3)

Ladies and gentlemen. Welcome to Armac's conference call to discuss results regarding fourth quarter 2025. This video conference is being recorded, and the replay can be accessed on the company's website, ri.armac.com.br. The presentation is also available for download on the platform. [Operator Instructions] We would like to inform you that the presentation is being recorded and translated simultaneously. The translation is available by clicking on the interpretation button. [Operator Instructions]. Before proceeding, we would like to clarify that any forward-looking statements are based on the beliefs and assumptions of Armac's management and current information available to the company. These statements may involve risks, uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists must understand that events related to the macroeconomic environment, industry and other factors could cause results to differ materially from those expressed in the respective forward-looking statements. Joining us today are Mr. Fernando Aragao, CEO of Armac; and Marcos Pinheiro, CFO and Investor Relations Officer. Now I would like to give the floor to Mr. Fernando Aragao, Armac's CEO. Please, Mr. Aragao, you may proceed.

Good morning, everyone. Thank you very much for attending our conference call to discuss the results of 2025. 2025 was very important for the history of our company. We are facing a very healthy environment with high interest rates. And for all the companies that make investments is a very challenging scenario. With all the work that we've done this year, we ended 2025 with the company positioned not only to face the challenging scope for a number of companies, but also to take advantage of it by growing and consolidating in the market when it's more profitable, when the companies of our sector have no capital. And this is a very challenging mission for our team has been working hard to deliver those results. And the journey that started in 2024 and went all the way through 2025 in order to position the company for this position and return the growth in a more smart way with quality went through 3 important pillars. The first was an adaptation in the way the decisions are made at Armac, especially those affecting the clients. So it's a management model that evolved to be more autonomous for those who are close to the client. So that the decision-making process can be more similar to a small company. It's a long work, but we ended 2025 with a level of maturity very -- the second one was a poor view of our commercial aspect so that we ended 2025 with relationships and operating where we can generate value to the shareholders and to the clients. The other relationships where we do not have this mutual positive relationship were left behind, so as to say. And important lessons were learned along the process, making the company ever stronger for the future. And the third major pillar was to build liquidity to our assets to have a net balance and that had to be driven by the entrepreneurial spirit of the company. In a very fast way, we created a new network of -- some new assets with thousands of relationships that were established for the people who are looking for those products, and we ended 2025 looking at our balance sheet with a high level of liquidity where we can use our assets to recycle capital and restart a new growth cycle. This work has already led to important results. So we see that EBITDA margin is back to the levels of 50%, which is something that we went after when the company was still small. That is the same to say that we are in addition of small company. So we are back to that margin level and cash generation was also very strong. That made us very confident to start in growth as of the second half of last year in quality in a very responsible manner. And this is something that has already materialized. So we are consolidating our business units where the unit leaders are those responsible for the origination of opportunities. And also in relation to integration, where we developed a very proper playbook. And we also started to generate growth. So we have to have the recommendation by clients to applies. 2026 promises to be a very good year for the company. We are going to see the results that we started with initiatives in 2025. So we are going to have a robust cash generation. In addition to rent cash generation, used car sales will also be very relevant. And -- so the cash will be lower than what we saw in the previous year. So the 2026 is positioned to generate good cash. And the cash will be used to pay the shareholders using the exemption of income tax and also deleveraging and also growing the growth initiatives that we have seen use less of our own capital than the previous cycle, and this is likely to improve the returns in the years to come. In summary, it was a great year. We end the year very happy, very proud of everything that everybody has done. I'm very proud of the team that we've built. It's a high-performance, diverse team that really embraced the idea of being the owner of a small company and how the responsibility to the decisions. So I would like to thank everyone who were with us along 2025, and I wish that 2026 can be even better. With that, I turn the floor to Marcos so that he can discuss the results.

Thank you, Fernando. Good morning, everyone. Thank you for participating in Armac's earnings conference call for the fourth quarter of 2025. We ended 2025 in a substantially better position than when we started the year. We did what we set out to do. We reviewed our customer portfolio. We improved our margins, generated record cash flow and still managed to invest in fleet renewal and growth with 3 acquisitions during the year. In the next slides, I'll go through the main figures outlined, and then we will open up for questions. So we will discuss the highlights for the fourth quarter. Gross revenue was BRL 541 million in the quarter, a quarter -- a growth of 4.4% compared to the fourth quarter of 2024. Rental revenue was BRL 420 million. Yes, a 5% decrease compared to the fourth quarter of 2024, reflecting the termination of contracts with returns lower than the cost of capital throughout the year. But that's exactly the point we'd like to stress. We are waiving over BRL 200 million in annual revenue in favor of greater profitability and larger cash generation. Sales of preowned assets totaled BRL 111 million in the quarter, more than the double of the fourth quarter of 2024, representing a growth of 141%. Today, our network of used car dealerships already has 18 locations and is without a doubt the largest network in Brazil. The operating management cash flow was BRL 106 million in the quarter and more than BRL 950 million in the year. Moving on to the next slide about fleet and capital. Our rental fleet ended the quarter with over 2,500 pieces of equipment. Here, I always like to emphasize that we operate a multi-brand and multidisciplinary fleet, which reduces our risks and ensures good liquidity for these assets. In the quarter, we carried out BRL 344 million in CapEx with BRL 192 million allocated to expansion CapEx, BRL 90 million for fleet renewal and BRL 45 million in maintenance CapEx. Moving on to revenue. We ended the year with over BRL 2 billion in revenues, a 5% increase compared to 2024. The highlight here is the strong expansion of asset sales revenue, over 140%. Regarding the mix of our rental income, long-term contracts accounted for more than 76% of our rental income revenue. As to EBITDA, in the fourth quarter, we had rental EBITDA of BRL 188 million with a margin of 49.5%, an increase of 5 percentage points compared to the fourth quarter of 2024 and very close to our perception of where the market should be in a sustainable way. As a reminder, around 50%. Moving on to the next slide, we will discuss our ROIC. The annualized adjusted ROIC in the fourth quarter of 2025 reached 17.2%, an increase of 4.1 percentage points compared to the first quarter of 2024. The ROIC spread of the period was 6.5 percentage points. Moving on to the next slide, we will discuss our operational and managerial cash flow. This slide presents the reconciliation of our operational management cash flow. Based on the EBITDA and excluding the noncash effects on the cost of write-offs of assets sold, we generated an EBITDA of BRL 289 million in the fourth quarter and more than BRL 980 million a year. Throughout the year, we invested BRL 402 million in fleet renewal and infrastructure projects. After the accounting of the cash effect of our financial results, Armac generated BRL 393 million in free cash flow for the equity this year. Of this amount, we are allocating BRL 282 million for expansion CapEx, BRL 23 million for M&As and BRL 30 million for dividend and interest on equity payments. At the end of the period, Armac's net debt was reduced by BRL 56 million. In the next slide, we will discuss our indebtedness. We ended the year with BRL 1.4 billion in net debt. Leverage measured as net debt over EBITDA was 2.36x, a decrease of 0.13x compared to the third quarter of 2025. Our cash balance of BRL 1.1 billion covers amortization up the fourth quarter of 2029. As a reference, the average cost of our debt is CDI plus 1.1% with an average term of almost 5 years. Before moving on to the next question session, I would like to make our vision for 2026 clear. First, we will invest only where our incremental returns exceed our capital cost. We will preserve profit margins and working capital. We will integrate the acquired companies with discipline and humility. We will move forward with the leverage in the company, converging towards a ratio close to 2.0x for expanded net debt to EBITDA. With this message, it's clear we are ready for the next successful growth cycle. Thank you, and we can open up for questions.

[Operator Instructions] Our first question comes from Mr. Matteo Santina with Bradesco BBI.

Congratulations on the results. I have 2 questions on my side. First, I would like to understand a bit the variation in the account of suppliers. I can understand that it's a very favorable scenario for purchase conditions. But I would like to understand the one-off of BRL 14 million related to the cost write-off -- also anticipated expenses by the demobilization of clients. These are my 2 questions.

Thank you for the questions. Let me start discussing the supplier, which is a very relevant topic not only for the fourth quarter, but which will also will be very important for 2026. As you know, Armac has a very constructive posture in relation to our equipment suppliers. Our scale is unbeatable, and we started to work in a very active way in the past year so that we could accommodate or better say in alignment with those equipment suppliers in such a way that today, we can make adjustments to the payment terms with many suppliers according to the cash flow generated by the operations and the agreements according to the equipment, which is being acquired. In an objective way, we can see the results of the first phase of the construction that we started in 2025, which is to use Armac's structure and it's spread, its broad operation so that we could work with those suppliers who have a very strong balance. In relation to your second question, the one-off write-off. This is what we refer as to cost of preparation of assets or agreements. If we go back to what happened in 2025, you will see that we went through harsh moments where we had to terminate some operating agreements. So the company had about to BRL 200 million, BRL 250 million annual in revenue with those agreements. And these relate to some equipment that was prepared and everything was recorded as anticipated expenses that would be in the line of other assets in the balance sheet. At the end of the year, we cleared all this out, considering those contracts that were discontinued. And they had a formal termination that were accounted for still in 2025. The BRL 40 million effect that you saw relates to anticipated expenses that if the agreement had not been anticipated the termination, it would have been recorded differently.

Our next question comes from Mr. Ruan Argenton with XP.

There are 2 topics I would like to approach related to margin. The first one is in relation to the rental margin. I think you managed to have a level which was very close to the third quarter even with the seasonality effect. I think it was lower than this year. I would like to understand how you saw the rental margin from the third quarter to the fourth quarter? And how do you see this margin behavior for the future? Do you think there is any seasonality effect that could impact those results. And I would also like to understand what are the levels that you expect for 2026 considering that you're expecting a level of growth over the year? My second question is related to used cars, used equipment margins. You had sales of assets which were non core and that impacted the margin, as I understand. I would like to understand how -- what can we expect in terms of noncore assets? What are your expectations? And what are the prospects for the sales of used equipment for the future.

Okay, Ruan, perfect. Thank you for the question. So I'm going to talk about the rental margin first. In fact, we are very happy when we can see that the efforts made during the year allowed the company to deliver in its core business margins very close to the expectations that we have disclosed to the market. And considering the interest rate at 15% or so, the company is being able to generate the resources necessary for the growth. And we understand the EBITDA margin has to run at about 50%, as we said. This 50% we come across as a result of a lot of effort. As we said in the beginning of the call, we reinvented our positioning with our clients. We have a very proactive attitude by our operating officers who are working very close to our clients. And there was also something that I mainly -- showing the evolution of our NPS. The proximity of the clients, this agile management model. This drives higher satisfaction. And then this is translated into this financial indicator, showing that the model is right. And this is what we see in the revenues. When we have a company where we have 76% of agreements that would generate a very high visibility of rentals of a company. And sometimes, we see a high level of disallowance and that affects the results. So we are very happy to say that whenever there is something similar, we are going to use the same approach. I think there are 2 graphs that reinforces the message that the management wants to convey. In relation to the seasonality, I think that what we have been doing and what we are going to continue doing is to be placing our bets on acquiring more clients, diversifying our sources of revenues. Along our history, we learned that it's great to have major clients, but we can have a higher level of returns or higher levels of satisfaction with smaller clients, even though we love all of our clients. But diversifying our source of revenues is essential so that we can have higher control and lower the operating risk of the company. As the revenue becomes more diversified, the seasonality tends to be mitigated. We made acquisitions that would spread our operations in other areas of Brazil. So when we go to the Northeast region, we have behaviors of rainfall which is the opposite in parts of the country. So as a result, this involves a lot of work. There is no silver bullet. And what we expect for 2026 is what you saw in the previous quarter. We are going to continue quality of services. And we want to reach a level of return higher than our cost of capital, right? Your second question was related to used equipment margin. So in the previous quarter, we sold noncore equipment. And so in an objective way, we are mentioning some supporting vehicle that the company used to have, and half of the fleet was sold in the fourth quarter of 2025. And part of this will be accounted for in the results in the first quarter of 2026. All of them have been sold, though. But the objective is to allocate capital. And the assets that we know how to manage and where we can generate returns to our shareholders. And for sure, we are not talking about light equipment fleet. Looking down the road, in relation to our used equipment portfolio, we are very proud to say that we created the largest network of -- this kind of store in Brazil. We have 18 units. I think we are at the right side and we are likely to end 2026. This is our plan to end with 36 stores. Considering the structure of the company, we have a strategic pillar that provides flexibility for us in a way that we can be very close to our assets considering the age of our fleet. And once again, being very close to the demand that our Brazil has. The margin of the quarter was not only impacted by the sale of noncore assets. But we have to consider the fixed cost associated with the increase of this network of stores. At the end of the day, we are talking about 7 new stores that incur some fixed costs naturally, but they need to have some expenses associated with the beginning of the activities, inaugurations, promotional trade fairs, participation in events, and Fernando also mentions this to the team, all the managers of those units are considered small owners of companies within our platform. The managers of those stores have the autonomy to go after the best clients and to develop a more local communication. So the idea is that we should create the best of the 2 worlds. Flexibility on the one hand and the benefit of being in a platform that has a high level of scale and has a very solid supporting area. I hope I answered your 2 questions.

Our next question comes from Rogerio Araujo, Bank of America.

I have 2 questions on my side. First, as you mentioned, the gross margin of used equipment is affected by the mix. But there is the SG&A that is likely to increase. Should there be an increase in the depreciation of the vehicles, so as to be aligned with the SG&A expenses. This is my first question. Then I'll come back for my second question.

Thank you for the question, Rogerio. The plan includes an expansion of both stores, of course. And this is the message that we have been delivering in a very consistent manner along the 18 years. When we think about the store, and we have our footprints across Brazil. We consider the markets that would make -- whose demand would make the sales of used equipment, about 2.53 million a month. So it's a scenario that comes from BRL 800 million for the year until BRL 1.1 billion of sales a year. If I have this number of stores, 32 stores producing in 12 months, of course, there is the ramp-up period, and this is something you mentioned in previous calls. But it's important to mention that when we open a new store, it takes at least 6 months for the store to reach its maturity. And the manager, our entrepreneurial partner has to understand what's happening, how he can develop his client portfolio. So there is a period of maturation. And according to our experience, it lasts about 6 months. You asked about how we're going to make the adjustment to depreciation. The depreciation is also what reflects the recoverability of our assets. So if you remember, in the fourth quarter of 2024, we made some adjustments of depreciation because of some parts. But talking about used equipment, we have observed that the value at which we sell the part of the fleet has been higher than the residual value. And that makes us believe there is a level of comfort in relation to the depreciation along the way. So we have 18 stores. The beauty of it is that we are making our own CP table, our own list of prices. So I have a clear perception of what would be the market value of that fleet considering my size. But if I have to say, what's the expectation that we should have for the margin for used equipment. The used assets margin should be between 3% to 5% because the EBITDA of this business should be close to 0. The way we understand our strategy nowadays is to help the company to recycle its company and have a fleet that is optimized according to its average age and makes it handle different scenarios. If you remember in the beginning of the year of 2025, we are very concerned about leverage and the interest rates and as this model was maturing and we saw the cash results, the company started to notice that maybe there is a better potential when we use the used assets as something strategic for the company and leverage its strengths with our clients and with our suppliers as well.

Thank you, Marcos. That was very clear. So I understand -- this is Fernando speaking. Before you ask your second question. Let me add to what Marcos said. The accountability viewpoint, we are going to go about with the depreciation as we should that we can have a margin close to 0 at the moment of sales, and we're going to discover this along the time. We have just created this way of doing business -- do not have a list of prices, but we are beginning to create volume now. The way we see it as managers, what really matters more than depreciation is the difference between the value selling used asset. And what's the delta for reposition. We call it delta CapEx. How much money do I have to invest after I sold a used asset so that I can replace it with a new one. So of course, it depends on the model the year of equipment. And the trend of this variable from the viewpoint of cash is the difference between what I said and what I purchased. It shows us to have a very favorable trend, considering the cycle we are experiencing now. So regardless of what the accounting depreciation is going to be the message that I can disclose to my business partners that we are purchasing very well, and we are replacing old assets with new assets with a very small difference, if any. Sometimes there is not even any difference at all. So this is what matters. The depreciation is in relation to the price we paid. So depending on the businesses that we closed with different partners, at the global level, we are replacing the fleet with very low investment. This is something that I would like to draw your attention to from the view point of cash. This is the variable that matters.

If I could ask a second question. It's just a confirmation of 3 points. If you could provide more details about them. In relation to vehicles, you said it's a market of 70,000 machines, we have 3 points of shares. That would be 70% of the fleet of the company. So if divide 1 by 70%. So that would be an average cycle of 6 years. Does this number make any sense to you? This is my first point. And the second point is the ISR positive of BRL 27 million. I see that there is a line of others, and it's related to interest on equity and also depreciation and SG&A. It was just BRL 1 million. And in the previous one, I saw it was BRL 9 million. So what was the difference. What did happen? And what can we expect for the future?

I'm going to answer your first question in relation to the useful life of the machines. The beauty of what we have is that we are a company that can operate old machines as those that we have in the fleet. It's just a matter of finding the right clients, the assets. And we are also looking at the favorable moment so that we can use our fleet in the best way. We are not strictly closed by the numbers. So we are talking about the people who have bought machines since they were born. So we are going to take the right moment so that we're going use of the feet. When this moment comes, you're going to see this movement in a very accelerated way because we are replacing old assets with new assets without investing money. And in the money if the market is not favorable, and the moment is different, we are going to leave the fleet to get old. So our business has more flexibility in the sense than the market of light assets. It makes sense what you said, but it's according to the circumstances. And if circumstances changes, our decisions will also change.

Rogerio, I'm going to answer your second and third questions. So let's go to the second question. You asked about the effect of taxes. There was an important element to be considered in the fourth quarter, not only for interest on equity, but the third quarter, we also increased a lot our CapEx. And this increased the difference in fiscal aspects that contribute with the reversal of the interest of the taxes. So I would have to understand what happened to the SG&A. And I'll talk to the team so that we can understand what really happened, and we can go into details in the depreciation account that you see in the SG&A. It's probably a breakdown between SG&A and COGS. I'm going to apologize for that, but we're going to get back to you in the future.

Our next question comes from Gabriel Rezende with Itau BBA.

I would like to go back to the issue about old used asset margin. I understood your point of not being so focused on depreciation. But considering the number of stores that is likely to be open in 2026 and the cost to ramp up those stores. I understand it would make sense to look at used asset margin being very pressured. Is it fair to understand that this margin will be maintained for 2026. Just for us to understand and to refine the way we are doing the modeling. And so that we can understand the dynamics of depreciation and the sales of used assets. I think it was Marcos that mentioned the sales of assets, especially the sales of light assets and focus on company -- on assets where the company is more competitive. So how can we see the limited exposure to light assets? How would that affect the productivity and some results of the company? And considering the high level of competitiveness of the sector.

Thank you for the question. Well, in fact when you're building something from scratch, numbers take longer to reach maturity. And sometimes you have to accept the investment and be patient so that generates -- results can be generated. When we talk that we are going to provide liquidity to the assets, it's something transformational. It's something that we really believe, and we know it's going to generate results in the long run, long decades for the future. So we want to invest as little as possible in the process. But as an entrepreneur, I can say that I have a high level of tolerance to have this margin after all the operating costs to be negative for a time. So the gross sales of -- the sales will not -- will never be negative. So I believe that depreciation should reflect the recoverability of the assets. So this is what I believe. The business margin of the used assets, which we do not consider to be an internal KPI, which is relevant, is going to be slightly negative while the stores are being ramped up with the new campaigns, with the new actions for the inaugurations. And we have to have this level of tolerance for the next 1 or 2 years. But on the other hand, we are going to build something really special.

Gabriel, in relation to your second questions about light assets, light fleet is something for us to provide support. So we you're talking about 8 to 20. You know these are the equipment where the staff used to serve our clients. In 2025, we wanted to be more efficient and then we thought to ourselves, it's better to have the asset? Or is it better for me to lease the asset? And so we bought the idea of our own thesis. These are noncore assets. So our capital are allocated in assets that would generate results. And the supporting equipment, so as to say, was provided us with the best-in-class suppliers. So this is something that we wanted to make clear. So what we did is to use our resources better. So I removed an asset that would generate depreciation and I invested in assets that would generate revenues to the company. I think this is it.

Our next question comes from Lucas Melotti with Banco Safra.

Could you share the 50% growth in relation to the third quarter and the assets for sale, was it related to the ramp-up of the stores or the sales of noncore assets. And for 2026 and the opening of stores, should it be considered as something structural down the road? And another question, what can we expect of M&A for the year is the -- what you have in the pipeline, and these are the questions I had.

So I'm going to start answering -- first of all, good morning. Thank you for the questions. The growth of 150% is related to the sales -- to the ramp up of the stores. Yes, you can make the reverse account so that you can understand what would be the inventory of a store. A store should have the capacity to sell something close to BRL 3 million per month when it reaches maturity. So considering it will have an inventory of assets available for sale. So if I have more stores, I'll have more inventories for sale. In terms of your structural related question, so the structure of the stores has a structure -- is strategic in our business model. When we learned that -- and when we have been more confident by operating this kind of business, we understand that this is a very different way of doing business than our core. And we're gaining confidence, knowing that it's a bit more than to have this in our business model. And so we have been making investment, as Fernando mentioned. And I expect that this will last for some time, at least 1.5 years more of growth in our geographical structure in terms of number of stores, considering different demands. We are looking at this in a very scientific way. I'm going to turn to Fernando, so that he can discuss the topic of M&A. And I hope I have answered your question.

In terms of M&A, all business units have a large opportunity to consolidate their markets. We are talking about fragmented market. And many of the entrepreneurs that we know we operate in the market, have been in our relationship for many years, and they have different prospects, different desires for the future. And they can come to us and discuss partners that look for us in order to grow. Some of them look for establishing their legacy, some want to accelerate the fleet and such as the case of Terran. And we are perfecting this model. This has been a very important year for us. In 2026, we have already closed the deal with when Brasilift and another in the Northeast. And one operates with forklifts, which is becoming ever more relevant in our portfolio. And we have already completed 2 M&As, and we're ready for more because they bring an integrated way of working. The governance of the relationship is well established. So the company is now ready for new transactions and all the business units have opportunities. We are going to be very selective in searching for good assets and good relationship with the client that has a team that can manage the company with a lot of authority provided that they follow our business model. And we see that this is a great opportunity. So there is likely to happen other transactions as well because we are talking about the gain, gain situation regardless of what the partner is searching for. be that legacy or increasing scale. So we see those opportunities.

The Q&A session has come to an end. I would like to turn the floor over to Mr. Fernando Aragao for his final remarks.

Perfect. Thank you, everyone, for taking part in this call. Thank you very much for the confidence you have put on us. We have expectation that 2026 will be even better and count on us for further information. Marcos and team are all available and at your disposal.

Armac's conference has come to an end. We would like to thank everybody's participation, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]